<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1998.
REGISTRATION NO. 333-46349
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
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. [ ]
---------------------
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 APRIL 3, 1998
3,473,000 Shares
(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.
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<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
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<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."
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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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<PAGE> 35
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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<PAGE> 36
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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<PAGE> 37
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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<PAGE> 40
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 II,
Inc. ("Cordova"), and Kowaliga Capital, Inc. ("Kowaliga") venture capital and
fund management companies, where he serves as manager of venture capital funds.
Cordova and Kowaliga are the general partners of Cordova Capital Partners,
L.P. -- Enhanced Appreciation ("Cordova -- Enhanced Appreciation"), a venture
capital fund and shareholder of the Company. 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
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<PAGE> 41
practices, Discount Auto Parts, Inc., a retail chain of automotive aftermarket
parts stores, and Advanced Lighting Technologies, Inc., a specialty lighting
manufacturer.
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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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-Enhanced Appreciation, 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. ("Tapir"), an affiliate of Caledonia Investments, PLC, a
diversified
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<PAGE> 47
trading and investment company publicly held in England, 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 Tapir 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 Tapir of
142,857 shares of Common Stock.
(7) Does not include 202,980 shares of Common Stock owned of record by
Cordova -- Enhanced Appreciation. Cordova -- 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 Tapir 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.
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<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 the Underwriters will not engage in discretionary sales of the shares being
offered hereby. The Company intends to use more than 10% of the net proceeds
from the sale of the shares offered by the Company hereby to repay indebtedness
owed by it to NationsCredit, an affiliate of one of the Representatives.
Accordingly, the offering is being made in compliance with the requirements of
Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct
Rules. This rule provides generally that if more than 10% of the net proceeds
from the sale of stock, not including underwriting compensation, is paid to the
underwriters or their affiliates, the initial public offering price of the stock
may not be higher than that recommended by a "qualified independent underwriter"
("QIU") meeting certain standards. Accordingly, CSFBC is assuming the
responsibilities of acting as the QIU in pricing the Offering and conducting due
diligence. The initial public offering price of the shares set forth on the
cover page of this Prospectus is no higher than the price recommended by CSFBC.
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
51
<PAGE> 53
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 Underwriters have reserved for sale, at the initial public offering
price up to shares of the Common Stock for employees, directors and certain
other persons associated with the Company who have expressed an interest in
purchasing such shares of Common Stock in the Offering. The number of shares
available for sale to the general public in the Offering will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the same
terms as the other shares offered hereby.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters and the QIU 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.
Application has been made to list the shares of Common Stock on The Nasdaq
Stock Market's National Market under the proposed symbol "HMPS."
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
52
<PAGE> 54
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 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
53
<PAGE> 55
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 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
54
<PAGE> 56
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.
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.
55
<PAGE> 57
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.
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 (Cordova) 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.
+ Confidential treatment has been requested with respect to portions of this
exhibit.
(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 April 3, 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 April 3, 1998
- ----------------------------------------------------- Officer (Principal Executive
Marshall B. Hunt Officer) and Director
* Vice Chairman and Director April 3, 1998
- -----------------------------------------------------
Roy C. Mallady, Jr.
* President and Director April 3, 1998
- -----------------------------------------------------
William E. Peterson, Jr.
* Vice President of Finance April 3, 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
- ------- -----------------------
<C> <C> <S>
24. -- Power of Attorney*
27.1 -- Financial Data Schedule (for SEC filing purposes only)*
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested with respect to portions of this
exhibit.
<PAGE> 1
3,473,000 Shares
HORIZON MEDICAL PRODUCTS, INC.
Common Stock
$.001 par value
UNDERWRITING AGREEMENT
April ___, 1998
Credit Suisse First Boston Corporation
BancAmerica Robertson Stephens
NationsBanc Montgomery Securities LLC
As Representatives (the "Representatives")
of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Horizon Medical Products, Inc., a Georgia
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in Schedule A hereto (the "Underwriters") 2,600,000 shares
of its Common Stock, $.001 par value per share (the "Securities"), and the
shareholders listed in Schedule B hereto (the "Selling Shareholders") propose
severally to sell an aggregate of 873,000 outstanding shares of the Securities
(such 3,473,000 shares of the Securities being hereinafter referred to as the
"Firm Securities"). The Company also proposes to sell to the Underwriters, at
the option of the Underwriters, an aggregate of not more than 520,950
additional shares of its Securities as set forth below (such 520,950 additional
shares being hereinafter referred to as the "Optional Securities"). The Firm
Securities and the Optional Securities are herein collectively referred to as
the "Offered Securities." The Company and the Selling Shareholders hereby agree
with the several Underwriters as follows:
2. Representations and Warranties of the Company and the Selling
Shareholders.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(i) A registration statement (No. 333-46349) relating to the
Offered Securities, including a form of prospectus, has been filed
with the Securities and Exchange Commission (the "Commission") and
either (A) has been declared effective under the Securities Act of
1933, as amended (the "Act"), and is not proposed to be amended or (B)
is proposed to be amended by amendment or post-effective amendment. If
such registration statement (the
<PAGE> 2
"initial registration statement") has been declared effective, either
(A) an additional registration statement (the "additional registration
statement") relating to the Offered Securities may have been filed
with the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the
Act and, if so filed, has become effective upon filing pursuant to
such Rule and the Offered Securities all have been duly registered
under the Act pursuant to the initial registration statement and, if
applicable, the additional registration statement or (B) such an
additional registration statement is proposed to be filed with the
Commission pursuant to Rule 462(b) and will become effective upon
filing pursuant to such Rule and upon such filing the Offered
Securities will all have been duly registered under the Act pursuant
to the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial
registration statement or if an additional registration statement has
been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has
been filed with the Commission prior to the execution and delivery of
this Agreement, the most recent amendment (if any) to each such
registration statement has been declared effective by the Commission
or has become effective upon filing pursuant to Rule 462(c) ("Rule
462(c)") under the Act or, in the case of the additional registration
statement, Rule 462(b). For purposes of this Agreement, "Effective
Time" with respect to the initial registration statement or, if filed
prior to the execution and delivery of this Agreement, the additional
registration statement means (A) if the Company has advised the
Representatives that it does not propose to amend such registration
statement, the date and time as of which such registration statement,
or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (B) if the Company has advised the
Representatives that it proposes to file an amendment or
post-effective amendment to such registration statement, the date and
time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration statement
has not been filed prior to the execution and delivery of this
Agreement but the Company has advised the Representatives that it
proposes to file one, "Effective Time" with respect to such additional
registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule
462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the
date of the Effective Time thereof. The initial registration
statement, as amended at its Effective Time, including all information
contained in the additional registration statement (if any) and deemed
to be a part of the initial registration statement as of the Effective
Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of the Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement." The additional registration statement, as
amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement." The Initial Registration Statement and the Additional
Registration
<PAGE> 3
Statement are hereinafter referred to collectively as the
"Registration Statements" and individually as a "Registration
Statement." The form of prospectus relating to the Offered Securities,
as first filed with the Commission pursuant to and in accordance with
Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter
referred to as the "Prospectus." No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement:
(A) on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all respects to the
requirements of the Act and the rules and regulations of the
Commission ("Rules and Regulations") and did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, (B) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement conformed
or will conform, in all material respects to the requirements of the
Act and the Rules and Regulations and did not include, or will not
include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
and (C) on the date of this Agreement, the Initial Registration
Statement and, if the Effective Time of the Additional Registration
Statement is prior to the execution and delivery of this Agreement,
the Additional Registration Statement each conforms, and at the time
of filing of the Prospectus pursuant to Rule 424(b) or (if no such
filing is required) at the Effective Date of the Additional
Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all
material respects to the requirements of the Act and the Rules and
Regulations, and does not include, or will not include, with respect
to each Registration Statement, any untrue statement of a material
fact or does not omit, or will not omit, to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or with respect to the Prospectus, any untrue
statement of a material fact or does not omit, or will not omit, to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
such statements were made, not misleading. If the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all material respects to the requirements
of the Act and the Rules and Regulations, and will not include, with
respect to the Initial Registration Statement, any untrue statement of
a material fact or will not omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or with respect to the Prospectus, any untrue statement of
a material fact or will not omit to state a material fact required to
be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading and no Additional Registration Statement has been or will
be filed. The two preceding sentences do not apply to statements in or
omissions from a Registration Statement or the Prospectus based upon
written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein, it being
understood and agreed that the only such information is that described
as such in Section 7(c) hereof.
<PAGE> 4
(iii) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Georgia, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
and the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to be so qualified or in
good standing would not have a material adverse effect on the
condition (financial or otherwise), business, properties or results of
operations of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect").
(iv) Each subsidiary of the Company has been duly
incorporated and is an existing corporation in good standing under the
laws of the jurisdiction of its incorporation, with power and
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus; and each subsidiary of the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect; all of the issued
and outstanding capital stock of each subsidiary of the Company has
been duly authorized and validly issued and is fully paid and
nonassessable; and the capital stock of each subsidiary owned by the
Company, directly or through subsidiaries, is owned free from liens,
encumbrances and defects.
(v) The Offered Securities and all other outstanding
shares of capital stock of the Company have been duly authorized and
are validly issued, fully paid and nonassessable and conform to the
description thereof contained in the Prospectus; and the shareholders
of the Company have no preemptive rights with respect to the
Securities.
(vi) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
any Underwriter for a brokerage commission, finder's fee or other like
payment in connection with the transactions contemplated by this
Agreement.
(vii) There are no contracts, agreements or understandings
between the Company and any person or entity granting such person or
entity the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or entity or to require the
Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Act which has not effectively been satisfied or
waived.
(viii) The Offered Securities have been approved for listing,
subject to notice of issuance, on the Nasdaq Stock Market's National
Market.
(ix) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is required
to be obtained or made by the
<PAGE> 5
Company for the consummation of the transactions contemplated by this
Agreement in connection with the sale of the Offered Securities,
except such as have been obtained and made under the Act and such as
may be required under state securities laws.
(x) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any rule,
regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company or any
subsidiary of the Company or any of their properties, or any agreement
or instrument to which the Company or any such subsidiary is a party
or by which the Company or any such subsidiary is bound or to which
any of the properties of the Company or any such subsidiary is
subject, or the charter or by-laws of the Company or any such
subsidiary.
(xi) This Agreement has been duly authorized, executed and
delivered by the Company.
(xii) Except as disclosed in the Prospectus, the Company and
its subsidiaries have good and marketable title to all real properties
and all other properties and assets owned by them, in each case free
from liens, encumbrances and defects that would materially affect the
value thereof or materially interfere with the use made or to be made
thereof; and except as disclosed in the Prospectus, the Company and
its subsidiaries hold any leased real or personal property under valid
and enforceable leases with no exceptions that would materially
interfere with the use made or to be made thereof.
(xiii) The Company and its subsidiaries possess adequate
certificates, certifications, approvals, authorities or permits issued
by appropriate governmental or regulatory agencies or bodies necessary
to conduct the business now operated by them and have not received any
notice of proceedings relating to the revocation or modification of
any such certificate, certification, approval, authority or permit
that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect. The Company is not aware of and has no reason to
believe that it will not receive such certificates, certifications,
approvals, authorities or permits to be issued by appropriate
governmental or regulatory agencies or bodies necessary to conduct the
business proposed to be conducted by the Company and any of its
subsidiaries and described in the Prospectus at its Manchester,
Georgia facility by June 30, 1998.
(xiv) No labor dispute with the employees of the Company or
any subsidiary exists or, to the knowledge of the Company, is
threatened that might have a Material Adverse Effect.
(xv) The Company and its subsidiaries own, possess or can
acquire on reasonable terms adequate trademarks, trade names and other
rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property (collectively,
"intellectual property rights") necessary to conduct the business now
operated by them, or presently
<PAGE> 6
employed by them, and have not received any notice of infringement of
or conflict with asserted rights of others with respect to any
intellectual property rights that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect. To the knowledge of the
Company, the Company's and its subsidiaries' present use of any of the
intellectual property rights does not infringe on any rights of third
parties or conflict with any asserted rights of others that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
(xvi) Except as disclosed in the Prospectus, neither the
Company nor any of its subsidiaries is in violation of any statute,
any rule, regulation, decision or order of any governmental agency or
body or any court, domestic or foreign, relating to the use, disposal
or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, "environmental laws"),
owns or operates any real property contaminated with any substance
that is subject to any environmental laws, is liable for any off-site
disposal or contamination pursuant to any environmental laws, or is
subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in
the aggregate have a Material Adverse Effect, and the Company is not
aware of any pending or threatened investigation or inquiry which
might lead to such a claim.
(xvii) Except as disclosed in the Prospectus, there are no
pending actions, suits or proceedings against or affecting the
Company, any of its subsidiaries or any of their respective properties
that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect, or would materially and adversely affect the ability
of the Company to perform its obligations under this Agreement, or
which are otherwise material in the context of the sale of the Offered
Securities; and no such actions, suits or proceedings are, to the
Company`s knowledge, threatened or contemplated.
(xviii) The financial statements included in each
Registration Statement and the Prospectus present fairly the financial
position of the Company and its consolidated subsidiaries and of
Strato/Infusaid Inc. as of the dates shown and their results of
operations and cash flows for the periods shown and, except as
otherwise disclosed in the Prospectus, such financial statements have
been prepared in conformity with the generally accepted accounting
principles in the United States applied on a consistent basis and the
schedules included in each Registration Statement present fairly the
information required to be stated therein; and the assumptions used in
preparing the pro forma financial statements included in each
Registration Statement and the Prospectus provide a reasonable basis
for presenting the significant effects directly attributable to the
transactions or events described therein, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro
forma columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement
amounts.
<PAGE> 7
(xix) Except as disclosed in the Prospectus, since the date
of the latest audited consolidated financial statements of the Company
included in the Prospectus there has been no material adverse change,
nor any development or event that may result in a prospective Material
Adverse Effect; and except as disclosed in or contemplated by the
Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital
stock.
(xx) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as defined in the Investment Company Act of 1940.
(xxi) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes and the Company agrees to comply with such Section if prior
to the completion of the distribution of the Offered Securities it
commences doing such business.
(b) The Selling Shareholders severally represent and warrant to,
and agree with, the several Underwriters that:
(i) Such Selling Shareholders have, and on the First
Closing Date hereinafter mentioned will have, valid and unencumbered
title to the Offered Securities to be delivered by such Selling
Shareholders on such First Closing Date, and full right, power and
authority to enter into this Agreement and to sell, assign, transfer
and deliver the Offered Securities to be delivered by such Selling
Shareholders on such First Closing Date hereunder; and upon the
delivery of and payment for the Offered Securities on such First
Closing Date hereunder the several Underwriters will acquire valid and
unencumbered title to the Offered Securities to be delivered by such
Selling Shareholders on such First Closing Date.
(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement:
(A) on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all material respects to
the requirements of the Act and the Rules and Regulations and did not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (B) on the Effective Date of the
Additional Registration Statement (if any), each Registration
Statement conformed, or will conform, in all material respects to the
requirements of the Act and the Rules and Regulations, and did not
include, or will not include, with respect to each Registration
Statement, any untrue statement of a material fact or did not omit,
and will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or
with respect to the Prospectus, any untrue statement of a material
fact or did not omit, and will not omit, to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which such statements were made, not misleading,
and (C) on the date of this Agreement, the Initial Registration
Statement and, if the Effective Time of the Additional Registration
Statement is prior to the execution and
<PAGE> 8
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included,
each Registration Statement and the Prospectus will conform, in all
material respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents includes, or will include,
any untrue statement of a material fact or omits, or will omit, to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading. If the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all material respects to the requirements
of the Act and the Rules and Regulations, will not include, with
respect to the Initial Registration Statement, any untrue statement of
a material fact or will not omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or with respect to the Prospectus any untrue statement of
a material fact or will not omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances
under which such statements were made, not misleading. The two
preceding sentences apply only to the extent that any statements in or
omissions from a Registration Statement or the Prospectus are based on
written information furnished to the Company by such Selling
Shareholders specifically for use therein.
(iii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between such Selling
Shareholders and any person that would give rise to a valid claim
against such Selling Shareholders or any Underwriter for a brokerage
commission, finder's fee or other like payment in connection with the
transactions contemplated by this Agreement.
3. Purchase, Sale and Delivery of Offered Securities. On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company and each of
the Selling Shareholders agree, severally and not jointly, to sell to each
Underwriter, and each Underwriter agrees, severally and not jointly, to
purchase from the Company and each Selling Shareholder, at a purchase price of
$___________ per share, the respective number of shares of Firm Securities set
forth below the caption "Company" or "Selling Shareholders," as the case may
be, and opposite the name of such Underwriter in Schedule A hereto.
Certificates in negotiable form for the Offered Securities to be sold
by certain of the Selling Shareholders hereunder have been placed in custody,
for delivery under this Agreement, under a Custody Agreement made with Marshall
B. Hunt, as custodian ("Custodian"). Each such Selling Shareholder agrees that
the shares represented by the certificates held in custody for such Selling
Shareholder under such Custody Agreement are subject to the interests of the
Underwriters hereunder, that the arrangements made by such Selling Shareholders
for such custody are to that extent irrevocable, and that the obligations of
such Selling Shareholders hereunder shall not be terminated by operation of
law, whether by the death of any individual Selling Shareholder or the
occurrence of any other event, or in the case of a trust, by the death of any
trustee or trustees or the termination of such trust. If any individual Selling
Shareholder or any such trustee or trustees should
<PAGE> 9
die, or if any other such event should occur, or if any of such trusts should
terminate, before the delivery of the Offered Securities hereunder,
certificates for such Offered Securities shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such death or
other event or termination had not occurred, regardless of whether or not the
Custodian shall have received notice of such death or other event or
termination.
The Company, the Custodian and the Selling Shareholders not a party to
the Custody Agreement will deliver the Firm Securities to the Representatives
for the accounts of the Underwriters against payment of the purchase price at a
bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") in federal
reserve funds immediately available by wire transfer to the account of the
Company payable to the Company in the case of 2,600,000 shares of Firm
Securities, and in federal reserve funds immediately available by wire transfer
to the account of the Custodian, for the benefit of certain Selling
Shareholders, payable to the Custodian, in the case of 873,000 shares of Firm
Securities, at the office of Long Aldridge & Norman LLP, Atlanta, Georgia, at
10:00 A.M., Atlanta time, on ____________________, 1998, or at such other time
not later than seven full business days thereafter as CSFBC and the Company
determine, such time being herein referred to as the "First Closing Date." The
certificates for the Firm Securities so to be delivered will be in definitive
form, in such denominations and registered in such names as CSFBC requests and
will be made available for checking and packaging at the above office of Long
Aldridge & Norman LLP at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus,
the Underwriters may purchase all or less than all of the Optional Securities
at the purchase price per Security to be paid for the Firm Securities. The
Company agrees to sell to the Underwriters the number of shares of Optional
Securities specified in such notice and the Underwriters agree, severally and
not jointly, to purchase such Optional Securities. Such Optional Securities
shall be purchased for the account of each Underwriter in the same proportion
as the number of shares of Firm Securities set forth opposite such
Underwriter's name on Schedule A hereto bears to the total number of shares of
Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and may
be purchased by the Underwriters only for the purpose of covering
over-allotments made in connection with the sale of the Firm Securities. No
Optional Securities shall be sold or delivered unless the Firm Securities
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Optional Securities or any portion thereof may be exercised from
time to time and to the extent not previously exercised may be surrendered and
terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date," which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, against payment
of the purchase price therefor in federal reserve funds immediately available
by wire transfer to the account of the Company at a bank acceptable to CSFBC,
payable to the Company. The certificates for the Optional Securities being
purchased on each Optional
<PAGE> 10
Closing Date will be in definitive form, in such denominations and registered
in such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the above
office of Long Aldridge & Norman LLP at a reasonable time in advance of such
Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company and the Selling Shareholders.
The Company agrees with the several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will file
the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC, subparagraph
(4)) of Rule 424(b) not later than the earlier of (A) the second business day
following the execution and delivery of this Agreement or (B) the 15th business
day after the Effective Date of the Initial Registration Statement. The Company
will advise CSFBC promptly of any such filing pursuant to Rule 424(b). If the
Effective Time of the Initial Registration Statement is prior to the execution
and delivery of this Agreement and an additional registration statement is
necessary to register a portion of the Offered Securities under the Act but the
Effective Time thereof has not occurred as of such execution and delivery, the
Company will file the additional registration statement or, if filed, will file
a post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on the
date of this Agreement or, if earlier, on or prior to the time the Prospectus
is printed and distributed to any Underwriter, or will make such filing at such
later date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend
or supplement the initial or any additional registration statement as filed or
the related Prospectus or the Initial Registration Statement, the Additional
Registration Statement (if any) or the Prospectus and will not effect such
amendment or supplementation without CSFBC's consent (which consent shall not
unreasonably be withheld); and the Company will also advise CSFBC promptly of
the effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of a Registration Statement or the Prospectus and
of the institution by the Commission of any stop order proceedings in respect
of a Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its lifting,
if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with sales
by any Underwriter or dealer, the Company becomes aware of the occurrence of
any event as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or the Company
becomes aware that if it is necessary at any time to amend or supplement the
Prospectus to comply with the Act, the Company will promptly notify
<PAGE> 11
CSFBC of such event and will promptly prepare and file with the Commission, at
its own expense, an amendment or supplement which will correct such statement
or omission or an amendment which will effect such compliance. Neither CSFBC's
consent to, nor the Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its security
holders an earnings statement covering a period of at least 12 months beginning
after the Effective Date of the Initial Registration Statement (or, if later,
the Effective Date of the Additional Registration Statement) which will satisfy
the provisions of Section 11(a) of the Act. For the purpose of the preceding
sentence, "Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such Effective Date,
except that, if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Availability Date" means the 90th day after the end of such
fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such quantities
as CSFBC reasonably requests. The Prospectus shall be so furnished on or prior
to 3:00 P.M., New York time, on the business day following the later of the
execution and delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other documents shall be so furnished as soon as
available. The Company will pay the expenses of printing and distributing to
the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates
and will continue such qualifications in effect so long as required to complete
the distribution of the Offered Securities; provided that the Company shall not
be required to register as a foreign corporation or generally be subject to
service of process in such jurisdictions as a result of such qualification.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to shareholders for such year; and the Company will
furnish to the Representatives (i) as soon as available, a copy of each report
and any definitive proxy statement of the Company filed with the Commission
under the Securities Exchange Act of 1934, as amended, or mailed to
shareholders, and (ii) from time to time, such other information concerning the
Company as CSFBC may reasonably request.
(h) For a period of 180 days after the date of the Prospectus, the
Company and its officers and directors will not offer, sell, contract to sell,
announce their intention to sell, loan, pledge, grant any rights with respect
to or otherwise dispose of, directly or indirectly, or publicly disclose the
intention to make any such offer, sale, loan, pledge, grant or disposal or, in
the case of the Company,
<PAGE> 12
file with the Commission a registration statement under the Act relating to any
additional shares of their Securities or securities convertible into or
exchangeable or exercisable for any shares of their Securities, without the
prior written consent of CSFBC, except for issuances of Securities pursuant to
the exercise of employee stock options outstanding on the date hereof and
except for a registration statement on Form S-8 registering shares of
Securities to be issued under the Company's Stock Incentive Plan.
Notwithstanding the foregoing, officers and directors of the Company shall be
permitted to transfer shares of their Securities or other securities
convertible into or exchangeable or exercisable for Securities of which such
officers and directors are currently the beneficial owner to:
(i) the Company;
(ii) shareholders of the Company who are bound by the terms
of a lock-up agreement substantially similar to that executed by the
transferor as if such person were an original party thereto; and
(iii) any donee(s) of the officers and directors of the
Company who receive such securities of the Company as a bona fide gift
or any "affiliate" of the undersigned (within the meaning of Rule 144
of the Act), provided that such donee(s) or affiliate(s) agree in
writing to be bound by the restrictions contained in a lock-up
agreement substantially similar to that executed by the donor or
transferor as if such donee or transferee were an original party
thereto.
The Company and each Selling Shareholder, severally and not jointly,
agree with the several Underwriters that the Company will pay all expenses
incident to the performance of the obligations of the Company and such Selling
Shareholders, as the case may be (except for the underwriting discounts and
commissions payable with respect to the Selling Shareholders' respective shares
sold in the Offering, which each Selling Shareholder will bear in proportion to
the amount sold by such Selling Shareholder), under this Agreement, for any
filing fees and other expenses (including fees and disbursements of counsel not
to exceed $12,500) incurred in connection with qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates
and the printing of memoranda relating thereto, for the filing fee of the
National Association of Securities Dealers, Inc. relating to the Offered
Securities, for any travel expenses of the Company's officers, directors and
employees and any other expenses of the Company in connection with attending or
hosting meetings with prospective purchasers of the Offered Securities, for any
transfer taxes on the sale by the Selling Shareholders of the Offered
Securities to the Underwriters and for expenses incurred in distributing
preliminary prospectuses and the Prospectus (including any amendments and
supplements thereto) to the Underwriters.
Each Selling Shareholder agrees to deliver to CSFBC, attention:
Transactions Advisory Group, on or prior to the First Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
<PAGE> 13
Each Selling Shareholder agrees, for a period of 180 days after the
date of the Prospectus, not to offer, sell, contract to sell, loan, pledge,
grant any rights with respect to or otherwise dispose of, directly or
indirectly, any additional shares of the Securities of the Company or
securities convertible into or exchangeable or exercisable for any shares of
Securities, or publicly disclose the intention to make any such offer, sale,
loan, pledge, grant or disposal, without the prior written consent of CSFBC.
6. Conditions to the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm
Securities on the First Closing Date and the Optional Securities to be
purchased on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Shareholders herein, to the accuracy of the statements of Company officers made
pursuant to the provisions hereof, to the performance by the Company and the
Selling Shareholders of their obligations hereunder and to the following
additional conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall be on
or prior to the date of this Agreement or, if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or post-effective
amendment to the registration statement to be filed shortly prior to such
Effective Time), of Coopers & Lybrand, L.L.P., confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and
schedules examined by them and included in the Registration Statements
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations;
(ii) on the basis of a reading of the latest available
interim financial statements of the Company, inquiries of officials of
the Company who have responsibility for financial and accounting
matters and other specified procedures, nothing came to their
attention that caused them to believe that:
(A) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three days prior to the date of this Agreement,
there was any change in the capital stock or any increase in
short-term indebtedness or long-term debt of the Company and
its consolidated subsidiaries or, at the date of the latest
available balance sheet read by such accountants, there was
any decrease in consolidated net current assets or
consolidated net assets, as compared with amounts shown on
the latest balance sheet included in the Prospectus;
(B) for the period from the closing date of the
latest income statement included in the Prospectus to the
closing date of the latest available income statement
<PAGE> 14
read by such accountants there were any decreases, as
compared with the corresponding period of the previous year,
and with the period of corresponding length ended the date of
the latest income statement included in the Prospectus, in
consolidated net sales or consolidated net operating income
or in the total or per share amounts of consolidated income
before extraordinary items or net income; or
(C) any unaudited pro forma financial statements
included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations or
the pro forma adjustments have not been properly applied to
the historical amounts in the compilation of those
statements;
except in all cases set forth in clauses (A), (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial and
statistical information contained in the Registration Statements (in
each case to the extent that such dollar amounts, percentages and
other financial and statistical information are derived from the
general accounting records of the Company and its subsidiaries subject
to the internal controls of the Company's accounting system or are
derived directly from such records by analysis or computation) with
the results obtained from inquiries, a reading of such general
accounting records and other procedures specified in such letter and
have found such dollar amounts, percentages and other financial and
statistical information to be in agreement with such results, except
as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and delivery of
this Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the execution
and delivery of this Agreement but the Effective Time of the Additional
Registration Statement is subsequent to such execution and delivery,
"Registration Statements" shall mean the Initial Registration Statement and the
additional registration statement as proposed to be filed or as proposed to be
amended by the post-effective amendment to be filed shortly prior to its
Effective Time, and (iii) "Prospectus" shall mean the prospectus included in
the Registration Statements.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or such later date as shall have been consented to by CSFBC. If
the Effective Time of the Additional Registration Statement (if any) is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later date as
shall have
<PAGE> 15
been consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of any Selling Shareholder, the Company or the
Representatives, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery by the Company of this
Agreement, there shall not have occurred (i) any change, or any development or
event involving a prospective change, in the condition (financial or
otherwise), business, properties or results of operations of the Company or its
subsidiaries which, in the judgment of a majority in interest of the
Underwriters including the Representatives, would have a Material Adverse
Effect and makes it impractical or inadvisable to proceed with completion of
the public offering or the sale of and payment for the Offered Securities; (ii)
any downgrading in the rating of any debt securities of the Company by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that any
such organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of trading in
securities generally on the New York Stock Exchange or any setting of minimum
prices for trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter market;
(iv) any banking moratorium declared by U.S. Federal or New York authorities;
or (v) any outbreak or escalation of major hostilities in which the United
States is involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of a
majority in interest of the Underwriters including the Representatives, the
effect of any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of King & Spalding, counsel for the Company, to the effect that:
(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Georgia, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus; and the Company
is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification
except where the failure to do so would not have a Material Adverse
Effect.
(ii) Each of the subsidiaries of the Company has been duly
incorporated and is an existing corporation in good standing under the
laws of its respective state of incorporation, with corporate power
and authority to own its properties and conduct its business as
described in the Prospectus; and each of such subsidiaries is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its
<PAGE> 16
ownership or lease of property or the conduct of its business requires
such qualification except where the failure to do so would not have a
Material Adverse Effect.
(iii) The Offered Securities delivered on such Closing
Date and all other outstanding shares of the Securities of the Company
have been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus; and the Shareholders of the Company have no preemptive
rights with respect to the Offered Securities; and to the knowledge of
such counsel, there are no other rights to subscribe for or purchase
any shares of capital stock issued by the Company and (except as
described in the Prospectus) no outstanding securities or obligations
of the Company convertible into, exercisable for or exchangeable for
any capital stock of the Company.
(iv) To the knowledge of such counsel, no person or entity
has any right, not effectively satisfied or waived, to require the
Company to file a registration statement under the Act with respect to
any securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the securities
registered pursuant to a Registration Statement or in any securities
being registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act, other than in connection
with any registration statement on Form S-8 under the Act to register
all shares of Securities subject to outstanding options and future
grants under the Company's Stock Incentive Plan.
(v) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as defined in the Investment Company Act of 1940.
(vi) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or, to the knowledge of
such counsel, any court is required to be obtained or made by the
Company or any Selling Shareholder for the consummation of the
transactions contemplated by this Agreement or the Custody Agreement
in connection with the sale of the Offered Securities, except such as
have been obtained and made under the Act and such as may be required
by the NASD or under state securities laws.
(vii) The execution, delivery and performance of this
Agreement or the Custody Agreement and the consummation of the
transactions herein or therein contemplated will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or, to the knowledge of such
counsel, any court having jurisdiction over the Company or any
subsidiary of the Company or any of their properties, the charter or
by-laws of the Company or any such subsidiary or, to the knowledge of
such counsel, any other material agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or
any such subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject.
<PAGE> 17
(viii) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed and
became effective under the Act as of the date and time (if
determinable) specified in such opinion, the Prospectus either was
filed with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or was
included in the Initial Registration Statement or the Additional
Registration Statement (as the case may be), and, to the best of the
knowledge of such counsel, no stop order suspending the effectiveness
of a Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations.
(ix) This Agreement has been duly authorized, executed and
delivered by the Company, is the legal, valid and binding obligation
of the Company, and is enforceable as to the Company in accordance
with its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law or equitable principles,
and except as enforceability may be limited by bankruptcy,
reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally and rules of law
governing specific performance, injunctive relief and other equitable
remedies.
(x) The statements in the Registration Statement and the
Prospectus under the captions "Risk Factors--Limitations on
Third-Party Reimbursement," "--Government Regulation" and "--Limited
Manufacturing Experience," "Business--Manufacturing," "-- Government
Regulation" and "--Healthcare Reform; Third-Party Reimbursement,"
"Description of Capital Stock" and "Shares Eligible For Future Sale,"
insofar as they are descriptions of laws, regulations and rules, of
legal and governmental proceedings or of contracts, agreements,
leases, licenses and other legal documents known to such counsel, or
refer to statements of law or legal conclusions, are complete and
accurate in all material respects.
(xi) The Company and each of its subsidiaries have such
permits, licenses, franchises and authorizations of governmental or
regulatory authorities of the United States and the European Union
having jurisdiction over the business of the Company and its
subsidiaries (collectively the "Licenses") as are necessary to own
their properties and conduct their business in the manner described in
the Prospectus; and to the best of such counsel's knowledge, the
Company and each of its subsidiaries have fulfilled and performed all
of their material, respective obligations with respect to the Licenses
and no event has occurred which allows, or after notice or lapse of
time would allow, revocation or termination thereof or result in any
other material impairment that could have a Material Adverse Effect
which is not described in the Prospectus.
(xii) The Company or one of its subsidiaries is the
exclusive owner of, and has sole, full and clear title to, the
registrations for the trademarks registered by the Company or its
subsidiaries that are listed on Schedule A to such opinion (the
"Trademarks") currently
<PAGE> 18
registered in the United States Patent and Trademark Office (the
"PTO") and the foreign equivalents thereof in the countries listed on
Schedule A, which Trademarks are the only trademarks that are
necessary for the Company and its subsidiaries to conduct their
business in the manner described in the Prospectus, free and clear of
any encumbrances, liens or adverse claims of any kind, and all of the
registrations of said Trademarks are valid and subsisting in the
records of the PTO and the foreign countries listed on Schedule A.
(xiii) To such counsel's knowledge, the Company's and its
subsidiaries' present use of the Trademarks does not infringe on any
rights of third parties, and there are no third parties infringing on
or otherwise interfering with the use of the Trademarks. Such counsel
is not aware of any adverse claims with respect to any of the
Trademarks.
(xiv) The Company or one of its subsidiaries has sole, full
and clear title to, the patents that are listed on Schedule B to such
opinion (the "Patents"), and such Patents are properly recorded with
the PTO and the foreign equivalents thereof in the countries listed on
Schedule B. All maintenance fees with respect to the Patents have been
paid, the Patents are validly assigned to the Company or one of its
subsidiaries, and the Patents are in full force and effect. To such
counsel's knowledge, there has been no express abandonment or
dedication to the public with respect to any of the Patents, and there
are no invalidating or limiting court decisions with respect to any of
the Patents.
(xv) The Company or one of its subsidiaries has a legal
and valid right to the use of the patents listed on Schedule C to such
opinion (the "Licensed Patents"), the rights to which are licensed to
the Company or its subsidiaries, and such Licensed Patents, to such
counsel's knowledge, are properly recorded with the PTO and the
foreign equivalents thereof in the countries listed on Schedule C, are
validly assigned by the licensors of such Licensed Patents and are in
full force and effect.
(xvi) Except as described in the Prospectus, there are no
legal or governmental proceedings, investigations or inquiries pending
or, to the best of such counsel's knowledge, threatened before any
governmental, regulatory or administrative authority having
jurisdiction over the business of the Company and its subsidiaries or
their respective properties, other than such as may be incident to the
kind of business conducted by the Company and its subsidiaries and
which individually or in the aggregate would not, if adversely
determined against the Company or any of its subsidiaries, have a
Material Adverse Effect.
In addition, such counsel shall state that it has
participated in conferences with officers and other representatives of
the Company, representatives of the independent public accountants for
the Company and the Representatives and counsel to the Underwriters at
which the contents of the Registration Statement and Prospectus and
related matters were discussed and, although such counsel has not
undertaken to investigate or verify independently and does not assume
any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and Prospectus
(except as otherwise expressly set forth herein), on the basis of the
foregoing, no facts have come to
<PAGE> 19
such counsel's attention that caused such counsel to believe that any
part of the Registration Statement (other than the financial
statements and notes thereto and other financial, statistical and
accounting data or schedules included therein, or omitted therefrom,
as to which such counsel need express no opinion), as amended or
supplemented, at the time such part of the Registration Statement
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or the
Prospectus (other than the financial statements and notes thereto and
other financial, statistical and accounting data or schedules included
therein, or omitted therefrom, as to which such counsel expresses no
opinion), as amended or supplemented, on the date of filing thereof
with the Commission and on the date hereof, contained an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
In rendering such opinion, counsel for the Company may rely
as to matters contained in clauses (xii), (xiii), (xiv) and (xv) of
Section 6(d) as they relate to Strato/Infusaid Inc. on the legal
opinion of Needle & Rosenberg, P.C., in which case counsel for the
Company shall state that the opinion of such other counsel is
satisfactory in scope, form and substance to counsel for the Company.
(e) The Representatives shall have received an opinion, dated the
First Closing Date and, if applicable, each Optional Closing Date, of King &
Spalding, counsel for the Selling Shareholders, to the effect that:
(i) Each Selling Shareholder has valid and unencumbered
title to the Offered Securities delivered by such Selling Shareholder
on such Closing Date and has full right, power and authority to sell,
assign, transfer and deliver the Offered Securities delivered by such
Selling Shareholder on the First Closing Date hereunder; and the
several Underwriters have acquired valid and unencumbered title to the
Offered Securities purchased by them from the Selling Shareholders on
the First Closing Date hereunder;
(ii) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required
to be obtained or made by any Selling Shareholder for the consummation
of the transactions contemplated by the Custody Agreement, the
Irrevocable Power of Attorney of each Selling Shareholder who is a
party thereto (the "Power of Attorney"), or this Agreement in
connection with the sale of the Offered Securities sold by the Selling
Shareholders, except such as have been obtained and made under the Act
and such as may be required under state securities laws;
(iii) The execution, delivery and performance of the
Custody Agreement, the Power of Attorney and this Agreement and the
consummation of the transactions therein and herein contemplated will
not result in a breach or violation of any of the terms and provisions
of, or constitute a default under, any statute, any rule, regulation
or order of any governmental agency or body or any court having
jurisdiction over any Selling Shareholder or any of their properties
or any agreement or instrument to which any Selling Shareholder
<PAGE> 20
is a party or by which any Selling Shareholder is bound or to which
any of the properties of any Selling Shareholder is subject, or the
charter or by-laws of any Selling Shareholder which is a corporation;
and
(iv) This Agreement and, as applicable, the Power of Attorney
and related Custody Agreement with respect to each Selling Shareholder
has been duly authorized, executed and delivered by such Selling
Shareholder and constitute valid and legally binding obligations of
each such Selling Shareholder enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(f) The Representatives shall have received from Long Aldridge &
Norman LLP, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the validity of
the Offered Securities delivered on such Closing Date, the Registration
Statements, the Prospectus and other related matters as the Representatives may
require, and the Selling Shareholders and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
(g) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to the
best of their knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are true and
correct; the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
such Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of subparagraphs
(1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment
of any applicable filing fee in accordance with Rule 111(a) or (b) under the
Act, prior to the time the Prospectus was printed and distributed to any
Underwriter; and, subsequent to the dates of the most recent financial
statements in the Prospectus, there has been no material adverse change, nor
any development or event likely to result in a material adverse change, in the
condition (financial or otherwise), business, properties or results of
operations of the Company and its subsidiaries taken as a whole except as set
forth in or contemplated by the Prospectus or as described in such certificate.
(h) The Representatives shall have received a letter, dated such
Closing Date, of Coopers & Lybrand L.L.P. which meets the requirements of
subsection (a) of this Section, except that the specified date referred to in
such subsection will be a date not more than three days prior to such Closing
Date for the purposes of this subsection.
(i) The Selling Shareholders shall have executed and delivered this
Agreement.
<PAGE> 21
The Selling Shareholders and the Company will furnish the Representatives with
such conformed copies of such opinions, certificates, letters and documents as
the Representatives reasonably request. CSFBC may in its sole discretion waive
on behalf of the Underwriters compliance with any conditions to the obligations
of the Underwriters hereunder, whether in respect of an Optional Closing Date
or otherwise.
7. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement, the Prospectus,
or any amendment or supplement thereto, or any related preliminary prospectus,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter for any
legal or other expenses reasonably incurred by such Underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement in or omission or alleged omission from any of such documents
in reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information
furnished by any Underwriter consists of the information described as such in
subsection (c) below; and provided, further, that such indemnity with respect
to any untrue statement or omission of a material fact contained in any
preliminary prospectus, shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages or liabilities
purchased the shares that are subject thereof if such person did not receive a
copy of the Prospectus (or the Prospectus as supplemented) at or prior to the
confirmation of the sale of such shares to such person in any case where
delivery is required under the Act and such untrue statement or omission of a
material fact contained in any preliminary prospectus was corrected in the
Prospectus (or the Prospectus as supplemented).
(b) The Selling Shareholders, jointly and severally, will indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
(in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company or any Underwriter
by the Selling Shareholders specifically for use therein), and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter
<PAGE> 22
in connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that the
Selling Shareholders will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by an Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (c) below; and provided, further,
that such indemnity with respect to any untrue statement or omission of a
material fact contained in any preliminary prospectus, shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased the shares that are subject thereof if
such person did not receive a copy of the Prospectus (or the Prospectus as
supplemented) at or prior to the confirmation of the sale of such shares to
such person in any case where delivery is required under the Act and such
untrue statement or omission of a material fact contained in any preliminary
prospectus was corrected in the Prospectus (or the Prospectus as supplemented).
(c) Each Underwriter will severally and not jointly indemnify and
hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities to which the Company or such Selling Shareholder
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, the Prospectus, or any amendment
or supplement thereto, or any related preliminary prospectus, or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Company and any Selling Shareholder in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred, it being understood and agreed that the
only such information furnished by any Underwriter consists of (i) the
following information in the Prospectus furnished on behalf of each
Underwriter: the last paragraph at the bottom of the cover page of the
Prospectus concerning the terms of the offering by the Underwriters, the legend
concerning over-allotments and stabilizing on the inside front cover page and
the concession and reallowance figures appearing in the fourth paragraph under
the caption "Underwriting" and the information contained in the fifth paragraph
under the caption "Underwriting"; and (ii) the disclosure in the last paragraph
under the caption "Underwriting" that NationsCredit Commercial Corporation is
an indirect subsidiary of NationsBank Corporation, which is the parent
corporation of NationsBanc Montgomery Securities LLC.
(d) Promptly after receipt by an indemnified party under this
Section or Section 9 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under subsection (a), (b) or (c) above or Section 9, notify
the indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party
<PAGE> 23
otherwise than under subsection (a), (b) or (c) above or Section 9. In case any
such action is brought against any indemnified party and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section or Section 9, as the case may be, for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action. The indemnifying party shall
not be liable for settlements effected without its prior written consent, which
shall not be unreasonably withheld.
(e) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a), (b) or
(c) above (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other hand from the offering of the Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Shareholders on the one hand and the Underwriters on
the other hand shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
and the Selling Shareholders bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company, the
Selling Shareholders or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (e). Notwithstanding the provisions of this subsection (e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent
<PAGE> 24
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Shareholders
under this Section or Section 9 shall be in addition to any liability which the
Company and the Selling Shareholders may otherwise have and shall extend, upon
the same terms and conditions, to each person, if any, who controls any
Underwriter or the QIU (as such term is defined in Section 9) within the
meaning of the Act; and the obligations of the Underwriters under this Section
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company, to each officer of the Company who has signed the
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters
default in their obligations to purchase Offered Securities hereunder on any
Closing Date and the aggregate number of shares of Offered Securities that such
defaulting Underwriter or Underwriters agreed but failed to purchase does not
exceed 10% of the total number of shares of Offered Securities that the
Underwriters are obligated to purchase on such Closing Date, CSFBC may make
arrangements satisfactory to the Company and the Selling Shareholders for the
purchase of such Offered Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date, the
non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Offered Securities that
such defaulting Underwriters agreed but failed to purchase on such Closing
Date. If any Underwriter or Underwriters so default and the aggregate number of
shares of Offered Securities with respect to which such default or defaults
occur exceeds 10% of the total number of shares of Offered Securities that the
Underwriters are obligated to purchase on such Closing Date and arrangements
satisfactory to CSFBC, the Company and the Selling Shareholders for the
purchase of such Offered Securities by other persons are not made within 36
hours after such default, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter, the Company or the Selling
Shareholders, except as provided in Section 10 (provided that if such default
occurs with respect to Optional Securities after the First Closing Date, this
Agreement will not terminate as to the Firm Securities or any Optional
Securities purchased prior to such termination). As used in this Agreement, the
term "Underwriter" includes any person substituted for an Underwriter under
this Section. Nothing herein will relieve a defaulting Underwriter from
liability for its default.
9. Qualified Independent Underwriter. The Company hereby confirms
that at its request CSFBC has without compensation acted as "qualified
independent underwriter" (in such capacity, the "QIU") within the meaning of
Rule 2710 of the Conduct Rules of the National Association of Securities
Dealers, Inc. in connection with the offering of the Offered Securities. The
Company and the Selling Shareholders will severally and not jointly indemnify
and hold harmless the QIU against any losses, claims, damages or liabilities,
joint or several, to which the QIU may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon the QIU's acting (or alleged
failing to act) as such "qualified
<PAGE> 25
independent underwriter" and will reimburse the QIU for any legal or other
expenses reasonably incurred by the QIU in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that each Selling Shareholder shall only be
subject to liability under this Section to the extent such liability arises out
of or is based upon any untrue statement or alleged untrue statement or upon an
omission or alleged omission based upon information provided by such Selling
Shareholder or contained in a representation or warranty given by such Selling
Shareholder in this Agreement, the Power of Attorney or the Custody Agreement.
10. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Selling Shareholders, of the Company or its officers, and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation, or statement
as to the results thereof, made by or on behalf of any Underwriter, any Selling
Shareholder, the Company or any of their respective representatives, officers
or directors or any controlling person, and will survive delivery of and
payment for the Offered Securities. If this Agreement is terminated pursuant to
Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company and the Selling Shareholders shall
remain responsible for the expenses to be paid or reimbursed by them pursuant
to Section 5 and the respective obligations of the Company, the Selling
Shareholders and the Underwriters pursuant to Section 7 and the obligations of
the Company and the Selling Shareholders pursuant to Section 9 shall remain in
effect, and if any Offered Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
shall also remain in effect. If the purchase of the Offered Securities by the
Underwriters is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 8 or the occurrence of any
event specified in clause (iii), (iv) or (v) of Section 6(c), the Company will
reimburse the Underwriters for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
11. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed or delivered and confirmed to the
Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department -
Transactions Advisory Group, with a copy to Long Aldridge & Norman LLP, 303
Peachtree Street, 53rd Floor, Atlanta, Georgia, 30308, Attention: Leonard A.
Silverstein, Esq., or, if sent to the Company, will be mailed or delivered and
confirmed to it at One Horizon Way, P.O. Drawer 627, Manchester, Georgia,
31816, Attention: Marshall B. Hunt, with a copy to King & Spalding, 191
Peachtree Street, N.E., Atlanta, Georgia, 30303-1763, Attention: Jeffrey M.
Stein, Esq., or, if sent to the Selling Shareholders or any of them, will be
mailed or delivered and confirmed to ____________ at __________________, with a
copy to ________ at _______________; provided, however, that any notice to an
Underwriter pursuant to Section 7 will be mailed or delivered and confirmed to
such Underwriter.
12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective personal representatives
and successors and the officers and
<PAGE> 26
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
13. Representation. The Representatives will act for the several
Underwriters in connection with the transactions contemplated by this
Agreement, and any action under this Agreement taken by the Representatives,
jointly or by CSFBC, will be binding upon all the Underwriters. Marshall B.
Hunt will act for certain of the Selling Shareholders in connection with such
transactions, and any action under or in respect of this Agreement taken by Mr.
Hunt will be binding upon all such Selling Shareholders.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
The Company and the Selling Shareholders hereby submit to the
non-exclusive jurisdiction of the Federal and state courts in the Borough of
Manhattan in The City of New York in any suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
<PAGE> 27
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company four
counterparts hereof, whereupon this Agreement will become a binding agreement
among the Selling Shareholders, the Company and the several Underwriters in
accordance with its terms.
Very truly yours,
THE SELLING SHAREHOLDERS:
NATIONSCREDIT COMMERCIAL CORPORATION
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
CORDOVA CAPITAL PARTNERS, L.P. -
ENHANCED APPRECIATION
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-------------------------------------------
Roddy J. H. Clark
THE COMPANY:
HORIZON MEDICAL PRODUCTS, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 28
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above
written.
CREDIT SUISSE FIRST BOSTON CORPORATION
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES LLC
Acting on behalf of themselves and as the
Representatives of the several
Underwriters.
By CREDIT SUISSE FIRST BOSTON CORPORATION
By:
-------------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
TOTAL NUMBER OF
NUMBER OF FIRM FIRM SECURITIES TO BE
UNDERWRITER SECURITIES TO BE SOLD BY PURCHASED
----------- ----------------------------- ---------------------
COMPANY SELLING SHAREHOLDERS
------- --------------------
<S> <C> <C>
Credit Suisse First Boston Corporation........
BancAmerica Robertson Stephens................
NationsBanc Montgomery
Securities LLC..............................
------- -------------------- ---------------------
TOTAL.......................................... ======= ==================== =====================
</TABLE>
<PAGE> 30
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
FIRM SECURITIES OPTIONAL SECURITIES
SELLING SHAREHOLDER TO BE SOLD TO BE SOLD
- ------------------- ------------------- -------------------
<S> <C> <C>
NationsCredit Commercial Corporation.................... -0-
Cordova Capital Partners, L.P. -
Enhanced Appreciation................................. -0-
Roddy J. H. Clark....................................... -0-
------------------- -------------------
-0-
TOTAL................................................... =================== ===================
</TABLE>
<PAGE> 31
<PAGE> 1
EXHIBIT 10.24
May 8, 1997
Mr. Robert Cohen
58 Heathrow Lane
Sugarland, TX 77479
Dear Rob:
This letter will evidence the agreement between Horizon Medical Products,
Inc. ("HMP") and you concerning certain services that you will perform for HMP,
as follows:
1. At the next shareholders' meeting of HMP following the date of this
Agreement, you will be named as an advisory director of HMP. As an advisory
director, you will be entitled to attend meetings of the HMP board of directors
and provide advice to the board, although you will not have any vote as a
director of HMP. Your advice will also be requested from time to time by
officers of HMP. D&O Liability Policy No. 751056406-97 is effective as of
January 15, 1997 and is intended to cover your activities as an advisory
director of HMP. Such policy will be kept in force during the pendency of your
serving as an advisory director of HMP.
2. In your capacity as an advisory director, you will be requested by HMP
to provide HMP from time to time with information and direction that will lead
HMP to an acquisition of or merger with another company. Your services may
include discussions and/or negotiations with potential acquisition or merger
partners. In the event that your efforts for HMP result in an acquisition or
merger of HMP and a third party, you will earn a success fee of either 2.5% of
the acquisition purchase price (including non-cash value) payable by HMP to a
company that HMP acquires or 2.5% of the acquisition purchase price (including
non-cash value) payable by the purchasers to HMP or its shareholders when HMP
is acquired. Such acquisition purchase price includes only the amount paid by
HMP for the particular business purchased by HMP in the acquisition (for
example purposes only, the amount payable by HMP to Pfizer for the Vascular
Access business and not the Pump business of Strato/Infusaid). Any success fee
earned by you will be conditioned upon and will not be payable unless and until
there is a public offering of HMP shares (the "IPO") or until all or
substantially all of HMP's business or outstanding shares are acquired (the
"Acquisition"). Any success fee earned by you and payable to you will be
payable, at your opinion, in shares of HMP stock after the IPO or, by HMP's
issuance to you of warrants or options to purchase at a nominal price HMP stock
after the IPO in a sufficient number of HMP shares at the IPO price to equal
the amount of service fees or, in the event of an Acquisition, in shares of the
acquiring company or cash (at your option) after the Acquisition is closed.
- ------------------------
*** Confidential Treatment Requested
<PAGE> 2
Mr. Rob Cohen
May 8, 1997
Page No. 2
3. In addition to a success fee that you may earn, HMP will compensate
you as follows: (a) $1,000 for each meeting of HMP's board of directors that
you attend and (b) $1,000 per day for your assistance (minimum of five hours)
when requested by an officer of HMP for strategic planning and other advisory
services that you may be requested to provide. HMP will reimburse you for all
reasonable travel and other expenses, when documented, that you incur on behalf
of HMP.
4. In addition to the services described in paragraph 2 above, if
requested by HMP you will provide services and advice in connection with HMP's
agreement or agreements with ***. If there is an IPO of HMP stock after the
successful completion of such transaction, you will receive a fee for your
services to HMP in connection with such transaction in the amount of $250,000.
Such fee or fees will be payable by HMP's issuance to you of warrants or
options to purchase at a nominal price HMP stock after the IPO in a sufficient
number of HMP shares at the IPO offering price to equal the amount of such fee
or fees. No additional fee or fees would be payable under paragraph 2 for the
aforementioned transaction. Any amounts paid under paragraph 3 associated
with the aforementioned transaction will be deducted from the total service fee
or fees paid.
5. In addition to the services provided in paragraphs 2 and 4 above, you
will provide services and advice in connection with HMP's acquisition of the
vascular access products business of Strato/Infusaid from Pfizer. If there is
an IPO of HMP stock after the successful completion of such transaction, you
will receive a fee for your services to HMP in connection with such transaction
in the amount of $375,000. Such fee or fees will be payable, at your option, in
shares of HMP stock after the IPO, or by HMP's issuance to you of warrants or
options to purchase at a nominal price HMP stock after the IPO in a sufficient
number of HMP shares at the IPO offering price to equal the amount of such fee
or fees. No additional fee or fees would be payable under paragraph 2 for the
aforementioned transaction. Any amounts paid under paragraph 3 associated with
the aforementioned transaction will be deducted from the total service fee or
fees paid.
6. It is HMP's intent and your intent that none of your efforts on behalf
of HMP will conflict with your duties and responsibilities that you now hold
with Sulzer Medica.
- ------------------------
*** Confidential Treatment Requested
<PAGE> 3
Mr. Rob Cohen
May 8, 1997
Page No. 3
7. Either HMP or you may terminate your services to HMP under this
Agreement by giving thirty (30) days written notice to the other party. Such
termination by HMP will not effect any obligation for payment by HMP pursuant
to paragraph 4 or 5.
8. You agree that all information obtained by you or given to you
concerning Horizon, its business, and its products and concerning possible
merger or acquisition partners with Horizon shall be treated at all times by you
as confidential and proprietary information and shall not be used by you or
disclosed by you to any person that is not an officer, director, or employee of
Horizon.
Please execute this letter below for purposes of evidencing your agreement
to the provisions in this letter.
Sincerely,
HORIZON MEDICAL PRODUCTS, INC.
/s/ William E. (Bill) Peterson, Jr.
William E. (Bill) Peterson, Jr.
President
AGREED AND CONSENTED TO:
/s/ Robert Cohen
- -------------------------
Robert Cohen
May 10, 1997
<PAGE> 1
EXHIBIT 10.26
SECOND AMENDED LICENSE AGREEMENT
This Second Amended License Agreement made this 1st day of January 1995
by and between Dr. Sakharam D. Mahurkar, an individual residing in Chicago,
Illinois (hereinafter "Licensor") and Neostar Medical Technologies, Inc., a
Delaware corporation, having a place of business in North Brunswick, New Jersey,
(formerly Akcess Medical Products, Inc., hereafter "Licensee").
WITNESSETH
WHEREAS, the parties previously entered into License and Amended License
Agreements dated February 26, 1990 and July 23, 1991, respectively, and now wish
to substitute this new Second Amended License Agreement for the earlier License
Agreement and Amended License Agreement;
WHEREAS, the parties are also presently involved in litigation pending in
federal courts in Chicago, Illinois, and Newark, New Jersey, and wish to finally
resolve and settle all issues in such pending civil actions;
WHEREAS, Licensor owns United States Patent Nos. ***; ***; ***; ***; ***;
and Canadian Patent Nos. *** and ***, and has the right to grant sublicenses
under United States Patent No. ***.
WHEREAS, Licensor has developed and acquired confidential and proprietary
information, including drawings, manufacturing procedures, vendor and supplier
contacts, specifications and other information and materials relating to
*** and an *** as well as manufacturing equipment and hardware relating to a
- ----------
*** Confidential Treatment Requested
<PAGE> 2
*** (hereafter "confidential information and equipment"), which Mahurkar has
previously supplied to Licensee.
WHEREAS, Licensee wishes to obtain and Licensor is willing to grant to
Licensee *** right to manufacture and sell ***, covered by Licensor's patents
and using or derived from Licensor's confidential information and equipment.
WHEREAS, Licensor represents to Licensee that Licensor owns federally
registered trademarks in the name "MAHURKAR," hereafter the "MAHURKAR" mark and
Licensee wishes to obtain and Licensor is willing to grant to Licensee, the
personal right to use the "MAHURKAR" mark, as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
made herein and for other good and valuable consideration, the parties agree as
follows:
I. DEFINITIONS
A. LICENSED PATENT RIGHTS -- Shall mean United States Patent Nos.
*** and Canadian Patent Nos. *** all foreign counterparts for such patents with
the exception of the *** and any divisions, continuations, continuations-in-part
or reissues of all such patents.
B. LICENSED PRODUCTS -- Shall mean any *** (1) that is covered
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by any claim of the applicable patents in the Licensed Patent Rights, as set
forth in paragraph II.B. or (2) that is made using any Licensed Apparatus; or
(3) that incorporates, is made in accordance with, or is derived from, Licensed
Proprietary Information. In addition to the above, Licensed Products shall also
mean *** covered by Canadian Patent Nos. *** or United States Patent No. ***
and, to the limited extent set forth below, ***.
C. LICENSED APPARATUS -- Shall mean any apparatus, machine, equipment
or device provided by Licensor to Licensee for the manufacture of ***.
D. LICENSED TRADEMARK RIGHTS -- Shall mean all trademarks, tradenames
and service marks in the "MAHURKAR" name and all current or future United States
trademark registrations of the "MAHURKAR" mark used in connection with,
identifying, advertising or promoting the Licensed Products.
E. PROPRIETARY INFORMATION -- Shall mean confidential information and
equipment now in the possession of Licensor that was disclosed to Licensee by
Licensor and shall include, but not be limited to, research and development
information, drawings, specifications, manufacturing procedures and techniques,
vendor and supplier contacts, equipment designs, quality control procedures and
other information necessary for the successful manufacture and sale of ***.
F. NET SALES -- Shall mean the amount invoiced to Licensee's
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customers (including ***) f.o.b. Licensee's factory, exclusive of allowances for
returns, taxes or unpaid invoices actually "written off" by Licensee as being
uncollectible after each annual audit by Licensee, but shall include all ***
covered by this Agreement.
G. *** -- Shall mean any *** who purchases Licensed Products for
purposes other than ***.
H. *** -- Shall mean any entity that purchases Licensed Products for
purposes of ***.
II. LICENSE GRANT
A. Licensor hereby grants Licensee *** license under said Licensed
Patent Rights and Licensed Proprietary Information to make, have made, use or
sell Licensed Products and to use Licensed Apparatus and Licensed Proprietary
Information. Licensee shall have no right to grant sublicenses under any of the
Licensed Patents. The sale of a Licensed Product for which a royalty has been
paid under this Agreement shall not be considered as the grant of a sublicense.
B. The license for *** shall be under United States Patent Nos. ***
and any divisions, continuations, reissues and foreign counterparts thereof.
C. The license granted under U.S. Patent Nos. *** and
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*** and Canadian Patent No. *** is unlimited, except as follows:
1. In the field of *** in the United States, Licensee is limited
to the manufacture and sale of *** having *** Licensee is not licensed to make,
have made or sell *** or ***.
2. In the field of *** outside the United States, Licensee shall
only have the right to manufacture *** that are covered by Canadian Patent
No. *** for sale in all countries other than the ***.
D. No license or right is granted by implication or otherwise with
respect to any patent, patent application or other item of Proprietary
Information of Licensor except as specifically set forth in the definition of
Licensed Patent Rights and Licensed Proprietary Information.
E. Licensor hereby grants Licensee a ***, non-transferable right and
license to use the Licensed Trademark Rights in connection with identifying,
advertising or promoting the Licensed Products by Licensee, except for ***
covered by U.S. Patent Nos. *** or *** that are sold in the United States.
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III. ROYALTIES
A. Commencing on January 1, 1995, Licensee shall pay Licensor a
royalty for all *** manufactured or sold by Licensee that are Licensed Products.
The royalties due shall be as follows:
FOR SALES MADE ***
1. For all acute *** covered by any Licensed Patent other than
U.S. Patent No. ***, the royalty due shall be *** of Licensee's Net Sales
of Licensed Products.
2. For all *** covered by U.S. Patent No. ***, the royalty due
shall be *** of Licensee's Net Sales of Licensed Products.
FOR SALES MADE ***
1. For all acute *** covered by any Licensed Patent other than
U.S. Patent No. ***, the royalty due shall be *** of Licensee's Net Sales
of Licensed Products.
2. For all *** covered by U.S. Patent No. ***, the royalty due
shall be *** of Licensee's Net Sales of Licensed Products.
B. In the case of all royalties due Licensor, there shall be included
in the royalty base for the purpose of determining the
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royalties due, the Net Sales of all *** products which are sold in combination
with, or packaged with, the ***.
C. Licensee shall complete the payments due Licensor for equipment
sold to Licensee under the earlier February 26, 1990 and April 24, 1991
Agreements within sixty (60) days and shall also pay Licensor the amount of ***
which shall be made payable in two installments. The first installment shall be
made within thirty (30) days after Licensee receives final long-term financing
for its business operations, which it anticipates it will receive within the
next ninety (90) days. The second installment of *** shall be made six (6)
months after payment of the first installment. Licensee shall be entitled to
treat only the first installment payment as a credit that can be applied to the
payment of future royalties.
D. In the event Licensor shall hereafter ***, Licensor shall ***,
provided Licensee ***.
E. In the event the applicable claims of any Licensed Patent are
finally adjudged to be invalid or unenforceable in any final order or judgment
in any civil action or other proceeding from which no appeal has been or can be
taken, then Licensee shall
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receive the benefit of any such final order or judgment as if it were a party to
that proceeding including, specifically, relief from any obligation to pay
further royalties under the applicable claim of any such patent.
F. As part of the settlement of other litigation, Licensor gave ***,
a limited release to make and sell an *** having a specific structure and
design. Should *** sell variations of that structure or design (including a ***
design) that are competitive with products sold by Licensee and are covered by
U.S. Patent No. ***, for a period of two (2) years without paying any royalty to
Licensor or without being subject to a proceeding in which a royalty is being
sought, Licensee shall then have the right to escrow one-half (1/2) of the
royalties due Licensor under paragraphs III.A.2. above (royalties due under U.S.
Patent No. ***) until such time as royalties of at least *** are paid by *** or
its successor or an action is taken by Licensor to collect royalties of at least
*** from *** or its successor.
IV. BOOKS, RECORDS AND PAYMENTS
A. Licensee shall keep accurate and complete books and records
sufficient to determine the quantity of Licensed Products made and sold to the
extent necessary to accurately reflect all items material to the determination
of the amounts due and owing Licensor, and shall cause the same to be reviewed
at its expense by its outside certified public accountants least annually as
part of
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its annual audit of the books and records of the entire business of Licensee.
B. The books and records of Licensee shall identify the quantity of
all Licensed Products that are made, used, sold or otherwise disposed of by
Licensee, with credit for returns for which credit is given to customers. Such
records shall show separately the quantity of Licensed Products made for or sold
to *** or that are otherwise used or disposed of, net price and the date of
invoice and shipment. Sales shall be considered as made on the date of invoice
unless shipped more than thirty (30) days before invoiced, in which event such
sales shall be considered as made on the date of shipment.
C. Within one month after the last day of each calendar quarter,
Licensee shall send Licensor a report, in writing, certified by an officer of
Licensee as to its correctness, showing separately the quantity of Licensed
Products subject to a royalty payment that were made, used and/or sold to ***
and to *** or that were otherwise disposed of by Licensee, and then computing
the amount of royalty due Licensor for the preceding quarter as to each category
of customer; the initial quarter shall begin on January 1, 1995 and end on March
30, 1995. Each such report shall be accompanied by the proper royalty amount
then payable to Licensor as shown in such report. The report due for each
quarter which coincides with the end of a calendar year or portion of a calendar
year in which termination of this Agreement
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occurs shall also include a statement of the total payments for such year made
pursuant to this Agreement.
D. All such reports, books, records and accounts shall be retained
for not less than three (3) years, and shall be open to examination at
Licensor's expense at all reasonable times, not more than twice per year, by an
independent outside certified public accountant designated by Licensor.
E. Any failure by Licensee to keep and maintain such books and
records or to provide reports or payments to Licensor as required by this
Agreement shall constitute a material breach of this Agreement.
F. In the event an audit of Licensee's books and records by an
outside certified public accountant establishes that Licensee's payments to
Licensor are deficient by an amount greater than *** of the amount actually due
Licensor, Licensee shall be required, upon receipt of notice of such deficiency,
to pay Licensor *** times the amount due, plus interest at the prime rate
charged by major New York banks at the time the deficiency is discovered.
G. Within thirty (30) days of June 30 and December 31 of each year,
Licensee shall provide Licensor one copy of each item of sales and promotional
literature for each Licensed Product and a single sterile or non-sterile sample
of each Licensed Product in its customary packaging. Within thirty (30) days of
December 31 of each year, Licensee shall also provide Licensor with a complete
product catalog identifying the products Licensee sells.
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V. TERM AND TERMINATION
A. This Agreement shall continue in full force and effect, unless
sooner terminated as herein provided, with respect to the various Licensed
Products licensed hereunder, until the expiration date of each corresponding
Licensed Patent Right Covering each Licensed Product.
B. Licensor may terminate this Agreement upon written notice to
Licensee, if:
1. Licensee shall become insolvent, or shall make any assignment
for the benefit of creditors, or Licensee is adjudicated bankrupt, or a
receiver or trustee of the Licensee's properties shall be appointed.
2. Licensee shall remain in default of any payment or report
required hereunder or fail to comply with any other provision of this
Agreement for a period of more than forty-five (45) days after written
notice specifying such default or failure is given Licensee by Licensor.
3. Licensee shall otherwise continue to violate any term,
condition or provision of this Agreement for a period of more than
forty-five (45) days after written notice specifying such violation is
given Licensee by Licensor.
In the event Licensee cures any default within the forty-five (45) day time
period set forth above, the subject Agreement shall not be terminated and shall
remain in full force and effect.
C. Termination of this Agreement shall not relieve Licensee of the
obligation to make payments accruing under this Agreement
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prior to termination nor shall it bar Licensor from obtaining any relief to
which Licensor may be entitled in law or in equity, including the right to bring
suit for infringement by Licensee of any issued patent of said Licensed Patent
Rights.
D. Upon termination of this Agreement for any reason, License shall
immediately cease its use of Proprietary Information and anything derived
therefrom and shall return to Licensor all documents or materials containing
Proprietary Information and shall immediately discontinue its manufacture or
sale of Licensed Products.
VI. ASSIGNMENTS
A. This Agreement shall inure to the benefit of, and be binding upon,
the successors, legal representatives or assigns of Licensor.
B. This Agreement and the licenses granted hereunder, are personal
and shall not be assigned by Licensee to any other business or entity (except
entities wholly-owned by the same shareholders of Licensee or completely
controlled by Licensee), nor shall it be extended to any third party that
purchases any part of Licensee's assets or stock, without the prior written
consent of Licensor. Notwithstanding the foregoing, however, Licensee shall have
the right to assign this License as part of the sale of the entire business or
assets to which this Agreement relates, provided such sale is not made to any
entity that is involved in litigation with Licensor relating to the Licensed
Patents (including appeals)
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at the time any such assignment, purchase, sale or transfer is made.
VII. HANDLING OF PROPRIETARY INFORMATION
A. Licensor will, after execution of this Agreement, and at
Licensor's expense, except where otherwise indicated and except to the extent to
which Proprietary Information has already been disclosed to Licensee, render the
following services to Licensee:
1. Disclose to Licensee any additional Proprietary Information
necessary for the manufacture of Licensed Products, including
specifications for quality of the Licensed products;
2. Keep Licensee generally informed of new technology developed
by Licensor relating to the Licensed Products, and the Licensed
Apparatus.
B. Licensee shall keep in strict confidence all Proprietary
Information disclosed by Licensor, notwithstanding the termination of any of the
licenses and rights granted herein, shall take all reasonable precautions to
prevent the unauthorized disclosure thereof and shall disclose such Proprietary
Information only to officers, employees or consultants of Licensee or its
authorized assigns to whom such disclosure is necessary for the production of
Licensed Products. A list of all officers, employees or consultants to whom
Proprietary Information has been disclosed shall be maintained by licensee and
shall be available for inspection by representatives of Licensor.
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VIII. USE OF NAME
A. Licensee shall prominently use the Licensed Trademark Rights in
the name "MAHURKAR" in identifying, advertising or promoting all Licensed
Products, except ***. Licensee agrees to use, for identifying *** covered by
U.S. Patent Nos. *** or ***, the name "MAHURKAR" only in conjunction with the
terms *** or *** and also agrees that no other words shall be used in connection
with the name "MAHURKAR"; Licensee further agrees to use, for identifying ***,
the name "MAHURKAR" only in conjunction with the words *** or *** or *** or ***
or *** and also agrees that no other words shall be used in connection with the
name "MAHURKAR" (such terms shall hereinafter be described in this Agreement as
the "Mahurkar Licensed Trademarks for Neostar"). Licensee shall, however, be
entitled to use the words *** or *** in identifying, advertising or promoting
the Licensed Products, in conjunction with the name "MAHURKAR" so long as such
use does not create confusion with the use of the "MAHURKAR" name *** in
connection with *** or ***. Licensee further agrees that the Mahurkar Licensed
Trademarks for Neostar, wherever used in identifying, advertising or promoting
the Licensed Products, shall be the most prominently displayed words or
markings. While Licensee may use other words or markings, such as "Neostar," in
conjunction with the sale of the Licensed Products,
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such other words or markings (a) must be less prominently displayed than the
Mahurkar Licensed Trademarks for Neostar; (b) must not serve to imply that a
party other than Mahurkar was the inventor and designer of such Licensed
Products; and (c) must be displayed wholly apart and separate from the Mahurkar
Licensed Trademarks for Neostar. Licensee acknowledges with respect to the
parties hereto that full and complete ownership and interest in all the Licensed
Trademark Rights remains with the Licensor. Licensee will take no action
inconsistent with Licensor's ownership in the Licensed Trademark Rights and
agrees that all uses of the Licensed Trademark Rights by Licensee shall inure to
the benefit of the Licensor. Furthermore, Licensee will in no way interfere with
Licensor in attempting to obtain federal registration of the Licensed Trademark
Rights. Licensor agrees that nothing in this Amended License Agreement shall
give the Licensee any right, title or interest in the Licensed Trademark Rights
other than the right to use such Licensed Trademark Rights in accordance with
this Amended License Agreement. Licensee further agrees not to challenge the
title of Licensor to the Licensed Trademark Rights.
B. Because Licensor does not want the "MAHURKAR" name associated with
products that do not satisfy standards for quality acceptable to Licensor,
Licensor shall have the right to inspect Licensed Products and the facilities
used to manufacture Licensed Products and to require Licensee to immediately
discontinue the use of the "MAHURKAR" name in connection with any products,
whenever such products do not satisfy reasonable standards for safe,
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quality, commercially acceptable medical products. Such reasonable standards
shall include, at a minimum, the relevant FDA quality control standards.
C. Upon termination of this Agreement, Licensor may agree to allow
Licensee to continue to use the Licensed Trademark Rights. If no such agreement
is reached, Licensee agrees to cooperate with Licensor or its appointed agent in
applying to the appropriate authorities to cancel any recording of this
Agreement made in the United States Patent and Trademark Office. However, the
Licensee shall have the right to sell its inventory of products that prominently
display the "MAHURKAR" name at the time of termination.
IX. PATENT MARKING
Except for its *** that are in Licensee's current inventory, Licensee
agrees to apply to all Licensed Products sold under this Agreement, where it is
possible to do so, and in all events to all packages in which such products are
sold, appropriate markings stating that the products are licensed under the
appropriate Licensed Patent Rights. Where possible, patent markings should also
appear on product literature, as well as packaging. To the extent permitted by
Licensor's *** (copies of which are provided to Licensee), the "MAHURKAR(R)"
name shall also appear on packaging and literature associated with each Licensed
Product that is sold by Licensee.
X. SEVERABILITY CLAUSE
If any part, provision, covenant or condition of this
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Agreement shall be held to be invalid, illegal, void or unenforceable in any
respect, such invalidity, illegality, voidness or unenforceability shall not
affect any other parts of this Agreement, and this Agreement shall be construed
as if such invalid, illegal, void or unenforceable part, provision, covenant or
condition had never been contained herein. If, moreover, any one or more of the
parts, provisions, covenants or conditions contained in this Agreement shall for
any reason be held to be excessively broad as to time, duration, geographical
scope, activity or subject, it shall be construed, by limiting and reducing it,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.
XI. NOTICES
All notices required or permitted by this Agreement shall be in writing
and shall be sent by registered mail, postage prepaid, addressed as follows:
Licensor:
Dr. Sakharam Mahurkar
6171 North Sheridan
Suite 1112
Chicago, Illinois 60660
Licensee:
Neostar Medical Technologies
201 N. Center Drive
North Brunswick, New Jersey 08902
Any party may change the address to which notices shall be sent to it by
notice in writing to the other party.
XII. NON-WARRANTIES AND WARRANTY
A. Nothing in this Agreement shall be construed as:
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1. a warranty or representation by Licensor as to the validity
or scope of any patent that has issued from the Licensed Patent rights;
2. a warranty or representation that making, using or selling of
Licensed Products or use of Licensed Apparatus by Licensee will be free
from infringement of any patents owned by others than Licensor.
B. Licensee hereby releases and holds Licensor harmless from any and
all product liability claims, actions, losses, damages and liability resulting
from or arising out of the manufacture, use or sale by Licensee of Licensed
Products or the use by Licensee of Licensed Apparatus for the duration of this
Agreement.
C. Licensee agrees to indemnify Licensor for all product liability
claims, actions, losses, proceedings, damages, liabilities, costs and expenses,
including attorneys' fees arising out of, in connection with or resulting from
the manufacture, use or sale of Licensed Products by Licensee or the use of
Licensed Apparatus by Licensee.
D. Licensor has not made, and does not make, any representation,
warranty or covenant, express or implied, with respect to the condition,
quality, durability, suitability, fitness for particular purpose or
merchantability of Licensed Products or Licensed Apparatus. Further, Licensor
expressly disclaims any and all warranties, express or implied, regarding the
condition, quality, durability, suitability, fitness for particular purpose or
merchantability of Licensed Products or Licensed Apparatus.
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E. Licensor has reviewed the Neostar product line as reflected in the
most current Neostar Medical Technologies product catalog received by him on
December 24, 1994 and, with the exception of the *** with a *** and the ***
reflected by catalog number *** (which is covered by unlicensed patents),
represents that he has no other patents owned or controlled by him, other than
the Licensed Patents, for which a license is now required.
XIII. EFFECTIVE DATE
This Agreement shall become effective and binding upon the parties hereto
on the date first above written.
IN WITNESS WHEREOF, the parties hereto have caused to be signed by their
duly authorized officers, this Agreement at the places and on the dates set
forth below.
DR. SAKHARAM D. MAHURKAR, LICENSOR
Dated: Jan. 10, 1995 /s/ S. Mahurkar
----------------- -------------------------------------
NEOSTAR MEDICAL TECHNOLOGIES, INC.,
LICENSEE
Dated: Jan. 13th, 1995 By /s/ [unreadable]
----------------- -------------------------------------
Its: President
-----------------------------------
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[PICTURE]
EXHIBIT
A
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[PICTURE]
EXHIBIT
B
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[PICTURE]
EXHIBIT
C
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EXHIBIT 10.27
LICENSE AGREEMENT
This Agreement made this ___ day of July, 1995 by and between Dr. Sakharam
D. Mahurkar, an individual residing in Chicago, Illinois (hereinafter
"Licensor") and Strato/Infusaid Inc., a Massachusetts corporation, having a
place of business in Norwood, Massachusetts (hereinafter "Licensee").
WITNESSETH
WHEREAS, Licensor owns United States Patent No. ***
WHEREAS, Licensee wishes to obtain and Licensor is willing to grant to
Licensee the *** license to make, have made for it, use and sell products
covered by Licensor's *** patent.
NOW, THEREFORE, in consideration of the mutual covenants and promises made
herein and for other good and valuable consideration, the parties agree as
follows:
I. DEFINITIONS
A. LICENSED PATENT RIGHTS -- Shall mean United States Patent No. *** and
all foreign counterparts for the *** patent and any divisions, continuations,
continuations-in-part or reissues of such patents.
B. LICENSED PRODUCTS -- Shall mean any product that is covered by any
claim of the *** patent, whether sold for hemodialysis or non-hemodialysis
applications in catheter, kit or implantable port form.
C. NET SALES -- Shall mean the amount invoiced to Licensee's customers
(including *** and ***) f.o.b. Licensee's factory, exclusive of
allowances for returns or taxes, but shall
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include all *** or other product covered by this Agreement.
D. *** -- Shall mean any *** who purchases Licensed Products for purposes
other than ***
E. *** -- Shall mean any entity that purchases Licensed Products
for purposes of ***
II. LICENSE GRANT
A. Licensor hereby grants Licensee, *** license under said Licensed
Patent Rights to make, have made for it, use and sell Licensed Products.
Licensee shall have no right to grant sublicenses under any of the Licensed
Patents. The sale of a Licensed Product for which a royalty has been paid under
this Agreement shall not be considered as the grant of a sublicense.
B. No license or right is granted by implication or otherwise with
respect to any patent or pending patent application of Licensor except as
specifically set forth in the definition of Licensed Patent Rights.
III. ROYALTIES
A. Licensee shall pay Licensor *** upon execution of this Agreement, as
full payment of any obligations or liabilities for any past acts of infringement
of the
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*** patent. The signed Agreement, with payment, shall be sent to Licensor's
attorneys, Niro, Scavone, Haller & Niro, 181 West Madison, Suite 4600, Chicago,
Illinois 60602-4515.
B. Commencing effective January 1, 1995, Licensee shall also pay
Licensor a continuing royalty for all Licensed Products manufactured or sold by
Licensee. The royalties due shall be as follows:
FOR SALES MADE ***
1. For all Licensed Products which include or operate with *** that
are covered by any claim of U.S. Patent No. ***, the royalty due shall be
*** of Licensee's Net Sales of Licensed Products.
2. For all Licensed Products *** or other form that are covered by
any claim of U.S. Patent no. *** the royalty due shall be *** of
Licensee's Net Sales of Licensed Products.
FOR SALES MADE ***
3. For all Licensed Products which include or operate with *** that
are covered by any claim of U.S. Patent No. *** the royalty due shall be
*** of Licensee's Net Sales of Licensed Products.
4. For all Licensed Products *** or other
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form that are covered by any claim of U.S. Patent No. *** the royalty due
shall be *** of Licensee's Net Sales of Licensed Products.
C. In the case of all royalties due Licensor, there shall be included in
the royalty base for the purpose of determining the royalties due, the Net
Sales of all *** which are sold in combination with, or packaged with, the ***
D. In the event Licensor shall hereafter *** Licensor shall *** license
under such more favorable rates for each patent in which *** provided Licensee
***
E. In the event the applicable claims of the *** patent are finally
adjudged to be invalid or unenforceable in any final order or judgment in any
civil action or other proceeding from which no appeal has been or can be taken,
then Licensee shall receive the benefit of any such final order or judgment as
if it were a party to that proceeding including, specifically, relief from any
obligation to pay further royalties under the applicable claims of the ***
patent.
IV. BOOKS, RECORDS AND PAYMENTS
A. Licensee shall keep accurate and complete books and
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records sufficient to determine the quantity of Licensed Products sold by
Licensee to the extent necessary to accurately reflect all items material to the
determination of the amounts due and owing Licensor and, at the written request
of Licensor, Licensee shall cause the same to be reviewed by an outside
certified public accountant named by Licensor. If the audit review shows a
discrepancy of more than *** Licensee shall pay all expenses of the audit
review. If the audit review shows a discrepancy of *** or less, Licensor shall
pay all expenses of the audit review.
B. The books and records of Licensee shall identify the quantity of all
Licensed Products sold by Licensee, with credit for returns for which credit is
given to customers. Such records shall show separately the quantity of Licensed
Products sold *** net price and the date of invoice and shipment. Sales shall
be considered as made on the date of invoice unless shipped more than thirty
(30) days before invoiced, in which event such sales shall be considered as made
on the date of shipment.
C. Within one month after the last day of each calendar quarter,
Licensee shall send Licensor a report, in writing, certified by an officer of
Licensee as to its correctness, showing separately the quantity of Licensed
Products subject to a royalty payment that were sold to *** and then computing
the amount of royalty due Licensor for the preceding quarter as to each category
of customer, except that the reports
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for the first, second and third quarters of 1995 shall be due no later than
October 31, 1995. The initial quarter shall begin on January 1, 1995 and end
on March 30, 1995. Each such report shall be accompanied by the proper royalty
amount then payable to Licensor as shown in such report. The report due for
each quarter which coincides with the end of a calendar year or portion of a
calendar year in which termination of this Agreement occurs shall also include
a statement of the total payments for such year made pursuant to this Agreement.
D. All such reports, books, records and accounts shall be retained for
not less than three (3) years, and shall be open to confidential examination at
Licensor's expense at all reasonable times, not more than twice per year, by an
independent outside certified public accountant designated by Licensor. The
information obtained in any such audit will be kept in confidence and disclosed
only to Licensor and his counsel for use in evaluating Licensor's compliance
with this Agreement.
E. Any failure by Licensee to keep and maintain such books and records
or to provide reports or payments to Licensor as required by this Agreement
shall constitute a material breach of this Agreement.
F. In the event an audit of Licensee's books and records by an outside
certified public accountant establishes that Licensee's payments to Licensor
are deficient by an amount greater than *** of the amount actually due Licensor,
Licensee shall be required, upon receipt of notice of such deficiency, to pay
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Licensor the total amount due, plus a penalty of *** the interest on such
deficiency calculated at the prime rate charged by major New York banks at the
time the deficiency is discovered, unless the deficiency results from a failure
by Licensee to pay royalties on a product or products that are not Licensed
Products.
G. Within thirty (30) days of December 31, 1995, Licensee shall provide
Licensor (at Licensee's cost) one copy of each item of sales and promotional
literature for each Licensed Product and a single sterile or non-sterile sample
of each Licensed Product in its customary packaging. Thereafter, Licensee
shall notify Licensor of any product which has been discontinued and shall
provide Licensor with one copy of each item of sales or promotional literature
which has been modified or changed in any way and a single sterile or
non-sterile sample of each Licensed Product which has been modified or changed
in any way within thirty (30) days of the discontinuation or implementation of
such modification or change. The cost charged Licensor for each sample shall
be separately invoiced to Licensor and shall not include any mark-up for profit
of any kind. Licensor shall also have the right to return any samples for full
credit provided the packaging for such samples is unopened. Within thirty (30)
days of December 31 of each year, Licensee shall also provide Licensor with a
complete product catalog identifying the products Licensee sells.
V. TERM AND TERMINATION
A. This Agreement shall continue in full force and effect,
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unless sooner terminated as herein provided, with respect to the various
Licensed Products licensed hereunder, until the expiration date of each
corresponding Licensed Patent Right covering each Licensed Product.
B. Licensor may terminate this Agreement upon written notice to
Licensee, if:
1. Licensee shall become insolvent, or shall make any assignment for
the benefit of creditors, or Licensee is adjudicated bankrupt, or a
receiver or trustee of the Licensee's properties shall be appointed.
2. Licensee shall remain in default of any payment or report required
hereunder or fail to comply with any other provision of this Agreement
for a period of more than forty-five (45) days after written notice
specifying such default or failure is given Licensee by Licensor.
3. Licensee shall otherwise continue to violate any term, condition
or provision of this Agreement for a period of more than forty-five (45)
days after written notice specifying such violation is given Licensee by
Licensor.
In the event Licensee cures any default within the forty-five (45) day time
period set forth above, the subject Agreement shall not be terminated and shall
remain in full force and effect.
C. Licensee may terminate this Agreement for any reason by giving
Licensor ninety (90) days written notice. Termination shall become effective
upon expiration of the ninety (90) day period.
D. Termination of this Agreement shall not relieve Licensee
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<PAGE> 9
of the obligation to make payments accruing under this Agreement prior to
termination nor shall it bar Licensor from obtaining any relief to which
Licensor may be entitled in law or in equity.
VI. ASSIGNMENTS
A. This Agreement shall inure to the benefit of, and be binding upon,
the successors, legal representatives or assigns of Licensor.
B. This Agreement and the licenses granted hereunder, are personal and
shall not be assigned by Licensee to any other business or entity (except
entities wholly-owned by the same shareholders of Licensee or completely
controlled by Licensee), nor shall it be extended to any third party that
purchases any part of Licensee's assets or stock, without the prior written
consent of Licensor. Notwithstanding the foregoing, however, Licensee shall
have the right to assign this License as part of the sale of the entire
business or assets to which this Agreement relates, provided such sale is not
made to any entity that is involved in litigation with Licensor relating to the
Licensed Patents (including appeals) at the time any such assignment, purchase,
sale or transfer is made.
VII. PATENT MARKING
Licensee agrees to apply to all Licensed Products sold under this
Agreement, where it is possible to do so, and in all events to packages in
which such products are sold, except for packages of products in inventory as
of the date of this License Agreement, appropriate markings stating that the
products are licensed under
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<PAGE> 10
the appropriate Licensed Patent Rights. Where possible, patent markings should
also appear on product literature, as well as packaging.
VIII. SEVERABILITY CLAUSE
If any part, provision, covenant or condition of this Agreement shall be
held to be invalid, illegal, void or unenforceable in any respect, such
invalidity, illegality, voidness or unenforceability shall not affect any other
parts of this Agreement, and this Agreement shall be construed as if such
invalid, illegal, void or unenforceable part, provision, covenant or condition
had never been contained herein. If, moreover, any one or more of the parts,
provisions, covenants or conditions contained in this Agreement shall for any
reason be held to be excessively broad as to time, duration, geographical
scope, activity or subject, it shall be construed, by limiting and reducing it,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.
IX. NOTICES
All notices required or permitted by this Agreement shall be in writing
and shall be sent by registered mail, postage prepaid, addressed as follows:
Licensor:
Dr. Sakharam Mahurkar
6171 North Sheridan
Suite 1112
Chicago, Illinois 60660
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<PAGE> 11
Licensee:
General Counsel of Strato/Infusaid
c/o Pfizer Inc.
Legal Division
Pfizer, Inc.
235 East 42nd Street
New York, New York 10017-5755
Any party may change the address to which notices shall be sent to it
by notice in writing to the other party.
X. NON-WARRANTIES AND WARRANTY
A. Nothing in this Agreement shall be construed as:
1. a warranty or representation by Licensor as to the validity
or scope of any patent that has issued from the Licensed Patent rights;
2. a warranty or representation that making, using or selling
of Licensed Products will be free from infringement of any patents owned
by others than Licensor.
B. Licensee hereby releases and holds Licensor harmless from any and
all product liability claims, actions, losses, damages and liability resulting
from or arising out of the manufacture, use or sale by Licensee of Licensed
Products.
C. Licensee agrees to indemnify Licensor for all product liability
claims, actions, losses, proceedings, damages, liabilities, costs and expenses,
including attorney's fees arising out of, in connection with or resulting from
the manufacture, use or sale of Licensed Products by Licensee.
D. Licensor has not made, and does not make, any representation,
warranty or covenant, express or implied, with respect to the condition,
quality, durability, suitability, fitness
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<PAGE> 12
for particular purpose or merchantability of Licensed Products or Licensed
Apparatus. Further, Licensor expressly disclaims any and all warranties,
express or implied, regarding the condition, quality, durability, suitability,
fitness for particular purpose or merchantability of Licensed Products.
XI. EFFECTIVE DATE
This Agreement shall become effective and binding upon the parties hereto
on the date first above written.
IN WITNESS WHEREOF, the parties hereto have caused to be signed by their
duly authorized officers, this Agreement at the places and on the dates set
forth below.
DR. SAKHARAM D. MAHURKAR, LICENSOR
Dated: July 27, 1995 /s/ S. Muhurkar
--------------------- ------------------------------------
STRATO/INFUSAID INC., LICENSEE
Dated: 07/24/95 By: /s/ James R. Hager
--------------------- ---------------------------------
James R. Hager
Its General Manager
--------------------------------
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<PAGE> 13
APPENDIX A
List of Affiliated Companies
American Medical Systems, Inc.
Biomedical Sensors Ltd.
Howmedica, Inc.
NAMIC, Inc.
Pfizer Inc.
Schneider (Europe) AG
Schneider (USA) Inc.
Valleylab, Inc.
<PAGE> 1
EXHIBIT 10.28
ADDITIONAL LICENSEE AGREEMENT
This Additional License Agreement,
effective the 1st day of January 1997, is by and
between Dr. Sakharam D. Mahurkar, an individual
residing in Chicago, Illinois (hereinafter
"Licensor") and Horizon Medical Products, Inc., a
Georgia corporation, having a place of business at
Seven North Parkway Square, 4200 Northside Parkway,
N.W., Atlanta, Georgia 30327 (hereinafter
"Licensee").
WITNESSETH
WHEREAS, Licensor warrants that he owns the
entire right, title and interest in and to United
States Patent No. *** entitled *** issued on ***;
WHEREAS, Licensor warrants that he has
the right to grant *** license to Claims *** of
United States Patent No. *** entitled *** issued on ***;
WHEREAS, Licensee wishes to obtain and
Licensor is willing to grant to Licensee a
*** to offer, make, have made for it, use, sell, and
import the products covered by the Claims *** and ***
of United States Patent No. ***
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<PAGE> 2
entitled ***.
NOW THEREFORE, in consideration of mutual
covenants and promises made herein and for other
good and valuable considerations the parties agree
as follows:
ARTICLE I. DEFINITIONS
A. LICENSED PATENT RIGHTS -- Shall mean
Claims *** of United States Patent No. *** entitled
*** and all corresponding claims of foreign
counterparts of the said patents and divisions,
continuations, continuations-in-part or reissues of
such patents.
B. LICENSED PRODUCTS -- Shall mean any
product that is covered by any claim of the
'Licensed Patent Rights' sold for both ***
applications, in *** form or in combination with
accessories.
C. NET SALES -- Shall mean the amount
invoiced to Licensee's customers (including ***)
f.o.b. Licensee's
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<PAGE> 3
factory/warehouse/premises, exclusive of allowances for returns or taxes and
unpaid invoices actually "written off," but shall include all ***, or other
components sold or packaged with any *** or other products covered by this
Agreement.
D. *** -- Shall mean any *** who purchases the Licensed Products for a
purpose other than *** and shall include hospitals, clinics, and HMOs.
E. *** -- Shall mean any entity that purchases Licensed Products for
purposes of ***.
ARTICLE II. LICENSE GRANT
A. Licensor hereby grants Licensee, a *** license under said Licensed
Patent Rights to make, have made, offer to sell and use Licensed Products.
Licensee shall have no rights to grant sub-licenses under any of the Licensed
Patent Rights. The sale of the Licensed Products under this Agreement shall not
be considered as grant of a sub-license.
B. No license or right is granted by implication or otherwise to any
patent or pending patent applications or any future patents of Licensor except
as specifically
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<PAGE> 4
set forth in the definition of Licensed Patent Rights.
C. Specifically, Licensee is granted no rights to offer, sell and
promote the Licensed Products covered by Claims *** and *** that claim a *** for
***.
D. Licensee acknowledges that Licensor has granted ***. A copy of
pages *** of the *** has been provided to Licensee. Licensee agrees that it will
do nothing that will interfere with the ***.
ARTICLE III. ROYALTIES
A. Licensee shall pay Licensor a royalty of *** on net sales of all
the Licensed Products, as long as Licensee pays the royalty due under the
License for the *** patent in the parties' January 1, 1995 License Agreement.
This *** royalty shall be additional to any other royalty already paid under
the January 1, 1995 Agreement.
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<PAGE> 5
B. Effective upon the expiry of the *** patent or termination of the
January 1, 1995 License Agreement, whatsoever occurs first, the royalty payable
under this Agreement shall be:
FOR SALES MADE ***
For the *** along with *** the Royalty shall be *** of Net Sales of
Licensed Products;
FOR SALES MADE ***
For the *** along with *** the Royalty shall be *** of Net Sales of
Licensed Products.
C. In the case of all royalties due Licensor, there shall be included
in the royalty base for the purpose of determining the royalties due, the Net
Sales of all *** which are sold in combination with, or packaged with, the ***
that are Licensed Products.
D. In the event Licensor shall hereafter ***, Licensor shall ***,
provided Licensee ***.
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<PAGE> 6
E. In the event the applicable claims of the Licensed Patent Rights
are finally adjudged to be invalid or unenforceable in any final order or
judgment in any civil action or other proceeding from which no appeal has been
or can be taken, then Licensee shall receive the benefit of any such final
order or judgment as if it were a party to that proceeding including,
specifically, relief from any obligation to pay further royalties under the
applicable claim of the Licensed Patent Rights.
F. In the event of any future significant infringement [infringing
sales of any one infringer equal to or exceeding *** of Licensee's unit sales]
and upon written request to that effect by Licensee, Licensor at his option
shall enforce the licensed patent rights against third party for any non-license
sales of *** at his own expense or ask Licensee to advance the litigation
expense, and Licensee agrees to do so, until the conclusion of the litigation.
Any such litigation expenses advanced by the Licensee will be reimbursed to
Licensee after the conclusion of the litigation, solely from any recovery from
such lawsuit and any award of
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<PAGE> 7
legal fees of such litigation by the court. If there is any settlement of any
such litigation Licensee shall be granted the same favorable license term
granted such third party by Licensor.
ARTICLE IV. BOOKS, RECORDS AND PAYMENTS
A. Licensee shall keep accurate and complete books and records
sufficient to determine the quantity of Licensed Products made and sold to the
extent necessary to accurately reflect all items material to the determination
of the amount of royalty due and owing Licensor. At the request of Licensor,
Licensee shall cause the same to be reviewed by an outside certified public
accountant named by the Licensor, at least annually as a part of its annual
audit of the books and records of relevant business of the Licensee.
B. The books and records of the Licensee shall identify the quantity of
all Licensed Products that are made, used, sold or otherwise disposed of by the
Licensee, with credit for returns for which credit is given to the customers.
Such records shall show separately the quantity of the Licensed Products made
for or sold to *** or that are otherwise used or disposed of, net price and the
date of invoice or shipment. Sales shall be considered as made on the date of
the invoice
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<PAGE> 8
unless shipped more than thirty (30) days
before invoiced, in which event such sales
shall be considered as made on the date of
shipment.
C. Within one month after the last day
of each calendar quarter, Licensee shall send
Licensor a report, in writing, certified by
an officer to its correctness, showing
separately the quantity of Licensed Products
subject to royalty payments that were made
and sold to its customers and computing the
amount of royalty due Licensor for the
preceding quarter as to each category of
customer. Each report shall be due on the
last day of January, April, July and October
and shall be accompanied by the proper
royalty amount then payable to the Licensor
as shown in that report. The report due for
each quarter which coincides with the end of
the calendar year or termination of this
Agreement, shall also include a statement of
the total payments made for such year
pursuant to this Agreement.
D. All such reports, books, records and
accounts shall be retained for not less than
three (3) years and shall be open to
confidential examination at Licensor's
expense at all reasonable times, not more
than twice per year, by an independent
outside certified public account designated
by the Licensor.
8
<PAGE> 9
E. Any failure by Licensee to keep and
maintain such books and records or to provide
reports or payments to Licensor as required
by this Agreement shall constitute a material
breach of this Agreement.
F. In the event an Audit or Licensee's
books and records by an outside certified
public accountant establishes that Licensee's
payments are deficient by an amount greater
than *** of the amount actually due Licensor,
Licensee shall be required upon the receipt
of the notice of such deficiency to pay the
Licensor *** times the amount due, plus interest
at the prime rate charged by major New York
banks at the time the deficiency is discovered.
G. Within thirty (30) days of June 30
and December 31 of each year, Licensee shall
provide Licensor one copy of sales,
instruction of use, and promotional
literature for each Licensed Product along
with one sample of the unsterile/sterile
product in its customary packaging. Within
thirty (30) days of December 31 of each year,
Licensee shall also provide Licensor with a
complete product catalog identifying the
products Licensee sells.
ARTICLE V. TERM AND TERMINATION
A. This Agreement shall continue in full
force and effect, unless sooner terminated as
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<PAGE> 10
hereinunder provided, with respect to the
various Licensed Products licensed hereunder,
until the expiration date of each
corresponding Licensed Patent Right covering
each Licensed Product.
B. Licensor may terminate this Agreement
upon written notice to Licensee, if:
1. Licensee shall become insolvent,
or shall make any assignment for the
benefit of creditors, or Licensee is
adjudicated bankrupt, or a receiver or
trustee of the Licensee's property shall
be appointed.
2. Licensee shall be in default of
any payment or report required hereunder
or fail to comply with any other provision
of this Agreement for a period of more
than forty-five (45) days after a written
notice specifying such default is given
by Licensor.
3. Licensee shall otherwise continue
to violate any term, condition, or
provision of this Agreement for a period
more than forty-five (45) days after written
notice specifying such violation is given
by Licensor.
In the event Licensee cures any default
within the forty-five (45) day time
10
<PAGE> 11
period set forth above, the subject
Agreement shall not be terminated and
shall remain in full force and effect.
C. Termination of this Agreement shall
not relieve the Licensee of the obligation to
make payments accruing under this Agreement
prior to the termination nor shall it bar
Licensor from obtaining any relief to which
Licensor may be entitled in law or in equity,
including the right to bring suit for
infringement by Licensee of any issued patent
of said Licensed Patent Rights.
D. Upon termination of this Agreement
for any reason, Licensee shall immediately
cease manufacture, use or sale of the
Licensed Products.
ARTICLE VI. ASSIGNMENTS
A. This Agreement shall inure to the
benefit of and be binding upon the
successors, legal representatives or assigns
of Licensor.
B. This Agreement and the License granted
hereunder are personal and shall not be
assigned by Licensee to any other business
entity (except entities wholly-owned by the
same shareholders of Licensee or completely
controlled by Licensee), nor shall it be
extended to any third party that purchases
any part of Licensee's assets or stock
11
<PAGE> 12
without the prior written consent of the
Licensor. Notwithstanding the foregoing,
however, Licensee shall have the right to
assign this License as part of the sale of
the entire business assets to which this
Agreement relates, provided such sale is
not made to any entity that is involved in
litigation with Licensor relating to the
Licensed Patent Rights (including appeals)
at the time any such assignment, purchase
sale or transfer is made.
ARTICLE VII. PATENT MARKING
Licensee agrees to apply to all
Licensed Products made and sold under this
Agreement, on labels, packaging, sales and
promotional literature, appropriate
markings stating that the products are
licensed under the Licensed Patent Rights.
ARTICLE VIII. SEVERABILITY CLAUSE
If any part, provision, covenant or
condition of this Agreement shall be held
to be invalid, illegal, void or
unenforceable in any respect, such
invalidity, illegality, voidness or
unenforceability shall not affect any other
parts of this Agreement, and this Agreement
shall be construed as if such invalid,
illegal, void or unenforceable part,
provision, convenant or condition had never
been contained herein. Moreover, if any
one or more of the parts, provisions,
convenants, or conditions contained in this
Agreement
12
<PAGE> 13
shall for any reason be held to be
excessively broad as to time duration,
geographical scope, activity or object
it shall be construed by limiting and
reducing it so as to be enforceable to
the extent compatible with the
applicable law as it shall then appear.
ARTICLE IX. NOTICES
A. All notices, payments or
communications which either party may desire
or be required or permitted to give or make
to the other by this Agreement shall be in
writing and shall be deemed to have been
duly given or made if and when forwarded by
registered or certified mail to such address
as shall have been designated by notice from
addressee of addressing notices to it, or if
no such designation shall have been made,
then to the address of the party appearing
in this License.
B. The failure to act on default
hereunder shall not be deemed to constitute
a waiver of such default.
C. This Agreement constitutes the
entire understanding of the parties with
respect to its subject matter and may not be
modified or amended, except in writing by
authorized persons on behalf of the parties
hereto.
13
<PAGE> 14
D. The validity, legality and
enforceability of any provision hereof shall
not be affected or implied in any way by any
holding that any other provision contained
herein is invalid, illegal or unenforceable
in any respect.
E. Licensor:
Dr. Sakharam D. Mahurkar
6171 North SHERIDAN Road
Suite 1112
Chicago, Illinois 60660
F. Licensee:
Horizon Medical Products, Inc.
Seven North Parkway Square
4200 Northside Parkway, N.W.
Atlanta, Georgia 30327
G. Any party may change the address to
which notices shall be sent to it by notice
in writing to the other party.
ARTICLE X. NON-WARRANTIES AND WARRANTY
A. Nothing in this Agreement shall be
construed as:
1. A warranty or representation by
Licensor as to the validity or scope of
any patent that has been issued for the
Licensed Patent Rights;
14
<PAGE> 15
2. A warranty or representation
that making, selling or using of
Licensed Products will be free from
infringement of any patents owned by
entities other than Licensor.
B. Licensee hereby releases and holds
Licensor harmless from any and all product
liability claims, actions, losses, damages
and any liability resulting from or arising
out of the manufacture, use or sale of the
Licensed Products for the duration of this
Agreement.
C. Licensee agrees to indemnify Licensor
for all product liability claims, actions,
losses, proceedings, damages, liabilities,
costs, expenses, including attorney's fees
arising out of, in connection with or
resulting from the manufacture, use or sale
of the Licensed Products by Licensee.
D. Licensor has not made, and does not
make, any representation, warranty or
covenant, express or implied, with respect to
the condition, quality, durability,
suitability, fitness for a particular purpose
or merchantability of Licensed Products.
Further, Licensor expressly disclaims any and
all warranties, express or implied, regarding
the condition, quality, durability,
suitability, fitness for particular purpose
or merchantability of Licensed Products.
15
<PAGE> 16
E. Licensor shall not be liable for any
consequence or damage arising out of or
resulting from the manufacture, use or sale
of products under this Agreement or the
exercise by Licensee of any rights granted
under this Agreement, nor shall Licensor be
liable to Licensee for consequential damages
under any circumstances.
ARTICLE XI. EFFECTIVE DATE
This Agreement shall become effective
and binding upon the parties on the date
first above written.
IN THE WITNESS THEREOF, the parties hereto
have caused to be signed by their duly
authorized officers, this Agreement at the
places indicated and on the dates set forth
below.
Date 5/11/97 /s/ Sakharam D. Mahurkar
------- ----------------------------------
Dr. Sakharam D. Mahurkar
Licensor
Date 4/24/97 /s/ unreadable
------- ----------------------------------
Horizon Medical Products Inc.
Seven North Parkway Square
4200 Northside Parkway, N.W.
Atlanta, Georgia 30327
Licensee
16
<PAGE> 1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS ("BLUE SKY LAWS") AND MAY NOT BE
TRANSFERRED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF (A "TRANSFER") IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE BLUE SKY LAWS OR PURSUANT TO AN OPINION FROM COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION (AS DEFINED BELOW) THAT SUCH TRANSFER IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE BLUE
SKY LAWS
WARRANT
TO PURCHASE 500,000 SHARES OF COMMON STOCK OF
HORIZON MEDICAL PRODUCTS, INC.
Date of Issuance: April 1, 1998
For value received, HORIZON MEDICAL PRODUCTS, INC., a Georgia
corporation (the "Corporation"), hereby grants to PREMIER PURCHASING PARTNERS,
L.P., a California limited partnership ("Premier"), or its permitted and
registered assigns, the right to subscribe for and purchase from the
Corporation, at any time and from time to time during the Effective Period (as
defined herein) the Warrant Shares (as defined herein) at the Exercise Price (as
defined herein) and upon the terms and subject to the conditions hereinafter set
forth.
1. DEFINITIONS. For the purposes of this Warrant, the following terms
have the meanings indicated:
"Accelerated Shares" shall have the meaning set forth in Section 3.3
hereof.
"Accelerated Year" shall have the meaning set forth in Section 3.3
hereof.
"Additional Shares" shall mean all shares of Common Stock issued by
the Corporation after the date hereof, other than (i) shares of Common Stock
issued in connection with an acquisition by the Corporation of the Stock or
assets of another Person or in connection with a business combination
("Acquisition Consideration") and for which acquisition or business combination
there shall have been issued an opinion from a nationally recognized investment
banking firm with respect to the fairness, from a financial point of view, of
such Acquisition Consideration, (ii) up to 500,000 shares of Common Stock issued
upon exercise of options granted under the Corporation's 1998 Stock Incentive
Plan (the "Stock Plan"), (iii) shares of Common Stock
<PAGE> 2
issued under, or pursuant to the exercise of options issued under, the
Consulting Agreement dated February 1, 1996, as heretofore amended, between the
Corporation and Health Care Alliance, Inc. (the "Health Care Alliance
Agreement"), (iv) shares of Common Stock issued under, or pursuant to the
exercise of options or warrants issued under, the Consulting Agreement dated May
8, 1997 between the Corporation and Robert Cohen (the "Cohen Agreement") and (v)
shares of Common Stock issued to Premier or any Person controlling, controlled
by or under common control with Premier.
"Base Shares" shall have the meaning set forth in Section 3.1
hereof.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in Atlanta, Georgia are authorized or
required by law to close.
"Common Stock" shall mean the Corporation's Common Stock, par value
$0.001 per share.
"Contract Year" shall mean the period commencing on the date hereof
and ending June 30, 1999 and each of the four successive one-year periods
commencing on the first, second, third and fourth annual anniversaries of June
30, 1999.
"Convertible Securities" shall mean evidences of indebtedness,
shares of Stock, warrants or other securities (other than Options) which are or
may be at any time convertible into or exercisable or exchangeable for or into
shares of Common Stock, other than securities issued under the Stock Plan, the
Health Care Alliance Agreement, the Cohen Agreement or as Acquisition
Consideration. The term "Convertible Security" shall mean one of the Convertible
Securities.
"Effective Date" shall mean, with respect to any Warrant Shares
vesting in respect of the initial Contract Year, the second annual anniversary
of the vesting thereof and, with respect to any Warrant Shares vesting in
respect of the second, third, fourth and fifth Contract Years, the first annual
anniversary of the respective vesting dates thereof.
"Effective Period" shall mean with respect to any Warrant Shares the
period beginning at 9:00 a.m. Eastern Standard Time on the Effective Date
applicable to such Warrant Shares and ending on (x) with respect to Warrant
Shares vesting with respect to the initial Contract Year, the third annual
anniversary date of the Effective Date at 5:00 p.m. Eastern Standard Time and
(y) with respect to Warrant Shares vesting with respect to the second, third,
fourth and fifth Contract Years, the fourth annual anniversary date of their
respective Effective Dates at 5:00 p.m. Eastern Standard Time.
"Exercise Date" shall mean a date on which an exercising Holder of
this Warrant has submitted to the Corporation this Warrant and the subscription
form attached hereto as Exhibit A and, if applicable, has paid the Exercise
Price as required by Section 3.5 hereof.
2
<PAGE> 3
"Exercise Price" shall mean the Initial Public Offering price per
share to the public of a share of Common Stock subject to adjustment in
accordance with Section 6 hereof.
"Fair Market Value" of a share of Common Stock as of any date shall
mean the average of the closing prices of Common Stock for the twenty (20)
consecutive Trading Days prior to the date of determination. The closing price
for each day shall be:
(i) the closing sale price or, in the absence of a
closing sale price, the average of the highest bid
and lowest asked prices of one share of Common Stock
quoted in the Nasdaq Stock Market's National Market
or any similar system of automated dissemination of
quotations of securities prices then in common use,
if so quoted; or
(ii) if not quoted as described in clause (i), the average
of the highest bid and lowest offered quotations for
one share of Common Stock as reported by the National
Quotation Bureau Incorporated if at least two
securities dealers have inserted both bid and offered
quotations for Common Stock on at least five (5) of
the twenty (20) consecutive Trading Days next
preceding the date of determination; or
(iii) if the Common Stock is listed or admitted for trading
on any national securities exchange, the last sale
price, or the closing bid price if no sale occurred,
of one share of Common Stock on the principal
securities exchange on which the Common Stock is
listed or admitted for trading.
If none of the conditions set forth above is met, the closing
price of one share of Common Stock on any day or the average of such closing
prices for any period shall be the Fair Market Value of Common Stock for such
day or period as determined by a member firm of the New York Stock Exchange
selected by the Corporation and approved by the Holder. If the Corporation and
the Holder are unable to agree on the selection of a member firm, then the issue
of selection of a member firm shall be submitted to the American Arbitration
Association.
"Group Purchasing Agreement" shall mean the Group Purchasing
Agreement of even date herewith between Premier and the Corporation, as the same
may be amended from time to time in accordance with the terms thereof.
"Holder" shall mean Premier, as the original registered holder
of this Warrant, and any permitted and registered transferee of Premier.
"Horizon Products" shall mean the Products (as defined in the
Group Purchasing Agreement) available for purchase by Premier Organizations
pursuant to the Group Purchasing Agreement.
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<PAGE> 4
"Initial Public Offering" shall mean the first registration of an
offering of shares of Common Stock under the Securities Act which is declared
effective by the Securities and Exchange Commission (other than by a
registration on Form S-4 or S-8 or any successor or similar forms).
"Option" shall mean any option to subscribe for or purchase any
shares of Common Stock or any Convertible Security, other than options issued
under the Stock Plan, the Health Care Alliance Agreement, the Cohen Agreement or
as Acquisition Consideration.
"Performance Goal" shall have the meaning set forth in Section 3.1
hereof.
"Performance Goal Statement" shall have the meaning set forth in
Section 3.1 hereof.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization, limited liability company, limited liability
partnership, government body or agency or political subdivision thereof, or
other association, sole proprietorship or entity.
"Premier Organizations" shall mean the limited partners and
affiliates of Premier, their affiliated hospitals and hospital systems and all
other Persons who have been granted the right to effect purchases pursuant to
contracts to which Premier or an affiliate of Premier is a party.
"Rescinded Adjustment" shall have the meaning set forth in Section
6.4.3 hereof.
"Registration Shares" shall mean the Warrant Shares issued pursuant
to any exercise of this Warrant.
"Restricted Securities" shall have the meaning set forth in Section
4.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar Federal statute then in effect.
"Stock" shall mean, with respect to any Person, any and all shares,
interests or other equivalents (however designated) of, or participations in,
the capital stock of any class of such Person.
"Trading Day" shall mean, with respect to the Common Stock: (i) if
the Common Stock is quoted on the Nasdaq Stock Market's National Market, any
similar system of automated dissemination of quotations of securities prices, or
the National Quotation Bureau Incorporated, each day on which quotations may be
made on such system; or (ii) if the Common Stock is listed or admitted for
trading on any national securities exchange, days on which such national
securities exchange is open for business; or (iii) if shares of the Common Stock
are not quoted on any system or listed or admitted for trading on any securities
exchange, a Business Day.
"Transfer Notice" shall have the meaning set forth in Section 4(b)
hereof.
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<PAGE> 5
"Warrant" shall mean this Warrant and any replacement warrants
issued with respect hereto pursuant to Sections 3.5 or 12 hereof.
"Warrant Shares" shall initially mean up to five hundred thousand
(500,000) shares of Common Stock (and thereafter such number of shares of Common
Stock as shall result from the adjustments specified herein) and shall mean only
those shares of Common Stock which vest in accordance with Section 3 hereof.
2. DURATION. The Holder shall have the right to exercise this Warrant
and to subscribe for and purchase Warrant Shares only during the Effective
Period applicable to the Warrant Shares subscribed for.
3. VESTING; METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
3.1. General. Subject to the acceleration provisions set forth in
Sections 3.2 and 3.3 below and the provisions of Section 6 below, the shares of
Common Stock issuable hereunder shall vest in five (5) increments of 100,000
shares ("Base Shares") on the last Business Day of each Contract Year during the
term of this Warrant based upon the satisfaction by Premier during each Contract
Year and/or on a cumulative basis of the minimum annual performance goals
("Minimum Annual Performance Goals") and the minimum cumulative sales goals
("Minimum Cumulative Sales Goals" and, together with the Minimum Annual
Performance Goals, "Performance Goals"), with respect to sales of Horizon
Products to Premier Organizations, set forth in table 3.1 below:
PERFORMANCE GOALS (TABLE 3.1)
<TABLE>
<CAPTION>
Minimum Annual
Performance Goal Minimum Cumulative
(Dollar Amount of Sales Performance Goal (Dollar
of Horizon Products to Amount of Sales of Number of Warrant
Contract Premier Organizations) Horizon Products to Shares Eligible for
Year Premier Organizations) Vesting
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $13,000,000 $ 13,000,000 100,000
2 $20,000,000 $ 33,000,000 100,000
3 $27,000,000 $ 60,000,000 100,000
4 $34,000,000 $ 94,000,000 100,000
5 $38,000,000 $132,000,000 100,000
</TABLE>
For the purposes of determining whether a Performance Goal has been met
with respect to any Contract Year, or on a cumulative basis, the Corporation
shall give Premier written notice (a "Performance Goal Statement") within thirty
(30) days after the end of each Contract Year, indicating aggregate sales of
Horizon Products to Premier Organizations (i) for such Contract Year
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<PAGE> 6
and (ii) since the date of issuance of this Warrant. Premier shall have thirty
(30) days after its receipt of any Performance Goal Statement to review the same
and to notify the Corporation in writing if it disputes any amounts reflected on
a Performance Goal Statement. If a dispute notice is given by Premier in a
timely manner, Premier and the Corporation shall attempt to resolve the
amount(s) in dispute as promptly as practicable. In the event Premier and the
Corporation are unable to resolve the dispute within ten (10) days of receipt by
the Corporation of the dispute notice, then Premier and the Corporation shall
submit the disputed items on the Performance Goal Statement to a mutually
acceptable nationally recognized certified public accounting firm. In the event
Premier and the Corporation cannot agree on the selection of a nationally
recognized certified public accounting firm, either party may request the
American Arbitration Association to appoint such a firm, and such appointment
shall be conclusive and binding on the parties. Within ten (10) days of the
selection or appointment of such accounting firm, each party shall submit to the
accounting firm a written statement describing the disputed Performance Goal
Statement item(s) in reasonable detail. The accounting firm shall, within
fifteen (15) days thereafter, resolve the disputed item(s) and such resolution
shall be set forth in writing and shall be accepted as final and binding on the
parties. In resolving the disputed item(s), the accounting firm shall not assign
a value to any item greater than the highest, or less than the lowest, value for
such item(s) claimed by either the Corporation or Premier. Upon request
therefore, the Corporation shall provide to Premier and/or its accountants and
other financial advisors copies of the work papers and related data used by the
Corporation in connection with the preparation of the Performance Goal
Statement.
3.2. Accelerated Vesting. If sales of Horizon Products to
Premier Organizations in a Contract Year exceed the Minimum Annual Performance
Goal and the Minimum Cumulative Performance Goal for such Contract Year, then
the number of Warrant Shares which shall vest with respect to such Contract Year
shall be increased to reflect the accelerated vesting of a portion of the Base
Shares eligible to vest in the subsequent Contract Year in accordance with the
following formula:
<TABLE>
<CAPTION>
Number of $ Amount in $ Amount of
Additional Excess of Annual
Warrant Shares Minimum Performance Goal
Vesting in Current = Annual / for Subsequent x 100,000*
Contract Year Performance Contract Year
from Acceleration Goal for Current
Contract Year
<S> <C> <C> <C>
</TABLE>
- ---------------
*Plus the number of additional shares, if any, deemed to be Base Shares
for the subsequent Contract Year in accordance with Section 6.5 hereof.
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<PAGE> 7
To the extent that the vesting of Base Shares with respect to any Contract Year
(an "Accelerated Year") has been accelerated (such accelerated Base Shares being
"Accelerated Shares") to a preceding Contract Year, in determining the number of
Warrant Shares eligible to vest in such Accelerated Year, the number of
Accelerated Shares shall be deducted from the number of Base Shares eligible to
vest.
3.3. Non-Satisfaction of Performance Goals. In the event the
Minimum Annual Performance Goal for any Contract Year is not satisfied, no
Warrant Shares shall vest with respect to such Contract Year unless the Minimum
Cumulative Performance Goal for such Contract Year has been satisfied, in which
event the number of Warrant Shares which vest shall equal (1) the number of Base
Shares eligible to vest in such year (reflecting any necessary reductions for
Accelerated Shares), plus (2) the amount by which the actual cumulative sales
for such Contract Year exceed the Minimum Cumulative Performance Goal for such
Contract Year divided by the Minimum Annual Performance Target for the
subsequent Contract Year.
3.4. Maximum Warrant Shares Issuable. Subject to Section 6
below, in no event shall the number of Warrant Shares issuable under this
Warrant exceed 500,000.
3.5. Exercise Procedure. During the Effective Period, the
Holder hereof may exercise this Warrant from time to time with respect to the
Warrant Shares by delivery to the Corporation at its office at One Horizon Way,
Manchester, Georgia 31816 Attention: William E. Peterson, Jr., President (or
such other address or person as the Corporation may specify to the Holder from
time to time), of (i) a written notice of the Holder's election to exercise this
Warrant, substantially in the form of the notice attached to this Warrant as
Exhibit A, duly executed by the Holder or its agent or attorney, (ii) payment of
the Exercise Price by either (x) a check payable to the Corporation in an amount
equal to the Exercise Price multiplied by the number of Warrant Shares being
purchased upon such exercise, (y) the delivery of a notice to the Corporation
that the Holder is exercising the Warrant by authorizing the Corporation to
reduce the Warrant Shares subject to the Warrant by the number of Warrant Shares
having an aggregate Fair Market Value as of the Exercise Date equal to the
Exercise Price multiplied by the number of Warrant Shares being purchased upon
such exercise or (z) the delivery to the Corporation of that number of shares of
Common Stock having an aggregate Fair Market Value as of the Exercise Date equal
to the Exercise Price multiplied by the number of Warrant Shares being purchased
upon such exercise and (iii) this Warrant. In the event of any exercise of the
rights represented by this Warrant, (i) certificates for the shares of Common
Stock so purchased shall be dated the date of such exercise and delivered to the
Holder hereof within a reasonable time, not exceeding twenty (20) Business Days,
after such exercise, and the Holder hereof shall be deemed for all purposes to
be the Holder of the Common Stock so purchased as of the date of such exercise,
and (ii) unless this Warrant has expired, a new Warrant representing the number
of shares of Common Stock, if any, with respect to which this Warrant shall not
then have been exercised shall also be issued to the Holder hereof within such
time. Any such replacement warrant shall be dated the date hereof and shall be
identical with this Warrant except as to the number of shares of Common Stock
issuable pursuant to the exercise thereof.
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<PAGE> 8
4. RESTRICTED SECURITIES. (a) This Warrant and the Warrant Shares
issuable hereunder (the "Restricted Securities") have not been registered under
the Securities Act or any Blue Sky Laws and shall not be transferred, sold,
pledged, assigned or otherwise disposed of except pursuant to an effective
registration statement under the Securities Act or pursuant to a transaction
that is exempt from the registration requirements of the Securities Act and in
accordance with paragraph (b) below. Certificates representing Warrant Shares
shall bear substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS ("BLUE SKY LAWS") AND MAY NOT BE
TRANSFERRED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF (A
"TRANSFER") IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN OPINION FROM COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION THAT SUCH TRANSFER IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE BLUE
SKY LAWS
(b) Prior to any Transfer, or attempted Transfer of Restricted
Securities, other than a Transfer or attempted Transfer pursuant to (x) a
transaction covered by an effective registration statement under the Securities
Act or (y) Rule 144 under the Securities Act, the Holder thereof shall give ten
(10) Business Days prior written notice (a "Transfer Notice") to the Corporation
of such Holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, accompanied by an acknowledgment of the
transferee of the terms and conditions hereof, and provide to the Corporation a
written opinion of counsel reasonably satisfactory to the Corporation and
addressed to the Corporation to the effect that the proposed Transfer of the
Restricted Securities may be effected without registration under the Securities
Act and applicable Blue Sky Laws. After receipt of the Transfer Notice and such
opinion of counsel, the Corporation shall, within five (5) Business Days
thereof, notify the Holder of the Restricted Securities in writing as to whether
the Holder is in compliance with the transfer provisions hereof and, if the
Corporation finds such compliance, such Holder shall thereupon be entitled to
Transfer the Restricted Securities, in accordance with the terms of the Transfer
Notice. The Holder of the Restricted Securities giving the Transfer Notice shall
not be entitled to transfer any of the Restricted Securities until receipt of
notice from the Corporation under this Section 4(b); provided, however, that the
Corporation shall be deemed to have delivered notice to the Holder approving any
Transfer described in a Transfer Notice to which the Corporation has not
otherwise responded within the five (5) Business Day period described above.
8
<PAGE> 9
5. STOCK FULLY PAID; RESERVATION OF SHARES. The Corporation covenants
and agrees that all shares of Common Stock which may be issued upon the exercise
of this Warrant will upon issuance be fully paid and non-assessable and free
from all taxes, liens and charges with respect to issuance and free of
preemptive rights. The Corporation further covenants and agrees that, during the
Effective Period, the Corporation will at all times have authorized and reserved
for the purpose of the issue upon exercise of this Warrant a sufficient number
of shares of Common Stock to provide for the exercise of the rights represented
by this Warrant.
6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number and
kind of securities issuable upon the exercise of this Warrant and the amount of
the Exercise Price shall be subject to adjustment from time to time upon the
happening of the following events during the Effective Period:
6.1. Consolidation, Merger and Other Sales Events. In the
event of any consolidation of the Corporation with, or a merger of the
Corporation into, any other Person, or a sale or lease or other transfer of all
or substantially all of the assets of the Corporation, or a distribution by the
Corporation of its assets with respect to the Common Stock as a liquidating or
partial liquidating dividend (a "Sale Event"), the Holder shall have the right
thereafter to exercise this Warrant and acquire the kind and amount of shares of
stock or other securities and property to which the Holder would have been
entitled if the Holder had purchased Common Stock of the Corporation by the
exercise of this Warrant immediately prior to any such Sale Event with respect
to all vested shares of Common Stock issuable hereunder, and the Corporation
shall make lawful provision therefor as part of such event. The Corporation
shall not effect any such Sale Event involving another Person (other than a
liquidation event) unless, upon or prior to the consummation thereof, the
successor Person or the Person to which the property of the Corporation has been
consolidated, merged, sold, leased or otherwise transferred, shall assume by
written instrument the obligations of the Corporation under the Group Purchasing
Agreement and this Warrant (as to unvested shares of Common Stock issuable
hereunder) and the obligation of the Corporation to deliver to the Holder such
shares of stock, securities, cash or property (or appropriate substitute stock,
securities, cash or property) as in accordance with the foregoing provisions the
Holder shall be entitled to receive or to earn.
6.2. Subdivision or Combination of Shares. If, at any time
while this Warrant is outstanding following the completion of an Initial Public
Offering , the Corporation shall subdivide or combine any class or classes of
its Common Stock, the Exercise Price shall be adjusted, as of the date the
Corporation shall take a record of the holders of such class or classes of
Common Stock for the purpose of such subdivision or combination (or, if no such
record is taken, as of the date of such subdivision or combination), to that
price determined by multiplying the Exercise Price in effect immediately prior
to the record date (or, if no such record is taken, then immediately prior to
such subdivision or combination), by a fraction, the numerator of which shall be
the total number of shares of Common Stock outstanding immediately prior to such
subdivision or combination, and the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such subdivision
or combination (plus in
9
<PAGE> 10
the event that the Corporation paid cash for fractional shares, the number of
additional shares which would have been outstanding had the Corporation issued
fractional shares in connection therewith). Upon each adjustment in the Exercise
Price pursuant to this Section 6.2, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the product obtained by multiplying
the number of such shares purchasable immediately prior to such adjustment in
the Exercise Price by a fraction, the numerator of which shall be the Exercise
Price immediately prior to such adjustment and the denominator of which shall be
the Exercise Price immediately thereafter.
6.3. Issuance of Additional Shares of Common Stock; Stock
Dividends. If, at any time while this Warrant is outstanding following the
completion of an Initial Public Offering, the Corporation shall issue any
Additional Shares, including shares issued as a Common Stock distribution or
dividend (other than as provided in the foregoing Sections 6.1 and 6.2), at a
price per share less than Fair Market Value of the Common Stock as of the date
immediately prior to such issuance, then the number of shares of Common Stock
purchasable upon exercise of this Warrant shall be adjusted by multiplying the
number of shares of Common Stock subject to purchase upon exercise of this
Warrant by a fraction, the numerator of which shall be the total number of
shares of Common Stock outstanding (including shares issuable upon exercise or
conversion of outstanding Convertible Securities) immediately prior to such
issuance of Additional Shares of Common Stock plus the number of Additional
Shares of Common Stock so issued, and the denominator of which shall be an
amount equal to the sum of (a) the number of shares of Common Stock outstanding
(including shares issuable upon exercise or conversion of outstanding
Convertible Securities) immediately prior to such issuance of Additional Shares
of Common Stock plus (b) the number of shares of Common Stock which the
aggregate consideration, if any, received by the Corporation (determined as
provided in Section 6.7 hereof) for such issuance of Additional Shares of Common
Stock would buy at the Fair Market Value thereof as of the date immediately
prior to such issuance. In the event of any such adjustment, the Exercise Price
shall be adjusted to a number determined by dividing the Exercise Price
immediately prior to such issuance of Additional Shares of Common Stock by the
fraction used for purposes of the aforementioned adjustment. The provisions of
this Section 6.3, including by operation of Section 6.4 below, shall not operate
to increase the Exercise Price or to reduce the number of shares of Common Stock
subject to purchase upon exercise of this Warrant.
6.4. Issuance of Options or Convertible Securities.
6.4.1. If the Corporation shall, at any time while
this Warrant is outstanding, issue any Options, whether or not
such Options or the rights to convert or exchange any
Convertible Securities issuable upon exercise of such Options
are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or
upon conversion or exchange of Convertible Securities issuable
upon exercise of such Options (determined by dividing (i) the
aggregate amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options,
plus the
10
<PAGE> 11
minimum aggregate amount of additional consideration payable
to the Corporation upon the exercise of all such Options,
plus, in the case of Options to acquire Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the conversion or exchange
thereof, by (ii) the maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than
the Fair Market Value per share of outstanding Common Stock on
the date immediately prior to the issuance of such Options or
immediately prior to the date of announcement thereof
(whichever is less), then for purposes of Section 6.3 hereof,
the maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the
maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to have been
issued as of the date of granting of such Options and
thereafter shall be deemed to be outstanding and the
Corporation shall be deemed to have received as consideration
such price per share, determined as provided above, therefor.
Except as otherwise provided in Section 6.4.3 hereof, no
additional adjustment of the number of shares of Common Stock
purchasable upon the exercise of this Warrant or of the
Exercise Price shall be made upon the actual exercise of such
Options or upon conversion or exchange of such Convertible
Securities.
6.4.2. If the Corporation shall, at any time while
this Warrant is outstanding, issue any Convertible Securities,
whether or not the rights to exchange or convert any such
Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (i) the
aggregate amount received or receivable by the Corporation as
consideration for such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Fair Market
Value per share of outstanding Common Stock of the Corporation
on the date immediately prior to such issuance or on the date
immediately prior to the announcement thereof (whichever is
less), then for purpose of Section 6.3 hereof, the maximum
number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to
have been issued as of the date immediately prior to the
issuance of such Convertible Securities and thereafter shall
be deemed to be outstanding and the Corporation shall be
deemed to have received as consideration such price per share,
determined as provided above, therefor. Except as otherwise
provided in Section 6.4.3, no additional adjustment of the
number of shares of Common Stock purchasable upon exercise of
this Warrant or of the Exercise Price shall be made upon the
actual conversion or exchange of such Convertible Securities.
11
<PAGE> 12
6.4.3. If the purchase price provided for in any
Option referred to in Section 6.4.1 hereof, the additional
consideration, if any, payable upon the conversion or exchange
of any Convertible Securities referred to in Sections 6.4.1 or
6.4.2 hereof, or the ratio at which any Convertible Securities
referred to in Sections 6.4.1 or 6.4.2 hereof are convertible
into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to
protect against, and having the effect of protecting against,
dilution upon an event which results in a related adjustment
pursuant to this Section 6), the number of shares of Common
Stock purchasable upon exercise of this Warrant and the
Exercise Price then in effect shall forthwith be readjusted
(effective only with respect to any exercise of this Warrant
after such readjustment) to the number of shares of Common
Stock purchasable upon exercise of this Warrant and the
Exercise Price which would then be in effect had the
adjustment made upon the issuance of such Options or
Convertible Securities been made based upon such changed
purchase price, additional consideration or conversion ratio,
as the case may be; provided, however, that such readjustment
shall give effect to such change only with respect to such
Options and Convertible Securities as then remain outstanding.
If, at any time after any adjustment or readjustment of the
number of shares of Common Stock purchasable upon exercise of
this Warrant or the Exercise Price shall have been made
pursuant to this Section 6.4.3, the right of conversion,
exercise or exchange of such Option or Convertible Securities
shall expire or terminate and the right of conversion,
exercise or exchange in respect of all or a portion of such
Option or Convertible Securities shall not have been
exercised, such previous adjustment shall be rescinded and
annulled. Thereupon, a recomputation shall be made of the
effect of such adjustment (a "Rescinded Adjustment") on the
number of shares of Common Stock, if any, theretofore actually
issued pursuant to the exercise of this Warrant during the
period from the issuance of the relevant Option or Convertible
Securities and the rescission of the Rescinded Adjustment and
the consideration actually received by the Corporation
therefor, and a new adjustment of the number of shares of
Common Stock purchasable upon exercise of this Warrant and the
Exercise Price shall be made, which new adjustment shall
supersede (effective only with respect to any exercise of this
Warrant after such readjustment) the previous adjustment so
rescinded and annulled.
6.4.4. If the Corporation shall after the date of
issuance of this Warrant pay a dividend or make any other
distribution upon the Common Stock of the Corporation payable
in Common Stock, Options or Convertible Securities, then, for
purposes of Section 6.3 and this Section 6.4, such Common
Stock, Options or Convertible Securities, as the case may be,
shall be deemed to have been issued or sold without
consideration.
12
<PAGE> 13
6.5. Increase in Number of Shares Issuable. The aggregate
amount of any increase in the number of shares of Common Stock issuable
hereunder shall be allocated as evenly as possible among the number of Base
Shares in each Contract Year of the term remaining hereunder at the time of such
adjustment.
6.6. Subscription Rights. If at any time the Corporation
grants its shareholders any right to subscribe pro rata for additional
securities of the Corporation, whether Common Stock, Options, Convertible
Securities, or other classifications, or for any other securities or interests
that the Holder would have been entitled to subscribe for if, immediately prior
to such grant, the Holder had exercised this Warrant, and if such action by the
Corporation does not result in a readjustment of the number of Warrant Shares or
in the Warrant Price under any other subsection of this Section 6, then the
Corporation shall also grant to the Holder the same subscription rights that the
Holder would be entitled to if the Holder had exercised this Warrant in full
(without regard to vesting) immediately prior to such grant.
6.7. Computation of Consideration. The consideration received
by the Corporation shall be deemed to be the following: (i) to the extent that
any Additional Shares, Options or Convertible Securities shall be issued for
cash consideration, the consideration received by the Corporation therefor; (ii)
if such Additional Shares, Options or Convertible Securities are offered by the
Corporation for subscription, the subscription price; (iii) if such Additional
Shares, Options or Convertible Securities are sold to underwriters or dealers
for public offering without a subscription offering, the initial public offering
price, without deduction of any compensation, discounts, commissions, or
expenses paid or incurred by the Corporation for or in connection with the
underwriting thereof or otherwise in connection with the issue thereof. In case
of the issuance at any time of any Additional Shares, Options or Convertible
Securities in payment or satisfaction of any dividend upon any class of Stock
other than Common Stock, the Corporation shall be deemed to have received for
such Additional Shares, Options or Convertible Securities a consideration equal
to the amount of such dividend so paid or satisfied. In any case in which the
consideration to be received or paid shall be other than cash, the Board of
Directors of the Corporation shall determine in good faith the fair market value
of such consideration and promptly notify the Holder of its determination of the
fair market value of such consideration prior to payment or accepting receipt
thereof. If, within thirty (30) days after receipt of said notice, the Holder
shall notify the Board of Directors of the Corporation in writing of its
objection to such determination, a determination of fair market value for such
consideration shall be made by an appraiser selected by the Corporation and
approved by the holder. If the Corporation and the Holder are unable to agree on
the selection of an appraiser, the issue of selection of an appraiser shall be
submitted to the American Arbitration Association.
6.8. Treasury Shares. In making any adjustment in the Exercise
Price provided in this Section 6, the number of shares of Common Stock at any
time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Corporation or any of its
Subsidiaries.
<PAGE> 14
6.9. Other Action Affecting Common Stock. In case after the
date hereof the Corporation shall take any action affecting its Common Stock,
other than an action described in any of the foregoing Sections 6.1 through 6.7,
inclusive, and the failure to make any adjustment would not fairly protect the
purchase rights represented by this Warrant in accordance with the intent and
principles of this Section 6, then the Warrant Price shall be adjusted in such
manner as the Board of Directors of the Corporation shall in good faith
determine to be equitable in the circumstances.
7. NOTICE OF CERTAIN EVENTS, ADJUSTMENTS
7.1. Prior Notice of Certain Events. The Corporation shall
deliver (by first class mail postage prepaid) to the Holder of this Warrant
written notice at least ten (10) days prior to the occurrence of the following
events:
(i) the date on which a record is to be taken for the
purpose of any dividend, subdivision or combination
of shares, or, if a record is not to be taken, the
date as of which the shareholders of Common Stock of
record to be entitled to such dividend, subdivision
or combination are to be determined;
(ii) the date on which a record is to be taken for the
purpose of determining shareholders of Common Stock
entitled to vote on any reclassification,
reorganization, consolidation, merger, sale,
transfer, dissolution, liquidation, winding up,
purchase, retirement or redemption; and
(iii) the date, if any, as of which holders of record of
the Common Stock will be entitled to exchange their
Common Stock for securities or other property
deliverable upon such reclassification,
reorganization, consolidation, merger, sale,
transfer, dissolution, liquidation, winding up,
purchase, retirement or redemption.
7.2. Notice of Adjustments. If any circumstance or adjustment
described in Section 6 hereof occurs, then within five (5) days after the
occurrence of such circumstance or such adjustment, the Corporation shall
deliver (by first class mail postage prepaid) to the holder of this Warrant
notice thereof, and shall state in reasonable detail (i) the event requiring any
adjustment to either the Exercise Price or the number of shares of Common Stock
purchasable upon exercise of this Warrant, (ii) the amount of the adjustment,
(iii) the method by which such adjustment was calculated (including a
description hereunder), and (iv) the Exercise Price and number of shares of
Common Stock purchasable hereunder after giving effect to such adjustment.
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8. WARRANT HOLDER NOT SHAREHOLDER. Subject to Section 6 hereof, until
exercised, this Warrant shall not entitle the Holder to any voting rights or
other rights of a shareholder of the Corporation.
9. REGISTRATION RIGHTS
9.1. Incidental Registration. If the Corporation, at any time
prior to April 1, 2004, proposes to register any Common Stock under the
Securities Act for sale (except with respect to an Initial Public Offering and
registration statements on Forms S-4 or S-8 or any successor or similar forms),
each such time it will give written notice to Premier of its intention so to do.
Upon the written request of Premier, given within ten (10) days after receipt of
any such notice, to register any of Premier's Registration Shares, the
Corporation will use its reasonable efforts to cause the Registration Shares as
to which registration shall have been so requested to be included in the
securities to be covered by the registration statement proposed to be filed by
the Corporation. The number of Registration Shares to be included in a firm
commitment underwritten public offering pursuant to this Section 9.1 may be
reduced if and to the extent that the managing underwriters shall be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold thereunder. Premier's Registration Shares are subject to
the priority of registration rights with respect to Common Stock granted to any
other party as of the date of issuance of this Warrant which are superior to the
rights of Premier under this Agreement or otherwise conflict with the rights of
Premier under this Agreement. Premier's Registration Shares shall not be subject
to any priority of registration rights with respect to Common Stock granted or
issued to any other party following the date hereof, provided that registration
rights may be granted on a pari passu basis, in which event Premier's
Registration Shares shall participate in any registration on a pro rata basis
with any other shares of Common Stock entitled to such registration rights.
Notwithstanding anything to the contrary contained in this Section 9.1, in the
event that there is a firm commitment underwritten public offering of Common
Stock pursuant to which Premier has incidental registration rights under this
Section 9.1 and (i) Premier does not elect to sell Registration Shares in
connection with such underwritten public offering, and (ii) the directors,
officers and substantially all of the holders of unregistered shares of Common
Stock representing 5% or more of the outstanding Common Stock of the Corporation
("Other Holders") have agreed to refrain from selling any shares of Common Stock
then owned by them during the period of distribution of the Corporation's Common
Stock by the underwriters for any such underwritten public offering and for such
period of time thereafter as such underwriters shall reasonably determine with
respect to both Premier and the Other Holders, then Premier shall refrain from
selling any Registration Shares then owned by Premier during the period of
distribution of the Corporation's Common Stock by such underwriters and for such
period of time thereafter as such underwriters shall reasonably determine with
respect to both Premier and the Other Holders.
9.2. Registration Procedures. If and whenever the Corporation
is required by the provisions of Section 9.1 hereof to effect the registration
of any of the Registration Shares under the Securities Act, the Corporation
shall, as expeditiously as possible:
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<PAGE> 16
(a) prepare and file with the Commission a registration
statement on the applicable form with respect to such
securities (such registration statement to include
all information which Premier shall reasonably
request) and use its reasonable efforts to cause such
registration statement to become and remain effective
for the period specified in Section 9.2(f) below;
provided, however, that the Corporation will (i)
furnish to counsel selected by Premier copies of the
registration statement and copies of all documents
proposed to be filed therewith, and the Corporation
shall not file the registration statement or any such
documents to which such counsel shall have reasonably
objected on the grounds that such registration
statement and documents do not comply in all material
respects with the requirements of the Securities Act
or of the rules or regulations thereunder, (ii) permit
counsel to Premier to conduct such legal due
diligence as may reasonably be required to satisfy
their due diligence obligation under the Securities
Act and (iii) notify Premier of (x) any request by
the Commission to amend such registration statement,
or (y) any stop order issued or threatened by the
Commission, and take all reasonable actions required
to prevent the entry of such stop order to promptly
remove if it entered;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the
prospectus used in connection therewith as may be
necessary to keep such registration statement effective
for the distribution period specified in Section 9.2(f)
below and to comply with the provisions of the Securities
Act with respect to the disposition of all Registration
Shares covered by such registration statement;
(c) furnish to Premier and to each underwriter such number of
copies of the registration statement and the prospectus
included therein (including each preliminary prospectus)
as such persons may reasonably request in order to
facilitate the public sale or other disposition of the
Registration Shares covered by such registration
statement;
(d) use its reasonable efforts to register or qualify the
Registration Shares covered by such registration statement
under the Blue Sky Laws of such jurisdictions as the
managing underwriters shall reasonably request;
(e) use its reasonable efforts to cause all such Registration
Shares to be listed on each securities exchange and
quotation system on which similar securities issued
by the Corporation are then listed and, if such
securities are not then listed on the New York Stock
Exchange, American Stock Exchange or the Nasdaq
National Market, on such exchange or quotation system
as may be reasonably requested by Premier, provided
that the Corporation then meets or
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is reasonably capable of meeting the eligibility
requirements for such exchange or system, and to
enter into such customary agreements as may be
required in furtherance thereof, including, without
limitation, listing applications and indemnification
agreements in customary form;
(f) immediately notify Premier and each underwriter, at any
time when a prospectus relating to Registration Shares is
required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus
contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading in the light of the circumstances then
existing;
(g) cause members of its management to participate in a road
show with respect to any firm commitment underwritten
public offering in which Registration Shares are included;
and
(h) the period of distribution of Registration Shares in a
firm commitment underwritten public offering pursuant to
Section 9.1 shall be deemed to extend until each
underwriter has completed the distribution of all
securities purchased by it.
9.3. Premier's Cooperation. In connection with each registration
hereunder, Premier will furnish to the Corporation in writing such information
with respect to itself and the proposed distribution by Premier as shall be
reasonably necessary in order to assure compliance with federal and applicable
Blue Sky Laws.
9.4. Underwriting Agreement. In connection with each
registration pursuant to Section 9.1 hereof covering a firm commitment
underwritten public offering, the Corporation agrees to enter into a written
agreement with the managing underwriters selected by the Corporation in such
form and containing such provisions as are customary in the securities business
for such an arrangement between major underwriters and companies of the
Corporation's size and investment stature; provided, however, that such
agreement shall not contain any such provision applicable to the Corporation
which is inconsistent with the provisions hereof; provided, further, however,
that the time and place of the closing under said agreement shall be as
reasonably agreed upon by the Corporation and such managing underwriters.
9.5. Expenses. All expenses incurred by the Corporation and
Premier in connection with a registration contemplated by Section 9.1 hereof,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Corporation, fees of the National Association of Securities Dealers,
Inc. and fees of transfer agents and registrars, but excluding any Selling
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<PAGE> 18
Expenses (as hereinafter defined), are herein called "Registration Expenses."
All underwriting discounts, selling commissions, taxes, fees and disbursements
of counsel for Premier and brokerage fees and expenses applicable to the sale of
Registration Shares are herein called "Selling Expenses." All Registration
Expenses in connection with each registration statement filed pursuant to
Section 9.1 hereof shall be borne by the Corporation. All Selling Expenses in
connection with each registration statement filed pursuant to Section 9.1 hereof
shall be borne by Premier.
9.6. Indemnification. In the event of a registration of any of
the Registration Shares under the Securities Act pursuant to Section 9.1 hereof,
the Corporation will indemnify and hold harmless Premier and each other person,
if any, who controls Premier within the meaning of the Securities Act, against
any losses, claims, damages or liabilities, joint or several, to which Premier
or such controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registration Shares were registered under the Securities Act
pursuant to Section 9.1 hereof, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse Premier and each such controlling person for any
legal expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Corporation will not be liable and will not reimburse Premier or any
such controlling person in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by Premier or any controlling person of
Premier or underwriter of Registration Shares in writing specifically for use in
such registration statement or preliminary or final prospectus (or amendment or
supplement thereto).
In the event of a registration of any of the Registration Shares under
the Securities Act pursuant to Section 9.1 hereof, Premier will indemnify and
hold harmless the Corporation and each person, if any, who controls the
Corporation within the meaning of the Securities Act, each officer of the
Corporation who signs the registration statement, each director of the
Corporation, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Corporation or such officer or
director or underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registration Shares were registered
under the Securities Act pursuant to Section 9.1 hereof, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a
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<PAGE> 19
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Corporation and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that Premier will be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to Premier,
as such, furnished in writing to the Corporation by Premier specifically for use
in such registration statement or prospectus; provided, further, however, that
the liability of Premier hereunder shall be limited to the proportion of any
such loss, claim, damage, liability or expense which is equal to the proportion
that the public offering price of shares sold by Premier under such registration
statement bears to the total public offering price of all securities sold
thereunder, but not to exceed the proceeds received by Premier from the sale of
Registration Shares covered by such registration statement.
Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
which it may have to any indemnified party except to the extent that the
indemnifying party demonstrates that it has been irreparably prejudiced thereby.
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9.6 for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded based upon advice of
counsel that there may be defenses available to it which are different from or
additional to those available to the indemnifying party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, then the indemnified party shall have the right to
select a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other reasonable expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
Notwithstanding the foregoing, in any such action, any indemnified
party shall have the right to retain his or its own counsel, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood
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<PAGE> 20
that the indemnifying party shall not, in connection with any action or related
actions in the same jurisdiction, be liable for the fees and disbursements of
more than one separate firm qualified in such jurisdiction to act as counsel for
the indemnified party. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
If the indemnification provided for in the first two paragraphs of this
Section 9.6 is unavailable or insufficient to hold harmless an indemnified party
under such paragraphs in respect of any losses, claims, damages or liabilities
or actions in respect thereof referred to therein, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party, as a result of such losses, claims,
damages, liabilities or actions in such proportion as appropriate to reflect the
relative fault of the Corporation, on the one hand, and Premier, on the other,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or actions as well as any other relevant equitable
considerations, including the failure to give the notice required under such
paragraphs. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
relates to information supplied by the Corporation, on the one hand, or Premier,
on the other hand, and to the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Corporation and Premier agree that it would not be just and equitable if
contributions pursuant to this paragraph were determined by pro rata allocation
or by any other method of allocation which did not take account of the equitable
considerations referred to above in this paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or actions in respect thereof, referred to above in this paragraph, shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph, Premier shall not be
required to contribute any amount in excess of the amount, if any, by which the
total price at which the Registration Shares sold by Premier was offered to the
public exceeds the amount of any damages which it has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation.
10. AMENDMENT AND WAIVER. Any term, covenant, agreement or conditions
in this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Corporation and the Holder.
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11. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
12. REPLACEMENT. On receipt of evidence reasonably satisfactory to the
Corporation of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, of an indemnity agreement or bond
reasonably satisfactory in form and amount of the Corporation or, in the case of
mutilation, on surrender and cancellation of this Warrant, the Corporation, at
its expense, will execute and deliver in lieu of this Warrants a new warrant of
like tenor.
13. SPECIFIC PERFORMANCE. The Holder shall have the right to specific
performance by the Corporation of the provisions of this Warrant. The
Corporation hereby irrevocably waives, to the extent that it may do so under
applicable law, any defense based on the adequacy of a remedy at law which may
be asserted as a bar to the remedy of specific performance in any action brought
against the Corporation for specific performance of this Warrant by the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Corporation has executed and delivered this
Warrant as of the date first set forth above.
HORIZON MEDICAL PRODUCTS, INC., a
Georgia corporation
By: /s/ Marshall B. Hunt
---------------------------------
Name: Marshall B. Hunt
Title: Chairman and CEO
Attest:
- -------------------------
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EXHIBIT A
EXERCISE NOTICE
[To be executed only upon exercise of Warrant]
CASH EXERCISE METHOD
The undersigned registered owner of the attached Warrant irrevocably
exercises, by the cash exercise method in accordance with Section 3.5(ii)(x) of
the Warrant, the attached Warrant for the purchase of ___ shares of Common
Stock, $0.001 par value, of Horizon Medical Products, Inc. and herewith makes
payment therefor, to the order of the Corporation in the amount of $________ as
of the Exercise Price in accordance with the terms set forth in Section
3.5(ii)(x).
NON-CASH EXERCISE METHOD
The undersigned registered owner of the attached Warrant irrevocably
exercises, by the non-cash exercise method in accordance with Section 3.5(ii)(y)
of the Warrant, the attached Warrant for the purchase of _____ shares of Common
Stock,$0.001 par value, of Horizon Medical Products, Inc. in accordance with
the terms set forth in Section 3.5(ii)(y); or
The undersigned registered owner of the attached Warrant irrevocably
exercises, by the non-cash exercise method in accordance with Section 3.5(ii)(z)
of the Warrant, the attached Warrant for the purchase of _______ shares of
Common Stock, $0.001 par value, of Horizon Medical Products, Inc. in accordance
with the terms set forth in Section 3.5(ii)(z).
ISSUANCE INSTRUCTIONS
The undersigned requests that a certificate for such Common Stock be
registered in the name of _____ whose address is ____ and that such certificate
be delivered to __________________ whose address is ____. If such number of
shares of Common Stock is less than all of the shares of Common Stock which
may be purchased upon the exercise of the Warrant, the undersigned hereby
requests that a new Warrant representing the remaining balance of this Warrant
be registered in the name of ____ whose address is _______and that such Warrant
be delivered to ________ whose address is ________.
A-1
<PAGE> 24
---------------------------------
Name of Registered Owner
---------------------------------
Signature of Registered Owner
---------------------------------
---------------------------------
Address
---------------------------------
Federal ID Number
A-2
<PAGE> 1
PREMIER PURCHASING PARTNERS, L.P.
- -------------------------------------------------------------------------------
GROUP PURCHASING AGREEMENT
- -------------------------------------------------------------------------------
COVER SHEET
1. The "Parties" to this Group Purchasing Agreement are:
Premier Purchasing Partners, L.P. Horizon Medical Products, Inc.
("Purchasing Partners") ("Seller")
Three Westbrook Corporate Center One Horizon Way
Ninth Floor Manchester, GA 31816
Westchester, IL 60154-5735
Attention: Chief Operating Officer Attention: William E. Peterson
(708) 409-4100 (706) 846-3126
(708) 409-3499 (fax) (706) 846-3146 (fax)
2. Product Category: Cardiac medical devices
3. Effective Date: March 9, 1998
4. Expiration Date: March 8, 2003
5. Term of Agreement: 60 months
6. Guaranteed Delivery Time Period: 30 days (Section 6.5)
7. Purchasing Partners Administrative Fee: 2 % (Section 10.1)
This Group Purchasing Agreement (the "Agreement") is comprised of the
following documents and is entered into by the Parties effective as of the
Effective Date set forth in Item 3 above:
i. This Cover Sheet;
ii. The attached Premier Purchasing Partners Standard Terms and
Conditions;
iii. The attached Additional Terms and Conditions (if any); and
iv. The following attached exhibits:
Exhibit A: PRODUCTS (Products List and Pricing)
Exhibit B: ROSTER OF PARTICIPATING MEMBERS
Exhibit C: AUTHORIZED DISTRIBUTORS
Exhibit D: REPORTING FORMATS
Exhibit E: WIRE INSTRUCTIONS
Exhibit F: MINORITY AND FEMALE-OWNED BUSINESSES POLICY
PREMIER PURCHASING PARTNERS, L.P. Horizon Medical Products, Inc.
("Seller")
By: PREMIER PLANS, INC.,
Its General Partner
By: /s/ Lynn Detlor By: /s/ Marshall B. Hunt
----------------------------- -----------------------------
Printed Name: Lynn Detlor Printed Name: Marshall B. Hunt
------------------- -------------------
Title: President P.P. Title: Chairman & CEO
-------------------------- --------------------------
By: /s/ James Garvey
-----------------------------
Printed Name: James Garvey
------------------
Title: Chief Operating Officer
-------------------------
<PAGE> 2
- -------------------------------------------------------------------------------
PREMIER PURCHASING PARTNERS
STANDARD TERMS AND CONDITIONS
- -------------------------------------------------------------------------------
GROUP PURCHASING AGREEMENT
- -------------------------------------------------------------------------------
WHEREAS, Purchasing Partners is an affiliate of Premier, Inc.
("Premier"), the nation's largest alliance of hospitals and health care
organizations;
WHEREAS, Premier's core objective is to improve the health of
communities;
WHEREAS, such core objective as well as the objective of helping to
assure that patients receive safe and efficacious care can be accomplished, in
part, by achieving economies of scale and innovations through group strategies
and shared resources;
WHEREAS, group purchasing is a fundamental way hospitals and health
systems cooperate to reduce the costs of providing health services;
WHEREAS, Premier's group purchasing program which is the world's
largest health care group purchasing program, is operated by Purchasing
Partners;
WHEREAS, Seller is a leading manufacturer and supplier of medical
devices; and
WHEREAS, Seller has offered to provide products and services to the
Premier membership consistent with the terms of this Agreement;
NOW THEREFORE, in consideration of the mutual promises contained herein
and other good and sufficient consideration, the receipt and adequacy of which
is hereby acknowledged, the Parties hereto agree as follows:
1.0 TERM OF AGREEMENT. This Agreement will remain in effect for the period of
time set forth in Item 5 of the Cover Sheet.
2.0 PRODUCTS COVERED. Seller hereby agrees to provide the products described in
Exhibit A hereto (the "Products") pursuant to the terms of this Agreement.
Seller shall provide Purchasing Partners with written notice of any Products
which are not manufactured by Seller (i.e., those Products which are
manufactured by a third party), setting forth the Product name and the name of
the actual manufacturer.
3.0 PARTICIPATING MEMBERS. Set forth in Exhibit B hereto is a list of the
Premier members who shall have the right to purchase Products in accordance with
this Agreement ("Participating Members"). Exhibit B may be amended by Purchasing
Partners from time to time upon written notice to Seller. Purchasing Partners
shall have the right to provide Exhibit B to Seller on computer diskette or
through other electronic means rather than in printed form. Purchasing Partners
shall provide Seller with written notice of any entities/hospitals which have
been removed from Exhibit B and are therefore no longer Participating Members
(the "Removal Notice"). Seller shall stop providing the pricing set forth herein
to such removed entities/hospitals sixty (60) days after Seller's receipt of the
Removal Notice.
Purchasing Partners shall require Participating Members to terminate
their participation in the buying programs of other group purchasing
organizations as a condition to participation in Purchasing Partners' group
purchasing program. To this end, Seller will not offer or otherwise make the
Products available to Participating Members through arrangements with other
group purchasing organizations. Seller will remove each Participating Member's
name from the roster of participants in other group purchasing organizations
that have arrangements with Seller for the Products.
4.0 COMMITMENT REQUIREMENTS. In order to be entitled to the pricing terms
(described in Exhibit A hereto), Participating Members shall comply with the
commitment requirements set forth in Exhibit A.
5.0 TERMINATION OF EXISTING CONTRACTS. Any Participating Member desiring to
avail itself of the benefits of this Agreement may, at its option and without
liability, terminate any existing contract(s) or other arrangement(s) with
Seller for the purpose of participating in the group purchasing arrangement set
forth in this Agreement.
6.0 ORDERING, SHIPPING, DELIVERY.
6.1 AUTHORIZED DISTRIBUTORS. All Products purchased pursuant to this
Agreement by Participating Members which are not purchased directly from Seller,
where applicable, may be purchased from and through authorized distributors
("Authorized Distributors"). A list of all current Authorized Distributors is
set forth in Exhibit C. Seller warrants that it shall not make any change or
take any action with respect to Authorized Distributors which, if implemented,
would materially change the ultimate delivered price paid by the Participating
Member.
6.2 PAYMENT TERMS. A Participating Member will receive an additional
two percent (2%) off of the pricing set forth in Exhibit A if full payment is
made to Seller within thirty (30) days following either delivery of Product(s)
to or receipt of invoice by the Participating Member, whichever date is later.
In any event, full payment must be made within forty-five (45) days following
such delivery of Product(s) or receipt of invoice, whichever date is later.
Payment terms for Products purchased from an Authorized Distributor will be
negotiated between each Participating Member and the Authorized Distributor.
1
<PAGE> 3
6.3 SHIPPING TERMS. All shipments direct from Seller shall be Net
F.O.B. destination, with all costs of transportation and insurance being paid by
Seller, with the exception of special delivery and/or air shipments requested by
Participating Members. Such special delivery and/or air shipment charges shall
be prepaid by Seller and invoiced to the requesting Participating Member for
such member's payment pursuant to the payment terms set forth in Section 6.2 of
this Agreement. Participating Members shall have ten (10) business days from the
date of delivery in which to inspect the Product(s) and to accept or reject such
Product(s). In the event a Participating Member, after such inspection, rejects
the Product(s) due to discovery of broken or damaged items of Products or the
packages containing Products, the Participating Member shall have the right to
return the damaged Product(s) for, at the Participating Member's option, full
credit of purchase price or replacement of the damaged Product(s). Shipping
terms for Products purchased from an Authorized Distributor will be negotiated
between each Participating Member and the Authorized Distributor.
6.4 MINIMUM ORDER. Seller shall have no minimum purchase order
requirement applicable to any or all Participating Members. For Products
purchased from an Authorized Distributor, any minimum order purchase requirement
will be negotiated between each Participating Member and the Authorized
Distributor.
6.5 GUARANTEE OF DELIVERY. Seller guarantees that all Products ordered
by any Participating Member shall be delivered to such member within no more
than the number of days of Seller's receipt of such member's order for the
Product(s) as is set forth in Item 6 of the Cover Sheet. If Seller fails to
deliver any Product(s) within the above-mentioned time period, the Participating
Member may purchase any substitute product(s) from another source(s), and Seller
shall reimburse such member for the difference between such member's actual
F.O.B. destination acquisition cost for such product(s) and the price(s) such
member would have paid for Seller's Product(s) under this Agreement. Upon the
request of any Participating Member, Seller will assist any such Participating
Member in finding alternative acceptable sources for any Product(s) which Seller
cannot deliver according to the guaranteed delivery time specified above.
For orders placed with an Authorized Distributor, guarantee of delivery
provisions will be negotiated between each Participating Member and the
Authorized Distributor. If the Authorized Distributor fails to deliver any
Product(s) within the foregoing negotiated time period because Seller has failed
to provide the Product(s) to the Authorized Distributor, the Participating
Member may purchase any substitute product(s) from another source(s), and Seller
shall reimburse such member for the difference between such member's actual
F.O.B. destination acquisition cost for such product(s) and the price(s) such
member would have paid for Seller's Product(s) under this Agreement, provided
that Seller is notified by the Participating Member of such failure to deliver
and cannot provide an alternative product acceptable to the Participating Member
at the same price. Upon the request of any Participating Member, Seller will
assist any such Participating Member in finding alternative acceptable sources
for any Product(s) which an Authorized Distributor cannot deliver according to
the guaranteed delivery time specified above.
6.6 GUARANTEE OF DELIVERY UNDER EMERGENCY CONDITIONS. In the event of a
natural disaster or industry wide shortage of Products ("Emergency Condition"),
Seller agrees to give priority to orders placed by Participating Members for
Products during the duration of the Emergency Condition. Seller will use best
efforts to set aside an adequate quantity of Products for the exclusive purchase
by Participating Members for the duration of the Emergency Condition.
7.0 PRICING TERMS.
7.1 PRICING. Product pricing is set forth in Exhibit A hereto.
7.2 *** Seller also agrees to extend any terms or pricing offered to
an individual Participating Member to all Participating Members. Notwithstanding
any other provision of this Agreement, upon obtaining the prior written consent
of Purchasing Partners (which may be withheld in Purchasing Partner's sole
discretion), Seller may, under certain circumstances (e.g., Beta testing,
research and development related activities) and for a specified reasonable
period of time, offer special acquisition programs to certain designated
Participating Members, the terms of which shall be mutually agreed upon by
Seller, Purchasing Partners and such Participating Members.
7.3 PRICING OF NEW PRODUCTS. Pricing for any additional and/or new
products to be added to Exhibit A will be negotiated at prices consistent with
the prices of Products already covered by this Agreement. Seller agrees to
inform Purchasing Partners of new products (branded or generic) that Seller
plans to introduce to the market ("New Product Information") as far in advance
as possible. Seller also agrees to provide to Purchasing Partners, as soon as
practical, a copy of the summary basis of approval or medical officer's report
for new products approved by the FDA. Purchasing Partners agrees to treat all
New Product Information as Confidential Information (as defined) in accordance
with the terms of Section 14 hereof.
8.0 MARKETING/SALES SUPPORT.
8.1 SELLER REPRESENTATIVES. Seller will provide representatives to call
upon Participating Members on a periodic basis mutually agreed to by Seller and
each individual Participating Member.
8.2 IN-SERVICE/CLINICAL TRAINING. Included in the price of the
Product(s), Seller will provide to each Participating Member in-service and
clinical training related to the Products as required or requested by each
Participating Member.
9.0 PRODUCT PRICING INFORMATION; SALES DOCUMENTATION; ADMINISTRATIVE
FEE REPORTING.
9.1 PRODUCT PRICING INFORMATION (SALES CATALOGS). Seller will provide
to Purchasing Partners product pricing information in the ANSI X.12 format as
detailed in Exhibit D. If Seller cannot provide product pricing information in
this format, Seller may utilize one of the alternative formats detailed in
Exhibit D. Purchasing Partners shall have the right to provide Exhibit D to
Seller on computer diskette or
*** Confidential Treatment Requested
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through other electronic means rather than in printed form and to update Exhibit
D from time to time.
9.2 SALES DOCUMENTATION. Seller will provide Purchasing Partners with
quarterly reports of all Products purchased by each Participating Member during
each calendar quarter of the term. Seller shall provide Purchasing Partners such
reports no later than sixty (60) days after the last day of the applicable
calendar quarter. Reports will include, without limitation, reporting period
start and end dates, Participating Member name, city, state, and sales volume
per Product (totaled per Participating Member). Participating Members will be
identified by HIN and/or DEA number. Seller will provide such sales information
in the ANSI X.12 format as detailed in Exhibit D. If Seller cannot provide such
information in this format, Seller may utilize one of the alternative formats
detailed in Exhibit D.
9.3 ADMINISTRATIVE FEE REPORTING. Seller will provide Purchasing
Partners with quarterly reports setting forth the Purchasing Partners
Administrative Fee (as defined in Article 10 below) amounts generated by each
Participating Member during each calendar quarter of the term. Seller shall
provide Purchasing Partners such reports no later than sixty (60) days after the
last day of the applicable calendar quarter. Participating Members will be
identified by HIN and/or DEA number. Seller will provide such information in the
ANSI X.12 format as detailed in Exhibit D. If Seller cannot provide such
information in this format, Seller may utilize one of the alternative formats
detailed in Exhibit D.
9.4 PARTICIPATING MEMBERS' EDI TRANSACTION SETS. Seller shall use best
efforts to accommodate the requests of Participating Members with respect to
Seller's use of Electronic Data Interchange ANSI X.12 Transaction Sets,
including without limitation, Transaction Sets 810 (invoice), 820 (payment
order/remittance advice), 832 (price/sales catalog), 850 (purchase order), 855
(purchase order acknowledgment), 856 (ship notice/manifest), 844 (product
transfer account adjustment), and 849 (response to product transfer account
adjustment [or charge back or rebate]).
10.0 FEES.
10.1 PURCHASING PARTNERS ADMINISTRATIVE FEE. Seller will pay Purchasing
Partners an administrative fee (the "Purchasing Partners Administrative Fee")
equal to the percentage set forth in Item 7 of the Cover Sheet of the total
dollar volume of Products purchased by Participating Members through Seller or
through any Authorized Distributors during the term of this Agreement.
10.2 MANNER OF PAYMENT. Seller will pay to Purchasing Partners the
Purchasing Partners Administrative Fee quarterly, in advance, without demand or
notice, within fifteen (15) days of the Effective Date and thereafter, within
fifteen (15) days of the end of each calendar quarter during the term. Seller's
first Administrative Fee payment hereunder shall include amounts due with
respect to any "stub" period (i.e., the period of time from the Effective Date
until the first day of the first calendar quarter) and the entire first calendar
quarter.
Seller's first two (2) payments hereunder shall be based on the
estimated total dollar volume of Products to be purchased by Participating
Members through Seller or through any Authorized Distributor for the applicable
period (the "Estimated Purchase Volume"). The Estimated Purchase Volume shall be
mutually agreed to by the Parties prior to the execution of this Agreement and
set forth in a separate written memorandum signed by the Parties. The actual
total dollar volume of Products purchased by Participating Members through
Seller or Authorized Distributors ("Actual Purchase Volume") shall be determined
within sixty (60) days after the end of each calendar quarter and reconciled
against the Estimated Purchase Volume amount which was utilized for the
applicable time period. Any overpayment or underpayment shall be reflected as an
adjustment to the next quarterly advance payment due Purchasing Partners from
Seller.
Upon determination of the Actual Purchase Volume based on the
reconciliation process described above (the "Reconciliation Process"), such
amount shall be used as the Estimated Purchase Volume thereafter until the next
Reconciliation Process is completed.
All payments shall be by wire or electronic transfer to the account of
"Premier Purchasing Partners, L.P." in accordance with the written instructions
set forth as Exhibit E hereto or by a check payable to "Premier Purchasing
Partners, L.P." Seller shall pay to Purchasing Partners interest on any past due
amount owing Purchasing Partners hereunder at the lesser of (i) one and one-half
percent (1-1/2%) per month or (ii) the maximum interest rate legally permitted.
11.0 COMPLIANCE WITH LAWS AND REGULATIONS. Seller represents and warrants that
throughout the term of this Agreement and any extension hereof, Seller and all
Products shall be and shall remain in compliance with all applicable federal,
state and local laws and regulations, including without limitation all
applicable "safe harbor" regulations relating to group purchasing organizations
and fees, discounts and incentives paid and/or granted to group purchasing
organizations and any participants therein. Seller shall disclose to
Participating Members, per applicable regulations, the specified dollar value of
discounts or reductions in price. The Parties acknowledge and agree that for
purposes of 42 C.F.R. Section 1001.952(h), any reduction in the amount Seller
charges a Participating Member (excluding group purchasing organization fees,
such as the Purchasing Partners Administrative Fee) is a "discount or other
reduction in price" to the Participating Member. Participating Members shall
disclose the specified dollar value of discounts or reductions in price under
any state or federal program which provides cost or charge-based reimbursement
to such Participating Members for the Products and services covered by this
Agreement in accordance with applicable regulations.
Seller agrees that, until the expiration of four (4) years after the
furnishing of any goods and services pursuant to this Agreement, it will make
available, upon written request of the Secretary of Health and Human Services or
the Comptroller General of the United States or any of their duly authorized
representatives, copies of this Agreement and any books, documents, records and
other data of Seller that are necessary to certify the nature and extent of the
costs incurred by Participating Members in purchasing such goods and services.
If Seller carries out any of its duties under this Agreement through a
subcontract with a related organization involving a value or cost of ten
thousand dollars ($10,000) or more over a twelve-month period, Seller will cause
such subcontract to contain a clause to the effect that, until the expiration of
four (4) years after the furnishing of any good or service pursuant to said
contract, the related organization will make available upon written request of
the Secretary of Health and Human Services or the Comptroller General of the
United States or any of their duly authorized representatives, copies of this
Agreement and any books,
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documents, records and other data of said related organization that are
necessary to certify the nature and extent of costs incurred by Seller for such
goods or services. Seller shall give Purchasing Partners notice immediately upon
receipt of any request from the Secretary of Health and Human Services or the
Comptroller General of the United States or any of their duly authorized
representatives for disclosure of such information.
12.0 INDEMNIFICATION, WARRANTIES, SPECIFICATIONS AND NOTICES.
12.1 INDEMNIFICATION. Seller hereby agrees to indemnify, defend and
hold harmless Purchasing Partners and each Participating Member and their
respective directors, officers, employees, agents and insurers from and against
any and all claims, demands, actions, losses, expenses, damages, liabilities,
costs (including, without limitation, interest, penalties and reasonable
attorneys' fees) and judgments arising out of: (a) bodily injury, property
damage or any other damage or injury caused by any of the Products covered by
this Agreement, and (b) the acts or omissions of Seller and its employees and
agents acting under its control or supervision. Purchasing Partners hereby
agrees to indemnify, defend and hold harmless Seller and its directors,
officers, employees, agents and insurers from and against any and all claims,
demands, actions, losses, expenses, damages, liabilities, costs (including,
without limitation, interest, penalties and reasonable attorneys' fees) and
judgments arising out of the acts or omissions of Purchasing Partners and its
employees and agents acting under its control or supervision.
12.2 WARRANTIES AND PUBLISHED SPECIFICATIONS. Seller hereby warrants
that each of the Products shall be free from defects in material and workmanship
and shall conform to the published specifications for such Product and Seller's
representations regarding the functions and uses for which the Product is
marketed. All of the warranties referenced or set forth in this Section 12.2
shall be in addition to all other warranties which may be prescribed by law,
including without limitation the warranty of fitness for a particular purpose.
12.3 PRODUCT NOTICES. Seller agrees to send all Product notices, as
well as notices of any other changes affecting the Products and notices of new
Products, to each Participating Member with copies to Purchasing Partners.
12.4 INSURANCE. Seller shall maintain adequate products liability,
general public liability, and property damage insurance against any claim or
claims which might or could arise regarding products purchased by Participating
Members from it under the Agreement. When requested by Purchasing Partners, an
insurance certificate indicating the foregoing coverage, issued by an insurance
company licensed to do business in the relevant state or states and signed by an
authorized agent, shall be furnished to Purchasing Partners. Seller shall
provide Purchasing Partners with at least thirty (30) days prior written notice
of any cancellation or material modification of such insurance.
13.0 TERMINATION.
13.1 TERMINATION FOR BREACH. In the event of breach of any
provision of this Agreement, the non-breaching party shall notify the
breaching party in writing of the specific nature of the breach and shall
request that it be cured. If the breaching party does not cure the breach within
thirty (30) days of such notice, the non-breaching party may immediately
terminate this Agreement on written notice to the breaching party, and such
termination shall not preclude the non-breaching party from pursuing any and all
remedies available to it at law or in equity.
13.2 ORDERS PLACED PRIOR TO TERMINATION. Seller shall fulfill, in
accordance with the terms of this Agreement, all orders for Products submitted
by Participating Members and received by Seller prior to termination or
expiration of this Agreement.
13.3 TERMINATION WITHOUT CAUSE. Either party may terminate this
Agreement at any time without cause or penalty upon providing the other party
with ninety (90) days' advance written notice.
13.4 SURVIVAL. The following paragraphs of this Agreement shall survive
expiration or termination of this Agreement: (i) the payment of Administrative
Fees pursuant to Article 10.0 including, but not limited to, fees relating to
Products ordered prior to the effective date of expiration or termination and
delivered after expiration or termination; (ii) the audit undertakings set forth
in Section 15.12; (iii) the representations, warranties and covenants set forth
in Section 12.2; (iv) the indemnification undertaking contained in Section 12.1;
(v) the designation of Participating Members as third party beneficiaries
pursuant to Section 15.7; (vi) the undertaking to fill orders submitted to and
received by Seller prior to the date of expiration or termination set forth in
Section 13.2; (vii) the confidentiality undertakings contained in Article 14;
(viii) the rights and limitations on assignment contained in Sections 15.4 and
15.10; (ix) the governing law provisions contained in Section 15.1; (x)
reasonable attorney's fees provided for in Section 15.9; and (xi) compliance
with laws and regulations provided for in Article 11.0.
14.0 CONFIDENTIALITY.
14.1 CONFIDENTIAL INFORMATION. For the purposes of this Agreement,
confidential information ("Confidential Information") shall mean all
proprietary, secret or confidential information or data relating to Purchasing
Partners, Participating Members, or Seller and their respective operations,
employees, services, patients or customers.
14.2 PROTECTION OF CONFIDENTIAL INFORMATION. Seller and Purchasing
Partners acknowledge that Seller, Purchasing Partners, or Participating Members
may disclose Confidential Information to each other in connection with this
Agreement. If Seller or Purchasing Partners receives Confidential Information,
it shall: (a) maintain the Confidential Information in strict confidence; (b)
use at least the same degree of care in maintaining the secrecy of the
Confidential Information as it uses in maintaining the secrecy of its own
proprietary, secret, or confidential information, but in no event less than a
reasonable degree of care; (c) use Confidential Information only to fulfill its
obligations under this Agreement; and (d) return or destroy all documents,
copies, notes, or other materials containing any portion of the Confidential
Information upon request by Purchasing Partners or Seller. Notwithstanding the
foregoing, Purchasing Partners shall have the right to disclose Confidential
Information to outside consultants as necessary for Purchasing Partners to
provide support services for Participating Members in connection with this
Agreement.
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14.3 AGREEMENT CONFIDENTIALITY. Neither Purchasing Partners nor Seller
shall disclose the terms of this Agreement to any other person or entity outside
its organization and affiliates other than to a Participating Member, a legal
advisor, a financial advisor or an accountant, or as required by law. For
purposes of this provision, an affiliate is an entity in which Purchasing
Partners or Seller, as appropriate, maintains an ownership position in or a
contractual relationship with, and the disclosure is required so that the
disclosing party may fulfill its obligations hereunder. Neither party shall make
any public announcement concerning the existence of this Agreement or its terms
unless such party receives prior written approval by the other party.
14.4 LIMITATION ON OBLIGATION. Seller and Purchasing Partners shall
have no obligation concerning any portion of the Confidential Information which:
(a) was known to it before receipt, directly or indirectly, from the disclosing
party; (b) is lawfully obtained, directly or indirectly, by it from a non-party
which was under no obligation of confidentiality; (c) is or becomes publicly
available other than as a result of an act or failure to act by the receiving
party; (d) is required to be disclosed by the receiving party by applicable law
or legal process; or (e) is developed by the receiving party independent of the
Confidential Information disclosed by the disclosing party. The receiving party
shall not disclose any portion of the Confidential Information to any person
except those of its employees and affiliates having a need to know such portion
to accomplish the purposes contemplated by this Agreement.
15.0 MISCELLANEOUS.
15.1 GOVERNING LAW AND VENUE. This Agreement is being delivered and
executed in the State of Illinois. In any action brought by or against
Purchasing Partners, the validity, construction and enforcement of this
Agreement shall be governed in all respects by the laws of the State of
Illinois, and venue shall be proper only in a court of competent jurisdiction
located in the State of Illinois in Cook County. In the event of any dispute
arising out of this Agreement, whether at law or in equity, brought by or
against a Participating Member, venue shall be proper only in a court of
competent jurisdiction located in the county and state in which such member is
located. The parties agree to be subject to personal jurisdiction in and consent
to service of process issued by a court in which venue is proper as defined in
this Section 15.1.
15.2 MODIFICATION AND WAIVER. No modification of this Agreement shall
be deemed effective unless in writing and signed by each of the parties hereto.
Any waiver of a breach of any provision(s) of this Agreement shall not be deemed
effective unless in writing and signed by the party against whom enforcement of
the waiver is sought.
15.3 HEADINGS. The descriptive headings of the sections of this
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any provision hereof.
15.4 ASSIGNMENT. Neither party may assign, subcontract, delegate or
otherwise transfer this Agreement or any of its rights or obligations hereunder,
nor may it contract with third parties to perform any of its obligations
hereunder except as contemplated in this Agreement, without the other party's
prior written consent.
15.5 SEVERABILITY. If any part of this Agreement shall be determined to
be invalid, illegal or unenforceable by any valid Act of Congress or act of any
legislature or by any regulation duly promulgated by the United States or a
state acting in accordance with the law, or declared null and void by any court
of competent jurisdiction, then such part shall be reformed, if possible, to
conform to the law and, in any event, the remaining parts of this Agreement
shall be fully effective and operative insofar as reasonably possible.
15.6 NOTICES. Any notice required to be given pursuant to the terms and
provisions hereof shall be in writing, postage and delivery charges pre-paid,
and shall be sent by telecopier (receipt confirmed) hand delivery, overnight
mail service, first-class mail or certified mail, return receipt requested, to
Purchasing Partners or Seller at the addresses and/or facsimile numbers set
forth on the Cover Sheet. Any party may change the address to which notices are
to be sent by notice given in accordance with the provisions of this section.
Notices hereunder shall be deemed to have been given, and shall be effective
upon actual receipt by the other party, or, if mailed, upon the earlier of the
fifth (5th) day after mailing or actual receipt by the other party. Seller shall
provide a copy of any notice to Purchasing Partners provided under this Section
to the Premier Legal Department at the following address:
Premier Legal Department
12225 El Camino Real
San Diego, CA 92130
Tel. No.: (619) 509-6760
Fax No.: (619) 481-0538
Attn.: General Counsel
15.7 ENFORCEABILITY. The parties hereto acknowledge and agree that (i)
this Agreement is entered into by Purchasing Partners for the express, intended
benefit of Participating Members, (ii) each of the Participating Members shall
be and constitute an intended third-party beneficiary of the representations,
warranties, covenants and agreements of the Seller contained herein, and (iii)
each of the Participating Members shall be entitled to enforce the terms and
provisions of this Agreement to the same extent as Purchasing Partners.
15.8 INDEPENDENT CONTRACTORS. The parties' relationship hereunder is
that of independent contractors. This Agreement does not create any employment,
agency, franchise, joint venture, partnership or other similar legal
relationship between Purchasing Partners and Seller. Neither party has the
authority to bind or act on behalf of the other party except as otherwise
specifically stated herein.
15.9 ATTORNEYS' FEES. Should any party engage an attorney for the
purpose of enforcing this Agreement or any judgment based hereon in any court,
including bankruptcy court, courts of appeal or arbitration proceedings, the
prevailing party shall be entitled to receive its reasonable attorneys' fees and
costs in addition to any other relief granted.
15.10 BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
15.11 FORCE MAJEURE. The obligations of either party to perform under
this Agreement will be excused during each period of
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delay caused by acts of God or by shortages of power or materials or government
orders which are beyond the reasonable control of the party obligated to perform
("Force Majeure Event"). In the event that either party ceases to perform its
obligations under this Agreement due to the occurrence of a Force Majeure Event,
such party shall: (1) immediately notify the other party in writing of such
Force Majeure Event and its expected duration; (2) take all reasonable steps to
recommence performance of its obligations under this Agreement as soon as
possible. In the event that any Force Majeure Event delays a party's performance
for more than forty-five (45) days following notice by such party pursuant to
this Agreement, the other party may terminate this agreement immediately upon
written notice to such party.
15.12 AUDIT OF COSTS. Seller shall permit Purchasing Partners or its
agent to conduct periodic audits of records relating to Seller's performance
under this Agreement including without limitation relevant orders, invoices,
volume reports and administrative fees. The audits shall be conducted at
Purchasing Partners' cost upon reasonable advance notice during regular business
hours at Seller's principal office and in such a manner as not to unduly
interfere with Seller's operations.
15.13 MINORITY AND FEMALE-OWNED BUSINESSES. Seller represents and
warrants that it is an "equal opportunity employer". Seller shall also use its
best efforts to support Purchasing Partners' Minority and Female-Owned
Businesses Policy as set forth in Exhibit G hereto.
15.14 ENTIRE AGREEMENT. This Agreement, including the Cover Sheet, the
Additional Terms and Conditions (if any) and all Exhibits hereto, constitutes
the entire understanding and agreement between Seller and Purchasing Partners
concerning the subject matter hereof, and supersedes all prior negotiations,
agreements and understandings between Seller and Purchasing Partners, whether
oral or in writing, concerning the subject matter hereof, including, but not
limited to, all prior agreements between Seller and either AmHS Purchasing
Partners, L.P., American Healthcare Systems, Inc., Premier Health Alliance,
Inc., or SunHealth Alliance, Inc., whether or not assigned to Purchasing
Partners or Premier.
15.15 LABOR AND EMPLOYMENT LAWS. Seller represents and warrants that it
complies with applicable labor and employment laws and prohibits any form of
child labor or other exploitation of children in the manufacturing and delivery
of Products, consistent with provisions of the International Labor
Organization's Minimum Age Convention of 1973. A child is any person who is less
than fourteen (14) years of age or who is younger than the compulsory age to be
in school in the country in which Seller's business is being conducted, if that
age is higher than fourteen (14).
15.16 NO ADDITIONAL OBLIGATIONS IMPOSED BY SELLER. Except as expressly
set forth herein, Seller shall not impose any obligations on Purchasing Partners
and/or Participating Members as a condition to receiving any of the benefits set
forth in this Agreement.
15.17 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same agreement.
15.18 DATA/PAYMENT EXCHANGE. Seller hereby acknowledges that Purchasing
Partners is currently developing technology and processes which may enable
Participating Members and Seller to more efficiently exchange information and
payments (e.g., through use of the Internet). Seller agrees to cooperate with
Purchasing Partners' efforts in this regard and shall use best efforts to
implement any data/payment exchange system reasonably adopted by Purchasing
Partners for group purchasing activities.
15.19 TECHNOLOGICAL BREAKTHROUGHS. Purchasing Partners believes an
essential element of advancing the core objectives and mission of Premier is to
encourage the development of health care technology which significantly improves
the quality, process and/or outcome of care. In support of this belief, the
Parties acknowledge that certain products which incorporate breakthrough
technologies ("Breakthrough Products") have the potential to significantly
improve safety to patients or hospital staff, significantly improve non-clinical
operational efficiency, or deliver dramatic process of care cost savings or
improved clinical outcomes when compared to the level of safety, operational
efficiency, process of care and/or outcomes delivered through use of the
Products. Purchasing Partners therefore reserves the right to enter into
agreements with the supplier(s) of such Breakthrough Products in order to make
such products available to Participating Members. Seller hereby agrees that the
purchase of such Breakthrough Products by Participating Members shall not
negatively impact such members' access to any favorable terms and conditions
offered under this Agreement.
15.20 YEAR 2000 COMPLIANCE. Seller warrants that any software and
hardware included in the Products and any software and hardware used in
information systems by Seller to process transactions related to providing the
Products hereunder, including without limitation, sales order processing, sales
order acknowledgment processing, advanced shipping notice processing, invoicing,
purchase order processing, purchase order acknowledgments, accounts receivable
and accounts payable processes, and sales and compliance reporting processes,
shall operate properly prior to, during and after the year 2000 and shall not
cause any business interruptions or response time delays (i.e., such software
and hardware is "Year 2000 Compliant"). In this regard, Seller agrees that such
software and hardware shall contain, at a minimum:
a. date formats that have century recognition;
b. calculations that accommodate same-century and multi-century
formulas and date values;
c. date interface values that reflect the century; and
d. calculations that accommodate the occurrence of leap years.
Upon Purchasing Partners' request, Seller agrees to provide Purchasing Partners
with documentation demonstrating that the Products and Seller's transaction
processing systems are Year 2000 Compliant. If at any time during the term
hereof it is reasonably determined by Purchasing Partners that any Products
and/or Seller's transaction processing systems are not Year 2000 Compliant,
Seller agrees to correct the problem at no additional charge within fifteen (15)
days of receiving written notice of such problem from Purchasing Partners (the
"Problem Notice"). In the event Seller is unable within such time period to
correct any such problem with respect to certain Products, Seller shall provide
Participating Members with a full refund of all
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monies paid for the applicable Product(s) within thirty (30) days of its receipt
of the Problem Notice. Seller shall also be responsible for, and shall defend,
indemnify and hold Purchasing Partners and Participating Members harmless from
and against, any and all losses, liabilities, costs or claims, including without
limitation, loss of data, lost profits and attorneys fees, which arise as a
result of Products and/or Seller's transaction processing systems not being Year
2000 Compliant.
15.21 CONTROLLING DOCUMENT. In the event of any conflict between this
Agreement and any document, instrument or agreement prepared by Seller
(including without limitation, Seller's purchase orders and invoices), the terms
of this Agreement shall control.
[ ] END OF STANDARD TERMS AND CONDITIONS [ ]
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Exhibit A
PRODUCTS LIST AND PRICING
Products and pricing may be added to this Agreement upon the mutual written
agreement of Purchasing Partners and Seller.
<PAGE> 10
Exhibit B
ROSTER OF PARTICIPATING MEMBERS
<PAGE> 11
Exhibit C
AUTHORIZED DISTRIBUTORS
<PAGE> 12
Exhibit D
REPORTING FORMATS
<PAGE> 13
Exhibit E
PURCHASING PARTNERS WIRE INSTRUCTIONS
<PAGE> 14
Exhibit F
MINORITY AND FEMALE-OWNED BUSINESSES POLICY
PREMIER PURCHASING PARTNERS, L.P.
Purchasing Partners desires to promote an environment that ensures equal
opportunity and access to all minority and female-owned businesses desiring to
provide high quality goods and services to Purchasing Partners and Participating
Members. Purchasing Partners is committed to ensuring that its procurement
efforts and those of its vendors are effective, fair and competitive, and
include as many of these businesses as is practical. Implementing this policy is
good business practice and consistent with our mission and that of our partners.
Furthermore, Purchasing Partners and its related organizational entities
recognize and are sensitive to the high level of importance that Participating
Members especially place upon the development of minority and female-owned
businesses in their local communities.
Purchasing Partners and its affiliated entities will foster an atmosphere that
invites the broadest possible participation of these businesses in Purchasing
Partners' procurement efforts and those of Participating Members. It is
Purchasing Partners' policy to encourage and support the use of qualified
minority and female-owned vendors. Specifically, it is Purchasing Partners'
intent to increase the sales and participation of qualified minority and
female-owned businesses and to link them to our corporate and business partners
whenever possible. Member management plays a vital role in this effort,
identifying appropriate minority and female-owned contractors and subcontractors
for Purchasing Partners and its vendors.
It is our belief that Purchasing Partners' vendors should provide qualified
minority and female-owned businesses with the opportunity to participate in the
mainstream of business activities. Purchasing Partners will encourage its
business partners to develop programs to provide minority and female-owned
businesses and those firms which have the greatest concentration of minority
ownership, with equal access to their organizations, advocating that such firms
be utilized to the fullest extent practicable and consistent with good
purchasing practices. Purchasing Partners desires to assist its business
partners in this endeavor and will work with each of them to increase the
participation of cost-effective minority and female-owned businesses as their
contractors and subcontractors, insuring that such suppliers are given the
opportunity to bid competitively.
