SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report - April 28, 1998
(Date of earliest event reported)
MEDIQ INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 1-8147 51-0219413
(State or other jurisdiction of (Commission file number) (I.R.S. Employer
incorporation or organization) Identification No.)
One MEDIQ Plaza, Pennsauken, New Jersey 08110
(Address of principal executive offices, zip code)
Area Code (609) 662-3200
(Telephone number)
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Item 5. Other Events.
On April 24, 1998, MEDIQ/PRN entered into an Asset Purchase Agreement (the
"Asset Purchase Agreement") with CH Industries, Inc. ("CHI"), certain direct and
indirect subsidiaries of CHI and certain other parties, including CH Medical,
Inc. and subsidiaries, (collectively, the "Sellers") to purchase certain of the
assets and rights of the Sellers (the "CH Medical Business") including, but not
limited to, inventory, rental equipment and other tangible property,
intellectual property rights, key records (including customer lists, customer
files, supplier information) and certain contract rights (the "CHI Acquisition")
for a purchase price of approximately $50.0 million in cash, including related
costs and expenses, and the assumption of certain specified obligations related
to the acquired assets.
CHI is a Texas-based corporation which has specialized in the development of
various medical products utilized in patient care treatment and therapy for over
thirty years. In addition to its development of medical products, CHI is a
national sales, rental and service corporation specializing in patient beds,
overlays, mattress replacement systems, pressure relieving pads and surfaces and
other therapeutic support surfaces with approximately 75 business locations
nationwide. CHI has, among other things, developed technology used in the
manufacture of beds and frameless systems for hospitals, extended care
facilities and homes to effectively treat the severe conditions and
complications inherent to patients who are bed confined. CHI offers a complete
line of portable pressure relieving products to provide hospitals and extended
care facilities with an array of bed therapies in a cost effective manner. The
assets acquired under the Asset Purchase Agreement involve only the Sellers'
assets related to the manufacture, sales and rental of beds and other support
surfaces and do not include the Sellers' other fabrication businesses.
The obligations of MEDIQ/PRN under the Asset Purchase Agreement are conditioned
upon receipt of all statutory and regulatory consents and approvals under the
laws or regulations of the United States necessary to permit the consummation of
the acquisition and necessary to own and operate the acquired assets, including
approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"). Accordingly, on April 2, 1998, MEDIQ/PRN and the Sellers each filed
a notification report together with requests for early termination of the
waiting period under the HSR Act with the Federal Trade Commission (the "FTC")
and the Antitrust Division in respect of the transaction and on April 13, 1998,
the FTC and the Antitrust Division granted early termination of the waiting
period under the HRS Act in respect of the transaction. In addition to approval
under the HSR Act, the obligations of MEDIQ/PRN under the Asset Purchase
Agreement are also subject to, among other things, the fulfillment or waiver of
the following conditions:
(a) The representations and warranties made by the Sellers and qualified by
the words "material" or "material adverse effect" or like words shall be true
and correct, and the representations and warranties not so qualified shall be
true in all material respects as of the closing.
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(b) The Sellers shall have performed and complied with all covenants,
agreements, and conditions required by the Asset Purchase Agreement to be
performed or complied with by them prior to or at the closing.
(c) The consents necessary or advisable to transfer the acquired assets and
for MEDIQ/PRN to operate the business from and after the closing shall have been
secured in a form reasonably satisfactory to MEDIQ/PRN.
(d) There shall not have been any material adverse effect in respect of the
acquired assets or the acquired business prior to the closing.
(e) All of the liens and other encumbrances (excluding certain permitted
exceptions) outstanding on any of the acquired assets shall have been terminated
and released prior to or at the closing.
(f) There shall not be any order of any court or administrative agency in
effect which restrains or prohibits the transactions contemplated by the Asset
Purchase Agreement or which would materially limit or adversely affect
MEDIQ/PRN's ownership or control of any of the acquired assets or the acquired
businesses, and there shall not have been threatened, nor shall there be
pending, any action or proceeding by or before any court or governmental agency
or other regulatory or administrative agency or commission, (i) challenging any
of the transactions contemplated by the Asset Purchase Agreement or seeking
monetary relief by reason of the consummation of such transactions or (ii) which
might have a material adverse effect on the acquired assets or on the business,
prospects or condition (financial or otherwise) of the Sellers.
(g) MEDIQ/PRN shall have completed arrangements for the financing of the
purchase of the acquired assets on terms and conditions to MEDIQ/PRN's sole
satisfaction and it shall have received the proceeds thereof.
All obligations of the Sellers under the Asset Purchase Agreement are subject
to, among other things, the fulfillment or waiver prior to or at the closing, of
the following conditions.
(a) The representations and warranties made by MEDIQ/PRN in the Asset
Purchase Agreement and qualified by the words "material" or "material adverse
effect" or like words shall be true and correct, and the representations and
warranties not so qualified shall be true in all material respects as of the
closing.
(b) MEDIQ/PRN shall have performed and complied with all covenants,
agreements and conditions required by the Asset Purchase Agreement to be
performed or complied with by it prior to or at the closing.
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In addition to the foregoing, the Asset Purchase Agreement contains certain
covenants by the Sellers including, but not limited to, conduct of the business
prior to the effective time; corporate name changes after the effective time;
cooperation; obtaining of necessary consents; confidential information; no
solicitation of alternative transactions; non-competition provisions; delivery
of interim financial statements; access to the Sellers' books and records; and
termination of certain agreements. The Asset Purchase Agreement also contains
covenants made by MEDIQ/PRN, including, but not limited to, cooperation and
employee hiring and other employee related matters.
Provided all of the conditions to the closing have been satisfied or waived, it
is anticipated that the closing of the CHI Acquisition will take place on a date
which is the earlier of (i) 8 days after the closing of the Merger by and among
Bruckmann, Rosser, Sherrill & Co., Inc. and MEDIQ Incorporated (the "Merger"),
or; (ii) the fiftieth day after the Registration Statement on Form S-4 relating
to the Merger has been declared effective. The consummation of the Merger is not
conditioned upon the closing of the CHI Acquisition, and the CHI Acquisition is
not conditioned upon the consummation of the Merger.
There can be no assurance that the Company will ultimately consummate the CHI
Acquisition or that, if consummated, the terms of the CHI Acquisition will be
described herein. The Company presently expects to finance the purchase price
of the CHI Acquisition with $50.0 million of Term Loans under a new credit
facility to be entered into as a result of the Merger.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit 2 - Asset Purchase Agreement.
Exhibit 23 - Consent of BDO Seidman, LLP Independent Certified
Public Accountants
Exhibit 99.1 Press Release dated April 27, 1998.
Exhibit 99.2 - Audited Financial Statements of CH Medical, Inc.
and Subsidiaries.
Statements of Income for the three years ended August 31,
1997. Balance Sheets as of August 31, 1997 and 1996.
Statements of Cash Flows for the three years ended August
31, 1997.
Exhibit 99.3 - Unaudited Financial Statements of CH Medical, Inc.
and Subsidiaries.
Statements of Income for the three months ended November
30, 1997 and 1996. Balance Sheets as of November 30,
1997 and August 31, 1997.
Statements of Cash Flows for the three months ended
November 30, 1997.
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MEDIQ INCORPORATED AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEDIQ Incorporated
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(Registrant)
April 28, 1998
- --------------
(Date)
\s\ Jay M. Kaplan
-----------------------
Jay M. Kaplan
Senior Vice President-Finance
and Chief Financial Officer
EXHIBIT 2
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is dated as of the 24th day
of April, 1998, by and among CH Medical, Inc., a Delaware corporation ("CH
Medical"), CH Production, Inc., a Texas corporation ("CHP"), CH Administration,
Inc., a Texas corporation ("CHA"), CH Industries, Inc., a Delaware corporation
and the sole shareholder of CHA, CHP, and CH Medical ("CHI"), Charles E. Hasty,
individually ("Hasty"), as the sole Shareholder of CHI, John A. Carbona,
individually, as President of CH Medical ("Carbona" and, together with Hasty,
the "Key Employees"), the direct and indirect subsidiaries of CH Medical listed
on Exhibit A attached hereto (the "Subsidiaries" and, together with CHI, CHA,
CHP and CH Medical, the "Sellers") and MEDIQ/PRN Life Support Services, Inc., a
Delaware corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Sellers are primarily engaged in the business of
designing, manufacturing, marketing, selling, renting and distributing specialty
patient beds, overlays, mattress replacement systems, pressure relieving pads
and surfaces and other therapeutic support surfaces (the "Business"); and
WHEREAS, the Sellers and the Key Employees desire to sell, assign, and
convey to the Buyer, and the Buyer desires to purchase from the Sellers and the
Key Employees substantially all of the assets and rights of the Sellers used or
associated with the Business, other than the Excluded Assets (as hereinafter
defined), all upon the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements of the parties hereinafter contained, and intending to be legally
bound hereby, the parties hereby agree as follows:
ARTICLE I
SALE OF ASSETS
1.01 Sale of Assets. Subject to the terms, provisions, and conditions
of this Agreement:
(a) Sellers' Assets. The Buyer agrees to purchase and accept
delivery of, and the Sellers hereby agree to transfer, sell, assign, convey, and
deliver to the Buyer on the Closing Date (as hereinafter defined), free and
clear of all Liens of every kind, nature and description, except for the
Permitted Exceptions, substantially all of the Sellers' business, properties,
assets, goodwill and rights of every nature, kind, and description, real and
personal, tangible and intangible, wheresoever located and whether or not any of
such assets have any stated value for accounting purposes or are carried or
reflected on the books and records of the Sellers and relating to the Business
(except for the Excluded Assets), including, without limitation, all of Sellers'
rights, title and interest in and to the following as the same exist on the date
hereof:
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(i) all of Sellers' machinery, tools, manufacturing equipment,
rental equipment, motor vehicles, rolling stock, office furniture, fixtures,
inventory, including all warehoused inventory and inventory covered by purchase
orders, spare parts, supplies, packaging materials, raw materials,
work-in-progress, finished products, and other tangible personal property used
in or held for use in connection with the ownership or operation of the Business
whether owned or leased (the "Fixed Assets");
(ii) all rights in and to (a) contracts, agreements and
instruments relating to the manufacturing, selling and renting of any assets,
services, properties, materials or products (including all customer contracts),
(b) orders, contracts, supply agreements and other agreements relating to the
purchase of any assets, services, properties, materials or products and (c) all
other contracts, agreements and instruments relating to, or otherwise material
to the conduct of, the Business all as set forth and described with more
particularity on Exhibit B-1 attached hereto (the "Contracts");
(iii) all rights in and to the leases and rental agreements
for Sellers' specialized therapy support mattress systems set forth and
described with more particularity on Exhibit B-2 attached hereto (the "Personal
Property Leases") and all rights under all the real property leases and rental
arrangements of the Sellers listed on Exhibit B-3 attached hereto, including any
deposits under such agreements (the "Real Property Leases"), for the properties
described therein;
(iv) (a) all patents, patent applications, copyrights,
copyright registrations and copyright registration applications and all rights
thereto, (b) all registered and unregistered trademarks, trade names, service
marks, designs, logotypes and trade dress, trademark and service mark
registrations and applications for trademark and service mark registrations,
together with all rights related thereto, (c) all patent, trademark, service
mark, trade name, copyright, know-how and other intangible or proprietary rights
granted to Sellers or the Key Employees by third parties under licensing or
other agreements, (d) all know-how, proprietary information, inventions,
technologies, designs, technical data, production methods, trade and business
secrets, engineering data, models, prototypes, drawings, diagrams, bills of
material, manuals and other information, (e) all inventions (whether patentable
or unpatentable and whether or not reduced to practice) and all improvements
thereto, (f) all computer hardware and software whether internally developed,
purchased, or licensed, (g) all other proprietary rights, (h) all copies and
tangible embodiments thereof (in whatever form or medium), and (i) all rights of
action arising from the items listed in clauses (a) through (h) above, including
but not limited to, all claims by reason of, and the right to collect damages
for, the past, present or future infringement, dilution or misappropriation
thereof ((a) through (i) collectively, the "Intellectual Property"), including
but not limited to, the Intellectual Property set forth on Exhibit C;
(v) accounts receivable, notes receivable and other amounts
payable to the Sellers (the "Receivables");
(vi) Sellers' past and present customer and supplier lists,
and related files, records, manuals, documents, books of account,
correspondence, sales and credit reports, literature,
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brochures, advertising material, phone numbers, permits, research and files of
all kind and nature relating to the Business (collectively, the "Records");
(vii) all non-competition, confidentiality and non-disclosure
agreements and covenants between the Sellers and any of their competitors,
officers, employees and agents or third parties (collectively, the
"Non-Disclosure Agreements") set forth on Exhibit D attached hereto;
(viii) products to be manufactured, sold or distributed under
research or development by the Sellers prior to the Closing Date;
(ix) guarantees, warranties, indemnities and similar rights
with respect to any and all of the Acquired Assets and all related claims,
credits, rights of recovery and set off;
(x) intellectual property and other rights to products
conceived or otherwise under research or development by the Sellers prior to the
Closing Date;
(xi) all provider or participation agreements between Sellers
and non-governmental parties all as set forth on Schedule 1.01(a)(xi);
(xii) all consents, licenses, permits, certifications and
approvals granted by any governmental, quasi-governmental or non-governmental
third party which may be assigned, except for such items set forth on Schedule
1.02(r).
(xiii) all rights to insurance proceeds relating to the
damage, destruction or impairment of assets or other rights described in this
Section 1.01, which damage, destruction or impairment occurred on or prior to
the Closing Date;
(xiv) all security and other deposits relating to the Business
held in Seller's accounts;
(xv) all rights, claims or causes of action against third
parties relating to the assets, properties, business or operation of the
Business, except as set forth on Schedule 2.08 and Exhibit F;
(xvi) the goodwill of the Sellers related to the Business;
(xvii) cash received by Sellers after the Closing Date with
respect to accounts receivables acquired by Buyer hereunder;
(xviii) those assets of CHA listed on Schedule 1.01(a)(xviii)
attached hereto, and
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(xix) all other assets of the Sellers that are used or held
for use in connection with the ownership or operation of the Business. The
assets being sold and purchased hereunder are hereinafter collectively referred
to as the "Sellers' Assets."
(b) Asset Turnover Procedure. Not later than five (5) days prior
to the Closing Date, the Buyer and the Sellers will agree upon the methods and
procedures to be used to take a physical inventory as of the Closing Date of the
tangible assets described in Section 1.01 above.
(c) Key Employees' Assets. The Buyer agrees to purchase and accept
delivery of, and the Key Employees hereby agree to transfer, sell, assign,
convey and deliver to the Buyer on the Closing Date, all right, title and
interest in and to certain intellectual property owned by the Key Employees
pursuant to the Intellectual Properties Agreement attached hereto as Exhibit E
which intellectual properties are hereinafter collectively referred to as "Key
Employees' Assets."
(d) The Sellers' Assets and Key Employees' Assets are collectively
referred to herein as the "Acquired Assets."
(e) The Acquired Assets shall be conveyed directly to Buyer.
1.02 Excluded Assets. Notwithstanding anything to the contrary
contained herein, the Buyer shall not acquire, and the Sellers and Key
Employees, as the case may be, shall retain, all properties, assets and rights
other than the Acquired Assets (which are sometimes referred to collectively in
this Agreement as the "Excluded Assets"). In particular, each of the following
specific properties, assets and rights of the Sellers' and the Key Employees
shall be an Excluded Asset:
(a) The assets described on Exhibit F attached hereto;
(b) Humanetics II of Texas, Inc., Humanetics II, Inc. (Delaware),
Humanetics II, LTD, which are engaged in the metal fabrication business
(collectively the "Fabrication Business") and tangible and intangible assets of
the Fabrication Business owned by them, including, without limitation, all
machinery, equipment, inventory, accounts receivable, contracts, leases,
licenses, permits, patents, trademarks, trade names, logos, customer lists,
customer contracts and business records of the Fabrication Business;
(c) C.H. Administration, Inc. and all of its tangible and
intangible assets including without limitation, the real property and
improvements located at 1735 I-35E, Carrollton, Texas (the "1735 Facility")
except for those assets specifically listed on Schedule 1.01(a)(xviii);
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(d) CH Realty, II, Ltd and all of its tangible and intangible
assets including without limitation, the real property and improvements located
at 1700 Columbian Club Drive, Carrollton, Texas, (the "1700 Facility");
(e) CH Realty, Ltd and all of its tangible and intangible assets
including without limitation, the real property and improvements located at 1201
I-35E, Carrollton, Texas (the "1201 Facility").
(f) CH Leasing, II, Ltd, CH Leasing, Ltd, CH Leasing Management
Corporation, Inc. and all tangible and intangible assets of such entities
including, without limitation, the equipment located at Vic's Shop (as
hereinafter defined) as set forth on Schedule 1.02(f).
(g) All other legal entities in which Hasty is an owner,
stockholder, partner, member or principal and which are not listed as a Seller
herein or listed above in this Section 1.02, and all tangible and intangible
assets of such entities except for those assets which are used or held for use
in the Business;
(h) All sums owing by James Hasty to the Sellers, whether or not
evidenced by promissory notes currently estimated to be in the aggregate
principal amount of $126,000;
(i) Any cash, other than cash to be paid to Buyer pursuant to
Section 1.01(a)(xvii), in any bank or other accounts owned by or held for the
Sellers, and cash equivalents such as marketable securities;
(j) All intercompany notes and accounts receivables between the
Sellers, CHI, Hasty and any affiliates of the parties (collectively, the
"Intercompany Receivables");
(k) All notes and accounts receivables between the Sellers and any
employee of the Sellers listed on Schedule 1.02(k) attached hereto;
(l) All intellectual property and other rights to products
conceived by the Sellers or the Key Employees after the Closing Date or research
and development commenced by the Sellers or Key Employees after the Closing Date
and all trademarks, tradenames, patents, trade secrets, patent applications,
patents pending, know how and licenses from third parties which are not used, or
held for use or reasonably expected at the Closing Date to be used in connection
with the ownership or operation of the Business or described in the Intellectual
Properties Agreement;
(m) Any tax refunds due the Sellers relating to Taxes (as
hereinafter defined);
(n) Any reimbursement for, or other benefit associated with,
prepaid insurance;
(o) Those claims, in the estimated amounts, listed on Exhibit F as
set forth in Section 1.02(a);
(p) All insurance policies and proceeds on the life of Hasty;
(q) Records to be retained by the Sellers under Section 1.14
below;
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(r) All provider or participation agreements between the Sellers
and any governmental party and provider numbers relating to Medicare or Medicaid
to which the Sellers are a party and set forth on Schedule 1.02(r);
(s) All rights in and to the leases and rental agreements for
Sellers' specialized therapy support mattress systems set forth and described
with more particularity on Schedule 1.02(s) attached hereto (the "Excluded
Agreements"); and
(t) All rights, claims or causes of action against third parties
relating to the assets, properties, business or operation of the Business set
out with more particularity on Schedule 2.08.
1.03 Assumed Liabilities. Subject to the terms and conditions contained
in this Agreement, at and as of the Closing Date, the Buyer shall assume and
agree to pay, perform, and discharge the following, but only the following,
liabilities and obligations of the Sellers and only to the extent set forth
herein (the "Assumed Liabilities"):
(a) All payment and performance liabilities and obligations
arising under the Contracts included in the Acquired Assets, only to the extent
such liability or obligation relates to any period from and after the Closing
Date.
(b) All payment and performance liabilities and obligations
arising under the Personal Property Leases and Real Property Leases included in
the Acquired Assets, only to the extent such liability or obligation arose and
relates to any period from and after the Closing Date. The Sellers shall use
their commercially reasonable efforts to obtain the consents of the lessors and
landlords to the assignment and assumption of the Real Property Leases and to
cause the Sellers and Key Employees to be released as lessees and/or guarantors
from all of the Real Property Leases and Personal Property Leases which are so
guaranteed. In the event Sellers cannot obtain the required consents from
lessors and landlords or the release of Sellers and Key Employees from the Real
Property Leases and any guaranties thereof prior to Closing, the Sellers and the
Buyer shall have the continuing obligation after the Closing to use their
commercially reasonable efforts to endeavor to obtain all necessary consents
(provided that neither the Sellers nor the Buyer shall be required to expend
money, commence any litigation or offer or grant any accommodation (financial or
otherwise) to any third party) and if such consents or releases are not
obtained, and if requested in writing by the Buyer then the Sellers and the Key
Employees shall exercise reasonable efforts to provide to the Buyer an
arrangement, which the Buyer reasonably shall desire, designed to provide for
the Buyer the benefits and obligations thereof in some other manner and without
reduction in the Purchase Price (as hereinafter defined).
(c) (i) Any contractual obligation, pertaining to products sold in
connection with executed or unexecuted contracts disclosed to the Buyer in an
exhibit or schedule to this Agreement (whether or not assumed by Buyer), to
accept return of products sold or delivered to any third party by the Sellers
prior to the Closing Date, (ii) any contractual obligation, pertaining to
products sold in connection with executed or unexecuted contracts disclosed to
the Buyer in an exhibit or schedule
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to this Agreement (whether or not assumed by Buyer), to honor any express
product warranty disclosed in contracts or dealer agreements identified in an
exhibit or schedule to this Agreement and, (iii) any standard product warranty
disclosed to the Buyer in an exhibit or schedule to this Agreement in respect of
any products sold, including any credits given therefor (Clauses (i), (ii) and
(iii) above are collectively referred to as the "Warranty Claims"); provided,
however, that the Buyer's obligation to assume such warranty-related obligations
is conditioned upon the Buyer being fully reimbursed for any such returned
products by the Sellers to the extent of the lesser of the reasonable repair
cost of the returned products or the replacement cost less the salvage value (if
any) of the returned products and provided, further, that (i) Buyer shall be
under no greater obligation than Sellers would have been for such Warranty
Claims and (ii) the Sellers shall be liable to the Buyer for any Warranty Claim
only to the extent that the aggregate amount of such Warranty Claims exceeds
Fifteen Thousand ($15,000.00) Dollars, and such obligation of the Sellers shall
terminate one (1) year after the Closing Date.
(d) All repair and/or replacement obligations expressly set forth
in contracts or agreements or otherwise disclosed in schedules or exhibits
hereto related to specialized support therapy mattress systems of Sellers which
are included in the Acquired Assets and rented to third parties as of the
Closing Date pursuant to Contracts or other agreements disclosed in schedules or
exhibits hereto, without reduction in the Purchase Price or reimbursement to
Buyer of any cost or expense related thereto.
(e) All liabilities and obligations relating to employee matters
accruing from and after the Closing Date for only those employees of the Sellers
that are hired by the Buyer, including all medical, health, pension, worker's
compensation, severance, vacation pay, deferred compensation, bonus and other
employee benefit plans or arrangements attributable to such post-closing period.
1.04 Proration of Certain Expenses. Water and other utility charges,
fuel, lease and rental payments, payroll, personal property taxes and other
similar expenses that were prepaid and for which Buyer shall receive the benefit
of after Closing in respect of the Acquired Assets and the Business shall be
prorated on a daily basis as of the Closing Date. As between Sellers and Buyer,
such expenses relating to the period prior to the Closing Date shall be
allocated to and be the obligations of the Sellers and such expenses relating to
the period including and subsequent to the Closing Date shall be allocated and
be the obligations of the Buyer. The net amount payable either to the Buyer by
the Sellers or to the Sellers by the Buyer as a result of such proration shall
be determined within sixty (60) days of the Closing Date and shall be paid
promptly (and in no event later than ten (10) days following such determination)
without set-off or counterclaim.
1.05 Lease of Facilities; Supply Agreement. At the Closing, the Buyer
will rent the 1201 Facility as follows:
(a) Hasty, as the sole owner of CH Leasing Management, Inc. ("CH
Management"), will cause CH Realty, Ltd. to rent to the Buyer, and the Buyer
will rent from CH Realty, the 1201 Facility, pursuant to the terms of the rental
agreement in the form and containing
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the terms and conditions set forth in Exhibit "N" attached hereto (the "1201
Rental Agreement"). On or before the Closing Date, Hasty will cause CH Realty to
use commercially reasonable efforts to obtain Compass Bank's consent to the 1201
Rental Agreement and non-disturbance agreement with respect to the Buyer's
possession of the 1201 Facility pursuant to the 1201 Rental Agreement.
(b) Hasty, as the sole owner of CH Leasing Management Corporation,
Inc., will cause CH Leasing, Ltd to enter into a supply agreement (the "Supply
Agreement") with the Buyer for the manufacture of products currently produced at
Vic's Shop (as defined below), such agreement to include the terms and
conditions set forth in Exhibit 1.05(b) hereto.
1.06 Purchase Price; Payment. As consideration for the transfer, sale,
assignment, conveyance and delivery to the Buyer of the Acquired Assets and the
Non-Competition Agreements described in Section 1.08 (the "Non-Competition
Agreements") and subject to the adjustments provided for herein and the
conditions to the Closing (as hereinafter defined) set forth in Article VII
hereof, at the Closing the Buyer shall assume the Assumed Liabilities and pay to
the Sellers and the Key Employees the following consideration (the cash portion
of the consideration described below is hereinafter collectively referred to as
the "Purchase Price"):
(a) Closing Payment. At the Closing,
(i) to the Key Employees the amount shown on Schedule 1.06(a)
as item (i), in cash by wire transfer of immediately available funds to an
account designated by the Key Employees in exchange for execution and delivery
of the Intellectual Properties Agreement.
(ii) to the Key Employees the amount shown on Schedule 1.06(a)
as item (ii), in cash by wire transfer of immediately available funds to an
account designated by the Key Employees in exchange for execution and delivery
of the Non-Competition Agreements.
(iii) to the Sellers the amount shown on Schedule 1.06(a) as
item (iii), in cash by wire transfer of immediately available funds to an
account designated by the Sellers in exchange for the Sellers' Assets and
Seller's Non-Competition Agreement.
(iv) to Nations Bank of Texas, N.A., as escrow agent (the
"Escrow Agent"), an amount equal to $2,500,000 (the "Escrow Amount") and
allocated as shown on Schedule 1.06(a) as item (iv). The Escrow Amount shall be
maintained by the Escrow Agent pursuant to the terms of the Escrow Agreement in
substantially the form of Exhibit G attached hereto (the "Escrow Agreement") by
and among the Buyer, the Sellers, the Key Employees and the Escrow Agent.
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(b) Adjustments to Closing Payment.
(i) As soon as practicable following the Closing but in no
event later than ninety (90) days following the Closing Date, the Buyer shall
prepare as of the Closing Date and deliver to Sellers and Key Employees by one
of the methods provided in Section 9.01, a Consolidated Statement of Net Assets
of the Sellers (the "Closing Statement"). The Closing Statement shall be
prepared in accordance with generally accepted accounting principles ("GAAP"),
applied on a basis consistent with the Sellers' accounting methods used in
preparing the audited consolidated August 31, 1997 Financial Statements of the
Sellers and consistent with the method set forth in Section 1.06(b)(ii) below.
The Sellers and the Key Employees shall cooperate with the Buyer in the
preparation of, and, to the extent necessary, provide the Buyer access to the
information reasonably necessary to prepare, the Closing Statement.
(ii) On the basis of the Closing Statement subject, however,
to the rights of the Buyer, the Sellers and the Key Employees as provided in
Sections 1.06(b)(iii) and (iv), Sellers and the Key Employees shall pay to the
Buyer the amount, if any, by which the difference between the amount of Net
Assets reflected on the Closing Statement (adding back thereto any liabilities
reflected thereon that are not Assumed Liabilities and adding back all
accumulated depreciation of the Net Assets reflected thereon, and subtracting
therefrom any assets that are not Acquired Assets) is less than $23,623,192 (the
"Adjustment Amount") together with accrued interest on the Adjustment Amount
from the Closing Date until the date preceding the date of payment of such
amount in full at an annual rate equal to the lesser of 12% or the maximum rate
allowed by applicable law. The $23,623,192 amount is referred to herein as the
"Benchmark." The method of calculating the Benchmark utilizing the August 31,
1997 financial statement is attached as Schedule 1.06(b). The preparation and
calculation of the Closing Statement shall be consistent with this method. The
Sellers and the Key Employees shall pay the Adjustment Amount to the Buyer
within the time period set forth in Section 1.06(b)(iv). The Closing Statement
shall include a $15,000 reserve for Warranty Claims as described in Section
1.03(c). If prior to the Closing Date, there is damage, destruction or
impairment of assets or other rights described in Section 1.01 above, which
reduces the amount of Net Assets reflected on the Closing Statement and as a
result causes a reduction in the Purchase Price pursuant to Section 1.06(b),
then the insurance proceeds, if any, relating to such damage, destruction or
impairment shall be paid to Sellers to the extent of such reduction in the
Purchase Price.
(iii) Within twenty (20) business days after the Buyer's
delivery of the Closing Statement, the Sellers and the Key Employees may deliver
a written notice (a "Balance Sheet Protest Notice") to the Buyer of any
objections, and the basis therefor in reasonable detail, which the Sellers and
the Key Employees may have to the Closing Statement and the Adjustment Amount.
The Buyer shall cooperate with the Sellers and the Key Employees in their review
of the Closing Statement and the Adjustment Amount and the Buyer shall provide
the Sellers and the Key Employees with such information and access to such
records as the Sellers and the Key Employees reasonably request in connection
with the review of the Closing Statement and the Adjustment Amount by the
Sellers and the Key Employees, their agents or their professional advisors. The
failure of the Sellers and the Key Employees to deliver a Balance Sheet Protest
Notice within the prescribed time period will constitute
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the acceptance by the Sellers' and the Key Employees of the Closing Statement
and the Adjustment Amount as delivered by the Buyer. During the twenty (20)
business days following the Buyer's receipt of a Balance Sheet Protest Notice,
the Buyer, the Sellers and the Key Employees shall attempt to resolve any
disagreement with respect to the Closing Statement and the Adjustment Amount and
the accuracy thereof. If at the end of the period specified in the immediately
preceding sentence, the Buyer, the Sellers and the Key Employees shall have
failed to resolve the disagreement specified in such Balance Sheet Protest
Notice, the items in dispute shall be referred to an independent "Big 6"
accounting firm as may be agreed to by the parties and with which the parties
have not had a business relationship during the five year period preceding the
Closing Date (the "Adjustment Arbitrator"), for determination within forty-five
(45) days of the date of said appointment. In preparing the Closing Statement,
the Adjustment Arbitrator shall use accounting methods consistent with the
historical methods utilized by the Sellers and further consistent with the
methods used by the Sellers in preparing the August 31, 1997 balance sheet. The
fees and expenses of the Adjustment Arbitrator shall be paid equally by the
Buyer, on the one hand, and the Sellers and the Key Employees, on the other. The
decision of the Adjustment Arbitrator will be final and binding on the parties
for the sole purpose of the Closing Statement.
(iv) The Sellers, the Key Employees and the Buyer agree that
within fifteen (15) business days after the final determination of the Closing
Statement and the Adjustment Amount as provided in this Section 1.06(b) (because
no Balance Sheet Protest Notice is delivered or upon receipt of the Adjustment
Arbitrator's final determination), the Sellers and the Key Employees shall pay
to the Buyer the Adjustment Amount together with accrued interest as provided in
Section 1.06(b)(ii) and (iii). In the event that the Sellers and the Key
Employees fail to pay such amount when due, Buyer shall be paid such amount by a
distribution from the Escrow Amount together with accrued interest up to the day
preceding the date of payment of such amount at an annual rate equal to the
lesser of 12% or the maximum rate allowed by applicable law.
1.07 Excluded Liabilities.
Except for the Assumed Liabilities as specifically set forth in
Section 1.03, the Buyer does not and shall not assume or agree to assume, and
shall not acquire or take over, any liabilities and obligations of the Sellers
and the Key Employees of any nature, direct, contingent or otherwise including,
without limitation, the following (the "Excluded Liabilities"):
(i) any liabilities or obligations of Sellers or the Key Employees
including any liability or obligation directly or indirectly arising out of or
relating to the operation of the Business or ownership of the Acquired Assets
prior to the Effective Time (as defined below), whether contingent or otherwise,
fixed or absolute, known or unknown, matured or unmatured, present, future or
otherwise,
(ii) any amounts due to the Sellers' employees that are earned or
accrued up to the Effective Time including, without limitation, accrued payroll,
salary, commissions, expenses, vacation and sick pay, bonuses, medical, health,
pension, worker's compensation, deferred compensation,
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severance and other benefits relating to their employment and (other than any
obligation of Buyer arising under Sections 5.02(a), (b) and (c)) any future
amounts due to the Sellers' employees who are not hired by Buyer,
(iii) any taxes arising in connection with the transaction
contemplated herein including, without limitation, income, sales, and transfer
taxes, except as otherwise provided in Section 1.13, and, except for taxes owed
by the Buyer as a result of its use and operation of the Assets from and after
the Effective Time, any income taxes (other than income taxes based upon or
measured by the Buyer's net income) or charges or imposts of any kind relating
to or arising out of the transaction contemplated by this Agreement.
(iv) except as provided in Section 1.03(c) as it relates to
customers, any obligation or liability to any present or former customer or
supplier of the Sellers or the Key Employees that arose prior to the Effective
Time,
(v) any obligation or liability of the Sellers or the Key
Employees with respect to product liability claims on account of personal injury
arising out of any injury caused by any product sold or rented by the Sellers
prior to the Effective Time,
(vi) except as provided in Sections 1.03(c) and (d), any
obligation or liability of the Sellers with respect to any warranty claims
involving any of the products manufactured, marketed, sold, or distributed by
the Sellers prior to the Effective Time,
(vii) except as provided in Sections 1.03(c) and (d), any
liability or obligation or related expense arising out of, pursuant to, or in
connection with any claim, suit, action, arbitration, audit, hearing,
investigation or litigation (whether civil, criminal, administrative,
investigative, or informal, at law or in equity) (each a "Claim" and
collectively, "Claims") involving the Sellers or the Key Employees or any
employee of the Sellers or any products manufactured, marketed, sold, rented or
distributed on or prior to the Effective Time or any services provided or failed
to be provided on or before the Effective Time, regardless of whether any such
Claim is made, brought or commenced prior to or after the Effective Time,
(viii) any obligation or liability of the Sellers or the Key
Employees that is incurred or arises after the Effective Time, except for the
Assumed Liabilities,
(ix) any obligation of the Sellers or the Key Employees for state,
local, foreign or federal Taxes including, without limitation, any obligation
for franchise, property, sales, unitary business, capital stock or income taxes
(including, without limitation, deferred taxes),
(x) any liabilities of the Sellers under any Environmental Law (as
hereinafter defined) attributable to any conditions or activities prior to the
Effective Time,
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(xi) any liabilities of the Sellers and the Key Employees with
respect to any distribution or similar agreements (collectively, the
"Distribution Agreements") arising prior to the Effective Time,
(xii) any liabilities or obligations of Sellers or the Key
Employees, contingent or otherwise, for any indebtedness of Sellers,
(xiii) any obligations of Sellers or the Key Employees for
expenses or fees incident to or arising out of the negotiation, preparation,
approval or authorization of this Agreement or the consummation of the
transactions contemplated hereby, including, without limitation, all attorneys
and accountants fees and all brokers or finders fees or commissions payable by
Sellers or the Key Employees,
(xiv) any liability or obligation of Sellers or the Key Employees
to any of the legal entities identified in Section 1.02(b), (c), (d), (e), (f),
(g) and (h) and to any party under common control with, or controlled by the
Sellers,
(xv) any liability or obligation of Sellers or the Key Employees
existing as a result of any act, failure to act or other state of facts or
occurrence which constitutes a breach or violation of any of Sellers' or the Key
Employees' representations, warranties, covenants or agreements contained in
this Agreement,
(xvi) any obligation or liabilities of Sellers to indemnify any of
their officers, directors, employees or agents,
(xvii) any liability or obligation in respect of the Fabrication
Business or the Excluded Assets,
(xviii) any liability or obligation on the Closing Statement and
not expressly assumed by the Buyer pursuant to Section 1.03 hereof; and
(xvix) except for the Assumed Liabilities, any obligation or
liability arising under any contract, instrument or agreement (1) that is not
transferred to Buyer as part of the Acquired Assets, or (2) that is not
transferred to Buyer because of Sellers' failure or inability to obtain any
third party consent required for the transfer or assignment of such contract or
agreement to Buyer, or (3) that relates to any breach or default (or an event
which might, with the passing of time or the giving of notice, or both,
constitute a default) under any contract, instrument or agreement or to any
services to be provided by Sellers under any such contract, instrument or
agreement arising out of or relating to periods prior to the Effective Time, or
(4) for which Sellers received payment prior to the Effective Time.
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1.08 Non-Competition Agreements. At the Closing, the Key Employees and
the Buyer shall execute and deliver Non-Competition Agreements (the
"Non-Competition Agreements") in substantially the forms attached hereto as
Exhibits I-1 and I-2.
1.09 Closing; Effective Time. Provided all of the conditions to the
Closing of Buyer, Sellers and Key Employees have been satisfied or waived, the
consummation of the transactions provided for in this Agreement (the "Closing")
shall take place at 10:00 A.M., local time within eight (8) days after the
closing of the proposed merger between MEDIQ Incorporated and a newly
incorporated subsidiary of Bruckman, Rosser, Sherrill & Co., LLP (the "BRS
Transaction"), but in any event not later than the Outside Termination Date (as
defined in Section 9.14(a)(iv). The closing shall occur at the offices of
Ginsberg and Brusilow, P.C., 14785 Preston Road, Suite 750, Dallas, Texas 75240,
or such other place, time, and date as the parties may mutually agree. The date,
as thus determined, on which the Closing is to take place is referred to herein
as the "Closing Date." The transactions hereunder shall be effective as of 12:01
a.m., eastern time, on the Closing Date or such other time and date as the
parties may mutually agree. The time and date, as thus determined, on which the
transactions hereunder shall be effective is referred to herein as the
"Effective Time."
1.10 Conveyance and Transfer. The Sellers and the Key Employees hereby
agree that, at the Closing, they shall deliver to the Buyer the Bill of Sale,
Assignment, and Assumption Agreements in substantially the forms of Exhibits J-1
and J-2, respectively, attached hereto and all other bills of sale,
endorsements, assignments, releases, and other good and sufficient instruments
of transfer, assignment, and conveyance, in form satisfactory to the Buyer,
Sellers and their counsel, as shall be effective to convey to the Buyer good,
indefeasible, and marketable title in and to all of the Acquired Assets free and
clear of all Liens, other than Permitted Exceptions, and all other documents and
instruments required to be delivered by the Sellers and the Key Employees
reasonably necessary to this Agreement. Simultaneously with such delivery, the
Sellers and the Key Employees will take all steps reasonably necessary to put
the Buyer in actual possession of the Acquired Assets.
1.11 Further Assurances. The Sellers and the Key Employees hereby agree
that, from time to time, at the Buyer's request and without further
consideration, they will execute and deliver to the Buyer such other and further
instruments of conveyance, assignment and transfer and take such other action as
the Buyer may reasonably require to effectuate the transactions contemplated by
this Agreement.
1.12 Allocation of Purchase Price. The aggregate consideration received
by the Sellers and the Key Employees pursuant to this Agreement shall be
allocated for Federal and state income tax purposes among the Assets and the
Non-Competition Agreements as set forth in Schedule 1.06(a). The parties hereto
covenant and agree with each other that this allocation was arrived at by arm's
length negotiation and that none of them will take a position on any income tax
return, before any governmental agency charged with the collection of any income
tax or in any judicial proceeding that is in any manner inconsistent with the
terms of this Section 1.12 without the prior written consent of the other
parties to this Agreement. Notwithstanding the foregoing, the parties are not
obligated to
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report the allocation consistent with each other for financial accounting
purposes and the Buyer may use a different allocation for its financial
accounting purposes.
1.13 Transfer Taxes. Each of the Buyer and Sellers shall be responsible
for one half of the total sales, transfer, and use taxes arising out of the
sale, transfer, and assignment of the Acquired Assets.
1.14 Books and Records. Subject to the terms and conditions hereof, on
or before the Closing Date, the Sellers and the Key Employees shall deliver to
the Buyer original copies of all written contracts, books, records, copies of
employee files for employees hired by Buyer, and other data of the Sellers and
the Key Employees relating to or included in the Acquired Assets or the Business
acquired, but excluding without limitation, records required to be maintained by
the Food and Drug Administration (copies of which will be supplied to the Buyer
as reasonably requested), corporate books and records the originals of which the
Sellers are required to maintain under applicable laws (copies of which will be
supplied to the Buyer as reasonably requested), and all of the Sellers' tax and
financial records (copies of which will be supplied to Buyer). Such contracts,
books, records, employee files and other data shall be open for inspection
following reasonable notice and copying by the Sellers at any time during
regular business hours for a period of five (5) years from the Effective Time
unless the Buyer disposes of all such books and records as provided herein prior
to such time. Subject to its document retention plan, the Buyer agrees to
maintain all such books and records in a prudent custodial manner as necessary
to insure that such records are preserved in the existing state. All such books
and records shall be maintained at Buyers' principal place of business in
Pennsauken, New Jersey subject to its document retention plan. In the event the
Buyer or the Sellers shall decide to destroy any of the foregoing books and
records in conformance with its document retention plan, each party shall first
provide to the other (i) notice of its intention to take such action and (ii)
the opportunity for such other party to obtain and maintain such books and
records at its or their place of business.
1.15 Personal Property Taxes. The Sellers and the Key Employees shall
be responsible for all personal property taxes relating to the Acquired Assets
for all periods prior to the Effective Time and shall promptly reimburse the
Buyer for any payments made by the Buyer with respect to such taxes.
1.16 Accrued Vacation and Sick Pay. At the Closing, the Sellers shall
provide a schedule to the Buyer which schedule is discussed further in Article
V, detailing the accrued vacation and sick pay owed to each of the Sellers'
employees up to the Closing Date and Sellers shall cause a reduction in the
Purchase Price set forth in Section 1.06(a)(iii) by the amount of such accrued
vacation and sick pay for those individuals actually hired by Buyer.
1.17 Receivables. The Sellers and the Key Employees agree that they
will cooperate in a commercially reasonable manner, with the Buyer's efforts in
notifying all customers of the Business that all payments made by such customers
for goods sold or rented or services rendered by the Buyer or any of the Sellers
with respect to the Business shall be paid to the Buyer, and the Sellers and the
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Key Employees further agree to remit to the Buyer, within three business days
following the receipt by the Sellers' and the Key Employees thereof, any such
payments received by the Sellers and the Key Employees.
1.18 Lock Box Account. Except as otherwise provided in an agreement
with the Lock Box Servicer (defined below) or the Bank (defined below):
(a) Prior to the Closing Date, the Sellers (or the Bank on behalf
of the Sellers) shall rent a post office box (the "Post Office Box") from the
United States Postal Service (the "Post Office Service"), for receipt of all
monies, checks, correspondence and other documents relating to all of the
Sellers' claims submitted to any governmental agency under the provider numbers
listed on Schedule 1.02(r) pursuant to those agreements listed on Schedule B-2
(the "Government Claims"). The Sellers shall instruct all such governmental
agencies to remit payments directly to the Post Office Box.
(b) Prior to the Closing Date, the Sellers shall enter into an
agreement in form satisfactory to the Buyers (the "Lock Box Agreement") with a
bank or other entity providing lock box services, mutually acceptable to the
Buyers and the Sellers (the "Lock Box Servicer"). The Lock Box Agreement shall
require among other things that (i) the Lock Box Servicer collect all monies,
checks and other documents from the Post Office Box and deposit such monies and
checks in a bank account (the "Bank Account") maintained by the Sellers at a
bank (the "Bank") mutually acceptable to the parties; (ii) require that the Lock
Box Servicer send copies of all correspondence between Lock Box Servicer and the
Sellers to the Buyer (iii) require that the Bank transfer by wire transfer
collected funds on deposit in the Bank Account to an account established by
Buyer (the "Buyer's account"), provided, that the Buyer shall, in its sole
discretion, determine the frequency by which the funds on deposit in the Bank
Account shall be transferred into the Buyer's Account and (iv) the Lock Box
Servicer forward to the Buyer promptly upon its receipt thereof all original
correspondence and documents retrieved from the Post Office Box and copies of
all checks, money orders and other instruments retrieved therefrom. The Bank and
the Lock Box Servicer may be the same entity. The Sellers shall also instruct
the Bank to forward to the Buyer all debit and credit memoranda, returned checks
and similar items, promptly upon its receipt thereof, necessary for the Buyer to
keep records of customer accounts.
(c) From and after the Closing Date, the Sellers shall notify the
Buyer in writing on a daily basis of the receipt by the Sellers other than
through the Post Office Box of any monies and supporting documentation received
by the Sellers in connection with the Government Claims and will forward copies
of any checks, money orders or other instruments received and any supporting
documentation (including receipts for cash payments) to the Buyer.
(d) All fees and charges due to the Post Office Service, the Lock
Box Servicer and the Bank for rental of the Post Office Box, the provision of
lock box services and the maintenance of the Bank Account will be the
responsibility of the Buyer for all such fees and charges.
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(e) The Post Office Service, the Lock Box Servicer and the Bank
will be at all times the agents and representatives of the Sellers.
1.19 Additional Contracts. Buyer may elect, in its sole discretion,
whether or not to assume contracts entered into by the Sellers between the date
hereof and the Closing Date. Each such contract, whether or not assumed by the
Buyer, shall be added to the appropriate schedule or exhibit hereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE KEY EMPLOYEES
The Sellers, CHA and the Key Employees, jointly and severally,
represent and warrant to the Buyer as set forth below. The representations and
warranties contained in this Article II shall not apply to or be construed or
interpreted to involve facts, circumstances, omissions or financial matters
regarding the Fabrication Business, except for such representations and
warranties provided in Section 2.12 relating to the consolidated financial
statements of the Sellers and Section 2.32 relating to the Fabrication Business.
2.01 Incorporation, Power, and Subsidiaries of the Sellers.
(a) Each of the Sellers, other than Cardio Systems Austin, Ltd.
and Cardio Systems Dallas, Ltd., is a corporation duly incorporated, validly
existing, and in good standing under the laws of the state of its incorporation.
Cardio Systems Austin, Ltd. and Cardio Systems Dallas, Ltd. are Texas limited
partnerships duly formed and validly existing under the laws of the State of
Texas.
(b) The Sellers and the Key Employees have all requisite power and
authority to own, Lease, and operate their properties and assets as now owned,
leased and operated, to carry on the Business as and where now being conducted,
to make, execute, deliver, perform and enter into this Agreement, and to perform
their obligations hereunder. The Sellers are duly qualified to do business and
are in good standing in all states in which the nature of their businesses or
the character of the properties owned, leased or operated by them would require
them to be so qualified, except where the failure to be so qualified would not
have a Material Adverse Effect on the Sellers.
(c) Except for those subsidiaries listed on Schedule 2.01(c)
attached hereto, CHI has no subsidiaries other than those listed in Exhibit A
attached hereto and, except as listed on Exhibit A or Schedule 2.01(c), does not
own any capital stock, security, partnership interest or other interest of any
kind in any corporation, partnership, joint venture, association or other
entity.
CHI is the lawful record and beneficial owner of all of the issued and
outstanding shares of capital stock of CHA, CHP and CH Medical. CH Medical is
the lawful record and
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beneficial owner of all of the issued and outstanding shares of capital stock of
the Subsidiaries and Hasty is the lawful record and beneficial owner of all of
the issued and outstanding shares of capital stock of CHI, in each such case
free and clear of all mortgages, security interests, claims, pledges, charges,
equities, options, liens, leases, licenses, easements, encroachments, covenants,
conditions, judgements, liabilities, proxies, voting trusts, voting agreements
and other encumbrances and restrictions of any kind or adverse claim of any
nature whatsoever direct or indirect, whether accrued, absolute, contingent, or
otherwise, affecting title (collectively, "Liens"), and all of such shares have
been duly authorized are validly issued and outstanding and are fully paid and
nonassessable.
(d) There are no outstanding subscriptions, options, warrants,
calls, contracts, demands, commitments, convertible securities or other
agreements or arrangements of any character or nature under which the Sellers or
the Key Employees are or may become obligated to issue, assign or transfer any
of the ownership interests of the Sellers.
2.02 Authority for Agreements. The Sellers and the Key Employees have
the requisite power and authority to enter into this Agreement and the
Assumption Agreement, the Bill of Sale and such other agreements necessary to
vest in Buyer good, valid and marketable title to the Acquired Assets, and the
other agreements to be entered into pursuant hereto (the "Ancillary Agreements")
and to carry out their respective obligations thereunder. The execution and
delivery of this Agreement, the Ancillary Agreements and all other agreements,
instruments, and documents that are contemplated by this Agreement and the
performance of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate and other action including
shareholder approval, if necessary, on the part of the Sellers and the Key
Employees and when executed and delivered on behalf of the Sellers and the Key
Employees, this Agreement and the Ancillary Agreements will constitute valid and
legally binding obligations of the Sellers and the Key Employees enforceable
against each of them in accordance with their terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
enforcement of creditors' rights generally (collectively "Creditors' Rights")
and to general principles of equity, regardless of whether such proceeding is
considered a proceeding in law or equity ("Equity").
2.03 Brokers and Finders. None of the Sellers or the Key Employees, nor
any of their respective officers, directors, agents, employees, or affiliates
has or will, as a result of the transactions contemplated by this Agreement,
employ any broker, agent, or finder or incur any liability for any brokerage
fees, agents' commissions, or finders' fees in connection with the transactions
contemplated by this Agreement.
2.04 Good Title. The Sellers as to the Sellers' Assets and the Key
Employees as to the Key Employees' Assets are the owners of all right, title,
and interest in and to the Acquired Assets and are conveying to the Buyer good
and marketable title to the Acquired Assets free and clear of all Liens except
for Permitted Exceptions as defined in Section 9.17. The Sellers and the Key
Employees have the right, power, and authority to sell, convey, and assign the
Acquired Assets to the Buyer.
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2.05 Condition of Assets. Schedule 2.05 attached hereto sets forth all
machinery, tools, furniture, fixtures, computer hardware, equipment, motor
vehicles, rolling stock and other tangible personal property (other than
inventory and supplies), owned, leased or used by the Sellers in the Business,
setting forth with respect to all such listed property a summary description of
all Liens, except Permitted Exceptions relating thereto, identifying the parties
thereto, and where one of Sellers is the Lessee of such listed property then the
rental or other payment terms, expiration date and cancellation and renewal
terms thereof and all real property owned by the Sellers or in which the Sellers
have a leasehold or other interest which is used by the Sellers in connection
with the operation of the Business, together with a description of each Lease,
sublease, license or any other instrument under which the Sellers claim or hold
such leasehold or other interest or right to the use thereof or pursuant to
which the Sellers have assigned, sublet or granted any rights therein,
identifying the parties thereto, the rental or other payment terms, expiration
date and cancellation and renewal terms thereof. Except as otherwise provided in
Schedule 2.05 and except with respect to Permitted Exceptions, none of the
Acquired Assets are subject to any Liens, including, without limitation, Liens
arising under Environmental Laws. All of the Acquired Assets owned, leased, or
used by the Sellers are in good operating condition and repair for the purposes
used subject to ordinary wear and tear. The Acquired Assets are suitable for the
purposes used, are functioning in the manner and for the purpose for which they
were intended, are adequate and sufficient for current operations of the
Sellers, have the capacity on the Closing Date to permit the manufacture of all
products presently manufactured by the Business, except with respect to the
products and components of products manufactured at 1735 North I-35, Carrollton,
Texas 75006 ("Vic's Shop"). Notwithstanding the two last preceding sentences,
the following Assets will be conveyed in "as is", "where is", condition: the
specialized support therapy mattress systems which are rented to third parties
and are in their possession. To the best knowledge of Sellers, no material
expenditure is presently required in order to maintain such condition and state
of repair or replace any such Acquired Assets. The Acquired Assets, other than
the Excluded Assets, represent all of the assets, including without limitation,
all property (real, personal and mixed), licenses, intellectual property,
permits and authorizations, contracts, leases and other agreements that are
owned by the Sellers, and, except with regard to the assets owned by CH Leasing
Ltd. set forth on Exhibit 1.02(f) or as otherwise set forth in Schedule 2.05,
include all of the assets and rights that are necessary or material to the
operation of the Business as now operated.
2.06 Contracts and Agreements. Set forth on Schedule 2.06 attached
hereto is a complete and correct list of:
(a) All sales agency, manufacturers representative and
distributorship agreements or franchises or agreements providing for the
services of an independent contractor (involving payments in excess of $10,000
per year) related to the Business or Acquired Assets to which any of the Sellers
or the Key Employees is a party or by which any of the Sellers or the Key
Employees is bound.
(b) All contracts, agreements, commitments or licenses relating to
patents, trademarks, trade names, copyrights, inventions, processes, know-how,
formulae or trade secrets
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related to the Business or Acquired Assets to which any of the Sellers or the
Key Employees is a party or by which any of the Sellers or the Key Employees is
bound.
(c) All loan agreements, indentures, mortgages, pledges,
conditional sale or title retention agreements, security agreements, equipment
obligations, guaranties, leases or lease purchase agreements involving payments
in excess of $10,000 per year related to the Business or Acquired Assets to
which any of the Sellers or the Key Employees is a party or by which any of the
Sellers or the Key Employees is bound.
(d) All contracts, agreements and commitments, whether or not
fully performed, in respect of the issuance, sale or transfer of the capital
stock, bonds or other securities of the Sellers or pursuant to which the Sellers
have acquired any substantial portion of their business or assets.
(e) With reference to the Business, all contracts, agreements,
commitments, or other understandings or arrangements to which any of the Sellers
or the Key Employees is a party or by which any of the Sellers or the Key
Employees or any of their respective property is bound or affected but excluding
(i) purchase and sales orders and commitments made in the ordinary course of
business involving payments or receipts by the Sellers or the Key Employees of
less than $10,000 in any single case but not more than $25,000 in the aggregate,
(ii) contracts entered into in the ordinary course of business and involving
payments or receipts by the Sellers of less than $50,000 in the case of any
single contract but not more than $250,000 in the aggregate and (iii) contracts
entered into in the ordinary course of business that are terminable by the
Sellers or the Key Employees on 30 days' notice without any penalty or
consideration and involving payments or receipts by the Sellers or the Key
Employees of less than $50,000 in the case of any single contract but not more
than $250,000 in the aggregate.
(f) All collective bargaining agreements, written employment and
consulting agreements, non-competition agreements, executive compensation plans,
bonus plans, deferred compensation agreements, employee pension plans or
retirement plans, employee stock options or stock purchase plans and group life,
health and accident insurance and other material employee benefit plans,
agreements, arrangements or commitments, whether or not legally binding,
including, without limitation, holiday, vacation and other bonus practices, to
which any of the Sellers or the Key Employees (except for John A. Carbona) is a
party or is bound or which relate to the operation of the Business.
(g) All contracts or agreements for a capital expenditure
involving payments in excess of $10,000 per year relating to the Business or
Acquired Assets.
(h) Agreements or arrangements for the sale of any of the Sellers'
assets, properties or rights outside the ordinary course of business or
requiring the consent of and party to the transfer and assignment of any such
assets, property or rights (by sale of assets, sale of stock, merger or
otherwise).
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(i) Contracts which contain any provisions requiring Sellers with
respect to the Business or the Acquired Assets to indemnify or act for any other
person or entity or to guaranty or act as surety for any other person or entity.
(j) Management contracts or similar arrangements or agreements
which involve a right to share profits or future payments with respect to the
business of Sellers or any portion thereof or the business of any other person
or entity.
Except as provided in Section 8.08(b), all of the Contracts,
non-competition agreements, non-disclosure agreements, leases, licenses and
commitments listed and all other agreements listed on Schedule 2.06 attached
hereto and which are Assumed Liabilities (herein collectively referred to in
this Section 2.06 as the "Agreements"), are valid and binding obligations of the
Sellers and enforceable against the Sellers in accordance with their respective
terms, subject to Creditors' Rights and Equity, and, to Sellers' knowledge, are
valid and binding obligations of the other parties thereto enforceable against
such parties in accordance with their respective terms, subject to Creditors'
Rights and Equity, and except as otherwise specified in Schedule 2.06 attached
hereto or as provided in the next sentence, are validly assignable to the Buyer
without the consent of any other party so that, after the assignment thereof to
the Buyer pursuant hereto, the Buyer will be entitled to the full benefits
thereof.
In the event the Sellers cannot obtain the consents identified in
Schedule 2.06 prior to Closing, the Sellers and the Buyers shall have the
continuing obligation after the Closing to use their commercially reasonable
efforts to endeavor to obtain all necessary consents (provided that neither the
Sellers nor the Buyer shall be required to expend money, commence any litigation
or offer or grant any accommodation (financial or otherwise) to any third party)
and if such consents are not obtained, and if requested in writing by the Buyer
then the Sellers shall exercise reasonable efforts to provide to the Buyer an
arrangement, which the Buyer reasonably shall desire, designed to provide for
the Buyer the benefits and obligations thereof in some other manner. There will
be no adjustment to the Purchase Price as a result of the Seller's failure to
obtain any such required consents.
Except as disclosed on Schedule 2.06 attached hereto, none of the
Agreements has been amended, modified or altered in any manner; there is not
under any of the Agreements any existing default or other condition that would
result in a right to accelerate or loss of rights; none of the Agreements is
likely, either before or after Closing, to result in any material loss or
liability; no oral or written notice of termination or indication of any
intention to terminate has been given by any party to any of the Agreements;
except as disclosed on Schedule 2.06 attached hereto, the Sellers are not
providing any additional products or services, without charge, to any customer
covered by any of the Agreements; and Sellers have not received any claim from
any other party to any Agreements that Sellers have breached any obligations to
be performed by them thereunder to date, or are otherwise in default or
delinquent in performance thereunder and to Sellers' knowledge, no other party
is in default or delinquent in performance thereunder. Accurate and complete
executed copies (to the extent Sellers have executed copies in their possession)
if in writing, and if oral or unexecuted,
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accurate written summaries of all of the Agreements (together with any and all
amendments thereto) have been delivered to the Buyer.
2.07 Intellectual Property.
(a) Schedule 2.07(a) contains a complete and accurate list of all
patents and patent applications, industrial design registrations, copyright
registrations, trademarks, service marks, trade names, and registrations and
applications for registration of trademarks, service marks, trade names, trade
dress used by any of the Sellers (the "Sellers' Intellectual Property Rights")
or the Key Employees (the "Key Employees' Intellectual Property Rights") and
collectively, the "Intellectual Property Rights") in connection with the conduct
of the Business specifying as to each such item, as applicable: (i) the owner of
the item; (ii) the jurisdictions in which the item is issued or registered or in
which any application for issuance or registration has been filed, including the
respective issuance, registration, or application number; (iii) the date of
application and issuance or registration of the item; and (iv) with respect to
any registrations and applications for registration of trademarks or service
marks, the class or classes of goods or services on which each such trademark or
service mark is or is intended to be used.
(b) Schedule 2.07(b) contains a complete and accurate list of all
material licenses, sublicenses, consents and other agreements (whether written
or otherwise) (i) pertaining to any patents, industrial design rights,
trademarks, service marks, trade names, trade dress, copyrights, trade secrets,
computer software programs (other than standard, commercially available
programs), or other intellectual property used in the conduct of the Business,
and (ii) by which the Sellers or the Key Employees license or otherwise
authorize a third party to use such intellectual property. Neither the Sellers
nor the Key Employees nor any other party is in breach of or default under any
such license or other agreement and each such license or other agreement is now
and immediately following the Closing will be valid and in full force and
effect.
(c) Except as explicitly indicated in Schedule 2.07(c), to the
knowledge of the Sellers and the Key Employees, the Sellers and the Key
Employees own or license or otherwise have the exclusive right to use, and have
the right to bring actions for the infringement of, all patents, industrial
design rights, trademarks, service marks, trade names, trade dress, copyrights,
inventions, technology, know-how, designs, formulae, trade secrets, confidential
and proprietary information, computer software programs (other than standard,
commercially available programs), and other intellectual property necessary for
the operation of the Sellers' Business as it is currently conducted. No other
computer software or other electronic data transmission is required for the
Sellers to operate the Business or the Acquired Assets as presently conducted.
There are no material malfunctions or design failures with respect to the
computer software and related items of systems hardware that would cause such
systems not to be adequate. The billing information generated by the computer
software and related computer hardware is accurate, and the computer software
and hardware are otherwise adequate for the conduct of the Business and the
Acquired Assets as currently conducted. All computer software is reasonably
capable of accurately processing, managing and manipulating date/time data from,
into, and between the twentieth and twenty-first centuries, and
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the years 1999, 2000 and leap year calculations, including without limitation,
date/time data recognition, calculations which involve same century and
multi-century formulas and date values, and date/time-related user interface
functionalities and data fields which reflect the century.
(d) The operation of the Sellers' Business does not, to the best
knowledge of the Sellers and the Key Employees, infringe on the patents,
industrial design rights, trademarks, service marks, trade names, trade dress,
copyrights, trade secrets or other intellectual property rights of any third
party, and no claim has been made, notice given, or dispute arisen to that
effect.
(e) The Sellers and the Key Employees do not have any pending
claims that a third party has violated or infringed any of the Sellers' or the
Key Employees' patents, industrial design rights, trademarks, service marks,
trade names, trade dress, copyrights, trade secrets or other proprietary rights
and the Sellers and the Key Employees have not given any indemnification to any
third party against infringement of such intellectual property rights.
(f) All of the trademarks, service marks and trade names shown in
Schedule 2.07(a) are currently being used by the Sellers and the Key Employees
in the Business.
(g) Except as explicitly indicated in Schedule 2.07(c), all of the
patents, industrial design registrations, trademark and service mark
registrations, and copyright registrations indicated in Schedule 2.07(a) are
valid and in full force, are held of record in the Sellers' or the Key
Employees' name free and clear of all Liens and are not the subject of any
cancellation or reexamination proceeding or any other proceeding challenging
their extent or validity. Except as explicitly indicated in Schedule 2.07(b),
the Sellers' or the Key Employees' are the applicant of record in all patent
applications, and applications for trademark, service mark, trade dress,
industrial design, and copyright registration indicated in Schedule 2.07(a), and
no opposition, extension of time to oppose, interference, rejection, or refusal
to register has been received in connection with any such application.
(h) No order, holding, decision or judgment has been rendered by
any governmental authority, and no agreement, consent or stipulation exists,
which would limit the Sellers' or the Key Employees' use of any intellectual
property or any advertising or promotional claim or campaign.
(i) Patents have been issued for, or applications are pending to
obtain patents for, all inventions used in connection with the Sellers' Business
in all jurisdictions of the United States where the failure to obtain such a
patent could have a Material Adverse Effect.
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To the knowledge of the Sellers and the Key Employees, Registrations have been
issued for, or applications are pending to register, all trademarks, service
marks, industrial designs, and copyrights in all jurisdictions of the United
States where the failure to obtain such a registration could have a Material
Adverse Effect.
(j) Sellers or the Key Employees have supplied Buyer with copies
of all material documents listed on Schedule 2.07(a) and documents evidencing
all material rights listed on Schedule 2.07(a).
2.08 Litigation. Except as set forth on Schedule 2.08 attached hereto,
there are no (i) Claims against the Sellers, the Key Employees or any of their
affiliates in any court or before any federal, state, local or foreign
governmental authority or before any arbitrator, pending or, to the Sellers' or
the Key Employees' knowledge, threatened or reasonably anticipated by or
against, or relating to the Business or to the Sellers, the Key Employees or any
of their affiliates, or any basis for any such Claims, or (ii) orders, decrees,
or rulings of any court or administrative agency to which any of the Sellers,
the Key Employees or any of their affiliates is a party or is bound, that could
adversely affect the right, title or interest of the Sellers to the Business,
the Acquired Assets, or the performance of the obligations of the Sellers and
the Key Employees hereunder, and neither the Sellers nor the Key Employees are
in default in respect of any such order, decree or ruling.
2.09 No Conflict with Other Instruments. Except as set forth on
Schedule 2.09 attached hereto, neither the execution and delivery of this
Agreement and the Ancillary Agreements nor the consummation or performance of
any of the transactions contemplated hereby will, directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with, or result in a violation of (i) any
provision of the organizational documents of any of the Sellers, or (ii) any
resolution adopted by the Board of Directors, partners or the shareholders of
any of the Sellers;
(b) contravene, conflict with, or result in a violation of, or
give any governmental body or other Person the right to challenge any of the
transactions contemplated hereby or to exercise any remedy or obtain any relief
under, any Laws and Regulations (as hereinafter defined) or any order issued by
any governmental body to which any of the Sellers, the Key Employees or any of
the assets owned or used by any of the Sellers or the Key Employees, may be
subject, except for such contraventions, conflicts, violations, rights or
remedies which would not have a Material Adverse Effect upon the Business or the
Acquired Assets;
(c) to the knowledge of the Sellers or Key Employees, cause the
Sellers or the Business to lose the benefit of any right or privilege it
presently enjoys which loss would have a Material Adverse Effect upon the
Business or Acquired Assets;
(d) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any governmental body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any governmental authorization
that is held by any of the Sellers or the Key Employees or that otherwise
relates to the Business, or any of the assets owned or used by, any of the
Sellers or the Key Employees;
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(e) except as set forth in Schedule 2.06, contravene, conflict
with, or result in a violation or breach of any provision of, or give any Person
the right to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate, or modify, any
indenture, agreement or instrument applicable to the Sellers, the Business or
the Acquired Assets; or
(f) result in the imposition or creation of any Lien upon or with
respect to any of the Acquired Assets.
2.10 Compliance with Applicable Laws. Subject to the provisions of
Section 8.08 (b), and subject to any specific representations set forth below,
the Business has been, and until the Effective Time will be, conducted in
compliance with any and all laws (statutory, judicial or otherwise) (including,
but not limited to, the federal Occupational Safety and Health Act of 1970, 42
U.S.C. ss. 1320a-7b, the statutes recodified or enacted by the federal, Medicare
and Medicaid Patient and Program Protection Act of 1987 and the American with
Disabilities Act of 1990 and all laws concerning the marketing of medical
devices), ordinances, rules, regulations, permits, authorizations, decrees,
judgments, orders, directives, injunctions, writs and any contracts, agreements
or undertakings with, any governmental authority, (collectively, "Laws and
Regulations"), except where the failure to do so would not have a Material
Adverse Effect upon the Business or Acquired Assets. Without limiting the
generality of the foregoing:
(a) Schedule 2.10 is a complete and accurate list of all licenses,
permits, or other authorizations of governmental, regulatory or administrative
agencies or authorities required to conduct the Business and own and operate the
Acquired Assets other than those whose failure to obtain would not have a
Material Adverse Effect. Neither the ownership nor use of the Acquired Assets
nor the conduct of the Business conflicts with the rights of any Person or
violates, or with or without the giving of notice or the passage of time, or
both, will violate, conflict with or result in a default, right to accelerate or
loss of rights under, any terms or provisions of the articles of incorporation
or other organizational documents of each of the Sellers or any Lien, Lease,
license, agreement, understanding, Laws and Regulations or judgment to which any
of the Sellers or the Key Employees is a party or by which any of them may be
bound or affected other than those violations of contracts or Laws and
Regulations that would not have a Material Adverse Effect.
(b) No material unresolved charge, complaint, action, suit,
proceeding, hearing, investigation, claim, demand, or notice has been filed or
commenced or to Sellers and Key Employees' knowledge is threatened against the
Sellers relating to the Business and the Acquired Assets alleging any failure to
comply with any Laws and Regulations.
(c) The Sellers have not violated in any material respect or
received a notice or charge asserting any violation in any material respect of
any Laws and Regulations with respect to Medicare or Medicaid, or any Laws and
Regulations governing, implementing, or relating to any state or local program
for governmental payment (directly or by reimbursement) of any amounts due or
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to become due to the Sellers on account of services provided or to be provided
by Sellers relating to the Business and the Acquired Assets to any person.
(d) The Sellers have not offered, made or agreed to make any
contribution, or reimbursed any political gift or contribution made by any other
person, to any candidate for federal, state, local, or foreign public office
where such contribution or reimbursement or the purpose thereof was illegal
under any applicable law.
(e) Each of the Sellers has, within the prior three (3) years,
filed in a timely manner all reports, documents, and other materials that are or
were required to be filed (and the information contained therein was correct and
complete in all respects) under all applicable Laws and Regulations, including
Section 1877 of the Social Security Act except where the failure to file same
would not have a Material Adverse Effect on the Business or Acquired Assets.
2.11 Insurance. Schedule 2.11 hereto sets forth a list of all fire,
theft, casualty, liability and other insurance policies insuring the Sellers or
their properties or interests therein since October 27, 1997, specifying with
respect to each such policy the name of the insurer, the risk insured against,
the limits of coverage, the deductible amount (if any), the premium rate and the
date through which coverage will continue by virtue of premiums already paid.
All such policies are outstanding and in full force and effect and will remain
so until the Closing. There is no default with respect to any provision
contained in any such policy, nor has there been any failure to give any notice
or present any claim under any such policy in a timely fashion or in the manner
or detail required by the policy.
2.12 Financial Information. The Sellers have heretofore delivered to
the Buyer copies of the (i) audited consolidated balance sheet of the Sellers at
August 31, 1995, August 31, 1996, and August 31, 1997 (the balance sheet for
August 31, 1997 being referred to as the "Balance Sheet") and the related
audited statements of income, owners' equity and cash flow for the years then
ended (collectively, the "Financial Statements") and (ii) the unaudited
consolidated balance sheets of the Sellers at November 30, 1997 and the related
statements of income, owners' equity and cash flows for the periods then ended
(the "Interim Financial Statements")and (iii) the Consolidated Statement of Net
Assets and related statement of operations for the period ended August 31, 1997
(the "Carve-Out Statements"). The books of account and related records of
Sellers fairly reflect all assets, liabilities and transactions relating to the
Business in accordance with GAAP. The Financial Statements, the Interim
Financial Statements and the Carve-Out Statements were compiled from the
Sellers' books and records and, (a) the Carve-Out Statements, and to the
Sellers' knowledge, the Financial Statements and the Interim Financial
Statements, are true, correct and complete, (b) the Carve-Out Statements, the
Financial Statements and the Interim Financial Statements have been prepared in
accordance with GAAP, consistently applied and maintained throughout the periods
indicated, and (c) the Carve-Out Statements, the Financial Statements and the
Interim Financial Statements fairly present in all material respects the
financial condition of the Sellers as of their respective dates and the results
of operations and cash flows of the Sellers for the periods covered thereby, and
the assets and liabilities of the Sellers as of the dates thereof. The Financial
Statements
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and the Interim Financial Statements do not contain any extraordinary
items of income except as specified therein.
2.13 Taxes.
(a) As used herein, "Tax" or "Taxes" shall mean all taxes of any
kind whatsoever payable to any taxing authority of the United States (federal,
state or local) or any other country or jurisdiction including, without
limitation, (i) all income, gross receipts, ad valorem, value added, sales, use,
service, franchise, profits, real or personal property, capital stock, license,
payroll, withholding, employment, social security, workers compensation,
unemployment compensation and insurance, utility, severance, production, excise.
stamp, occupation, premium, windfall profits, transfer and gains taxes, (ii)
customs, duties, imposts, charges, levies, or other assessments of any kind,
(iii) interest, penalties, and additions to tax imposed with respect to the
above taxes, and (v) any damages, costs, expenses, fees or other liability
arising from such Tax or Taxes. As used herein, the "Code" means the Internal
Revenue Code of 1986, as amended or any successor or predecessor statute.
(b) The Sellers have filed, or obtained extensions of the time to
file all returns for Taxes required to be filed by them and have paid all Taxes
(including interest and penalties thereon, if any) owing to them, except for
Taxes which have not yet accrued or otherwise become due and for which adequate
provision has been made in Financial Statements.
(c) There are no liens for Taxes upon any of the Acquired Assets
except for current Taxes not yet due and payable. There is no action, suit,
proceeding, investigation, audit, claim or judgment now pending against the
Sellers with respect to Taxes. There is no agreement or arrangement between a
Seller and any other person or entity pursuant to which Buyer would have an
obligation for Taxes of another person following the Closing.
(d) None of the Sellers is a foreign person within the meaning of
Sections 897 and 1445 of the Code.
(e) None of the Acquired Assets (i) is property that is required
to be treated as being owned by any other person pursuant to the safe harbor
Lease provisions of former Section 168(f)(8) of the Code; (ii) directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code or (iii) is "tax-exempt use property" within the meaning of
Section 168(h) of the Code.
2.14 Labor and Employment Contracts. Schedule 2.14 attached hereto
contains a complete and correct list of the employees of each of the Sellers
("Employees"), current as of the date of this Agreement, with the employer of
each such employee identified, and job title; current compensation paid or
payable and any change in compensation since December 31, 1997; vacation and
sick pay accrued; and service credited for purposes of vesting and eligibility
to participate under any of the Sellers' pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock option, cash bonus,
employee stock ownership (including investment credit or payroll stock
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ownership), severance pay, insurance, medical, welfare, or vacation plan, or any
other employee benefit plan. Schedule 2.14 attached hereto contains a complete
and correct list of all material agreements and understandings, whether written
or oral, between the Sellers and any of their respective officers, Employees or
agents. The Sellers have previously delivered to the Buyer a true and correct
copy of the most recent performance evaluation of each of the Employees.
2.15 Labor Relations; Compliance. Except as set forth on Schedule 2.15,
none of the Sellers has been or is a party to any collective bargaining or other
labor contract since its inception. Except as set forth on Schedule 2.15, Since
January 1, 1994, there has not been, there is not presently pending or existing,
and to Sellers' and Key Employees' knowledge there is not threatened, (a) any
strike, slowdown, picketing, work stoppage, or employee grievance process, (b)
any Claim against or affecting the Sellers relating to the alleged violation of
any Laws and Regulations pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable governmental body, organizational activity, or other labor or
employment dispute against or affecting any of the Sellers or their Premises,
(c) any application for certification of a collective bargaining agent. To the
knowledge of the Sellers and the Key Employees, no event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute or any employee grievance which might have an adverse effect on
Sellers. There has not been and there is presently no lockout of any employees
by any of the Sellers, and no such action is contemplated by any of the Sellers.
No private agreement restricts Sellers from relocating, closing or terminating
any of their operations or facilities. Each of the Sellers has complied in all
respects with all Laws and Regulations relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes, occupational
safety and health, and plant closing, except where the failure to comply would
not have a Material Adverse Effect on the Business or the Acquired Assets. None
of the Sellers is liable for the payment of any compensation, damages, taxes,
fines, penalties, or other amounts, however designated, for failure to comply
with any of the foregoing Laws and Regulations except for such failures to
comply which would not have a Material Adverse Effect on the Business or the
Acquired Assets.
2.16 Books and Records. The books of account, minute books, stock
record books, and other records of the Sellers, all of which have been made
available to the Buyer, are complete and correct in all material respects and
have been maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. Two stock certificates
have been misplaced, however, Buyer has been provided with Affidavits explaining
the missing certificates during its due diligence period.
2.17 Disclosures to Third Parties. Sellers and the Key Employees
acknowledge that (i) they are parties to the confidentiality agreements listed
on Schedule 2.17 pertaining to information about the Sellers, (ii) they have not
waived or modified such confidentiality agreements except as disclosed on
Schedule 2.17 and (iii) Buyer will receive the right to enforce such
confidentiality agreements as part of the Acquired Assets to the fullest extent
provided by law. The foregoing notwithstanding,
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disclosures to the participants in a pending or future sale of the Fabrication
Business, are expressly excluded from this representation.
2.18 Inventory and Rental Equipment. The Inventory and those items of
the fixed assets held for rental (including, without limitation, mattress
systems and related equipment)(collectively, the "Rental Equipment") contained
in the Acquired Assets are not obsolete or missing and consist of items of a
quality and quantity saleable and usable in the ordinary course of business. The
levels of the Inventories and Rental Equipment currently on hand are not, and
the amount of Inventories and Rental Equipment on hand as of the Closing will
not be, materially in excess of or less than that necessary for the operation of
the Business in the ordinary course of business of the Sellers. Slow moving or
under utilized Inventory and Rental Equipment (collectively, the "Obsolete
Inventory") have been written off or adequately reserved for in the Sellers'
Financial Statements and Interim Financial Statements in accordance with GAAP,
except for certain items of Obsolete Inventory (the aggregate value of which is
not material) which have been retained on the books of the Sellers in order to
service certain customers. Neither Sellers nor Key Employees make any
representations or warranties (whether express or implied) as to the
merchantability of the Rental Equipment. Such assets are held for rental
purposes and not for resale purposes.
2.19 Product Warranties. There are no (a) liabilities of Sellers, fixed
or contingent, asserted or, to Sellers' Knowledge, unasserted, with respect to
any product liability or any similar claim that relates to any product
manufactured and sold by Sellers relating to the Business to others, or (b)
liabilities of Sellers, fixed or contingent, asserted or, to Seller's Knowledge,
unasserted, with respect to any claim for the breach of any express or implied
product warranty or any other similar claim with respect to any product
manufactured and sold by Sellers relating to the Business to others other than:
(i) standard warranty obligations (to replace, repair or refund) made by the
Sellers in the ordinary course of business to purchasers of its products, (ii)
contractual obligations pertaining to products sold in connection with executed
contracts disclosed to the Buyer in an exhibit or schedule to this Agreement
(whether or not assumed by Buyer), to honor any express product warranty
disclosed in Contracts or dealer agreements identified in a schedule or exhibit
to this Agreement, and (iii) any warranty obligations (to replace, repair or
refund), if any, expressly set forth in contracts or agreements or otherwise
disclosed in schedules or exhibits hereto pertaining to products rented pursuant
to contracts or agreements disclosed in exhibits or schedules hereto. Schedule
2.19 attached hereto contains a description of the standard warranty to products
manufactured to be sold or rented by Sellers.
2.20 Absence of Changes. Except as set forth in Schedule 2.20 attached
hereto, since December 31, 1997, the Sellers and the Key Employees have
conducted the Business only in the ordinary course or consistent with prior
practice of the Sellers. Without limiting the generality of the foregoing
sentence, Sellers have not:
(a) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except current
liabilities for trade or business obligations incurred in connection with the
purchase of goods or services in the ordinary course of business consistent with
prior practice, none of which liabilities, individually or in the aggregate,
could have a Material Adverse Effect on the Business or the Acquired Assets;
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(b) suffered any change in the financial condition, assets,
liabilities, net worth or business of the Sellers, except changes in the
ordinary course of business;
(c) mortgaged, pledged or subjected to any Liens, except Permitted
Exceptions any property, business or assets, tangible or intangible, held in
connection with the Business;
(d) except in the ordinary course of Business, sold, transferred,
leased to others or otherwise disposed of any of the Acquired Assets, or
canceled, modified or compromised any debt or claim, or waived or released any
right of substantial value;
(e) received any notice of termination of any contract, Lease or
other agreement or suffered any damage, destruction or loss (whether or not
covered by insurance) that has had or would have, individually or in the
aggregate, a Material Adverse Effect on the Business or the Acquired Assets;
(f) transferred or granted any rights under, or entered into any
settlement regarding the breach or infringement of, any Intellectual Property
Right, or modified any existing rights with respect thereto;
(g) except in the ordinary course of Business, made any change in
the rate of compensation, commission, bonus or other direct or indirect
remuneration payable, or paid or agreed or orally promised to pay, conditionally
or otherwise, including, without limitation, any bonus, profit-sharing,
incentive, retention or other compensation, retirement, welfare, fringe or
severance benefit or vacation pay or any other payment of any kind, to or in
respect of any member, shareholder, director, officer, employee, salesman,
distributor or agent of the Sellers to be utilized by the Buyer after the
Effective Time;
(h) encountered any labor union organizing activity, had any
actual or threatened employee strikes, work stoppages, slowdowns or lockouts;
(i) except in the ordinary course of Business, written down the
value of any inventory or written off as uncollectible any notes or accounts
receivable none of which individually or in the aggregate have a Material
Adverse Effect on the Business or the Assets;
(j) except in the ordinary course of Business, failed to replenish
inventories and supplies in a normal and customary manner consistent with their
past practice, or made any purchase commitment in excess of the normal, ordinary
and usual requirements of the Business or at any price in excess of the then
current market price or upon terms and conditions more onerous than those usual,
or made any change in their selling, renting, pricing, advertising inconsistent
with their past practice;
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(k) made any change in any method of accounting or keeping its
books of account or accounting practices;
(l) except in the ordinary course of Business, instituted,
settled, or agreed to settle any Claim or received any threat of any such Claim;
(m) discharged or satisfied any Lien or encumbrance, except in the
ordinary course of Business, or failed to pay or discharge when due any accounts
or notes payable or any other obligations on a timely basis consistent with the
practices of the Sellers;
(n) issued any equity interests, declared or paid any distribution
on equity interests or any direct or indirect redemption, purchase or other
acquisition of any stock or any rights to purchase stock or securities
convertible into or exchangeable for such stock or entered into any agreement or
understanding to do or engage in any of the foregoing actions;
(o) made or authorized any capital expenditures in excess of
$50,000;
(p) suffered any adverse change or any threat of any adverse
change in Seller's relations with, or any loss or threat of loss of, Sellers'
suppliers, clients or customers; or
(q) entered into any transaction, agreement or event to which any
of the Sellers is a party or a participant outside the ordinary course of
business.
2.21 Customers and Distributors. Neither the Sellers nor the Key
Employees are aware of any customer, distributor or supplier who intends to
cease doing business with the Sellers.
2.22 Environmental Matters.
(a) For the purposes of this Agreement, the following definitions
shall apply:
CERCLIS: The Comprehensive Environmental Response,
Compensation and Liability Information System under CERCLA.
Environment: Ambient air, surface water, ground water, surface
and sub-surface soil, sediment and land.
Environmental Conditions: Any environmental contamination of
any kind or nature resulting from the presence of Hazardous Materials in the
surface soils, subsurface soils, surface waters or groundwater.
Environmental Laws: All existing federal, state or local laws
or ordinances and any regulations, rules, or administrative or judicial rulings
issued or promulgated thereunder and common law relating to (1) Releases or
threatened Releases of Hazardous Materials or materials
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containing Hazardous Materials; (2) the manufacture, handling, transport, use,
treatment, storage or disposal of Hazardous Materials or materials containing
Hazardous Materials; or (3) otherwise relating to the protection of human health
or the Environment, including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act, 42. U.S.C. ss. 9601 et
seq., ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901
et seq., ("RCRA"), the Clean Water Act, 33-U.S.C. ss. 1251 et seq., the Clean
Air Act, 42 U.S.C. ss. 7401 et seq., the Toxic Substance Control Act, 15 U.S.C.
ss. 2601 et seq., ("TSCA"), and all state analogues and counterparts to any of
the foregoing, except for OSHA laws.
Environmental Liabilities: Regardless of whether any of the
following are contained in any disclosure schedule to this Agreement or
otherwise disclosed to Buyer prior to the Closing, any (1) environmental
conditions, including without limitation, the presence, Release, threat of
Release, Management of or exposure to Hazardous Materials first occurring prior
to the Closing Date at, on, in or under any Facilities or property now owned,
operated or leased by Sellers or used in connection with the conduct of their
business, whether into the Environment or any building or structure, on-site or
off-site; or (2) the off-site transportation, storage, treatment, recycling,
disposal or Release of Hazardous Materials Managed or Released by or on behalf
of the Sellers or in connection with the conduct of the Business, or (3) any
material violation of any Environmental Law first existing prior to the Closing
Date (including, without limitation, costs and expenses for pollution control or
monitoring equipment required to bring the Business into compliance with
Environmental Laws and fines, penalties and reasonable defense costs incurred
for such reasonable time after the Closing as it takes the Business to come into
compliance with Environmental Laws). Facilities: 1201 I35E, Carrollton, Texas
and 1735 I35E, Carrollton, Texas.
Hazardous Materials: Any substance defined or regulated as
"Hazardous Waste", "Hazardous Substance", "Hazardous Material", pollutant or
contaminant under any existing Environmental Laws. Hazardous Materials include,
without limitation, asbestos, polychlorinated biphenlys and petroleum products.
Manage or Management: As the context requires, means to use,
possess, generate, treat, manufacture, process, handle, store, recycle,
transport or dispose of Hazardous Materials.
NPL: Means the National Properties List under CERCLA.
Phase 1 Environmental Assessments: The Phase I environmental
audit reports concerning the Facilities that have been obtained by the Sellers
and provided to the Buyer.
Release: Any spilling, leaking, pumping, pouring, leaching,
emitting, emptying, discharging, injecting, escaping, dumping or disposing of
Hazardous Materials or materials containing Hazardous Materials into
Environment.
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(b) Except as set forth in Schedule 2.22 and except as
specifically set forth in the Phase I Environmental Assessments, to Sellers' and
Key Employees' Knowledge, there are no Environmental Conditions on, at, or under
or emanating from any of the Facilities or at any other location as a result of
the activities of the Sellers or the conduct of the Business or for which the
Sellers are or are reasonably likely to be responsible. To the extent that the
Sellers use any materials that are classified as Hazardous Materials in their
business operations, all of such items are being and will continue to be by
Sellers prior to Closing, used in accordance with all applicable Environmental
Laws and in a manner so as not to cause or threaten to cause a Release or
Environmental Conditions.
(c) Except as set forth in Schedule 2.22 and except as
specifically set forth in the Phase I Environmental Assessments, the Sellers
have not received any notice of any Litigation claiming or alleging that the
Sellers (i) have violated any applicable Environmental Laws; or (ii) are
responsible or potentially responsible for any investigatory, remedial or
removal action under any applicable Environmental Laws, and on the date hereof
to the best of Sellers', and to Sellers' and Key Employees" knowledge, no such
Litigation is threatened.
(d) Except as disclosed in Schedule 2.22:
(i) the Sellers have all Permits required under applicable
Environmental Laws that are necessary to conduct the business of the Sellers at
the Facilities as presently conducted, the absence of which would have a
Material Adverse Effect on the Sellers (the "Material Environmental Permits"),
and have provided copies of all the Material Environmental Permits to the Buyer;
(ii) all the Material Environmental Permits are in full force
and effect and the Sellers are not in material default of any thereof;
(iii) to the best of Sellers' and Key Employees" knowledge,
there is no threatened suspension, cancellation or non-renewal of any of the
Material Environmental Permits or any basis for such suspension, cancellation or
non-renewal;
(iv) the Sellers shall apply to renew all the Material
Environmental Permits that shall expire on or before Closing; and
(v) Schedule 2.22 lists all the Material Environmental Permits
which by their terms or by operation or law will expire or otherwise become
ineffective upon or by reason of the completion of the transaction contemplated
in this Agreement. The Sellers shall use their commercially reasonable efforts
and cooperate with the Buyer in securing a transfer or reissue of such Material
Environmental Permits on substantially similar terms to the Buyer so as to allow
the Buyer to continue the Subject Business at the Facilities without
interruption after Closing.
(e) PCB Items. Except as set forth in Schedule 2.22, to the
Sellers' and Key Employees' knowledge:
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(i) none of the Acquired Assets is a PCB Item (as defined in
40. C.F.R. ss. 761.3);
(ii) none of the Acquired Assets nor the Facilities contain
asbestos or asbestos - containing material for which remedial action (including
encapsulation) or removal is required by Environmental Laws or OSHA Laws; and
(iii) none of the Facilities contain underground storage tanks
(except for underground storage tanks which have been removed or closed in
compliance with Environmental Laws and require no further investigation,
remedial removal or other response action).
(f) The Business has been, and until the Effective Time will be,
conducted in material compliance with all Environmental Laws.
(g) Since August 31, 1995, no Hazardous Materials generated by
Sellers on or in connection with the conduct of the Business has been recycled,
treated, stored, disposed of or transported by or to any entity other than those
listed on Schedule 2.22 hereto. No Hazardous Substance Managed by Sellers or in
connection with the conduct of the Business has come to be located at any site
which is listed or proposed for listing under the CERCLA, CERCLIS, the NPL or on
any similar state list, or which is the subject of federal, state or local
enforcement actions, third Party claims or other investigations which may lead
to claims against the Sellers or Buyer for investigatory, remedial, removal or
other response action or for personal injury claims, including, but not limited
to, claims under CERCLA.
(h) All environmental inspections, investigations, studies,
audits, tests, reviews or other analysis conducted in relation to the Sellers or
their Business or the Facilities or any property owned, operated or leased in
connection with the conduct of the Business (collectively, "Environmental
Audits") in the possession or control of Sellers have been provided or made
available to Buyer, and all such Environmental Audits are listed on Schedule
2.22.
(i) Neither Sellers nor the Key Employees know of or have any
reason to know of any facts or circumstances related to environmental matters
concerning Sellers or the Facilities, or any property owned, operated or leased
in connection with the conduct of the Business that could lead to any future
environmental claims, liabilities, expenses or responsibilities against the
Sellers or Buyer or in connection with the conduct of the Business. Sellers have
not retained or assumed, by contract, law or otherwise, any liability or
responsibility for any environmental claims or Environmental Conditions.
2.23 Employee Benefit Programs.
(a) Set forth on Schedule 2.14 is a true and complete list of each
Employee Program and Multiemployer Plan maintained by any of the Sellers or any
affiliate of any of the Sellers.
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(b) The Employee Programs which are "employee pension benefit
plans" within the meaning of Section 3(2) of ERISA and which are intended to
meet the qualification requirements of Section 401(a) of the Code now meet, and
at all times since their inception have met the requirements for such
qualification, and the related trusts are now, and at all times since their
inception have been, exempt from taxation under Section 501(a) of the Code. No
Employee Program is now or at any time has been subject to Part 3, Subtitle I of
ERISA or Title IV of ERISA.
(c) To the Key Employees' knowledge, except as set forth in
Schedule 2.23 attached hereto, there has not been any failure of any party to
comply with any laws applicable with respect to the Employee Programs that have
been maintained by the Sellers or any of their affiliates. To the Key Employee's
knowledge, with respect to any Employee Program now or heretofore maintained by
the Sellers or any of their affiliates, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law (including, without
limitation, any health care continuation requirements or any other tax law
requirements, or conditions to favorable tax treatment, applicable to such
plan), which could result, directly or indirectly (including without limitation
through any obligation of indemnification or contribution), in any taxes,
penalties or other liability to the Sellers or any of their affiliates. Except
as set forth in Schedule 2.23 attached hereto, no Claim or other proceeding
(other than those relating to routine claims for benefits) is pending or to the
Key Employees' knowledge, threatened with respect to any Employee Program.
Except coverage mandated by law, no Employee Program provides medical, health or
life insurance benefits beyond termination of service or retirement.
(d) The Sellers have heretofore delivered accurate and complete
copies of all documents and instruments relating to each Employee Program
maintained by the Sellers or any of their affiliates within the three years
preceding the date hereof, including, without limitation, the following
documents (if applicable to such Employee Program): (i) all documents embodying
or governing each such Employee Program, and any funding medium for each
Employee Program, including, without limitation, trust agreements) as they may
have been amended through the date hereof; (ii) the most recent IRS
determination or approval letter with respect to each such Employee Program
under Code Section 401 or 501(c)(9), and any applications for determination or
approval subsequently filed with the IRS; (iii) the three most recently filed
IRS Forms 5500, with all applicable schedules and accountants' opinions attached
thereto; (iv) the current summary plan description for each such Employee
Program (or other descriptions of such Employee Program provided to employees)
and any material modifications to prior versions thereof within the last 18
months; (v) any insurance policy (including any fiduciary liability insurance
policy) related to such Employee Program; (vi) any documents evidencing any loan
to an Employee Program that is a leveraged employee stock ownership plan; (vii)
all trust agreements and insurance or annuity contracts relating to each such
Employee Program; (viii) the Summary Annual Report for the three most recent
completed fiscal years or all such reports if such program is less than three
years old, for each such Employee Program required to provide such report to
participants; (ix) with respect to any Multiemployer Plan, any participation or
adoption agreement relating to any such participation in or contributions under
such plan by the Sellers or any of their affiliates; and (x) all records,
notices and filings concerning IRS or
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Department of Labor audits or investigations, "prohibited transactions" within
the meaning of Section 406 of ERISA or Section 4975 of the Code and "reportable
events" within the meaning of Section 4043 of ERISA.
(e) For purposes of this Section 2.23:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(40)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are not
subject to ERISA; and (B) all stock option plans, bonus or incentive award plans
of officers and/or executives, severance pay policies or agreements, deferred
compensation agreements, supplemental income arrangements, vacation plans, and
all other employee benefit plans, agreements and arrangements not described in
(A) above. In the case of an Employee Program funded through an organization
described in Code Section 501(c)(9), each reference to such Employee Program
shall include a reference to such organization;
(ii) an entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to provide) benefits
under such Employee Program, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise covers
employees of such entity (or their spouses, dependents, or beneficiaries), or
otherwise has any liability with respect to such Employee Program;
(iii) an entity is an "affiliate" of the Sellers or any of
their affiliates for purposes of this Section 2.23 if it would have ever been
considered a single employer with the Sellers or any of their affiliates under
ERISA Section 4001(b) or part of the same "controlled group" as the Sellers for
purposes of ERISA Section 302(d)(8)(C), and in any case includes each subsidiary
or affiliate of the Sellers; and
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and that is
maintained pursuant to one or more collective bargaining agreements.
2.24 Accounts Receivable. All of Sellers' trade accounts and notes
receivable relating to the Business represent amounts receivable for merchandise
actually delivered or services actually provided, have arisen in the ordinary
course of business, are not subject to any counterclaims or offsets and have
been billed. All such receivables are fully collectible in the normal and
ordinary course of business. Any account receivable not collected in full within
one hundred eighty (180) days after such account is due, shall conclusively be
deemed to be uncollectible. With regard to the installment receivable from
Gerromed Pflege und Medizintechnik, GmbH ("Gerromed") and the installment
receivable from Tritec Medical Equipment (the "Tritec"), such installment
receivables shall be deemed uncollectible if the installment receivable is not
paid in full within the following time
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periods: (i) with respect to the Gerromed installment receivable, within twenty
four (24) months from the Closing Date, and (ii) with respect to the Tritec
installment, within twelve (12 ) months from the Closing Date. The bad debt
reserve as of the Closing Date shall be adequate to cover those receivables that
are determined to be uncollectible in accordance with GAAP. Any accounts
receivable or installment receivables of the Sellers which are deemed
uncollectible after Closing hereunder in aggregate amounts in excess of any
reserve for bad debts contained on the Closing Statement shall, at the Buyer's
sole option, be purchased by the Sellers from the Buyer for an amount equal to
the difference between the unpaid balance of such accounts receivable and/or
installment receivables and the amount of the reserve for bad debts contained on
the Closing Statement. With respect to home care patients, the applicable
Medicare allowable reimbursement amount shall be deemed to be the face amount of
such receivable for purposes of determining the unpaid balance thereof. Purchase
of such accounts receivable and/or installment receivables shall be made within
ten (10) days after written demand by the Buyer for such purchase. Any purchase
by Sellers of the installment receivable from Gerromed will include within such
purchase price the rights to the equipment which was the subject of such
installment receivable and the Buyer shall execute concurrently with Sellers'
acquisition of such installment receivable, a bill of sale in favor of Sellers
which transfers to the Sellers all of Buyer's right, title and interest in and
to such equipment. The limitations on the indemnification obligation set forth
in Section 8.04 below and the period of survival set forth in Section 8.01
below, shall not apply to the purchase of accounts receivable and installment
receivables described above. If the Buyer receives payment of an account
receivable or installment receivable sold to the Sellers, it shall promptly
remit such payment to the Sellers. Sellers have reviewed with Buyer the Medicare
reimbursement percentages and collections on Medicare bills and the manner in
which such bills and collections have been reported on Sellers' books and
records.
2.25 Certain Payments. Subject to Section 8.08(b), none of the Sellers,
the Key Employees nor any director, officer, agent or employee of any of the
Sellers, nor any other Person authorized to act for or on behalf of any of the
Sellers, has directly or indirectly made, offered or agreed to offer any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any customer, supplier, referral source, governmental employee or any
other Person or entity, regardless of form, whether in money, property, or
services in violation of any Laws and Regulations (other than those addressed in
Section 2.28): (i) to obtain favorable treatment in securing business, (ii) to
pay for favorable treatment for business secured, or (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
any of the Sellers or any affiliate of any of the Sellers.
2.26 Consents. Except for filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") and except as set forth on Schedule
2.06 and Schedule 2.26 attached hereto, there are no (i) consents, approvals,
licenses or authorizations of any public body or authority, other than those
with respect to which the failure to obtain will not cause a Material Adverse
Effect (ii) designations, declarations or filings with any public body or
authority or (iii) notices, consents or waivers from other parties to any of the
Agreements or other documents or instruments, that are required for the lawful
consummation of the transactions contemplated hereby or necessary in order that
the Business can be conducted by the Buyer after the Closing as heretofore
conducted by the
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Sellers and the Key Employees. The provisions of Section 2.06 related to the
failure to obtain a required consent shall apply to this Section 2.26.
2.27 Billing. Except as set forth in Schedule 2.27, and subject to
Section 8.08(b), all billing by the Sellers to third party payors, including,
but not limited to, the federal Medicare program, state Medicaid programs and
private insurance companies has been true and correct in all material respects
and in compliance in all material respect with all applicable Laws and
Regulations and the policies of such third party payors.
2.28 Fraud and Abuse. Except as set forth in Schedule 2.28, and subject
to Section 8.08(b), neither Sellers nor any person or entity providing
professional or other services for or on behalf of the Sellers is presently, or
in the past five (5) years has, engaged in any activities related to the
Business or the Acquired Assets which are prohibited, or are cause for criminal
or civil penalties or mandatory or permissive exclusion from Medicare or
Medicaid, under ss.ss. 1320a-7, 1320a-7a, 1320a-7B or 1395nn of Title 42 of the
United States Code or the regulations promulgated thereunder, or similar state
or local statutes or regulations, including, but not limited to, the following:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment;
(c) any failure by a claimant to disclose knowledge of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf of another, with the intent to fraudulently secure
such benefit or payment;
(d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate) directly or indirectly,
overtly or covertly, in cash or in kind, or offering to pay or receive or paying
and receiving such remuneration: (1) in return for referring an individual to a
person for the furnishing or arranging for the furnishing of any item or service
for which payment may be made in whole or in part by Medicare or Medicaid; or
(2) in return for purchasing, leasing or ordering or arranging for, or
recommending, purchasing, leasing or ordering any good, facility, service or
item for which payment may be made in whole or in part by Medicare or Medicaid;
or
(e) referring any party to a person or entity in which Sellers
have a financial interest that is prohibited by applicable law.
2.29 Reimbursement Matters. Except as disclosed on Schedule 2.29,and
subject to Section 8.08(b), or other than in the ordinary course of business in
compliance with law or with respect to matters pending in the usual procedures
for denials (a) Sellers have not and, to the Seller's
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Knowledge, no nursing home, hospital or other facility with respect to which
Sellers provide services has received any written notice of denial or recoupment
from Medicare or Medicaid programs, or any other third party reimbursement
source (inclusive of managed care organizations) with respect to products or
services provided by Sellers, (b) to the knowledge of Sellers and Key Employees,
there is no basis for the assertion after the Closing of any such denial or
recoupment claim, and (c) neither Sellers nor to the Sellers' Knowledge, any
nursing home, hospital or other facility with respect to which Sellers provide
services have received written notice from any Medicare or Medicaid program or
any other third party reimbursement source (inclusive of managed care
organizations) of any pending or threatened investigations or surveys
specifically with respect to, or arising out of, products or services provided
by the Sellers, and to the Sellers' knowledge, no such investigation or survey
is pending, threatened or imminent. Sellers have fully and accurately disclosed
to the appropriate intermediaries and carriers all material billing and business
practices with respect to Medicare and Medicaid reimbursement with respect to
the Business to the extent necessary for Sellers to comply with applicable law.
To the knowledge of Sellers and Key Employees, Sellers have complied with all
material requirements imposed by any such intermediary or carrier with respect
to such billing. Sellers have billed the applicable intermediaries and/or
carriers for the services rendered by Sellers in material compliance with all
applicable Medicare and Medicaid laws, and Sellers are not aware of any
non-compliance by them with any state licensing or corporate practice of
medicine law that would cause such billing or business practices to not be in
material compliance with any of such Medicare or Medicaid laws. Neither Sellers
nor the Key Employees have received any notice from any regulatory authority or
intermediary that indicates that the Buyer could not continue to bill
intermediaries in substantially the same manner and structure as the Sellers are
billing on the date hereof.
2.30 Medicare/Medicaid Participation. Subject to Section 8.08(b), all
services provided by the Sellers for which Sellers directly or indirectly
receive payment under the Medicare or Medicaid programs are, to the extent
required by law, certified for participation or enrollment in all Medicare and
Medicaid programs, have a current and valid provider contract with the Medicare
and Medicaid programs or other third party reimbursement source (inclusive of
managed care organizations), are in compliance with the conditions of
participation of such programs, and, to the extent required by law, have
received all approvals or qualifications necessary for capital reimbursement,
except for such certifications, contracts, compliances, approvals and
qualifications which are set forth on Schedule 2.30. Sellers have delivered to
the Buyer true and complete copies of all Medicare and Medicaid compliance
reports by the applicable licensing authority for any period after January 1,
1994 for each location of Sellers for which there is a Medicare or Medicaid
provider number.
2.31 Real Estate.
(a) Schedule 2.31 hereto contains a true, correct and complete
list of all real properties owned, leased, subleased, licensed or otherwise
occupied by Sellers (collectively, the "Real Properties") separately indicating
the nature of Seller's interest therein. Except as set forth on Schedule 2.31
hereto, no other Person has any oral or written right, agreement or option to
acquire, Lease, sublease or otherwise occupy all or any portion of such Real
Properties. Sellers have not
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received any written or oral notice for assessment for public improvements
against any of the Real Properties which remains unpaid and, to Sellers'
Knowledge, no such assessment has been proposed. There is no pending
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Real Properties and, to Sellers' Knowledge, no such
proceeding is contemplated.
(b) Except as set forth in Schedule 2.31.1, the Sellers are the
lessees under all Real Property Leases, and no party other than the Sellers have
any right to possession, occupancy or use of any of the properties demised under
the Real Property Leases. A true and correct copy of each Real Property Lease
has been delivered to the Buyer, together with all amendments and modifications
thereto, and all subordination, non-disturbance and/or attornment agreements
related thereto, and no changes have been made thereto since the date of
delivery. Except as set forth in Schedule 2.31.1, there are no existing material
defaults under any provision of any of the Real Property Leases, and no event
has occurred which (with or without notice, lapse of time or both) would
constitute a default thereunder.
(c) Except as set forth in Schedule 2.31.1, the Sellers are in
actual possession of the properties demised under the Real Property Leases.
Except as set forth in said Schedule 2.31.1, the Sellers have good, valid and
indefeasible title to all the leasehold estates conveyed under the Real Property
Leases free and clear of all Liens, other than the Permitted Exceptions.
(d) Except as set forth in Schedule 2.31.2, the basic rent and all
additional rent payable under the Real Property Leases have been paid to date
and not more than one month in advance. All work required to be performed under
the Real Property Leases by the landlords thereunder or by the Sellers has been
performed, and, to the extent that the Sellers are responsible for payment of
such work, has been fully paid for, whether directly to the contractor
performing such work or to such landlord as reimbursement therefor, except for
items which the Sellers are disputing in good faith (which items are set forth
in said Schedule 2.31.2).
(e) Except as set forth on Schedule 2.31.2, there are no brokerage
commissions or finder's fees due from Sellers which are unpaid with regard to
any of the Real Property Leases, or which will become due at any time in the
future with regard to the Real Property Leases.
(f) Except as set forth on Schedule 2.31.2, there have been no
casualties which could result in the termination of any Real Property Lease and
the Sellers have received no notice of the application of any buy-out provisions
contained in any Real Property Lease relative to damage by casualty.
2.32 Fabrication Business. Notwithstanding anything to the contrary
herein, there are no liabilities of the Fabrication Business or arising from the
disposition of the Fabrication Business that are inconsistent with the terms of
this Agreement or for which the Buyer could be liable.
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2.33 Disclosure. No representation or warranty by the Sellers or the
Key Employees contained in this Agreement or pursuant hereto, and no exhibit,
agreement, document, statement, certificate or schedule furnished or to be
furnished to the Buyer pursuant hereto, or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements or facts contained herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers and the Key Employees
as follows:
3.01 Incorporation and Standing of the Buyer. The Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Buyer is duly qualified to do business in all
states in which the nature of its business or the character of its properties
requires it to be so qualified, except where the failure to be so qualified
would not have a Material Adverse Effect on the Buyer.
3.02 Authority for Agreement. The Buyer has all requisite corporate
power and authority to enter into this Agreement and the Ancillary Agreements
and to perform its obligations hereunder. The execution and delivery of this
Agreement, the Ancillary Agreements and the performance of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate and other action on the part of the Buyer, and when executed and
delivered on behalf of the Buyer, this Agreement and the Ancillary Agreements
will constitute valid and legally binding obligations of the Buyer enforceable
against the Buyer in accordance with their terms subject to applicable
Creditors' Rights and Equity.
3.03 Brokers and Finders. Neither the Buyer nor any of its officers,
directors, employees, agents or affiliates has or will, as a result of the
transactions contemplated by this Agreement, employ any broker, agent or finder
or incur any liability for any brokerage fees, agents' commissions, or finders'
fees in connection with the transactions contemplated by this Agreement.
3.04 No Conflicts. The execution and delivery by the Buyer of this
Agreement and the Ancillary Agreements, the consummation by the Buyer of the
transactions contemplated hereby and thereby, and compliance by the Buyer with
the provisions hereof and thereof will not (with or without the giving of notice
or lapse of time) (a) conflict with or result in a breach of any provision of
the Buyer's articles of incorporation or by-laws or (b) to Buyer's Knowledge
violate any (i) judgment, order, writ or decree of any court applicable to the
Buyer or (ii) any law to which Buyer is subject.
3.05 Consents. Except for filings under the HSR Act, there are no (i)
consents, approvals, licenses or authorizations of any public body or authority,
(ii) designations, declarations or filings with any public body or authority
that are required for the lawful consummation of the transactions
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contemplated hereby or thereby by Buyer or (iii) Notices, Consents or waivers
under any agreements or contracts to which the Buyer is a party that are
necessary to consummate the transactions contemplated hereby.
3.06 Allegiance Relationship. Buyer has investigated the business
relationship between Sellers and Allegiance, the transferability of that
business relationship to Buyer upon the Closing, the ability to obtain pricing
satisfactory to Buyer, penalties for termination of the Allegiance contract with
Sellers and related matters. Unless it constitutes a breach of a representation
hereunder, the Buyer accepts the future business risks following closing which
are associated with the ability to continue doing business with Allegiance,
other customers, distributors and suppliers and to negotiate price issues and
exclusivity.
3.07 Insurance. Buyer acknowledges its responsibility to have and
maintain fire, theft, casualty and third-party liability insurance policies
required by Laws and Regulations insuring the Buyer, the Business and Acquired
Assets, and Buyer's interest therein, from and after the Closing Date.
3.08 Medicare. Buyer has reviewed the Medicare reimbursement
percentages and collections on Medicare bills and the manner in which such bills
and collections have been reported on Sellers' books and records and Buyer is
satisfied with the same, subject to the Buyer's rights hereunder.
ARTICLE IV
COVENANTS OF THE SELLERS AND KEY EMPLOYEES
The Sellers and the Key Employees, jointly and severally, covenant and
agree with the Buyer as follows:
4.01 Conduct Prior to Effective Time. Unless otherwise expressly
consented to in writing by the Buyer, which consent shall not be unreasonably
withheld, from and after the date of this Agreement through the Effective Time,
the Sellers and the Key Employees jointly and severally agree to:
(a) carry on the Business in the ordinary and usual course
including, but not limited to, billing, collection practices, inventory
transactions and payment of accounts payable;
(b) keep and preserve the Acquired Assets in at least as good
order, condition and repair as existed on the date of this Agreement;
(c) not take any action which adversely effects the goodwill of
the Sellers' suppliers, employees, customers and others having business
relations with the Sellers;
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(d) maintain in full force and effect insurance comparable in
amount and in scope to the current policies;
(e) perform their obligations under and not change any of the
material terms under all agreements, leases, and other commitments relating to
or affecting the Acquired Assets or the Business;
(f) maintain in full force and effect and comply with all permits,
certificates, licenses, approvals, patents, registrations and authorizations
relating to the Business and required under all applicable Laws and Regulations;
(g) except in the ordinary course of business consistent with past
practice, or except with regard to Carbona, not grant any increase or make any
change in the compensation or benefits of any employee who is to be subsequently
employed by Buyer, without the Buyer's prior written consent;
(h) Sellers shall not, without the prior written consent of the
Buyer, which consent will not be unreasonably withheld:
(i) sell, transfer, Lease or otherwise dispose of any of its
assets other than in the ordinary course of business and consistent with past
practice;
(ii) amend their certificates of incorporation or bylaws or
merge or consolidate or obligate themselves to do so with or into any other
entity;
(iii) change its authorized or issued capital stock or issue
any rights or options to acquire shares of its capital stock;
(iv) enter into any contract or commitment the performance of
which may extend beyond the Closing, except those made in the ordinary course of
business and the terms of which are consistent with past practice;
(v) enter into any employment or consulting contract or
arrangement with any person which is not terminable at will, without penalty or
continuing obligation;
(vi) incur, create or assume any mortgage, pledge, lien,
restriction, encumbrance, tenancy, license, encroachment, covenant, condition,
right-of-way, easement, claim, security interest, charge or other matter
affecting title on any of the Acquired Assets;
(vii) fail to pay before delinquency all taxes, assessments,
governmental charges or levies imposed upon its income, profits or assets or
otherwise required to be paid by it, or fail to pay when due any liability or
charge which, if unpaid, might become a lien or charge upon any of the Acquired
Assets;
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(viii) declare or pay any dividend or other distribution in
respect of any class of its capital stock, or make any payment to redeem,
purchase or otherwise acquire, or call for redemption, any of such stock or any
securities convertible into or exchangeable for such stock;
(ix) make or authorize the making of any capital expenditure
in excess of $50,000;
(x) incur any debt or other obligation for money borrowed
except in the ordinary course of Business consistent with past practice;
(xi) volitionally incur any other obligation or liability,
absolute or contingent except in the ordinary course of business and consistent
with past practice;
(xii) waive or permit the loss of any substantial right except
in the ordinary course of Business consistent with past practice;
(xiii) take any action or omit to take any action which will
result in a violation of any Law or Regulation or cause a breach of any
agreements, contracts or commitments;
(xiv) cause the Buyer, its counsel, accountants, and other
representatives, to have full access, during normal business hours, to the
properties, books, and records of the Sellers and the Key Employees relating to
the Business and the Acquired Assets and shall cause its officers, employees,
agents and representatives to furnish to the Buyer and its representatives
during such period all such information concerning the Business and, subject to
the Confidentiality Agreement, the status of the proposed sale of the
Fabrication Business as the Buyer or its representatives may reasonably request.
(xv) Nothing contained in this Section 4.01(h) shall prohibit,
limit or require the consent of the Buyer to CHI's negotiation or consummation
of the sale of the Fabrication Business provided such negotiation or
consummation does not constitute a breach of this Agreement.
4.02 Use of Names. The Sellers and the Key Employees, jointly and
severally, agree that they shall not from and after the Effective Time, use or
grant any rights to any individual, corporation, partnership, or other entity or
any other person to use, or otherwise consent to the use of, any name or mark
that is similar to the service marks, trademarks or trade names sold,
transferred, assigned and conveyed pursuant to the terms of this Agreement. Not
later than thirty (30) days after the Closing, each of the Sellers will prepare
and file an amendment to their certificates of incorporation changing the
corporate names of each of the Sellers to an unrelated name.
4.03 Cooperation; Required Approvals. The Sellers and the Key Employees
will use their respective commercially reasonable efforts to take, or cause to
be taken, such action, to execute and deliver, or cause to be executed and
delivered, such additional documents and instruments, and to do,
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or cause to be done, all things necessary, proper, or advisable under the
provisions of this Agreement and under applicable law to (i) consummate and make
effective all of the transactions contemplated by this Agreement and (ii) obtain
all consents identified in Schedule 2.26 attached hereto. Sellers shall promptly
advise the Buyer if any such consents cannot be obtained or if any condition
precedent to their obligations hereunder will not be satisfied in a timely
manner. Subject to the requirements of Section 2.06, upon the Closing, Buyer
shall be deemed to have waived any consents which have not then been obtained
without any reduction in the Purchase Price.
4.04 Confidential Information. Sellers and the Key Employees
acknowledge that after the Sellers' Closing, Buyer could be irreparably damaged
if Sellers', the Key Employees' or any of the Sellers' affiliates' confidential
knowledge of the operations of the Business were disclosed to or utilized on
behalf of any person, firm, corporation or other business entity other than
Buyer or its affiliates, and Sellers and Key Employees covenant and agree that
for a period of five (5) years after the Closing, they will not following the
Closing, without the prior written consent of Buyer, disclose or use in any way
any such confidential information, unless (i) compelled to disclose such
confidential information by judicial or administrative process or, in the
opinion of their counsel, by other requirements of law, or (ii) such
confidential information is generally available to the public through no fault
of Sellers or the Key Employees.
4.05 No Solicitation; Other Offers. From the date of this Agreement
until the termination of this Agreement or the Effective Time, whichever first
occurs, the Sellers and the Key Employees shall not, and shall use their best
efforts to cause the officers, directors, employees, affiliates, representatives
and other agents (including attorneys, investment bankers and accountants) of
the Sellers or the Key Employees not to, directly or indirectly, solicit,
initiate or encourage any inquiry, proposal or offer from any person that
constitutes or would reasonably be expected to lead to any Acquisition Proposal
(as hereinafter defined) or enter into discussions or negotiate with any person
or entity in furtherance of any such inquiries, proposals or offers or to obtain
or approve any Acquisition Proposal, or agree to any Acquisition Proposal, and
the Sellers or the Key Employees shall immediately notify the Buyer of all
relevant terms of any such inquiries, proposals, or offers received by the
Sellers or the Key Employees or by any such officer, director, employee,
affiliate, representative or agent, relating to any of such matters, any
material change in the details (including any amendments or proposed amendments)
of any such inquiries, proposals or offers, the identity of each of the persons
or entities making such inquiries, proposals, or offers, and, if any such
inquiry, proposal or offer is in writing, the Sellers or the Key Employees shall
immediately deliver a copy thereof to the Buyer. For purposes hereof,
"Acquisition Proposal" means any proposal for the acquisition of assets of the
Sellers or the stock of the Sellers, in whole or in part, whether directly or
indirectly, through purchase, merger, consolidation, or otherwise other than the
Fabrication Business.
A response by the Sellers to an unsolicited inquiry, proposal, or offer
from any person that constitutes or would reasonably be expected to lead to an
Acquisition Proposal that they are bound by this Agreement and that they will be
in communication with any third party following a termination of this Agreement
shall not constitute a breach of this Section 4.05.
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4.06 Not to Compete.
(a) Sellers jointly and severally agree with the Buyer that for a
period of five (5) years after the Closing the Sellers shall not, directly or
indirectly, (i) engage or become interested in, as an employee, manager,
Consultant, owner, partner, through stock ownership (other than a less-than-2%
interest in a corporation having securities which are listed for trading on a
national securities exchange), investment of capital or lending of money or
property to any person, enterprise, partnership, association, corporation,
limited liability company, joint venture or other entity which is directly or
indirectly engaged in the business of manufacturing, selling, renting, leasing
or otherwise providing specialty patient beds, overlays, mattress replacement
systems, pressure relieving pads and surfaces or other therapeutic support
surfaces anywhere in the United States, (ii) induce or attempt to induce any
customer to cease doing business with the Buyer or any of its affiliates, or
take any action which would reasonably be expected to reduce, damage or
interfere with the relationship between any customer and the Buyer or such
affiliate, (iii) use for their own benefit or disclose the contract terms,
pricing and/or requirements of any such customer to any other person or persons,
natural or corporate, except as such disclosure is required by all Laws and
Regulations, (iv) solicit or hire any of the employees or consultants of the
Buyer (including without limitation, employees of the Sellers hired by the
Buyer) for a period of two (2) years from the Closing, except that the Sellers
may hire former Employees of the Buyer whose Employment with the Buyer
terminated without solicitation from the Sellers.
(b) In the event that this Section 4.06 shall be determined by any
court of competent jurisdiction to be unenforceable by reason of its extending
for too great a period of time or over too great a geographic area or range of
activities, it shall be interpreted to extend only over the maximum period of
time, geographic area or range of activities as to which it may be enforceable.
(c) Sellers recognize and acknowledge that in the event of its
failure to comply with any of the covenants contained in Sections 4.04, 4.05 and
4.06, it may be impossible to measure in money the damages to the Buyer and that
in the event of such failure, the Buyer may not have an adequate remedy at law.
It is therefore agreed that the Buyer, in addition to any other rights or
remedies which it may have, shall be entitled to immediate injunctive relief
(without the requirement of any bond) to enforce such covenants, and that if any
action or proceeding is brought in equity to enforce the same, the Sellers will
not urge, as a defense, that there is an adequate remedy at law.
4.07 February 28, 1998 Financial Statements. Within two (2) weeks of
the date hereof, the Sellers shall deliver to the Buyer a copy of the unaudited
consolidated balance sheet of the Sellers at February 28, 1998 and the related
statements of income, owner's equity and cash flow for the period then ended
(the "February Statements"). The February Statements will be compiled from the
Sellers' books and records and (i) to the Sellers' knowledge will be true,
correct and complete, (ii) will be prepared in accordance with GAAP,
consistently applied and maintained throughout the period indicated and (iii)
will fairly present in all material respects the financial condition of the
Sellers as of the date presented and the results of operations and cash flow of
the Sellers for the period covered
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thereby, and the assets and liabilities of the Sellers as of the date thereof.
The February Statements will not contain any extraordinary items of income
except as specified therein.
4.08 Termination of Excluded Agreements. As promptly as reasonably
possible following the Closing Date, the Sellers shall:
(a) Send a termination notice, subject to the Buyer's sole
approval, to all of the parties of the Excluded Agreements listed on Schedule
1.02(s) which shall include, but not be limited to:
(i) notification of Sellers' termination of the respective
Agreement; and
(ii) notification that Buyer will contact the party to discuss
rental terms upon which the party can continue to use the respective asset.
(b) Allow the Buyer to contact any of the parties to the Excluded
Agreements and to commence negotiation of rental agreements (the "New Rental
Agreements").
4.09 Cooperation Regarding Return of Equipment. Following the Closing
Date, the Sellers shall cooperate with Buyer to facilitate the return of the
underlying assets which are the subject of the Excluded Agreements and for which
Buyer has not entered into New Rental Agreements following the Closing Date.
4.10 Lease Agreement. The Buyer and the Sellers shall negotiate in good
faith a Lease Agreement (which shall include a fair market value rental fee)
with respect to the assets that are the subject of the Excluded Agreements on
terms that are mutually satisfactory to the Buyer and the Sellers (the "Asset
Lease").
4.11 Buyer's Access. Subject to Section 5.02(a), from and after the
date hereof, the Sellers will afford the Buyer and its representatives
reasonable full and free access to the Sellers and their contracts, books and
records, and all other documents and data and will make the officers, employees,
attorneys, agents, independent accountants and actuaries of the Sellers
available to discuss such aspects of the Business financial condition or
prospects of the Sellers as may be reasonably necessary.
4.12 Termination of Employment Agreement. The Sellers and Carbona are
parties to a certain Employment Agreement dated December 19, 1995. Prior to the
Closing Date, the Sellers and Carbona will terminate such Employment Agreement
and will deliver to the Buyer evidence of such termination reasonably
satisfactory to the Buyer.
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ARTICLE V
COVENANTS OF THE BUYER
The Buyer covenants and agrees with the Sellers and the Key Employees
as follows:
5.01 Cooperation. The Buyer will use its commercially reasonable
efforts to take, or cause to be taken, such action, to execute and deliver, or
cause to be executed and delivered, such additional documents and instruments
and to do, or cause to be done, all things necessary, proper or advisable under
the provisions of this Agreement and under applicable law to consummate and make
effective all the transactions contemplated by this Agreement.
5.02 Employees.
(a) Except with regard to Employees working at Vic's Shop, the
Buyer shall be allowed to interview each Employee for employment effective as of
the Effective Time and shall consider these Employees for hire consistent with,
and subject to, the Buyer's requirements and employment policies. The Buyer
shall not be obligated to hire any particular Employees or numbers of Employees
of the Sellers. The Sellers shall permit the Buyer to interview Employees at
times and locations acceptable to each of the Sellers and the Buyer. No later
than 30 days from the date of this Agreement, the Buyer shall provide to the
Sellers a list of Employees it intends to employ following the Closing Date. The
Sellers shall permit the Buyer to communicate with Employees at reasonable times
and upon reasonable notice concerning the Buyer's plans, operations, business,
customer relations and general personnel matters, provided that such contacts
shall be conducted in a manner as is reasonably acceptable to the Sellers. The
Buyer shall pay to any Employee not offered comparable employment (but not to
any Employee offered comparable employment who does not accept such employment)
by the Buyer, within 30 days from the Closing Date or such shorter amount of
time as may be required by law, the amount of accrued vacation and sick pay, if
any, set forth on Schedule 5.02 attached hereto. Notwithstanding the foregoing,
Employees of Sellers who work at Vic's Shop will not be interviewed by Buyer nor
offered employment by Buyer and will remain Employees of their present Employer
without payment of any vacation pay or severance by Buyer pursuant to this
Section 5.02(a). Each Employee offered employment by the Buyer effective as of
the Closing Date who accepts such employment shall be referred to herein as a
"Transferred Employee." For purposes of eligibility and vesting (but not for
benefit accrual purposes) under any qualified retirement plan of the Buyer for
which a Transferred Employee otherwise becomes eligible, such Transferred
Employee shall be given credit for the time employed by the Sellers. For
purposes of determining any severance benefits payable from the Buyer to a
Transferred Employee, such Transferred Employee shall be given credit for the
time employed by the Sellers. It is understood that the accrued vacation and
sick pay information shall be updated as of the Closing Date to account for the
normal accrual of vacation and sick pay and in accordance with Section 4.01. If
this Agreement is terminated, then the Buyer shall not solicit to hire or hire
any current employee of Sellers for five (5) years from the date of such
termination or, if shorter, the maximum length of time that such prohibition
would be enforceable under applicable law; provided, however, that the Buyer
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may hire any such employee whose employment with the Sellers was terminated by
the Sellers or such employee without any solicitation from the Buyer.
(b) Other than as set forth in Sections 5.02(a) and (c) and
subject to the provisions of the Buyer's policies and programs, each Transferred
Employee shall be eligible to participate following the Closing Date under each
of the Buyer's employee benefit plans, programs or arrangements available to
similarly situated employees of the Buyer, subject to the terms upon which such
plans, programs or arrangements allow new participation by the Buyer's
employees. Except as provided herein, the Buyer has no obligation to (i) make
any contributions or accruals with respect to any period preceding the Closing
Date, (ii) offer Transferred Employees the same or comparable employee plans or
benefits as offered by the Sellers, or (iii) assume any liability of the Sellers
with respect to the Sellers' employee benefit plans or severance policy, accrued
vacation or sick leave for the Sellers' employees, or the Sellers' employment of
the Transferred Employees prior to the Closing Date. As of the Closing Date,
Buyer will credit to its vacation pay plan the amount of vacation pay for each
Transferred Employee accrued on the books and records of the Sellers as of the
Closing Date. Buyer will pay such accrued vacation pay or make vacation time
available to each Transferred Employee pursuant to Buyer's vacation pay plan.
Buyer shall be responsible for paying all late pay penalties imposed by any
state or local labor codes or similar statutes resulting from the failure of
Buyer to timely pay a Transferred Employee any accrued vacation pay, or make
vacation time available.
(c) As of immediately after the Effective Time, the Buyer will
assume and be responsible for compliance with the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. ss. 2101(a)(2) et.seq. (the "WARN Act")
with respect to the employees (the "Sellers' Former Employees") of the Sellers
engaged in the subject Business (excluding Vic's Shop for purposes of this
subsection (c)) at the Effective Time. The Buyer agrees for purposes of the WARN
Act, that the Sellers will cease to be the employers of the Sellers' Former
Employees as of the Effective Time. The Buyer warrants and represents that, on
or before the Effective Time (i) Buyer will offer employment to as many of
Sellers Former Employees as is necessary to avoid a "plant closing" as such term
is defined in the WARN Act, (ii) the Buyer will offer employment to as many of
the Sellers Former Employees as is necessary to avoid a "mass layoff" as such
term is defined in the WARN Act, and (iii) the Buyer will avoid taking actions
which would trigger the Sellers' liability pursuant to the WARN ACT pursuant to
the consummation of the transaction herein contemplated.
(d) This Agreement is not intended to create and does not create
any contractual or legal rights in or enforceable by any employee of the Sellers
employed with the Business or upon any party other than the Sellers, the Key
Employees or the Buyer. Any written communications to the employees of the
Sellers employed with the Business concerning the subject matter of this Section
5.02 shall be approved by the Sellers and the Buyer. The Sellers agree to use
their reasonable efforts to incorporate the Buyer's comments in any written
communications to the employees of the Sellers employed with the Business
concerning the subject matter of this Section 5.02.
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5.03 Rented Equipment. The specialized support therapy mattress systems
of Sellers which are included in the Acquired Assets and are presently rented to
third parties and in their possession are acquired as of the Closing Date in
their "as-is", "where-is" condition.
5.04 Financing Contingency. With regard to the financing contingency
set forth at Section 7.12 below, if Buyer is aware at the time of the closing of
the BRS Transaction that it will not have completed arrangements for the
financing described in Section 7.12 on or before the Closing Date, then Buyer
shall inform the Sellers and the Key Employees accordingly.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE SELLERS AND KEY EMPLOYEES
The obligations of the Sellers and the Key Employees to proceed with the Closing
hereunder are subject to the fulfillment, prior to or at the Closing, of each of
the following conditions, unless waived in writing by the Sellers and the Key
Employees at any time prior to or at the Closing:
6.01 Bringdown of Representations and Warranties of the Buyer. The
representations and warranties of the Buyer contained in this Agreement and
qualified by words "material" or "Material Adverse Effect" or like words shall
be true as of the date of this Agreement, and the representations and warranties
not so qualified shall be true in all material respects as of the date of this
Agreement. All such representations and warranties shall be deemed to have been
made again as of the Closing Date and shall be true as of the time of the
Closing. The Buyer shall have executed and delivered to the Sellers and the Key
Employees a certificate to such effect dated the Closing Date.
6.02 Covenants and Agreements of the Buyer. The Buyer shall have caused
all covenants, agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing to be so performed
or complied with and the Buyer shall have executed and delivered a certificate
to the Sellers and the Key Employees to such effect dated the Closing Date.
6.03 Escrow Agreement. The Buyer and the Escrow Agent shall have
executed and delivered the Escrow Agreement.
6.04 Intellectual Property Agreement. The Buyer and Key Employees shall
have executed and delivered an Intellectual Property Agreement in the form of
Exhibit E attached hereto.
6.05 Rental Agreements. The Buyer and CH Realty, Ltd shall have
executed and delivered the 1201 Facility Rental Agreement in the form of Exhibit
N attached hereto.
6.06 Assumption Agreements. Assignment and Assumption Agreements in
substantially the forms of Exhibits J-1 and J-2, respectively, attached hereto
pertaining to the Real Property Leases and Personal Property Leases shall have
been executed and delivered by the parties thereto.
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6.07 Assignment and Assumption of the Contracts. An Assignment and
Assumption of the Contracts, which Assumed Contract Assignment shall be in the
form attached hereto as Exhibit P shall have been executed and delivered by the
parties thereto.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE BUYER
The obligations of the Buyer to proceed with the Closing hereunder are
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions, unless expressly waived in writing by the Buyer at any time prior to
or at the Closing, and the Buyer shall have the right to terminate this
Agreement if the following conditions have not been fulfilled at the Closing:
7.01 Bringdown of Representations and Warranties of the Sellers and the
Key Employees. The representations and warranties of the Sellers and the Key
Employees contained in this Agreement and qualified by words "material" or
"Material Adverse Effect" or like words shall be true as of the date of this
Agreement, and the representations and warranties not so qualified shall be true
in all material respects as of the date of this Agreement. All of such
representations and warranties shall be deemed to have been made again as of the
Closing Date and shall be true as of the time of Closing. The Sellers and the
Key Employees shall have each executed and delivered to the Buyer a certificate
to such effect dated the Closing Date.
7.02 Covenants and Agreements of the Sellers. The Sellers and the Key
Employees shall have caused all covenants, agreements, and conditions required
by this Agreement to be performed or complied with by them prior to or at the
Closing to be so performed or complied with and the Sellers and the Key
Employees shall have each executed and delivered to the Buyer a certificate to
such effect dated the Closing Date.
7.03 Consents. The consents necessary or advisable to transfer the
Acquired Assets, Contracts, Personal Property Leases and Real Property Leases to
the Buyer and for the Buyer to operate the Business from and after the Effective
Time shall have been secured in a form reasonably satisfactory to the Buyer
including the consents listed on Schedule 2.26.
7.04 Material Adverse Effect. There shall not have been any Material
Adverse Effect with respect to the Acquired Assets or the acquired Business
prior to the Closing.
7.05 Releases. All of the Liens and other encumbrances (excluding
Permitted Exceptions) outstanding on any of the Acquired Assets shall have been
terminated and released prior to or at the Closing.
7.06 Escrow Agreement. The Sellers and the Escrow Agent execute or
shall have executed and delivered the Escrow Agreement. The Sellers, Key
Employees and Buyer hereby mutually
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acknowledge and agree that the amount of the Escrow shall not be taken as a
limitation of the remedies of Sellers, Key Employees and Buyer under this
Agreement.
7.07 Non-Competition Agreements. The Key Employees shall have executed
Non-Competition Agreements in substantially the form of Exhibits I-1 and I-2,
respectively, attached hereto.
7.08 Intellectual Property Agreement. The Buyer and the Key Employees
shall have executed and delivered an Intellectual Property Agreement in the form
of Exhibit E attached hereto.
7.09 Opinion of Counsel. Ginsberg and Brusilow, P.C., counsel to the
Seller, shall have delivered to the Buyer a legal opinion in form and substance
reasonably satisfactory to the Buyer substantially to the effect set forth in
Exhibit M attached hereto.
7.10 Bill of Sale, Assignment and Assumption Agreements. The Sellers
and the Key Employees shall have each executed the Bill of Sale, Assignment and
Assumption Agreements in substantially the forms of Exhibits J-1 and J-2,
respectively, attached hereto.
7.11 Governmental Approvals. All statutory and regulatory consents and
approvals which are required under the laws or regulations of the United States
necessary (i) to permit the consummation of the transactions contemplated by
this Agreement and (ii) for the Buyer to own and operate the Acquired Assets
shall have been received.
7.12 Financing. Buyer shall have completed arrangements for the
financing of the purchase of the Acquired Assets on terms and conditions to the
Buyer's sole satisfaction, and Buyer shall have received the proceeds thereof.
7.13 Litigation. No order of any court or administrative agency shall
be in effect which restrains or prohibits the transactions contemplated hereby
or which would materially limit or adversely the Buyer's ownership or control of
any of the Acquired Assets or the Business, and there shall not have been
threatened, nor shall there be pending, any action or proceeding by or before
any court or governmental agency or other regulatory or administrative agency or
commission, (i) challenging any of the transactions contemplated by this
Agreement or seeking monetary relief by reason of the consummation of such
transactions or (ii) which might have a material adverse effect on the Acquired
Assets or on the business, prospects or condition (financial or otherwise) of
Sellers.
7.14 Other Agreements.
(a) CH Realty shall have obtained Compass Bank's consent to the
1201 Rental Agreement and non-disturbance agreement with respect to the Buyer's
possession of the 1201 Facility pursuant to the 1201 Rental Agreement. The Buyer
and CH Realty, Ltd. shall have executed and delivered the 1201 Rental Agreement
in the form of Exhibit N attached hereto.
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(b) The Buyer and CH Leasing Ltd. shall have executed and
delivered the Supply Agreement.
(c) The Buyer and the Sellers shall have executed and delivered
the Asset Lease.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION; REMEDIES UPON DEFAULT
8.01 Survival of Representations and Warranties. All representations
and warranties made by each party in this Agreement shall survive the Closing
Date for a period of two (2) years, except the representations and warranties
set forth in Sections 2.04 (relating to the title of the Acquired Assets), 2.07
(relating to intellectual property), 2.10 (relating to compliance with
applicable laws), 2.13 (relating to Taxes), 2.22 (relating to environmental
matters), 2.23 (relating to employee benefit programs), 2.25 (relating to
certain payments), 2.28 (relating to fraud and abuse) and 2.29 (relating to
reimbursement) which shall survive until the date on which the statute of
limitations applicable to such matters expires. Any claims under this Agreement
must be asserted by written notice within the applicable survival period
contemplated by this Section 8.01 and if such a notice is given the survival
period for such claim shall continue until the claim is fully resolved. For
purposes of determining the existence of any misrepresentation, breach of
warranty, or nonfulfillment of any covenant or agreement, or calculating the
amount of any Losses (as hereinafter defined) incurred in connection with any
such misrepresentation, breach of warranty, or nonfulfillment of any covenant or
agreement, any and all references to dollar amounts, material or Material
Adverse Effect (or other correlative terms) shall be disregarded.
8.02 Indemnification by the Sellers and the Key Employees. Subject to
the limitations set forth in Section 8.04 hereof, in accordance with the
procedures set forth in Section 8.05 (if applicable), the Sellers and the Key
Employees agree, jointly and severally, to indemnify the Buyer harmless from all
liabilities, damages, losses, costs, fines and penalties, reasonable attorneys'
fees, and other expenses (collectively, "Losses") resulting from or arising out
of or incurred with respect to (a) any inaccuracy in, or breach of, any
representation or warranty of the Sellers or the Key Employees (or any
certificate or other document delivered by the Sellers or the Key Employees
hereunder including, without limitation, the Ancillary Agreements), (b) any
breach of any covenant or agreement of the Sellers or the Key Employees
contained in this Agreement (or any certificate or other document delivered by
the Sellers or the Key Employees hereunder including, without limitation, the
Ancillary Agreements), (c) any Excluded Liability and (d) any and all
liabilities, other than the Assumed Liabilities, of the Sellers or the Key
Employees related to the Business first arising before the Effective Time.
8.03 Indemnification by the Buyer. The Buyer agrees to indemnify and
hold the Sellers and the Key Employees harmless from all Losses resulting from
or arising out of or incurred with respect to (a) any inaccuracy in, or breach
of, any representation or warranty of the Buyer (or any certificate
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or other document delivered by the Buyer including, without limitation, the
Ancillary Agreements), (b) any breach of any covenant or agreement of the Buyer
contained in this Agreement (or any certificate or other document delivered by
the Buyer including without limitation the Ancillary Agreements), (c) the
Assumed Liabilities and (d) any and all liabilities, other than the Excluded
Liabilities, Losses and Taxes and all other similar governmental charges related
to the Business first arising from and after the Effective Time.
8.04 Limitations on Indemnification. The indemnification provided for
in Sections 8.02 and 8.03 shall be subject to the following limitations:
(a) Subject to the terms of this Agreement, the Sellers and the
Key Employees shall not be obligated to pay any indemnification amounts for
Losses pursuant to Section 8.02(a) and only for unintentional breaches of
Section 4.01 under Section 8.02(b) unless and until the aggregate amount of all
Losses pursuant thereto exceeds an amount equal to $100,000 (the "Basket"),
whereupon the Buyer shall be entitled to indemnification under Section 8.02(a)
for all such Losses including without limitation unintentional breaches of
Section 4.01 under Section 8.02(b).
(b) In the case of a breach by the Sellers or the Key Employees
of: (i) any covenant or agreement of the Sellers or the Key Employees contained
in this Agreement, or (ii) the representations and warranties contained in
Sections 2.04, 2.10, 2.12, 2.13, 2.22, 2.23, 2.25, 2.28 and 2.29 the Buyer shall
be entitled to indemnification for all such Losses but shall be limited to the
aggregate amount of the consideration paid to the Sellers and the Key Employees
pursuant to Sections 1.06(a) and (b); and
(c) In the case of a breach by the Sellers and the Key Employees
of all other representations and warranties contained in Article II hereof, and
for unintentional breaches of Section 4.01, the Buyer shall be entitled to
indemnification for all such Losses but shall be limited to an aggregate of
$10,000,000. Clauses (a), (b) and (c) of this Section 8.04 are subject to
paragraphs (d) and (e) below.
(d) Subject to Section 8.01 hereof, no claims for indemnification
in respect of Sections 8.02(a) or 8.03(a) shall be made after the date, if any,
on which the applicable covenant, representation or warranty upon which such
claim was based ceases to survive pursuant to Section 8.01. No claim for
indemnification shall be made for unintentional breaches under Section 4.01 if
not asserted prior to two (2) years after the Closing Date.
(e) The limitations on the indemnification obligations set forth
in this Section 8.04 shall not apply to any Excluded Liabilities or any and all
liabilities, other than Assumed Liabilities, of the Sellers or the Key Employees
related to the Business first arising before the Effective Date.
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8.05 Indemnification Procedures.
(a) A party seeking indemnification pursuant to this Agreement (an
"Indemnified Party") shall give prompt notice to the party from whom such
indemnification is sought (the "Indemnifying Party") of the assertion of any
claim, or the commencement of any action, suit or proceeding by a third party
which is not an affiliate of any party hereto in respect of which indemnity may
be sought hereunder (a "Third Party Claim"), and will give the Indemnifying
Party such information with respect thereto as the Indemnifying Party may
reasonably request, but failure to give such notice shall not relieve the
Indemnifying Party of any liability hereunder except to the extent that the
Indemnifying Party is actually prejudiced thereby.
(b) The Indemnifying Party shall have the right, exercisable by
written notice to the Indemnified Party within 30 days of receipt of notice from
the Indemnified Party of the commencement or assertion of any Third Party Claim
in respect of which indemnity may be sought hereunder, to assume and conduct the
defense of such Third Party Claim with counsel selected by the Indemnifying
Party and reasonably acceptable to the Indemnified Party; provided that (i) the
defense of such Third Party Claim by the Indemnifying Party will not, in the
judgment of the Indemnified Party, have a Material Adverse Effect on the
Indemnified Party; and (ii) the Indemnifying Party has sufficient financial
resources, in the reasonable judgment of the Indemnified Party, to satisfy the
amount of any adverse monetary judgment that is reasonably likely to result; and
(iii) the Third Party Claim solely seeks (and continues to seek) monetary
damages; and (iv) the Indemnifying Party expressly agrees in writing that as
between the Indemnifying Party and the Indemnified Party, the Indemnifying Party
shall be solely obligated to satisfy and discharge the Third Party Claim (the
conditions set forth in clauses (i) through (iii) are collectively referred to
as the "Litigation Conditions"). If the Indemnifying Party does not assume the
defense of such Third Party Claim in accordance with this Section 8.05, the
Indemnified Party may continue to defend the Third Party Claim. If the
Indemnifying Party has assumed the defense of a Third Party Claim as provided in
this Section 8.05, the Indemnifying Party will not be liable for any legal
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof; provided, however, that if (i) the Litigation Conditions cease
to be met, or (ii) the Indemnifying Party fails to take reasonable steps
necessary to defend diligently such Third Party Claim, the Indemnified Party may
assume its own defense, and the Indemnifying Party will be liable for all
reasonable costs or expenses paid or incurred in connection therewith.
(c) The Indemnifying Party or the Indemnified Party, as the case
may be, shall have the right to participate in (but not control), at its own
expense, the defense of any Third Party Claim which the other is defending as
provided in this Agreement.
(d) The Indemnifying Party, if it shall have assumed the defense
of any Third Party Claim as provided in this Agreement, shall not, without the
prior written consent of the Indemnified Party, consent to a settlement of, or
the entry of any judgment arising from, any such Third Party Claim (i) which
does not include as an unconditional term thereof the giving by the claimant or
the plaintiff to the Indemnified Party a complete release from all liability in
respect of such Third Party
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Claim, or (ii) which grants any injunctive or equitable relief, or (iii) which
may reasonably be expected to have a Material Adverse Effect on the affected
business of the Indemnified Party. The Indemnified Party shall have the right to
settle any Third Party Claim, the defense of which has not been assumed by the
Indemnifying Party, with the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed.
(e) Amounts payable in respect of indemnification obligations of
the parties shall be treated as an adjustment to the Purchase Price unless
otherwise required by law. Whether or not the Indemnifying Party chooses to
defend or prosecute any Third Party Claim, all the parties hereto shall
cooperate in the defense or prosecution thereof and shall furnish such records,
information and testimony, and attend such conferences, discovery proceedings,
hearings, trials and appeals, as may be reasonably requested in connection
therewith.
8.06 Intentionally Omitted.
8.07 Remedies. The remedies in this Section 8 shall be the parties
exclusive remedies with respect to any and all matters covered by this
Agreement, except for the remedies of specific performance, injunction and other
equitable relief.
8.08 Buyer's Investigation.
(a) The Buyer may not rely upon any representations or warranties
made by the Sellers or the Key Employees except as expressly set forth in this
Agreement, the Schedules, or in a writing delivered to the Buyer by the Sellers
or the Key Employees expressly referencing this Agreement.
(b) The Buyer hereby acknowledges and undertakes to accept the
future financial risks associated with the impact of any adverse future change
in any of the Laws or Regulations as it relates to the Acquired Assets or the
Business after the Closing. The Parties further acknowledge that various federal
and states statutes and regulations presently in effect, or which may be enacted
in the future, regulate permissible contractual and business relationships
including but not limited to Health Care Finance Administration ("HCFA")
regulations, Federal medicare/medicaid fraud and abuse laws and regulations, the
Stark I and II legislation and court decisions related to the foregoing. The
Buyer has performed its own review and investigation of the express terms of the
Contracts, Personal Property Leases, Allegiance contract, dealer consignment and
revenue sharing arrangements set forth in Exhibits B-1, B-2 and B-3 all of which
are being assumed by the Buyer as expressly provided herein and the Buyer has
performed its own due diligence to determine whether or not the express terms of
such arrangements comply with or are adversely affected by all presently
applicable Federal and State Laws and Regulations and whether the same are
susceptible to Laws or Regulations. Notwithstanding any other provision of this
Agreement, neither Sellers nor Key Employees make any representation or warranty
(whether express or implied) in this Agreement with respect to whether the
express terms of such contracts and agreements described above comply with Laws
and Regulations and, except as provided in the next two sentences, Buyer assumes
sole
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responsibility and financial risk on and following the closing that performance
of the express terms of such contracts and agreements assumed by the Buyer
following the Closing described above comply with Laws and Regulations. The
Buyer shall not assert a claim against the Sellers or the Key Employees for a
breach of a representation or warranty under this Agreement based on a claim
that the express terms of such above-described arrangements assumed by the Buyer
following the Closing (excluding any modifications thereof or conduct not in
compliance with such contracts, agreements or not otherwise in compliance with
Laws and Regulations) do not comply with Laws and Regulations. Notwithstanding
the foregoing, the Buyer does not assume and the Sellers and the Key Employees
shall continue to be responsible for all claims, losses, liabilities and damages
arising from conduct of the Sellers and the Key Employees prior to the Closing
or arising from any conduct or occurrence within the preceding parenthetical
including, but not limited to (i) the collectibility of any receivables from the
above-described arrangements which are generated before the Closing; (ii)
violation of any of the express terms of the above-described arrangements; and
(iii) any other conduct of the Sellers and the Key Employees prior to the
Closing in connection with the Sellers' performance of the above-described
arrangements. This Section 8.08 shall survive after the Closing.
ARTICLE IX
GENERAL
9.01 Notices, Etc. All notices, requests, demands, and other
communications hereunder shall be in writing and, unless otherwise provided
herein, shall be deemed to have been duly given upon or upon hand delivery or
upon deposit in the United States Mail, postage prepaid, certified or registered
mail, return receipt requested, as follows:
If to the Sellers:
CH Industries, Inc.
1201 North I-35
Carrollton, TX 75006
With a copy to (which copy shall not constitute notice to or service on
Sellers):
Charles E. Hasty
2214 High Country Drive
Carrollton, TX 75007
Facsimile Number:
Michael D. Ginsberg, Esq.
Ginsberg & Brusilow
14785 Preston Road, Lockbox 64
Dallas, TX 75240
Facsimile Number: (972) 702-0662
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John A. Carbona
4405 Lorraine
Dallas, TX 75205
Johnson, Fort, Meissner & Joseph
1555 River Park Drive, Suite 108
Sacramento, CA 95815-4666
Facsimile Number: (916) 920-9379
Attention: John J. Meissner, Jr.
If to the Key Employees:
Charles E. Hasty
2214 High Country Drive
Carrollton, TX 75007
Facsimile Number:
John A. Carbona
4405 Lorraine
Dallas, TX 75205
With a copy to (which copy shall not constitute notice to or service on
Key Employees):
Johnson, Fort, Meissner & Joseph
1555 River Park Drive, Suite 108
Sacramento, CA 95815-4666
Facsimile Number: (916) 920-9379
Attention: John J. Meissner, Jr.
If to the Buyer:
MEDIQ/PRN Life Support Services, Inc.
One Mediq Plaza
Pennsauken, New Jersey 08110
Facsimile Number: (609) 661-0958
Attention: Thomas E. Carroll
With a copy to (which copy shall not constitute notice to or service on
Buyer):
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
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Facsimile Number: (215) 994-2222
Attention: Henry N. Nassau
or at such other address as shall have been furnished to the other in writing in
accordance herewith, except that such notice of such change shall be effective
only upon receipt.
9.02 Enforcement. In the event the Sellers, the Key Employees or the
Buyer shall seek enforcement of any covenant, warranty or other term or
provision of this Agreement, the party that prevails in such enforcement
proceedings shall be entitled to recover reasonable attorneys' fees from outside
counsel actually incurred by it in connection therewith.
9.03 Amendments and Waiver. This Agreement may be amended or modified
by, and only by, a written notarized instrument executed by all the parties
hereto. The terms of this Agreement may be waived by, and only by, a written
notarized instrument executed by the party against whom such waiver is sought to
be enforced.
9.04 Expenses. Except as otherwise expressly herein provided, each
party to this Agreement shall pay its own expenses (including, without
limitation, the fees and expenses of such party's counsel incidental to the
preparation of and/or consummation of this Agreement). The Buyer has paid the
filing fee pursuant to the HSR Act.
9.05 Section and Other Headings; References. The section and other
headings contained in this Agreement are for convenience of reference only and
shall not in any way affect the meaning or interpretation of this Agreement.
References to Articles or Sections when used without further attribution shall
refer to the particular articles or sections of this Agreement.
9.06 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
9.07 Parties in Interest. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, and their respective successors and
assigns. The Buyer shall have the right to assign this Agreement and the rights
and obligations hereunder (i) to any affiliate of the Buyer, or (ii) to any
lender providing financing to the Buyer in connection herewith. John A. Carbona
is assigning and transferring any and all right, title and interest he has in
the assets described on Exhibit "C" to the John A. Carbona Charitable Remainder
Trust (the "Trust") immediately following the execution of this Agreement. Such
assignment shall not relieve John A. Carbona of any of his obligations hereunder
and shall be subject to the Trust assuming liability for John A. Carbona's
obligations hereunder. The Buyer hereby consents to such assignment and
assumption and the form and content of such assignment shall be in the form
attached hereto as Exhibit Q. Notwithstanding any provision of this Agreement to
the contrary, Michael D. Ginsberg, as Special Independent Trustee of the John A.
Carbona Charitable Remainder Trust ("Trustee") shall have the right to determine
not to sell its interest in the assets described on Exhibit "C" by delivering
written notice to Buyer by 5 p.m., Eastern Standard Time on April 27, 1998
stating whether or not Trustee is exercising such right. Time is
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of the essence with respect to delivery of such notice. The failure of Buyer to
timely receive such notice shall be deemed Trustee's election to proceed with
sale of its interest in the assets described on Exhibit "C" and waiver of any
right to determine not to sell its interest in the assets described on Exhibit
"C". If the Trustee exercises its right to determine not to sell its interest in
the assets described on Exhibit "C" as described above, then either the Buyer or
the Sellers and the Key Employees may terminate this Agreement. Except as
otherwise expressly permitted herein, this Agreement shall not be assigned by
any party hereto without the written consent of the other parties. Sellers'
merger or the sale of stock or assets of the Fabrication Business shall not
create a default or otherwise violate any portion of this Agreement so long as
it is not inconsistent with the express terms hereof.
9.08 No Implied Rights or Remedies. Except as otherwise expressly
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any Person, other than the parties hereto
and their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
9.09 Exhibits and Schedules. All Exhibits and Schedules referred to
herein and attached hereto are incorporated herein for all purposes.
9.10 Entire Agreement. This Agreement, together with all exhibits and
schedules hereto, embodies the entire agreement and understanding among the
parties hereto relating to the subject matter hereof and supersedes any prior
agreements and understandings relating to the subject matter hereof.
Notwithstanding the preceding sentence, the parties agree that: (i) the
Confidentiality Agreement (as hereinafter defined) and (ii) Section 6
"Termination Fee" and the binding provision necessary to continue such Section
in force as contained in that certain Letter of Intent dated March 6, 1998
executed by CH Industries, Inc., Charles E. Hasty and MEDIQ Incorporated, and as
amended shall remain in full force and effect.
9.11 Legal Invalidity. If any part or provision of this Agreement is or
shall be deemed violative of any applicable laws, rules or regulations, such
legal invalidity shall not void the Agreement or affect the remaining terms and
provisions of this Agreement, and the Agreement shall be construed and
interpreted to comport with all such laws, rules or regulations to the maximum
extent possible.
9.12 Applicable Law. This Agreement and the rights and obligations of
the parties hereto shall be construed under and governed by the laws of the
State of Texas, without giving effect to conflicts of laws principles.
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9.13 Arbitration.
(a) The Buyer, the Sellers and the Key Employees agree that all
disputes, controversies or claims that may arise among them (including their
agents and employees) including, without limitation, any dispute, controversy or
claim arising out of the transactions contemplated hereby or this Agreement, or
the breach, termination or invalidity thereof, shall be submitted to, and
determined by, binding arbitration. Such arbitration shall be conducted pursuant
to the Commercial Arbitration Rules (the "Rules") then in effect of the American
Arbitration Association, except to the extent such rules are inconsistent with
this Section 9.13. If the amount in controversy in the arbitration exceeds
$200,000 exclusive of interest, attorneys' fees and costs, the arbitration shall
be conducted by a panel of three (3) neutral arbitrators. Otherwise, the
arbitration shall be conducted by a single neutral arbitrator. The arbitrator(s)
shall be selected pursuant to the Rules. Exclusive venue for such arbitration
shall be in Chicago, Illinois. The arbitrator(s) shall apply the internal laws
of the State of Texas (without regard to conflict of law rules) in determining
the substance of the dispute, controversy or claim and shall decide the same in
accordance with the applicable usages and terms of trade. Evidentiary questions
shall be governed by the Federal Rules of Evidence. The arbitrator(s)' award
shall be in writing and shall set forth the findings and conclusions upon which
the arbitrator(s) based the award. The prevailing party in any such arbitration
shall be entitled to recover its reasonable attorneys' fees, costs and expenses
incurred in connection with the arbitration. Any award pursuant to such
arbitration shall be final and binding upon the parties hereto, and judgment on
the award may be entered in any federal or state court sitting or located in the
State of Illinois or in any other court having jurisdiction. The provisions of
this Section 9.13 shall survive the termination of this Agreement.
(b) In fulfilling his or her duties, the arbitrator(s) may
consider such matters as, in the opinion of the arbitrator(s), are necessary or
helpful to render an appropriate decision. All discovery shall be expedited,
consistent with the nature and complexity of the claim or dispute and consistent
with fairness and justice. The arbitrator(s) shall have the power to compel any
party to comply with discovery requests of the other parties and to issue
binding orders relating to any discovery dispute which shall be enforceable in
the same manner as awards. The arbitrator(s) also shall have the power to impose
sanctions for abuse or frustration of the arbitration process, including without
limitation, the refusal to comply with orders of the arbitrator(s) relating to
discovery and compliance with subpoenas.
(c) A party hereto may seek and obtain from a court of competent
jurisdiction a temporary restraining order, temporary injunction or other
temporary emergency relief without first having to submit such dispute to
arbitration.
9.14 Termination.
(a) This Agreement may, by notice given at any time prior to the
Closing, be terminated:
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(i) by the mutual written agreement of the Buyer, the Key
Employees and the Sellers;
(ii) by either the Buyer, on the one hand, or the Sellers and
the Key Employees, on the other, if a material breach of any provision of this
Agreement has been committed by the other party and such breach has not been
cured within 30 days following notice of such breach (or if such breach can not
be reasonably cured within 30 days, that Sellers and/or Key Employees, as the
case may be, are diligently pursuing the cure) or waived.
(iii) (a) by the Buyer if any of the conditions in Article VII
has not been satisfied as of the Closing Date, or if satisfaction of such a
condition is or becomes impossible (other than through the failure of the Buyer
to comply with its obligations under this Agreement) and the Buyer has not
waived such condition on or before the Closing or (b) by the Sellers and the Key
Employees if any of the conditions in Article VI has not been satisfied as of
the Closing Date, or if satisfaction of such a condition is or becomes
impossible (other than through the failure of the Sellers and/or the Key
Employees to comply with their respective obligations under this Agreement) and
the Sellers have not waived such condition on or before the Closing Date.
(iv) by either the Buyer, on the one hand, or the Sellers and
the Key Employees, on the other, if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before the earlier of (1)
the eighth day after the closing of the BRS Transaction and (2) the fiftieth day
after the Registration Statement Form S-4 relating to the BRS Transaction has
been declared effective (the "Outside Termination Date") , or such later date as
the parties may agree upon.
(v) by the Buyer, within five (5) days of the Sellers'
delivery to the Buyer of the February Statements if the February Statements show
any material adverse change to the financial condition or results of operations
of Sellers since the November 30, 1997 unaudited financial statements.
(b) Nothing in this Section 9.14 shall relieve any party of any
liability for a material breach of this Agreement prior to the termination
hereof.
9.15 Public Announcement. Other than for the filing and mailing of
Buyer's Proxy with respect to the BRS Transaction, in connection with
governmental regulatory compliance or in connection with arranging any financing
incident to the transaction contemplated by this Agreement, the Buyer, the
Sellers and the Key Employees agree that there shall be no public announcement
of this Agreement or the transactions contemplated hereby until after the
Closing Date unless such an announcement is required by applicable law or has
been approved in writing by the parties in advance of announcement. In the event
that the Buyer is required to make an announcement prior to Closing, the Buyer
shall draft such announcement and the Sellers and the Key Employees shall review
it prior to release. The Sellers and the Key Employees shall raise any material
objections within 24 hours, which the Buyer, acting in good faith, may
incorporate into the announcement if appropriate.
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Simultaneously with the execution of this Agreement, the Buyer and the Sellers
shall issue a joint press release, in form and substance reasonably acceptable
to the Buyer and the Sellers, regarding the execution of this Agreement.
9.16 Confidentiality Agreement. Buyer and CH Medical have entered into
a Confidentiality Agreement dated February 11, 1998 (the "Confidentiality
Agreement") and the Sellers agree that the Confidentiality Agreement is not
modified or amended by this Agreement, remains in full force and effect, and
that CH Medical and all of its respective affiliates will comply with their
respective obligations thereunder.
9.17 Permitted Exceptions. The term "Permitted Exceptions" shall mean
liens, taxes, assessments and other governmental charges not yet due and payable
and statutory liens, mechanics', laborers and materialmen liens arising in the
ordinary course of business for sums not yet due. The term "Permitted
Exceptions" with respect to real property leasehold estates of the Sellers shall
mean (a) statutory and contractual landlord liens under leases wherein the
Seller is a Lessee thereof and not in default, (b) any and all matters of record
in the jurisdiction where the real property is located including, without
limitation, restrictions, reservations, covenants, conditions, oil and gas
leases, mineral severances and liens, and (c) easements, rights-of-way,
prescriptive rights, encroachments, protrusions, rights and party walls, and
liens for taxes, assessments and other governmental charges not yet due;
provided, however, such Permitted Exceptions shall not result in Buyer becoming
liable for an Excluded Liability.
9.18 Knowledge. Phrases referencing the "Sellers' knowledge" or "Key
Employees' Knowledge" or the "Sellers' and Key Employees' knowledge" or phrases
similar thereto in this Agreement shall mean facts and information within the
actual knowledge of Key Employees or Frank Stover, as of the date a
representation or warranty is made or is deemed repeated as of the Closing Date.
9.19 Material Adverse Effects. Material Adverse Effect means any
material adverse effect on the assets, liabilities, operations, business,
results of operations, financial condition or prospects (other than changes in
prospects arising from general economic conditions, general competitive
occurrences, solely from acts or omissions of the Buyer or arising more than
eighteen (18) months after the Closing) of the Business or the Acquired Assets
or the Sellers or the Key Employees.
9.20 Bulk Transfer Laws. The Buyer agrees to waive compliance with
Article 6 of the Uniform Commercial Code, relating to bulk transfers and bulk
sales ("Bulk Transfer Laws"), as in effect in any relevant jurisdiction to the
extent applicable to the transactions contemplated by this Agreement. Nothing
contained herein shall waive the Sellers' right to cause compliance with Article
6 of the Bulk Transfer Laws in relevant jurisdictions, and the Buyer shall
cooperate with compliance with Article 6 of the Bulk Transfer Laws and with
executing related documents and instruments required for such compliance,
provided, however, compliance with the Bulk Transfers Laws shall not delay the
Closing. With regard to compliance with Bulk Transfer Laws in those
jurisdictions which require giving notice to individual suppliers or creditors,
the Sellers shall obtain Buyer's prior written
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consent to giving such notices pursuant to the applicable Bulk Transfer Laws and
such consent will not be unreasonably withheld. Nothing contained herein shall
waive the Sellers' right to obtain any tax clearance certificates, provided,
however, obtaining such tax clearance certificates shall not delay the Closing.
9.21 Tax Clearance Certificates. Sellers shall obtain tax clearance
certificates from all states in which Sellers are, as of the date hereof,
actively conducting sales and operations, with respect to payroll taxes and
sales taxes as may be applicable in such state jurisdiction. Notwithstanding the
foregoing, Sellers shall not be obligated to obtain tax clearance certificates
of a particular state if, other than for payment of taxes due, such tax
clearances are not reasonably obtainable or require an audit of Sellers' with
respect to such state. Buyer will cooperate with Sellers efforts to obtain such
tax clearance certificates. Such tax clearance certificates obtained pursuant to
this section shall be obtained at the expense of Sellers. Sellers may obtain tax
clearance certificates pursuant to this section both before and after the
closing as may be determined by Sellers.
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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date and year first above written.
The Buyer:
MEDIQ/PRN Life Support Services, Inc.
By: /s/ Thomas E. Carroll
------------------------------
Thomas E. Carroll
Title: President and Chief Executive Officer
The Key Employees:
/s/ Charles E. Hasty
-----------------------------------
Charles E. Hasty
/s/ John A. Carbona
-----------------------------------
John A. Carbona
The Sellers:
CH INDUSTRIES, INC.
By: /s/ Charles E. Hasty
-------------------------------
Title: President
----------------------------
CH ADMINISTRATION, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
64
<PAGE>
CH PRODUCTION, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CH MEDICAL, INC., d/b/a CH MEDICAL
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS OPERATIONS, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS - SACRAMENTO, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS - OKLAHOMA CITY, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS - MEMPHIS, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
65
<PAGE>
CARDIO SYSTEMS CHATTANOOGA, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS - ATLANTA, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS PARTNERS, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS MANUFACTURING,
INC., f/k/a HUMANETICS, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS OF TEXAS -
AUSTIN, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS OF TEXAS -
DALLAS, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
66
<PAGE>
CARDIO SYSTEMS INTERNATIONAL, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS - TAMPA, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS - FT. MYERS, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS - MIAMI, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS SALES, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
SPECIAL CARE DELIVERY, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
67
<PAGE>
CARDIO SYSTEMS AUSTIN, LTD.
By: Cardio Systems of Texas -- Austin, Inc., its General Partner
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS DALLAS, LTD.
By: Cardio Systems of Texas -- Dallas, Inc., its General Partner
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
SCD INDUSTRIES, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS - KANSAS CITY, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS - CHICAGO, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CARDIO SYSTEMS NORTH AMERICA
DEALER CORPORATION, INC.
By: /s/ John A. Carbona
-------------------------------
Title: President
----------------------------
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
MEDIQ Incorporated
Pennsauken, New Jersey
We hereby consent to the use in the Proxy Statement/Prospectus constituting a
part of this Registration Statement of MEDIQ Incorporated of Form 8-K of our
report dated December 12, 1997, relating to the financial statements of CH
Medical, Inc. and Subsidiaries which is contained in that Proxy
Statement/Prospectus.
/s/ BDO Seidman, LLP
--------------------
BDO SEIDMAN, LLP
Dallas, Texas
April 28, 1998
[LETTERHEAD OF MEDIQ]
NEWS RELEASE
Date: IMMEDIATE (April 27, 1998)
Contact: Thomas E. Carroll, President
and Chief Executive Officer
MEDIQ Incorporated
(609) 662-3200
MEDIQ INCORPORATED TO ACQUIRE CERTAIN ASSETS OF
CH INDUSTRIES, INC. AND SUBSIDIARIES
PENNSAUKEN, N.J. -- MEDIQ Incorporated (MED:AMEX) ("MEDIQ") announced
today that its wholly owned subsidiary, MEDIQ/PRN Life Support Services, Inc.,
has entered into an Asset Purchase Agreement with Texas-based CH Industries,
Inc. to acquire substantially all of the assets of its subsidiary CH Medical
Inc. ("CHM"). CHM is a national sales, rental and service corporation
specializing in patient beds, overlays, mattress replacement systems, pressure
relieving pads and surfaces and other therapeutic support surfaces with
approximately 75 business locations nationwide and revenues of approximately
$26.7 million in fiscal 1997. Thomas E. Carroll, President and CEO of MEDIQ
said, "I am excited about the CHM acquisition because, with MEDIQ's national
logistics and distribution infrastructure, we expect to be able to increase our
support surfaces rental revenues without significant changes in our existing
cost structure."
John A. Carbona, CEO of CH Medical, echoes Mr. Carroll's positive
comments by stating the following: "Finding such a perfect acquisition fit
between two organizations which will ultimately meet the needs of both the
employees and customers is extremely rare, yet that is what MEDIQ and CH Medical
have accomplished."
The purchase price is approximately $50 million in cash, including
related costs and expenses and the assumption of certain specified obligations.
MEDIQ currently expects to finance the purchase with term loans under a credit
facility expected to be entered into upon the consummation of the previously
announced acquisition of MEDIQ by a corporation organized by Bruckmann, Rosser,
Sherrill & Co., L.P., (the "Merger"). Consummation of the acquisition is subject
to customary conditions, however it is not conditioned upon consummation of the
Merger, and consummation of the Merger is not conditioned upon consummation of
the acquisition.
<PAGE>
MEDIQ, through MEDIQ/PRN Life Support Services, Inc., operates the
largest movable critical care and life support medical equipment rental business
in the United States, renting a wide variety of movable medical equipment for
use by acute care hospitals, alternative care facilities, nursing homes and home
health care agencies.
Some of the information presented in this press release constitutes
forward looking information within the meaning of the Private Securities
Litigation Reform Act of 1995. Although MEDIQ believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results will not
differ materially from its expectations. For additional information concerning
important factors which may cause MEDIQ's actual results to differ materially
from expectations and underlying assumptions, please refer to the reports filed
by MEDIQ with the Securities and Exchange Commission.
Exhibit 99.2
Audited Financial Statements of CH Medical, Inc. and Subsidiaries
<PAGE>
CH MEDICAL, INC.
AND SUBSIDIARIES
---------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
OF CH MEDICAL, INC.
AND SUBSIDIARIES FOR THE
YEAR ENDED AUGUST 31, 1997
AND FOR THE THREE MONTHS
ENDED NOVEMBER 30, 1997
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ....................... 3
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 1997
Statements of net assets ............................................. 4
Statements of income ................................................. 5
Statements of cash flows.............................................. 6
Summary of accounting policies ....................................... 7-9
Notes to financial statements......................................... 10-12
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED NOVEMBER 30,
1997 (UNAUDITED)
Statement of net assets............................................... 13
Statement of income................................................... 14
Statement of cash flows............................................... 15
Summary of accounting policies........................................ 16-17
Notes to financial statements......................................... 18-19
2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholder and Directors
CH Medical, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of net assets of
CH Medical, Inc. and Subsidiaries (the "Company") as of August 31, 1997 and 1996
and the related consolidated statements of income and cash flows for each of the
three years in the period ended August 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the net assets of CH Medical, Inc. and
Subsidiaries at August 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1997 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
December 12, 1997
Dallas, Texas
3
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents.............................................. $ 307,080 $ 297,473
Accounts receivable trade, net of allowance for doubtful
accounts of $1,072,353 and $1,373,268, in 1997 and 1996,
respectively (Note 3) ............................................... 7,149,520 5,471,764
Accounts receivable other.............................................. -- 91,876
Inventories (Notes 1 and 3)............................................ 4,226,283 2,722,507
Other.................................................................. 200,427 81,515
Intercompany income tax receivable due from CH Industries.............. 576,637 --
----------- ------------
Total current assets..................................................... 12,459,947 8,665,135
----------- ------------
Accounts receivable long-term............................................ 859,660 --
Net property and equipment (Notes 2, 3 and 5)............................ 5,457,197 5,001,237
Other assets............................................................. 62,446 58,765
----------- ------------
$18,839,250 $13,725,137
=========== ============
LIABILITIES
Current
Accounts payable ...................................................... $983,434 $ 95,279
Accrued expenses....................................................... 685,343 446,825
Income taxes payable .................................................. 117,000 --
Current maturities of obligations under capital lease.................. -- 6,118
Dealer deposits........................................................ 25,470 25,470
Revolving line of credit (Note 3)...................................... 4,181,663 1,934,837
Other liabilities...................................................... 458,891 1,618
----------- ------------
Total current liabilities................................................ 6,451,801 2,510,147
----------- ------------
Note payable to officer.................................................. 285,315 399,337
Income taxes payable (Note 7)............................................ -- 499,911
Deferred income taxes (Note 7)........................................... 338,442 264,496
Other liabilities........................................................ 127,000 --
----------- ------------
Total liabilities........................................................ 7,202,558 3,673,891
----------- ------------
Commitments and contingencies (Note 6)...................................
----------- ------------
Net assets .............................................................. $11,636,692 $10,051,246
=========== ============
</TABLE>
See accompanying summary of accounting policies, notes to consolidated financial
statements and independent auditors' report.
4
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET RENTAL AND SALES ..................................................... $26,710,137 22,711,898 $19,385,404
RENTAL EXPENSES AND COST OF GOODS SOLD ................................... 11,599,013 8,344,227 8,043,952
------------ ------------ -------------
GROSS PROFIT.............................................................. 15,111,124 14,367,671 11,341,452
------------ ------------ -------------
OPERATING EXPENSES (NOTE 4):
Selling expenses ..................................................... 4,005,107 3,857,026 2,514,278
Depreciation ......................................................... 1,739,735 1,166,054 946,801
General and administrative expenses including
$348,708, $455,633 and $401,729 to related
parties (Note 5)..................................................... 7,692,257 6,137,383 4,455,563
------------ ------------ -------------
TOTAL OPERATING EXPENSES.................................................. 13,437,099 11,160,463 7,916,642
------------ ------------ -------------
OPERATING INCOME ......................................................... 1,674,025 3,207,208 3,424,810
------------ ------------ -------------
OTHER INCOME (EXPENSE):
Other income ......................................................... 442,898 526,738 125,814
Interest.............................................................. (245,000) (96,394) (34,344)
Litigation settlement................................................. (250,000) -- --
------------ ------------ -------------
TOTAL OTHER INCOME (EXPENSE).............................................. (52,102) 430,344 91,470
------------ ------------ -------------
INCOME BEFORE INCOME TAXES................................................ 1,621,923 3,637,552 3,516,280
INCOME TAXES (NOTE 7)..................................................... 616,330 1,382,270 1,336,186
------------ ------------ -------------
NET INCOME................................................................ $1,005,593 $2,255,282 $2,180,094
============ ============ =============
</TABLE>
See accompanying summary of accounting policies, notes to consolidated financial
statements and independent auditors' report.
5
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ......................................................... $1,005,593 $2,255,282 $2,180,094
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation ................................................... 1,739,735 1,166,054 946,801
Loss on disposition of fixed assets............................. -- 58 893,824
Deferred taxes ................................................. 73,946 106,123 219,178
Provision for bad debt.......................................... 170,000 1,119,384 --
Changes in operating assets and liabilities:
Accounts receivable trade .................................... (2,236,501) (3,727,898) 207,512
Accounts receivable other .................................... 91,876 (91,876) 87,148
Inventories .................................................. (1,503,776) (318,261) (466,436)
Other assets.................................................. (695,549) 128,767 (212,430)
Accounts payable.............................................. 888,155 (200,808) 80,689
Accrued expenses.............................................. 238,518 (242,215) 531,705
Income taxes payable.......................................... (382,911) (591,220) 169,183
Other liabilities............................................. 334,273 (13,366) 8,866
------------ ------------ --------------
Cash provided by (used in) operating activities....................... (276,641) (409,446) 3,846,134
------------ ------------ --------------
CASH USED IN INVESTING ACTIVITIES
Capital expenditures................................................ (1,840,438) (2,144,190) (2,226,921)
------------ ------------ --------------
FINANCING ACTIVITIES:
Net borrowing (repayments) under note payable officer................ (114,022) 399,337 --
Principal payments on obligations under capital lease................ (6,118) (48,870) (86,092)
Net borrowings (repayments) under revolving line of credit........... 2,246,826 1,769,873 (846,764)
------------ ------------ --------------
Cash provided by (used in) financing activities........................ 2,126,686 2,120,340 (932,856)
------------ ------------ --------------
Net increase (decrease) in cash and cash
equivalents ......................................................... 9,607 (433,296) 686,357
Cash and cash equivalents at beginning of year......................... 297,473 730,769 44,412
------------ ------------ --------------
Cash and cash equivalents at end of year............................... $307,080 $297,473 $730,769
============ ============ ==============
</TABLE>
See accompanying summary of accounting policies, notes to consolidated financial
statements and independent auditors' report.
6
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The statements of net assets, income and cash flows relate to the
operations of CH Medical, Inc. and Subsidiaries (the "Company"). The Company is
engaged in the manufacture, sale and rental of special care hospital beds and
associated acute care air support therapy systems. These financial statements
are prepared pursuant to a letter of intent between CH Industries and MEDIQ
("MEDIQ") Incorporated whereby the net operating assets of CH Medical, Inc. will
be acquired by MEDIQ.
During the period covered by the financial statements, the Company's
operations were conducted as an integral part of CH Industries overall
operations, and separate financial statements were not prepared for the Company.
These financial statements have been prepared from CH Industries' historical
accounting records. The financial statements also include various allocated
costs and expenses as described herein, which are not necessarily indicative of
the costs and expenses which would have resulted if the Company had been
operated as a separate entity. In addition, the Company was allocated a portion
of CH Industries line of credit and related interest based on the ratio of debt
to certain assets. Therefore, the statements of net assets, income and cash
flows may not be indicative of the financial position and the results of
operation that would have resulted if the Company were operated on a stand alone
basis. All of the allocations and estimates reflected in the financial
statements are based on assumptions that management believes reasonable under
the circumstances.
Certain expenses, consisting primarily of costs related to certain
employees, the shareholder and related parties of the Company, and other
non-operating items have been excluded from the financial statements presented,
as they are not indicative of the net operating assets and liabilities nor the
operations to be acquired under the Letter of Intent.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
CH Medical, Inc. and the following wholly-owned subsidiaries:
Cardio Systems International, Inc.
Cardio Systems Manufacturing, Inc.
Cardio Systems -- Austin, Ltd.
Cardio Systems -- Dallas, Ltd.
Cardio Systems -- Atlanta, Inc.
Cardio Systems -- Chattanooga, Inc.
Cardio Systems -- Chicago, Inc.
Cardio Systems -- Fort Myers, Inc.
Cardio Systems -- Kansas City, Inc.
Cardio Systems -- Memphis, Inc.
Cardio Systems -- Miami, Inc.
Cardio Systems -- Oklahoma City, Inc.
Cardio Systems -- Sacramento, Inc.
Cardio Systems -- Tampa, Inc.
Cardio Systems North America Dealer Corporation, Inc.
Cardio Systems Operations, Inc.
Cardio Systems Partners, Inc.
Cardio Systems Sales, Inc.
Cardio Systems of Texas -- Austin, Inc.
<PAGE>
Cardio Systems of Texas -- Dallas, Inc.
SCD Industries, Inc.
Special Care Delivery, Inc.
7
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
All significant intercompany transactions and balances have been eliminated
in consolidation.
REVENUE RECOGNITION
Service and rental revenue are recognized as services are rendered. Sales
and other revenue are recognized when products are shipped.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of ninety days or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value). Costs include material, labor and manufacturing overhead
costs. Inventory expected to be converted into equipment for short-term rental
has been reclassified to property, plant and equipment.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Betterments which extend
the useful life of the equipment are capitalized.
DEPRECIATION AND AMORTIZATION
Depreciation on property, plant and equipment is calculated on the
straight- line method over the estimated useful lives (thirty to forty years for
the buildings and between three and ten years for most of the Company's other
property and equipment) of the assets.
INCOME TAXES
The Company recognizes certain transactions in different time periods for
financial reporting and income tax purposes. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. The provision for deferred income
taxes represents the change in deferred income tax accounts during the year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LONG LIVED ASSETS
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," management reviews long-lived assets and intangible
assets for impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be fully recoverable. As part of the
assessment,
8
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
management analyzes the undiscounted cash flows for each product that has
significant long-lived or intangible asset values associated with it. This
analysis for the asset values as of August 31, 1997 indicated there was no
impairment to these assets' carrying values.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130") is effective for financial statements
with fiscal years beginning after December 15, 1997. Earlier application is
permitted. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company has yet to determine the preferred format for
presenting this information.
9
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES
Inventories are summarized as follows:
AUGUST 31,
-------------------------
1997 1996
---------- -----------
Raw materials. . . . . . . . . . . . . . . . . . $292,878 $139,589
Work-in-process. . . . . . . . . . . . . . . . . 2,835,748 2,252,633
Finished goods . . . . . . . . . . . . . . . . . 1,097,657 330,285
---------- -----------
Total. . . . . . . . . . . . . . . . . . . . . . $4,226,283 $2,722,507
========== ===========
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
AUGUST 31,
-------------------------
1997 1996
---------- -----------
Rental medical equipment . . . . . . . . . . . $10,067,172 $8,300,665
Machinery and equipment. . . . . . . . . . . . 463,336 450,381
Office equipment . . . . . . . . . . . . . . . 505,206 230,419
Building and improvements. . . . . . . . . . . 216,933 174,790
Vehicles . . . . . . . . . . . . . . . . . . . 89,142 89,142
Land . . . . . . . . . . . . . . . . . . . . . 8,536 8,536
----------- ------------
Total cost . . . . . . . . . . . . . . . . . . 11,350,325 9,253,933
Accumulated depreciation . . . . . . . . . . . (5,893,128) (4,252,696)
----------- ------------
Net property and equipment . . . . . . . . . . $5,457,197 $5,001,237
=========== ============
3. LINE OF CREDIT
CH Industries has a $7,000,000 revolving line of credit with a bank which
expires January 5, 1998. The interest rate is at the 30-day LIBOR rate plus 2.25
percent. The Company has been allocated a portion of the line of credit based on
the ratio of debt to certain assets. At August 31, 1997, the Company's interest
rate was 7.9375 percent. The outstanding borrowings are secured by CH
Industries' accounts receivable, inventories (including those of the Company)
and the guarantee of the parent's stockholder. Certain financial covenants exist
related to CH Industries total debt ratio, tangible net worth, working capital,
capital expenditures and additional debt.
4. OPERATING EXPENSES AND OTHER ALLOCATED EXPENSES
All operating expenses are allocated to the Company using procedures deemed
appropriate to the nature of the expenses involved. The procedures utilize
various allocation bases such as relative investment and number of employees,
and direct effort expended. Interest expense is determined at the corporate
level based on the consolidated indebtedness of CH Industries and allocated to
the Company on the basis of its proportionate share of certain assets of CH
Industries. CH Industries management believes the allocations are reasonable,
but they are not necessarily indicative of the costs that would have been
incurred if the Company had been a separate entity.
10
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
5. RELATED PARTY TRANSACTIONS
The Company leases certain office space, warehouse facilities and equipment
from its stockholder, CH Realty and CH Leasing, Ltd., a limited partnership
controlled 99 percent by the stockholder. Rental expense for operating leases to
affiliates was $348,708, $455,633, and $401,729 for the years ended August 31,
1997, 1996, and 1995, respectively.
6. COMMITMENTS
The Company leases certain facilities and automobiles under operating
leases expiring at various dates through 2004. Total rent expense under these
operating leases was $1,137,356, $1,433,822, and $1,086,922 for the years ended
August 31, 1997, 1996, and 1995. As of August 31, 1997, future net minimum lease
payments under operating leases that have initial or remaining noncancellable
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
VEHICLES FACILITIES TOTAL
-------- ---------- ---------
<S> <C> <C> <C>
1998 . . . . . . . . . . . . . . . . . .. $296,661 $565,410 $862,071
1999 . . . . . . . . . . . . . . . . . .. 307,553 352,083 659,636
2000 . . . . . . . . . . . . . . . . . .. 108,139 246,245 354,384
2001 . . . . . . . . . . . . . . . . . .. -- 246,245 246,245
2002 . . . . . . . . . . . . . . . . . .. -- 246,245 246,245
Thereafter . . . . . . . . . . . . . . .. -- 389,887 389,887
--------- ----------- ------------
Total minimum lease payments . . . . . .. $712,353 $2,046,115 $2,758,468
========= =========== ============
</TABLE>
Minimum payments to affiliates total $246,245 per annum through 2002 and
$389,887 thereafter.
7. INCOME TAXES
Federal, state and local income taxes are allocated based upon an effective
tax rate of 38 percent for 1997, 1996, and 1995. The allocation approximates the
results that would occur if the businesses were a separate taxpayer. The
components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------
1997 1996 1995
--------- ----------- --------------
<S> <C> <C> <C>
Current expense. . . . . . . . . . . . . . . $542,384 $1,276,147 $1,117,008
Deferred . . . . . . . . . . . . . . . . . . 73,946 106,123 219,178
---------- ----------- -------------
Total income taxes . . . . . . . . . . . . . $616,330 $1,382,270 $1,336,186
========== =========== =============
</TABLE>
Deferred taxes result from temporary differences arising from differing
methods of depreciation for tax and financial reporting purposes and from
allowance for doubtful accounts not deductible for tax purposes.
During the fiscal year ending August 31, 1995 the CH Industries applied
with the Internal Revenue Service to change their method of accounting for tax
purposes. The change is currently being reviewed by the Internal Revenue
Service. As a result of the change, for tax purposes, an estimated amount of
$300,000 will be subject to a four year payout.
11
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Income tax expense differs from the amounts computed by applying the
federal statutory rate of 34 percent primarily due to state income taxes.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Interest and income taxes paid during the year and allocated to the Company
based on average outstanding debt and net income before taxes, respectively,
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Interest . . . . . . . . . . . . . . . . . . . $226,900 $84,100 $35,600
----------- ---------- ------------
Income taxes . . . . . . . . . . . . . . . . . $1,500,000 $1,921,000 $1,040,000
=========== ========== ============
</TABLE>
12
CH MEDICAL, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
as of NOVEMBER 30, 1997
<PAGE>
CH MEDICAL, INC.
And Subsidiaries
Contents
- --------------------------------------------------------------
Consolidated financial statements
Statement of net assets 3
Statement of income 5
Statement of cash flows 6
Statement of accounting policies 7
Notes to financial statements 9
2
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents............................................. $225,078 $824,623
Accounts receivable trade, net of allowance for doubtful
accounts of $952,836 and $1,373,267, in 1997 and 1996,
respectively (Note 3)............................................... 7,745,911 6,592,411
Accounts receivable other............................................. 709,054 529,721
Inventories (Note 1 and 3)............................................ 4,798,382 2,587,807
------------- -------------
Total current assets ................................................... 13,478,425 10,534,562
------------- -------------
Net property and equipment (Notes 2, 3 and 5)........................... 4,767,629 5,314,309
------------- -------------
Other assets ........................................................... 1,157,171 145,980
------------- -------------
$19,403,225 $15,994,851
============= =============
LIABILITIES
Current
Accounts payable ..................................................... $1,178,227 $514,173
Accrued expenses ..................................................... 468,263 194,844
Dealer deposits....................................................... 25,470 24,470
Revolving line of credit (Note 3)..................................... 5,348,266 3,698,259
Other liabilities..................................................... 84,000 1,618
------------- -------------
Total current liabilities............................................... 7,104,226 4,433,364
------------- -------------
Notes payable other................................................... 109,000 --
Note payable officer ................................................. 62,609 399,337
Federal income taxes payable (Note 7)................................. -- 393,287
Deferred income taxes (Note 7)........................................ 338,442 264,196
------------- -------------
Total liabilities..................................................... 7,614,277 5,490,184
------------- -------------
Commitments and contingencies (Note 6)..................................
------------- -------------
Net assets ............................................................. $11,788,948 $10,504,667
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
----------------------------------
1997 1996
--------- ----------
<S> <C> <C>
NET RENTAL AND SALES ................................................. $6,540,912 $6,549,091
RENTAL EXPENSES AND COST OF GOODS SOLD................................ 2,807,188 2,909,497
------------- --------------
GROSS PROFIT ......................................................... 3,733,724 3,639,594
------------- --------------
OPERATING EXPENSES (NOTE 4)
Selling expenses ................................................... 774,278 1,030,867
Depreciation........................................................ 428,936 422,851
General and administrative expenses................................. 1,588,962 1,562,482
------------- --------------
TOTAL OPERATING EXPENSES ............................................. 2,792,176 3,016,200
------------- --------------
OPERATING INCOME ..................................................... 941,548 623,394
------------- --------------
OTHER INCOME (EXPENSE)
Interest expenses................................................... (52,979) (30,040)
Interest income..................................................... 19,617 1,963
------------- --------------
TOTAL OTHER INCOME (EXPENSE).......................................... (33,362) (28,077)
------------- --------------
INCOME BEFORE INCOME TAXES ........................................... 908,186 595,317
------------- --------------
INCOME TAXES (NOTE 7)................................................. 318,130 224,639
------------- --------------
NET INCOME ........................................................... $590,056 $370,678
============= ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED
NOVEMBER 30,
--------------------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income ......................................................... $590,056 $370,678
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation ................................................... 428,936 422,851
Allowance for Bad Debts......................................... 220,000 --
Changes in operating assets and liabilities:
Accounts receivable trade .................................... (816,391) (1,120,647)
Accounts receivable-other..................................... (709,054) (437,845)
Accounts receivable-long term ................................ 368,949 --
Inventories .................................................. (572,090) 134,700
Other assets.................................................. (604,014) (34,497)
Accounts payable.............................................. 194,803 418,894
Accrued expenses.............................................. (334,080) (251,981)
Federal income taxes payable.................................. -- (106,564)
Other liabilities ............................................ 84,000 (1,000)
Notes payable other........................................... 109,000 (1,000)
---------- -------------
Cash provided by (used in) operating activities....................... (1,039,885) (606,411)
---------- -------------
CASH USED IN INVESTING ACTIVITIES:
Capital expenditures ............................................... -- (624,713)
---------- -------------
FINANCING ACTIVITIES:
Net borrowing under notes payable officer............................ (222,706) --
Principal payments on obligations under capital lease................ -- (6,118)
Net borrowings (repayments) under revolving line of credit........... 1,180,589 1,763,422
---------- -------------
Cash provided by (used in) financing activities........................ 957,883 1,757,304
---------- -------------
Net increase (decrease) in cash and cash equivalents .................. (82,002) 526,180
Cash and cash equivalents at beginning of year......................... 307,080 297,473
---------- -------------
Cash and cash equivalent at end of period.............................. $225,078 $823,653
========== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Description of The statements of net assets and statements of income and
Business and Basis cash flow relate to the operations of CH Medical, Inc. and
Presentation Subsidiaries (the "Company"). The Company is engaged in the
manufacture, sale and rental of special care hospital beds and associated acute
care air support therapy systems.
During the period covered by the financial statements, the businesses were
conducted as an integral part of CH Industries overall operations, and separate
financial statements were not prepared for the businesses. These financial
statements have been prepared from CH Industries' historical accounting records.
The financial statements also include various allocated costs and expenses as
described herein, which are not necessarily indicative of the costs and expense
which would have resulted if the businesses had been operated as a separate
company. Therefore, the statement of operations may not be indicative of the
results of operation that would have resulted if the Company were operated on a
stand alone basis. All of the allocation and estimates reflected in the
financial statements are based on assumptions that management believes
reasonable under the circumstances.
Principles of The accompanying consolidated financial statements include
Consolidation the accounts of CH Medical, Inc. and the following wholly-owned
subsidiaries:
Cardio Systems International, Inc.
Cardio Systems Manufacturing , Inc.
Cardio Systems -- Austin, Ltd
Cardio Systems -- Dallas, Ltd.
Cardio Systems -- Atlanta, Inc.
Cardio Systems -- Chattanooga, Inc.
Cardio Systems -- Chicago, Inc.
Cardio Systems -- Fort Myers, Inc.
Cardio Systems -- Kansas City, Inc.
Cardio Systems -- Memphis, Inc.
Cardio Systems -- Miami, Inc.
Cardio Systems -- Oklahoma City, Inc.
Cardio Systems -- Sacramento, Inc.
Cardio Systems -- Tampa, Inc.
Cardio Systems North America Dealer Corporation, Inc.
Cardio Systems Operations, Inc.
Cardio Systems Partners, Inc.
Cardio Systems Sales, Inc.
Cardio Systems of Texas -- Austin, Inc
Cardio Systems of Texas -- Dallas, Inc.
SCD Industries, Inc.
Special Care Delivery, Inc.
All significant intercompany transactions and balances have been eliminated
in consolidation.
REVENUE RECOGNITION
Services and rental revenue are recognized as services are rendered. Sales
and other revenue are recognized when products are shipped.
6
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of ninety days or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first- out) or
market (net realizable value). Costs include material, labor and manufacturing
overhead costs. Inventory expected to be converted into equipment for short-term
rental has been reclassified to property, plant and equipment.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Betterment's which extend
the useful life of the equipment are capitalized.
DEPRECIATION
Depreciation on property, plant and equipment is calculated on the
straight-line method over the estimated useful lives (thirty to forty years for
the buildings and between three and ten years for most of the Company's other
property and equipment) of the assets.
INCOME TAXES
The Company recognizes certain transactions in different time periods for
the financial reporting and income tax purposes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. The provision for deferred
income taxes represents the change in deferred income tax accounts during the
period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
7
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES
Inventories are summarized as follows:
NOVEMBER 30,
-------------------------------
1997 1996
-------- --------
Raw materials. . . . . . . . . . . . . . . . . $3,347,071 $139,589
Work-in-process. . . . . . . . . . . . . . . . 570,300 2,117,933
Finished goods . . . . . . . . . . . . . . . . 881,011 330,285
----------- -------------
Total. . . . . . . . . . . . . . . . . . . . . $4,798,382 $2,587,807
=========== =============
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
NOVEMBER 30,
-------------------------------
1997 1996
-------- --------
Rental medical equipment . . . . . . . . . . $9,477,597 $8,780,871
Machinery and equipment. . . . . . . . . . . 292,114 562,719
Office equipment . . . . . . . . . . . . . . 964,706 351,730
Building and improvements. . . . . . . . . . 216,933 174,790
Vehicles . . . . . . . . . . . . . . . . . . 93,737 99,383
Land . . . . . . . . . . . . . . . . . . . . 8,537 8,537
------------- -------------
Total. . . . . . . . . . . . . . . . . . . . 11,053,624 9,978,030
Accumulated depreciation . . . . . . . . . . 6,285,995 4,663,721
Net property and equipment . . . . . . . . . $4,767,629 $5,314,309
3. LINE OF CREDIT
CH Industries has a $7,000,000 revolving line of credit with a bank which
expires, April 3, 1998. The interest rate is at the 30-day LIBOR rate plus 2.25
percent. The Company has been allocated a portion of the line of credit based on
the ratio of debt to current assets. At November 30, 1997, the Company's
interest rate was 7.85 percent. The outstanding borrowings are secured by CH
Industries' accounts receivable, inventories (including those of the Company)
and the guarantee of the parent's stockholder. Certain financial covenants exist
related to CH Industries total debt ratio, tangible net worth, working capital,
capital expenditures and additional debt.
4. OPERATING EXPENSES AND OTHER ALLOCATION EXPENSES
All operating expenses are allocated to the business using procedures
deemed appropriate to the nature of the expense involved. The procedures
utilized various allocation bases such as relative investments and number of
employees, and direct effort expended. Interest expense is determined at the
corporate level based on the consolidated indebtedness of CH Industries and
allocated to the business on the basis of their proportionate share of current
assets of CH Industries. CH Industries management believes the allocations are
reasonable, but they are not necessarily indicative of the costs that would have
been incurred if the businesses had been a separate company.
8
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS
The Company leases certain office space, warehouse facilities and equipment
from its stockholder, CH Realty and CH Leasing, Ltd., limited partnerships
controlled 99 percent by the stockholder. Rental expenses for operating leases
to affiliates was $113,908 for the three months ended November 30, 1997.
6. COMMITMENTS
The Company leases certain facilities and automobiles under operating
leases expiring at various dates through 2004. Total rent expense under these
operating leases was $1,137,356, $1,433,822 and $1,086,922 for the years ended
August 31, 1997, 1996 and 1995. August 31, 1997 future net minimum lease
payments under operating leases that have initial or remaining noncancellable
terms in excess of one year are as followings:
<TABLE>
<CAPTION>
VEHICLES FACILITIES TOTAL
---------- -------------- --------
<S> <C> <C> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $296,661 $565,410 $862,071
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,553 352,083 659,636
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,139 246,245 354,384
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 246,245 246,245
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 246,245 246,245
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . -- 389,887 389,887
--------- ------------ ----------
Total minimum lease payments . . . . . . . . . . . . . . . . . $712,353 $2,046,115 $2,758,468
</TABLE>
Minimum payments to affiliate total $246,245 per annum through 2001 and
$389,887 thereafter.
7. INCOME TAXES
Federal, state and local income taxes are allocated based upon an effective
tax rate 38 percent for the period. The allocation approximates the results that
would occur if the business were a separate taxpayer.
Deferred taxes result from temporary differences arising from differing
methods of depreciation for tax and financial reporting purposes and from
allowance for doubtful accounts not deductible for tax purposes.
Income tax expense differs from the amount computed by applying the federal
statutory rate of 34 percent primarily due to varying state income taxes.
8. SUPPLEMENTAL
Interest and income taxes paid during the three months ended November 30,
1997 and allocated to the Company based on average outstanding debt and net
income before taxes was $445,909.
9
