SECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 1-9913
KINETIC CONCEPTS, INC.
- -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 74-1891727
- ------------------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
8023 Vantage Drive
San Antonio, Texas 78230 (210) 524-9000
- ------------------------------- -----------------------------------
(Address of principal executive (Registrant's phone number)
offices and zip code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock: 42,664,418 shares as of August 1, 1997
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------------------------------
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
June 30, December 31,
1997 1996
----------- ------------
Assets: (unaudited)
- -------
Current assets:
Cash and cash equivalents........... $ 38,388 $ 59,045
Accounts and notes receivable, net.. 74,129 58,241
Inventories......................... 21,173 20,042
Prepaid expenses and other......... 8,722 6,860
------- -------
Total current assets............. 142,412 144,188
------- -------
Net property, plant and equipment..... 72,060 65,224
Notes receivable...................... 3,250 --
Goodwill, less accumulated amortiza-
tion of $12,510 in 1997 and $12,021
in 1996............................. 23,047 13,541
Other assets, less accumulated
amortization of $2,906 in 1997 and
$2,837 in 1996...................... 30,488 30,440
------- -------
$271,257 $253,393
======= =======
Liabilities and Shareholders' Equity:
- -------------------------------------
Current liabilities:
Accounts payable.................... $ 4,740 $ 3,974
Current installments of capital lease
obligations....................... 134 118
Accrued expenses.................... 32,299 29,792
Income tax payable.................. 3,242 2,970
------- -------
Total current liabilities........ 40,415 36,854
Capital lease obligations, net of current
installments........................ 378 396
Deferred income taxes, net............ 7,528 5,065
Other................................. 218 --
------- -------
48,539 42,315
------- -------
Minority interest..................... 204 --
Shareholders' equity:
Common stock; issued and outstanding
42,305 in 1997 and 42,355 in 1996 42 42
Retained earnings................... 225,314 210,816
Cumulative foreign currency trans-
lation adjustment................. (2,602) 555
Notes receivable from officers...... (240) (335)
------- -------
222,514 211,078
------- -------
$271,257 $253,393
======= =======
See accompanying notes to condensed consolidated financial statements.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(in thousands, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
Revenue:
Rental and service..... $61,300 $54,095 $123,125 $110,885
Sales and other........ 13,731 10,177 25,087 20,974
------ ------ ------- -------
Total revenue........ 75,031 64,272 148,212 131,859
Rental expenses......... 38,904 35,611 76,616 72,857
Cost of goods sold...... 5,770 3,786 10,012 7,829
------ ------ ------- -------
44,674 39,397 86,628 80,686
------ ------ ------- -------
Gross profit........ 30,357 24,875 61,584 51,173
Selling, general and
administrative expenses 14,134 12,154 29,144 24,711
------ ------ ------- -------
Operating earnings.. 16,223 12,721 32,440 26,462
Net interest income..... 399 904 853 1,874
------ ------ ------- -------
Earnings before income
taxes and minority
interest.......... 16,622 13,625 33,293 28,336
Income taxes............ 6,649 5,438 13,317 11,335
Minority interest....... 21 -- 21 --
------ ------ ------- -------
Net earnings........ $ 9,952 $ 8,187 $ 19,955 $ 17,001
====== ====== ======= =======
Earnings per common
and common equivalent
share............. $ 0.23 $ 0.18 $ 0.46 $ 0.37
====== ====== ======= =======
Shares used in earnings
per share computa-
tions 43,806 46,459 43,737 46,015
====== ====== ======= =======
See accompanying notes to condensed consolidated financial statements.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six months ended
June 30,
---------------------
1997 1996
---------- ---------
Cash flows from operating activities:
Net earnings................................ $ 19,955 $ 17,001
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization........... 10,974 11,709
Provision for uncollectible accounts
receivable............................ 1,434 1,187
Change in assets and liabilities:
Increase in accounts receivable....... (15,656) (1,736)
Increase in inventories............... (643) (1,983)
Increase in prepaid and other assets.. (1,816) (2,395)
Increase (decrease) in accounts
payable............................. (291) 597
Increase (decrease) in accrued
expenses............................ 1,065 (99)
Increase in income taxes payable...... 272 630
Increase in deferred income taxes..... 2,463 492
------- -------
Net cash provided by operating
activities........................ 17,757 25,403
------- -------
Cash flows from investing activities:
Additions to property, plant, and
equipment................................. (13,533) (12,480)
Increase in inventory to be converted
into equipment for short-term rental...... (3,645) (150)
Dispositions of property, plant, and
equipment................................. 1,096 750
Business acquired in purchase transactions,
net of cash acquired...................... (12,445) --
Decrease in note receivable from principal
shareholder............................... -- 10,000
Increase in other assets.................... (3,223) (1,340)
------ -------
Net cash used by investing activities (31,750) (3,220)
------ -------
Cash flows from financing activities:
Repayments of capital lease obligations..... (53) --
Proceeds from the exercise of stock options. 1,963 4,276
Purchase and retirement of treasury stock... (4,133) (10,363)
Cash dividends paid to shareholders......... (3,205) (3,331)
Other....................................... 217 (138)
------ ------
Net cash used by financing activities (5,211) (9,556)
------ ------
Effect of exchange rate changes on cash and
cash equivalents............................ (1,453) (160)
------ ------
Net increase in cash and cash equivalents..... (20,657) 12,467
Cash and cash equivalents, beginning of year 59,045 52,399
------ ------
Cash and cash equivalents, end of period...... $ 38,388 $ 64,866
====== ======
Supplemental disclosure of cash flow
information:
Cash paid during the first six months for:
Interest................................. 84 82
Income taxes............................. 8,783 6,160
See accompanying notes to condensed consolidated financial statements.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
---------------------
The financial statements presented herein include
the accounts of Kinetic Concepts, Inc. and all subsidiaries
(the "Company"). The condensed consolidated financial
statements appearing in this quarterly report on Form 10-Q
should be read in conjunction with the financial statements
and notes thereto included in the Company's latest
annual report. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted. The foregoing financial information
reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary
for a fair presentation of the financial position and results of
operations for the interim periods presented. Interim period
operating results are not necessarily indicative of the
results to be expected for the full fiscal year.
(2) INVENTORY COMPONENTS
---------------------
Inventories are stated at the lower of cost (first-
in, first-out) or market (net realizable value).
Inventories are comprised of the following (in thousands):
June 30, December 31,
1997 1996
-------- -----------
Finished goods...................... $ 4,006 $ 5,586
Work in process..................... 3,143 1,893
Raw materials, supplies and parts... 22,219 17,113
------ ------
29,368 24,592
Less amounts expected to be converted
into equipment for short-term rental 8,195 4,550
------ ------
Total inventories $21,173 $20,042
====== ======
(3) NOTES RECEIVABLE
-----------------
Notes receivable included a $3.0 million note received
from James R. Leininger, M.D., the principal shareholder and
chairman of the Company's Board of Directors, the proceeds of
which were used to finance a construction project for Home
Dome, L.L.C., a third party affiliated with Dr. Leininger.
The note carries a variable interest rate which will
fluctuate between 6.25% and 10.25% per annum, and requires
quarterly interest payments beginning May 3, 1997. Monthly
principal payments commence March 3, 1998 based on a
20-year note amortization. The note has a final maturity date
of February 3, 2002, at which time the entire amount of unpaid
principal and interest shall be due. The note is secured by
300,000 shares of the Company's Common Stock and a mortgage on
the property under construction.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(4) ACQUISITIONS/DISPOSITIONS
-------------------------
On April 18, 1997, the Company acquired 80% of
the outstanding capital stock of Ethos Medical Group, Ltd.
located in Athlone, Ireland, for approximately $2.3 million in
cash plus other consideration. Ethos manufactures the Keene
Roto Rest r trauma bed and other medical devices and rents
specialty support surfaces to caregivers throughout
Ireland. Ethos Medical's operating results are not expected
to have a material impact on the Company's results of
operations for 1997.
On February 1, 1997, the Company acquired the assets
of H.F. Systems, Inc. of Los Angeles. H.F. Systems
offers a complete line of therapeutic specialty
support surfaces primarily to the California extended
care marketplace. The Company acquired the assets of H.F.
Systems in a single transaction for approximately $8.0 million
in cash plus other consideration. H.F. Systems will be integrated
into Kinetic Concepts' extensive distribution system and, as
a result, the Company expects to benefit from the
elimination of certain redundant expenses. H.F. Systems recorded
revenue of approximately $7.0 million for 1996 and is
not expected to have a material impact on the Company's
results of operations for 1997.
On January 3, 1997 the Company purchased from Trac
Medical, Inc., a North Carolina corporation, all assets and
technology rights to the "Access" patient care device, an
environmental control system arm which is mountable on
hospital beds. The Company purchase price of the Access
device was approximately $2.0 million in cash plus other
consideration.
(5) SHARES USED IN EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE COMPUTATIONS
--------------------------------------
The weighted average number of common and common
equivalent shares used in the computation of earnings per
share is as follows (in thousands):
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
-------- -------- ------- -------
Average outstanding
common shares........ 42,317 44,307 42,322 44,332
Average common equiva-
lent share-dilutive
effect of option
shares.............. 1,489 2,152 1,415 1,683
------ ------ ------ ------
Shares used in earnings
per share
computations......... 43,806 46,459 43,737 46,015
====== ====== ====== ======
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Earnings per common and common equivalent share are computed
by dividing net earnings by the weighted average number of
common and dilutive common equivalent shares outstanding
during the period. Dilutive common equivalent shares consist
of stock options (using the treasury stock method). Earnings per
share computed on a fully diluted basis is not presented as it
is not significantly different from earnings per share
computed on a primary basis.
(6) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company is party to several lawsuits generally
incidental to its business and is contesting certain
adjustments proposed by the Internal Revenue Service to
prior years' tax returns. Provisions have been made
in the accompanying financial statements for estimated
exposures related to these lawsuits and adjustments. In
the opinion of management, the disposition of these items
will not have a material effect on the Company's financial
statements.
(7) NEW PRONOUNCEMENTS
------------------
In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, Earnings per Share, which is
required to be adopted on December 31, 1997. At that time,
the Company will be required to change the method currently
used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary
("basic") earnings per share, the dilutive effect of stock
options will be excluded. The impact is expected to result
in an increase in basic earnings per share for the six
month period ended June 30, 1997 and June 30, 1996 of
$0.01 and $0.01 per share, respectively. The impact of
Statement 128 on the calculation of fully diluted earnings
per share for these periods is not expected to be
material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
Results of Operations
Second Quarter of 1997 Compared to Second Quarter of 1996
- ---------------------------------------------------------
The following table sets forth, for the periods indicated,
the percentage relationship of each item to total revenue as well
as the change in each line item as compared to the second
quarter of the prior year ($ in thousands):
Three Months Ended June 30,
-----------------------------
Revenue Increase
Relationship (Decrease)
------------ --------------
1997 1996 $ Pct
----- ---- ------- ---
Revenue:
Rental and service.......... 82% 84% $ 7,205 13%
Sales and other............. 18% 16% 3,554 35%
--- --- ------- --
Total Revenue............. 100% 100% 10,759 17%
Rental expenses............... 52% 55% 3,293 9%
Cost of goods sold............ 7% 6% 1,984 52%
--- --- ------ --
Gross profit.............. 41% 39% 5,482 22%
Selling, general and
administrative expenses..... 19% 19% 1,980 16%
--- --- ------ --
Operating earnings........ 22% 20% 3,502 28%
Interest income, net.......... -% 1% (505) (56%)
--- --- ------ --
Earnings before income taxes
and minority interest... 22% 21% 2,997 22%
Income taxes.................. 9% 8% 1,211 22%
Minority interest............. -% -% 21 -%
--- --- ------ --
Net earnings.............. 13% 13% $ 1,765 22%
=== === ====== ==
The Company's revenue is derived from three
primary markets. The following table sets forth the amount
of revenue derived from each of these markets for the periods
indicated ($ in millions):
Three months ended
June 30,
-------------------
1997 1996
------- -------
Domestic Specialty Surfaces $48.8 $43.0
International............... 17.2 16.9
Medical Devices............. 8.7 4.2
Other....................... .3 .2
---- ----
$75.0 $64.3
==== ====
Total revenue in the second quarter of 1997 increased 16.7% to
$75.0 million, from $64.3 million in the second quarter of 1996.
Revenue from the Company's domestic specialty surface business was
$48.8 million, up $5.8 million, or 13.6% from the second quarter of
1996. The increased revenue was derived from core business
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -----------------------------------------------------------
growth in all care settings, due primarily to higher patient
therapy days, and the addition of H.F. Systems, which the Company
acquired in February 1997. H.F. Systems contributed revenue of
approximately $2.1 million to the second quarter of 1997.
Revenue from the Company's international operations was
$17.2 million, up $300,000 or 1.7%, from the second quarter of
1996. The international revenue increase reflects higher therapy
days in virtually all mid and lower-tier markets, e.g., the
Netherlands, Canada and Switzerland, which were largely offset
by softness in Germany and the United Kingdom and by unfavorable
currency exchange fluctuations of $1.5 million. Revenue from
Ethos Medical Group operations, which the Company acquired in
April 1997, was not material during the period.
Revenue from medical device operations increased $4.5
million, or 107.1%, to $8.7 million in the second quarter of 1997
due to the continued success of The V.A.C. wound closure device
and increased rental revenue for the PlexiPulse foot/calf pump
resulting from the distribution agreement signed with Mediq/PRN at
the beginning of this year.
Rental, or field, expenses were 63.5% of total rental revenue
in the second quarter of 1997 compared to 65.8% in the second
quarter of 1996. This decrease is primarily attributable to the
increase in rental revenue, as the majority of rental expenses are
relatively fixed, e.g. facility and service costs.
Gross profit increased $5.5 million, or 22.0%, to $30.4
million in the second quarter of 1997 from $24.9 million in
the second quarter of 1996 due to increased rental revenue as
well as increased sales volumes of disposable products associated
with medical devices.
Selling, general and administrative expenses increased
$2.0 million, or 16.3%, to $14.1 million in the second quarter
of 1997 from $12.2 million in the second quarter of 1996. The
increase is due in part to costs associated with certain key
investments (e.g. improved marketing and information systems) as
well as increased legal and professional fees. As a
percentage of total revenue, selling, general and
administrative expenses were at 18.8% in the second quarter of
1997 as compared with 18.9% in the second quarter of 1996.
Operating earnings for the period increased $3.5 million,
or 27.5%, to $16.2 million compared to $12.7 million in the prior-
year quarter resulting largely from the revenue growth discussed
above.
Net interest income for the three months ended June 30, 1997
was approximately $400,000 compared to approximately $900,000
in the prior year. The decrease in interest income resulted from
the early payment in October 1996 of all remaining notes
receivable from Mediq/PRN and lower invested cash balances
due to acquisition activities in the first six months of 1997.
The Company's effective income tax rate in the second quarter
of 1997 was 40%, consistent with the second quarter of 1996.
Net earnings increased $1.8 million, or 21.6%, to $10.0
million in the second quarter of 1997. This increase was due to
the increase in revenue as discussed above combined with
controlled spending levels.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------
First Six Months of 1997 Compared to First Six Months of 1996
- -------------------------------------------------------------
The following table sets forth, for the periods indicated,
the percentage relationship of each item to total revenue as well
as the change in each line item as compared to the first six
months of the prior year ($ in thousands):
Six Months Ended June 30,
---------------------------
Revenue Increase
Relationship (Decrease)
------------ -------------
1997 1996 $ PCT
---- ---- ------- ----
Revenue:
Rental and service........... 83% 84% $ 12,240 11%
Sales and other.............. 17% 16% 4,113 20%
--- --- ------ --
Total Revenue.............. 100% 100% 16,353 12%
Rental expenses................ 51% 55% 3,759 5%
Cost of goods sold............. 7% 6% 2,183 28%
--- --- ------ --
Gross profit............... 42% 39% 10,411 20%
Selling, general and
administrative expenses...... 20% 19% 4,433 18%
--- --- ------ --
Operating earnings......... 22% 20% 5,978 23%
Interest income, net........... -% 1% (1,021) (54%)
--- --- ------ --
Earnings before income taxes
and minority interest.... 22% 21% 4,957 17%
Income taxes................... 9% 8% 1,982 17%
Minority interest.............. -% -% 21 -%
--- --- ------ --
Net earnings............... 13% 13% $ 2,954 17%
=== === ====== ==
The Company's revenue is derived from three primary
markets. The following table sets forth the amount of revenue
derived from each of these markets for the periods indicated ($ in
millions):
Six months ended
June 30,
-------------------
1997 1996
------- --------
Domestic Specialty Surfaces $ 97.9 $ 88.5
International.............. 33.8 34.2
Medical Devices............ 16.0 9.0
Other...................... .5 .2
------ -----
$148.2 $131.9
===== =====
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------
Total revenue for the first six months of 1997 increased
by $16.3 million, or 12.4%, to $148.2 million. Revenue from
the Company's domestic specialty surface business was $97.9
million, up $9.4 million, or 11.0%, from the six months ended
June 30, 1996 as all major product lines showed growth. Revenue
from the Company's international operations of $33.8 million
remained flat compared to the six months ended June 30, 1996
despite unfavorable currency exchange rate fluctuations of
approximately $2.6 million for the period. Revenue from
medical device operations in the first six months of 1997 was
$16.0 million, up $7.0 million, or 77.0%, primarily due to
increased rental revenue from both the V.A.C. wound closure device
and the PlexiPulse foot/calf pump.
Rental expenses were 62.2% of total rental revenue in the
six months ended June 30, 1997 compared to 65.7% in the six
months of 1996. This decrease is primarily attributable to the
increase in rental revenue, as the majority of rental
expenses are fixed, combined with certain operating
efficiencies associated with implementation of the Genesis
service delivery system and processes. Overall, rental expenses
increased $3.8 million, or 5.2% compared to the first six months
of 1996.
Gross profit increased $10.4 million, or 20.3%, to $61.6
million in the six months ended June 30, 1997 due to the increase
in revenue, controlled growth in rental expenses and improved sales
volumes.
Selling, general and administrative expenses increased
$4.4 million, or 17.9%, to $29.1 million in the first six months
of 1997 from $24.7 million in the first six months of 1996. Key
investments in marketing programs and information systems as well
as higher legal and professional fees accounted for the majority of
this increase.
Operating earnings for the period increased $6.0 million,
or 22.6%, to $32.4 million compared to $26.5 million in the prior-
year resulting largely from the above-mentioned revenue growth.
Net interest income for the six months ended June 30, 1997
was $900,000 compared to $1.9 million in the prior year. The
decrease in interest income resulted from the early payment in
October 1996 of all remaining notes receivable from Mediq/PRN
and lower invested cash balances due to acquisition activities in
1997.
The Company's effective income tax rate in the first six
months ended June 30, 1997 was 40%, consistent with the first six
months of 1996.
Net earnings increased $3.0 million, or 17.4%, to $20.0
million in the first six months of 1997 from $17.0 million in the
first six months of 1996. This increase was due to the relative
decrease in rental expenses and the change in revenue as discussed
above.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------
Financial Condition
- --------------------
The change in revenue and expenses experienced by the
Company during the six months ended June 30, 1997 and other
factors resulted in changes to the Company's balance sheet as
follows:
Cash and cash equivalents were $38.4 million at June 30, 1997,
a decrease of $20.7 million from December 1996. The cash decrease
is primarily attributable to business/asset acquisitions totaling
$12.4 million and a temporary increase in accounts receivable
resulting from a recent billing systems conversion.
Accounts receivable at June 30, 1997 were $74.1 million, a
$15.9 million or 27.3%, increase from year-end. On January 2,
1997, the Company converted to a new billing and accounts
receivable system. Implementation activities had a negative timing
impact on collections for the period. The Company expects future
receivable balances to decrease over time. Business acquisition
activities during the first half of 1997 have also increased
accounts receivable.
Inventory at June 30, 1997 increased 5.6% to $21.2 million
from $20.0 million at December 31, 1996 primarily due to
planned product introductions and the recent acquisition of
Ethos Medical Group, which had inventory of approximately
$800,000.
Net property, plant and equipment at June 30, 1997
increased 10.5% to $72.1 million from $65.2 million at December 31,
1996 due in part to asset acquisitions such as H.F.
Systems. Capital expenditures were $16.1 million during the
first six months of 1997 as the Company invested in new products
for its rental fleet and new computer systems. Depreciation and
amortization for the first six months of 1997 totaled $11.0
million, down 6.3% from the same period in 1996.
Notes receivable consisted of a $3.0 million note received
from James R. Leininger, M.D., the Company's principal
shareholder and chairman of the Board of Directors. The note is
secured by a Deed of Trust/Security Agreement, Vendor's Lien and
300,000 shares of KCI Common Stock. The note bears interest
at market rates and has a final maturity of February 3, 2002.
Goodwill increased $9.5 million during the period, to
$23.0 million, due primarily to the Company's three business
acquisitions in the period.
Accrued expenses at June 30, 1997 increased $2.5 million,
or 8.4%, to $32.3 million from $29.8 million at December 31,
1996. Accruals for payments in connection with the H.F. System
acquisition and other operating costs accounted for the
majority of this increase.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------
Market Trends
- -------------
The health care industry continues to face various
challenges, including increased pressure on health care
providers to control costs, the accelerating migration of
patients from acute care facilities into extended care (e.g.
skilled nursing facilities and rehabilitation centers) and
home care settings, the consolidation of health care providers
and national and regional group purchasing organizations and
the growing demand for clinically proven and cost effective therapies.
In an effort to reduce the federal deficit and lower
overall federal health care expenditures, President Clinton
recently signed into law the Balanced Budget Act of 1997 (the
"BBA"). The BBA contains a number of provisions which will
impact the federal reimbursement of health care and reduce
projected payments under the Medicare system by $115 billion
over the next five years. The majority of the savings are
scheduled for the fourth and fifth years of this plan. The
provisions include (i) a reduction exceeding $30 billion in the
level of payments made to acute care hospitals under Medicare Part A
over the next five years (which will be funded primarily through
a freeze and/or reduction in future consumer price index
increases); (ii) a change on July 1, 1998 in the manner in
which skilled nursing facilities ("SNFs") are reimbursed from
a cost-based system to a prospective payment system under which
the SNFs will receive an all inclusive, case-mix-adjusted per
diem payment for each of their Medicare patients; and (iii)
a five-year freeze on consumer price index updates for
Medicare Part B services in the home and the implementation
of competitive bidding trials for five categories of home care
products.
Less than 10% of the Company's revenue is received directly
from the Medicare system. However, many of the health care
providers who pay the Company for its products are reimbursed,
either directly or indirectly, by the Federal government under the
Medicare system for the use of those products. We do not believe
that the changes introduced by the BBA will have a material impact
on our hospital customers or the dealers we partner with in home
health care. However, the changes to the Medicare system introduced
by the BBA may have an impact on the manner in which the Company's
extended care customers make purchasing decisions. Because the Company
has focused on providing clinically efficacious and cost effective
products, it believes it is well positioned for the changes in extended
care reimbursement introduced by the BBA. Although these changes may
impact revenue in the short term as the Company's extended care
customers begin to understand the impact of the changes on their
respective businesses, the Company does not believe that any of the
changes in the Medicare system introduced by the BBA will have a material
adverse impact on its business.
The Company's market continues to increase based
upon demographic trends as most of the Company's patients are
over 50 years old. Further, its broad product line and national
distribution system enable it to compete effectively in the
changing healthcare environment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -----------------------------------------------------------
Market Trends (continued)
- -------------------------
More recently, sales have increased as a portion of the
Company's revenue. The Company believes this trend will
continue because certain U.S. health care providers are purchasing
products that are less expensive and easier to maintain such
as medial devices, mattress overlays and mattress replacement
systems. In addition, international health care providers
tend to purchase products more often than U.S. health care
providers.
Legal Proceedings
- -----------------
On February 21, 1992, Novamedix Limited ("Novamedix") filed
a lawsuit against the Company in the United States District Court
for the Western District of Texas. Novamedix manufactures the
principal product which directly competes with the PlexiPulse. The
suit alleges that the PlexiPulse infringes several patents held by
Novamedix, that the Company breached a confidential relationship
with Novamedix and a variety of ancillary claims. Novamedix seeks
injunctive relief and monetary damages. Initial discovery in
this case has been substantially completed. Although it is not
possible to predict the outcome of this litigation or the damages
which could be awarded, the Company believes that its defenses to
these claims are meritorious and that the litigation will not
have a material adverse effect on the Company's business, financial
condition or results of operations.
On August 16, 1995, the Company filed a civil antitrust
lawsuit against Hillenbrand Industries, Inc. and one of its
subsidiaries, Hill-Rom. The suit was filed in the United States
District Court for the Western District of Texas. The suit
alleges that Hill-Rom used its monopoly power in the standard
hospital bed business to gain an unfair advantage in the specialty
hospital bed business. Specifically, the allegations set forth
in the suit include a claim that Hill-Rom required hospitals and
purchasing groups to agree to exclusively rent specialty beds
in order to receive substantial discounts on products over which
they have monopoly power -- hospital beds and head wall units. The
suit further alleges that HillRom engaged in activities which
constitute predatory pricing and refusals to deal. Hill-Rom
has filed an answer denying the allegations in the suit.
Although discovery has not been completed and it is not possible
to predict the outcome of this litigation or the damages which
might be awarded, the Company believes that its claims are
meritorious.
On October 31, 1996 the Company received a counterclaim
which had been filed by Hillenbrand Industries, Inc. in the
antitrust lawsuit which the Company filed in 1995. The
counterclaim alleges that the Company's antitrust lawsuit and
other actions were designed to enable KCI to monopolize the bed
market. Although it is not possible to predict the outcome
of this litigation, the Company believes that the counterclaim is
without merit.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------
Legal Proceedings (continued)
- -----------------------------
On December 26, 1996, Hill-Rom, a subsidiary of
Hillenbrand Industries, Inc., filed a lawsuit against the Company
alleging that the Company's TriaDyne bed infringes a patent
issued to Hill-Rom December 24, 1996. This suit was filed in the
United States District Court for the District of South Carolina.
Substantive discovery in the case has not begun. Based upon its
preliminary investigation, the Company believes that its defenses
to the lawsuit are meritorious and that this lawsuit will not have a
material adverse impact on the marketing of the TriaDyne bed.
The Company is a party to several lawsuits arising in
the ordinary course of its business and is contesting
adjustments proposed by the Internal Revenue Service to prior
years' tax returns. To the extent management believes reserves
are justified, reserves, have been made in the Company's
financial statements for estimated exposures related to these
lawsuits and adjustments. In the opinion of management, the
disposition of these matters will not have a material
adverse effect on the Company's business, financial
condition or results of operations.
The manufacturing and marketing of medical products
necessarily entails an inherent risk of product liability claims.
The Company currently has certain product liability claims
pending for which provision has been made in the Company's
financial statements. Management believes that resolution of these
claims will not have a material adverse effect on the Company's business,
financial condition or results of operations. The Company has not
experienced any significant losses due to product liability claims
and currently maintains adequate liability insurance coverage.
Liquidity and Capital Resources
- -------------------------------
During the six months ended June 30, 1997, the Company
generated net cash provided by operating activities of $17.8
million compared to $25.4 million in the prior year period. The
majority of this decrease was attributable to the temporary
increase in accounts receivable, which increased $15.9 million
from year-end 1996. The Company made three business
acquisitions during the period for an aggregate purchase price of
approximately $12.4 million in cash. At June 30, 1997, cash and
cash equivalents totaling $38.4 million were available for general
corporate purposes. Additionally, the Company maintains a Credit
Agreement with a bank as an agent for itself and certain other
financial institutions. The Credit Agreement currently permits
borrowings of up to $50 million. At June 30, 1997, the entire
amount of the Credit Agreement was unused. The Company believes
that current cash reserves combined with operating cash flows and
available credit facilities during the next twelve month period
will be sufficient to provide for new investments, e.g., business
acquisitions, technology or equipment, and any working capital
needed during the period.
At June 30, 1997, the Company was committed to
purchase approximately $3.4 million of inventory associated with
new products over the remainder of this year. The Company did
not have any other material purchase commitments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The 1996 Annual Meeting of the Shareholders of Kinetic Concepts,
Inc. was held at 9:00 a.m. on May 13, 1997. The following
matters were acted upon by the shareholders at the annual meeting:
1. Sam A. Brooks, Frank A. Ehmann, Raymond R. Hannigan,
Wendy L. Gramm, P.h.D., James R. Leininger, M.D.,
Peter A. Leininger, M.D., and Bernhard T. Mittemeyer,
M.D. were each elected to serve as Directors of the
Company until the 1998 Annual Meeting of Shareholders
and until their successors were duly elected and
qualified. With respect to the election of Mr.
Brooks, Mr. Ehmann, Mr. Hannigan, Dr. Gramm,
Dr. James Leininger, Dr. Peter Leininger, and Dr.
Mittemeyer, each nominee as a director received
40,096,897 or more votes. No shareholders abstained
in the election of the directors and there were no
broker non-votes.
2. The Kinetic Concepts, Inc. Senior Executive
Stock Option Plan was approved. There were 38,836,714
votes for approval and 998,102 votes against approval.
3. The 1997 Kinetic Concepts, Inc. Employee Stock
Purchase Plan was approved. There were 39,778,810
votes for approval and 206,901 votes against approval.
4. The appointment of Ernst & Young LLP as the Company's
auditors for 1997 was approved. There were
40,104,213 votes for approval and 20,964 votes against
approval
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) EXHIBITS
A list of all exhibits filed or included as part of
this quarterly report on Form 10-Q is as follows:
Exhibit Description
------- -----------
3.1 Restatement of Articles of Incorporation
(filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1, as
amended (Registration No. 33-21353), and
incorporated herein by reference).
3.2 Restated By-Laws of the Company (filed as
Exhibit 3.3 to the Company's Registration
Statement on Form S-1, as amended
(Registration No. 33-21353), and
incorporated herein by reference).
4.1 Specimen Common Stock Certificate of the
Company (filed as Exhibit 4.1 to the Annual
Report on Form 10-K for the year ended
December 31, 1988, and incorporated herein
by reference).
10.1 Agreement dated September 29, 1987, by and
between the Company and Hill-Rom Company,
Inc. (filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-
1, as amended (Registration No. 33-21353),
and incorporated herein by reference).
10.2 Employment and Non-Competition Agreement
dated December 26, 1986, by and between the
Company and James R. Leininger, M.D. (filed
as Exhibit 10.10 to the Company's
Registration Statement on Form S-1, as
amended (Registration No. 33-21353), and
incorporated herein by reference).
10.3 Contract dated September 30, 1985, by and
between Ryder Truck Rental, Inc. and the
Company regarding the rental of delivery
trucks (filed as Exhibit 10.23 to the Company's
Registration Statement on Form S-1, as amended
(Registration No. 33-21353), and incorporated
herein by reference).
10.4 1988 Kinetic Concepts, Inc. Directors Stock
Option Plan (filed as Exhibit 10.26 to the
Company's Registration Statement on Form S-1,
as amended (Registration No. 33-21353), and
incorporated herein by reference).
10.5 Kinetic Concepts, Inc. Employee Stock
Ownership Plan and Trust dated January 1, 1989
(filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1989, and incorporated herein by
reference).
EXHIBITS (continued)
--------------------
10.6 1987 Key Contributor Stock Option Plan, as
amended, dated October 27, 1989 (filed as
Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1989,
and incorporated herein by reference).
10.7 Amendment No. 1 to Asset Purchase Agreement
dated September 30, 1994 by and among Kinetic
Concepts, Inc., a Texas corporation, KCI
Therapeutic Services, Inc., a Delaware
corporation, MEDIQ Incorporated, a Delaware
corporation, PRN Holdings, Inc., a Delaware
corporation and MEDIQ/PRN Life Support
Services-I, Inc., a Delaware corporation
(filed as Exhibit 2.2 to the Company's Form
8K dated October 17, 1994, and incorporated
herein by reference).
10.17 Credit Agreement dated as of May 8, 1995 by
and among the Company and Bank of America
National Trust and Savings Association, as
Agent (filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, and incorporated herein
by reference).
10.18 Purchasing Agreement, dated February 1, 1994,
between the Company, KCI Therapeutic Services,
Inc. and Voluntary Hospitals of America,
Inc.(filed as Exhibit 10.18 to the Company's
Amended Annual Report on Form 10K/A, dated
January 23, 1996, for the year ended December
31, 1994, and incorporated herein by
reference).
10.19 Rental/Purchasing Agreement, dated April 1,
1993 between the Company, KCI Therapeutic
Services, Inc. and AmHS Purchasing Partners,
L.P. (filed as Exhibit 10.19 to the Company's
Amended Annual Report on Form 10-K/A, dated
January 23, 1996, for the year ended December
31, 1994, and incorporated herein by
reference).
10.20 KCI Management 1994 Incentive Program (filed
as Exhibit 10.20 to the Company's Amended
Annual Report on Form 10-K/A, dated January
23, 1996, for the year ended December 31,
1994, and incorporated herein by reference).
10.21 KCI Employee Benefits Trust Agreement (filed
as Exhibit 10.21 to the Company's Amended
Annual Report on Form 10-K/A, dated January
23, 1996, for the year ended December 31,
1994, and incorporated herein by reference).
EXHIBITS (continued)
--------------------
10.22 Letter, dated September 19, 1994, from the
Company to Raymond R. Hannigan outlining the
terms of his employment (filed as Exhibit
10.22 to the Company's Amended Annual Report
on Form 10-K/A, dated January 23, 1996, for
the year ended December 31, 1994, and
incorporated herein by reference).
10.23 Letter, dated November 22, 1994, from the
Company to Christopher M. Fashek outlining the
terms of his employment (filed as Exhibit
10.23 to the Company's Amended Annual Report
on Form 10-K/A, dated January 23, 1996, for
the year ended December 31, 1994, and
incorporated herein by reference).
10.24 Option Agreement, dated November 21, 1994,
between Dr. James R. Leininger, Cecilia
Leininger and Raymond R. Hannigan (filed as
Exhibit 10.24 to the Company's Amended Annual
Report on Form 10-K/A, dated January 23, 1996,
for the year ended December 31, 1994, and
incorporated herein by reference).
10.25 Option Agreement, dated August 23, 1995,
between Dr. James R. Leininger, Cecilia
Leininger and Bianca A. Rhodes (filed as
Exhibit 10.25 to the Company's Amended Annual
Report on Form 10-K/A, dated January 23, 1996,
for the year ended December 31, 1994, and
incorporated herein by reference).
10.26 Stock Purchase Agreement dated June 15, 1995
among KCI Financial Services, Inc., Kinetic
Concepts, Inc., Cura Capital Corporation, MG
Acquisition Corporation and the Principal
Shareholders of Cura Capital Corporation
(filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein
by reference).
10.27 Promissory Note dated August 21, 1995 in the
principal amount of $10,000,000 payable to
James R. Leininger, M.D. to the order of
Kinetic Concepts, Inc., a Texas corporation
(filed as Exhibit 2.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995, and incorporated
herein by reference).
10.28 Stock Pledge Agreement dated August 21, 1995
by and between James R. Leininger, M.D. and
Kinetic Concepts, Inc., a Texas corporation
(filed as Exhibit 2.3 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995, and incorporated
herein by reference).
EXHIBITS (continued)
---------------------
10.29 Executive Committee Stock Ownership Plan
(filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein
by reference).
10.30 Deferred Compensation Plan (filed as Exhibit
99.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995
and incorporated herein by reference).
10.31 Kinetic Concepts, Inc. Senior Executive Stock
Option Plan (filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated
herein by reference).
10.32 Form of Option Instrument with respect to
Senior Executive Stock Option Plan (filed as
Exhibit 10.32 to the Company's Annual Report
on Form 10-K for the year ended December 31,
1996 and incorporated herein by reference).
10.33 Asset Purchase Agreement dated January 3,
1997 by and among Trac Medical, Inc., a North
Carolina corporation, Terry Williams, David
Mattis, George Parrish and KCI Therapeutic
Services, Inc., a Delaware corporation(filed
as Exhibit 10.33 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1997 and incorporated herein by
reference).
10.34 Asset Purchase Agreement dated January 27,
1997 by and among Hydrothermic Floatation
Systems, Inc., a California corporation, Y.
Jeremy Levy and KCI Therapeutic Services,
Inc., a Delaware corporation (filed as Exhibit
10.34 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997
and incorporated herein by reference).
*10.35 Agreement for the sale and purchase of 80% of
the issued share capital of Ethos Medical
Group Limited by KCI International, Inc. dated
April 18, 1997.
11.1 Earnings Per Share Computation (filed as
Exhibit 11.1 to the Company's Annual Report on
Form 10-K for the year ended December 31,
1996 and incorporated herein by reference).
13.1 Kinetic Concepts, Inc. 1996 Annual Report to
Shareholders (furnished for the information of
the Commission and not deemed to be "filed,"
except for those portions expressly
incorporated herein by reference)(filed as
Exhibit 13.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996
and incorporated herein by reference).
EXHIBITS (continued)
--------------------
16.1 Letter from KPMG Peat Marwick LLP to the
Securities and Exchange Commission regarding
agreement with statements made by Registrant
under Item 9 of its Form 10-K dated March 28,
1997 (filed as Exhibit 16.1 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by
reference).
22.1 List of Subsidiaries (filed as Exhibit 22.1
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and
incorporated herein by reference).
*27.1 Financial Data Schedule.
Note: (*) Exhibits filed herewith.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter
for which this report is filed.
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.
KINETIC CONCEPTS, INC.
By: /S/ JAMES R. LEININGER, M.D.
----------------------------
James R. Leininger, M.D.
Chairman of the Board
By: /S/ RAYMOND R. HANNIGAN
------------------------
Raymond R. Hannigan
President and Chief Executive Officer
By: /S/ MARTIN J. LANDON
--------------------
Martin J. Landon
Vice President, Accounting and
Corporate Controller
Date: August 13, 1997
DATED 18TH APRIL, 1997
(1) THE PERSONS NAMED IN THE FIRST SCHEDULE
and
(2) KCI INTERNATIONAL, INC.
AGREEMENT FOR THE SALE AND PURCHASE OF
80% of the issued share capital of
Ethos Medical Group Limited
L.K. Shields & Partners,
39-40 Upper Mount Street,
Dublin 2.
Ref: K130/PMCG/EMH/970129D2
THIS AGREEMENT is made on 18th April, 1997
BETWEEN
(1) THE PERSONS NAMED IN THE FIRST SCHEDULE
(collectively "the Vendors" which expression shall
include their respective successors, personal
representatives and assigns);
and
(2) KCI INTERNATIONAL, INC. whose principal place of
business is at 8023 Vantage Drive, San Antonio, Texas
78230-4726, USA, (the "Purchaser").
WHEREAS:
A. The Vendors together with Mr. Donal Lehane are the legal
and beneficial owners between them of the entire issued
share capital of Ethos Medical Group Limited.
B. The Vendors have agreed to sell or procure the sale and
the Purchaser, in reliance upon the Warranties, has
agreed to purchase, on the terms and subject to the
conditions of this Agreement, the number of shares set
out opposite the name of each Vendor in column 3 in the
First Schedule hereto, which represents 80% of the
issued share capital of Ethos Medical Group Limited.
C. It is agreed that Patrick Connolly, one of the Vendors,
will continue to hold 90,183 shares in Ethos Medical
Group Limited on the terms set out in this Agreement.
It is also acknowledged that Donal Lehane who holds 50
shares in Ethos Medical Group Limited is not disposing
of those shares on the date hereof.
NOW IT IS HEREBY AGREED as follows:-
1.00 INTERPRETATION
-------------------
1.01 Definitions
-----------
In this Agreement the Recitals and Schedules hereto, the
following expressions shall, unless the context
otherwise requires, have the meanings following:-
"Accounts" means
(a) in relation to each Group
Company, the audited profit and
loss account of the Group
Company for the accounting
period ended on, and the
audited balance sheet of the
Group Company as at, the Last
Accounting Date together in
each case with the directors'
and auditors' reports and
includes all notes and other
documents attached thereto; and
(b) in relation to the Group, the
audited consolidated profit and
loss account of the Group for
the accounting period ended on,
and the audited consolidated
balance sheet of the Group as
at, the Last Accounting Date
together with the directors'
report and auditors' report and
includes all notes and other
documents attached thereto;
"Board" means the Board of Directors of
the Company for the time being
and from time to time.
"Business" means the business of selling
and renting speciality medical
equipment and devices relating
to patient support surfaces and
patient lifting and the
manufacture, sale and
distribution of trauma and
proning beds and trocar rods;
"Business Day" means a day other than a
Saturday or Sunday or public
holiday in Ireland;
"Company" means Ethos Medical Group
Limited, a company incorporated
in Ireland details of which are
set out in Part I of the Second
Schedule;
"Companies" means the Company and the
Subsidiaries;
"Completion" means the date of completion of
the sale and purchase of the
Shares in accordance with this
Agreement;
"Confidential
Information" means all information not at
present in the public domain
howsoever recorded or preserved
used in or otherwise relating
to the business, customers, or
financial or other affairs or
activities of any Group Company
including, without limitation,
details of trade secrets, know-
how, inventions, formulae,
techniques, processes,
operations, financial
information, the Intellectual
Property Rights, customers,
sales targets, sales
statistics, market share,
prices, overheads, profit
margins, market research
reports and surveys,
advertising or other
promotional materials, future
projects, business development
or plans, forecasts, analyses,
studies, commercial
relationships and negotiations;
"DIBOR" means the rate per annum quoted
by The Governor and Company of
the Bank of Ireland to be the
rate at which it is offering
deposits in Irish pounds to
prime banks in the Dublin inter
bank market;
"Directors" means with respect to each
Group Company, the persons
identified as such in the
Second Schedule;
"Disclosure Letter" means the letter of today's
date from the Warrantors to the
Purchaser disclosing
information constituting
exceptions to the Warranties
together with all documents
annexed thereto;
"Encumbrance" means any interest or equity of
any person (including without
prejudice to the generality of
the foregoing any right to
acquire any option or right of
pre-emption) or any mortgage,
charge, pledge, lien, option,
restriction, right of first
refusal, assignment,
hypothecation, third party
right or interest, any other
encumbrance or security
interest of any kind, and any
other type of preferential
arrangement having a similar
effect;
"Group" means the Company and the
Subsidiaries;
"Group Company" means the Company or any of the
Subsidiaries;
"Intellectual Property" means all patents, trade marks,
service marks, registered
designs, applications for any
of the foregoing, trade and
business names, unregistered
trade marks and service marks,
know-how, copyrights, rights in
designs, inventions, rights
under licences and consents in
relation to any such rights,
and rights of the same or
similar effect or nature, in
any part of the world;
"Intellectual Property means all Intellectual Property
Rights" used, or required to be used,
by any Group Company, in, or in
connection with, its business;
"Ireland" means the island of Ireland
excluding Northern Ireland;
"Last Accounting Date" means 30th September, 1996;
"Management Accounts" means the unaudited profit and
loss account and balance sheet
of each Group Company and
consolidated profit and loss
account and balance sheet of
the Group together in each case
with all notes thereto for the
accounting period ended on 28th
February, 1997;
"the Option" the put and call option over
the Retained Shares detailed in
the Put and Call Option
Agreement contained in the
Fifth Schedule;
"Permit" means a permit, licence,
consent, approval certificate,
qualification, specification,
registration or other
authorisation necessary for the
effective operation of the
Group;
"Pounds" and the sign "IR Pounds"
means the
lawful currency for the time
being of Ireland;
"Property" means the property short
particulars of which are set
out in the Sixth Schedule;
"Purchaser's Group" means the Purchaser and its
subsidiaries;
"Purchaser's Solicitors" means L.K. Shields & Partners,
39-40 Upper Mount Street,
Dublin 2;
"Retained Shares" the shares of Patrick Connolly
referred to in Recital C and
Clause 2.02.
"Shares" means 80% of the issued shares
of the Company as set out
opposite the names of the
Vendors in the First Schedule;
"Subsidiary" means a subsidiary of the
Company as listed in Part 2 of
the Second Schedule and
Subsidiaries shall be construed
accordingly;
"Tax" and "Taxation" all forms of taxation howsoever
and wheresoever arising and
including:-
(i) within Ireland, income
tax, surtax, corporation
tax, corporation profits
tax, withholding tax,
stamp duty, capital duty,
value added tax, advance
corporation tax,
residential property tax,
capital gains tax, customs
duty, excise duty, pay-
related social insurance
and other similar
contributions, PAYE,
estate duty, rates, gift
tax, inheritance tax or
any other taxes levies,
customs and other duties
or imposts similar to,
replaced by or replacing
any of them, all costs ,
expenses, charges,
surcharges, whether by way
of penalty or additional
liability to tax,
penalties and interest
included in or relating to
any tax assessment
therefore; and
(ii) outside Ireland, all taxes
including (without
limitation) taxes on gross
or net income profits or
gains, receipts, sales,
use, occupation,
franchise, value added,
personal property and
other taxes, levies,
imposts, duties, charges
or withholdings of any
nature whatsoever and all
penalties charges and
interest included in or
relating to any tax
assessment therefor.
"Tax Deed" means the deed containing
indemnities in respect of
taxation in the agreed form
between the Warrantors, the
Purchaser, the Company, the
companies listed in the Second
Schedule thereto;
"Warrantors' Solicitors" means Arthur Cox, 41-45 St.
Stephen's Green, Dublin 2; and
"Warranties" means the representations and
warranties contained in the
Third Schedule.
"Warrantors" means Patrick Connolly and
Martin Murray.
1.02 Construction
------------
(1) Any reference to a "subsidiary" or "holding
company" shall be construed in accordance with
section 155 of the Companies Act, 1963;
(2) Any reference to a document being in the "agreed
form" is a reference to a document in a form agreed
between the parties and for the purposes of
identification initialled by or on behalf of the
parties;
(3) Any reference to a statutory provision shall
include any modification, re-enactment or extension
thereof;
(4) Any reference to a Clause or Schedule, unless the
context otherwise requires, is a reference to a
clause of or schedule to this Agreement and
references to sub-clauses or paragraphs are, unless
otherwise stated, references to sub-clauses of the
clause or paragraphs of the Schedule in which the
reference appears and references to this Agreement
include the Schedules;
(5) Words importing the singular includes the plural
and vice versa, words importing the masculine
includes the feminine, and words importing persons
includes corporations.
(6) Words such as "hereunder", "hereto", "hereof" and
"herein" and other words commencing with "here"
shall unless the context otherwise requires, refer
to the whole of this Agreement and not any
particular clause or paragraph thereof.
1.03 Headings
--------
The headings in this Agreement are inserted for
convenience only and shall not affect the interpretation
or construction of this Agreement.
2.00 SALE AND PURCHASE
----------------------
2.01 Sale and Purchase of Shares
---------------------------
Subject to the provisions of this Agreement, each of the
Vendors shall sell as beneficial owner and the Purchaser
shall purchase free from all Encumbrances together with
all rights of any nature whatsoever now or hereafter
attaching or accruing to them the number of the Shares
set out opposite such Vendor's name in column 3 of the
First Schedule.
2.02 Retained Shares
---------------
Patrick Connolly shall retain 90,183 shares in the
Company currently registered in his name and such shares
shall be subject to the Option ("the Retained Shares").
2.03 Simultaneous Completion
------------------------
The Purchaser shall not be obliged to complete the sale
and purchase of any of the Shares unless the sale and
purchase of all of the Shares is completed
simultaneously.
3.00 CONDITIONS PRECEDENT
-------------------------
3.01 Conditions Precedent
--------------------
Completion is subject to and conditional upon the
following conditions being fulfilled to the satisfaction
of, or waived by, the Purchaser, on or before the date:
(a) the Minister for Enterprise and Employment ("the
Minister"):
(i) having stated in writing that he has decided
not to make an order under section 9 of the
Mergers Take-Overs and Monopolies (Control)
Act, 1978 ("the Act") in relation to the sale
and purchase of the Shares; or
(ii) the Minister's having made an order in
relation to such sale and purchase attaching
conditions acceptable to the Purchaser and the
Vendors; or
(iii)the relevant period within the meaning of
section 6 of the Act having elapsed without
the Minister's having made an order under the
Act; or
(iv) the Minister having stated in writing that the
Act is not applicable;
(b) Patrick Connolly having entered into an Employment
Agreement with the Company in the agreed form;
(c) Forbairt having confirmed in writing to the
Purchaser that it does not intend to cancel, revoke
or request the repayment of any grant paid or
payable to any Group Company or terminate any lease
with any of them as a result of the acquisition by
the Purchaser of the Shares;
(d) the Purchaser having carried out full investigation
into the business affairs, financial position,
performance and prospects of each of the Company
and the Subsidiaries and the Purchaser being
satisfied in its sole discretion with the results
of such examination;
(e) the Purchaser being satisfied in its sole
discretion with the results of the Purchaser's
Solicitors' investigation into the title of the
Property;
(f) the receipt of any other approvals, authorisations
or consents which the Purchaser shall reasonably
deem to be necessary or desirable, on terms
acceptable to the Purchaser;
(g) the Warranties being true and correct at
Completion;
(h) evidence of the waiver of any and all rights of pre-
emption or other restrictions on the transfer of
the Shares howsoever arising;
(i) the approval of the transaction provided for in
this Agreement by the board of directors of the
Purchaser and the Board.
4.00 CONSIDERATION
------------------
4.01 Total Consideration
-------------------
(a) The aggregate consideration payable by the
Purchaser to the Vendors for the Shares shall be
IR pounds 1,440,122.50. The payment to which each of the
Vendors is entitled at Completion shall be that set
opposite that Vendor's name in column 4 of the
First Schedule.
(b) The aggregate consideration hereunder shall be
satisfied as follows:-
(i) payment by the Purchaser of a total of
IR pounds 1,297,888.60 on Completion by way of bank
draft to each Vendor other than the Warrantors
and the IDA/Forbairt, and by way of
telegraphic transfer to the Warrantors and the
IDA/Forbairt for the amount of the
consideration set out opposite their names in
column 4 of the First Schedule;
(ii) payment by the Purchaser of IR pounds 142,233.93 by
telegraphic transfer on Completion to the
Purchaser's Solicitors and the Warrantors'
Solicitors ("the Retention") to be held by
them in accordance with the provisions of the
Sixth Schedule.
5.00 COMPLETION
---------------
5.01 Completion
-----------
Completion shall take place at the offices of the
Purchaser's Solicitors on April, 1997 or such other date
as may be agreed between the parties hereto whereupon
the matters referred to in the following paragraphs of
this clause shall take place.
5.02 Vendors' Obligations
--------------------
On Completion the Vendors shall
(1) (a) deliver to the Purchaser executed
transfers of the Shares by the registered
holders thereof or by their duly authorised
attorney in favour of the Purchaser or its
nominee together with the relative share
certificates (if issued) or an appropriate
indemnity;
(b) Share certificates in respect of all issued
shares in the capital of each of the
Subsidiaries not held by a Group Company
together with duly executed transfers in blank
and declarations of trust in respect of all
such shares as are beneficially owned by but
not registered in the name of a Group Company.
(c) Any waivers, consents or other documents
necessary to vest in the Purchaser the full
beneficial ownership of the Shares and to
enable the Purchaser or its nominee(s) to be
registered as owners of the Shares.
(d) If requested, evidence in a form satisfactory
to the Purchaser of satisfaction of the
Conditions Precedent.
(e) Evidence satisfactory to the Purchaser that
any registered charges (other than the charges
in favour of AIB Bank plc) created by members
of the Group have been discharged.
(f) As evidence of the authority of each person
executing any document referred to herein on
behalf of the Vendors, a copy of the Power of
Attorney conferring the authority or where the
Vendors are incorporated, of a resolution of
the board of directors of such Vendor
conferring authority on the person(s)
executing the documents.
(2) procure the passing of a resolution of the board of
directors of the Company and where necessary of
each other Group Company resolving:-
(a) to register the transfers referred to in
5.02(1)(a) and 5.02(1)(b) (subject only to due
stamping);
(b) to appoint such persons as the Purchaser may
nominate to be directors, secretary and
auditor of each Group Company; and
(c) to change the registered office of each Group
Company to such place as the Purchaser shall
nominate;
(d) to change the financial year end of each Group
Company to such date as is nominated by the
Purchaser;
(e) to approve and authorise the execution by the
Companies of the Tax Deed;
(f) to approve and authorise the execution by the
Company of the Employment Agreement in the
agreed form with Patrick Connolly.
(3) procure the revocation of all authorities to the
bankers of the Company relating to bank accounts,
and co-operate in giving authority to such persons
as the Purchaser may nominate to operate the same;
(4) deliver to the Purchaser:
(a) all title deeds and other documents of title
to the Property which are in the possession or
control of the Vendors at the date of
Completion or in the case of any such
documents which are not in their possession or
control, details of the whereabouts of such
documents;
(b) the minute book, share register, seal, share
certificate book, cancelled share
certificates, certificate of incorporation and
certificates of incorporation on change of
name and other corporate records of the
Companies;
(c) letters of resignation in the agreed form from
each of the directors other than Mr. Patrick
Connolly and secretary of the Companies and
from the auditors if requested;
(d) the Tax Deed duly executed by the parties
listed in the First Schedule thereto, Ethos
Medical Group Limited and the companies listed
in the Second Schedule thereto; and
(e) the Employment Agreement duly executed by Mr.
Patrick Connolly.
(f) original Certificates of Registration of any
of the Intellectual Property.
(g) the Put and Call Option Agreement duly
executed by Patrick Connolly.
(5) Cause such of the directors and secretary of the
Companies as the Purchaser may nominate to retire
from all their offices with the Companies.
5.03 Purchaser's Obligation
----------------------
(i) At Completion the Purchaser shall deliver to the
Warrantors' Solicitors:
(a) bank drafts for each Vendor other than the
Warrantors and IDA/Forbairt and telegraphic
transfers to the Warrantors and IDA/Forbairt
amounting in total to IR pounds 1,297,888.60 (which
shall be a sufficient discharge of the
Purchaser).
(b) the Tax Deed duly executed by the Purchaser.
(c) the Put and Call Option Agreement duly
executed by the Purchaser.
(ii) At Completion the Purchaser shall deliver by
telegraphic transfer to the Purchaser's Solicitor
and the Warrantors' Solicitor the sum of
IR pounds 142,233.93 ("the Retention") for lodging in the
Escrow Account.
6.00 WARRANTIES
---------------
6.01 Vendors' Warranties
-------------------
Each of the Vendors represent, warrant to and undertake
with the Purchaser and its successors in title that the
Warranties specified in paragraphs 1, 2 and 8(b) of the
Third Schedule (to the extent that such Warranties
relate to such Vendor or to the Shares set opposite the
name of such Vendor in column 3 of the First Schedule)
are at the date hereof true and accurate in all respects
and not misleading.
6.02 Warranties
----------
(i) The Warrantors represent and warrant to and
undertake with the Purchaser and its successors in
title that each of the Warranties is true and
accurate in all respects and not misleading at the
date hereof subject to those matters fully, fairly
and accurately disclosed in the Disclosure Letter.
Each Warranty is given to the Purchaser on its own
behalf and as trustee for the Companies. The
Warrantors acknowledge that the Purchaser is
entering into this Agreement in reliance upon
(inter alia) each of the Warranties.
(ii) Each of the Warranties shall be construed
separately and independently and shall not be
limited or restricted by reference to or inference
from any other provision of this Agreement or any
of the other Warranties or the Tax Deed.
(iii)In the event of a breach of any of the
Warranties which results in the diminution of the
assets and/or an increase in the liabilities of any
Group Company, then, without prejudice to any other
claims the Company may make, the amount payable to
the Purchaser by way of damages for such breach
shall be the amount of such diminution or increase.
(iv) The Purchaser may release or compromise the
liabilities of any of the Warrantors or Vendors
hereunder or under the Tax Deed or grant to any
Warrantor or Vendor time or other indulgence
without affecting the liability of any other
Warrantor or Vendor hereunder or under the Tax
Deed.
(v) No failure to exercise and no delay in exercising
on the part of the Purchaser any right or remedy in
respect of any of the Warranties or any right or
remedy under the Tax Deed shall operate as a waiver
of such right, remedy or warranty nor shall a
single or partial exercise of such right or remedy
or the exercise of any other right or remedy.
(vi) The Warrantors shall indemnify and keep indemnified
the Purchaser against all reasonable costs or
expenses which may be incurred by the Purchaser in
connection with the enforcing of any of its rights
(whether for breach of warranty or otherwise) under
this Agreement and/or the Tax Deed.
(vii)Where any liability falls on the Warrantors both in
respect of any breach of the Warranties and under
the Tax Deed then the Purchaser will be entitled to
claim in respect of either and/or both provided
always that in calculating sums payable in respect
of breach of Warranties account shall be taken of
sums paid out by the Warrantors under the Tax Deed
and vice versa.
(viii)The liability of the Warrantors shall be limited
in accordance with the following provisions of this
clause unless otherwise stated in this Agreement or
the Tax Deed:-
(a) The Warrantors shall not be liable unless and
until the aggregate amount of all liability
under the Warranties and the Tax Deed shall
have exceeded the total sum of IR pounds 50,000 and
in such circumstances the Warrantors shall be
liable for all sums in excess of that sum of
IR pounds 50,000;
(b) The aggregate liability under the Warranties
and Tax Deed of each Warrantor shall not
exceed the amount of the purchase price
receivable pursuant to this Agreement save in
the case of any claim relating to the title of
such Warrantors to any of the Shares whereupon
the liability of the Warrantors is to be
without limitation or qualification of any
description;
(c) The Warrantors shall not be liable in respect
of a breach under the Warranties or the Tax
Deed to the extent that full and specific
provision or reserve was made for the matter
giving rise to the claim in the Accounts, or
(d) The Warrantors shall not be liable in respect
of a breach under the Warranties to the extent
that any loss arising from such breach is
recovered by the Purchaser or any Group
Company under a policy of insurance in force
at the date of the loss.
(e) The Warrantors shall not be liable in respect
of any breach of the Warranties or the Tax
Deed to the extent that such breach would not
have arisen but for a change in legislation
after Completion;
(ix) The Purchaser shall not be entitled to make a claim
against the Warrantors under the Warranties and/or
the Tax Deed unless written particulars thereof
shall have been given to the Warrantors (containing
details of the event or circumstances giving rise
to the breach, the basis upon which the claim is
made and the total amount of the liability which
results to the extent that such information is
available to the Purchaser):
(a) in the case of a claim under the Warranties
where the subject matter of the claim is based
upon or in respect of Taxation or in the case
of a claim under the Tax Deed on or before the
Fourth Anniversary of Completion; or
(b) in the case of any other claims under the
Warranties, on or before the second
anniversary of Completion.
(x) The Warrantors hereby waive and agree not to
enforce any right which they may have against any
Group Company or any officer, employee or adviser
of or to any Group Company (other than the
Warrantors) arising out of any information or
advice supplied or given for the purpose of
assisting the Warrantors to give any of the
Warranties or to prepare the Disclosure Letter.
(xi) The Purchaser shall be entitled to make a claim
under the Warranties and/or the Tax Deed whether or
not the Purchaser could have discovered (whether by
investigation or otherwise) that any of the
Warranties have not been complied with or carried
out or are otherwise untrue or misleading.
(xii)The rights and remedies of the Purchaser in respect
of a breach of any of the Warranties or liability
under the Tax Deed shall not be affected by
completion of the sale and purchase of the Shares.
(xiii)Without prejudice to any other right or remedy of
the Purchaser under this Agreement or otherwise all
sums payable by the Vendors under this Agreement
shall bear interest from a date 21 days after the
date on which the Vendors' liability has been
agreed or determined at the rate of 4% above DIBOR,
such interest to be compounded quarterly (so that
interest shall be paid on interest) and to accrue
after as well as before any judgement.
(xiv)Notwithstanding any other provision of this
Agreement, no limitation of any kind whatsoever
shall apply to any claim made hereunder or under
the Tax Deed if such claim is based on any
fraudulent act, omission or misrepresentation of
any of the Warrantors made with the intention of
deceiving the Purchaser.
(xv) Where any statement is qualified by the expression
"so far as the Warrantors are aware" or "to the
best of the Warrantors' knowledge, information or
belief" or any similar expression, that knowledge
shall be deemed to refer to such knowledge,
information and belief and/or awareness (as the
case may be) after the making of due and careful
enquiries by the Warrantors with regard to the
subject matter thereof and the Warrantors shall be
deemed to have made or given such statement on that
basis.
(xvi)If the Purchaser shall have a claim under the
Warranties, any monies recovered pursuant to such
claim shall be deemed to be a reduction of the
consideration payable hereunder.
(xvii)The liability of the Warrantors hereunder and under
the Tax Deed shall be several and not joint.
(xviii)If any provision in the Accounts shall prove to
be excessive and there are no provisions in the
Accounts which are not sufficient to cover in full
the liability which they provide for then the
amount of such excess (or where other provisions or
another provision is/are not sufficient, the amount
of the excess remaining after deducting the amount
of such insufficiency) may be set off against any
liability of the Warrantors arising as a result of
a breach of the Warranties.
(xviv)If there is any liability of the Warrantors under
the Warranties and/or Tax Deed such liability shall
be discharged first out of the Escrow Account to
the extent available.
7.00 COVENANTS OF THE WARRANTORS
--------------------------------
7.01 Competition Covenants
----------------------
As a further consideration for the Purchaser entering
into this Agreement, Patrick Connolly, one of the
Vendors, hereby covenants with the Purchaser and each of
the Companies as follows:
(a) that he will not for a period commencing on the
date hereof and terminating two years from the date
hereof either as principal, partner, agent or
otherwise howsoever whether directly or indirectly
carry on or help or assist in carrying on within
Ireland, or any other country where in the two
years preceding the date hereof any of the
Companies has sold products, in any businesses
which competes, directly or indirectly with the
Business;
(b) that he will not during the like period within the
like area either as principal, partner, agent or
otherwise howsoever directly or indirectly be
engaged concerned or interested in carrying on the
said businesses or any of them;
(c) that he will not at any time hereafter make use of
or disclose for his own benefit or for or to or on
behalf of any other person, firm, company or
corporation any Confidential Information which he
now possesses appertaining to the business or
affairs of the Companies or of any clients,
customers or other persons having dealings with the
Companies save that this obligation shall not apply
to any confidential information which is already in
the public domain or which subsequently enters the
public domain through no fault or default of
Patrick Connolly or to any information which he
subsequently receives from a third party who is not
in breach of any obligations of confidentiality;
(d) that he will not for the like period either on his
own behalf or on behalf of any person, firm,
company or corporation, competing or endeavouring
to compete with the Companies directly or
indirectly solicit or endeavour to solicit or
obtain the custom of any person, firm, company or
corporation that is now a customer of the Companies
or which at any time in the two years preceding the
date hereof has been a customer of the Companies;
(e) that he will not for the like period either on his
own behalf or on behalf of such persons as
aforesaid directly or indirectly solicit or
endeavour to solicit or obtain the services of any
person employed by the Companies or use his
knowledge or influence over any such customer or
employee or any person, firm, company or
corporation known to him as contracting with or
having dealings with the Companies to or for his
own benefit or that of any other person, firm,
company or corporation in competition with the
Companies;
(f) the benefit of each and every of the covenants set
out in paragraphs (a) to (e) shall be deemed to be
separate and severable and enforceable by the
Companies and/or the Purchaser accordingly. In the
event of any covenant contained in this Clause
being held unreasonable by reason of the area,
duration, type or scope of restriction contained
therein the said covenant shall be given effect to
in its reduced form as may be decided by any Court
or competent jurisdiction;
(g) Patrick Connolly each of the Warrantors hereby
acknowledges that all of the restrictions herein
contained are reasonable and valid and hereby
waives any and all defences to the strict
enforcement thereof by the Purchaser and/or the
Companies.
8.00 GENERAL
------------
8.01 Announcements
--------------
Unless required by law or by the rules of any stock
exchange no public announcement, communications or
circular concerning the transactions referred to in this
Agreement shall be made or despatched at any time
(whether before or after Completion) by any party
without the prior written consent of the other parties
(such consent not to be unreasonably withheld or
delayed).
8.02 Costs
-----
Each party shall pay its own costs of and incidental to
the negotiation, preparation, execution and
implementation by it of this Agreement and of all other
documents referred to in it.
8.03 Further Assurances
------------------
At any time after Completion the Vendors shall (at the
reasonable expense of the Purchaser) do and execute, or
cause to be done and executed, all necessary acts,
deeds, documents and things as may be reasonably
requested of them by the Purchaser to give effect to
this Agreement. In addition, the Vendors shall provide,
or procure to be provided, to the Purchaser any
information or documents relating to the business and
affairs of any Group Company, which is in their
possession or under their control and until registration
of the Purchaser as owner of the Shares in the register
of members the Vendors shall co-operate in any manner
required by the Purchaser to enable the Purchaser to
exercise the rights attaching to the Shares.
8.04 Waiver
------
The failure to exercise or delay in exercising a right
or remedy under this Agreement shall not constitute a
waiver of the right or remedy or a waiver of any other
rights or remedies and no single or partial exercise of
any right or remedy under this Agreement shall prevent
any further exercise of the right or remedy or the
exercise of any other right or remedy.
8.05 Rights and Remedies Cumulative
------------------------------
The rights and remedies of the Purchaser contained in
this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.
8.06 Survival of Obligations
-----------------------
This Agreement shall enure to the benefit of and be
binding upon the personal representatives and estates of
each of the Vendors.
8.07 Assignment
----------
Neither party shall assign or transfer or purport to
assign or transfer any of its rights or obligations
under this Agreement except that the benefit of the
Warranties may be assigned in whole or in part and
without restriction by the person for the time being
entitled to the benefit of the Warranties.
8.08 Notices
-------
Any notice or other communication under or in connection
with this Agreement shall be in writing and shall be
delivered personally or by post or sent by fax, to the
party due to receive the notice or communication at its
address set out in this Agreement or such other address
as either party may specify by notice in writing to the
other. Any notice or other communication shall be
deemed to have been duly given if delivered personally,
when left at the address referred to in this clause, if
sent by post, two days after posting it, and if sent by
fax, on completion of its transmission.
8.09 Governing Law and Jurisdiction
------------------------------
This Agreement is governed by, and shall be construed in
accordance with the laws of Ireland. Each party
irrevocably agrees that the courts of Ireland shall have
exclusive jurisdiction to hear and determine any suit,
action or proceedings and to settle any disputes which
may arise out of or in connection with this Agreement
and, for such purposes, each party irrevocably submits
to the jurisdiction of the courts of Ireland.
8.10 Entire Agreement
----------------
This Agreement (together with the Disclosure Letter, the
Tax Deed and all documents in the agreed form)
constitutes the entire understanding and agreement
between the parties and supersedes all prior agreements,
arrangements, letters and discussions between the
parties. No variation of this Agreement shall be valid
unless it is in writing and signed by or on behalf of
each of the parties.
8.11 Counterparts
------------
This Agreement may be executed in any number of
counterparts each of which when executed and delivered
shall be an original, all the counterparts together
shall constitute one and the same instrument.
IN WITNESS whereof this Agreement has been entered into the
day and year first herein written.
FIRST SCHEDULE
The Vendors
1. 2. 3. 4.
Name Address No. of Shares Consideration
Payable on
Completion
Patrick Lissoy, The 209,129 pounds 834,424.71
Connolly Pigeons, (less 10% for
Athlone, Co. Retention
Westmeath. pounds 83,442.47) =
pounds750,982.24
Martin Murray San Antonio, 90,951 pounds 362,894.49
Ballinacurna (less 10% for
Close, Retention
Limerick. pounds 36,289.45) =
pounds 326,605.04
IDA/Forbairt Wilton Park 56,396 pounds 225,020.04
House, (less 10% for
Wilton Place, Retention
Dublin 2. pounds 22,502.01) =
pounds 202,518.03
Adrian Lenehan Preston Hill, 300 pounds 1,197.00
Stamullen,
Co. Meath.
William 18 Greenpark, 2,820 pounds 11,251.80
Gleeson Orwell Road,
Dublin 14.
Thomas Crowley Dun Ciarrain, 550 pounds 2,194.50
Ballincrossig,
Glanmire,
Co. Cork.
Billy Norton Ballygarvan, 787 pounds 3,140.13
Ballacolla,
Portlaoise,
Co. Laois.
______________ ______________
TOTAL 360,933 1,297,888.60 pounds
SECOND SCHEDULE
---------------
The Company and the Subsidiaries
PART 1: ETHOS MEDICAL GROUP LIMITED
Formerly Ludham Limited
1. Registered number: 132934
2. Date of incorporation: 15th June, 1988
3. Place of incorporation: Ireland
4. Registered office: Monksland Industrial Estate,
Athlone, Co. Westmeath
5. Details of any branch, agency, place of business or any
permanent establishment outside Ireland: None
6. Authorised share capital: IR pounds 10,000,000 divided into
100,000,000 Ordinary Shares
of IR pounds 0.10 each.
7. Issued share capital: 451,166 Ordinary Shares of
IR pounds 0.10 each of which
124,076 are issued at a
premium of IR pounds 8.76 per
share
8. Shareholders: Name No. of Shares
---------------------------------
Patrick J. Connolly 299,312
Martin J. Murray 90,951
IDA/Forbairt 56,396
William Gleeson 2,820
Billy Norton 787
Thomas Crawley 550
Adrian Lehane 300
Donal Lehane 50
=======
451,166
9. Directors: Patrick J. Connolly (Managing)
Martin J. Murray
Mark Hutch
Patrick J. Gunn
10. Secretary: Patrick J. Connolly
11. Accounting reference date: 30th September
12. Auditors: Farrell Grant Sparks,
Chartered Accountants,
Molyneux House,
Bride Street,
Dublin 8.
13. Tax residence: Ireland
14. VAT registration no.: None
15. Bank Accounts: None
16. Charges: A.I.B.
PART 2:
ETHOS MEDICAL LIMITED
(Formerly Kinetic & Rehabilitive Enterprises Limited)
1. Registered number: 126578
2. Date of incorporation: 18th November, 1987
3. Place of incorporation: Ireland
4. Registered office: Monksland Industrial
Estate, Athlone, Co.
Westmeath
5. Details of any branch, agency, place of business or any
permanent establishment outside Ireland: None
6. Authorised share capital: IR pounds 10,000,000 divided into
100,000,000 Ordinary
Shares of IR pounds 0.10 each
7. Issued share capital: 40,100 Ordinary Shares of
IR pounds 0.10 each
8. Shareholders: Name No. of Shares
-----------------------------
Patrick J. Connolly 1
Ethos Medical Group Ltd 40,099
======
40,100
9. Directors: Patrick J. Connolly (Managing)
Martin J. Murray
Mark Hutch
Patrick J. Gunn
10. Secretary: Patrick J. Connolly
11. Accounting reference date: 30th September
12. Auditors: Farrell Grant Sparks,
Chartered Accountants,
Molyneux House,
Bride Street,
Dublin 8.
13. Tax residence: Ireland
14. VAT registration no.: IE 4772876H
15. Bank Accounts: AIB Custume
Place, Athlone.
- Current A/C 12693011
- Deposit A/C I/E/0345/015
16. Charges: - A.I.B.
ETHOS MEDICAL PRODUCTS LIMITED
(Formerly Urovac Limited)
1. Registered number: 24867
2. Date of incorporation: 13th April, 1967
3. Place of incorporation: Ireland
4. Registered office: Monksland Industrial
Estate, Athlone, Co.
Westmeath
5. Details of any branch, agency, place of business or any
permanent establishment outside Ireland: None
6. Authorised share capital: IR pounds 500,000 divided into
500,000 Ordinary Shares of
IR pounds 1 each
7. Issued share capital: 29,735 Ordinary Shares of
IR pounds 1.00 each at a premium
of IR pounds 6.47 per share
8. Shareholders: Name No. of Shares
Ethos Medical Group
Limited 29,734
Patrick J. Connolly 1
========
29,735
9. Directors: Patrick J. Connolly (Managing)
Martin J. Murray
Mark Hutch
Patrick J. Gunn
10. Secretary: Patrick J. Connolly
11. Accounting reference date: 30th September
12. Auditors: Farrell Grant Sparks,
Chartered Accountants,
Molyneux House,
Bride Street,
Dublin 8.
13. Tax residence: Ireland
14. VAT registration no.: IE 9Z47210J
15. Bank Accounts: AIB Custume
Place, Athlone
- Wages A/C - 12608191
- Current A/C -126608001
- Deposit A/C -I/E/02299/013
16. Charges: - A.I.B.
ALLIANCE INVESTMENTS LIMITED
(Formerly Alliance Investment Management Limited)
1. Registered number: 88416
2. Date of incorporation: 30th March, 1982
3. Place of incorporation: Ireland
4. Registered office: Monksland Industrial
Estate, Athlone,
Co. Westmeath
5. Details of any branch, agency, place of business or any
permanent establishment outside Ireland: None
6. Authorised share capital: IR pounds11,000 divided into
1,000 Ordinary Shares of
IR pounds1.00 each and 100 "A"
Preference Shares
of IR pounds 1.00 each
7. Issued share capital: 1,000 Ordinary Shares of
IR pounds1.00 each and 100 "A"
Preference Shares of
IR pounds 1.00 each
8. Shareholders: Name Amount of
Ordinary
Shares of R pounds 1.00
held]
Ethos Medical 999
Group Ltd.
Patrick J. Connolly 1
Name Amount of
Preference
Shares of R pounds 1.00
held
Patrick Connolly 100 "A"
9. Directors: Patrick J. Connolly (Managing)
Martin J. Murray
Mark Hutch
Patrick J. Gunn
10. Secretary: Patrick J. Connolly
11. Accounting reference date: 30th September
12. Auditors: Farrell Grant Sparks,
Chartered Accountants,
Molyneaux House,
Bride Street,
Dublin 8.
13. Tax residence: Ireland
14. VAT registration no.: 4623616B
15. Bank Accounts: AIB Custume Place, Athlone.
- 00232-012
16. Charges: - A.I.B.
ETHOS MEDICAL RESEARCH LIMITED
(Formerly Joystone Limited)
1. Registered number: 125427
2. Date of incorporation: 2nd October, 1987
3. Place of incorporation: Ireland
4. Registered office: Monksland Industrial Estate,
Athlone, Co. Westmeath
5. Details of any branch, agency, place of business or any
permanent establishment outside Ireland: None
6. Authorised share capital:IR pounds 100,000 divided into 100,000
Ordinary Shares of IR pounds 1.00 each
7. Issued share capital: IR pounds 102 divided into 102
Ordinary Shares of IR pounds 1.00 each
8. Shareholders: Name No. of Shares
Ethos Medical Group
Limited 101
Patrick J. Connolly 1
======
102
9. Directors Patrick J. Connolly (Managing)
Mark Hutch
Patrick J. Gunn
10. Secretary: Patrick J. Connolly
11. Accounting reference date: 30th September
12. Auditors: Farrell Grant Sparks,
Chartered Accountants,
Molyneaux House,
Bride Street,
Dublin 8.
13. Tax residence: Ireland
14. VAT registration no.: None
15. Bank Accounts: None
16. Charges: A.I.B.
THIRD SCHEDULE
---------------
WARRANTIES AND REPRESENTATIONS
The Warrantors hereby severally warrant and represent to, and
for the benefit of, the Purchaser in the following terms.
THE VENDORS
(1) Capacity
Each of the Vendors confirm that he/she has the right,
power and authority to enter into and perform this
Agreement and all documents to be executed at Completion
and this Agreement constitutes binding obligations on
each of the respective Vendors in accordance with its
terms. All action required to be taken by any Vendor to
procure that this Agreement constitutes a valid and
binding obligation of such Vendor which is enforceable
as against such Vendor has been taken.
(2) Liabilities owing to or by the Vendors
Each of the Vendors for himself only confirms that there
is not outstanding any indebtedness or other liability
(actual or contingent) owing by any Group Company to any
of the Vendors nor is there any indebtedness owing to
any Group Company by any of the Vendors.
(3) Incorporation
Each Group Company is a company duly incorporated and
validly existing under the law of the state in which it
is shown to be incorporated in the Second Schedule.
(4) Power and authority
Each Group Company has the legal right and full power
and authority to carry on its business and activities as
currently being carried on.
INFORMATION
(5) Information
All written information given by, or which at any time
before Completion may be given by or on behalf of, the
Vendors, the Company or any Group Company to the
Purchaser, its advisers, agents, officers or employees
is, or as the case may be, will be accurate and not
misleading in all respects and so far as the Warrantors
are aware, there are no factors which have not been
disclosed to the Purchaser which would make any such
information misleading.
(6) The Agreement and the Disclosure Letter
All information set out in this Agreement and the
Disclosure Letter (including any annexures thereto) is
true, complete and accurate in all respects and not
misleading and fully, fairly and accurately discloses
every matter to which it relates and the Warranties and
provisions of the Tax Deed which are affected by it.
(7) No other information
There is no fact or matter which has not been disclosed
to the Purchaser which renders the information referred
to in paragraphs 5 and 6 above untrue, incomplete,
misleading or inaccurate at the date of this Agreement
or which ought reasonably to be disclosed to an
intending purchaser of shares in the Company or the
disclosure of which might reasonably affect the
willingness of a purchaser to purchase shares in the
Company or which might materially or adversely affect
the value of the Company.
CONSTITUTION
(8) Shares
(a) The First Schedule contains true particulars
of the authorised and issued share capital of the
Company and all the shares there shown as issued
are in issue fully paid.
(b) Each of the Vendors for himself only confirms
that the number of Shares detailed therein are
beneficially owned by him and registered in his
name as set out therein free from any Encumbrance.
(c) All other details contained in the First
Schedule are true and correct.
(d) There will be handed over to the Purchaser on
Completion all the original share certificates
issued to previous shareholders in Alliance
Investments Limited or appropriate indemnities in
respect of same.
(9) Issued Share Capital
The Shares together with the Retained Shares and the
shares registered in the name of Donal Lehane comprise
the whole of the allotted and issued share capital of
the Company. There are no shares issued or allotted in
any Group Company other than the Company which are not
legally and beneficially owned by the Company or another
Group Company.
(10) No Encumbrance
There is no Encumbrance, nor is there any agreement,
arrangement or obligation to create or give any
Encumbrance, on, over or affecting any of the Shares or
any issued shares of any other Group Company and no
claim has been made by any person to be entitled to any
such Encumbrance.
(11) Subsidiary Undertakings
The Company does not have any subsidiary or subsidiary
undertaking other than the Subsidiaries and no Group
Company has any interest in, and has not agreed to
acquire any interest in, any shares of any other bodies
corporate. No Group Company has any liability (actual,
contingent or otherwise) in respect of any company or
other entity which was formerly a subsidiary or an
associated undertaking of any Group Company.
(12) Memorandum and Articles
The copy of the memorandum and articles of association
of the Companies annexed to the Disclosure Letter is
true and complete and has embodied therein or annexed
thereto all alterations which have been made up to the
date hereof.
(13) Options etc.
(a) No person has the right (whether exercisable now or
in the future and whether contingent or not) to
call for the allotment, issue, sale or transfer of
any share or loan capital of the Company under any
option or other agreement (including conversion
rights and rights of pre-emption).
(b) no share or loan capital has been created,
allotted, issued, acquired, repaid or redeemed, or
agreed to be created, allotted, issued, acquired,
repaid or redeemed, by any Group Company since the
Last Accounting Date.
(14) Rights and Interest
All rights and interests of every kind existing in
respect of the Shares are valid and enforceable by
action or legal proceeding or otherwise.
ACCOUNTS AND RECORDS
(15) Accounts
The Accounts have been prepared in accordance with the
historical cost convention and all applicable statutes
and regulations (including without prejudice to the
generality of the foregoing the Companies Acts, 1963 to
1990 and any other relevant statutes) and with generally
accepted accounting standard, principles and practices
in Ireland and in accordance with all applicable SSAPs
and all applicable Financial Reporting Standards issued
by the Accounting Standards Board Limited and have been
audited in accordance with all applicable Auditing
Standards, Auditing Guidelines and other pronouncements
issued or made from time to time by the Auditing
Practices Board and the bases and accounting policies
adopted for the purposes of preparation of the Accounts
are the same as those adopted in the preparation of the
accounts of each Group Company in respect of each of the
last three preceding accounts periods and the Audited
Accounts:-
Show true and fair view:
------------------------
(a) set out fully, the assets and liabilities
(including all contingent, unquantified and
disputed liabilities) of each Group Company and the
Group and the amounts thereof and show a true and
fair view of the financial position of each Group
Company and the Group as at the Last Accounting
Date and are not affected by any unusual,
extraordinary, exceptional or non-recurring items;
Adequate provisions for liabilities:
------------------------------------
(b) make full provision or reserve for all bad or
doubtful debts, liabilities or capital commitments
of each Group Company or the Group up to the Last
Accounting Date including contingent, unqualified
or disputed liabilities and include all such
reserves and provisions for taxation as are
necessary to cover all liabilities for taxation
(whether or not assessed) up to the Last Accounting
Date and in particular (but without prejudice to
the generality of the foregoing) attributable to
profits, gains, income, receipts and loans and
distributions made to participators and associates
and payments made from which tax is deductible;
Redundant Stock:
----------------
(c) redundant and obsolete stock of each Group Company
has been wholly written off and all excessive or
slow moving stock has been written down as required
under the appropriate SSAP;
Valuation of Stock-in-Trade
---------------------------
(d) the basis of valuation for stock-in-trade and work-
in-progress in respect of each Group Company:-
(i) is in accordance with normally recognised
accounting principles and practices for the
kind of business in which that Group Company
is engaged and with the relevant SSAP in force
for the relevant financial year;
(ii) has remained substantially the same in respect
of the commencement and end of the accounting
periods of that Group Company during the
period of three years terminating on the Last
Accounting Date or since its date of
incorporation whichever period is the shorter;
(iii)is such that the value attributed to each item
of stock (other than redundant, obsolete,
excessive or slow moving stock) does not
exceed the lower of cost and net realisable
value as at the Last Accounting Date;
Fixed Asset Valuation:
----------------------
(e) The written down value of the Company's fixed
assets as at the Last Accounting Date fairly
represented the value of their remaining useful
life to that Group Company. The basis of valuing
such fixed assets has not been changed during the
period of three years terminating on the Last
Accounting Date;
Rate of Depreciation:
---------------------
(f) in respect of each Group Company the rate of
depreciation applied in respect of each fixed asset
has been consistently applied over not less than
three previous accounting periods of that Group
Company and is sufficient to write down the value
of such fixed asset to its net realisable value as
at the end of its useful working life and the fixed
assets have been depreciated in accordance with the
relevant SSAP for the relevant financial year.
Extraordinary and exceptional items:
------------------------------------
(g) The results shown by the audited profit and loss
accounts of each Group Company and the consolidated
profit and loss account of the Group for each of
the three financial periods of each Group Company
and the Group ended on the Last Accounting Date
have not been affected by any extraordinary,
exceptional or non-recurring item or by any other
circumstances rendering the profits or losses for
all or any of the periods covered by those accounts
unusually high or low.
Provision of Taxation:
----------------------
(h) The Accounts reserve or provide in full for all
Taxation liable to be assessed on each Group
Company, or for which it is or may become
accountable, in respect of any period beginning on
or before the Last Accounting Date and whether or
not the Group Company has or may have any right of
reimbursement against any other person and the
Accounts reserve in full for any contingent or
deferred liability to Taxation for any such period.
Gains and Balancing Charges:
----------------------------
(i) No asset is included in the Accounts at such value
that if it were obtained in the disposal or deemed
disposal of the asset a chargeable gain or
balancing charge would arise or accrue.
(16) Book Debts
None of the book debts included in the Accounts and none
of the book debts owing to any Group Company at
Completion are or will be outstanding for more than
sixteen weeks from their due dates for payment or have
been factored and all such debts will realise in the
normal course of collection their full value after
taking into account the provisions for bad debts
included in the Accounts and none of such debts is
subject to any counter-claim or set-off, except to the
extent of any such provisions.
(17) Accounting Records
All accounts, books, ledgers, financial and other
records of whatsoever kind of each Group Company are in
its possession or under its control and:-
(a) have been fully, properly and accurately maintained
and contain true and accurate records of all
matters required to be entered therein by the
Companies Acts, 1963 to 1990 and any other relevant
statutes or regulations and are up to date;
(b) do not contain or reflect any inaccuracies or
discrepancies; and
(c) give and reflect a true and fair view of the
trading transactions and of the financial and
contractual position of the Company and of its
assets and liabilities.
(17)(A) Management Accounts
The Management Accounts:-
(a) have been prepared with all due care and attention;
(b) have been prepared on a basis consistent with that
adopted and on the same assumptions as those made
in preparing the Accounts and in previous
management accounts of each of the Companies and
the Group in the three years immediately preceding
the date of the Management Accounts;
(c) have been prepared in accordance with the
historical cost convention and all applicable
statutes and regulations (including without
prejudice to the generality of the foregoing, the
Companies Acts, 1963-1990, and all other relevant
statutes and all current SSAPs applicable to a
company incorporated in Ireland);
(d) show a true and fair view of the state of affairs
and profit and loss of each of the Companies and
the Group;
(e) are not affected by any unusual, extraordinary,
exceptional or non-recurring items;
(f) set out fully, correctly and accurately the assets
and liabilities of each of the Companies and the
Group and the amounts thereof;
(g) make full provision or reserve for all liabilities
as at and for the period in respect of which they
have been prepared;
(h) take into account all necessary factors.
All assumptions on which the Management Accounts are
based are fair and reasonable.
(18) Business since the Last Accounting Date
Since the Last Accounting Date:-
(a) Each Group Company has carried on its business in the
ordinary and usual course without interruption and so as
to maintain the same as a going concern;
(b) there has been no material adverse change in the
financial or trading position of any Group Company or
the Group as a whole and the Warrantors are not aware of
any facts which are likely to give rise to any such
change;
(c) no changes have occurred in the aggregate assets and
liabilities shown in the Accounts and there has been no
reduction or increases in the aggregate value of the
assets of each Group Company from the valuations adopted
for the purposes of the Accounts.
(d) no dividend, bonus or other distribution has been, or
agreed to be, declared, paid or made by any Group
Company;
(e) no share or loan capital has been issued repaid or
transferred, or agreed to be issued, repaid or
transferred by any Group Company;
(f) no Group Company has disbursed any cash except in the
ordinary course of its business and all amounts received
by it have been deposited with its bankers and appear in
the appropriate books of account;
(g) no Group Company has changed its normal procedures for
the collection of debts and the payment of creditors in
the ordinary and usual course.
(h) no Group Company has written off, factored, sold or
agreed to sell, a debt;
(i) no Group Company has made, or agreed to make, capital
expenditure exceeding in total IR pounds 1,000 or incurred, or
agreed to incur, a commitment or commitments involving
capital expenditure exceeding in total IR pounds 10,000;
(j) no major customers or suppliers of any Group Company or
the Group as a whole has stopped or reduced trading with
such Group Company or the Group, as the case may be, or
changed the terms upon which it is prepared to trade
with such Group Company or the Group as the case may be,
nor have any such customers or suppliers indicated any
such intention.
(k) no resolution of the shareholders of any Group Company
has been passed;
(l) no Group Company has disposed of any assets or assumed
or incurred any liabilities (including any contingent
liabilities) otherwise than in the ordinary course of
carrying on its business;
(m) no Group Company has repaid or become liable to repay
any loan or indebtedness in advance of its stated
maturity;
(n) no Group Company has disposed of any asset or supplied
any service in circumstances where the consideration
actually received or receivable on the disposal or the
supply, as the case may be, was less than the
consideration which would be deemed to have been
received for the purposes of Taxation;
(o) no payment has been made by any Group Company which will
not be deductible for corporation tax purposes;
(p) no Group Company has changed its accounting reference
period;
(q) no Group Company has borrowed or lent any money or
increased by an amount any secured liability.;
(r) no Group Company has altered or agreed to alter the
terms of employment of any employee who on the Last
Accounting Date was entitled to remuneration in excess
of IR pounds 10,000 per annum (or where employment commenced
subsequent to the Accounting Date was so entitled on the
date of appointment);
(s) no Group Company has created, extended, granted or
issued or agreed to create, extend, grant or issue any
lease, tenancy, Encumbrance or other security;
(t) no Group Company has made any unusual augmentation in
stock;
(u) no Group Company has done or omitted to do anything
which would entitle any third party to terminate any
contract or any benefit enjoyed by the Company or call
in any money before the normal due date thereof;
(v) no Group Company has made any alteration to the
provisions of its memorandum of association or articles
of association;
(w) no Group Company has incurred any Tax Liability (as
construed in accordance with Clause 1.2(a) of the Tax
Deed) other than a Tax Liability which arises from the
ordinary course of business of the Company as a
consequence of a Transaction (as defined in Clause 1.1
of the Tax Deed) which occurred after the Last
Accounting Date but on or before Completion . For the
avoidance of doubt, the Transactions identified in
Clauses 3.1(f)(1) to (4) shall be considered as examples
of Transactions which do not arise from the ordinary
course of business but this list is not exhaustive;
(x) no patent royalty payments were received before
Completion by Alliance Investments Limited from Ethos
Medical Products Limited in respect of patent royalties
accrued after 28 March, 1996.
(19) Debtors
No Group Company has released a debt shown in the
Accounts or its accounting records related to the
Accounts so that the debtor has paid or will pay less
than the debt's book value. None of those debts has
been deferred, subordinated or written off or become
irrevocable to any extent. No debt shown in the
Accounts or the accounting records of any Group Company
is overdue by more than sixteen weeks.
(20) DELETED
(21) Ownership of Assets etc.
All assets of or represented as belonging to a Group
Company (including but not limited to the fixed and
loose plant, machinery, furniture, fixtures and fittings
and other chattels equipment and vehicles, stock, work-
in-progress, raw materials and supplies, books, records,
customers lists, costing details and all other written
information) are
(i) the absolute property of and held by such Group
Company free from any Encumbrance whatsoever;
(ii) not subject to any agreement or commitment to give
or create any of the foregoing over them;
(iii)held in possession by it, and such assets are all
the assets necessary for carrying on the business
of such Group Company at its level at Completion;
(iv) are in good repair and condition and in
satisfactory working order, and have been regularly
and properly maintained;
(v) are operating (or are capable of operating) safely
and without danger to any person, property or the
environment and in accordance with all relevant
licences, regulations and permits governing its
use;
(vi) are not surplus to requirements and are not
expected to require replacements or additions at a
cost in excess of IR pounds l,000 within twelve months
from the date of this Agreement; and
(vii)are capable and will (subject to normal wear and
tear) remain capable throughout the respective
periods of time during which it is written down to
a nil value in the accounts of such of the relevant
Group Company of doing the work for which it was
designed or purchased.
(22) Raw Materials
The stock of raw materials, packaging materials and
finished goods now held by any Group Company are not
excessive and are adequate in relation to the current
trading requirements of such Group Company and no
material part of such stock is obsolete, slow moving,
unsuitable, unmarketable, inappropriate or of limited
value in relation to the current business of such Group
Company and no contracts are established which are
likely to result in the foregoing not being true.
(23) Condition of Stocks
All of the stocks of finished goods and work in progress
of any Group Company are in good condition.
(24) Retention of Title
None of the regular suppliers of stock, raw materials or
the like to any Group Company supply such stock, raw
materials or the like on the basis that the title to the
same shall be retained by such supplier pending the
fulfilment by such Group Company of any obligation and
at Completion no amounts shall be owing by such Group
Company to any person, firm or company who shall have
supplied goods, stock, raw materials or the like to such
Group Company on such basis as aforesaid.
(25) Insurance
(a) All the assets of each Group Company of an
insurable nature have at all material times been
and are at the date hereof insured in amounts
representing substantially their replacement or
reinstatement value against fire and other risks
(including without limiting the generality of the
foregoing loss of profit) normally insured against
by persons carrying on the same classes of business
as that carried on by such Group Company and each
Group Company has at all material times been and is
at the date hereof adequately covered against
accident, damage, injury, third party public
liability (including products liability and loss of
profits) and other risks normally insured against
by persons carrying on the same classes of business
as that carried on by such Group Company. All such
policies are at Completion in full force and effect
and nothing has been done or omitted to be done
which would make any policy of insurance void or
voidable or which is likely to result in an
increase in premium. All of such insurance
policies have been disclosed to the Purchaser and
are referred to in the Disclosure Letter.
(b) So far as the Warrantors are aware none of the said
policies is subject to any special or unusual terms
or restrictions or to the payment of any premium in
excess of the normal rate. No claim is outstanding
or may be made under any of the said policies and
no circumstances exist which are likely to give
rise to such a claim.
(26) Leased Assets
No circumstances have arisen or so far as the Warrantors
are aware are likely to arise in relation to any asset
held by any Group Company, under a lease or a similar
agreement whereby the rental payable has been or is
likely to be increased.
(27) Intellectual Property
(a) The Intellectual Property Rights, full details of
which are set out in the Disclosure Letter, are in
full force and effect, solely and beneficially
owned by, and validly granted to, a Group Company
free from all licences or Encumbrances and third
party claims of any nature whatsoever and are all
the Intellectual Property rights necessary to carry
on the business of the Group.
(b) No Group Company is a party to any confidentiality
agreement nor is it prohibited or restricted from
disclosing any know-how or technical information.
(c) No Group Company uses, or otherwise carries on its
business under, any name other than its corporate
name.
(d) Full details of all licence agreements to which any
Group Company is a party (whether as licensor or
licensee) are set out in the Disclosure Letter and
all rights granted under such agreements are
registered.
(28) Effect of Sale
The execution or performance of this Agreement or a
document to be executed at or before Completion will
not:
(a) result in any Group Company losing the benefit of
any assets, licence, right or privilege which is
presently enjoys;
(b) conflict with, or result in a breach of, or give
rise to an event of default under, or require the
consent of a person under, or enable a person to
terminate, or relieve a person from an obligation
under,
(i) an agreement, to which the Company is a party;
(ii) any provision of the Memorandum and Articles
of Association of any Group Company; or
(iii)any encumbrance, lease, contract, Order,
Judgement, award, injunction, regulation or
other restriction or obligation of any kind or
character by which or to which any assets of
any Group Company is bound or subject;
(29) Environmental Matters
In this sub-paragraph:
"Dangerous Substance"
-------------------
means any substance, material, waste or other matter
which as at the date of this Agreement is defined as
dangerous, hazardous, toxic or other term having a
similar meaning in Environment Law;
"Environmental Law"
------------------
means in relation to the operations of the Group all
statutory or common laws or regulations or other
requirements concerning pollution of the environment
or protection of the health of humans, animals or plants
capable of enforcement as at the date of this Agreement;
"Environmental Licence"
---------------------
means any permit, licence, authorisation, consent or other
approval required by any Environmental Law for the conduct
of any Group Company's business.
(i) Each Group Company has obtained all requisite
Environmental Licences;
(ii) No Group Company has in the period of two years
prior to Completion received any notice,
correspondence or communication in any form from
which it is alleged to be in violation of any
Environmental Law or Environmental Licence or that
any Environmental Licence may be subject to
modification, suspension, revocation or non-renewal
and there are no circumstances likely to give rise
to any such violation, modification, suspension,
revocation, or non-renewal.
(30) Liabilities
No Group Company has any liabilities (actual, contingent
or otherwise and whether quantified or not) other than
as have been incurred since the Last Accounting Date in
the ordinary course of its business.
(31) No Unusual Contracts etc.
No Group Company is a party to any contract entered into
otherwise than in the ordinary and usual course of
business or any contract of an onerous or unusual or
long term nature or containing any onerous unusual or
other provision material for disclosure to an intending
purchaser of the Shares including but not limited to any
contract for the supply of goods or services at a price
different from that reasonably obtainable on any arm's
length basis.
CONTRACTS
(32) Validity of Agreements
The Warrantors have no actual knowledge of the
invalidity of, or a ground for termination, avoidance or
repudiation of, an agreement to which any Group Company
is a party. No party with whom any Group Company has
entered into an agreement, arrangement or obligation has
given notice of its intention to terminate, or has
sought to repudiate or disclaim, the agreement,
arrangement or obligation.
(33) Material Breach
No party with whom any Group Company has entered into an
agreement or arrangement is in material breach of the
agreement or arrangement.
(34) Standard Terms of Business
No Group Company has entered into an agreement or
arrangement with a customer or supplier on terms
materially different to its normal standard terms with
such customer or supplier.
(35) Contracts
No Group Company has outstanding any contract,
transaction, commitment (whether in respect of capital
expenditure or otherwise), liability or obligation which
is outside the ordinary course of such Group Company's
business.
(36) Trading Contracts and Outstanding Offers
(1) No Group Company has received written notice that
it is in breach of the terms and conditions on its
part to be observed and performed under its trading
contracts which are subsisting at the date hereof.
(2) No offer, tender or the like which is capable of
being converted into an obligation of any Group
Company by an acceptance or other act of some other
person is outstanding, except for offers, tenders
or the like which have been made in the ordinary
course of its business.
(37) No Guarantees or Capital Commitments etc.
No guarantees, indemnities or undertakings, commitments
on capital account or unusual liabilities have been
made, given, entered into or incurred by or on behalf of
any Group Company whether in respect of the liabilities
of the Vendors or any of them or any company owned or
controlled by them or any of them or of any other party
whatsoever and there are no outstanding agreements or
arrangements to give, make, enter into or incur any of
the same.
(38) Customer Relations
No Group Company has any dispute in respect of a
material amount with any of its customers with regard to
alleged defective goods supplied by it.
(39) Product Liability
(a) No Group Company has manufactured, supplied or sold
any products which were in any material respect
faulty or defective nor is any Group Company
subject to any liability or obligation (save as may
be implied by law) to take back or otherwise do or
not do anything in respect of any products that
have been delivered by it prior to Completion.
(b) There has not within a period of six years prior to
the date hereof been any product liability claim
against the Company nor is there any such claim
outstanding, pending or threatened against any
Group Company and there are no circumstances likely
to give rise to a material claim being made against
the Company.
(40) Purchases and Sales
Neither more than 15% of the aggregate amount of all the
purchases, nor more than 10% of the aggregate amount of
all the sales of the Group are obtained or made from or
to the same supplier or customer (including any person,
firm or company in any way connected with such supplier
or customer) nor is any material source of supply to, or
any material outlet for the sales of the Group in
jeopardy.
BANKING ARRANGEMENTS
(41) Bank Accounts and Facilities
(a) The Group has the bank accounts referred to in the
Disclosure Letter.
(b) Material details of all of the overdraft, loan or
other financial facilities outstanding or available
to the Group are summarised in the Disclosure
Letter.
(42) Guarantees and Indemnities
No Group Company is a party to or is it liable
(including, without limitation, contingently) under a
guarantee, indemnity or other agreement to secure or
incur a financial or other obligation with respect to
another person's obligation.
(43) Liabilities
Except as disclosed in the Accounts, no Group Company
has outstanding nor has it agreed to create or incur
loan capital, borrowing or indebtedness in the nature of
borrowing.
(44) Events of Default
No Group Company has done or omitted to do nor, so far
as the Warrantors are aware, has it been alleged that
any Group Company has done or omitted to do, anything
which:
(a) constitutes an event of default, or otherwise gives
rise to an obligation to repay, under an agreement
relating to borrowing or indebtedness in the nature
of borrowing (or will do so with the giving of
notice or lapse of time or both) or;
(b) will lead to an Encumbrance constituted or created
in connection with borrowing or indebtedness in the
nature of borrowing, a guarantee, an indemnity or
other obligation of any Group Company becoming
enforceable (or will do so with the giving of
notice or lapse of time or both).
OFFICERS AND EMPLOYEES
(45) Directors
The particulars shown in the Second Schedule under the
heading Directors and Secretary are accurate and no
person not included therein is a director or shadow
director of any Group Company.
(46) Particulars of Employees
(a) The particulars shown in the schedule of employees
annexed to the Disclosure Letter show name, date of
commencement of employment, age and grade of all
employees and details of all remuneration currently
payable to, and other benefits currently provided to,
each employee of each Group Company and include
particulars of all profit sharing, incentive and bonus
arrangements to which each Group Company is a party.
Since the date referred to therein, there has been no
change in the number of employees or the remuneration
payable or other benefits provided to such employees.
(b) No present officer or senior employee of any Group
Company (which for these purpose shall mean a person
entitled to a basic salary of more than pounds 15,000 per
annum) has given or received notice terminating his
employment.
(c) No Group Company is a party to a consultancy contract.
(d) There is no employment contract between any Group
Company and any of its employees which cannot be
terminated by 3 months notice or less without giving
rise to a claim for damages or compensation (other than
a statutory redundancy payment or statutory compensation
for unfair dismissal).
(e) There is no employment contract between any Group
Company and any person which is in suspension or has
been terminated but is capable of being revived or
enforced or in respect of which any Group Company has a
continuing obligation.
(f) No Group Company owes any amount to a present or former
director or other officer or employee of such Company
(or his dependant) other than for accrued remuneration.
(g) Within the year ending on the date of this Agreement no
Group Company has:
(i) given notice of redundancies or started
consultations with a trade union; or
(ii) been a party to a transfer (within the meaning of
the European Communities (Safeguarding of Employees
Rights on Transfer of Undertakings) Regulations or
failed to comply with a duty to inform and consult
a trade union under these Regulations.
(47) Non-Deductible Payments to Employees
No Group Company has made or agreed to make any material
payment to or provided or agreed to provide any material
benefit for any present or former officer or employee
which is not allowable as a deduction for the purposes
of taxation.
(48) Breach of Contract etc.
No liability has been incurred by any Group Company for
breach of any contract of service for redundancy payment
or for compensation for wrongful or unfair dismissal or
for failure to comply with any order for the
reinstatement or re-engagement of any employee and no
gratuitous payment has been made or promised by any
Group Company in connection with the termination or
proposed termination of the employment of any present or
former director or employee.
(49) Trade Disputes
No Group Company is involved in any industrial or trade
dispute or any dispute or negotiation regarding a claim
of material importance with any trade union or
organisation or body of employees and there are no
agreements or other arrangements (whether or not legally
binding) between the Company and any trade union or
other body representing employees.
(50) Employee Share Schemes
No Group Company has in existence nor is it proposing to
introduce any share incentive scheme share option scheme
or profit sharing scheme for all or any part of its
directors or employees.
(51) Statutory Obligations
Each Group Company has, in relation to each of its
employees (and so far as is relevant, to each of its
former employees):
(a) complied in all respects with all obligations
imposed on it by any statutory provision or
regulation and codes of conduct relevant to the
relations between it and its employees or any
recognised trade union and has maintained adequate
and suitable records regarding the service of each
of its employees; and
(b) complied in all respects with all collective
agreements for the time being having effect as
regards such relations or the conditions of service
of its employees.
(52) Employee Relations
Each Group Company enjoys a good relationship with its
employees and no such employees in receipt of a salary
at a basic rate in excess of IR pounds 15,000 per annum has
advised such Company formally or informally that he is
terminating or considering terminating his employment
with such Company and there are no circumstances likely
to give rise to such termination and further no Group
Company has any dispute with any of its employees of a
material nature.
(53) Full Time Employees
All persons in receipt of income at a basic rate in
excess of IR pounds 15,000 per annum who have during the period
since the Last Accounting Date habitually or normally
carried out duties of a full time nature on behalf of
one of the Group Company in connection with its business
and affairs shall at Completion be employees of such
Group Company and at Completion no such person shall be
bound by any contract (whether employment or otherwise)
to carry out duties for or on behalf of the Vendors or
any of them or any company controlled by them or any of
them.
(54) No Contractual Obligations
No Group Company is now under any contractual or other
obligation to increase now the rates of remuneration of
or make any bonus or incentive or other similar payment
to any of its officers or employees.
COMPLIANCE THE LAW
(55) Compliance with Permits
Each Company has obtained and complied with the material
terms and conditions of each Permit (details of which
are contained in the Disclosure Letter).
(56) Status of Permits
Each Permit is in force. No material expenditure or
work is or will be necessary to comply with or maintain
a Permit. There is no indication that any Permit might
be revoked, suspended, cancelled, varied or not renewed.
No Permit and no condition to which any Permit is
subject is personal to the Vendors.
(57) Compliance with Laws
Each Group Company has conducted its business in all
material respects in accordance with all applicable laws
and regulations of Ireland, the European Union and the
USA (being the only other country outside the European
Union with which they trade) and so far as the
Warrantors are aware none of the officers or employees
of any Group Company (during the course of their duties)
has done or omitted to do anything in contravention of
any statute, order, regulation which may have a material
adverse effect on the business of the Group.
(58) Insider Agreements
There is, and during the two years ending on the date of
this Agreement there has been, no agreement to which any
Group Company is or was a party and in which the
Vendors, a director or former director of the Company
(being a director during the two years ending on the
date of the Agreement) or a person connected with any of
them is or was interested in any way.
(59) No Litigation or Default in Obligation
(a) No Group Company nor any person for whose acts or
defaults such Group Company is or may be
vicariously liable is engaged in or threatened with
any litigation or arbitration affecting such Group
Company and neither is any such litigation or
arbitration pending or threatened and further no
Group Company nor any of its officers is in the
course of being prosecuted for any criminal offence
nor, so far as the Warrantors are aware, are there
any circumstances likely to lead to such
litigation, arbitration or prosecution and no Group
Company is in default in respect of any material
obligation whether contractual, statutory or
municipal.
(b) None of the Vendors nor any Group Company nor, so
far as the Warrantors are aware, any other person
is engaged in or threatened with any litigation or
arbitration seeking to prohibit, or the effect of
which would be to prohibit, the consummation of the
transactions contemplated by the within Agreement
(or any agreement relating thereto) in accordance
with its terms or to obtain damages in respect
thereto.
(60) Powers of Attorney
(a) No Group Company has delegated any powers under a
power of attorney which remains in effect.
(b) There are not outstanding any authorities (express
or implied) by which any person may enter into any
contract or commitment to do anything on behalf of
any Group Company.
(61) Name of Business
No Group Company uses on its letterhead, books or
vehicles or otherwise carry on business under any name
other than its corporate name.
(62) Insolvency
(a) No order has been made or petition presented or
resolution passed for the winding-up of any Group
Company and there are no grounds on which any such
order or petition could be made or presented and no
such resolution is contemplated by the members or
any of them.
(b) No distress, execution or other process has been
levied on any of the assets of any Group Company,
nor has any Group Company stopped payment or become
insolvent or unable to pay its debts for the
purposes of Section 214 of the Companies Act, 1963.
(c) No power to appoint a receiver or administrative
receiver or examiner has been exercised or has
arisen in respect of the business of any of the
assets of any Group Company and there is no
unfulfilled or unsatisfied judgement or Court order
outstanding against it.
(63) Investigations
There are not in existence nor is there now pending
investigations or enquiries by, or on behalf of, any
governmental or other body in respect of the affairs of
any Group Company or the Group.
(64) Investments, associations and branches
No Group Company:-
(a) is the holder or beneficial owner of, and has
agreed to acquire, any class of the share or other
capital of any other company or corporation
(whether incorporated in Ireland or elsewhere);
(b) is and has agreed to become a member of any
partnership, joint venture, consortium or other
unincorporated association; and
(c) has a branch or permanent establishment (as that
expression is defined in the relevant double
taxation relief orders current at the date hereof)
outside Ireland.
PROPERTY
(65) Disclosures
The disclosures contained in the replies given by the
Vendors' Solicitors to the enquiries relating to the
Property and referred to in the Disclosure Letter are
not incomplete, inaccurate or misleading in any material
respect.
(66) The Property
The Property comprises all land and premises owned,
occupied or used by or in the possession of any Group
Company and the particulars thereof set out in the
Fourth Schedule are accurate.
(67) Land or Premises
Except in relation to the Property the Company has no
liability (actual or contingent) arising out of any
lease or tenancy relating to an interest in land or
premises.
(67A)The Property is free from any Encumbrance or any other
obligation or liability of any Group Company or any
other party.
(67B)The Property or any part thereof is not subject to any
outgoings other than commercial rates, water rates,
insurance premiums, and rent and no arrears or payment
in relation to any of the foregoing is outstanding.
(67C)Each Group Company is a joint insured with the landlord
on all relevant policies of insurance in respect of the
Property and the insurers have waived subrogation rights
against each such company.
(67D)The Property is not subject to any option, right of pre-
emption or right of first refusal in favour of any
third party.
(67E)All planning permissions and building bye-law approvals
required by law for the initial construction of all
buildings on the Property and for the development of, or
the execution of works on or to, the Property or for the
use or any change in the use thereof have been obtained
and where implemented all conditions thereof have been
complied with in full.
(67F)No claim for compensation has ever been made under Part
III of the Local Government (Planning and Development)
Act, 1990 in relation to the Property.
(67G)Each Group Company has complied with and are complying
with the Fire Services Act, 1981 and the Building
Control Act, 1990.
(67H)In all cases where the provisions of the Building
Control Act, 1990 or of any regulations from time to
time made thereunder apply to the design or development
of the Property or any part of it or any activities in
connection therewith, such provisions have been complied
with in full.
(67I)As soon as is practicable following Completion the
Warrantors shall furnish to the Purchaser the documents
specified in Condition 36(c) and (d) of the Law Society
of Ireland General Conditions of Sale (1995 Edition).
(67J)There are no rent reviews under the leases of the
Property in progress.
(67K)No obligation necessary to comply with any notices or
other requirements given by the landlord under any
leases of the Property is outstanding.
(67L)There is no obligation to reinstate the Property or any
part thereof by removing or dismantling any alteration
made to it by the Group Companies or any predecessor in
title to the Group Companies.
PENSIONS
(68) No Other Schemes
There is not in operation nor has any proposal been
announced to enter into or establish any agreement,
arrangement, custom or practice (whether legally
enforceable or not) to which any Group Company
contributes (or promises to provide on an unfunded
basis) for the payment of any pensions, allowances, lump
sums or other like benefits on retirement, death,
termination of employment (whether voluntary or not) or
during periods of sickness or disablement for the
benefit of any employee or former employee or for the
benefit of any dependants of any employee or former
employee.
(69) Pensions
(a) The information set out in the Disclosure Letter,
comprises full and accurate disclosure of the
retirement benefits in place for Mr. Patrick
Connolly ("the Retirement Account").
(b) The Retirement Account has been registered pursuant
to the provisions of the Pensions Act, 1990 as
amended.
(c) The Retirement Account is an exempt approved scheme
within the meaning of the Finance Act, 1972 and the
Warrantors are not aware of any reason why the
exempt status should or could be withdrawn.
(d) The Retirement Account complies with and at all
times has been administered in accordance with all
applicable laws regulations and requirements
including those of the Revenue Commissioners and of
trust law.
(e) The Disclosure Letter sets out full details of the
Retirement Benefits, Death-in-Service Benefits and
Disability Benefits provided for in the Retirement
Account and the contributions payable.
(f) Contributions to the Retirement Account are not in
arrears and all contributions which have fallen due
for payment have been paid in full. No increase in
these contributions is proposed or has been
recommended.
(g) There are no grounds pursuant to which liability
under the disability insurance policy (details of
which are set out in the Disclosure Letter) might
be avoided by the Company as therein defined.
(h) The trustees of the Retirement Account are not
engaged in or involved in any litigation or
arbitration nor is any such litigation pending or
threatened by or against the trustees and, so far
as the Warrantors are aware, there are no facts
likely to give rise to any such litigation or
arbitration.
(70) Documents
All title deeds relating to the assets of each Group
Company and an executed copy of all written agreements
to which each Group Company is a party, and the original
copies of all other documents which are owned by or
ought to be in the possession of each Group Company are
in its possession or under its control.
(71) Commissions
No person is entitled to receive from any Group Company
any finders fee, brokerage, or other commission in
connection with the sale and purchase of the Sale Shares
under this Agreement.
(72) Effect of Agreement
The making or implementation of this Agreement will not:-
(a) cause any lease, tenancy, licence, concession,
grant or agreement of any nature whatsoever to
which any Group Company is a party to be or become
liable to be avoided revoked or otherwise affected
in any material way;
(b) (without prejudice to the generality of the
foregoing) impose upon any Group Company any
material penalty cost, charge, expense or
obligation (including without limitation any
obligation to sell or purchase shares in any
company);
(c) result in creation, imposition, crystallisation or
enforcement of any encumbrance whatsoever; or
(d) result in any indebtedness of any Group Company
becoming due or capable of being declared due and
payable prior to its stated maturity.
(73) Returns Up-to-Date
(a) Excluding any returns required pursuant to this
Agreement all returns, particulars, resolutions and
other documents required to be filed or to be
delivered on behalf of the Company with or to the
Registrar of Companies of Ireland or any other
applicable jurisdiction have been materially
correctly and properly made up and so filed or
delivered within the period prescribed.
(b) All charges in favour of any Group Company have (if
appropriate) been registered in accordance with the
provisions of the Companies Act, 1963 to 1990.
(74) Agents and Distributors and Joint Ventures
No Group Company is a party to any agency or
distributorship contract or arrangement and no Group
Company is, or has agreed to become, a party to any
arrangement or agreement for the sharing of commissions
or other income.
(75) Arm's Length Contracts
No Group Company is party to or has its profits or
financial position during the three years prior to the
date of this Agreement been affected by any contract or
arrangement which is not of an entirely arm's length
nature.
(76) Management Reports
There have been no reports commissioned by or on behalf
of any Group Company concerning it by financial or
management consultants within the period of one year
prior to the date of this Agreement.
(77) Grants
No Group Company has done any act or thing which could
result in all or part of a government grant or any other
similar payment or allowance made or due to be made to
it (details of which are contained in the Disclosure
Letter) become repayable or being forfeited by it nor
will performance of this Agreement result in any such
grant, payment or allowance becoming repayable or so
forfeited.
(78) DELETED
TAXATION
(79) At Completion, all Taxation for which each Group Company
is liable will, if and insofar as such Taxation or other
sums ought to be paid prior to or on Completion, have
been paid at or before Completion and each Group Company
will not have any liability, in respect of Taxation
falling due for payment on or prior to Completion.
(80) Agreements to Indemnify
No Group Company has entered into any financing, leasing
or other agreement in which or in connection with which
such Group Company has indemnified any other party
against any claim, loss or other liability, arising from
any change in tax legislation or in the interpretation
of tax legislation.
(81) Employee Share Schemes
(a) No Group Company operates or has at any time
operated any share option scheme, profit sharing
scheme or other employee share scheme.
(b) None of the employees of the Group Company have
benefited from the provisions of Section 12 of the
Finance Act, 1986.
(82) Domicile and Residence
No Group Company has been at any time, for Taxation
purposes, resident in any jurisdiction other than
Ireland nor has any Group Company been at any time
managed or controlled in or from any country other than
Ireland and the Group has not carried on any trade in
any other country.
(83) Secondary Liability
No act or transaction has been effected in consequence
of which any Group Company is or may be liable for any
Taxation primarily chargeable against some other person.
(84) PAYE/Social Welfare
Each Group Company is registered for the purposes of
regulations made under Section 127 of the Income Tax
Act, 1967 (PAYE regulations) and each has complied in
all respects with and made all payments due under such
regulations and is not liable to any abnormal or non-
routine payment or any forfeiture or penalty or to the
operation of any penal provisions due to non-compliance
with the said regulations.
(85) Compliance and Records
Each Group Company has complied in all material respects
with Part II, Chapter I of the Social Welfare
Consolidation Act, 1981, the Health Contributions Act,
1979, Youth Employment Agency Act, 1981, Section 16 of
the Finance Act, 1983 and Chapter II of the Finance Act,
1993 (which applied the Income Levy for 1993/94) and any
Regulations made under any such Acts and has maintained
full complete and correct records for the purposes
thereof and is not liable for any abnormal or non-
routine payment or any forfeiture or penalty or for the
operation of any penal provisions due to non-compliance
with the said Acts and/or Regulations.
General
(85A)There are set out in the Disclosure Letter full
particulars of all differences between the accounting
and taxation treatments of all items in the Accounts.
(85B)There is no appeal by any Group Company pending against
any assessment to tax and no Group Company is in default
in payment of any Tax within the period prescribed for
payment thereof.
(85C)The making of returns, payment of preliminary tax and
all other requirements of Chapter II Part I of the
Finance Act, 1988 and Chapter VI of the Finance Act,
1991 have been complied with fully by each Group
Company.
(85D)No surcharge for late submission of returns under
Section 48 of the Finance Act, 1986 has or will become
payable by any Group Company in respect of any period
prior to Completion.
(85E)No notice of attachment has been served on any Group
Company or in relation to any funds of any Group Company
under Section 73(2) of the Finance Act, 1988.
[attachment of defaulter's funds]
(85F)The provisions of the Waiver of Certain Tax, Interest
and Penalties Act, l993, particularly Sections 3 and 9,
do not have application to any Group Company [Mandatory
requirement to avail of the tax amnesty where
applicable].
(85G)No transaction has been effected by any Group Company in
respect of which any consent or clearance from the
Revenue Commissioners or other taxation authorities was
required (i) without such consent or clearance having
been validly obtained before the transaction was
effected and (ii) otherwise than in accordance with the
terms of and so as to satisfy any conditions attached to
such consent or clearance, and (iii) otherwise than at a
time when and in circumstances in which such consent or
clearances was valid and effective.
(85H)Nothing has been done and no event or series of events
has occurred or will as a result of any contract,
agreement or arrangement entered into before Completion
which might when taken together with the entry into or
Completion of this Agreement cause or contribute to the
disallowance to any Group Company of the carryforward of
any losses or excess charges on income.
(85I)Where full disclosure for deferred taxation (in
accordance with Standard Statement of Accounting
Practice No. l 5 of the Institute of Chartered
Accountants in Ireland) is not made in the Accounts full
details of the amounts have been disclosed in the
Disclosure Letter .
(85J)No Group Company has received any notices under Section
172 (2) or 172 (3) Finance Act, l995 (resignation of
professional advisors/auditors as a result of certain
tax irregularities).
(85K)No Group Company has ever been refused a tax clearance
certificate by the Revenue Commissioners requested under
the provisions of Section l77 Finance Act, l995 or any
other provision relating to the obtaining of tax
clearance certificates which it did not subsequently
obtain.
CORPORATION TAX
(86) Group Relief
(a) No Group Company has claimed, surrendered or agreed
to surrender any amount by way of group relief
under the provisions of Section 107 and 120 of the
Corporation Tax Act, 1976.
(b) No Group Company is liable to make a subvention
payment or any other payment for an amount
surrendered by any other company under or in
connection with the provisions of Sections 107 to
Section 120 of the Corporation Tax Act, 1976.
(87) Disallowance of Trading Losses
No change of ownership of any Group Company has taken
place in circumstances such that Section 27 of the
Corporation Tax Act, 1976 has or may be applied to deny
relief for loss or losses claimed.
(87A)(a) No Group Company has paid remuneration to its
directors in excess of such amount as will be
deductible in computing the taxable profits of the
Company; and
(b) No Group Company has paid nor will pay remuneration
or compensation for loss of office or make any
gratuitous payment or any other payment in respect
of management or other services rendered or to be
rendered to that Group Company to any of its
present or former directors or employees which will
not be deductible in computing the taxable profits
of the Group Company.
(87B) No Group Company has, within the meaning of Chapter III
of the Finance Act, 1987, received payment in respect
of professional services from an accountable person.
[withholding tax on professional fees]
(87C) No loan or advance or payment has been made or
consideration given or transaction effected by any
Group Company falling within Sections 98 or 99 of the
Corporation Tax Act, 1976. [loans or write-off of loans
to shareholders]
(87D) No Group Company has ever incurred any expense or paid
any amount in consequence of which the Group Company
has been or could be treated under Section 96 or
Section 97 of the Corporation Tax Act, l976 as having
made a distribution. [treatment of expenses as
dividends]
(87E) The limitations on the meaning of "distribution"
provided for by Section 84A of the Corporation Tax Act,
l976 do not apply to any financial arrangement of any
Group Company. [limitations on use of Section 84
finance]
(87F) No Group Company is affected by the amendments to Part
IX of the Corporation Tax Act, 1976 contained in
Section 21 of the Finance Act, 1989. [additional
conditions in respect of Section 84 loans].
(87G) Section 42 of the Finance Act, l984 [treatment of
dividends on certain preference shares] does not apply
to any dividend paid by any Group Company in respect of
preference shares.
(87H) No Group Company has made any claim for relief in
respect of stock appreciation under Sections 3l and 31A
of the Finance Act, 1975 or Section 26 of the Finance
Act, 1976 or Section 49 of the Finance Act, 1984.
(87I) No Group Company has effected or entered into any act,
transaction or arrangement of any nature whereby it has
incurred or may hereafter incur any liability under or
by virtue of any of Sections 83, 84, 85 and 92 of the
Income Tax Act, 1967. [treatment of premiums on rental
income]
(87J) No Group Company has at any time:
(a) repaid or redeemed or agreed to repay or redeem any
shares of any class of its share capital or
otherwise reduced or agreed to reduce its issued
share capital or any class thereof; or
(b) capitalised or agreed to capitalise in the form of
shares, debentures or other securities or in paying
up any amounts unpaid on any shares debentures or
other securities any profits or reserves of any
class or description or passed or agreed to pass
any resolution to do so; or
(c) provided capital to any company on terms whereby
the company so capitalised has in consideration
thereof issued shares loan stock or other
securities where the terms of any such
capitalisation were otherwise than by way of a
bargain made at arm's length or where the shares,
loan stock or other securities acquired are shown
in the Accounts at a value in excess of their
market value at the time of acquisition.
(87K) No allowable loss which has arisen or which may
hereafter arise on the disposal by any Group Company of
shares in or securities of any company is liable to be
disallowed in whole or in part by virtue of the
application of Section 138 [transactions in a group] or
Section 139 [dividend stripping] of the Corporation Tax
Act, 1976. [anti avoidance provisions]
(87L) On a sale of any machinery and plant at the value
thereof shown in the Accounts of any Group Company no
balancing charge will be incurred.
(87M) There has not been in respect of any accounting period
any excess of distributable investment and estate
income within the meaning of Section 100 of the
Corporation Tax Act, 1976. [surcharge on investment
income].
(87N) No Group Company has entered into transactions by
virtue of which it will be chargeable under Case IV of
Schedule D in accordance with Section 29 of the Finance
Act, 1984. [taxation of income deemed to arise on sales
of certain securities e.g. government/ semi-state
stock]
(87O) The restrictions on the use of capital allowances for
certain leased assets as set out in Section 40 of the
Finance Act, 1984 do not have application to any
transactions entered into by any Group Company [use of
capital allowances against leasing income only].
(87P) The provisions of Section 52 of the Finance Act, 1986
do not apply to any expenditure incurred by any Group
Company. [capital allowances net of grant]
(87Q) No circumstance exists in connection with any Group
Company which would lead to the withdrawal of relief
for investment in research and development as provided
for in Chapter III of the Finance Act, 1986.
(87R) The provisions of Section 46 of the Finance Act, 1986
do not apply to any transaction entered into by any
Group Company. [limited partnerships: relief
restrictions]
(87S) No Group Company has entered into any transaction as a
result of which it could be assessed to tax under
Chapter VII of Part IV of the Income Tax Act, 1967 or
Part IV of the Finance (Miscellaneous Provisions) Act,
1968 [profits from land development] or Section 35 of
the Finance Act, 1965 [treatment of rental income as
profits from land development].
(87T) No Group Company has received a notice under Section
39(B)5 of the Finance Act, 1980 as inserted by Section
30 of the Finance Act, 1987 requiring the Group Company
to desist from an activity or revoking the certificate.
[Custom House Docks Area]
(87U) The utilisation of losses incurred or charges paid by
any Group Company is not restricted by Sections 10A,
16A or 116A of the Corporation Tax Act, 1976. [10%
losses and charges against 10% profits]
(87V) No reduction or withdrawal of relief has occurred under
Section 41(4) of the Finance Act, 1988. [relief from
Corporation Tax in respect of certain dividends from a
non-resident subsidiary]
(87W) No allowance in respect of capital expenditure is or
may be restricted by virtue of Sections 43 to 52
inclusive of the Finance Act, 1988. [limitation on 100%
write off]
(87X) Neither any Group Company nor any of its shareholders
is affected by the restrictions on the Business
Expansion Scheme relief which are contained in Section
9 of the Finance Act, 1989 or Sections 15, 16 and 17 of
the Finance Act, 1991 . [additional conditions for
relief].
(87Y) No Group Company has entered into or taken any steps
the object of which is a transaction which comes or
might come within Section 88 of the Finance Act, 1989.
[schemes to avoid liability to tax under Schedule F]
(87Z) The goods produced by Ethos Medical Products Limited
fall within the definition of goods regarded as
manufactured contained in Section 39 of the Finance
Act, 1980. [10% CT rate for certain activities].
(87AA)The tax benefit envisaged at the time of borrowing in
respect of any loan under Section 84 of the Corporation
Tax Act, 1976 will under present legislation remain
undiminished until such loan has been repaid.
[restriction on the benefit and availability of S84
loans].
(87AB)No Group Company owns nor has it ever owned an asset
which constitutes a material interest in an off-shore
fund which is or has at any time been a non qualifying
off-shore fund within the terms of Chapter VII Part l
Finance Act, 1990 [off-shore funds].
(87AC)Any machinery or plant provided for use for the
purposes of the trade of any Group Company after l
April, 1990 is used wholly and exclusively for the
purposes of the trade of the Group Company. [SS 70 & 73
Finance Act, 1990].
(87AD)No Group Company has been involved in any property
investment scheme in respect of which the tax
incentives on property investment are restricted by
Section 24 of the Finance Act, 1991.
(87AE)The restrictions of capital allowances on holiday
cottages do not apply to any Group Company (Section 25
Finance Act 1992).
(87AF)No Group Company has paid dividends out of export sales
relieved income or Shannon income to its executives
(Sections 19 and 35 of the Finance Act, 1992).
(87AG)No Group Company has been nor is assessable to tax
under Section 200 or Section 201 of the Income Tax Act,
1967.
(87AH)No Group Company has made an election under Section 47
Finance Act, 1983 not to account for Advance
Corporation Tax on certain distributions.
(87AI)All trading losses and excess charges on income carried
forward or utilised by Group Companies do not relate to
activities which formed part of trades separate from
that currently being carried on by those companies.
(87AJ)All Group Companies have traded continuously since
1990.
(87AK)Alliance Investments Limited holds a 'qualifying
patent' within the meaning of Section 34 of the Finance
Act, 1973 and royalties received thereunder constitute
'income from a qualifying patent' as defined in that
section.
(87AL)All patent royalties received after 23 April 1996, but
on or before the Completion Date, have been calculated
on an arms-length basis.
(87AM)No royalty payments were received before the Completion
Date by Allied Investments Limited from Ethos Medical
Products Limited in respect of royalties accrued after
28 March 1996 [effective date of changes made in the
Finance Act, 1996].
DIVIDENDS AND DISTRIBUTIONS
(88) Advance Corporation Tax ("ACT")
(a) No Group Company has any outstanding liability to
ACT under Chapter VII of Part I of the Finance Act,
1983.
(b) No Group Company has made an election under Section
44 of the Finance Act, 1983 (group dividends).
(c) No Group Company has made a surrender under Section
45 of the Finance Act, 1983 (surrender of ACT).
(d) No Group Company is affected by the provisions of
Section 46 of the Finance Act, 1983 (carrying
forward of ACT where a change in ownership of
company).
(e) No Group Company is affected by the provisions of
Section 48 of the Finance Act, 1983 (application of
ACT to interest on certain loans - transitional
provisions re Section 84 loans).
(89) Acquisition of Own Shares
No Group Company has acquired any of its own shares
pursuant to the provisions of Chapter VIII of the
Finance Act, 1991.
COMPLIANCE WITH ADMINISTRATIVE PROCEDURES
(90) Interest on Overdue Taxation
No Group Company is or has at any time since the Last
Accounting Date been liable to pay interest on overdue
Taxation.
(91) Payments made under Deduction of Taxation
(a) Each Group Company has duly complied with the
requirements of Section 151 of the Corporation Tax
Act, 1976 and with the requirements of all other
provisions relating to the deduction and
withholding of Taxation at source up to the date
hereof and all such Taxation which has become due,
has been paid.
(b) No Group Company is liable to any claim in respect
of Taxation due under Section 17 of the Finance
Act, 1970 arising for payments to certain sub-
contractors.
(92) Late Submission of Returns
No claims to relief connected with any Group Company are
subject to restriction by Section 55 of the Finance Act,
1992.
(93) Appeals
There is no appeal by any Group Company pending against
any assessment to Taxation.
(94) Taxation Accounts and Returns
Each Group Company has and the Group has for each of the
five accounting periods up to and including the
accounting period ending on the Last Accounting Date,
furnished the relevant tax authority with full and
accurate particulars relating to its affairs and also
has properly and within the prescribed periods of time
made all returns and given or delivered all notices,
accounts and information required for the purpose of
Taxation, and all such particulars have been correct in
all material respects and on a proper basis and none are
disputed by the relevant tax authority concerned, and
there are no grounds or circumstances which might cause
any such dispute and each Group Company has and the
Group has made all claims which would be of benefit to
it within the time limits laid down in the relevant
legislation. Each Group Company has and the Group has
submitted and the relevant tax authority has where
appropriate agreed computations of its taxable profits
in respect of all periods up to and including the year
ended on the Last Accounting Date.
(95) Mandatory Reporting Requirements
Each Group Company has complied in all respects with the
reporting requirements of Part VII of the Finance Act,
1992.
AVOIDANCE AND EVASION
(96) Taxation Evasion
No Group Company has committed any act or made any
omission which might constitute an offence under Section
94 of the Finance Act, 1983 (aiding, abetting,
assisting, etc. tax evasion).
(97) Tax Avoidance
No Group Company has entered into or been a party to any
scheme or arrangement designed partly or wholly for the
purpose of avoiding Taxation. No Group Company has been
involved in any "tax avoidance transaction" within the
meaning of Section 86 of the Finance Act, 1989 and no
provisions of that section apply to any Group Company in
respect of any event (whether or not involving the
Company) which took place before Completion or in
respect of any series of events (whether or not such
events or any of them involve any Group Company) taking
place partly before Completion and partly after
Completion.
(98) Transactions of Arm's Length
No Group Company has acquired or disposed of any asset
or entered into any transaction which was not a bargain
at arm's length, ("Relevant Transaction") save for a
Relevant Transaction(s) in respect of which all Taxation
for which it was or is liable arising therefrom has been
provided for in full, or where due for payment, will
have been paid prior to Completion.
CAPITAL GAINS TAX
(99) Rollover Relief
No Group Company has made any claim under Section 28 of
the Capital Gains Tax Act, 1975 as respects the
consideration for the disposal of its interest in any
assets which are defined in the said Section 28 as the
"old assets" or under Section 5 of the Capital Gains Tax
(Amendment) Act, 1978 (compulsory purchase order
relief).
(100)Transfers at Undervalue
No Group Company has made any such transfers as is
referred to in Section 35 of the Capital Gains Act, 1975
or received any asset by way of gift as mentioned in
paragraph 18 of Schedule 4 Capital Gains Tax Act, 1975.
(100A)No Group Company has been a party to or involved in any
share for share exchange nor any scheme of
reconstruction or amalgamation such as are mentioned in
Schedule 2 of the Capital Gains Tax Act, 1975 or Section
127 of the Corporation Tax Act, 1976 under which shares
or debentures have been issued or any transfer of assets
effected.
(100B)No Group Company has entered into any transaction which
has, will or may give rise to a charge to tax under the
provisions of the Capital Gains Tax Act, 1975 or the
provisions of the Corporation Tax Act, 1976 relating to
companies' capital gains or under the provisions of the
Capital Acquisitions Tax Act, 1976.
(100C)No Group Company has any liability by virtue of the
provisions of Section 56 of the Finance Act, 1983.
[chargeable gains accruing on disposals by liquidators]
(100D)No Group Company has made any claim under Section 43 of
the Capital Gains Tax Act, 1975 [unremittable profits
made abroad] and no tax liability has been deferred
under any other provision of the Capital Gains Tax Act,
1975 including Section 44 of the Capital Gains Tax Act,
1975. [e.g. instalment sales]
(100E)No Group Company has entered into any transactions to
which Sections 129 to 137 (inclusive) of the Corporation
Tax Act, 1976 Act or Sections 66, 67, 68, 69, 70 and 72
of the Finance Act, 1992 apply. [capital gains tax group
relief].
(100F)There have been no claims under Section 12(4) of the
Capital Gains Tax Act, 1975 made by any Group Company.
[capital gains tax losses allowed where asset is of
negligible value]
(100G)No Group Company has entered into or taken any steps
the object of which is a transaction which comes within
or might come within Section 87 of the Finance Act, 1989
[creation of capital gains tax losses].
(100H)No Group Company holds nor has disposed of "new assets"
under Section 65 of the Finance Act, 1992. [receipt of
shares for transfer of trade: deferment of capital gains
tax] .
STAMP DUTY / CAPITAL DUTY
(101)Mandatory Payment of Stamp Duty
Each Group Company has duly complied with and has no
liability under Section 1 of the Stamp Act, 1891 as
substituted by the provisions of Section 94 of the
Finance Act, 1991.
(102)Instruments Properly Stamped
All instruments in the possession of or under the
control of any Group Company which attract stamp duty
have been properly stamped.
(103)Reliefs, Exemptions or Reductions
No relief, exemption or reduction has been obtained by
any Group Company from companies capital duty or stamp
duty under Section 72 of the Finance Act, 1973
(reconstruction or amalgamation) or from stamp duty
under Section 19 of the Finance Act, 1952 (associated
company relief) or Section 31 of the Finance Act, 1965
(relief from capital and stamp duty in certain cases)
which:-
(a) has been forfeited, cancelled or withdrawn; or
(b) so far as the Warrantors are aware may be
forfeited, cancelled or withdrawn in the future.
(104)Liability to Capital Duty and Stamp Duty
All capital duty howsoever arising or payable including
but not limited to any such arising or payable on any
transaction referred to in Section 68(1) of the Finance
Act, 1973 has been duly and promptly paid by the Group
and there is no outstanding liability therefor or
interest thereon.
(104A)All capital duty and/or stamp duty payable by any Group
Company in respect of any of the transactions referred
to in the following Sections of the Finance Act, 1973
has been duly and promptly paid by the Group Company so
that there is no liability in respect thereof or any
interest thereon:
(a) Section 63 [stamp duty on security documents];
(b) Section 64 [replacement of headings in Stamp Act,
1891];
(c) Section 68 [capital duty]; and
(d) Sections 69 and 70 [stamp duty on certain Companies
Registration Office statements].
(104B)All capital duty and/or stamp duty howsoever arising or
payable has been duly and promptly paid by each Group
Company and there is no outstanding liability therefor
or interest thereon.
(104C)No Group Company has executed an instrument in respect
of which fines could be imposed pursuant to Section 5 of
the Stamp Act, 1891 as substituted by Section 97 of the
Finance Act, 1991. [penalties for fraud and for
negligence in the preparation of instruments etc.]
(104D)No Group Company is liable for any penalty imposed by
Section 103 of the Finance Act, 1991. [surcharge for
under valuations]
(104E)No Group Company nor its employees have done or omitted
to do anything which could give rise to a liability on
the Group Company for a fine, penalty, interest, charge
or additional duty under the Stamp Act, 1891, as
amended.
VALUE ADDED TAX
(105)Value Added Tax Compliance
(a) Each Group Company is a registered and taxable
person for the purposes of the Value Added Tax Act,
1972 and has complied in all material respects with
such legislation (including the due payment of any
sums due) and all regulations made or notices
issued thereunder and has maintained and obtained
full complete correct and up-to-date records,
invoices and other documents (as the case may be).
(b) No Group Company is or has been in arrears with its
payments or returns (including where relevant
monthly control statements and listings) or
notifications under the Value Added Tax Act, 1972
or liable to any abnormal or non-routine payment or
any forfeiture or penalty or to the operation or
any penal provisions contained therein.
(c) Each Group Company has charged and accounted in a
timely manner for value added tax at the
appropriate rate in respect of all supplies of
goods and services affected by the Value Added Tax
Act, 1972.
(107)Membership of a Group for Value Added Tax
No arrangement exists or has existed whereby pursuant to
Section 8(8) of the Value Added Tax Act, 1972 and
Regulation 5 of the Value Added Regulations 1979 (as
amended) regarding membership of a group for value added
tax purposes, the business activities of the Group or
any Group Company are or were deemed to be carried on by
any other person or the business activities of any other
person are or were deemed to be carried on by the Group
or any Group Company. No notification has been received
by Group Company from the Revenue Commissioners under
Section 8(8) of the Value Added Tax Act, 1972 including
especially a notification in the absence of a request
from the taxable persons concerned.
(108)Security for Value Added Tax
No Group Company has been required by appropriate fiscal
authorities to give security under the value added tax
legislation in Ireland or elsewhere.
(109)Deferment of Value Added Tax for small traders
No Group Company has availed of the procedure in Section
58 of the Finance Act, 1989 whereby a trader may account
and make returns for value added tax purposes other than
after each two monthly taxable period.
(110)Waiver of Exemption
No Group Company has waived the exemption in respect of
any exempted activity under Section 7 of the Value Added
Tax Act, 1972.
(111)No Refunds Withheld
No circumstances exist whereby a refund of value added
tax due to any Group Company has been or may be deferred
under the provisions of Section 20 (1A) of the Value
Added Tax Act, 1972.
CAPITAL ACQUISITIONS TAX
(112)Liability of Shares
Each of the Vendors in respect only of his shares
comprised in the Shares confirms that there is no
unsatisfied liability to Capital Acquisitions Tax
attached or attributable to his Sale Shares and none of
such shares are subject to a charge in favour of the
Revenue Commissioners.
Capital Acquisitions Tax
(112A)No person is liable to capital acquisitions tax
attributable to the value of any of the Shares and in
consequence no person has the power to raise the amount
of such tax by sale or mortgage of or by a terminable
charge on any of the Shares.
(112B)No Group Company has entered into or taken any steps
the object of which is a transaction which comes within
Section 90 of the Finance Act, 1989 [arrangements
reducing value of company's shares] .
PAYE/SOCIAL WELFARE LEVIES
(113)Deferment of PAYE
(a) No Group Company has availed of the Income Tax
(Employment) Regulations 1989 (S.I. 58/1989)
whereby an employer may make remittances of PAYE
deducted from his employees at longer intervals
than the normal remittance basis.
(b) Each Group Company is registered for the purposes
of regulations made under Section 127 of the Income
Tax Act, 1967 (PAYE regulations) and has complied
at all times in all respects with such regulations
and has maintained full, complete, correct and up
to date records appropriate or requisite for the
purposes thereof.
(c) No Group Company is in arrears with its payments or
returns required under regulations made under
Section 127 of the Income Tax Act, 1967 (PAYE
regulations) or liable to any abnormal or non-
routine payment or any forfeiture or penalty or to
the operation of any penal provisions due to non-
compliance with the said regulations.
(114)Wealth Tax
No Group Company has any outstanding liability for
wealth tax made under the Wealth Tax Act, 1975.
(115)Customs and Excise:
Each Group Company has complied fully and accurately
with all applicable requirements of Part II of the
Finance Act, 1992 and other legislation, statutory
instruments, regulations notices and practices on or
connected with customs and/or excise.
FOURTH SCHEDULE
---------------
The Property
Units 4, 5 and 6 Monksland Industrial Estate, Athlone, Co. Roscommon
Unit 4, Tallaght Business Centre, Tallaght, Dublin 24.
FIFTH SCHEDULE
--------------
Option Agreement
Between/
(1) KCI INTERNATIONAL, INC.
(2) PATRICK CONNOLLY
(3) KINETIC CONCEPTS, INC.
PUT AND CALL OPTION AGREEMENT
L.K. Shields & Partners,
Solicitors,
39/40, Upper Mount Street,
Dublin 2.
(K130/DH/IH/optagr.doc)
THIS AGREEMENT is made on day of , 1997.
Between/
KCI INTERNATIONAL, INC.
having its principal place of business at
8023 Vantage Drive, San Antonio,
Texas 78230-4726, USA
(hereinafter called "the Purchaser")
Of the First Part
and
PATRICK CONNOLLY
of Lissoy, The Pigeons, Athlone,
Co. Westmeath, (hereinafter called
"the Shareholder")
Of the Second Part
and
KINETIC CONCEPTS, INC.
having its principal place of business at
8023 Vantage Drive, San Antonio,
Texas 78230-4726, USA
(hereinafter called "KCI")
Of the Third Part
WHEREAS
- -------
A. The Purchaser and the Shareholder have entered into an
Agreement for the sale and purchase of 80% of issued
share capital of Ethos Medical Group Limited dated
("the Share Purchase Agreement").
B. The Purchaser and the Shareholder have agreed to grant
each other the respective options hereinafter described
on the terms and conditions hereinafter contained.
C. KCI has entered into this Agreement solely for the
purpose of Clauses 5.6 and 5.7 hereof.
NOW THIS AGREEMENT WITNESSETH :-
1. INTERPRETATION
1.1 Definitions
-----------
All words and expressions defined in the Share Purchase
Agreement shall, unless the context specifies or it is
otherwise specified, have the same respective meanings
herein.
(a) "Call Option" the right granted pursuant to
Clause 2.2.
(b) "Call Option Period" the thirty day period
commencing on either the first day after the
Shareholder voluntarily leaves the employment of the
Company or the first day after the third anniversary
of the signing of the Employment Agreement with the
Shareholder, whichever is the earlier.
(c) "Completion" Completion of the purchase and
sale of any of the Option Shares.
(d) "Options" the rights granted and pursuant to
Clause 2.1 and 2.2.
(e) "Option Shares" the 90,183 Ordinary Shares of
IR10p each fully paid in the Company owned by and
registered in the name of the Shareholder together
with all rights of any nature whatsoever attaching
or thereafter attaching or accruing thereto free
from encumbrances but not including this right to
any dividends accrued or unpaid thereon together
with any further shares, stock or other securities
in the Company or in any other Company which are
derived from the Option Shares or which are
distributed by the Company in respect of the Option
Shares and any shares, stock and other securities
for the time being representing the same by reason
of any alteration in the share capital of the
Company or any amalgamation, re-organisation or
reconstruction of the Company.
(f) "Option Value" The amount of IR pounds 560,000.
(g) "Put Option" the right granted pursuant to
Clause 2.1.
(h) "Put Option Period" the period commencing on
the first day after the date the Shareholder ceases
to be employed by the Company and ending thirty days
after the third anniversary of the signing of the
Employment Agreement with the Shareholder, provided
however, that the Put Option shall not be
exercisable by the Shareholder during the one year
period commencing on the date of the signing of the
Employment Agreement and terminating on the first
anniversary of that date subject to the provisions
of Clause 5.4 hereof.
1.2 Further Definitions
-------------------
(a) Any reference to a document being "in the
approved terms" shall mean that such document shall
be in a form approved by each of the parties hereto
and for the purpose of identification signed by or
on behalf of the parties hereto on or prior to the
date hereof.
(b) Any reference to any provision of any
legislation shall include any modification, re-
enactment or extension thereof.
(c) Words such as "hereunder", "hereto", "hereof"
and "herein" and other words commencing with the
word "here" shall and if the context clearly
indicates to the contrary refer to the whole of this
Agreement and not to any particular section or
clause thereof.
(d) Save as otherwise provided herein any reference
to a section, clause, paragraph or sub-paragraph
shall be a reference to a section, clause, paragraph
or sub-paragraph (as the case maybe) of this
Agreement and any reference in a clause to a
paragraph or sub-paragraph shall be a reference to a
paragraph or sub-paragraph of the clause or
paragraph in which the reference is contained unless
it appears from the context that a reference to some
other provision is intended.
1.3 Headings and Captions
---------------------
The section headings and captions to the clauses in this
Agreement are inserted for convenience of reference only
and shall not be considered a part of or affect the
construction or interpretation of this Agreement.
2. OPTIONS
2.1 Put Option
----------
In consideration of the sum of pounds 1 paid by the Shareholder
to the Purchaser (receipt of which is acknowledged by the
Purchaser) and in consideration of the grant of the Call
Option, the Purchaser hereby grants to the Shareholder
the right exerciseable at any time during the Put Option
Period to require the Purchaser to purchase the Option
Shares for the Option Value upon the terms and subject to
the conditions of this Agreement.
2.2 Call Option
-----------
In consideration of the sum of pounds 1 paid by the Purchaser
to the Shareholder (receipt of which is acknowledged by
the Shareholder) and in consideration of the grant of the
Put Option, the Shareholder hereby grants to the
Purchaser the right exerciseable at any time during the
Call Option Period to purchase the Option Shares for the
Option Value upon the terms and subject to the conditions
of the Agreement.
2.3 All of the Option Shares
------------------------
The Options shall be exerciseable only in respect of all
of the Option Shares.
2.4 Timing of Exercise
------------------
The Call Option shall be exerciseable only if the Put
Option has not been exercised and vice versa.
2.5 Method of Exercise
------------------
The Options shall be exercised by notice in writing
served by the party exercising the Put Option, or as the
case may be the Call Option, on the party on whom the
said notice may be served in accordance with the terms
hereof.
3. COMPLETION
3.1 Timing of Completion
--------------------
The parties shall be bound to complete the sale and
purchase of the Option Shares no later than 14 Business
Days after the service of the said notice (or on the next
succeeding business day if Completion would otherwise
fall on a day which is not a Business Day).
3.2 Venue
-----
Completion of the sale and purchase shall take place at
the offices of the Company or at such other place as the
parties shall agree not later than 3 pm on the relevant
day.
3.3 Documents to be exchanged
-------------------------
At Completion the Shareholder shall transfer the Option
Shares as beneficial owner of the Option Shares and shall
deliver to the Purchaser duly executed transfers of the
Option Shares accompanied by the relevant Share
Certificate (or an appropriate indemnity in respect of
lost of missing Share Certificates) and the Purchaser
shall pay to the Shareholder a sum representing the
Option Value of the Option Shares without any set off or
withholding (other than any withholding which they may be
obliged to make as a matter of law).
3.4 No Warranties
-------------
The Option Shares transferred to the Purchaser by the
Shareholder on exercise of either of the Options shall be
transferred free from all liens, charges and encumbrances
and with all rights attaching thereto, but save as
aforesaid, the Shareholder shall not be required to give
any warranties or indemnities in connection with the sale
or transfer of the Option Shares on exercise of either of
the Options.
3.5 Competition Covenants
---------------------
As a further consideration for the Purchaser entering
into this Agreement the Shareholder hereby covenants with
the Purchaser as follows:
(a) that he will not for a period commencing on the
date hereof and terminating one year from Completion
either as principal, partner, agent or otherwise
howsoever whether directly or indirectly carry on or
help or assist in carrying on within Ireland, or any
other country where in the one year preceding
Completion the Companies has sold products, in any
businesses which competes, directly or indirectly
with the Business;
(b) that he will not during the like period within the
like area either as principal, partner, agent or
otherwise howsoever directly or indirectly be
engaged concerned or interested in carrying on the
said businesses or any of them;
(c) that he will not at any time hereafter make use of
or disclose for his own benefit or for or to or on
behalf of any other person, firm, company or
corporation any Confidential Information which he
now possesses appertaining to the business or
affairs of the Companies or of any clients,
customers or other persons having dealings with the
Companies save that this obligation shall not apply
to any confidential information which is already in
the public domain or which subsequently enters the
public domain through no fault or default of Patrick
Connolly or to any information which he subsequently
receives from a third party who is not in breach of
any obligations of confidentiality;
(d) that he will not for the like period either on his
own behalf or on behalf of any person, firm, company
or corporation, competing or endeavouring to compete
with the Companies directly or indirectly solicit or
endeavour to solicit or obtain the custom of any
person, firm, company or corporation that is at
Completion a customer of the Companies or which at
any time in the two years preceding Completion has
been a customer of the Companies;
(e) that he will not for the like period either on his
own behalf or on behalf of such persons as aforesaid
directly or indirectly solicit or endeavour to
solicit or obtain the services of any person
employed by the Companies or use his knowledge or
influence over any such customer or employee or any
person, firm, company or corporation known to him as
contracting with or having dealings with the
Companies to or for his own benefit or that of any
other person, firm, company or corporation in
competition with the Companies;
(f) the benefit of each and every of the covenants set
out in paragraphs (a) to (e) shall be deemed to be
separate and severable and enforceable by the
Companies and/or the Purchaser accordingly. In the
event of any covenant contained in this Clause being
held unreasonable by reason of the area, duration,
type or scope of restriction contained therein the
said covenant shall be given effect to in its
reduced form as may be decided by any Court or
competent jurisdiction;
(g) The Shareholder hereby acknowledges that all of the
restrictions herein contained are reasonable and
valid and hereby waives any and all defences to the
strict enforcement thereof by the Purchaser and/or
the Companies.
4. FAILURE TO COMPLETE
4.1 Power of Attorney
-----------------
Notwithstanding anything herein contained, if Completion
of the sale of the Option Shares has not taken place by
the 14th Business Day after the date of exercise of the
first of the Options to be exercised, then without
prejudice to any other remedy which the Purchaser may
have against the Shareholder, the Purchaser shall have
the right upon payment of the Option Value in respect of
the Option Shares to the credit of the Shareholder in any
bank in the County of Westmeath or to the solicitor for
the Shareholder, to complete the transaction as aforesaid
and the Shareholder irrevocably constitutes and appoints
the Purchaser as his true and lawful attorney to complete
the transaction and execute any and every document in
that behalf.
4.2 Interest
---------
In the event that the Purchaser fails to pay the Option
Value in respect of the Option Shares to the Shareholder
at Completion, the amount due and owing to the
Shareholder by the Purchaser shall bear interest at the
rate of 20% per annum.
5. MISCELLANEOUS
5.1 Share Certificate
-----------------
The Share Certificate of the Shareholder in respect of
the Option Shares shall be endorsed or enfaced as and
from the date hereof with the following:-
"This Share Certificate is issued subject to the
terms and conditions of an Agreement dated the
day of April, 1997 and made between KCI
International, Inc. and Patrick Connolly."
5.2 Non-Assignability
-----------------
This Agreement shall be binding upon and enure to the
benefit of each party's personal representatives and
successors. Nothing in this Agreement shall prevent the
Purchaser assigning the benefit of this Agreement to any
other party and the consent of the Shareholder to such
assignment shall not be necessary. The Shareholder shall
be entitled to assign the benefit of this Agreement to
any other party with the consent of the Purchaser, such
consent not to be unreasonably withheld or delayed.
5.3 Notices
--------
Any notice required to be given by any of the parties
under this Agreement may be sent by post or delivered by
hand to the address of the addressee as set out in this
Agreement or to such other address as the addressee may
from time to time have notified for the purpose of this
clause. Communication sent by post shall be deemed to
have been received forty eight hours after posting in
proving that communication was contained in an envelope
which was duly addressed and posted in accordance with
this clause. Communication sent by hand shall be deemed
to have been received when delivered.
5.4 Liquidation of Company
----------------------
Nothing in this Option Agreement shall prevent the
shareholders of the Company winding up the Company and it
shall not be a breach of this Agreement to wind up the
Company. So however that if the Company shall enter into
liquidation whether compulsorily or voluntary the
Shareholder shall be deemed to have, immediately before
the entry into liquidation, to have exercised the Put
Option notwithstanding that the one year period
commencing on the date of the signing the Employment
Agreement and termination on the first anniversary of
that date has not elapsed.
5.5 Counterparts
------------
This Agreement may be executed in any number of
counterparts and by the different parties on separate
counterparts each of which when executed and delivered
shall constitute an original and all such counterparts
together constituting but one and the same instrument.
5.6 Obligation of KCI
-----------------
(a) KCI hereby covenants to guarantee the performance by
the Purchaser of its obligations pursuant to the
terms of this Agreement.
(b) The liability of KCI hereunder shall be discharged
or diminished by
(i) any time or indulgence or waiver given to or
composition made with the Purchaser by the
Shareholder;
(ii) any amendment, variation or modification to or
replacement of this Agreement;
(iii)the non-enforcement of any rights, remedies or
securities against the Purchaser or the release
of the Purchaser in respect of same.
5.7 Jurisdiction
------------
This Agreement shall be governed by and construed in all
respects in accordance with Irish law and the parties
agree to submit to the non-exclusive jurisdiction of the
courts of Ireland and the address for service in the
State of KCI shall be the registered office for the time
being of Ethos Medical Group Limited.
IN WITNESS whereof these presents have been entered into the
day and year first herein written.
PRESENT when the
Common Seal of
KCI INTERNATIONAL, INC.
- -----------------------
was affixed hereto :
SIGNED SEALED AND DELIVERED
by PATRICK CONNOLLY
----------------
in the presence of :
PRESENT when the
Common Seal of
KINETIC CONCEPTS, INC.
- ----------------------
was affixed hereto :
SIXTH SCHEDULE
--------------
Escrow Account
(a) The Retention shall on Completion be paid into the Escrow
Account. The Retention Account shall be held by the
Purchaser's Solicitors and the Warrantors' Solicitors on
the terms of this Sixth Schedule.
(b) The Escrow Account will be opened in the name of the
Purchaser's Solicitors and the Warrantors' Solicitors
with Bank of Ireland, College Green Branch forthwith
upon Completion and Bank of Ireland will be instructed to
invest the said deposit [ ]. Bank of Ireland
shall also be instructed at the end of each 90 day period
during which the Escrow Account is opened to remit to the
Warrantors' Solicitors a draft for the amount of interest
accrued on the Escrow Account during that period which
funds shall then be distributed amongst the Warrantors
and the IDA/Forbairt by the Warrantors' Solicitors in
proportion to the respective amounts of the Retention
initially deposited by them and the payment of such draft
by Bank of Ireland shall be sufficient to discharge any
obligations of the Purchaser.
(c) If any claim shall arise under this Agreement, the
Warranties and/or the Tax Deed against which the
Retention may be applied, the Purchaser shall deliver to
the Warrantors, prior to the first anniversary of
Completion, notice of reasonable particulars of such
claim together with a bona fide statement of the
Purchaser's best estimate of the amount claimed (and
thereafter the Purchaser shall deliver to the Warrantors
such other significant details of the claim as and when
they become available) and thereupon:-
(i) if the claim is not disputed by the Warrantors
within 14 days of the date of such notice, the
Purchaser shall give notice to the Purchaser's
Solicitors and the Warrantors' Solicitors of the
amount claimed; or
(ii) if the claim is disputed by the Warrantors within
the 14 day period, the Purchaser and the Warrantors
shall make reasonable efforts to resolve the
dispute and agree the amount of the claim, if any,
and if the dispute is resolved within 45 days the
Purchaser and the Warrantors shall give notice to
the Purchaser's Solicitors and the Warrantors'
Solicitors of the amount of the claim (if any) as
agreed; or
(iii)if the claim is disputed by the Warrantors and the
Purchaser and the Warrantors cannot resolve the
dispute and agree the amount of the claim in
accordance with (ii) above then the matter shall be
referred to arbitration to an arbitrator appointed
by agreement between the Purchaser and the
Warrantors and in default of agreement, on the
request of either of the Purchaser or one of the
Warrantors, by the President for the time being of
the Law Society of Ireland, the decision of such
arbitrator shall be final and binding. Each party
shall bear its own costs in connection with the
reference to arbitration. The Purchaser shall bear
the costs of the arbitrator up to a maximum of
IR 5,000 and any costs of the arbitrator in excess of
IR pounds 5,000 shall be borne by the unsuccessful party.
Forthwith upon determination of the dispute by the
arbitrator, the Purchaser and the Warrantors shall
give notice to the Purchaser's Solicitors and the
Warrantors' Solicitors of the amount of the claim
(if any) as determined by such arbitrator.
and upon such notice being given to the Purchaser's
Solicitors and the Warrantors' Solicitors the amount of
such claim (or if the amount of the claim exceeds the
amount of the Retention in the Escrow Account, the amount
of the Retention in the Escrow Account) shall be
deducted and paid out of the Escrow Account to the
Purchaser.
(d) The amount of the Retention in the Escrow Account
remaining after making any deductions under paragraph (c)
above shall become payable and shall be forthwith paid by
way of bank draft to the Warrantors' Solicitors to be
distributed amongst the Warrantors and the IDA/Forbairt
by the Warrantors' Solicitors (in proportion to the
respective amounts of the Retention initially deposited
by them and the payment of such draft by Bank of Ireland
shall be sufficient to discharge any obligations of the
Purchaser) on such date as is the first anniversary of
the execution of this Agreement PROVIDED ALWAYS that if
prior to the first anniversary the Purchaser has served
notice or notices of reasonable particulars of a claim or
claims on the Warrantors in accordance with paragraph (c)
above, which have not yet been settled or resolved or
arbitrated upon in accordance with paragraph (c) above,
then only the amount of the Retention in the Escrow
Account in excess of the amount estimated in respect of
those particular claims may be paid to the Warrantors'
Solicitors for distribution to the Warrantors and the
IDA/Forbairt and the amount of the Retention in the
Escrow Account estimated in respect of those particular
claims shall continue to be held in the Escrow Account by
the Purchaser's Solicitors and the Warrantors' Solicitors
in accordance with paragraph (e) below.
(e) If a claim under this Agreement, the Warranties and/or
the Tax Deed which has been delivered to the Warrantors
prior to the first anniversary of Completion, has not
been settled or resolved in accordance with paragraph (c)
or if an arbitrator has not been appointed by agreement
or by the President for the time being of the Law Society
of Ireland, on the expiry of 90 days after the first
anniversary of Completion, then the amount of the
Retention being held in the Escrow Account in respect of
that claim in accordance with (d) above shall become
payable and shall be forthwith paid by way of bank draft
to the Warrantors' Solicitors to be distributed amongst
the Warrantors and the IDA/Forbairt by the Warrantors'
solicitors (in proportion to the respective amounts of
the Retention initially deposited by them and the payment
of such draft by Bank of Ireland shall be sufficient to
discharge any obligations of the Purchaser) unless on or
before that date the Purchaser has served upon the
Warrantors an opinion of counsel confirming that the
claim in question would, on the balance of probabilities,
be likely to succeed and giving a best estimate of the
amount of the claim and the costs and expenses associated
therewith whereupon the amount of the Retention
attributable to such claim shall continue to be held in
the Escrow Account by the Purchaser's Solicitors and the
Warrantors' Solicitors until such claim is determined.
(ea) If ultimately the Purchaser does not have to resort to
some or all of the amount of the Retention being held in
the Escrow Account after the first anniversary of
Completion in respect of a particular claim ("the
Excess") the Purchaser shall deposit in the Escrow
Account such sum as is equal to the interest which the
Excess earned between the date the counsel's opinion
referred to above was served on the Warrantors and the
date on which the Excess may be paid out to the
Warrantors' Solicitors for distribution to the Warrantors
and IDA/Forbairt.
(f) After the first anniversary of Completion, forthwith upon
resolution of all claims, pursuant to the terms outlined
in this Sixth Schedule and after all deductions have been
made in accordance with paragraph (c) hereof, the amount
of the Retention remaining in the Escrow Account shall be
released into the sole name of the Warrantors' Solicitors
to be distributed by them amongst the Warrantors and the
IDA/Forbairt in proportion to the respective amounts of
the Retention initially deposited by them and such
release into the sole name of the Warrantors' Solicitors
shall be sufficient discharge of the Purchaser.
(g) The Escrow Account is without prejudice to and not in
limitation of any obligations of the Vendors to the
Purchaser under this Agreement or the Warranties or the
Tax Deed.
(h) The Warrantors and the Purchaser shall, as and when
necessary, give instructions to the Warrantors'
Solicitors and the Purchaser's Solicitors respectively to
procure compliance with the terms of this Sixth Schedule.
(i) The Purchaser and the Warrantors may upon giving notice
to the Warrantors as provided in (c) and (d) instructs
the Purchaser's Solicitors and the Warrantors' Solicitors
to apply the Escrow Account against any amount due to the
Purchaser under or by reason of any breach or any
liability arising under the terms of this Agreement, the
Warranties and/or the Tax Deed and any amount so applied
shall pro tanto satisfy the liability concerned. The
Purchaser's Solicitors and the Warrantors' Solicitors
shall act on such instructions from the Purchaser and the
Warrantors save
(i) where paragraph (c)(i) applies and
(ii) where notwithstanding that the Purchaser and the
Warrantors have resolved any dispute about the claim in
accordance with paragraph (c)(ii) or notwithstanding that
an arbitrator has determined the amount of any claim in
accordance with paragraph c(iii) the Warrantors or either
of them neglect or refuse to give the necessary
instruction
in which circumstances the Purchaser's Solicitors and the
Warrantors' Solicitors shall be entitled to act on the
instruction of the Purchaser acting alone.
(j) The Purchaser's Solicitors and the Warrantors' Solicitors
may act in reliance upon any instrument or signature
believed by it in good faith to be genuine and to be
signed or presented by the proper person and will not be
liable in connection with the performance of its duties
pursuant to the provisions of this Agreement. The
Warrantors and the Purchasers hereby agree to indemnify
the Purchaser's Solicitors and the Warrantors' Solicitors
for and to hold them harmless against any loss,
liability or expense including reasonable fees and
expenses incurred (without gross negligence or wilful
misconduct on the part of the Purchaser's Solicitors and
the Warrantors' Solicitors) arising out of or in
connection with the Purchaser's Solicitors and the
Warrantors' Solicitors performing its functions pursuant
to this Agreement.
(k) All bank charges in relation to the operation of the
Escrow Account shall be discharged by the Purchaser.
SIGNED by )
PATRICK CONNOLLY ) PATRICK CONNOLLY
in the presence of:- )
Eugene Fanning
SIGNED by )
MARTIN MURRAY ) MARTIN MURRAY
in the presence of:- )
SIGNED by )
on behalf of INDUSTRIAL
DEVELOPMENT AUTHORITY / ) BRENDAN DONNELLY
FORBAIRT )
in the presence of:- )
SIGNED by ) BARRY SKINNER
ADRIAN LENEHAN ) For and on behalf of Adrian
in the presence of:- ) Lenehan as his duly
Eugene Fanning ) appointed attorney
SIGNED by ) BARRY SKINNER
WILLIAM GLEESON ) For and on behalf of
in the presence of:- ) William Gleeson
Eugene Fanning ) as his duly appointed
) attorney
SIGNED by ) BARRY SKINNER
THOMAS CROWLEY ) For and on behalf of Thomas
in the presence of:- ) Crowley as his duly
Eugene Fanning ) appointed attorney
SIGNED by ) BARRY SKINNER
BILLY NORTON ) For and on behalf of Billy
in the presence of:- ) Norton as his duly
Eugene Fanning ) appointed attorney
SIGNED by )
on behalf of KCI INTERNATIONAL, INC. ) FRANK DI LAZZARO
in the presence of:- Dennis E. Noll )
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 38,387,805
<SECURITIES> 0
<RECEIVABLES> 82,269,239
<ALLOWANCES> (8,140,308)
<INVENTORY> 21,173,007
<CURRENT-ASSETS> 142,411,625
<PP&E> 200,180,312
<DEPRECIATION> (128,120,809)
<TOTAL-ASSETS> 271,257,266
<CURRENT-LIABILITIES> 40,415,079
<BONDS> 0
0
0
<COMMON> 42,290
<OTHER-SE> 222,711,560
<TOTAL-LIABILITY-AND-EQUITY> 271,257,266
<SALES> 25,087,388
<TOTAL-REVENUES> 148,211,724
<CGS> 10,011,641
<TOTAL-COSTS> 105,759,842
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,434,153
<INTEREST-EXPENSE> (852,318)
<INCOME-PRETAX> 33,292,558
<INCOME-TAX> 13,317,023
<INCOME-CONTINUING> 19,954,697
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,954,697
<EPS-PRIMARY> $0.46
<EPS-DILUTED> $0.46
</TABLE>
