<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
________________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 30, 1998
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Atrion Corporation
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(Exact name of registrant as specified in its charter)
Delaware 0-10763 63-0821819
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(State or Other Juris- (Commission (IRS Employer
diction of Incorporation) File Number) Identification No.)
Post Office Box 587, Arab, Alabama 35016
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (205) 586-1580
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________________________________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
Page 1 of 63 Pages
Exhibit Index on Page 5
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 30, 1998, Atrion Corporation (the "Registrant"), through its wholly
owned Texas subsidiary, QMI Medical, Inc. (formerly known as "QMI Acquisition
Corp.) ("QMI"), acquired certain assets of Quest Medical, Inc. ("Quest"),
pursuant to the terms of an Asset Purchase Agreement, dated as of December 29,
1997, among the Registrant, QMI and Quest. All references to the Asset Purchase
Agreement are qualified in their entirety by the complete text of the Asset
Purchase Agreement which is attached hereto as Exhibit 2 and incorporated herein
by reference.
The assets acquired from Quest are those used in its cardiovascular and
intravenous fluid delivery business (the "Division") and specifically exclude
assets used exclusively in Quest's neuromodulation business. The purchase price
for the assets was $24,437,108 consisting of $23,685,045 of cash from the
Registrant's general corporate funds and the assumption of $752,063 of
liabilities. The purchase price was determined on the basis of a review and
assessment of the Division's future prospects and arms-length negotiations
between the Registrant and Quest. The Registrant also received an opinion from
Raymond James & Associates, Inc. that the terms of the transaction were fair,
from a financial point of view, to the Registrant. The purchase price is
subject to a post-closing adjustment based on an increase or decrease in assets
and liabilities reflected on a closing date balance sheet to be prepared within
90 days following January 30, 1998.
At the time of the execution and delivery of the Asset Purchase Agreement and
the consummation of the transactions described herein, there were no
affiliations among Quest and its affiliates, on the one hand, and the Registrant
and its affiliates, on the other hand.
Simultaneously with the purchase of the Division, QMI and Quest entered into a
Lease Agreement, for a maximum term of one year, whereby QMI agreed to lease
Quest's facility located in Allen, Texas and Quest agreed to lease from QMI
certain equipment purchased by QMI in the transaction. Pursuant to the Lease
Agreement, QMI is to make net rental payment to Quest of $11,431 per month
during the term of the Lease Agreement. In addition, Quest granted to QMI an
option to purchase the Allen, Texas facility for a purchase price of $6,500,000.
The option may be exercised at any time within the nine-month period commencing
January 30, 1998, with the closing to take place on the earlier of (i) the date
which is six (6) months from the date of exercise of the option and (ii) the
expiration of the term of the Lease Agreement. In the event QMI does not
exercise the option, then QMI will sell and Quest will purchase certain
furniture, fixtures and equipment relating to the facility for book value.
Page 2 of 63 Pages
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Prior to the transactions described herein, Quest used the assets purchased by
QMI, including plant and equipment, in the manufacture and marketing of
cardiovascular and intravenous fluid delivery products, including the
manufacture and marketing of a myocardial protection system. The Registrant
intends to operate the business of the Division utilizing the assets in
substantially the same manner as previously operated by Quest.
ITEM 5. OTHER EVENTS.
On January 21, 1998, the Board of Directors of the Registrant elected Emile A.
Battat, age 60, who has served as a director of the Registrant since 1987, as
Chairman of the Board of Directors. Jerry A. Howard will continue to serve as
President and Chief Executive Officer and as a director of the Registrant.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired. Pursuant to Item 7(a)(4)
-------------------------------------------
of Form 8-K, the Registrant hereby states that it is impracticable, as of the
date of this report, to provide the required financial statements relating to
the business acquisition reported herein. Such financial statements will be
filed not later than 60 days after the date on which this report is filed.
(b) Pro forma financial information. Pursuant to Item 7(a)(4) of Form 8-K,
-------------------------------
the Registrant hereby states that it is impracticable, as of the date of this
report, to provide the required pro forma financial information relating to the
business acquisition reported herein. Such pro forma financial information will
be filed not later than 60 days after the date on which this report is filed.
(c) Exhibits. The following exhibit is included herewith.
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<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
- --------- ----------- --------
<S> <C> <C>
2 Asset Purchase Agreement dated as of
December 29, 1997, by and among
Quest Medical Inc., QMI Acquisition
Corp. and Atrion Corporation.
99.1 Press Release of the Registrant dated
December 30, 1997
99.2 Press Release of the Registrant dated
January 30, 1998
</TABLE>
Page 3 of 63 Pages
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATRION CORPORATION
By: /s/ Jerry A. Howard
----------------------------
Its: President
------------------------
Date: February 17, 1998
Page 4 of 63 Pages
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<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------- ----------- --------
<S> <C> <C>
2 Asset Purchase Agreement dated as of
December 29, 1997, by and among
Quest Medical Inc., QMI Acquisition
Corp. and Atrion Corporation (In
accordance with Item 601 of
Regulation S-K, the Asset Purchase
Agreement contains a list briefly
identifying the exhibits and
schedules thereto; however, such
exhibits and schedules are not
included herewith. The Registrant
hereby undertakes to furnish
supplementally a copy of any such
exhibit or schedule to the
Commission upon request). 6
99.1 Press Release of the Registrant dated
December 30, 1997 58
99.2 Press Release of the Registrant dated
January 30, 1998 61
</TABLE>
Page 5 of 63 Pages
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EXHIBIT 2
Page 6 of 63 Pages
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ASSET PURCHASE AGREEMENT
BY AND AMONG
QUEST MEDICAL, INC.
ATRION CORPORATION
AND
QMI ACQUISITION CORP.
DATED AS OF DECEMBER 29, 1997
Page 7 of 63 Pages
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE 1 DEFINITIONS
1.1 Definitions
ARTICLE 2 TERMS OF THE TRANSACTION
2.1 Agreement to Purchase and Sell
2.1.1 Sale of Assets
2.1.2 Excluded Assets
2.2 Purchase Price
2.3 Assumed Liabilities
2.4 Aggregate Purchase Price Adjustment
2.4.1 Closing Balance Sheet
2.4.2 Review of Adjustment Statement
2.4.3 Asset Value Adjustments Procedure
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF QUEST
3.1 Organization; Power and Authority
3.2 Authorization; Execution and Validity
3.3 Title
3.4 Subsidiaries
3.5 Financial Statements
3.5.1 Quest Year-End Financial Statements
3.5.2 Quest Interim Financial Statements
3.5.3 Seller Year-End Financial Statements
3.5.4 Seller Interim Financial Statements
3.6 Absence of Undisclosed Liabilities
3.7 Absence of Certain Changes
3.8 No Conflict; Seller Consents
3.9 Condition of Assets
3.10 Real Property
3.11 Personal Property
3.11.1 Owned Personal Property
3.11.2 Leased Personal Property
3.12 Insurance
3.13 Contracts
3.14 Litigation; Orders
3.15 Environmental Matters
3.16 Permits
3.17 Medical Device Regulation
3.18 Intellectual Property
3.19 Employee Benefits
3.19.1 Employee Benefit Plans
3.19.2 Records
3.19.3 Actions
3.19.4 Multiemployer Plans and Multiple Employer Plans
</TABLE>
Page 8 of 63 Pages
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<TABLE>
<S> <C>
3.20 Taxes
3.21 Compliance with Law
3.22 Labor Matters
3.23 Accounts Receivable
3.24 Inventory
3.25 Trade Payables
3.26 Brokers
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER PARENT
4.1 Organization; Power and Authority
4.2 Authorization; Execution and Validity
4.3 No Conflict; Buyer Consents
4.4 Litigation; Orders
4.5 Sufficient Funds
4.6 Brokers
ARTICLE 5 COVENANTS OF QUEST
5.1 Cooperation by Quest
5.2 Pre-Closing Access to Information
5.3 Operation of Business
5.4 Further Assurances
5.5 Governmental Matters.
5.5.1 HSR Act Compliance
5.5.2 Other Governmental Approvals
5.6 Supplements to Schedules
5.7 No-Shop Provisions
5.8 Noncompetition
ARTICLE 6 COVENANTS OF BUYER AND BUYER PARENT
6.1 Cooperation by Buyer and Buyer Parent
6.2 Pre-Closing Access to Information
6.3 Further Assurances
6.4 Governmental Matters
6.4.1 HSR Act Compliance
6.4.2 Other Governmental Approvals
6.5 Noncompetition
ARTICLE 7 MUTUAL COVENANTS
7.1 Taxes
7.1.1 Quest's Responsibility
7.1.2 Buyer's and Buyer Parent's Responsibility
7.1.3 Aggregate Purchase Price Allocation
7.2 Employee Matters
7.2.1 Employment
7.2.2 Retention Agreements
7.2.3 Continuing Benefits and Benefit Plans
7.2.4 Employee Savings Plan
7.2.5 Bonuses
7.3 Cooperation and Exchange of Information
7.3.1 Documents, Records and Files
</TABLE>
Page 9 of 63 Pages
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<TABLE>
<S> <C>
7.3.2 Transition Services
7.4 Public Announcements
7.5 Proration.
7.6 Fees and Expenses
7.7 Nondisclosure
7.8 Material Review Board Inventory
ARTICLE 8 CONDITIONS PRECEDENT TO CLOSING
8.1 Conditions Precedent to Buyer's and Buyer Parent's Obligations
8.1.1 Accuracy of Representations and Warranties
8.1.2 Consents; Performance of Covenants
8.1.3 Deliveries
8.1.4 Compliance with HSR Act
8.1.5 No Order
8.1.6 Financial Statements
8.1.7 Title and Survey
8.1.8 Lease Agreement
8.1.9 Option Agreement
8.2 Conditions Precedent to Quest's Obligations
8.2.1 Accuracy of Representations and Warranties
8.2.2 Performance of Covenants
8.2.3 Deliveries
8.2.4 Compliance with HSR Act
8.2.5 No Order
8.2.6 License Agreement
8.3 If Conditions Not Satisfied
ARTICLE 9 CLOSING
9.1 Time and Place
9.2 Deliveries by Quest
9.3 Deliveries by Buyer and Buyer Parent
ARTICLE 10 TERMINATION PRIOR TO CLOSING DATE
10.1 Termination
10.2 Effect of Termination
ARTICLE 11 MISCELLANEOUS
11.1 Survival; Indemnification
11.1.1 Survival of Representations and Warranties
11.1.2 Indemnity
11.2 Severability
11.3 Successors and Assigns
11.4 Counterparts
11.5 Headings
11.6 Waiver
11.7 No Third-Party Beneficiaries
11.8 Other Expenses
11.9 Notices
11.10 GOVERNING LAW
11.11 Arbitration
</TABLE>
Page 10 of 63 Pages
<PAGE>
<TABLE>
<S> <C>
11.12 Interpretation of Agreement
11.12.1 References
11.12.2 Representation; No Reliance
11.12.3 Disclosure
11.12.4 Interpretation of Provisions
11.13 Jurisdiction and Consent to Service of Process
11.14 Entire Agreement
11.15 Amendment
</TABLE>
Page 11 of 63 Pages
<PAGE>
EXHIBITS:
- --------
A - Form of License Agreement
B - Form of Lease Agreement
C - Form of Option Agreement
D - Form of Legal Opinion of Seller's Counsel
SCHEDULES:
- ---------
1.1(a) - Retention Agreements
1.1(b) - Seller Financial Practices
1.1(c) - Seller's Knowledge
1.1(d) - Specified Account
2.1.1 - Assets
2.1.2 - Excluded Assets
2.3(a) - Closing Date Assumed Liabilities
2.3(b) - Other Assumed Liabilities
2.4.1 - CV Balance Sheet
3.1 - Foreign Qualification
3.4 - Subsidiaries
3.6 - Disclosed Liabilities
3.7 - Certain Changes
3.8 - Seller Consents
3.9 - Condition of Assets
3.10(a) - Real Property
3.10(b) - Leased Real Property
3.11.1 - Disposed Personal Property
3.11.2 - Leased Personal Property
3.12 - Insurance Policies
3.13 - Material Contracts
3.14 - Legal Matters
3.15 - Environmental Matters
3.16 - Permits
3.17 - Medical Device Regulation
3.18 - Intellectual Property
3.19.1 - Employee Benefit Plans
3.20 - Tax Contests
4.3 - Buyer Consents
7.2.1(a) - Transferred Employees
7.2.1(b) - Retained Employees and Certain Benefits
7.3.2 - Specified Employees
8.1.7(a) - Draft Title Commitment
Page 12 of 63 Pages
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of December 29, 1997, by and among
QUEST MEDICAL, INC., a Texas corporation ("QUEST"), QMI ACQUISITION CORP., a
Texas corporation ("BUYER"), and ATRION CORPORATION, a Delaware corporation and
parent corporation of Buyer ("BUYER PARENT").
RECITALS
Quest designs, develops, manufactures and markets a variety of healthcare
products used primarily in cardiovascular surgery, interventional pain
management and intravenous fluid delivery applications.
Buyer desires to purchase from Quest, and Quest desires to sell to Buyer,
substantially all of the assets of Quest's cardiovascular surgical products and
intravenous fluid delivery products businesses. Buyer is not buying, and Quest
is not selling, the neuromodulation products business conducted by Quest's
wholly-owned subsidiary, Advanced Neuromodulation Systems, Inc., a Texas
corporation ("ANS"), the capital stock of ANS, the assets used exclusively in
the operations of ANS, or certain other assets described in this Agreement as
Excluded Assets.
Buyer Parent, by virtue of its ownership of Buyer, will receive substantial
direct and indirect benefits from the transactions contemplated by this
Agreement, and Quest has requested that Buyer Parent enter into this Agreement
as a condition to Quest's execution hereof.
For purposes of this Agreement, "SELLER" means Quest and all of its assets,
liabilities and operations, excluding ANS, the capital stock of ANS and all of
ANS's assets, liabilities and operations.
NOW, THEREFORE, in consideration of the foregoing premises and other good,
valid and binding consideration, the receipt and sufficiency of which are hereby
acknowledged, Quest, Buyer and Buyer Parent, intending to be legally bound,
hereby agree as follows:
AGREEMENT
ARTICLE 1
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the terms set forth below
-----------
shall have the following meanings:
Page 13 of 63 Pages
<PAGE>
"AAA" means the American Arbitration Association.
"ACTION" means any action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority or arbitrator.
"ADJUSTMENT STATEMENT" shall have the meaning set forth in Section 2.4.1.
-------------
"AFFILIATE" means, with respect to any Person, any other Person controlling,
controlled by, or under common control with such Person. For purposes of this
Agreement, the term "CONTROL" (including, with correlative meanings, the terms
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH" as used with respect to any
Person) means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person whether
through ownership of voting securities, by contract or otherwise.
"AGGREGATE PURCHASE PRICE" shall have the meaning set forth in Section 2.2.
-----------
"AGREEMENT" means this Agreement, together with the Schedules and Exhibits
hereto.
"ANS" has the meaning set forth in the Recitals to this Agreement.
"ANS COMPETITIVE BUSINESS" shall have the meaning set forth in Section 6.5.
-----------
"ANS NONCOMPETITION PERIOD" shall have the meaning set forth in Section 6.5.
-----------
"ASSETS" shall have the meaning set forth in Section 2.1.1.
-------------
"ASSUMED LIABILITIES" shall have the meaning set forth in Section 2.3.
-----------
"BUYER" shall have the meaning set forth in the first paragraph of this
Agreement.
"BUYER PARENT" shall have the meaning set forth in the first paragraph of this
Agreement.
"CHARTER DOCUMENTS" means (a) in the case of any corporation, its articles or
certificate of incorporation and its by-laws, (b) in the case of any
partnership, its partnership agreement and partnership certificate, if any, and
(c) in the
Page 14 of 63 Pages
<PAGE>
case of any other Person, its organic and governing documents, as each has been
amended or supplemented from time to time.
"CLOSING" means the consummation of the purchase and sale of the Assets
contemplated hereby.
"CLOSING BALANCE SHEET" means a balance sheet reflecting the assets and
liabilities of Seller as of the close of business on the Closing Date, which is
prepared in accordance with the Seller's Financial Practices and on the same
basis as the CV Balance Sheet (excluding the Excluded Assets).
"CLOSING DATE" means January 30, 1998 or such later date on which all the
conditions precedent to the Closing set forth in Article 8 have been met or
---------
waived.
"CLOSING DATE ASSET VALUE" means an amount equal to the "Total Assets" set
forth on the Closing Balance Sheet.
"CLOSING DATE ASSUMED LIABILITIES" shall have the meaning set forth in Section
-------
2.3.
- ---
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMPETITIVE BUSINESS" shall have the meaning set forth in Section 5.8(a).
--------------
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section 7.7.
-----------
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated as of
May 22, 1997 between Buyer Parent and Quest.
"CONSENT" means a consent, approval, authorization, waiver or notification
from any Person, including any Governmental Authority.
"CONTRACTS" means all contracts, agreements, instruments, leases, licenses,
commitments and arrangements, except Permits.
"CV BALANCE SHEET" shall have the meaning set forth in Section 2.4.1.
-------------
"DAMAGES" means all losses, claims, damages, costs, fines, penalties,
obligations, payments and liabilities (including those arising out of any
Action), together with all reasonable costs and expenses incurred in connection
with any of the foregoing; provided, however, that Damages shall in no event
include damages arising out of any interruption of business, loss
Page 15 of 63 Pages
<PAGE>
of profits, loss of use of facilities, claims of customers, loss of goodwill or
other indirect damages.
"DOLLARS" or "$" means lawful currency of the United States.
"EMPLOYEE BENEFIT PLAN" shall have the meaning set forth in Section 3.19.1.
--------------
"ENVIRONMENTAL LAWS" means the Federal Water Pollution Control Act, the Clean
Air Act, the Toxic Substances Control Act, the Solid Waste Disposal Act, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Emergency Planning and Community Right-To-Know Act, the Safe Drinking Water Act
and any other federal, state or local environmental law, and the rules and
regulations thereunder promulgated in final form as interpreted in accordance
with public announcements.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA PLAN" shall have the meaning set forth in Section 3(3) of ERISA with
respect to any employee benefit plan maintained or contributed to by Quest or
any of its Affiliates that currently covers employees of Quest and is subject to
ERISA.
"ESTIMATED ASSETS" shall mean the amount of Assets of the type described in
Schedule 2.1.1 which are reflected on Seller's December 31, 1997 unaudited
- --------------
balance sheet prepared by Quest in accordance with the Seller Financial
Practices.
"ESTIMATED LIABILITIES" shall mean the amount of Liabilities of the type
described in Schedule 2.3(a) which are reflected on Seller's December 31, 1997
---------------
unaudited balance sheet prepared by Quest in accordance with the Seller
Financial Practices.
"EXCLUDED ASSETS" shall have the meaning set forth in Section 2.1.2.
-------------
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section 3.5.1.
-------------
"FORM 10-K" shall have the meaning set forth in Section 3.5.1.
-------------
"FORM 10-Q" shall have the meaning set forth in Section 3.5.2.
-------------
"GOVERNMENTAL AUTHORITY" means any federal, state or local government, any of
its subdivisions, agencies, authorities,
Page 16 of 63 Pages
<PAGE>
commissions, boards or bureaus, any federal, state or local court or tribunal
and any arbitrator.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the regulations promulgated thereunder.
"INDEPENDENT FIRM" means one of the six largest national accounting firms
(excluding Ernst & Young, LLP and Arthur Andersen, LLP), which accounting firm
shall be jointly selected by Quest and Buyer, or if Quest and Buyer are unable
to agree upon an Independent Firm, selected by lot.
"INTELLECTUAL PROPERTY" means patents, patent applications, inventions,
customized software, trade names, brand names, registered trademarks, trade
secrets, processes, know-how, registered copyrights and registered service marks
and applications therefor.
"INTERIM BALANCE SHEET DATE" means June 30, 1997.
"INTERIM FINANCIAL STATEMENTS" shall have the meaning set forth in Section
-------
3.5.2.
- -----
"LAW" means any statute, rule, regulation or ordinance.
"LEASE" means any lease or sublease of real or personal property to or from
Seller.
"LEASED PERSONAL PROPERTY" shall have the meaning set forth in Section 3.11.2.
--------------
"LEASED REAL PROPERTY" shall have the meaning set forth in Section 3.10.
------------
"LIABILITIES" means direct or indirect debts, obligations or liabilities of
any nature, whether absolute, accrued, contingent, liquidated or otherwise, and
whether due or to become due, asserted, known or unasserted or unknown.
"LIEN" means any lien, mortgage, deed of trust, security interest, charge,
pledge, retention of title agreement, easement, encroachment, condition,
reservation, covenant or other encumbrance affecting title.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business,
assets, financial condition or results of operations of Seller, or (b) the
ability of Quest to consummate the transactions contemplated by this Agreement.
"MATERIAL CONTRACTS" means all of the Contracts to which Seller is a party or
by which any of the Assets are bound
Page 17 of 63 Pages
<PAGE>
and that are material to Seller, including, without limitation, (a) Contracts
pertaining to the borrowing or investing of money (other than in connection with
open invoices for purchased goods or services) or to mortgaging, pledging, or
otherwise placing a Lien on any of the Seller's assets, (b) Contracts creating
guaranties by Seller, (c) Contracts relating to any single capital expenditure
in excess of $25,000, (d) Contracts for the purchase or sale of real property,
any business or line of business, or for any merger or consolidation, (e) joint
venture or partnership agreements, (f) Contracts that individually require by
their respective terms after the date hereof the payment or receipt of more than
$25,000 during any 12 month period, (g) material license or royalty agreements,
(h) Contracts or groups of related Contracts with the same party or group of
affiliated parties the performance of which involves consideration in excess of
$25,000, (i) Contracts or arrangements under which Seller has made or received
any material loans or advances to or from its directors, officers or employees,
and (j) Contracts relating to material employment or consulting services.
"MATERIAL LEASE" means any of (a) a Lease involving a term of more than one
year and, in the case of oral Leases, which is not cancelable within 30 days
notice without penalty, (b) a rental obligation exceeding $25,000 per annum and,
in the case of oral Leases, which is not cancelable within 30 days notice
without penalty, or (c) any arrangement pursuant to which a customer or
potential customer of Seller leases, uses or otherwise has possession of an
MPS(R) myocardial protection system.
"METLIFE" means any of MetLife Capital Financial Corporation, MetLife Capital
Corporation, or any successor of the foregoing.
"METLIFE MORTGAGE" means all of the indebtedness owed to MetLife by Quest
secured by the Real Property and certain furniture, fixtures, equipment and the
HVAC system located on the Real Property.
"NONCOMPETITION PERIOD" shall have the meaning set forth in Section 5.8.
-----------
"ORDER" means any order, judgment, injunction, decree or award of any
Governmental Authority.
"QUEST" means Quest Medical, Inc., a Texas corporation.
"PARTY" means each of Buyer, Buyer Parent and Quest.
Page 18 of 63 Pages
<PAGE>
"PERMIT" means any permit, license, certificate (including a certificate of
occupancy) registration, authorization or approval issued by a Governmental
Authority.
"PERMITTED LIENS" means (a) Liens for Taxes that are not yet due and payable,
(b) workers', repairmen's and similar Liens imposed by Law that have been
incurred in the ordinary course of business, (c) with respect to the Real
Property only, easements, encroachments and encumbrances listed on Schedule B to
----------
the MetLife mortgagee title policy on the Real Property in effect on the date
hereof, (d) retention of title agreements with suppliers set forth on purchase
orders or invoices entered into in the ordinary course of business, (e) prior to
the Closing only, Liens in favor of NationsBank of Texas, N.A., Robert L.
Swisher, Jr., William Borkan or MetLife (collectively, the "LENDER LIENS"), (f)
with respect to the Real Property only, Liens in favor of MetLife in existence
on the date hereof, (g) Liens securing any Assumed Liabilities, and (h) with
respect to the Real Property only, zoning, entitlement, building and other land
use regulations imposed by Governmental Authorities having jurisdiction over the
Real Property that are not violated by the current use and operations of such
Real Property.
"PERSON" means any natural person, corporation, partnership, limited liability
company, trust, unincorporated organization or other entity.
"PRIME RATE" means the rate per annum equal to the publicly announced prime
commercial lending rate of NationsBank of Texas, N.A. in effect from time to
time, changing as such publicly announced rate changes, effective as of the date
such change is publicly announced.
"PRO RATED EXPENSES" shall have the meaning set forth in Section 7.5.
-----------
"PURCHASE PRICE ALLOCATION" shall have the meaning set forth in Section 7.1.3.
-------------
"REAL PROPERTY" shall have the meaning set forth in Section 3.10.
------------
"RETAINED EMPLOYEES" shall have the meaning set forth in Section 7.2.1.
-------------
"RETENTION AGREEMENTS" means the Retention Agreements between Quest and each
of the employees of Quest set forth on Schedule 1.1(a), which provide for
---------------
potential severance compensation and certain other benefits to such employees
for a specified period upon such employees' termination of employment with
Quest, as more particularly described on Schedule 1.1(a), as
---------------
Page 19 of 63 Pages
<PAGE>
such agreements may be amended in accordance with the terms of Section 5.1.
-----------
"RETURNS" means returns, reports and forms together with any and all
supporting documentation for such returns reports or forms, required to be filed
with any taxing authority.
"SELLER" has the meaning set forth in the Recitals to this Agreement.
"SELLER FINANCIAL PRACTICES" means generally accepted accounting principles,
consistently applied, with the exceptions set forth in Schedule 1.1(b), which
---------------
Schedule, notwithstanding the provisions of Section 5.6, shall not be modified
-----------
or supplemented.
"SELLER INTERIM FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 3.5.4.
- -------------
"SELLER'S KNOWLEDGE" means the actual knowledge, without specific inquiry, of
any of the individuals named on Schedule 1.1(c).
---------------
"SPECIFIED ACCOUNT" means the bank account of Quest specified on Schedule
--------
1.1(d).
- ------
"SPECIFIED EMPLOYEES" shall have the meaning set forth in Section 7.3.2.
-------------
"TAX" or "TAXES" means all income, profits, franchise, gross receipts'
capital, sales, use, withholding, value added, ad valorem, transfer, employment,
social security, disability, occupation, property, severance, production, excise
and other taxes, duties and similar governmental charges and assessments imposed
by or on behalf of any Governmental Authority (including interest and penalties
thereon).
"TAX ABATEMENT AGREEMENT" means the Ad Valorem Tax Abatement Agreement, dated
August 20, 1993, among Quest, the City of Allen and the Allen Independent School
District, as such agreement may be amended.
"TRANSITION PERIOD" shall mean a period of time during which both Quest and
Buyer inhabit Quest's facility located in Allen, Texas.
Page 20 of 63 Pages
<PAGE>
ARTICLE 2
TERMS OF THE TRANSACTION
2.1 Agreement to Purchase and Sell.
------------------------------
2.1.1 Sale of Assets. Except as provided in Section 2.1.2, on
-------------- -------------
the terms and subject to the conditions contained in this Agreement, at the
Closing, Quest shall convey, transfer, assign, and deliver to Buyer, and Buyer
agrees to purchase and accept from Quest, all of Quest's legal, beneficial and
other right, title and interest in and to all of Quest's assets, properties,
privileges, claims and contracts of every kind and description (real, personal,
and mixed, tangible and intangible), wherever located, including, without
limitation, those assets listed in Schedule 2.1.1 attached hereto (including,
--------------
without limitation, the names "Quest" and "Quest Medical" and the tradenames,
trademarks and other Intellectual Property related thereto, subject to rights
granted to Quest by Buyer under the License Agreement referred to in Section
-------
8.2.6), all as the same shall exist as of the Closing Date (collectively, the
- -----
"ASSETS").
2.1.2 Excluded Assets. Notwithstanding the provisions of
---------------
Section 2.1.1, Quest will retain and not transfer, and Buyer will not purchase
- -------------
or acquire at Closing, any of the capital stock of ANS, any of ANS's assets,
Quest's cash or cash equivalents (other than cash in bank accounts in the name
of American Omni Medical, a division of Quest), Quest's marketable securities,
Quest's accounts receivable that arose on or prior to September 30, 1997, the
minute books, the corporate seal or the stock records of Quest, any tax
attributes of Quest or its Affiliates, the Real Property or the other assets of
Quest listed in Schedule 2.1.2 (collectively, the "EXCLUDED ASSETS"). The
--------------
Excluded Assets do not include any tangible personal property used exclusively
by Seller.
2.2 Purchase Price. The total consideration for the Assets shall be an
--------------
amount equal to (a) $24.5 Million in cash, less (b) the Estimated Liabilities,
----
plus or minus (c) the amount by which the Estimated Assets are greater than
- ---- ------
$13,600,000 or the amount by which $13,600,000 exceeds the amount of the
Estimated Assets, respectively; plus (d) the aggregate out-of-pocket costs and
----
expenses incurred by Seller in connection with the perfusionist training seminar
for the Quest MPS(R) myocardial protection system conducted by Seller ($17,658),
plus (e) Buyer's pro rata share of any Pro Rated Expenses, plus or minus (f)
- ---- ---- -----
the purchase price adjustment amount calculated pursuant to Section 2.4 (the net
-----------
amount of the foregoing is referred to herein as the "AGGREGATE PURCHASE
PRICE"). At the Closing, Buyer shall pay to Quest an amount equal to the net of
the amounts referred to in clauses (a), (b), (c), (d), and (e) of this
----------- --- --- --- ---
Page 21 of 63 Pages
<PAGE>
Section 2.2 by wire transfer of immediately available funds to the Specified
- -----------
Account.
2.3 Assumed Liabilities. Except as otherwise expressly provided for in this
-------------------
Agreement, at the Closing Buyer shall assume and agree to pay, honor and
discharge when due, all of the Liabilities set forth on the Closing Balance
Sheet of the type described on Schedule 2.3(a) (the "CLOSING DATE ASSUMED
---------------
LIABILITIES") and all other Liabilities relating to the Assets arising on or
after the Closing Date which are set forth in Schedule 2.3(b) (collectively, the
---------------
"ASSUMED LIABILITIES"). Except for the Assumed Liabilities, Buyer shall not
assume, and shall have no obligation to pay, honor or discharge, or be liable
for, any Liabilities of Quest, ANS or Seller.
2.4 Aggregate Purchase Price Adjustment.
-----------------------------------
2.4.1 Closing Balance Sheet. As soon as reasonably practicable,
---------------------
but not later than 90 days after the Closing Date, Quest shall deliver to Buyer
(a) the Closing Balance Sheet, together with supporting schedules, prepared on
the same basis as the balance sheet of Seller dated as of the Interim Balance
Sheet Date attached hereto as Schedule 2.4.1 (the "CV BALANCE SHEET") and (b) a
--------------
statement setting forth the Closing Date Asset Value and the actual amount of
the Closing Date Assumed Liabilities (the "ADJUSTMENT STATEMENT"). The CV
Balance Sheet was, and the Closing Balance Sheet shall be, prepared in
accordance with the Seller Financial Practices.
2.4.2 Review of Adjustment Statement. Within 30 days after
------------------------------
receipt of the Closing Balance Sheet and Adjustment Statement, Buyer shall
inform Quest in writing either (a) that the Adjustment Statement is acceptable
to Buyer or (b) that Buyer objects to the Adjustment Statement, which objection,
if any, shall set forth in reasonable detail its objections and the basis for
those objections. If Buyer so objects and the Parties do not resolve such
objections on a mutually agreeable basis within 30 days after Quest's receipt of
such objection notice, the disagreement shall be resolved within an additional
period of 60 days by the Independent Firm. The decision of the Independent Firm
shall be final and binding upon the Parties. Upon the agreement of Quest and
Buyer, the decision of the Independent Firm, or, if Buyer fails to deliver a
notice to Quest objecting to the Adjustment Statement, upon expiration of such
30 day period, the Adjustment Statement (as adjusted, if applicable, by the
agreement of Quest and Buyer or the decision of the Independent Firm) and the
determination of the Closing Date Asset Value and the Closing Date Assumed
Liabilities based thereon shall be deemed final. The Independent Auditor will
allocate its costs and expenses in reviewing the issues in dispute to Quest and
Buyer based on the percentage determined by dividing (i) that
Page 22 of 63 Pages
<PAGE>
portion of the contested amount not awarded to such Party, by (ii) the amount
actually contested by the Parties. For example, if Buyer claims that the Closing
Date Asset Value should be $1,000 lower than the amount set forth on the initial
Adjustment Statement, and Quest contests $500 of the amount suggested by Buyer,
and if the adjusted Adjustment Statement results in a Closing Date Asset Value
of $800 lower than that shown on the initial Adjustment Statement ($300 lower
than the contested amount), then the costs and expenses of the Independent
Auditor will be allocated 60% (i.e., 300 / 500) to Quest and 40% (i.e., 200 /
500) to Buyer.
2.4.3 Asset Value Adjustment Procedure. Upon the final determination of
--------------------------------
the Closing Date Asset Value and the Closing Date Assumed Liabilities on the
Adjustment Statement in accordance with Section 2.4.2, the Aggregate Purchase
-------------
Price shall be increased or reduced, as follows: (a) if the Closing Date Asset
Value is greater than the Estimated Assets, the amount of such difference shall
be paid by Buyer to Quest, (b) if the Closing Date Asset Value is less than the
Estimated Assets, the amount of such difference shall be paid by Quest to Buyer,
(c) if the Closing Date Assumed Liabilities are greater than the Estimated
Liabilities, the amount of such difference shall be paid by Quest to Buyer, and
(d) if the Closing Date Assumed Liabilities are less than the Estimated
Liabilities, the amount of such difference shall be paid by Buyer to Quest.
Payment of the net amount of the amounts referred to in clauses (a), (b), (c)
----------- --- ---
and (d) of this Section 2.4.3, together with interest thereon from the Closing
--- -------------
Date to the date of payment calculated at a rate equal to the Prime Rate, shall
be made by wire transfer of immediately available funds to an account designated
by the non-paying Party within five business days after the date that the
determination of the Adjustment Statement is deemed final in accordance with
Section 2.4.2.
- -------------
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF QUEST
Quest makes the following representations and warranties regarding Quest or
Seller, as applicable, to Buyer and Buyer Parent:
3.1 Organization; Power and Authority. Quest is a corporation duly
---------------------------------
organized, validly existing and in good standing under the laws of the State of
Texas, and is duly qualified to transact business in each jurisdiction in which
such qualification is required by Law, except where the failure to be so
qualified would not have a Material Adverse Effect. Quest has all corporate
power needed to own or lease its assets and to carry on its business as it is
now being conducted. Set forth on
Page 23 of 63 Pages
<PAGE>
Schedule 3.1 is a list of all jurisdictions where Quest is qualified to transact
- ------------
business as a foreign corporation.
3.2 Authorization; Execution and Validity. Quest has all requisite corporate
-------------------------------------
power to execute, deliver and perform its obligations under this Agreement and
to consummate the transactions contemplated hereby. The execution, delivery and
performance by Quest of this Agreement and the consummation by Quest of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement has been duly and validly executed and
delivered by Quest, constitutes a valid and binding obligation of Quest and is
enforceable against Quest in accordance with its terms.
3.3 Title. Quest has good and marketable title to the Assets, free and clear
-----
of any Liens other than Permitted Liens. All bills of sale, assignments and
other instruments of transfer to be executed and delivered by Quest to Buyer at
the Closing will transfer to Buyer good and marketable title to the Assets, free
and clear of any Liens other than Permitted Liens.
3.4 Subsidiaries. Except as set forth on Schedule 3.4, Quest does not own
------------ ------------
any shares of capital stock, partnership interests or other beneficial ownership
interests in any other Person.
3.5 Financial Statements.
--------------------
3.5.1 Quest Year-End Financial Statements. Quest has delivered to
-----------------------------------
Buyer a copy of Quest's Form 10-K for the year ended December 31, 1996 (the
"FORM 10-K"). The Form 10-K contains the audited consolidated balance sheets of
Quest as of December 31, 1995 and December 31, 1996, and the related
consolidating statements of operations and cash flows for the fiscal years ended
on such dates and the accompanying notes (collectively, the "FINANCIAL
STATEMENTS"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles and present fairly, in all material
respects, the financial position of Quest and its subsidiaries as of the periods
indicated and the results of their operations and cash flows for the periods
then ended.
3.5.2 Quest Interim Financial Statements. Quest has delivered to Buyer a
----------------------------------
copy of Quest's Forms 10-Q for the quarters ended June 30, 1997 and September
30, 1997 (collectively, the "FORMS 10-Q"). The Forms 10-Q contains the
unaudited consolidated balance sheet of Quest as of June 30, 1997 and September
30, 1997 and the related consolidating statement of operations for the six and
nine month periods then ended (the "INTERIM FINANCIAL STATEMENTS"). The Interim
Financial Statements have been prepared in accordance with generally
Page 24 of 63 Pages
<PAGE>
accepted accounting principles and present fairly, in all material respects, the
financial position of Quest and its subsidiaries as of the dates thereof and the
results of their operations for the periods then ended, subject to normal audit
adjustments and year-end adjustments in accordance with the Seller Financial
Practices.
3.5.3 Seller Year-End Financial Statement. Quest has delivered to Buyer
-----------------------------------
a copy of the unaudited statements of operations of Seller for the twelve month
periods ended December 31, 1995 and December 31, 1996. Such unaudited
statements of operations have been prepared in accordance with the Seller
Financial Practices and present fairly, in all material respects, the results of
Seller's operations for the periods then ended, subject to normal audit
adjustments.
3.5.4 Seller Interim Financial Statements. Quest has delivered to Buyer
-----------------------------------
copies of the unaudited statement of operations of Seller for the six month
period ended on the Interim Balance Sheet Date (collectively with the CV Balance
Sheet, the "SELLER INTERIM FINANCIAL STATEMENTS"). The Seller Interim Financial
Statements have been prepared in accordance with the Seller Financial Practices
and present fairly, in all material respects, the financial position of Seller
as of the date thereof and the results of its operations for the period then
ended, subject to normal audit adjustments, and year-end adjustments in
accordance with the Seller Financial Practices.
3.6 Absence of Undisclosed Liabilities. Seller has no Liabilities arising
----------------------------------
out of or related to the Assets except (a) as set forth on Schedule 3.6, (b) as
------------
and to the extent disclosed or reserved against in the Seller Interim Financial
Statements and (c) Liabilities that were incurred after the Interim Balance
Sheet Date in the ordinary course of business consistent with past practice.
3.7 Absence of Certain Changes. Except as set forth on Schedule 3.7, since
-------------------------- ------------
the Interim Balance Sheet Date, there has been no (a) event or occurrence that
has had or could reasonably be expected to have a Material Adverse Effect, (b)
material amendment or termination of any Material Contract, Material Lease or
material Permit of Seller, (c) material destruction, damage or other loss to any
of the properties or assets of Seller, (d) sale, lease or other disposition of
any properties or assets of Seller, other than inventory sold or otherwise
disposed of in the ordinary course of business and other assets with a book
value of no more than $15,000 in the aggregate, (e) purchase or lease by Seller
of any properties or assets, other than in the ordinary course of business, (f)
increase in the compensation payable to any of Seller's employees, except for
bonuses paid to officers of Seller, Eric Bucklein and Kathy Bucklein, and
increases in the
Page 25 of 63 Pages
<PAGE>
ordinary course of business consistent with past practice, (g) grant of any Lien
on the Assets other than Permitted Liens, (h) termination or threatened
termination of Seller's relationship with (i) any customer with sales
attributable to such customer in excess of $100,000 for the 12-month period
ended September 30, 1997, (ii) any supplier with payments attributable to such
supplier in excess of $50,000 for the 12-month period ended September 30, 1997
or (iii) any material advertiser, trade creditor or trade debtor, or (i) to
Seller's Knowledge, agreement or commitment to take any action described in this
Section 3.7.
- -----------
3.8 No Conflict; Seller Consents. Except as set forth on Schedule 3.8, the
---------------------------- -------------
execution, delivery and performance by Quest of this Agreement will not (a)
violate any Law, (b) violate any Charter Document of Quest, (c) violate any
Order to which Seller is a party or by which it is bound, (d) require any
Consent from any Governmental Authority or any other third party with respect to
any Material Contract, Material Lease or material Permit of Seller, except to
comply with the HSR Act, if applicable, (e) violate or breach any Material
Contract, Material Lease or material Permit of Seller or (f) result in the
creation of any Lien on any assets of Seller.
3.9 Condition of Assets. Except as otherwise set forth on Schedule 3.9, the
------------------- ------------
Assets (including for the purposes of this Section 3.9 the Real Property)
-----------
consisting of structures, furniture, fixtures and equipment are structurally
sound with no material defects and are in sufficient operating order, condition
and repair, ordinary wear and tear excepted, for the operation of Seller's
business as currently conducted, and none of such structures, furniture,
fixtures or equipment are in need of maintenance or repairs except for ordinary,
routine maintenance and repairs consistent with the age and use of such assets,
which are not, either individually or in the aggregate, material.
3.10 Real Property.
-------------
(a) Schedule 3.10(a) describes the real property currently owned by
----------------
Quest (the "REAL PROPERTY"), and Schedule 3.10(b) describes the real property
----------------
currently leased by Quest (the "LEASED REAL PROPERTY").
(b) Quest has good and indefeasible fee simple title to the Real
Property, free and clear of all Liens except for Permitted Liens. Quest has good
leasehold interests in, and possession of, all Leased Real Property, subject to
the terms of the applicable leases. All of the leases for Leased Real Property
are valid, binding and in full force and effect, and there has been no breach,
which breach has not been cured or waived, of any such lease by Quest or to
Seller's Knowledge, the lessors thereunder.
Page 26 of 63 Pages
<PAGE>
(c) To Seller's Knowledge, no fact or condition exists which could result
in the termination or reduction of the current access to or from the Real
Property or Leased Real Property to existing roads or the sewer or other utility
services presently serving the Real Property or Leased Real Property, except for
the sale of .0548 acres of the Real Property to the Texas Department of
Transportation for the purpose of widening the public road adjoining the Real
Property.
(d) To Seller's Knowledge, the Real Property and the Leased Real Property
are properly zoned for their current use or uses, and there are presently no
Laws applicable to any parcel of the Real Property or Leased Real Property which
prohibit the use of such Real Property or Leased Real Property for such purpose
or purposes.
(e) No written notices or requests have been received by Quest from any
insurance company issuing any policy of insurance covering the Real Property or
Leased Real Property requesting the performance of any work, restoration or
repair with respect to the Real Property or Leased Real Property with which
compliance to the satisfaction of such insurance company has not been made.
(f) Except as may be described in the Permitted Liens and in the survey
of the Real Property previously delivered to Buyer, there is no dispute
concerning the property lines with respect to any portion of the Real Property
or Leased Real Property and no Person other than ANS is in possession of any
portion of the Real Property.
(g) Neither the Real Property nor the Leased Real Property is subject to
any current use or special use assessment or any ad valorem tax abatement, other
than the Tax Abatement Agreement.
(h) To Seller's Knowledge, with respect to the improvements on the Real
Property and Leased Real Property, (i) such improvements are in conformity in
all material respects with all applicable Laws and no variances or other waivers
were obtained or are required to assure such conformity, and (ii) there are no
latent defects regarding such improvements.
(i) To Seller's Knowledge, no Person is legally entitled to file a
mechanic's, materialmen's, furnisher's, laborer's or similar Lien against the
Real Property or the Leased Real Property, nor are there any circumstances which
would give rise to any such claims.
Page 27 of 63 Pages
<PAGE>
3.11 Personal Property.
-----------------
3.11.1 Owned Personal Property. Subject to Permitted Liens, Quest has good
-----------------------
and marketable title to all personal property reflected on the Seller Interim
Financial Statement and all personal property acquired by Seller since the
Interim Balance Sheet Date, other than (a) property disposed of in the ordinary
course of business, (b) property disposed of or to be disposed of in
transactions disclosed to Buyer or Buyer Parent prior to the date hereof and
listed on Schedule 3.11.1, and (c) Leased Personal Property.
---------------
3.11.2 Leased Personal Property. Schedule 3.11.2 lists all of the personal
------------------------ ---------------
property leased to or from Seller pursuant to a Material Lease (collectively,
the "LEASED PERSONAL PROPERTY"). All of the Material Leases of Leased Personal
Property are valid, binding and in full force and effect, and there has been no
breach, which breach has not been cured or waived, of any such Material Lease by
Quest or, to Seller's Knowledge, any other Person. True and correct copies (or
descriptions in the case of oral Material Leases) of all Material Leases of
Leased Personal Property have been delivered to Buyer.
3.12 Insurance. Schedule 3.12 lists all material insurance policies owned or
--------- -------------
held by Seller that cover the Assets and such policies are in full force and
effect, all premiums with respect thereto have been paid to the extent due, and
no notice of cancellation or termination has been received with respect to any
such policy (other than policies that have been replaced or are intended to be
replaced prior to the expiration thereof by policies providing substantially the
same coverage).
3.13 Contracts. Except for (a) purchase orders, invoices, confirmations and
---------
similar documents, (b) Leases for Leased Personal Property, and (c) Employee
Benefit Plans, Schedule 3.13 sets forth all of the Material Contracts. All
-------------
Material Contracts are valid, binding and in full force and effect, and there
has been no breach, which breach has not been cured or waived, of any Material
Contract by Seller or, to Seller's Knowledge, any other Person that would have a
Material Adverse Effect. True and correct copies (or descriptions in the case
of oral Material Contracts) of all Material Contracts have been delivered to
Buyer.
3.14 Litigation; Orders. Except as set forth on Schedule 3.14, there is no
------------------ -------------
Action by any Person by or before any Governmental Authority that is pending or,
to Seller's Knowledge, threatened, against or affecting Seller or any of the
Assets. Except as set forth on Schedule 3.14, Seller is not subject to any
-------------
Order.
Page 28 of 63 Pages
<PAGE>
3.15 Environmental Matters. To Seller's Knowledge, Seller has not failed to
---------------------
(a) comply with any Environmental Law in any material respect, (b) maintain in
effect and comply with any material Permit required by any Environmental Law, or
(c) comply with any consent agreement or Order to which it is a party or by
which it is bound that relates to any Environmental Law. Schedule 3.15 sets
-------------
forth all of the material Permits currently required for Seller by any
Environmental Law and consent agreements and Orders to which Seller is a party
or by which Seller is bound that relate to any Environmental Law. Seller is not
subject to any pending or, to Seller's Knowledge, threatened Actions related to
any Environmental Law. Except as set forth in this Section 3.15, Seller makes
------------
no express or implied representation or warranty in this Agreement concerning
environmental matters.
3.16 Permits. Schedule 3.16 lists all Permits (other than the Permits
------- -------------
required to be listed on Schedule 3.15) that are required and material to the
-------------
conduct of Seller's business. All Permits that are required and material to
Seller's business are in full force and effect, with no suspension, revocation
or modification pending or, to Seller's Knowledge, threatened, other than the
expiration of Permits in accordance with the terms thereof that may be renewed
in the ordinary course of business without lapsing. True and correct copies of
all Permits listed on Schedule 3.16 have been delivered to Buyer.
-------------
3.17 Medical Device Regulation. Except as set forth in Schedule 3.17, Seller
------------------------- -------------
has obtained all applicable licenses, registrations, approvals, clearances, and
authorizations required by Governmental Authorities regulating the safety,
effectiveness and market clearance of Seller's medical devices which are
currently marketed by Seller in respect of the territories in which such devices
are currently marketed. Such licenses, registrations, approvals, clearances,
and authorizations have not been withdrawn, revoked or challenged and to
Seller's Knowledge, Seller has not taken any action with respect to the design,
development, manufacture or distribution of any such medical device which could
reasonably be expected to lead to such withdrawal, revocation or challenge. Set
forth in Schedule 3.17 is information relating to the regulation of Seller's
-------------
medical devices that are currently marketed or that have been approved for
marketing since November 1, 1994, including inspections and Seller's recalls and
product actions since November 1, 1994 and licenses, registrations, device
listings and Seller's ongoing clinical studies.
3.18 Intellectual Property. Schedule 3.18 sets forth a true and complete list
--------------------- -------------
of all Intellectual Property material to the conduct of Seller's business and a
description of whether such Intellectual Property is owned or licensed by
Seller.
Page 29 of 63 Pages
<PAGE>
Except as set forth on Schedule 3.18, (a) to Seller's Knowledge, with respect to
Intellectual Property owned by Seller, Seller owns all right, title and interest
in and to such Intellectual Property and with respect to Intellectual Property
licensed by Seller and related to products marketed by Seller, such licenses are
exclusive, valid and in good standing and assignable to Buyer, (b) no licenses,
sublicenses, covenants or agreements have been granted or entered into by Seller
in respect of such Intellectual Property, (c) to Seller's Knowledge, no Person
is infringing upon Seller's rights in such Intellectual Property, (d) to
Seller's Knowledge, Seller has not infringed or misappropriated any Intellectual
Property of any other Person, (e) no Action is pending or to Seller's Knowledge,
threatened asserting any such infringement or misappropriation by Seller, (f) no
shareholder, director, officer or employee of Seller owns or has any interest in
any of such Intellectual Property and (g) to Seller's Knowledge, no shareholder,
director, officer, or employee of Seller has breached the terms of any
confidentiality, nondisclosure or other agreement relating to the protection of
such Intellectual Property.
3.19 Employee Benefits.
-----------------
3.19.1 Employee Benefit Plans. Schedule 3.19.1 lists each written pension,
---------------------- ---------------
retirement, profit-sharing, deferred compensation, bonus, incentive,
performance, stock option, stock appreciation, phantom stock, stock purchase,
restricted stock, medical, hospitalization, vision, dental or other health,
life, disability, severance, termination or other employee benefit plan,
program, arrangement, agreement or policy (including each ERISA Plan) which
currently covers any employee of Seller and which is sponsored, maintained or
contributed to by Seller (each, an "EMPLOYEE BENEFIT PLAN"). Each Employee
Benefit Plan complies in all material respects, and has been operated and
administered in all material respects, in accordance with all applicable
requirements of all Laws, including ERISA and the Code. Each Employee Benefit
Plan intended to qualify under Section 401(a) of the Code has received a ruling
or determination letter concluding that such Employee Benefit Plan so qualifies,
and to Seller's Knowledge, no event has occurred, amendment been adopted or
action been taken that would cause such Employee Benefit Plan to lose its
qualified status.
3.19.2 Records. Seller has made available to Buyer and Buyer Parent copies
-------
of each Employee Benefit Plan and any amendments thereto and any related trust
agreement, funding agreement and insurance contract relating thereto and, if
applicable, (a) the last filed Form 5500, (b) the summary plan description
currently in effect for each Employee Benefit Plan and all material
modifications thereto, (c) the last financial statements for each Employee
Benefit Plan and its related trust,
Page 30 of 63 Pages
<PAGE>
if any, and (d) the most recent determination letter issued with respect to each
Employee Benefit Plan.
3.19.3 Actions. There are no Actions pending (other than routine claims
-------
for benefits) or, to Seller's Knowledge, threatened, with respect to any
Employee Benefit Plan.
3.19.4 Multiemployer Plans and Multiple Employer Plans. No Employee
-----------------------------------------------
Benefit Plan is (a) a "multiple employer" plan within the meaning of Section
4063 or 4064 of ERISA, (b) a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA or other applicable employee benefit legislation, or (c) a
"defined benefit plan" as defined in Section 3(35) of ERISA.
3.20 Taxes. Seller has filed all Returns required to be filed and has paid
-----
all Taxes required to be paid except such Taxes, if any, as are not yet due and
payable or which are being contested in good faith and by proper proceedings
which contests are described on Schedule 3.20. Seller is not a party to any Tax
-------------
allocation or sharing agreement.
3.21 Compliance with Law. To Seller's Knowledge, Seller is in compliance in
-------------------
all material respects with all Laws, Permits and Orders in connection with the
operation of its business and the ownership and maintenance of the Assets. To
Seller's Knowledge, all filings and notices required to be made by Seller with
any Governmental Authority in connection with the operation of its business or
the ownership and maintenance of the Assets (including, without limitation, the
Intellectual Property) have been made or given in a timely fashion.
3.22 Labor Matters. There is no labor strike, slowdown, stoppage or other
-------------
labor difficulty actually pending or to Seller's Knowledge, threatened against
Seller. There is no collective bargaining agreement or union contract binding
upon Seller, and there has not been any such agreement or contract in effect at
any time during the preceding five years.
3.23 Accounts Receivable. The accounts receivable to be purchased by Buyer
-------------------
pursuant to this Agreement have arisen from bona fide sales in the ordinary
course of business and represent bona fide, and to Seller's Knowledge,
undisputed obligations of the respective debtors.
3.24 Inventory. The inventory of Seller consists of a quality and quantity
---------
usable and salable in the ordinary course of business consistent with Seller's
past practice and is reflected in the Interim Financial Statements in accordance
with the Seller Financial Practices.
Page 31 of 63 Pages
<PAGE>
3.25 Trade Payables. The trade accounts payable of Seller constituting
--------------
Assumed Liabilities represent bona fide and undisputed obligations of Seller and
were incurred by Seller in the ordinary course of business.
3.26 Brokers. Except for Smith Barney Incorporated (now associated with
-------
Saloman Brothers Incorporated and collectively doing business with Saloman
Brothers Incorporated as Saloman Smith Barney) and Rauscher Pierce Refsnes,
Inc., no Person is or will become entitled to receive any brokerage or finder's
fee, advisory fee or other similar payment for the transactions contemplated by
this Agreement by virtue of having been engaged by or acted on behalf of Quest.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER PARENT
Buyer and Buyer Parent make the following representations and warranties to
Quest:
4.1 Organization; Power and Authority. Each of Buyer and Buyer Parent is a
---------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Delaware.
4.2 Authorization; Execution and Validity. Each of Buyer and Buyer Parent
-------------------------------------
has all requisite corporate power to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby to be consummated by it. The execution, delivery and performance by each
of Buyer and Buyer Parent of this Agreement and the consummation by each of
Buyer and Buyer Parent of the transactions contemplated hereby have been duly
authorized by all necessary corporate action. This Agreement has been duly and
validly executed and delivered by each of Buyer and Buyer Parent, constitutes a
valid and binding obligation of each of Buyer and Buyer Parent and is
enforceable against each of Buyer and Buyer Parent in accordance with its terms.
4.3 No Conflict; Buyer Consents. Except as set forth on Schedule 4.3, the
--------------------------- ------------
execution, delivery and performance by each of Buyer and Buyer Parent of this
Agreement will not (a) violate any Law, (b) violate any Charter Document of
Buyer or Buyer Parent, (c) violate any Order to which Buyer or Buyer Parent is a
party or by which it is bound, (d) require any Consent from any Governmental
Authority or any other third party except to comply with the HSR Act, if
applicable, or (e) violate or breach any material Contract to which Buyer or
Buyer Parent is a party or by which it is bound.
4.4 Litigation; Orders. There is no Action by any Person by or before any
------------------
Governmental Authority that is pending
Page 32 of 63 Pages
<PAGE>
or, to the knowledge of Buyer or Buyer Parent, threatened by, against or
affecting either Buyer or Buyer Parent or any of its properties, assets,
operations or business which would, if adversely determined, have a material
adverse effect on Buyer's or Buyer Parent's ability to consummate the
transactions contemplated by this Agreement, nor is Buyer or Buyer Parent
subject to any Order which would have any such effect.
4.5 Sufficient Funds. Buyer has the financial capability to purchase the
----------------
Assets on the terms and subject to the conditions set forth in this Agreement
and pay the Assumed Liabilities as they become due and payable. Buyer Parent
has available on hand, from its working capital or currently available
unrestricted credit facilities, all of the cash that Buyer will need to
consummate the purchase of the Assets and pay the Assumed Liabilities as they
become due and payable and will provide Buyer with immediately available funds
if necessary to enable Buyer to satisfy all of Buyer's payment obligations
hereunder when due.
4.6 Brokers. Except for Raymond James & Associates, Inc., no Person is or
-------
will become entitled to receive any brokerage or finder's fee, advisory fee or
other similar payment for the transactions contemplated by this Agreement by
virtue of having been engaged by or acted on behalf of Buyer or Buyer Parent.
Page 33 of 63 Pages
<PAGE>
ARTICLE 5
COVENANTS OF QUEST
5.1 Cooperation by Quest. From the date hereof through the Closing Date,
--------------------
Quest shall use all reasonable efforts to take all actions and to do all things
necessary or advisable to consummate the transactions contemplated by this
Agreement and to cooperate with Buyer and Buyer Parent in connection with the
foregoing, including executing and delivering the Lease Agreement described in
Section 8.1.8 and the Option Agreement described in Section 8.1.9 and using
- ------------- -------------
commercially reasonable efforts (a) to assist Buyer in obtaining amendments to
the Retention Agreements by Transferred Employees pursuant to which, among other
things, such Transferred Employees waive any rights to compensation under the
Retention Agreements because their "job responsibilities are significantly
reduced," (b) to assist Buyer in obtaining noncompete agreements from specified
Retained Employees and other persons specifically identified by Buyer (c) to
assist Buyer in obtaining employment agreements and nondisclosure agreements
from specified Transferred Employees, (d) to obtain assignments to Buyer of all
Permits listed on Schedules 3.15 and 3.16, the Intellectual Property licensed by
-------------- ----
Seller listed on Schedule 3.18 and all licenses, registrations, approvals,
-------------
clearances and authorizations regulating medical devices currently marketed by
Seller or that have been approved for marketing since November 1, 1994, to the
extent any of the foregoing is assignable by Seller, and (e) to obtain all
Consents required to consummate the transactions contemplated by this Agreement.
However, Quest shall have no obligation to amend, or cause to be amended, any
Contract, to change, or cause to be changed, any Permit, or to make, or cause to
be made, any payment to obtain any of the foregoing. Except for the amendment
to the Retention Agreements referred to in clause (a) above, the Retention
----------
Agreements shall not be amended, supplemented or modified.
5.2 Pre-Closing Access to Information. From the date hereof through the
---------------------------------
Closing Date, Quest shall use all reasonable efforts to respond to any
reasonable inquiry by Buyer concerning the Assets or the operation of Seller's
business and shall afford to Buyer and Buyer Parent, their accountants and their
counsel access, in a reasonable manner, upon reasonable notice and at reasonable
times, to all of the properties, books and records of Seller (excluding
information that is subject to attorney-client privilege). Buyer shall direct
all requests for information to:
Page 34 of 63 Pages
<PAGE>
Quest Medical, Inc.
One Allentown Parkway
Allen, Texas 75002-4211
Telephone: (972) 390-9800
Facsimile: (972) 390-9687
Attention: F. Robert Merrill III
5.3 Operation of Business. Prior to the Closing Date, without the prior
---------------------
written consent of Buyer or Buyer Parent, which consent shall not be
unreasonably withheld, Seller (a) will operate its business only in the ordinary
course and maintain books of account and records in the usual, regular and
ordinary manner consistent with the Seller Financial Practices, (b) will use its
best efforts to keep intact the business organization of Seller, (c) will use
its best efforts to retain its present employees, (d) will use its best efforts
to maintain the goodwill of the customers, suppliers, vendors and others having
business relations with Seller, (e) will keep in full force and effect
reasonable insurance coverage or other comparable insurance coverage, as may be
necessary to insure the Assets adequately, (f) will give Buyer prompt written
notice of any written communications to or from any Governmental Authority
regarding the Assets or its business, (g) will maintain all Permits required and
material to the conduct of its business, (h) will not increase the compensation
to any of its employees, except for bonuses paid to officers, Eric Bucklein and
Kathy Bucklein, (i) will not sell, lease or dispose of any properties or assets
except for inventory sold or disposed of in the ordinary course of business and
other assets with an aggregate value of no more than $15,000, (j) will not
purchase or lease any personal property or assets other than properties and
assets purchased or leased in the ordinary course of business consistent with
past practice, (k) except for capital expenditures made pursuant to Material
Contracts existing on the date hereof, will not commit to, authorize or engage
in any capital projects or capital expenditures relating to its business or the
Assets in excess of $25,000, and (l) will not make any filings with the United
States Patent and Trademark Office, the United States Copyright Office or any
comparable state agencies with respect to the Intellectual Property listed on
Schedule 3.18.
- -------------
5.4 Further Assurances. Subject to the other terms and conditions of this
------------------
Agreement, at any time and from time to time, whether before or after the
Closing, Quest shall execute and deliver all instruments and documents and take
all other action that Buyer or Buyer Parent may reasonably request to consummate
or to evidence the consummation of the transactions contemplated by this
Agreement, including, without limitation, using commercially reasonable efforts
to obtain any Consents and file any documents with Governmental Authorities or
foreign governmental authorities with respect to the transfer of
Page 35 of 63 Pages
<PAGE>
Intellectual Property items listed on Schedule 3.18 and the approvals described
-------------
in Schedule 3.17.
-------------
5.5 Governmental Matters.
---------------------
5.5.1 HSR Act Compliance. If the parties determine that such a filing is
------------------
required, promptly after the date hereof, Quest shall file any notification
required to be filed under the HSR Act to consummate the transactions
contemplated hereby, and shall request early termination of the waiting period
thereunder. In such event, Quest shall use all reasonable efforts to comply as
promptly as practicable with any request made pursuant to the HSR Act for
additional information. Quest shall reasonably cooperate with Buyer or Buyer
Parent in such compliance.
5.5.2 Other Governmental Approvals. Quest shall comply with any other
----------------------------
Laws which are applicable to any of the transactions contemplated hereby and
pursuant to which government notification or approval of such transaction is
necessary. Quest shall cooperate with Buyer and Buyer Parent in any manner
reasonably requested by Buyer or Buyer Parent in providing any information about
Quest which is required for this purpose and in promptly filing, separately or
jointly with Buyer or Buyer Parent, any applications for such government
notification or approval.
5.6 Supplements to Schedules. If, to Seller's Knowledge, any event occurs or
------------------------
condition changes that causes any of its representations or warranties in this
Agreement to be inaccurate, Seller shall promptly notify Buyer or Buyer Parent
thereof in writing. Seller may amend or supplement the Schedules to account for
any such event or change. If such supplement or amendment relates to any
inaccuracy in the representations or warranties which would cause the condition
in Section 8.1.1 to not be satisfied, then Buyer and Buyer Parent shall have
-------------
five business days from the date of Seller's notice in which to terminate this
Agreement by giving Seller a notice of termination. If Buyer or Buyer Parent
fails to timely give such notice of termination, then the inaccuracy to which
said supplement or modification relates shall not be taken into account in
determining whether the condition in Section 8.1.1 has been satisfied.
-------------
5.7 No-Shop Provisions. From the date hereof until the date this Agreement
------------------
is terminated in accordance with Section 10.1, neither Quest nor any of its
------------
respective agents or Affiliates will, directly or indirectly, solicit or furnish
any information to any prospective buyer, commence or conduct negotiations with
any other party, or enter into any agreement with any other party concerning the
sale of all or any material portion of the Assets.
Page 36 of 63 Pages
<PAGE>
5.8 Noncompetition. Quest agrees that, effective as of the Closing Date and
--------------
until the fourth anniversary of the Closing Date (the "NONCOMPETITION PERIOD"),
without the prior approval of Buyer, neither Quest nor any of its Affiliates
will, directly or indirectly, on its own behalf or as an agent of or an investor
in another Person:
(a) engage in the business of inventing, developing, designing,
manufacturing, licensing, selling or distributing any product or device which is
competitive with any of the products invented, developed, designed or being
developed or designed, manufactured or distributed by Seller immediately prior
to the Closing or by Buyer prior to the termination of the Lease Agreement
described in Section 8.1.8 (the "COMPETITIVE BUSINESS");
-------------
(b) influence or attempt to influence any (i) customer or supplier of Buyer
or (ii) any customer or supplier of Seller during the three year period prior to
the Closing Date to purchase or supply goods or services related to the
Competitive Business from or to any Person other than Buyer; or
(c) solicit the employment of or hire any person who was an employee of Buyer
within the 12-month period preceding such solicitation or hiring;
provided, however, that nothing herein shall preclude any Person from engaging
in the business conducted by ANS immediately prior to the Closing or engaging in
any other business which is not a Competitive Business, or from making an
investment in any entity which may engage in the Competitive Business so long as
such investment interest does not exceed five percent of the outstanding voting
securities of such entity and so long as such investment does not require such
Person making the investment to provide services with respect to the operation
and affairs of the entity in which such investment is made.
If any provision of this Section 5.8 should be found to be unenforceable by
-----------
reason of its being too broad as to the period of time, territory, and/or scope,
then, and in that event, Buyer and Quest agree that such provision shall
nevertheless remain valid and fully effective, but shall be considered to be
amended so that the period of time, territory, and/or scope set forth shall be
changed to be the maximum period of time, the largest territory, and/or the
broadest scope, as the case may be, which would be found enforceable. Any
violation of the provisions of this Section 5.8 shall automatically toll and
-----------
suspend the Noncompetition Period for the duration of such violation.
Page 37 of 63 Pages
<PAGE>
ARTICLE 6
COVENANTS OF BUYER AND BUYER PARENT
6.1 Cooperation by Buyer and Buyer Parent. From the date hereof through the
-------------------------------------
Closing Date, each of Buyer and Buyer Parent shall use all reasonable efforts to
take all actions and to do all things necessary or advisable to consummate the
transactions contemplated by this Agreement and to cooperate with Quest in
connection with the foregoing, including executing and delivering the Lease
Agreement described in Section 8.1.8 and the License Agreement described in
-------------
Section 8.2.6 and using commercially reasonable efforts to obtain the Consents
- -------------
required to consummate the transactions contemplated by this Agreement.
6.2 Pre-Closing Access to Information. Each of Buyer and Buyer Parent shall
---------------------------------
comply with the limitations on the disclosure and use of information set forth
in the Confidentiality Agreement with respect to the information that Quest
provides to any of Buyer, Buyer Parent, their accountants or their counsel in
and pursuant to this Agreement. Buyer and Buyer Parent shall refrain from
imposing any undue burden upon Quest and from interfering with the operations of
Quest.
6.3 Further Assurances. Subject to the other terms and conditions of this
------------------
Agreement, at any time and from time to time, whether before or after the
Closing, each of Buyer and Buyer Parent shall execute and deliver all
instruments and documents and take all other action that Quest may reasonably
request to consummate or to evidence the consummation of the transactions
contemplated by this Agreement.
6.4 Governmental Matters.
--------------------
6.4.1 HSR Act Compliance. If the parties determine that such a filing is
------------------
required, promptly after the date hereof, Buyer and Buyer Parent shall file any
notification required to be filed under the HSR Act to consummate the
transactions contemplated hereby, and shall request early termination of the
waiting period thereunder. In such event, Buyer and Buyer Parent shall use all
reasonable efforts to comply as promptly as practicable with any request made
pursuant to the HSR Act for additional information. Buyer and Buyer Parent
shall cooperate with Quest in such compliance and shall pay all filing fees in
connection with the HSR Act.
6.4.2 Other Governmental Approvals. Each of Buyer and Buyer Parent shall
----------------------------
comply with any other Laws which are applicable to any of the transactions
contemplated hereby and pursuant to which government notification or approval of
such transaction is necessary. Each of Buyer and Buyer Parent shall cooperate
with Quest in any manner reasonably requested by Quest
Page 38 of 63 Pages
<PAGE>
in providing any information about Buyer or Buyer Parent which is required for
this purpose and in promptly filing, separately or jointly with Quest, any
applications for such government notification or approval. Each of Buyer and
Buyer Partner shall use all reasonable efforts to resolve such objections, if
any, as may be asserted by any Governmental Authority with respect to the
transactions contemplated hereby.
6.5 Noncompetition. Buyer and Buyer Parent agree that effective as of the
---------------
Closing Date and until the second anniversary of the Closing Date (the "ANS
NONCOMPETITION PERIOD"), without the prior approval of Quest, neither Buyer nor
Buyer Parent, nor any of its Affiliates will, directly or indirectly, on its own
behalf or as an agent of or an investor in another Person:
(a) engage in the business of inventing, developing, designing,
manufacturing, licensing, selling or distributing any product or device which is
competitive with any of the products invented, developed, designed or being
developed or designed, manufactured or distributed by ANS immediately prior to
the Closing, or by Quest or ANS during the period beginning on the Closing Date
and ending on the date of the termination of the Lease Agreement described in
Section 8.1.8 (the "ANS COMPETITIVE BUSINESS");
- -------------
(b) influence or attempt to influence any (i) customer or supplier of ANS
or (ii) any customer or supplier of Buyer or Buyer Parent during the three year
period prior to the Closing Date to purchase or supply goods or services related
to the ANS Competitive Business from or to any Person other than ANS; or
(c) solicit the employment of or hire any person who was an employee of
ANS or Quest (including without limitation Retained Employees but excluding the
Transferred Employees) within the 12-month period preceding such solicitation or
hiring;
provided, however, that nothing herein shall preclude any Person from engaging
in any other business which is not an ANS Competitive Business.
If any provision of this Section 6.5 should be found to be unenforceable by
-----------
reason of its being too broad as to the period of time, territory, and/or scope,
then, and in that event, Buyer, Buyer Parent and Quest agree that such provision
shall nevertheless remain valid and fully effective, but shall be considered to
be amended so that the period of time, territory, and/or scope set forth shall
be changed to be the maximum period of time, the largest territory, and/or the
broadest scope, as the case may be, which would be found enforceable. Any
violation of the provisions of this Section 6.5 shall automatically toll and
-----------
Page 39 of 63 Pages
<PAGE>
suspend the ANS Noncompetition Period for the duration of such violation.
ARTICLE 7
MUTUAL COVENANTS
7.1 Taxes. The Parties agree and acknowledge that the transactions
-----
contemplated by this Agreement constitute the sale of the entire operating
assets of a separate business or of a separate division, branch or identifiable
segment of a business for sales Tax purposes, and that no sales or use Taxes are
due on such sale.
7.1.1 Quest's Responsibility. Except as otherwise provided in Section
---------------------- -------
7.1.2, Quest shall be liable for any and all Taxes attributable to any taxable
- -----
period on or before the Closing Date due or payable, now or in the future, by
Seller or its Affiliates with respect to the operations of Seller or the Assets.
Quest shall promptly reimburse Buyer for any transfer, sales, deed, duties,
stamp, use and similar Taxes, if any, resulting from the sale of the Assets,
including fees to record assignments, after receipt of written notice from Buyer
of such Taxes, together with all supporting documentation; provided, however,
that Quest shall have no obligation to reimburse Buyer for such Taxes unless
Buyer has fulfilled its obligations under Section 7.1.2 and either (a) Quest
-------------
agrees that Quest owes such Taxes, or (b) Quest has had the opportunity to
contest such Taxes with the appropriate Governmental Authority.
7.1.2 Buyer's and Buyer Parent's Responsibility. Anything in Section 7.1.1
----------------------------------------- -------------
to the contrary notwithstanding, Buyer and Buyer Parent shall be liable, jointly
and severally, for any and all Taxes attributable to any period after the
Closing Date due or payable by Buyer or by Buyer Parent or Quest with respect to
the operations of Buyer, Buyer Parent or the Assets. Buyer agrees to notify
Quest promptly in writing of Buyer's receipt of any proposed assessment or
notice of Tax due with respect to any sales Tax for which Buyer will request
reimbursement from Seller pursuant to Section 7.1.1 and will allow Quest to
-------------
assume and control the defense against any such assessment or notice and Buyer
will cooperate with Quest in such defense.
7.1.3 Aggregate Purchase Price Allocation. Buyer shall prepare an
-----------------------------------
allocation of the Aggregate Purchase Price among the Assets (the "PURCHASE PRICE
ALLOCATION") and provide Quest with a written statement of the proposed Purchase
Price Allocation at least five days prior to the Closing Date. Unless Quest
reasonably objects to the Purchase Price Allocation (in which case the Parties
will work together in good faith to resolve such objection and if unable to do
so, the Parties shall
Page 40 of 63 Pages
<PAGE>
submit the matter to arbitration in accordance with the provisions of Section
-------
11.11), Buyer and Quest agree that the Purchase Price Allocation shall be
- ------
used, reported and implemented by both Quest and Buyer for federal, state, local
and other tax purposes.
7.2 Employee Matters.
----------------
7.2.1 Employment. Effective as of the Closing Date and subject to Buyer's
----------
amendment or termination rights provided in Section 7.2.3, Buyer shall offer
-------------
employment to the employees of Seller identified on Schedule 7.2.1(a) at the
-----------------
same or higher salary or wage rates and with medical, life insurance, retirement
savings and other benefits that are listed and described on Schedule 7.2.1(a).
-----------------
Such salary or wage rates and other benefits shall be in the aggregate,
comparable to (except as otherwise provided for in any employment agreements
between any such employees and Buyer), those provided by Seller to such persons
as of the date of this Agreement (persons accepting such offers of employment
are hereinafter referred to as "TRANSFERRED EMPLOYEES"). The employees of
Seller identified on Schedule 7.2.1(b) who will remain as employees of Quest are
-----------------
hereinafter referred to as the "RETAINED EMPLOYEES." Neither Buyer nor Buyer
Parent shall be liable for any severance payments asserted against Quest, Buyer
or Buyer Parent by, or other liability, including, without limitation, any
liability with respect to health care continuation coverage under COBRA, or
obligation to, any employees or former employees of Seller who are not
Transferred Employees.
7.2.2 Retention Agreements. On the Closing Date, Quest shall assign and
--------------------
deliver to Buyer, and Buyer shall accept from Quest the Retention Agreements for
each Transferred Employee who is party to a Retention Agreement and listed on
Schedule 1.1(a) (except as otherwise provided for in any employment agreements
- ---------------
between any such Transferred Employee and Buyer), provided such Retention
Agreements have been amended as set forth in Section 5.1(c), and all Liabilities
--------------
thereunder shall be Assumed Liabilities, which shall not be deducted from the
Aggregate Purchase Price. In Section 5.1, Quest agrees to assist Buyer in
-----------
obtaining amendments to the Retention Agreements with Transferred Employees
pursuant to which, among other things, the Transferred Employees would waive any
rights to compensation under the Retention Agreements because their "job
responsibilities are significantly reduced." Subject to the Retention
Agreements and Section 7.2.3, nothing herein shall be construed to limit or
-------------
modify Buyer's right to terminate the employment of Transferred Employees or to
restrict Buyer's right to apply its own employment practices and policies
(including but not limited to modification of salary or wage rates) with respect
to Transferred Employees.
Page 41 of 63 Pages
<PAGE>
7.2.3 Continuing Benefits and Benefit Plans. Buyer shall provide the
-------------------------------------
medical and life insurance benefits to the Transferred Employees and their
dependents effective on the Closing Date pursuant to medical and life insurance
plans sponsored or maintained by Buyer or Buyer Parent; provided, however, Buyer
shall waive any waiting periods, active at work requirements, non-confinement
requirements, and pre-existing conditions clauses that would apply to a
Transferred Employee or his dependent solely as a result of being treated as a
new employee of Buyer and shall credit each Transferred Employee with all
deductible payments and co-payments paid by such Transferred Employee under
Quest's health benefits program prior to the Closing Date during the year in
which the Closing occurs for the purpose of determining the extent to which any
such Transferred Employee has satisfied his or her deductible and whether he or
she has reached the out-of-pocket maximum under Quest's medical plan for such
year. Buyer shall credit Transferred Employees' service with Quest for purposes
of eligibility and vesting under Buyer's or Buyer Parent's employee benefit
plans. Buyer and Buyer Parent retain the right to amend or terminate any
employee pension, welfare, fringe or other benefit plan, program, policy or
arrangement that may apply to any Transferred Employee or any other employees of
Buyer or Buyer Parent; provided, that any termination or amendment made prior to
the first anniversary of the Closing Date shall be consistent with the foregoing
provisions of this Section 7.2.3.
-------------
7.2.4 Employee Savings Plan. Effective as of the Closing Date, each
---------------------
Transferred Employee's account balance in the Quest Employee Savings Plan shall
become fully vested and non-forfeitable without regard to such Transferred
Employee's length of service. As soon as practicable following the Closing
Date, but in any event by April 30, 1998, Quest shall cause the accounts of the
Transferred Employees in the Quest Employee Savings Plan to be distributable to
them in a lump sum. Buyer shall provide the Transferred Employees with the
option of rolling over their distributions from the Quest Employee Savings Plan
(which qualify as eligible rollover distributions as defined in Code Section
402(c)(4)) into a tax-qualified defined contribution plan, including using its
reasonable good faith efforts to provide the option of a direct rollover of any
outstanding participant loans.
7.2.5 Bonuses. Prior to the Closing, Quest shall pay all bonuses accrued
-------
up to the Closing Date to its officers who are Transferred Employees and to Eric
Bucklein and Kathy Bucklein.
Page 42 of 63 Pages
<PAGE>
7.3 Cooperation and Exchange of Information.
---------------------------------------
7.3.1 Documents, Records and Files. As soon as practicable, but in
----------------------------
any event within 10 days after a Party's request in the case of documents,
records, or files in the control or possession of any other Party, from and
after the Closing Date, the Party to whom the request is directed shall provide
the requesting Party with such cooperation and shall deliver to the requesting
Party, at such requesting Party's cost and expense, such information and data
concerning the Assets and the results of the operation of the Assets in order to
enable the Parties to complete and file all Returns and filings with the
Securities and Exchange Commission or other Governmental Authority which they
may be required to file with respect to the Assets or the results of the
operation of the Assets prior to the Closing or to respond to audits by any
taxing authorities with respect to such operations and to otherwise enable the
parties to satisfy their internal accounting, tax, securities Laws compliance
and other legitimate requirements. The Parties shall make their employees and
facilities available on a mutually convenient basis to provide explanation of
any documents or information provided hereunder.
7.3.2 Transition Services. During the Transition Period, the
-------------------
Parties shall use all reasonable efforts to take such actions and do all things
necessary or advisable to enable Buyer and Quest to adequately conduct their
businesses, and for Buyer to operate the Assets in the ordinary course
consistent with Seller's past practices and for Quest to operate the Excluded
Assets in the ordinary course of its business, including using all reasonable
efforts to cause the Retained Employees and the Transferred Employees specified
on Schedule 7.3.2 (the "SPECIFIED EMPLOYEES") to be available to Buyer and
--------------
Quest, as applicable, upon reasonable request to assist Buyer and Quest, as
applicable, with the foregoing (the "TRANSITION SERVICES"). Each of Buyer and
Quest shall reimburse the other on a monthly basis for the allocable portion of
such Specified Employees' time as is expended on its behalf (including salaries
and wages, benefit costs, payroll and related Taxes, and other identifiable
employee-related costs). At the end of the Transition Period, Buyer and Quest
will work together in good faith to apportion and allocate to each other in a
fair and equitable manner any tangible assets that they have shared during the
Transition Period that were not specifically identified in Schedules 2.1.1 or
---------------
2.1.2 or otherwise as Buyer or Quest assets. The scope, time allotment and cost
- -----
and expense of the Transition Services to be provided by Buyer and Quest shall
be determined by a committee comprised of a representative designated by Buyer
and a representative designated by Quest. In each case, the designated
representatives shall be acceptable to the other Party in its reasonable
discretion.
Page 43 of 63 Pages
<PAGE>
7.4 Public Announcements. The Parties shall agree on the terms of any press
--------------------
releases or other public announcements related to this Agreement and shall
consult with each other before issuing any press releases or other public
announcements related to this Agreement; provided, however, that any Party may
make a public disclosure if in the opinion of such party's counsel it is
required by Law or the rules of the Nasdaq Stock Market or applicable exchange
to make such disclosure. The Parties agree, to the extent practicable, to
consult with each other regarding any such public announcement in advance
thereof.
7.5 Proration. Quest and Buyer shall prorate, as of the Closing Date,
---------
amounts relating to (a) the personal property Taxes assessed by State or local
Governmental Authorities on the value of the personal property Assets
(inventory, fixed assets, etc.) for the 1998 calendar year, based on the value
of such Assets as of December 31, 1997, and (b) utilities in connection with the
Leased Real Property (collectively, the "PRO RATED EXPENSES"). Buyer's share of
the Pro Rated Expenses determinable on the Closing Date shall be added to the
Aggregate Purchase Price in accordance with Section 2.2, and the remaining Pro
-----------
Rated Expenses determined after the Closing Date shall be promptly reimbursed to
the appropriate Party after the determination of such amount is made.
7.6. Fees and Expenses. Buyer and Quest shall each pay one-half of each of
-----------------
(a) the out-of-pocket costs and expenses for the survey requested by Buyer to be
conducted on the Real Property prior to Closing and (b) the out-of-pocket costs
and expenses for the preparation of historical audited financial statements of
Quest required to enable Buyer to file a Form 8-K after the Closing in
compliance with securities Laws. Each Party shall pay promptly such fees, costs
and expenses after written notice thereof.
7.7 Nondisclosure. The Parties acknowledge and agree that all customer,
-------------
prospect and marketing lists, sales data, intellectual property, proprietary
information and trade secrets of either Quest or Buyer, as applicable
(collectively, the "CONFIDENTIAL INFORMATION"), are valuable, special and unique
assets of Buyer or Quest, as applicable. Buyer and Quest agree to treat the
other Party's Confidential Information as confidential and not to disclose any
such Confidential Information to any Person or make use of any such Confidential
Information for its own purposes or for the benefit of any other Person (other
than such Party owning the Confidential Information), except to the extent
required to enable either Party to perform its obligations under Section 7.3
-----------
(including, without limitation, disclosing such Confidential Information to the
Specified Employees and its other employees), or by
Page 44 of 63 Pages
<PAGE>
applicable laws and regulations, or by any subpoena or similar legal process or
to the extent such Confidential Information becomes publicly available (other
than as a result of a breach of this Agreement). The Parties further agree that,
following the Closing, (a) the Confidential Information of Buyer shall include
all customer, prospect and marketing lists, sales data, intellectual property,
proprietary information, trade secrets and other Intellectual Property
constituting part of the Assets purchased by Buyer pursuant hereto, (b) Buyer
shall be free to utilize such Confidential Information constituting part of the
Assets as it deems appropriate and (c) Quest and its Affiliates shall keep, and
shall cause the Retained Employees along with the respective officers,
directors, employees, agents and representatives of Quest and its Affiliates to
keep, such Confidential Information confidential in accordance with this Section
-------
7.7.
- ---
7.8 Material Review Board Inventory. Approximately $166,000 in CVS inventory
-------------------------------
located at various Material Review Board locations is included in the Excluded
Assets, and accordingly, Buyer is not buying such inventory from Quest at
Closing. The Parties agree, however, that Buyer will use its commercially
reasonable efforts to rework this inventory following the Closing, and that
within 90 days of the Closing, Buyer will buy the reworked inventory that is
salable in the ordinary course of business, at Quest's standard cost less
----
Buyer's cost of reworking such inventory.
ARTICLE 8
CONDITIONS PRECEDENT TO CLOSING
8.1 Conditions Precedent to Buyer's and Buyer Parent's Obligations. The
--------------------------------------------------------------
obligation of Buyer and Buyer Parent to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction of the following
conditions, any of which may be waived in writing by Buyer or Buyer Parent.
8.1.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties made by Quest in this Agreement shall be true and correct when made
and as of the Closing Date, except for (a) representations and warranties made
as of a specified date, which shall be true and correct as of the specified
date, and (b) breaches and inaccuracies that do not have, individually or in the
aggregate, a Material Adverse Effect.
8.1.2 Consents; Performance of Covenants. Quest shall have performed and
----------------------------------
complied with all covenants and agreements required by this Agreement to be
performed by Quest prior to or at the Closing Date, except for breaches that do
not have, individually or in the aggregate, a Material Adverse
Page 45 of 63 Pages
<PAGE>
Effect. Schedule 3.8 lists the material Consents that Quest shall have
------------
obtained by the Closing Date.
8.1.3 Deliveries. Quest shall have delivered to Buyer or caused to
----------
be delivered to Buyer the documents required by Section 9.2.
------------
8.1.4 Compliance with HSR Act. If the HSR Act is applicable, all
-----------------------
applicable waiting periods under the HSR Act shall have expired or been
terminated.
8.1.5 No Order. No Order shall be in effect forbidding or
--------
enjoining the consummation of the transactions contemplated hereby, and no suit
or proceeding shall have been instituted against any Party by a non-Affiliate of
any Party to restrain or enjoin the consummation of the transactions
contemplated hereby that has a reasonable likelihood of success on the merits.
8.1.6 Financial Statements. Quest shall have delivered to Buyer
--------------------
either (a) copies of audited historical financial statements of Seller necessary
to enable Buyer to file its Form 8-K after the Closing in compliance with
securities Laws, or (b) a letter from Ernst & Young, L.L.P. stating that such
audited historical financial statements of Seller will be delivered to Buyer
within 40 days of the Closing Date.
8.1.7 Title and Survey. Quest shall have obtained and delivered to
----------------
Buyer (a) an as-built survey of the Real Property satisfying the requirements of
the Texas Surveyors Association Standards and Specifications for a Category 1A,
Condition 11 Survey, and (b) the draft title commitment attached hereto as
Schedule 8.1.7(a), which is subject to the standard exceptions included in such
- -----------------
form and the Permitted Liens.
8.1.8 Lease Agreement. Quest shall have executed and delivered to
---------------
Buyer a lease agreement, substantially in the form of Exhibit B, pursuant to
---------
which Buyer will lease from Quest, in common with Quest, the building located on
the Real Property, for the purpose of conducting Buyer's business operations
after the Closing, and Quest will lease from Buyer certain other Assets relating
to the Real Property.
8.1.9 Option Agreement. Quest shall have executed and delivered to
----------------
Buyer an Option Agreement, substantially in the form of Exhibit C, pursuant to
---------
which Buyer shall have an option to purchase the Real Property at the price and
on the terms stated therein, and Buyer shall sell and Quest shall purchase the
assets identified therein as the "Real Property Assets" if such option is not
exercised.
Page 46 of 63 Pages
<PAGE>
8.2 Conditions Precedent to Quest's Obligations. The obligation of Quest
-------------------------------------------
to consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction of the following conditions, any of which may be waived in
writing by Quest.
8.2.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties made by Buyer or Buyer Parent in this Agreement
shall be true and correct when made and as of the Closing Date except for (a)
representations and warranties made as of a specific date, which shall be true
and correct as of the specified date, and (b) breaches and inaccuracies that do
not have, individually or in the aggregate, a material adverse effect on or with
respect to Seller or the transactions contemplated hereunder.
8.2.2 Performance of Covenants. Each of Buyer and Buyer Parent
------------------------
shall have performed and complied with all covenants and agreements required by
this Agreement to be performed by it prior to or at the Closing Date, except for
breaches that do not have, individually or in the aggregate, a material adverse
effect on Buyer's or Buyer Parent's ability to consummate the transactions
contemplated by this Agreement.
8.2.3 Deliveries. Each of Buyer and Buyer Parent shall have
----------
delivered to Seller the payments and documents required by Section 9.3.
-----------
8.2.4 Compliance with HSR Act. If the HSR Act is applicable,
-----------------------
applicable waiting periods under the HSR Act shall have expired or been
terminated.
8.2.5 No Order. No Order shall be in effect forbidding or
--------
enjoining the consummation of the transactions contemplated hereby, and no suit
or proceeding shall have been instituted against any Party by a non-Affiliate of
any Party to restrain or enjoin the consummation of the transactions
contemplated hereby that has a reasonable likelihood of success on the merits.
8.2.6 License Agreement. Buyer shall have executed and delivered
-----------------
to Quest a license agreement, substantially in the form of Exhibit A, pursuant
---------
to which Buyer shall grant Quest a non-exclusive license to use the names
"Quest" and "Quest Medical" and the trademarks related thereto in connection
with the marketing and sale of Quest's neuromodulation products and in the use
of the name in Quest Medical, Inc.'s corporate name.
8.3 If Conditions Not Satisfied. In the event that any of the conditions
---------------------------
set forth in this Article 8 are not satisfied, and the Parties nevertheless
---------
consummate the transactions
Page 47 of 63 Pages
<PAGE>
contemplated by this Agreement to take place at the Closing, each Party shall be
deemed to have waived any claim for Damages or other relief arising from or in
connection with any such nonsatisfaction known to such Party at the time of the
Closing.
ARTICLE 9
CLOSING
9.1 Time and Place. On the terms and subject to the conditions of this
--------------
Agreement, the Closing shall take place at the offices of Quest's counsel,
Hughes & Luce, L.L.P., located at 1717 Main Street, Suite 2800, Dallas, Texas
75201 at 10:00 a.m. local time on the Closing Date or at such other time and
place as the Parties shall agree upon in writing.
9.2 Deliveries by Quest. At the Closing, Quest shall deliver to Buyer the
-------------------
following:
(a) bills of sale and other instruments of assignment, transfer and
conveyance and such other documents duly executed, necessary to transfer good
and marketable title to the Assets to Buyer, subject only to Permitted Liens;
(b) the recorded Charter Documents of Quest, recently certified by the
Secretary of State of the State of Texas and a certificate of good standing of
Quest dated within 10 business days of the Closing Date issued by the Texas
Comptroller of Public Accounts;
(c) a certificate of the Secretary of Quest, dated the Closing Date,
certifying (i) Quest's Charter Documents and good standing, (ii) the adoption of
resolutions by Quest's board of directors authorizing the transactions
contemplated by this Agreement and (iii) the incumbency and signatures of
officers, all in form and substance reasonably satisfactory to Buyer;
(d) a certificate of an executive officer of Quest, dated the Closing
Date, certifying that (i) each of the representations and warranties made by
Seller in this Agreement is true and correct when made and as of the Closing
Date (except for representations and warranties made as of a specified date,
each of which is true and correct as of the specified date) in all material
respects and (ii) all of the terms, covenants and conditions of this Agreement
to be complied with and performed by Quest on or before the Closing Date have
been complied with and performed in all material respects;
(e) a summary of the Estimated Assets and Estimated Liabilities,
together with supporting schedules;
Page 48 of 63 Pages
<PAGE>
(f) evidence that the personal property Taxes constituting Pro Rated
Expenses have been paid;
(g) a written opinion addressed to Buyer from counsel for Quest
substantially in the form of Exhibit D;
---------
(h) the Lease described in Section 8.1.8 hereof;
-------------
(i) the Option Agreement described in Section 8.1.9 hereof; and
-------------
(j) such other documents, instruments and certificates as Buyer may
reasonably request for the transactions contemplated by this Agreement.
9.3 Deliveries by Buyer and Buyer Parent. At the Closing, Buyer and Buyer
------------------------------------
Parent shall deliver to Quest the following:
(a) the net amount referred to in the last sentence of Section 2.2 by
-----------
wire transfer of immediately available funds to the Specified Account;
(b) an assignment and assumption agreement pursuant to which Buyer
will assume the Assumed Liabilities;
(c) the recorded Charter Documents of Buyer, recently certified by the
Secretary of State of the State of Texas, and a certificate of good standing of
Buyer dated within 10 business days of the Closing Date issued by the Secretary
of State of the State of Texas;
(d) the recorded Charter Documents of Buyer Parent, recently certified
by the Secretary of State of the State of Delaware, and a certificate of good
standing of Buyer Parent dated within 10 business days of the Closing Date
issued by the Secretary of State of Delaware;
(e) a certificate of the Secretary of Buyer, dated the Closing Date,
certifying (i) Buyer's Charter Documents and good standing, (ii) the adoption of
resolutions by Buyer's board of directors authorizing the transactions
contemplated by this Agreement, and (iii) the incumbency and signatures of
officers, all in form and substance reasonably satisfactory to Seller;
(f) a certificate of the Secretary of Buyer Parent dated, the Closing
Date, certifying (i) Buyer Parent's Charter Documents and good standing, (ii)
the adoption of resolutions by Buyer Parent's board of directors authorizing the
transactions contemplated by this Agreement, and (iii) the incumbency and
Page 49 of 63 Pages
<PAGE>
signatures of officers, all in form and substance reasonably satisfactory to
Seller;
(g) a certificate of an executive officer of Buyer and an executive
officer of Buyer Parent, dated the Closing Date, certifying that (i) each of the
representations and warranties made by Buyer and Buyer Parent in this Agreement
is true and correct when made and as of the Closing Date (except for
representations and warranties made as of a specified date, each of which is
true and correct as of the specified date) in all material respects and (ii) all
of the terms, covenants and conditions of this Agreement to be complied with and
performed by Buyer and Buyer Parent on or before the Closing Date have been
complied with and performed in all material respects;
(h) the License Agreement described in Section 8.2.6 hereof; and
-------------
(i) such other documents, instruments and certificates as Quest may
reasonably request for the transactions contemplated by this Agreement.
ARTICLE 10
TERMINATION PRIOR TO CLOSING DATE
10.1 Termination. This Agreement may be terminated prior to the Closing
-----------
Date only as follows: (a) by Buyer or Buyer Parent as provided in Section 5.6,
-----------
(b) by the mutual written consent of the Parties; (c) by Quest, on the one hand,
or Buyer and Buyer Parent, on the other hand, immediately upon written notice to
the other Parties if the Closing has not occurred on or before February 15, 1998
and such failure to occur is not caused by a breach of this Agreement by the
Party electing to terminate this Agreement; provided, however, if all conditions
to the Closing other than consents, approvals or waivers from any Governmental
Authority have been satisfied or waived, such date shall be extended to March
31, 1998; or (d) by Quest, on the one hand, or Buyer and Buyer Parent, on the
other hand, immediately upon written notice to the other Parties if an Order is
issued that enjoins or prohibits the Closing and becomes final and non-
appealable. No Party has the right to terminate this Agreement pursuant to
clause (c) above if the Party seeking to terminate is, at the time of such
- ----------
attempted termination, in material breach of any of its representations,
warranties, covenants or agreements under this Agreement.
10.2 Effect of Termination. If this Agreement is validly terminated
---------------------
pursuant to Section 10.1, this Agreement will forthwith become null and void,
------------
except that the provisions of Sections 7.4, 11.8 and 11.11 will continue to
------------ ---- -----
apply following any such termination. No Party will be relieved of any liability
for
Page 50 of 63 Pages
<PAGE>
Damages that such Party may have to any other Party by reason of such Party's
breach of this Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 Survival; Indemnification.
-------------------------
11.1.1 Survival of Representations and Warranties. Notwithstanding
------------------------------------------
anything contained in this Agreement to the contrary, the representations and
warranties set forth in Articles 3 and 4 shall expire immediately after the
---------- -
Closing; provided, however, that this Section 11.1 shall not preclude Quest,
------------
Buyer or Buyer Parent from asserting any claims for Damages arising from
negligent misrepresentation or fraud in connection with such representations and
warranties.
11.1.2 Indemnity.
---------
(a) Quest agrees to indemnify and hold Buyer and Buyer Parent
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), damages, losses or liabilities arising out of,
relating from or related to third party claims that the design or manufacture of
any of Seller's products shipped or manufactured by Seller prior to Closing have
caused damage to such third party.
(b) Promptly after Buyer or Buyer Parent becomes aware of any
claim, demand, action, proceeding, event or condition with respect to which a
claim for indemnification may be made pursuant to this Section 11.1.2, Buyer or
--------------
Buyer Parent shall, if a claim in respect thereof is to be made against Quest,
give written notice to Seller of the nature of the matter for which a right to
indemnification is claimed (an "INDEMNIFICATION CLAIM"), including a reasonably
detailed description of the claim and the basis for indemnification; provided,
however, that the failure of Buyer or Buyer Parent to give notice as provided
herein shall not relieve Quest of any obligations, except to the extent (and
only to the extent) Quest is actually prejudiced thereby. Quest may, following
notice and consultation with Buyer, (i) assume the defense of any such claim or
litigation in such manner as it may deem appropriate, and (ii) compromise or
settle such litigation or claim with Buyer's prior written consent, which shall
not be unreasonably withheld. In the event Quest does not elect to defend such
claim, then Buyer may defend the same and may compromise or settle such
litigation with Quest's prior written consent, which consent shall not be
unreasonably withheld. If Buyer defends against the claim, Quest shall promptly
reimburse the Buyer or Buyer Parent for the amount of all costs, expenses
(including reasonable attorneys' fees), damages, losses or liabilities incurred
by the Buyer or Buyer
Page 51 of 63 Pages
<PAGE>
Parent in connection with the defense against, investigation of and settlement
of any such claim or litigation.
(c) In no case shall Quest's liability to make indemnification
payments hereunder exceed, in the aggregate, $5 million, and the liability to
make indemnification payments shall extend only to claims made by Buyer or Buyer
Parent within the applicable statute of limitations period for the underlying
claim giving rise to indemnification hereunder. In addition, (i) in the event
damages are caused in part by Buyer's or Buyer Parent's acts or omissions,
Quest's indemnity obligation under this Section 11.1.2 shall be limited to such
--------------
proportion of the damages as is appropriate to reflect the relative fault of
Seller or compared to that of Buyer or Buyer Parent, and (ii) Quest shall have
no obligation to indemnify Buyer or Buyer Parent to the extent Buyer or Buyer
Parent recover the amount of damages from any third parties, including insurers
(except to the extent that such recovery results in an adjustment of Buyer's
insurance premium, in which case Quest will bear the cost of such adjustments
for the period referred to in the first sentence of this Section 11.1.2(c)).
-----------------
This Section 11.1.2 sets forth the exclusive remedy for monetary damages owing
--------------
from Quest to Buyer or Buyer Parent that arise from such claims.
Notwithstanding the limitation set forth in Section 11.1.2(ii) above, neither
------------------
Buyer nor Buyer Parent is required to file a claim against its product liability
insurer as a condition to make an indemnity claim under this Section 11.1.2.
--------------
11.2 Severability. If any provision of this Agreement as applied to any
------------
part or to any circumstance shall be held invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions of this
Agreement and the application of such provision to any other part or to any
other circumstance shall not be affected or impaired thereby.
11.3 Successors and Assigns. The terms and conditions of this Agreement
----------------------
including, without limitation, the provisions of Section 5.8, shall inure to the
-----------
benefit of and be binding upon the successors and permitted assigns of the
Parties; provided, however, that this Agreement may not be assigned by any Party
without the prior written consent of the other Party. For purposes of this
Section 11.3, the term successors and assigns shall mean a successor and assign
- ------------
by virtue of a sale of stock, merger, consolidation or sale of all or a
substantial part of the assets of the applicable Party.
11.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall for all purposes be deemed to be an original
and all of which when taken together shall constitute the same instrument.
Page 52 of 63 Pages
<PAGE>
11.5 Headings. The table of contents, captions and headings used in this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction or
interpretation hereof.
11.6 Waiver. Any of the terms or conditions of this Agreement may be
------
waived in writing at any time by the Party which is entitled to the benefits
thereof. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of such provision at any time in the future or a
waiver of any other provision hereof.
11.7 No Third-Party Beneficiaries. Nothing in this Agreement, express or
----------------------------
implied, shall create or confer upon any Person (including but not limited to
any employees of any Party), other than the Parties or their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities, except as expressly provided herein.
11.8 Other Expenses. Except as otherwise expressly provided herein, each
--------------
of the Parties shall each pay all costs and expenses incurred by it or on its
behalf in connection with this Agreement and the transactions contemplated
hereby, including fees and expenses of its own financial consultants,
accountants and legal counsel.
11.9 Notices. Unless otherwise provided herein, any notice, request,
-------
instruction, consent or other document required or permitted to be given
pursuant to this Agreement shall be in writing and delivered personally, by
telecopy or sent by a nationally-recognized overnight courier service or by
registered or certified mail, postage prepaid, as follows:
If to Quest:
Quest Medical, Inc.
One Allentown Parkway
Allen, Texas 75002-4211
Attn: F. Robert Merrill III
Facsimile: (972) 390-9687
With a copy to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, TX 75201
Attn: Kenneth G. Hawari
Facsimile Number: (214) 939-5849
Page 53 of 63 Pages
<PAGE>
If to Buyer or Buyer Parent:
Atrion Corporation
1426 Curt Francis Road
Arab, Alabama 35016
Attn: Jerry A. Howard
Facsimile: (205) 586-1580
With a copy to:
Berkowitz, Lefkovits, Isom & Kushner
1600 SouthTrust Tower
Birmingham, AL 35203
Attn: B.G. Minisman, Jr.
Facsimile Number: (205) 322-8007
or at such other address for a Party as shall be specified in writing by that
Party. Any notice, request, instruction, consent or other document delivered as
provided herein shall be deemed effectively given upon actual receipt by the
Party (but not necessarily the individual person) to be notified.
11.10 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH JURISDICTION, WITHOUT GIVING EFFECT
TO ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT RESULT IN THE APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION.
11.11 Arbitration. To the extent that the Parties are unable to resolve
-----------
their disputes or controversies arising out of or relating to this Agreement, or
the performance, breach, validity, interpretation or enforcement of this
Agreement, through discussion and negotiation, all such disputes and
controversies will be resolved by binding arbitration in accordance with Title 9
of the U.S. Code (United States Arbitration Act) and the Commercial Arbitration
Rules of the AAA, and subject to Section 11.13, judgment upon the award rendered
-------------
by the arbitrator may be entered in any court having jurisdiction thereof. A
Party may initiate arbitration by sending written notice of its intention to
arbitrate to the other Parties and to the AAA office located in Dallas, Texas
(in the case of such dispute arising following the Closing) and the AAA office
located in Memphis, Tennessee (in the case of any other dispute). Such written
notice will contain a description of the dispute and the remedy sought. The
arbitration will be conducted at the offices of the AAA in Dallas, Texas (in the
case of such dispute arising following the Closing) and the AAA office located
in Memphis, Tennessee (in the case of any other dispute) before an independent
and impartial arbitrator acceptable to all Parties. If such dispute relates to
either Section 8.1.5 or 8.2.5, the
------------- -----
Page 54 of 63 Pages
<PAGE>
Parties agree to initiate the arbitration immediately and to request that
the arbitrator to reach a conclusion within three business days of commencement,
unless the Parties agree otherwise. The Party initiating arbitration shall pay
the costs and expenses of the arbitration, unless otherwise determined by the
arbitrator. The decision of the arbitrator will be final and binding on the
Parties and their successors and assignees. The Parties intend that this
agreement to arbitrate be irrevocable.
11.12 Interpretation of Agreement.
---------------------------
11.12.1 References. Unless specifically stated otherwise, references
----------
to Articles, Sections, Exhibits and Schedules refer to Articles, Sections,
Exhibits and Schedules in this Agreement. References to "includes" and
"including" mean "includes without limitation" and "including without
limitation."
11.12.2 Representation; No Reliance. Each Party is a sophisticated
---------------------------
legal entity that was advised by experienced counsel and, to the extent it
deemed necessary, other advisors in connection with this Agreement. Accordingly,
each Party hereby acknowledges that no party has relied or will rely in respect
of this Agreement or the transactions contemplated hereby upon any document or
written or oral information previously furnished to or discovered by it or its
representatives, other than this Agreement (including the Exhibits and Schedules
and items described or referenced in the Agreement, Exhibits or Schedules) or
the documents and instruments delivered at the Closing.
11.12.3 Disclosure. Any item disclosed in one Section or Schedule
----------
shall be deemed to be disclosed in any other Section or Schedule where such
disclosure is relevant, even if there is no express cross-reference, provided
that the relevance of the disclosure is reasonably apparent. Disclosure of items
that may or may not be required to be disclosed by this Agreement does not mean
that such items are material or create a standard of materiality and shall not
be deemed an admission that any such disclosed matter is or may give rise to a
breach of any Contract or violation of any Law. Notwithstanding the foregoing,
Seller shall make a reasonable effort to set forth express cross references when
preparing its Schedules to this Agreement.
11.12.4 Interpretation of Provisions. No provision of this Agreement
----------------------------
shall be interpreted in favor of, or against, either of the Parties by reason of
the extent to which either such Party or its counsel participated in the
drafting thereof or by reason of the extent to which any such provision is
inconsistent with any prior draft hereof or thereof.
11.13 Jurisdiction and Consent to Service of Process. The Parties agree
----------------------------------------------
that any Action to enforce an arbitration award
Page 55 of 63 Pages
<PAGE>
arising out of or relating to this Agreement or the transactions contemplated
hereby shall be instituted in a federal or state court sitting in any state
bearing a reasonable relation to the Parties or subject matter of the dispute,
other than Alabama. Each Party waives any objection which such party may now or
hereafter have to the laying of venue of any such Action, and irrevocably
submits to the jurisdiction of any such court in any such Action. Any and all
service of process and any other notice in any such Action shall be effective
against such Party when transmitted in accordance with Section 11.9. Nothing
------------
contained herein shall be deemed to affect the right of any Party to serve
process in any manner permitted by Law.
11.14 Entire Agreement. This Agreement, together with the Schedules and
----------------
Exhibits hereto, constitutes the sole understanding of the Parties with respect
to the matters contemplated hereby and thereby and supersedes and renders null
and void all prior agreements and understandings, written and oral, between the
Parties with respect to such matters, other than the Confidentiality Agreement,
which will continue in accordance with its terms. No Party shall be liable or
bound to any other Party in any manner by any promises, conditions,
representations, warranties or covenants except as specifically set forth herein
or therein.
11.15 Amendment. No amendment, modification or alteration of the terms or
---------
provisions of this Agreement, including any Schedules and Exhibits, shall be
binding unless the same shall be in writing and duly executed by the Party
against whom such amendment, modification or alteration is sought to be
enforced, except as provided in Section 5.6.
-----------
Page 56 of 63 Pages
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of
the date first written above.
SELLER:
QUEST MEDICAL, INC.
By:
Name:
Title:
BUYER:
QMI ACQUISITION CORP.
By:
Name:
Title:
BUYER PARENT:
ATRION CORPORATION
By:
Name:
Title:
Page 57 of 63 Pages
<PAGE>
EXHIBIT 99.1
Page 58 of 63 Pages
<PAGE>
ATRION TO ACQUIRE CARDIOVASCULAR BUSINESS
ARAB, Ala.--(BUSINESS WIRE)--Dec. 30, 1997--Atrion Corporation (Nasdaq/NM -
ATRI) today announced that it has entered into a definitive agreement to acquire
certain assets related to the cardiovascular and specialized intravenous fluid
delivery product lines of Quest Medical, Inc. (Nasdaq/NM - QMED) in a $24.5
million cash transaction. Atrion will use existing cash reserves to fund the
acquisition. The Boards of Directors of both companies have approved the
definitive purchase agreement and, subject to satisfaction of certain
conditions, the acquisition is expected to be completed in late January 1998.
"We are very pleased to announce this acquisition," commented Jerry A. Howard,
Atrion's Chairman, President and Chief Executive Officer. "For several years
now, we have worked to reposition our company in medical products businesses
that have attractive prospects for growth. When the transaction is completed,
we will have built a substantial base of business, encompassing several
complementary areas in what we believe is a rapidly growing field." Howard
noted that the Quest Medical transaction will represent the fourth acquisition
in that field by Atrion since 1994.
The cardiovascular products to be acquired by Atrion will include a myocardial
protection system (MPS) used during open-heart surgery. The MPS was developed by
Quest Medical and has been commercially marketed since September 1996. The MPS
applies state-of-the-art technology, reliability, and safety for cardioplegia
delivery. The cardiovascular product line also includes proprietary specialized
pressure control valves, pre-bypass and arterial line filters, and bubble traps,
which are used by perfusionists during cardiopulmonary bypass surgery. The
intravenous fluid delivery product line includes more than 50 distinct models
used for more complex therapy procedures employed in anesthesia administration,
intravenous feeding, intensive care, and cancer therapy.
Most of these products are marketed through direct contact with hospitals,
telemarketing, independent sales representatives, distributors, and direct mail.
These cardiovascular and fluid delivery product lines generate net revenues of
approximately $14.5 million per year. Domestic sales account for approximately
85% of these net revenues while European, Australian and Japanese sales account
for the remaining 15%. Atrion's revenues from its existing businesses are
approximately $30 million annually.
Howard pointed out that following the acquisition Atrion expects to achieve
manufacturing and marketing synergies between its
Page 59 of 63 Pages
<PAGE>
existing medical products businesses and those to be acquired from Quest
Medical. He noted that Atrion will also acquire Quest Medical's 27 patents
relating to its cardiovascular and fluid delivery product lines, including five
relating to the MPS unit.
Atrion will lease Quest Medical's present 107,000 square-foot manufacturing and
executive office facility, located in Allen, Texas, for a period of one year
following the closing of the acquisition. In addition, Atrion will have the
option to purchase the Allen facility for $6.5 million. Atrion will relocate its
executive offices to Allen following the consummation of the acquisition.
Atrion Corporation designs, develops, manufactures, sells and distributes
medical products and components to markets worldwide.
The statements in this press release that are forward looking are based upon
current expectations and actual results may differ materially. Therefore, the
inclusion of such forward-looking information should not be regarded as a
representation by Atrion that the objectives or plans of Atrion will be
achieved. Such statements include, but are not limited to, Atrion's expectations
regarding growth of the medical products industry and synergies that may be
achieved upon completion of the transaction. Words such as "believe,"
"expects," and variations of such words and similar expressions are intended
to identify such forward-looking statements. Forward-looking statements
contained herein involve risks and uncertainties that could cause actual results
to differ materially, including, but not limited to, the effect of changing
economic and business conditions, the successful integration of product lines to
be acquired from Quest Medical with the Company's existing businesses, and
changes in growth of the medical products industry.
Contact:
Atrion Corp., Arab
Jeffery Strickland, 205/586-1580
Page 60 of 63 Pages
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EXHIBIT 99.2
Page 61 of 63 Pages
<PAGE>
ATRION COMPLETES ACQUISITION OF QUEST MEDICAL'S
CARDIOVASCULAR BUSINESS
Takes Additional Actions to Continue Its Transition to a More
Growth-Oriented Company
ARAB, Ala.--(BUSINESS WIRE)--Jan. 30, 1998--Atrion Corporation (Nasdaq/NM -ATRI)
today announced that it has completed its previously announced acquisition of
the cardiovascular and specialized intravenous fluid delivery product lines of
Quest Medical, Inc. (Nasdaq/NM -QMED). The Company also announced certain
changes which are intended to enhance Atrion's growth as an enterprise focused
on medical products businesses.
The cardiovascular products acquired by Atrion from Quest Medical include a
Myocardial Protection System(R) which applies state-of-the-art technology,
reliability, and safety for cardioplegia delivery during open-heart surgery. The
cardiovascular product line also includes other specialized proprietary devices
used during cardiopulmonary surgery. The intravenous fluid delivery product line
includes more than 50 distinct models used for more complex therapy procedures
employed in anesthesia administration, intravenous feeding, intensive care, and
cancer therapy.
"This acquisition - the largest of four medically oriented businesses we have
purchased since 1994 - greatly extends our product offering in a field that we
believe has very attractive growth prospects and presents additional
opportunities to achieve manufacturing and marketing synergies among our medical
products businesses," said Jerry A. Howard, President and Chief Executive
Officer. Howard noted that the cardiovascular and fluid delivery product lines
generated net revenues of approximately $14 million for Quest Medical in 1997,
with domestic sales accounting for approximately 85% of that amount, compared
with Atrion's revenues of approximately $30 million from its existing businesses
in 1997. With the completion of this acquisition, the Company continues to have
a strong capital structure with cash and cash equivalents exceeding $7 million
and an unused $20 million credit facility.
The Company also announced that Emile A. Battat, age 60, who has served as a
Company director since 1987, has been elected as Chairman of Atrion's Board.
This action is intended to enable Howard, who continues as Atrion's President
and Chief Executive Officer and a director, to devote additional time and
attention to the Company's newly acquired businesses and its existing units, as
well as to the Company's ongoing acquisition program.
Page 62 of 63 Pages
<PAGE>
To facilitate the Company's growth strategy, the Board has discontinued the
payment of cash dividends. In addition, the Board has adopted, subject to
stockholder approval, a new stock option plan to compensate outside directors
that will replace all cash compensation and restricted stock grants for those
directors. This enhanced stock-based compensation program is intended to further
align the long-term interests of Atrion's directors and stockholders.
Atrion also said it is taking after-tax charges totaling approximately $3.5
million in the fourth quarter of 1997, the bulk of which is for revaluation of
intangible assets. These charges will result in the Company reporting losses
from continuing operations for the fourth quarter and for 1997 when it announces
results for those periods in about two weeks. Excluding those special charges,
the Company would have had income from continuing operations for both periods,
even after taking into account the substantial expenses incurred in the
acquisition of the Quest Medical product lines. Atrion's income from continuing
operations in 1996 was $105,000 for the fourth quarter and $853,000 for the full
year.
Atrion Corporation designs, develops, manufactures, sells and distributes
medical products and components to markets worldwide.
The statements in this press release that are forward looking are based upon
current expectations and actual results may differ materially. Therefore, the
inclusion of such forward-looking information should not be regarded as a
representation by Atrion that the objectives or plans of Atrion will be
achieved. Such statements include, but are not limited to, Atrion's expectations
regarding growth of the medical products industry and synergies that may be
achieved after completion of the transaction. Words such as "believe,"
"expects," and variations of such words and similar expressions are intended
to identify such forward-looking statements. Forward-looking statements
contained herein involve risks and uncertainties that could cause actual results
to differ materially, including, but not limited to, the effect of changing
economic and business conditions, the successful integration of product lines
acquired from Quest Medical with the Company's existing businesses, and changes
in growth of the medical products industry.
Contact:
Atrion Corp., Arab
Jeffery Strickland, 205/586-1580
http://www.atrioncorp.com
Page 63 of 63 Pages
