SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------
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):
November 1, 1996
SPARTA SURGICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-11047 22-2870438
(State or other juris- (Commission (I.R.S. Employer
diction of incorporation) File Number) ID. Number)
Bernal Corporate Park
7068 Koll Center Parkway, Pleasanton, CA 94566
(Address of principal executive offices)
Registrant's telephone number, including area code (510)417-8812
not applicable
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
On November 1, 1996, the Registrant entered into a non-binding letter of
intent for the acquisition of substantially all of the operating assets of Orion
Life Systems, Inc. and its wholly owned subsidiary, Orion Medical Products, Inc.
(collectively, "Orion"). The purchase price to be paid for the assets will be
approximately $3 million consisting of $450,000 in cash, $100,000 in notes
payable over five years, $550,000 in royalties payable as 1.5% of net sales, the
assumption of approximately $1,100,000 in bank debt, and assumption of
approximately $800,000 in other liabilities. The letter of intent also calls for
the Registrant to issue earn-out shares of common stock to Orion's president
upon Orion's meeting certain net sales and pre-tax profit goals during the
fiscal years ending February 28, 1998 through February 28, 2001. The closing of
the acquisition is subject to several conditions, including the determination by
the Registrant that the results of its due diligence investigation of Orion's
business and assets are satisfactory; approval of the Board of Directors of both
companies; the execution of a mutually acceptable definitive purchase agreement;
and completing the Registrant's financing. Based in Wheeling, Illinois, Orion
specializes in contract manufacturing, packaging, and sterilization of medical
devices and single-use procedure trays as well as manufacturing and marketing
its own line of urological, respiratory, and I.V. therapy disposable products.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits:
10.86 Letter of intent to purchase substantially all of the assets of
Orion Life Systems, Inc. and its wholly owned subsidiary, Orion
Medical Products, Inc. dated November 1, 1996.
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 hereunto duly authorized.
SPARTA SURGICAL CORPORATION
(Registrant)
By: Thomas F. Reiner
Thomas F. Reiner, Chairman of
the Board, President & CEO
Dated: November 8, 1996
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
EXHIBITS
TO
FORM 8-K
DATED NOVEMBER 1, 1996
<PAGE>
EXHIBIT 10.86
<PAGE>
October 28, 1996
VIA AIRBORNE EXPRESS
Mr. Kenneth L. Maltas, President
Mr. John L. Laemmar, Executive Vice President
Orion Life Systems, Inc. - CONFIDENTIAL -
97 Marquardt Drive
Wheeling, IL 60090-6423
Re: Acquisition of Certain Assets of Orion Life Systems, Inc. by
Sparta Surgical Corporation on behalf of Itself or An Entity To
Be Formed
Dear Messrs. Maltas and Laemmar:
This letter will set forth the intent of the undersigned Sparta Surgical
Corporation or its designee ("Sparta") to purchase from Orion Life Systems, Inc.
and its wholly owned subsidiary, Orion Medical Products, Inc. (collectively,
"Orion") all or substantially all of their respective assets, and to assume
certain specified liabilities thereof. This is a non-binding letter of intent,
except for those specific items set forth in Paragraphs 11 through 14 hereof. As
such, and subject to said exception, it imposes no contractual or other
obligations on either party, but rather, merely constitutes an expression of our
mutual interests. A binding contract on the matters discussed in Paragraphs 1
through 10 hereof will be created only upon the formal execution of a definitive
Asset Purchase Agreement.
Furthermore, since Sparta is a publicly traded company, the structuring of
he transactions will be reviewed by its SEC counsel, public accountants, lenders
and investment bankers to assure the best possible structure, and full
compliance with applicable securities laws and regulations.
This transaction, as Sparta contemplates it, would be as follows:
1. Assets to be Purchased and Liabilities to be Assumed. Sparta will
acquire all or substantially all of the assets of Orion (the "Assets"),
including without limitation all tangible assets (specifically including, among
other things, machinery, packaging, office, equipment, tooling, inventory,
prepaid deposits, prepaid expenses, cash and accounts receivable, refundable
income taxes) and all intangible assets of Orion (such as trademarks,
tradenames, patents, copyrights, licenses, contracts, customer lists, telephone
numbers, dealer and distributor lists and other proprietary rights and
materials). Sparta will assume the specific liabilities reflected in the balance
sheet of Orion as at September 28, 1996 (approximately $1,900,000) which shall
exclude all notes payable due to Kenneth Maltas and John Laemmar in the
approximate amount of $93,000.
<PAGE>
Orion Life Systems, Inc.
Mr. Kenneth L. Maltas
Mr. John L. Laemmar
October 28, 1996
Page 2
2. Purchase Price. The purchase price will be approximately Three Million
Dollars ($3,000,000). The purchase price shall consist of One Million One
Hundred Thousand Dollars ($1,100,000) cash with the remainder in the form of an
assumption of Orion's indebtedness: The cash portion shall be paid as follows:
a) Four Hundred Fifty Thousand ($450,000) shall be paid in immediately
available funds at Closing of the proposed transaction;
b) One Hundred Thousand ($100,000) shall be paid over five (5) years at
no interest rate, with principal payments of $20,000 each year.
c) Five Hundred Fifty Thousand ($550,000) shall be in royalty equal to
1.5% net sales of those products and services currently manufactured
and/or delivered by Orion, however, in no event shall the royalty
amount exceed in the aggregate, Five Hundred Fifty Thousand
($550,000). Such royalty would be payable semi-annually commencing
with the first installment paid no sooner than October 30, 1996 or
within thirty (30) days after the reports covering such quarter is
filed with the United States Securities and Exchange Commission.
3. Purchase Price Assumptions. The above purchase price assumes that the
net book value of the following assets, as of the close of business on the day
immediately preceding the date of Closing, is not less than the following (in
thousands):
a. Accounts Receivable less than 90 days old: $700,000
b. Inventory (good and saleable):(1) 550,000
c. Machinery , Equipment, Furniture and Office
Equipment and Leasehold Improvements: 750,000
d. Prepaid expenses: 25,000
e. Other assets: 10,000
To the extent that any such asset's net book value is below these minimum
amounts, the cash portion of the purchase prices shall be adjusted
proportionately, regardless of whether or not other assets exceed these minima.
4. Employment, Consulting and Non-Compete Agreements.
a) Mr. Ken Maltas ("Maltas") shall enter into an Employment
Agreement with Sparta for a term of four (4) years from the date
of Closing pursuant to which Maltas should
- ---------------------
(1)Consisting of finished goods, work in process and raw materials.
Finished goods counted towards this minimum must be saleable in the ordinary
course of business and manufactured in accordance with Good Manufacturing
Practices as promulgated by the U.S. Food and Drug Administration ("GMP) (and,
if packaged, consisting of only those goods packaged in accordance with GMP as
well) and shall be not more than 120 days old. Raw materials and work in process
counted toward this minimum must be usable in the ordinary course for products
currently being sold on a regular basis by Orion, and must not constitute in
excess of 50% of total inventory by value. Such finished goods shall be adequate
in amount and type to fulfill at least 120 days' typical order volume, based
upon historical order volume during the past year and reasonable projections for
the current year.
<PAGE>
Orion Life Systems, Inc.
Mr. Kenneth L. Maltas
Mr. John L. Laemmar
October 28, 1996
Page 3
not work less than forty (40) hours per week. Maltas shall be
paid at Sparta's regular payroll periods at an annual salary of
$100,000 each year for such services. Maltas shall assume the
position of Vice President, Orion Products reporting directly to
Sparta's Chairman, President and C.E.O. In this capacity, Maltas
shall be directly responsible for all Orion Products sales and
marketing and until further notice shall oversee all
manufacturing, research and development, regulatory affairs
functions and/or any other duties designated by Sparta's Board of
Director.
Maltas shall be provided as a further compensation for such
services, pursuant to the Sparta's ESOP stock option plan, to
purchase One Hundred Thousand (100,000) shares of Sparta common
stock at the Fair Market Value Price on the day of the Closing
which shall be exercisable over a three year period at 33,333
shares each year. In addition, Maltas shall participate each year
of his Employment Agreement up to a $60,000 commission plan
relating to Orion's product net sales and gross profit budget
achievement which is to be defined and agreed upon between Maltas
and Sparta at a later date. In addition, Maltas shall participate
in Sparta's Management Pre-Tax Bonus.
Sparta shall maintain at its own expense key man life insurance
on the life of Maltas and will be maintained throughout the
duration of the Employment Agreement in the amount of $500,000 of
which Sparta shall be the sole beneficiary and owner. Maltas
shall receive a monthly auto allowance in the amount of $350.00
and shall be enrolled in the Sparta's health insurance plan and
Sparta shall maintain a $250,000 term life insurance on Maltas of
which Sparta shall be the owner of the policy and Maltas shall
designate his choice of beneficiary. In addition, Sparta agrees
to reimburse Maltas up to a maximum of $136.96 each month for
disability income protection for the duration of the Employment
Agreement or up to a maximum of four years.
Finally, for each of the four (4) "Annual Periods" which
commences with the Annual Period ending February 27, 1998 and
terminates with the "Annual Period" ending on the last day of
February in 2001, Sparta will issue to Maltas Earn-Out Stock
based only upon achieving both the minimum Net Sales and Pre-Tax
Profits for the Annual Periods for the Orion products and
services currently manufactured and/or delivered by Orion as
reflected in the table set forth below. Net Sales and Pre-Tax
Profits shall be determined by Sparta's independent accountant
who audits financial statements of Sparta and shall be prepared
in accordance with generally accepted accounting principles,
consistently applied; which determinations shall be final and
agreed upon by all parties.
<PAGE>
Orion Life Systems, Inc.
Mr. Kenneth L. Maltas
Mr. John L. Laemmar
October 28, 1996
Page 4
Earn-Out Shares shall be subject to an Irrevocable Voting Trust
Agreement between Maltas and Thomas F. Reiner. If any Earn-Out
Common Shares are achieved, Maltas then agrees to vote all shares
earned in favor of Thomas F. Reiner. In addition, any shares
earned by Maltas, shall be subject to restrictions from sale of
securities pursuant to the guidelines of the Securities and
Exchange Commission.
Earn-Out
Shares For Achieving
Minimum Net
Annual Minimum Minimum Sales And Pre-Tax
Period Net Sales Pre-Tax Profits Profits
------ --------- --------------- -------
1998 $ 6,000,000 $ 250,000 100,000
1999 $ 7,500,000 $ 400,000 200,000
2000 $ 9,500,000 $ 550,000 300,000
2001 $12,000,000 $ 750,000 400,000
b) Mr. John Laemmar ("Laemmar") shall enter into a Consulting
Agreement with Sparta for a term of Twenty-Four (24) months from
the date of Closing, pursuant to which Laemmar shall work not
less than Twenty-Four (24) hours per week and shall report
directly to Sparta's Chairman, President and C.E.O or to any
individual(s) so designated by the Board of Directors. Laemmar
shall be paid on Sparta's regular payroll periods, a Consultant
fee of Sixty Five Thousand ($65,000) each year. In addition,
Laemmar shall be issued, as further fee for such services,
pursuant to the Sparta ESOP plan, to purchase 100,000 shares of
Sparta common stock at the Fair Market Value Price on the day of
the Closing, exercisable over a three year period at 33,333
shares each year.
Such Consulting services shall consist of providing any support
and assistance relating to financing, regulatory affairs and
manufacturing during such period or any other duties as
designated by Sparta's Board of Directors. Sparta shall maintain
at its own expense, key man life insurance on the life of Laemmar
will be maintained throughout the duration of the terms of such
employment period, in the amount of $250,000, of which Sparta
shall be the sole beneficiary and owner. Laemmar shall receive a
monthly auto allowance of $250.00 per month for the duration of
the Consultant Agreement. In addition , Sparta shall maintain a
$250,000 term life insurance policy on Laemmar which Sparta shall
be the owner and Laemmar shall designate his choice of
beneficiary. In addition, Sparta agrees to reimburse Laemmar up
to a maximum of $136.25 each month for disability income
protection for the duration of the Consultant Agreement or up to
a maximum of two years.
<PAGE>
Orion Life Systems, Inc.
Mr. Kenneth L. Maltas
Mr. John L. Laemmar
October 28, 1996
Page 5
c) In addition, Maltas and Laemmar shall sign separate Non-Compete
Agreement for a five (5) year term and shall apply to the entire
industry serviced by Orion.
5. Due Diligence Review. Immediately after the mutual execution of this
letter of intent, Orion shall allow Sparta, its accountants, attorneys and its
other authorized representatives, to review its books, records, financial
statements, tax returns, perform complete inventory of its assets and material
contracts, interview key employees, and review any and all other materials
necessary in order for Sparta and its lenders to satisfy themselves as to the
financial conditions and operations of its business. Sparta shall complete its
inspection and then shall advise Orion of the acceptability of the financial and
operational condition of the business. Orion acknowledges that it has agreed to
continue operating its business, sales effort and manufacturing and service
provision, as normal, from now until the Closing, in order to help assure a
smooth transition.
Among other things, Orion shall provide to Sparta, at Orion's own expense,
an appraisal of all Orion's equipment and inventory at Orderly Liquidation
Value, at Salvage Value, and at Fair Market Value, in form and substance
satisfactory to Sparta's lenders no later than fifteen (15) days after the
signing of this Letter of Intent. The appraisal shall be performed by Accuval
Associates, Inc., Mequon, Wisconsin.
6. Environmental, OSHA and FDA Information. Orion shall furnish at its own
expense to Sparta all documentation, notices, analyses, Phase I and II reports,
and other materials regarding environmental, OSHA-regulated or Food and Drug
Administration-regulated and conditions (including, without limitation, any
documentation relating to Orion's compliance with GMP). Orion represents that it
has obtained all permits, licenses, and other authorizations required and Orion
is in full compliance with all terms and conditions of the Environmental laws.
In addition, Orion will pay for Consultants selected by Sparta to conduct a
Phase II report on environmental conditions at Orion's location, and to
determine compliance with GMP as to manufacture, packaging, etc.
7. Cooperation with Lenders and/or other Financiers. Orion agrees to fully
cooperate with Sparta's lenders and/or other financiers, with any disbursements
involved therein to be reimbursed by Sparta, including, if Sparta so requests,
participation in one or more presentations jointly with Sparta to Sparta's
lenders.
8. Conditions. The closing of the transactions herein contemplated shall be
conditioned upon execution of a definitive Asset Purchase Agreement and other
mutually acceptable definitive agreements, and upon the following:
(a) the determination by Sparta that the results of its due diligence
investigation of Orion's business and assets are satisfactory,
and that no material
<PAGE>
Orion Life Systems, Inc.
Mr. Kenneth L. Maltas
Mr. John L. Laemmar
October 28, 1996
Page 6
environmental, OSHA, or FDA issues, or other governmental
liabilities are outstanding, pending or reasonably likely to
arise based upon present information as of the date of Closing;
(b) representations by Maltas and Laemmar that no new indebtedness,
salary raises or bonuses, or other actions outside the ordinary
course of business shall have occurred between the date of this
letter of intent and the Closing;
(c) the joinder by Maltas and Laemmar in the representations and
warranties of Orion in the definitive Asset Purchase Agreement
without limiting the generality of the foregoing, such
representations and warranties include, (i) the accuracy of
financial statements of assets and liabilities, (ii) no material
adverse change in the financial condition and/or the assets of
Orion Life Systems, Inc. from the date of this letter; and
(d) Orion shall have renewed the current contract manufacturing
agreement for a three (3) year period with Clintic commencing
January 1997 by the closing date of this transaction.
(e) Sparta shall have reviewed and be satisfied with Orion's October
and November 1996 financial statement results.
(f) Orion is not a party to any presently binding letter of intent or
other writing contemplating a committment, nor does Orion have
any committment or legal obligation to any other person or entity
to merge or consolidate the business.
9. Closing. The closing shall take place as soon as practicable after
successful conclusion of Sparta's due diligence investigation as set forth
above, at the offices of Shafner, Gilleran & Mortenson, P.C., 150 Federal
Street, Boston, MA 02110. Upon execution and delivery of the definitive Asset
Purchase Agreement and other agreements, the provisions of this letter will
merge into said definitive agreements and will be of no further force or effect.
The following items are binding agreements of the parties to this letter, as
evidenced by their respective signatures:
10. Confidentiality of Due Diligence Information. The parties agrees to
keep confidential and not disclose all information concerning each other and
their respective businesses, operations and assets, except that Sparta may share
such information with accountants, attorneys and professional advisers, and
except, in the case of Sparta, that it may share information with its lenders
and/or other sources of financing. Except as contemplated by this letter and as
<PAGE>
Orion Life Systems, Inc.
Mr. Kenneth L. Maltas
Mr. John L. Laemmar
October 28, 1996
Page 7
reasonably necessary in order to acquire the financing necessary to consummate
the transactions contemplated by this letter, the parties shall not utilize
non-public information obtained in connection herewith for any other purpose.
11. Standstill Agreement. Until the expiration of One Hundred Fifty (150)
days from the date of execution of this letter of intent, Orion agrees that
neither it, nor any of its representatives, or they, will communicate, solicit
respond to, entertain or encourage (including furnishing any information
regarding its business, properties or assets) any inquiry, discussion or
proposal for or in connection with any sale of its stock or assets outside the
ordinary course of Orion' business. The parties agree that any violation of this
provision will result in monetary and non-monetary damages to Sparta which will
be difficult to ascertain with any degree of specificity, and therefore the
parties agree that this provision shall be enforceable in equity, in addition to
and not in lieu of any remedy available therefor at law.
12. Expenses. Except as otherwise expressly provided herein, all
expenses incurred by Sparta in connection with the matters contained in this
letter (including but not limited to attorney's fees, accountants' fees and
costs with respect to due diligence) and in connection with the consummation of
the proposed transactions shall be paid by Sparta. Likewise, all expenses
incurred by Orion with respect to the matters contained in this letter shall be
paid by Orion. Without limiting the foregoing, Orion shall be responsible for
the fees and expenses of Cleary and Oxford Associates in connection with the
transactions contemplated herein. Orion and Sparta represent and warrant to one
another that no other broker or intermediary has been retained with respect to
the transactions contemplated by this letter, and will indemnify and hold the
other harmless form any costs or liability to any such broker or intermediary
which one of them shall have retained or shall have given reason to assert a
claim, regardless of the meritoriousness thereof.
13. Non-Disclosure. The parties shall keep the existence and substance of
these negotiations strictly confidential, except for their respective
accountants, attorneys and professional advisers, and except, in the case of
Sparta, for its lenders and/or other sources of financing. Orion agrees that it
and its officers, agents or employees will not discuss or publicize this
potential transaction without the consent of Sparta unless required by law to do
so, in which event Orion or such party will notify Sparta as far in advance as
reasonably possible and will cooperate with Sparta in any action Sparta deems
necessary or appropriate to prevent or limit such disclosure. Orion recognizes
that the extent of this acquisition could be material with respect to Sparta and
that Sparta intends it to be confidential until Sparta deems it appropriate to
disclose in a press release and/or filing this transaction with the Securities
and Exchange Commission. Thus, Orion now has and will continue to have material
non-public information. As a result, Orion and any person related to Orion who
is aware of this information will be restricted from trading in the stock of
<PAGE>
Orion Life Systems,Inc.
Mr. Kenneth L. Maltas
Mr. John L. Laemmar
October 28, 1996
Page 8
Sparta while the information is non-public. If Orion or its personnel have any
questions regarding their responsibilities under these laws or provisions, they
will consult their attorney.
This letter will be effective as of the date countersigned by Orion below.
If the contents of this letter of intent correspond with your intentions with
regard to this matter, please execute the bottom portion of the enclosed copy of
this letter and return it to the undersigned on or before 5:00 p.m. E.S.T. on
November 1, 1996. If not returned by said time and date, without change, this
letter of intent will expire.
This letter supersedes all prior communications between the parties hereto
(both oral and written). All such previous communications is modified hereby.
This letter of intent of the parties hereto as of the date herewith.
Sincerely,
SPARTA SURGICAL CORPORATION
(on its own behalf and/or on behalf of an
entity to be formed by it)
By: Thomas F. Reiner
Thomas F. Reiner, Chairman of the Board
President and CEO
Orion Life Systems, Inc., Agreed and Accepted
By: Kenneth Maltas Date 11-1-96
Kenneth Maltas, President, Principal Owner
John Laemmar Date 11-1-96
John Laemmar, Executive Vice President, Principal Owner
