<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996
REGISTRATION NO. 033-96928
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IVAC MEDICAL SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3841 95-3177311
(JURISDICTION OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION
IDENTIFICATION CODE) NUMBER)
</TABLE>
IVAC MEDICAL SYSTEMS, INC.
10221 WATERIDGE CIRCLE
SAN DIEGO, CA 92121-2733
(619) 458-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM J. MERCER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IVAC MEDICAL SYSTEMS, INC.
10221 WATERIDGE CIRCLE
SAN DIEGO, CA 92121-2733
(619) 458-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
COPY TO:
JOHN A. BICK, ESQ.
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NY 10017
(212) 450-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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<PAGE> 2
IVAC MEDICAL SYSTEMS, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY FORM S-1
<TABLE>
<CAPTION>
ITEM ITEM NUMBER IN FORM S-1 AND TITLE OF ITEM LOCATION IN PROSPECTUS
<C> <S> <C>
1 Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2 Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page of Prospectus; Back
Cover Pages of Prospectus
3 Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial Data;
Consolidated Financial Statements
4 Use of Proceeds............................ Use of Proceeds
5 Determination of Offering Price............ *
6 Dilution................................... *
7 Selling Security Holders................... *
8 Plan of Distribution....................... Outside Front Cover Page; Plan of
Distribution
9 Description of Securities to be
Registered............................... Prospectus Summary; Description of Notes
10 Interests of Named Experts and Counsel..... *
11 Information with Respect to the
Registrant............................... Prospectus Summary; Risk Factors; Use of
Proceeds; The Acquisition;
Capitalization; Pro Forma Condensed
Consolidated Financial Statements;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Principal Stockholders; Certain
Relationships and Related Transactions;
Description of Bank Credit Facility;
Available Information; Consolidated
Financial Statements;
12 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
</TABLE>
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* Omitted because inapplicable or the answer is in the negative.
<PAGE> 3
PROSPECTUS
SEPTEMBER 20, 1996
$100,000,000
LOGO
9 1/4% SENIOR NOTES DUE 2002
The 9 1/4% Senior Notes due 2002 (the "Notes") are being offered (the
"Offering") by IVAC Medical Systems, Inc. ("IVAC" or "the Company"), formerly
known as IVAC Corporation. The net proceeds of the Offering will be used to
repay existing indebtedness. See "The Acquisition" and "Use of Proceeds."
The Notes will bear interest from the date of issuance at the rate of
9 1/4% per annum, payable semi-annually in arrears on June 1 and December 1 of
each year, commencing June 1, 1996. IVAC Medical Systems, Inc. will not be
required to make any mandatory redemption or sinking fund payment with respect
to the Notes prior to maturity. The Notes will be redeemable at the option of
IVAC Medical Systems, Inc., in whole or in part, at any time on or after
December 1, 1998 at the redemption prices set forth herein plus accrued and
unpaid interest to the date of redemption. In addition, at any time prior to
December 1, 1998, IVAC Medical Systems, Inc. may redeem Notes with the net
proceeds of one or more public offerings of common stock of (i) IVAC Medical
Systems, Inc. or (ii) IVAC Holdings, Inc. ("Holdings"), the corporate parent of
IVAC Medical Systems, Inc., to the extent the net proceeds thereof are
contributed to IVAC Medical Systems, Inc. as a capital contribution to common
equity, in each case at a redemption price equal to 108.25% of the principal
amount thereof plus accrued and unpaid interest to the applicable date of
redemption; provided that at least $65.0 million in aggregate principal amount
of Notes remain outstanding immediately after the occurrence of each such
redemption. In the event of a Change of Control (as defined), holders of the
Notes will have the right to require IVAC Medical Systems, Inc. to purchase
their Notes, in whole or in part, at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. See "Description of Notes."
The Notes will be senior unsecured obligations of IVAC Medical Systems,
Inc. and will rank senior in right of payment to all subordinated indebtedness
of IVAC Medical Systems, Inc. and pari passu in right of payment with all
existing and future senior indebtedness of IVAC Medical Systems, Inc. The Notes
will be effectively subordinated to secured indebtedness of IVAC Medical
Systems, Inc., including pursuant to the Bank Credit Facility (as defined), to
the extent of the assets securing such indebtedness and the Notes will be
structurally subordinated to indebtedness of IVAC Medical Systems, Inc.'s
subsidiaries. At June 30, 1996, the Notes were effectively subordinated to
approximately $15.0 million of secured indebtedness under the Bank Credit
Facility and were structurally subordinated to approximately $1.5 million of
indebtedness of the Company's subsidiaries as well as guarantees by such
subsidiaries of indebtedness under the Bank Credit facility.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus has been prepared for use by Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC") in connection with offers and sales of the
Notes which may be made by it from time to time in market-making transactions at
negotiated prices relating to prevailing market prices at the time of sale. IVAC
Medical Systems, Inc. has been advised by DLJSC that it intends to make a market
for the Notes; however DLJSC is not obligated to do so. Any market making may be
discontinued at any time, and there is no assurance that an active public market
for the Notes will develop or, that if such market develops, that it will
continue. DLJSC may act as principal agent in such transactions. See "Plan of
Distribution."
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE> 4
The Company has registered or applied to register the following trademarks:
IVAC(R), IVAC MEDICAL SYSTEMS(TM), CORE-CHECK(R), DYNAMIC MONITORING(TM),
MEDSYSTEM III(TM), PCAM(TM), SIGNATURE EDITION(TM), TEMP-PLUS(R),
VITAL-CHECK(R), SPACE-SAVER(R), ACCUSLIDE(TM).
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Condensed Consolidated and Consolidated Financial Statements and notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise stated,
references to the Company or IVAC include IVAC Medical Systems, Inc. and its
wholly owned subsidiaries. As used herein, "Holdings" refers to IVAC Holdings,
Inc., which owns 100% of the common stock of IVAC Medical Systems, Inc.
THE COMPANY
IVAC has been a leading provider of infusion systems and related
technologies in the health care industry for over 25 years. The Company's
principal line of business is the design, manufacture and marketing of
intravenous ("IV") infusion therapy instruments (pumps and controllers) and
proprietary disposable administration sets (tubing and plastic pump interfaces)
used to control the flow of solutions, drugs and nutritionals into a patient's
circulatory system. The Company believes it has the largest installed base of
infusion therapy instruments in the world and one of the largest installed bases
of pump delivery lines ("channels") in the United States. The Company is also
well positioned in the infusion therapy instruments market in Europe, with a
number one or number two installed base market share in eight major European
countries. IVAC is also a leader in the design, manufacture and marketing of
vital signs measurement instruments that monitor temperature, pulse and blood
pressure in a single device, with the largest installed base of hospital
thermometry products in the United States.
The Company sells a full range of products through a direct sales force to
over 5,000 hospitals and alternate site facilities in the United States, Canada
and Europe. The Company's United States and international net sales accounted
for approximately 68% and 32%, respectively, of net sales in 1995 and
approximately 67% and 33%, respectively, of net sales in the first six months of
1996. For the year ended December 31, 1995, the Company had net sales of
approximately $241.0 million and Adjusted EBITDA (as defined below) of
approximately $32.9 million. In the first six months of 1996, the Company had
net sales of approximately $112.8 million, net loss of approximately $13.1
million and Adjusted EBITDA of approximately $20.6 million.
INFUSION THERAPY PRODUCTS
Management estimates that, as of December 31, 1995, IVAC had over 165,000
single and multi-channel large volume pumps ("LV pumps") installed worldwide,
with a market share of approximately 22% of all installed channels in the United
States. IVAC established its strong position in the infusion therapy market by
introducing the first device for the control of IVs in the late 1960s, primarily
in the hospital non-critical care market. Today, the Company's core product
lines, the 560/570 Series and the 590/599 Series, are single channel LV pumps
that offer cost-effective solutions for drug delivery in the general care
setting. The Company believes that its 560/570 Series has the largest installed
base of any individual IV pump worldwide. IVAC has sustained its strong market
position through continued product development, innovative product upgrades and
customer support services. For the year ended December 31, 1995, IVAC's infusion
therapy net sales were approximately $192.8 million, representing approximately
80% of IVAC's net sales. In the first six months of 1996, the Company's infusion
therapy net sales were approximately $88.1 million, representing 78% of the
Company's net sales for the first six months.
In conjunction with its infusion products, the Company manufactures higher
margin proprietary disposable administration sets which can only be used with
IVAC's pumps. The Company sold approximately 36 million sets for LV pumps in
1995. The Company also sells non-proprietary disposable sets for use with its
syringe pumps. The Company has recently introduced several enhancements to its
disposable sets, including protection factors designed to prevent the
unregulated flow of fluids into a patient's bloodstream ("free flow") and a
needleless access system that reduces the risk to health care workers of
diseases, such as AIDS and hepatitis, that may be transmitted through
needlesticks. Such enhancements continue to provide the latest cost-effective
technology for the Company's installed base.
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The Company has significantly expanded its infusion therapy business in
response to certain trends in the health care industry. These trends include (i)
a shift in health care toward the alternate site market and (ii) a hospital
population that requires more critical and comprehensive care, both resulting in
a greater number of IV lines. To meet the growing demands of this market, the
Company has developed or acquired new pump products as described below.
MEDSYSTEM III ("MS III") is a programmable three channel infusion
system targeted for the hospital critical care setting. Since IVAC acquired
the predecessor to MS III from Siemens Infusion Systems, Ltd. ("SIS") in
September 1993, the Company has invested significant resources to
reengineer and redesign MS III and to considerably modify the MS III
production process. As a result of this reengineering and other ongoing
enhancements, MS III is one of the smallest, most versatile and most
technologically advanced multi-channel pumps on the market today.
SIGNATURE EDITION line of products is the first new LV pump platform
to be introduced by IVAC since 1983. The Company began marketing the
Signature Edition line in 1995 with full commercial availability during the
first quarter of 1996. The Signature Edition system offers both a single
channel and a dual channel version, each of which is designed for use in
the hospital and alternate site markets.
VITAL SIGNS MEASUREMENT PRODUCTS
Vital signs measurement products offered by IVAC include devices and
related disposables which measure blood pressure, temperature and pulse. For the
year ended December 31, 1995, IVAC's vital signs measurement products net sales
were approximately $34.6 million, representing approximately 14% of IVAC's net
sales. For the six months ended June 30, 1996, vital signs net sales represented
approximately 14% of net sales for the same period.
THERMOMETRY. IVAC is a leader in hospital thermometry products and
maintains a strong position in both the United States and Western Europe.
In 1995, IVAC's installed base comprised over 43% of the United States
hospital market, making it the largest provider of hospital thermometry
products in the United States. The Company's primary product is an
electronic thermometer which is widely used in hospitals and alternate site
settings. IVAC is currently developing the "Fast" 2080, an improved cost-
effective and technologically advanced electronic thermometer designed to
provide a temperature reading in seven to ten seconds. The Company also
manufactures and markets CORE-CHECK(R), a thermometer that measures
temperature by detecting the emission of infrared energy in the ear. In the
infrared market, the fastest growing segment of the industry, IVAC is
currently the second largest participant, with a United States hospital
installed base market share of over 31% in 1995. IVAC also sells
proprietary disposable thermometry covers.
OTHER VITAL SIGNS MEASUREMENT PRODUCTS. IVAC also produces a
stand-alone vital signs measurement product which measures temperature,
blood pressure and pulse. In 1995, IVAC's installed base market share of
these products was approximately 14%, making it the second largest
participant in this market niche in the United States.
THE ACQUISITION
In December 1994, DLJ Merchant Banking Partners, L.P. and related investors
(collectively, "DLJMB") and River Medical, Inc. ("River") and investors in River
(the "River Group") formed Holdings to acquire all of the outstanding stock of
IVAC Corporation (the "Acquisition") from Eli Lilly and Company ("Lilly").
Concurrently with the closing of the Acquisition, the River Group contributed
all of the outstanding capital stock of River to Holdings (which, in turn,
contributed such stock to IVAC Corporation) and, as a result, River became a
wholly owned subsidiary of IVAC Corporation. DLJMB and the River Group currently
own common stock of Holdings representing approximately 48.3% and 49.2%,
respectively, of the voting power of all outstanding common stock of Holdings.
See "Principal Stockholders."
4
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RECENT EVENTS
On July 25, 1996, the Company closed its subsidiary, River, and announced
the decision to seek to divest the subsidiary's assets. River's primary assets
include patents, technologies, trade secrets, inventories and manufacturing
equipment. Management believes the divestiture of River will allow IVAC to focus
on its core products in infusion therapy and vital signs monitoring markets. The
Company has recorded a restructuring charge of $17.4 million during the three
months ended June 30, 1996.
On August 23, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") among Holdings; the Company; IMED Corporation
("IMED"), a subsidiary of Advanced Medical, Inc.; a wholly owned subsidiary of
IMED and the holders of Common Stock of Holdings named therein, pursuant to
which IMED will acquire, directly or indirectly through a wholly owned
subsidiary, 100% of the capital stock of Holdings for approximately $400 million
less certain indebtedness. Completion of the acquisition is subject to
regulatory review and is expected to be completed on or about January 31, 1997.
The Merger Agreement provides that the outstanding Notes be purchased
immediately after closing of the merger pursuant to a combined consent
solicitation and tender offer. The terms and conditions of any such solicitation
or tender offer have not yet been determined.
Under the terms of the Notes, closing of the acquisition will constitute a
Change of Control (as defined herein) under which each Holder of Notes will have
the right to require IVAC Medical Systems, Inc. to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described herein (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase (the "Change of
Control Payment"). See "Description of Notes -- Repurchase at the Option of
Holders."
OPERATING STRATEGY
Since the Acquisition, the Company has assembled a management team with
extensive experience in the health care and medical products industry.
Management's goal is to establish IVAC as the leading provider of
cost-effective, high quality infusion therapy and vital signs measurement
products for use in hospitals and alternate sites. In order to achieve this
goal, management is currently focused on implementing the following strategies:
EXPANDING MARKET SHARE. The Company will seek to expand its market
share by introducing products into market segments and geographic markets
where it historically has had little presence. IVAC's market segment
expansion is focused on increasing sales to its existing customers in the
hospital market, primarily through the placement of multi-channel pumps
such as MS III and the Signature Edition LV pump, and penetrating the
growing alternate site market where the Company has begun to introduce its
Model 599 pump. The alternate site market had an estimated compound annual
growth rate of approximately 14%, as compared to an estimated compound
annual growth rate of approximately 1% for the hospital market, for the
period from 1992 to 1995. The Company will also seek to expand
geographically by selectively penetrating Japan, Southeast Asia and Latin
America to achieve additional growth.
INTRODUCING NEW PRODUCTS. By capitalizing on its brand name
recognition for quality and service, extensive installed product base and
extensive marketing and distribution capabilities, IVAC intends to
introduce new products that are technologically advanced and
cost-effective. Management believes there are significant opportunities to
integrate its design, manufacturing, marketing and distribution
capabilities across each of its product lines in connection with the
introduction of such new products. Such integration should enable the
Company to capitalize on significant cross-selling opportunities and
manufacturing efficiencies and to consolidate its research and development
resources. IVAC is currently implementing this strategy in connection with
the introduction of its Signature Edition line.
ENHANCING AND SUPPORTING CORE PRODUCT LINES. The Company's installed
base of core products, such as the Series 560/570 and 590/599, continues to
perform reliably and effectively, enabling its customers to remain
competitive in an increasingly cost-sensitive health care market. To
respond to technological
5
<PAGE> 8
advances, the Company offers its customers the opportunity to upgrade and
enhance installed equipment rather than purchase new equipment. IVAC
pursues this initiative through, among other things: (i) the improvement of
disposable administration sets; (ii) software upgrades on existing
products; and (iii) continued quality of service for the Company's products
in an effort to be fully responsive to its customer base.
REDUCING PRODUCTION AND OPERATING COSTS. Subsequent to the
Acquisition, the Company significantly reduced production and operating
costs and eliminated excess expenses incurred by its former parent in
connection with its operation of the Company as a division. The Company's
efforts have focused on improving the overall quality of IVAC product
offerings and providing better customer service while achieving a low cost
manufacturing platform for existing and future products. From the
Acquisition to December 31, 1995, the Company has implemented the following
programs: (i) reducing overall head count by approximately 403, or 28% of
total employees as of December 31, 1994, through termination and attrition;
(ii) consolidating supply sources; (iii) eliminating high risk/low market
potential research and development projects; (iv) rationalizing
underutilized assets, including consolidating certain warehouse operations
and reconfiguring materials handling and product lines; and (v) integrating
the vital signs manufacturing, engineering and marketing functions with
those of the infusion therapy business. Primarily as a result of the
implementation of such initiatives, Adjusted EBITDA margins have improved
to approximately 13.6% in 1995 from approximately 2.1% in 1994, and an
aggregate of approximately $24.8 million of production and operating costs
have been eliminated. As part of its overall cost reduction strategy, on
November 3, 1995, the Company signed a definitive agreement for the sale of
its facility in San Diego that housed its corporate headquarters as well as
its primary manufacturing facility (the "Facility Sale"). The closing of
the sale occurred on November 6, 1995. Under the agreement, the Company
leased back a portion of the facility for a period of six months. The
Company leases approximately 103,590 square feet for use as a headquarters
facility in San Diego, California and also leases a property of
approximately 83,520 square feet in San Diego, California for use as a
manufacturing facility. The Company intends to continue to implement cost
reduction initiatives in the future.
PURSUING GROWTH THROUGH ACQUISITIONS. The Company has formulated a
program of strategic product, technology and business acquisitions,
designed to supplement internal growth. The program will focus primarily on
complementing the Company's core infusion therapy product lines.
Acquisition candidates are assessed primarily based on (i) opportunities
for leveraging IVAC's established United States and international sales
presence; (ii) market leadership potential and (iii) synergy with the
Company's existing technological base and manufacturing capabilities. The
ability to provide IVAC with additional products to serve the alternate
site market, which has been growing strongly, would also be a positive
factor.
CORPORATE HEADQUARTERS
The Company's principal offices are located at 10221 Wateridge Circle, San
Diego, California 92121-2733, and its telephone number is (619) 458-7000.
6
<PAGE> 9
THE OFFERING
NOTES OFFERED................. $100.0 million in aggregate principal amount of
9 1/4% Senior Notes due 2002.
MATURITY...................... December 1, 2002
INTEREST PAYMENT DATES........ June 1 and December 1 of each year, commencing
June 1, 1996.
MANDATORY REDEMPTION.......... IVAC Medical Systems, Inc. is not required to
make mandatory redemption or sinking fund
payments with respect to the Notes.
OPTIONAL REDEMPTION........... The Notes are redeemable at the option of IVAC
Medical Systems, Inc., in whole or in part, at
any time on or after December 1, 1998 at the
redemption prices set forth herein plus accrued
and unpaid interest to the date of redemption.
In addition, at any time prior to December 1,
1998, IVAC Medical Systems, Inc. may redeem
Notes with the net proceeds of one or more
public offerings of common stock of (i) IVAC
Medical Systems, Inc. or (ii) Holdings, to the
extent the net proceeds thereof are contributed
to IVAC Medical Systems, Inc. as a capital
contribution to common equity, in each case, at
a redemption price equal to 108.25% of the
principal amount thereof plus accrued and
unpaid interest to the applicable date of
redemption; provided that at least $65.0
million in aggregate principal amount of Notes
remains outstanding immediately after the
occurrence of each such redemption.
CHANGE OF CONTROL............. In the event of a Change of Control, holders of
Notes will have the right to require IVAC
Medical Systems, Inc. to purchase their Notes
at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and
unpaid interest to the date of purchase.
RANKING....................... The Notes are senior unsecured obligations of
IVAC Medical Systems, Inc. and will rank senior
in right of payment to all subordinated
indebtedness of IVAC Medical Systems, Inc. and
pari passu in right of payment with all
existing and future senior indebtedness of IVAC
Medical Systems, Inc. The Notes will be
effectively subordinated to secured
indebtedness of IVAC Medical Systems, Inc.,
including pursuant to the Bank Credit Facility,
to the extent of the assets securing such
indebtedness and will be structurally
subordinated to indebtedness of IVAC Medical
Systems, Inc.'s subsidiaries. At June 30, 1996,
the Notes were effectively subordinated to
approximately $15.0 million of secured
indebtedness under the Bank Credit Facility and
structurally subordinated to approximately $1.5
million of indebtedness of the Company's
subsidiaries as well as guarantees by such
subsidiaries of indebtness under the Bank
Credit Facility.
CERTAIN COVENANTS............. The indenture pursuant to which the Notes will
be issued (the "Indenture") will contain
covenants restricting or limiting the ability
of IVAC Medical Systems, Inc. and its
Restricted Subsidiaries (as defined) to, among
other things: (i) incur additional indebtedness
or issue preferred stock; (ii) make dividend or
other restricted payments or investments; (iii)
make asset sales;
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<PAGE> 10
(iv) create liens; (v) enter into transactions
with affiliates; and (vi) incur dividend and
other payment restrictions and will restrict
the ability of IVAC Medical Systems, Inc. to
enter into mergers, consolidations or sales of
all or substantially all of its assets. See
"Description of Notes."
EVENTS OF DEFAULT............. Events of default with respect to the Notes
will include, subject to certain qualifications
and exceptions: (i) failure to pay principal or
premium of, or interest on, the Notes; (ii)
failure to make payments on other indebtedness;
(iii) breach of certain covenants; (iv) certain
events of bankruptcy and insolvency; and (v)
other customary events of default.
USE OF PROCEEDS............... Approximately $81.3 million of the net proceeds
of the Offering
was applied to repay all principal ($80.0
million) and interest ($1.3 million)
outstanding under the Subordinated Bridge Notes
(the "Bridge Notes") issued by IVAC to an
affiliate of the Underwriter in connection with
the Acquisition. The remainder of the net
proceeds was used to repay approximately $14.0
million of term indebtedness outstanding under
the Bank Credit Facility. When the Facility
Sale was consummated, an additional $25.0
million of term indebtedness under the Bank
Credit Facility was repaid. See "Use of
Proceeds."
RISK FACTORS
Prospective investors in the Notes should carefully consider the matters
set forth herein under "Risk Factors."
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<PAGE> 11
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following summary historical and pro forma condensed consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the "Pro Forma
Condensed Consolidated Financial Statements," the Condensed Consolidated
Financial Statements and the Consolidated Financial Statements and notes thereto
and the other information contained elsewhere in this Prospectus. The summary
historical consolidated financial data for the years ended December 31, 1993 and
1994 are derived from the audited Consolidated Financial Statements of IVAC
Corporation prior to the consummation of the Acquisition (the "Predecessor
Company"). The summary historical financial data as of December 31, 1995 and for
the year ended December 31, 1995 are derived from the audited Consolidated
Financial Statements of IVAC Medical Systems, Inc. The summary historical
consolidated financial data as of June 30, 1996 and for the six months ended
June 30, 1995 and 1996 have been derived from unaudited financial statements of
the Company. For accounting purposes, the Acquisition was treated as a purchase
transaction and, accordingly, the summary historical consolidated financial data
of the Predecessor Company are not comparable in all respects to historical
consolidated financial data of the Company for periods subsequent to the
Acquisition.
Also set forth below are (i) summary pro forma income statement data for
the year ended December 31, 1995 and the six months ended June 30, 1995 and (ii)
summary balance sheet as of June 30, 1996 and income statement data as of and
for the six months ended June 30, 1996 and 1995. The summary pro forma income
statement data is prepared on the basis set forth in the Pro Forma Condensed
Consolidated Financial Statements. See "Pro Forma Condensed Consolidated
Financial Statements." The summary pro forma financial data does not purport to
represent what the Company's results of operations would have been if any of the
transactions had actually occurred at any date, nor does such data purport to
represent the Company's results of operations for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ -------------------------------
PREDECESSOR COMPANY THE COMPANY
------------------- -------------------------------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales...................................... $214,244 $223,227 $240,971 $240,971 $118,791 $118,791 $112,762
Gross profit................................... 88,702 76,568 83,102 99,323 50,226 34,042 47,129
Restructuring and special items(1)............. 3,967 13,143 5,944 5,944 -- -- 17,396
Income (loss) from operations.................. 3,086 (32,760) (31,680) 10,541 10,866 (28,119) (6,849)
Interest income (expense), net(2).............. 4,040 700 (20,502) (10,930 ) (5,551 ) (9,608) (5,572)
Net income (loss).............................. 5,416 (35,853) (51,804) (11 ) 2,977 (34,906) (13,147)
OTHER DATA:
Adjusted EBITDA(3)(4).......................... $ 23,718 $ 4,674 32,871 36,995 20,096 16,438 20,584
Depreciation and amortization.................. 10,249 15,119 20,950(5) 20,510 9,230 (5) 9,900 10,096
Parent company allocations(6).................. 6,416 7,480 -- -- -- -- --
Capital expenditures, net(7)................... 9,920 9,000 13,752(7) 13,752 5,644 5,644 10,225
Ratio of Adjusted EBITDA to interest expense,
net(4)(8).................................... -- -- 2.3x 3.7 x 3.9 x 2.2x 4.2x
Net cash provided by operating activities...... 8,115 6,502 38,213 -- -- 27,790 9,972
Net cash used by investing activities.......... 36,721 9,000 179,287 -- -- 190,699 10,185
Net cash provided by (used by) financing
activities................................... 30,217 -- 157,535 -- -- 183,264 (9,359)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
---------------- ------------
1995 1996
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 18,308 $ 7,657
Working capital................................................................. 41,780 18,579
Total assets.................................................................... 215,995 190,299
Long-term debt (including current portion and related party debt)............... 131,824 123,062
Shareholder's equity............................................................ 13,376 (850)
</TABLE>
(footnotes on following page)
9
<PAGE> 12
- ------------------------------
(1) See Notes 4 and 5 to Notes to Consolidated Financial Statements of IVAC
Corporation and Note 12 to Notes to Consolidated Financial Statements of
IVAC Medical Systems, Inc.
(2) Interest income (expense), net, consists of interest expense net of (i)
intercompany interest income from Lilly for periods prior to the Acquisition
and (ii) interest income associated with No Capital Agreements ("NCA
Contracts") for periods before and after the Acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 2 to Notes to Consolidated Financial Statements of IVAC Corporation
and IVAC Medical Systems, Inc.
(3) Adjusted EBITDA represents operating profit (loss) before net interest
expense, income taxes, parent company allocations, restructuring and special
items, certain purchase accounting adjustments and depreciation and
amortization. Adjusted EBITDA does not represent net income or cash flows
from operations, as these terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. The Company has included information
concerning Adjusted EBITDA herein because it understands that such
information is used by certain investors as one measure of an issuer's
ability to service debt. For information concerning the Company's cash flow,
see IVAC Medical Systems, Inc. Consolidated Statement of Cash Flows for the
year ended December 31, 1995, IVAC Medical Systems, Inc. Condensed
Consolidated Statement of Cash Flows for the six months ended June 30, 1995
and 1996, and Consolidated Statement of Cash Flows for the years ended
December 31, 1993 and 1994 of IVAC Corporation.
(4) Adjusted EBITDA excludes additional cost savings associated with head-count
reductions undertaken in September 1995 of $3,065, and $4,282 for the six
months ended June 30, 1995 and year ended December 31, 1995, respectively,
assuming such head-count reductions had occurred at the beginning of the pro
forma period. Such additional cost savings do not qualify as a pro forma
event under Regulation S-X promulgated under the Securities Act.
Accordingly, such cost savings have been excluded from the pro forma
adjustments in the Pro Forma Condensed Consolidated Statement of Operations.
See note (A) to the "Pro Forma Condensed Consolidated Statement of
Operations and Other Data -- Notes to Pro Forma Condensed Consolidated
Statement of Operations" and "Management's Discussion and Analysis of
Financial Condition and Results from Operations".
(5) Excludes service support agreement amortization for the year ended December
31, 1995 and six months ended June 30, 1995 of $2,786. The amount
capitalized as service support agreement in 1995 consisted of certain
administrative services provided by Lilly on behalf of IVAC for a period of
six months.
(6) Prior to December 31, 1994, the Company was a wholly owned subsidiary of
Lilly. Parent company allocations represent IVAC's non-cash pro rata share
of Lilly's corporate overhead.
(7) Excludes proceeds from the November 1995 sale of IVAC's 380,000 square foot
San Diego facility.
(8) For purposes of the ratio of Adjusted EBITDA to interest expense, net,
actual and pro forma interest expense, net, for the year ended December 31,
1995, excludes amortization of deferred debt issuance costs of $5,902 and
$898, respectively. Actual and pro forma interest expense, net, for the six
months ended June 30, 1995, excludes amortization of deferred debt issuance
costs of $2,137 and $452, respectively. Actual interest expense, net, for
the six months ended June 30, 1996 excludes amortization of deferred
issuance costs of $634.
10
<PAGE> 13
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective purchasers should carefully consider the following factors in
evaluating an investment in the Notes.
SIGNIFICANT LEVERAGE
The Company has had and will continue to have substantial indebtedness and
significant debt service obligations. At December 31, 1995, the Company had
total outstanding long-term indebtedness (including the current portion thereof)
of approximately $131.8 million, consolidated total assets of approximately
$216.0 million and shareholder's equity of approximately $13.4 million. See
"Prospectus Summary -- Summary Financial Data," "Consolidated Financial
Statements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company believes that, based on current levels of
operations, its cash flow from operations, together with other sources of
liquidity, will be adequate at least through the next 12 months to make required
payments of principal and interest on its debt. However, the Company's ability
to make interest payments on the Notes and to repay the Notes at maturity will
be dependent on the Company's future operating performance, which is itself
dependent on a number of factors, many of which the Company cannot control,
including prevailing economic conditions and financial, business, regulatory and
other factors affecting the Company's business and operations. The Company's
high degree of leverage could have important consequences to the holders of the
Notes, including: (i) a substantial portion of the Company's net cash provided
by operations will be committed to the payment of the Company's interest expense
and principal repayment obligations and will not be available to the Company for
its operations, capital expenditures, acquisitions or other purposes; (ii) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures or acquisitions may be limited; (iii) the Company
will be more highly leveraged than certain of its competitors which may place it
at a disadvantage and limit the Company's flexibility in reacting to changes in
its business; and (iv) the Company's borrowings under its Bank Credit Facility
are at variable rates of interest, which could result in higher interest
expenses in the event of an increase in interest rates. See "Description of
Notes" and "Description of Bank Credit Facility."
LIMITATIONS IMPOSED BY CERTAIN INDEBTEDNESS
The documents governing indebtedness of IVAC outstanding upon consummation
of the Offering (including the Notes and the Bank Credit Facility) contain
significant covenants that limit IVAC's and its subsidiaries' ability to engage
in various transactions and, in the case of the Bank Credit Facility, require
satisfaction of specified financial performance criteria. In addition, under
each of the foregoing documents, the occurrence of certain events (including,
without limitation, failure to comply with the foregoing covenants, certain
defaults under or acceleration of other indebtedness and events of bankruptcy or
insolvency) would, in certain cases after notice and grace periods, constitute
an event of default permitting acceleration of the indebtedness covered by such
documents. The limitations imposed by the documents governing the outstanding
indebtedness of IVAC and its subsidiaries are substantial, and failure to comply
with them could have a material adverse effect on the Company. See "Description
of Notes" and "Description of Bank Credit Facility."
SECURED INDEBTEDNESS; STRUCTURAL SUBORDINATION
The Notes are effectively subordinated to all secured indebtedness of IVAC,
to the extent of the assets securing such indebtedness. Upon any payment or
distribution of assets of IVAC upon a total or partial liquidation, dissolution,
reorganization or similar proceeding, the holders of secured indebtedness will
be entitled to receive payment to the extent of the assets securing such
indebtedness before the holders of the Notes are entitled to receive any
payment. The Bank Credit Facility is secured by substantially all of IVAC's
assets. At June 30, 1996, there was approximately $15.0 million of indebtedness
outstanding under the Bank Credit Facility. In addition, the Notes are
structurally subordinated to indebtedness of IVAC's subsidiaries, including
guarantees by substantially all of such subsidiaries of indebtedness under the
Bank Credit Facility. At June 30, 1996, the Notes were effectively subordinated
to approximately $15.0 million of secured indebtedness under the Bank Credit
Facility and structurally subordinated to approximately $1.5 million of
11
<PAGE> 14
indebtedness of the Company's subsidiaries as well as guarantees by such
subsidiaries of indebtedness under the Bank Credit Facility. See "Description of
Bank Credit Facility."
DEPENDENCE ON NEW PRODUCTS AND MARKETS; TECHNOLOGICAL CHANGE
The primary market for IVAC's products is relatively mature and highly
competitive. IVAC's existing infusion therapy and thermometry product lines have
experienced declining sales and market share recently, primarily due to
competitors who offer volume discounts based on "bundled" purchases of a broader
range of medical equipment and supplies as well as to the aging of the Company's
core products. The Company believes that its introduction of new products,
including MS III (the predecessor of which was acquired by the Company in 1993
and significantly redesigned and reengineered) and the Signature Edition line of
products (which the Company began marketing with full commercial availability in
the first quarter of 1996) may offset future declines in sales and market share
of its core products. There can be no assurance, however, that these new
products, or any other products that IVAC seeks to develop, will be successfully
completed or marketed for sale, or can be manufactured in sufficient volumes to
satisfy demand, or will offset any declines in sales and market shares. In
addition, although the pace of technological change in IVAC's industry
historically has been relatively slow, the Company is unable to predict the pace
of such change in the future. There can be no assurance that technological
change will not place one or more of IVAC's existing or proposed products at a
significant competitive disadvantage. Additionally, to the extent the Company
does not successfully reposition existing products for sale to different
markets, the introduction of new products by the Company will reduce sales of
such existing products.
COMPETITION
The Company faces substantial competition in all of its markets. Many of
IVAC's competitors have greater financial, research and development and
marketing resources than the Company. Some of IVAC's principal competitors are
able to offer volume discounts based on "bundled" purchases of a broader range
of their medical equipment and supplies than the Company, including infusion
products and intravenous solutions used with such products, a strategy that IVAC
is currently unable to pursue. There can be no assurance that such competition
will not adversely affect the Company's results of operation or ability to
maintain or increase sales and market share. See " -- Dependence on New Products
and Markets; Technological Change," "Concentration of Buying Power" and
"Business -- Competition."
CONCENTRATION OF BUYING POWER
There is a trend among potential customers for IVAC's products to combine
into group purchasing organizations which are quite large and which effectively
police compliance with exclusive purchase commitments. These organizations may
enter into exclusive purchase commitments with as few as one or two providers of
infusion pumps and/or vital signs measurements devices, for a period of several
years. If IVAC is not one of the selected providers, it can be precluded from
sales to members of the organization for several years, which could have a
material adverse effect on the Company. Even if IVAC is one of the selected
providers, the Company may be required to commit to pricing which could have a
material adverse effect on profit margins. One such group purchasing
organization is believed to include 35% of the United States hospital market. In
July 1996, this organization put out a request for proposals for a supply
agreement for infusion therapy instruments. The Company believes that medical
supply companies larger than the Company, with a wider line of products, may
have advantages over the Company in competing for such organizations' business.
LITIGATION
In February 1995, Block Medical, Inc. ("Block") commenced a lawsuit against
River, in the Superior Court of the State of California, San Diego County. Block
asserted that River misappropriated certain of Block's trade secrets and
proprietary rights in connection with the development of the SmartDose product.
River and the other parties, without admission of liability, entered into a
settlement agreement in June 1996.
12
<PAGE> 15
The resolution of the matter did not result in adjustment to the Company's
consolidated financial position or results of operations.
In June 1996, Sherwood Medical Company ("Sherwood")filed a lawsuit against
the Company in the United States District Court for the District of Delaware.
The complaint alleges infringement of two patents held by Sherwood by reason of
certain activities including the sale by the Company of disposable probe covers
for use with infrared tympanic thermometers. The Company plans to vigorously
contest the suit.
In addition, the Company is a party to various other legal actions which
have occurred in the normal course of business. Management believes the Company
has meritorious defense and intends to defend vigorously against these
allegations and claims. In management's opinion, liabilities arising from the
above matters, if any, will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
RELIANCE ON PATENTS AND PROPRIETARY RIGHTS; EXPIRATION AND PROTECTION OF
SIGNIFICANT PATENTS
The Company relies heavily on patented and other proprietary technology.
There can be no assurance that patent applications submitted by the Company or
its licensors will result in patents being issued or that, if issued, such
patents and patents already issued will afford protection against competitors
with similar technology. There can also be no assurance that any patents issued
to or licensed by the Company will not be infringed upon or designed around by
others, that others will not obtain patents that the Company will need to
license or design around, that the Company's products will not inadvertently
infringe upon the patents of others, or that others will not manufacture and
distribute the Company's patented products upon expiration of such patents.
There can also be no assurance that key patents of the Company will not be
invalidated or that the Company or its licensors will have adequate funds to
finance the high cost of prosecuting or defending patent validity or
infringement issues. See "Business -- Patents, Trademarks and Proprietary
Rights."
GOVERNMENT REGULATION
Government regulation is a significant factor in the research, development,
testing, production and marketing of the Company's products. Noncompliance with
applicable requirements may result in recall or seizure of products, total or
partial suspension of production, refusal of the government to allow clinical
testing or commercial distribution of products, refusal of the government to
allow new products to be marketed, civil penalties or fines and criminal
prosecution. There can be no assurance that the Company's existing products will
be found to comply with such regulations or that new products will be approved
in a timely manner or at all. See "Business -- Government Regulation."
The United States Food and Drug Administration ("FDA"), pursuant to the
Federal Food, Drug, and Cosmetic Act (the "FDC Act"), regulates the introduction
of new drugs and medical devices as well as manufacturing procedures, labeling,
advertising, reporting and record-keeping with respect to such products. The
process of obtaining market clearances from the FDA for new products can be
time-consuming and expensive and there can be no assurance that such clearances
will be granted or that FDA review will not involve delays adversely affecting
the marketing and sale of products. Current regulations depend heavily on
administrative interpretation and there can be no assurance that interpretations
made by the FDA or other regulatory bodies will not adversely affect the
Company. The FDA and state agencies routinely inspect the Company to determine
whether the Company is in compliance with various regulations relating to
manufacturing practices, testing, quality control and product labeling.
Periodically, such audits/inspections result in the agencies requiring IVAC to
take certain corrective actions for non-complying conditions observed during the
audits/inspections. A determination that the Company is in violation of such
regulations could lead to the imposition of civil sanctions, including fines,
recall orders or product seizures and, in the most egregious cases, criminal
sanctions. Since 1992, the Company has on ten occasions removed products from
the market that were found not to meet acceptable standards. None of such
recalls materially interfered with the Company's operations and all such product
lines were subsequently returned to the market. One such product recall, a
voluntary recall related to the Company's Signature Edition LV pumps, has not
been closed with the FDA. In addition, the Company has initiated a voluntary
safety alert of its models P1000, P2000, P3000 and P4000 syringe pumps, which
are marketed internationally. There can be no assurance that the Company will
not remove additional products from the market in the future. See
"Business -- Government Regulation."
13
<PAGE> 16
The Company has received ISO 9000 certification regarding the quality of
its manufacturing systems, a requirement for doing business in European
Community ("EC") countries, and has been granted approval to affix the EC mark,
pursuant to the EC Medical Device Directives, on certain of its products. This
does not necessarily preclude, however, additional restrictions on marketing in
any individual country in the EC.
Certain countries require the Company to obtain clearances for its products
prior to marketing the products in those countries. In addition, certain
countries impose product specifications, standards or other requirements which
differ from those mandated in the United States. The EC and certain other
countries are in the process of developing new modes of regulating medical
products which may result in lengthening the time required to obtain permission
to market new products. These changes could have a material adverse effect on
the Company's ability to market its devices in such countries. Because MS III
does not meet European standards for resistance to electromagnetic and radio
frequency interference, it is currently not cleared for marketing in Europe. See
"Business -- Government Regulation."
HEALTH CARE REFORM
Because the cost of health care delivery has been steadily rising and
because the cost of a significant portion of medical care in the United States
and other countries is typically funded by governmental insurance programs,
there have been a number of government initiatives to reduce health care costs.
Congress and various state legislatures currently are proposing changes in law
and regulation that could effect major restructuring of the health care
industry. Although many of these proposals may seek to maintain or expand access
to health care services, the common objective of proposed legislation is to
achieve cost containment in the health care sector. Changes in governmental
support of health care services, the methods by which such services are
delivered, the prices for such services or the regulations governing such
services or mandated benefits may all have a material adverse effect on the
Company's net sales and expenses. Even if the ultimate impact of any such
changes on net sales is positive, no assurance can be given that the costs of
complying with possible new requirements would not have a negative impact on the
Company's future earnings. No assurance can be given that any such legislation
will not have a material adverse effect on the Company's business and results of
operations. See "Business -- Government Regulation."
PRODUCT LIABILITY
The Company faces an inherent business risk of exposure to product
liability claims in the event that the use of its products is alleged to have
resulted in injury or other adverse effects. The Company currently maintains
product liability insurance coverage, but there can be no assurance that the
Company will be able to obtain such insurance on acceptable terms in the future,
if at all, or that any such insurance will provide adequate coverage against
potential claims. The Company's current product liability insurance provides for
a deductible of $100,000 per occurrence and a deductible cap of $500,000 per
year, a coverage limitation of $5.0 million per occurrence and, together with
the Company's other policies, maximum aggregate coverage of $30.0 million per
year. Such insurance excludes coverage for punitive damages. The Company's
ability to market and sell its products could be adversely affected by a
successful product liability claim.
CONTROL BY DLJMB AND THE RIVER GROUP
All of the outstanding capital stock of IVAC Medical Systems, Inc. is owned
by Holdings. DLJMB owns common stock of Holdings representing approximately
48.3% of the voting power of all outstanding common stock. The stockholders of
Holdings (including DLJMB) are parties to a shareholders agreement pursuant to
which certain of the DLJMB investors have the right to appoint three out of
seven directors of IVAC (subject to limited exceptions) and one outside director
who is reasonably acceptable to certain of the other stockholders of Holdings.
As a result, DLJMB has effective control over IVAC with respect to the election
of directors and has significant control over any corporate transactions or
other matters submitted to the stockholders for approval, including any merger,
consolidation or sale of all or substantially all of IVAC's assets. In addition,
the River Group currently owns common stock of Holdings and options to acquire
common stock of Holdings representing approximately 49.6% of the voting power of
all outstanding common stock. Upon the occurrence of certain Equity Liquidation
Events (as defined in the Amended and Restated
14
<PAGE> 17
Certificate of Incorporation of Holdings), the percentage of voting power
controlled by the River Group could increase to as much as 53.1% and, in such
event, the River Group would have effective control over IVAC with respect to
corporate transactions and other matters submitted to the stockholders for
approval, including any merger, consolidation or sale of all or substantially
all of IVAC's assets. See "The Acquisition," "Principal Stockholders" and
"Certain Relationships and Related Transactions."
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by a small number of key executive
officers, the loss of certain of whom could have a material adverse effect on
the Company. The Company believes that its future success will depend in large
part on its continued ability to attract and retain highly skilled and qualified
personnel. The Company does not presently maintain "key man" life insurance with
respect to any executive officers or other employees of the Company. See
"Management."
FOREIGN OPERATIONS
A substantial portion of the Company's sales and earnings are attributable
to operations conducted abroad. Foreign operations are subject to special risks
that can materially affect the sales, profits and cash flows of the Company,
including currency exchange rate fluctuations, the impact of inflation, exchange
controls and other risks. Changes in certain exchange rates could have an
adverse effect on the Company's ability to meet interest and principal
obligations with respect to its United States dollar-denominated debt and could
also have a material adverse effect on the Company.
TRADING MARKET FOR THE NOTES
The Notes are not listed for trading on any securities exchange or on any
automated dealer quotation system. IVAC Medical Systems, Inc. has been advised
by DLJSC that it intends to make a market in the Notes; however, DLJSC is not
obligated to do so. Any market making may be discontinued at any time, and there
is no assurance that an active public market for the Notes will develop or, that
if such market develops, that it will continue. Further, the liquidity of, and
trading market for the Notes may be adversely affected by declines and
volatility in the market for high yield securities generally. The liquidity of
and trading market for the Notes may be adversely affected by any changes in
IVAC Medical Systems, Inc.'s financial performance or prospects.
THE ACQUISITION
After the close of business on December 31, 1994, DLJMB and the River
Group, through a newly formed company, IVAC Holdings, Inc., acquired all of the
outstanding stock of IVAC from Lilly for approximately $195.0 million, including
transaction costs. The related transaction fees and expenses were $4.9 million
and the related debt issuance costs were $6.7 million. Of such amounts, DLJ
Bridge received a commitment fee of $1.6 million and a takedown fee of $2.0
million. The Underwriter received $2.25 million in financial advisory fees and
DLJMB received $60,000 for reimbursement of out-of-pocket expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions -- Transactions with DLJ and its Affiliates." The
Acquisition was financed through: (i) the issuance of Class A Common Stock of
Holdings to DLJMB, certain members of the River Group and Chemical Equity
Associates ("CEA", and together with DLJMB and certain members of the River
Group, the "Investor Group"), for an aggregate of $20.0 million; (ii) the
issuance by Holdings of 13.2% Junior Subordinated Notes due December 30, 2006
(the "Junior Subordinated Notes") for $30.0 million to the Investor Group; (iii)
the issuance by IVAC of $80.0 million aggregate principal amount of the Bridge
Notes to DLJ Bridge Finance, Inc. ("DLJ Bridge"), an affiliate of DLJ and DLJMB;
and (iv) borrowings under the Bank Credit Facility of approximately $68.5
million, consisting of $60.0 million of term loans and approximately $8.5
million of revolving borrowings under a $20.0 million facility. After payment of
the purchase price in the Acquisition and all fees and expenses in connection
therewith, the remaining proceeds of approximately $2.0 million from the
financing were used for working capital purposes. The net proceeds of the
Offering were used to redeem the Bridge Notes in full, to repay
15
<PAGE> 18
accrued interest thereon and to repay approximately $14.0 million of
indebtedness under the term loans. The net proceeds from the Facility Sale, were
used to repay approximately $25.0 million of indebtedness under the term loans.
Concurrently with the Acquisition, the River Group contributed all of the
outstanding capital stock of River to Holdings in exchange for shares of Class B
Common Stock (together with the Class A Common Stock, the "Common Stock") of
Holdings, representing an initial 49.6% economic ownership interest in Holdings.
Concurrently therewith, Holdings contributed the capital stock of River to IVAC
and, as a result thereof, River became a wholly owned subsidiary of IVAC. In
addition, certain members of the River Group acquired approximately 16.0% of the
Class A Common Stock issued in connection with the Acquisition. The Amended and
Restated Certificate of Incorporation of Holdings (the "Holdings Charter")
provides that the Class B Common Stock is mandatorily convertible into Class A
Common Stock upon the first to occur of certain Equity Liquidation Events
(which, as defined in the Holdings Charter, include, inter alia, an initial
public offering of the Common Stock of Holdings, a sale of all or substantially
all of the assets of Holdings, a cash dividend to the shareholders of Holdings
in excess of a certain amount and the fourth anniversary of the closing date of
the Acquisition). As a result of such mandatory conversion and depending on the
equity valuations associated with such Equity Liquidation Events, the River
Group's current 49.2% economic ownership interest in Holdings may be reduced to
not less than approximately 36.5% of total equity and the River Group's combined
voting power could increase to as high as 53.1% and decrease to as low as
approximately 36.5%. See "Principal Stockholders."
USE OF PROCEEDS
Upon the closing of this Offering on November 3, 1995, the net proceeds to
the Company from the sale of the Notes offered hereby (after deducting
underwriting discounts and commissions and other expenses of the Offering) were
approximately $95.3 million. Such net proceeds were used to repay all principal
and interest on the Bridge Notes issued by the Company to DLJ in connection with
the Acquisition and to reduce approximately $14.0 million of term indebtedness
under the Bank Credit Facility. The Bridge Notes, which were to mature on
December 30, 1995, had an interest rate of 15% at November 3, 1995. The term
loan portion of the Bank Credit Facility that was repaid had an interest rate of
9% at November 3, 1995.
16
<PAGE> 19
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
The following Pro Forma Condensed Consolidated Statements of Operations for
the six months ended June 30, 1995 and the year ended December 31, 1995 are
based on historical unaudited results of IVAC Medical Systems, Inc. for such
periods after giving effect to pro forma adjustments described in the notes
thereto as if the following transactions had occurred on January 1, 1995: (i)
the elimination of certain non-recurring adjustments recorded in connection with
the purchase accounting for the Acquisition; (ii) certain measures taken by the
Company in connection with the Acquisition to reduce costs; (iii) the Facility
Sale and related transactions and the application of the net proceeds therefrom
to repay a portion of the term loan under the Bank Credit Facility; and (iv) the
Offering and the application of the net proceeds therefrom to repay the
outstanding Bridge Notes and a portion of the term loan under the Bank Credit
Facility.
Management has identified additional cost savings related to head-count
reductions undertaken in September 1995 of approximately $3,065 and $4,282 for
the six months ended June 30, 1995 and for the year ended December 31, 1995,
respectively, assuming such head-count reductions had occurred at the beginning
of the pro forma period, which have not been included in the Pro Forma Condensed
Consolidated Statements of Operations.
The Company has made the decision to close River and to seek to divest the
subsidiary's assets. River's primary assets include patents, technologies, trade
secrets, inventories and manufacturing equipment. The results of operations of
IVAC Medical Systems, Inc. include River revenues and operating loss for the six
months ended June 30, 1995 of approximately $0.3 million and $14.8 million,
respectively, and revenues and operating loss for the year ended December 31,
1995 of approximately $0.8 million and $24.7 million, respectively.
The following pro forma financial data are not necessarily indicative of
the Company's results of operations that might have occurred had such
transactions been completed at the beginning of the period specified and do not
purport to represent what the Company's consolidated results of operations might
be for any future period.
17
<PAGE> 20
IVAC MEDICAL SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
-------------------------------------------------------------------------
ACQUISITION
AND
FACILITY
SALE THE COMPANY OFFERING THE COMPANY
THE COMPANY ADJUSTMENTS COMBINED ADJUSTMENTS PRO FORMA
----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 118,791 $ 118,791 $ 118,791
Cost of sales.............................. 84,749 $ (1,265)(A) 68,565 68,565
(145)(B)
(14,774)(H)
-------- -------- ---------
Gross profit............................... 34,042 50,226 50,226
-------- -------- ---------
Selling and marketing...................... 22,860 (131)(A) 22,702 22,702
(27)(B)
General and administrative................. 12,168 (326)(A) 10,087 10,087
(1,388)(C)
(29)(B)
(338)(I)
Research and development................... 7,250 (616)(A) 6,571 6,571
(63)(B)
Purchased research and development......... 19,883 (19,883)(J) -- --
-------- -------- ---------
Total operating expenses.......... 62,161 39,360 39,360
-------- -------- ---------
Income (loss) from operations.............. (28,119) 10,866 10,866
-------- -------- ---------
Interest income (expense):
Interest income.......................... 1,598 1,598 1,598
Interest expense(G)...................... (11,206) (1,303)(D) (9,903) $ (7,730)(E) (7,149)
4,976 (F)
-------- -------- ---------
Income (loss) before income taxes.......... (37,727) 2,561 5,315
Provision for (benefit from) income
taxes.................................... (2,821) (3,948)(K) 1,127 1,211 (K) 2,388
-------- -------- ---------
Net income (loss).......................... $ (34,906) $ 1,434 $ 2,977
======== ======== =========
OTHER DATA:
Income (loss) from operations.............. $ (28,119) $ 10,866 $ 10,866
Depreciation and amortization.............. 9,900 9,230 9,230
Inventory purchase price allocation
adjustment............................... 14,774 -- --
Purchased research and development......... 19,883 -- --
-------- -------- ---------
Adjusted EBITDA............................ $ 16,438 $ 20,096 $ 20,096
======== ======== =========
</TABLE>
See accompanying notes to Pro Forma Condensed
Consolidated Statement of Operations
18
<PAGE> 21
IVAC MEDICAL SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------------
ACQUISITION
AND
FACILITY
SALE THE COMPANY OFFERING THE COMPANY
THE COMPANY ADJUSTMENTS COMBINED ADJUSTMENTS PRO FORMA
----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 240,971 $ 240,971 $ 240,971
Cost of sales.............................. 157,869 $ (1,265)(A) 141,648 141,648
(182)(B)
(14,774)(H)
-------- -------- ---------
Gross profit............................... 83,102 99,323 99,323
-------- -------- ---------
Selling and marketing...................... 43,994 (131)(A) 43,830 43,830
(33)(B)
General and administrative................. 29,878 (326)(A) 27,620 27,620
(1,388)(C)
(37)(B)
(507)(I)
Research and development................... 12,083 (616)(A) 11,388 11,388
(79)(B)
Purchased research and development......... 22,883 (22,883)(J) -- --
-------- -------- ---------
Total operating expenses.......... 108,838 82,838 82,838
-------- -------- ---------
Restructuring expense...................... 5,944 5,944 5,944
Income (loss) from operations.............. (31,680) 10,541 10,541
-------- -------- ---------
Interest income (expense):
Interest income.......................... 3,013 3,013 3,013
Interest expense(G)...................... (23,515) (3,159)(D) (20,356) $(14,900)(E) (13,943)
8,487 (F)
-------- -------- ---------
Income (loss) before income taxes.......... (52,182) (6,802) (389)
Benefit from income taxes.................. (378) (378) (378)
-------- -------- ---------
Net income (loss).......................... $ (51,804) $ (6,424) $ (11)
======== ======== =========
OTHER DATA:
Income (loss) from operations.............. $ (31,680) $ 10,541 $ 10,541
Depreciation and amortization.............. 20,950 20,510 20,510
Inventory purchase price allocation
adjustment............................... 14,774 -- --
Restructuring expense...................... 5,944 5,944 5,944
Purchased research and development......... 22,883 -- --
-------- -------- ---------
Adjusted EBITDA............................ $ 32,871 $ 36,995 $ 36,995
======== ======== =========
</TABLE>
See accompanying notes to Pro Forma Condensed
Consolidated Statement of Operations
19
<PAGE> 22
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(A) In connection with the Acquisition, the new management of the Company
performed a review of all operating activities and determined that certain
activities could be performed with fewer resources and that certain other
activities, such as high risk/low market potential research projects, could
be eliminated. In conjunction with the foregoing, head-count was reduced.
In particular, the elimination of sales positions was limited to
territories with historically low sales volume per sales representative and
responsibility for such areas was redistributed to remaining sales
representatives. On this basis, management believes that the adjustments
appropriately reflect areas of underutilization and that the reduced
head-count is sufficient to meet the Company's current level of operations.
The pro forma adjustment reflects the reduction of employee-related costs
associated with the workforce reductions made prior to June 30, 1995 as
follows:
<TABLE>
<S> <C>
Manufacturing................................................. 131
Selling and marketing......................................... 19
Administrative................................................ 36
Research and development...................................... 47
---
233
===
</TABLE>
Total cost savings resulting from workforce reductions, assuming such
reductions had occurred at the beginning of each pro forma period, would
have been $2,338 for the six months ended June 30, 1995 and the year ended
December 31, 1995.
Additional cost savings have occurred as a result of head-count reductions
made during September 1995 in connection with the Company's restructuring
following the Acquisition. These cost savings have been excluded from the
Pro Forma Financial Statements as these savings are not deemed to qualify
as a pro forma event under Regulation S-X. This restructuring resulted in
reductions in the number of employees as follows:
<TABLE>
<S> <C>
Manufacturing................................................. 49
Selling and marketing......................................... 29
Administrative................................................ 12
Research and development...................................... 7
---
97
===
</TABLE>
Total cost savings resulting from head-count reductions, assuming such
reductions had occurred at the beginning of each pro forma period, would
have been $3,065 and $4,282 for the six months ended June 30, 1995 and the
year ended December 31, 1995, respectively.
20
<PAGE> 23
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(B) Represents reduction of operating expenses resulting from the Facility Sale
and the additional expense associated with the lease of new facilities.
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1995 1995
----------------- ------------
<S> <C> <C>
Reduction of expenses related to building sale:
Depreciation................................... $ 671 $1,117
Other operating expenses....................... 1,787 3,600
------- ------------
2,458 4,717
Additional expenses related to new facilities:
Lease expense of new facilities................ 1,177 2,355
Depreciation of leaseholds..................... 339 678
Other operating expenses....................... 678 1,353
------- ------------
2,194 4,386
------- ------------
Net savings.................................... $ 264 $ 331
============== ==========
</TABLE>
(C) Represents cost savings resulting from changes in the employee medical plan
(effective as of July 1, 1995) in connection with the Acquisition.
(D) Represents reduction of interest expense resulting from the Facility Sale.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECENBER 31, 1995
----------------- --------------------
<S> <C> <C>
Repayment of $25,000 term loan under the Bank
Credit Facility (at a weighted average of
9.5% for the six months ended June 30, 1995
and 9.3% for the year ended December 31,
1995)........................................ $ 1,184 $1,939
Amortization of deferred debt issuance costs... 119 184
Write-off of unamortized debt issuance costs
upon repayment of portion of term loan....... -- 1,036
------- -------
$ 1,303 $3,159
============== ================
</TABLE>
(E) Represents reduction of interest expense resulting from the consummation of
the Offering and the application of the net proceeds therefrom as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
Repayment of $14,000 term loan under the Bank
Credit Facility (at a weighted average rate
of 9.5% for the six months ended June 30,
1995 and 9.3% for the year ended December
31, 1995).................................. $ 663 $ 1,086
Repayment of the Bridge Notes (at a weighted
average rate of 12.6% for the six months
ended June 30, 1995 and 13.8% for the year
ended December 31, 1995)................... 5,150 9,431
Amortization of deferred debt issuance
costs...................................... 1,917 2,950
Write-off of unamortized debt issuance costs
upon repayment of portion of term loan and
repayment of Bridge Notes.................. -- 1,433
------- ------
$ 7,730 $ 14,900
======= ======
</TABLE>
21
<PAGE> 24
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(F) Represents additional interest expense resulting from the Offering as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1995
---------------- -----------------
<S> <C> <C>
Senior Notes (at a rate of 9.25%)............... $ 4,625 $ 7,888
Amortization of deferred debt issuance costs.... 351 599
------ -------
$ 4,976 $ 8,487
====== =======
</TABLE>
(G) The following table summarizes the components of interest expense:
<TABLE>
<CAPTION>
PRO FORMA
ACQUISITION PRO FORMA
IVAC AND FACILITY SALE OFFERING
MEDICAL SYSTEMS, INC. COMBINED COMBINED
--------------------- ----------------- ---------
<S> <C> <C> <C>
For the six months ended June 30, 1995:
Cash interest........................ $ 8,717 $ 7,533 $ 6,345
Accretion of discount................ 352 352 352
Non-cash amortization................ 2,137 2,018 452
---------- ---------- --------
$11,206 $ 9,903 $ 7,149
========== ========== ========
For the year ended December 31, 1995:
Cash interest........................ $16,910 $ 14,971 $12,342
Accretion of discount................ 703 703 703
Non-cash amortization................ 5,902 4,682 898
---------- ---------- --------
$23,515 $ 20,356 $13,943
========== ========== ========
</TABLE>
(H) Represents the elimination of purchase price allocated to inventories in
excess of historical costs. The allocated purchase price of such
inventories was based on estimated selling price less cost of disposal. The
historical cost of such inventory was determined using the FIFO method. The
excess over historical cost was charged to operations in the first quarter
of 1995.
(I) Represents reduction of amortization of excess purchase price assuming the
September 1995 tax election under IRC Section 338(h)(10) had occurred at
the beginning of the pro forma period.
(J) Represents elimination of write-off of purchased research and development
recorded in connection with the Acquisition.
(K) Represents adjustment to provision for income taxes related to pro forma
adjustments.
22
<PAGE> 25
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following selected historical consolidated financial data as of and for
the years ended December 31, 1991, 1992 and 1993, have been derived from the
Consolidated Financial Statements of IVAC Corporation and subsidiaries and
certain IVAC related entities audited by Ernst & Young LLP, independent
auditors. The following selected historical consolidated financial data as of
and for the years ended December 31, 1994 and 1995 have been derived from the
Consolidated Financial Statements of IVAC Corporation and IVAC Medical Systems,
Inc. and subsidiaries, respectively, audited by Price Waterhouse LLP,
independent accountants. The selected historical consolidated financial data as
of June 30, 1996 and for the six months ended June 30, 1995 and 1996 have been
derived from unaudited financial statements of the Company. The summary
historical consolidated financial data for all periods prior to and including
December 31, 1994 are derived from the Consolidated Financial Statements of IVAC
Corporation prior to the consummation of the Acquisition (the "Predecessor
Company"). For accounting purposes, the Acquisition was treated as a purchase
transaction and accordingly, the summary historical consolidated financial data
of the Predecessor Company are not comparable in all respects to the summary
historical consolidated financial data of the Company for periods subsequent to
the Acquisition. The unaudited financial statements include all adjustments
which the Company considers necessary for a fair presentation of the Company's
financial position and results of operations for these periods. Operating
results for the six months ended June 30, 1996 are not indicative of results for
future periods, including the year ending December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
PREDECESSOR COMPANY
SIX MONTHS ENDED JUNE 30,
--------------------------
THE COMPANY
--------------------------------------------- -----------------------------------------
1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $203,301 $213,430 $214,244 $223,227 $ 240,971 $ 118,791 $ 112,762
Cost of sales...................... 111,431 123,497 125,542 146,659 157,869(1) 84,749(1) 65,633
-------- -------- -------- -------- -------- -------- --------
Gross profit....................... 91,870 89,933 88,702 76,568 83,102 34,042 47,129
Selling and marketing.............. 40,428 41,395 40,190 45,055 43,994 22,860 19,668
General and administrative......... 13,808 16,348 16,032 21,586 28,381 12,168 12,001
Research and development........... 17,171 15,938 18,742 18,504 12,083 7,250 4,913
Purchased research and
development...................... -- -- -- -- 22,883 19,883 --
Restructuring and special
items(2)......................... 5,000 1,307 3,967 13,143 5,944 -- 17,396
Parent company allocations(3)...... 8,024 7,411 6,416 7,480 -- -- --
Other expense (income)............. 724 2,013 269 3,560 1,497 -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations...... 6,715 5,521 3,086 (32,760) (31,680) (28,119) (6,849)
Interest income (expense),
net(4)........................... 5,193 4,729 4,040 700 (20,502) (9,608) (5,572)
Provision for (benefit from) income
taxes............................ 3,595 4,755 1,710 3,793 (378) (2,821) 726
Net income (loss).................. $ 8,313 $ 5,495 $ 5,416 $(35,853) $ (51,804) $ (34,906) $ (13,147)
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges(5)....................... 22.4x 15.9x 7.2x -- -- -- --
OTHER DATA:
Adjusted EBITDA(6)................. $ 29,634 $ 24,501 $ 23,718 $ 4,674 $ 32,871 $ 16,438 $ 20,584
Depreciation and amortization...... 9,895 10,262 10,249 15,119 20,950(7) 9,900(7) 10,096
Capital expenditures, net.......... 11,293 8,324 9,920 9,000 13,752(8) 5,644 10,225
Net cash provided by operating
activities....................... 7,640 18,618 8,115 6,502 38,213 27,790 9,972
Net cash used by investing
activities....................... 11,291 8,482 36,721 9,000 179,287 190,699 10,185
Net cash provided by (used by)
financing activities............. -- (1,551) 30,217 -- 157,535 183,264 (9,359)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------
PREDECESSOR COMPANY AT JUNE 30,
------------
THE COMPANY
--------------------------------------------- --------------------------------
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents... $ 2,112 $ 5,400 $ 4,683 $ 3,226 $ 18,308 $ 7,657
Working capital............. 46,924 52,734 119,457 74,124 41,780 18,579
Total assets................ 222,333 230,012 248,909 174,144 215,995 190,299
Long-term debt (including
current portion and
related party debt)....... -- -- 12,000(9) 11,621(9) 131,824 123,062
Shareholder's equity........ 181,689 185,173 192,511 129,981 13,376 (850)
</TABLE>
(footnotes on following page)
23
<PAGE> 26
- ---------------
(1) Includes $14,774 one-time purchase price allocation to inventories in excess
of historical costs.
(2) See Notes 4 and 5 to Notes to Consolidated Financial Statements of IVAC
Corporation, Note 12 to Notes to Consolidated Financial Statements of IVAC
Medical Systems, Inc. and Note 6 to Notes to Condensed Consolidated
Financial Statements of IVAC Medical Systems, Inc.
(3) Prior to December 31, 1994, the Company was a wholly owned subsidiary of
Lilly. Parent company allocations represent IVAC's non-cash pro rata share
of Lilly's corporate overhead.
(4) Interest income (expense), net, consists of interest expense net of (i)
intercompany interest income for periods prior to the Acquisition and (ii)
interest income associated with NCA contracts for periods before and after
the Acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 2 to Notes to Consolidated
Financial Statements of IVAC Corporation and IVAC Medical Systems, Inc.
included elsewhere in this prospectus.
(5) For purposes of determining the ratio of earnings to fixed charges, earnings
includes pre-tax income adjusted for fixed charges. Fixed charges consist of
interest on all indebtedness, estimated interest component of rental expense
and amortization of deferred financing costs. As a result of losses,
earnings were inadequate to cover fixed charges by $32,060, $52,182, $37,727
and $12,421 for the years ended December 31, 1994 and 1995, and the six
months ended June 30, 1995 and 1996, respectively.
(6) Adjusted EBITDA represents operating profit (loss) before net interest
expense, income taxes, parent company allocations, restructuring and special
items, certain purchase accounting adjustments and depreciation and
amortization. Adjusted EBITDA does not represent net income or cash flows
from operations, as these terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. The Company has included information
concerning Adjusted EBITDA herein because it understands that such
information is used by certain investors as one measure of an issuer's
historical ability to service debt. For information concerning the Company's
cash flow, see IVAC Medical Systems, Inc. Consolidated Statement of Cash
Flows for the year ended December 31, 1995, and for the six months ended
June 30, 1995 and 1996, and Consolidated Statement of Cash Flows for the
years ended December 31, 1993 and 1994 of IVAC Corporation.
(7) Excludes service support agreement amortization, for the year ended December
31, 1995 and three months ended June 30, 1995 of $2,786. The amount
capitalized as service support agreement in 1995 consisted of certain
administrative services provided by Lilly on behalf of IVAC for a period of
six months.
(8) Excludes proceeds from the sale of IVAC's 380,000 square foot San Diego
facility.
(9) Reflects the Company's minimum royalty payment to SIS in conjunction with
the sale of the MiniMed product line (the predecessor of MS III) to IVAC
Corporation in September 1993. See Note 5 to Notes to Consolidated Financial
Statements of IVAC Corporation included elsewhere in this Prospectus.
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the
Consolidated Financial Statements and the notes thereto contained elsewhere in
this Prospectus.
GENERAL
The Company sells and services products primarily in the United States,
Canada and Europe to both hospital and alternate site markets. The Company has
two principal lines of business: infusion therapy products and vital signs
measurement products. In 1995, net sales from infusion therapy products and
vital signs measurement products (including, in each category, associated
disposable sets) accounted for approximately 80% and 14%, respectively, of the
Company's net sales.
In order to provide continued support for its products, the Company offers
repair and other services in connection with its installed base of instruments.
Net sales from such services were less than 10% of total net sales in all of the
periods discussed below.
After the close of business on December 31, 1994, the Company was acquired
from Lilly by DLJMB and the River Group. Prior to the Acquisition, the Company
was a wholly owned subsidiary of Lilly. As a result, financial data for the
Company for periods subsequent to December 31, 1994, which give effect to
purchase accounting adjustments related to the Acquisition and include financial
results for River, are not necessarily comparable to financial data for the
Predecessor Company for periods prior to December 31, 1994. Results of
operations for periods prior to the Acquisition include parent company
allocations of corporate expenses which are not included in subsequent periods.
Concurrently with the Acquisition, all of the outstanding capital stock of River
was contributed to Holdings in exchange for common stock of Holdings. Through a
series of subsequent transactions, River became a wholly owned subsidiary of
IVAC.
Subsequent to the Acquisition, the Company significantly reduced production
and operating costs and eliminated excess expenses incurred by its former parent
in connection with its operation of the Company as a division. The Company's
efforts have focused on improving the overall quality of IVAC product offerings
and providing better customer service while achieving a low cost manufacturing
platform for existing and future products. During 1995, the Company has been
implementing the following programs: (i) reducing overall head count by
approximately 403, or 28% of total employees as of December 31, 1994, through
termination and attrition; (ii) consolidating supply sources; (iii) eliminating
research and development projects which were judged to be high risk/low market
potential; (iv) rationalizing underutilized assets, including consolidating
certain warehouse operations and reconfiguring materials handling and product
lines; and (v) integrating the vital signs manufacturing, engineering and
marketing functions with those of the infusion therapy business. As part of its
overall cost reduction strategy, the Company sold its 380,000 square foot San
Diego facility in November 1995. The Company relocated its primary instrument
manufacturing and corporate headquarters operations to smaller leased facilities
in San Diego. The Company intends to continue implementing cost reduction
initiatives in the future, including greater utilization of its Mexican
Maquiladora manufacturing facility to realize labor savings. In connection with
the Acquisition, the Company was obligated to pay a defined severance package to
employees transferred from the Predecessor Company if such employees were
terminated prior to July 1, 1996.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net Sales. Net sales decreased $6.0 million, or 5.1%, from $118.8 million
for the six months ended June 30, 1995 to $112.8 million for the six months
ended June 30, 1996. U.S. net sales, which were 67.4% of net sales for the six
months ended June 30, 1996, decreased $5.6 million, or 7.0%, from $80.1 million
for the six months ended June 30, 1995 to $74.5 million for the six months ended
June 30, 1996. Within the U.S. infusion therapy business, sales decreased for
the six months ended June 30, 1996 as compared to the six
25
<PAGE> 28
months ended June 30, 1995 as a result of (i) shipment in 1995 of the MedSystem
III product backlog which had resulted from the discontinuation of production
due to product design and manufacturing process problems during the fourth
quarter 1994, and (ii) attrition in the installed base of older technology
products. In addition, the Company has been impacted by the market trend of
increasing concentration of buying power among healthcare providers. Separately,
in June 1996, the Company temporarily ceased manufacturing and distribution of
its Signature Edition infusion pumps in order to evaluate field complaints. The
Company subsequently implemented a voluntary recall of the Signature Edition
pumps. Production and distribution of the Signature Edition product line,
incorporating product improvements, resumed during the third quarter of 1996.
International sales decreased $0.4 million, or 1.0%, from $38.7 million for the
six months ended June 30, 1995 to $38.3 million for the six months ended June
30, 1996, primarily as a result of the unfavorable impact of exchange rate
fluctuations, partially offset by the increased volume of drug infusion
disposable administration sets.
Gross Profit. Gross profit increased $13.1 million, or 38.4%, from $34.0
million for the six months ended June 30, 1995 to $47.1 million for the six
months ended June 30, 1996 due to (i) a one time $14.8 million charge in 1995
for the acquisition purchase price allocation to inventories in excess of
historical costs, (ii) the ongoing benefit of lower manufacturing costs
associated with restructuring of the manufacturing workforce in 1995, and (iii)
the lower repair costs associated with the MedSystem III product line. These
factors were offset in part by decreased net sales, which reduced the Company's
economies of scale, and the estimated costs associated with the Signature
Edition pumps voluntary recall. Excluding the 1995 effect of the one time
purchase accounting adjustment, gross profit as a percent of net sales improved
from 41.1% for the six months ended June 30, 1995 to 41.8% for the six months
ended June 30, 1996.
Selling and Marketing. As a percent of net sales, selling and marketing
expenses decreased from 19.2%, or $22.9 million, for the six months ended June
30, 1995 to 17.4%, or $19.7 million, for the six months ended June 30, 1996,
primarily as a result of cost savings derived from restructuring the Company's
hospital field sales force during 1995 and lower international spending due to
the termination of the services agreement with Eli Lilly and Company (IVAC's
former parent). The Company is currently performing these services.
General and Administrative. General and administrative expenses decreased
$0.2 million, or 1.4%, from $12.2 million for the six months ended June 30, 1995
to $12.0 million for the six months ended June 30, 1996, primarily as a result
of lower legal costs associated with the SmartDose product line. As a percent of
net sales, general and administrative expenses increased from 10.2% for the six
months ended June 30, 1995 to 10.7% for the same period in 1996 primarily as a
result of expenses spread over a reduced sales base.
Research and Development. As a percent of net sales, research and
development expenses decreased from 6.1%, or $7.3 million, for the six months
ended June 30, 1995 to 4.4%, or $4.9 million, for the six months ended June 30,
1996, primarily as a result of 1995 headcount reductions and reduced spending on
the new Signature Edition product as it reached the final phase of the
development cycle during the fourth quarter of 1995.
Restructuring and Special Items. The restructuring and special items for
1996, totaling $17.4 million, consisted of a non-recurring charge for the
intended divestiture of the River assets. River's primary assets include
patents, technologies, trade secrets, inventories and manufacturing equipment.
River has ceased operations and the Company is continuing to seek the most
advantageous sale of River's assets. Management believes the divestiture of
River will allow the Company to focus on its core products in infusion therapy
and vital signs monitoring markets.
Purchased Research and Development. In 1995, the Company recorded a one
time purchase accounting adjustment of $19.9 million for purchased research and
development relating to the revaluation of assets in conjunction with the
acquisition of IVAC and River by IVAC Holdings, Inc. in December 1994.
Income (Loss) from Operations. Loss from operations decreased $21.3
million from a loss of $28.1 million for the six months ended June 30, 1995 to a
loss from operations of $6.8 million for the six months ended June 30, 1996.
Excluding 1995's one time acquisition purchase accounting charges of $34.7
million, of which $14.8 million was included in cost of sales and $19.9 million
in purchased research and development
26
<PAGE> 29
and the 1996 one time restructuring charge of $17.4 million for the divestiture
of the River assets, income from operations increased $4.0 million, or 61.3%,
from $6.6 million for the six months ended June 30, 1995 to $10.6 million for
the six months ended June 30, 1996, reflecting the reduction in production and
operating costs attributed to the Company's restructuring and cost savings
actions initiated in 1995 and continuing in 1996.
Interest Income/Expense. Net interest expense for the six months ended
June 30, 1995 was $9.6 million, consisting of interest income of $1.6 million
and interest expense of $11.2 million, compared to net interest expense for the
six months ended June 30, 1996 of $5.6 million, consisting of interest income of
$1.4 million and interest expense of $7.0 million. Interest income during both
periods included interest income related to NCA contracts, which allow hospitals
to acquire instruments at no initial cost by paying a premium (a portion of
which is recorded by the Company as interest income) for subsequent purchases of
disposables. The term of these contracts is generally three to five years, with
interest at rates of 9% to 15%. Interest expense was lower for the six months
ended June 30, 1996 as a result of refinancing and repayment of debt during the
fourth quarter of 1995. See "Liquidity and Capital Resources."
Loss Before Income Taxes. Excluding the effect of pre-tax 1995 acquisition
purchase accounting adjustments of $34.7 million and 1996 pre-tax restructuring
charges of $17.4 million, income before income taxes increased $8.0 million,
from a loss before taxes of $3.0 million for the six months ended June 30, 1995
to income before taxes of $5.0 million for the six months ended June 30, 1996,
reflecting the cost savings discussed above.
Provision for (Benefit from) Income Taxes. The benefit from income taxes
was $2.8 million for the six months ended June 30, 1995 compared to income tax
expense of $0.7 million for the six months ended June 30, 1996. The 1995 benefit
reflects the write-off of purchased research and development partially offset by
foreign taxes. The Company has recorded a valuation allowance against its
deferred tax assets based on an assessment that it is more likely than not that
the deferred tax assets will not be realized.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales increased $17.8 million, or 8.0%, from $223.2 million
for 1994 to $241.0 million for 1995. U.S. sales, which comprised 67.8% of net
sales for 1995, increased 6.5%, or $9.9 million, from $153.4 million for 1994 to
$163.3 million for 1995, as a result of increases in drug infusion product
sales. Within the U.S. infusion therapy business, sales of the Company's more
mature product lines, such as the 560/570 Series and 590/599 Series, increased
modestly and sales of the Company's MS III product increased as compared to 1994
net sales as a result of (i) a backlog resulting from discontinuance of
production due to product design and manufacturing process problems during 1994
and (ii) the transfer of selling efforts from a small number of MS III
specialists to IVAC's larger sales force beginning in the second quarter of
1994. International sales increased 11.2%, or $7.8 million, from $69.8 million
for 1994 to $77.6 million for 1995, primarily as a result of the increased
volume of sales of infusion therapy products, particularly the P-Series syringe
pumps, the favorable impact of exchange rate fluctuations and the increased
volume of vital signs product sales.
Gross Profit. Excluding the effect of purchase accounting, $14.8 million,
gross profit increased $21.3 million, or 27.8%, from $76.6 million for 1994 to
$97.9 million for 1995. This increase resulted from increased sales, decreased
manufacturing costs achieved through cost savings and improved manufacturing
efficiencies, and improvements in product quality, offset in part by increased
spending associated with manufacturing of the SmartDose product line.
Selling and Marketing. As a percent of sales, selling and marketing
expenses decreased from 20.2%, or $45.1 million, for 1994 to 18.3%, or $44.0
million, for 1995, primarily as a result of cost savings derived from
restructuring the Company's hospital field sales force during the first quarter
of 1995 and on-going expense management of items such as travel and
entertainment, offset in part by increased expenses attributable to the
establishment of an alternate site sales force.
General and Administrative. As a percent of sales, general and
administrative expenses increased from 9.7%, or $21.6 million, for 1994 to
11.8%, or $28.4 million, for 1995 primarily reflecting (i) increased expenses
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incurred by River (without corresponding River sales volume increases), (ii)
amortization of excess purchase price over net assets acquired, associated with
the acquisition from Lilly and (iii) expenses for studies conducted to identify
improvement opportunities for domestic and international operations.
Research and Development. As a percent of sales, research and development
expenses decreased from 8.3%, or $18.5 million, for 1994 to 5.0%, or $12.1
million, for 1995, primarily as a result of the elimination of certain research
projects and reduced spending on the new Signature Edition line as it neared the
final phase of the development cycle. Such reductions were offset in part,
however, by development expenses related to the SmartDose system. This increase
is partially offset by reduced costs resulting from 1995 headcount reductions.
Restructuring and Special Items. The restructuring and special items for
1995, totaling $5.9 million, consisted of a non-recurring charge of $5.3 million
for severance costs incurred in connection with head count reductions undertaken
as part of the restructuring, and $0.6 million in costs for relocating the
corporate headquarters and primary instrument manufacturing facilities. The
restructuring and special items for 1994, totaling $13.1 million, were solely
related to a write-down of excess purchase price over net assets acquired as a
result of the acquisition of the MS III product line. The write-down recognized
design and other defects of the acquired product line, together with a change in
market conditions which caused the sales and earnings of MS III products to be
significantly below those that had been projected at the time of the acquisition
of the product line.
Adjusted EBITDA. For the reasons discussed above, Adjusted EBITDA
increased 600%, or $28.2 million, from $4.7 million for 1994 to $32.9 million
for 1995. Adjusted EBITDA margin increased from 2.1% for 1994 to 13.6% for 1995.
Income (Loss) from Operations. For the reasons discussed above, the
Company recorded a loss from operations of $32.8 million for 1994 as compared to
a loss from operations of $31.7 million for 1995. Loss from operations in 1995
included $37.7 million of one-time purchase accounting adjustments of which
$14.8 million is included in cost of sales and $22.9 million in purchased
research and development, as well as $5.9 million in restructuring and special
items. Loss from operations in 1994 included a $13.1 million write-down of
excess purchase price over net assets associated with the MS III product line,
as well as $7.5 million of corporate expense allocations from IVAC's former
parent company, Lilly.
Interest Income/Expense. Net interest expense for 1995 was $20.5 million,
consisting of interest income of $3.0 million and interest expense of $23.5
million compared to net interest income for 1994 of $0.7 million, consisting of
interest income of $3.6 million and interest expense of $2.9 million. Interest
income during both periods included interest income related to NCA contracts,
which allow hospitals to acquire instruments at no initial cost by paying a
premium (a portion of which is recorded by the Company as interest income) for
subsequent purchases of disposables. The term of these contracts is generally
three to five years, with interest at rates of 9% to 15%. Interest expense in
1995 was comprised primarily of interest expense attributable to the Acquisition
debt.
Provision for (Benefit from) Income Taxes. Benefit from income taxes was
$0.4 million in 1995 compared to income tax expense of $3.8 million for 1994.
The 1995 benefit reflects the write-off of purchased research and development
partially offset by foreign taxes. As of December 31, 1995, the Company has
recorded a valuation allowance against its deferred tax assets based on an
assessment that it is more likely than not that the deferred tax assets will not
be realized.
Net Loss. For the reasons discussed above, the net loss increased $15.9
million from a net loss of $35.9 million for 1994 to a net loss of $51.8 million
for 1995. The net loss in 1995 included $37.7 million of pre-tax one-time
purchase accounting adjustments and $5.9 million of pre-tax non-recurring charge
for severance costs and facility relocation expenses.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Sales. Net sales increased $9.0 million, or 4.2%, from $214.2 million
for the year ended December 31, 1993 to $223.2 million for the year ended
December 31, 1994. U.S. sales, which comprised 68.7% of net
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sales for 1994, increased 1.1%, or $1.7 million, from $151.7 million to $153.4
million as a result of growth in infusion therapy product sales offset in part
by a decrease in vital signs product sales. U.S. infusion therapy sales
increased as a result of an increase in MS III sales, reflecting a full year
effect of the September 1993 acquisition of MS III, offset in part by a decline
in sales of the Company's more mature product lines. U.S. vital signs product
sales declined as a result of lower instrument placements, partially offset by
increased thermometer disposable probe cover sales. International sales of $69.8
million for 1994 increased 11.7% over the prior year primarily as a result of
increased sales of the Welmed P-Series syringe pumps and Model 591/597/598
Series disposable administration sets, and the favorable impact of exchange rate
fluctuations.
Gross Profit. Gross profit decreased $12.1 million, or 13.6%, for the year
ended December 31, 1994 to $76.6 million from $88.7 million for the year ended
December 31, 1993. As a percent of sales, gross profit decreased from 41.4% for
the year ended December 31, 1993 to 34.3% for the year ended December 31, 1994.
This decrease resulted primarily from higher manufacturing and service expenses
associated with (i) manufacturing reengineering of the MS III product, (ii) the
full year effect in 1994 of costs associated with servicing returned MS III
products and (iii) a shut-down of the MS III production line during the fourth
quarter of 1994. Excluding the MS III product line, gross profit as a percent of
sales decreased slightly due to competitive pressures resulting in price
reductions and lower sales of the Company's more mature infusion therapy product
lines.
Selling and Marketing. As a percent of sales, selling and marketing
expenses increased from 18.8%, or $40.2 million, in the year ended December 31,
1993 to 20.2%, or $45.1 million, in the year ended December 31, 1994, primarily
as a result of increased personnel and marketing programs related to the
MedSystem III product line.
General and Administrative. As a percent of sales, general and
administrative expenses increased from 7.5%, or $16.0 million, in the year ended
December 31, 1993 to 9.7%, or $21.6 million, in the year ended December 31,
1994, primarily as a result of the full year effect of amortization of excess
purchase price over net assets acquired associated with the acquisition of the
MS III product line, increased allowance for doubtful accounts and increased
employee health care benefits.
Research and Development. As a percent of sales, research and development
expenses decreased to 8.3%, or $18.5 million, in the year ended December 31,
1994 from 8.7%, or $18.7 million, in the year ended December 31, 1993, primarily
as a result of increased development expenses associated with the full year
impact of supporting the MS III product line offset by the discontinuation of
other development projects being pursued by Lilly.
Adjusted EBITDA. For the reasons discussed above, Adjusted EBITDA
decreased 80.2%, or $19.0 million, from $23.7 million in the year ended December
31, 1993 to $4.7 million in the year ended December 31, 1994. Adjusted EBITDA
margin decreased from 11.1% for the year ended December 31, 1993 to 2.1% for the
year ended December 31, 1994.
Restructuring and Special Items. The restructuring and special items
during 1994 ($13.1 million) were solely related to a write-down of excess
purchase price over net assets acquired associated with the acquisition of the
MS III product line. This write-down recognized design and other defects of the
acquired product line together with the change in market conditions which caused
the sales and earnings of the MS III products to be significantly below those
that were projected at the time of the acquisition. The restructuring and
special items in the year ended December 31, 1993 related to the reorganization
of operations outside the U.S. ($3.7 million) and the realignment of the U.S.
field sales force ($0.3 million).
Other Expense (Income). Other expense increased from $0.3 million for the
year ended December 31, 1993 to $3.6 million for the year ended December 31,
1994, due primarily to (i) costs associated with the discontinuation of the
Lilly information systems data center located at IVAC; (ii) expenses allocated
by Lilly attributable to foreign currency hedging; and (iii) an accrual for a
nonrecurring legal settlement.
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Income (Loss) from Operations. For the reasons discussed above, income
from operations decreased from $3.1 million for the year ended December 31, 1993
to a loss of $32.8 million for the year ended December 31, 1994.
Interest Income/Expense. Net interest income for the year ended December
31, 1994 was $0.7 million, consisting of interest income of $3.6 million and
interest expense of $2.9 million compared to net interest income for the year
ended December 31, 1993 of $4.0 million, consisting of interest income of $4.4
million and interest expense of $0.4 million. The $3.3 million decrease in net
interest income resulted from the full year impact of interest expense on the
Lilly intercompany loan attributable to the acquisition of the MiniMed product
line and the reduction of intercompany interest income earned on excess cash
invested through Lilly's cash management system as $48.7 million of excess cash
was distributed to Lilly as a dividend in May 1994.
Net Income. For the reasons discussed above, net income decreased $41.3
million from $5.4 million for the year ended December 31, 1993 to a loss of
$35.9 million for the year ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, cash and cash equivalents
decreased to $7.7 million from $18.3 million at December 31, 1995, due primarily
to (i) $10.2 million of capital expenditures inclusive of leasehold improvements
associated with the Company's relocation of its corporate and primary instrument
manufacturing facilities in San Diego, (ii) the March 1996 prepayment of $5.5
million of bank term loans (concurrent with the amendment and restatement of the
Bank Credit Facility), and (iii) the payment of additional consideration of $4.5
million related to the 1993 acquisition of the MiniMed product line; all of the
above being offset in part by $10.0 million of cash provided by operating
activities (resulting from operating profitability and reductions in net working
capital levels).
At June 30, 1996, the Company had working capital of $18.6 million, a
decrease of $23.2 million, or 55.5%, from the level at December 31, 1995 of
$41.8 million. The decrease in working capital was due primarily to (i) the $7.4
million working capital impact of the writedown for the intended divestiture of
the River assets, and (ii) the impact of the prepayment of $5.5 million on the
bank term loan concurrent with the conversion of the loan to a revolving Bank
Credit Facility which resulted in a reclassification of $9.7 million from
long-term debt to current debt.
The Company amended and restated its Bank Credit Facility on March 29,
1996. The amended and restated Facility matures on March 29, 1999 and provides
for borrowings of up to $40 million, secured by substantially all of the
Company's domestic assets. Borrowings under the Facility bear interest at a rate
equal to the Alternate Base Rate (as defined in the Facility) plus 0.25% or
Adjusted LIBOR plus 1.50%, at the option of the Company. The interest rate is
also subject to change quarterly based upon certain debt and interest coverage
ratios. In connection with the Acquisition, IVAC entered into and became the
borrower under the Bank Credit Facility with a syndicate of financial
institutions providing for facilities of $80.0 million consisting of $60.0
million of term loans and a $20.0 million revolving credit facility. Initial
borrowings under the Bank Credit Facility were used to finance the Acquisition.
See Note 5 and Note 13 to the Notes to Consolidated Financial Statements of IVAC
Medical Systems, Inc., included elsewhere herein.
In the fourth quarter of 1995, the Company issued $100.0 million of Senior
Notes through a public debt offering, the net proceeds of which were used to
prepay the $80.0 million Bridge Notes (plus accrued interest) and $14.0 million
of term loans under the Bank Credit Facility. This refinancing reduced interest
expense due to Senior Notes' lower interest rate.
Also, in the fourth quarter of 1995, the Company sold its San Diego
facility for $26.0 million and relocated its corporate headquarters and the
operations previously conducted at the San Diego facility to smaller leased
premises. The net proceeds from the sale were used to prepay $25.0 million of
term loans under the Bank Credit Facility.
During 1995, operating activities provided cash of $38.2 million, compared
to $6.5 million provided during 1994. The positive change from the prior year's
comparable period was primarily the result of reductions in net working capital
levels. At December 31, 1995, the Company had working capital of $41.8
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million, a decrease of $32.3 million, or 44%, from the December 31, 1994 level
of $74.1 million. The decrease in working capital was primarily due to the
following: increases in accounts payable, resulting from improved payment terms
with vendors; increases in other current liabilities, attributable to an accrual
for obligations to Lilly for the performance of certain administrative
functions; and a decrease in inventories, resulting from better inventory
management; offset in part by an increase in accounts receivable, resulting from
an increase in sales. As a result of the positive operating cash flow during
1995, IVAC repaid $8.5 million of revolving borrowings and $1.5 million of term
loans under the Bank Credit Facility.
Aggregate capital expenditures for equipment and leasehold improvements to
facilities in 1995 were $13.9 million. The increase from capital expenditures of
$9.0 million in 1994 was due primarily to the establishment of an international
information management system, other infrastructure facilities in connection
with the manufacture of SmartDose, and leasehold improvements to newly leased
corporate headquarters and manufacturing facilities.
As part of the Acquisition, Lilly agreed to perform certain administrative
functions for the Company's foreign subsidiaries including the collection of
receivables and the payment of certain direct expenses incurred by Lilly on
behalf of the Company. The Company agreed to reimburse Lilly for such direct
expenses.
The Company is obligated to pay additional purchase consideration related
to two previous acquisitions. In connection with the acquisition of MiniMed, the
Company paid additional consideration to SIS of $4.5 million during the three
months ended March 31, 1996, based on 1994 and 1995 product sales and is
obligated to pay the greater of $3.0 million per year or 8% of the prior year's
product sales in 1997 through 1999. The Company is also contingently liable for
up to approximately $1.9 million for additional purchase considerations through
1996 based upon the P-Series syringe pump product line achieving certain sales
and pre-tax performance in each year.
The Company believes that, based on current levels of operations, its cash
flow from operations, together with borrowings under the amended and restated
senior credit Facility, will be adequate, at least through the next 12 months,
to finance contemplated operations and make required payments of interest and
principal on its debt and planned capital expenditures. However, the Company's
ability to finance its operations, to make interest payments on such
indebtedness, to repay such indebtedness at maturity and to make capital
expenditures will be dependent on the Company's future operating performance. At
June 30, 1996 the Company had $24.4 million of available revolving borrowings
under the amended and restated Facility and cash and cash equivalents of $7.7
million.
INFLATION
In 1993, 1994, 1995 and the first six months of 1996 the Company has
experienced moderate upward pressure on the cost of supplies and services.
Greater upward pressure has historically been exerted upon labor costs, a trend
that the Company expects will continue. The Company has generally been able to
offset the impact of inflation through increased economies related to higher
sales and manufacturing efficiencies.
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BUSINESS
OVERVIEW
IVAC has been a leading provider of infusion systems and related
technologies in the health care industry for over 25 years. The Company's
principal line of business is the design, manufacture and marketing of IV
infusion therapy instruments (pumps and controllers) and proprietary disposable
administration sets (tubing and plastic pump interfaces) used to control the
flow of solutions, drugs and nutritionals into a patient's circulatory system.
The Company believes it has the largest installed base of infusion therapy
instruments in the world and one of the largest installed bases of pump delivery
lines ("channels") in the United States. IVAC is also a leader in the design,
manufacture and marketing of vital signs measurement instruments that monitor
temperature, pulse and blood pressure in a single device, with the largest
installed base of hospital thermometry products in the United States. The
Company is also a leader in infusion markets in Europe.
INFUSION THERAPY
Management estimates that, as of December 31, 1995, IVAC had over 165,000
single and multi-channel LV pumps installed worldwide, with a market share of
approximately 22% of all installed channels in the United States. IVAC
established its strong position in the infusion therapy market by introducing
the first device for the control of IVs in the late 1960s, primarily in the
hospital non-critical care market. Today, the Company's core product lines, the
560/570 Series and the 590/599 Series, are single channel LV pumps that offer
cost-effective solutions for drug delivery in the general care setting. The
Company believes that its 560/570 Series has the largest installed base of any
individual IV pump worldwide. IVAC has sustained its strong market position
through continued product development, innovative product upgrades and customer
support services. For the year ended December 31, 1995, IVAC's infusion therapy
net sales were approximately $192.8 million, representing approximately 80% of
IVAC's net sales.
In conjunction with its infusion products, the Company manufactures higher
margin proprietary disposable administration sets which can only be used with
IVAC's pumps. The Company sold approximately 36 million sets for LV pumps in
1995. The Company also sells non-proprietary disposable sets for use with its
syringe pumps. The Company has recently introduced several enhancements to its
disposable sets, including protection factors designed to prevent the free flow
of fluids into a patient's bloodstream and a needleless access system that
reduces the risk to health care workers of diseases, such as AIDS and hepatitis,
that may be transmitted through needlesticks. Such enhancements continue to
provide the latest cost-effective technology for the Company's installed base.
The Company has significantly expanded its infusion therapy business in
response to certain trends in the health care industry. These trends include (i)
a shift in health care toward the alternate site market and (ii) a hospital
population that requires more critical and comprehensive care, both resulting in
a greater number of IV lines. To meet the growing demands of this market, the
Company has developed or acquired new pump products as described below.
MS III is a programmable three channel infusion system targeted for
the hospital critical care setting. Since IVAC acquired the predecessor to
MS III from SIS in September 1993, the Company has expended significant
resources to reengineer and redesign MS III and to considerably modify the
MS III production process. As a result of this reengineering and other
ongoing enhancements, MS III is one of the smallest, most versatile and
most technologically advanced multi-channel pumps on the market today.
SIGNATURE EDITION line of products is the first new LV pump platform
to be introduced by IVAC since 1983. The Company began marketing the
Signature Edition line in 1995 with full commercial availability during the
first quarter of 1996. The product is the first infusion pump system on the
market simultaneously offering both a single channel and a dual channel
version, each of which is designed for use in the hospital and alternate
site markets.
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VITAL SIGNS MEASUREMENT PRODUCTS
Vital signs measurement products offered by IVAC include devices and
related disposables which measure blood pressure, temperature and pulse. For the
year ended December 31, 1995, IVAC's vital signs measurement products net sales
were approximately $34.6 million, representing approximately 14% of IVAC's net
sales. For the six months ended June 30, 1996, vital signs net sales represented
approximately 14% of net sales for the same period.
Thermometry. IVAC is a leader in hospital thermometry products and
maintains a strong position in both the United States and Western Europe. In
1995, IVAC's installed base comprised over 43% of the United States hospital
market, making it the largest provider of hospital thermometry products in the
United States. Its primary product is an electronic thermometer which is widely
used in hospitals and alternate site settings. IVAC is currently developing the
"Fast" 2080, an improved cost-effective and technologically advanced electronic
thermometer designed to provide a temperature reading in seven to ten seconds.
The Company also manufactures and markets CORE-CHECK(R), a thermometer that
measures temperature by detecting the emission of infrared energy in the ear. In
the infrared market, the fastest growing segment of the industry's market, IVAC
is currently the second largest participant, with a United States hospital
installed base market share of over 31% in 1995. IVAC also sells proprietary
disposable thermometry covers.
Other Vital Signs Measurement Products. IVAC also produces a stand-alone
vital signs measurement product which measures temperature, blood pressure and
pulse. In 1995, IVAC's installed base market share of these products was
approximately 14%, making it the second largest participant in this market niche
in the United States.
OPERATING STRATEGY
Since the Acquisition, the Company has assembled a management team with
extensive experience in the health care and medical products industry.
Management's goal is to establish IVAC as the leading provider of
cost-effective, high quality infusion therapy and vital signs measurement
products for use in hospitals and alternate sites. In order to achieve this
goal, management is currently focused on implementing the following strategies:
EXPANDING MARKET SHARE. The Company will seek to expand its market
share by introducing products into market segments and geographic markets
where it historically has had little presence. IVAC's market segment
expansion is focused on increasing sales to its existing customers in the
hospital market, primarily through the placement of multi-channel pumps
such as MS III and Signature Edition, and penetrating the growing alternate
site market where the Company has begun to introduce its Model 599 pump.
The alternate site market had an estimated compound annual growth rate of
approximately 14%, as compared to an estimated compound annual growth rate
of approximately 1% for the hospital market, for the period from 1992 to
1995. The Company will also seek to expand geographically by selectively
penetrating Japan, Southeast Asia and Latin America to achieve additional
growth.
INTRODUCING NEW PRODUCTS. By capitalizing on its brand name
recognition for quality and service, extensive installed product base and
extensive marketing and distribution capabilities, IVAC intends to
introduce new products that are technologically advanced and
cost-effective. Management believes there are significant opportunities to
integrate its design, manufacturing, marketing and distribution
capabilities across each of its product lines in connection with the
introduction of such new products. Such integration should enable the
Company to capitalize on significant cross selling opportunities and
manufacturing efficiencies and to consolidate its research and development
resources. IVAC is currently implementing this strategy in connection with
the introduction of its Signature Edition line.
ENHANCING AND SUPPORTING CORE PRODUCT LINES. The Company's installed
base of core products, such as the Series 560/570 and 590/599, continues to
perform reliably and effectively enabling its customers to remain
competitive in an increasingly cost-sensitive health care market. To
respond to technological advances, the Company offers its customers the
opportunity to upgrade and enhance installed equipment rather than purchase
new equipment. IVAC pursues this initiative through, among other things:
(i) the
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improvement of disposable administration sets; (ii) software upgrades on
existing products; and (iii) continued provision of service for the
Company's products in an effort to be fully responsive to its customer
base.
REDUCING PRODUCTION AND OPERATING COSTS. Subsequent to the
Acquisition, the Company significantly reduced production and operating
costs and eliminated excess expenses incurred by its former parent in
connection with its operation of the Company as a division. The Company's
efforts have focused on improving the overall quality of IVAC product
offerings and providing better customer service while achieving a low cost
manufacturing platform for existing and future products. From the
Acquisition to December 31, 1995, the Company has implemented the following
programs: (i) reducing overall head count by approximately 403, or 28% of
total employees as of December 31, 1994, through termination and attrition;
(ii) consolidating supply sources; (iii) eliminating high risk/low market
potential research and development projects; (iv) rationalizing
underutilized assets, including consolidating certain warehouse operations
and reconfiguring materials handling and product lines; and (v) integrating
the vital signs manufacturing, engineering and marketing functions with
those of the infusion therapy business. Primarily as a result of the
implementation of such initiatives, Adjusted EBITDA margins have improved
to approximately 13.6% in 1995 from approximately 2.1% in 1994 and an
aggregate of approximately $24.8 million of production and operating costs
have been eliminated. As part of its overall cost reduction strategy, on
November 3, 1995, the Company signed a definitive agreement relating to the
Facility Sale. The closing of the sale occurred on November 6, 1995. Under
the agreement, the Company temporarily leased back a portion of the
facility for a period of six months. The Company has also relocated its
headquarters and the operations currently conducted at the San Diego
facility into smaller leased premises. See "Risk Factors -- Government
Regulation" and "-- Facilities." The Company intends to continue
implementing cost reduction initiatives in the future.
PURSUING GROWTH THROUGH ACQUISITIONS. The Company has formulated a
program of strategic product, technology and business acquisitions,
designed to supplement internal growth. The program will focus primarily on
complementing the Company's core infusion therapy product lines.
Acquisition candidates are assessed primarily based on (i) opportunities
for leveraging IVAC's established United States and international sales
presence; (ii) market leadership potential and (iii) synergy with the
Company's existing technological base and manufacturing capabilities. The
ability to provide IVAC with additional products to serve the alternate
site market, which has been growing strongly, would also be a positive
factor.
INDUSTRY BACKGROUND
General. The Company believes that a number of current trends in the
health care industry have recently affected the price and volume of sales of
IVAC's products. In particular, cost containment measures both imposed and
proposed by federal and state regulators and private payors, combined with
increased utilization review and case management, have led to greater financial
pressure on hospitals which, in turn, has led to downward pricing pressure on
manufacturers of medical products, including the Company, and greater use of
alternate sites for treatment. Growth in the alternate site market is also
attributable to advances in technology that have facilitated the provision of
care outside of the hospital, an increased number of illnesses and diseases
considered to be treatable with home infusion therapy, and increased acceptance
by the medical community of, and patient preference for, non-hospital treatment.
As both the complexity of infusion therapy treatments and the potency of the
drugs administered have increased, the demand for technologically advanced
infusion instruments has risen significantly. In the vital signs measurement
business, similar trends of cost reduction of health care delivery and
technological innovation have resulted in the creation of a number of new
products and product areas, such as infrared thermometry products, pulse
oximetry and multiparameter patient monitoring products.
The U.S. hospital market consists of approximately 5,300 hospitals with a
total of approximately 900,000 licensed beds and can be divided into three major
areas: (i) critical care (e.g., adult, pediatric, neonatal), (ii) specialty
units (e.g., oncology, ob/gyn, coronary care and emergency room/trauma) and
(iii) general medical/surgical. The alternate site market encompasses all health
care provided outside a hospital and is
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comprised primarily of home health care, freestanding clinics, skilled nursing
facilities and long-term care facilities.
Infusion Therapy Instruments. The U.S. infusion therapy market had sales
of approximately $1.4 billion in 1995 and has grown at an estimated compound
annual growth rate of approximately 3.5% from 1992 to 1995. There are two
principal markets for infusion therapy products: the hospital market and the
alternate site market, which had sales in the United States of approximately
$1.1 billion and $322.0 million, respectively, in 1995, and estimated annual
compound growth rates of approximately 1% and 14%, respectively, from 1992 to
1995.
Infusion products are differentiated on a number of characteristics
including size, weight, number of delivery channels, programmability, mechanism
of infusion, cost and service. One of the key differences among products in this
market is the level of control that such products afford to both medical staffs
and patients. Infusion devices are generally designed for either critical care
or general care use with the latter group being used both in hospitals and at
alternate site facilities.
Infusion products include three major delivery technologies:
pumps/controllers, disposable pumps and gravity delivery products. In 1995,
these three segments had sales in the United States of approximately $779.0
million, $75.0 million and $330.0 million, respectively. While the Company
competes in pump/controllers and disposable pumps, IVAC has never competed in
gravity delivery products because of the commodity nature of this market.
Controllers are devices that generally regulate flow by electronically
counting drops rather than by measuring a specific volume of fluid. Infusion
pumps use positive pressure to overcome the resistance in the infusion tubing
and the pressure generated by the patient's circulatory system. These pumps
administer precise volumetrically measured quantities of fluids more accurately
and over a wider range of infusion rates than controllers. For this reason,
positive pressure pumps are used more frequently than controllers to administer
expensive or potent therapeutics. Disposable pumps are single-use products
designed for use primarily in general care settings.
The products sold in the markets in which the Company competes have
traditionally been single-channel products. As treatment regimens have become
more complex and as the critically ill constitute an increasing percentage of
hospital's patients, the average hospital patient now requires a greater number
of intravenous lines and more potent therapeutics, thereby creating a greater
need for technologically advanced infusion instruments. As a result, United
States sales of channels relating to multi-channel pumps have increased from
approximately 28% of total United States channels sold in 1991 to approximately
36% of total United States channels sold in 1995.
All pumps and controllers require the use of disposable administration
sets. These sets have a variety of features such as volume control, pumping
segments or cassette pumping systems for more accurate delivery, clamps for flow
regulation and multiple ports for delivery of more than one solution. Additional
components such as burettes and filters may also be added for critical drugs or
special infusion. Almost all of these sets are compatible only with their
particular manufacturer's line of IV infusion instruments. Because these
administration sets tend to have significantly higher margins than pumps, the
establishment of an extensive installed base, such as IVAC's, is important for
generating ongoing disposable product sales and enhancing overall margins.
Vital Signs Measurement Products. Vital signs measurement products are
used to measure temperature, blood pressure, pulse and respiration rate.
Products sold in this market have varying levels of technological sophistication
and are used in a variety of diagnostic and health care settings. The vital
signs measurement market consists of discrete market niches each of which has
different competitive dynamics. The Company competes in two niches -- hospital
thermometry and stand-alone, non-invasive, dual parameter products which measure
a combination of pulse, temperature and blood pressure. In the United States,
these two market niches had sales of approximately $54.4 million and $9.0
million, respectively, in 1995.
The three major product types in the hospital thermometry market are glass,
electronic and infrared devices, which in 1995 accounted for approximately 5%,
65% and 30%, respectively, of the United States
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<PAGE> 38
installed base. The Company offers electronic and infrared products, but does
not compete in the glass thermometry market. Over the last several years, there
has been a shift toward increased use of infrared products due primarily to
their ease of use. While infrared thermometers constituted only approximately
30% of the installed base in the United States in 1995, sales of these products
accounted for 58% of total market sales in 1995. In 1995, United States sales of
stand-alone, non-invasive, dual parameter products were approximately $9.0
million.
As with the infusion market, the thermometry market has higher margin
disposable products that are used in concert with equipment and, consequently,
the existence of an installed base is important for generating ongoing
disposable product sales and enhancing overall margins.
PRODUCTS AND SERVICES
IVAC manufactures and markets both single channel and multiple channel
infusion instruments and disposable administration sets. As of December 31,
1995, IVAC had over 165,000 single and multi-channel LV pumps installed
worldwide, with a market share of approximately 22% of all installed channels in
the United States. IVAC's infusion pumps include LV pumps, such as its Signature
Edition, MedSystem III, Series 560/570 and 590/599 pumps and syringe pumps, such
as P1000, P3000, PCAM and P7000. The Company's syringe pumps are sold primarily
in Western Europe. In conjunction with its installed base, IVAC also sells
disposable sets which are uniquely designed for IVAC's products. IVAC also
manufactures and markets instruments and related disposables used to measure
temperature, pulse and blood pressure. In the
United States hospital thermometry market, IVAC had a market share of
approximately 43% in 1995 and was the second largest supplier of thermometry
products in the infrared market. In its niche of stand-alone, non-invasive, dual
parameter products, IVAC had a market share of approximately 14% in the United
States in 1995.
The following table summarizes the key features and actual or estimated
market introduction dates of IVAC's current product line and products in
development:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION STATUS
- ----------------------------- ------------------------------ ------------------------------
<S> <C> <C>
DRUG INFUSION PRODUCTS:
LARGE VOLUME PUMPS
560/570 Series............... Single channel with largest On market since 1983 and 1990,
installed base worldwide; for respectively
general care use
590/599 Series
597/598 Series............... Single channel, multi-pump On market since mid-1980s and
configuration of reduced size 1991, respectively
and weight, used frequently
for delivery of nutritional
products; 597/598 Series
primarily sold in Europe; for
general care and alternate
site use
MedSystem III................ Three channels; smallest and Originally introduced in
lightest pump available on the late-1980s by SIS as MiniMed;
United States market; for significantly reengineered and
critical care use redesigned by the Company
since its acquisition in 1993
Signature Edition............ Single and dual channel Selectively marketed since
instrument; IVAC's latest LV September 1995; full
pump technology with an commercial availability in the
intuitive user interface; United States achieved in
intended for critical and first quarter of 1996;
general care use introduction in Europe planned
for the third quarter of 1996
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION STATUS
- ----------------------------- ------------------------------ ------------------------------
<S> <C> <C>
Entry Level Pump............. Single channel pump; for In early phases of development
general care use
SYRINGE PUMPS:
P1000, P2000, P3000, Preferred method of delivery Various models introduced
P4000........................ in many markets outside the between late-1980s and
United States; for critical early-1990s
and non-critical care use
P7000........................ Syringe pump with advanced Introduced to European market
features for critical, during second quarter of 1996
non-critical and neonatal care
use
PCAM (Patient Controlled Syringe pump that allows Introduced internationally
Analgesia Pump).............. patients to control the beginning in first quarter of
delivery of pain medication 1995
OTHER INFUSION THERAPY
PRODUCTS
Needleless System............ Eliminates use of hypodermic On market since fourth quarter
needle to access patient's IV; of 1994; next generation
may reduce risk of caregiver system in development
needlestick injuries
SmartSite Needleless Valve... Needleless, capless, Introduced to the market in
latex-free IV system intended May 1996, supplementing the
to increase safety of patients Company's first-generation
and health care workers needleless system
Disposable Administration Proprietary administration On market and in development
Sets......................... sets for use with each of
IVAC's existing and proposed
infusion instruments
AccuSlide/Graduated Proprietary administration set In development
Administration Sets.......... allowing graduated flow
VITAL SIGNS MEASUREMENT PRODUCTS:
THERMOMETRY
TEMP-PLUS
(Model 2080)................. Electronic thermometer; for On market since mid-1980s
general hospital and alternate
site use
"Fast" 2080.................. Electronic thermometer; a 7-10 In early phases of development
second version of the Model
2080; intended for general
hospital use
Disposable Probe Covers...... Proprietary covers for use On market and in development
with each of IVAC's existing
and proposed thermometers
OTHER VITAL SIGNS MEASUREMENT
PRODUCTS
VITAL-CHECK.................. Continuous monitoring model On market since late-1980s
that rapidly measures pulse,
blood pressure and
temperature; for general
hospital use
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION STATUS
- ----------------------------- ------------------------------ ------------------------------
<S> <C> <C>
CORE-CHECK................... Infrared tympanic thermometer On market since 1991
that saves time, reduces
patient interruption and
lowers risk of infection; for
general hospital use
</TABLE>
INFUSION PRODUCTS
Infusion products offered by IVAC include infusion pumps and disposable
administration sets designed to deliver a broad range of solutions, drugs and
nutritionals to patients in both hospitals and alternate sites. For the year
ended December 31, 1995, IVAC's infusion therapy net sales represented
approximately 80% of net sales for the same period.
Large Volume Pumps. LV pumps are used in hospitals and alternate sites to
deliver medications and various solutions to patients. The IVAC Models 560 and
570, with approximately 69,000 channels installed worldwide, accounted for
approximately 57% of IVAC's installed base as of December 31, 1995. The Company
believes that this product has the largest installed base of any individual IV
pump worldwide. In addition, IVAC has recently begun to promote its Model 599
pump for use in the alternate site market. In Europe, IVAC's principal product
has been the Model 597/598 Series which offers features similar to the Model
590/599 series.
In September 1993, IVAC expanded its LV pump capabilities with MS III, a
programmable three channel infusion system used in the critical care setting.
Since IVAC acquired the predecessor product line from SIS in 1993, the Company
has invested significant resources to reengineer and redesign MS III and to
considerably modify the production process. As a result of this reengineering
and other ongoing enhancements, MS III is one of the smallest, most versatile
and most technologically advanced multi-channel pumps on the market today.
IVAC began marketing its Signature Edition line with full commercial
availability in the first quarter of 1996. The Signature Edition line includes a
single channel and a dual channel pump as well as a full line of complementary
disposables. The Signature Edition line is targeted for use primarily in
hospitals as well as alternate sites. The Signature Edition line features
reduced size and weight, improved ease of use and other advanced features,
including new safety features designed to minimize the chance of free flow.
Syringe Pumps. The Company offers syringe pumps, which are small-volume
fluid delivery systems used in neonatal care, oncology, anesthesia, critical
care and labor and delivery. While these products represent a relatively small
portion of the industry installed base in the U.S., such products are widely
used in Europe, where they constitute approximately 60% of the infusion pump
market. Syringe pumps are more widely used in Europe because of the general
practice of European doctors to administer medications in smaller volumes of
fluid. Management believes that IVAC is one of the two largest suppliers of
syringe pumps in Western Europe. The Company is currently evaluating customer
interest in the United States for syringe pumps.
Other Infusion Products. The IVAC Needleless System introduced in the
fourth quarter of 1994 is a component used in IVAC's disposable administration
sets that helps reduce the chance of needlesticks by eliminating the need for
hypodermic needles to access patient lines. The system is compatible with
standard luer or luer-locking syringes and IV sets, allowing users to easily
integrate the IVAC Needleless Systems into existing care practices. IVAC's
latest offering is the SmartSite Needleless IV system, which was launched in the
second quarter of 1996. The SmartSite system offers a fully integrated design
and eliminates the need for separate caps to maintain an infection control
barrier. These products have received strong interest from customers and
provides the Company with an opportunity to increase revenues in what has
previously been a commodity market.
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<PAGE> 41
VITAL SIGNS MEASUREMENT PRODUCTS
Vital signs measurement products offered by IVAC include devices and
related disposables which measure blood pressure, temperature and pulse. For the
year ended December 31, 1995, vital signs net sales represented approximately
14% of net sales.
Thermometry. IVAC is a leader in hospital thermometry products and
maintains a strong position in both the United States and Western Europe. In
1995, IVAC's installed base comprised over 43% of the United States hospital
market, making it the largest provider of thermometry products in the United
States. Its primary product is an electronic thermometer which is widely used in
hospitals and alternate site settings. IVAC is currently developing the "Fast"
2080, an improved cost-effective and technologically advanced electronic
thermometer designed to provide a temperature reading in seven to ten seconds.
The Company also manufactures and markets CORE-CHECK(R), a thermometer that
measures temperature by detecting the emission of infrared energy in the ear. In
the infrared market, the fastest growing segment of the industry's market, IVAC
is currently the second largest participant, with a United States installed base
market share of over 31% in 1995. IVAC also sells proprietary disposable
thermometry covers.
Other Vital Signs Measurement Products. IVAC also produces stand-alone
equipment that measures temperature, blood pressure and pulse. In 1995, IVAC's
installed base of these products was approximately 14%, making it the second
largest participant in this market niche in the United States.
SERVICES
IVAC provides repair service for its products at its domestic and
international facilities and at its customers' facilities through third-party
contractors. Customers may elect to enter into service agreements or to receive
service on a time and materials basis. The Company also trains customers as to
the use of its products and maintains a technical support help-line to answer
customers' questions. The Company believes that the availability of such
services is important for maintaining strong customer relations.
SALES AND MARKETING
IVAC has historically focused its sales efforts on the hospital market.
IVAC's sales strategy emphasizes increasing instrument placements and the number
of units installed to increase sales of its proprietary disposables. Sales
representatives work closely with on-site primary decision makers, which include
physicians, pharmacists, nurses, materials managers, biomedical staff and
administrators. IVAC currently has accounts in the United States with over 5,000
hospitals and alternate site facilities. In addition, IVAC has contracts with a
number of national buying groups and is working with a growing number of
regional buying groups which have emerged in response to cost containment
pressures and health care reform. Furthermore, IVAC has significant government
business, including a sole source contract to provide LV pumps to all military
hospitals in the United States. No single account is material to the business or
operations of the Company.
INTERNATIONAL OPERATIONS
The Company markets products in approximately 120 countries through its
direct sales force, affiliates and distributors. The primary markets for the
Company's products outside the United States are Western Europe and Canada. The
principal products sold by the Company outside of the United States are large
volume and syringe infusion pumps and related disposables. The Company has
manufacturing operations in the United Kingdom and Mexico. The Company has also
contracted with a number of foreign manufacturers
39
<PAGE> 42
to provide certain of its sourcing needs. The following table sets forth the
approximate amount of net sales attributable to each of IVAC Corporation's
principal markets over the last three fiscal years:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
United States............................................ $151.7 $153.4 $163.3
Europe................................................... 54.1 62.9 71.4
Rest of World............................................ 8.4 6.9 6.3
------ ------ ------
Total net sales................................ $214.2 $223.2 $241.0
====== ====== ======
</TABLE>
MANUFACTURING
The Company manufactures its products at plants in San Diego, California;
Creedmoor, North Carolina; Tijuana, Mexico and Hampshire, England. As part of
its overall cost reduction strategy, the Company sold its 380,000 square foot
San Diego facility in November 1995 and relocated the associated manufacturing
operations to an 83,520 square foot leased facility in San Diego. This newly
leased San Diego facility is the primary instrument manufacturing facility for
infusion pumps and vital signs measurement equipment and also houses a service
operation for instruments. The Creedmoor, North Carolina facility is currently
the base for the Company's disposables operations and the primary distribution
center for all North American disposable finished products. Product
sterilization and release are also executed in Creedmoor. The Tijuana facility
primarily focuses on the manual assembly of low volume disposables, and the
United Kingdom facility focuses on the manufacturing of syringe pumps.
Disposable products for international markets are currently supported through a
number of foreign manufacturers. Management believes that current manufacturing
capability is sufficient to satisfy its needs for the foreseeable future.
A contractor, Ensambles Medicos, S.A. de C.V. (an affiliate of Cal Pacifico
Inc. of California, Inc.), provides IVAC with assembly services for disposable
administration sets in a 37,600 square foot leased manufacturing facility in
Tijuana, Mexico. The production agreement between IVAC and the contractor, which
may be terminated by either party on 120 days' notice, requires that IVAC pay
the contractor an hourly rate per employee hour worked on assembly of IVAC
products.
The Company has designed and implemented an integrated network of quality
systems, including control procedures that are planned and executed by
technically trained professionals. These systems result in establishing written
specifications for raw materials, packaging, labels, sterilization and overall
manufacturing process control. A substantial number of raw materials require
certificates of analysis to help ensure that finished products conform to
specifications. In addition, the Company regularly tests components and products
at various stages of the manufacturing process to ensure compliance with
applicable specifications.
The Company purchases raw materials worldwide in the ordinary course of
business from numerous suppliers. The vast majority of these materials are
generally available, and the Company has not experienced any serious shortages
or material delays in obtaining these materials. In some situations, the Company
has long-term supply contracts, although the Company purchases a significant
amount of its requirements of certain raw materials by purchase order. Although
the Company is generally not dependent upon any single source of supply, it
relies upon a limited number of suppliers for parts which are used in certain of
its infusion products. The loss of any such supplier would result in a temporary
interruption in the manufacturing of IVAC's products. The Company believes,
however, that these materials are available as needed from alternative sources.
RESEARCH AND DEVELOPMENT
Management believes that a well targeted research and development program
constitutes an essential part of the Company's activities and is an integral
part of its future success. Following the Acquisition, the Company conducted a
comprehensive review of its research and development resources and programs to
ensure consistency with its newly formulated business strategy. During 1995, the
Company's research and development efforts were focused primarily on completing
the development and commercial introduction of
40
<PAGE> 43
existing product concepts, including the Signature Edition line and "Fast" 2080
as well as enhancing commercially available products such as MS III and
disposable sets.
Since the completion of the Acquisition, the Company has reduced its
research and development headcount by approximately 52% which combined with the
elimination of specific research programs are estimated to result in annual
savings of approximately $4.7 million. The Company believes that a greater focus
on infusion therapy instrument commercialization projects will continue to
increase the productivity of its research and development activities while
lowering overall costs. Management anticipates increasing its research and
development effort over the medium term, in a highly focused manner and
consistent with the strategies described above.
IVAC's technical staff currently consists of 69 personnel, which includes
mechanical, biomedical, electrical and software engineers. IVAC's aggregate
research and development expenditures for 1996 are expected to be approximately
4% of net sales. For information concerning IVAC's expenditures on research and
development during the last three years and the six months ended June 30, 1996,
see "Management's Discussions and Analysis of Financial Condition and Results of
Operations."
COMPETITION
The Company faces substantial competition in all of its markets. Many of
IVAC's competitors have greater financial, research and development and
marketing resources than the Company. Some of IVAC's principal competitors are
able to offer volume discounts based on "bundled" purchases of a broad range of
their medical equipment and supplies, including infusion products and IV
solutions used with such products, a strategy that IVAC is currently unable to
pursue. The Company expects the trend toward volume discounts to continue in the
future. The Company believes that the competitive factors most important in its
markets are quality of products and services, technological innovation and
price.
Sales of infusion therapy equipment and related administration sets
accounted for approximately 80% of the Company's 1995 net sales. Major
participants in this market include IVAC, Abbott Laboratories, Inc. Baxter
International Inc., IMED Corporation, and McGaw, Inc., which in the aggregate
account for approximately 94% of 1995 sales in the United States. IVAC's market
share currently is approximately 22% of the U.S. installed channel base. The
vital signs measurement market is fragmented by product type. The Company's key
competitor in the United States electronic thermometer market is Diatek, and its
key competitor in the infrared thermometer market is Sherwood Medical Company.
The European infusion therapy equipment market is much more regionalized
and fragmented, with a few strong competitors in each regional market. Major
competitors encountered in several markets include Braun, Graseby and Fresenius.
IVAC is among the leaders in a high number of the European regional markets,
with a number one or number two installed base market share in eight major
European countries.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
The Company relies heavily on patented and other proprietary technology.
The Company believes its issued and pending patents are important to its
competitive position. IVAC follows a policy of seeking patent protection in the
United States and in certain foreign countries for selected inventions. As of
June 30, 1996, IVAC held 131 unexpired U.S. patents and had 25 U.S. patent
applications pending. Thirteen of those pending applications were filed prior to
1995. As of June 30, 1996, IVAC had 160 foreign applications for patents or
design registrations pending and 323 foreign patents and registrations had been
granted and were still in effect. Within the next seven years, approximately 34
of the Company's U.S. patents and 77 of the Company's foreign patents will
expire.
The patent positions of medical device firms, including IVAC, are uncertain
and involve complex legal and factual questions for which certain legal
principles are unresolved. The coverage claimed in a patent application can be
significantly reduced before a patent is issued. In addition, patent law has
recently been revised to give effect to international accords to which the
United States has become a party. Pursuant to such accords, the patent term has
been changed from 17 years from date of grant to 20 years from date of filing
and certain provisions favoring United States inventors over foreign inventors
have been eliminated. See "Risk Factors -- Reliance on Patents and Proprietary
Rights."
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<PAGE> 44
In addition to its patented technology, IVAC relies on trade secrets,
unpatented know-how and continuing technological advancement to maintain its
competitive position. It is the Company's practice to enter into confidentiality
agreements with employees and consultants. There can be no assurance, however,
that these measures will prevent the unauthorized disclosure or use of the
Company's trade secrets and know-how or that others may not independently
develop similar trade secrets or know-how or obtain access to IVAC's trade
secrets, know-how or proprietary technology. The Company also from time to time
seeks copyright protection of the software used in certain of its products. IVAC
sells its products under a variety of trademarks, certain of which, including
"IVAC Medical Systems" and "IVAC," are considered by the Company to be of
sufficient importance to warrant registration in the United States and various
foreign countries in which the Company does business.
GOVERNMENT REGULATION
The Company's products and manufacturing facilities are subject to
extensive governmental regulation at the federal, state and local levels.
Foreign countries in which the Company's products are sold impose additional
requirements.
Medical Devices. Pursuant to the FDC Act, companies seeking to market new
medical devices, which include all of the Company's current products, are
required as a condition to marketing to secure FDA clearance. The primary route
for such clearance is through the 510(k) premarket notification clearance
process. A product qualifies for 510(k) premarket notification clearance if it
is substantially equivalent (in terms of safety, effectiveness and intended use)
to another medical device that was on the market prior to May 28, 1976 and does
not require an approved Premarket Approval Application ("PMA") or is a product
that has previously received 510(k) premarket notification clearance and is
lawfully on the market. The process of obtaining a 510(k) premarket notification
clearance currently takes, on average, approximately four to six months from the
date of submission. However, the review process for a particular product may be
substantially shorter or longer depending upon the circumstances. Moreover,
there can be no assurance that a 510(k) premarket notification will be cleared.
The 510(k) premarket notification process may involve the submission of
supporting information, including design details, labeling, safety and efficacy
data. Product modifications also may require submission of a new 510(k)
application. FDA requirements pertaining to the investigational device exemption
regulations must be satisfied prior to the initiation of clinical studies, when
clinical studies are required, for new devices or for new indications for
marketed devices.
The Company's FDA marketing clearances have been obtained through the
510(k) process. As part of its normal course of business, the FDA regularly
conducts inquiries regarding the safety or efficacy of medical products,
including those manufactured by the Company, which may result in the Company's
inability to market a particular device or cause the Company to need to generate
additional data to support submissions for market clearance. Future products
developed by the Company may require FDA clearance through either the 510(k),
PMA, new drug approval ("NDA") application procedures or abbreviated new drug
approval ("ANDA") application procedures. There can be no assurance that
marketing clearances will be obtained on a timely basis or at all. Delays in
receiving such clearances could have a material adverse effect on the Company.
The Company is also providing devices for use in a clinical trial as a contract
manufacturer. Clinical investigations are regulated by FDA under the
investigational device exemption ("IDE") regulations. The IDE regulations
include a number of requirements that must be met, such as selection of a study
monitor, reporting to FDA, and recordkeeping. A sponsor must obtain FDA approval
of an IDE before starting the investigation, unless the device is found to be a
nonsignificant risk device by the sponsor and each institutional review board
("IRB") that reviews the study. The FDA, however, has the authority to determine
that a study designated a non-significant risk by the sponsor and IRBs is a
significant risk study and an IDE application must be submitted and approved
before the study can resume. In addition, a study of a non-significant risk
device must still comply with certain provisions of the IDE regulations, and
meet other regulatory requirements. The violation of FDA's IDE regulations can
result in a variety of sanctions, such as warning letters, prohibition against
additional clinical research, the refusal to accept data, and, in severe cases,
criminal prosecution. There can be no assurance that this clinical study will
comply with all elements of FDA's regulations, that the study will provide
evidence of the safety or effectiveness of the device, or that the study will
ultimately result in the approval of the device.
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<PAGE> 45
The Company has received ISO 9000 certification of its quality,
manufacturing and product development systems, a requirement for doing business
in European Community ("EC") countries, and has been granted approval to affix
the CE mark, pursuant to the EC Medical Device Directives, on certain of its
products. This does not necessarily preclude, however, additional restrictions
on marketing in any individual country in the EC.
Certain countries require the Company to obtain clearances for its products
prior to marketing the products in those countries. In addition, certain
countries impose product specifications, standards or other requirements which
differ from those mandated in the United States. The European Community and
certain other countries are in the process of developing new modes of regulating
medical products which may result in lengthening the time required to obtain
permission to market new products. These changes could have a material adverse
effect on the Company's ability to market its devices in such countries. The
Company's MS III and 591 LV pumps do not meet the current EC Electromagnetic
Capability Directive (Directive 89/336/EEC) for resistance to electromagnetic
and radio frequency interference. The MS III is not currently marketed in
Europe. The export of devices to other countries from the United States is also
subject to regulation by the FDA.
The Company is registered as a medical device manufacturer with the FDA and
certain state agencies. These agencies inspect the Company periodically to
determine whether the Company is in compliance with regulations relating to
medical device manufacturing, including the GMP regulations governing design,
manufacturing, testing, quality control and product labeling practices. The FDA
has recently proposed revising certain GMP regulations which, if adopted, would
increase the cost of regulatory compliance for the Company. The Medical Device
Reporting ("MDR") regulations promulgated by the FDA require the Company to
provide information to the FDA on certain malfunctions, as well as serious
injuries or deaths which may have been associated with the use of a product. The
EC Medical Device Directives also require reporting of serious injuries or
deaths which may be associated with the use of a medical device to the competent
authority in the country where the incident occurred.
A determination that the Company is in material violation of the FDC Act or
such FDA regulations could lead to the issuance of warning letters, imposition
of civil or criminal sanctions against the Company, its officers and employees
including fines, recalls, repair, replacement or refund to the user of the cost
of such products. In addition, if the FDA believed any of the Company's products
presented a potential health hazard, the FDA could detain and seize products and
require the Company to cease distribution and notify users to stop using the
product. In the most egregious cases, the FDA could issue criminal sanctions or
close some or all of the Company's manufacturing facilities. Such actions could
also result in an inability of the Company to obtain additional market
clearances. Since 1992, the Company has on ten occasions removed products from
the market that were found not to meet performance standards. None of such
recalls materially interfered with the Company's operations and all such
affected product lines were subsequently returned to the market. One such
product recall, a voluntary recall related to the Company's Signature Edition LV
pumps, has not been closed with the FDA. In addition, the Company has initiated
a voluntary safety alert of its models P1000, P2000, P3000 and P4000 syringe
pumps, which are marketed internationally.
The newly leased manufacturing facility has been licensed by the State of
California Department of Health Services, Food and Drug Branch, under the
applicable Good Manufacturing Practices regulations.
Anti-Remuneration Laws. The sale of the Company's products is subject to
the illegal remuneration/ "anti-kickback" provisions of the Social Security Act
of 1935, as amended (the "Social Security Act"), which impose criminal and civil
sanctions on persons who solicit, offer, receive or pay any remuneration,
whether directly or indirectly, in return for inducing the purchase of items or
services, or patient referrals to providers of services, for which payment may
be made in whole or in part by Medicare, Medicaid or similar state programs.
Violations of the statute are punishable by civil and criminal penalties and
exclusion of the provider from future participation in the Medicare and Medicaid
programs. The Social Security Act contains exceptions to these prohibitions for,
among other things, properly reported discounts and payment of certain
administrative fees to purchasing agents (e.g., group purchasing organizations
or "GPOs"). Because of the breadth of the statutory prohibitions, the lack of
court decisions or other authority addressing the types of arrangements that are
permissible under the law and the narrowness of statutory exceptions, the
Secretary of Health and Human Services published regulations creating "safe
harbors" identifying certain practices that
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<PAGE> 46
will not be treated as violating the "anti-kickback" provisions of the Social
Security Act. While failure to satisfy all of the criteria for a safe harbor
does not necessarily mean that an arrangement is unlawful, engaging in a
business practice for which there is a safe harbor may be regarded as suspect if
the practice fails to meet each of the prescribed criteria of the appropriate
safe harbor. The enumerated safe harbors include safe harbors which implement,
and further refine, the statutory exceptions for discounts and payments to GPOs.
Because the Company sells some of its products to customers at prices below list
price and in various combinations, the Company is engaged in giving discounts
within the meaning of the Social Security Act. The regulations require sellers
to fully and accurately report all discounts, and inform buyers of their
obligations to report such discounts. The Company also pays administrative fees
to certain purchasing agents within the meaning of the Social Security Act. In
order to qualify for the GPO safe harbor, certain requirements must be met
including disclosure of the existence of the GPO fee arrangement to GPO members
and that members are neither wholly-owned by the GPO nor subsidiaries of a
parent corporation that wholly owns the GPO. Certain of the Company's discounts
and arrangements with purchasing agents may not meet all the requirements of the
appropriate safe harbors.
Several states also have statutes or regulations prohibiting financial
relationships with referral sources that are not limited to services for which
Medicare, Medicaid, or other state health care program payment may be made. A
finding of non-compliance with these anti-remuneration laws by federal or state
regulatory officials, including non-compliance with appropriate safe harbors,
could have a material adverse effect on the business of the Company.
Coverage and Reimbursement. The Company's products are purchased or leased
by health care providers or suppliers which submit claims or reimbursement for
such products to third party payors such as Medicare, Medicaid and private
health insurers. Although the Company has no reason to believe that third party
payors will adopt measures that would limit coverage of, or reimbursement for,
its products, any such measures that were applied to the Company's products
could have a material adverse effect on the Company's business.
Health Care Reform. Because the cost of health care delivery has been
steadily rising and because the cost of a significant portion of medical care in
the United States and other countries is typically funded by governmental
insurance programs, there have been a number of government initiatives to reduce
health care costs. Congress and various state legislatures currently are
proposing changes in law and regulation that could effect major restructuring of
the health care industry. Although many of these proposals may seek to maintain
or expand access to health care services, the common objective of proposed
legislation is to achieve cost containment in the health care sector. Changes in
governmental support of health care services, the methods by which such services
are delivered, the prices for such services or the regulations governing such
services or mandated benefits may all have a material adverse effect on the
Company. Even if the ultimate impact of any such changes on net sales is
positive, no assurance can be given that the costs of complying with possible
new requirements would not have a negative impact on the Company's future
earnings. No assurance can be given that any such legislation will not have a
material adverse effect on the Company.
FACILITIES
The Company leases both a 103,590 square foot facility in San Diego that
houses its corporate headquarters and an 83,520 square foot facility in San
Diego which serves as its primary instrument manufacturing facility. The Company
also owns a 120,000 square foot facility in Creedmoor, North Carolina which is
used for the manufacturing of disposable sets for the United States market.
Another 10,000 square foot facility in Hampshire, England is used primarily for
manufacturing syringe pumps. The international headquarters are located in a
7,500 square foot leased space in Hampshire, England. The Company also leases a
4,500 square foot sales office in Geissen, Germany. Contract manufacturing of
disposable products is performed by an independent contractor in its leased
37,600 square foot manufacturing facility in Tijuana, Mexico.
LEGAL PROCEEDINGS
In February 1995, Block Medical, Inc. ("Block") commenced a lawsuit against
River, in the Superior Court of the State of California, San Diego County. Block
asserted that River misappropriated certain of Block's trade secrets and
proprietary rights in connection with the development of the SmartDose product.
44
<PAGE> 47
River and the other parties, without admission of liability, entered into a
settlement agreement in June 1996. The resolution of the matter did not result
in adjustment to the Company's consolidated financial position or results of
operations.
In June 1996, Sherwood Medical Company ("Sherwood")filed a lawsuit against
the Company in the United States District Court for the District of Delaware.
The complaint alleges infringement of two Sherwood patents by reason of certain
activities including the sale by the Company of disposable probe covers for use
with infrared tympanic thermometers. The Company plans to vigorously contest the
suit.
In addition, the Company is a party to various other legal actions which
have occurred in the normal course of business. Management believes the Company
has meritorious defense and intends to defend vigorously against these
allegations and claims. In management's opinion, liabilities arising from the
above matters, if any, will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing foreign, federal, state
and local environmental standards, including those governing the handling and
disposal of solid and hazardous wastes, discharges to the air and water, and the
remediation of contamination associated with releases of hazardous substances.
Although there can be no assurances, the Company believes that it is currently
in material compliance with current environmental standards. Nevertheless, the
Company uses hazardous substances in its day-to-day operations and, as is the
case with manufacturers in general, if a release of hazardous substances occurs
on or from the Company's properties the Company may be held liable and may be
required to pay the cost of remedying the condition. The amount of any such
liability could be material.
The Company has made, and will continue to make, expenditures to comply
with current and future environmental standards. Although no material capital or
operating expenditures relating to environmental controls are anticipated, there
can be no assurances that changes in, additions to or differing interpretations
of, statutory and regulatory requirements will not require material expenditures
in the future.
The Company is subject to liability under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") and analogous state laws for
the investigation and remediation of environmental contamination at properties
owned and/or operated by it and at off-site locations where it has arranged for
the disposal of hazardous substances. Courts have determined that liability
under CERCLA is, in most cases, joint and several, meaning that any responsible
party could be held liable for all costs necessary for investigating and
remediating a release or threatened release of hazardous substances. As a
practical matter, liability at most CERCLA (and similar) sites is shared among
all the solvent "potentially responsible parties" ("PRPs"). The most relevant
factors in determining the probable liability of a party at a CERCLA site
usually are the cost of the investigation and remediation, the relative amount
of hazardous substances contributed by the party to the site, and the number of
solvent PRPs.
The Company currently is involved in one such matter at the Seaboard
Chemical site in Jamestown, North Carolina. There are over 675 PRPs at this
site. Although there can be no assurance of the final resolution of this matter,
the Company believes that the amount of its liability at this site will be de
minimis.
EMPLOYEES
As of June 30, 1996, the Company had a total of 1,024 full time employees.
45
<PAGE> 48
MANAGEMENT
KEY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the key
executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
<S> <C> <C>
Gregory E. Sancoff................. 39 Chairman of the Board and Director
Albert J. Henry.................... 58 Vice Chairman and Director
William J. Mercer.................. 48 President, Chief Executive Officer and
Director
H. Clark Adams..................... 49 Vice President, Marketing
John Conn.......................... 50 Vice President, Operations
Debra P. Crawford.................. 39 Chief Financial Officer, Vice President,
Finance and Administration, Treasurer and
Secretary
John A. de Groot................... 41 Vice President and General Counsel
Sally M. Grigoriev................. 38 Vice President, Quality and Regulatory
Affairs
Richard M. Mirando................. 53 Vice President and General Manager, Europe,
Africa and the Middle East
Jake St. Philip.................... 43 Vice President, Sales, Americas
L. James Runchey................... 40 Vice President, Human Resources
Anthony B. Semedo.................. 44 Vice President, Research & Development
Samuel Colella..................... 56 Director
Thompson Dean...................... 38 Director
Reid S. Perper..................... 37 Director
Karl R. Wyss....................... 56 Director
</TABLE>
Mr. Sancoff has been the Chairman of IVAC and the Chairman of Holdings
since January 1995 and was Chief Executive Officer of Holdings from January 1995
to January 1996. From January to May 1995 Mr. Sancoff also served as the Chief
Executive Officer of IVAC. In January 1993, Mr. Sancoff founded River Medical
and served as River's President and Chief Executive Officer from its founding
through its acquisition by IVAC. In October 1989, Mr. Sancoff founded Block and
served as Block's President and Chief Executive Officer from its founding
through its acquisition by Hillenbrand Industries, Inc. in 1991.
Mr. Henry has served as Vice Chairman and a Director of IVAC since January
1995. Since 1983, Mr. Henry has served as Chairman and Chief Executive Officer
of Henry & Co. and Henry Venture Funds I and II Limited. Mr. Henry is also the
Chairman of IVONYX Group Services Inc. and IGX Corp. Mr. Henry is also on the
Board of Directors of IVONYX, IGX, Motion Analysis Corporation, Raytel Medical
Corporation and U.S. Care, Inc. In addition, Mr. Henry was formerly Director,
Chief Financial Officer and Chairman, Executive Committee of IMED Corp., and was
responsible for the operating performance of IMED from 1978 through its sale in
1982.
Mr. Mercer has served as President, Chief Executive Officer, a Director of
IVAC since May 1995 and Chief Executive Officer of Holdings since January 1996.
Prior to joining IVAC, Mr. Mercer held various positions at Mallinckrodt Group
Inc. for 17 years, most recently as Senior Vice President.
Mr. Adams has been Vice President of Marketing for IVAC since January 1995.
Between 1987 and 1995, he was Vice President, Business Development and Strategic
Planning at Pharmacia Deltec, Inc. From 1983 to 1986, he was co-founder and Vice
President, Sales and Marketing for Deltec Systems, Inc. From 1975 to 1983, he
was Manager, Sales and Marketing, Insulin Infusion Pump Group for Cardiac
Pacemakers, Inc. Division of Lilly.
Mr. Conn has served as Vice President, Operations of IVAC since September
1994. Mr. Conn was Vice President and Corporate Officer of UFE, Inc. from
September 1993 to August 1994. He was Managing Director and a member of the
Board of Directors of Nypro Singapore from 1990 to August 1993. Prior to
46
<PAGE> 49
1990, Mr. Conn was employed by Baxter International, Inc. where he held a number
of management positions.
Ms. Crawford has served as Chief Financial Officer, Vice President, Finance
and Administration, Treasurer and Secretary of IVAC since January 1995. From May
1994 to December 1994, Ms. Crawford served as Vice President, Finance and
Administration, Treasurer and Assistant Secretary of IVAC. From May 1992 to May
1994, Ms. Crawford was Director of Finance of Advanced Cardiovascular Systems,
Inc. Ms. Crawford held various positions in finance with IVAC from September
1981 through April 1992.
Mr. de Groot has been Vice President and General Counsel for IVAC since
April 1995. Mr. de Groot has also been a partner in the law firm of Brobeck,
Phleger & Harrison LLP since January 1991 and has been associated with that firm
since March 1987. Mr. de Groot took a leave of absence from Brobeck, Phleger &
Harrison LLP to serve as Executive Vice President of Professional Hospital
Supply, Inc., a manufacturer and distributor of medical supplies, from October
1991 through July 1992.
Ms. Grigoriev joined IVAC in January 1995. While at IMED Corporation from
1982-1990 she held various management positions including Principal
Manufacturing Engineer, Quality Engineering Manager, Manufacturing Engineering
Manager, and Quality Assurance Manager. Ms. Grigoriev left IMED to join Block
Medical, Inc. as Vice President of Quality and Regulatory Affairs. While at
Block Medical she established and implemented all quality and regulatory
systems. Prior to joining IVAC she was the Vice President of Quality and
Regulatory Affairs at U.S. Medical Instruments, Inc.
Mr. Mirando has served as Vice President and General Manager, Europe,
Africa and the Middle East of IVAC since January 1995. Mr. Mirando has been
employed by IVAC since 1978 and has served in a number of positions, including
Marketing Manager, Director of Market Planning and Research, Director of Sales,
Executive Director of International Operations, Vice President Sales and
Marketing -- Fluid Delivery Division, Vice President -- Corporate Accounts and
Pricing, and Vice President -- Corporate Quality/ Service Business Unit.
Mr. Runchey, prior to joining IVAC in May 1995, served as Vice President of
Human Resources and Administration for Magma Power Company from 1988-1995, where
he was responsible for all aspects of Human Resource management, facilities,
safety and training.
Mr. St. Philip has served as Vice President of Sales, Americas for IVAC
since June 1994. He joined IVAC in 1981 as a field sales representative. He has
held numerous sales and marketing positions, including Product Manager, Regional
Sales Manager, Marketing Manager and Director of Sales and served as Director of
Product Development for two years.
Mr. Semedo has served as Vice President, Research & Development of IVAC
since February 1995 and was Vice President of Quality between September 1994 and
February 1995. Mr. Semedo was the Business Development Manager for the
Cardiovascular business and the Quality Assurance Manager of Medical Devices &
Diagnostics division of Lilly from August 1992 to September 1994. Mr. Semedo
held various management positions in research and development, manufacturing
operations and marketing at IVAC from June 1978 to August 1992.
Mr. Colella has served as a director of the Company since January 1995.
Since 1984, Mr. Colella has been a general partner at Institutional Venture
Partners. Mr. Colella also serves on the board of directors of Biosys, CV
Therapeutics Inc., GenPharm International, Inc., Genta Incorporated, Imagyn
Medical, Inc., Onyx Pharmaceuticals, Inc., Vivus, Inc., Pharmacopeia, Inc.,
Argonaut, Inc. and Integrated Medical Research, Inc. In addition, Mr. Colella
follows Institutional Venture Partners' investments in Tularik, Inc., Sequana
Therapeutics, Inc. and Megabios Corporation. Mr. Colella was the president of
the Western Association of Venture Capitalists during 1991, and is currently a
director of the National Venture Capital Association.
Mr. Dean has served as a director of IVAC since January 1995. Since January
1995, Mr. Dean has been a Managing General Partner of DLJ Merchant Banking,
Inc., the general partner of DLJMB and an affiliate of DLJSC. Mr. Dean was
employed by DLJMB as a Managing Director from 1992 through 1995 and by
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<PAGE> 50
DLJSC in various capacities from 1990 until 1992. Mr. Dean also serves on the
Board of Directors of Coastal Capital Funding Corporation, Katz Media
Corporation, Hampshire Chemical Corp., Evergreen Media Corporation, Phase
Metrics, Inc., Manufacturers' Services Limited and Fiberite Holdings, Inc.
Mr. Perper has served as a director of the Company since January 1995. Mr.
Perper joined Donaldson, Lufkin & Jenrette in 1989, served as a Vice President
of DLJ Merchant Banking, Inc. from 1993 to 1995 and has served as a Senior Vice
President of DLJMB since January 1996. He also serves on the Board of Directors
of Fiberite Holdings, Inc.
Mr. Wyss has served as a director of the Company since January 1995. Mr.
Wyss has been a Managing Director of DLJ Merchant Banking, Inc. since 1993. Mr.
Wyss was the Chairman, Chief Executive Officer, President and Chief Operating
Officer of Lear Siegler, Inc. ("Lear"), a subsidiary of Forstmann Little & Co.,
from 1992 until October 1993, and the President and Chief Operating Officer of
Lear from 1989 until October 1993. Mr. Wyss also serves on the Board of
Directors of Cambridge Industries, OSI Inc. and OSF Inc.
BOARD OF DIRECTORS
As set forth in the Shareholders' Agreement, the Board of Directors of IVAC
consists of seven members, three of whom are designated by certain of the DLJMB
investors, three of whom are designated by the River Group and one of whom is
designated by certain of the DLJMB investors which designee must be reasonably
acceptable to the River Group. Messrs. Dean, Perper and Wyss were designated by
certain of the DLJMB investors, Messrs. Sancoff, Colella and Henry were
designated by the River Group and Mr. Mercer was designated by certain of the
DLJMB investors with the approval of the River Group. The composition of the
Board of Directors of Holdings is the same as that of IVAC.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two standing committees: a Compensation
Committee and an Audit Committee. The Compensation Committee, consisting of
Messrs. Colella, Dean and Wyss, provides recommendations concerning salaries and
incentive compensation for executive officers and key personnel, including stock
options. Mr. Mercer, the Company's President and Chief Executive Officer,
participated in the deliberations of the Compensation Committee regarding
executive compensation that occurred during the 1995 fiscal year, but did not
take part in the deliberations regarding his own compensation. The Audit
Committee, consisting of Messrs. Henry, Perper and Wyss, recommends the
Company's independent auditors and reviews the results and scope of audit and
other services provided by such auditors.
COMPENSATION OF BOARD OF DIRECTORS
Directors of IVAC do not receive any compensation for service as directors
or on committees of the Board of Directors of IVAC. Directors of IVAC are
reimbursed for reasonable out-of-pocket expenses incurred in connection with
attendance at meetings of the Board of Directors and committee meetings. All
directors are covered by director's liability insurance.
EXECUTIVE COMPENSATION
The following table sets forth all cash and non-cash compensation paid by
the Company or Holdings in or with respect to 1995 to: (i) the current chief
executive officer of the Company, (ii) the former chief executive officer of the
Company and (iii) each of the four other most highly compensated executive
officers of the Company whose combined salary and bonus exceeded $100,000 in
1995 (collectively, the "Named Executive Officers").
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<PAGE> 51
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
POSITION YEAR ($) ($) ($) (#)(1) ($)
<S> <C> <C> <C> <C> <C> <C>
Gregory E. Sancoff,
Chairman(2).......... 1995 349,749 100,000(3) -- 1,000,000(4) --
William J. Mercer,
President and Chief
Executive
Officer(5)........... 1995 180,239 200,000(3) -- 400,000 57,700(6)
Richard M. Mirando,
Vice President and
General Manager,
International
Business............. 1995 173,273 104,908(7) -- 83,333 67,391(8)
Anthony B. Semedo, Vice
President, Research &
Development.......... 1995 132,420 85,438(7) -- 116,666 152,495(9)
John Conn, Vice
President,
Operations........... 1995 143,749 84,824(7) -- 83,333 2,800(10)
Jake St. Philip, Vice
President, Sales,
Americas............. 1995 138,695 79,597(7) -- 83,333 2,581(10)
</TABLE>
- ------------------------------
(1) Represents shares of Class A Common Stock of Holdings underlying stock
options granted to executives.
(2) From January 1995 until May 1995, Mr. Sancoff served as Chief Executive
Officer of IVAC. In May 1995, he was replaced as Chief Executive Officer by
Mr. Mercer.
(3) Represents bonus earned in 1995 pursuant to the management bonus
arrangement (the "IVAC Bonus Plan").
(4) Mr. Sancoff had 500,000 options cancelled in January 1996.
(5) Mr. Mercer's employment as President and Chief Executive Officer of the
Company commenced in May 1995. Mr. Mercer's annual base salary for fiscal
year 1996 is $312,000.
(6) Represents a special cash payment in connection with relocation expenses.
(7) Represents bonus earned in 1995 pursuant to the IVAC Bonus Plan and the
IVAC Monthly Bonus Plan.
(8) Represents (i) $39,793 paid in connection with relocation expenses during
1995, (ii) $16,884 paid during 1995 in connection with certain housing
costs incurred in the course of a European assignment, (iii) $6,094 paid
during 1995 in connection with the rental of an automobile by executive in
the course of a European assignment and (iv) $4,620, contributed by the
Company to executive's account under the IVAC Employee Savings Plan, a
401(k) plan, during 1995.
(9) Represents (a) $148,785 paid in connection with relocation expenses during
1995 and (b) $3,710 contributed by the Company to the executive's account
under the Employee Savings Plan, a 401(k) Plan, during 1995.
(10) Reflects aggregate amount of contributions made by the Company to
executive's account under the IVAC Employee Savings Plan, a 401(k) plan,
during 1995.
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<PAGE> 52
OPTION GRANTS
Set forth below is information with respect to options to purchase Class A
Common Stock of Holdings granted to the Named Executive Officers during fiscal
1995 pursuant to the IVAC Holdings, Inc. 1995 Stock Option/Stock Issuance Plan
(the "Stock Option Plan"). No stock appreciation rights ("SARs") were granted in
fiscal 1995.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT
------------------------------------------------------------ ASSUMED ANNUAL
PERCENT OF TOTAL RATES OF
NUMBER OF OPTIONS/SARS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OR OPTION TERM
OPTIONS FISCAL BASE PRICE EXPIRATION -------------------
NAME GRANTED(#)(1) YEAR 1995 ($/SH) DATE(2) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Gregory E. Sancoff......... 1,000,000(3) 30% 1.00 5/31/05 628,895 1,593,742
William J. Mercer.......... 400,000 11% 1.00 5/31/05 251,558 637,497
Richard M. Mirando......... 83,333 2% 1.00 5/31/05 52,408 132,811
Anthony B. Semedo.......... 116,666 3% 1.00 5/31/05 73,371 185,936
John Conn.................. 83,333 2% 1.00 5/31/05 52,408 132,811
Jake St. Philip............ 83,333 2% 1.00 5/31/05 52,408 132,811
</TABLE>
- ------------------------------
(1) See "-- Stock Option Plan" for the terms and conditions of the Stock Option
Plan, including performance based conditions of exercisability contained in
the Stock Option Plan. In effect, each of the grants contains at least four
tranches subject to annual performance; the performance vesting standards
are newly established annually. In addition, other tranches of each grant
vest based on the executive continuing to remain in the employ of Holdings
or any of its subsidiaries.
(2) In the event an executive terminates his employment with Holdings or any of
its subsidiaries, dies or becomes disabled and ceases to remain in the
employ of Holdings or any of its subsidiaries, or in the event of a merger
or consolidation in which Holdings is not the surviving entity, the sale,
transfer or other disposition of all or substantially all of the assets of
Holdings or certain other similar transactions in which the options are not
expressly assumed by the successor corporation or parent thereof, the
options will terminate prior to the expiration date set forth in the table.
(3) Mr. Sancoff had 500,000 options cancelled in January 1996.
AGGREGATE OPTION EXERCISES
Set forth below is information with respect to aggregate options exercised
by the Named Executive Officers during fiscal year 1995 and the fiscal year end
value of unexercised options. No SARs were exercised or granted during fiscal
year 1995.
<TABLE>
<CAPTION>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION/SAR VALUES
--------------------------------------------------
NUMBER OF SECURITIES
CURRENTLY UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(1) UNEXERCISABLE
<S> <C> <C> <C> <C>
Gregory E. Sancoff................. 0 0 125,000/875,000(2) 0
William J. Mercer.................. 0 0 66,667/333,333 0
Richard M. Mirando................. 0 0 20,542/62,791 0
Anthony B. Semedo.................. 0 0 31,736/84,930 0
John Conn.......................... 0 0 19,792/63,541 0
Jake St. Philip.................... 0 0 20,834/62,499 0
</TABLE>
- ------------------------------
(1) Represents the number of shares of Class A Common Stock of Holdings
underlying outstanding options.
(2) Mr. Sancoff had 500,000 options cancelled in January 1996.
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<PAGE> 53
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
In 1995, IVAC entered into employment agreements with each of William J.
Mercer and Richard M. Mirando. The agreements provide for the payment by IVAC to
the respective executives of compensation as more fully described in the Summary
Compensation Table. Under the agreements, employment is not for a specific term
and can be terminated by the subject executive or the Company at any time for
any reason. Mr. Mercer's employment agreement provides that in the event of the
termination of Mr. Mercer's employment with IVAC for any reason other than cause
(as defined in such employment agreement), Mr. Mercer will be entitled to one
year of severance pay at his salary level in effect on the date of termination.
Mr. Mirando's employment agreement provides that in the event of the termination
with or without cause of Mr. Mirando's employment with IVAC while on assignment
in Europe, Mr. Mirando will be entitled to one year of severance pay at his
salary level in effect on the date of termination and to reimbursement by IVAC
for certain relocation expenses if such termination occurs during the course of
Mr. Mirando's assignment in Europe.
In August, 1994, IVAC entered into an employment agreement with John Conn,
which has now expired. The agreement provided for payment by IVAC to Mr. Conn of
compensation as more fully described in the Summary Compensation Table.
The Company has stock options subject to vesting under the Stock Option
Plan and the Key Plan (as defined below) that will accelerate if the Company is
acquired. As of September 16, 1996 stock options for an aggregate of 3,207,379
shares of Class A Common Stock are specifically subject to such vesting and up
to 1,960,380 shares of those shares are potentially subject to such
acceleration. (All stock options for shares of Class B Common Stock are fully
vested.) In addition, the Company will upon the Merger release any repurchase
rights and rights of first refusal under stock purchase agreements pursuant to
which optionholders under the Key Plan acquire shares of Class A Common Stock.
The Named Executive Officers hold, as of September 16, 1996, the following
numbers of unvested stock options which will become vested upon an acquisition,
including the Merger: Mr. Sancoff, 281,250 shares; Mr. Mercer, 354,167 shares;
Mr. Mirando, 81,646 shares; Mr. Semedo, 81,563 shares; Mr. Conn, 65,866 shares;
Mr. St. Philip, 81,354 shares. The average prices of these options range from
$1.00 to $1.80. Some of these options would, by their terms, eventually vest
even if no acquisition occurs.
CHANGE OF CONTROL -- SEVERANCE PLAN
Pursuant to the Merger Agreement, the Company has adopted a severance plan
whereby the Named Executive Officers and other Officers of the Company will be
entitled to a severance payment in the amount of 12 months' base salary if their
employment is terminated within two years of the closing of the Merger. "Key
Contributors" (to be specified by the President of the Company or the
Compensation Committee) will be entitled to a severance payment in the amount of
six months' base salary.
OPTION CANCELLATION AGREEMENTS
As contemplated by the Merger Agreement, each of Messrs. Mercer, Sancoff
and Henry have entered into Option Cancellation Agreements and the remaining
Named Executive Officers of the Company will be given the opportunity to enter
into Option Cancellation Agreements pursuant to which, if they continue to
provide services to the Company through the first business day following the
closing of the Merger, in lieu of exercising their stock options under the Stock
Option Plan and the Key Plan, they will receive a cash payment with respect to
each option equal to the Per Share Merger Consideration (as defined in the
Merger Agreement) less the exercise price of such option and less any applicable
tax withholding. In addition, Messrs. Mercer, Sancoff and Henry have agreed not
to exercise any of their options in the interim.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER CORPORATE OFFICIALS
Effective as of May 1, 1996, the Board of Directors adopted a resolution
authorizing written indemnification agreements for members of the Board of
Directors, officers and other employees at the level of director or above
("Covered Employees"). Under these indemnification agreements members of the
Board of Directors, officers and Covered Employees are indemnified by the
Company for actions taken in furtherance of their
51
<PAGE> 54
official duties to the fullest extent possible under Delaware law. In addition,
the Company agrees to advance to them (against an undertaking to repay, should
there be a final judicial decision that the individual is not entitled to be
indemnified) any and all expenses in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative to which the director, officer or Covered Employee is, was or at
any time becomes a party by reason of the fact that the director, officer or
Covered Employee is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The indemnification rights do not include, among other things, coverage for
actions arising from conduct which is finally adjudged to have been knowingly
fraudulent or deliberately dishonest or to constitute willful misconduct.
Holdings has entered into similar written indemnification agreements with
all of the Company's Board of Directors members, officers, and Covered
Employees, with regard to their service with the Company.
STOCK OPTION AND MANAGEMENT BONUS PLANS
1996 KEY CONTRIBUTOR STOCK OPTION PLAN
In April 1996, Holdings adopted the 1996 Key Contributor Stock Option Plan
(the "Key Plan"). The Key Plan authorizes Holdings to issue, and grant options
to purchase, an aggregate of 700,000 shares of Class A Common Stock to (i)
employees and (ii) natural persons who provide consulting services (but not
consulting services related to capital-raising) to the Company (or any parent or
subsidiary corporations of the Company); provided, however, that no officer,
member of the Board of Directors or 10% stockholder of the Company shall be
eligible to receive option grants under the Key Plan. The total number of shares
available under the Key Plan will be appropriately adjusted in the event of
certain changes to the capital structure of the Company, such as stock
dividends, stock splits or other recapitalizations. Unless sooner terminated by
the Board of Directors of the Company, the Key Plan will continue in effect
until April 4, 2006 or such time as all shares available for issuance under the
Key Plan have been issued. The termination of the Key Plan will have no effect
on any outstanding options or shares issued and outstanding under the Key Plan.
The Key Plan will be administered by the Board of Directors of the Company
or a committee of two or more Board members appointed by the Board of Directors
(the "Plan Administrator"). The Plan Administrator will have complete discretion
to determine which eligible individuals are to receive option grants, the number
of shares subject to each such grant, the status of any granted option as either
an incentive option (which will potentially qualify for certain favorable
treatment under Federal tax law) or a non-statutory option, the vesting terms
and schedule to be in effect for the option grant of stock issuance and the
maximum term for which any granted option is to remain outstanding. Under the
Key Plan such discretion of the Plan Administrator may be delegated to the
President of Holdings.
The exercise price for each incentive stock option granted under the
discretionary option grant program must be at least 100% of the fair market
value of the stock on the date of the option grant. The exercise price for each
non-statutory option or for any share issuance under the Plan must be at least
85% of the fair market value of the shares on the date of the option grant or
stock issuance. The purchase price for any shares may be paid in cash or (should
the Class A Common Stock become registered under Section 12 of the Securities
Exchange Act of 1934) by delivery of shares of Class A Common Stock.
Options granted under the Key Plan may be immediately exercisable for all
the option shares, on either a vested or unvested basis, or may become
exercisable for shares in one or more installments over the optionholder's
period of service. The requirements for the vesting of shares or the
exercisability of options may be on such terms as the Plan Administrator
determines, including requirements tied solely to continued performance of
services. However, the Plan Administrator may not impose a vesting schedule upon
any option grant which is more restrictive than 20% per year vesting, beginning
one year after the option grant date, nor a vesting schedule upon any shares
subject to a post-exercise restriction agreement which is more restrictive than
20% per year vesting, beginning one year after the date of exercise of the
option.
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<PAGE> 55
In the event of a change of control, each outstanding option will terminate
and cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof) in connection with such corporate transaction.
In addition, all outstanding repurchase rights under the Key Plan will terminate
in the event of any change of control, except to the extent the repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such corporate transaction.
The Plan Administrator may, in its discretion, provide for the automatic
acceleration upon a change of control of the time at which any option will
become exercisable or for the lapse of any repurchase right tied to vesting.
Such acceleration may be provided for at any time by the Plan Administrator in
the exercise of its discretion, or may be included as a right of the optionee or
issuee in the documents evidencing the rights of the optionee or issuee.
Each option granted under the Key Plan will have a maximum term of 10 years
and may be subject to earlier termination in the event of the optionholder's
cessation of service. Options are not assignable or transferable by the
optionholder except in connection with the optionholder's death. The
optionholder will have no stockholder rights with respect to the shares subject
to his or her outstanding options until such options are exercised and the
purchase price is paid for the shares. The optionholder will, upon the exercise
of the options and payment of the purchase price for the shares, have full
stockholder rights with respect to such shares.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
In May 1995, the Board of Directors of Holdings adopted the Stock Option
Plan. The Stock Option Plan authorizes Holdings to issue, and grant options to
purchase, an aggregate of 4,000,000 shares of Class A Common Stock to (i)
employees (including officers and directors), (ii) non-employee directors and
(iii) consultants and independent contractors of Holdings and of any parent or
subsidiary corporations of Holdings. The total number of shares available under
the Stock Option Plan will be appropriately adjusted in the event of certain
changes to the capital structure of Holdings, such as stock dividends, stock
splits or other recapitalizations. Unless sooner terminated by the Board of
Directors of Holdings, the Stock Option Plan will continue in effect until
February 28, 2005 or such time as all shares available for issuance under the
Stock Option Plan have been issued. The termination of the Stock Option Plan
will have no effect on any outstanding options or shares issued and outstanding
under the Stock Option Plan.
The Stock Option Plan is divided into two programs: the discretionary
option grant program and the stock issuance program. The Stock Option Plan will
be administered by the Board of Directors of Holdings or a committee of two or
more Board members appointed by the Board of Directors (the "Plan
Administrator"). The Plan Administrator will have complete discretion under the
discretionary option grant program and the stock issuance program to determine
which eligible individuals are to receive option grants or stock issuances, the
number of shares subject to each such grant or issuance, the status of any
granted option as either an incentive option (which will potentially qualify for
certain favorable treatment under Federal tax law) or a non-statutory option,
the vesting terms and schedule to be in effect for the option grant or stock
issuance and the maximum term for which any granted option is to remain
outstanding.
The exercise price for each incentive stock option granted under the
discretionary option grant program must be at least 100% of the fair market
value of the stock on the date of the option grant. The purchase price for any
shares may be paid in cash or (should the Class A Common Stock become registered
under Section 12 of the Securities Exchange Act of 1934) by delivery of shares
of Class A Common Stock. The Plan Administrator may also permit a participant to
deliver a promissory note in payment of the purchase price and any tax liability
incurred in connection with the purchase.
Options granted under the discretionary option grant program may be
immediately exercisable for all the option shares, on either a vested or
unvested basis, or may become exercisable for shares in one or more installments
over the optionholder's period of service. Shares issued under the stock
issuance program may either be fully-vested or subject to a vesting schedule.
The requirements for the vesting of shares or the exercisability of options may
be on such terms as the Plan Administrator determines, including requirements
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<PAGE> 56
tied solely to continued performance of services, to the accomplishment of goals
to be established, or a combination of such requirements.
The Plan Administrator may, in its discretion, provide for the automatic
acceleration upon a change of control of the time at which any option will
become exercisable or for the lapse of any repurchase right tied to vesting.
Such acceleration may be provided for at any time by the Plan Administrator in
the exercise of its discretion, or may be included as a right of the optionee or
issuee in the documents evidencing the rights of the optionee or issuee.
Each option granted under the Stock Option Plan will have a maximum term of
ten years and may be subject to earlier termination in the event of the
participant's cessation of service. Options are not assignable or transferable
by the optionholder except in connection with the optionholder's death. The
optionholder will have no stockholder rights with respect to the shares subject
to his or her outstanding options until such options are exercised and the
purchase price is paid for the shares. The optionholder will, upon the exercise
of the options and payment of the purchase price for the shares, have full
stockholder rights with respect to such shares.
IVAC MANAGEMENT BONUS PLAN
In May 1995, IVAC's Board of Directors authorized the Company to award cash
bonuses to certain key employees of the Company in the event that the Company
and its subsidiaries, achieve certain operating results which are determined by
the Board of Directors at the beginning of each fiscal year (with respect to
fiscal 1995, such goals were set at the time the bonus arrangements were
approved) (the "Management Bonus Plan"). In 1996, the Company's Board of
Directors authorized the 1996 Management Incentive Plan. The amount of the bonus
paid to any eligible employee is dependent on such person's position,
performance, seniority and level of responsibility and ranges from 25% to no
more than 100% of such person's base salary.
IVAC MONTHLY BONUS PLAN
Effective as of February 1, 1995, the Board of Directors of Holdings
authorized payments to certain Vice Presidents of IVAC of a cash bonus of $2,000
a month in the event specified monthly budget goals are met.
POSSIBLE SPECIAL MERGER-RELATED TREATMENT OF BONUS AWARDS
As of July 1, 1996, in connection with the contemplated Merger, the Company
amended the Management Bonus Plan to provide that, with respect to a Corporate
Transaction (as defined in the Key Plan) on or before December 31, 1996,
participants in the Management Bonus Plan who are employed by the Company at the
time of the Corporate Transaction shall, if the Company has achieved 80% or more
of the Management Bonus Plan's year-to-date EBITDA financial goal as of the time
of the Corporate Transaction (after Corporate Transaction-related expenses are
backed out), receive 100% of their respective 1996 target awards without regard
to any other requirement of the Management Bonus Plan. The 1996 target
Management Bonus Plan awards of the Named Executive Officers are as follows: Mr.
Sancoff, $0; Mr. Mercer, $312,000; Mr. Mirando, $88,404; Mr. Semedo, $72,804;
Mr. Conn, $72,804; Mr. St. Philip, $71,760. Some of these awards may be earned
and paid even if no Corporate Transaction occurs before December 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Following the Acquisition, 1995 compensation (to the extent it was
determined at the Company level rather than the Holdings level) was determined
by the entire Board of Directors. Mr. Mercer, the Chief Executive Officer and
President of the Company, serves as a member of the Board. In addition, from
January 1995 until May 1995, Mr. Sancoff, the Chairman of the Company, served as
Chief Executive Officer of the Company.
On October 8, 1995, Holdings' and the Company's Boards of Directors each
separately formed a Compensation Committee consisting of Messrs. Colella, Dean
and Wyss. Mr. Colella is affiliated with certain River Group investors, and
Messrs. Dean and Wyss are affiliated with DLJMB and DLJSC.
Mr. Mercer is party to an employment agreement with the Company as
described in "-- Employment Contracts, Termination of Employment and Change of
Control Arrangements."
For further information regarding certain relationships and related
transactions, see "Certain Relationships and Related Transactions."
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<PAGE> 57
Moreover, Mr. Sancoff and Mr. Mercer serve on Holdings' Board of Directors.
Mr. Mercer has served as an executive officer of Holdings since January 1996.
Mr. Sancoff served as an executive officer of Holdings from June 1995 to January
1996. Therefore, an executive officer of Holdings sits on the Company's Board.
For further information regarding certain relationships and related
transactions, see "Certain Relationships and Related Transactions."
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
All of the outstanding capital stock of the Company is held by Holdings. As
of June 30, 1996, the outstanding voting capital stock of Holdings consists of
20,008,877 shares of Class A Common Stock and 19,636,475 shares of Class B
Common Stock. Holdings also has outstanding currently exercisable options to
acquire an aggregate of 363,525 shares of Class B Common Stock held by the River
Group (the "River Options"). Holders of Class A Common Stock are entitled to one
vote per share and holders of Class B Common Stock are entitled to 2/3 vote per
share on all matters submitted to a vote of stockholders. As of June 30, 1996,
assuming exercise of the River Options, the holders of the Class A Common Stock
had in the aggregate 60% of the total voting power of all outstanding Common
Stock and the holders of the Class B Common Stock had in the aggregate 40% of
the total voting power of all outstanding Common Stock. The Class B Common Stock
is mandatorily convertible into Class A Common Stock upon the occurrence of
certain liquidation events. See "The Acquisition." Upon the mandatory conversion
of the Series B Common Stock and depending on the equity valuations associated
with the related liquidation event, the holders of the Class B Common Stock may
obtain up to an additional 3.9% of the total voting power of all outstanding
Common Stock, and the total voting power of the holders of the Class A Common
Stock may be reduced by up to 3.9%. Assuming that the holders of the Class B
Common Stock obtain an additional 3.9% of the total voting power of all
outstanding Common Stock upon the mandatory conversion of the Series B Common
Stock, the River Group would own Common Stock representing 53.1% of the total
voting power of all outstanding Common Stock.
The following table sets forth, as of June 30, 1996, certain information
regarding the beneficial ownership of the Class A Common Stock and Class B
Common Stock of Holdings by (i) each person known by Holdings to be the
beneficial owner of more than 5% of any class of Holdings voting securities,
(ii) each of the directors and Named Executive Officers and (iii) the Named
Executive Officers and directors of IVAC as a group.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENTAGE OF
SHARES SHARES OUTSTANDING
OF CLASS A OF CLASS B VOTING
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK % OF CLASS COMMON STOCK % OF CLASS POWER(1)
<S> <C> <C> <C> <C> <C>
DLJ Merchant Banking Partners, L.P.
and related investors(2)........... 16,000,000 80.0% -- -- 48.3%
277 Park Avenue
New York, New York 10172
Gregory E. Sancoff................... -- (3) -- 6,230,732 31.7% 12.6
IVAC Medical Systems, Inc.
10221 Wateridge Circle
San Diego CA 92121-2733
Henry Venture II Limited(4).......... -- -- 4,604,236 23.4 9.3
12/13 Hill St.
Douglas, Isle of Man
United Kingdom
Institutional Venture Partners(5).... 1,680,000 8.4 4,628,656 23.6 14.4
3000 Sand Hill Road, Building 2,
Suite 290
Menlo Park, CA 94025
Menlo Ventures(6).................... 1,120,000 5.6 1,599,592 8.1 6.6
3000 Sand Hill Road, Building 4,
Suite 100
Menlo Park, CA 94025
Avalon BioVentures(7)................ -- -- 1,567,136 8.0 3.2
1020 Prospect Street
La Jolla, CA 92037
Thompson Dean(8)..................... -- -- -- -- --
DLJ Merchant Banking, Inc.
277 Park Avenue
New York, NY 10172
Reid S. Perper(8).................... -- -- -- -- --
DLJ Merchant Banking, Inc.
277 Park Avenue
New York, NY 10172
</TABLE>
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<PAGE> 59
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENTAGE OF
SHARES SHARES OUTSTANDING
OF CLASS A OF CLASS B VOTING
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK % OF CLASS COMMON STOCK % OF CLASS POWER(1)
<S> <C> <C> <C> <C> <C>
Karl R. Wyss(8)...................... -- -- -- -- --
DLJ Merchant Banking, Inc.
277 Park Avenue
New York, NY 10172
Albert J. Henry(4)................... -- (9) -- -- -- --
Henry & Co.
4370 La Jolla Village Drive
Suite 400
San Diego, CA 92122
Samuel D. Colella(5)................. -- -- -- -- --
Institutional Venture Partners
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
William J. Mercer.................... -- (10) -- -- -- --
IVAC Medical Systems, Inc.
10221 Wateridge Circle
San Diego, CA 92121-2733
Richard M. Mirando................... -- (11) -- -- -- --
IVAC Medical Systems, Inc.
10221 Wateridge Circle
San Diego, CA 92121-2733
Anthony B. Semedo.................... -- (12) -- -- -- --
IVAC Medical Systems, Inc.
10221 Wateridge Circle
San Diego, CA 92121-2733
John Conn............................ -- (13) -- -- -- --
IVAC Medical Systems, Inc.
10221 Wateridge Circle
San Diego, CA 92121-2733
Jake St. Philip...................... -- (14) -- -- -- --
IVAC Medical Systems, Inc.
10221 Wateridge Circle
San Diego, CA 92121-2733
All directors and executive officers
as a group (14 persons)............ 17,680,000 (15) 88.4% 15,463,624 (16) 78.7 84.6%
</TABLE>
- ------------------------------
(1) Reflects percentage of voting power of all outstanding voting stock.
(2) Consists of 16,000,000 shares of Class A Common Stock held by the following
entities, each of whom is affiliated with DLJSC: DLJ Merchant Banking
Partners, L.P. ("DLJMBP"), 7,521,568 shares; DLJ International Partners,
C.V. ("DLJIP"), 3,376,164 shares; DLJ Offshore Partners, C.V. ("DLJOP"),
195,748 shares; DLJ Merchant Banking Funding, Inc. ("DLJMBF"), 2,711,368
shares; DLJ First ESC L.L.C. ("DLJFESC"), an employee securities
corporation (as defined in the Investment Company Act of 1940) formed to
hold securities under employee compensation plans, 1,795,152 shares; DLJ
Capital Corporation ("DLJCC"), 37,010 shares; and Sprout Growth II, L.P.
("Sprout"), 362,990 shares. See "Certain Relationships and Related
Transactions -- Transactions with DLJ and its Affiliates." The address of
each of DLJMBP, DLJMBF, DLJFESC, DLJCC and Sprout is 277 Park Avenue, New
York, New York 10172. The address of each of DLJIP and DLJOP is John B.
Gorsiraweg 6, Willemstad, Curacao, Netherland Antilles. As a general
partner of each of DLJMBP, DLJIP and DLJOP, DLJ Merchant Banking, Inc. may
be deemed to beneficially own indirectly all of the shares held directly by
DLJMBP, DLJIP and DLJOP, and as the parent of each of DLJ Merchant Banking,
Inc., DLJMBF and DLJ LBO Plans Management Corporation (the manager of
DLJFESC), Donaldson, Lufkin & Jenrette, Inc. may be deemed to beneficially
own indirectly all of the shares held by DLJMBP, DLJIP, DLJOP and DLJMBF.
The address of DLJ Merchant Banking, Inc. and Donaldson, Lufkin & Jenrette,
Inc. is 277 Park Avenue, New York, New York 10172. Sprout is a limited
partnership, the managing general partner of which is DLJCC. As such, DLJCC
may be deemed to
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<PAGE> 60
beneficially own all of the shares held directly by Sprout. DLJCC is a
wholly owned subsidiary of Donaldson, Lufkin & Jenrette, Inc.
(3) Does not reflect options to purchase 208,333 shares of Class A Common Stock
of Holdings granted pursuant to the Stock Option Plan which are exercisable
within 60 days of June 30, 1996.
(4) Albert Henry is the Chairman of Henry Venture II Limited and, pursuant to a
management agreement with Henry & Co., which is wholly owned by Mr. Henry,
has the power to vote and otherwise control the shares owned of record by
Henry Venture II Limited.
(5) Consists of 1,680,000 shares of Class A Common Stock held by the following
entities: Institutional Venture Partners V, L.P. ("IVPOV"), 529,200 shares;
Institutional Venture Management V, L.P. ("IVMOV"), 10,800 shares;
Institutional Venture Management VI, L.P. ("IVMOVI"), 22,800 shares;
Institutional Venture Partners VI, L.P. ("IVPOVI"), 1,117,200 shares; and
consists of 4,628,656 shares of Class B Common Stock held by the following
entities: IVPOV, 3,665,300 shares; IVMOV, 74,692 shares; IVPOVI, 870,892
shares; IVMOVI, 17,772 shares. The address of each of the above entities is
3000 Sand Hill Road, Building 2, Suite 290, Menlo Park, California 94025.
IVMOV is the general partner of IVPOV and IVMOVI is the general partner of
IVPOVI. All the general partners of IVMOV are the general partners of
IVMOVI. Mr. Colella is a general partner of both IVMOV and IVMOVI and has
expressly disclaimed beneficial ownership except to the extent of his
individual partnership interest.
(6) Consists of 1,120,000 shares of Class A Common Stock and 1,599,592 shares
of Class B Common Stock held by the following entities: Menlo Ventures VI,
L.P., 1,103,448 shares of Class A Common Stock and 1,575,952 shares of
Class B Common Stock; and Menlo Entrepreneurs Fund VI, L.P., 16,552 shares
of Class A Common Stock and 23,640 shares of Class B Common Stock. The
general partner of both entities is MV Management VI, L.P. The address of
Menlo Ventures VI, L.P., Menlo Entrepreneurs Fund VI, L.P. and MV
Management VI, L.P. is 3000 Sand Hill Road, Building 4, Suite 100, Menlo
Park, California 94025.
(7) Consists of 1,567,136 shares of Class B Common Stock held by the following
entities: Avalon BioVentures, L.P., 1,211,672 shares; Avalon BioVentures
II, L.P., 355,464 shares. The general partner of both entities is Kevin
Kinsella.
(8) Messrs. Dean, Perper and Wyss are officers of DLJ Merchant Banking, Inc.
Share data shown for such individuals excludes shares shown as held by DLJ
Entities set forth in note (2) above, as to which such individuals disclaim
beneficial ownership.
(9) Does not reflect options to purchase 152,778 shares of Class A Common Stock
granted pursuant to the Stock Option Plan which are exercisable within 60
days of June 30, 1996.
(10) Does not reflect options to purchase 100,000 shares of Class A Common Stock
granted pursuant to the Stock Option Plan which are exercisable within 60
days of June 30, 1996.
(11) Does not reflect options to purchase 27,486 shares of Class A Common Stock
granted pursuant to the Stock Option Plan which are exercisable within 60
days of June 30, 1996.
(12) Does not reflect options to purchase 38,680 shares of Class A Common Stock
granted pursuant to the Stock Option Plan which are exercisable within 60
days of June 30, 1996.
(13) Does not reflect options to purchase 26,736 shares of Class A Common Stock
granted pursuant to the Stock Option Plan which are exercisable within 60
days of June 30, 1996.
(14) Does not reflect options to purchase 27,778 shares of Class A Common Stock
granted pursuant to the Stock Option Plan which are exercisable within 60
days of June 30, 1996.
(15) Includes shares of Class A Common Stock in the table above shown as owned
by DLJ Merchant Banking Partners L.P. and related investors and
Institutional Venture Partners (all of which may be deemed to be owned by
certain directors of IVAC) and does not reflect options to purchase shares
of Class A Common Stock granted pursuant to the Stock Option Plan which are
exercisable within 60 days of June 30, 1996.
(16) Includes share of Class B Common Stock in the table above shown as owned by
Henry Venture II Limited and Institutional Venture Partners (all of which
may be deemed to be owned by certain directors of IVAC).
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<PAGE> 61
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHAREHOLDERS' AGREEMENT
In connection with the Acquisition, all of the shareholders of Holdings
(the "Initial Shareholders") entered into the Shareholders' Agreement which
provides that Holdings' Board of Directors shall consist of seven members, three
of whom shall be designated by certain of the DLJMB investors, three of whom
shall be designated by the River Group and one of whom shall be designated by
certain of the DLJMB investors and be reasonably acceptable to the River Group.
Each Initial Shareholder entitled to vote on the election of directors to the
Board agreed to vote its respective shares to ensure the composition of the
Board is as set forth in the preceding sentence. Pursuant to the Shareholders'
Agreement, the composition of the Board of Directors of IVAC is the same as that
of Holdings.
In accordance with the Shareholders' Agreement, Gregory E. Sancoff was
appointed Chairman of the Board of Directors and Chief Executive Officer of
Holdings, and Albert J. Henry became the Vice Chairman of the Board of Directors
of Holdings. The governance provisions of the Shareholders' Agreement will
terminate at such time as either DLJMB or the River Group owns less than 10% of
the Common Stock of Holdings owned by such entities as of the date of the
Acquisition.
The Shareholders' Agreement imposes certain restrictions on the rights of
any Initial Shareholder to sell or otherwise dispose of its shares of Common
Stock. Pursuant to the Shareholders' Agreement, each Initial Shareholder has
agreed that it will not, directly or indirectly, sell, assign, transfer, grant a
participation in, pledge or otherwise dispose of ("transfer") any shares except
in compliance with the Securities Act and the terms and conditions of the
Shareholders' Agreement. The Board has the absolute right in its discretion to
refuse to permit or acknowledge any transfer (i) to any Adverse Person (as
defined in the Shareholders' Agreement) or (ii) if such transfer could have
adverse consequences for Holdings or its shareholders. Any Initial Shareholder
may at any time transfer shares to any Permitted Transferee (as defined in the
Shareholders' Agreement). During the Initial Restriction Period (the period
commencing on December 30, 1994 and ending on December 30, 1998) the Initial
Shareholders may transfer shares to third parties only in compliance with
certain volume limitations and certain other restrictions set forth in the
Shareholders' Agreement. After the Initial Restriction Period, certain of these
restrictions will lapse. In the event any non-management shareholder transfers
any shares to a third party prior to the end of the Initial Restriction Period,
such holder must first offer each other non-management holder and Holdings the
right to purchase such shares. In addition, Initial Shareholders have tag-along
rights to participate in sales by non-management shareholders to third parties
in certain circumstances, and following the end of the Initial Restriction
Period, DLJMB has drag-along rights to require other Initial Shareholders to
participate in sales of its equity interest in certain circumstances. Holdings
has the right until the termination of the Shareholders' Agreement to repurchase
all shares owned by any management shareholder and its Permitted Transferees
upon the termination of such management shareholder's employment for Cause (as
defined in the Shareholders' Agreement).
EQUITY PURCHASE
Pursuant to the Class A Common Stock Subscription Agreement, dated as of
December 30, 1994, between Holdings and the Investor Group (the "Class A
Subscription Agreement"), in connection with the Acquisition, the Investor Group
purchased shares of Class A Common Stock as follows: DLJMB purchased 4,000,000
shares, certain members of the River Group purchased 800,000 shares and Chemical
Equity Associates ("CEA") purchased 200,000 shares. The purchase price for such
shares was $20.0 million in the aggregate, which was paid in cash. Pursuant to
the Class B Common Stock Subscription Agreement, dated as of December 30, 1994
between Holdings and the River Group (the "Class B Subscription Agreement"), the
River Group exchanged 100% of its equity interests in River for 4,740,388 shares
of Class B Common Stock and options to purchase 259,612 shares of Class B Common
Stock. Each of these purchasers signed the Shareholders' Agreement. Pursuant to
the Class A Subscription Agreement, Holdings has agreed to indemnify the
Investor Group for losses incurred in connection with any of Holdings' or its
affiliates' misrepresentations or breaches of warranty. The Investor Group has
agreed to indemnify Holdings and its
59
<PAGE> 62
subsidiaries in substantially the same manner, with the indemnified amount
limited to each member's ratable share of such losses. Similar indemnification
arrangement were entered into between Holdings and the River Group pursuant to
the Class B Subscription Agreement. Subsequent to the initial issuance of the
Class A Common Stock and Class B Common Stock, Holdings declared a three for one
stock dividend.
In connection with the Acquisition, Holdings and the Investor Group entered
into a Securities Purchase Agreement pursuant to which DLJMB, the River Group
and CEA purchased $106,289,000, $21,258,000 and $5,314,000 aggregate principal
amount at maturity of accreting Junior Subordinated Notes of Holdings,
respectively, for an aggregate of $30.0 million.
TRANSACTIONS WITH DLJ AND ITS AFFILIATES
Messrs. Dean, Perper and Wyss are officers of DLJMB, an affiliate of DLJSC.
Simultaneous with the Acquisition, the Company entered into a Securities
Purchase Agreement with DLJ Bridge, an affiliate of DLJMB, pursuant to which the
Company issued $80.0 million principal amount of Bridge Notes to DLJ Bridge. In
connection with the issuance of the Bridge Notes for the financing of the
Acquisition, DLJ Bridge received a commitment fee of $1.6 million and a takedown
fee of $2.0 million. DLJMB received $60,000 for reimbursement of out-of-pocket
expenses.
DLJSC acted as the financial advisor to Holdings in connection with the
structuring of the Acquisition and received a financial advisory fee of $2.3
million for such services and reimbursement for out-of-pocket expenses. In
addition, DLJSC will receive a $250,000 annual retainer fee for acting as the
financial advisor to Holdings until December 30, 1998. Holdings has agreed to
indemnify DLJSC in connection with its acting as financial advisor.
Holdings retained DLJSC as its financial advisor until the date on which
the Bridge Notes were repaid in full. DLJSC received a customary fee for such
service.
In November 1995, DLJSC acted as the underwriter for the offering of the
Notes. In connection with the offering, $3.3 million of underwriting discounts
and commissions were paid to DLJSC.
Pursuant to a letter agreement between the Company and DLJSC dated as of
May 8, 1996, the Company engaged DLJSC to act as its exclusive financial advisor
for a period of 12 months. In connection with the proposed merger between the
Company and IMED, DLJSC will receive a financial advisory fee of approximately
$3.0 million.
TRANSACTIONS WITH MANAGEMENT
IVAC is party to employment contracts with certain members of management,
including certain of the Named Executive Officers. See "Management -- Employment
Contracts, Termination of Employment and Change of Control Arrangements."
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<PAGE> 63
DESCRIPTION OF NOTES
GENERAL
The Notes are issued pursuant to the Indenture dated as of November 8, 1995
(the "Indenture") between IVAC Medical Systems, Inc. and Marine Midland Bank, as
trustee (the "Trustee"). See "Notice to Investors." The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of certain provisions of the Indenture does not purport to
be complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. A copy of the
proposed form of Indenture is filed as an exhibit to the Registration Statement
of which this Prospectus is a part and is available as set forth under
"Available Information." The definitions of certain terms used in the following
summary are set forth below under "Certain Definitions."
The Notes are senior unsecured obligations of IVAC Medical Systems, Inc.
and rank senior in right of payment to all subordinated Indebtedness of IVAC
Medical Systems, Inc. and pari passu in right of payment with all future and
existing senior Indebtedness, including Indebtedness pursuant the Bank Credit
Facility. The Notes are effectively subordinated to secured Indebtedness of IVAC
Medical Systems, Inc., including pursuant to the Bank Credit Facility, to the
extent of the assets securing such Indebtedness, and the Notes are structurally
subordinated to Indebtedness of IVAC Medical Systems, Inc.'s Subsidiaries. At
December 31, 1995, the Notes are effectively subordinated to $14.0 million of
secured Indebtedness under the Bank Credit Facility and are structurally
subordinated to approximately $1.7 million of Indebtedness of IVAC Medical
Systems, Inc.'s Subsidiaries as well as guarantees of Indebtedness by such
Subsidiaries under the Bank Credit Facility.
Restrictions in the Indenture on the ability of the Company and its
Restricted Subsidiaries to incur additional Indebtedness, to make Asset Sales,
to enter into transactions with Affiliates and to enter into mergers,
consolidations or sales of all or substantially all of its assets, may make more
difficult or discourage a takeover of the Company, whether favored or opposed by
the management of the Company. While such restrictions cover a wide variety of
arrangements which are traditionally used to effect highly leveraged
transactions, the Indenture may not afford holders of Notes protection in all
circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
As of the date of the Indenture, all of IVAC Medical Systems, Inc.'s
Subsidiaries are Restricted Subsidiaries. However, under certain circumstances,
IVAC Medical Systems, Inc. is able to designate current or future Subsidiaries
as Unrestricted Subsidiaries; provided that in no event shall the business
currently operated by River Medical, Inc. be transferred to or held by an
Unrestricted Subsidiary. Unrestricted Subsidiaries are subject to many of the
restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100.0 million and
mature on December 1, 2002. Interest on the Notes accrues at the rate of 9 1/4%
per annum and is payable semi-annually in arrears on June 1 and December 1,
commencing on June 1, 1996, to Holders of record on the immediately preceding
May 15 and November 15. Interest on the Notes accrues from the most recent date
to which interest is paid or, if no interest is paid, from the date of original
issuance. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, is on the Notes is payable at
the office or agency of IVAC Medical Systems, Inc.which is maintained for such
purpose within the City and State of New York or, at the option of IVAC Medical
Systems, Inc., payment of interest may be made by check mailed to the Holders of
the Notes at their respective addresses set forth in the register of Holders of
Notes. Until otherwise designated by IVAC Medical Systems, Inc., IVAC Medical
Systems, Inc.'s office or agency in New York is the office of the Trustee
maintained for such purpose. The Notes are issued in denominations of $1,000 and
integral multiples thereof.
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OPTIONAL REDEMPTION
Except as provided in the next paragraph, the Notes will not be redeemable
at IVAC Medical Systems, Inc.'s option prior to December 1, 1998. Thereafter,
the Notes will be subject to redemption at the option of IVAC Medical Systems,
Inc., in whole or in part, upon not less than 30 nor more than 60 days' notice,
at the redemption prices (expressed as percentages of principal amount) set
forth below, together with accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
December 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1998...................................................... 106.2500%
1999...................................................... 104.6250%
2000...................................................... 102.3125%
2001 and thereafter....................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, at any time prior to December 1, 1998, IVAC
Medical Systems, Inc. may redeem Notes with the net proceeds of one or more
public offerings of common stock of (i) IVAC Medical Systems, Inc. or (ii)
Holdings to the extent the net proceeds thereof are contributed to IVAC Medical
Systems, Inc. as a capital contribution to common equity, in each case, at a
redemption price of 108.25% of the principal amount thereof plus accrued and
unpaid interest thereon to the applicable date of redemption; provided that at
least $65.0 million in aggregate principal amount of the Notes remain
outstanding immediately after the occurrence of each such redemption; and
provided, further, that any such redemption must occur within 90 days of the
date of the closing of such public offering.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," IVAC
Medical Systems, Inc. is not required to make any mandatory redemption or
sinking fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require IVAC Medical Systems, Inc. to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase (the "Change of
Control Payment"). Within 15 days following any Change of Control, IVAC Medical
Systems, Inc. will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes pursuant to the procedures required by the Indenture and described in such
notice. IVAC Medical Systems, Inc. will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, IVAC Medical Systems, Inc. will, to
the extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by IVAC
Medical Systems, Inc. The Paying Agent will promptly mail to each Holder of
Notes so tendered the Change of Control Payment for such Notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Note equal in principal amount to any unpurchased portion
of the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. IVAC Medical
Systems, Inc. will publicly
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announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that IVAC Medical Systems, Inc. repurchase or redeem the Notes in the
event of a takeover, recapitalization or similar restructuring.
IVAC Medical Systems, Inc.'s other senior Indebtedness, including the Bank
Credit Facility, contains prohibitions of certain events that would constitute a
Change of Control. In addition, the exercise by the Holders of Notes of their
right to require IVAC Medical Systems, Inc. to repurchase the Notes could cause
a default under such other senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchases on IVAC Medical
Systems, Inc. Finally, IVAC Medical Systems, Inc.'s ability to pay cash to the
Holders of Notes upon a repurchase may be limited by IVAC Medical Systems,
Inc.'s then existing financial resources.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of IVAC Medical Systems, Inc. and its Subsidiaries, taken as a
whole. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precisely established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
IVAC Medical Systems, Inc. repurchase such Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of IVAC
Medical Systems, Inc. and its Subsidiaries taken as a whole to another Person or
group may be uncertain.
ASSET SALES
The Indenture provides that IVAC Medical Systems, Inc. will not, and will
not permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless
(i) IVAC Medical Systems, Inc. (or the Restricted Subsidiary, as the case may
be) receives consideration at the time of such Asset Sale at least equal to the
fair market value (evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by IVAC Medical Systems, Inc. or such Restricted
Subsidiary is in the form of cash; provided that the amount of (x) any
liabilities (as shown on IVAC Medical Systems, Inc.'s or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto), of IVAC Medical
Systems, Inc. or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Notes or any guarantee thereof) that are assumed
by the transferee of any such assets and (y) any notes or other obligations
received by IVAC Medical Systems, Inc. or any such Restricted Subsidiary from
such transferee that are immediately converted by IVAC Medical Systems, Inc. or
such Restricted Subsidiary into cash (to the extent of the cash received), will
be deemed to be cash for purposes of this provision; provided further, that the
75% limitation referred to above shall not apply to any sale, transfer or other
disposition of assets in which the cash portion of the consideration received
therefor, determined in accordance with the foregoing proviso, is equal to or
greater than what the after-tax net proceeds would have been had such
transaction complied with the aforementioned 75% limitation.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
IVAC Medical Systems, Inc. may apply such Net Proceeds (a) to permanently reduce
long-term Indebtedness of a Restricted Subsidiary, (b) to permanently reduce
Indebtedness (and, in the case of revolving Indebtedness, to permanently reduce
the commitments) under the Bank Credit Facility, (c) to cash collateralize
letters of credit under the Bank Credit Facility and concurrently therewith
permanently reduce commitments under the Bank Credit Facility by an amount equal
to the Net Proceeds applied to such cash collateralization (provided that any
such cash collateral released to IVAC Medical Systems, Inc. and/or its
Restricted Subsidiaries upon the expiration of such letters of credit is applied
in accordance with clause (a), (b) or (d) of this sentence not later than the
last to occur of (i) 360 days after the original receipt of such Net Proceeds
and (ii) 90 days after such release), or (d) to an investment in another
business, the making of a capital expenditure or the acquisition of other
tangible assets, in each case, in the same or a similar line of business as IVAC
Medical Systems, Inc. was engaged in on the date of the Indenture. Any Net
Proceeds from Asset Sales that are not applied or
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invested as provided in the preceding sentence of this paragraph will be deemed
to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $15.0 million, IVAC Medical Systems, Inc. will be required to make an
offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Proceeds, at
an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon to the date of purchase, in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, IVAC Medical Systems, Inc. may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Notes surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such other method as the Trustee deems fair and appropriate, provided that
no Notes with a principal amount of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that IVAC Medical Systems, Inc. will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any distribution on account of any Equity
Interests of IVAC Medical Systems, Inc. or any of its Restricted Subsidiaries
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of IVAC Medical Systems, Inc. or dividends or distributions
payable to IVAC Medical Systems, Inc. or any Wholly Owned Restricted
Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of IVAC Medical Systems, Inc., any of its Restricted
Subsidiaries or any other Affiliate of IVAC Medical Systems, Inc. (other than
any such Equity Interests owned by IVAC Medical Systems, Inc. or any Wholly
Owned Restricted Subsidiary of IVAC Medical Systems, Inc.); (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated in right of payment to
the Notes, except in accordance with the scheduled mandatory redemption or
repayment provisions set forth in the original documentation governing such
Indebtedness (but not pursuant to any mandatory offer to repurchase upon the
occurrence of any event); or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by IVAC Medical Systems, Inc. and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), (v), (vi), (vii) and (viii) of the next
succeeding paragraph), is less than the sum of (1) 50% of the Consolidated
Net Income of IVAC Medical Systems, Inc. for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of IVAC Medical
Systems, Inc.'s most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, minus
100% of such deficit),
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plus (2) 100% of the aggregate net cash proceeds received by IVAC Medical
Systems, Inc. from contributions of capital or the issue or sale since the
date of the Indenture of Equity Interests of IVAC Medical Systems, Inc. or
of debt securities of IVAC Medical Systems, Inc. that have been converted
into such Equity Interests (other than Equity Interests (or convertible
debt securities) sold to a Subsidiary of IVAC Medical Systems, Inc. and
other than Disqualified Stock or debt securities that have been converted
into Disqualified Stock), plus (3) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any); provided that no cash proceeds received by IVAC Medical Systems, Inc.
from the issue or sale of any Equity Interests of IVAC Medical Systems,
Inc. will be counted in determining the amount available for Restricted
Payments under this clause (b) to the extent such proceeds were used to
redeem, repurchase, retire or acquire any Equity Interests of IVAC Medical
Systems, Inc. pursuant to clause (ii) of the next succeeding paragraph.
The foregoing provisions will not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at such date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of IVAC Medical Systems, Inc. in exchange for, or out of
the net proceeds of, the substantially concurrent sale (other than to a
Subsidiary of IVAC Medical Systems, Inc.) of other Equity Interests of IVAC
Medical Systems, Inc. (other than Disqualified Stock); provided that the amount
of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause (b)(2)
of the preceding paragraph; (iii) the defeasance, redemption or repurchase of
subordinated Indebtedness with the net proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the repurchase, redemption or other acquisition
or retirement for value of any Equity Interests of IVAC Medical Systems, Inc. or
Holdings held by any member of Holdings', IVAC Medical Systems, Inc.'s or any of
IVAC Medical Systems, Inc.'s Restricted Subsidiaries' management pursuant to any
management equity subscription agreement or stock option agreement and any
dividend to Holdings to fund any such repurchase, redemption or acquisition;
provided that (A) the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $500,000 in any
twelve-month period plus the aggregate cash proceeds received by IVAC Medical
Systems, Inc. during such twelve-month period from any reissuance of Equity
Interests by Holdings or IVAC Medical Systems, Inc. to members of management of
Holdings, IVAC Medical Systems, Inc. and its Restricted Subsidiaries and (B) no
Default or Event of Default shall have occurred and be continuing immediately
after such transaction; provided that the amount in excess of $500,000 expended
for all such repurchases, redemptions and other acquisitions and retirements of
Equity Interests pursuant to this clause (iv) in any twelve month period shall
be excluded from clause (b)(2) of the preceding paragraph; (v) the payment of
dividends or the making of loans or advances by IVAC Medical Systems, Inc. to
Holdings not to exceed $300,000 in any fiscal year for costs and expenses
incurred by Holdings in its capacity as a holding company; (vi) the payment of
dividends by a Restricted Subsidiary on any class of common stock of such
Restricted Subsidiary if (A) such dividend is paid pro rata to all holders of
such class of common stock and (B) at least 51% of such class of common stock is
held by IVAC Medical Systems, Inc. or one or more of its Wholly Owned Restricted
Subsidiaries; (vii) the repurchase of any class of common stock of a Restricted
Subsidiary if (A) such repurchase is made pro rata with respect to such class of
common stock and (B) at least 51% of such class of common stock is held by IVAC
Medical Systems, Inc. or one or more of its Wholly Owned Restricted
Subsidiaries; (viii) payments to Holdings pursuant to the Tax Sharing Agreement;
and (ix) any other Restricted Payment (other than (A) a dividend or other
distribution on account of any Equity Interests of IVAC Medical Systems, Inc. or
any of its Restricted Subsidiaries and (B) a purchase, redemption or other
acquisition of any Equity Interests of IVAC Medical Systems, Inc., any of its
Restricted Subsidiaries or any Affiliate of IVAC Medical Systems, Inc.) if the
amounts thereof, together with all other Restricted Payments made pursuant to
this clause (ix) since the date of the Indenture does not exceed $15.0 million.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated by River Medical, Inc. be
transferred to or held by an Unrestricted Subsidiary. For purposes of making
such
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designation, all outstanding Investments by IVAC Medical Systems, Inc. and its
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Restricted Investments in an amount equal to the greater of
(i) the net book value of such Investments at the time of such designation and
(ii) the fair market value of such Investments at the time of such designation.
Such designation will only be permitted if such Restricted Investment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
Not later than the date of making any Restricted Payment, IVAC Medical
Systems, Inc. shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations shall be based upon IVAC Medical Systems, Inc.'s latest available
financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture will provide that IVAC Medical Systems, Inc. will not, and
will not permit any of its Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guaranty or otherwise become directly or indirectly liable
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and that IVAC Medical Systems, Inc. will not issue any Disqualified Stock
and will not permit any of IVAC Medical Systems, Inc.'s Restricted Subsidiaries
to issue any shares of preferred stock; provided, however, that IVAC Medical
Systems, Inc. may incur Indebtedness or issue shares of Disqualified Stock and
any Guaranteeing Subsidiary may incur Indebtedness or issue shares of preferred
stock, if the Fixed Charge Coverage Ratio for IVAC Medical Systems, Inc.'s most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.5 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock or preferred stock had been issued,
as the case may be, at the beginning of such four-quarter period.
The foregoing provisions will not apply to: (i) the incurrence by IVAC
Medical Systems, Inc. and its Restricted Subsidiaries of Indebtedness and
letters of credit pursuant to the Bank Credit Facility (with letters of credit
being deemed to have a principal amount equal to the maximum potential liability
of IVAC Medical Systems, Inc. or the relevant Restricted Subsidiary thereunder),
in a maximum principal amount outstanding at any one time not to exceed $70.0
million, less the aggregate amount of all Net Proceeds of Asset Sales applied
pursuant to clause (a), (b), (c) or (d) of the first sentence of the second
paragraph under the covenant entitled "Asset Sales" to permanently reduce
Indebtedness (and the commitments) thereunder or to cash collateralize letters
of credit and permanently reduce commitments under the Bank Credit Facility;
(ii) the incurrence by IVAC Medical Systems, Inc. and any Guaranteeing
Subsidiary of Indebtedness represented by the Notes and any Guarantee thereof;
(iii) the incurrence by IVAC Medical Systems, Inc. or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of IVAC Medical Systems, Inc. or
such Restricted Subsidiary, in an aggregate principal amount not to exceed $5.0
million at any time outstanding; (iv) Existing Indebtedness; (v) the incurrence
by IVAC Medical Systems, Inc. or any of its Restricted Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are used
to extend, refinance, renew, replace, defease or refund, Indebtedness that was
permitted by the Indenture; (vi) the incurrence by IVAC Medical Systems, Inc. or
any of its Restricted Subsidiaries of intercompany Indebtedness between or among
IVAC Medical Systems, Inc. and any of its Restricted Subsidiaries; provided,
however, that (a) any subsequent issuance or transfer (other than for security
purposes) of Equity Interests and (b) any subsequent sale or other transfer
(including for security purposes other than to secure Indebtedness permitted to
be incurred pursuant to clause (i) of this paragraph) of such Indebtedness, in
each case, that results in any such Indebtedness being held by a Person other
than IVAC Medical Systems, Inc. or a Restricted Subsidiary of IVAC Medical
Systems, Inc. shall be deemed to
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constitute an incurrence of such intercompany Indebtedness by IVAC Medical
Systems, Inc. or such Restricted Subsidiary, as the case may be; (vii) the
incurrence by IVAC Medical Systems, Inc. or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or hedging
(a) interest rate risk with respect to any floating rate Indebtedness of such
Person that is permitted by the terms of the Indenture to be outstanding or (b)
exchange rate risk with respect to agreements or indebtedness of such Person
payable or denominated in a currency other than U.S. dollars; (viii) the
incurrence by IVAC Medical Systems, Inc.'s Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of IVAC
Medical Systems, Inc.; (ix) the incurrence by IVAC Medical Systems, Inc. or any
Guaranteeing Subsidiary of Indebtedness in connection with the sale and
leaseback of either Facility in an aggregate principal amount not to exceed
$35.0 million at any time outstanding, provided that IVAC Medical Systems, Inc.
or any Guaranteeing Subsidiary may incur such Indebtedness only if the proceeds
of such transaction are applied in accordance with the covenant "Asset Sales";
(x) the incurrence by IVAC Medical Systems, Inc. of Indebtedness (in addition to
Indebtedness permitted by any other clause of this paragraph) in an aggregate
principal amount at any time outstanding not to exceed the sum of (a) $20.0
million plus (b) up to $25.0 million of permanent reductions in commitments with
respect to the Bank Credit Facility (other than pursuant to the mandatory
repayment provisions thereof) made since the date of the Indenture; (xi) the
incurrence by any Foreign Subsidiary of Indebtedness and letters of credit to
fund working capital and capital expenditure requirements (with letters of
credit being deemed to have a principal amount equal to the maximum potential
liability of such Foreign Subsidiary thereunder) in a maximum principal amount
outstanding at any one time not to exceed $10.0 million; and (xii) the
incurrence or issuance by any Restricted Subsidiary of IVAC Medical Systems,
Inc. of Indebtedness or preferred stock (in addition to Indebtedness and
preferred stock that may be incurred or issued pursuant to any other clause of
this paragraph) in an aggregate principal amount not to exceed $1.0 million.
SALE AND LEASEBACK TRANSACTIONS
The Indenture will provide that IVAC Medical Systems, Inc. will not, and
will not permit any of its Restricted Subsidiaries to, enter into any sale and
leaseback transaction; provided that IVAC Medical Systems, Inc. and any
Guaranteeing Subsidiary may enter into a sale and leaseback transaction if (i)
IVAC Medical Systems, Inc. or such Guaranteeing Subsidiary could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant "Incurrence of Additional
Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to secure
such Indebtedness pursuant to the covenant "Liens," (ii) the gross cash proceeds
of such sale and leaseback transaction are at least equal to the fair market
value (as determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (iii) the transfer of assets
in such sale and leaseback transaction is permitted by, and the proceeds of such
transaction are applied in compliance with, the covenant "Asset Sales." The
foregoing provision will not apply to the sale and leaseback by IVAC Medical
Systems, Inc. of either Facility, provided that IVAC Medical Systems, Inc.
applies the proceeds of such transaction in accordance with the covenant "Asset
Sales."
LIENS
The Indenture will provide that IVAC Medical Systems, Inc. will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien (other than Permitted Liens)
on any property or asset now owned or hereafter acquired, or on any income or
profits therefrom or assign or convey any right to receive income therefrom,
unless all payments due under the Indenture and the Notes are secured on either
a senior or an equal and ratable basis with the obligations so secured until
such time as such obligations are no longer secured by a Lien.
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DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Indenture will provide that IVAC Medical Systems, Inc. will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any Restricted Subsidiary to: (i)(a) pay
dividends or make any other distributions to IVAC Medical Systems, Inc. or any
of its Restricted Subsidiaries on its Capital Stock or (b) pay any Indebtedness
owed to IVAC Medical Systems, Inc. or any of its Restricted Subsidiaries; (ii)
make loans or advances to IVAC Medical Systems, Inc. or any of its Restricted
Subsidiaries; or (iii) transfer any of its properties or assets to IVAC Medical
Systems, Inc. or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reasons of (a) Existing
Indebtedness, as in effect on the date of the Indenture; (b) the Bank Credit
Facility and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof; provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive in the aggregate
than those contained in the Bank Credit Facility, as in effect on the date of
the Indenture; (c) the Indenture and the Notes; (d) applicable law; (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by IVAC
Medical Systems, Inc. or any of its Restricted Subsidiaries, as in effect at the
time of acquisition (except to the extent such Indebtedness was incurred in
connection with, or in contemplation of, such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired; provided that the Consolidated Cash Flow of such Person is not taken
into account in determining whether such acquisition was permitted by the terms
of the Indenture; (f) customary non-assignment provisions in leases entered into
in the ordinary course of business and consistent with past practices; (g)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired; (h) Permitted Refinancing Indebtedness; provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive in the aggregate than those
contained in the agreements governing the Indebtedness being refinanced; or (i)
restrictions applicable to any Foreign Subsidiary pursuant to Indebtedness
permitted to be incurred pursuant to clause (xi) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock";
provided that such restrictions shall be limited to customary net worth,
leverage, cash flow and other financial ratios applicable to such Foreign
Subsidiary, customary restrictions on mergers and consolidations involving such
Foreign Subsidiary, customary restrictions on transactions with affiliates of
such Foreign Subsidiary and customary provisions subordinating the payment of
intercompany Indebtedness owed by such Foreign Subsidiary to IVAC Medical
Systems, Inc. or any Restricted Subsidiary of IVAC Medical Systems, Inc. upon
the occurrence of a default in respect of Indebtedness of such Foreign
Subsidiary or its Subsidiaries and/or events of insolvency with respect to such
Foreign Subsidiary or its Subsidiaries; and provided further that in no event
shall any Indebtedness incurred by a Foreign Subsidiary prohibit such Foreign
Subsidiary from making any dividend or other distribution to IVAC Medical
Systems, Inc. or its Restricted Subsidiaries or from otherwise making any loan
to IVAC Medical Systems, Inc. or its Restricted Subsidiaries in the absence of a
breach by such Foreign Subsidiary of the covenants contained in such
Indebtedness.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that IVAC Medical Systems, Inc. may not consolidate
or merge with or into (whether or not IVAC Medical Systems, Inc. is the
surviving entity), or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of its properties or assets in one or more related
transactions to, another Person unless (i) IVAC Medical Systems, Inc. is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than IVAC Medical Systems, Inc.) or to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia; (ii) the Person
formed by or surviving any such consolidation or merger (if other than IVAC
Medical Systems, Inc.) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made assumes all the
obligations of IVAC Medical Systems, Inc. under the Notes and the Indenture
pursuant to a
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supplemental indenture in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction, no Default or Event of Default exists; and
(iv) IVAC Medical Systems, Inc. or the Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made will, at the time of such
transaction after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock." The foregoing will
not prohibit a merger between IVAC Medical Systems, Inc. and a Wholly Owned
Restricted Subsidiary; provided that, if IVAC Medical Systems, Inc. is not the
surviving entity of such transaction, the surviving entity shall comply with
clause (ii) of this paragraph. Notwithstanding anything to the contrary in the
Indenture, IVAC Medical Systems, Inc. will not consolidate or merge with or into
(whether or not IVAC Medical Systems, Inc. is the surviving entity) River until
such time as there has been a final, non-appealable resolution (including
satisfaction of any judgment with respect thereto) of River's litigation with
Block. See "Business -- Legal Proceedings."
TRANSACTIONS WITH AFFILIATES
The Indenture will provide that IVAC Medical Systems, Inc. will not, and
will not permit any of its Restricted Subsidiaries to, sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to IVAC Medical Systems, Inc.
or such Restricted Subsidiary than those that would have been obtained in a
comparable transaction by IVAC Medical Systems, Inc. or such Restricted
Subsidiary with an unrelated Person and (ii) if such Affiliate Transaction
involves aggregate payments in excess of $5.0 million, IVAC Medical Systems,
Inc. delivers to the Trustee a resolution of the Board of Directors of IVAC
Medical Systems, Inc. set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and such Affiliate
Transaction is approved by a majority of the disinterested members of the Board
of Directors of IVAC Medical Systems, Inc.; provided, however, that (a) any
employment agreement entered into by IVAC Corporation or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of IVAC Medical Systems, Inc. or such Restricted Subsidiary, (b)
transactions between or among IVAC Medical Systems, Inc. and/or its Restricted
Subsidiaries, (c) transactions between IVAC Medical Systems, Inc. or its
Restricted Subsidiaries on the one hand, and the Underwriter or its Affiliates
on the other hand, involving the provisions of financial, consulting or
underwriting services by the Underwriter or its Affiliates, provided that the
fees payable to the Underwriter or its Affiliates do not exceed the usual and
customary fees of the Underwriter and its Affiliates for similar services, (d)
transactions in accordance with the Specified Agreements, as in effect on the
date of the Indenture, (e) payment of employee benefits, including bonuses,
retirement plans and stock options, in the ordinary course of business,
consistent with past practice since the Acquisition and (f) Restricted Payments
permitted by the provisions of the Indenture described above under clauses (i),
(v), (vi), (vii) and (viii) of the second paragraph of the covenant entitled
"Restricted Payments," in each case, shall not be deemed Affiliate Transactions.
LINE OF BUSINESS
IVAC Medical Systems, Inc. will not, and will not permit any Restricted
Subsidiary to, engage in any line of business other than (i) the same or a
similar line of business as IVAC Medical Systems, Inc. and its Restricted
Subsidiaries are engaged in on the date of the Indenture and (ii) such business
activities as are incidental or related thereto.
REPORTS
The Indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, IVAC Medical Systems, Inc. will furnish to
the Holders of Notes (i) all quarterly and annual financial information that
would be
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required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if IVAC Medical Systems, Inc. were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
IVAC Medical Systems, Inc. and its Restricted Subsidiaries and, with respect to
the annual information only, a report thereon by IVAC Medical Systems, Inc.'s
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if IVAC Medical Systems,
Inc. were required to file such reports. In addition, whether or not required by
the rules and regulations of the Commission, IVAC Medical Systems, Inc. will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default:
(i) default for 30 days in the payment when due of interest on the
Notes;
(ii) default in payment when due of principal or premium, if any, on
the Notes at maturity, upon redemption or otherwise;
(iii) failure by IVAC Medical Systems, Inc. or any Guaranteeing
Subsidiary for 30 days after receipt of notice from the Trustee or Holders
of at least 25% in principal amount of the Notes then outstanding to comply
with the provisions described under the covenants entitled "Change of
Control," "Asset Sales," "Sale and Leaseback Transactions," "Restricted
Payments," "Incurrence of Indebtedness and Issuance of Preferred Stock" or
"Merger, Consolidation or Sale of Assets;"
(iv) failure by IVAC Medical Systems, Inc. or any Guaranteeing
Subsidiary for 60 days after notice from the Trustee or the Holders of at
least 25% in principal amount of the Notes then outstanding to comply with
its other agreements in the Indenture or the Notes;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by IVAC Medical Systems, Inc. or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by IVAC
Medical Systems, Inc. or any of its Restricted Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the date of the
Indenture, which default (i) is caused by a failure to pay when due
principal of or premium, if any, or interest on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been
a Payment Default or the maturity of which has been so accelerated,
aggregates $10.0 million or more;
(vi) failure by IVAC Medical Systems, Inc. or any of its Restricted
Subsidiaries to pay final judgments (other than any judgment as to which a
reputable insurance company has accepted full liability) aggregating in
excess of $10.0 million, which judgments are not discharged or stayed
within 60 days after their entry;
(vii) certain events of bankruptcy or insolvency with respect to IVAC
Medical Systems, Inc. or any Restricted Subsidiary that is a Significant
Subsidiary or group of Restricted Subsidiaries that, together, would
constitute a Significant Subsidiary; and
(viii) the termination of any Subsidiary Guarantee for any reason not
permitted by the Indenture, or the denial of any Person acting on behalf of
any Guaranteeing Subsidiary of its Obligations under any such Subsidiary
Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or
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insolvency with respect to IVAC Medical Systems, Inc. all outstanding Notes will
become due and payable without further action or notice. Holders of the Notes
may not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest or premium on, or principal of, the Notes. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in such
Holders' interest.
IVAC Medical Systems, Inc. is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and IVAC Medical Systems,
Inc. is required upon becoming aware of any Default or Event of Default to
deliver to the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of IVAC Medical
Systems, Inc., as such, shall have any liability for any obligations of IVAC
Medical Systems, Inc. under the Notes or the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
IVAC Medical Systems, Inc. may, at its option and at any time, elect to
have its obligations discharged with respect to the outstanding Notes ("legal
defeasance"). Such legal defeasance means that IVAC Medical Systems, Inc. will
be deemed to have paid and discharged the entire indebtedness represented by the
outstanding Notes, except for (a) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, or on the redemption date, as the case
may be, (b) IVAC Medical Systems, Inc.'s obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (c) the rights, powers, trust, duties
and immunities of the Trustee, and IVAC Medical Systems, Inc.'s obligations in
connection therewith and (d) the legal defeasance provisions of the Indenture.
In addition, IVAC Medical Systems, Inc. may, at its option and at any time,
elect to have the obligations of IVAC Medical Systems, Inc. released with
respect to certain covenants that are described in the Indenture ("covenant
defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event covenant defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default and Remedies" will no longer constitute an Event of Default
with respect to the Notes.
In order to exercise either legal defeasance or covenant defeasance, IVAC
Medical Systems, Inc. must, among other things, irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S.
dollars, non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants selected by the Trustee, to pay the principal of,
premium, if any, and interest on the outstanding Notes on the stated maturity or
on the applicable optional redemption date, as the case may be.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and IVAC Medical
Systems, Inc. may require a Holder to pay any taxes and fees required by law
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or permitted by the Indenture. IVAC Medical Systems, Inc. is not required to
transfer or exchange any Note selected for redemption. Also, IVAC Medical
Systems, Inc. is not required to transfer or exchange any Note for a period of
15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, however, an amendment or
waiver may not (with respect to any Note held by a non-consenting Holder): (i)
reduce the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
or any change of control offer; (iii) reduce the rate of or change the time for
payment of interest on any Notes; (iv) waive a Default or Event of Default in
the payment of principal of or premium, if any, or interest on the Notes (except
a rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration); (v) make any Note payable in money other
than that stated in the Notes; (vi) waive a redemption or repurchase payment
with respect to any Note; or (vii) make any change in the foregoing amendment
and waiver provisions. Notwithstanding the foregoing, the provisions with
respect to Asset Sales may be amended or supplemented with the consent of the
Holders of at least two-thirds in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the Notes).
Notwithstanding the foregoing, without the consent of any Holder of Notes,
IVAC Medical Systems, Inc. and the Trustee may amend or supplement the Indenture
or the Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of IVAC Medical Systems, Inc.'s obligations to
Holders of the Notes in the case of a merger or consolidation, to make any
change that would provide any additional rights or benefits to the Holders of
the Notes or that does not adversely affect the legal rights under the Indenture
of any such Holder, to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act or to allow any Guaranteeing Subsidiary to guarantee the Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of IVAC Medical Systems, Inc., to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions with IVAC Medical Systems, Inc.;
however, if the Trustee acquires any conflicting interest, it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
as Trustee or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to IVAC Medical Systems, Inc., 10221 Wateridge Circle,
San Diego, California 92121, Attention: Corporate Secretary.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback) other
than in the ordinary course of business; (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
IVAC Medical Systems, Inc. and its Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the covenant
entitled "Change of Control" and/or the provisions described above under the
covenant entitled "Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant), and (ii) the issue or sale by IVAC
Medical Systems, Inc. or any of its Restricted Subsidiaries of Equity Interests
of any of IVAC Medical Systems, Inc.'s Restricted Subsidiaries, in the case of
clauses (i) and (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $3.0 million or (b)
for net proceeds in excess of $3.0 million. Notwithstanding the foregoing: (i) a
transfer of assets by IVAC Medical Systems, Inc. to a Restricted Subsidiary or
by a Restricted Subsidiary to IVAC Medical Systems, Inc. or to another
Restricted Subsidiary, (ii) an issuance of Equity Interests by a Restricted
Subsidiary to IVAC Medical Systems, Inc. or to another Restricted Subsidiary,
(iii) a Restricted Payment that is permitted by the covenant described above
under the covenant entitled "Restricted Payments," and (iv) the sale and
leaseback of any assets within 90 days of the acquisition of such assets will
not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bank Credit Facility" means that certain amended and restated credit
agreement, dated as of December 30, 1994, and amended and restated as of March
29, 1996 by and among IVAC Medical Systems, Inc., Holdings, Chemical Bank, as
agent, and the lenders party thereto, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time, including any agreement extending the maturity of
or refinancing or refunding all or any portion of the Indebtedness thereunder or
increasing the amount that may be borrowed under such agreement or any successor
agreement, whether or not among the same parties.
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"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means, (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
corporate stock and (iii) in the case of a partnership, partnership interests
(whether general or limited).
"Change of Control" means the occurrence of any of the following: (i) any
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of IVAC Medical Systems, Inc. and its
Subsidiaries taken as a whole to any "person" (as defined in Section 13(d) of
the Exchange Act) or "group" (as defined in Sections 13(d)(3) and 14(d)(2) of
the Exchange Act) other than the Principals and their Related Parties; (ii) the
adoption of a plan for the liquidation or dissolution of IVAC Medical Systems,
Inc. other than a liquidation or dissolution that results in substantially all
of the assets of IVAC Medical Systems, Inc. being held directly or indirectly
through one or more Wholly Owned Subsidiaries by the Principals and their
Related Parties; (iii) IVAC Medical Systems, Inc. consolidates with, or merges
with or into, another "person" (as defined above) or "group" (as defined above)
in a transaction or series of related transactions in which the voting stock of
IVAC Medical Systems, Inc. is converted into or exchanged for cash, securities
or other property, other than any transaction where (A) the outstanding Voting
Stock of IVAC Medical Systems, Inc. is converted into or exchanged for Voting
Stock (other than Disqualified Stock) of the surviving or transferee corporation
and (B) either (1) the "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act) of the Voting Stock of IVAC Medical Systems, Inc. immediately
prior to such transaction own, directly or indirectly through one or more
Subsidiaries, not less than a majority of the total Voting Stock of the
surviving or transferee corporation immediately after such transaction or (2)
if, immediately prior to such transaction IVAC Medical Systems, Inc. is a direct
or indirect Subsidiary of any other Person (such other Person, the "Holding
Company"), then the "beneficial owners" (as defined above) of the voting stock
of such Holding Company immediately prior to such transaction own, directly or
indirectly through one or more Subsidiaries, not less than a majority of the
Voting Stock of the surviving or transferee corporation immediately after such
transaction; (iv) the consummation of any transaction or series of related
transactions (including, without limitation, by way of merger or consolidation)
the result of which is that any "person" (as defined above) or "group" (as
defined above) other than the Principals and their Related Parties becomes the
"beneficial owner" (as defined above) of more than 50% of the voting power of
the Voting Stock of IVAC Medical Systems, Inc. or (v) the first day on which a
majority of the members of the Board of Directors of IVAC Medical Systems, Inc.
are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period, plus, to the extent deducted in computing Consolidated Net Income,
(i) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, (ii) Consolidated Interest Expense of
such Person for such period, (iii) depreciation and amortization (including
amortization of goodwill and other intangibles) and all other non-cash charges
(excluding any such non-cash charge to the extent that it represents an accrual
of or reserve for cash charges in any future period or amortization of a prepaid
cash expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period, (iv) any extraordinary or non-recurring loss and
any net loss realized in connection with any Asset Sale, in each case, on a
consolidated basis determined in accordance with GAAP and (v) severance and
transaction costs incurred prior to the date of the Indenture in connection with
the Acquisition in an amount not to exceed $10.0 million. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the interest expense of such Person and its Restricted Subsidiaries for
such period net of interest income of such Person and its Restricted
Subsidiaries for such period arising out of NCA Contracts, on a consolidated
basis, determined in
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accordance with GAAP (including amortization of original issue discount and
deferred financing costs, except as set forth in the proviso to this definition,
non-cash interest payments, the interest component of all payments associated
with Capital Lease Obligations and net payments, if any, pursuant to Hedging
Obligations; provided, however, that in no event shall any amortization of
deferred financing cost incurred on or prior to the date of the Indenture in
connection with the Bank Credit Facility or any amortization of deferred
financing costs incurred in connection with the issuance of the Notes be
included in Consolidated Interest Expense).
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid to the referent Person or a Restricted Subsidiary thereof in
cash, (ii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iii) the cumulative effect of a change in accounting principles shall
be excluded, and (iv) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of Net Income is not, at the date of
determination, permitted without any prior governmental approval (which has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of IVAC Medical Systems, Inc. who (i) was a member of
such Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable, except to the extent such capital stock is exchangeable into
indebtedness at the option of the issuer thereof and only subject to the terms
of any debt instrument to which such issuer is a party), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to date on which the Notes mature.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $100.0 million or its equivalent
in foreign currency, whose short-term debt is rated "A-3" (or higher) according
to Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to
Moody's Investor Services, Inc. ("Moody's") or carrying an equivalent rating by
a nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of IVAC Medical Systems, Inc.
and its Restricted Subsidiaries (other than Indebtedness under the Bank Credit
Facility) in existence on the date of the Indenture until such amounts are
repaid.
"Facility" means either or both of (i) IVAC Medical Systems, Inc.'s
facility located at 10221 Wateridge Circle, San Diego, CA 92121 or (ii) IVAC
Medical Systems, Inc.'s facility located at 1515 IVAC Way, Creedmoor, North
Carolina 27522.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the Consolidated Interest Expense of such Person for such period and (ii)
any interest expense on Indebtedness of another Person that is Guaranteed by the
referent Person or one of its Restricted Subsidiaries or secured by a Lien on
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assets of such Person or one of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iii) the product of (a) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Subsidiary) on any series of preferred stock of such Person, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that IVAC Medical
Systems, Inc. or any of its Restricted Subsidiaries incurs, assumes, Guarantees
or redeems any Indebtedness (other than revolving credit borrowings) or issues
or redeems preferred stock subsequent to the commencement of the period for
which the Fixed Charge Coverage Ratio is being calculated but on or prior to the
date on which the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
Guarantee or redemption of Indebtedness, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the applicable
four-quarter reference period. For purposes of making the computation referred
to above, (i) acquisitions that have been made by IVAC Medical Systems, Inc. or
any of its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and shall give pro forma effect to the
Indebtedness and the Consolidated Cash Flow of the Person which is the subject
of any such acquisition, (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means any Restricted Subsidiary of IVAC Medical
Systems, Inc. organized and existing under the laws of any jurisdiction outside
of the United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the date of the
Indenture; provided, however, that all reports and other financial information
provided by IVAC Corporation to the Holders, the Trustee and/or the Commission
shall be prepared in accordance with GAAP, as in effect on the date of such
report or other financial information.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guaranteeing Subsidiary" means any Restricted Subsidiary that shall have
guaranteed, pursuant to a supplemental indenture and the requirements therefor
set forth in the Indenture, the payment of all principal of, and interest and
premium, if any, on, the Notes and all other amounts payable under the Notes or
the Indenture, which guarantee shall be pari passu with or senior to all other
Indebtedness of such Restricted Subsidiary.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and
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(ii) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates or foreign exchange rates.
"Holdings" means IVAC Holdings, Inc., a Delaware corporation, the corporate
parent of IVAC Medical Systems, Inc., or its successors.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or trade
payable, or representing any Hedging Obligations if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien on
any asset of such Person (whether or not such indebtedness is assumed by such
Person), the maximum fixed repurchase price of Disqualified Stock issued by such
Person and the liquidation preference of preferred stock issued by such Person,
in each case, if held by any Person other than IVAC Medical Systems, Inc. or a
Wholly Owned Restricted Subsidiary of IVAC Medical Systems, Inc., and, to the
extent not otherwise included, the Guarantee by such Person of any indebtedness
of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
IVAC Corporation for consideration consisting of common equity securities of
IVAC Medical Systems, Inc. shall not be deemed to be an Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest).
"Marketable Securities" means (i) Government Securities, (ii) any
certificate of deposit maturing not more than 270 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution or any lender
under the Bank Credit Facility, (iii) commercial paper maturing not more than
270 days after the date of acquisition of an issuer (other than an Affiliate of
IVAC Corporation) with a rating, at the time as of which any investment therein
is made, of "A-3" (or higher) according to S&P or "P-2" (or higher) according to
Moody's or carrying an equivalent rating by a nationally recognized rating
agency if both of the two named rating agencies cease publishing ratings of
investments, (iv) any bankers acceptances or money market deposit accounts
issued by an Eligible Institution and (v) any fund investing exclusively in
investments of the types described in clauses (i) through (iv) above.
"NCA Contract" means any contract or agreement to which IVAC Medical
Systems, Inc. or any of its Restricted Subsidiaries is a party pursuant to which
the other party to any such contract or agreement acquires on behalf of itself
or another party instruments from IVAC Medical Systems, Inc. or such Restricted
Subsidiary at no initial cost by paying a premium (a portion of which is
recorded by IVAC Medical Systems, Inc. in accordance with GAAP as interest
income) for subsequent purchases of disposable administration sets.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
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"Net Proceeds" means the aggregate cash proceeds received by IVAC Medical
Systems, Inc. or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than long-term Indebtedness of a Restricted
Subsidiary of such Person and Indebtedness of IVAC Medical Systems, Inc. or any
Restricted Subsidiary under the Bank Credit Facility) secured by a Lien on the
asset or assets that are the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of IVAC Medical Systems, Inc.
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of IVAC
Medical Systems, Inc. or any of its Restricted Subsidiaries; provided, however,
that in no event shall Indebtedness of any Unrestricted Subsidiary fail to be
Non-Recourse Debt solely as a result of any default provisions contained in a
Guarantee thereof by IVAC Medical Systems, Inc. or any of its Restricted
Subsidiaries if IVAC Medical Systems, Inc. or such Restricted Subsidiary was
otherwise permitted to incur such Guarantee pursuant to the Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (i) Investments in IVAC Medical Systems, Inc.
or in a Restricted Subsidiary of IVAC Medical Systems, Inc., (ii) Investments in
Marketable Securities, (iii) Investments by IVAC Medical Systems, Inc. or any
Restricted Subsidiary of IVAC Medical Systems, Inc. in a Person if, as a result
of such Investment, (a) such person becomes a Restricted Subsidiary of IVAC
Medical Systems, Inc. or (b) such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, IVAC Medical Systems, Inc. or a Restricted Subsidiary of IVAC
Medical Systems, Inc., (iv) Investments in accounts and notes receivable
acquired in the ordinary course of business, and (v) any non-cash consideration
received in connection with an Asset Sale that complies with the covenant
entitled "Asset Sales."
"Permitted Liens" means (i) Liens securing (a) the Indebtedness pursuant to
the Bank Credit Facility permitted by clause (i) under the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" to be outstanding
and (b) related Hedging Obligations; (ii) Liens in favor of IVAC Medical
Systems, Inc. or any Restricted Subsidiary, (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with IVAC
Medical Systems, Inc. or any Restricted Subsidiary of IVAC Medical Systems,
Inc.; provided, that such Liens were not incurred in connection with, or in
contemplation of, such merger or consolidation and do not extend to any assets
of IVAC Medical Systems, Inc. or any Restricted Subsidiary other than the assets
acquired in such merger or consolidation; (iv) Liens on property of a Person
existing at the time such Person becomes a Restricted Subsidiary of IVAC Medical
Systems, Inc.; provided that such Liens were not incurred in connection with, or
in contemplation of, such Person becoming a Restricted Subsidiary and do not
extend to any assets of IVAC Medical Systems, Inc. or any other Restricted
Subsidiary; (v) Liens on property existing at the time of acquisition thereof by
IVAC Medical Systems, Inc. or any Restricted Subsidiary of IVAC Medical Systems,
Inc.; provided that such Liens were not incurred in connection with, or in
contemplation of, such acquisition and do not extend to any assets of IVAC
Medical Systems, Inc. or any of its Restricted Subsidiaries other than the
property so acquired; (vi) Liens to secure the performance of statutory
obligations, surety or appeal bonds or performance bonds, or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's or other like
Liens, in any case incurred in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provision, if any, as is
required by GAAP shall
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have been made therefor; (vii) Liens existing on the date of the Indenture;
(viii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (ix) Liens to secure (A) Indebtedness
(including Capital Lease Obligations) permitted by clause (iii) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness and
(B) Indebtedness of any Restricted Subsidiary (other than a Guaranteeing
Subsidiary) permitted to be incurred by such Restricted Subsidiary pursuant to
the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock"; (x) Liens incurred in the ordinary course of business of IVAC Medical
Systems, Inc. or any Restricted Subsidiary of IVAC Medical Systems, Inc. with
respect to obligations not constituting Indebtedness for borrowed money that do
not exceed $5.0 million in the aggregate at any one time outstanding; and (xi)
Liens securing Indebtedness incurred to refinance Indebtedness that has been
secured by a Lien permitted under the Indenture; provided that (a) any such Lien
shall not extend to or cover any assets or property not securing the
Indebtedness so refinanced and (b) the refinancing Indebtedness secured by such
Lien shall have been permitted to be incurred under the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock."
"Permitted Refinancing Indebtedness" means any Indebtedness of IVAC Medical
Systems, Inc. or any of its Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace, defease
or refund other Indebtedness of IVAC Medical Systems, Inc. or any of its
Restricted Subsidiaries; provided that: (i) the principal amount of such
Permitted Refinancing Indebtedness does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith); (ii)
such Permitted Refinancing Indebtedness has a final maturity date at least as
late as the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
IVAC Medical Systems, Inc. or by the Restricted Subsidiary who is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Principals" means DLJ Merchant Banking, Inc., Gregory E. Sancoff and
William J. Mercer, and each of their respective Affiliates.
"Related Party" means, with respect to the Principals, (i) any controlling
stockholder or partner of any Principal on the date of the Indenture, or (ii)
any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding (directly or
through one or more Subsidiaries) a 51% or more controlling interest of which
consist of the Principals and/or such other Persons referred to in the
immediately preceding clauses (i) or (ii).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Specified Agreements" means (i) the Engagement Letter, dated as of
December 30, 1994, between Holdings and Donaldson, Lufkin & Jenrette Securities
Corporation, (ii) the Shareholders' Agreement, dated as of December 30, 1994,
among Holdings and the shareholders named therein, (iii) the Class A
Subscription Agreement, dated as of December 30, 1994, between Holdings and
certain investors named therein, (iv) the
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Class B Subscription Agreement, dated as of December 30, 1994, between Holdings
and certain investors named therein, and (v) the Securities Purchase Agreement
for the purchase of Junior Subordinated Notes, dated as of December 30, 1994,
among Holdings and the purchasers listed therein, in each case, as in effect on
the date of the Indenture.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or one
or more Subsidiaries of such Person (or any combination thereof).
"Tax Sharing Agreement" means the tax sharing agreement, dated as of
October 18, 1995, between IVAC Corporation and Holdings as in effect on the date
of the Indenture.
"Unrestricted Subsidiary" means any Subsidiary (other than River Medical,
Inc. or any of its successors) that is designated by the Board of Directors as
an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the
extent that such Subsidiary: (i) has no Indebtedness other than Non-Recourse
Debt; (ii) is not party to any agreement, contract, arrangement or understanding
with IVAC Medical Systems, Inc. or any Restricted Subsidiary of IVAC Medical
Systems, Inc. unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to IVAC Medical Systems, Inc. or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of IVAC Medical Systems, Inc.; (iii) is a Person with
respect to which neither IVAC Medical Systems, Inc. nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (iv) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of IVAC Medical Systems,
Inc. or any of its Restricted Subsidiaries. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
covenant entitled "Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of IVAC Medical Systems, Inc.
as of such date (and, if such Indebtedness is not permitted to be incurred as of
such date under the covenant entitled "Incurrence of Indebtedness and Issuance
of Preferred Stock," IVAC Medical Systems, Inc. shall be in default of such
covenant). The Board of Directors of IVAC Medical Systems, Inc. may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of IVAC Medical Systems, Inc. of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" and (ii) no Default
or Event of Default would be in existence following such designation.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the total of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment.
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"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF BANK CREDIT FACILITY
IVAC Medical Systems, Inc. is the borrower under the Bank Credit Facility,
which provides for $60.0 million of term loans that were fully borrowed in
connection with the Acquisition and a $20.0 million revolving credit facility
(the "Revolving Credit Commitment"), each of which matures on December 30, 1999.
Chemical Bank is the administrative agent and collateral agent (the "Agent") for
the lenders (the "Lenders") under the Bank Credit Facility and is the fronting
bank with respect to Letters of Credit issued under the Bank Credit Facility. On
September 30, 1995, outstanding borrowings under the Bank Credit Facility
aggregated $58.5 million consisting entirely of term loans. Approximately $14.0
million and $25.0 million of the net proceeds of the Offering and the Facility
Sale, respectively, were used to repay a portion of the term loans.
On March 29, 1996, the Company amended and restated the Bank Credit
Facility. The amended and restated Bank Credit Facility is available through
March 29, 1999, provides for borrowings of up to $40.0 million, and is secured
by substantially all U.S. domestic assets. On June 30, 1996, outstanding
borrowings under the amended and restated Bank Credit Facility aggregated $15.0
million.
Interest is payable on borrowings under the Bank Credit Facility, at the
election of the Company, at either an "Alternative Base Rate" or an "Adjusted
LIBOR Rate" (each as defined in the Bank Credit Facility), plus a margin of
0.25% and 1.50%, respectively. The pricing is subject to change quarterly based
upon certain debt and interest coverage ratios. On June 30, 1996, the weighted
average interest rate on all borrowings outstanding under the Bank Credit
Facility was 9.55%. Upon at least three business days' notice, IVAC Medical
Systems, Inc. may at any time in whole or in part reduce the Revolving Credit
Commitment; provided, however, that (i) each partial reduction of the Revolving
Credit Commitment shall be in an integral multiple of $1.0 million and (ii) the
Revolving Credit Commitment shall not be reduced to an amount that is less than
the aggregate principal amount of revolving loans and the aggregate stated
amount and related unpaid reimbursement obligations in respect of letters of
credit outstanding under the Bank Credit Facility at the time.
The Bank Credit Facility contains restrictive covenants that impose
limitations or prohibitions upon IVAC Medical Systems, Inc. and Holdings,
including covenants with respect to (i) the creation, incurrence, assumption or
existence of any additional indebtedness; (ii) the creation, incurrence,
assumption or existence of liens; (iii) sale-leaseback transactions; (iv) the
making of investments in, or the making of loans or advances to, other persons;
(v) mergers, consolidations, sales of assets or acquisitions; (vi) payment of
dividends and other distributions; (vii) transactions with affiliates; (viii)
any change in the nature of the business; (ix) change in fiscal year; (x)
modifications to the capital structure of IVAC Medical Systems, Inc.; (xi)
change in ownership or control of IVAC Medical Systems, Inc. and (xii) certain
financial ratios and maintenance of EBITDA (as defined in the Bank Credit
Facility). The Bank Credit Facility also requires IVAC Medical Systems, Inc.,
among other things, (a) to maintain customary insurance and material licenses,
permits and intellectual property rights; (b) to comply with applicable laws and
regulations and (c) to provide the Lenders annual audited and quarterly
unaudited financial statements and certain other reports and certificates.
The Bank Credit Facility is secured by (i) pledge agreements executed by
Holdings, IVAC Medical Systems, Inc. and substantially all subsidiaries of IVAC
Medical Systems, Inc., pursuant to which each such entity has pledged
approximately two-thirds of the common stock or any other equity interests and
intercompany notes of each of their respective subsidiaries, and (ii) security
agreements, pursuant to which Holdings, IVAC Medical Systems, Inc. and all of
the domestic subsidiaries of IVAC Medical Systems, Inc. have granted security
interests in substantially all of their respective assets ("Collateral"), in
each case for the ratable benefit of the Lenders. In addition, Holdings and
substantially all of its subsidiaries have guaranteed IVAC Medical Systems,
Inc.'s obligations under the Bank Credit Facility. In addition to the rights of
the Lenders under the pledge agreements and the security agreements to foreclose
on the shares of common stock, any other equity interest, or any Collateral
pledged thereunder upon the occurrence of an Event of Default (as defined in the
Bank Credit Facility), the Lenders may also exercise other remedies available to
a secured party under the Uniform Commercial Code of the State of New York.
82
<PAGE> 85
PLAN OF DISTRIBUTION
This Prospectus has been prepared for use by DLJSC in connection with
offers and sales of the Notes in marketmaking transactions at negotiated prices
related to prevailing market prices at the time of the sale. DLJSC may act as
principal or agent in such transactions. IVAC has been advised by DLJSC that it
intends to make a market in the Notes; however, DLJSC is not obligated to do so.
Any market making may be discontinued at any time, and there is no assurance
that an active public market for the Notes will develop or, that if such market
develops, that it will continue.
DLJSC served as the underwriter in the Offering and received total
underwriting discounts and commissions of $3,250,000 in connection therewith.
DLJSC received advisory fees and was reimbursed for its expenses in
connection with advice rendered regarding the Acquisition. In addition, Holdings
has retained DLJSC as its financial advisor until the later of (i) December 30,
1998 and (ii) the date on which the Bridge Notes are repaid in full. An
affiliate of DLJSC provided the bridge financing for the Acquisition for which
it was paid customary fees and reimbursed for its expenses. See "Principal
Stockholders" and "Certain Relationships and Related
Transactions -- Transactions with DLJ."
Certain affiliates of DLJSC own shares of Holdings' Class A Common Stock
and are party to the Shareholders' Agreement. Pursuant to the Shareholders'
Agreement, such affiliates of DLJSC have the right to nominate three of the
seven members of the Board and to nominate one additional member of the Board
with the approval of the River Group. In addition, employees of an affiliate of
DLJSC serve as directors of the Company. See "Risk Factors -- Control by DLJMB
and the River Group," "Certain Relationships and Related Transactions" and
"Principal Stockholders."
ERISA MATTERS FOR PENSION PLANS AND INSURANCE COMPANIES
IVAC Medical Systems, Inc. and certain affiliates of IVAC Medical Systems,
Inc., including DLJSC, may each be considered a "party in interest" within the
meaning of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or a "disqualified person" within the meaning of the Code with
respect to many employee benefit plans. Prohibited transactions within the
meaning of ERISA or the Code may arise, for example, if the Notes are acquired
by or with the assets of a pension or other employee benefit plan with respect
to which DLJSC or certain of its affiliates is a service provider, unless such
Notes are acquired pursuant to an exemption for transactions effected on behalf
of such plan by a "qualified professional asset manager" or pursuant to any
other available exemption. The assets of a pension or other employee benefit
plan may include assets held in the general account of an insurance company that
are deemed to be "plan assets" under ERISA. Any insurance company or pension or
employee benefit plan proposing to invest in the Notes should consult with its
legal counsel.
LEGAL MATTERS
The validity of the Notes offered hereby were passed upon for the Company
by Davis Polk & Wardwell, New York, New York and by Brobeck, Phleger & Harrison,
San Diego, California. Certain legal matters in connection with the Offering
were passed upon for the Underwriter by Latham & Watkins, New York, New York.
83
<PAGE> 86
EXPERTS
The consolidated financial statements of IVAC Medical Systems, Inc. as of
and for the year ended December 31, 1995 and of IVAC Corporation as of and for
the year ended December 31, 1994 included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of IVAC Corporation and subsidiaries
and certain IVAC related entities at December 31, 1993 and for the year then
ended appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and is included in
reliance upon such report given upon the authority of such firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
IVAC Medical Systems, Inc. has filed with the Commission a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act,
with respect to the Notes being offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
As a result of the filing of the Registration Statement with the
Commission, IVAC Medical Systems, Inc. became subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith is required to file reports and other
information with the Commission. The Registration Statement and the exhibits and
schedules thereto, as well as such reports and other information filed by IVAC
Medical Systems, Inc. with the Commission may be inspected and copied, at
prescribed rates, at the public reference facilities of the Commission, at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at 7 World Trade Center, 13th Floor, New York, New York 10048,
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, IVAC
Medical Systems, Inc. shall furnish to the holders of the Notes (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if IVAC Medical
Systems, Inc. were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of IVAC Medical
Systems, Inc. and its Restricted Subsidiaries and, with respect to the annual
information only, a report thereon by IVAC Medical Systems, Inc.'s independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if IVAC Medical Systems, Inc. were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, IVAC Medical Systems, Inc. shall file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request.
84
<PAGE> 87
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
IVAC Medical Systems, Inc.
Condensed Consolidated Balance Sheet at June 30, 1996 (unaudited)............... F-2
Condensed Consolidated Statement of Operations for the Six Months Ended June 30,
1996 and 1995 (unaudited)...................................................... F-3
Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30,
1996 and 1995 (unaudited)...................................................... F-4
Notes to Condensed Consolidated Financial Statements (unaudited)................ F-5
Report of Independent Accountants............................................... F-7
Consolidated Balance Sheet at December 31, 1995................................. F-8
Consolidated Statement of Operations for the Year Ended December 31, 1995....... F-9
Consolidated Statement of Cash Flows for the Year Ended December 31, 1995....... F-10
Consolidated Statement of Shareholder's Equity for the Year Ended December 31,
1995........................................................................... F-11
Notes to Consolidated Financial Statements...................................... F-12
IVAC Corporation (Predecessor Company)
Report of Independent Accountants............................................... F-23
Report of Independent Auditors.................................................. F-24
Consolidated Balance Sheets at December 31, 1994 and 1993....................... F-25
Consolidated Statements of Operations for the years ended December 31, 1994 and
1993........................................................................... F-26
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and
1993........................................................................... F-27
Consolidated Statements of Shareholder's Equity for the years ended December 31,
1994
and 1993...................................................................... F-28
Notes to Consolidated Financial Statements...................................... F-29
</TABLE>
Financial statement schedules other than those listed above have been
omitted because they are either not required, not applicable or the information
is otherwise included.
F-1
<PAGE> 88
IVAC MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1996
---------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 7,657
Accounts receivable, net...................................................... 49,032
Current portion of contract receivables, net.................................. 5,451
Inventories, net.............................................................. 38,456
Prepaid expenses and other assets............................................. 2,327
--------
Total current assets.................................................. 102,923
Long-term contract receivables, net............................................. 18,427
Property, plant and equipment, net.............................................. 45,931
Intangible assets, net.......................................................... 22,518
Other long-term assets.......................................................... 500
--------
$ 190,299
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued warranty......................................... $ 24,450
Accrued employee liabilities.................................................. 7,196
Current portion of long-term debt............................................. 17,500
Other current liabilities..................................................... 35,198
--------
Total current liabilities............................................. 84,344
Long-term debt.................................................................. 105,562
Other non-current liabilities................................................... 1,243
Shareholder's equity:
Common stock, $.01 par value; 1,000 shares authorized;
100 shares issued and outstanding.......................................... --
Additional paid-in capital.................................................... 63,333
Accumulated deficit........................................................... (64,951)
Foreign currency translation adjustment....................................... 768
--------
Total shareholder's equity............................................ (850)
--------
$ 190,299
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE> 89
IVAC MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Net sales.............................................................. $118,791 $112,762
Cost of sales.......................................................... 84,749 65,633
------- --------
Gross profit................................................. 34,042 47,129
Sales and marketing.................................................... 22,860 19,668
General and administrative............................................. 12,168 12,001
Research and development............................................... 7,250 4,913
Restructuring and special items........................................ -- 17,396
Purchased research and development..................................... 19,883 --
------- --------
Income (loss) from operations................................ (28,119) (6,849)
Interest income (expense):
Interest income...................................................... 1,598 1,465
Interest expense..................................................... (11,206) (7,037)
------- --------
Income (loss) before income taxes............................ (37,727) (12,421)
Provision for (benefit from) income taxes.............................. (2,821) 726
------- --------
Net income (loss)............................................ $(34,906) $(13,147)
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE> 90
IVAC MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------
1995 1996
--------- --------
<S> <C> <C>
Net cash provided by operating activities............................. $ 27,790 $ 9,972
Cash flows from investing activities:
Acquisitions, net of cash and cash equivalents acquired............. (185,055) --
Proceeds from disposal of property.................................. -- 40
Capital expenditures, net........................................... (5,644) (10,225)
-------- ---------
Net cash used by investing activities....................... (190,699) (10,185)
Cash flows from financing activities:
Capital contributions............................................... 50,000 --
Borrowings under term loan and revolving credit arrangements........ 68,500 3,000
Proceeds from bridge notes.......................................... 80,000 --
Repayment of term loan and revolving debt........................... (8,500) (7,500)
Payment of other debt obligations................................... -- (4,533)
Debt issue costs.................................................... (6,566) (27)
Capital lease payments.............................................. (170) (299)
-------- ---------
Net cash (used) provided by financing activities............ 183,264 (9,359)
Effect of exchange rate changes on cash............................... 1,419 (1,079)
-------- ---------
Net (decrease) increase in cash and cash equivalents.................. 21,774 (10,651)
Cash and cash equivalents at the beginning of the period.............. 0 18,308
-------- ---------
Cash and cash equivalents at the end of the period.................... $ 21,774 $ 7,657
======== =========
Supplemental disclosure of non-cash financing activities:
Contribution of River capital stock................................. $ 13,333 --
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE> 91
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 -- BUSINESS
IVAC Medical Systems, Inc. ("IVAC" or the "Company"), formerly known as
IVAC Corporation, designs, manufactures, distributes and services intravenous
infusion therapy and vital signs measurement instruments and related disposables
and accessories. The Company sells a full range of products to hospitals and
alternate site facilities in the United States, Canada and Europe. IVAC is a
wholly owned subsidiary of IVAC Holdings, Inc. ("Holdings").
In management's opinion, the accompanying unaudited condensed consolidated
financial statements of the Company for the six months ended June 30, 1996 and
1995 have been prepared in accordance with generally accepted accounting
principles for interim financial statements and include all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the financial position, results of operations and cash flows for all periods
presented. All such financial statements are unaudited. The unaudited condensed
consolidated financial statements include the accounts and results of operations
of the Company and its subsidiaries, all of which are wholly owned. All
significant intercompany balances and transactions have been eliminated. Interim
operating results are not necessarily indicative of operating results for the
full year. These financial statements should be read in conjunction with the
financial statements and notes thereto included herein.
NOTE 2 -- EARNINGS PER SHARE
Due to the fact that IVAC is a wholly owned subsidiary of Holdings,
earnings per share data is not considered meaningful and, therefore, is not
presented.
NOTE 3 -- INVENTORIES
Inventories at December 31, 1995 and June 30, 1996 consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
Finished products............................................. $ 14,998 $ 15,628
Work-in-process............................................... 3,472 5,514
Raw materials................................................. 17,867 20,336
------- -------
36,337 41,478
Less reserves................................................. (1,712) (3,022)
------- -------
$ 34,625 $ 38,456
======= =======
</TABLE>
NOTE 4 -- LONG-TERM DEBT
On March 29, 1996, the Company amended and restated its Bank Credit
Facility. The amended and restated senior credit facility (the "Facility") is
available through March 29, 1999, provides for borrowings of up to $40,000 and
is secured by substantially all of the Company's domestic assets. Borrowings
under the Facility bear interest at a rate equal to the Alternate Base Rate (as
defined in the Facility) plus 0.25% or Adjusted LIBOR plus 1.50%, at the option
of the Company. The interest rate is also subject to change quarterly based upon
certain debt and interest coverage ratios.
F-5
<PAGE> 92
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 5 -- LITIGATION
The Company's subsidiary, River Medical, Inc. ("River"), was a defendant in
an action alleging misappropriation of trade secrets and other proprietary
information of the plaintiff, an infusion pump company. River and the other
parties, without admission of liability, entered into a settlement agreement in
June 1996. The resolution of the matter did not result in adjustment to the
Company's consolidated financial position or results of operations. In addition,
the Company is a party to various other legal actions which have occurred in the
normal course of business. Management believes the Company has meritorious
defenses and intends to defend vigorously against these allegations and claims.
In management's opinion, liabilities arising from the above matters, if any,
will not have a material adverse effect on the Company's consolidated financial
position or results of operations.
NOTE 6 -- RIVER MEDICAL, INC. DIVESTITURE
The Company has made the decision to close River and to seek to divest the
subsidiary's assets. River's primary assets include patents, technologies, trade
secrets, inventories and manufacturing equipment. The Company has recorded a
restructuring charge of $17,396 during the three months ended June 30, 1996.
NOTE 7 -- SUBSEQUENT EVENTS
On August 23, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") among Holdings; the Company; IMED Corporation
("IMED"), a subsidiary of Advanced Medical, Inc.; a wholly owned subsidiary of
IMED and the holders of Common Stock of Holdings named therein, pursuant to
which IMED will acquire, directly or indirectly through a wholly owned
subsidiary, 100% of the capital stock of Holdings for approximately $400 million
less certain indebtedness. Completion of the acquisition is subject to
regulatory review and is expected to be completed on or about January 31, 1997.
F-6
<PAGE> 93
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
IVAC Medical Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of shareholder's equity
present fairly, in all material respects, the financial position of IVAC Medical
Systems, Inc. and its subsidiaries at December 31, 1995, and the results of
their operations and their cash flows for the year in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Diego, California
March 29, 1996
F-7
<PAGE> 94
IVAC MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 18,308
Accounts receivable, net...................................................... 54,133
Current portion of contract receivables, net.................................. 5,414
Inventories................................................................... 34,625
Prepaid expenses and other assets............................................. 3,143
--------
Total current assets.................................................. 115,623
Long-term contract receivables, net............................................. 19,957
Property, plant and equipment, net.............................................. 48,277
Intangible assets, net.......................................................... 30,893
Other long-term assets.......................................................... 1,245
--------
$215,995
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.............................................................. $ 14,407
Accrued warranty.............................................................. 6,948
Accrued employee liabilities.................................................. 9,528
Current portion of long-term debt............................................. 8,091
Other current liabilities..................................................... 34,869
--------
Total current liabilities............................................. 73,843
Long-term debt.................................................................. 123,733
Other non-current liabilities................................................... 5,043
Commitments and contingencies (Note 11)
Shareholder's equity:
Common stock, $.01 par value; 1,000 shares authorized,
100 shares issued and outstanding.......................................... --
Additional paid-in capital.................................................... 63,333
Accumulated deficit........................................................... (51,804)
Foreign currency translation adjustment....................................... 1,847
--------
Total shareholder's equity............................................ 13,376
--------
$215,995
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 95
IVAC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net sales....................................................................... $240,971
Cost of sales................................................................... 157,869
------
Gross profit.......................................................... 83,102
Sales and marketing............................................................. 43,994
General and administrative...................................................... 28,381
Research and development........................................................ 12,083
Purchased research and development.............................................. 22,883
Restructuring and special items................................................. 5,944
Other expense, net.............................................................. 1,497
------
Loss from operations.................................................. (31,680)
Interest income (expense):
Interest income............................................................... 3,013
Interest expense.............................................................. (23,515)
------
Loss before income taxes.............................................. (52,182)
Benefit from income taxes....................................................... 378
------
Net loss.............................................................. $(51,804)
======
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 96
IVAC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Cash flows from operating activities:
Net loss...................................................................... $ (51,804)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.............................................. 23,736
Debt issuance cost amortization............................................ 5,902
Purchased research and development......................................... 22,883
Deferred income taxes...................................................... (1,898)
Gain on disposal of property, plant and equipment.......................... (55)
Accretion of discount...................................................... 703
Changes in assets and liabilities:
Receivables.............................................................. (11,837)
Inventories.............................................................. 23,176
Prepaid expenses and other assets........................................ 223
Accounts payable......................................................... 4,975
Accrued warranty......................................................... (557)
Accrued employee liabilities............................................. (900)
Other current liabilities................................................ 9,265
Other non-current liabilities............................................ (759)
Payables to and receivables from Lilly, net.............................. 15,160
-------
Net cash provided by operating activities............................. 38,213
-------
Cash flows from investing activities:
Acquisitions, net of cash and cash equivalents acquired....................... (190,793)
Capital expenditures, net..................................................... (13,752)
Proceeds from sale of facility, net........................................... 25,258
-------
Net cash used by investing activities................................. (179,287)
-------
Cash flows from financing activities:
Capital contributions......................................................... 50,000
Borrowings under term loan and revolving credit arrangements.................. 68,500
Proceeds from bridge notes.................................................... 80,000
Proceeds from senior notes.................................................... 100,000
Repayment of term loan and revolving debt..................................... (49,000)
Repayment of bridge notes..................................................... (80,000)
Debt issue costs.............................................................. (11,486)
Capital lease payments........................................................ (479)
-------
Net cash provided by financing activities............................. 157,535
-------
Effect of exchange rate changes on cash......................................... 1,847
-------
Net increase in cash and cash equivalents....................................... 18,308
Cash and cash equivalents at the beginning of the year.......................... 0
-------
Cash and cash equivalents at the end of the year................................ $ 18,308
=======
Supplemental disclosure of cash flow information:
Cash paid for interest........................................................ $ 15,380
Cash paid for income taxes.................................................... $ 12
Supplemental disclosure of non-cash financing activities:
Contribution of River capital stock........................................... $ 13,333
Capital lease financing....................................................... $ 1,200
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 97
IVAC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY TOTAL
--------------- PAID-IN ACCUMULATED TRANSLATION SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Contribution of capital:............ 100
Cash.............................. $ 50,000 $ 50,000
River capital stock............... 13,333 13,333
Foreign currency translation
adjustment........................ $ 1,847 1,847
Net loss............................ $ (51,804) (51,804)
--- --- ------ ------ ---- -----
Balance at December 31, 1995........ 100 $ -- $ 63,333 $ (51,804) $ 1,847 $ 13,376
=== === ====== ====== ==== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 98
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
IVAC Medical Systems, Inc. ("IVAC" or the "Company"), formerly known as
IVAC Corporation, designs, manufactures, distributes and services intravenous
infusion therapy and vital signs measurement instruments and related disposables
and accessories. The Company sells a full range of products to hospitals and
alternate site facilities in the United States, Canada and Europe. IVAC is a
wholly owned subsidiary of IVAC Holdings, Inc. ("Holdings"). IVAC Medical
Systems, Inc. was capitalized by Holdings through the contribution of $50,000
cash and the River Medical, Inc. ("River") capital stock.
All outstanding common stock of IVAC Medical Systems, Inc. is owned by
Holdings. Holdings was formed through the contribution of $20,000 cash from an
investor group, including DLJ Merchant Banking Partners, L.P. ("DLJMB") and
related investors ("the River Group"), and other investors in exchange for
20,000,000 shares of Class A Common Stock, and the issuance of 18,961,552 shares
of Class B Common Stock in exchange for the outstanding capital stock of River
Medical, Inc. (the "River Transaction"). In connection with the formation of
Holdings, after the close of business on December 31, 1994, the Company acquired
the outstanding capital stock of IVAC from Eli Lilly and Company ("Lilly") for
approximately $195,000, including transaction costs (the "Acquisition"). Through
a series of subsequent transactions, River became a wholly owned subsidiary of
IVAC. The proceeds received from the investor group were contributed as capital
to IVAC Medical Systems, Inc.
In connection with the Acquisition, Holdings issued Junior Subordinated
Notes due 2006 (the "Subordinated Notes") to DLJMB, the River Group and others
for an aggregate of $30,000. Interest accrues to principal annually at an
effective fixed rate of 13.2%. The Company does not guarantee repayment of the
notes on behalf of Holdings nor are these notes secured by the Company's assets.
Accordingly, the principal amount of these notes is not presented in the
Company's balance sheet at December 31, 1995. The proceeds from the Subordinated
Notes were contributed as capital to IVAC Medical Systems, Inc.
The consolidated financial statements includes the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
Cash equivalents consist of highly liquid investments with maturities of 90
days or less at date purchased.
Revenue Recognition
Revenue is recorded upon product shipment, net of an allowance for
estimated returns, or service delivery. The Company also sells instruments via
long-term financing arrangements to a number of hospitals under No Capital
Agreements ("NCA's"). These agreements allow hospitals to acquire instruments
with no initial payment. The sales price for the instruments is recovered via
surcharges applied to minimum purchase commitments of related disposables. The
term of the financing is generally three to five years, with interest at rates
of 9% to 15%. The related contract receivables at December 31, 1995 are
presented net of unearned finance revenue of $6,813 which reflects the remaining
interest to be earned on unshipped disposables. Unearned finance revenue is
calculated using the inherent rate of interest on each NCA, the expected
disposable shipment period and the principal balance financed. Finance revenue
is recognized as disposables are shipped using a reducing principal balance
method which approximates the interest method. Contract provisions include
liquidated damage clauses which are sufficient to recover the sales price of the
instruments in the event of customer cancellation.
F-12
<PAGE> 99
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. Credit
risk associated with this concentration is limited due to the large number and
geographic dispersion of the accounts and the overall stability of the hospital
industry. Management believes that adequate provision has been made for such
credit risk.
Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market. Cost of inventories at the beginning of the
year was determined based on an allocation of the purchase price to all assets
and liabilities including inventory, as determined by an independent appraisal,
at the date of acquisition.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost. Cost of
acquired assets (see Note 3) was determined based on an allocation of the
purchase price to all assets and liabilities, as determined by an independent
appraisal, at the date of acquisition. Additions to property, plant and
equipment, including significant betterments and renewals, are capitalized.
Maintenance and repair costs are charged to expense as incurred. Depreciation is
computed using the straight-line method over estimated useful lives of 3 to 20
years. Depreciation expense amounted to $15,076 for the year ended December 31,
1995.
Income Taxes
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred tax asset or liability is computed for
the expected future impact of differences between the financial reporting and
tax basis of assets and liabilities as well as the expected future tax benefit
to be derived from tax loss and tax credit carryforwards. Deferred income tax
expense (benefit) is determined as the net change during the year in the
deferred income tax asset or liability. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount "more likely than
not" to be realized in future tax returns. Tax rate changes are reflected in
income during the period such changes are enacted.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
translated into U.S. dollars using period-end exchange rates for assets and
liabilities and weighted average exchange rates during the period for revenues
and expenses. Gains and losses from translation are excluded from results of
operations and accumulated as a separate component of shareholder's equity.
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.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, including cash
and cash equivalents, trade receivables and payables, approximates their fair
value due to their short term maturities. The fair values of
F-13
<PAGE> 100
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
the Company's long-term contract receivables are estimated by discounting future
cash flows using discount rates that reflect the risk associated with similar
types of loans. The fair value of the Company's long-term debt is estimated
based on comparison with similar issues or current rates offered to the Company
for debt of the same remaining maturities. The estimated fair values of both the
Company's long-term contract receivables and long-term debt approximate their
carrying values.
Earnings Per Share
Due to the fact that IVAC is a wholly owned subsidiary of Holdings,
earnings per share data is not considered meaningful and, therefore, is not
presented.
Stock Options
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," which establishes a fair value based method of
accounting for compensation costs related to stock option plans and other forms
of stock based compensation plans as an alternative to the intrinsic value based
method of accounting defined under Accounting Principles Board Opinion No. 25.
Companies that do not elect the new method of accounting beginning in 1996 will
be required to provide pro forma disclosures as if the fair value based method
had been applied. The Company anticipates that it will not elect the fair value
based method of accounting and will provide pro forma disclosure as required.
Intangible Assets
Intangible assets are amortized as follows:
<TABLE>
<S> <C> <C>
Supply agreements............................. Straight-line 3 years
Trademarks.................................... Straight-line 10 years
Patents....................................... Straight-line 10 years
Debt acquisition costs........................ Interest method Terms of related debt
Excess purchase price......................... Straight-line 10 years
</TABLE>
Intangibles are presented net of accumulated amortization of $11,776. In
connection with the acquisition of IVAC, Lilly agreed to continue providing
certain administrative services on behalf of IVAC for a period of six months.
The amount capitalized as service support agreement ($2,786) has been fully
amortized as of December 31, 1995.
Impairment of Long-Lived Assets
During 1995, the FASB issued Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," which establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles and
excess purchase price related to those assets to be held and used and for
long-lived assets and certain intangible assets to be disposed of. In the fourth
quarter of 1995, the Company elected to early adopt the new accounting
pronouncement. Based upon an analysis performed in accordance with SFAS 121, the
Company believes that no material impairments exist at December 31, 1995.
NOTE 3 -- THE ACQUISITION AND THE RIVER TRANSACTION
The Acquisition and the River Transaction have been accounted for under the
purchase method; accordingly, the purchased assets and liabilities have been
recorded at their estimated fair value at the date of
F-14
<PAGE> 101
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
acquisition. The purchase price of River of $13,333 was determined based on the
fair value of the River assets contributed to Holdings relative to the purchase
price paid by the DLJMB led investor group for their initial equity in Holdings.
The application of the purchase method to the Acquisition and the River
Transaction resulted in an excess of cost over net assets acquired of
approximately $90,804. The excess purchase price has been allocated to property,
plant and equipment ($20,315), inventory ($14,774), intangibles ($23,356) and
in-process research and development ($22,883) with a remaining excess purchase
price over net assets acquired of $9,476. The in-process research and
development of River and IVAC were charged to earnings in 1995. The purchase
price allocations reflect the resolution of certain purchase contingencies
including the arbitration settlement of a dispute with Lilly over the final IVAC
purchase price subsequent to December 31, 1995, the resolution of certain
contingent liabilities, and the ultimate realization of certain acquired
receivables and property, plant and equipment. Additionally, the Company and
Lilly jointly elected to make an Internal Revenue Code Section 338(h)(10)
election for Federal and state tax purposes in the third quarter of 1995. This
election resulted in treatment of the acquisition as if Lilly sold assets in a
taxable transaction and resulted in adjustments to reflect the fair value of the
acquired tax assets and liabilities as of the date of purchase.
In conjunction with purchase accounting, the Company recorded a severance
liability in the amount of $5,659 pursuant to a plan in place as of the purchase
date to subsequently terminate employees. The liability was determined based on
the expected employee resources to be terminated at an estimated cost of
severance benefits as provided for in the purchase agreement at the time of the
Acquisition to include separation payments based on years of service, continued
medical benefits and outplacement assistance for a specified time. These costs
were paid to employees terminated during the six month period following the
Acquisition and did not materially differ from the amount initially accrued.
In connection with the Acquisition and the River Transaction, certain
stockholders of Holdings received approximately $3,650 in connection with the
exchange of their capital stock or services rendered. These amounts have been
capitalized as a component of the purchase price.
NOTE 4 -- COMPOSITION OF CERTAIN CONSOLIDATED FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
<S> <C>
Accounts receivable:
Trade................................................................. $ 58,677
Less allowance for doubtful accounts.................................. (4,544)
--------
$ 54,133
========
Inventories:
Finished products..................................................... $ 14,998
Work-in-process....................................................... 3,472
Raw materials......................................................... 17,867
--------
36,337
Less reserves......................................................... (1,712)
--------
$ 34,625
========
</TABLE>
F-15
<PAGE> 102
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
<S> <C>
Property, plant and equipment:
Land.................................................................. $ 640
Buildings............................................................. 4,554
Equipment............................................................. 50,179
Construction in process............................................... 6,341
--------
61,714
Less accumulated depreciation......................................... (13,437)
--------
$ 48,277
========
Intangibles:
Excess purchase price................................................. $ 9,476
Supply agreements..................................................... 10,296
Trademarks............................................................ 5,140
Patents............................................................... 5,186
Debt acquisition costs................................................ 11,486
Other................................................................. 1,085
--------
42,669
Less accumulated amortization......................................... (11,776)
--------
$ 30,893
========
Other current liabilities:
Accrued expense reimbursement to former parent........................ $ 12,212
Other................................................................. 22,657
--------
$ 34,869
========
</TABLE>
NOTE 5 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
<S> <C>
Senior notes............................................................ $100,000
Term loan borrowings under the Bank Credit Facility..................... 19,500
Other................................................................... 12,324
--------
131,824
Less current portion.................................................... (8,091)
--------
Long-term debt.......................................................... $123,733
========
</TABLE>
In connection with the Acquisition, the Company entered into an $80,000
credit facility (the "Bank Credit Facility") with a syndicate of financial
institutions which consists of $60,000 of term loans and a $20,000 revolving
credit facility, each of which matures on December 30, 1999. Available funds
under the revolving credit facility are limited to the difference between
$20,000 and the amount of letters of credit issued under the Bank Credit
Facility, which cannot exceed $15,000. Borrowings under the Bank Credit Facility
bear interest at a rate equal to the Alternate Base Rate plus 1.75% or Adjusted
LIBOR plus 3.00%, at the option of the Company, payable quarterly (10.25% and
8.69%, respectively, at December 31, 1995). The Bank Credit Facility is secured
by the stock of IVAC and all of its subsidiaries and substantially all of the
assets of
F-16
<PAGE> 103
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Holdings, IVAC and IVAC's domestic subsidiaries. The Bank Credit Facility is
guaranteed by Holdings and substantially all of the Company's subsidiaries. As
more fully discussed in Note 13, subsequent to December 31, 1995, the Company
amended and restated certain terms of the Bank Credit Facility.
Immediately following the Acquisition, the Company entered into an interest
rate swap agreement to fix the rate of interest payable on a portion of the term
loan principal borrowed under the Bank Credit Facility. The swap has a three
year term and an initial notional amount of $30,000, which amortizes at a rate
equal to 50% of the original term loan principal paydown schedule, with
quarterly payments at a fixed rate of 11.05% of the outstanding notional amount
and quarterly receipts at a LlBOR-based floating rate plus 3.00%.
The Bank Credit Facility contains covenants which, among other matters,
restrict or limit the ability of the Company to pay dividends, incur
indebtedness, and make capital expenditures. The Company must also maintain
certain ratios regarding interest coverage and leverage, among other
restrictions.
On November 8, 1995, the Company issued $100,000 of senior unsecured public
notes (the "Notes") due December 1, 2002. The Notes bear interest at the rate of
9.25% annually, which is payable semi-annually in arrears on June 1 and December
1 of each year, commencing June 1, 1996. The Company is not required to make any
mandatory redemption or sinking fund payments with respect to the Notes prior to
maturity. The Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after December 1, 1998 at the redemption prices set
forth in the indenture plus accrued and unpaid interest to the date of
redemption. In addition, at any time prior to December 1, 1998, the Company may
redeem the Notes with the proceeds of one or more public offerings of common
stock at a redemption price equal to 108.25% of the principal amount plus
accrued and unpaid interest; provided that at least $65,000 in aggregate
principal amount of the Notes remain outstanding immediately after the
occurrence of each such redemption. In the event of a Change of Control (as
defined in the indenture), holders of the Notes will have the right to require
the Company to purchase their Notes, in whole or in part, at a price equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid interest
to the date of purchase. The Notes are senior unsecured obligations of the
Company and rank senior in right of payment to all subordinated indebtedness of
the Company.
The indenture contains covenants which, among other matters, restrict or
limit the ability of the Company to pay dividends, incur indebtedness, make
asset sales, create liens and restrict the ability of the Company to enter into
mergers, consolidations or sales of all or substantially all of its assets.
Other debt consists of consideration owed to Siemens Infusion Systems, Ltd.
("SIS") resulting from IVAC's acquisition of the MiniMed product line from SIS
in 1993. In accordance with the acquisition agreement, IVAC is obligated to pay
SIS $1,571 in 1996 based on 1994 product sales and the greater of $3,000 per
year or 8% of the prior year's product sales in 1996 through 1999. The minimum
$12,000 liability was discounted at an imputed interest rate of 7% and recorded
as debt. The unamortized discount, which is amortized using the interest method
over the term of the payments, is $1,247 at December 31, 1995.
The aggregate minimum annual maturities on long-term debt are as follows:
<TABLE>
<S> <C>
1996...................................................................... $ 8,091
1997...................................................................... 7,375
1998...................................................................... 7,901
1999...................................................................... 8,457
2000...................................................................... --
Thereafter................................................................ 100,000
--------
$131,824
========
</TABLE>
F-17
<PAGE> 104
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 -- LEASES
Leases are generally for buildings, computers and office equipment. The
leases for the Company's San Diego corporate headquarters and manufacturing
facilities provide for scheduled rent increases. Total rent expense amounted to
approximately $2,035 for the year ended December 31, 1995.
The Company maintains a lease line of credit with a leasing company for
acquisitions of equipment under capital lease arrangements.
Future minimum payments are as follows:
<TABLE>
<CAPTION>
NONCANCELLABLE
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1996.......................................................... $ 770 $ 3,413
1997.......................................................... 722 2,931
1998.......................................................... 425 2,990
1999.......................................................... 241 2,916
2000.......................................................... -- 2,803
Thereafter.................................................... -- 11,298
------ -------
2,158 $ 26,351
=======
Less amounts representing interest............................ (304)
------
Capital lease obligations..................................... 1,854
Less current portion.......................................... (595)
------
$ 1,259
======
</TABLE>
NOTE 7 -- INCOME TAXES
The benefit from income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
<S> <C>
Current:
Federal............................................................ $ --
Foreign............................................................ 3,307
State.............................................................. 5
-------
3,312
-------
Deferred:
Federal............................................................ (3,192)
Foreign............................................................ 142
State.............................................................. (640)
-------
(3,690)
-------
Total...................................................... $ (378)
=======
</TABLE>
F-18
<PAGE> 105
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
<S> <C>
Deferred tax assets:
Net operating loss and research and development credit
carryforwards...................................................... $ 5,742
Intangibles........................................................... 3,666
State income taxes.................................................... 2,987
Product return/warranty reserves...................................... 1,895
Rebate reserve........................................................ 1,479
Other................................................................. 5,430
--------
Total deferred tax assets............................................... 21,199
Valuation allowance................................................... (21,199)
--------
Net deferred tax assets................................................. 0
--------
Deferred tax liabilities:
Foreign taxes......................................................... (142)
--------
Total deferred tax liabilities.......................................... (142)
--------
Net deferred taxes...................................................... $ (142)
========
</TABLE>
The Company has recorded a valuation allowance against deferred tax assets
since it is more likely than not that the deferred tax assets will not be
realized.
As of December 31, 1994, River net operating loss carryforwards for Federal
and state tax purposes totaled approximately $4,156 and $1,513, respectively. As
specified in the Internal Revenue Code, a more than 50% ownership change by a
combination of significant shareholders during any three year period would
result in certain limitations on the Company's ability to utilize net operating
loss carryforwards and research and development credit carryforwards. Such a
change is likely to have occurred in connection with the acquisition transaction
discussed in Note 3. These net operating loss and research and development
credit carryforwards expire from 2008 to 2009 for Federal tax purposes and from
1998 and 1999 for state tax purposes
During 1995, net operating loss carryforwards for Federal and state tax
purposes totaling approximately $4,245 and $236, respectively, were generated by
the consolidated group. These net operating loss carryforwards expire in 2010
for Federal tax purposes and in 2000 for state tax purposes.
Following is a reconciliation of the effective income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
<S> <C>
Tax benefit at statutory rate........................................ (35.0)%
(Add) deduct:
Foreign taxes...................................................... 6.2%
State taxes........................................................ (5.8)%
Other.............................................................. (.2)%
----
(34.8)%
Valuation allowance................................................ 34.1%
----
(.7)%
====
</TABLE>
F-19
<PAGE> 106
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8 -- BENEFITS
Effective December 30, 1994, in connection with the purchase of IVAC
discussed in Note 1, the Company's U.S. noncontributory defined benefit plan was
terminated and the assets and liabilities of the IVAC Retirement Plan were
merged into The Lilly Retirement Plan. All eligible participants in the IVAC
Retirement Plan became participants in The Lilly Retirement Plan, and all
benefits previously earned will be paid by The Lilly Retirement Plan.
In connection with the River Transaction, all outstanding stock options
issued under the River Medical Stock Option Plan were assumed by Holdings
subject to the same terms, vesting, duration and cancellation existing prior to
the acquisition. On a converted basis, there were 467,370 options exercisable
into Holdings Class B common stock outstanding at December 31, 1995 at exercise
prices ranging from $.13 to $.52. The options expire not more than ten years
from the date of grant and were fully vested at December 31, 1995.
A summary of Class B stock option transactions follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
OPTIONS OUTSTANDING
-----------------------------------------------
NUMBER OF NUMBER OF
SHARES AT SHARES AT
$.52 PER SHARE $.13 PER SHARE TOTAL
-------------- -------------- ---------
<S> <C> <C> <C>
Converted from River Plan..................... 24,611 1,013,837 1,038,448
Options exercised............................. (8,204) (562,874) (571,078)
----- ------- -------
Balance at December 31, 1995.................. 16,407 450,963 467,370
===== ======= =======
</TABLE>
The 1995 Stock Option/Stock Issuance Plan (the "Plan") of Holdings
authorizes up to 4,000,000 shares of Holdings Class A common stock to be granted
no later than February 2005. Under the Plan, the Board of Directors of Holdings
may grant options to selected key employees, directors and consultants to the
Company to purchase shares of Holdings common stock, at a price not less than
85% of the fair market value of the stock at the date of grant. The Plan
provides for the grant of both incentive stock options and non-qualified stock
options. Generally, options outstanding vest over a four to eight year period
and are exercisable for up to ten years from the grant date. At December 31,
1995, 633,343 options were exercisable at $1.00 for an aggregate exercise price
of $633.
A summary of Class A stock option transactions follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
OPTIONS OUTSTANDING
-----------------------
OPTIONS AVAILABLE NUMBER OF PRICE PER
FOR GRANT SHARES SHARE
----------------- --------- ---------
<S> <C> <C> <C>
Options authorized............................. 4,000,000 -- --
Options granted................................ (3,668,656) 3,668,656 $1.00
Options exercised.............................. -- (938) --
Options forfeited on termination of
employment................................... 360,516 (360,516) --
-------- -------- ----
Balance at December 31, 1995................... 691,860 3,307,202 $1.00
======== ======== ====
</TABLE>
The Company maintains a defined contribution savings plan which covers
substantially all of its U.S. employees. Contributions under the plan amounted
to $757 for the year ended December 31, 1995.
The Company was self-insured for medical benefits through June 30, 1995.
Effective July 1, 1995, the Company transitioned its medical and dental
insurance to coverage under a health maintenance organization.
F-20
<PAGE> 107
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9 -- GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
<S> <C>
Net sales to unaffiliated customers:
United States...................................................... $ 163,323
United Kingdom..................................................... 18,217
Germany............................................................ 18,516
Spain.............................................................. 10,248
Other.............................................................. 30,667
--------
$ 240,971
========
Income (loss) before income taxes:
United States...................................................... $ (57,501)
United Kingdom..................................................... 3,869
Germany............................................................ 127
Spain.............................................................. 587
Other.............................................................. 1,398
Eliminations and adjustments....................................... (662)
--------
$ (52,182)
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
<S> <C>
Total assets:
United States...................................................... $ 190,640
United Kingdom..................................................... 17,384
Germany............................................................ 7,230
Spain.............................................................. 11,860
Other.............................................................. 17,216
Eliminations and adjustments....................................... (28,335)
--------
$ 215,995
========
</TABLE>
Transfers between geographic areas are made at prices calculated to reflect
a profit attributable to manufacturing operations.
Remittances to the United States are subject to various regulations of the
respective governments as well as to fluctuations in exchange rates.
NOTE 10 -- LITIGATION
River is a defendant in an action alleging misappropriation of trade
secrets and other proprietary information of the plaintiff. The Company believes
the allegations to be without merit and has filed a countersuit with respect to
this matter. In addition, the Company is a party to various other legal actions
which have occurred in the normal course of business. Management believes the
Company has meritorious defenses and intends to defend vigorously against these
allegations and claims. In management's opinion, liabilities arising from the
above matters, if any, will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
F-21
<PAGE> 108
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
In connection with the Acquisition, Lilly agreed to perform certain
administrative functions for the Company's foreign subsidiaries including the
collection of receivables and the payment of certain direct expenses incurred by
Lilly on behalf of the Company. The Company agreed to reimburse Lilly for such
direct expenses and anticipates that a payment of less than $8,000 will be made
to Lilly in 1996. The Company is currently waiting notification from Lilly of
the amount owed under this arrangement. Management does not believe that this
amount will be materially different from the amount accrued at December 31,
1995.
The Company is obligated to pay additional purchase consideration related
to previous acquisitions. As discussed in Note 5, the Company is obligated to
pay additional consideration to SIS. In connection with another acquisition, the
Company is contingently liable to certain prior shareholders of the acquiree for
up to approximately $1,850 for additional purchase consideration through 1996,
based upon the acquired entity achieving certain sales and pre-tax performance
in each year subsequent to such acquisition. Any additional consideration paid
will be treated as additional cost of the acquired entity.
NOTE 12 -- RESTRUCTURING
In 1995, management approved and committed the Company to a non-voluntary
termination plan in compliance with the terms of the Acquisition purchase
agreement in an effort to reduce operating expenses. The terminations were not
concentrated in one particular area of the Company's operations and the plan
does not contemplate any significant changes to the operations or product lines
that the Company offers. In connection with these terminations the Company
charged severance and related costs of $5,319 to earnings. As of December 31,
1995, the remaining accrual related to these terminations totaled $1,510.
NOTE 13 -- SUBSEQUENT EVENT
On March 29, 1996, the Company amended and restated its Bank Credit
Facility. The amended and restated senior credit facility (the "Facility")
matures on March 29, 1999 and provides for borrowings of up to $40,000, secured
by substantially all U.S. domestic assets. Borrowings under the Facility bear
interest at a rate equal to the Alternate Base Rate ("ABR") plus 0.25% or
Adjusted LIBOR plus 1.50%, at the option of the Company. The pricing is subject
to change quarterly based upon certain debt and interest coverage ratios.
F-22
<PAGE> 109
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
IVAC Medical Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of shareholder's equity
present fairly, in all material respects, the financial position of IVAC
Corporation and its subsidiaries at December 31, 1994, and the results of their
operations and their cash flows for the year in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Diego, California
June 29, 1995
F-23
<PAGE> 110
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
IVAC Corporation
We have audited the accompanying consolidated balance sheet of IVAC
Corporation and subsidiaries and certain IVAC related entities as of December
31, 1993 and the related consolidated statements of operations, shareholder's
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IVAC
Corporation and subsidiaries and certain IVAC related entities at December 31,
1993 and the consolidated results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP
San Diego, California
February 28, 1994
F-24
<PAGE> 111
IVAC CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1993 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 4,683 $ 3,226
Accounts receivable, net............................................. 45,516 43,324
Receivable from Lilly................................................ 43,963 1,581
Current portion of contract receivables, net......................... 6,753 7,014
Inventories.......................................................... 49,696 43,828
Prepaid expenses and other current assets............................ 7,874 3,333
-------- --------
Total current assets......................................... 158,485 102,306
Long-term contract receivables, net.................................... 15,965 18,164
Property, plant and equipment, net..................................... 54,087 50,095
Intangible assets, net................................................. 20,372 3,579
-------- --------
$248,909 $174,144
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................................... $ 9,330 $ 7,950
Accrued warranty..................................................... 6,502 7,339
Accrued employee liabilities......................................... 7,354 4,715
Current portion of long-term debt.................................... -- 1,571
Other current liabilities............................................ 15,842 6,607
-------- --------
Total current liabilities.................................... 39,028 28,182
Long-term debt......................................................... 12,000 10,050
Other non-current liabilities.......................................... 5,370 5,931
Commitments and contingencies (Note 14)
Shareholder's equity:
Common stock, no par value; 100 shares authorized, issued and
outstanding....................................................... 162 --
Additional paid-in capital........................................... 37,200 58,343
Retained earnings.................................................... 158,126 73,574
Foreign currency translation adjustment.............................. (2,977) (1,936)
-------- --------
Total shareholder's equity................................... 192,511 129,981
-------- --------
$248,909 $174,144
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 112
IVAC CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------
1993 1994
<S> <C> <C>
Net Sales.............................................................. $214,244 $223,227
Cost of sales.......................................................... 125,542 146,659
------ ------
Gross profit................................................. 88,702 76,568
Sales and marketing.................................................... 40,190 45,055
General and administrative............................................. 16,032 21,586
Research and development............................................... 18,742 18,504
Excess purchase price write-down....................................... -- 13,143
Expense allocation from Lilly.......................................... 6,416 7,480
Restructuring and special items........................................ 3,967 --
Other expense, net..................................................... 269 3,560
------ ------
Income (loss) from operations................................ 3,086 (32,760)
Interest income (expense):
Interest income...................................................... 4,398 3,643
Interest expense..................................................... (358) (2,943)
------ ------
Income (loss) before income taxes............................ 7,126 (32,060)
Provision for income taxes............................................. 1,710 3,793
------ ------
Net income (loss)............................................ $ 5,416 $(35,853)
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 113
IVAC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------
1993 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................... $ 5,416 $(35,853)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization and depreciation..................................... 10,249 15,119
Excess purchase price write-down.................................. -- 13,143
Lilly allocated expenses contributed as paid-in-capital........... 4,300 7,480
Loss on disposal of fixed assets.................................. 181 1,363
Changes in assets and liabilities:
Receivables..................................................... (1,828) 766
Inventories..................................................... (2,548) 5,481
Prepaid expenses and other assets............................... 112 3,864
Accounts payable................................................ 3,383 (1,744)
Accrued warranty................................................ 100 1,584
Accrued employee liabilities.................................... (589) (2,514)
Other liabilities............................................... 2,398 2,523
Payables to and receivables from Lilly, net..................... (13,059) (4,710)
-------- --------
Net cash provided by operating activities.................... 8,115 6,502
-------- --------
Cash flows from investing activities:
Capital expenditures, net............................................ (9,920) (9,000)
Acquisitions......................................................... (26,801) --
-------- --------
Net cash used by investing activities........................ (36,721) (9,000)
-------- --------
Cash flows from financing activities:
Acquisition funding borrowed from Lilly.............................. 26,469 --
Line of credit advances.............................................. 3,748 --
-------- --------
Net cash provided by financing activities.................... 30,217 --
-------- --------
Effect of exchange rate changes on cash................................ (2,328) 1,041
-------- --------
Net decrease in cash and cash equivalents.............................. (717) (1,457)
Cash and cash equivalents at the beginning of the year................. 5,400 4,683
-------- --------
Cash and cash equivalents at the end of the year....................... $ 4,683 $ 3,226
======== ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes........................................... $ 10,000 $ 1,854
Supplemental non-cash financing activities:
Dividends paid through forgiveness of intercompany receivable from
Lilly............................................................. -- $ 48,699
Net liabilities assumed by Lilly credited to paid-in-capital......... -- $ 13,663
Supplemental non-cash investing activities:
Acquisition financed through forgiveness of intercompany
receivable from Lilly............................................. $ 1,071 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 114
IVAC CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY TOTAL
--------------- PAID-IN ACCUMULATED TRANSLATION SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992........ 100 $ 162 $ 32,900 $ 152,710 $ (646) $ 185,126
Transactions with Lilly:
Lilly corporate expense
allocation................... 4,300 4,300
Foreign currency translation
adjustment..................... (2,331) (2,331)
Net income........................ 5,416 5,416
--- ----- ------- -------- ------- --------
Balance at December 31, 1993........ 100 162 37,200 158,126 (2,977) 192,511
Transactions with Lilly:
Lilly corporate expense
allocation................... 7,480 7,480
Assumption of net
liabilities.................. 13,663 13,663
Non-cash dividend.............. (48,699) (48,699)
Other.......................... (162 ) (162)
Foreign currency translation
adjustment..................... 1,041 1,041
Net income........................ (35,853) (35,853)
--- ----- ------- -------- ------- --------
Balance at December 31, 1994........ 100 $ -- $ 58,343 $ 73,574 $(1,936) $ 129,981
=== ===== ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 115
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
IVAC Corporation ("IVAC" or the "Company") designs, manufactures,
distributes and services intravenous infusion therapy and vital signs
measurement instruments and related disposables and accessories. Prior to and
during fiscal 1994, the Company operated as a wholly owned subsidiary of Eli
Lilly and Company ("Lilly"). As more fully discussed in Note 15, after the close
of business on December 31, 1994, the outstanding capital stock of IVAC was
acquired by IVAC Holdings, Inc. ("Holdings"). The accompanying consolidated
financial statements do not reflect adjustments resulting from this subsequent
purchase transaction.
The consolidated financial statements include the accounts and results of
operations of the Company, its wholly owned subsidiary MIS Scandinavia A.B., and
affiliate activities conducted through subsidiaries or divisions of Lilly. Where
activities were conducted through a subsidiary or division of Lilly or related
to the joint venture in Spain, productive assets such as accounts receivable,
inventory and equipment specifically related to IVAC operations are included in
the accompanying consolidated balance sheets. With respect to the operations of
Germany, there are certain assets and liabilities included in the accompanying
consolidated balance sheets prior to 1994 which related to affiliated companies.
Management believes the value of these net assets is not material. All
significant intercompany accounts and transactions have been eliminated in
consolidation. These statements reflect the financial position, results of
operations, and cash flows of the Company as a component of Lilly and may not be
indicative of the actual results of operations and financial position of the
Company under new ownership.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
Cash equivalents consist of highly liquid investments with maturities of 90
days or less at date purchased.
Revenue Recognition
Revenue is recorded upon product shipment, net of an allowance for
estimated returns, or service delivery. The Company also sells instruments via
long-term financing arrangements to a number of hospitals under No Capital
Agreements ("NCA's"). These agreements allow hospitals to acquire instruments
with no initial payment. The sales price for the instruments is recovered via
surcharges applied to minimum purchase commitments of related disposables. The
term of the financing is generally three to five years, with interest at rates
of 9% to 15%. The related contract receivables at December 31, 1994 and 1993 are
presented net of unearned finance revenue of $8,686 and $5,315, respectively
which reflects the remaining interest to be earned on unshipped disposable.
Unearned finance revenue is calculated using the inherent rate of interest on
each NCA, the expected disposable shipment period and the principal balance
financed. Finance revenue is recognized as disposables are shipped using a
reducing principal balance method which approximates the interest method.
Contract provisions include liquidated damage clauses which are sufficient to
recover the sales price of the instruments in the event of customer
cancellation.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. Credit
risk associated with this concentration is limited due to the large number and
geographic dispersion of the accounts and the overall stability of the hospital
industry. Management believes that adequate provision has been made for such
credit risk.
F-29
<PAGE> 116
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market.
Excess purchase price
Excess purchase price arising from acquisitions is amortized over estimated
useful lives, ranging from 5 to 7 years, using the straight-line method. At
December 31, 1994 and 1993, excess purchase price is presented net of
accumulated amortization of $1,186 and $1,562, respectively.
At each balance sheet date, the Company evaluates the realizability of
excess purchase price based upon management's best estimations of future
discounted cash flows. If future discounted cash flows are less than the
carrying amount of the excess purchase price, an adjustment is recorded to
reduce the excess purchase price to its fair value. Based on its most recent
analysis, the Company believes that no material impairment existed at December
31, 1994 (Notes 3 and 4).
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost. Additions to
property, plant and equipment, including significant betterments and renewals
are capitalized. Maintenance and repair costs are charged to expense as
incurred. Depreciation is computed using the straight-line method over estimated
useful lives of 3 to 50 years. Depreciation expense amounted to $12,274 and
$9,257 during fiscal 1994 and 1993, respectively.
Income Taxes
The Company's operations have historically been included in consolidated
income tax returns filed by Lilly. Income tax expense in the accompanying
consolidated financial statements has been determined on a separate return
basis, in accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Differences between income tax expense computed on a separate return basis
and the amount actually charged to IVAC by Lilly has been reflected on the
consolidated balance sheet as an adjustment to paid-in capital.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiary and affiliates
are translated into U.S. dollars using period-end exchange rates for assets and
liabilities and weighted average exchange rates during the period for revenues
and expenses. Gains and losses from translation are excluded from results of
operations and accumulated as a separate component of shareholder's equity.
Fair Value of Financial Instruments
At December 31, 1994 and 1993, the carrying amount of the Company's
financial instruments including cash and cash equivalents, trade receivables and
payables, approximated their fair value due to their short term maturities. The
fair value of the Company's long-term contract receivables are estimated by
discounting future cash flows using discount rates that reflect the risk
associated with similar types of loans. At December 31, 1994 and 1993, the
estimated fair values of both the Company's long-term contract receivables and
long-term debt approximate their carrying values.
F-30
<PAGE> 117
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Earnings Per Share
The ownership change of IVAC Corporation that occurred after the close of
business on December 31, 1994 (Note 15) has resulted in the historical earnings
per share calculations becoming irrelevant for purposes of comparability with
future periods. As such, historical earnings per share calculations have not
been presented.
NOTE 3 -- ACQUISITIONS
In September 1993, IVAC completed the acquisitions of certain of the assets
of the MiniMed product line, a three-channel infusion pump system, from Siemens
Infusion Systems, Ltd. ("SIS"). The acquisition was accounted for as a purchase.
The purchase price was $38,206 and included guaranteed minimum royalties payable
annually from 1996 through 1999. The purchase price was allocated to assets and
liabilities as follows; inventory ($19,173); property and equipment ($2,675);
other assets ($314); accounts payable ($154); accrued minimum royalty liability
($12,000) and accrued warranty ($1,802), with the remaining excess purchase
price over net assets acquired of ($18,000). Under provisions of the acquisition
agreement, the Company is required to pay royalties to SIS in 1995 based on 1994
product sales and will pay in 1996 through 1999 based on the greater of 8% of
the prior year product sales or a guaranteed minimum of $3,000 per year. Excess
purchase price and other intangibles associated with this acquisition are being
amortized on a straight-line basis over 7 years (Note 4).
The following unaudited pro forma summary reflects IVAC's consolidated
results of operations as if the MiniMed product line had been acquired from SIS
as of the beginning of 1993. This summary includes the impact of adjustments for
related income tax effects and the amortization of intangibles associated with
the acquisition.
<TABLE>
<CAPTION>
1993
(UNAUDITED)
<S> <C>
Sales............................................................ $ 239,700
Net loss......................................................... (13,500)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire year, nor are
they intended to be a projection of future results.
NOTE 4 -- EXCESS PURCHASE PRICE ADJUSTMENT
Since the Company's acquisition of the MiniMed product line from SIS in
September 1993, the Company discovered design and other defects of the product
line and evaluated market conditions. Upon the discontinuance of production in
the fourth quarter of 1994, the Company determined that sales and earnings of
the product line acquired from SIS were significantly below that projected at
the time of acquisition. Accordingly, the Company recorded a write-down of
excess purchase price of $13,143 to reduce the carrying value of the excess
purchase price to its estimated fair value.
The methodology used to assess the recoverability of the excess purchase
price recorded in connection with the acquisition was to discount future
projected cash flows over the remaining estimated useful life of the product
line. The projected cash flows represent management's best estimate of the
Company's future results of operations related to this product line. The Company
discounted the resulting projected cash flows using a discount rate of 12% which
is considered a reasonable approximation of the Company's cost of capital at the
time of impairment. Based on the estimated discounted cash flows, the Company
determined that approximately $1,100 of the remaining unamortized excess
purchase price would be recoverable.
F-31
<PAGE> 118
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5 -- RESTRUCTURING AND SPECIAL ITEMS
In 1993, Lilly took actions designed to enhance its competitiveness in the
health care markets, to reduce expenses and improve efficiencies. As a result of
these actions, IVAC recognized restructuring and special charges amounting to
$4,000 in 1993, respectively. Restructuring costs include those amounts that
arose as a direct result of management's commitment to revise strategic actions.
Special charges represent unusual, nonrecurring expense items.
The 1993 restructuring actions relate to decisions by the Company to
reorganize certain of its operations outside the U.S. ($3,700) and to realign
its U.S. field sales force ($300).
NOTE 6 -- COMPOSITION OF CERTAIN CONSOLIDATED FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1993 1994
<S> <C> <C>
Accounts Receivable:
Trade.................................................................. $ 47,667 $ 47,064
Less allowance for doubtful accounts................................... (2,151) (3,740)
------ ------
$ 45,516 $ 43,324
====== ======
Inventories:
Finished products...................................................... $ 19,863 $ 18,974
Work-in-process........................................................ 10,665 5,985
Raw materials.......................................................... 22,827 22,129
------ ------
53,355 47,088
Less reserve........................................................... (3,659) (3,260)
------ ------
$ 49,696 $ 43,828
====== ======
Property, plant and equipment:
Land................................................................... $ 1,788 $ 1,788
Buildings.............................................................. 38,970 42,421
Equipment.............................................................. 75,902 68,031
Construction in process................................................ 7,210 5,112
------ ------
123,870 117,352
Less accumulated depreciation.......................................... (69,783) (67,257)
------ ------
$ 54,087 $ 50,095
====== ======
Other current liabilities:
Line of credit......................................................... $ 3,700 $ --
Restructuring charges.................................................. 3,720 --
Accrued contract termination costs..................................... -- 1,500
Deferred revenue....................................................... 1,300 1,057
Other miscellaneous accruals........................................... 7,122 4,050
------ ------
$ 15,842 $ 6,607
====== ======
Other non-current liabilities:
Minority interest...................................................... $ 2,767 $ 3,625
Other.................................................................. 2,603 2,306
------ ------
$ 5,370 $ 5,931
====== ======
</TABLE>
F-32
<PAGE> 119
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7 -- DEBT
In 1993, the Company obtained a line of credit with Hypo Bank in Germany to
fund the working capital needs of Lilly's medical device companies located
there. Borrowings under the line of credit, which amounted to $3,700 at December
31, 1993 and were guaranteed by Lilly, became due August 1994. The borrowings
were repaid at maturity.
In connection with the acquisition of the MiniMed product line, the Company
is obligated to pay additional consideration to SIS of $1,571 based on 1994
product sales and the greater of $3,000 per year or 8% of the prior year's
product sales in 1996 through 1999. In 1994, the minimum $12,000 liability was
discounted at an imputed interest rate of 7% with a corresponding reduction in
excess purchase price. The unamortized discount, which is amortized using the
interest method over the term of the payments, is $1,950 at December 31, 1994.
NOTE 8 -- TRANSACTIONS WITH LILLY
Operating expenses include certain services performed by Lilly or its
affiliates and billed directly to IVAC and certain corporate expenses which have
been allocated to the Company based on established allocation methods which in
the opinion of management reflect IVAC's proportionate share of such expenses.
Other transactions include intercompany purchases and sales, service fees and
interest.
A summary of significant actual expenditures charged by or (billed to)
Lilly follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1993 1994
<S> <C> <C>
Personnel and benefits........................................... $ 8,193 $ 8,321
Insurance........................................................ 1,455 1,265
Information systems.............................................. (2,808) (2,589)
Interest......................................................... (1,666) 1,088
Service charges from Physio-Control Corporation.................. 1,275 --
Miscellaneous.................................................... (540) (3,099)
------- -------
$ 5,909 $ 4,986
======= =======
</TABLE>
A summary of corporate expense allocations follows:
<TABLE>
<S> <C> <C>
Business planning................................................ $ 1,614 $ 1,902
Corporate expenses............................................... 3,690 3,676
International expenses........................................... 1,093 1,103
Other............................................................ 19 799
------- -------
$ 6,416 $ 7,480
======= =======
</TABLE>
Lilly did not require the intercompany payable resulting from corporate
expense allocations to be paid. Accordingly, these amounts have been reflected
as an increase to additional paid-in capital.
In addition, other intercompany balances due to and from Lilly during 1994
were settled in contemplation of and pursuant to the sale of IVAC. In May 1994,
IVAC forgave a net receivable due from Lilly in the amount of $48,699. This
transaction has been reflected as a dividend to Lilly in the accompanying
financial statements. In December 1994, Lilly forgave a net intercompany
receivable from IVAC amounting to $19,689. This transaction has been reflected
as an increase to additional paid-in capital in the accompanying financial
statements.
F-33
<PAGE> 120
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
In accordance with the terms of the sale of IVAC, Lilly also assumed
responsibility for employee-related and certain other liabilities existing prior
to December 31, 1994 and IVAC forgave certain additional intercompany balances
due from Lilly. The net effect of this transaction was a reduction in additional
paid-in capital of $6,026.
NOTE 9 -- LEASES
Total rental expense amounted to approximately $2,368 and $2,403 for the
years ended December 31, 1994 and 1993, respectively. Leases are generally for
computer and office equipment. Future minimum rental commitments as of December
31, 1994 for noncancellable leases are not material.
NOTE 10 -- INCOME TAXES
The Company accounts for income taxes on the liability method under SFAS
109. The following is the composition of income taxes:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1993 1994
<S> <C> <C>
Current:
Federal........................................................ $ (228) $ (1,208)
Foreign........................................................ 1,830 748
State.......................................................... 245 495
----- -----
1,847 35
Deferred:
Federal........................................................ (137) (8,369)
State.......................................................... -- (1,937)
----- -----
Total before valuation allowance................................. 1,710 (10,271)
Valuation allowance.............................................. -- 14,064
----- -----
Total............................................................ $1,710 $ 3,793
===== =====
</TABLE>
F-34
<PAGE> 121
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1993 1994
<S> <C> <C>
Deferred tax assets:
Excess purchase price write-down.............................. $ -- $ 5,187
Restructuring and other related charges....................... 2,778 --
Inventory..................................................... 3,082 2,484
Product return/warranty reserves.............................. -- 2,937
State income tax.............................................. 655 2,017
Rebate reserve................................................ -- 1,649
Allowance for doubtful accounts............................... -- 1,311
Other......................................................... 2,367 1,794
-------- -------
Total deferred tax assets....................................... 8,882 17,379
-------- -------
Deferred tax liabilities:
Property and equipment........................................ (3,881) (3,315)
Prepaid employer benefits..................................... (1,545) --
-------- -------
Total deferred tax liabilities.................................. (5,426) (3,315)
-------- -------
Net deferred tax assets......................................... 3,456 14,064
-------- -------
Valuation allowance............................................. -- (14,064)
-------- -------
Net deferred taxes.............................................. $ 3,456 $ 0
======== =======
</TABLE>
SFAS 109 specifies that deferred tax assets are to be reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Based on uncertainty as to whether
IVAC will generate adequate future income to recover its deferred tax assets at
December 31, 1994, management recorded a valuation allowance against such net
deferred tax assets.
Following is a reconciliation of the effective income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1993 1994
<S> <C> <C>
Tax benefit at statutory rate.................................... 35.0% (34.0)%
Add (deduct):
State taxes, net of federal tax benefit........................ 1.7% (1.7)%
Benefit from foreign sales corporation......................... (8.5)% (.5)%
Research tax credit............................................ (4.4)% (1.1)%
Effect of international operations............................. (.5)% 3.6%
Revisions of prior year estimates.............................. .6% (2.2)%
Lilly's assumption of net liabilities.......................... -- 3.9%
---- ------
23.9% (32.0)%
Valuation allowance............................................ -- 43.9%
---- ------
23.9% 11.9%
==== =====
</TABLE>
F-35
<PAGE> 122
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11 -- BENEFITS
Effective December 30, 1994, in connection with the subsequent sale of IVAC
discussed in Note 15, the Company's U.S. noncontributory defined benefit
retirement plan was terminated and the assets and liabilities of the IVAC
Retirement Plan were merged into The Lilly Retirement Plan. All eligible
participants in the IVAC Retirement Plan became participants in The Lilly
Retirement Plan, and all benefits previously earned will be paid by The Lilly
Retirement Plan.
The Company's U.S. noncontributory defined benefit retirement plan covered
substantially all United States employees. Benefits under the domestic plan were
calculated by using one of several formulas. These formulas were based on a
combination of the following: (1) years of service; (2) final average earnings;
(3) primary social security benefit; and (4) age.
The Company's funding policy was consistent with local governmental and tax
funding regulations. Generally, pension costs accrued were funded. Plan assets,
which were maintained in a trust with Lilly and other Lilly affiliate plan
assets, consisted primarily of equity and fixed income instruments.
Net pension expense for the Company's U.S. noncontributory defined benefit
retirement plan included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1993 1994
<S> <C> <C>
Service cost -- benefits earned during the year.................. $ 1,290 $ 1,743
Interest cost on projected benefit obligations................... 1,172 1,394
Actual return on assets (gain)................................... (1,595) (1,492)
Net amortization and deferral.................................... 973 466
------- -------
$ 1,840 $ 2,111
======= =======
</TABLE>
The funded status and amounts recognized in the consolidated balance sheets
for the Company's U.S. defined benefit retirement plan at December 31 were as
follows:
<TABLE>
<CAPTION>
1993
<S> <C>
Plan assets at fair value.................................................. $13,189
Actuarial present value of benefit obligations:
Vested benefits.......................................................... 7,993
Nonvested benefits....................................................... 1,901
-------
Accumulated benefit obligation............................................. 9,894
Effect of projected future salary increase............................... 8,792
-------
Projected benefit obligation............................................... 18,686
-------
Funded status.............................................................. (5,497)
Unrecognized net gain...................................................... 683
Unrecognized prior service cost............................................ 7,057
-------
Prepaid pension cost....................................................... $ 2,243
=======
</TABLE>
F-36
<PAGE> 123
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The assumptions used to develop net periodic pension expense and the
actuarial present value of projected benefit obligations are shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994
<S> <C> <C>
Discount rate................................................... 7.5% 7.5%
Rate of increase in future compensation levels.................. 4.5 - 8.0% 4.5 - 8.0%
Expected long-term return on assets............................. 11.0% 11.0%
</TABLE>
The reduction of the discount rate at December 31, 1993, increased the
projected benefit obligation approximately $3,934.
In addition to employees covered by the above U.S. noncontributory defined
benefit retirement plan, the Company also had employees outside the U.S. who
were covered by retirement plans maintained by Lilly or its affiliates. No
allocation of expenses for the Company's employees participating in these plans
has been included in the above information. However, expenses attributable to
the Company's employees at these locations are included in the consolidated
statements of operations.
The Company was self-insured for medical and dental benefits. Medical and
dental expense recorded in 1994 and 1993 was $6,884 and $4,216.
Lilly has assumed responsibility for all employee benefit related
liabilities as of December 31, 1994.
The Company's employees are eligible to contribute to the Company's defined
contribution savings plan, which may be matched by the Company. The Company's
expense under the plan totaled $1,215 and $1,800 for the years ended December
31, 1994 and 1993.
NOTE 12 -- GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------
1993 1994
<S> <C> <C>
Net sales to unaffiliated customers:
United States................................................ $151,728 $153,383
United Kingdom............................................... 14,308 17,332
Germany...................................................... 14,001 14,960
Spain........................................................ 8,715 9,146
Other........................................................ 25,492 28,406
-------- --------
$214,244 $223,227
======== ========
Income (loss) before income taxes:
United States................................................ $ 9,208 $(35,218)
United Kingdom............................................... 1,418 3,576
Germany...................................................... (1,103) 423
Spain........................................................ 2,597 983
Other........................................................ (2,276) (500)
Eliminations and adjustments................................. (2,718) (1,324)
-------- --------
$ 7,126 $(32,060)
======== ========
</TABLE>
F-37
<PAGE> 124
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1993 1994
<S> <C> <C>
Total assets:
United States................................................ $203,186 $140,706
United Kingdom............................................... 16,266 9,345
Germany...................................................... 7,940 3,827
Spain........................................................ 7,526 7,766
Other........................................................ 15,402 14,949
Eliminations and adjustments................................. (1,411) (2,449)
-------- --------
$248,909 $174,144
======== ========
</TABLE>
Transfers between geographic areas are made at prices calculated to reflect
a profit attributable to manufacturing operations.
Remittances to the United States are subject to various regulations of the
respective governments as well as to fluctuations in exchange rates.
NOTE 13 -- LITIGATION
Prior to and in connection with the sale of IVAC, Lilly assumed
responsibility for the anticipated cost of resolution of certain legal claims
existing at December 31, 1994. Consequently, the related accrual is not
reflected within the accompanying financial statements. In addition, the Company
is a party to various other legal actions which have occurred in the normal
course of business. Management believes the Company has meritorious defenses and
intends to defend vigorously against these allegations and claims. As the
ultimate outcome of the matters is uncertain, no loss provisions have been
recorded in the accompanying financial statements. In management's opinion,
liabilities arising from these matters, if any, will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
The Company is obligated to pay additional purchase consideration related
to two previous acquisitions. As discussed in Note 7, the Company is obligated
to pay additional consideration to SIS. In connection with another acquisition,
the Company is contingently liable for up to approximately $3,050 for additional
purchase consideration through 1996 based upon the acquired entity achieving
certain sales and pre-tax performance in each year.
NOTE 15 -- SUBSEQUENT EVENTS
After the close of business on December 31, 1994, Lilly sold the
outstanding stock of lVAC to Holdings, which was formed through the contribution
of the outstanding capital stock of River Medical, Inc. and cash from an
investor group including DLJ Merchant Banking Partners, L.P. and related
investors, and other investors. Through a series of subsequent transactions,
River Medical, Inc. became a wholly owned subsidiary of IVAC.
F-38
<PAGE> 125
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY IVAC CORPORATION, THE UNDERWRITER OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 11
The Acquisition................................. 15
Use of Proceeds................................. 16
Pro Forma Condensed Consolidated Financial
Statements.................................... 17
Selected Historical Consolidated Financial
Data.......................................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 25
Business........................................ 32
Management...................................... 46
Principal Stockholders.......................... 54
Certain Relationships and Related
Transactions.................................. 57
Description of Notes............................ 59
Description of Bank Credit Facility............. 80
Plan of Distribution............................ 81
Legal Matters................................... 81
Experts......................................... 82
Available Information........................... 82
Index to Financial Statements................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$100,000,000
LOGO
9 1/4% SENIOR NOTES
DUE 2002
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SEPTEMBER 20, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 126
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the issuance
and distribution of the Notes. All of the amounts shown are estimates, except
the SEC registration fee.
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 34,483.00
National Association of Securities Dealers, Inc. Registration
Fee......................................................... 10,500.00
Blue Sky fees and expenses (including legal fees)............. 25,000.00
Fee and expenses of Trustee................................... 5,000.00
Printing and engraving expenses............................... 333,000.00
Legal fees and expenses....................................... 640,000.00
QIU fees...................................................... 120,000.00
Accounting fees and expenses.................................. 605,000.00
Miscellaneous................................................. 26,017.00
----------
Total.................................................... $1,799,000.00
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
IVAC Medical Systems, Inc.'s Certificate of Incorporation limits, to the
maximum extent permitted by the Delaware General Corporation Law (the "Delaware
Law"), the personal liability of directors for monetary damages for breach of
their fiduciary duties as directors. IVAC Medical Systems, Inc.'s Bylaws provide
that the Company may indemnify its officers, directors and employees and other
agents to the fullest extent permitted by law.
IVAC Holdings, Inc.'s Certificate of Incorporation requires indemnification
(and advancement of expenses), to the fullest extent permitted by Delaware Law,
of IVAC Medical Systems, Inc.'s directors and officers in connection with their
service in such positions.
The Company has entered into indemnification agreements with each of its
directors and officers, providing each such person with indemnification (and
advancement of expenses), to the fullest extent permitted by Delaware Law.
IVAC Holdings, Inc. has entered into indemnification agreements with each
of IVAC Medical Systems, Inc.'s directors and officers, providing each such
person with indemnification (and advancement of expenses), to the fullest extent
permitted by Delaware Law, in connection with their service as directors and
officers of IVAC Medical Systems, Inc.
Section 145 of the Delaware Law provides that a corporation may indemnify a
director, officer, employee or agent made a party to an action by reason of the
fact that such person was a director, officer, employee or agent of the
corporation or was serving at the request of the corporation against expenses
actually incurred by such person in connection with such action if such person
acted in good faith and in a manner such person reasonably believed to be in, or
not opposed to, the best interest of the corporation with respect to any
criminal action, and had no reasonable cause to believe his conduct was
unlawful. The provisions of IVAC Medical Systems Inc.'s Certificate of
Incorporation have no effect on the availability of equitable remedies such as
injunction or rescission, based upon a director's breach of the duty of care.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling IVAC Medical Systems,
Inc. pursuant to the foregoing provisions and agreements, IVAC Medical Systems,
Inc. has been informed that in the opinion of the Staff of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
The Company maintains officers' and directors' liability insurance which
insures against liabilities that officers and directors of the Company may incur
in such capacities.
II-1
<PAGE> 127
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the following securities were sold by IVAC
Corporation without registration under the Securities Act:
On December 31, 1994, IVAC Corporation sold $80.0 million principal amount
of its Subordinated Bridge Notes to a single purchaser in reliance on Section
4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
<C> <S>
1.1** Form of Underwriting Agreement.
1.2** Form of Qualified Independent Underwriter Agreement.
2.1** Stock Purchase Agreement, dated as of November 21, 1994, by and among DLJMB
and related investors, River, River Acquisition Co. and Lilly.
2.2** Class A Subscription Agreement, dated as of December 30, 1994, by and among
Holdings and the Buyers named therein.
2.3** Class B Subscription Agreement, dated as of December 30, 1994, by and among
Holdings, River and the Exchanging Holders named therein.
2.4** Securities Purchase Agreement, dated as of December 30, 1994, by and among
Holdings and the Purchasers listed on the signature pages thereto.
3.1** Certificate of Incorporation of IVAC Corporation.
3.2** Bylaws of IVAC Corporation.
3.3*** Certificate of Amendment of Certificate of Incorporation of IVAC Corporation.
3.4+ Amendment to the Restated Certificate of Incorporation of IVAC Holdings, Inc.
4.1** Form of Indenture for the Notes (including form of Note).
4.2** Shareholders' Agreement, dated as of December 30, 1994, by and among Holdings
and the shareholders thereof.
5.1** Opinion of Davis Polk & Wardwell regarding the legality of the securities
being registered.
10.1** Credit Agreement, dated as of December 30, 1994, by and among Holdings, IVAC
Holdings, Chemical Bank, as Administrative and Collateral Agent and Fronting
Bank, and the Lenders named therein.
10.2** Employment Agreement, dated as of May 10, 1995, between IVAC Corporation and
William J. Mercer.
10.3** Employment Agreement, dated as of March 9, 1995, between IVAC Corporation and
Richard M. Mirando.
10.4** Employment Agreement, dated as of August 18, 1994, between IVAC Corporation
and John Conn.
10.5** Holdings 1995 Stock Option/Stock Issuance Plan.
10.6** Form of IVAC Corporation Management Bonus Plan.
10.7** Description of IVAC Monthly Bonus Plan.
10.8** Agreement dated as of June 20, 1994 between Lilly and Richard M. Mirando.
10.9** Agreement dated as of June 20, 1994 between Lilly and John Conn.
10.10** Agreement dated as of June 20, 1994 between Lilly and Anthony B. Semedo.
10.11** Tax Sharing Agreement, dated as of October 18, 1995, between Holdings and
IVAC.
10.12*** Wateridge Plaza Office Building Lease Agreement dated as of December 1, 1995
by and between California Public Employees' Retirement System and IVAC
Corporation.
10.13*** Activity Road Lease Agreement, dated as of October 25, 1995 by and between
Rancho Bernardo Corporate Center Ltd. and IVAC Corporation.
10.14*** Kenamar Court Lease Agreement dated as of January 24, 1996 by and between
Brentcrest Properties, Inc., a California Limited Partnership and IVAC
Corporation.
</TABLE>
II-2
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
<C> <S>
10.15*** Agreement of Purchase and Sale and Joint Escrow Instructions dated as of
November 3, 1995 by and between IVAC Corporation and Qualcomm Incorporated.
10.16****** Letter Agreement between IVAC Medical Systems, Inc. and DLJSC.
10.17**** Amendment, Consent and Waiver Agreement, dated March 29, 1996, by and among
IVAC Holdings, Inc., IVAC Medical Systems, Inc., Chemical Bank, as
Administrative and Collateral Agent and Fronting Bank, and the Lenders named
therein.
10.18* IVAC Holdings,Inc., 1996 Key Contributor Stock Option Plan.
10.19* Indemnification Agreements with IVAC Officers and Board of Directors.
10.20***** Agreement dated April 1, 1996, by and between Bernard C-B Lim and others, and
IVAC UK Limited.
12+ Computation of Ratio of Earnings to Fixed Charges.
16.1*** Letter regarding change in certifying accountant.
21.1** Subsidiaries of IVAC Corporation.
23.1+ Consent of Price Waterhouse LLP.
23.2+ Consent of Ernst & Young LLP.
23.3** Consent of Davis Polk & Wardwell (included in Exhibit 5.1).
24.1** Power of Attorney (included on the signature pages of the Registration
Statement).
25.1** Statement of Eligibility of Trustee on Form T-1 (bound separately).
99.1+ Agreement and Plan of Merger dated August 23, 1996 by and among IMED
Corporation; IMED Merger Sub, Inc; IVAC Holdings, Inc.; IVAC Medical Systems,
Inc. and the Participating Stockholders.
</TABLE>
- ------------------------------
*Incorporated herein by reference to the Company's Report on Form 10-Q for
the quarter ended June 30, 1996.
** Previously filed.
*** Incorporated herein by reference to the Company's Report on Form 10-K for
the year ended December 31, 1995.
**** Incorporated by reference to the Company's Report on Form 8-K filed on
May 3, 1996.
***** Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended March 31, 1996.
****** Incorporated by reference to the Company's Report on Form 8-K filed on
August 30, 1996.
+ Filed herewith.
(b) Financial Statement Schedule
II-3
<PAGE> 129
IVAC MEDICAL SYSTEMS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(C)
ADDITIONS
(B) ------------------------- (E)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
(A) BEGINNING OF COSTS AND OTHER (D) END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------ ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
IVAC MEDICAL SYSTEMS, INC.
Deducted from receivables:
Allowance for doubtful accounts:
Year ended December 31, 1995... $3,740 $2,080 -- $1,276 $4,544
Deducted from inventories:
Reserve for excess and obsolete
inventory:
Year ended December 31,
1995*........................ 0 1,712 -- -- 1,712
IVAC CORPORATION
Deducted from receivables:
Allowance for doubtful accounts:
Year ended December 31, 1994... $2,151 $3,062 -- $1,473 $3,740
Deducted from inventories:
Reserve for excess and obsolete
inventory:
Year ended December 31, 1994... 3,659 1,150 -- 1,549 3,260
</TABLE>
* The consolidated financial statements of the Company for the twelve months
ended December 31, 1995 reflect the application of purchase accounting
principles to the Acquisition and the River Transaction (see Note 3 in the Notes
to the Consolidated Financial Statements). Accordingly, the purchased assets and
liabilities have been recorded at their estimated fair value at the date of the
acquisition.
II-4
<PAGE> 130
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement,
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 15 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
California, on the 18 day of September, 1996.
IVAC MEDICAL SYSTEMS, INC.
By: WILLIAM J. MERCER
William J. Mercer
Chief Executive Officer,
President and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ---------------------------------- -------------------
<C> <S> <C>
* Chairman
- -------------------------------------
Gregory E. Sancoff
* Vice Chairman
- -------------------------------------
Albert J. Henry
* Chief Executive Officer,
- ------------------------------------- President and Director
William J. Mercer
DEBRA P. CRAWFORD Chief Financial Officer and Vice
- ------------------------------------- President of Finance and
Debra P. Crawford Administration
* Director
- -------------------------------------
Thompson Dean
* Director
- -------------------------------------
Reid S. Perper
* Director
- -------------------------------------
Karl R. Wyss
* Director
- -------------------------------------
Samuel Colella
* By DEBRA P. CRAWFORD
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 132
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE PAGE
<C> <S> <C>
1.1** Form of Underwriting Agreement.
1.2** Form of Qualified Independent Underwriter Agreement.
2.1** Stock Purchase Agreement, dated as of November 21, 1994, by and among DLJMB
and related investors, River, River Acquisition Co. and Lilly.
2.2** Class A Subscription Agreement, dated as of December 30, 1994, by and among
Holdings and the Buyers named therein.
2.3** Class B Subscription Agreement, dated as of December 30, 1994, by and among
Holdings, River and the Exchanging Holders named therein.
2.4** Securities Purchase Agreement, dated as of December 30, 1994, by and among
Holdings and the Purchasers listed on the signature pages thereto.
3.1** Certificate of Incorporation of IVAC Corporation.
3.2** Bylaws of IVAC Corporation.
3.3*** Certificate of Amendment of Certificate of Incorporation of IVAC
Corporation.
3.4+ Amendment to the Restated Certificate of Incorporation of IVAC Holdings,
Inc.
4.1** Form of Indenture for the Notes (including form of Note).
4.2** Shareholders' Agreement, dated as of December 30, 1994, by and among
Holdings and the shareholders thereof.
5.1** Opinion of Davis Polk & Wardwell regarding the legality of the securities
being registered.
10.1** Credit Agreement, dated as of December 30, 1994, by and among Holdings, IVAC
Holdings, Chemical Bank, as Administrative and Collateral Agent and Fronting
Bank, and the Lenders named therein.
10.2** Employment Agreement, dated as of May 10, 1995, between IVAC Corporation and
William J. Mercer.
10.3** Employment Agreement, dated as of March 9, 1995, between IVAC Corporation
and Richard M. Mirando.
10.4** Employment Agreement, dated as of August 18, 1994, between IVAC Corporation
and John Conn.
10.5** Holdings 1995 Stock Option/Stock Issuance Plan.
10.6** Form of IVAC Corporation Management Bonus Plan.
10.7** Description of IVAC Monthly Bonus Plan.
10.8** Agreement dated as of June 20, 1994 between Lilly and Richard M. Mirando.
10.9** Agreement dated as of June 20, 1994 between Lilly and John Conn.
10.10** Agreement dated as of June 20, 1994 between Lilly and Anthony B. Semedo.
10.11** Tax Sharing Agreement, dated as of October 18, 1995, between Holdings and
IVAC.
10.12*** Wateridge Plaza Office Building Lease Agreement dated as of December 1, 1995
by and between California Public Employees' Retirement System and IVAC
Corporation.
10.13*** Activity Road Lease Agreement, dated as of October 25, 1995 by and between
Rancho Bernardo Corporate Center Ltd. and IVAC Corporation.
10.14*** Kenamar Court Lease Agreement dated as of January 24, 1996 by and between
Brentcrest Properties, Inc., a California Limited Partnership and IVAC
Corporation.
10.15*** Agreement of Purchase and Sale and Joint Escrow Instructions dated as of
November 3, 1995 by and between IVAC Corporation and Qualcomm Incorporated.
10.16****** Letter Agreement between IVAC Medical Systems, Inc. and DLJSC.
10.17**** Amendment, Consent and Waiver Agreement, dated March 29, 1996, by and among
IVAC Holdings, Inc., IVAC Medical Systems, Inc., Chemical Bank, as
Administrative and Collateral Agent and Fronting Bank, and the Lenders named
therein.
</TABLE>
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE PAGE
<C> <S> <C>
10.18* IVAC Holdings, Inc., 1996 Key Contributor Stock Option Plan.
10.19* Indemnification Agreements with IVAC Officers and Board of Directors.
10.20***** Agreement dated April 1, 1996, by and between Bernard C-B Lim and others,
and IVAC UK Limited.
12+ Computation of Ratio of Earnings to Fixed Charges.
16.1*** Letter regarding change in certifying accountant.
21.1** Subsidiaries of IVAC Corporation.
23.1+ Consent of Price Waterhouse LLP.
23.2+ Consent of Ernst & Young LLP.
23.3** Consent of Davis Polk & Wardwell (included in Exhibit 5.1).
24.1** Power of Attorney (included on the signature pages of the Registration
Statement).
25.1** Statement of Eligibility of Trustee on Form T-1 (bound separately).
99.1+ Agreement and Plan of Merger dated August 23, 1996 by and among IMED
Corporation; IMED Merger Sub, Inc.; IVAC Holdings, Inc.; IVAC Medical
Systems, Inc. and the Participating Shareholders.
</TABLE>
- ------------------------------
*Incorporated herein by reference to the Company's Report on Form 10-Q for
the quarter ended June 30, 1996.
** Previously filed.
*** Incorporated herein by reference to the Company's Report on Form 10-K for
the year ended December 31, 1995.
**** Incorporated by reference to the Company's Report on Form 8-K filed on
May 3, 1996.
***** Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended March 31, 1996.
****** Incorporated by reference to the Company's Report on Form 8-K filed on
August 30, 1996.
+ Filed herewith.
<PAGE> 1
Exhibit 3.4
AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION OF
IVAC HOLDINGS, INC.
******
IVAC Holdings, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware (the "GCL"), does hereby further amend the Certificate of
Incorporation of the Corporation, which was originally filed on October 14,
1994 under the name River Acquisition Corp. and subsequently amended and
restated on December 29, 1994 and April 13, 1995.
The undersigned hereby certifies that this Amendment to the
Certificate of Incorporation has been duly adopted in accordance with Sections
228 and 242 of the GCL. Written consent has been given and written notice
provided in accordance with Section 228 of the GCL.
(1) The first sentence of subparagraph (f) of Article FOURTH
is hereby deleted in its entirety and replaced with:
"Each share of Class B Common Stock shall convert automatically
(a "Conversion"), without any action on the part of the Corporation or
any holder of Class B Common Stock, immediately prior to the occurrence
of an Equity Liquidation Event as follows."
(2) The last sentence of subparagraph (g)(iii) of Article
FOURTH is hereby deleted in its entirety and replaced with:
"Such Conversion shall be effective immediately prior to the
occurrence of the Equity Liquidation Event, and the person in whose
name or names any certificate or certificates for shares of Class A
Common Stock shall be issuable upon such Conversion shall be deemed
to have become the holder of record of the shares of Class A Common
Stock."
<PAGE> 2
(3) Subparagraph (2)(b) of Article SEVENTH is hereby deleted in
its entirety and replaced with:
"The Corporation may, by action of its Board of Directors, provide
indemnification to such of the employees and agents of the Corporation
to such extent and to such effect as the Board of Directors shall
determine to be appropriate and authorized by Delaware Law."
THE UNDERSIGNED, being the Vice President of IVAC Holdings,
Inc., for the purpose of amending the Restated Certificate of Incorporation of
the Corporation pursuant to the General Corporation Law of the State of
Delaware, does declare and certify that this is my act and deed and the facts
herein stated are true, and accordingly have hereunto set my hand as of this
16th day of August, 1996.
IVAC HOLDINGS, INC.
By: /s/ Reid S. Perper
---------------------------------
Reid S. Perper
Vice President
2
<PAGE> 1
Exhibit 12
IVAC MEDICAL SYSTEMS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY
----------------------------------------- ----------------------------
ACTUAL
-------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) from continuing operations 11,908 10,250 7,126 (32,060) (52,182) (37,727) (12,421)
Fixed charges:
Interest expense and amortization of debt
discount and premium on all indebtedness 39 96 358 2,943 18,107 9,081 6,403
Interest portion of rentals (33% of rent
expense) 517 594 793 781 672 251 709
-------- -------- -------- -------- -------- -------- --------
Total fixed charges 556 690 1,151 3,724 18,779 9,332 7,112
Earnings before income taxes and fixed charges 12,464 10,940 8,277 (28,336) (33,403) (28,395) (5,309)
-------- -------- -------- -------- -------- -------- --------
Ratio of earnings to fixed charges 22.42 15.86 7.19 n/a n/a n/a n/a
======== ======== ======== ======== ======== ======== ========
Earnings insufficient to cover fixed charges by n/a n/a n/a (32,060) (52,182) (37,727) (12,421)
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
-----------------------------------------
PRO FORMA
-----------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------ -------------------
1995 1995
-------- --------
<S> <C> <C>
Pre-tax income (loss) from continuing operations (389) 5,315
Fixed charges:
Interest expense and amortization of debt
discount and premium on all indebtedness 13,539 6,709
Interest portion of rentals (33% of rent
expense) 672 251
-------- --------
Total fixed charges 14,211 6,960
Earnings before income taxes and fixed charges 13,822 12,275
-------- --------
Ratio of earnings to fixed charges n/a 1.76
======== ========
Earnings insufficient to cover fixed charges by (389) n/a
======== ========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 29, 1996 relating
to the financial statements of IVAC Medical Systems, Inc. which appears in such
Prospectus. We also consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-1 of our report dated June 29, 1995
relating to the financial statements of IVAC Corporation, which appears in such
Prospectus. We also consent to the application of such reports to the Financial
Statement Schedule for the two years ended December 31, 1995 listed under Item
16(b) of this Registration Statement when such schedule is read in conjunction
with the financial statements referred to in our reports. The audits referred
to in such reports also included this schedule. We also consent to the
references to us under the headings "Experts" and "Selected Historical
Consolidated Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected
Historical Consolidated Financial Data."
/s/ Price Waterhouse LLP
- -----------------------------
PRICE WATERHOUSE LLP
San Diego, California
September 18, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Historical
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 28, 1994, with respect to the financial statements of IVAC Corporation
included in Post-Effective Amendment No. 1 to the Registration Statement on
Form S-1 and related Prospectus of IVAC Corporation for the registration of
$100,000,000 of Senior Notes due 2002.
ERNST & YOUNG LLP
San Diego, California
September 17, 1996
<PAGE> 1
Exhibit 99.1
AGREEMENT AND PLAN OF MERGER
By and Among
The Participating Stockholders
IMED Corporation
IMED Merger Sub, Inc.
IVAC Holdings, Inc. and
IVAC Medical Systems, Inc.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
BACKGROUND...................................................................................................... 1
ARTICLE I
THE MERGER................................................................... 1
1.1. The Merger.................................................................................... 1
1.2. Effective Time of the Merger.................................................................. 2
1.3. The Closing................................................................................... 2
1.4. Certificate of Incorporation.................................................................. 2
1.5. By-Laws....................................................................................... 2
1.6. Directors and Officers........................................................................ 3
1.7. Conversion of Shares.......................................................................... 3
1.8. Total Consideration........................................................................... 4
1.9. Dissenters' Rights............................................................................ 7
1.10. Surrender and Payment......................................................................... 8
1.11. Taking Necessary Action; Further Action....................................................... 9
ARTICLE II
REPRESENTATIONS AND WARRANTIES
CONCERNING PARTICIPATING STOCKHOLDERS...................................................... 9
2.1. Ownership of the Participating Stockholder's
Stock......................................................................................... 10
2.2. Authority of Participating Stockholder........................................................ 10
2.3. Prohibitions.................................................................................. 10
2.4. Consents and Approvals of Governmental
Authorities................................................................................... 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY............................................................. 11
3.1. Description and Lists......................................................................... 11
3.2. Corporate Organization; Authority............................................................. 14
3.3. Capitalization................................................................................ 15
3.4. Subsidiaries.................................................................................. 16
3.5. No Violation.................................................................................. 16
3.6. Consents and Approvals of Governmental
Authorities................................................................................... 16
3.7. Financial Statements of the Operating Co...................................................... 17
3.8. Contractual Arrangements with Stockholders,
Officers or Employees......................................................................... 19
3.9. Absence of Certain Changes.................................................................... 19
3.10. Title to Property; Leases; Encumbrances....................................................... 20
3.11. Patents, Trademarks, Trade Names.............................................................. 22
3.12. Litigation; Compliance with Laws.............................................................. 22
3.13. Environmental Matters......................................................................... 23
3.14. Tax Matters................................................................................... 26
3.15. Benefit Plans................................................................................. 30
3.16. Labor Matters................................................................................. 33
3.17. Purchase and Sale Commitments................................................................. 33
3.18. Insurance..................................................................................... 33
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
3.19. Contracts....................................................................... 34
3.20. Finders and Investment Bankers.................................................. 34
3.21. Licenses, Permits and Authorizations............................................ 34
3.22. Products........................................................................ 35
3.23. Entire Business................................................................. 35
3.24. Distribution Agreements......................................................... 35
3.25. Regulatory Matters.............................................................. 35
3.26. Disclosure...................................................................... 37
3.27. Products........................................................................ 37
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND IMED MERGER SUB................................................ 37
4.1. Organization; Etc............................................................... 38
4.2. Authorization; Etc.............................................................. 38
4.3. No Violation.................................................................... 38
4.4. Consents and Approvals of Governmental
Authorities..................................................................... 38
4.5. Finders and Investment Bankers.................................................. 39
4.6. Financing....................................................................... 39
4.7. Litigation...................................................................... 39
ARTICLE V
CONDUCT OF BUSINESS PENDING CLOSING........................................ 39
5.1. Conduct of Business............................................................. 39
ARTICLE VI
ADDITIONAL AGREEMENTS................................................ 41
6.1. Advice of Change................................................................ 41
6.2. Access to Properties and Records; Confidentiality............................... 42
6.3. Books and Records............................................................... 43
6.4. Financing....................................................................... 44
6.5. Consents and Approvals.......................................................... 44
6.6. Cooperation Regarding Benefit Plans............................................. 45
6.7. Satisfaction of Closing Conditions.............................................. 45
6.8. Tax Covenants................................................................... 45
6.9. Other Offers.................................................................... 46
6.10. Implied Warranties.............................................................. 47
6.11. Additional Instruments; Further
Assurances...................................................................... 47
6.12. Antitrust Notification.......................................................... 47
6.13. River Medical................................................................... 47
6.14. Payment of Indebtedness......................................................... 48
6.15. Senior Notes.................................................................... 49
6.16. Overseas Cash................................................................... 50
6.17. Welmed/Siemens/Eli Lilly........................................................ 50
6.18. Real Estate Matters............................................................. 51
6.19. Notice to Stockholders.......................................................... 51
6.20. Covered Period.................................................................. 52
6.21. Benefits........................................................................ 52
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
6.22. Cash Flow Statements............................................................ 52
6.23. Recall.......................................................................... 53
6.24. Option Cancellation Agreement................................................... 53
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF EACH PARTY....................................... 54
7.1. No Action or Proceeding......................................................... 54
7.2. Compliance with Law............................................................. 54
7.3. Hart-Scott-Rodino Requirements.................................................. 54
ARTICLE VIII
CONDITIONS TO PURCHASER'S OBLIGATIONS.......................................... 54
8.1. Representations and Warranties.................................................. 54
8.2. Absence of Certain Changes...................................................... 55
8.3. Performance..................................................................... 55
8.4. Authority....................................................................... 55
8.5. Opinion of Counsel.............................................................. 55
8.6. Approvals and Filings........................................................... 55
8.7. FIRPTA Certificates............................................................. 56
8.8. Certificates.................................................................... 56
8.9. Financings...................................................................... 56
8.10. Resignation..................................................................... 56
8.11. Maximum Indebtedness............................................................ 56
8.12. Signature Authority............................................................. 57
8.13. Waiver of Rights................................................................ 57
8.14. [Reserved]...................................................................... 57
8.15. Special Statement............................................................... 57
8.16. Stockholders Agreements......................................................... 57
8.17. Indebtedness.................................................................... 57
8.18. Audited Financial Statements.................................................... 57
8.19. Certificate of Incorporation.................................................... 57
8.20. Conversion...................................................................... 57
8.21. Tender Offer.................................................................... 58
8.22. Subsidiary Shares............................................................... 58
ARTICLE IX
CONDITIONS TO PARTICIPATING STOCKHOLDERS' OBLIGATIONS................................ 58
9.1. Representations and Warranties.................................................. 58
9.2. Performance..................................................................... 58
9.3. Authority....................................................................... 59
9.4. Opinion of Purchaser's Counsel.................................................. 59
9.5. Approvals and Filings........................................................... 59
9.6. Certificates.................................................................... 59
9.7. Consideration................................................................... 59
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE X
TERMINATION.................................................................. 59
10.1. Termination................................................................................... 59
10.2. Effect of Termination......................................................................... 61
10.3. "Sellers Representative"...................................................................... 62
ARTICLE XI
NATURE AND SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION, ETC...................................................... 62
11.1. Survival of Representations, Warranties,
Etc........................................................................................... 62
11.2. Participating Stockholders' Agreement to
Indemnify..................................................................................... 62
11.3. Purchaser's Agreement to Indemnify............................................................ 63
11.4. Third Party Claims............................................................................ 64
11.5. Effect of Taxes and Insurance................................................................. 65
11.6. Purchase Price Adjustment..................................................................... 65
11.7. Interest...................................................................................... 66
ARTICLE XII
MISCELLANEOUS PROVISIONS............................................................ 66
12.1. Representations/Covenants of the Holding
Co., the Operating Co. and Participating
Stockholders.................................................................................. 66
12.2. Amendment and Modification.................................................................... 66
12.3. Waiver........................................................................................ 66
12.4. Notices....................................................................................... 66
12.5. Binding Nature; Assignment.................................................................... 68
12.6. Governing Law; Submission to Jurisdiction..................................................... 68
12.7. Public Announcements.......................................................................... 69
12.8. Expenses...................................................................................... 69
12.9. Counterparts.................................................................................. 69
12.10. Headings...................................................................................... 69
12.11. Entire Agreement.............................................................................. 69
12.12. Remedies Exclusive............................................................................ 69
12.13. Purchaser Waiver.............................................................................. 70
12.14. Disclosure Schedules.......................................................................... 70
12.15. Drafting Convention........................................................................... 70
12.16. Arbitration................................................................................... 70
ARTICLE XIII
GLOSSARY.................................................................... 71
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
LIST OF SCHEDULES
<S> <C>
2.1 Stockholder Agreements
2.3 Prohibitions Regarding Participating Stockholders
3.1(a) Real Property
(b) Intangible Property
(c) Agreements
(d) Employees and Compensation Arrangements
(e) Debt (Including Security Agreements and Mortgages)
(f) Banks
(g) Capital Expenditures
(h) Major Customers and Suppliers
(i) Certificate of Incorporation and By-Laws
(j) Claims
(k) Power of Attorney
(l) Insurance
(m) Warranties
(n) Approvals
(o) Distribution Agreements
(p) Signature Products
3.2 Jurisdiction of Qualification for Holding Co./Operating
Co.
3.3 List of Holders and Holdings of Holding Co. Stock;
Authorized, Issued and Outstanding Stock, Voting
Agreements, Options, Warrants, Etc.
3.4 Subsidiaries, Jurisdiction of Organization and
Qualification
3.5 Violations, Accelerations, Consents
3.6 Consents and Approvals
3.7 Financial Statements, Additional Liabilities
3.7A Signature
3.7B Welmed
3.8 Contractual Arrangements with Stockholders, Officers,
Directors or Employees
3.9 Certain Changes
3.10 Title Exceptions
3.10(d) Condition and Maintenance of Assets on Property
3.11 Patent and Trademark Rights; Confidentiality Agreements
3.12 Litigation; Compliance with Laws
</TABLE>
-i-
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C>
3.13 Environmental Matters
3.14(c) Actions, Investigations or Audits Regarding Taxes, Tax
Deficiencies or Outstanding Taxes
3.14(d) Unpaid Taxes Being Contested or Not Yet Due and Payable
3.14(e) Consolidated, Combined or Unitary Income Tax Return
3.14(i) Participating Stockholders who are Foreign Persons
under Section 1445 of the Internal Revenue Code of
1986, as amended
3.14(k) Tax Elections for Federal Income Tax Purposes
3.14(n) Exchanges for which the Gain Realized was not
Recognized
3.14(p) Tax Sharing Agreements or Arrangements
3.14(q) Liabilities and Adjusted Basis
3.14(r) Returns
3.14(s) Liability
3.14(t) 338 Elections
3.14(u) Tax Obligations or Liabilities to the Participating
Stockholders
3.15(a) Employee Benefit Plans; Contracts, Arrangements, or
Policies Entered Into With or On Behalf of the
Employees
3.15(c) Qualification of Employee Benefit Plans; Suits or
Proceedings Regarding Employee Benefit Plans
3.15(h) Contracts or Agreements Which could Require Payments
Not Deductible Pursuant to Section 5000(b)(1) of the
Code
3.15(j) Bonus or Similar Benefits Payable to Employee as a
Result of the Transactions Covered By This Agreement
3.17 Purchase and Sale Commitments
3.19 Contracts
3.20 Finders and Investment Bankers
3.21 Regulatory Approvals
3.22 Products
3.25 Regulatory Matters
</TABLE>
-ii-
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C>
5.1 Permitted Activities Pending Closing
6.17 Welmed/Siemens/Eli Lilly Agreements
6.21 Severance
8.6 Approval and Filings
8.13 Waiver of Rights
9.5 Approvals and Filings (Conditions to Obligations)
LIST OF EXHIBITS
1 Certificate of Merger
2 Opinion of Davis Polk & Wardwell
3 Release and Waiver
4 Amendment to the Restated Certificate of Incorporation
of IVAC Holdings, Inc.
5 Opinion of Gordon Altman Butowsky Weitzen Shalov & Wein
6 Option Cancellation Agreement (Mercer)
7 Option Cancellation Agreement (Sancoff/Henry)
8 Option Cancellation Agreement (Other/Non-River)
9 Option Cancellation Agreement (Other River)
</TABLE>
-iii-
<PAGE> 9
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made
and entered into this 23 day of August, 1996, by and among each person named on
the signature page hereof under the caption "Participating Stockholders" (each a
"Participating Stockholder" and collectively, "Participating Stockholders"),
IVAC Holdings, Inc., a Delaware corporation (the "Holding Co."), IVAC Medical
Systems, Inc., a Delaware corporation (the "Operating Co."), IMED Corporation, a
Delaware corporation ("Purchaser") and IMED Merger Sub, Inc., a Delaware
corporation that is a wholly owned subsidiary of IMED ("IMED Merger Sub").
Unless otherwise defined herein, each capitalized term used herein shall have
the meaning attributed to it in the Glossary.
BACKGROUND
The Company is engaged in the business of designing,
manufacturing and marketing IV infusion therapy instruments (pumps and
controllers) and proprietary and related disposable administration sets (tubing
and plastic pump interfaces) and accessories used to control the flow of
solutions, drugs and nutritionals into a patient's circulatory system and vital
signs measurement instruments and related disposables and accessories (together
with the other businesses and activities of the Company, the "Business"). The
Participating Stockholders, the Purchaser and IMED Merger Sub desire to merge
IMED Merger Sub with and into the Holding Co. upon the terms and subject to the
conditions set forth herein. The Board of Directors of the Holding Co. has
approved a merger of IMED Merger Sub with and into the Holding Co. upon the
terms and subject to the conditions set forth in this Agreement, and has
directed that this Agreement be submitted to its stockholders for adoption and
the holders of in excess of 95% of the combined voting power of the Stock (as
defined herein) issued and outstanding as of the date of this Agreement have
approved the Merger (as defined in Section 1.1 hereof) upon the terms and
subject to the conditions set forth in this Agreement pursuant to written
stockholder consents.
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, warranties, agreements and covenants hereinafter set
forth, the parties hereto, desiring to be legally bound, hereby agree as
follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined in Section
1.2) and subject to the terms and conditions contained herein, IMED Merger Sub
shall be merged with and into the Holding Co. (the "Merger") (IMED Merger Sub
and the Holding Co. are sometimes referred to herein as the "Constituent
Corporations"), in accordance with the DGCL, and the separate existence of IMED
Merger Sub shall thereupon cease, and the Holding Co. shall be the
<PAGE> 10
surviving corporation of the Merger (the "Surviving Corporation"). At and after
the Effective Time, the Surviving Corporation shall possess all the rights,
privileges, powers and franchises of a public as well as of a private nature,
and be subject to all the restrictions, disabilities and duties of the
Constituent Corporations; and all and singular rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due to either of the Constituent Corporations
on whatever account, as well as for stock subscriptions and all other things in
action or belonging to each of the Constituent Corporations, shall be vested in
the Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Constituent
Corporations; and the title to any real estate vested by deed or otherwise, in
either of the Constituent Corporations, shall not revert or be in any way
impaired; but all rights of creditors and all liens upon any property of either
of the Constituent Corporations shall be preserved unimpaired; and all debts,
liabilities and duties of the Constituent Corporations shall thenceforth attach
to the Surviving Corporation, and may be enforced against it to the same extent
as if said debts and liabilities had been incurred by it.
1.2. EFFECTIVE TIME OF THE MERGER. Subject to the provisions
of this Agreement, a certificate of merger in substantially the form attached
hereto as Exhibit 1 (the "Certificate of Merger") shall be duly prepared,
executed and acknowledged by the Surviving Corporation and thereafter delivered
to the Secretary of State of the State of Delaware in advance of the Closing
Date, for filing as provided in the DGCL, simultaneously with the Closing. The
Merger shall become effective upon the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware (the "Effective Time" and the
date on which the Effective Time occurs is referred to herein as the "Effective
Date").
1.3. THE CLOSING. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of Gordon Altman Butowsky
Weitzen Shalov & Wein, 114 West 47th Street, New York, New York 10036 or such
other place as the parties may agree, promptly following the satisfaction of the
conditions specified in Articles VII, VIII and IX hereof. The date of the
Closing is referred to herein as the "Closing Date".
1.4. CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Surviving Corporation shall be the certificate set forth on
Attachment I to the Certificate of Merger, until duly amended in accordance with
the terms thereof and the DGCL.
<PAGE> 11
1.5. BY-LAWS. The By-Laws of IMED Merger Sub, as in effect
immediately prior to the Effective Time, shall be the by-laws of the Surviving
Corporation, until duly amended in accordance with the terms thereof, of the
certificate of incorporation of the Surviving Corporation and of the DGCL.
-2-
<PAGE> 12
1.6. DIRECTORS AND OFFICERS. The directors and officers of
IMED Merger Sub at the Effective Time shall, from and after the Effective Time,
be the directors and officers of the Surviving Corporation, together with such
other individuals as shall be named by the Purchaser, until the successors of
all such persons shall have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's certificate of incorporation and by-laws.
1.7. CONVERSION OF SHARES.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any shares of the stock of the Holding
Co. or of any of the capital stock of IMED Merger Sub, each share of the capital
stock of IMED Merger Sub which is issued and outstanding immediately prior to
the Effective Time shall be converted into and become one fully paid and
non-assessable share of common stock, par value $.01 per share, of the Surviving
Corporation.
(b) At the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any shares of the stock of the Holding
Co. or of any of the capital stock of IMED Merger Sub, each share of the Holding
Co.'s capital stock which is issued and outstanding immediately prior to the
Effective Time, except those held by stockholders who validly perfect appraisal
rights under the DGCL, shall be converted into the right to receive the Per
Share Merger Consideration (as defined below) all such amounts, in the
aggregate, the "Merger Consideration" (provided that in no event shall the sum
of the Merger Consideration, the aggregate Per Share Merger Consideration that
would have been received by stockholders who validly perfect appraisal rights
under the DGCL had such stockholders not perfected such rights and the Total
Option Cancellation Amount (including appropriate withholding taxes), exceed the
Purchase Price).
(c) Each option outstanding prior to the Effective Time (each,
an "Outstanding Option," collectively, the "Outstanding Options" and each, to
the extent it is vested immediately prior to the Effective Time, an "Option" and
collectively, the "Options") under the IVAC Holdings, Inc. 1995 Stock
Option/Stock Issuance Plan, the IVAC Holdings, Inc. 1996 Key Contributor Stock
Option Plan, and the assumed River Medical, Inc. stock option plan (the "Stock
Option Plans"), the holder of which has entered into an option cancellation
agreement substantially in the form of Exhibit 6, 7, 8 or 9 hereto, as
applicable (collectively, the "Option Cancellation Agreement") shall be canceled
in accordance with the terms of such Option Cancellation Agreement on the first
business day after the Effective Time (the "First Business Day") for the right
to receive on the First Business Day from the Surviving Corporation pursuant to
the Option Cancellation Agreement an amount of cash (subject to reduction for
any applicable withholding Taxes) set forth therein. On the business day
immediately preceding the Effective Time, the Sellers Representative shall
deliver to the Purchaser a schedule setting forth each holder of Options that
has entered into an Option Cancellation Agreement as well as a
-3-
<PAGE> 13
certificate, signed by the Sellers Representative, setting forth (x) the
aggregate amount (the "Total Option Cancellation Amount") payable by the
Surviving Corporation pursuant to the Option Cancellation Agreement without
reduction for applicable withholding Taxes and (y) the aggregate applicable
withholding Taxes payable with respect thereto.
1.8. TOTAL CONSIDERATION.
(a) For purposes of this Agreement the following terms shall
have the meanings set forth below:
"Purchase Price" shall mean an amount of cash in dollars equal
to (i) the sum of (A) $390 million and (B) Total Cash, less (ii) the sum of (A)
Total Debt; (B) any premium, prepayment penalty and costs for defeasance, paid
(or to be paid) in connection with the purchase and defeasance of the Senior
Notes, as contemplated in Section 6.15 hereof, to the extent such items are, in
the aggregate, in excess of $1 million; (C) any premium or prepayment penalty
paid (or to be paid) in connection with the satisfaction of the Total Debt
(other than the Senior Notes) pursuant to Section 6.14 hereof; (D) all Expenses
not paid at or prior to the Closing; (E) any cash required to be paid with
respect to cancellation of fractional shares in connection with the conversion
of Class B Common Stock into Class A Common Stock pursuant to the terms of the
certificate of incorporation, as amended, of the Holding Co.; and (F) the
Compensating Adjustment.
"Per Share Merger Consideration" shall mean an amount of cash
in dollars (rounded to the nearest $0.00001) determined by dividing (i) an
amount equal to the sum of (A) the Purchase Price, and (B) the Aggregate
Employee Option Exercise Price, by (ii) an amount equal to the sum of (A) the
number of shares of Class A Common Stock outstanding immediately prior to the
Effective Time (which number shall include all such shares to be issued as a
result of the conversion of Class B Common Stock to Class A Common Stock in
accordance with the terms of the certificate of incorporation of the Holding
Co.) and (B) the aggregate number of shares of Stock subject to the Options
immediately prior to the Effective Time (provided, that for purposes of this
definition, such exercise price and the number of shares subject to an Option
shall, with respect to any Option exercisable for Class B Common Stock, be
determined as if the Option were exercisable for that number of shares of Class
A Common Stock into which the Class B Common Stock to be acquired thereunder,
would be converted pursuant to the Certificate of Incorporation of the Holding
Co. had such Option been exercised prior to the Merger).
"Aggregate Employee Option Exercise Price" shall mean, with
respect to those Options the holders of which have entered into an Option
Cancellation Agreement, an amount equal to the sum of the exercise price under
each such Option immediately prior to the Effective Time, multiplied by the
respective number of shares of Stock subject to each such Option.
-4-
<PAGE> 14
"Expenses" shall mean all costs and expenses of the Company,
in connection with or as a result of the transactions contemplated herein,
including, without limitation, all fees and disbursements of Messrs. Davis Polk
& Wardwell; Brobeck, Phleger & Harrison; DLJ and its Affiliates and Price
Waterhouse, but shall not include amounts paid under the Company's currently
existing employee compensation and bonus plans, severance plans or retention
plans as described on Schedule 3.15, on account of the transactions contemplated
herein.
"Total Cash" shall mean all cash and cash equivalents of the
Company as of the Closing Date (determined prior to the application of cash
pursuant to the first paragraph of Section 6.14 and Section 6.15 hereof)
(exclusive of: (i) any amounts paid by the Purchaser pursuant to Section 1.10;
(ii) all proceeds of financings contemplated in Section 4.6; and (iii) all
proceeds of the subordinated debt financing contemplated in Section 6.4 hereof)
determined in accordance with generally accepted accounting principles applied
in a manner consistent with those utilized in preparing the Financial Statements
(as defined herein).
"Total Debt", as applied to the Company, shall mean any and
all indebtedness of the Company outstanding at the Effective Time (and prior to
the payment thereof pursuant to Section 6.14 and 6.15 hereof) (together with all
interest accrued thereon through the Closing Date): (i) in respect of borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of the Company or only to a portion thereof); (ii) evidenced by bonds, notes,
debentures or similar instruments, or representing the balance deferred and
unpaid of the purchase price of any property that constitutes debt in accordance
with GAAP; (iii) reflecting any obligation of the Company to pay future rentals
with respect to any property which obligation would be required to be
capitalized in accordance with GAAP; (iv) any right in respect of the Company
which is convertible into any such obligation; and (v) all such obligations of
third parties which the Company has directly or indirectly incurred, assumed,
guaranteed or otherwise become liable for. The term "Total Debt" shall include,
without limitation, any obligation outstanding at the Effective Time under or
with respect to: (i) the Siemens Obligation; (ii) the Notes Obligation; (iii)
the Revolver Obligation; (iv) the DLJ Debt; (v) the Capital Lease Agreement
between River and Lease Management Services, Inc., dated July 27, 1993; and (vi)
all amounts payable after the Closing Date, in excess of $100,000 in the
aggregate, pursuant to any agreement entered into by the Company in connection
with any action, suit, proceeding or investigation, whether pending or
threatened.
(b) Reserved
(c) On the Closing Date, the Holding Co. will deliver to the
Purchaser a Certificate (the "Total Cash Certificate"), signed by the Sellers
Representative, setting forth the Total Cash and appropriate information
indicating the calculation thereof.
(d) Within thirty (30) days after the Closing Date, Purchaser
shall cause to be prepared a statement (the "Preliminary
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Statement") which Purchaser believes fairly presents the Total Cash. When
completed, the Preliminary Statement shall within such thirty (30) day period be
delivered to the Sellers Representative for review, together with all material
work papers, calculations and other records or information used to prepare the
Preliminary Statement.
(e) If the Sellers Representative does not dispute any matter
relating to the Preliminary Statement or its preparation, the Preliminary
Statement shall for all purposes under this Agreement be deemed to set forth the
Total Cash. If the Sellers Representative disagrees that such Preliminary
Statement fairly presents the Total Cash, it shall so notify Purchaser in
writing within thirty (30) days following receipt thereof by the Sellers
Representative and the parties will use all reasonable efforts to resolve any
such disputes. If any such dispute cannot promptly be resolved (but in any event
within thirty (30) days after submission of the written objections of the
Sellers Representative), the parties agree that they will submit the matter to
Coopers & Lybrand or, if such firm shall decline to act or is not, at the time
of such submission, independent of Participating Stockholders and Purchaser, to
another independent accounting firm of international reputation mutually
acceptable to Purchaser and Participating Stockholders (either Coopers & Lybrand
or such other accounting firm being referred to herein as the "Accounting
Firm"). The resolution of the dispute by the Accounting Firm will be conclusive
and binding upon the parties hereto, notwithstanding any later allegation or
determination of error, mistake or miscalculation, whether willful or negligent,
by any person, in connection with the determination made by the Accounting Firm.
The fees and expenses of the Accounting Firm will be paid one-half by Purchaser
and one-half by the Sellers Representative. The Preliminary Statement and the
information set forth thereon, as finally determined pursuant to this subsection
(e) is hereinafter referred to as the "Final Statement."
(f) If the Total Cash as set forth on the Final Statement is
greater than the Total Cash as set forth on the Total Cash Certificate, then
Purchaser shall pay over to the Sellers Representative (for payment to the
stockholders and option holders of the Holding Co., as appropriate) the amount
by which the Total Cash on the Final Statement exceeds the Total Cash set forth
on the Total Cash Certificate.
(g) If the Total Cash as set forth on the Final Statement is
less than the Total Cash as set forth on the Total Cash Certificate, then the
Participating Stockholders shall be jointly and severally obligated to pay over
to the Purchaser an amount equal to the amount by which the Total Cash on the
Total Cash Certificate exceeds the Total Cash set forth on the Final Statement.
(h) The determinations made in accordance with the provisions
of subsection (e) above shall be final and binding on each of Purchaser and
Participating Stockholders. Any payment required to be made under subsections
(f) or (g) above, as the case
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may be, shall be made within five (5) business days of the determination thereof
(the "Due Date"), without setoff, for any other matter, by wire transfer to an
account designated by the person entitled to receive such payment and shall, in
addition to such amounts, include interests on the amount required to be paid
calculated from the Closing Date through the Due Date at a rate of 10% per
annum. Any payment to be made pursuant to subsections (f) or (g) above and this
subsection (h), as the case may be, which is not made on the Due Date shall bear
interest at the rate of fifteen (15%) per annum from the Due Date until the date
paid.
(i) The Participating Stockholders covenant and agree that all
shares of capital stock of the Holding Co., and all Rights (as defined below)
with respect thereto shall be and be deemed to be canceled effective at the
Effective Time (except as otherwise contemplated in any Option Cancellation
Agreement).
1.9. DISSENTERS' RIGHTS. Notwithstanding anything to the
contrary herein, shares of Stock which are held by stockholders who shall have
effectively dissented from the Merger and perfected their appraisal rights in
accordance with the provisions of Section 262 of the DGCL (the "Dissenting
Shares"), shall not be converted into or be exchangeable for the right to
receive the Merger Consideration, but the holders thereof shall be entitled to
payment from the Surviving Corporation of the appraised value of such shares in
accordance with the provisions of Section 262 of the DGCL. Shares of Stock held
by a stockholder who fails to perfect his appraisal rights in accordance with
the provisions of Section 262 of the DGCL or who withdraws or loses his right to
appraisal shall be treated as if it had been converted as of the Effective Time
into a right to receive the Per Share Merger Consideration. The Company shall
give Purchaser: (i) prompt notice of any written demand for appraisal,
withdrawals of demands for appraisal and any other instrument in respect thereof
received by the Holding Co.; and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal. The Holding
Co. will not voluntarily make any payment with respect to any demands for
appraisal and will not, except with the prior written consent of Purchaser,
settle or offer to settle any such demand. The Participating Stockholders,
jointly and severally, shall pay the cost and expenses (for purposes of this
sentence, "costs and expenses" shall not be deemed to include the amount any
Dissenting Shares would have been entitled to receive pursuant to Section 1.7 of
this Agreement) of the Company and the Purchaser and its Affiliates arising from
or relating to any appraisal proceeding, including, without limitation, all fees
and disbursements of counsel, investment bankers and financial advisors;
provided that the Participating Stockholders shall have the exclusive right to
conduct and control the defense of any claims relating to such appraisal
proceedings, including any agreement or settlement in respect thereof. In the
event that, as a result of any appraisal proceeding, or agreement or settlement
in respect of any appraisal rights, any person is entitled to receive an amount
greater than the amounts it would have been entitled to receive pursuant to
Section 1.7 hereof, the Participating Stockholders, jointly and severally shall
immediately pay over to the Surviving Corporation
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such excess amount, without setoff for any other matter, for payment to such
person.
1.10. SURRENDER AND PAYMENT. (a) At the Effective Time,
Purchaser will make available to the Holding Co. for the purpose of exchanging
certificates representing shares of Stock for the Merger Consideration, as
needed, the Merger Consideration to be paid in respect of such shares of Stock
in respect of which appraisal rights have not been perfected. As soon as
practicable after the Effective Time, each holder of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Stock (the "Certificates") shall, upon surrender to the
Holding Co. of such Certificate or Certificates and acceptance thereof by the
Holding Co., be entitled to an amount of cash (rounded to the nearest $0.01)
into which the aggregate number of shares of Stock previously represented by
such Certificate or Certificates surrendered shall have been converted pursuant
to Section 1.7(b) of this Agreement. The Holding Co. shall accept such
Certificates upon compliance with such reasonable terms and conditions as the
Holding Co. may impose to effect an orderly exchange thereof in accordance with
normal exchange practices. The Holding Co. shall deliver all funds which each
holder of shares of Stock is entitled to receive pursuant to this Section 1.10
within one business day following such holder's surrender of such holder's
Certificates.
(b) Each holder of shares of Stock will be entitled to receive
the Per Share Merger Consideration payable in respect of such shares (without
interest thereon). After the Effective Time, each such certificate, instrument
and agreement shall, until so surrendered, represent for all purposes only the
right to receive such Per Share Merger Consideration.
(c) At the Effective Time, the Purchaser shall pay to the
Holding Co. an amount equal to the Total Option Cancellation Amount, net in each
case of withholding Taxes, if any, which amounts shall be paid by the Surviving
Corporation to the persons entitled to receive such amounts pursuant to Section
1.7(c).
(d) After the Effective Time, there shall be no further
registration of transfers of shares of the Stock outstanding prior to the
Effective Time. If, after the Effective Time, certificates representing shares
of the Stock are presented to the Surviving Corporation, they shall be canceled
and exchanged for the consideration provided for, and in accordance with the
procedures set forth, in this Article I.
(e) Any portion of the Merger Consideration made available to
the Holding Co. that remains unclaimed by the holders of shares of Stock one
year after the Effective Time shall remain with the Surviving Corporation, and
any such holder who has not exchanged his shares of Stock for the Per Share
Merger Consideration in accordance with this Article I prior to that time shall
thereafter look only to the Surviving Corporation for payment of the Per Share
Merger Consideration in respect of his shares, and the Surviving Corporation
shall be obligated to pay such Per Share
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Merger Consideration, but such holder shall have no greater right against the
Surviving Corporation than may be accorded to general creditors under applicable
law. Notwithstanding the foregoing, the Surviving Corporation shall not be
liable to any holder of shares of Stock for any amount paid to a public official
pursuant to applicable abandoned property laws. Any portion of the funds
remaining unclaimed by holders of shares of Stock as of a date which is
immediately prior to such time as such portion would otherwise escheat to or
become property of any governmental entity shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation free and clear
of any claim or interest of any person previously entitled thereto.
(f) Any portion of the funds deposited by Purchaser with the
Holding Co. which represents Merger Consideration with respect to Dissenting
Shares shall remain with the Surviving Corporation.
1.11. TAKING NECESSARY ACTION; FURTHER ACTION. Purchaser, IMED
Merger Sub and the Participating Stockholders, respectively, shall take all such
action as may be necessary or appropriate in order to effectuate the Merger as
promptly as possible. If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purposes of this Agreement and
to vest the Surviving Corporation with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of either of the
Constituent Corporations, the officers and directors of such corporations are
fully authorized in the name of their corporation or otherwise to take, and
shall take, all such action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
CONCERNING PARTICIPATING STOCKHOLDERS
Each Participating Stockholder, the Holding Co. and the
Operating Co. hereby severally, but not jointly, represent and warrant as
follows:
2.1. OWNERSHIP OF THE PARTICIPATING STOCKHOLDER'S STOCK. Each
Participating Stockholder is the owner, beneficially and of record, of the
shares of stock of the Holding Co. set forth opposite its name on Schedule 3.3
hereof and there exists no pledge, lien, security interest, encumbrance, claim
or equity of any kind with respect to such shares of Participating Stockholder's
Stock. Immediately prior to the Effective Time, all of the shares of Class B
Common Stock of the Holding Co. held by any person specified on Schedule 3.3
will have been automatically converted, pursuant to the Certificate of
Incorporation of the Holding Co., into shares of Class A Common Stock of the
Holding Co. No Participating Stockholder is a party to any stockholders
agreement, voting trust or other voting or similar agreement with respect to the
Stock except as set forth on Schedule 2.1. This Agreement, the Merger and the
transactions contemplated herein have been approved
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by the vote of at least 95% of the combined voting power of the stockholders and
by the unanimous vote of the board of directors of the Holding Co. Upon
consummation of the Merger in accordance with the terms hereof, Purchaser will
be the sole holder of the capital stock of the Surviving Corporation, free and
clear of all liens, claims and encumbrances, and no person previously owning any
capital stock in the Holding Co., or any Rights with respect thereto, will,
thereafter own or have any right to acquire, any of the capital stock of the
Surviving Corporation or any Rights with respect thereto (in each case other
than solely as a result of actions taken by the Purchaser).
2.2. AUTHORITY OF PARTICIPATING STOCKHOLDER. Each
Participating Stockholder has the full right, capacity, power and authority to
enter into this Agreement and the Documents executed and delivered by it and to
consummate the transactions contemplated hereby and thereby. Each Participating
Stockholder has taken all actions required to authorize the execution and
delivery of this Agreement and the Documents executed and delivered by each
Participating Stockholder, the performance of the obligations of such
Participating Stockholder hereunder and thereunder and the consummation by such
Participating Stockholder of the transactions contemplated hereby and thereby.
No other proceedings on the part of a Participating Stockholder are necessary to
authorize the execution and delivery of this Agreement or the Documents by such
Participating Stockholder or the performance by such Participating Stockholder
of its obligations hereunder or thereunder. This Agreement and the Documents
executed and delivered by it have been duly executed and delivered by each
Participating Stockholder and constitute valid and binding obligations
enforceable against each Participating Stockholder in accordance with their
terms (provided that no representation or warranty is provided hereunder as to
the validly binding nature or enforceability of the penultimate sentence of
Section 12.12 hereof).
2.3. PROHIBITIONS. Except as set forth in Schedule 2.3 hereto,
neither the execution and delivery of this Agreement or any of the Documents
executed and delivered by any Participating Stockholder, the performance by each
Participating Stockholder of its obligations hereunder and thereunder, nor the
consummation of the transactions contemplated hereby or thereby will: (i)
violate any provisions of the Certificate of Incorporation, By-Laws or similar
governing documents of any Participating Stockholder; (ii) with or without the
giving of notice or the passage of time, or both, violate, or be in conflict
with, or constitute a default under, or cause or permit the termination or the
acceleration of the maturity of, any debt or obligation of any Participating
Stockholder or require the payment of any pre-payment or other penalty; (iii)
require notice to or the consent of any person, including, without limitation,
any party to any agreement, commitment, lease, license or other arrangement,
including, without limitation, any right of first refusal or similar right, to
which any Participating Stockholder is a party, or by which it or its properties
is bound or subject; (iv) result in the creation or imposition of any security
interest, lien, or other encumbrance upon any property or assets of any
Participating Stockholder under
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<PAGE> 20
any agreement or commitment to which it is a party, or by which it or its
properties is bound or subject; or (v) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or governmental
authority to which Participating Stockholder or its properties is bound or
subject.
2.4. CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. No
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority is required to be made or
obtained by any Participating Stockholder in connection with the execution or
delivery by a Participating Stockholder of this Agreement or the Documents
executed and delivered by it, the performance by a Participating Stockholder of
his or its obligations hereunder or thereunder or the consummation by any
Participating Stockholder of the transactions contemplated hereby or thereby,
other than pursuant to the HSR Act (as defined in Section 6.12 hereof) and as
required by the Federal Acquisition Regulations incidental to change of name
agreements or novations of existing contracts with the United States government
as identified in Schedule 3.1(c) hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
The Holding Co. and the Operating Co. hereby jointly and
severally represent and warrant to Purchaser as follows:
3.1. DESCRIPTION AND LISTS. Schedules 3.1(a) through 3.1(p)
hereto contain the following information and all such information is true,
correct and complete:
(a) Schedule 3.1(a) sets forth: (i) a list of all interests in
real property owned, leased, subleased or otherwise used or claimed by the
Company, stating the location of such property; and (ii) a list of the
expiration dates of and periodic rental payments with respect to, all such
leased real property;
(b) Schedule 3.1(b) sets forth a list of all Intangible
Property (as hereinafter defined in Section 3.11 hereof) including all United
States and foreign patents and patent applications, invention disclosures,
trademarks, trade names, service marks and copyrights (including any
registration or applications for registration of any of the foregoing) or any
similar type of proprietary intellectual right used by the Company or in which
the Company has an interest, indicating any applications, registrations, or
filings associated therewith and indicating whether such Intangible Property is
owned or licensed and also stating the expiration dates of the patent or license
underlying such Intangible Property;
(c) Schedule 3.1(c) sets forth (except as may be listed on any
other Schedule to this Agreement): (i) a list of each lease agreement to which
the Company is a party with respect to personal
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property which provides for a period of performance which extends beyond
twenty-four (24) months from the date of this Agreement or involves any
obligation to make payments or right to obtain receipts, after the date of this
Agreement, in each case in excess of $250,000; (ii) a list of each contract,
agreement, commitment or understanding to which the Company is a party or to
which the Company or its properties are or may be bound or subject, relating to
any merger, reorganization, bankruptcy proceeding, business acquisition,
transaction or transactions for the acquisition of all or any substantial
portion of the stock, securities, assets or business of any person or involving
the assumption of the liability of any person; (iii) a list of each contract,
agreement, commitment or understanding, in each case to which the Company is a
party or to which it or the properties of the Company may be bound or subject,
which provide for a period of performance which extends beyond December 31, 1997
or involves any obligation to make payments or right to obtain receipts, after
the date of this Agreement, in each case in excess of $250,000; and (iv) a list
of all contracts, agreements, commitments or understandings not listed in any
other Schedule, that is material to the Business or involves any of the
following, in each case, to which the Company is a party or to which the Company
or its properties are or may be bound or subject: (w) any partnership, joint
venture or other similar agreement or arrangement; (x) any agreement relating to
the Total Debt; (y) any agreement that limits the freedom of the Company to
compete in any line of business or with any person or in any area or to own,
operate, sell, transfer, pledge or otherwise dispose of or encumber any assets
or which would so limit the freedom of the Purchaser or its Affiliates after the
Closing or the Combination (as defined below); or (z) any agreement currently in
effect (or which may hereafter result in or require any performance, obligation,
duty or payment) with or for the benefit of any Participating Stockholder or any
Affiliate of any Participating Stockholder (other than the Company) or with or
for the benefit of Eli Lilly or its Affiliates.
(d) Schedule 3.1(d) sets forth a list of: (i) the job title,
current annual salary rates and required bonuses of all present officers,
employees and agents of the Company having an annual compensation in excess of
$150,000 per year (including commissions, benefits and bonuses); and (ii) all
employment or compensation agreements with each officer and employee of the
Company (including all severance, "stay-put" and similar agreements and all
agreements which result in the creation or occurrence of any right, duty or
obligation based upon, or as a result of, any change of control of the Company
or its assets);
(e) Schedule 3.1(e) sets forth a list of each agreement,
indenture, contract, agreement, commitment, mortgage or other instrument
regarding money borrowed or obligations guaranteed by the Company or any letter
of credit issued at the request or on behalf of the Company;
(f) Schedule 3.1(f) sets forth: (i) the name of every bank in
which the Company has an account or safe deposit box; (ii) the identifying
numbers of all such accounts and safe deposit
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boxes; and (iii) the names of all persons having power to borrow, discount debt
obligations, cash or draw checks or otherwise act on behalf of the Company in
any dealings with such banks;
(g) Schedule 3.1(g) sets forth a list of each of the Company's
approved capital expenditure projects (including without limitation, each
construction project) involving in excess of $200,000 including: (i) projects
which have been commenced but are not yet completed; (ii) projects which have
not been commenced and (iii) projects which have been completed in respect of
which payment has been made, within the past twelve (12) months. For the period
from December 31, 1995 through June 30, 1996 the aggregate amount expended for
capital expenditure projects has been approximately $11 million;
(h) Schedule 3.1(h) sets forth an alphabetical list of the ten
largest disposables customers (based on annual sales but without disclosing such
sales) and the ten largest suppliers to the Company, for the year ended December
31, 1995;
(i) Schedule 3.1(i) hereto sets forth copies of the
Certificate of Incorporation and By-Laws of the Company (or other appropriate
constitutional document in its jurisdiction of organization), each as amended;
(j) Schedule 3.1(j) sets forth a list of all claims for
products liability or personal injury due to, resulting from or associated with,
any product manufactured or supplied in connection with the Business, now
pending against the Company or which have been pending against the Company or
any of its predecessors, at any time during the past three (3) years;
(k) Schedule 3.1(k) sets forth a list of the names of all
persons holding powers of attorney from the Company or authorized to act as
agents for the Company;
(l) Schedule 3.1(l) sets forth a list of all policies of fire,
liability, title, products liability and other forms of insurance held by the
Company and all binders of insurance and all programs of self insurance which
relate to the Company, together with a list and brief description of all claims
of the Company which have been submitted to any insurer but have not been
finally disposed of;
(m) Schedule 3.1(m) sets forth the forms of the Company's
product warranties that are currently applicable to products sold by the Company
or in respect of which the Company is obligated;
(n) Schedule 3.1(n) sets forth a list of all Approvals (as
defined in Section 3.21 hereof) (provided that, with respect to matters related
to Environmental Laws the same may be listed on Schedule 3.13);
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(o) Schedule 3.1(o) sets forth a list of all agreements,
contracts or understandings related to the distribution of any products or
services by the Company; and
(p) Schedule 3.1(p) sets forth a list of each contract to
which the Company is obligated to supply or service any of the Signature
Products (as defined herein) (including all warranties with respect thereto).
The Company has made available to the Purchaser true, correct
and complete copies of all documents, contracts, instruments and agreements
which are referred to in Schedules 3.1(a) through 3.1(p) and all amendments,
modifications, supplements or renewals with respect thereto.
3.2. CORPORATE ORGANIZATION; AUTHORITY.
(a) Each of the Holding Co. and the Operating Co. is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and each person included in the Company (other than the Holding Co. and
the Operating Co.) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization as specified on Schedule
3.4 hereof. The Company has full corporate power and all lawful authority to
own, lease and operate its properties and to carry on its Business as such
business is now being conducted. Each of the Holding Co. and the Operating Co.
is duly qualified or licensed to do business as a foreign corporation and is in
good standing in each jurisdiction set forth on Schedule 3.2 hereto and each
person included in the Company (other than the Holding Co. and the Operating
Co.) is duly qualified or licensed to do business as a foreign corporation and
is in good standing in each jurisdiction set forth opposite its name on Schedule
3.4 hereto (together with the jurisdiction in which each such person is
organized, the "Disclosed Jurisdictions") and such listed jurisdictions
constitute all those in which its ownership of property or the conduct of its
business requires such qualification.
(b) The Holding Co. and the Operating Co. have full corporate
power and authority to enter into this Agreement and the Documents executed and
delivered by the Holding Co. and the Operating Co. and to consummate the
transactions contemplated hereby and thereby. The Board of Directors and
stockholders of the Holding Co. and the Operating Co. have taken all actions
required to authorize the execution and delivery of this Agreement and the
Documents executed and delivered by the Holding Co. and the Operating Co., the
performance of the obligations of the Holding Co. and the Operating Co.
hereunder and thereunder and the consummation by the Holding Co. and the
Operating Co. of the transactions contemplated hereby and thereby, including,
without limitation, the Merger (which has been approved by the vote of at least
95% of the combined voting power of the stockholders and the unanimous vote of
the board of directors, of the Holding Co.). No other corporate proceedings on
the part of the Holding Co. or the Operating Co. are necessary to authorize the
execution and delivery of this Agreement or the Documents executed and delivered
by the
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<PAGE> 24
Holding Co. and the Operating Co. or the performance by the Holding Co. or the
Operating Co. of their respective obligations hereunder or thereunder,
including, without limitation, the Merger. This Agreement is and each Document
executed and delivered by the Holding Co. and the Operating Co. will be a valid
and binding agreement of the Holding Co. and the Operating Co., enforceable
against the Holding Co. and the Operating Co. in accordance with its terms
(provided that no representation or warranty is provided hereunder as to the
validly binding nature or enforceability of the penultimate sentence of Section
12.12 hereof)
3.3. CAPITALIZATION. The authorized capital stock of the
Holding Co. consists of 60 million shares and 20 million shares of Class A
Common Stock and Class B Common Stock, respectively, of which 20,008,877 shares
and 19,654,744 shares are issued and outstanding, all of which are validly
issued, fully paid (except with respect to a promissory note in the amount of
$6,000) and non-assessable and not subject to preemptive rights. As of the date
hereof: (x) 3,208,567 shares of Class A Common Stock and 345,256 shares of Class
B Common Stock are reserved for issuance pursuant to options granted and
outstanding under the Benefit Plans; and (y) no shares of the Company is capital
stock are held by the Holding Co. in its treasury or by its wholly owned
Subsidiaries. Set forth on Schedule 3.3 is a true and complete list of the names
and last known addresses of the record holders of each outstanding share of the
Stock and the number of shares of Stock held by such record holders. Set forth
on Schedule 3.3 hereto is a true and complete list of all Rights with respect to
the capital stock of the Holding Co., including, without limitation, all options
granted pursuant to any of the Benefit Plans which are outstanding, the number
of shares of Stock for which such options are exercisable, the option exercise
price and the identity and the last known address of the optionee. The Stock
listed on Schedule 3.3 constitutes all of the issued and outstanding securities
of the Holding Co. Schedule 3.3 hereto lists the authorized, the issued and the
outstanding capital stock of the Company (all of the outstanding shares of which
are owned by the Company). All shares of the Subsidiary Stock are validly
issued, fully paid and non-assessable. Except as set forth in Schedule 3.3
hereto, there are no agreements or understandings with respect to the voting of
the Stock or the Subsidiary Stock. There are no existing Rights relating to the
authorized Stock or the Subsidiary Stock or any other security of the Company
except as set forth in Schedule 3.3 hereto. There are no shares of Stock held in
the treasury of the Holding Co. or Operating Co.
3.4. SUBSIDIARIES. Except as set forth on Schedules 3.2 and
3.4 (which schedule sets forth the names and jurisdiction of organization and
qualification of each such person) neither the Holding Co. nor the Operating Co.
has, or has any right or obligation to acquire, any subsidiary or any interest,
direct or indirect in any person or business. The Operating Co. is the direct or
indirect beneficial owner of 100% of the Subsidiary Stock or other interests in
each person (other than the Holding Co. and the Operating Co.) included within
the Company and all Rights of, or in respect of the securities of, any such
person.
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3.5. NO VIOLATION. Except as set forth in Schedule 3.5 hereto,
neither: (a) the Merger; (b) the Combination; (c) the payment of the Total Debt
as contemplated herein; (d) the execution and delivery of this Agreement or any
of the Documents executed and delivered by the Holding Co. or the Operating Co.;
(e) the performance by the Holding Co. or the Operating Co. of its obligations
hereunder and thereunder; nor (f) the consummation of the transactions
contemplated hereby or thereby will: (i) violate any provisions of the
Certificate of Incorporation or By-Laws of the Company; (ii) with or without the
giving of notice or the passage of time, or both, violate, or be in conflict
with, or constitute a default under, or cause or permit the termination or the
acceleration of the maturity of, any debt, contract, agreement, instrument or
obligation of the Company or require the payment of any pre-payment or other
penalty with respect to, or otherwise result in the creation or occurrence of
any right, duty or obligation based upon or as a result of any change of control
of the Company or its assets, under any debt, contract, agreement, instrument or
obligation except as set forth in Section 2.4; (iii) require notice to or the
consent of any party to any agreement or commitment, including without
limitation, any lease or license, to which the Company is a party, or by which
it or its properties is bound or subject or permit any such party to
renegotiate, receive a refund with respect to, modify or otherwise change any
agreement or commitment except as set forth in Section 2.4; (iv) result in the
creation or imposition of any security interest, lien, or other encumbrance upon
any property or assets of the Company under any agreement or commitment to which
it is a party, or by which it or its properties is bound or subject; or (v)
violate any statute or law or any judgment, decree, order, regulation or rule of
any court or governmental authority to which the Company or its properties is
bound or subject.
3.6. CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES.
Except as set forth on Schedule 3.6, no consent, approval or authorization of,
or declaration, filing or registration with, any governmental or regulatory
authority is required to be made or obtained by the Company in connection with
the execution or delivery by the Holding Co. or the Operating Co. of this
Agreement or any of the Documents executed and delivered by the Holding Co. or
the Operating Co., the performance by the Holding Co. or the Operating Co. of
its obligations hereunder or thereunder, the consummation of the transactions
contemplated hereby or thereby, or the Combination, other than pursuant to the
HSR Act and the filing of the Certificate of Merger and as required by the
Federal Acquisition Regulations incidental to change of name agreements or
novations of existing contracts with the United States government as identified
in Schedule 3.1(c) hereto.
3.7. FINANCIAL STATEMENTS OF THE OPERATING CO. The Operating
Co. has delivered to Purchaser accurate and complete copies of: (i) the
Operating Co.'s audited consolidated balance sheet as of December 31, 1994 and
1995 (such balance sheet as of December 31, 1995 ("Balance Sheet Date") being
referred to herein as the "Balance Sheet") and the related consolidated
statements of operations, cash flows and shareholders equity position for the
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years ended December 31, 1993, 1994 and 1995, and the notes thereto, in each
case examined by and accompanied by reports thereon by Price Waterhouse LLP,
independent accountants or Ernst & Young LLP with respect to the year ended
December 31, 1993; and (ii) the unaudited balance sheets of the Company at March
31, 1996 and June 30, 1996 and the related statements of operations, cash flows
and shareholders equity position for the periods then ended. The Operating Co.
has delivered to Purchaser accurate and complete copies of: (x) the Holding
Co.'s audited consolidated balance sheet as of December 31, 1995 and the related
consolidated statements of operations, cash flows and shareholders' equity
position for the year ended December 31, 1995, and the notes thereto, in each
case examined by and accompanied by a report thereon by Price Waterhouse LLP,
independent accountants; and (y) the unaudited balance sheet of the Holding Co.
at March 31, 1996 and June 30, 1996 and the related statements of operations,
cash flows and shareholders' equity position for the three month and six month
periods then ended (the statements referred to in clauses (i), (ii), (x) and (y)
above, together with all notes thereto are referred to collectively as the
"Financial Statements"). The unaudited consolidated financial statements of the
Operating Co. and the Holding Co. for the three month period ended March 31,
1996 and the six month period ended June 30, 1996 referred to in clauses (ii)
and (y) above have been prepared in accordance with GAAP for interim financial
statements and include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial position, results
of operations and cash flows for the period presented. The Financial Statements
referred to in clauses (i) and (x) above present fairly the financial position
of the Operating Co. and the Holding Co., respectively, at the dates thereof and
the results of its operations, cash flows and the changes in shareholders'
equity of the Operating Co. and the Holding Co., respectively, as of the
respective dates and for the respective periods indicated, in accordance with
GAAP applied on a consistent basis. Attached to Schedule 3.7 is a special
purpose balance sheet (the "Special Purpose Balance Sheet (1995)") (absent
footnotes), prepared in accordance with GAAP, setting forth the financial
position of the Holding Co. as of December 31, 1995 and a statement of its
operations (the "Special Purpose Statement of Operations (1995)") prepared in
accordance with GAAP for the year ended December 31, 1995, in each case as if
River was not, at such time or during such period, part of the Company and the
same fairly presents the financial position and operations of the Holding Co. as
of such date and for such period as if such event had taken place. Attached to
Schedule 3.7 is a special purpose balance sheet of the Holding Co. (the "Special
Purpose Balance Sheet (1996)") (absent footnotes), prepared in accordance with
GAAP setting forth the financial position of the Company as of June 30, 1996 and
a special purpose statement of operations of the Holding Co. (the "Special
Purpose Statement of Operations (1996)") prepared in accordance with GAAP
(absent footnotes), setting forth the operations of the Holding Co. for the six
month period ended June 30, 1996, in each case as if River was not, at such time
or during such period, part of the Company and the same fairly presents the
financial position and the operations of the Holding Co. as of such date and for
such
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period, as if such event had taken place. True and complete copies with all
documents described in this Section 3.7 are attached to Schedule 3.7.
There are no liabilities of the Company or the Business of any
kind whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, and there is no existing condition, situation or set of
circumstances which would reasonably be expected to result in such a liability,
other than:
(i) liabilities provided for on the Balance Sheet or
disclosed in the notes thereto;
(ii) liabilities incurred since the Balance Sheet Date
in the ordinary course of business; and
(iii) liabilities disclosed on Schedule 3.7, Schedule
3.7A and Schedule 3.7B.
The Company has estimated that the amount set forth on Part I
of Schedule 3.7A is the amount necessary to complete the Signature Recall and to
pay all appeasement payments which the Company is currently obligated to pay to
customers with respect to the Signature Product and that the amount set forth on
Part II of Schedule 3.7A is the amount necessary to make any other payments or
satisfy any other concessions granted to customers with respect to the Signature
Product after the date of the sale or lease thereof (collectively, the
"Signature Recall Obligations"). Such amounts are adequate to satisfy the
Signature Recall Obligations.
The Company has estimated that the amount set forth on Part I
of Schedule 3.7B is the amount necessary to complete the Welmed Safety Alert and
to pay all appeasement payments, if any, which the Company is currently
obligated to pay to customers with respect to the Welmed Product and that the
amount set forth on Part II of Schedule 3.7B is the amount necessary to make any
payment or satisfy any concession granted to customers with respect to the
Welmed Product after the date of the sale or lease thereof (collectively, the
"Welmed Safety Alert Obligations"). Such amounts are adequate to satisfy the
Welmed Safety Alert Obligations.
3.8. CONTRACTUAL ARRANGEMENTS WITH STOCKHOLDERS, OFFICERS OR
EMPLOYEES. Except as set forth in Schedule 3.8, the Company does not, directly
or indirectly, have any contractual arrangement with or commitment or obligation
to or from any of its stockholders, officers, directors or employees or with Eli
Lilly, except as disclosed in Schedules 3.1(c) and 3.1(d) hereto. Without
limiting the generality of the foregoing, except as set forth in Schedule 3.8,
no stockholder, officer, director or employee of the Company or of Eli Lilly
(other than the Company) is, directly or indirectly, a joint investor or
co-venturer with, or owner, lessor, lessee, licensor or licensee of any
property, real or personal, tangible or intangible, owned or used, by the
Company and no such person is, directly or indirectly, a lender to or debtor of
the Company.
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3.9. ABSENCE OF CERTAIN CHANGES. Except as set forth in
Schedule 3.9 hereto, since the Balance Sheet Date, the Company has conducted the
Business in the ordinary course and in a manner consistent with past practice
and there has not been any change or any event, occurrence, development or fact
that alone or in the aggregate has had, or would reasonably be expected to have,
a Material Adverse Effect (as defined hereinafter) other than as set forth in
Schedule 3.9. For purposes of this Agreement, the term "Material Adverse Effect"
shall mean a material adverse effect on the condition (financial or otherwise),
results of operations, business, or assets of the Company or the Business taken
as a whole (other than as a result of changes in general economic or political
conditions generally or in general economic or political conditions applicable
to the health care industry generally). In addition, and without limiting the
foregoing, except as set forth on Schedule 3.9, and except as contemplated by
this Agreement, the Company has not done any of the following since the Balance
Sheet Date:
(i) amended its Certificate of Incorporation or
By-Laws;
(ii) declared or paid any dividend or made any other
distributions to its stockholders;
(iii) redeemed or otherwise acquired any Stock or
issued any capital stock or any Right, or amended any term of any
Stock;
(iv) adopted or amended any Benefit Plans (as
hereinafter defined) or collective bargaining agreement that would
increase materially the expense of maintaining such Benefit Plans or
collectively bargained agreement;
(v) made or granted to any executive officer, director
or employee any increase in compensation or benefits, except as may be
required under existing agreements, or in the ordinary course of
business consistent with past practice or granted or otherwise become
obligated to pay (whether on the occurrence of any future event or
otherwise) any severance or termination pay to any officer, director or
employee of the Company;
(vi) incurred or assumed any liabilities, obligations
or indebtedness for borrowed money or guaranteed any such liabilities,
obligations or indebtedness;
(vii) permitted, allowed or suffered any of its assets
to be subject to any Encumbrance, other than Permitted Liens (as such
terms are defined below);
(viii) paid, loaned or advanced any amount to, or sold,
transferred or leased any of its assets to, or entered into any
agreement or arrangement with any Participating Stockholder or any
Affiliates thereof (other than the Company);
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(ix) made any change in any accounting practice or
policy (other than those changes occurring after the date hereof as
required by GAAP);
(x) acquired or agreed to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof;
(xi) sold, leased, or otherwise transferred or disposed
of, or agreed to sell, lease or otherwise dispose of, any of its assets
(or group of related assets) (other than inventory or raw materials
sold or otherwise disposed of in the ordinary course of business in a
manner consistent with past practice) for: (A) a sales price in excess
of $250,000 in any particular transaction; or (B) in the aggregate, in
an amount in excess of approximately $3 million through June 30, 1996;
(xii) suffered any condemnation, damage, destruction or
loss (by destruction, theft or otherwise) of or to any of the Company's
assets or properties of a nature that would interfere with the ordinary
conduct of the Company's business or that involves in excess of
$250,000 in the aggregate (whether or not covered by insurance); or
(xiii) agreed to any of the foregoing.
3.10. TITLE TO PROPERTY; LEASES; ENCUMBRANCES.
(a) TITLE TO PROPERTY. Except as set forth on Schedule 3.10,
the Company has good and valid title to all assets (other than real property or
interests in real property) reflected on the Balance Sheet or thereafter
acquired, except for those since sold or otherwise transferred or disposed of in
the ordinary course of business consistent with past practice, in each case free
and clear of all mortgages, deeds of trust, liens, claims, pledges, leases,
subleases, rights of occupancy, covenants, conditional limitations, security
interests, encumbrances, easements, judgments or imperfections of title of any
nature whatsoever ("Encumbrances") except Permitted Liens (as hereinafter
defined).
(b) TITLE TO REAL PROPERTY Item 1 on Schedule 3.1(a) under the
caption "Real Property Owned" sets forth a complete list as of the date of this
Agreement of all real property and interests in real property owned in fee by
the Company (the "Owned Real Property"), and the items on Schedule 3.1(a) under
the caption "Real Property Leased" constitutes a complete list of all real
property and interests in real property leased by the Company (the "Leased Real
Property"). Except as set forth on Schedule 3.10, the Company has good and valid
title to the Owned Real Property and valid leasehold interest in the Leased Real
Property, free and clear of all Encumbrances except Permitted Liens.
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(c) STATUS OF LEASES. All leases of real property or personal
property disclosed in any Schedule to this Agreement or required to be disclosed
pursuant to this Section are valid, binding and enforceable in accordance with
their respective terms, and neither the Company nor any other party thereto is
in default or breach in any respect under the terms of any such lease, nor has
any event or circumstance occurred that, with notice or lapse of time or both,
would constitute any event of default thereunder.
(d) ASSETS. Except as set forth on Schedule 3.10(d), the
plants, buildings, structures and equipment of the Company are substantially
free of defects, are in good operating condition and repair and have been
reasonably maintained consistent with standards generally followed in the
industry (giving due account to the age and length of use of same, ordinary wear
and tear excepted), are substantially suitable for their present uses and, in
the case of plants, buildings and other structures (including, without
limitation, the roofs thereof), are structurally sound.
(e) PERMITTED LIENS. As used in this Agreement "Permitted
Liens" shall mean (i) any Encumbrances disclosed on the Balance Sheet or on
Schedule 3.10; (ii) liens for Taxes which are not yet due and payable or which
are being contested by the Company in good faith and, with respect to which have
adequately been provided for by the Company on its financial statements (whether
or not required to be disclosed under GAAP), (iii) liens incurred in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security benefits; (iv)
mechanics', carriers', workmen's, repairmen's or other like liens arising out of
or incurred in the ordinary course of business; (v) liens arising under original
purchase price conditional sales contracts and equipment leases with third
parties entered into in the ordinary course of business; (vi) liens created by
or existing from any litigation or legal proceeding that is being contested by
the Company and (vii) (with respect to real property and interests therein)
easements (including, without limitation, reciprocal easement agreements and
utility agreements), zoning requirements, rights of way, covenants, consents,
agreements, reservations, encroachments, variances and other similar
restrictions, charges or encumbrances (whether or not recorded) that do not,
individually or in the aggregate, impair the continued use and operation of the
assets to which they relate in the business of the Company as presently
conducted, and (viii) extensions, renewals or replacements of any lien for money
borrowed by the Company, provided that the amount of the obligations secured
thereby is not increased and that any such extension, renewal or replacement is
limited to the property originally encumbered thereby.
3.11. PATENTS, TRADEMARKS, TRADE NAMES. Except as set forth in
Schedule 3.11 hereto: (i) the Company is the sole owner of or has the full,
exclusive right to use, for the life of the proprietary right, all patents,
trademarks, service marks, trade names (whether registered or unregistered),
copyrights and confidential information and has the non-exclusive right to use
any
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non-confidential information (including, without limitation, know-how, processes
and technology) used in or necessary for the conduct of the Business as
heretofore conducted (the "Intangible Property"); and (ii) the use of such
Intangible Property by the Company, and the conduct of the Business, does not
infringe on the rights of any other person and neither any Participating
Stockholder nor the Company has received any notice of any conflict between the
asserted rights of others with respect to such Intangible Property owned or
licensed by the Company. Except as set forth on Schedule 3.11, the Company has
not, since December 31, 1994, been a defendant in any action, suit,
investigation or proceeding relating to, or otherwise been notified of, any
alleged claim of infringement by the Company of any patents, trademarks,
intellectual property, service marks or copyrights of others, and neither any
Participating Stockholder nor the Company has any knowledge of any other claim
or infringement by the Company, and there exists no continuing infringement by
any other person of any Intangible Property. Except as set forth on Schedule
3.11, the Company has not entered into any agreement to indemnify any other
person against any charge of infringement of any patent, trademark, intellectual
property, service mark or copyright. None of the material processes and
formulae, research and development results and other know-how relating to the
Business, the value of which to the Company is contingent upon maintenance of
the confidentiality thereof, has been disclosed to any person other than
employees, representatives and agents of the Company, all of whom are bound by
written confidentiality agreements listed on Schedule 3.11 hereof.
3.12. LITIGATION; COMPLIANCE WITH LAWS.
(a) Except as set forth in Schedule 3.12 hereto, there is no
action, suit, proceeding or investigation pending or, to the knowledge of any
Participating Stockholder or the Company, threatened, against or involving the
Company or its assets (whether or not covered by insurance) (except for matters
relating to Environmental Law). There exists no basis for the commencement of
any action, proceeding or investigation against the Company. Except as set forth
on Schedule 3.12, there is no outstanding judgment, order, writ, injunction or
decree against the Company or related to its assets (including, without
limitation, any Intangible Property).
(b) There is no action, suit, investigation or proceeding
pending against, or to the knowledge of any Participating Stockholder or the
Company threatened against or affecting, the Company before any court or
arbitrator or any governmental body, agency or official which in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement.
(c) Except as set forth on Schedule 3.12 (or, with respect to
matters related to Environmental Law, Schedule 3.13), the Company has complied
and is in compliance with all applicable laws, statutes, rules, regulations,
ordinances, orders, judgments and decrees, local, federal, state, domestic or
foreign (including,
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without limitation, applicable insurance requirements, requirements of any Board
of Fire Underwriters or similar body, building, zoning, occupational safety and
health, pension, fair employment, equal opportunity, safety, health,
procurement, reimbursement, consumer protection or similar laws, rules,
regulations and ordinances). No notice has been received by the Company or any
Participating Stockholder, and neither the Company nor Participating Stockholder
has knowledge of any notice being given, with respect to any violation of any
such legal requirements. There is no action or proceeding by the U.S. Food and
Drug Administration (the "FDA"), the Health Care Financing Agency or other
agency or part of the U.S. Department of Health & Human Services or any other
governmental body, including, but not limited to, recall procedures, pending or,
to any Participating Stockholder's or the Company's knowledge, threatened
against any Participating Stockholder or the Company relating to the safety or
efficacy of or use or charges for any of its products developed or sold in
connection with the Business.
3.13. ENVIRONMENTAL MATTERS. Except as set forth in Schedule
3.13 hereto:
(a) No litigation, suits, claims, proceedings or
investigations or private or governmental enforcement actions or orders are
pending, or, to any Participating Stockholder's or the Company's knowledge,
threatened against any Participating Stockholder, the Company or any of their
respective Affiliates with respect to any Hazardous Material (as hereinafter
defined) or applicable Environmental Law (as hereinafter defined) (in the case
of Participating Stockholder and its Affiliates other than the Company and its
subsidiaries, solely with respect to the Business).
(b) Neither any Participating Stockholder, the Company, nor
any of their respective Affiliates has received any written notice,
notification, demand, request for information, complaint or order from any
governmental authority or other person with respect to any: (i) claims or
potential violations by the Company or any of their respective Affiliates of (or
liability under) any Environmental Law; (ii) alleged failure by the Company or
its Affiliates to have any environmental permit; (iii) Regulated Environmental
Activity (as hereinafter defined) engaged in by the Company or its Affiliates;
or (iv) Release (as hereinafter defined) of Hazardous Material at any property
now or previously owned, leased or operated by the Company or its Affiliates (in
the case of any Participating Stockholder and its Affiliates other than the
Company and its subsidiaries, solely with respect to the Business).
(c) Other than activity in compliance with all applicable
Environmental Laws the Company has not engaged in any Regulated Environmental
Activity.
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(d) No polychlorinated biphenyls, radioactive material, urea
formaldehyde, lead, asbestos, asbestos-contained material or underground or
above ground storage tank (active or abandoned) is or, has been present at any
property now or previously owned, leased or operated by the Company or any of
its Affiliates (in the case of any Participating Stockholder and its Affiliates
other than the Company and its subsidiaries, solely with respect to the
Business).
(e) No Hazardous Material has been Released (as hereinafter
defined) (and no notification of such Release has been filed or made) or is
present (whether or not in a reportable or threshold planning quantity) at, on
or under any property now or previously owned, leased, or operated by
Participating Stockholders, the Company or any of their respective Affiliates
(in the case of any Participating Stockholder and its Affiliates other than the
Company and its subsidiaries, solely with receipt to the Business).
(f) No property now or previously owned, leased or operated by
the Company or any of its Affiliates, nor any property to which the Company or
any of its Affiliates has, directly or indirectly, transported or arranged for
the transportation of any Hazardous Material (in the case of any Participating
Stockholder and its Affiliates other than the Company and its subsidiaries,
solely with respect to the Business), that is listed or, to the Company's
knowledge, proposed for listing, on the National Priorities List promulgated
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), or CERCLIS (as defined in CERCLA) or on any similar
federal, state or foreign list of sites requiring investigation or clean-up.
(g) There are no liens under Environmental Laws on any of the
real property or other assets owned, leased or operated by the Company or any of
its Affiliates (in the case of any Participating Stockholder and its Affiliates,
solely with respect to the Business), no government actions have been taken or
are, to the Company's knowledge, in process which could subject any of such
properties or assets to such liens and neither Participating Stockholder, the
Company nor any of their respective Affiliates (in the case of Participating
Stockholder and its Affiliates other than the Company and its subsidiaries,
solely with respect to the Business) would be required to place any notice or
restriction related to Hazardous Materials at any property owned by any of them
in any deed to such property.
(h) There are no environmental permits required for the
operation of the Business that are nontransferable or require consent,
notification or other action to remain in full force and effect following the
consummation of the transactions contemplated hereby including, without
limitation, the Combination.
(i) There has been no environmental investigation, study,
audit, test, review or other analysis conducted in relation to the current or
prior business of the Company or any of its Affiliates (in the case of any
Participating Stockholder and its Affiliates other than the Company and its
subsidiaries, solely with
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respect to the Business), or any property or facility now or previously owned or
leased by any Participating Stockholder, the Company or any of their respective
Affiliates (in the case of any Participating Stockholder and its Affiliates
other than the Company and its subsidiaries, solely with respect to the
Business), other than those listed on Schedule 3.13 hereof, copies of which have
been delivered to Purchaser.
(j) For purposes of this Section 3.13, the terms "Company" and
"Affiliate" shall include any entity which is, in whole or in part, a
predecessor of the Company or any of Affiliates.
"Environmental Law" means any and all federal, state, local
and foreign statutes, laws, rules, regulations, judicial decision, ordinances,
judgments and permits relating to the environment, the effect of the environment
on human health, or Hazardous Materials;
"Hazardous Material" means any material, substance, waste,
pollutant or other matter that is defined as a hazardous material, hazardous
substance, hazardous waste, toxic material, toxic substance or other term having
a similar meaning under applicable law or is otherwise subject to regulation,
elimination, abatement, removal, remediation or clean-up under applicable law.
"Regulated Environmental Activity" means any emission
generation, treatment, storage, recycling, discharge, transportation or disposal
of any Hazardous Material.
"Release" means any discharge, emission or release, including,
but not limited to, a Release as defined in CERCLA at 42 U.S.C. Section
9601(22). The term "Released" has a corresponding meaning.
3.14. TAX MATTERS.
(a) The following terms, as used herein, have the following
meanings throughout this Agreement:
"Affiliated Group" means any affiliated group within the
meaning of Section 1504 of the Code (or any similar group defined under a
similar provision of state, local or foreign law).
"Code" means the Internal Revenue Code of 1986, as amended.
"Tax Lien" or "Tax Liens" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest for Taxes, other than a lien of
the type described in Section 3.10(e)(ii).
"Tax" or "Taxes" means any United States Federal, state, local
or foreign tax, levy, imposition, deduction, charge, withholding, premium,
custom, duty or other governmental fee or
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like assessment or charge of any kind whatsoever including (without limitation)
net income, alternative or add-on minimum tax, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, profits, license,
withholding on amounts paid to or by the Company, payroll, employment, excise,
severance, stamp and stamp duty reserve, capital stock, occupation, property,
environmental or windfall profit tax, or customs duty registration, together
with any interest, penalty, addition to tax or additional amount, whether
disputed or not, imposed by any governmental authority (a "Taxing Authority")
responsible for the imposition of any such tax on the Company.
"Tax Return" or "Tax Returns" means any United States Federal,
state, local and foreign return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including all schedules and
attachments thereto, and including any amendment thereof.
"Tax Sharing Agreements" means all existing Tax sharing
agreements or arrangements (whether or not written) binding the Company.
(b) Holding Co. is the common parent of an Affiliated Group of
corporations which includes Operating Co. and all other direct and indirect
subsidiaries of Holding Co. ("Consolidated Subsidiaries") which are eligible to
be included in a consolidated return with Holding Co., and with respect to which
Holding Co. files consolidated United States Federal income Tax Returns. All Tax
Returns that were or will be required to be filed by, or with respect to, the
Company on or before the Closing Date have been or will be filed on a timely
basis in accordance with the laws, regulations and administrative requirements
of the appropriate Taxing Authority. All such Tax Returns that have been filed
were, when filed, and continue to be, true, correct and complete. All such Tax
Returns that are filed after the date hereof through the Closing Date will be
true, correct and complete when filed. In addition, all documents which are
required to be stamped and which are in the possession of the Company or by
virtue of which the Company has any right have been duly stamped.
(c) Except as set forth on Schedule 3.14(c) there is no
action, dispute, suit, proceeding, investigation, assessment, audit or claim now
pending against, or with respect to, the Company in respect of any Tax nor is
any action, dispute, suit, procedure, investigation, assessment, audit or claim
for additional Tax expected by any Participating Stockholder, the Company or any
of their respective Affiliates to be asserted by any Taxing Authority. Except as
provided on Schedule 3.14(c), no Taxing Authority has proposed any adjustment
with respect to any action, dispute, suit, proceeding, investigation,
assessment, audit or claim described on Schedule 3.14(c) pursuant to the
preceding sentence. All deficiencies proposed (plus any interest, penalties and
additions to Tax that were or are proposed to be assessed thereon, if any) with
respect to the Company have been paid or, as described in Schedule 3.14(c), are
being contested in good faith by appropriate
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proceedings. Except as set forth in Schedule 3.14(c), there are no outstanding
waivers or extensions of any statute of limitations relating to either the
filing of any Tax Return or the payment of any Tax for which the Company may be
liable and no Taxing Authority has either formally or informally requested such
a waiver or extension.
(d) All Taxes due and payable on or before the Closing Date
that are either (i) required to be shown on any Tax Return filed by, or with
respect to, the Company or (ii) which were not required to be shown on any Tax
Return but which were or will be required to be paid by or with respect to the
Company, have been or will be timely paid on or before the Closing Date, except
such Taxes, if any, as are set forth on Schedule 3.14(d), that are being
contested in good faith. All Taxes that the Company was or will be required by
law to withhold or collect have been (in the case of those that were already
required to be withheld or collected) or will be duly withheld or collected and,
to the extent required, have been (in the case of those that were already
required to be paid) or will be paid to the appropriate Taxing Authority. There
are no Tax Liens, and will be no Tax Liens on the Closing Date, with respect to
Taxes upon any of the properties or assets, real or personal, tangible or
intangible, of the Company. Except as provided on Schedule 3.14(d), any
liability of the Company for Taxes not yet due and payable and for Taxes being
contested by the Company in good faith has adequately been provided for by the
Company on its Financial Statements (whether or not required to be disclosed
under GAAP).
(e) Except as set forth on Schedule 3.14(e), the Company has
never been included in a consolidated, combined or unitary income Tax Return.
(f) No consent to the application of Section 341(f)(2) of the
Code has been filed with respect to any property or assets held or acquired (or
to be acquired) by the Company.
(g) No property owned by the Company is property that
Purchaser or the Company will be required to treat as being owned by another
person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately before the enactment of the
Tax Reform Act of 1986, or is "tax-exempt use property" within the meaning of
Section 168(h)(1) of the Code.
(h) The Company is not subject to an adjustment under Section
481 of the Code or has been required by, or has requested or received the
permission of, any Taxing Authority to change its method of accounting.
(i) Except as set forth on Schedule 3.14(i), the Participating
Stockholders are not foreign persons within the meaning of Section 1445 of the
Code.
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(j) The Company is not and has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(k) Except as disclosed on Schedule 3.14(k), the Company does
not have in effect any tax elections for Federal income tax purposes under
Sections 108, 168, 338, 441, 471, 1017, 1033 or 4977 of the Code.
(l) There is no contract, agreement, plan or arrangement
covering any Person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by Purchaser or the Company
by reason of Sections 162(m) or 280G of the Code or as excessive or unreasonable
compensation.
(m) The Company is not a party (other than as an investor) to
any industrial development bond.
(n) Except as provided on Schedule 3.14(n), during the
previous two years the Company has not engaged in any exchange under which the
gain realized on such exchange was not recognized due to Section 1031 of the
Code.
(o) No claim has ever been made by any Taxing Authority in any
jurisdiction in which no Tax Return is filed by, or with respect to, the Company
that the Company may be subject to taxation by that jurisdiction.
(p) Except as set forth on Schedule 3.14(p) the Company is not
and has never been a party to any tax sharing or similar agreement or
arrangement.
(q) Schedule 3.14(q) hereto sets forth, as of January 1, 1996,
for United States Federal, state, local and foreign income tax purposes the
Participating Stockholders and the Company's good faith determination, based on
the best data available to them, of the liabilities of the Company, and the
adjusted basis (or, where applicable, the excess loss account) of (i) the assets
of the Company and (ii) the shares of stock of any person referred to in Section
3.4 (and any schedule provided pursuant thereto). Schedule 3.14(q) hereto sets
forth, as of January 1, 1996, for United States Federal income Tax purposes, and
where applicable, for state, local and foreign income Tax purposes the
Participating Stockholders' and the Company's good faith determination, based on
the best data available to them, of the net operating losses, capital losses and
credits, including any carryovers thereof, of the Company. Except as described
on Schedule 3.14(q) and except as a result of the transactions contemplated by
the Agreement, the Company does not have any net operating loss carryover,
capital loss carryover or credit carryover which (i) in the case of a net
operating loss carryover, is subject to restriction under Section 382 of the
Code (or any similar provision under state, local or foreign law), (ii) in the
case of a net capital loss carryover and credit carryover, is subject to
restriction under Section 383 of the Code (or any
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similar provision under state, local or foreign law), or (iii) in the case of
either a net operating loss carryover, capital loss carryover or credit
carryover, arose in a separate return limitation year.
(r) The Participating Stockholders have provided or caused the
Company to provide Purchaser with copies of: (i) all Tax Returns of the Company
and all pro forma income Tax Returns of the Company set forth on Schedule
3.14(r) hereto; (ii) any notices, protests, or closing agreements relating to
issues arising, or potentially arising, in any audit, litigation or similar
proceeding with respect to the liability for Taxes of the Company; (iii) any
elections or disclosure of any controversial positions filed by or on behalf of
the Company with any Taxing Authority (whether or not filed with any Tax
Return); (iv) any letter rulings, determination letters or similar documents
issued by any Taxing Authority with respect to the Company; and (v) any tax
sharing agreement or similar agreement to which the Company is or has been a
party.
(s) Except as set forth on Schedule 3.14(s), the Company does
not have any liability (whether contingent or otherwise) for Taxes of any other
Person (i) under Treasury Regulations Section 1.1502-6 (or any successor
provision thereto or any similar provision under state, local or foreign law);
(ii) as a successor or transferee or (iii) by contract (whether written or
unwritten).
(t) Operating Co. was acquired from Lilly in a "qualified
stock purchase" as defined in Section 338 of the Code and the Treasury
Regulations promulgated thereunder and in connection with such acquisition, an
election under Section 338(h)(10) of the Code and the Treasury Regulations
promulgated thereunder as well as corresponding elections under state, local or
foreign law, were made and such elections are valid and effective. Schedule
3.14(t) sets forth the elections corresponding to Section 338(h)(10) of the Code
that were made, or treated as having been made under applicable law, with
respect to the acquisition described in the previous sentence for purposes of
state, local and foreign law.
(u) Except as set forth on Schedule 3.14(u), the Company has
no obligation or liability, fixed or unfixed, contingent or otherwise,
attributable to the Section 338 Election Tax Liability (as defined in the Stock
Purchase Agreement dated as of November 21, 1994 between Eli Lilly & Company and
River Acquisition Corporation, DLJ Merchant Banking Partners, L.P., DLJ
International Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant Banking
Funding, Inc. and River Medical, Inc.) (the "1994 Stock Purchase Agreement").
(v) Each United Kingdom ("UK") resident Company is registered
for the purposes of the Value Added Tax Act 1994 ("VATA 1994") and has made,
given, obtained and kept full, complete, correct and up to date records,
invoices and other documents appropriate or required for those purposes and is
not in arrears with any payments or returns due. In addition, no UK resident
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Company is under any obligation to make any future payment which will be
prevented from being deductible for corporation tax purposes by reason of any
statutory provision other than Section 74(f) Income and Corporation Taxes Act
1988 (Capital).
(w) The Company has no gains or losses that have been deferred
under the United States federal consolidated return regulations, and no losses
that have been deferred under Section 267 of the Code. In addition, no UK
resident Company has acquired any asset from any other company which was, at the
time of the acquisition, a member of the same group of companies as that UK
resident Company for the purposes of any Tax within the last six years.
(x) No UK resident Company is a party to any transaction or
arrangement under which it may be required to pay for any asset or any services
or facilities of any kind an amount which is different than the market value of
that asset, services or facilities or will receive any payment for an asset or
any services or facilities of any kind that it has supplied or provided or is
liable to supply or provide which is less than the market value of that asset or
services.
3.15. BENEFIT PLANS.
(a) Schedule 3.15(a) contains a list and brief description of
all "employee pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA), employment, consulting,
severance or similar contracts, arrangements or policies and each plan or
arrangement (whether or not written) providing for severance benefits, insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, sick leave, cafeteria or flexible spending, dependent care,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, post-retirement benefits or other forms of incentive
compensation or benefits, social security and other employee fringe benefit
plans, domestic and foreign, entered into or maintained (or required to be
maintained under any governmental law or regulation), or contributed to, by the
Company for the benefit of its respective employees or former employees (in the
aggregate the "Employees"), or with respect to which the Company has, or may
have, any liability (all of the foregoing being herein called "Benefit Plans").
(b) The Company has furnished Purchaser copies of all such
Benefit Plans (and, if applicable, related trust agreements and insurance
contracts) and all amendments thereto and written interpretations thereof
together with, where applicable, (i) a summary plan description, (ii) the most
recent annual report prepared in connection with any such Benefit Plan (Form
5500 including, if applicable, Schedule B thereto), (iii) the most recent IRS
Form 990, (iv) the most recent actuarial valuation
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report prepared in connection with any such Benefit Plan, and (v) the premium
expenses and claims experience for each Benefit Plan which is a welfare benefit
plan for the period from January 1, 1995 to the last day of the month preceding
the date hereof.
(c) Except as set forth in Schedule 3.15(c) each Benefit Plan
that is intended to be qualified under Section 401(a) of the Code (as
hereinafter defined) has been so qualified during the period from its adoption
to date and has been determined by the Internal Revenue Service to be so
qualified and no event has occurred since the date of such determination that
would adversely affect such qualification; each trust created under any such
Benefit Plan is exempt from tax under Section 501(a) of the Code and has been so
exempt during the period from creation to date. The Participating Stockholder
has provided Purchaser with the most recent determination letters of the
Internal Revenue Service relating to each such Benefit Plan. Each Benefit Plan
outside of the United States which is intended to be tax qualified has received
all relevant approvals or exemptions in the jurisdiction in which it is
maintained. Each Benefit Plan is and has been in compliance, in form and
operation, with all applicable laws and has been administered in all respects in
accordance with its terms and ERISA, the Code or any other applicable statute,
order or governmental rule or regulation. There are no investigations by any
governmental authority, termination proceedings or other claims (except claims
for benefits payable in the normal operation of the Benefit Plans), suits or
proceedings pending or to the knowledge of any Participating Stockholder or the
Company, threatened against or involving any Benefit Plan or asserting any
rights or claims to benefits under any Benefit Plan that could give rise to any
liability on the part of the Company. No "prohibited transaction", as defined in
Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to
any Benefit Plan which is covered by Title I of ERISA, excluding transactions
effected pursuant to a statutory or administrative exemption.
(d) The Company does not currently maintain, sponsor, or
contribute to (nor is it required to contribute to) any "defined benefit plan"
as defined in Section 3(35) of ERISA, any "multiemployer plan" as defined in
Section 3(37) of ERISA or any "multiple employer plan" within the meaning of
Sections 4063 or 4064 of ERISA. With respect to any "employee benefit plan" (as
defined in Section 3(3) of ERISA), or any similar plan maintained outside of the
United States, whether or not terminated, currently or formerly maintained or
contributed to by the Company or any entity which was at any time treated as a
single employer, determined under Section 414(b), (c), (m) or (o) of the Code,
with the Company, no liability currently exists and no event has occurred and no
condition exists, which could subject the Company, or Purchaser directly or
indirectly (through an indemnification agreement or otherwise) to any liability,
including, without limitation, any liability under Title IV of ERISA or Section
412, 4971, 4975 or 4980B of the Code. Neither the Participating Stockholders nor
the Company has engaged in, or is a successor or
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parent corporation to an entity that has engaged in, a transaction described in
Section 4069 of ERISA.
(e) With respect to the Benefit Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions are
due and have not been made or for which contributions have not been properly
accrued as required by GAAP, and there are no unfunded benefit obligations which
have not been (i) accounted for by reserves (if required by GAAP) or (ii) if
required (and to the extent required, if any), properly disclosed in accordance
with GAAP, in the consolidated financial statements of the Company.
(f) Neither the Company, nor any of its affiliates nor any
Participating Stockholder has any current or projected liability in respect of
post-employment or post-retirement welfare benefits for Employees or other
persons, except as required to avoid excise tax under Section 4980B of the Code.
(g) Neither any Participating Stockholder nor the Company nor
any trustee, administrator or other fiduciary of any Benefit Plan has engaged in
any transaction or acted or failed to act in a manner which could subject the
Company to any liability for breach of fiduciary duty under any applicable
governmental law or regulation.
(h) Except as set forth on Schedule 3.15(h), there is no
contract, agreement, plan or arrangement, covering any Employee that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Section 280G of the Code.
(i) No tax under Section 4980B of the Code has been incurred
in respect of any Benefit Plan that is a group health plan, as defined in
Section 5000(b)(1) of the Code.
(j) Except as set forth on Schedule 3.15(j) or as provided in
Section 6.21 hereof, no Employee will become entitled to any bonus, retirement,
severance, job security or similar benefit or any enhanced benefit of such type
as a result of the transactions contemplated hereby.
(k) From and after the Closing Date, if and to the extent the
Company or any of its Affiliates assumes or succeeds to any obligation under any
Benefit Plan, the Company or its Affiliates will get the full benefit of any
funds, accruals or reserves in connection therewith.
3.16. LABOR MATTERS. Except as set forth on Schedule 3.12,
since December 31, 1994, the Company has not experienced any labor disputes or
any work stoppages due to labor disagreements and there is no such dispute or
work stoppage threatened against the Company. No employee of the Company is
represented by any union or collective bargaining agent and to the best
knowledge of Participating Stockholders and the Company, there
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has been no union organizational effort in respect of any employees of the
Company since December 31, 1994. There are no pending or, to the best knowledge
of Participating Stockholder's and the Company, threatened, lawsuits,
administrative proceedings, reviews, or investigations by any person or
Governmental Entity against the Company with respect to any violation or alleged
violation of any applicable federal, state or local laws, rules or regulations
(i) prohibiting discrimination on any basis, including, without limitation, on
the basis of race, color, religion, sex, disability, national origin or age, or
(ii) relating to employment or labor, including, without limitation, those
related to immigration, wages, hours or plant closing.
3.17. PURCHASE AND SALE COMMITMENTS. Except as provided on
Schedule 3.17, none of the customers or suppliers listed in Schedule 3.1(h) has
given any written notification that any such person will cease to continue its
relationship with the Company or will substantially reduce the extent of such
relationship.
3.18. INSURANCE. The Company has furnished to the Purchaser on
Schedule 3.1(l) a list of, and true and complete copies of, all currently
effective insurance policies relating to the Business. Such policies or
insurance (or other policies providing substantially similar insurance coverage)
have been in effect since December 30, 1994 and remain in full force and effect.
All premiums payable under all such policies and bonds have been paid timely and
the Company has otherwise complied fully with the terms and conditions of all
such policies and bonds. Neither the Company nor any Participating Stockholder
has received any notice of any claims by the Company against any policies of
insurance owned by the Company, as to which any insurer is denying liability or
defending under any reservation of rights clause. The Company has not received
any notice of cancellation, non-renewal or termination in respect of any of the
insurance policies listed on Schedule 3.1(l) hereto.
3.19. CONTRACTS. Except as set forth on Schedule 3.19 hereto,
all of the contracts, agreements, indentures, instruments, plans, leases,
policies and licenses (collectively, "Contracts") to which the Company is a
party or by which it or any of its properties or assets may be bound or subject,
are legal, valid and binding obligations of the Company and the other parties
thereto, enforceable in accordance with their terms, are in full force and
effect, and: (i) neither the Company nor, to the knowledge of any Participating
Stockholder or the Company, any other party thereto is in default or breach
under the terms of any such contract, nor, has any event or circumstance
occurred that, with notice or lapse of time or both, would constitute an event
of default thereunder; and (ii) there is no claimed or purported or alleged
breach or default of any obligation to be performed on the part of the Company
thereunder or of any other party thereto.
3.20. FINDERS AND INVESTMENT BANKERS. Except for any fee paid
by the Company to DLJ or any of its Affiliates prior
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to Closing as set forth on Schedule 3.20 hereof, neither Participating
Stockholders nor the Company nor any of their Affiliates have employed any
broker, finder, investment banker or financial advisor as to whom Purchaser or
the Company has or hereafter may have, an obligation to pay monies, or incurred
any liability for any brokerage fees or commissions or for any finders',
investment banking or financial advisory fees for which the Purchaser or the
Company may be responsible, in connection with the transactions contemplated
hereby.
3.21. LICENSES, PERMITS AND AUTHORIZATIONS. The Company has
obtained all approvals, authorizations, consents, clearances, licenses,
franchises, orders or other permits of all governmental or regulatory agencies,
whether federal, state, local or foreign (collectively, the "Approvals")
necessary to the operation of its Business as presently conducted including,
without limitation, the construction, alteration, operation, use or occupancy of
the Owned Real Property or any part thereof, the Leased Real Property or the
premises demised thereunder, or any improvements thereon. Such Approvals are in
full force and effect and in good standing. The Company is not in default under
any Approval and there exists no basis for the termination, suspension or
revocation of any of such Approvals. Except as set forth on Schedule 3.21 hereof
and as required by the Federal Acquisition Regulations incidental to change of
name agreements or novations of existing contracts with the United States
government as identified in Schedule 3.1(c) hereto, the consummation of the
transactions contemplated hereby will not constitute a transfer or assignment of
any such Approval nor will such consummation require any filing or registration
with or notice to any governmental authority and all such Approvals shall remain
in full force and effect to the benefit of the Company following the Closing and
the Combination.
3.22. PRODUCTS. Except as set forth on Schedule 3.22, each of
the products produced or sold by the Company in connection with the Business:
(i) is, and at all times up to and including the sale thereof has been, in
compliance in all material respects with all applicable federal, state, local
and foreign laws and regulations; and (ii) is, and at all relevant times has
been, fit for the ordinary purposes for which it is intended to be used and
conforms in all material respects to any promises or affirmations of fact made
on the container or label for such product or in connection with its sale. There
is no design or manufacturing defect with respect to any of such products. The
Company has not received written notice of any product warranty claims other
than such claims as do not exceed, in the aggregate, the applicable reserve
therefor reflected on the Balance Sheet. Warranty reserves are established and
reflected on the Financial Statements to insure that the estimated costs of
providing warranty services or upgrades, improvements and extended service
pursuant to contractual obligations are recognized in the period in which the
sale of products is recorded.
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3.23. ENTIRE BUSINESS. No portion of the Business of the
Company is conducted by any Participating Stockholder or any Affiliate thereof
(other than the Company) and all of the assets, rights and Approvals necessary
for the conduct of the Business as presently conducted are owned, leased or
licensed by the Company.
3.24. DISTRIBUTION AGREEMENTS. The Company is not a party to
any agreement, contract or understanding which, following the Merger or the
Combination, would require Purchaser or any of its Affiliates to distribute any
products or services (other than the products or services currently sold or
offered by the Company) through any person, including, without limitation, any
distributor or dealer.
3.25. REGULATORY MATTERS. Except as set forth on Schedule
3.25, the Company, and the products sold by the Company, are in compliance with
all current and otherwise applicable statutes, rules, regulations, standards,
guides or orders administered or issued by the FDA and all other federal,
foreign, state or local agencies or governmental bodies (except for
environmental agencies or bodies) having regulatory authority over
the products of the Company (except with respect to Environmental
Matters) and the Business.
Except as set forth on Schedule 3.25 hereto, since January 1,
1993 none of the following communications have been given with respect to the
Company or the Business and no facts exist which furnish any reasonable basis
for, any Notice of Adverse Findings, Warning Letters, Section 305 notices,
subpoena, an Unacceptable Determination under a GWQAP or other similar
communication by any United States or foreign governmental body or agency, and
there have been no recalls, field notifications, alerts or seizures requested or
threatened relating to the products sold by the Company.
The Company has delivered to Purchaser a copy of all premarket
approval ("PMA") and premarket notification ("510(k)") clearance or concurrence
letters received from the FDA and provided Purchaser with access to all related
documents and information, including device master files and post-market
studies. The 510(k) or PMA for each of the products of the Company is in
compliance in all material respects with the applicable federal, state and local
statutes, rules, regulations, standards, guides or orders administered or
promulgated by the FDA and state or local jurisdictions and all preclinical and
clinical studies have been conducted with recognized good clinical and good
laboratory practices in all material respects. Schedule 3.25 hereto contains a
complete list of all of the Company's products not marketed under an approved
PMA or 510(k).
The Company has delivered to Purchaser for each clinical
investigational use of a device conducted by or on behalf of the Company since
July 1, 1993 a copy of each claimed investigational device exemptions ("IDE")
filed with or approved by FDA, by or on behalf of the Company, and not otherwise
encompassed within the
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preceding two paragraphs, and provided Purchaser with access to all related
documents and information. All such IDEs are in compliance in all material
respects with the applicable federal, state and local statutes, rules,
regulations, standards, guides or orders administered or promulgated by the FDA
or state or local jurisdiction, including but not limited to those pertaining to
informed consent. Schedule 3.25 hereto contains a complete list of all of the
Company's clinical investigations not conducted under an IDE.
Except as set forth in Schedule 3.25, neither any
Participating Stockholder, the Company, nor their respective Affiliates are
aware of any facts which are reasonably likely to cause (i) the denial,
withdrawal, recall or suspension of any product sold or intended to be sold by
the Company, or (ii) a change in the marketing classification or labeling of any
such products, or (iii) a termination or suspension of marketing of any such
products.
Schedule 3.25 hereto contains an accurate and complete list of
(i) all products manufactured, marketed or sold by the Company or in connection
with the Business which have been recalled or subject to a field notification
(whether voluntarily or otherwise) since January 1, 1993; and (ii) all
proceedings occurring on or after January 1, 1993 (whether completed or pending)
seeking recall, suspension or seizure of any product sold or proposed to be sold
by the Company or in connection with the Business.
The Company has made available to Purchaser in a manner so as
to provide Purchaser an opportunity to review all FDA inspection reports (Forms
483s), the Company's Responses to such Form 483s and the FDA Establishment
Inspection Reports for all FDA inspections of the Company's facilities since
January 1, 1993. The Company has also furnished Purchaser with access to all
internal inspection reports (as required by 21 C.F.R Section820.20) conducted by
the Company since January 1, 1993, as well as the written procedure for such
audits. Schedule 3.25 hereto contains an accurate and complete list of all such
Forms 483s, Responses and FDA Established Inspection Reports.
The Company has made available to Purchaser in a manner so as
to provide Purchaser an opportunity to review copies of all Medical Device
Reports (as required by 21 C.F.R. Section820.198) filed by the Company, and
maintained by such person (as required by 21 C.F.R. Section820.198) as well as
copies of all related documents and a copy of the Company's corporate policy for
filing such reports. Schedule 3.25 hereto contains a complete list of all
written product complaints received by the Company since June 1, 1994.
The Company has made available to Purchaser in a manner so as
to provide Purchaser an opportunity to review copies of all labels and the label
history for all of the Company's products in the Company's possession.
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The Company has made available to Purchaser in a manner so as
to provide Purchaser an opportunity to review copies of all regulatory approvals
obtained from any foreign regulatory agencies related to the products
distributed and sold by the Company.
3.26. DISCLOSURE. No representation or warranty of any
Participating Stockholder, the Holding Co. or the Operating Co. contained in
this Agreement, any of the Documents executed and delivered by any Participating
Stockholder, the Holding Co., the Operating Co. or the Sellers Representative or
in any statement or certificate furnished or to be furnished to Purchaser
pursuant hereto or thereto in connection with the transactions contemplated
hereby or thereby 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 made herein or therein, in the light of the circumstances in which
they were made, not misleading.
3.27. PRODUCTS. The Signature Product as it currently exists
constitutes a highly featured, large volume i.v. infusion system available for
commercial use, capable of being manufactured in commercial quantities, and
conforming to the directions for use thereof, subject to the problems
customarily associated with a product in the state of release of the Signature
Product. There is no need (but for the currently contemplated Signature Recall)
to retrofit such product. There is no plan (but for the currently contemplated
Signature Recall) to retrofit such product.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND IMED MERGER SUB
Each of Purchaser and IMED Merger Sub hereby jointly and
severally represents and warrants to the Participating Stockholders as follows:
4.1. ORGANIZATION; ETC. Each of Purchaser and IMED
Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
4.2. AUTHORIZATION; ETC. The Purchaser and IMED Merger Sub
have full corporate power and authority to enter into this Agreement and the
Documents executed and delivered by the Purchaser and IMED Merger Sub and to
carry out the transactions contemplated hereby and thereby. The Purchaser and
IMED Merger Sub have taken all action required to authorize the execution and
delivery of this Agreement and the other Documents executed and delivered by
Purchaser and the IMED Merger Sub, the performance of the obligations of
Purchaser and the IMED Merger Sub hereunder and thereunder and the consummation
by Purchaser and the IMED Merger Sub of the transactions contemplated hereby and
thereby including, without limitation, the Merger. No other corporate
proceedings on the part of Purchaser or the IMED Merger Sub are necessary to
authorize the execution and delivery by Purchaser and the IMED
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Merger Sub of this Agreement or the Documents executed and delivered by
Purchaser and the IMED Merger Sub or the performance by Purchaser or the IMED
Merger Sub of its obligations hereunder or thereunder including, without
limitation, the Merger. This Agreement and each Document executed and delivered
by Purchaser and the IMED Merger Sub are valid and binding agreements of
Purchaser and the IMED Merger Sub, enforceable against each in accordance with
their terms.
4.3. NO VIOLATION. Neither the execution and delivery of this
Agreement or the other Documents executed and delivered by Purchaser and the
IMED Merger Sub nor the consummation of the transactions contemplated hereby or
thereby will violate any provisions of the Certificate of Incorporation or
By-Laws of Purchaser or the IMED Merger Sub, or violate, or be in conflict with,
or allow the termination, or constitute a default under, or cause the
acceleration of the maturity of, any debt or obligation pursuant to any
agreement or commitment to which Purchaser or the IMED Merger Sub is a party or
by which it is bound, or violate any statute, any law or any judgment, decree,
order, regulation or rule of any court or governmental authority to which
Purchaser or the IMED Merger Sub is subject.
4.4. CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. No
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority is required to be made or
obtained by Purchaser and the IMED Merger Sub in connection with the execution,
delivery and performance of this Agreement or the Documents executed and
delivered by Purchaser or the IMED Merger Sub or the consummation by Purchaser
or IMED Merger Sub of the transactions contemplated hereby and thereby, other
than pursuant to the HSR Act and as required by the Federal Acquisition
Regulations incidental to change of name agreements or novations of existing
contracts with the United States government as identified in Schedule 3.1(c)
hereto.
4.5. FINDERS AND INVESTMENT BANKERS. Neither Purchaser, the
IMED Merger Sub nor any of their respective Affiliates have employed any broker,
finder, investment banker or financial advisor as to whom any Participating
Stockholder has or hereafter may have, an obligation to pay monies, or incurred
any liability for any brokerage fees or commission or for any finders',
investment banking or financial advisory fees for which any Participating
Stockholder may be responsible, in connection with the transactions contemplated
hereby.
4.6. FINANCING. Purchaser has received and furnished copies to
Sellers Representative of commitment letters (the "Commitment Letters") from (i)
Bankers Trust Company ("BTCo") and Banque Paribas ("Paribas" and, together with
BTCo, the "Banks"), pursuant to which the Banks have committed, subject to the
terms and conditions thereof, to enter into a credit agreement with Purchaser
and a syndicate of banks, which the Banks intend to form and for which the Banks
will act as agent and to provide financing (ii) Jeffry M. Picower or an
affiliate thereof, pursuant to which
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an affiliate of Mr. Picower has committed, subject to the terms and conditions
stated therein, to contribute to Advanced Medical, the parent of Purchaser,
equity capital to be utilized for, among other things, the transactions
contemplated herein; and (iii) pursuant to which Advanced Medical has committed,
subject to the terms and conditions therein, to provide a portion of the
financing for the Merger. The aggregate proceeds of such financing will be in an
amount sufficient to complete the Merger.
4.7. LITIGATION. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Purchaser or the IMED Merger
Sub threatened against or affecting, Purchaser or the IMED Merger Sub before any
court or arbitrator or any governmental body, agency or official which in any
manner challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESS PENDING CLOSING
5.1. CONDUCT OF BUSINESS. Except as set forth in Schedule 5.1
or as otherwise contemplated by this Agreement and the Schedules hereto, from
the date of this Agreement to the Closing Date, Participating Stockholders shall
and shall cause the Company to, and the Company shall, conduct its operations in
the ordinary and usual course of business consistent with past practice, and in
connection therewith the Company shall use commercial best efforts (provided
that "commercial best efforts" shall not be deemed to require payment of money
in excess of amounts which would be commercially reasonable under the
circumstances) to preserve the Business and the business organization of the
Company intact, keep available the services of the Company's officers and
employees and maintain satisfactory relationships with suppliers, customers and
others having business relationships with the Company (and in connection
therewith will pay payables and collect receivables in the ordinary course
consistent with past practice). Except as set forth in Schedule 5.1 or as
otherwise contemplated in this Agreement and the Schedules hereto, the Company
will not do any of the following, without the prior written consent of
Purchaser, to be given through the chairman of the board of the Purchaser or his
designee (which will not be unreasonably withheld or delayed, taking into
consideration the business needs of the Company and the Purchaser and applicable
regulatory considerations):
(i) amend its Certificate of Incorporation or By-Laws;
(ii) declare or pay any dividend or make any other
distributions to its shareholders (except as contemplated in
Section 6.13 hereof);
(iii) redeem or otherwise acquire, issue or sell any Stock or
issue any capital stock or any Right or amend any material term of, any
Stock or Right;
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(iv) adopt, enter into, terminate or amend any Benefit
Plan or collective bargaining agreement that would increase the expense
of maintaining any Benefit Plans or collectively bargained agreement;
(v) make or grant to any executive officer, director or
employee any increase in compensation or benefits, except as may be
required under existing agreements, or in the ordinary course of
business consistent with past practice or grant, agree or otherwise
become obligated to pay (whether on the occurrence of any future event
or otherwise) any severance or termination pay to any officer, director
or employee of the Company;
(vi) incur or assume any liabilities, obligations or
indebtedness for borrowed money or guarantee any such liabilities,
obligations or indebtedness of third parties, other than under its
existing revolving credit facility;
(vii) permit, allow or suffer any of its assets to be subject
to any Encumbrance, other than Permitted Liens;
(viii) pay, loan or advance any amount to, or sell, transfer
or lease any of its assets to, or enter into any agreement or
arrangement with any Participating Stockholder or any Affiliate
thereof;
(ix) make any change in any accounting practice or policy
other than as required in accordance with GAAP;
(x) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets (other than inventory
and raw materials acquired in the ordinary course of business
consistent with past practice) having an aggregate purchase price in
excess of $1 million;
(xi) sell, lease or otherwise dispose of, or agree to sell,
lease or otherwise dispose of, any assets (other than inventory or raw
materials sold or otherwise disposed of in the ordinary course of
business in a manner consistent with past practice) for an aggregate
sales price (together with all such assets disposed of after June 30,
1996) in excess of $1 million;
(xii) enter into any amendment of, cancellation of, or
sublease with respect to, any of the Leases;
(xiii) acquire any additional real property or interest
therein (by lease or otherwise) or exercise any option contained in any
of the Leases to purchase any real property or interest therein;
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(xiv) engage in or enter into any commitment with respect to
any: (A) upgrade or modification (other than minor changes) of its MIS
systems; or (B) product sterilization systems or facilities;
(xv) enter into any agreement, contract or understanding
which, following the Merger or the Combination, would require Purchaser
to distribute any products or services (other than the products or
services currently being sold or offered by the Company) through any
person, including, without limitation, any distributor or dealer; or
(xvi) agree to any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. ADVICE OF CHANGE. (a) Participating Stockholders, the
Holding Co. and the Operating Co. will use reasonable business efforts
to promptly advise Purchaser in writing, upon obtaining knowledge, of:
(i) any event which occurred on or prior to the date of execution of
this Agreement that is not disclosed herein
and any event which occurs after the date of this Agreement, in each case that
would, under this Agreement or any Schedule or Document delivered pursuant
hereto, have been required to be disclosed on the date of execution of this
Agreement by any Participating Stockholder, the Holding Co. or the Operating
Co.; and (ii) any change in the business, operations, properties, assets or
financial condition of the Company, if, in the case of both (i) and (ii), the
same has had or would reasonably be expected to have, a Material Adverse Effect.
(b) Each of the Participating Stockholders and the Company
shall promptly notify Purchaser and Purchaser shall promptly notify the Sellers
Representative and the Company of (i) any notice or other communication from any
Person alleging that the consent of such Person is or may be required in
connection with the transaction contemplated by this Agreement; (ii) any notice
or other communication from any governmental or regulatory agency or authority
in connection with the transactions contemplated by this Agreement; and (iii)
any actions, suits, claims, investigations or proceedings commenced or, to its
knowledge threatened against, relating to or involving or otherwise affecting
the Participating Stockholders, the Company or the Purchaser, as the case may
be, that, if pending on the date of this Agreement, would have been required to
have been disclosed under this Agreement or that relate to the consummation of
the transactions contemplated by this Agreement.
6.2. ACCESS TO PROPERTIES AND RECORDS; CONFIDENTIALITY.
(a) Between the date hereof and the Closing Date, the
Company will give authorized representatives of Purchaser during
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normal business hours, in such a manner as not to unduly disrupt normal business
activities, reasonable access to any and all premises, properties, contracts,
books, records, tax returns and affairs of the Business (including, without
limitation, access to properties in order to conduct environmental audits and
reviews) and will cause its officers to furnish any and all financial, technical
and operating data and other information pertaining to the Business, as
Purchaser shall from time to time reasonably require in connection with the
transactions contemplated hereby, other than such data or information which the
Company reasonably determines to be competitive or marketing information that
should not be disclosed to a competitor.
(b) From the date hereof through the Closing Date, Purchaser
will hold in confidence all information obtained as a result of such access or
previously furnished by any Participating Stockholder or the Company and will
use such information only for the purpose of considering the transactions
contemplated hereby. If such transactions are not consummated as contemplated
herein, Purchaser and its Affiliates will, and will use their best efforts to
cause their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, destroy or deliver to the Holding Co., upon
request, all documents and other materials, and all copies thereof, obtained by
Purchaser or its Affiliates or on their behalf from Participating Stockholders
or the Company in connection with this Agreement that are subject to such
confidence. Such obligation of confidentiality shall not extend to any
information that can be shown to have been: (i) previously known on a
nonconfidential basis by the Purchaser; (ii) in the public domain through no
fault of the Purchaser or (iii) later lawfully acquired by the Purchaser from
sources other than the Company or the Participating Stockholders. It being
agreed that it is impossible to measure in money the damages which will accrue
by reason of a breach by Purchaser of this Section 6.2(b), this Section may be
specifically enforced and Purchaser hereby waives the claim or defense therein
that any other party has an adequate remedy at law.
(c) From and after the Closing Date, except as otherwise
required by applicable law, rule, regulation or legal process, each
Participating Stockholder shall, and shall cause its Affiliates to, hold in
confidence all information pertaining to the Company and the Business; provided,
however, that such obligation of confidentiality shall not extend to any
information that can be shown to have been: (i) previously known on a
nonconfidential basis by such Participating Stockholder; (ii) in the public
domain through no fault of such Participating Stockholder; or (iii) later
lawfully acquired by such Participating Stockholder from sources other than the
Company. It being agreed that it is impossible to measure in money the damages
which will accrue by reason of a breach by Participating Stockholder of this
Section 6.2(c), this Section may be specifically enforced and each Participating
Stockholder hereby waives the claim or defense therein that any other party has
an adequate remedy at law.
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6.3. BOOKS AND RECORDS. On the Closing Date each Participating
Stockholder shall deliver and shall cause to be delivered, to Purchaser, all of
the books and records of the Company not then in the possession of the Company.
Purchaser agrees to preserve all records delivered by any Participating
Stockholder or the Company to Purchaser pursuant to this Agreement or in the
possession of Purchaser in the same manner in which it maintains its own books
and records under its then current document maintenance programs. Purchaser
shall give 30 days' notice to the Sellers Representative to permit any
Participating Stockholder, at its expense, to examine, duplicate or take
possession of such records prior to any destruction thereof by Purchaser. Notice
having been given, at the end of such 30-day period, if the Sellers
Representatives shall not have requested any such records or copies thereof,
Purchaser may dispose of, alter or destroy any such records at any time. During
the period such records are so required to be preserved and kept, duly
authorized representatives of the Participating Stockholders shall, on
reasonable prior notice, have access thereto during normal business hours to
examine, inspect and copy such records. Purchaser and each Participating
Stockholder shall provide each other with reasonable access to any records or
information relevant to any return, audit or examination by any Taxing
Authority, or judicial or administrative proceeding or determination relating to
liability for Taxes (including refunds) as are in its possession or subject to
its control pursuant to this Section 6.3.
6.4. FINANCING. The Participating Stockholders and the Company
shall use commercial best efforts (provided that "commercial best efforts" shall
not be deemed to require payment of money in excess of amounts which would be
commercially reasonable under the circumstances) in taking such actions as may
be reasonably requested by Purchaser in order to permit Purchaser to obtain any
financing in connection with the transactions contemplated hereby (which action
shall include, without limitation, making senior executive personnel of the
Company available to engage in presentations (including, "road shows") to
potential lenders and purchasers of debt securities). If, in connection with any
such action taken by the Company as a result of a specific request by the
Purchaser, the Company incurs any out-of-pocket cost or expense to any third
party, then the Purchaser shall reimburse the Company promptly following demand
in respect thereof. Purchaser will use commercial best efforts (provided that
"commercial best efforts" shall not be deemed to require payment of money in
excess of amounts which would be commercially reasonable under the
circumstances) to complete such financing if the conditions to the obligations
of Purchaser set forth in Article VII and VIII hereof are satisfied. In
connection therewith, Purchaser shall commence the preparation of appropriate
offering documentation with respect to any subordinated debt to be obtained by
Purchaser in order to provide a portion of the financing required hereunder, in
an effort to be in a position to commence the offering with respect to such
indebtedness with reasonable promptness following the satisfaction of the
closing condition set forth in Section 7.3 hereof.
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6.5. CONSENTS AND APPROVALS. The Participating Stockholders
will use their commercial best efforts (provided that "commercial best efforts"
shall not be deemed to require payment of money in excess of amounts which would
be commercially reasonable under the circumstances) to obtain the necessary
approvals, consents and releases of other persons which may be required to
consummate the transactions contemplated by this Agreement. Purchaser will
cooperate with the Participating Stockholders in order to assist them in
satisfying their obligations under the preceding sentence, but Purchaser shall
not be required to make or be responsible for any payment made in order to
obtain any such approval, consent or release. Purchaser agrees to accept through
name changes or novations, all of the U.S. government contracts listed in
Schedule 3.1(c) hereto and to accept, in work authorization or similar orders
under said contracts as may be properly authorized by the U.S. government,
contract clauses as set forth in prime contracts and any subcontracts which
require flow- down provisions, for the supply of products or services to the
U.S. government to the extent that (i) the Purchaser is a subcontractor or a
prime contractor, (ii) such prime contract clauses are required by statute or
the Federal Acquisition Regulations ("FAR") and agency FAR supplements and other
government acquisition regulations (including any certificates required
thereunder) to be flowed down to subcontractors thereunder and (iii) Purchaser's
acceptance of such prime contract clauses is necessary for the negotiation of
and compliance with those prime contracts directly by the Purchaser. The
Purchaser further agrees to support price analysis of Purchaser's prices and
will cooperate in furnishing information, data and records reasonably necessary
in connection with the above matters.
6.6. COOPERATION REGARDING BENEFIT PLANS. The Company shall
cooperate with Purchaser and its advisers in preparing, filing, and diligently
pursuing any and all filings, applications, or notifications that may be
necessary or advisable with respect to any of the Benefit Plans in connection
with the transactions contemplated by this Agreement.
6.7. SATISFACTION OF CLOSING CONDITIONS. Subject to the terms
and conditions of this Agreement, each party shall use all commercially
reasonable efforts to take, or cause to be taken, all actions necessary to
consummate the transactions contemplated by this Agreement in a manner that will
provide to each party hereto the full benefits of the transaction contemplated
herein in all respects. The parties shall cooperate with one another (a) in
determining whether any action by or in respect of, or filing with, any
governmental authority is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any contracts and (b)
subject to the terms and conditions of this Agreement, in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking to obtain in a timely fashion any such actions, consents approvals
or waivers. Each Participating Stockholder, the Holding Co. and the Operating
Co. shall use commercially reasonable efforts, to cause all of the conditions to
the obligations of Purchaser set
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forth in Article VIII hereof to be satisfied. Purchaser shall use its
commercially reasonable efforts to cause all of the conditions to the
obligations of Participating Stockholders set forth in Article IX hereof to be
satisfied.
6.8. TAX COVENANTS. (a) The Company shall prepare and timely
file, or cause to be prepared and timely filed, with the appropriate Taxing
Authority all Tax Returns relating to the Company or the Business and required
to be filed on or prior to the Closing Date and shall timely pay all Taxes
either (i) required to be shown on any such Tax Returns, or (ii) which are not
required to be shown on such Tax Returns but which will be required to be paid
by or with respect to the Company on or prior to the Closing Date.
(b) All transfer, documentary, sales, use, registration and
other such Taxes (including, but not limited to, all applicable real estate
transfer or gains taxes), any penalties, interest and additions to Tax, and fees
incurred in connection with this Agreement and the transactions contemplated
hereby (including any Taxes due as a result of the Merger) shall be borne by the
Participating Stockholders. All withholding taxes with respect to amounts to be
received by the stockholders of the Holding Co. shall be borne by the
stockholders of the Holding Co. The Participating Stockholders and Purchaser
shall cooperate in the timely making of all filings, returns, reports and forms
as may be required in connection therewith.
(c) [Reserved]
(d) The Participating Stockholders will provide such
cooperation and information as the Purchaser or the Company reasonably may
request in: (i) filing any Tax Return, amended return or claim for refund, (ii)
determining a liability for Taxes or a right to a refund of Taxes or (iii)
conducting any audit or other proceeding in respect of Taxes of the Company and
the Participating Stockholders shall be reimbursed by Purchaser for all
reasonable out-of-pocket expenses in connection therewith.
(e) Without the prior written consent of Purchaser, the
Company shall not, on or prior to the Closing Date, make or change any Tax
election, adopt or change any method of Tax accounting, file any amended return,
enter into any closing agreement, settle any Tax claim or assessment, surrender
any right to claim a Tax refund, consent to any extension or waiver of the
limitations period applicable to any Tax claim or assessment, if any such action
would have the effect of increasing the post-Closing Tax liability of the
Company. The Purchaser will take no action (other than any action contemplated
under this Agreement) without the consent of the Company and the Participating
Stockholders which would increase the Company's federal income tax liability or
reduce any Tax Assets for tax periods beginning after 1994 and ending on or
before the end of the Closing Date.
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(f) All Tax Sharing Agreements shall be terminated as of the
Closing Date and, after the Closing Date, the Company shall not be bound thereby
or have any liability thereunder.
(g) At least 10 days prior to the Closing Date, the
Participating Stockholders shall have provided or shall have caused the Company
to have provided Purchaser with copies of all Tax Returns of the Company
required to be filed during the period beginning on the date hereof and ending
15 days prior to the Closing Date.
6.9. OTHER OFFERS. From the date hereof until the termination
of this Agreement, the Holding Co. the Operating Co. and each Participating
Stockholder will not (and will cause their respective Affiliates not to): (i)
take any action to solicit, or respond to, any offer from any person with
respect to any Acquisition Proposal (as hereinafter defined); or (ii) engage in
negotiations or discussions with, or disclose any non-public information
relating to the Holding Co., the Operating Co. or its business or afford access
to the properties, books or records of the Holding Co., or the Operating Co. to,
any person with respect to an Acquisition Proposal. "Acquisition Proposal" means
any proposal for a merger or other business combination to which the Holding
Co., the Operating Co. or the Company (or any person controlling such person) is
or would be a party, or involving the acquisition of any substantial interest
in, or a substantial portion of the assets of, the Holding Co., the Operating
Co. or the Company (or any person controlling such person), other than the
transaction with Purchaser contemplated by this Agreement. Each Participating
Stockholder, the Holding Co., and the Operating Co. shall promptly notify
Purchaser if it receives any inquiry from any person with respect to an
Acquisition Proposal, which notice shall contain the name of the person involved
and the nature of the Acquisition Proposal.
6.10. IMPLIED WARRANTIES. Except as expressly provided in this
Agreement, the Participating Stockholders have not made and are not making any
representation or warranty whatsoever to Purchaser or IMED Merger Sub. Without
limiting the foregoing, Purchaser acknowledges that Purchaser, together with its
advisors, has made its own investigation of the Business and is not relying on
any implied warranties (whether of merchantability of fitness for a particular
purpose or otherwise), or upon any representation or warranty whatsoever as to
the prospects (financial or otherwise), or the viability or likelihood of
success, of the Business as conducted after the Closing Date, except for any
representation or warranty expressly provided in this Agreement.
6.11. ADDITIONAL INSTRUMENTS; FURTHER ASSURANCES. At and after
the Closing, at the request of Purchaser or the Company, each Participating
Stockholder shall, or shall cause its Affiliates to, execute, acknowledge and
deliver to Purchaser or the Company, as the case may be, without further
consideration, all such further assignments, conveyances, endorsements, deeds,
powers of attorney, consents and other documents and take such other
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action as Purchaser or the Company, as the case may be, may reasonably request
to consummate the transactions contemplated by this Agreement and as required by
the Federal Acquisition Regulations incidental to change of name agreements or
novations of existing contracts with the United States government.
6.12. ANTITRUST NOTIFICATION. Each Participating Stockholder,
the Holding Co., the Operating Co. and Purchaser will, as promptly as
practicable following the date hereof, file with the Federal Trade Commission
and the Department of Justice the notification and report form required for the
transactions contemplated hereby and any supplemental information which may be
reasonably requested in connection therewith pursuant to the Hart- Scott-Rodino
Anti-Trust Improvements Act of 1976, as amended, and the rule and regulations
adopted thereunder (the "HSR Act").
6.13. RIVER MEDICAL. Each Participating Stockholder hereby
represents and warrants to Purchaser and the Company that River Medical, Inc., a
Delaware corporation ("River") is a wholly owned subsidiary of the Operating Co.
Prior to the Closing, the Participating Stockholders may cause the Company or
River to dispose of all or any portion of the assets (but not of the stock) of
River. The Participating Stockholders agree that any such dispositions shall not
be made by dividend and may be made only pursuant to written agreements that
expressly provide that any obligation or liability resulting from, relating to
or based upon such transaction, shall be recourse only to River and that the
Company and its Affiliates (other than River) shall have no duty in respect
thereof. Immediately prior to the Closing, the Participating Stockholders will
cause all the foregoing transactions (except for the Sublease (as defined
below)) to be completed pursuant to documentation in form and substance
reasonably acceptable to the Purchaser. In the event that the Sublease is not
completed prior to the Closing, the Participating Stockholders may continue to
negotiate the same but any such Sublease shall be in form and substance
reasonably acceptable to the Purchaser.
Each Participating Stockholder hereby represents, warrants,
covenants and agrees with and to Purchaser and the Company that any disposition
completed as permitted in this Section 6.13 prior to the periods reflected in
such statements, would not have resulted in any effect on the Special Statements
(1995) or the Special Statements (1996).
The Participating Stockholders have informed the Purchaser
that the Operating Co. has terminated and ceased ongoing business operations of
River as of July 25, 1996 and is in the process of liquidating certain assets
and discharging certain liabilities of River (the "Liquidation") except for the
SmartDose technology, related patents and customized equipment (collectively,
the "SmartDose Technology") which the Operating Co. may sell or otherwise
dispose of (the "Technology Disposition"). Notwithstanding any other provision
hereof (but subject to the terms of this Section 6.13), prior to the Closing the
Participating
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Stockholders and the Company shall have the right to continue any efforts with
respect to the Liquidation and the Technology Disposition, and shall have full
right and authority to control all aspects of the Liquidation and Technology
Disposition, including (without limitation) the: (a) sublease of the River
facility located at 7737 Kenemar Court, San Diego, California (the "Sublease")
and (b) the sale of equipment and other tangible personal property. From and
after the Closing, Purchaser and IMED Merger Sub agree to, and agree to cause
the Company to, comply with the Cooley Letter (as defined herein) and all
related obligations and agreements and to provide reasonable, limited assistance
in connection with the Liquidation and Technology Disposition (the "Wind-Up
Activities") provided, however, that the Participating Stockholders shall
reimburse the Purchaser, IMED Merger Sub and/or the Company for any
out-of-pocket expenses to third parties incurred after the Closing with respect
to such Wind-Up Activities. The Purchaser agrees that from and after the Closing
Date, River will be operated by the Purchaser solely for the purpose of winding
down its business. The parties acknowledge that any Loss that might otherwise be
included in the River Medical Liabilities with respect to any payment of rent
under or in respect of the lease of the River facility located at 7737 Kenemar
Court, San Diego, California will be reduced by rents paid under the Sublease.
6.14. PAYMENT OF INDEBTEDNESS. At the Closing the
Participating Stockholders will arrange for the Total Debt (other than the
Siemens Obligation and the Senior Notes (which Senior Notes will be satisfied as
contemplated in Section 6.15 hereof)) to be paid in full so that, immediately
following the Closing: (i) the only remaining indebtedness of the Company of the
type that would constitute Total Debt of the Company will be: (a) the Royalty
(as defined below); (b) indebtedness arising in respect of the financing
contemplated in Section 8.9 hereof; and (c) the Senior Notes (which will be
discharged as contemplated in Section 6.15 hereof); and (ii) at the Closing the
Purchaser shall have received: (a) the return of all promissory notes and
similar instruments evidencing any such Total Debt; (b) written evidence,
satisfactory to the Purchaser in its reasonable discretion (and executed by the
holder thereof), that the holder of any Total Debt to whom any such payment was
made acknowledges that such payment is in full and complete satisfaction of all
indebtedness owing by the Company to such person; and (c) appropriate
documentation in recordable form evidencing the release of all associated liens
and security interests, including, without limitation, the deed of trust
encumbering the Owned Real Property. In discharging any such indebtedness the
Participating Stockholders may, upon prior written notice to the Purchaser by
the Sellers Representative, apply the Total Cash and the proceeds of the
financing contemplated in Section 8.9 hereof (up to an aggregate (together with
amounts to be paid pursuant to Section 6.15) of $382 million) thereto, but the
same may not be used to satisfy the obligations of the Participating
Stockholders under the following paragraph, except to the extent that all such
amounts so utilized will reduce Total Cash for purposes of determining the
Purchase Price.
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On or prior to the Closing Date the Participating
Stockholders, jointly and severally, will: (i) cause the Company to discharge
the Eli Lilly Obligation (and any amounts used for such payments will reduce
Total Cash); or (ii) will enter into such agreements and make escrow
arrangements (and any amounts used for such purpose will reduce Total Cash) as
are necessary to acknowledge the obligation of the Participating Stockholders to
make such payments and to fully secure such payments, in form and substance
reasonably acceptable to Purchaser.
6.15. SENIOR NOTES. The Participating Stockholders will
arrange for the Senior Notes to be purchased in a transaction (the "Notes
Transaction") that will occur immediately following the Effective Time. The
Notes Transaction will be conducted through a combined consent solicitation and
tender offer (collectively, the "Tender Offer") made in compliance with
applicable law and any agreements to which the Company is a party, pursuant to
documentation reasonably satisfactory to the Purchaser and the Operating Co.
That documentation will include a consent (the "Consent") to the amendment of
the indenture governing the Senior Notes so as to permit the Merger and the
Combination and all other transactions contemplated herein and any other related
matters necessary in connection therewith. It shall be a condition of the Tender
Offer that the Merger shall have occurred and that the Consent shall have been
obtained from all necessary persons in a manner so that it will be effective to
constitute an amendment of the indenture. The Consent will provide that it will
terminate in the event that the Tender Offer is not consummated promptly
following the Effective Time. The bidder in the Tender Offer will be the
Operating Co. (except as otherwise contemplated herein).
The documents implementing the Tender Offer will provide that
the bidder thereunder has the right to assign its right to purchase the Senior
Notes under the Tender Offer (and all other rights under all associated
documents) to any person designated by the Operating Co. Upon notice to the
Operating Co. prior to the Effective Time, the Purchaser may designate the
Purchaser, Advanced Medical or any of its subsidiaries to complete such purchase
and the Operating Co. will assign all such rights to such designee (who will
assume all related obligations) pursuant to documentation reasonably
satisfactory to the Operating Co. and the Purchaser.
The Operating Co. will provide notice to the Purchaser at
least seven (7) business days prior to the commencement of the Tender Offer. The
Purchaser may (by notice to the Operating Co. prior to the commencement of the
Tender Offer), in its discretion, elect to act as the bidder in the Tender
Offer. In such event, the Operating Co. and the Purchaser shall cooperate with
one another to complete the Tender Offer as contemplated herein and otherwise
take such actions as are contemplated herein with respect to a Tender Offer or
are reasonably necessary in connection therewith.
In the event and to the extent that any Senior Notes are not
properly tendered in the Tender Offer and subject to purchase thereunder
immediately following the Effective Time in accordance
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with the provisions of the offering documents and applicable law, the
Participating Stockholders will arrange for such Senior Notes to be defeased
immediately following the Effective Time in a manner in compliance with
applicable law and any agreements to which the Company is a party, pursuant to
documentation reasonably satisfactory to the Purchaser and the Operating Co.
Immediately prior to the Effective Time, for the purpose of
determining the "Purchase Price", the Purchaser and the Sellers Representative
will review the results of the Tender Offer and agree upon those amounts
contemplated in clause (ii)(B) of the definition of "Purchase Price" in Section
1.8 hereof with respect thereto and with respect to any defeasance thereof.
6.16. OVERSEAS CASH. The Operating Co. covenants and agrees
that on the Closing Date the total cash and cash equivalents of all non-United
States persons included in the definition of the "Company" will not exceed an
amount equivalent to approximately U.S. $5 million.
6.17. WELMED/SIEMENS/ELI LILLY. The Participating
Stockholders, jointly and severally, hereby represent, warrant, covenant and
agree that:
(a) Except as set forth on Part I(a) of Schedule 6.17 hereof,
the Company is not a party to any agreement with Welmed Limited and its
Affiliates. Except as set forth on Part I(b) of Schedule 6.17, the Company has
no further duty, obligation or liability (vested or unvested, contingent or
fixed, actual or potential, known or unknown), for any purchase price,
adjustment to purchase price, contingent purchase payment, earnout, benchmark
payment, bonus, overachievement, royalty, or similar arrangement whether under
Section 3 of agreement number 1 set forth in Part I(a) of Schedule 6.17 or
otherwise, to Welmed Limited or any of its Affiliates, or any other person in
respect thereof. On or prior to the Closing Date the Participating Stockholders,
jointly and severally, will cause the Company to discharge all amounts referred
to on Part I(b) of Schedule 6.17 or will enter into such agreements and make
escrow arrangements as are necessary to acknowledge the obligation of the
Participating Stockholders to make such payments and to fully secure such
payments, in form and substance reasonably acceptable to Purchaser.
(b) Except as set forth on Part II of Schedule 6.17 hereof,
the Company is not a party to any agreement with Siemens Corporation
("Siemens"), Siemens Infusion Systems, Ltd. ("SIS") or their respective
Affiliates. Except for the obligation set forth in Section 2.02(a)(v) (the
"Royalty") of agreement number 1 listed on Schedule 6.17 hereof, the Company has
no further obligation or liability (vested or unvested, contingent or fixed,
actual or potential, known or unknown), for any purchase price, adjustment to
purchase price, contingent purchase payment, earnout, benchmark payment, bonus,
overachievement, royalty, or similar arrangement to Siemens, SIS or their
respective Affiliates, or any other person in respect thereof. As of the date
hereof, all amounts due and
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payable through the date hereof in respect of the Royalty have been paid in full
and through the Closing Date all amounts due and payable in respect of the
Royalty will be paid in full;
(c) Except as set forth on Part III of Schedule 6.17 hereof,
the Company is not a party to any agreement with Eli Lilly or its Affiliates.
Except for those included in the Eli Lilly Obligation, the Company has no
further obligation for any purchase price, adjustment to purchase price,
contingent purchase payment, earnout, benchmark payment, bonus, overachievement,
royalty or similar arrangement, whether under Article 2 of agreement number 6
set forth on Part III of Section 6.17 or otherwise to Eli Lilly or its
Affiliates, or any other person in respect thereof. Except for obligations
included in the Eli Lilly Obligation: (i) pursuant to Section 10.03 of the 1994
Stock Purchase Agreement; and (ii) under the cash collection agreements set
forth as agreement numbers 16 and 17 on Schedule 6.17 hereof, the Company has no
further obligation or liability (vested or unvested, contingent or fixed, actual
or potential, known or unknown) under such agreements.
6.18. REAL ESTATE MATTERS. The Company will, and the
Participating Stockholders will cause the Company to, use reasonable commercial
efforts, at the request of the Purchaser, to obtain estoppel certificates and
non-disturbance agreements with respect to all of the real property leased by
the Company.
6.19. NOTICE TO STOCKHOLDERS. Promptly (and in no event later
than five (5) business days following the date hereof) the Holding Co. shall
provide to the stockholders of the Holding Co. (in accordance with the terms of
its governing documents and the provisions of applicable law) the notices
required and contemplated under Sections 228(d) and 262(d)(2) of the DGCL with
respect to the approval of the Merger by the written consent of stockholders of
the Holding Co. A copy of such notice shall be delivered to Purchaser pursuant
to Section 12.4 of this Merger Agreement.
6.20. COVERED PERIOD. The Participating Stockholders covenant
and agree that the Company, for all taxable years commencing on or after January
1, 1996 and ending on or before the Closing Date, will not have aggregate
amounts due in respect of the alternative minimum tax under Section 55 of the
Code, in excess of approximately $350,000.
6.21. BENEFITS. At or prior to the Effective Time, the
Operating Co. will adopt a severance plan for its employees in accordance with
Schedule 6.21 and will adopt such other employee retention and similar programs
as are mutually agreed by the Purchaser and the Operating Co.
6.22. CASH FLOW STATEMENTS. Prior to the expiration of
forty-five (45) days following the date hereof, the Holding Co. will deliver,
and the Participating Stockholders will cause the Holding Co. to deliver, to the
Purchaser, a special purpose statement of cash flows prepared in accordance with
GAAP (absent
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footnotes) setting forth the cash flows of the Holding Co. for the year ended
December 31, 1995 (the "Special Purpose Statement of Cash Flows (1995)") and for
the six month period ended June 30, 1996 (the "Special Purpose Statement of Cash
Flows (1996)"), in each case as if River was not part of the Company during such
periods. The Holding Co., the Operating Co. and the Participating Stockholders
hereby represent and warrant that the Special Purpose Statement of Cash Flows
(1995) and Special Purpose Statement of Cash Flows (1996) will fairly present
the cash flows of the Company for such periods as if such event had taken place
and will be consistent: (i) in the case of the Special Purpose Statement of Cash
Flows (1995), with the Special Purpose Balance Sheet (1995) and the Special
Purpose Statement of Operations (1995), and (ii) in the case of the Special
Purpose Statement of Cash Flows (1996), with the Special Purpose Balance Sheet
(1996) and the Special Purpose Statement of Operations. The Special Purpose
Statement of Cash Flows (1995), together with the Special Purpose Balance Sheet
(1995) and Special Purpose Statement of Operations (1995), are referred to
herein as the "Special Statements (1995)." The Special Purpose Statement of Cash
Flows (1996), together with the Special Purpose Balance Sheet (1996) and the
Special Purpose Statement of Operations (1996), are referred to herein as the
"Special Statements (1996)"). The Special Purpose Statement of Cash Flows (1995)
and the Special Purpose Statement of Cash Flows (1996) will be deemed to have
been delivered on the date hereof with the same effect as if they had been
delivered on such date.
6.23. RECALL. Through the Closing Date the Company shall, and
the Participating Stockholders will cause the Company to, use commercial best
efforts (provided that "commercial best efforts" shall not be deemed to require
payment of money in excess of amounts which would be commercially reasonable
under the circumstances) to complete the Signature Recall as promptly as
practicable and, in connection therewith, will: (i) pay all amounts which the
Company has agreed, or prior to the Closing Date does agree, to pay to customers
as appeasement payments with respect to the Signature Product as promptly as
practicable; (ii) pay all other amounts necessary to complete the Signature
Recall in the ordinary course of business; and (iii) satisfy all other
obligations with respect to the Signature Product as agreed to by the Company in
the ordinary course of business.
Through the Closing Date the Company shall, and the
Participating Stockholders will cause the Company to, use commercial best
efforts (provided that "commercial best efforts" shall not be deemed to require
payment of money in excess of amounts which would be commercially reasonable
under the circumstances) to complete the Welmed Safety Alert as promptly as
practicable and, in connection therewith, will: (i) pay all amounts which the
Company has agreed, or prior to the Closing Date does agree, to pay to customers
as appeasement payments with respect to the Welmed Product as promptly as
practicable; and (ii) pay all other amounts necessary to complete the Welmed
Safety Alert in the ordinary course of business; and (iii) satisfy all other
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obligations with respect to the Welmed Product as agreed to by the Company in
the ordinary course of business.
6.24. OPTION CANCELLATION AGREEMENT. The Participating
Stockholders and the Company shall use commercial best efforts (provided that
"commercial best efforts" shall not be deemed to require payment of money in
excess of amounts which would be commercially reasonable under the
circumstances) to obtain from all holders of Outstanding Options executed Option
Cancellation Agreements (in the form of Exhibit 8 or 9 hereof, as appropriate)
which will be delivered to Purchaser or IMED Merger Sub prior to the Closing
Date. The Participating Stockholders and the Company agree not to enter into any
agreement to provide any holder of Outstanding Options an alternative to either:
(i) the Option Cancellation Agreement; or (ii) exercise of the Options in
accordance with their terms as of the date hereof. The Participating
Stockholders represent, warrant, covenant and agree that, as of the date hereof,
Mr. William J. Mercer has executed and delivered to the Company an Option
Cancellation Agreement in the form of Exhibit 6 hereto and Mr. Gregory E.
Sancoff and Mr. Albert Henry have executed and delivered to the Company an
Option Cancellation Agreement in the form of Exhibit 7 hereto, in each case with
respect to all Outstanding Options beneficially owned by such persons.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF EACH PARTY
The obligations of each party to consummate the transactions
contemplated hereby shall be subject to the fulfillment, at or prior to the
Closing Date, of the following conditions:
7.1. NO ACTION OR PROCEEDING. No claim, action, suit or other
proceeding shall be pending or threatened by any public authority or private
person before any court, agency or administrative body which in the opinion of
counsel to either Purchaser or any Participating Stockholder creates a
substantial likelihood that the consummation of this Agreement or, the Merger or
the transactions contemplated hereby will be restrained, enjoined or otherwise
prevented or that any damages will be recovered or other relief obtained as a
result of the transactions contemplated hereby or as a result of any agreement
entered into in connection with, or as a condition precedent to, the
consummation of the transactions contemplated hereby.
7.2. COMPLIANCE WITH LAW. No provision of any applicable law
and no judgment, injunction, order or decree shall prohibit the Closing.
7.3. HART-SCOTT-RODINO REQUIREMENTS. The waiting periods (as
such may be extended by the governmental agencies involved) applicable to the
consummation of the transactions contemplated
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hereby under the provisions of the HSR Act, and the rules thereunder shall have
expired or have been terminated by the appropriate governmental agency.
ARTICLE VIII
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser and IMED Merger Sub to consummate
the Merger and the transactions contemplated by this Agreement and the Documents
shall be subject to the satisfaction, on or before the Closing, of each of the
following conditions:
8.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by any or all of the Participating Stockholders, the Holding Co.
and/or the Operating Co. in this Agreement (including all Exhibits and Schedules
hereto) and in the Documents executed and delivered by any Participating
Stockholder, the Holding Co. or the Operating Co., shall be true and correct on
the date hereof and on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date, except that any such
representations or warranties made with reference to a specified date shall have
been true on and with reference to such date and except for breaches of any such
representations or warranties that do not have, and could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
8.2. ABSENCE OF CERTAIN CHANGES. The representations and
warranties made by the Holding Co. and the Operating Co. in the first sentence
of Section 3.9 of this Agreement shall be true and correct in all respects on
the date hereof and on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date.
8.3. PERFORMANCE. With respect to agreements, covenants,
obligations and conditions required to be performed or complied with by any or
all of the Participating Stockholders, the Holding Co. and/or the Operating Co.
on or prior to the Closing Date, the Participating Stockholders, the Holding Co.
and the Operating Co. shall have performed in all material respects (except that
any thereof which, by the terms thereof, are qualified so as to require material
performance or compliance must be performed and complied with as written), each
such agreement, covenant, obligation and condition.
8.4. AUTHORITY. All action required to be taken by, or on the
part of, each Participating Stockholder and the Holding Co. to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby (including, without limitation, the Merger)
shall have been duly and validly taken by each Participating Stockholder, the
Board of Directors or other appropriate body of any Participating Stockholder
and the Board of Directors and stockholders of the Holding Co.
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8.5. OPINION OF COUNSEL. Purchaser shall have been furnished
with an opinion of counsel, dated the Closing Date in form attached hereto as
Exhibit 2.
8.6. APPROVALS AND FILINGS. All approvals, consents,
authorizations, permits, licenses and approvals from, and all declarations,
filings and registrations with, third parties and government agencies set forth
on: (i) Part I of Schedule 8.6 hereof, shall have been obtained or made, shall
be in full force and effect and shall be reasonably satisfactory in form and
substance to the Purchaser and its counsel (both with respect to the Merger and
the Combination); and (ii) Part II of Schedule 8.6 shall have been obtained or
made, shall be in full force and effect and shall be reasonably satisfactory in
form and substance to the Purchaser and its counsel (both with respect to the
Merger and the Combination) (except to the extent that the failure to receive
the same, individually or in the aggregate, will not result in a Material
Adverse Effect), or if such failure would have a Material Adverse Effect, the
Purchaser shall have received an indemnity (in a form and substance reasonably
satisfactory to the Purchaser) from the Participating Stockholders, jointly and
severally, with respect to all of the same not obtained.
8.7. FIRPTA CERTIFICATES. The Company shall have delivered to
Purchaser, at least 5 days prior to the Closing Date, an affidavit by Holding
Co., dated not more than 20 days prior to the Closing Date, certifying, under
penalty of perjury, that Holding Co. is not and has not been a United States
real property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code,
and that, as of the Closing Date, interests in Holding Co. are not United States
real property interests (within the meaning of Section 897(c)(1) of the Code).
The aforementioned affidavit shall be in the form and meet the requirements
prescribed by the Code and the applicable Treasury Regulations (and shall be
acceptable to the Purchaser).
8.8. CERTIFICATES. The Participating Stockholders, the Holding
Co., and the Operating Co. shall have furnished to Purchaser in connection with
the transaction contemplated herein, such certificates to evidence compliance
with the conditions set forth in this Agreement as may be reasonably requested
by Purchaser, including, without limitation, a certificate of William J. Mercer
(in his capacity as President and Chief Executive Officer) (or if he is
unavailable, another person reasonably acceptable to Purchaser) and other
appropriate officers of any Participating Stockholder, the Holding Co., and the
Operating Co. stating that the conditions set forth in Sections 8.1, 8.2, 8.3
and 8.4 have been satisfied, and certifying as to: (i) the due authorization and
approval of this Agreement and the Documents executed and delivered by such
Participating Stockholder, the Holding Co. or the Operating Co.; (ii) copies of
the Company's governing documents, by-laws and resolutions and (iii) the
incumbency and specimen signature of the officer executing the Agreement and the
Documents to be executed by each Participating
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Stockholder and the Holding Co., and a certification by another officer of such
Participating Stockholder and the Holding Co., as the case may be, as the
incumbency and specimen signature of the person executing such certificate.
8.9. FINANCINGS. Purchaser shall have obtained all debt
financing contemplated in the Commitment Letters, together with the subordinated
indebtedness contemplated in Section 6.4 hereof.
8.10. RESIGNATION. Participating Stockholders shall have
delivered to Purchaser, in form and substance reasonably satisfactory to
Purchaser and its counsel, resignations of the following members of the board of
directors of the Company: Samuel Collela, Karl Wyss, Reid Perper, and Thompson
Dean, and terminations with respect to all powers of attorney and agency
relationships specified by Purchaser prior to the Closing, in each case
effective as of the Closing Date and resignations of members of the board of
directors of each entity listed on Schedule 3.4 as requested by the Purchaser.
8.11. MAXIMUM INDEBTEDNESS. The Total Debt shall not exceed
$380 million.
8.12. SIGNATURE AUTHORITY. The Company shall have taken all
action satisfactory to Purchaser to cause the termination of the power of Mr.
Gregory E. Sancoff and such other persons as shall be requested by the Purchaser
in writing, to borrow, discount debt obligations, cash or draw checks or
otherwise act on behalf of the Operating Co. with respect to the bank accounts
listed on Schedule 3.1(f).
8.13. WAIVER OF RIGHTS. At the Closing, each stockholder and
holder of Options of the Holding Co. listed on Schedule 8.13, and each of the
members of the board of directors of the Company listed on Schedule 8.13 and
each Affiliate of DLJ that is a party to any agreement with the Company, shall,
on behalf of itself and its Affiliates, waive and release any and all rights
(including any right to indemnity) and claims they may have against the Company,
whether asserted or unasserted, fixed or contingent, known or unknown, arising
out of or related to their status as stockholders of the Company or otherwise
and terminate all of their agreements with the Company, by providing to
Purchaser a release in the form of Exhibit 3 hereto and shall deliver to
Purchaser the originals of all instruments evidencing any such indebtedness or
obligation.
8.14. [Reserved].
8.15. SPECIAL STATEMENT. The Participating Stockholders shall
have satisfied their obligation under Section 6.22 hereof.
8.16. STOCKHOLDERS AGREEMENTS. Each stockholders agreement,
voting trust, voting agreement or other similar agreement between any
stockholder of the Holding Co. and the
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Company (including, without limitation, those listed on Schedule 2.1 hereof)
shall have been terminated.
8.17. INDEBTEDNESS. The Participating Stockholders shall have
satisfied their obligations in Section 6.14 hereof.
8.18. AUDITED FINANCIAL STATEMENTS. The Company shall have
furnished to the Purchaser a copy of audited financial statements (including a
balance sheet, statement of operations and statement of cash flow) of the
Holding Co. for the period ended December 31, 1995, prepared in accordance with
GAAP and prepared as if River was not a part of the Company during 1995, which
will be consistent with the Special Statements (1995).
8.19. CERTIFICATE OF INCORPORATION. The certificate of
incorporation of the Holding Co. shall have been amended pursuant to the
amendment attached hereto as Exhibit 4 hereof.
8.20. CONVERSION. All of the requirements set forth in Article
Four, clauses (f) and (g) of the Amended and Restated Certificate of
Incorporation of the Holding Co. shall have been completed prior to the
Effective Time and, immediately prior to the Effective Time, all outstanding
shares of the Class B Common Stock of the Holding Co. shall have been converted
into shares of Class A Common Stock of the Holding Co. and the Sellers
Representative shall have provided to the Purchaser a certificate: (i)
confirming the foregoing; and (ii) certifying (a) that an Equity Liquidation
Event (as defined therein) has occurred; (b) the amount of the Common Equity
Valuation (as defined therein); and (c) the number of shares of Class B Common
Stock so converted and the number of shares of Class A Common Stock into which
they have been converted and the names of the stockholders thereof.
8.21. TENDER OFFER. The obligations with the Participating
Stockholders and the Company under Section 6.15 hereof shall have been
satisfied, and the Purchaser shall be reasonably satisfied that the Tender Offer
can be completed (and any defeasance contemplated in Section 6.15 accomplished)
in accordance with the terms thereof and of Section 6.15, immediately following
the Effective Time, solely by the payment of the amounts contemplated in the
Tender Offer.
8.22. SUBSIDIARY SHARES. Purchaser shall have received the
original stock certificates representing all of the issued and outstanding
shares of all entities included in the Company other than those issued by the
Holding Co., and the same shall be free and clear of all Encumbrances.
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ARTICLE IX
CONDITIONS TO PARTICIPATING STOCKHOLDERS' OBLIGATIONS
The obligations of each Participating Stockholder and the
Holding Co. to consummate the Merger and the transactions contemplated by this
Agreement and the other Documents shall be subject to the satisfaction, at or
before the Closing, of each of the following conditions:
9.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Purchaser and/or IMED Merger Sub in this Agreement (including
all exhibits and schedules hereto), and in the Documents executed and delivered
by the Purchaser or the IMED Merger Sub shall be true and correct, on the date
hereof and on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date, except that any such representation
or warranty made with reference to a specified date shall have been true on and
with reference to such date and except for any breaches of any such
representations or warranties that do not have and could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
9.2. PERFORMANCE. With respect to agreements, covenants,
obligations and conditions required to be performed or complied with by
Purchaser and/or IMED Merger Sub on or prior to the Closing Date, Purchaser and
IMED Merger Sub shall have performed in the aggregate, in all material respects
(except that any thereof which, by the terms thereof, are qualified so as to
require material performance or compliance must be performed and complied with
as written), each such agreement, covenant, obligation and condition.
9.3. AUTHORITY. All action required to be taken by, or on the
part of, the Purchaser and IMED Merger Sub to authorize the execution, delivery
and performance of this Agreement by Purchaser and IMED Merger Sub and the
consummation of the transactions contemplated hereby (including, without
limitation, the Merger) shall have been duly and validly taken by the Purchaser
and IMED Merger Sub.
9.4. OPINION OF PURCHASER'S COUNSEL. The Sellers
Representative shall have been furnished with an opinion or opinions of counsel,
dated the Closing Date in the form of Exhibit 5 hereto.
9.5. APPROVALS AND FILINGS. All Approvals, consents,
authorizations and approvals from, and all declarations, filings and
registrations with, third parties and government agencies, specified on Schedule
9.5 hereto shall have been obtained or made, shall be in full force and effect
and shall be satisfactory in form and substance to the Participating
Stockholders and their counsel.
9.6. CERTIFICATES. Purchaser shall have furnished such
certificates of its officers and others to evidence compliance with the
conditions set forth in this Agreement, as may be reasonably
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requested by the Sellers Representative including, without limitation,
certificates of the secretary of Purchaser stating that the conditions set forth
in Sections 9.1, 9.2 and 9.3 have been satisfied and including appropriate
certification of By-Laws, articles of incorporation, corporate resolutions and
incumbency.
9.7. CONSIDERATION. The Purchaser shall have deposited with
the Holding Co. the Merger Consideration and (net of applicable withholding
Taxes, if any) the Total Option Cancellation Amount.
ARTICLE X
TERMINATION
10.1. TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date as follows and in no other manner:
1. by mutual consent of the Board of Directors of Purchaser
and the Sellers Representative.
2. by the Sellers Representative by written notice to the
Purchaser, if: (A) any condition to the obligation of the Participating
Stockholders and the Holding Co. to close contained in Articles VII or
IX hereof has not been satisfied by January 31, 1997 (the "End Date")
(unless such failure is the result of any Participating Stockholder's,
the Holding Co.'s or the Operating Co.'s breach of any of its
representations, warranties, covenants or agreements contained herein);
or (B) if by the End Date, the conditions to the obligations of
Purchaser and IMED Merger Sub to close contained in Articles VII and
VIII hereof (except for those which have not been satisfied as a result
of a breach by Purchaser of any of its representations, warranties,
covenants or agreements contained herein) have been satisfied (or have
been waived) and each Participating Stockholder and the Holding Co. is
ready, willing and able to engage in the Closing but Purchaser and IMED
Merger Sub fail to engage in the Closing.
3. by the Purchaser or IMED Merger Sub by written notice to
the Sellers Representative, if: (A) any condition to its obligation to
close contained in Article VII or VIII hereof have not been satisfied
by the End Date (unless such failure is the result of the Purchaser's
breach of any of its representations, warranties, covenants or
agreements contained herein); or (B) if by the End Date, the conditions
to the obligations of each Participating Stockholder and the Holding
Co. to close contained in Articles VII and IX hereof (except for those
which have not been satisfied as a result of a breach by any
Participating Stockholder, the Holding Co. or the Operating Co. of any
of its representations, warranties, covenants or agreements contained
herein) have been satisfied
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(or have been waived) and Purchaser and IMED Merger Sub are ready,
willing and able to engage in the Closing but any Participating
Stockholder or the Holding Co. fails to engage in the Closing.
4. by the Purchaser by written notice to the Sellers
Representative delivered on or prior to the expiration of seven (7)
business days following the expiration of sixty (60) days following the
date hereof, in the event of the occurrence of any change or changes in
general economic or political conditions generally or in general
economic or political conditions applicable to the health care industry
generally, that results in a Material Adverse Effect.
5. by the Purchaser by written notice to the Sellers
Representative delivered on or prior to the expiration of seven (7)
business days following the expiration of sixty (60) days following the
date hereof, in the event that the Purchaser determines, in its
reasonable discretion, that matters arising under any Environmental
Laws, or with respect to any Hazardous Material, Regulated
Environmental Activity or Release, which relates to the Company, will
have or are likely to have, a Material Adverse Effect.
6. by the Sellers Representative, by written notice to the
Purchaser, if there is an occurrence not constituting a breach of any
representation, warranty, covenant or agreement by any Participating
Stockholder, the Holding Co. or the Operating Co. and, as a result of
such occurrence, it is highly unlikely that the Closing will occur.
7. by the Purchaser, by written notice to the Sellers
Representative, if there is an occurrence not constituting a breach of
any representation, warranty, covenant or agreement by the Purchaser or
the Merger Sub and, as a result of such occurrence it is highly
unlikely that the Closing will occur.
10.2. EFFECT OF TERMINATION. (a) If termination of this
Agreement shall result from:
(i) the willful failure of any of the Participating
Stockholders, the Holding Co. or the Operating Co. to
fulfill a condition to the performance of the obligations
of the Purchaser or IMED Merger Sub;
(ii) willful failure of any of the Participating
Stockholders, the Holding Co. or the Operating Co. to
perform a covenant or agreement of this Agreement; or
(iii) willful breach by any of the Participating
Stockholders, the Holding Co. or the Operating Co. of any
representation or warranty contained herein which,
individually or in the aggregate, had or would reasonably be
expected to have, a Material Adverse Effect,
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each of the Participating Stockholders, Holding Co. and Operating Co. shall,
jointly and severally, be fully liable for any and all damage, loss, liability
and expense (including without limitation reasonable expenses of investigation,
reasonable attorneys' fees and fees and expenses incurred in connection with
obtaining financing or commitments thereto and all financial advisory and
accounting fees) incurred or suffered by the Purchaser and its Affiliates as a
result of such failure or breach.
(b) If termination of this Agreement shall result from:
(i) the willful failure of the Purchaser to fulfill a
condition to the performance of the obligations of the
Participating Stockholders, Holding Co. or Operating Co.;
(ii) willful failure of the Purchaser to perform a
covenant or agreement of this Agreement; or
(iii) the willful breach by the Purchaser of any
representation or warranty which, individually or in the
aggregate, had or would reasonably be expected to have, a
Material Adverse Effect,
the Purchaser shall be fully liable for any and all damage, loss, liability and
expense (including without limitation reasonable expenses of investigation and
reasonable attorneys' fees and financial advisory and accounting fees) incurred
or suffered by the Participating Stockholders, Holding Co. or Operating Co. as a
result of such failure or breach.
The provisions of Section 6.2(b) and 12.8 shall survive any
termination hereof pursuant to this Article X.
10.3. "SELLERS REPRESENTATIVE" shall mean DLJ or any successor
thereof.
ARTICLE XI
NATURE AND SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION, ETC.
11.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. All
representations and warranties of the parties set forth in this Agreement shall
terminate immediately upon the Closing and shall be of no further force and
effect, provided that the representations and warranties made by any of the
Participating Stockholders, the Operating Co. and the Holding Co. contained in
Sections 2.1, 2.2, 3.2(b), 3.3, 3.20 and 6.17 and the representations and
warranties made by the Purchaser or IMED Merger Sub in 4.1, 4.2 and 4.5 shall
survive indefinitely (or if indefinite survival is not permitted by law, then
for the maximum period permitted by applicable law). All such representations
and warranties shall be deemed to have been given and made on the date hereof
and as of the Closing Date. Except as set forth herein, all of the covenants,
agreements and
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obligations of the parties hereto, hereunder and under any of the Documents,
shall survive the Closing indefinitely (or if indefinite survival is not
permitted by law, then for the maximum period permitted by applicable law).
11.2. PARTICIPATING STOCKHOLDERS' AGREEMENT TO INDEMNIFY. The
Participating Stockholders, jointly and severally, shall fully defend, indemnify
and hold harmless Purchaser and IMED Merger Sub and, effective from and after
the Closing without duplication, the Purchaser and IMED Merger Sub and the
Company and their respective Affiliates and their respective officers,
directors, employees and agents, against and in respect of any and all
liabilities, losses, damages, deficiencies, Taxes or expenses (including,
without limitations, the reasonable expenses of investigation and reasonable
fees and expenses of counsel) ("Losses") resulting from, arising out of, or in
connection with: (i) any misrepresentation or breach of warranty made (or deemed
to have been made pursuant to Section 12.1) by any Participating Stockholder in
Sections 2.1, 2.2, 3.2(b), 3.3, 3.20 or 6.17 of this Agreement, (ii) any breach
by any Participating Stockholder of any covenant or agreement made (or deemed to
have been made pursuant to Section 12.1) under this Agreement or in any Document
executed and delivered by any Participating Stockholder, (iii) any River Medical
Liabilities (as defined below), and (iv) any and all actions, suits,
proceedings, claims, demands, assessments, judgements, costs and expenses
incident to any of the foregoing. The foregoing notwithstanding, the
Participating Stockholders shall have no obligation to provide indemnity under
this Section 11.2 with respect to any breach of the obligations set forth in
Section 5.1 hereof until all Losses with respect thereto exceed $300,000 (the
"Minimum Amount"), provided however that in the event that such Losses do exceed
the Minimum Amount, the obligations of the Participating Stockholders to provide
indemnification hereunder shall thereafter include all Losses resulting from any
such breach, including, without limitation, those included in the Minimum
Amount. "River Medical Liabilities" means any and all liabilities or Losses
(which, for this purpose shall include appropriate allocations of operating
costs and overhead) of, relating to or imposed upon the Company, Purchaser, IMED
Merger Sub or any of their respective Affiliates, as the case may be, whether
vested or unvested, contingent or fixed, actual or potential, known or unknown
to the extent relating to River or any of the activities or business, plans or
policies thereof, including, without limitation, any such liability or Loss
relating to or arising in respect of the assumed River Medical, Inc. stock
option plan, any lease of real property by River, all obligations under the
letter agreement (the "Cooley Letter") dated June 20, 1996, among River and
Cooley Godward Castro Huddleson & Tatum (attorneys for Hillenbrand Industries,
Inc., Block Medical, Inc., Lonnie Smith and W. August Hillenbrand) and certain
other persons named therein, or any breach of any representation, warranty,
covenant or agreement set forth in Section 6.13 hereof or relating to or
resulting from any transaction or event contemplated or engaged in pursuant to
Section 6.13 hereof or any actions taken
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or not taken, by the Company with respect to River, its operations or business
including, without limitation, all obligations to employees or former employees
(including those whose activities for the Company were required by or were
dedicated substantially to, the activities relating to the conduct of the
business or activities of River) in respect of any compensation, severance,
COBRA obligation or Benefit Plans or otherwise.
11.3. PURCHASER'S AGREEMENT TO INDEMNIFY. Purchaser shall
fully defend, indemnify and hold harmless each Participating Stockholder, its
officers, directors, employees and agents, against and in respect of (A) any
Losses resulting from (i) any misrepresentation or breach of warranty by
Purchaser in Sections 4.1, 4.2 and 4.5 of this Agreement, (ii) any breach by
Purchaser of any covenant or agreement made in this Agreement or in any Document
executed and delivered by Purchaser or IMED Merger Sub and (iii) the ownership
and operation of the Business (exclusive of any River Medical Liabilities) (but
not including any such Loss to the extent such Loss arises out of, in whole or
in part, any matter which constitutes a misrepresentation or breach or warranty
of any Participating Stockholder made in this Agreement), and (B) any Losses
resulting from any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses incident to any of the foregoing.
11.4. THIRD PARTY CLAIMS. Promptly after the receipt by any
party hereto of notice of any claim, action, suit or proceeding of any third
party which is subject to indemnification hereunder, such party (the
"Indemnified Party") shall give written notice of such claim to the party
obligated to provide indemnification hereunder (there "Indemnifying Party"),
stating the nature and basis of such claim and the amount thereof, to the extent
known. Failure of the Indemnified Party to give such notice shall not relieve
the Indemnifying Party from any liability which it may have on account of this
indemnification or otherwise, except to the extent that the Indemnifying Party
is materially prejudiced thereby (except that the Indemnifying Party shall not
be liable for any expense incurred during the period in which the Indemnified
Party failed to give such notice). So long as the Indemnifying Party provides
assurances, reasonably acceptable to the Indemnified Party, that the
Indemnifying Party is capable of satisfying all Losses that may arise in respect
of any matter, the Indemnifying Party shall be entitled to elect to participate
in the defense of and, if it so chooses, to assume the defense of such claim,
action, suit or proceeding with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party. Upon any such election by the
Indemnifying Party to assume the defense of such claim, action, suit or
proceeding, the Indemnifying Party shall not be liable for any legal or other
expenses subsequently incurred, by the Indemnified Party in connection with the
defense, thereof, provided that the Indemnified Party may, at its option
participate in such defense and employ counsel, at its own expense, separate
from the counsel employed by the Indemnifying Party. The Indemnifying Party
shall be liable for the fees and expenses of counsel employed by the Indemnified
Party for any period in which the Indemnifying Party has not assumed the defense
thereof (other
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than during any period in which the Indemnified Party failed to give the notice
provided above). The parties shall use commercially reasonable efforts to
minimize Losses from claims by third parties and shall act in good faith in
responding to defending against, settling or otherwise dealing with such claims,
notwithstanding any dispute as to liability as between the parties under this
Article XI. The parties shall also cooperate in any such defense, give each
other full access to all information relevant thereto and make employees and
other representatives available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
Whether or not the Indemnifying Party shall have assumed the defense, the
Indemnifying Party shall not be obligated to indemnify the other party hereunder
for any settlement entered into without the Indemnifying Party's prior written
consent, which consent shall not be unreasonably withheld or delayed. The
Indemnifying Party shall not settle any claim without the prior written consent
of the Indemnified Party, which consent shall not unreasonably withheld or
delayed.
11.5. EFFECT OF TAXES AND INSURANCE. The amount of
any Losses for which indemnification is provided under this Article XI shall be
reduced to take account of any net Tax benefit realized and shall be increased
to take account of any net Tax detriment realized arising from the incurrence or
payment of any such Losses or from the receipt of any such indemnification
payment and shall be reduced by the insurance proceeds received and any other
amount, if any, recovered from third parties by the Indemnified Party (or its
affiliated entities) with respect to any Losses. The Indemnified Party shall be
obligated to use all commercially reasonable efforts to prosecute diligently and
in good faith claims under any applicable insurance policies (including, without
limitation, any applicable insurance policies maintained by the Company) and
against other third parties who may be responsible for Losses prior to
collecting indemnification for such Losses under this Article XI; provided,
however, that if the Indemnified Party has not received payment from an insurer
or other third party within one year after it has given such insurer or other
third party written notice of such claim, (or, if the Indemnified Party shall
have received notice that it will receive no such payment, immediately after the
receipt of such notice) the Indemnified Party shall be entitled to collect
indemnification in respect of such claim to the extent that it is otherwise
entitled to payment under this Article XI; provided, however, that with respect
to any River Medical Liabilities the Participating Stockholders shall be
required to make all indemnity payments upon demand and the Purchaser will pay
over to the Sellers Representative all amounts collected as contemplated above
in respect of such matter to the extent all such applicable indemnification
payments, in respect of such matter, have been made. If any Indemnified Party
(or its affiliated entities) shall have received any payment pursuant to this
Article XI with respect to any Loss and shall subsequently have received
insurance proceeds or other amounts with respect to such Loss, then such
Indemnified Party (or its affiliated entities) shall promptly pay over to the
Indemnifying Party the amount so recovered (after deducting the amount of the
expenses incurred by
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it in procuring such recovery), but not in excess of the amount previously so
paid by the Indemnifying Party.
11.6. PURCHASE PRICE ADJUSTMENT. Any amount paid by
Participating Stockholders or Purchaser to the other pursuant to this Article XI
will be treated for Tax purposes as an adjustment to the aggregate Merger
Consideration unless a Final Determination (as defined below) causes any such
amount not to constitute an adjustment to the aggregate Merger Consideration for
any Tax purpose. In the event of such a Final Determination, Purchaser or the
Participating Stockholders, as the case may be, shall pay an additional amount
that reflects the hypothetical Tax consequences of the receipt or accrual of
such payment, using the maximum statutory rate (or rates, in the case of an item
that affects more than one Tax) applicable to the recipient of such payment for
the relevant year. "Final Determination" shall mean with respect to Federal
Taxes, a "determination" as defined in Section 1313(a) of the Code or execution
of an Internal Revenue Service Form 870AD and, with respect to the Taxes other
than Federal Taxes, any final determination of liability in respect of a Tax
that, under applicable law, is not subject to further appeal, review or
modification through proceedings or otherwise (including the expiration of a
statute of limitations or a period for the filing of claims for refunds, amended
returns or appeals from adverse determinations.)
11.7. INTEREST. All payments required to be made
under this Article XI shall include interest at the rate of 1.5% per month (or
the maximum rate permitted by law) from the date of demand through the date of
payment.
11.8. NOL.
(a) At the time the Company files its United States
federal income tax return for the taxable year ending on the Closing Date, the
Company shall prepare a statement (the "Initial Statement") setting forth its
reasonable good faith determination of the regular net operating loss or any
carry forward thereof for United States federal income tax purposes that was
generated in taxable years beginning after December 31, 1994 and that has not
been absorbed by the Company in any taxable year ending on or prior to the
Closing Date (the "Actual NOL"). When completed, the Initial Statement shall be
delivered to the Sellers Representative for review, together with all material
work papers, calculations and other records or information used to prepare the
Initial Statement. For purposes of computing the Actual NOL, the Total Option
Cancellation Amount and the amount described in clause (ii)(A) of the definition
of "Premium Shortfall" shall not be included.
(b) If the Sellers Representative does not dispute
any matter relating to the Initial Statement or its preparation, the Initial
Statement shall for all purposes under this Agreement be deemed to set forth the
Actual NOL. If the Sellers Representative disagrees that such Initial Statement
fairly presents the Actual NOL, it shall so notify Purchaser in writing
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within thirty (30) days following receipt thereof by the Sellers Representative
and the parties will use all reasonable efforts to resolve any such disputes. If
any such dispute cannot promptly be resolved (but in any event within thirty
(30) days after submission of the written objections of the Sellers
Representative), the parties agree that they will submit the matter to Coopers &
Lybrand or, if such firm shall decline to act or is not, at the time of such
submission, independent of Participating Stockholders and Purchaser, to another
independent accounting firm of international reputation mutually acceptable to
Purchaser and Participating Stockholders (either Coopers & Lybrand or such other
accounting firm being referred to herein as the "Accounting Firm"). The
resolution of the dispute by the Accounting Firm will be conclusive and binding
upon the parties hereto, notwithstanding any later allegation or determination
of error, mistake or miscalculation, whether willful or negligent, by any
person, in connection with the determination made by the Accounting Firm. The
fees and expenses of the Accounting Firm will be paid one-half by Purchaser and
one-half by the Sellers Representative. The Initial Statement and the
information thereon, as finally determined pursuant to this subsection (b), is
hereinafter referred to as the "NOL Statement."
(c) If the Actual NOL, as set forth on the NOL
Statement, is less than the Target NOL, the Participating Stockholders, jointly
and severally will pay to the Company an amount equal to 40% of the excess of
the Target NOL over the Actual NOL.
(d) The determinations made in accordance with the
provisions of subsection (b) above shall be final and binding on each of
Purchaser and Participating Stockholders. Any payment required to be made under
subsection (c) above shall be made within five (5) business days of the
determination thereof without setoff, for any other matter, by wire transfer to
an account designated by the person entitled to receive such payment.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1. REPRESENTATIONS/COVENANTS OF THE HOLDING CO.,
THE OPERATING CO. AND PARTICIPATING STOCKHOLDERS. If the Closing occurs, all
representations and warranties (to the extent the same survive the Closing as
contemplated in Section 11.1 hereof) and all covenants and agreements of any of
the Holding Co., the Operating Co., the Company or any or all Participating
Stockholders made pursuant to this Agreement and the Documents executed and
delivered by any such persons shall be deemed to be representations and
warranties, covenants and agreements solely of each Participating Stockholder
(and not of the Holding Co., the Operating Co. or the Company) for all purposes
hereunder, including, without limitation, Article XI hereof and the
Participating Stockholders (and each of them) will be jointly and severally
liable and responsible, in accordance with the terms of this Agreement, for any
breach thereof.
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12.2. AMENDMENT AND MODIFICATION. This Agreement
may be amended, modified or supplemented only by written agreement of Purchaser
and all Participating Stockholders.
12.3. WAIVER. Any breach of any obligation,
covenant, agreement or condition contained herein shall be deemed waived by the
non-breaching party, only by a writing, setting forth with particularity the
breach being waived and the scope of the waiver, but such waiver shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
breach. No waiver shall be implied from any conduct or action of the non-
breaching party. No failure by any party in exercising any right, power or
privilege hereunder or under the Documents and no course of dealing by any party
shall operate as a waiver and any right, power or privilege hereunder or under
any Document nor shall any single or partial exercise thereof or the exercise of
any other right, power or privilege.
12.4. NOTICES. All notices, requests, demands and
other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered:
(a) If to the Participating Stockholders or the
Holding Co. or the Operating Co., to:
IVAC Holdings, Inc.
c/o DLJ Merchant Banking, Inc.
277 Park Avenue
New York, New York 10172
Attention: Thompson Dean
Facsimile No.: 212-892-7552
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John Bick, Esq.
Facsimile No.: 212-450-4800
and
IVAC Medical Systems, Inc.
10221 Wateridge Circle
San Diego, CA 92121-2733
Attention: Jay de Groot, Esq.
Facsimile No.: 619-458-6156
or to such other person or address as the Sellers Representative shall furnish
Purchaser in writing.
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(b) If to Purchaser or IMED Merger Sub, to:
IMED Corporation
9775 Businesspark Avenue
San Diego, CA 92131
Attention: President
(619) 599-9000 (Telephone)
(619) 271-9010 (Telecopy)
with copies to:
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
Attention: Keith L. Schaitkin, Esq.
(212) 626-0838 (Telephone)
(212) 626-0799 (Telecopy)
or to such other address or telecopy number and with such other copies as such
party may hereafter specify for the purpose of notice to the other party. Each
such notice, request, demand or other communication shall be effective (i) if
given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section and evidence of receipt is received or (ii) if given
by any other means, upon delivery or refusal of delivery at the address
specified in this Section .
12.5. BINDING NATURE; ASSIGNMENT. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, but neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto without prior written consent of the
other parties; provided, however, that the rights of Purchaser hereunder may be
assigned to: (i) any lender or financing institution as security for a loan or
loans; (ii) any person that acquires all or substantially all of the assets or
business of the Purchaser, by purchase, merger, consolidation or otherwise; or
(iii) in connection with the Combination. The foregoing notwithstanding, prior
to the Closing Date, Purchaser and IMED Merger Sub may assign their rights
hereunder to Advanced Medical or a direct or indirect wholly owned subsidiary of
Advanced Medical or any partnership in which Advanced Medical, and/or one or
more of its direct or indirect wholly owned subsidiaries are the only partners
(each an "Assignee"), so long as Advanced Medical unconditionally guarantees the
obligation of such Assignee for all obligations of the Purchaser and IMED Merger
Sub under this Agreement. Such assignment shall be made pursuant to
documentation in form and substance reasonably acceptable to the Sellers
Representative which documents shall include, without limitation, an assumption
by the Assignee of all of the obligations of Purchaser hereunder. In the event
of any such assignment and assumption, all rights and obligations of the
Purchaser shall be deemed to be the rights and obligations of the Assignee and
the Purchaser shall have no further liability, rights or obligations hereunder.
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12.6. GOVERNING LAW; SUBMISSION TO JURISDICTION.
This Agreement and the legal relations among the parties hereto shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and performed therein. Subject to the terms and
provisions of Section 12.16 hereof, each party hereto hereby irrevocably: (i) in
any legal proceeding brought in connection with this Agreement or any of the
Documents or the transactions contemplated hereby or thereby, submits to the
nonexclusive in personam jurisdiction of (A) the United States District Court
for the Southern District of New York or (B) in the event that the Purchaser,
the Holding Co. or the Operating Co. is a defendant in any legal proceeding in
which it seeks to join any Participating Stockholder as a third party defendant,
then, any state or United States court in which such proceeding has properly
been brought, and consents to suit therein; (ii) waives any objection that it
may now or hereafter have to the venue of such proceeding in any such court or
that such proceeding was brought in an inconvenient court; (iii) designates the
Sellers Representative (in the case of the Holding Co., the Operating Co. and
the Participating Stockholders) or Gordon Altman Butowsky Weitzen Shalov & Wein
(in the case of Purchaser) as agent to receive service of any and all process
and documents on their behalf in any legal proceeding in the State of New York;
and (iv) agrees that nothing herein shall affect any parties right to effect
service of process in any manner permitted by law, and that the Purchaser and
the Company shall have the right to bring any legal proceedings (including a
proceeding for enforcement of a judgment entered by any of the aforementioned
courts) against any party in any other court or jurisdiction in accordance with
applicable law.
12.7. PUBLIC ANNOUNCEMENTS. The Participating
Stockholders, the Holding Co., the Operating Co. and Purchaser agree that press
releases and other announcements with respect to the transactions contemplated
hereby shall be subject to mutual agreement; provided, however, that either
party may make such announcements as, in the opinion of its counsel, such party
is required to make pursuant to applicable law or the requirements of a stock
exchange or other applicable self-regulatory organization, but in such event
such party shall, to the extent practicable, give the other party reasonable
prior notice and an opportunity to comment on the proposed announcement.
12.8. EXPENSES. All costs and expenses incurred in
connection with this Agreement and the Document shall be paid by the party
incurring such cost or expense provided, however, that the Participating
Stockholders shall be jointly and severally obligated to pay all out-of-pocket
expenses including, without limitation, legal expenses and accounting expenses
incurred by or on behalf of the Company in connection with this Agreement and
the transactions contemplated hereby and any amounts payable to DLJ or its
Affiliates (except to the extent the same are paid at or prior to the Closing
and therefore reduce Total Cash).
12.9. COUNTERPARTS. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be
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deemed an original, but all of which together shall constitute one
and the same instrument.
12.10. HEADINGS. The headings contained in this
Agreement are inserted for convenience only and shall not constitute a part
hereof.
12.11. ENTIRE AGREEMENT. This Agreement, together
with the Schedules and Exhibits hereto, the Documents and the letter agreement
dated March 20, 1996 between the Company and Advanced Medical constitute the
entire agreement between the parties hereto pertaining to the subject matter
hereof and supersedes all prior and contemporaneous agreements, schedules,
understandings, documents (including, without limitation, information provided
or made available by any party to any other party), negotiations and
discussions, whether oral or written, of the parties hereto.
12.12. REMEDIES EXCLUSIVE. Prior to the Closing,
the rights, remedies and obligations of the parties hereto under this Agreement
and the Documents set forth in Article X hereof shall be deemed to be exclusive
of all other rights, remedies and obligations under this Agreement and the
Documents that would otherwise be available to the parties hereto. After the
Closing, the rights, remedies and obligations under this Agreement and the
Documents of the parties hereto set forth in Article XI hereof shall be deemed
to be exclusive of all other rights, remedies and obligations under this
Agreement and the Documents that would otherwise be available to the parties
hereto. Notwithstanding the foregoing, the parties agree that the Business is
unique and that remedies at law may be inadequate, and accordingly, Purchaser,
in addition to other remedies it may have, shall have the right to enforce the
obligation of the Participating Stockholders and the Holding Co. to consummate
the Merger and engage in the transactions contemplated herein, by an action or
actions for specific performance, injunction or other appropriate equitable
remedies. The foregoing shall in no event limit or restrict the liability or
obligation of any party hereto in respect of any claim based upon fraud.
12.13. PURCHASER WAIVER. Except as specifically set
forth in this Agreement, Purchaser hereby waives, and shall cause each of its
Affiliates to waive all rights for contribution or other similar rights of
recovery with respect to any and all damage, loss, liability and expense
(including without limitation reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding) arising under or relating to Environmental Laws that Purchaser or
any of its Affiliates might have by statute or otherwise against Participating
Stockholders.
12.14. DISCLOSURE SCHEDULES. The Participating
Stockholders, the Holding Co. and the Operating Co. agree to use their
reasonable best efforts to cause each of the Schedules hereto to refer to all
matters appropriate for disclosure thereon. However, if, notwithstanding such
efforts, such matters are not so
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disclosed, then matters disclosed on any Schedule hereto shall, should the
existence of such matters be relevant to any other Schedule, be deemed to be
disclosed with respect to such other Schedule whether or not an explicit
cross-reference appears. The foregoing provisions of this Section 12.14 shall
not apply to Schedules 2.3, 3.3, 3.4 or 3.5.
12.15. DRAFTING CONVENTION. Any use herein of the
phrase "and/or" shall be deemed to mean both "and" and "or". Any use herein of
the phrase "including" shall be deemed to mean "including, without limitation".
12.16. ARBITRATION.
Disputes that arise under or with respect to this
Agreement or the Documents will be resolved as follows:
(i) except as set forth in the last paragraph of
this Section 12.16, no party shall bring a civil action arising under or with
respect to this Agreement or the Documents.
(ii) at any time any party may demand arbitration
of any dispute, arising under or with respect to any of this Agreement by
delivering written notice thereof to: (x) the Sellers Representatives, the
Purchaser and IMED Merger Sub; and (y) an office of JAMS/Endispute located in
New York City (or, if none, then the office of JAMS/Endispute located closest to
New York City); and
(iii) any such arbitration shall be conducted in
New York City according to JAMS/Endispute's Arbitration Rules then in effect
applicable to disputes of the type submitted to arbitration and the results of
such arbitration shall be final and binding on the parties.
In the event that JAMS/Endispute is not available to provide such arbitration
services with respect to any such dispute, then that dispute shall be resolved
by final, binding arbitration in New York City by three arbitrators pursuant to
the rules then prevailing of the American Arbitration Association applicable to
disputes of the type submitted to arbitration. Judgment on the award rendered by
any of the above referenced arbitrators may be confirmed and entered in and by
any court having jurisdiction.
Notwithstanding the foregoing, each party
specifically reserves the right: (a) to seek equitable remedies in a court of
competent jurisdiction; and (b) to bring a third party action against any other
party in any proceeding to which such person (the "Initiating Person") is a
party under circumstances in which the basis of the claim by the Initiating
Party against the other party is that such other party is liable (under any of
the Agreements or otherwise), in whole or in part, for or in respect of any
claim or counterclaim being asserted against the Initiating Party in such
proceeding.
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The parties hereto agree that the party losing any
matter that has been finally determined by arbitration pursuant thereto shall
promptly reimburse to all prevailing parties the reasonable cost and expenses
incurred by them in connection therewith (including, without limitation,
reasonable fees and disbursements of counsel provided that: (i) the Purchaser
and IMED Merger Sub shall have no obligation to provide such reimbursement for
more than one counsel for all Participating Stockholders, the Holding Co. and
the Operating Co., collectively; and (ii) the Participating Stockholders shall
have no obligation to provide such reimbursement for more than one counsel for
the Purchaser and IMED Merger Sub, collectively.
ARTICLE XIII
GLOSSARY
The following terms as used in this Agreement shall have the meaning
indicated below.
"Accounting Firm" has the meaning set forth in Section 1.8.
"Acquisition Proposal" has the meaning set forth in Section 6.9.
"Advanced Medical" means Advanced Medical, Inc., a Delaware
corporation.
"Affiliate" shall mean, with respect to any person, any other person
controlling, controlled by or under common control with, such person (provided
that any reference to any "Affiliate" of the Holding Co. herein or in any of the
Documents shall be deemed to include a reference to any person owning, or having
a right to acquire, in excess of 20% of the voting power of the Holding Co. and
any Affiliate of any such person).
"Aggregate Employee Option Exercise Price" has the meaning set forth in
Section 1.8.
"Approvals" has the meaning set forth in Section 3.21.
"Assignee" has the meaning set forth in Section 12.5.
"Benefit Plans" has the meaning set forth in Section 3.15.
"CERCLA" has the meaning set forth in Section 3.13(f).
"Certificate of Merger" has the meaning set forth in Section 1.2.
"Certificates" has the meaning set forth in Section 1.10.
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"Class A Common Stock" shall mean the Class A Common Stock of the
Holding Co., par value $.01 per share.
"Class B Common Stock" shall mean the Class B Common Stock of the
Holding Co., par value $.01 per share.
"Closing" has the meaning set forth in Section 1.3.
"Closing Date" has the meaning set forth in Section 1.3.
"Code" has the meaning set forth in Section 3.14.
"Combination" shall mean the merger or consolidation of the Surviving
Corporation and/or the Operating Co. with or into the Purchaser and/or any
Assignee.
"Commitment Letters" has the meaning set forth in Section 4.6.
"Company" shall mean and include and be deemed to refer, individually
and collectively, to the Holding Co., the Operating Co. and each person listed
on Schedules 3.2 and 3.4 hereof.
"Compensating Adjustment" means an amount, determined at the Effective
Time, equal to 40% of the sum of: (i) the Special Option Shortfall; (ii) the
Other Option Shortfall; and (iii) the Premium Shortfall.
"Constituent Corporations" has the meaning set forth in Section 1.1.
"Contracts" has the meaning set forth in Section 3.19.
"Cooley Letter" shall have the meaning set forth in Section 11.2.
"defined benefit plan" has the meaning set forth in Section 3.15.
"DGCL" shall mean the General Corporation Law of the state of Delaware.
"Disclosed Jurisdiction" has the meaning set forth in Section 3.2.
"Dissenting Shares" has the meaning set forth in Section 1.9.
"DLJ" shall mean DLJ Merchant Banking, Inc.
"DLJ Debt" shall mean the Holding Co.'s 13.2% Junior Subordinated Notes
due 2006.
"Documents" shall mean and include and be deemed to refer to all
instruments, certificates, documents and agreements to be
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<PAGE> 83
executed and/or delivered herewith or in connection with the transactions
contemplated hereby.
"Due Date" has the meaning set forth in Section 1.8.
"Effective Date" has the meaning set forth in Section 1.2.
"Effective Time" has the meaning set forth in Section 1.2.
"Eli Lilly" shall mean Eli Lilly and Company.
"Eli Lilly Obligation" shall mean all obligations to Eli Lilly under
agreements numbers 6, 16 and 17 set forth in Part III of Schedule 6.17 hereof.
"employee benefit plan" has the meaning set forth in Section 3.15.
"employee pension benefit plans" has the meaning set forth in Section
3.15.
"employee welfare benefit plans" has the meaning set forth in Section
3.15.
"Employees" has the meaning set forth in Section 3.15.
"Encumbrances" has the meaning set forth in Section 3.10.
"End Date" has the meaning set forth in Section 10.2.
"Environmental Law" has the meaning set forth in Section 3.13.
"ERISA" has the meaning set forth in Section 3.15.
"Expenses" has the meaning set forth in Section 1.8.
"FDA" shall mean the United States Food and Drug Administration.
"Federal Tax" means any tax imposed under Subtitle A of the Code.
"Final Determination" has the meaning set forth in Section 11.6.
"Final Statement" has the meaning set forth in Section 1.8.
"GAAP" shall mean generally accepted accounting principles.
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<PAGE> 84
"Hazardous Material" has the meaning set forth in Section 3.13.
"HSR Act" has the meaning set forth in Section 6.12.
"IDE" has the meaning set forth in Section 3.25.
"Indemnified Party" has the meaning set forth in Section 11.4.
"Indemnifying Party" has the meaning set forth in Section 11.4.
"Initiating Party" has the meaning set forth in Section 12.16.
"Intangible Property" has the meaning set forth in Section 3.11.
"Leased Real Property" has the meaning set forth in Section 3.10.
"Losses" has the meaning set forth in Section 11.2.
"Material Adverse Effect" has the meaning set forth in Section 3.9.
"Merger" has the meaning set forth in Section 1.1.
"Merger Consideration" has the meaning set forth in Section 1.7(b).
"multiemployer plan" has the meaning set forth in Section 3.15.
"multiple employer plan" has the meaning set forth in Section 3.15.
"1994 Stock Purchase Agreement" has the meaning set forth in Section
3.14.
"Notes Obligation" shall mean all obligations under the Senior Notes.
"Option" and "Options" has the meaning set forth in Section 1.7.
"Other Option Shortfall" means the amount, if any, by which $8 million
exceeds the aggregate portion of the Total Option Cancellation Amount to be paid
pursuant to all Option Cancellation Agreements entered into prior to the Closing
by all persons, in the form of Exhibits 8 and 9 hereof (other than Mr. William
J. Mercer, Mr. Gregory E. Sancoff and Mr. Albert Henry).
"Owned Real Property" has the meaning set forth in Section 3.10.
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<PAGE> 85
"Per Share Merger Consideration" has the meaning set forth in Section
1.8.
"Permitted Liens" has the meaning set forth in Section 3.10.
"Person" and "person" shall mean any natural person and any
corporation, trust, partnership, limited liability partnership, limited
liability company, limited liability corporation, venture or business entity.
"PMA" has the meaning set forth in Section 3.25.
"Preliminary Statement" has the meaning set forth in Section 1.8.
"Premium Shortfall" means the amount, if any, by which: (i) $6 million
exceeds (ii) the excess of: (A) the aggregate of all premiums, prepayment
penalties and costs for defeasance (if any) of the Senior Notes, paid (or to be
paid) in connection with the purchase and defeasance of the Senior Notes, as
contemplated in Section 6.15 hereof, over (B) $1 million.
"Purchase Price" has the meaning set forth in Section 1.8.
"Regulated Environmental Activity" has the meaning set forth in
Section 3.13.
"Release" has the meaning set forth in Section 3.13.
"Revolver Obligation" shall mean all obligations under the Credit
Agreement dated as of December 30, 1994 as amended and restated, by and among
the Holding Co., the Operating Co. and Chemical Bank, and the lenders named
therein.
"Rights" means any right (including, without limitation, conversion
right); option; warrant; call; put or similar commitment of any character,
authorized, granted or issued; right to acquire, or to require purchase of, any
security; right to acquire an equity interest, or any interest measured by
income, profits or any results of operations or by the value of any stock, or
any similar or related right or interest.
"River" has the meaning set forth in Section 6.13.
"River Medical Liabilities" has the meaning set forth in Section 11.2.
"Royalty" has the meaning set forth in Section 6.17.
"Section 338 Election Tax Liability" has the meaning set forth in
Section 3.14.
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<PAGE> 86
"Sellers Representative" has the meaning set forth in Section 10.3.
"Senior Notes" shall mean the 9 1/4% Senior Notes due 2002 of the
Operating Co.
"Siemens" has the meaning set forth in Section 6.17.
"Siemens Obligation" shall mean, as of any date following the date
hereof, the minimum amount required to be paid pursuant to the second paragraph
of Section 2.02(a)(v) of agreement number 1 set forth on Part II of Schedule
6.17, determined on a net present value basis in a manner consistent with the
preparation of notes 5 to the financial statements of the Operating Co. for the
period ended December 31, 1995.
"Signature Product" means the single and multi-channel versions of the
Company's Signature Edition, IV infusion system (including all related
disposables).
"Signature Recall" shall mean the product recall initiated in the
recall notification (IVAC Medical Systems Signature Edition Infusion Pump Models
7100 and 7200) dated August 8, 1996.
"Signature Recall Obligations" has the meaning set forth in Section
3.7.
"SIS" has the meaning set forth in Section 6.17.
"Special Option Shortfall" means the amount, if any, by which $7
million exceeds the aggregate portion of the Total Option Cancellation Amount to
be paid pursuant to all Option Cancellation Agreements in the form of Exhibit 6
hereto entered into on the date hereof by Mr. William J. Mercer and in the form
of Exhibit 7 hereto entered into on the date hereof by Mr. Gregory E. Sancoff
and Mr. Albert Henry.
"Special Purpose Statement of Cash Flows (1995)" has the meaning set
forth in Section 6.22 hereof.
"Special Purpose Statement of Cash Flows (1996)" has the meaning set
forth in Section 6.22 hereof.
"Stock" shall mean the Class A Common Stock of the Holding Co. and the
Class B Common Stock of the Holding Co.
"Stock Option Plans" has the meaning set forth in Section 1.7(c).
"Subsidiary Stock" means all of the issued and outstanding stock of the
Company other than the Stock.
"Surviving Corporation" has the meaning set forth in Section 1.1.
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<PAGE> 87
"Target NOL" means the amount by which $10 million exceeds the lesser
of: (i) $5.5 million and (ii) that portion of the Total Option Cancellation
Amount paid pursuant to Option Cancellation Agreements entered into in the form
of Exhibit 8 or 9 hereof (by persons other than Mr. William J. Mercer, Mr.
Gregory E. Sancoff and Mr. Albert Henry) in respect of Options that are vested
prior to the Closing Date.
"Tax" or "Taxes" has the meaning set forth in Section 3.14.
"Tax Asset" means any net operating loss, net capital loss, investment
tax credit or tax attribute which could reduce Taxes (including, without
limitation, deductions and credits related to alternative minimum Taxes).
"Tax Lien" or "Tax Liens" has the meaning set forth in Section 3.14.
"Tax Return" or "Tax Returns" has the meaning set forth in Section
3.14(a).
"Tax Sharing Agreements" has the meaning set forth in Section 3.14(a).
"Taxing Authority" has the meaning set forth in Section 3.14(a).
"Total Cash" has the meaning set forth in Section 1.8.
"Total Cash Certificate" has the meaning set forth in Section 1.8.
"Total Debt" has the meaning set forth in Section 1.8.
"Total Option Cancellation Amount" has the meaning set forth in
Section 1.7.
"Welmed Product" means the Company's "P" Series syringe IV pumps
(models P1000; P2000; P3000; P4000 and P-CAM).
"Welmed Safety Alert" shall mean the product safety alert initiated by
the Company as contemplated in Item 4 of Schedule 3.25 hereof.
"Welmed Safety Alert Obligations" has the meaning set forth in Section
3.7.
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<PAGE> 88
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first above written.
IMED CORPORATION
By:/s/Joseph W. Kuhn
----------------------
Name: Joseph W. Kuhn
Title: President
IMED MERGER SUB, INC.
By:/s/Joseph W. Kuhn
----------------------
Name: Joseph W. Kuhn
Title: President
IVAC HOLDINGS, INC.
By:/s/Reid S. Perper
----------------------
Name: Reid S. Perper
Title: Senior Vice President
IVAC MEDICAL SYSTEMS, INC.
By:/s/William J. Mercer
----------------------
Name: William J. Mercer
Title: President & CEO
PARTICIPATING STOCKHOLDERS
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<PAGE> 89
AVALON BIOVENTURES, L.P.,
a California Limited Partnership
By:/s/Kevin J. Kinsella
----------------------
Name: Kevin J. Kinsella
Title: General Partner
AVALON BIOVENTURES II, L.P.,
a California Limited Partnership
By:/s/Kevin J. Kinsella
----------------------
Name:Kevin J. Kinsella
Title: General Partner
CHASE EQUITY ASSOCIATES,
a California Limited Partnership
By: CHASE CAPITAL PARTNERS,
its General Partner
By:/s/Mitchell J. Blutt, M.D.
----------------------
Name: Mitchell J. Blutt, M.D.
Title: Executive Partner
DLJ MERCHANT BANKING PARTNERS, L.P.,
a Delaware Limited Partnership
By: DLJ MERCHANT BANKING, INC.,
Managing General Partner
By:/s/Ivy Dodes
----------------------
Name: Ivy Dodes
Title: Vice President
DLJ INTERNATIONAL PARTNERS, C.V.
By: DLJ MERCHANT BANKING, INC.,
Advisory General Partner
By:/s/Ivy Dodes
----------------------
Name: Ivy Dodes
Title: Vice President
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<PAGE> 90
DLJ OFFSHORE PARTNERS, C.V.
By: DLJ MERCHANT BANKING, INC.,
Advisory General Partner
By:/s/Ivy Dodes
----------------------
Name: Ivy Dodes
Title: Vice President
DLJ MERCHANT BANKING FUNDING, INC.
By:/s/Ivy Dodes
----------------------
Name: Ivy Dodes
Title: Vice President
DLJ FIRST ESC L.L.C.
By:/s/Edward A. Poletti
----------------------
Name: Edward A. Poletti
Title: Vice President and
Treasurer
DLJ CAPITAL CORPORATION
By:/s/Richard E. Kroon
----------------------
Name: Richard E. Kroon
Title: President
ENGLISH & SCOTTISH
INVESTORS P.L.C.
By:/s/Ian Beveridge
----------------------
Name: Ian Beveridge
Title: For and on behalf of
Gartmore Investment Ltd.
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<PAGE> 91
Secretaries
HENRY VENTURE II LIMITED,
an Isle of Man Entity
By:/s/Albert J. Henry
----------------------
Name: Albert J. Henry
Title: Chairman
INSTITUTIONAL VENTURE
PARTNERS V, L.P.,
a California Limited Partnership
By:/s/Samuel D. Colella
----------------------
Name: Samuel D. Colella
Title: General Partner
INSTITUTIONAL VENTURE
MANAGEMENT V, L.P.,
a California Limited Partnership
By:/s/Samuel D. Colella
----------------------
Name: Samuel D. Colella
Title: General Partner
INSTITUTIONAL VENTURE
PARTNERS VI, L.P.,
a California Limited Partnership
By:/s/Samuel D. Colella
----------------------
Name: Samuel D. Colella
Title: General Partner
INSTITUTIONAL VENTURE
MANAGEMENT VI, L.P.,
a California Limited Partnership
By:/s/Samuel D. Colella
----------------------
Name: Samuel D. Colella
Title: General Partner
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<PAGE> 92
MENLO VENTURES VI, L.P.,
a Delaware Limited Partnership
By: MV MANAGEMENT VI, L.P.,
its General Partner
By:/s/Thomas H. Bredt
----------------------
Name: Thomas H. Bredt
Title: General Partner
MENLO ENTREPRENEURS FUND VI, L.P.,
a Delaware Limited Partnership
By: MV MANAGEMENT VI, L.P.,
its General Partner
By:/s/Thomas H. Bredt
----------------------
Name: Thomas H. Bredt
Title: General Partner
MR LIMITED,
a Cayman Islands Corporation
By:/s/G. C. Coldough
----------------------
Name: G. C. Coldough
Title: Director
GREGORY E. SANCOFF
/s/Gregory D. Sancoff
SPROUT GROWTH II, L.P.
By: DLJ Capital Corporation or its
Mangaging General Partner
By:/s/Richard E.Kroon
-----------------------
Name: Richard E.Kroon
Title: President
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<PAGE> 93
EXHIBIT 1
CERTIFICATE OF MERGER
MERGING IMED MERGER SUB, INC.
INTO IVAC HOLDINGS, INC.
(Pursuant to Section 251 of the
General Corporation Law
of the State of Delaware)
IVAC Holdings, Inc., a Delaware corporation, DOES HEREBY CERTIFY that:
I. The name and state of incorporation of each of the constituent
corporations is as follows:
NAME STATE OF INCORPORATION
IVAC Holdings, Inc. Delaware
IMED Merger Sub, Inc. Delaware
II. An agreement and plan of merger dated as of August ___, 1996
(the "Agreement and Plan of Merger") has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with Section 251(c) of the General Corporation Law of the State of Delaware.
III. The name of the surviving corporation is IVAC Holdings, Inc.
IV. The Amended and Restated Certificate of Incorporation of IVAC
Holdings, Inc. as in effect at the date of the merger shall be the certificate
of incorporation of the surviving corporation, which Restated certificate of
incorporation shall be amended to read in its entirety as set forth in
Attachment I hereto.
V. An executed copy of the Agreement and Plan of Merger is on file at
the principal place of business of IVAC Holdings, Inc., 10221 Wateridge Circle,
San Diego, CA 92121.
<PAGE> 94
VI. A copy of the Agreement and Plan of Merger will be furnished by
IVAC Holdings, Inc., on request and without cost, to any stockholder of either
of the constituent corporations.
IN WITNESS WHEREOF, IVAC Holdings, Inc. has caused this Certificate of
Merger to be executed and attested by the undersigned as of the ___ day of
________________, 1996.
IVAC Holdings, Inc.
By:
----------------------
Name:
Title:
<PAGE> 95
Attachment I
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
IVAC HOLDINGS, INC.
FIRST: The name of this corporation shall be:
IVAC Holdings, Inc.
SECOND: Its registered office in the State of Delaware is to be
located at 1013 Centre Road, in the City of Wilmington, County of New Castle
19805, and its registered agent at such address is Corporation Service Company.
THIRD: The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the
Corporation shall have the authority to issue is:
Three Thousand (3,000) shares of common stock with a par value of
One Cent ($.01) per share, amounting to Thirty Dollars ($30.00).
FIFTH: The Board of Directors shall have the power to adopt,
amend or repeal the by-laws of the Corporation.
SIXTH: No director shall be personally liable to the Corporation
or its stockholders for monetary damages for any breach of fiduciary duty by
such director as a director except: (i) for breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
the law, (iii) pursuant to Section 174 of the Delaware General Corporation Law
or (iv) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Article Sixth shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
SEVENTH: The corporation shall, to the fullest extent permitted
by Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said Section from and against any and all of
the expenses, liabilities or other matters referred to or covered by said
Section , and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office, and shall continue as to a person
<PAGE> 96
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
EIGHTH: The corporation elects not to be governed by the
Section 203 of the Delaware General Corporation Law.
2
<PAGE> 97
EXHIBIT 2
[DAVIS POLK & WARDWELL LETTERHEAD]
________________, 1996
[Purchaser]
Ladies and Gentlemen:
We have acted as special counsel to DLJ Merchant Banking
Partners, L.P.,### DLJ Merchant Banking Funding, Inc., DLJ First ESC L.L.C., DLJ
Capital Corporation and Sprout Growth II, L.P. (collectively, the "Participating
Stockholders"), IVAC Holdings, Inc. ("Holding Co.") and IVAC Medical Systems,
Inc. ("Operating Co.") in connection with the Agreement and Plan of Merger dated
August ___, 1996 (the "Merger Agreement"). Unless otherwise defined herein, all
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Merger Agreement and such other
documents, corporate records, certificates of public officials and other
instruments and have conducted such other investigations of fact and law as we
have deemed necessary or advisable for purposes of this opinion.
On the basis of the foregoing, we are of the opinion that:
1. Each of the Holding Co. and the Operating Co. is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware. Each of the Holding Co. and the Operating Co. have full corporate
power and authority to enter into the Merger Agreement and to consummate the
transactions contemplated thereby. The Merger Agreement has been duly and
validly authorized by written consent and duly executed and delivered, by each
of the Holding Co. and the Operating Co.
2. The Merger Agreement constitutes a valid and binding
agreement of each of the Participating Stockholders, the Holding Co. and the
Operating Co., enforceable against each in accordance with its terms except (a)
as (i) the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent transfer, moratorium or similar laws affecting creditors' rights
###DP&W will not give an opinion for DLJ International Partners, C.V. and DLJ
Offshore Partners, C.V. because they are organized in the Netherlands Antilles.
generally and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability, and (b) that we express no
opinion as to the enforceability of any provisions purporting to grant the right
to enforce the obligation of the Participating Stockholders, the Holding Co. and
the
<PAGE> 98
Operating Co. to consummate the transactions contemplated by the
Merger Agreement by an action for specific performance, injunction
or other remedy.
3. The execution, delivery and performance by the
Participating Stockholders, the Holding Co. and the Operating Co. of the Merger
Agreement and the consummation by the Participating Stockholders, the Holding
Co. and the Operating Co. of the transactions contemplated thereby require no
action by or in respect of, notice to, or filing with, or the consent, approval
or authorization of any governmental authority under, the laws of the State of
New York or the State of Delaware or the federal law of the United States, other
than such filings or approvals that have been made or obtained.
4. The execution, delivery and performance by the
Participating Stockholders, the Holding Co. and the Operating Co. of the Merger
Agreement do not contravene or constitute a default under any provision of
applicable United States federal or New York state law or regulation (provided
that no opinion is rendered with respect to any antitrust or similar law, rule
or regulation) or the General Corporation Law of the State of Delaware.
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York, the federal
laws of the United States and the General Corporation Law of the State of
Delaware.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by or furnished to any other person without our prior written
notice. Each financing institution### specified on Schedule 1 hereto may rely on
this opinion as if such opinion were addressed to it.
Very truly yours,
###List will include all those providing debt and equity financing
for the transaction.
<PAGE> 99
EXHIBIT 3
RELEASE AND WAIVER
FOR VALUE RECEIVED, the receipt and sufficiency of
which is hereby acknowledged, the undersigned, releasor ("Releasor"), on behalf
of itself and its Affiliates (as such term is defined in a certain Agreement and
Plan of Merger (the "Agreement") by and between, among others, IMED Corporation,
IMED Merger Sub, Inc., IVAC Holdings, Inc., and IVAC Medical Systems, Inc.,
dated as of August ____, 1996.
HEREBY RELEASES AND DISCHARGES: The Company (as
such term is defined in the Agreement), and its successors (by merger or
otherwise), transferees, assigns (such successors, transferees and assigns,
collectively with IMED Corporation and IMED Merger Sub, Inc., the "Released
Party"), from any and all actions, causes of action, suits, debts, claims, sums
of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
extents, executions, claims and demands whatsoever, in law, admiralty or equity,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due, including, but not limited to, any instruments or other writings evidencing
a right to the payment of money, which the Releasor ever had, now has or
hereafter can, shall or may have, against the Released Party, for, upon, or by
reason of any matter, cause or thing whatever from the beginning of time to the
date of this release; provided that such release does not apply to Releasor's
rights under the Agreement or any ancillary documents;### and Releasor further
HEREBY TERMINATES all agreements between Releasor
and the Company (and the same shall be null and void) and shall deliver to
Purchaser (as such term is defined in the Agreement) the originals of all
instruments evidencing any indebtedness or obligation with respect thereto.
###For DLJ and its Affiliates, the following exception applies: "the release and
waiver contained herein shall not be deemed to release, waive or terminate any
right to indemnification that Releasor may have against the Company under the
Underwriting Agreement between DLJSC and the Operating Co. dated November 3,
1995." For Gregory Sancoff and Albert Henry the following exception applies:
"the release and waiver contained herein shall not be deemed to release, waive
or terminate any right to indemnification whether under any agreement or
otherwise that Releasor may have against the Company or any right under any
Option Cancellation Agreement."
<PAGE> 100
IN WITNESS WHEREOF, Releasor have hereunto set
their hand the ____ day of ______________, 1996.
RELEASOR:
------------------------------
Sworn to before me on this
___ day of ______________, 1996
2
<PAGE> 101
EXHIBIT 4
AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION OF
IVAC HOLDINGS, INC.
IVAC Holdings, Inc. (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "GCL"), does hereby further amend
the Certificate of Incorporation of the Corporation, which was originally filed
on October 14, 1994 under the name River Acquisition Corp. and subsequently
amended and restated on December 29, 1994 and April 13, 1995.
The undersigned hereby certifies that this
Amendment to the Certificate of Incorporation has been duly adopted in
accordance with Sections 228 and 242 of the GCL. Written notice has been given
as provided in Section 228 of the GCL and written consent has been given in
accordance with that section.
(1) The first sentence of subparagraph (f) of
Article FOURTH is hereby deleted in its entirety and replaced with:
"Each share of Call B Common Stock shall convert
automatically (a "Conversion"), without any action on the part of
the Corporation or any holder of Class B Common Stock, immediately
prior to the occurrence of an Equity Liquidation Event as
follows:"
(2) The last sentence of subparagraph (g)(iii) of
Article FOURTH is hereby deleted in its entirety and replaced with:
"Such Conversion shall be effective immediately
prior to the occurrence of the Equity Liquidation Event, and the
person in whose name or names any certificate or certificates for
shares of Class A Common Stock shall be issuable upon such
Conversion shall be deemed to have become the holder of record of
the shares of Class A Common Stock."
(3) Subparagraph (2)(b) of Article SEVENTH is
hereby deleted in its entirety and replaced with:
"The Corporation may, by action of its Board of
Directors, provide indemnification to such of the employees and
agents of the Corporation to such extent and to such effect as the
Board of Directors shall determine to be appropriate and
authorized by Delaware Law."
THE UNDERSIGNED, being the Vice President of IVAC
Holdings, Inc., for the purpose of amending the Restated
<PAGE> 102
Certificate of Incorporation of the Corporation pursuant to the General
Corporation Law of the State of Delaware, does declare and certify that this is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand as of this __th day of August, 1996.
IVAC HOLDINGS, INC.
By: _______________________________
Reid S. Perper
Vice President
2
<PAGE> 103
EXHIBIT 5
[GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN LETTERHEAD]
________________, 1996
DLJ Merchant Banking Partners, L.P.,
DLJ Merchant Banking Funding, Inc.
DLJ First ESC L.L.C., DLJ Capital Corporation and Sprout Growth II, L.P.
Ladies and Gentlemen:
We have acted as special counsel to IMED Corporation
("Purchaser") and IMED Merger Sub, Inc. ("Merger Sub") in connection with the
Agreement and Plan of Merger dated August ___, 1996 (the "Merger Agreement").
Unless otherwise defined herein, all capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Merger Agreement and such other
documents, corporate records, certificates of public officials and other
instruments and have conducted such other investigations of fact and law as we
have deemed necessary or advisable for purposes of this opinion.
On the basis of the foregoing, we are of the opinion that:
1. Each of the Purchaser and the Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has full corporate power to carry on the business which it is
now conducting. Each of the Purchaser and the Merger Sub have full corporate
power and authority to enter into the Merger Agreement and to consummate the
transactions contemplated thereby. The Merger Agreement has been duly and
validly authorized and duly executed and delivered, by each of Purchaser and
Merger Sub.
2. The Merger Agreement constitutes a valid and
binding agreement of each of Purchaser and Merger Sub, enforceable against each
in accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency, fraudulent transfer, moratorium or similar
laws affecting creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
3. The execution, delivery and performance by the
Purchaser and Merger Sub of the Merger Agreement and the consummation by them of
the transactions contemplated thereby requires no action by or in respect of,
notice to, or filing with, or the consent, approval or
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authorization of any governmental authority under, the laws of the State of New
York or the State of Delaware or the federal law of the United States, other
than such filings or approvals that have been made or obtained.
4. The execution, delivery and performance by
Purchaser and Merger Sub of the Merger Agreement do not contravene or constitute
a default under any provision of applicable United States federal or New York
state law or regulation (provided that no opinion is rendered with respect to
any antitrust or similar law, rule or regulation) or the General Corporation Law
of the State of Delaware.
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York, the federal
laws of the United States and the General Corporation Law of the State of
Delaware.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by or furnished to any other person without our prior written
notice.
Very truly yours,
2
