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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported) February 9, 1998
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I-FLOW CORPORATION
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(Exact name of registrant as specified in charter)
California 0-18338 33-0121984
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Id. No.)
20202 Windrow Drive, Lake Forest, California 92630
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 206-2700
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N/A
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(Former name / former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
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On February 9, 1998, I-Flow Corporation, a California corporation (the
"Registrant") entered into an Agreement and Plan of Merger (the "Agreement") by
and among the Registrant, I-Flow Subsidiary, Inc., a California corporation, and
a wholly owned subsidiary of the Registrant ("I-FlowSub"), InfuSystems II, Inc.,
a Michigan corporation ("InfuSystems"), Venture Medical, Inc., a Michigan
corporation ("VMI") and the shareholders of InfuSystems and VMI, contemplating
the merger of InfuSystems and VMI with and into I-FlowSub. Pursuant to the
Agreement, VMI and InfuSystems were merged with and into I-FlowSub (the
"Merger") effective as of February 11, 1998 (the "Effective Time").
In the Merger, all of the outstanding shares of common stock of VMI and
InfuSystems were exchanged for shares of common stock of the Registrant. The
aggregate number of shares of common stock of the Registrant issued in the
Merger to the shareholders of VMI and InfuSystems was 972,372 shares, valued at
approximately $2.9 million (subject to certain post-effective adjustments). As
contemplated by the Agreement, shares of common stock of the Registrant issued
in the Merger valued at $1.5 million (the "Escrowed Shares") were withheld by
the Registrant and were delivered to U.S. Trust Company of California, N.A., as
escrow agent, to be deposited in escrow. The Escrowed Shares, or cash equal to
the closing value of the Escrowed Shares, will be held for a period of two years
from the Effective Time during which time they will be subject to claims by the
Registrant and I-FlowSub to satisfy the obligations of InfuSystems, VMI and the
shareholders of InfuSystems and VMI under the Agreement (subject to the possible
earlier release of a portion of the Escrowed Shares in connection with
collection by I-FlowSub of certain accounts receivable). At each of the six
month, one year, eighteen month and two year anniversary of the closing, if the
value of the Registrant's common stock at such time is less than the value of
the Registrant's common stock as of the closing ($2.98 per share), then the
Registrant will be obligated to pay additional amounts as merger consideration.
The additional amounts, if any, will be calculated pursuant to the formula set
forth in Section 1.6(a)(ii) of the Agreement. At the Registrant's election, the
Registrant may pay such additional merger consideration, if any, by the issuance
of additional shares of the Registrant's common stock, in cash, or any
combination thereof.
In accordance with the terms of the Agreement, 59,395 shares of the Registrant's
common stock were issued to Amherst Capital Partners, L.L.C. ("Amherst"),
investment banker for InfuSystems and VMI, as payment of Amherst's fees and
expenses in connection with the Merger. In addition, in accordance with the
terms of the Agreement, the Registrant paid $50,000 to Cohen & Ellias, P.C.,
counsel for VMI and InfuSystems, as partial payment of the fees and expenses of
Cohen & Ellias, P.C. incurred in connection with the Merger.
The amount of consideration paid in the Merger was determined through
negotiations between the parties. The terms of the Merger were approved by the
Boards of Directors
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and shareholders of I-FlowSub, InfuSystems and VMI and by the Board of Directors
of the Registrant.
There is no material relationship between InfuSystems, VMI and the Registrant or
any of its affiliates, any director or officer of the Registrant, or any
associate of any such director or officer. Steven E. Watkins, former president
of VMI and InfuSystems, has been appointed president of I-FlowSub and has
entered into an employment agreement with I-FlowSub.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(a) Financial Statements of Businesses Acquired.
It is impracticable to provide the required Financial Statements of
InfuSystems and VMI prepared pursuant to Regulation S-X, including a
manually-signed accountants' report, at the time of filing this report on
Form 8-K. The Financial Statements will be filed as an amendment to this
Form 8-K as soon as practicable, but not later than 60 days after the date
by which this report must be filed.
(b) Pro Forma Financial Information.
It is impracticable to provide the required pro forma financial information
at the time of the filing of this report on Form 8-K. The pro forma
financial information will be filed as an amendment to this Form 8-K as soon
as practicable, but not later than 60 days after the date by which this
report must be filed.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit Description
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<C> <S>
2.1 Agreement and Plan of Merger by and among I-Flow Corporation,
I-Flow Subsidiary, Inc., Venture Medical, Inc., and InfuSystems
II, Inc. and the Shareholders of Venture Medical, Inc. and
InfuSystems II, Inc.
</TABLE>
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
I-FLOW CORPORATION
Date: March 5, 1998 By: /s/ Donald M. Earhart
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Donald M. Earhart
President and Chief Executive Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
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<C> <S>
2.1* Agreement and Plan of Merger by and among I-Flow Corporation,
I-Flow Subsidiary, Inc., Venture Medical, Inc., and InfuSystems
II, Inc. and the Shareholders of Venture Medical, Inc. and
InfuSystems II, Inc.
</TABLE>
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*Exhibit 2.1 contains a list of the schedules and exhibits to such document.
I-Flow Corporation agrees to furnish a supplementary copy of any omitted
schedule or exhibit to the Securities and Exchange Commission upon request.
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
I-FLOW CORPORATION,
I-FLOW SUBSIDIARY, INC.,
VENTURE MEDICAL, INC.,
INFUSYSTEMS II, INC.
AND
THE SHAREHOLDERS OF VENTURE MEDICAL, INC. AND
INFUSYSTEMS II, INC.
DATED AS OF FEBRUARY 9, 1998
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TABLE OF CONTENTS
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Page
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AGREEMENT AND PLAN OF MERGER.................................................................1
RECITALS.....................................................................................1
ARTICLE I. MERGER AND REORGANIZATION........................................................2
1.1. MERGER..........................................................................2
1.2. SHAREHOLDER APPROVALS...........................................................2
1.3. CLOSING.........................................................................2
1.4. CONSUMMATION OF TRANSACTIONS....................................................2
1.5. EFFECT OF THE MERGER............................................................3
1.6. MERGER CONSIDERATION AND EFFECT ON CAPITAL STOCK................................3
1.7. ESCROW DEPOSIT..................................................................9
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF VMI............................................9
2.1. ORGANIZATION AND QUALIFICATION..................................................9
2.2. CAPITALIZATION.................................................................10
2.3. VOTING AGREEMENTS..............................................................10
2.4. AUTHORITY RELATIVE TO THIS AGREEMENT...........................................10
2.5. SUBSIDIARIES...................................................................11
2.6. ABSENCE OF CERTAIN CHANGES.....................................................11
2.7. FINANCIAL STATEMENTS...........................................................11
2.8. ABSENCE OF UNDISCLOSED LIABILITIES.............................................12
2.9. CONSENTS AND APPROVALS; NO VIOLATION...........................................12
2.10. BROKER'S COMMISSION OR FINDER'S FEES..........................................12
2.11. EMPLOYMENT AND SIMILAR AGREEMENTS.............................................13
2.12. LITIGATION....................................................................13
</TABLE>
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2.13. TAXES.........................................................................14
2.14. ERISA PLANS...................................................................15
2.15. CONTRACTS.....................................................................16
2.16. PATENTS, MARKS, TRADE NAMES, COPYRIGHTS AND REGISTRATIONS.....................17
2.17. PROPERTIES, LIENS.............................................................17
2.18. REAL PROPERTY.................................................................18
2.19. COMPLIANCE WITH APPLICABLE LAWS...............................................18
2.20. INSURANCE.....................................................................18
2.21. ENVIRONMENTAL LIABILITY.......................................................18
2.22. GOVERNMENT AUTHORIZATIONS.....................................................20
2.23. BANKING FACILITIES............................................................20
2.24. MINUTE BOOKS AND STOCK RECORDS................................................20
2.25. NO TERMINATION OF BUSINESS RELATIONSHIP.......................................21
2.26. CONSENTS OF NON-GOVERNMENTAL THIRD PARTIES....................................21
2.27. ACCOUNTS RECEIVABLE...........................................................21
2.28. INVENTORY.....................................................................21
2.29. MEDICARE/MEDICAID.............................................................21
2.30. SECURITIES MATTERS............................................................22
2.31. TAX-FREE REORGANIZATION.......................................................22
2.32. POWERS OF ATTORNEY............................................................22
2.33. TRANSACTIONS WITH RELATED PARTIES.............................................22
2.34. PRODUCT LIABILITY.............................................................23
2.35. FULL DISCLOSURE...............................................................23
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF INFUSYSTEM...................................23
3.1. ORGANIZATION AND QUALIFICATION.................................................23
3.2. CAPITALIZATION.................................................................23
3.3. VOTING AGREEMENTS..............................................................24
</TABLE>
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3.4. AUTHORITY RELATIVE TO THIS AGREEMENT...........................................24
3.5. SUBSIDIARIES...................................................................25
3.6. ABSENCE OF CERTAIN CHANGES.....................................................25
3.7. FINANCIAL STATEMENTS...........................................................25
3.8. ABSENCE OF UNDISCLOSED LIABILITIES.............................................26
3.9. CONSENTS AND APPROVALS; NO VIOLATION...........................................26
3.10. BROKER'S COMMISSION OR FINDER'S FEES..........................................27
3.11. EMPLOYMENT AND SIMILAR AGREEMENTS.............................................27
3.12. LITIGATION....................................................................27
3.13. TAXES.........................................................................28
3.14. ERISA PLANS...................................................................30
3.15. CONTRACTS.....................................................................30
3.16. PATENTS, MARKS, TRADE NAMES, COPYRIGHTS AND REGISTRATIONS.....................31
3.17. PROPERTIES, LIENS.............................................................32
3.18. REAL PROPERTY.................................................................32
3.19. COMPLIANCE WITH APPLICABLE LAWS...............................................32
3.20. INSURANCE.....................................................................32
3.21. ENVIRONMENTAL LIABILITY.......................................................33
3.22. GOVERNMENT AUTHORIZATIONS.....................................................34
3.23. BANKING FACILITIES............................................................35
3.24. MINUTE BOOKS AND STOCK RECORDS................................................35
3.25. NO TERMINATION OF BUSINESS RELATIONSHIP.......................................35
3.26. CONSENTS OF NON-GOVERNMENTAL THIRD PARTIES....................................35
3.27. ACCOUNTS RECEIVABLE...........................................................35
3.28. INVENTORY.....................................................................36
3.29. MEDICARE AND MEDICAID.........................................................36
3.30. SECURITIES MATTERS............................................................36
</TABLE>
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<TABLE>
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3.31. TAX-FREE REORGANIZATION.......................................................36
3.32. POWERS OF ATTORNEY............................................................36
3.33. TRANSACTIONS WITH RELATED PARTIES.............................................37
3.34. PRODUCT LIABILITY.............................................................37
3.35. FULL DISCLOSURE...............................................................37
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF I-FLOW AND I-FLOWSUB..........................38
4.1. ORGANIZATION...................................................................38
4.2. AUTHORITY RELATIVE TO THIS AGREEMENT...........................................38
4.3. BROKER'S COMMISSION OR FINDER'S FEES...........................................38
4.4. I-FLOW SHARES..................................................................38
4.5. SEC DOCUMENTS..................................................................39
4.6. TAX-FREE REORGANIZATION........................................................39
4.7. FULL DISCLOSURE................................................................39
4.8 ABSENCE OF CERTAIN CHANGES......................................................39
4.9 LITIGATION......................................................................39
4.10 PREEMPTIVE RIGHTS..............................................................39
ARTICLE V. CONDUCT OF BUSINESS BY VMI AND INFUSYSTEM PRIOR TO EFFECTIVE TIME................40
5.1. ORDINARY COURSE................................................................40
5.2. DIVIDENDS; CHANGES IN STOCK....................................................40
5.3. ISSUANCE OR REPURCHASE OF SECURITIES...........................................40
5.4. GOVERNING DOCUMENTS............................................................40
5.5. NO SOLICITATION................................................................40
5.6. NO ACQUISITIONS................................................................41
5.7. NO DISPOSITIONS................................................................41
5.8. INDEBTEDNESS...................................................................42
</TABLE>
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<TABLE>
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5.9. EMPLOYEES......................................................................42
5.10. BENEFIT PLANS.................................................................42
5.11. ADDITIONAL MATTERS............................................................42
ARTICLE VI. ADDITIONAL COVENANTS...........................................................44
6.1. ACCESS TO INFORMATION..........................................................44
6.2. SHAREHOLDER APPROVALS..........................................................45
6.3. GOVERNMENTAL FILINGS...........................................................45
6.4. LEGAL CONDITIONS TO THE MERGER.................................................45
6.5. CERTAIN DEFAULTS...............................................................45
6.6. EXPENSES.......................................................................46
6.7. BROKERS OR FINDERS.............................................................46
6.8. ADDITIONAL ACTIONS.............................................................46
6.9. TAX TREATMENT OF MERGER........................................................47
6.10. TAX-FREE REORGANIZATION.......................................................47
6.11. AFFILIATES OF VMI AND INFUSYSTEM..............................................47
6.12 RESTRICTION ON SALE OF I-FLOW MERGER SHARES....................................47
6.13 PROFITABILITY OF SURVIVING CORPORATION.........................................48
6.14 SPINKA LAWSUIT.................................................................48
6.15 ACCOUNTS RECEIVABLE............................................................49
6.16 MEDICARE/MEDICAID..............................................................49
6.17 QUALIFICATION TO DO BUSINESS...................................................49
6.18 ENVIRONMENTAL MATTERS..........................................................50
6.19 ADJUSTMENTS TO MERGER CONSIDERATION............................................50
ARTICLE VII. CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER.............................51
7.1. CONDITIONS TO THE OBLIGATIONS OF I-FLOW, I-FLOWSUB, VMI AND INFUSYSTEM.........51
7.2. FURTHER CONDITIONS TO THE OBLIGATIONS OF I-FLOW AND I-FLOWSUB..................52
</TABLE>
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<TABLE>
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7.3. FURTHER CONDITIONS TO THE OBLIGATIONS OF VMI AND INFUSYSTEM....................55
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER.............................................56
8.1. TERMINATION....................................................................56
8.2. EFFECT OF TERMINATION..........................................................56
8.3. AMENDMENT......................................................................57
8.4. EXTENSION; WAIVER..............................................................57
ARTICLE IX. ESCROW FUND.....................................................................57
9.1. AGREEMENT FOR INDEMNIFICATION FROM ESCROW FUND.................................57
9.2. NOTICE OF CLAIM................................................................60
9.3. DEFENSE AND SETTLEMENT OF CLAIMS...............................................60
ARTICLE X. INDEMNIFICATION AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................61
10.1. RELATIONSHIP TO ESCROW FUND...................................................61
10.2. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.............61
10.3. INDEMNIFICATION OF I-FLOW AND I-FLOWSUB.......................................61
10.4. CLAIMS FOR INDEMNIFICATION....................................................62
10.5. MANNER OF INDEMNIFICATION OF I-FLOW AND I-FLOWSUB.............................63
10.6. INDEMNIFICATION OF VMI AND INFUSYSTEM.........................................63
10.7. CLAIMS FOR INDEMNIFICATION....................................................63
10.8. MANNER OF INDEMNIFICATION OF THE VMI SHAREHOLDERS AND
THE INFUSYSTEM SHAREHOLDERS..................................................63
10.9 EQUITABLE CONTRIBUTION.........................................................64
ARTICLE XI. GENERAL PROVISIONS..............................................................64
11.1. NOTICES.......................................................................64
11.2. INTERPRETATION................................................................65
11.3. COUNTERPARTS..................................................................65
11.4. MISCELLANEOUS.................................................................65
</TABLE>
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11.5. GOVERNING LAW.................................................................65
11.6. ATTORNEYS' FEES...............................................................66
11.7. SEVERABILITY..................................................................66
11.8. AMENDMENT.....................................................................66
</TABLE>
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SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE NO. DESCRIPTION OF SCHEDULE
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<C> <S>
1.6(a) Six Month Shortfall
1.6(b) One Year Shortfall, Eighteen Month Shortfall and Two
Year Shortfall
2.2 VMI Capitalization
2.6 VMI Absence of Certain Changes
2.7(a) VMI Year-End Financial Statements
2.8 VMI Absence of Undisclosed Liabilities
2.9 VMI Consents and Approvals; No Violation
2.10 VMI Broker's Commission or Finder's Fees
2.11 VMI Employment Agreements
2.12 VMI Litigation
2.13 VMI Taxes
2.14 VMI ERISA Plans
2.15 VMI Contracts
2.17 VMI Property Liens
2.18 VMI Real Property
2.19 VMI Compliance with Applicable Laws
2.20 VMI Insurance
2.21 VMI Environmental Liabilities
2.22 VMI Government Authorizations
2.23 VMI Banking Facilities
</TABLE>
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<TABLE>
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2.25 VMI No Termination of Business Relationship
2.26 VMI Consent of Non-Governmental Third Parties
2.27(a) VMI Accounts Receivable (600+ Days)
2.27(b) VMI One Year AR
2.27(c) VMI Accounts Receivable
2.28 VMI Inventory
2.29 VMI Medicare/Medicaid
2.33 VMI Transactions with Related Parties
3.2 INFUSYSTEM Capitalization
3.6 INFUSYSTEM Absence of Certain Changes
3.7(a) INFUSYSTEM Year-End Financial Statements
3.8 INFUSYSTEM Absence of Undisclosed Liabilities
3.9 INFUSYSTEM Consents, Approvals, No Violations
3.10 INFUSYSTEM Broker's Commission or Finder's Fees
3.11 INFUSYSTEM Employment
3.12 INFUSYSTEM Litigation
3.13 INFUSYSTEM Taxes
3.14 INFUSYSTEM ERISA Plan
3.15 INFUSYSTEM Contracts
3.17 INFUSYSTEM Properties, Liens
3.18 INFUSYSTEM Real Property
3.19 INFUSYSTEM Compliance with Applicable Laws
</TABLE>
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<TABLE>
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3.20 INFUSYSTEM Insurance
3.21 INFUSYSTEM Environmental Liability
3.22 INFUSYSTEM Government Authorizations
3.23 INFUSYSTEM Banking Facilities
3.25 INFUSYSTEM No Termination of Business Relationship
3.26 INFUSYSTEM Consents of Non-Governmental Third Parties
3.27(a) INFUSYSTEM Accounts Receivable (600+ Days)
3.27(b) INFUSYSTEM One Year AR
3.27(c) INFUSYSTEM Accounts Receivable
3.28 INFUSYSTEM Inventory
3.29 INFUSYSTEM Medicare/Medicaid
3.33 INFUSYSTEM Transactions with Related Parties
4.5 SEC Documents
4.9 I-FLOW Litigation
5.8 INFUSYSTEM Indebtedness
6.15(b) Accounts Receivable
6.16(a) VMI Medicare/Medicaid
6.16(b) INFUSYSTEM Medicare/Medicaid
6.19 Adjustments to Merger Consideration
7.1(d) Escrow
10.3 Indemnification of I-FLOW and I-FLOWSUB
</TABLE>
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EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
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<C> <S>
6.11 Affiliates Agreement
7.2(c) Opinion of VMI's and INFUSYSTEM's Counsel
7.2(i) Noncompetition Agreement
7.3(d) Opinion of I-FLOW's Counsel
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "AGREEMENT") is entered
into as of February 9, 1998 by and among I-Flow Corporation, a California
corporation ("I-FLOW"), I-Flow Subsidiary, Inc., a California corporation and
wholly owned subsidiary of I-FLOW ("I-FLOWSUB"), Venture Medical, Inc., a
Michigan corporation ("VMI"), Infusystems II, Inc., a Michigan corporation
("INFUSYSTEM"), the individuals set forth on Schedule 2.2 hereto (collectively
referred to herein as the "VMI SHAREHOLDERS" and individually as a "VMI
SHAREHOLDER") and the individuals set forth on Schedule 3.2 hereto (collectively
referred to herein as the "INFUSYSTEM SHAREHOLDERS" and individually as an
"INFUSYSTEM SHAREHOLDER.")
RECITALS
WHEREAS, each of the VMI Shareholders owns the number of shares
of issued and outstanding VMI Common Stock (as defined below) set forth under
such Shareholder's name on the signature page hereto;
WHEREAS, each of the INFUSYSTEM Shareholders owns the number of
shares of issued and outstanding INFUSYSTEM Common Stock (as defined below) set
forth under such Shareholder's name on the signature page hereto;
WHEREAS, the Boards of Directors of I-FLOW, I-FLOWSUB, VMI and
INFUSYSTEM have each determined that it is in the best interest of their
respective shareholders for VMI and INFUSYSTEM to merge with and into I-FLOWSUB
upon the terms and subject to the conditions set forth herein (the "MERGER");
WHEREAS, for federal income tax purposes, it is intended that the
Merger qualify as a reorganization under Section 368 of the Internal Revenue
Code of 1986, as amended (the "CODE"), and that this Agreement constitute a plan
of reorganization under Section 368 of the Code; and
WHEREAS, in furtherance of the Merger, the Boards of Directors of
I-FLOW and I-FLOWSUB have each approved the Merger in accordance with the
California General Corporation Law ("CALIFORNIA LAW") and upon the terms and
subject to conditions set forth herein, the Boards of Directors of VMI and
INFUSYSTEM have each approved the merger in accordance with the Michigan
Business Corporation Act ("MICHIGAN LAW") and upon the terms and subject to the
conditions set forth herein, and the Boards of Directors of I-FLOWSUB, VMI and
INFUSYSTEM have directed that this Agreement be submitted to their respective
shareholders for adoption and approval.
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NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I
MERGER AND REORGANIZATION
1.1 Merger. At the Effective Time (as defined in Section 1.4
below) and subject to and upon the terms and conditions of this Agreement,
California Law and Michigan Law, VMI and INFUSYSTEM shall be merged with and
into I-FLOWSUB, the separate corporate existences of VMI and INFUSYSTEM shall
cease and I-FLOWSUB shall continue as the surviving corporation. I-FLOWSUB as
the surviving corporation after the Merger is hereafter sometimes referred to as
the "SURVIVING CORPORATION." Upon consummation of the Merger, the corporate name
of I-FLOWSUB shall be changed to "Infusystem, Inc."
1.2 Shareholder Approvals.
(a) I-FLOW, as the sole shareholder of I-FLOWSUB, has
approved and adopted this Agreement and the Merger contemplated hereby in
accordance with California Law and the Articles of Incorporation of I-FLOWSUB;
and
(b) VMI and INFUSYSTEM, acting through their respective
Boards of Directors, shall duly call, give notice of, convene and hold special
meetings of their shareholders (the "SPECIAL MEETINGS") to consider and vote
upon the approval and adoption of this Agreement and the Merger contemplated
hereby or prepare and distribute to their shareholders an action by written
consent of the shareholders approving and adopting this Agreement and the Merger
contemplated hereby (the "WRITTEN CONSENTS"), all in accordance with Michigan
Law and their respective Articles of Incorporation. VMI and INFUSYSTEM shall use
their best efforts to hold the Special Meetings or send the Written Consents as
soon as practicable after the date hereof.
1.3 Closing. The closing of the Merger (the "CLOSING") will take
place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza, Irvine,
California 92614, at 10:00 a.m. (local time) on January 30, 1998 or at such
other time or date as agreed to by the parties after the date on which the
shareholders of VMI and INFUSYSTEM shall have approved the Merger in accordance
with their respective Articles of Incorporation and Michigan Law but not later
than the third (3rd) business day following the satisfaction or waiver of all
applicable conditions to Closing; provided, however, that in no event shall the
Closing occur, except as agreed by the parties in writing, after February 6,
1998. The date of the Closing is referred to herein as the "CLOSING DATE."
1.4 Consummation of Transactions. If, at the Closing, each of the
conditions in Article VII has been satisfied or any such condition is not
satisfied and the party whose obligation to close is subject to the satisfaction
of such condition elects to waive satisfaction of the condition, then the
transaction shall be consummated on such date and, then
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and thereupon, I-FLOW, I-FLOWSUB, VMI and INFUSYSTEM will each carry out the
procedures specified under the applicable provisions of California Law and
Michigan Law, to the end that the Merger shall become effective. The Merger
shall be consummated and become effective by filing the Agreement of Merger (the
"CALIFORNIA AGREEMENT OF MERGER") with the Secretary of State of the State of
California and the Certificate of Merger (the "MICHIGAN CERTIFICATE OF MERGER")
with the Secretary of State of the State of Michigan, in such form as required
by and executed in accordance with the relevant provisions of California Law and
Michigan Law, respectively. When used in this Agreement, "EFFECTIVE TIME" shall
mean the time at which the California Agreement of Merger and the Michigan
Certificate of Merger are so filed in accordance with California Law and
Michigan Law, respectively.
1.5 Effect of the Merger. At the Effective Time:
(a) VMI and INFUSYSTEM shall be merged with and into
I-FLOWSUB, with I-FLOWSUB as the Surviving Corporation;
(b) the separate existences of VMI and INFUSYSTEM shall
cease;
(c) the Articles of Incorporation of I-FLOWSUB shall be the
Articles of Incorporation of the Surviving Corporation (except that the name of
the Surviving Corporation shall be changed to "Infusystem, Inc.");
(d) the Bylaws of I-FLOWSUB shall be the Bylaws of the
Surviving Corporation;
(e) the directors and officers of I-FLOWSUB shall be the
respective directors and officers of the Surviving Corporation, each to serve
until his or her successor has been duly elected and qualified or otherwise as
provided by law;
(f) the Surviving Corporation's principal executive office
shall be located in the State of California; and
(g) the Merger, from and after the Effective Time, shall have
all the effects provided by California Law, Michigan Law and any other
applicable law.
1.6 Merger Consideration and Effect on Capital Stock.
(a) Merger Consideration.
(i) The merger consideration ("MERGER CONSIDERATION")
shall be payable in shares of common stock of I-FLOW ("I-FLOW MERGER SHARES")
having an aggregate value of Two Million Eight Hundred Ninety-Seven Thousand Six
Hundred Sixty-Eight Dollars ($2,897,668), and be payable no later than ten (10)
calendar days after the Effective Time. The Merger Consideration shall be
divided into (A) the "VMI MERGER CONSIDERATION" which shall consist of I-FLOW
Merger Shares having an aggregate value of One Million Thirty-Seven Thousand Six
Hundred Fifty-Five Dollars ($1,037,655) (35.81% of
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<PAGE> 16
the Merger Consideration) and (B) the "INFUSYSTEM MERGER CONSIDERATION" which
shall consist of I-FLOW Merger Shares having an aggregate value of One Million
Eight Hundred Sixty Thousand Thirteen Dollars ($1,860,013) (64.19% of the
Closing Merger Consideration).
The I-FLOW Merger Shares shall be valued based on the average
of the last sale price of I-FLOW's Common Stock on the Nasdaq Small Cap Market
for the period beginning fifteen (15) trading days and ending five (5) trading
days immediately preceding the Closing Date (the "CLOSING VALUE").
(ii) As additional consideration, I-FLOW agrees that:
(A) In the event the average closing price of I-FLOW's Common
Stock on the Nasdaq Small Cap Market for the twenty trading day period
immediately preceding the six month anniversary of the Closing (the "SIX MONTH
VALUE") is less than the Closing Value (subject to normal and customary
adjustment in the event of a stock split or similar event), I-FLOW will promptly
pay as additional Merger Consideration the "SIX MONTH SHORTFALL". For purposes
hereof, the Six Month Shortfall shall be the greater of zero or that dollar
amount calculated pursuant to the following calculation:
Step 1: Multiply the aggregate number of I-Flow Merger Shares initially
issued pursuant to this Agreement by twenty-five percent (25%)
(the "PROPORTIONATE NUMBER OF MERGER SHARES").
Step 2: Add the number of Escrowed Shares released to the Indemnified
Parties to the number of Escrowed Shares (valued at the Closing
Value) equal to the estimate of the amount of Buyer's Damages in
connection with one or more outstanding and specified Buyer's
Claims (the "NUMBER OF INDEMNIFICATION SHARES").
Step 3: Add the aggregate number of I-Flow Merger Shares sold by the
Shareholders to the Number of Indemnification Shares (the "NUMBER
OF SUBTRACTED SHARES").
Step 4: Subtract the Number of Subtracted Shares from the Proportionate
Number of Merger Shares (the "NUMBER OF PRICE-GUARANTEED
SHARES").
Step 5: Subtract the Six Month Value from the Closing Value (the "PRICE
DIFFERENTIAL").
Step 6: Multiply the Price Differential by the Number of Price-Guaranteed
Shares (the "SIX MONTH SHORTFALL").
(B) in the event the average closing price of I-FLOW's Common
Stock on the Nasdaq Small Cap Market for the twenty trading day period
immediately preceding the first anniversary of the Closing (the "ONE YEAR
VALUE") is less than the Closing Value (subject to normal and customary
adjustment in the event of a stock split or similar event), I-FLOW will promptly
pay as additional Merger Consideration the "ONE YEAR SHORTFALL".
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<PAGE> 17
For purposes hereof, the One Year Shortfall shall be the greater
of zero or that dollar amount calculated pursuant to the following calculation:
Step 1: Multiply the aggregate number of I-Flow Merger Shares initially
issued pursuant to this Agreement by twenty-five percent (25%)
(the "PROPORTIONATE NUMBER OF MERGER SHARES").
Step 2: Add the number of Escrowed Shares released to the Indemnified
Parties since the six month anniversary of the Closing to the
number of Escrowed Shares (valued at the Closing Value) equal to
the estimate of the amount of Buyer's Damages in connection with
one or more outstanding and specified Buyer's Claims asserted
since the six month anniversary of the Closing (the "NUMBER OF
INDEMNIFICATION SHARES").
Step 3: Add the aggregate number of I-Flow Merger Shares sold by the
Shareholders since the six month anniversary of the Closing to
the Number of Indemnification Shares (the "NUMBER OF SUBTRACTED
SHARES").
Step 4: Subtract the Number of Subtracted Shares from the Proportionate
Number of Merger Shares (the "NUMBER OF PRICE-GUARANTEED
SHARES").
Step 5: Subtract the One Year Value from the Closing Value (the "PRICE
DIFFERENTIAL").
Step 6: Multiply the Price Differential by the Number of Price-Guaranteed
Shares (the "ONE YEAR SHORTFALL").
(C) in the event the average closing price of I-FLOW's Common
Stock on the Nasdaq Small Cap Market for the twenty trading day period
immediately preceding the eighteen month anniversary of the Closing (the
"EIGHTEEN MONTH VALUE") is less than the Closing Value (subject to normal and
customary adjustment in the event of a stock split or similar event), I-FLOW
will promptly pay as additional Merger Consideration the "EIGHTEEN MONTH
SHORTFALL". For purposes hereof, the Eighteen Month Shortfall shall be the
greater of zero or that dollar amount calculated pursuant to the following
calculation:
Step 1: Multiply the aggregate number of I-Flow Merger Shares initially
issued pursuant to this Agreement by twenty-five percent (25%)
(the "Proportionate Number of Merger Shares").
Step 2: Add the number of Escrowed Shares released to the Indemnified
Parties since the one year anniversary of the Closing to the
number of Escrowed Shares (valued at the Closing Value) equal to
the estimate of the amount of Buyer's Damages in connection with
one or more outstanding and specified Buyer's Claims asserted
since the one year anniversary of the Closing (the "Number of
Indemnification Shares").
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<PAGE> 18
Step 3: Add the aggregate number of I-Flow Merger Shares sold by the
Shareholders since the one year anniversary of the Closing to the
Number of Indemnification Shares (the "Number of Subtracted
Shares").
Step 4: Subtract the Number of Subtracted Shares from the Proportionate
Number of Merger Shares (the "Number of Price-Guaranteed
Shares").
Step 5: Subtract the Eighteen Month Value from the Closing Value (the
"Price Differential").
Step 6: Multiply the Price Differential by the Number of Price-Guaranteed
Shares (the "Eighteen Month Shortfall").
(D) in the event the average closing price of I-FLOW's Common
Stock on the Nasdaq Small Cap Market for the twenty trading day period
immediately preceding the two year anniversary of the Closing (the "TWO YEAR
VALUE") is less than the Closing Value (subject to normal and customary
adjustment in the event of a stock split or similar event), I-FLOW will promptly
pay as additional Merger Consideration the "TWO YEAR SHORTFALL". For purposes
hereof, the Two Year Shortfall shall be the greater of zero or that dollar
amount calculated pursuant to the following calculation:
Step 1: Multiply the aggregate number of I-Flow Merger Shares initially
issued pursuant to this Agreement by twenty-five percent (25%)
(the "Proportionate Number of Merger Shares").
Step 2: Add the number of Escrowed Shares released to the Indemnified
Parties to the number of Escrowed Shares (valued at the Closing
Value) equal to the estimate of the amount of Buyer's Damages in
connection with one or more outstanding and specified Buyer's
Claims asserted since the eighteen month anniversary of the
Closing (the "Number of Indemnification Shares").
Step 3: Add the aggregate number of I-Flow Merger Shares sold by the
Shareholders since the eighteen month anniversary of the Closing
to the Number of Indemnification Shares (the "Number of
Subtracted Shares").
Step 4: Subtract the Number of Subtracted Shares from the Proportionate
Number of Merger Shares (the "Number of Price-Guaranteed
Shares").
Step 5: Subtract the Two Year Value from the Closing Value (the "Price
Differential").
Step 6: Multiply the Price Differential by the Number of Price-Guaranteed
Shares (the "Two Year Shortfall").
The Six Month Shortfall, if any, shall be paid to the VMI
Shareholders and the INFUSYSTEMS Shareholders according to the percentages set
forth on
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<PAGE> 19
Schedule 1.6(a) and the One Year Shortfall, Eighteen Month Shortfall and Two
Year Shortfall, if any, shall be paid according to the percentages set forth on
Schedule 1.6(b).
At its election, I-FLOW may pay the Six Month Shortfall, One
Year Shortfall, Eighteen Month Shortfall and Two Year Shortfall, if any, by the
issuance of additional shares of I-FLOW Common Stock valued at the Six Month
Value, One Year Value, Eighteen Month Value or Two Year Value, respectively, in
cash, or any combination of I-FLOW Common Stock and cash.
(b) Conversion. At the Effective Time:
(i) each holder of shares of common stock, par value
$0.01 per share, of VMI (the "VMI COMMON STOCK") which are outstanding
immediately prior to the Effective Time, other than any Dissenting Shares (as
defined in Section 1.6(g)), shall be entitled to receive in exchange for his VMI
Common Stock the number of shares of I-FLOW Merger Shares which, when valued at
the Closing Value, is equal to (x) the dollar amount of the VMI Merger
Consideration (y) divided by the number of shares of VMI Common Stock
outstanding immediately prior to the Effective Time and (z) multiplied by that
holder's number of shares of VMI Common Stock immediately prior to the Effective
Time; and
(ii) each holder of shares of common stock, no par value
per share, of INFUSYSTEM (the "INFUSYSTEM COMMON STOCK") which are outstanding
immediately prior to the Effective Time, other than any Dissenting Shares (as
defined in Section 1.6(g)), shall be entitled to receive in exchange for his
INFUSYSTEM Common Stock the number of shares of I-FLOW Merger Shares which, when
valued at the Closing Value, is equal to (x) the dollar amount of the INFUSYSTEM
Merger Consideration (y) divided by the number of shares of INFUSYSTEM Common
Stock outstanding immediately prior to the Effective Time and (z) multiplied by
that holder's number of shares of INFUSYSTEM Common Stock immediately prior to
the Effective Time.
Each holder of a certificate representing any VMI Common
Stock or INFUSYSTEM Common Stock (except for Dissenting Shares) shall after the
Effective Time cease to have any rights with respect to such VMI Common Stock or
INFUSYSTEM Common Stock, except the right to receive his pro rata share of the
Merger Consideration upon the surrender of such certificate in accordance with
this Section 1.6.
(c) Fractional Shares. No fractional shares of I-FLOW Common
Stock shall be issued in the Merger. In lieu of the issuance of any such
fractional shares, I-FLOW shall pay to each VMI Shareholder and INFUSYSTEM
Shareholder who otherwise would be entitled to receive fractional shares of
I-FLOW'S Common Stock an amount in cash (rounded to the nearest whole cent)
determined by multiplying (i) the Closing Value by (ii) the fraction of a share
of I-FLOW's Common Stock which such holder would otherwise be entitled to
receive pursuant to Section 1.6 (b).
(d) No Subsequent Transfers; Lost, Stolen or Destroyed
Certificates. After the Effective Time, there shall be no transfers on the stock
transfer books of the
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<PAGE> 20
Surviving Corporation of shares of VMI Common Stock or INFUSYSTEM Common Stock
or Dissenting Shares that were registered as outstanding immediately prior to
the Effective Time. In the event that any registered certificate shall have been
lost, stolen or destroyed, the Surviving Corporation, upon the making of an
affidavit of that fact by the person claiming such certificate to be lost,
stolen or destroyed and an indemnification (subject to the following sentence),
shall make payment of the Shareholder's pro rata share of the Merger
Consideration for the shares of VMI Common Stock or INFUSYSTEM Common Stock
represented by such certificate in accordance with this Section 1.6 to the
persons legally entitled thereto. The Surviving Corporation, in its sole
discretion and as a condition precedent to the delivery of the Shareholder's pro
rata share of the Merger Consideration in exchange for the shares of VMI Common
Stock or INFUSYSTEM Common Stock represented by such certificate, may require
the owner of such lost, stolen or destroyed certificate to provide a bond or
other security in such sum as it reasonably may direct as indemnity against any
claim that may be made against the Surviving Corporation with respect to the
certificate alleged to have been so lost, stolen or destroyed.
(e) Tax Withholding. The right of any holder of shares of VMI
Common Stock or INFUSYSTEM Common Stock to receive the Merger Consideration as
provided herein shall be subject to and reduced by the amount of any required
tax withholding obligation. To the extent that I-FLOW withholds taxes from
payments to holders of shares of VMI Common Stock or INFUSYSTEM Common Stock,
I-FLOW shall provide each such holder with documentary evidence of any amounts
so withheld and information as to the basis therefor.
(f) I-FLOWSUB Capital Stock. Each share of common stock, par
value $0.01 per share, of I-FLOWSUB issued and outstanding immediately prior to
the Effective Time shall continue to represent one (1) share of issued and
outstanding common stock of the Surviving Corporation and shall not be affected
by the Merger.
(g) Dissenting Shares.
(i) Notwithstanding any provision of this Agreement to
the contrary, any shares of VMI Common Stock or INFUSYSTEM Common Stock held by
a holder who has exercised his dissenter's rights and demanded payment of the
fair value of such shares in accordance with Michigan Law and who, as of the
Effective Time, has not effectively withdrawn or lost such dissenter's rights
("DISSENTING SHARES"), shall not be converted into or represent a right to
receive the Merger Consideration pursuant to Section 1.6, but the holder thereof
shall only be entitled to such rights as are granted by Michigan Law.
(ii) Notwithstanding the provisions of Section 1.6(g)(i),
if any holder of shares of VMI Common Stock or INFUSYSTEM Common Stock who
exercises his dissenter's rights under Michigan Law shall effectively withdraw
or lose (through failure to perfect or otherwise) such rights, then, as of the
later of the Effective Time or the occurrence of such event, such holder's
shares shall automatically be converted into and represent only the right to
receive his pro rata share of the Merger Consideration applicable to such shares
as
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<PAGE> 21
provided in this Section 1.6, without interest thereon, upon surrender of the
certificate or certificates representing such shares.
(iii) VMI and INFUSYSTEM shall give I-FLOW (A) prompt
notice of any exercise of any dissenter's rights by the holders of any shares of
VMI Common Stock or INFUSYSTEM Common Stock, withdrawals of such exercise, and
any other instruments served pursuant to Michigan Law and received by VMI and
INFUSYSTEM, and (B) the opportunity to direct all negotiations and proceedings
with respect to dissenter's rights under Michigan Law. VMI and INFUSYSTEM,
except with the prior written consent of I-FLOW, shall not voluntarily make any
agreement or payment with respect to any demand for appraisal of VMI Common
Stock or INFUSYSTEM Common Stock or offer to settle any such demands.
1.7 Escrow Deposit. No later than ten (10) calendar days after
the Effective Time, I-FLOW shall deposit in escrow pursuant to Article IX
hereof, the number of shares of I-FLOW Common Stock constituting the Escrowed
Merger Consideration (as defined herein). Such shares shall be issued in the
name of the Escrow Agent (as defined below) "as Escrow Agent under that Escrow
Agreement dated [the Closing Date or otherwise with equivalent effect]". Such
shares shall be held for the purposes described in Article IX, Article X and the
Escrow Agreement (as hereinafter defined), and released to I-FLOW and/or the VMI
Shareholders and INFUSYSTEM Shareholders in accordance with the provisions of
Article IX, Article X and the Escrow Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF VMI
VMI and each VMI Shareholder jointly and severally represents and
warrants to I-FLOW and I-FLOWSUB as follows:
2.1 Organization and Qualification. VMI is a corporation duly
organized, validly existing and in good standing under Michigan Law. VMI has the
requisite corporate power and authority to own, use or lease its properties and
to carry on its business as it is now being conducted and as it is now proposed
to be conducted. VMI has made available to I-FLOW and I-FLOWSUB a complete and
correct copy of its Articles of Incorporation and Bylaws, each as amended to
date, and VMI's Articles of Incorporation and Bylaws as so delivered are in full
force and effect. VMI is not in default in any material respect in the
performance, observation or fulfillment of any provision of its Articles of
Incorporation or Bylaws. For purposes of this Agreement, a "VMI MATERIAL ADVERSE
CHANGE" shall mean any event, circumstance, condition, development or occurrence
causing, resulting in or having (or with the passage of time could cause, result
in or have) a material adverse effect on the financial condition, business,
properties, prospects or results of operations of VMI taken as a whole.
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<PAGE> 22
2.2 Capitalization. The VMI Shareholders collectively own,
beneficially and of record, all of the issued and outstanding capital stock of
VMI. The authorized capital stock of VMI consists solely of 750,000 shares of
VMI Common Stock, $0.01 par value, of which 250,000 shares are issued and
outstanding. Such shares are owned of record as set forth on Schedule 2.2.
Except as set forth on Schedule 2.2, no agreement or other document grants or
imposes on any shares of the VMI Common Stock any right, preference, privilege
or restriction with respect to the transaction contemplated hereby (including,
without limitation, any rights of first refusal), other than the right to vote
as provided in Section 1.2 above and to dissent from the Merger as provided in
Section 1.6(g) above. All of the issued and outstanding shares of VMI's capital
stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights created by any agreement to which
VMI is bound (except for VMI's Articles of Incorporation and Bylaws). There are
no options, warrants or other rights, commitments or agreements of any character
which call for the issuance of shares of capital stock or other securities of
VMI or any securities, instruments or rights convertible into or exchangeable
for shares of capital stock or other securities of VMI. At the Closing, the VMI
Shareholders listed on Schedule 2.2 will have good and valid title to, and sole
record and beneficial ownership of, such number of shares indicated on Schedule
2.2, free and clear of any claims, liens, pledges, options, security interests,
trusts, encumbrances or other rights or interests of any person.
2.3 Voting Agreements. Neither VMI nor any VMI Shareholder is a
party or subject to any proxy, agreement or understanding and there is, to the
knowledge of VMI, no agreement or understanding between any other persons, that
affects or relates to the voting or giving of written consents with respect to
any VMI security or the voting by a VMI director.
2.4 Authority Relative to this Agreement. Each VMI Shareholder
has the full right, power and authority to enter into this Agreement and to
perform his obligations hereunder. VMI has all requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby (provided that the Merger is approved pursuant
to the provisions of Section 1.2 above and the applicable provisions of Michigan
Law). The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby on the part of VMI have been duly and validly
authorized by its Board of Directors, and no other corporate proceedings on the
part of VMI are necessary, as a matter of law or otherwise, to authorize this
Agreement or to consummate the transactions so contemplated (other than the
Merger, which is subject to the provisions of Section 1.2 and the applicable
provisions of California Law and Michigan Law). This Agreement has been duly and
validly executed and delivered by VMI and each VMI Shareholder and constitutes a
valid and binding agreement of VMI and each VMI Shareholder, enforceable against
VMI and each VMI Shareholder in accordance with its terms, except (a) as such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights,
and (b) as the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
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<PAGE> 23
2.5 Subsidiaries. VMI does not own, either directly or indirectly
any interest or investment (whether debt or equity) in any corporation,
partnership, joint venture, business, trust or other entity.
2.6 Absence of Certain Changes. Except as set forth on Schedule
2.6, VMI, since December 31, 1996, has conducted its business only in, and has
not engaged in any transaction other than according to, the ordinary and usual
course of such business, and, since such date, there has not been (a) any VMI
Material Adverse Change; (b) any declaration, setting aside or payment of any
dividend or other distribution with respect to the capital stock of VMI; (c) any
material change by VMI in accounting principles, practices or methods; (d) any
labor dispute or difficulty which could result in any VMI Material Adverse
Change, and no such dispute or difficulty is now threatened; (e) any material
asset sold or disposed of (except inventory sold in the ordinary course of
business), any material asset mortgaged, pledged or subjected to any lien,
charge or other encumbrance; (f) any increase in the compensation payable or
which could become payable by VMI to its directors, officers, employees,
distributors, dealers or sales representatives; (g) any amendment of any
employee benefit plan; (h) any issuance, transfer, sale or pledge by VMI of any
shares of stock or other securities or of any commitments, options, rights or
privileges under which VMI is or may become obligated to issue any shares of
stock or other securities; (i) any indebtedness incurred by VMI, except such as
may have been incurred in the ordinary course of business and consistent with
past practice; (j) any loan made or agreed to be made by VMI, nor has VMI become
liable or agreed to become liable as a guarantor with respect to any loan; (k)
any waiver by VMI of any right or rights of material value or any payment,
direct or indirect, of any material debt, liability or other obligation; or (l)
any change in or amendment to the Articles of Incorporation or Bylaws of VMI.
2.7 Financial Statements. The balance sheet of VMI as of December
31, 1996 and the related statements of operations and cash flow for the twelve
(12) month periods ended December 31, 1995 and December 31, 1996 (the "VMI
YEAR-END FINANCIAL STATEMENTS") are attached hereto as Schedule 2.7. The VMI
Year-End Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
period indicated (except as may be noted therein), and present fairly the
financial position of VMI as of the end of such fiscal year and the results of
operations and cash flows for such fiscal year in conformity with generally
accepted accounting principles. The financial statements of VMI as of and for
the twelve (12) month period ended December 31, 1997 (also attached hereto as
Schedule 2.7) have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with the VMI Year-End
Financial Statements, and present fairly the financial position of VMI as of the
end of such twelve (12) month period and the results of operations and cash
flows for such twelve (12) month period in conformity with generally accepted
accounting principles, except that such financial statements may not contain all
footnotes required by generally accepted accounting principles and are subject
to normal recurring year-end adjustments. Such financial statements are
collectively referred to herein as the "VMI FINANCIAL STATEMENTS," and the
financial statements for the twelve (12) month period ended December 31, 1997
are referred to herein as the "VMI 1997 FINANCIAL STATEMENTS."
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<PAGE> 24
2.8 Absence of Undisclosed Liabilities.
(a) Except as disclosed on Schedule 2.8 and to the extent
reserved against or reflected in the balance sheet of VMI included in the VMI
1997 Financial Statements, VMI did not have, at such date, any material
liabilities or obligations (contingent or otherwise) which were required by
generally accepted accounting principles, consistently applied, to be reflected
therein, and since that date VMI has not incurred any material liabilities or
obligations which, had they been incurred prior to December 31, 1997, would have
been required by such principles, so applied, to have been reflected in such
balance sheet, except such liabilities or obligations incurred in the ordinary
and usual course of business and consistent with past practice.
(b) VMI is not and will not be liable for prepayment or other
penalties in connection with the early retirement of any VMI indebtedness for
borrowed money.
2.9 Consents and Approvals; No Violation. Except as disclosed on
Schedule 2.9, the execution and delivery of this Agreement by VMI, the
consummation of the transactions contemplated hereby or the performance by VMI
of its obligations hereunder will not:
(a) subject to the obtaining of any requisite approvals of
VMI's shareholders, conflict with any provision of VMI's Articles of
Incorporation or Bylaws;
(b) require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory authority,
except (i) the filing of the California Certificate of Merger pursuant to
California Law and the Michigan Certificate of Merger pursuant to Michigan Law,
and (ii) the filing of the Governmental Filings (as defined in Section 6.3
below);
(c) conflict with, result in the breach of or constitute a
default (or give rise to any right of termination, cancellation or acceleration
or guaranteed payments) under any of the terms, conditions or provisions of any
material note, lease, mortgage, license, agreement, contract or other instrument
or obligation to which VMI is a party or by which VMI or any of its assets may
be bound;
(d) conflict with or violate the provisions of any order,
writ, injunction, judgment, decree, statute, rule or regulation applicable to
VMI; or
(e) result in the creation of any lien, charge or encumbrance
upon any shares of capital stock or assets of VMI under any agreement or
instrument to which VMI is bound.
2.10 Broker's Commission or Finder's Fees. Except as disclosed in
Schedule 2.10, no person or entity has acted for VMI in connection with the
transactions provided for in this Agreement in a way which would entitle such
person to, and no person or entity is entitled
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<PAGE> 25
to receive from VMI, any broker's commissions or finder's fees (or other similar
fees or commissions) in connection with this Agreement.
2.11 Employment and Similar Agreements. Except as set forth on
Schedule 2.11:
(a) there are no employment, severance, bonus or
indemnification arrangements, agreements, understandings or plans between VMI
and any director, officer or employee thereof except those indemnification
provisions set forth in VMI's Articles of Incorporation and Bylaws;
(b) there are no agreements of the type described in Section
2.11(a) above (i) the benefits of which are contingent, or the terms of which
are altered, upon the occurrence of a transaction involving VMI of the nature of
any of the transactions contemplated by this Agreement, (ii) providing any term
of employment or compensation guaranty not terminable at will or (iii) providing
severance benefits or other benefits (which are conditioned upon a change in
control) after the termination of employment of such employee, regardless of the
reason for such termination of employment;
(c) there are no agreements or plans, any of the benefits of
which will be materially increased, or the vesting of benefits of which will be
materially accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement;
(d) subject to general principles related to wrongful
termination of employees, there are no officers or employees of VMI whose
employment is not terminable at the will of VMI;
(e) VMI is not obligated to compensate any consultants
pursuant to any agreement or arrangement which is material to VMI taken as a
whole; and
(f) VMI is not a party to, nor is bound by, any collective
bargaining agreement or other labor agreement and VMI is not involved in any
labor discussion with any unit or group seeking to become the bargaining unit
for any of its employees, nor has any such unit or group notified VMI of an
intention to commence any organizational activities among the employees of VMI.
True and complete copies of any agreements disclosed in Schedule 2.11 have been
delivered or made available to I-FLOW and I-FLOWSUB.
2.12 Litigation. Except as set forth on Schedule 2.12, there is
no claim, action or proceeding pending or, to the knowledge of VMI, threatened
against or relating to VMI before any court or other competent governmental or
regulatory authority or body acting in an adjudicative capacity, or, to the
knowledge of VMI, any reasonable basis therefor. VMI, nor any officer, director
or employee of VMI, has been permanently or temporarily enjoined by any order,
judgment or decree of any court or any other governmental or regulatory
authority from engaging in or continuing any conduct or practice in connection
with the
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<PAGE> 26
business, assets or properties of VMI nor, to the knowledge of VMI, is any
officer, director or employee of VMI under investigation by any governmental or
regulatory authority. There is not in existence any order, judgment or decree of
any court or other tribunal or other agency enjoining or requiring VMI to take
any action of any kind with respect to its business, assets or properties.
2.13 Taxes.
(a) Except as set forth on Schedule 2.13(a), VMI has timely
filed all Returns (as defined below) required to be filed by it and all such
Returns are true, complete, and correct. All Taxes (as defined below) shown to
be payable on the Returns or subsequent assessments with respect thereto have
been paid in full on a timely basis, and no other Taxes are payable by VMI with
respect to items or periods covered by such Returns (whether or not shown on or
reportable on such Returns) or with respect to any period prior to the date of
this Agreement. VMI has withheld and paid over all Taxes required to have been
held and paid over, and complied with, all information reporting and backup
withholding requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party. There are no liens on any of the
assets of VMI with respect to Taxes, other than liens for Taxes not yet due and
payable or for Taxes that VMI is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been established.
(b) The amount of VMI's liability for unpaid Taxes for all
periods ending on or prior to the date of this Agreement do not, in the
aggregate, exceed the amount of the current liability accruals reflected on the
VMI Financial Statements for Taxes (excluding reserves for deferred Taxes and
excluding liability for unpaid Taxes incurred by VMI in the ordinary course of
business since the date of the VMI 1997 Financial Statements) with respect to
VMI as of the date of this Agreement, and the amount of VMI's liability for
unpaid Taxes for all periods on or prior to the Closing Date shall not, in the
aggregate, exceed the amount of the current liability accruals reflected on the
VMI Financial Statements for Taxes (excluding reserves for deferred Taxes and
excluding liability for unpaid Taxes incurred by VMI in the ordinary course of
business since the date of the VMI 1997 Financial Statements) with respect to
VMI as of the Closing Date.
(c) Except as set forth on Schedule 2.13(c), the Returns of
VMI have never been audited by a government or taxing authority, nor is any such
audit in process, pending, or threatened (either in writing or verbally,
formally or informally) or are expected to be asserted with respect to Taxes of
VMI, and VMI has not received notice (either in writing or verbally, formally or
informally) or expects to receive notice that it has not filed a Return or paid
Taxes required to be filed or paid by it. VMI is neither a party to any action
or proceeding for assessment or collection of Taxes, nor has such event been
asserted or threatened (either in writing or verbally, formally or informally)
against VMI or any of its assets. No waiver or extension of any statute of
limitations is in effect with respect to Taxes or Tax Returns of VMI. VMI has
disclosed on its federal income tax returns all positions taken
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therein that could give rise to a substantial understatement penalty within the
meaning of Section 6662 of the Code.
(d) VMI is not (nor has it ever been) a party to any tax
sharing agreement and has not assumed the tax liability of any other person
under contract.
(e) For purposes of this Section 2.13, (i) the term "TAXES"
shall mean all taxes, however denominated, including any interest, penalties, or
other additions to tax that may become payable in respect thereof, imposed by
any federal, territorial, state, local, or foreign government or any agency or
political subdivision thereof, which taxes shall include, without limiting the
generality of the foregoing, all income or profits taxes (including, but not
limited to, federal income taxes and state income taxes), real property gains
taxes, payroll and employee withholding taxes, unemployment insurance taxes,
social security taxes, sales and use taxes, ad valorem taxes, excise taxes,
franchise taxes, gross receipts taxes, business license taxes, occupation taxes,
real and personal property taxes, stamp taxes, environmental taxes, transfer
taxes, and other obligations of the same or of a similar nature to any of the
foregoing, which VMI is required to pay, withhold, or collect, and (ii) the term
"RETURN" shall mean all reports, estimates, declarations of estimated tax,
information statements and returns relating to, or required to be filed in
connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
(f) Other than dispositions made in the ordinary course of
business, VMI has not disposed of any of its assets (including any distribution
of assets with respect to, or in redemption of, its stock) during the two year
period ending on the date of this Agreement.
(g) There is no plan or intention ("PLAN") on the part of
the VMI Shareholders to engage in a sale, exchange, transfer, pledge,
disposition, or any other transaction which results in a reduction in the risk
of ownership or a direct or indirect disposition (a "SALE") of the VMI Closing
Merger Consideration and the VMI Escrowed Merger Consideration that would reduce
ownership by the VMI Shareholders of such consideration to a number of shares
having a value as of the Effective Time of the Merger of less than fifty percent
(50%) of the aggregate fair market value, immediately prior to the Merger, of
all outstanding shares of VMI Common Stock. For purposes of this representation,
shares of VMI Common Stock exchanged for cash in lieu of fractional shares and
disposed of through the exercise of dissenters' rights shall be considered
shares of VMI Common Stock outstanding prior to the Merger.
2.14 ERISA Plans. Each employee pension benefit plan, program,
agreement or arrangement ("VMI PLAN") maintained or contributed to by VMI which
is subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), if any, is set forth on Schedule 2.14 and such VMI Plans conform in
all material respects to, and their administration is in conformity in all
material respects with, all applicable federal laws; no
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liability under ERISA or the Code has been or is expected to be incurred by VMI
with respect to any VMI Plan; full payment has been made of all amounts which
VMI is required to have paid as contributions to such Plans; the cost of
providing all retirement and post-termination benefits has been properly accrued
and is reflected in the VMI Financial Statements in accordance with generally
accepted accounting principles; there is not in the aggregate any accumulated
funding deficiency with respect to such VMI Plans; and the current value of
accrued benefits of each such VMI Plan does not exceed the current value of such
VMI Plan's assets. VMI has delivered or made available to I-FLOW and I-FLOWSUB
true and complete copies of: (i) the VMI Plans and any related trusts or funding
vehicles, policies or contracts and any related summary plan descriptions with
respect to each VMI Plan; (ii) the most recent determination letters received
from the Internal Revenue Service regarding the VMI Plans and copies of any
pending applications, filings or notices with respect to any of the VMI Plans
with the Internal Revenue Service, the Pension Benefit Guaranty Corporation, the
Department of Labor or any other governmental agency; (iii) the latest financial
statements and annual reports, if any, for each of the VMI Plans and related
trusts or funding vehicles, policies or contracts as of the end of the most
recent plan year with respect to which the filing date for such information has
passed; and (iv) any reports of the most recent actuarial valuations of the VMI
Plans.
2.15 Contracts. Schedule 2.15 sets forth a true and correct list
of:
(a) Each material customer contract, whether written or
oral, between VMI and any party to whom VMI provides goods or services; and
(b) Each contract, whether written or oral, between VMI and
any party to whom VMI is obligated to make any payments.
The contracts and agreements which are required to be identified in
Schedule 2.15 above are hereinafter referred to as the "VMI CONTRACTS." True and
complete copies of each written VMI Contract and true and complete written
summaries of each oral VMI Contract have been delivered to I-FLOW and I-FLOWSUB
by VMI. Except as set forth on Schedule 2.15:
(i) Each of the VMI Contracts is a valid, binding and
enforceable agreement of VMI and, to the knowledge of VMI, the other parties
thereto and, to the knowledge of VMI, will, subject to the satisfaction of the
conditions in Article VII, continue to be valid, binding and enforceable
immediately after the Closing, except (a) as such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (b) as the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought;
(ii) VMI has no reason to believe that VMI will not be
able to fulfill in all material respects all of its obligations under the VMI
Contracts which remain to be performed;
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(iii) To the knowledge of VMI, there has not occurred
any material default (or event which upon provision of notice or lapse of time
or both would become such a default) under any of the VMI Contracts on the part
of VMI; and
(iv) The VMI Contracts listed on Schedule 2.15 are all
of the agreements, promissory notes, contracts and instruments (except
employment agreements which are set forth on Schedule 2.11) that are material to
VMI or its business.
2.16 Patents, Marks, Trade Names, Copyrights and Registrations.
(a) VMI has sufficient right, title and interest in all
Intellectual Property (as defined below) necessary for the business of VMI as
now conducted, and the consummation of the transactions contemplated hereby will
not alter or impair in an adverse manner such Intellectual Property rights.
(b) "INTELLECTUAL PROPERTY" includes United States and
foreign inventions, invention disclosures, patents, inventors' certificates,
utility models, trademarks, service marks, trade names, copyrights, mask work
registrations, trade secrets (including processes and software programs),
registrations and applications therefor, and past, present and future causes of
action and remedies therefor.
(c) VMI is not in default under any material agreement
pursuant to which it is licensing Intellectual Property of a third party or
granting licenses to its own Intellectual Property. VMI has not notified any
other party of an alleged default of any such agreement. VMI has not received
any communications alleging that VMI has violated in any material respect any
other person's Intellectual Property rights or has engaged in unfair competition
against such person.
(d) VMI does not now infringe or misappropriate any third
party's Intellectual Property rights and does not have any material liability
for any past infringement or misappropriation. No material dispute or
disagreement involving VMI exists or is, to the knowledge of VMI, threatened
with regard to any third party Intellectual Property right, including any
allegation of Intellectual Property infringement or misappropriation or of any
breach or default of an Intellectual Property license or similar agreement.
2.17 Properties, Liens. Except as set forth on Schedule 2.17, VMI
owns, free and clear of any liens, claims, charges, options or other
encumbrances, all of its tangible and intangible property, real and personal,
whether or not reflected in the VMI 1997 Financial Statements (except property
sold or disposed of in the ordinary course of business since August 31, 1997)
and all such property acquired since such date that is necessary to conduct its
business as it is now being conducted, and there has not been any violation of
any law, regulation or ordinance (including without limitation laws, regulations
and ordinances relating to health, fire, safety, zoning, environmental,
building, city planning or similar issues) relating to its properties or its
business which could result in a VMI Material Adverse Change. All material
plants, structures and equipment owned or leased by VMI and material to the
operation of its business are in satisfactory condition and repair for the
requirements of its
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business as now being conducted. There are no proceedings affecting any of such
properties pending or, to the knowledge of VMI, threatened which may reasonably
be expected to curtail, materially and adversely, the use of such property for
the purpose for which it was acquired or the purpose for which it is now used.
2.18 Real Property. VMI does not own any real property. Schedule
2.18 lists each lease of real property under which VMI is a lessee, lessor,
sublessee or sublessor, as so designated therein (the "VMI REAL PROPERTY").
Except as indicated in Schedule 2.18, all material leases, easements and other
real property interests held by VMI are valid and enforceable and VMI is not in
material default thereunder.
2.19 Compliance with Applicable Laws. Except as disclosed in
Schedule 2.19, (a) VMI holds, and has at all times held, all licenses, permits
and authorizations necessary for the lawful conduct of its respective
businesses, as then and now conducted and (b) such businesses have not been and
are not being, and VMI has not received any notice from any authority or person
that such businesses have been or are being, conducted in violation of any law,
ordinance or regulation, including without limitation any law, ordinance or
regulation relating to (i) the protection of the environment, (ii) the provision
of medical supplies and services, or (iii) occupational health and safety.
2.20 Insurance. Schedule 2.20 sets forth a true and correct list
of all insurance policies of any nature whatsoever maintained by VMI pertaining
to the business of VMI. VMI maintains, with responsible insurance carriers,
property, auto liability, professional liability, workers' compensation and
general liability insurance. Such policies and binders are and will be in full
force and effect through the Effective Time and, except as otherwise set forth
on Schedule 2.20, such policies, or other policies covering the same risks, have
been in full force and effect, without gaps, continuously for the past five (5)
years. Copies of all such policies have been made available to I-FLOW for its
inspection. VMI is not in default under any of such policies or binders, and VMI
has not failed to give any notice or to present any claim on behalf of VMI, that
could result in a claim in excess of $5,000, under any such policy or binder in
a due and timely fashion. Except as set forth on Schedule 2.20, VMI is not aware
of any facts concerning VMI or its businesses, operations, assets and
liabilities, contingent or otherwise, upon which an insurer might be justified
in reducing coverage or increasing premiums on existing policies or binders.
2.21 Environmental Liability.
(a) Except as set forth on Schedule 2.21:
(i) VMI is in compliance with, and has at all times
complied with, all Environmental Laws (as defined below) in all material
respects;
(ii) there are no Hazardous Substances (as defined
below) attributable to VMI, nor to its best knowledge, attributable to any other
person, present now, nor have there been Hazardous Substances present at any
time, on, under, in, or about VMI Property (as defined below) or properties
formerly owned or operated by VMI (including soils,
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groundwater, surface water, buildings or other structures), nor, to its best
knowledge, have any Hazardous Substances migrated or threatened to migrate from
other properties upon, about or beneath the VMI Property or properties formerly
owned or operated by VMI, that may subject VMI to material liability under any
Environmental Law;
(iii) there has been no disposal or release of Hazardous
Substances by VMI, nor to its best knowledge, by any other person, on, under,
in, or about VMI Property or properties formerly owned or operated by VMI that
may subject VMI to material liability under any Environmental Law;
(iv) VMI is not subject to material liability under any
Environmental Law for any Hazardous Substance disposal or contamination arising
from VMI's business or operations on any third party property;
(v) VMI has not caused any release or threat of release
of any Hazardous Substance (not covered by i-iv above) that may subject VMI to
material liability under any Environmental Law;
(vi) neither VMI nor, to its best knowledge, any prior
owner, tenant, occupant or user of VMI Property and properties formerly owned or
operated by VMI has received any notice, demand, letter, claim or request for
information relating to VMI Property or properties formerly owned or operated by
VMI alleging violation of or liability under any Environmental Law;
(vii) neither VMI nor, to its best knowledge, any prior
owner, tenant, occupant or user of VMI Property and properties formerly owned or
operated by VMI has ever been subject to any orders, decrees, injunctions or
other arrangements with any governmental entity, nor is subject to any indemnity
or other agreement with any third party relating to VMI Property or properties
formerly owned or operated by VMI, alleging liability under any Environmental
Law;
(viii) there are no circumstances or conditions
involving VMI that could reasonably be expected to result in any material
claims, liability, investigations, costs or restrictions on the ownership, use
or transfer of any VMI Property pursuant to any Environmental Law;
(ix) to its best knowledge, no underground storage
tanks, asbestos-containing material, lead-based products, or polychlorinated
biphenyls have ever been located on the VMI Property or properties formerly
owned or operated by VMI; and
(x) VMI has delivered or made available to I-FLOW copies
of all environmental assessments, audits, studies, and other environmental
reports in its possession or reasonably available to it relating to VMI or any
of its current or former properties or operations.
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(b) As used herein:
(i) "ENVIRONMENTAL LAW" means any federal, state, local
or foreign law, statute, ordinance, rule, regulation, or treaty; all judicial,
administrative, and regulatory orders, judgments, decrees, permits, and
authorizations; and common law relating to: (A) the protection, investigation,
remediation, or restoration of the environment or natural resources, (B) the
handling, use, storage, treatment, disposal, release or threatened release of
any Hazardous Substance, (C) noise, odor, pollution, contamination, land use,
any injury or threat of injury to persons or property or (D) the protection of
the health and safety of employees or the public;
(ii) "HAZARDOUS SUBSTANCE" means any substance,
material, or waste that is: (A) listed, classified or regulated in any
concentration pursuant to any Environmental Law; (B) any petroleum product or
by-product, asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive materials or radon; or (C) any other
substance, material, or waste which may be the subject of regulatory action by
any governmental entity pursuant to any Environmental Law; and
(iii) "VMI PROPERTY" means any real property and
improvements leased, used, operated or occupied by VMI.
2.22 Government Authorizations. All licenses, franchises, permits
and other governmental authorizations held by VMI that are material in
connection with its businesses are valid and sufficient for all businesses now
conducted by it. Except as set forth on Schedule 2.22, the businesses of VMI are
not being conducted in violation of any law, ordinance or regulation of any
governmental entity.
2.23 Banking Facilities. Schedule 2.23 contains a true and
complete list of:
(a) Each bank, savings and loan or other institution in
which VMI has a deposit, custodial, trust or similar account or safety deposit
or lock box account and the numbers and types of the accounts or safety deposit
boxes maintained by VMI at such financial institutions; and
(b) The names of all persons authorized to draw on each such
account or to have access to any such safety deposit or lock box facility,
together with a description of the authority (and conditions thereof, if any) of
each such person with respect thereto.
2.24 Minute Books and Stock Records. After a diligent search, VMI
has delivered or made available to I-FLOW and I-FLOWSUB true and correct copies
of all minutes of VMI that are in possession or control of VMI, which minutes
contain a complete and correct record of all meetings of the Board of Directors
of VMI and committees thereof and all meetings of its shareholders and all
actions by written consent without a meeting by such Board of Directors and
committees thereof and its shareholders referred to in such minutes and reflect
accurately in all material respects all actions by such directors and
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committees thereof and by shareholders with respect to all transactions referred
to in such minutes. VMI has delivered or made available to I-FLOW and I-FLOWSUB
true, correct and complete copies of the stock record book of VMI.
2.25 No Termination of Business Relationship. Except as set forth
on Schedule 2.25, none of the customers with which VMI has a material business
relationship has given notice of an intention to cancel, fail to renew or
otherwise terminate or materially impair such business relationship with such
entity and VMI has no knowledge of any event (including without limitation the
transactions contemplated hereby) which would precipitate the impairment,
cancellation or termination of, or the failure to renew, or entitle any such
customer to terminate, such a business relationship.
2.26 Consents of Non-Governmental Third Parties. Except as set
forth on Schedule 2.26 hereto, no consent, waiver or approval of any
non-governmental third party is necessary for the consummation by VMI of the
transactions contemplated hereby.
2.27 Accounts Receivable. All accounts receivable of VMI
outstanding for more than six hundred (600) days as of the date hereof are set
forth on Schedule 2.27(a). All accounts receivable of VMI outstanding for more
than one (1) year but less than six hundred (600) days as of the date hereof are
set forth on Schedule 2.27(b) (the "VMI ONE YEAR AR"). Except as set forth on
Schedule 2.27(c), all accounts receivable of VMI shown on the VMI 1997 Financial
Statements and all accounts receivable of VMI created after August 31, 1997 up
to the date hereof arose from valid transactions in the ordinary course of
business and such accounts receivable will be fully collected (except to the
extent of the reserves thereon) in the ordinary course of business and in the
time periods traditional for such receivables. Notwithstanding the foregoing,
within one year from the Effective Time, the Surviving Corporation shall collect
an aggregate sum equal to or greater than Four Hundred Thousand Dollars
($400,000) on the VMI One Year AR and the INFUSYSTEM One Year AR (as defined
below in Section 3.27).
2.28 Inventory. The inventory of VMI consists of supplies which
are merchantable and fit for the purpose for which they were procured, and none
of which are damaged or defective in any manner. Except as set forth on Schedule
2.28, no inventory of VMI has been pledged as collateral.
2.29 Medicare/Medicaid. Except as set forth on Schedule 2.29, to
the best of its knowledge, VMI has not engaged in any activities which are
prohibited under federal Medicare and Medicaid statutes, or related state or
local statutes or regulations or which otherwise constitutes fraud, including,
without limitation, the following: (i) making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment or otherwise claiming or receiving improper reimbursement
amounts with respect thereto; (ii) making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment; (iii) failing to disclose knowledge of the occurrence of
any event affecting the initial or continued right to any benefit or payment on
its behalf or on behalf of another, with intent to secure such benefit or
payment
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fraudulently; (iv) soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay such remuneration (a) in return for referring
an individual to a person for the furnishing or arranging for the furnishing of
any item or service for which payment may be made in whole or in part by
Medicare or Medicaid or (b) in return for purchasing, leasing, or ordering or
arranging for or recommending purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in whole or in part by
Medicare or Medicaid (collectively the "VMI MEDICARE PROHIBITED ACTS"). To the
best knowledge of VMI, all billings to Medicare and Medicaid have been fully and
appropriately made, are in the appropriate amounts and are fully collectible.
2.30 Securities Matters. VMI does not currently have nor has it
had any outstanding securities registered (or required to be registered) under
the Securities Act of 1933, as amended (the "1933 ACT") or the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), nor any reporting obligation
thereunder.
2.31 Tax-Free Reorganization. VMI has no reason to believe that
the Merger will not qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Code.
2.32 Powers of Attorney. VMI has no powers of attorney
outstanding other than those issued in the ordinary course of business with
respect to insurance, tax, and customs matters.
2.33 Transactions with Related Parties. Except as set forth in
Schedule 2.33, no officer, director, or person known to VMI to own more than one
percent (1%) of VMI Common Stock (each, a "RELATED PARTY," and, collectively,
the "RELATED PARTIES") was, during the year ended December 31, 1996, or
thereafter, or is currently, a party, directly or indirectly to any transaction
or is a proposed party to any currently proposed transaction with VMI. Except as
set forth in Schedule 2.33; (i) since December 31, 1996 there have been no
transactions between VMI and any Related Party or any payment (however
characterized) by VMI to any Related Party or by any Related Party to VMI (other
than payments in the ordinary course and consistent with past practice in
respect of salary, wages or reimbursable expenses); (ii) there is no lease,
agreement or commitment between VMI and any Related Party; (iii) no Related
Party has any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of VMI; (iv) no Related Party
is indebted to VMI; (v) VMI is not indebted to any Related Party; and (vi) no
Related Party competes with or is a director, officer, employee or five percent
(5%) or greater shareholder of any person or entity that competes with VMI.
After the adjustments to be made to the Merger Consideration to be received by
the Shareholders in accordance with Section 6.19, except for the current monthly
lease payment due Tu-Effs Limited Partnership ("TU-EFFS") pursuant to the lease
between VMI and Tu-Effs (the "LEASE") for the premises located at 1551 East
Lincoln Avenue, Madison Heights, Michigan 48071, VMI shall have collected in
full all accounts receivable from Related Parties and paid or otherwise
discharged all debt to Related Parties.
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2.34 Product Liability. There is no action, suit, proceeding or
investigation by or before any court or governmental authority or agency
pending, or to the best knowledge of VMI, threatened against or involving VMI
relating to any product alleged to have been manufactured, repaired, sold,
leased or distributed by VMI and alleged to have been defective, or improperly
designed, manufactured or repaired nor, to the best knowledge of VMI, is there
any valid basis for any such action, suit, proceeding or investigation.
2.35 Full Disclosure. All instruments, agreements and other
documents delivered or to be delivered, or made available by VMI or the VMI
Shareholders, to I-FLOW or I-FLOWSUB pursuant to this Agreement are complete and
correct in all material respects. No representation or warranty made by VMI in
this Article II or the Schedules to this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact required to be stated herein or therein necessary to make the statements on
behalf of VMI in this Article II and the Schedules to this Agreement, in light
of the circumstances in which they are made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF INFUSYSTEM
INFUSYSTEM and each INFUSYSTEM Shareholder jointly and severally
represents and warrants to I-FLOW and I-FLOWSUB as follows:
3.1 Organization and Qualification. INFUSYSTEM is a corporation
duly organized, validly existing and in good standing under Michigan Law.
INFUSYSTEM has the requisite corporate power and authority to own, use or lease
its properties and to carry on its business as it is now being conducted and as
it is now proposed to be conducted. INFUSYSTEM has made available to I-FLOW and
I-FLOWSUB a complete and correct copy of its Articles of Incorporation and
Bylaws, each as amended to date, and INFUSYSTEM's Articles of Incorporation and
Bylaws as so delivered are in full force and effect. INFUSYSTEM is not in
default in any material respect in the performance, observation or fulfillment
of any provision of its Articles of Incorporation or Bylaws. For purposes of
this Agreement, an "INFUSYSTEM MATERIAL ADVERSE CHANGE" shall mean any event,
circumstance, condition, development or occurrence causing, resulting in or
having (or with the passage of time could cause, result in or have) a material
adverse effect on the financial condition, business, properties, prospects or
results of operations of INFUSYSTEM taken as a whole.
3.2 Capitalization. The INFUSYSTEM Shareholders collectively own,
beneficially and of record, all of the issued and outstanding capital stock of
INFUSYSTEM. The authorized capital stock of INFUSYSTEM consists solely of 60,000
shares of INFUSYSTEM Common Stock, no par value, of which 6,000 shares are
issued and
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outstanding. Such shares are owned of record as set forth on Schedule 3.2.
Except as set forth on Schedule 3.2, no agreement or other document grants or
imposes on any shares of the INFUSYSTEM Common Stock any right, preference,
privilege or restriction with respect to the transaction contemplated hereby
(including, without limitation, any rights of first refusal), other than the
right to vote as provided in Section 1.2 above and to dissent from the Merger as
provided in Section 1.6(g) above. All of the issued and outstanding shares of
INFUSYSTEM's capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights created by any agreement
to which INFUSYSTEM is bound (except for INFUSYSTEM's Articles of Incorporation
and Bylaws). There are no options, warrants or other rights, commitments or
agreements of any character which call for the issuance of shares of capital
stock or other securities of INFUSYSTEM or any securities, instruments or rights
convertible into or exchangeable for shares of capital stock or other securities
of INFUSYSTEM. At the Closing, the INFUSYSTEM Shareholders listed on Schedule
3.2 will have good and valid title to, and sole record and beneficial ownership
of, such number of shares indicated on Schedule 3.2, free and clear of any
claims, liens, pledges, options, security interests, trusts, encumbrances or
other rights or interests of any person.
3.3 Voting Agreements. Neither INFUSYSTEM nor any INFUSYSTEM
Shareholder is a party or subject to any proxy, agreement or understanding and
there is, to the knowledge of INFUSYSTEM, no agreement or understanding between
any other persons, that affects or relates to the voting or giving of written
consents with respect to any INFUSYSTEM security or the voting by an INFUSYSTEM
director.
3.4 Authority Relative to this Agreement. Each INFUSYSTEM
Shareholder has the full right, power and authority to enter in this Agreement
and to perform his obligations hereunder. INFUSYSTEM has all requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby (provided that the Merger is approved pursuant
to the provisions of Section 1.2 above and the applicable provisions of Michigan
Law). The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby on the part of INFUSYSTEM have been duly and
validly authorized by its Board of Directors, and no other corporate proceedings
on the part of INFUSYSTEM are necessary, as a matter of law or otherwise, to
authorize this Agreement or to consummate the transactions so contemplated
(other than the Merger, which is subject to the provisions of Section 1.2 and
the applicable provisions of California Law and Michigan Law). This Agreement
has been duly and validly executed and delivered by INFUSYSTEM and constitutes a
valid and binding agreement of INFUSYSTEM and each INFUSYSTEM Shareholder
enforceable against INFUSYSTEM and each INFUSYSTEM Shareholder in accordance
with its terms, except (a) as such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights, and (b) as the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
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3.5 Subsidiaries. INFUSYSTEM does not own, either directly or
indirectly, any interest, investment (whether debt or equity) in any
corporation, partnership, joint venture, business, trust or other entity.
3.6 Absence of Certain Changes. Except as set forth on Schedule
3.6, INFUSYSTEM, since December 31, 1996, has conducted its business only in,
and has not engaged in any transaction other than according to, the ordinary and
usual course of such business, and, since such date, there has not been (a) any
INFUSYSTEM Material Adverse Change; (b) any declaration, setting aside or
payment of any dividend or other distribution with respect to the capital stock
of INFUSYSTEM; (c) any material change by INFUSYSTEM in accounting principles,
practices or methods; (d) any labor dispute or difficulty which could result in
any INFUSYSTEM Material Adverse Change, and no such dispute or difficulty is now
threatened; (e) any material asset sold or disposed of (except inventory sold in
the ordinary course of business), any material asset mortgaged, pledged or
subjected to any lien, charge or other encumbrance; (f) any increase in the
compensation payable or which could become payable by INFUSYSTEM to its
directors, officers, employees, distributors, dealers or sales representatives;
(g) any amendment of any employee benefit plan; (h) any issuance, transfer, sale
or pledge by INFUSYSTEM of any shares of stock or other securities or of any
commitments, options, rights or privileges under which INFUSYSTEM is or may
become obligated to issue any shares of stock or other securities; (i) any
indebtedness incurred by INFUSYSTEM, except such as may have been incurred in
the ordinary course of business and consistent with past practice; (j) any loan
made or agreed to be made by INFUSYSTEM, nor has INFUSYSTEM become liable or
agreed to become liable as a guarantor with respect to any loan; (k) any waiver
by INFUSYSTEM of any right or rights of material value or any payment, direct or
indirect, of any material debt, liability or other obligation; or (l) any change
in or amendment to the Articles of Incorporation or Bylaws of INFUSYSTEM.
3.7 Financial Statements. The balance sheet of INFUSYSTEM as of
December 31, 1996 and the related statements of operations and cash flow for the
twelve (12) month periods ended December 31, 1995 and December 31, 1996 (the
"INFUSYSTEM YEAR-END FINANCIAL STATEMENTS") are attached hereto as Schedule 3.7.
The INFUSYSTEM Year-End Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the period indicated (except as may be noted therein), and present
fairly the financial position of INFUSYSTEM as of the end of such fiscal year
and the results of operations and cash flows for such fiscal year in conformity
with generally accepted accounting principles. The financial statements of
INFUSYSTEM as of and for the twelve (12) month period ended December 31, 1997
(also attached hereto as Schedule 3.7) have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent with the
INFUSYSTEM Year-End Financial Statements, and present fairly the financial
position of INFUSYSTEM as of the end of such twelve (12) month period and the
results of operations and cash flows for such twelve (12) month period in
conformity with generally accepted accounting principles, except that such
financial statements may not contain all footnotes required by generally
accepted accounting principles and are subject to normal recurring year-end
adjustments. Such financial statements are collectively referred to herein as
the "INFUSYSTEM FINANCIAL STATEMENTS," and the financial statements
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for the twelve (12) month period ended December 31, 1997 are referred to herein
as the "INFUSYSTEM 1997 FINANCIAL STATEMENTS."
3.8 Absence of Undisclosed Liabilities.
(a) Except as disclosed on Schedule 3.8 and to the extent
reserved against or reflected in the balance sheet of INFUSYSTEM included in the
INFUSYSTEM 1997 Financial Statements, INFUSYSTEM did not have, at such date, any
material liabilities or obligations (contingent or otherwise) which were
required by generally accepted accounting principles, consistently applied, to
be reflected therein, and since that date INFUSYSTEM has not incurred any
material liabilities or obligations which, had they been incurred prior to
December 31, 1997, would have been required by such principles, so applied, to
have been reflected in such balance sheet, except such liabilities or
obligations incurred in the ordinary and usual course of business and consistent
with past practice.
(b) INFUSYSTEM is not and will not be liable for prepayment
or other penalties in connection with the early retirement of any INFUSYSTEM
indebtedness for borrowed money.
3.9 Consents and Approvals; No Violation. Except as disclosed on
Schedule 3.9, the execution and delivery of this Agreement by INFUSYSTEM, the
consummation of the transactions contemplated hereby or the performance by
INFUSYSTEM of its obligations hereunder will not:
(a) subject to the obtaining of any requisite approvals of
INFUSYSTEM's shareholders, conflict with any provision of INFUSYSTEM's Articles
of Incorporation or Bylaws;
(b) require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory authority,
except (i) the filing of the California Certificate of Merger pursuant to
California Law and the Michigan Certificate of Merger pursuant to Michigan Law,
and (ii) the filing of the Governmental Filings (as defined in Section 6.3
below);
(c) conflict with, result in the breach of or constitute a
default (or give rise to any right of termination, cancellation or acceleration
or guaranteed payments) under any of the terms, conditions or provisions of any
material note, lease, mortgage, license, agreement, contract or other instrument
or obligation to which INFUSYSTEM is a party or by which INFUSYSTEM or any of
its assets may be bound;
(d) conflict with or violate the provisions of any order,
writ, injunction, judgment, decree, statute, rule or regulation applicable to
INFUSYSTEM; or
(e) result in the creation of any lien, charge or encumbrance
upon any shares of capital stock or assets of INFUSYSTEM under any agreement or
instrument to which INFUSYSTEM is bound.
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3.10 Broker's Commission or Finder's Fees. Except as disclosed in
Schedule 3.10, no person or entity has acted for INFUSYSTEM in connection with
the transactions provided for in this Agreement in a way which would entitle
such person to, and no person or entity is entitled to receive from INFUSYSTEM,
any broker's commissions or finder's fees (or other similar fees or commissions)
in connection with this Agreement.
3.11 Employment and Similar Agreements. Except as set forth on
Schedule 3.11:
(a) there are no employment, severance, bonus or
indemnification arrangements, agreements, understandings or plans between
INFUSYSTEM and any director, officer or employee thereof except those
indemnification provisions set forth in INFUSYSTEM's Articles of Incorporation
and Bylaws;
(b) there are no agreements of the type described in Section
3.11(a) above (i) the benefits of which are contingent, or the terms of which
are altered, upon the occurrence of a transaction involving INFUSYSTEM of the
nature of any of the transactions contemplated by this Agreement, (ii) providing
any term of employment or compensation guaranty not terminable at will or (iii)
providing severance benefits or other benefits (which are conditioned upon a
change in control) after the termination of employment of such employee,
regardless of the reason for such termination of employment;
(c) there are no agreements or plans, any of the benefits of
which will be materially increased, or the vesting of benefits of which will be
materially accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement;
(d) subject to general principles related to wrongful
termination of employees, there are no officers or employees of INFUSYSTEM whose
employment is not terminable at the will of INFUSYSTEM;
(e) INFUSYSTEM is not obligated to compensate any consultants
pursuant to any agreement or arrangement which is material to INFUSYSTEM taken
as a whole; and
(f) INFUSYSTEM is not a party to, nor is bound by, any
collective bargaining agreement or other labor agreement and INFUSYSTEM is not
involved in any labor discussion with any unit or group seeking to become the
bargaining unit for any of its employees, nor has any such unit or group
notified INFUSYSTEM of an intention to commence any organizational activities
among the employees of INFUSYSTEM. True and complete copies of any agreements
disclosed in Schedule 3.11 have been delivered or made available to I-FLOW and
I-FLOWSUB.
3.12 Litigation. Except as set forth on Schedule 3.12, there is
no claim, action or proceeding pending or, to the knowledge of INFUSYSTEM,
threatened against or
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relating to INFUSYSTEM before any court or other competent governmental or
regulatory authority or body acting in an adjudicative capacity, or, to the
knowledge of INFUSYSTEM, any reasonable basis therefor. INFUSYSTEM, nor any
officer, director or employee of INFUSYSTEM, has been permanently or temporarily
enjoined by any order, judgment or decree of any court or any other governmental
or regulatory authority from engaging in or continuing any conduct or practice
in connection with the business, assets or properties of INFUSYSTEM nor, to the
knowledge of INFUSYSTEM, is any officer, director or employee of INFUSYSTEM
under investigation by any governmental or regulatory authority. There is not in
existence any order, judgment or decree of any court or other tribunal or other
agency enjoining or requiring INFUSYSTEM to take any action of any kind with
respect to its business, assets or properties.
3.13 Taxes.
(a) Except as set forth on Schedule 3.13(a), INFUSYSTEM has
timely filed all Returns (as defined below) required to be filed by it and all
such Returns are true, complete, and correct. All Taxes (as defined below) shown
to be payable on the Returns or subsequent assessments with respect thereto have
been paid in full on a timely basis, and no other Taxes are payable by
INFUSYSTEM with respect to items or periods covered by such Returns (whether or
not shown on or reportable on such Returns) or with respect to any period prior
to the date of this Agreement. INFUSYSTEM has withheld and paid over all Taxes
required to have been held and paid over, and complied with all information
reporting and backup withholding requirements, including maintenance of required
records with respect thereto, in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party. There are no
liens on any of the assets of INFUSYSTEM with respect to Taxes, other than liens
for Taxes not yet due and payable or for Taxes that INFUSYSTEM is contesting in
good faith through appropriate proceedings and for which appropriate reserves
have been established.
(b) The amount of INFUSYSTEM's liability for unpaid Taxes
for all periods ending on or prior to the date of the Agreement do not, in the
aggregate, exceed the amount of the current liability accruals reflected on the
INFUSYSTEM Financial Statements for Taxes (excluding reserves for deferred Taxes
and excluding liability for unpaid Taxes incurred by INFUSYSTEM in the ordinary
course of business since the date of the INFUSYSTEM 1997 Financial Statements)
with respect to INFUSYSTEM as of the date of this Agreement, and the amount of
INFUSYSTEM's liability for unpaid Taxes for all periods on or prior to the
Closing Date shall not, in the aggregate, exceed the amount of the current
liability accruals reflected on the INFUSYSTEM Financial Statements for Taxes
(excluding reserves for deferred Taxes and excluding liability for unpaid Taxes
incurred by INFUSYSTEM in the ordinary course of business since the date of the
INFUSYSTEM 1997 Financial Statements) with respect to INFUSYSTEM as of the
Closing Date.
(c) Except as set forth on Schedule 3.13(c), the Returns of
INFUSYSTEM have never been audited by a government or taxing authority, nor is
any such
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audit in process, pending, or threatened (either in writing or verbally,
formally or informally) or are expected to be asserted with respect to Taxes of
INFUSYSTEM, and INFUSYSTEM has not received notice (either in writing or
verbally, formally or informally) or expects to receive notice that it has not
filed a Return or paid Taxes required to be filed or paid by it. INFUSYSTEM is
neither a party to any action or proceeding for assessment or collection of
Taxes, nor has such event been asserted or threatened (either in writing or
verbally, formally or informally) against INFUSYSTEM or any of its assets. No
waiver or extension of any statute of limitations is in effect with respect to
Taxes or Tax Returns of INFUSYSTEM. INFUSYSTEM has disclosed on its federal
income tax returns all positions taken therein that could give rise to a
substantial understatement penalty within the meaning of Section 6662 of the
Code.
(d) INFUSYSTEM is not (nor has it ever been) a party to any
tax sharing agreement and has not assumed the tax liability of any other person
under contract.
(e) For purposes of this Section 3.13, (i) the term "TAXES"
shall mean all taxes, however denominated, including any interest, penalties, or
other additions to tax that may become payable in respect thereof, imposed by
any federal, territorial, state, local, or foreign government or any agency or
political subdivision thereof, which taxes shall include, without limiting the
generality of the foregoing, all income or profits taxes (including, but not
limited to, federal income taxes and state income taxes), real property gains
taxes, payroll and employee withholding taxes, unemployment insurance taxes,
social security taxes, sales and use taxes, ad valorem taxes, excise taxes,
franchise taxes, gross receipts taxes, business license taxes, occupation taxes,
real and personal property taxes, stamp taxes, environmental taxes, transfer
taxes, and other obligations of the same or of a similar nature to any of the
foregoing, which INFUSYSTEM is required to pay, withhold, or collect, and (ii)
the term "RETURN" shall mean all reports, estimates, declarations of estimated
tax, information statements and returns relating to, or required to be filed in
connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
(f) Other than dispositions made in the ordinary course of
business, INFUSYSTEM has not disposed of any of its assets (including any
distribution of assets with respect to, or in redemption of, its stock) during
the two year period ending on the date of this Agreement.
(g) There is no plan or intention ("PLAN") on the part of
the INFUSYSTEM Shareholders to engage in a sale, exchange, transfer, pledge,
disposition, or any other transaction which results in a reduction in the risk
of ownership or a direct or indirect disposition (a "SALE") of the INFUSYSTEM
Closing Merger Consideration and the INFUSYSTEM Escrowed Merger Consideration
that would reduce ownership by the INFUSYSTEM Shareholders of such consideration
to a number of shares having a value as of the Effective Time of the Merger of
less than fifty percent (50%) of the aggregate fair market value, immediately
prior to the Merger, of all outstanding shares of INFUSYSTEM Common
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Stock. For purposes of this representation, shares of INFUSYSTEM Common Stock
exchanged for cash in lieu of fractional shares or disposed of through the
exercise of dissenters' rights shall be considered shares of INFUSYSTEM Common
Stock outstanding prior to the Merger.
3.14 ERISA Plans. Each employee pension benefit plan, program,
agreement or arrangement ("INFUSYSTEM PLAN") maintained or contributed to by
INFUSYSTEM which is subject to ERISA, if any, is set forth on Schedule 3.14 and
such INFUSYSTEM Plans conform in all material respects to, and their
administration is in conformity in all material respects with, all applicable
federal laws; no liability under ERISA or the Code has been or is expected to be
incurred by INFUSYSTEM with respect to any INFUSYSTEM Plan; full payment has
been made of all amounts which INFUSYSTEM is required to have paid as
contributions to such Plans; the cost of providing all retirement and
post-termination benefits has been properly accrued and is reflected in the
INFUSYSTEM Financial Statements in accordance with generally accepted accounting
principles; there is not in the aggregate any accumulated funding deficiency
with respect to such INFUSYSTEM Plans; and the current value of accrued benefits
of each such INFUSYSTEM Plan does not exceed the current value of such
INFUSYSTEM Plan's assets. INFUSYSTEM has delivered or made available to I-FLOW
and I-FLOWSUB true and complete copies of: (i) the INFUSYSTEM Plans and any
related trusts or funding vehicles, policies or contracts and any related
summary plan descriptions with respect to each INFUSYSTEM Plan; (ii) the most
recent determination letters received from the Internal Revenue Service
regarding the INFUSYSTEM Plans and copies of any pending applications, filings
or notices with respect to any of the INFUSYSTEM Plans with the Internal Revenue
Service, the Pension Benefit Guaranty Corporation, the Department of Labor or
any other governmental agency; (iii) the latest financial statements and annual
reports, if any, for each of the INFUSYSTEM Plans and related trusts or funding
vehicles, policies or contracts as of the end of the most recent plan year with
respect to which the filing date for such information has passed; and (iv) any
reports of the most recent actuarial valuations of the INFUSYSTEM Plans.
3.15 Contracts. Schedule 3.15 sets forth a true and correct list
of:
(a) Each material customer contract, whether written or
oral, between INFUSYSTEM and any party to whom INFUSYSTEM provides goods or
services; and
(b) Each contract, whether written or oral, between
INFUSYSTEM and any party to whom INFUSYSTEM is obligated to make any payments.
The contracts and agreements which are required to be identified in Schedule
3.15 above are hereinafter referred to as the "INFUSYSTEM CONTRACTS." True and
complete copies of each written INFUSYSTEM Contract and true and complete
written summaries of each oral INFUSYSTEM Contract have been delivered to I-FLOW
and I-FLOWSUB by INFUSYSTEM. Except as set forth on Schedule 3.15:
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(i) Each of the INFUSYSTEM Contracts is a valid, binding
and enforceable agreement of INFUSYSTEM and, to the knowledge of INFUSYSTEM, the
other parties thereto and, to the knowledge of INFUSYSTEM, will, subject to the
satisfaction of the conditions in Article VII, continue to be valid, binding and
enforceable immediately after the Closing, except (a) as such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights, and (b) as the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought;
(ii) INFUSYSTEM has no reason to believe that INFUSYSTEM
will not be able to fulfill in all material respects all of its obligations
under the INFUSYSTEM Contracts which remain to be performed;
(iii) To the knowledge of INFUSYSTEM, there has not
occurred any material default (or event which upon provision of notice or lapse
of time or both would become such a default) under any of the INFUSYSTEM
Contracts on the part of INFUSYSTEM; and
(iv) The INFUSYSTEM Contracts listed on Schedule 3.15
are all of the agreements, promissory notes, contracts and instruments (except
employment agreements which are set forth on Schedule 3.11) that are material to
INFUSYSTEM or its business.
3.16 Patents, Marks, Trade Names, Copyrights and Registrations.
(a) INFUSYSTEM has sufficient right, title and interest in
all Intellectual Property (as defined below) necessary for the business of
INFUSYSTEM as now conducted, and the consummation of the transactions
contemplated hereby will not alter or impair in an adverse manner such
Intellectual Property rights.
(b) "INTELLECTUAL PROPERTY" includes United States and
foreign inventions, invention disclosures, patents, inventors' certificates,
utility models, trademarks, service marks, trade names, copyrights, mask work
registrations, trade secrets (including processes and software programs),
registrations and applications therefor, and past, present and future causes of
action and remedies therefor.
(c) INFUSYSTEM is not in default under any material
agreement pursuant to which it is licensing Intellectual Property of a third
party or granting licenses to its own Intellectual Property. INFUSYSTEM has not
notified any other party of an alleged default of any such agreement. INFUSYSTEM
has not received any communications alleging that INFUSYSTEM has violated in any
material respect any other person's Intellectual Property rights or has engaged
in unfair competition against such person.
(d) INFUSYSTEM does not now infringe or misappropriate any
third party's Intellectual Property rights and does not have any material
liability for any past
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infringement or misappropriation. No material dispute or disagreement involving
INFUSYSTEM exists or is, to the knowledge of INFUSYSTEM, threatened with regard
to any third party Intellectual Property right, including any allegation of
Intellectual Property infringement or misappropriation or of any breach or
default of an Intellectual Property license or similar agreement.
3.17 Properties, Liens. Except as set forth on Schedule 3.17,
INFUSYSTEM owns, free and clear of any liens, claims, charges, options or other
encumbrances, all of its tangible and intangible property, real and personal,
whether or not reflected in the INFUSYSTEM 1997 Financial Statements (except
property sold or disposed of in the ordinary course of business since August 31,
1997) and all such property acquired since such date that is necessary to
conduct its business as it is now being conducted, and there has not been any
violation of any law, regulation or ordinance (including without limitation
laws, regulations and ordinances relating to health, fire, safety, zoning,
environmental, building, city planning or similar issues) relating to its
properties or its business which could result in an INFUSYSTEM Material Adverse
Change. All material plants, structures and equipment owned or leased by
INFUSYSTEM and material to the operation of its business are in satisfactory
condition and repair for the requirements of its business as now being
conducted. There are no proceedings affecting any of such properties pending or,
to the knowledge of INFUSYSTEM, threatened which may reasonably be expected to
curtail, materially and adversely, the use of such property for the purpose for
which it was acquired or the purpose for which it is now used.
3.18 Real Property. INFUSYSTEM does not own any real property.
Schedule 3.18 lists each lease of real property under which INFUSYSTEM is a
lessee, lessor, sublessee or sublessor, as so designated therein (the
"INFUSYSTEM REAL PROPERTY"). Except as indicated in Schedule 3.18, all material
leases, easements and other real property interests held by INFUSYSTEM are valid
and enforceable and INFUSYSTEM is not in material default thereunder.
3.19 Compliance with Applicable Laws. Except as disclosed in
Schedule 3.19, (a) INFUSYSTEM holds, and has at all times held, all licenses,
permits and authorizations necessary for the lawful conduct of its respective
businesses, as then and now conducted and (b) such businesses have not been and
are not being, and INFUSYSTEM has not received any notice from any authority or
person that such businesses have been or are being, conducted in violation of
any law, ordinance or regulation, including without limitation any law,
ordinance or regulation relating to (i) the protection of the environment, (ii)
the provision of medical supplies and services, or (iii) occupational health and
safety.
3.20 Insurance. Schedule 3.20 sets forth a true and correct list
of all insurance policies of any nature whatsoever maintained by INFUSYSTEM
pertaining to the business of INFUSYSTEM. INFUSYSTEM maintains, with responsible
insurance carriers, property, auto liability, professional liability, workers'
compensation and general liability insurance. Such policies and binders are and
will be in full force and effect through the Effective Time and, except as
otherwise set forth on Schedule 3.20, such policies, or other
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policies covering the same risks, have been in full force and effect, without
gaps, continuously for the past five (5) years. Copies of all such policies have
been made available to I-FLOW for its inspection. INFUSYSTEM is not in default
under any of such policies or binders, and INFUSYSTEM has not failed to give any
notice or to present any claim on behalf of INFUSYSTEM, that could result in a
claim in excess of $5,000, under any such policy or binder in a due and timely
fashion. Except as set forth on Schedule 3.20, INFUSYSTEM is not aware of any
facts concerning INFUSYSTEM or its businesses, operations, assets and
liabilities, contingent or otherwise, upon which an insurer might be justified
in reducing coverage or increasing premiums on existing policies or binders.
3.21 Environmental Liability.
(a) Except as set forth on Schedule 3.21:
(i) INFUSYSTEM is in compliance with, and has at all
times complied with, all Environmental Laws (as defined below) in all material
respects;
(ii) there are no Hazardous Substances (as defined
below) attributable to INFUSYSTEM, nor to its best knowledge, attributable to
any other person, present now, nor have there been Hazardous Substances present
at any time, on, under, in, or about INFUSYSTEM Property (as defined below) or
properties formerly owned or operated by INFUSYSTEM (including soils,
groundwater, surface water, buildings or other structures), nor, to its best
knowledge, have any Hazardous Substances migrated or threatened to migrate from
other properties upon, about or beneath the INFUSYSTEM Property or properties
formerly owned or operated by INFUSYSTEM, that may subject INFUSYSTEM to
material liability under any Environmental Law;
(iii) there has been no disposal or release of Hazardous
Substances by INFUSYSTEM, nor to its best knowledge, by any other person, on,
under, in, or about INFUSYSTEM Property or properties formerly owned or operated
by INFUSYSTEM that may subject INFUSYSTEM to material liability under any
Environmental Law;
(iv) INFUSYSTEM is not subject to material liability
under any Environmental Law for any Hazardous Substance disposal or
contamination arising from INFUSYSTEM's business or operations on any third
party property;
(v) INFUSYSTEM has not caused any release or threat of
release of any Hazardous Substance (not covered by i-iv above) that may subject
INFUSYSTEM to material liability under any Environmental Law;
(vi) neither INFUSYSTEM nor, to its best knowledge, any
prior owner, tenant, occupant or user of INFUSYSTEM Property and properties
formerly owned or operated by INFUSYSTEM has received any notice, demand,
letter, claim or request for information relating to INFUSYSTEM Property or
properties formerly owned or operated by INFUSYSTEM alleging violation of or
liability under any Environmental Law;
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(vii) neither INFUSYSTEM nor, to its best knowledge, any
prior owner, tenant, occupant or user of INFUSYSTEM Property and properties
formerly owned or operated by the Company has ever been subject to any orders,
decrees, injunctions or other arrangements with any governmental entity, nor is
subject to any indemnity or other agreement with any third party relating to
INFUSYSTEM Property or properties formerly owned or operated by INFUSYSTEM,
alleging liability under any Environmental Law;
(viii) there are no circumstances or conditions
involving INFUSYSTEM that could reasonably be expected to result in any material
claims, liability, investigations, costs or restrictions on the ownership, use
or transfer of any INFUSYSTEM Property pursuant to any Environmental Law;
(ix) to its best knowledge, no underground storage
tanks, asbestos-containing material, lead-based products, or polychlorinated
biphenyls have ever been located on the INFUSYSTEM Property or properties
formerly owned or operated by INFUSYSTEM; and
(x) INFUSYSTEM has delivered or made available to I-FLOW
copies of all environmental assessments, audits, studies, and other
environmental reports in its possession or reasonably available to it relating
to INFUSYSTEM or any of its current or former properties or operations.
(b) As used herein:
(i) "ENVIRONMENTAL LAW" means any federal, state, local
or foreign law, statute, ordinance, rule, regulation, or treaty; all judicial,
administrative, and regulatory orders, judgments, decrees, permits, and
authorizations; and common law relating to: (A) the protection, investigation,
remediation, or restoration of the environment or natural resources, (B) the
handling, use, storage, treatment, disposal, release or threatened release of
any Hazardous Substance, (C) noise, odor, pollution, contamination, land use,
any injury or threat of injury to persons or property or (D) the protection of
the health and safety of employees or the public;
(ii) "HAZARDOUS SUBSTANCE" means any substance,
material, or waste that is: (A) listed, classified or regulated in any
concentration pursuant to any Environmental Law; (B) any petroleum product or
by-product, asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive materials or radon; or (C) any other
substance, material, or waste which may be the subject of regulatory action by
any governmental entity pursuant to any Environmental Law; and
(iii) "INFUSYSTEM PROPERTY" means any real property and
improvements leased, used, operated or occupied by INFUSYSTEM.
3.22 Government Authorizations. All licenses, franchises, permits
and other governmental authorizations held by INFUSYSTEM that are material in
connection with its businesses are valid and sufficient for all businesses now
conducted by it. Except as set forth
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on Schedule 3.22, the businesses of INFUSYSTEM are not being conducted in
violation of any law, ordinance or regulation of any governmental entity.
3.23 Banking Facilities. Schedule 3.23 contains a true and
complete list of:
(a) Each bank, savings and loan or other institution in
which INFUSYSTEM has a deposit, custodial, trust or similar account or safety
deposit or lock box account and the numbers and types of the accounts or safety
deposit boxes maintained by INFUSYSTEM at such financial institutions; and
(b) The names of all persons authorized to draw on each such
account or to have access to any such safety deposit or lock box facility,
together with a description of the authority (and conditions thereof, if any) of
each such person with respect thereto.
3.24 Minute Books and Stock Records. After a diligent search,
INFUSYSTEM has delivered or made available to I-FLOW and I-FLOWSUB true and
correct copies of all minutes of INFUSYSTEM that are in possession or control of
INFUSYSTEM, which minutes contain a complete and correct record of all meetings
of the Board of Directors of INFUSYSTEM and committees thereof and all meetings
of its shareholders and all actions by written consent without a meeting by such
Board of Directors and committees thereof and its shareholders referred to in
such minutes and reflect accurately in all material respects all actions by such
directors and committees thereof and by shareholders with respect to all
transactions referred to in such minutes. INFUSYSTEM has delivered or made
available to I-FLOW and I-FLOWSUB true, correct and complete copies of the stock
record book of INFUSYSTEM.
3.25 No Termination of Business Relationship. Except as set forth
on Schedule 3.25, none of the customers with which INFUSYSTEM has a material
business relationship has given notice of an intention to cancel, fail to renew
or otherwise terminate or materially impair such business relationship with such
entity and INFUSYSTEM has no knowledge of any event (including without
limitation the transactions contemplated hereby) which would precipitate the
impairment, cancellation or termination of, or the failure to renew, or entitle
any such customer to terminate, such a business relationship.
3.26 Consents of Non-Governmental Third Parties. Except as set
forth on Schedule 3.26 hereto, no consent, waiver or approval of any
non-governmental third party is necessary for the consummation by INFUSYSTEM of
the transactions contemplated hereby.
3.27 Accounts Receivable. All accounts receivable of INFUSYSTEM
outstanding for more than six hundred (600) days as of the date hereof are set
forth on Schedule 3.27(a). All accounts receivable of INFUSYSTEM outstanding for
more than one (1) year but less than six hundred (600) days as of the date
hereof are set forth on Schedule 3.27(b) (the "INFUSYSTEM ONE YEAR AR"). Except
as set forth on Schedule 3.27(c), all accounts receivable of INFUSYSTEM shown on
the INFUSYSTEM 1997 Financial Statements and all accounts receivable of
INFUSYSTEM created after August 31, 1997 up to the date
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hereof arose from valid transactions in the ordinary course of business and such
accounts receivable will be fully collectible (except to the extent of the
reserves thereon) in the ordinary course of business and in the time periods
traditional for such receivables. Notwithstanding the foregoing, within one year
from the Effective Time, the Surviving Corporation shall collect an aggregate
sum equal to or greater than Four Hundred Thousand Dollars ($400,000) on the VMI
One Year AR and the INFUSYSTEM One Year AR.
3.28 Inventory. The inventory of INFUSYSTEM consists of supplies
which are merchantable and fit for the purpose for which they were procured, and
none of which are damaged or defective in any manner. Except as set forth on
Schedule 3.28, no inventory of INFUSYSTEM has been pledged as collateral.
3.29 Medicare and Medicaid. Except as set forth on Schedule 3.29,
to the best of its knowledge, INFUSYSTEM has not engaged in any activities which
are prohibited under federal Medicare and Medicaid statutes, or related state or
local statutes or regulations or which otherwise constitutes fraud, including,
without limitation, the following: (i) making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment or otherwise claiming improper reimbursement amounts with
respect thereto; (ii) making or causing to be made any false statement or
representation of a material fact for use in determining rights to any benefit
or payment; (iii) failing to disclose knowledge of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its behalf
or on behalf of another, with intent to secure such benefit or payment
fraudulently; (iv) soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay such remuneration (a) in return for referring
an individual to a person for the furnishing or arranging for the furnishing of
any item or service for which payment may be made in whole or in part by
Medicare or Medicaid or (b) in return for purchasing, leasing, or ordering or
arranging for or recommending purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in whole or in part by
Medicare or Medicaid (collectively the "INFUSYSTEM MEDICARE PROHIBITED ACTS").
To the best knowledge of INFUSYSTEM, all billings to Medicare and Medicaid have
been fully and appropriately made, are in the appropriate amounts and are fully
collectible.
3.30 Securities Matters. INFUSYSTEM does not currently have nor
has it had any outstanding securities registered (or required to be registered)
under the 1933 Act or the 1934 Act nor any reporting obligation thereunder.
3.31 Tax-Free Reorganization. INFUSYSTEM has no reason to believe
that the Merger will not qualify as a tax-free reorganization within the meaning
of Section 368(a) of the Code.
3.32 Powers of Attorney. INFUSYSTEM has no powers of attorney
outstanding other than those issued in the ordinary course of business with
respect to insurance, tax, and customs matters.
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3.33 Transactions with Related Parties. Except as set forth in
Schedule 3.33, no officer, director, or person known to INFUSYSTEM to own more
than one percent (1%) of INFUSYSTEM Common Stock (each, a "RELATED PARTY," and,
collectively, the "RELATED PARTIES") was, during the year ended December 31,
1996, or thereafter, or is currently, a party, directly or indirectly to any
transaction or is a proposed party to any currently proposed transaction with
INFUSYSTEM. Except as set forth in Schedule 3.33; (i) since December 31, 1996
there have been no transactions between INFUSYSTEM and any Related Party or any
payment (however characterized) by INFUSYSTEM to any Related Party or by any
Related Party to INFUSYSTEM (other than payments in the ordinary course and
consistent with past practice in respect of salary, wages or reimbursable
expenses); (ii) there is no lease, agreement or commitment between INFUSYSTEM
and any Related Party; (iii) no Related Party has any interest in any property,
real or personal, tangible or intangible, used in or pertaining to the business
of INFUSYSTEM; (iv) no Related Party is indebted to INFUSYSTEM; (v) INFUSYSTEM
is not indebted to any Related Party; and (vi) no Related Party competes with or
is a director, officer, employee or five percent (5%) or greater shareholder of
any person or entity that competes with INFUSYSTEM. After the adjustments to be
made to the Merger Consideration to be received by the Shareholders in
accordance with Section 6.19, INFUSYSTEM shall have collected in full all
accounts receivable from Related Parties and paid or otherwise discharged all
debt to Related Parties.
3.34 Product Liability. There is no action, suit, proceeding or
investigation by or before any court or governmental authority or agency
pending, or to the best knowledge of INFUSYSTEM, threatened against or involving
INFUSYSTEM relating to any product alleged to have been manufactured, repaired,
sold, leased or distributed by INFUSYSTEM and alleged to have been defective, or
improperly designed, repaired or manufactured, nor, to the best knowledge of
INFUSYSTEM, is there any valid basis for any such action, suit, proceeding or
investigation.
3.35 Full Disclosure. All instruments, agreements and other
documents delivered or to be delivered, or made available by INFUSYSTEM or the
INFUSYSTEM Shareholders, to I-FLOW or I-FLOWSUB pursuant to this Agreement are
complete and correct in all material respects. No representation or warranty
made by INFUSYSTEM in this Article III or the Schedules to this Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to be stated herein or therein
necessary to make the statements on behalf of INFUSYSTEM in this Article III and
the Schedules to this Agreement, in light of the circumstances in which they are
made, not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF I-FLOW AND I-FLOWSUB
I-FLOW and I-FLOWSUB jointly and severally represent and warrant
to VMI and INFUSYSTEM as follows:
4.1 Organization. Each of I-FLOW and I-FLOWSUB is a corporation
duly organized, validly existing and in good standing under California Law and
has the requisite corporate power to carry on its business. I-FLOWSUB has made
available to VMI and INFUSYSTEM a complete and correct copy of its Articles of
Incorporation and Bylaws, each as amended to date, and I-FLOWSUB's Articles of
Incorporation and Bylaws as so delivered are in full force and effect. I-FLOWSUB
is not in default in any material respect in the performance, observation or
fulfillment of any provision of its Articles of Incorporation or Bylaws.
4.2 Authority Relative to this Agreement. Each of I-FLOW and
I-FLOWSUB has all requisite corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby on the part of I-FLOW and I-FLOWSUB have been
duly and validly authorized by Boards of Directors of I-FLOW and I-FLOWSUB and
by I-FLOW as the sole shareholder of I-FLOWSUB. This Agreement has been duly and
validly executed and delivered by I-FLOW and I-FLOWSUB and constitutes a valid
and binding agreement of both I-FLOW and I-FLOWSUB, enforceable against each of
them in accordance with its terms, except (a) as such enforcement may be subject
to bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights, and (b) as the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
4.3 Broker's Commission or Finder's Fees. No person or entity has
acted for I-FLOW or I-FLOWSUB in connection with the transactions provided for
in this Agreement in a way which would entitle such person to any broker's
commissions or finder's fees (or other similar fees or commissions) in
connection with this Agreement or the transactions contemplated hereby.
4.4 I-FLOW Shares. Upon consummation of the transactions
contemplated by this Agreement, the I-FLOW Shares issued as the Merger
Consideration shall, at the time of issuance, be duly authorized and validly
issued, fully paid and non-assessable. Upon delivery of their shares of VMI
Common Stock or INFUSYSTEM Common Stock, the VMI Shareholders and the INFUSYSTEM
Shareholders receiving the Closing Merger Consideration
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will have good and valid title to the I-FLOW Shares so received, free and clear
of any claims, liens, pledges, options, security interests, trusts, encumbrances
or other rights or interests of any persons (other than any of such rights or
interests created by action of any of the VMI Shareholders or the INFUSYSTEM
Shareholders) and except for federal and state securities laws.
4.5 SEC Documents. The VMI Shareholders and INFUSYSTEM
Shareholders have been or will be (prior to issuance of the I-FLOW Shares)
provided by I-FLOW with (a) I-FLOW's most recent Annual Report on Form 10-K
filed with the Securities and Exchange Commission (the "SEC") and each of
I-FLOW's Quarterly Reports on Form 10-Q filed with the SEC subsequent thereto,
(b) I-FLOW's proxy materials for the 1997 Annual Meeting and (c) I-FLOW's most
recent Annual Report to Shareholders. Except as set forth on Schedule 4.5, as of
their respective dates, the documents referenced in this Section 4.5 complied in
all material respects with the applicable requirements of the 1933 Act and the
1934 Act.
4.6 Tax-Free Reorganization. Neither I-FLOW nor I-FLOWSUB has any
reason to believe that the Merger will not qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Code.
4.7 Full Disclosure. All instruments, agreements and other
documents delivered or to be delivered, or made available, to VMI and INFUSYSTEM
pursuant to this Agreement are complete and correct in all material respects. No
representation or warranty made by I-FLOW or I-FLOWSUB in this Article IV
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to be stated herein or therein
necessary to make the statements on behalf of I-FLOW and I-FLOWSUB in this
Article IV, in the light of the circumstances in which they are made, not
misleading.
4.8 Absence of Certain Changes. Since September 30, 1997, other
than as reflected in the preliminary operating results previously provided,
there has not been any change in I-FLOW's business, assets, financial condition
or results of operation which has had, in the aggregate, a material adverse
effect on I-FLOW (an "I-FLOW MATERIAL ADVERSE CHANGE").
4.9 Litigation. Except as set forth on Schedule 4.9, there is no
claim, action or proceeding pending, or to the knowledge of I-FLOW, threatened
against or relating to I-FLOW before any court or other competent governmental
or regulatory authority or body acting in an adjudicative capacity.
4.10 Preemptive Rights. All of the issued and outstanding shares
of I-FLOW's common stock are free of preemptive rights created by the Articles
of Incorporation of I-FLOW or the Bylaws of I-FLOW or by any agreement to which
I-FLOW is bound.
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ARTICLE V
CONDUCT OF BUSINESS BY VMI AND INFUSYSTEM
PRIOR TO EFFECTIVE TIME
During the period from the date of this Agreement until the
Effective Time, VMI and INFUSYSTEM agree (except as expressly contemplated by
this Agreement or to the extent that I-FLOW shall otherwise consent in writing)
as follows:
5.1 Ordinary Course. VMI and INFUSYSTEM shall carry on their
respective businesses in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and use all reasonable
efforts consistent with past practice and policies to preserve intact their
present business organizations, keep available the services of their present
officers and key employees and preserve their relationships with customers,
suppliers, lessors, lessees and others having business dealings with them to the
end that their goodwill and ongoing businesses shall be unimpaired at the
Effective Time. VMI and INFUSYSTEM will continue to maintain a standard system
of accounting established and administered in accordance with generally accepted
accounting principles.
5.2 Dividends; Changes in Stock. Neither VMI nor INFUSYSTEM shall
(a) declare or pay any dividends on or make other distributions in respect of
any shares of its capital stock, unless such dividends or distributions do not
materially affect shareholder equity as of June 30, 1997 and except for
distributions to cover the tax obligations of the INFUSYSTEM Shareholders
attributable to INFUSYSTEM's profits and the VMI Shareholders attributable to
VMI's profits, (b) split, combine, recapitalize or reclassify any shares of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for any shares of its capital stock or
(c) propose to do any of the foregoing.
5.3 Issuance or Repurchase of Securities. Except as otherwise
expressly contemplated by this Agreement, VMI, INFUSYSTEM and each VMI
Shareholder and INFUSYSTEM Shareholder shall not, (i) issue, pledge, deliver or
sell or authorize or propose the issuance, pledge, delivery or sale of, or
repurchase or propose the repurchase of, any shares of their capital stock of
any class, or any options, warrants or other rights exercisable for or
securities convertible into or exchangeable for, any such shares, (ii) issue any
securities convertible or exchangeable for debt securities, or (iii) issue any
options or other rights to acquire from VMI or INFUSYSTEM, directly or
indirectly, debt securities of VMI or INFUSYSTEM or any security convertible
into or exchangeable for such debt securities.
5.4 Governing Documents. VMI and INFUSYSTEM shall not propose or
adopt any amendment to their respective Articles of Incorporation or Bylaws.
5.5 No Solicitation.
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(a) On and after the date hereof, neither any of the VMI
Shareholders, VMI, the INFUSYSTEM Shareholders nor INFUSYSTEM will, nor will VMI
or INFUSYSTEM permit any of their respective officers, directors, employees,
agents or representatives (including, without limitation, investment bankers,
attorneys and accountants), directly or indirectly, to (i) initiate, solicit or
encourage any inquiries or proposals by, or (ii) enter into any discussions or
negotiations with, or disclose directly or indirectly any information concerning
VMI's or INFUSYSTEM's respective businesses and properties to, or afford any
access to VMI's or INFUSYSTEM's properties, books and records to, any
corporation, partnership, person, or other entity or group in connection with
any possible proposal (an "ACQUISITION PROPOSAL") regarding a sale or transfer
of VMI's or INFUSYSTEM's capital stock or merger, consolidation or sale of all
or a substantial portion of VMI's or INFUSYSTEM's assets, or any similar
transaction (a "MATERIAL TRANSACTION"). VMI, the VMI Shareholders, INFUSYSTEM
and/or the INFUSYSTEM Shareholders, as the case may be, will provide written
notice to I-FLOW immediately if any discussions or negotiations are sought to be
initiated, any inquiry or proposal is made, or any such information is requested
with respect to an Acquisition Proposal or potential Acquisition Proposal or if
any Acquisition Proposal is received or indicated to be forthcoming. The notice
will identify the third party and particulars of the discussions, inquiries or
proposal.
(b) In the event that VMI, any of the VMI Shareholders,
INFUSYSTEM or any of the INFUSYSTEM Shareholders breaches the covenants set
forth in Section 5.5(a) or receives an Acquisition Proposal during the term of
this Agreement and VMI, any of the VMI Shareholders, INFUSYSTEM or any of the
INFUSYSTEM Shareholders subsequently executes definitive documents for a
Material Transaction within one (1) year of the date hereof either with the
party (or an affiliate thereof) to or with whom disclosures, discussions or
negotiations were made or entered into, or the party (or an affiliate thereof)
making such Acquisition Proposal, then I-FLOW shall -- immediately upon the
execution of documentation relating to such Material Transaction -- be entitled
to receive a cash payment from VMI or INFUSYSTEM, as the case may be, in the
amount of Two Hundred Forty Thousand Dollars ($240,000). Such damages shall be
limited to the corporation which or whose shareholders violate Section 5.5(a)
hereof.
5.6 No Acquisitions. Neither VMI nor INFUSYSTEM shall acquire or
agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire or lease or agree to acquire or lease any
capital or other assets which are material, individually or in the aggregate, to
VMI taken as a whole or to INFUSYSTEM taken as a whole.
5.7 No Dispositions. Except for the sale of inventory in the
ordinary course of business, neither VMI nor INFUSYSTEM shall (i) sell, lease or
otherwise dispose of any assets which are material, individually or in the
aggregate, to VMI taken as a whole or to INFUSYSTEM taken as a whole; (ii) fail
to maintain levels of inventory proportionate to their existing business; or
(iii) alter inventory practices maintained during its last full fiscal years.
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5.8 Indebtedness.
(a) Except as set forth on Schedule 5.8, neither VMI nor
INFUSYSTEM shall incur, become subject to, or agree to incur or become subject
to any obligation or liability (absolute or contingent), except current
liabilities incurred, and obligations under contracts entered into, in the
ordinary course of business consistent with prior practice, and provided
specifically that VMI and INFUSYSTEM shall not enter into any material lease or
extension of any material lease with respect to any real or personal property or
issue or sell, or guaranty the repayment of, any debt securities.
(b) VMI and INFUSYSTEM shall not pay or be liable for
prepayment or other penalties in connection with the early retirement of any VMI
or INFUSYSTEM indebtedness for borrowed money.
5.9 Employees. Except for year-end bonuses and/or annual salary
increases in accordance with past practice, neither VMI nor INFUSYSTEM shall
make any change in the compensation payable or to become payable to any of its
respective officers, directors, employees, agents or consultants, enter into to
or amend any employment, severance, termination or other agreement or make any
loans to any of its respective officers, directors, employees, agents or
consultants or make any change in its respective existing borrowing or lending
arrangements for or on behalf of any of such persons, whether contingent on
consummation of the Merger or otherwise.
5.10 Benefit Plans. Neither VMI nor INFUSYSTEM shall (a) pay,
agree to pay or make any accrual or arrangement for payment of any pension,
retirement allowance or other employee benefit pursuant to any existing plan,
agreement or arrangement to any officer, director or employee except in the
ordinary course of business and consistent with past practice or as permitted by
this Agreement; (b) pay or agree to pay or make any accrual or arrangement for
payment to any VMI or INFUSYSTEM employees of any amount relating to unused
vacation days; (c) commit itself or themselves to adopt or pay, grant, issue or
accrue salary or benefits pursuant to any additional pension, profit-sharing,
bonus, extra compensation, incentive, deferred compensation, stock purchase,
stock option, stock appreciation right, group insurance, severance pay,
retirement or other employee benefit plan, agreement or arrangement, or any
employment or consulting agreement with or for the benefit of any director,
officer, employee, agent or consultant, whether past or present; or (d) amend in
any material respect any such existing plan, agreement or arrangement.
5.11 Additional Matters. Neither VMI nor INFUSYSTEM shall,
without the prior written consent of I-FLOW (which consent shall not be
unreasonably withheld):
(a) enter into, amend or terminate any material agreements,
commitments or contracts except in the ordinary course of business, consistent
with past practice;
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(b) discharge or satisfy any lien or encumbrance or payment
of any obligation or liability (absolute or contingent) other than current
liabilities in the ordinary course of business;
(c) cancel or agree to cancel any material debts or claims,
except in each case in the ordinary course of business;
(d) waive any rights of substantial value;
(e) otherwise make any material change in the conduct of the
business or operations of VMI or INFUSYSTEM taken as a whole;
(f) settle any tax assessment, litigation or other claims
involving the payment by VMI or INFUSYSTEM of more than Five Thousand Dollars
($5,000), relinquish any material contract right or make any equity investments
in third parties;
(g) acquire or lease more than two hundred (200) pumps (new
or used) in the aggregate, from any entity or person other than I-FLOW;
(h) subject any of its assets, or any part thereof, to any
lien, security interest, charge, interest or other encumbrance, or suffer such
to be imposed other than such liens, security interests, charges, interests or
other encumbrances as may arise in the ordinary course of business consistent
with past practices by operation of law which will not, individually or in the
aggregate, result in a VMI Material Adverse Change or an INFUSYSTEM Material
Adverse Change;
(i) acquire any assets, raw materials or properties, or
enter into any other transaction, other than in the ordinary course of business
consistent with past practices;
(j) fail to keep in full force and effect any insurance
policies comparable in amount and scope to coverage maintained by it (or on
behalf of it) on the date hereof;
(k) knowingly take any other action that would cause any of
the representations and warranties made herein not to remain true and correct;
(l) make any loan, advance or capital contribution to or
investment in any person;
(m) make any change in any method of accounting or
accounting principle, method, estimate or practice except for any such change
required by reason of a concurrent change in generally accepted accounting
principles or write-down the value of any inventory or write-off as
uncollectible any accounts receivable except in the ordinary course of business
consistent with past practices; or
(n) except in the ordinary course of business and consistent
with past practice, agree in writing or otherwise to take any of the foregoing
actions or any action which
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would constitute a VMI Material Adverse Change in any of the items and matters
covered by the representations and warranties of VMI set forth in Article II or
an INFUSYSTEM Material Adverse Change in any of the items and matters covered by
the representations and warranties of INFUSYSTEM set forth in Article III, or
make any such representation or warranty of VMI and INFUSYSTEM untrue or
incorrect in any material respect.
ARTICLE VI
ADDITIONAL COVENANTS
6.1 Access to Information.
(a) Between the date of this Agreement and the Effective
Time, each of VMI and INFUSYSTEM shall (i) give I-FLOW and I-FLOWSUB and their
authorized representatives during reasonable business hours full access to all
plants, offices, warehouses and other facilities and to all contracts, internal
reports, data processing files and records, federal, state, local and foreign
tax returns and records, commitments, books, records and affairs of VMI and
INFUSYSTEM, whether located on the premises of VMI and INFUSYSTEM or at another
location, (ii) permit I-FLOW and I-FLOWSUB to make such inspections as they may
require, (iii) cause its officers to furnish I-FLOW and I-FLOWSUB such
financial, operating, technical and product data and other information with
respect to the business and properties of VMI and INFUSYSTEM as I-FLOW and
I-FLOWSUB from time to time may request, including without limitation financial
statements and schedules, (iv) provided that VMI and INFUSYSTEM are permitted to
participate, allow I-FLOW and I-FLOWSUB the opportunity to interview such
employees, vendors, customers, sales representatives, distributors and other
personnel of VMI and INFUSYSTEM with VMI and INFUSYSTEM's prior written consent,
which consent shall not be unreasonably withheld, delayed or conditioned, and
(v) assist and cooperate with I-FLOW and I-FLOWSUB in the development of
integration plans for implementation by I-FLOW and the Surviving Corporation
following the Effective Time; provided, however, that no investigation pursuant
to this Section 6.1 shall affect or be deemed to modify any representation or
warranty made by VMI, INFUSYSTEM or their respective Shareholders herein.
(b) Between the date of this Agreement and the Effective
Time, I-FLOW shall (i) give VMI and INFUSYSTEM and their authorized
representatives during reasonable business hours full access to all plants,
offices, warehouses and other facilities and to all contracts, internal reports,
data processing files and records, federal, state, local and foreign tax returns
and records, commitments, books, records and affairs of I-FLOW, whether located
on the premises of I-FLOW or at another location, (ii) permit VMI and INFUSYSTEM
to make such inspections as they may require, and (iii) cause its officers to
furnish VMI and INFUSYSTEM such financial, operating, technical and product data
and other information with respect to the business and properties of I-FLOW as
VMI and INFUSYSTEM from time to time may request, including without limitation
financial statements and schedules; provided,
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however, that no investigation pursuant to this Section 6.1 shall affect or be
deemed to modify any representation or warranty made by I-FLOW or I-FLOWSUB
herein.
(c) VMI and INFUSYSTEM on the one hand, and I-FLOW and
I-FLOWSUB on the other hand, shall give prompt notice to each other of any
material breach of any of their respective covenants hereunder or the occurrence
of any event that is reasonably likely to cause any of their respective
representations and warranties hereunder to become incomplete or untrue in any
material respect.
6.2 Shareholder Approvals. VMI and INFUSYSTEM, acting through
their respective Boards of Directors, shall duly call, give notice of, convene
and hold the Special Meetings to consider and vote upon the approval and
adoption of this Agreement and the Merger contemplated hereby or prepare and
deliver the Written Consents pursuant to which the shareholders shall vote upon
the approval and adoption of this Agreement and the Merger contemplated hereby,
all in accordance with Michigan Law and their respective Articles of
Incorporation (the "SHAREHOLDER PROPOSAL"). Each of the VMI Shareholders and
each of the INFUSYSTEM Shareholders agrees to vote in favor of the Shareholder
Proposal.
6.3 Governmental Filings. Each of I-FLOW, I-FLOWSUB, VMI and
INFUSYSTEM agrees to make as promptly as practicable any and all filings
necessary under any applicable federal, state, local and foreign laws and to
obtain any and all required regulatory approvals, clearances or expirations of
waiting periods in connection with the transactions contemplated by this
Agreement (all such filings required to be made as provided herein are referred
to herein collectively as the "GOVERNMENTAL FILINGS"). Each party shall use its
best efforts, and cause its counsel to use their best efforts, to cooperate with
the other parties in preparing their respective Governmental Filings and in
obtaining any and all required regulatory approvals, clearances and expirations
of waiting periods.
6.4 Legal Conditions to the Merger. Each of I-FLOW, I-FLOWSUB,
VMI and INFUSYSTEM will take all reasonable actions necessary or appropriate to
comply promptly with all legal requirements which may be imposed on such party
with respect to the Merger and will promptly cooperate with and furnish
information to such other party or parties in connection with any such
requirements as may be imposed upon such other party or parties in connection
with the Merger. Each of I-FLOW, I-FLOWSUB, VMI and INFUSYSTEM will take all
reasonable actions to obtain (and to cooperate with such other party or parties
in order to obtain) any consent, authorization, order or approval of, or any
exemption by, any governmental or regulatory authority, or other third party,
required to be obtained or made by such party or parties in connection with the
Merger or the taking of any action contemplated thereby or by this Agreement.
6.5 Certain Defaults.
(a) Each of VMI and INFUSYSTEM will give prompt notice to
I-FLOW and I-FLOWSUB of (i) any notice of default received by it subsequent to
the date of this Agreement and prior to the Effective Time under any material
instrument or material agreement to which it is a party or by which it is bound,
which default, if not remedied, could
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result in a VMI Material Adverse Change or an INFUSYSTEM Material Adverse Change
or which could render materially incomplete or untrue any representation made
herein, and (ii) any suit, action or proceeding instituted or, to the knowledge
of either of them, threatened against or affecting either of them or their
shareholders subsequent to the date of this Agreement and prior to the Effective
Time which, if adversely determined, could result in a VMI Material Adverse
Change or an INFUSYSTEM Material Adverse Change or which could render materially
incorrect any representation made herein.
(b) I-FLOW will give prompt notice to VMI and INFUSYSTEM of
(i) any notice of default received by it subsequent to the date of this
Agreement and prior to the Effective Time under any material instrument or
material agreement to which it is a party or by which it is bound, which
default, if not remedied, could result in an I-FLOW Material Adverse Change or
which could render materially incomplete or untrue any representation made
herein, and (ii) any suit, action or proceeding instituted or, to the knowledge
of I-FLOW, threatened against or affecting I-FLOW or its shareholders subsequent
to the date of this Agreement and prior to the Effective Time which, if
adversely determined, could result in an I-FLOW Material Adverse Change or which
could render materially incorrect any representation made herein.
6.6 Expenses.
(a) The VMI Shareholders shall bear and be solely
responsible for all costs, fees and expenses (including income and sales taxes)
incurred by VMI or the VMI Shareholders in connection with this Agreement, the
transactions contemplated hereby, and the Merger.
(b) The INFUSYSTEM Shareholders shall bear and be solely
responsible for all costs, fees and expenses (including income and sales taxes)
incurred by INFUSYSTEM or the INFUSYSTEM Shareholders in connection with this
Agreement, the transactions contemplated hereby, and the Merger.
(c) I-FLOW shall bear and be solely responsible for all
costs, fees and expenses (including income and sales taxes) incurred by I-FLOW
or I-FLOWSUB in connection with this Agreement, the transactions contemplated
hereby, and the Merger.
6.7 Brokers or Finders. Other than the existing agreement with
Amherst Capital Partners, L.L.C. ("AMHERST"), neither VMI nor INFUSYSTEM shall
enter into any agreement or arrangement with any agent, broker, investment
banker or other firm or person pursuant to which such person shall be entitled
to any broker or finder's fee or any other commission or similar fee in
connection with any of the transactions contemplated by this Agreement.
6.8 Additional Actions. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all reasonable action and to do, or cause to be
done, all things reasonably necessary, proper or advisable under applicable laws
and regulations to consummate and make effective
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the transactions contemplated by this Agreement as promptly as reasonably
practicable. Such obligation shall include without limitation such efforts of
each of the parties, prior to the Effective Time, to obtain, to be effective
either at the Effective Time or as soon as practicable thereafter, any required
consents with respect to, or novations of, any contracts, agreements, plans,
leases, instruments, licenses, arrangements or commitments of VMI and INFUSYSTEM
in effect prior to the Effective Time. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either of
I-FLOWSUB or VMI or INFUSYSTEM, the proper officers and directors of each
corporation which is a party to this Agreement shall take all such necessary
action.
6.9 Tax Treatment of Merger. Each party agrees to report the
Merger on all tax returns and other filings as a tax-free reorganization under
Section 368(a) of the Code except where, in the opinion of tax counsel to such
party, there is not "substantial authority," as defined in Section 6662 of the
Code, to support such a position.
6.10 Tax-Free Reorganization. From and after the Effective Time,
neither VMI, INFUSYSTEMS, I-FLOW, I-FLOWSUB, the VMI Shareholders nor the
INFUSYSTEM Shareholders shall take or permit to be taken any action which will
cause the Merger not to constitute a tax-free reorganization within the meaning
of Section 368(a) of the Code.
6.11 Affiliates of VMI and INFUSYSTEM. Schedule 2.2 sets forth
the names of all persons or entities who or which may be deemed to be
"affiliates" of VMI for purposes of Rule 145 under the 1933 Act and Schedule 3.2
sets forth the names of all persons or entities who or which may be deemed to be
"affiliates" of INFUSYSTEM for purposes of Rule 145 under the 1933 Act
(collectively, the "RULE 145 AFFILIATES"). Each such Rule 145 Affiliate has
delivered to I-FLOW a written agreement (the "AFFILIATES AGREEMENT") in the form
attached hereto as Exhibit 6.11 that such Rule 145 Affiliate will not sell,
pledge, transfer or otherwise dispose of any shares of I-FLOW Common Stock
issued to such Rule 145 Affiliate pursuant to the Merger, except pursuant to an
effective registration statement or in compliance with Rule 145 or an exemption
from the registration requirements of the 1933 Act. I-FLOW agrees that, at all
times during which any Rule 145 Affiliate is subject to the resale restrictions
of Rule 144 and/or Rule 145, I-FLOW shall file all SEC Reports required to be
filed with the SEC under the 1933 Act and the 1934 Act including without
limitation in a manner that satisfies the requirements of Rule 144(c)(1).
6.12 Restriction on Sale of I-FLOW Merger Shares. I-FLOW shall
use its commercially reasonable best efforts to cause the I-FLOW Merger Shares
to be registered under the 1933 Act within six (6) months of the Closing Date
and any additional shares of I-FLOW Common Stock issued pursuant to Section
1.6(a)(ii) to be registered under the 1933 Act within six (6) months of the date
of issuance. Subject to the provisions of this Section 6.12 and applicable laws,
each of the VMI Shareholders and the INFUSYSTEM Shareholders may sell up to
twenty-five percent (25%) of his pro rata share of (1) the I-FLOW Merger Shares
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received in the Merger plus (2) any additional shares received pursuant to
Section 1.6(a)(ii) (collectively, "TOTAL SHARES") each six (6) months beginning
180 days following the Closing Date; provided, however, a VMI Shareholder or an
INFUSYSTEM Shareholder will be permitted to sell more than twenty-five (25%) of
his pro rata share of Total Shares, if (i) the aggregate number of Total Shares
being sold by all of the VMI Shareholders and the INFUSYSTEM Shareholders
collectively for that six (6) month period does not exceed twenty-five percent
(25%) of Total Shares, and (ii) the Shareholder requesting to sell more than
twenty-five percent (25%) of his pro rata share of Total Shares files with
I-FLOW, prior to the sale, a certificate signed by each VMI Shareholder and
INFUSYSTEM Shareholder consenting to such Shareholder's proposed sale of
additional Total Shares and confirming that they will not, in the aggregate,
sell shares in amounts that would cause the twenty-five percent (25%) limitation
to be violated. Notwithstanding the foregoing, if any VMI Shareholder or
INFUSYSTEM Shareholder is selling any portion of his pro rata share of the
Escrowed Shares (as defined herein) in accordance with this Section 6.12 prior
to the release, subject to the terms of the Escrow Agreement and Article IX
hereof, of the Escrow Fund on the second anniversary of the Effective Time, such
Shareholder shall deposit into the Escrow Fund an amount in cash equal to the
product of the number of Escrowed Shares to be sold by such Shareholder in
accordance with this Section 6.12 times the Closing Value of such Escrowed
Shares. Subject to the restrictions on the sale of I-FLOW Merger Shares set
forth herein and under applicable laws, each VMI Shareholder and each INFUSYSTEM
Shareholder listed on Schedule 7.1(d) shall be permitted to replace any portion
of his pro rata share of the Escrowed Shares with an amount of cash equal to the
product of the number of Escrowed Shares to be so replaced times the Closing
Value at any time prior to release, subject to the terms of the Escrow Agreement
and Article IX hereof, of the Escrow Fund on the second anniversary of the
Effective Time. Notwithstanding anything herein to the contrary, none of the VMI
Shareholders or the INFUSYSTEM Shareholders are obligated to sell any of their
shares of I-FLOW Merger Shares at any time.
6.13 Profitability of Surviving Corporation. I-FLOW acknowledges
that it has performed due diligence on the businesses and operations of VMI and
INFUSYSTEM and that neither VMI nor INFUSYSTEM are making any guaranty regarding
the future profitability of the Surviving Corporation; provided, however, such
due diligence performed by I-FLOW shall not affect or be deemed to modify any
representation or warranty made by VMI, INFUSYSTEM or their respective
Shareholders herein.
6.14 Spinka Lawsuit. VMI, INFUSYSTEM, the VMI Shareholders and
the INFUSYSTEM Shareholders acknowledge and agree that neither I-FLOW nor
I-FLOWSUB shall have any liability in connection with the lawsuit Scott Spinka
v. Infusystems II, Inc., et al., filed September 11, 1997 in the United States
District Court for the Eastern District of Michigan or the refiling of such
lawsuit to another venue or forum (the "SPINKA LAWSUIT") and that the VMI
Shareholders shall jointly and severally indemnify I-FLOW and I-FLOWSUB for any
and all Damages (as defined herein) either of them shall incur or suffer which
arise, result from or relate to the Spinka Lawsuit or any action related to or
arising out of any of the allegations within the Spinka Lawsuit.
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6.15 Accounts Receivable.
(a) At six (6) months after the Closing Date and at twelve
(12) months after the Closing Date, the Surviving Corporation shall (i)
determine the amount that has been collected by the Surviving Corporation during
the immediately preceding six (6) month period on all accounts receivable of VMI
set forth on Schedule 2.27(a) hereto, and (ii) pay an aggregate of fifty percent
(50%) of the amount so collected during such period to the VMI Shareholders
based on their pro rata interest in VMI immediately prior to the Effective Time.
(b) At six (6) months after the Closing Date and at twelve
(12) months after the Closing Date, the Surviving Corporation shall (i)
determine the amount that has been collected by the Surviving Corporation during
the immediately preceding six (6) month period on all accounts receivable of
INFUSYSTEM set forth on Schedule 3.27(a) hereto, and (ii) pay an aggregate of
fifty percent (50%) of the amount collected during such period to the INFUSYSTEM
Shareholders based on their pro rata interest set forth on Schedule 6.15(b)
hereof.
(c) Notwithstanding anything herein to the contrary, the
Surviving Corporation shall retain any and all amounts collected by the
Surviving Corporation at any time after the first anniversary of the Closing
Date on any accounts receivable of VMI set forth on Schedule 2.27(a) hereto and
on any accounts receivable of INFUSYSTEM set forth on Schedule 3.27(a) hereto.
6.16 Medicare/Medicaid.
(a) VMI and the VMI Shareholders acknowledge and agree that
the VMI Shareholders shall indemnify the Indemnified Parties (as defined herein)
for any and all Damages (as defined herein) that they shall incur or suffer
which arise, result from or relate to (i) the VMI Medicare Prohibited Acts, (ii)
billings by VMI to Medicare and/or Medicaid that are not fully or appropriately
made, are not in appropriate amounts or are not fully collectible and/or (iii)
the items set forth on Schedule 6.16(a).
(b) INFUSYSTEM and the INFUSYSTEM Shareholders acknowledge
and agree that the INFUSYSTEM Shareholders set forth on Schedule 7.1(d) shall
indemnify the Indemnified Parties (as defined herein) for any and all Damages
(as defined herein) that they shall incur or suffer which arise, result from or
relate to (i) the INFUSYSTEM Medicare Prohibited Acts, (ii) billings by
INFUSYSTEM to Medicare and/or Medicaid that are not fully or appropriately made,
are not in appropriate amounts or are not fully collectible and/or (iii) the
items set forth on Schedule 6.16(b).
6.17 Qualification to do Business
(a) VMI and the VMI Shareholders acknowledge and agree that
the VMI Shareholders shall indemnify the Indemnified Parties (as defined herein)
for any and all Damages (as defined herein) that they shall incur or suffer
which arise, result from or relate to
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VMI's failure, if any, to be qualified to do business as a foreign corporation
and/or to be in good standing in each jurisdiction in which the character of its
properties or the nature of its business makes such qualification necessary;
provided, however that the VMI Shareholders shall have no obligation to
indemnify the Indemnified Parties for legal fees incurred in connection with the
preparation of initial filings for qualifications to do business as a foreign
corporation.
(b) INFUSYSTEM and the INFUSYSTEM Shareholders acknowledge
and agree that the INFUSYSTEM Shareholders set forth on Schedule 7.1(d) shall
indemnify the Indemnified Parties (as defined herein) for any and all Damages
(as defined herein) that they shall incur or suffer which arise, result from or
relate to INFUSYSTEM's failure, if any, to be qualified to do business as a
foreign corporation and/or to be in good standing in each jurisdiction in which
the character of its properties or the nature of its business makes such
qualification necessary; provided, however that the INFUSYSTEM Shareholders
shall have no obligation to indemnify the Indemnified Parties for legal fees
incurred in connection with the preparation of initial filings for
qualifications to do business as a foreign corporation.
6.18 Environmental Matters.
(a) VMI and the VMI Shareholders acknowledge and agree that
the VMI Shareholders shall indemnify the Indemnified Parties (as defined herein)
for any and all Damages (as defined herein) that they shall incur or suffer
which arise, result from or relate to the prior presence and removal of and/or
leakage from the underground storage tank removed from the property leased by
VMI at 1551 Lincoln Avenue, Madison Heights, Michigan.
(b) INFUSYSTEM and the INFUSYSTEM Shareholders acknowledge
and agree that the INFUSYSTEM Shareholders set forth on Schedule 7.1(d) shall
indemnify the Indemnified Parties (as defined herein) for any and all Damages
(as defined herein) that they shall incur or suffer which arise, result from or
relate to the prior presence and removal of and/or leakage from the underground
storage tank removed from the property leased by VMI at 1551 Lincoln Avenue,
Madison Heights, Michigan.
6.19 Adjustments to Merger Consideration.
(a) As contemplated by Section 1.7 and 9.1(b), I-FLOW shall
deposit that number of I-FLOW Merger Shares that the VMI Shareholders and the
INFUSYSTEM Shareholders set forth on Schedule 7.1(d) are entitled to pursuant to
Section 1.6(b) having an aggregate value, based on the Closing Value, equal to
One Million Five Hundred Thousand Dollars ($1,500,000) (the "ESCROWED MERGER
CONSIDERATION") into the Escrow Fund (the "ESCROWED SHARES") and the VMI
Shareholders and the INFUSYSTEM Shareholders so authorize I-FLOW to deposit the
Escrowed Shares into the Escrow Fund. The number of I-FLOW Merger Shares to be
deposited in the Escrow Fund by I-FLOW for each VMI Shareholder shall have a
value, based on the Closing Value, equal to (x) Five Hundred Thirty-Seven
Thousand One Hundred Fifty Dollars ($537,150) (y) divided by the number of
shares of VMI Common Stock outstanding immediately prior to the Effective Time
and (z) multiplied by
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that holder's number of shares of VMI Common Stock immediately prior to the
Effective Time. The number of I-FLOW Merger Shares to be deposited in the Escrow
Fund by I-FLOW for each INFUSYSTEM Shareholder set forth on Schedule 7.1(d)
shall have a value, based on the Closing Value, equal to (x) Nine Hundred
Sixty-Two Thousand Eight Hundred Fifty Dollars ($962,850) (y) divided by the
number of shares of INFUSYSTEM Common Stock outstanding immediately prior to the
Effective Time less the number of shares of INFUSYSTEM Common Stock held by
Scott Spinka immediately prior to the Effective Time and (z) multiplied by that
holder's number of shares of INFUSYSTEM Common Stock. The Escrowed Shares shall
be valued at the Closing Value at the time of contribution to and at the time of
release from the Escrow Fund, to the extent the Escrowed Shares are used to
satisfy Buyer's Claims.
(b) The parties hereto agree that the dollar amounts set
forth on Schedule 6.19 shall be subtracted or added, as applicable, from the
amount of Merger Consideration each Shareholder is to receive pursuant to
Section 1.6(b) and that such amounts are being added or subtracted so that VMI
and INFUSYSTEM shall have collected in full accounts receivable from Related
Parties and paid or otherwise discharged all debt to Related Parties other than
the current monthly lease payments due by VMI to Tu-Effs pursuant to the Lease.
The parties hereto further agree that the adjustments to the Merger
Consideration pursuant to this Section 6.19 shall not affect the amount of the
Escrow Fund.
ARTICLE VII
CONDITIONS PRECEDENT TO CONSUMMATION OF
THE MERGER
7.1 Conditions to the Obligations of I-FLOW, I-FLOWSUB, VMI and
INFUSYSTEM. The respective obligations of I-FLOW, I-FLOWSUB, VMI and INFUSYSTEM
to effect the Merger shall be subject to the satisfaction on or prior to the
Effective Time of the following conditions:
(a) Governmental Approvals. All material authorizations,
consents, orders or approvals of, or declarations or filings with, or expiration
of waiting periods imposed by, any competent federal, state, local or foreign
governmental or regulatory authority necessary for the consummation of the
transactions contemplated by this Agreement shall have been filed, occurred or
been obtained.
(b) Legal Action. No temporary restraining order,
preliminary injunction or permanent injunction or other order preventing the
consummation of the Merger shall have been issued by any federal, state or
foreign court or other governmental or regulatory authority and remain in
effect, and no litigation seeking the issuance of such an order or injunction,
or seeking substantial damages against I-FLOW, I-FLOWSUB, VMI or INFUSYSTEM if
the Merger is consummated, shall be pending which, in the good faith
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judgment of the Boards of Directors of I-FLOW or I-FLOWSUB or the Boards of
Directors of VMI or INFUSYSTEM (acting upon advice of their respective counsel)
has a reasonable probability of resulting in such order, injunction or
substantial damages. In the event any such order or injunction shall have been
issued, each party agrees to use its reasonable efforts to have any such
injunction lifted.
(c) Statutes. No federal, state, local or foreign statute,
rule or regulation shall have been enacted which would make the consummation of
the Merger illegal.
(d) Escrow. I-FLOW, I-FLOWSUB, VMI, INFUSYSTEM, Steven E.
Watkins as representative of the VMI Shareholders and the INFUSYSTEM
Shareholders set forth on Schedule 7.1(d) hereto, and U.S. Trust Company of
California, N.A. (the "ESCROW AGENT") shall have entered into an escrow
agreement (the "ESCROW AGREEMENT") in form and substance reasonably satisfactory
to I-FLOW, VMI and INFUSYSTEM, which Escrow Agreement shall become effective
upon the Effective Time.
(e) VMI and INFUSYSTEM Shareholder Approval. This Agreement
shall have been approved and adopted by the affirmative vote required of (i) the
shareholders of VMI pursuant to the VMI Articles of Incorporation and Michigan
Law, and (ii) the shareholders of INFUSYSTEM pursuant to the INFUSYSTEM Articles
of Incorporation and Michigan Law.
(f) Investment Banker. I-FLOW, I-FLOWSUB, VMI, INFUSYSTEM,
the VMI Shareholders, the INFUSYSTEM Shareholders and Amherst shall have entered
into an agreement providing for the payment by the Surviving Corporation of up
to $200,000 of Amherst's fees and expenses, payable in unregistered shares of
I-FLOW Common Stock, and for the payment by the VMI Shareholders and the
INFUSYSTEM Shareholders of any additional amounts due to Amherst in connection
with the Merger.
(g) Counsels' Fees. I-FLOW, I-FLOWSUB, VMI, INFUSYSTEM, the
VMI Shareholders, the INFUSYSTEM Shareholders, and Cohen & Ellias, P.C., counsel
for VMI and INFUSYSTEM, shall have entered into an agreement providing for the
payment by the Surviving Corporation of up to $50,000 of the fees and expenses
of Cohen & Ellias, P.C. incurred in connection with the Merger and for the
payment by the VMI Shareholders and the INFUSYSTEM Shareholders of any
additional amounts due to Cohen & Ellias, P.C., any other counsel for VMI and
INFUSYSTEM, counsel for any of the VMI Shareholders and/or counsel for any of
the INFUSYSTEM Shareholders in connection with the Merger or otherwise.
7.2 Further Conditions to the Obligations of I-FLOW and
I-FLOWSUB. The obligations of I-FLOW and I-FLOWSUB to effect the Merger are
subject to the satisfaction on or prior to the Effective Time of the following
conditions, unless waived by I-FLOW and I-FLOWSUB:
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(a) Representations and Warranties.
(i) The representations and warranties of VMI and the VMI
Shareholders set forth in Article II and of INFUSYSTEM and the INFUSYSTEM
Shareholders set forth in Article III of this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Effective Time as though made at and as of the Effective Time; and
(ii) I-FLOW and I-FLOWSUB shall have received (A) a
certificate (the "VMI COMPLIANCE CERTIFICATE") dated the date of the Closing to
the foregoing effects signed by the president and chief financial officer and
secretary of VMI and (B) a certificate (the "INFUSYSTEM COMPLIANCE CERTIFICATE")
dated the date of the Closing to the foregoing effects signed by the president
and chief financial officer and secretary of INFUSYSTEM.
(b) Performance of Obligations of Other Parties. VMI and
INFUSYSTEM shall have performed in all material respects all obligations
required to be performed by them under this Agreement prior to the Effective
Time, and the respective Compliance Certificates shall include a statement to
such effect.
(c) Opinion of VMI's and INFUSYSTEM's Counsel. I-FLOW and
I-FLOWSUB shall have received an opinion dated the Effective Time of Cohen &
Ellias, P.C. counsel to VMI and INFUSYSTEM, in substantially the form of Exhibit
7.2(c) hereto.
(d) No Litigation. Since the date hereof, there shall not
have been instituted and be continuing or threatened against VMI and INFUSYSTEM
any claim, action or proceeding the result of which, could reasonably be
expected to result in a VMI Material Adverse Change or an INFUSYSTEM Material
Adverse Change.
(e) No Adverse Change. No VMI Material Adverse Change or
INFUSYSTEM Material Adverse Change shall have occurred.
(f) Dissenting Shares. The aggregate number of shares of
Common Stock held by VMI and INFUSYSTEM shareholders which are eligible for
treatment as dissenting shares under applicable law shall not be equal to or
exceed one percent (1%) of the aggregate outstanding shares of VMI Common Stock
and INFUSYSTEM Common Stock immediately prior to the Effective Time.
(g) Third-Party Approvals. Any and all consents required from
third parties relating to contracts, licenses, leases and other agreements and
instruments material to the financial condition or results of operations of each
of VMI and INFUSYSTEM and, following consummation of the Merger, the Surviving
Corporation, shall have been obtained.
(h) Resignations/Related Matters. VMI and INFUSYSTEM shall
have delivered to I-FLOW and I-FLOWSUB the resignations of the officers and
directors of VMI and INFUSYSTEM, effective as of the Closing Date. VMI and
INFUSYSTEM shall
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also have delivered to I-FLOW and I-FLOWSUB such executed signature cards and
revocations as I-FLOW may reasonably request relating to bank accounts, safe
deposit boxes and powers of attorney outstanding on the Closing Date.
(i) Noncompetition Agreements. Each of the VMI Shareholders
and the INFUSYSTEM Shareholders shall have executed and delivered to I-FLOW a
Noncompetition Agreement in the form attached hereto as Exhibit 7.2(i).
(j) VMI's Certified Resolutions. VMI shall have furnished
I-FLOW and I-FLOWSUB with a copy, certified by VMI's secretary, of (1) a
resolution or resolutions duly adopted by VMI's Board of Directors authorizing
and approving the execution and delivery of this Agreement, directing that it be
submitted to a vote of VMI's shareholders and authorizing the consummation of
the transactions contemplated by this Agreement, and (2) a resolution or
resolutions adopting the Merger as set forth in this Agreement, duly approved by
the holders of at least a majority of the total number of outstanding shares of
VMI Common Stock.
(k) INFUSYSTEM's Certified Resolutions. INFUSYSTEM shall have
furnished I-FLOW and I-FLOWSUB with a copy, certified by INFUSYSTEM's secretary,
of (1) a resolution or resolutions duly adopted by INFUSYSTEM's Board of
Directors authorizing and approving the execution and delivery of this
Agreement, directing that it be submitted to a vote of INFUSYSTEM's shareholders
and authorizing the consummation of the transactions contemplated by this
Agreement, and (2) a resolution or resolutions adopting the Merger as set forth
in this Agreement, duly approved by the holders of at least a majority of the
total number of outstanding shares of INFUSYSTEM Common Stock.
(l) Filings and Consents. Other than the filing of the
Michigan Certificate of Merger, all filings required to be made prior to the
Effective Time by VMI or INFUSYSTEM with, and all licenses, certifications,
consents, approvals and authorizations required to be obtained prior to the
Effective Time by VMI or INFUSYSTEM from, governmental authorities and other
third parties in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby shall have been
made or obtained, as the case may be, either without modification of the
underlying obligations or upon conditions satisfactory to I-FLOW, and shall be
in full force and effect.
(m) Proceedings Satisfactory to Counsel. All proceedings
taken by VMI and INFUSYSTEM and all instruments executed and delivered by either
of them in connection with the Merger at or prior to the Closing Date shall be
reasonably satisfactory in form and substance to counsel for I-FLOW and
I-FLOWSUB.
(n) Affiliates Agreement. There shall have been delivered to
I-FLOW an Affiliates Agreement executed by each of the persons listed as an
"affiliate" on Schedule 2.2 or Schedule 3.2.
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(o) Indebtedness. I-FLOWSUB shall have assumed all
indebtedness with Comerica Bank of either VMI or INFUSYSTEM and such assumption
by I-FLOWSUB shall not result in either the acceleration of outstanding
obligations thereunder or in the creation of a security interest or other lien
on the assets of I-FLOW by Comerica Bank.
(p) Irrevocable Proxies. Each of the VMI Shareholders and
INFUSYSTEM Shareholders shall provide and deliver an irrevocable proxy to I-FLOW
to vote his shares of I-FLOW Common Stock in favor of any merger-related
transaction that triggers the availability of dissenter's rights and is
recommended by the Board of Directors of I-FLOW within one (1) year from
Effective Time.
7.3 Further Conditions to the Obligations of VMI and INFUSYSTEM.
The obligations of VMI and INFUSYSTEM to effect the Merger are subject to the
satisfaction on or prior to the Effective Time of the following conditions,
unless waived by VMI and INFUSYSTEM:
(a) Shareholder Approval. This Agreement shall have been
approved and adopted by the affirmative vote, pursuant to the I-FLOWSUB Articles
of Incorporation and California Law, of I-FLOW as the sole shareholder of
I-FLOWSUB.
(b) Representations and Warranties. The representations and
warranties of I-FLOW and I-FLOWSUB set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Effective Time as though made at and as of the Effective Time, and VMI and
INFUSYSTEM shall have received a certificate signed by authorized officers of
each of I-FLOW and I-FLOWSUB to such effect.
(c) Performance of Obligations of Other Parties. I-FLOW and
I-FLOWSUB shall have performed in all material respects all obligations required
to be performed by them under this Agreement prior to the Effective Time, and
VMI and INFUSYSTEM shall have received a certificate signed by authorized
officers of each of I-FLOW and I-FLOWSUB to such effect.
(d) Opinion of I-FLOW's Counsel. VMI and INFUSYSTEM shall
have received opinions dated the Effective Time of Gibson, Dunn & Crutcher LLP
in substantially the form of Exhibit 7.3(d) attached hereto.
(e) Third-Party Approvals. Any and all consents required by
I-FLOW and I-FLOWSUB from third parties in order to consummate the transactions
contemplated hereby shall have been obtained.
(f) Buyer's Certified Resolutions. I-FLOW shall have
furnished VMI and INFUSYSTEM with certified copies of (1) resolutions duly
adopted by the Board of Directors of I-FLOW and the Board of Directors of
I-FLOWSUB authorizing and approving the execution and delivery of this Agreement
and authorizing the consummation of the transactions contemplated by this
Agreement, and (2) resolutions duly adopted by I-FLOW as sole shareholder of
I-FLOWSUB adopting the Merger set forth in this Agreement.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the shareholders of I-FLOWSUB, VMI
and INFUSYSTEM:
(a) By Mutual Consent. By mutual consent of I-FLOW,
I-FLOWSUB, VMI and INFUSYSTEM, as authorized by their respective Boards of
Directors.
(b) By I-FLOW and I-FLOWSUB, or VMI and INFUSYSTEM. By either
I-FLOW and I-FLOWSUB on the one hand, or VMI and INFUSYSTEM on the other hand,
as authorized by their respective Boards of Directors:
(i) if the Merger shall not have been consummated on or
before February 6, 1998; provided that the failure of the Merger to be
consummated by such date is not caused by any breach of this Agreement by the
party seeking such termination;
(ii) if a court of competent jurisdiction or other
governmental or regulatory authority shall have issued an order, decree or
ruling or taken any other action, in each case permanently restraining,
enjoining or otherwise prohibiting the consummation of the Merger and such
order, decree, ruling or other action shall have become final and not
appealable; or
(iii) if any statute, rule or regulation is enacted,
promulgated or deemed applicable to the Merger by any competent governmental or
regulatory authority which makes the consummation of the Merger illegal.
(c) By I-FLOW and I-FLOWSUB. By I-FLOW or I-FLOWSUB, as
authorized by their respective Board of Directors, if a material default under
or a material breach of this Agreement by VMI and INFUSYSTEM shall have occurred
and be continuing ten (10) business days after receipt of notice thereof from
I-FLOW or I-FLOWSUB.
(d) By VMI and INFUSYSTEM. By VMI and INFUSYSTEM, as
authorized by their respective Boards of Directors, if a material default under
or a material breach of this Agreement by I-FLOW or I-FLOWSUB shall have
occurred and be continuing ten (10) business days after receipt of notice
thereof from VMI and INFUSYSTEM.
Any action taken to terminate this Agreement pursuant to this
Section 8.1 shall become effective when notice of such termination is delivered
by the terminating party to the other parties in accordance with the provisions
of Section 11.1 below.
8.2 Effect of Termination. In the event of termination of this
Agreement by either I-FLOW and/or I-FLOWSUB, or VMI and/or INFUSYSTEM, as
provided in
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Section 8.1 above, this Agreement shall forthwith become void and there shall be
no liability or obligation (except as specifically provided in that certain
Agreement Re: Negotiations dated October 31, 1997, as amended, by and among
I-FLOW, VMI and certain shareholders of VMI and as specifically provided in that
certain Agreement Re: Negotiations dated October 31, 1997, as amended, by and
among I-FLOW, INFUSYSTEM and certain shareholders of INFUSYSTEM) on the part of
I-FLOW and I-FLOWSUB, or either of them, or VMI and INFUSYSTEM, or either of
them, or any of their respective officers, directors or employees, except that
nothing set forth herein shall relieve a party hereto from liability for its
willful or knowing breach of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties
hereto at any time before or after approval of matters presented in connection
with the Merger by the shareholders of I-FLOWSUB and VMI and INFUSYSTEM, but,
after any such shareholder approval, any amendment which by law requires the
further approval of any shareholders shall not be effective without obtaining
such further approval. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto and in compliance with
California Law and Michigan Law.
8.4 Extension; Waiver. At any time prior to the Effective Time,
to the extent legally allowed, any party hereto (a) may extend the time for the
performance of any of the obligations owed to such party by the other parties
hereto, (b) may waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant hereto
or (c) may waive compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party and shall be effective only
to the extent set forth in such instrument. No extension or waiver of any single
condition, covenant, agreement, representation, warranty, breach, default or
other matter hereunder shall be deemed an extension or waiver of such or any
other condition, covenant, agreement, representation, warranty, breach, default
or other matter theretofore or thereafter occurring.
ARTICLE IX
ESCROW FUND
9.1 Agreement for Indemnification from Escrow Fund.
(a) As used in this Article IX and in Article X:
(i) "BUYER'S CLAIMS" means any and all Damages that
I-FLOW, I-FLOWSUB or their respective directors, officers, employees, agents,
financial advisors, counsel and other representatives shall incur or suffer,
which arise, result from, or relate to: (i) any breach of Seller's Obligations;
(ii) the manufacture, shipment, delivery, sale, installation, operation, repair
or maintenance of any product by VMI or INFUSYSTEM prior
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<PAGE> 70
to the Closing Date; (iii) the operation of the businesses prior to the Closing
Date except as reserved for or reflected in the VMI Financial Statements or the
INFUSYSTEM Financial Statements or except as incurred in the ordinary and usual
course of business and consistent with past practice; or (iv) any employee
benefit or welfare plans of VMI or INFUSYSTEM, including without limitation
plans within the meaning of Sections 3(1) or 3(2) of ERISA;
(ii) BUYER'S OBLIGATIONS" means all representations,
warranties, covenants and agreements of I-FLOW and I-FLOWSUB contained herein or
in any exhibit, schedule, document, certificate or other instrument delivered by
or on behalf of any party pursuant to this Agreement;
(iii) "DAMAGES" means claims, damages, losses,
liabilities, judgments, settlements, reasonable costs and expenses, including
without limitation all of the reasonable fees and disbursements of counsel
incident to the investigation or defense of any claim or proceeding or
threatened claim or proceeding;
(iv) "INDEMNIFIED PARTY" means I-FLOW, I-FLOWSUB and
their respective directors, officers, employees, agents, financial advisors,
counsel and other representatives;
(v) "INDIVIDUALIZED BILLING ADJUSTMENTS" means any and
all individualized billing adjustments made by any third-party payor or any of
such third party payor's designated agents in the normal course of business
which results in any payment by the Surviving Corporation to a third-party payor
excluding any adjustments in connection with the pending Medicare audit
described in the first item set forth on Schedules 2.19 and 3.19 hereto and any
and all future audits performed by any federal or state governmental agency or
department or any party designated by any such governmental agency or department
to perform any such audit pertaining to the issue of billings for intermittent
use which is the subject of the pending audit;
(vi) "SELLER'S CLAIMS" means any and all Damages that the
VMI Shareholders, INFUSYSTEM Shareholders or their respective agents, financial
advisors, counsel and other representatives shall incur or suffer, which arise,
result from, or relate to any breach of Buyer's Obligations;
(vii) "SELLER'S OBLIGATIONS" means all representations,
warranties, covenants and agreements of VMI, INFUSYSTEM, the VMI Shareholders
and the INFUSYSTEM Shareholders contained herein or in any exhibit, schedule,
document, certificate or other instrument delivered by or on behalf of any party
pursuant to this Agreement; and
(viii) "SHAREHOLDER REPRESENTATIVE" means Steven E.
Watkins in his role as representative of the VMI Shareholders and the INFUSYSTEM
Shareholders set forth on Schedule 7.1(d) hereto in administering the Escrow
Fund established and to be administered under this Agreement and under the
Escrow Agreement to be executed at or before the Closing, or in the event of
resignation, death or incapacity of the Shareholder
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<PAGE> 71
Representative, such replacement for the Shareholder Representative as may be
designated by a majority in interest of the INFUSYSTEM Shareholders; provided,
however, that such substitute Shareholder Representative shall be bound to the
same duties and commitments as the original Shareholder Representative.
(b) Subject to Section 10.1, during the period from the
Effective Time until the second anniversary of the Effective Time, the
Indemnified Party shall be held harmless from, against and in respect of any and
all Buyer's Claims from and out of the resources constituting the Escrow Fund.
I-FLOW shall deposit the Escrowed Shares, as contemplated by Sections 1.7 and
6.19, in escrow under the Escrow Agreement in one certificate for 100% of the
Escrowed Shares (the "ESCROW FUND"). Notwithstanding anything herein to the
contrary, the entire Escrow Fund shall be subject to Buyer's Claims relating to
either VMI or to INFUSYSTEM. Until such Escrow Fund is released under the terms
of the Escrow Agreement, the VMI Shareholders and the INFUSYSTEM Shareholders
shall be entitled to vote such shares and receive all dividends and
distributions with respect to such shares according to their pro rata interest.
Escrowed Shares may or shall be released from the Escrow Fund, in accordance
with and subject to the terms of the Escrow Agreement, at the following times:
(i) At six (6) months after the Effective Time and at
twelve (12) months after the Effective Time the portion of the Escrowed Shares,
valued at the Closing Value, that is equal to the dollar amount of the aggregate
sum collected on the VMI One Year AR and the INFUSYSTEM One Year AR by the
Surviving Corporation during the immediately preceding six (6) month period
shall be released from the Escrow Fund and transferred to the VMI Shareholders
and the INFUSYSTEM Shareholders according to their pro rata interest as set
forth on Schedule 10.3; provided, however, that in no event shall Escrowed
Shares, valued at the Closing Value, be released in an aggregate amount
exceeding Four Hundred Thousand Dollars ($400,000).
(ii) At twelve (12) months after the Effective Time and
at eighteen (18) months after the Effective Time a specified portion of the
Escrowed Shares may be released from the Escrow Fund and transferred to VMI
Shareholders and/or INFUSYSTEM Shareholders in accordance with Section 6.12
hereof.
(iii) On the first anniversary of the Effective Time the
portion of the Escrowed Shares, valued at the Closing Value, that is equal to
the dollar amount of the product of (A)(1) Four Hundred Thousand Dollars
($400,000) less (2) the aggregate sum collected on the VMI One Year AR and the
INFUSYSTEM One Year AR by the Surviving Corporation within one year from the
Effective Time times (B) twenty-eight percent (28%) shall be released from the
Escrow Fund and transferred to the VMI Shareholders and the INFUSYSTEM
Shareholders according to their pro rata interest as set forth on Schedule 10.3.
Notwithstanding the foregoing, if the aggregate sum collected on the VMI One
Year AR and the INFUSYSTEM One Year AR by the Surviving Corporation within one
(1) year from the Effective Time is equal to or greater than Four Hundred
Thousand Dollars ($400,000), then no Escrowed Shares shall be released from the
Escrow Fund pursuant to this Section 9.1(b)(iii).
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(iv) On the second anniversary of the Effective Time (the
"EXPIRATION DATE") and subject to the terms of the Escrow Agreement, all of the
remaining Escrowed Shares and cash amounts in the Escrow Fund shall be
transferred to the VMI Shareholders and the INFUSYSTEM Shareholders according to
their pro rata interest in such Escrowed Shares and cash amounts, except for
Escrowed Shares and cash amounts which may be necessary to satisfy Buyer's
Claims under this Section 9.1(b). Subject to this Section 9.1(b), I-FLOW shall
execute and deliver any instructions to the Escrow Agent required by the Escrow
Agent to effect such transfer. If, on the Expiration Date, there exists any
Buyer's Claim which was timely asserted by the Indemnified Party but which is
not then finally resolved and discharged, there shall remain in the Escrow Fund
cash amounts and/or an aggregate number of Escrowed Shares with an aggregate
fair market value (determined by the Closing Value) equal to the reasonable
estimate (determined in accordance with Section 9.2) of the amount of Damages
asserted to be caused by such Buyer's Claim. Upon the final resolution and
discharge of any such Buyer's Claim, I-FLOW shall execute and deliver any
instructions to the Escrow Agent required by the Escrow Agent to effect the
transfer of any shares of Escrowed Shares and cash amounts remaining in the
Escrow Fund to the VMI Shareholders and the INFUSYSTEM Shareholders according to
their pro rata interest therein.
9.2 Notice of Claim. The Indemnified Party shall promptly notify
the Shareholder Representative in writing of any Buyer's Claim asserted against
or imposed upon or incurred by it that might give rise to any indemnity
obligation hereunder (a "NOTICE OF CLAIM"), specifying the basis and, if
possible, a reasonable estimate of the amount (as determined in good faith by
the Board of Directors of I-FLOW) of Damages sought by such Indemnified Party on
account thereof and in reasonable detail such information as the Indemnified
Party may have with respect to the matter that is the subject of the Notice of
Claim (including copies of any summons, complaint or other pleading that may
have been served on it and any written claim, demand, invoice, billing or other
document evidencing or asserting the same). The date of a Notice of Claim to the
Shareholder Representative shall mean (a) the date the Shareholder
Representative receives the registered or certified mail containing the Notice
of Claim, or (b) if the Notice of Claim is transmitted by courier, the date of
its delivery to the courier by the Indemnified Party or (c) if the Notice of
Claim is personally delivered, the date of such personal delivery, or (d) if the
Notice of Claim is delivered by facsimile transmission (with written or
facsimile confirmation of receipt), the date of such transmission. In the event
the Indemnified Party does not promptly notify the Shareholder Representative in
writing of any Buyer's Claim in accordance with this Section 9.2, the failure to
provide such prompt notification shall not relieve the VMI Shareholders or the
INFUSYSTEM Shareholders of any liability hereunder unless and then to the extent
such failure causes the Shareholder Representative to lose the right to assert a
reasonable defense to such Buyer's Claim.
9.3 Defense and Settlement of Claims. The Shareholder
Representative shall have the right (without prejudice to the right of the
Indemnified Party to participate at its own expense through counsel of its own
choosing) to defend against any Buyer's Claim that is the subject of a Notice of
Claim and to pay the expenses thereof (including the expenses of counsel
reasonably acceptable to the Indemnified Party), and to control such defense if
he provides written notice of his intention to do so within fifteen (15)
business days of receipt of the Notice
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of Claim. The Indemnified Party shall cooperate fully in the defense of such
Buyer's Claim and shall make available to the Shareholder Representative or his
counsel all pertinent information under its control relating thereto. The
Indemnified Party shall have the right to elect to settle any such Buyer's
Claim; provided, however, there shall be no indemnification obligation with
respect to any monetary payment to any third party required by such settlement
unless the Shareholder Representative shall have consented in writing thereto,
which consent shall not be unreasonably withheld, delayed or conditioned.
ARTICLE X
INDEMNIFICATION AND SURVIVAL
OF REPRESENTATIONS AND WARRANTIES
10.1 Relationship to Escrow Fund. Indemnification for the
following shall be handled in accordance with this Article X: (i) all Seller's
Claims, (ii) all Buyer's Claims to the extent that the Escrow Fund is not
sufficient or has already been released from the Escrow and (iii) all Buyer's
Claims in connection with Seller's Obligations relating to Sections 2.19, 2.21,
2.29, 3.19, 3.21, 3.29, 6.14 or 6.16 hereof asserted after the second
anniversary of the Effective Time.
10.2 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements of VMI,
INFUSYSTEM, the VMI Shareholders, the INFUSYSTEM Shareholders, I-FLOW and
I-FLOWSUB contained herein or in any exhibit, schedule, document, certificate or
other instrument delivered by or on behalf of any party pursuant to this
Agreement shall survive for a period of two (2) years from the Closing Date,
except that Seller's Obligations relating to Sections 2.19, 2.21, 2.29, 3.19,
3.21, 3.29, 6.14 and 6.16 hereof shall survive for a period of three (3) years
from the Closing Date. Any investigations made by or on behalf of I-FLOW and
I-FLOWSUB or VMI and INFUSYSTEM prior to the Closing Date shall not affect
Buyer's Obligations or Seller's Obligations hereunder. Completion of the
transactions contemplated herein shall not be deemed or construed to be a waiver
of any right or remedy of I-FLOW and I-FLOWSUB or VMI, INFUSYSTEM, the VMI
Shareholders and the INFUSYSTEM Shareholders notwithstanding the existence of
any facts that I-FLOW and I-FLOWSUB or VMI INFUSYSTEM, the VMI Shareholders and
the INFUSYSTEM Shareholders knew or should have known at the time hereof or
thereof.
10.3 Indemnification of I-FLOW and I-FLOWSUB. Notwithstanding any
resolution, consent or separate covenant of VMI, INFUSYSTEM, the VMI
Shareholders or the INFUSYSTEM Shareholders to the contrary, each of the VMI
Shareholders and each of the INFUSYSTEM Shareholders set forth on Schedule
7.1(d) shall severally indemnify, defend and hold harmless the Indemnified
Parties against and in respect of any and all Buyer's Claims; provided, however,
each of the VMI Shareholders and each of the INFUSYSTEM Shareholders set forth
on Schedule 7.1(d) shall jointly and severally indemnify, defend and
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hold harmless the Indemnified Parties against and in respect of any and all
Buyer's Claims in connection with the Spinka Lawsuit. For the purposes of
defining the several liability of each of the VMI Shareholders and each of the
INFUSYSTEM Shareholders under this Section 10.3, the obligations of each VMI
Shareholder and each INFUSYSTEM Shareholder shall be limited to the percentages
set forth on Schedule 10.3. Notwithstanding the foregoing, (i) the Indemnified
Parties shall not be entitled to indemnification by the VMI Shareholders or the
INFUSYSTEM Shareholders under this Agreement for the first Ten Thousand Dollars
($10,000) in the aggregate of Buyer's Claims (unrelated to Individualized
Billing Adjustments), but after such first Ten Thousand Dollars ($10,000) shall
be entitled to full indemnification for any Buyer's Claims, (ii) during the
period beginning at the Effective Time and ending on the first anniversary of
the Effective Time (the "FIRST YEAR PERIOD"), the Indemnified Parties shall not
be entitled to indemnification by the VMI Shareholders or the INFUSYSTEM
Shareholders under this Agreement for the first Thirty Thousand Dollars
($30,000) in the aggregate of Buyer's Claims relating to Individualized Billing
Adjustments, but after such first Thirty Thousand Dollars ($30,000) shall be
entitled to full indemnification for any Buyer's Claims relating to
Individualized Billing Adjustments during the First Year Period, and (iii)
during the period beginning on the first anniversary of the Effective Time and
ending on the second anniversary of the Effective Time (the "SECOND YEAR
PERIOD"), the Indemnified Parties shall not be entitled to indemnification by
the VMI Shareholders or the INFUSYSTEM Shareholders under this Agreement for the
first Thirty Thousand Dollars ($30,000) in the aggregate of Buyer's Claims
relating to Individualized Billing Adjustments, but after such first Thirty
Thousand Dollars ($30,000) shall be entitled to full indemnification for any
Buyer's Claims relating to Individualized Billing Adjustments during the Second
Year Period. The maximum indemnification obligation of the VMI Shareholders and
the INFUSYSTEM Shareholders under this Agreement shall be limited to Two Million
Eight Hundred Ninety-Seven Thousand Six Hundred Sixty-Eight Dollars
($2,897,668).
10.4 Claims for Indemnification. Whenever any Buyer's Claim shall
arise for indemnification under this Article X, I-FLOW shall notify the VMI
Shareholders and the INFUSYSTEM Shareholders of the Buyer's Claim and, when
known, the facts constituting the basis for such Claim. In the event of any
Claim for indemnification hereunder resulting from or in connection with any
legal proceedings by a third party, such notice shall also specify, if known,
the amount or an estimate of the amount of the liability arising therefrom.
I-FLOW and I-FLOWSUB shall give the VMI Shareholders and the INFUSYSTEM
Shareholders a reasonable opportunity to defend any such Buyer's Claim at their
own expense and with counsel of their own selection and reasonably acceptable to
I-FLOW, provided that I-FLOW and I-FLOWSUB shall at all times also have the
right to fully participate in the defense at their own expense. If the VMI
Shareholders and the INFUSYSTEM Shareholders shall, within a reasonable time
after notice, fail to defend, I-FLOW and I-FLOWSUB shall have the right to
undertake the defense of, and to compromise or settle (exercising reasonable
business judgment) the Buyer's Claim on behalf, for the account, and at the risk
of, the VMI Shareholders and the INFUSYSTEM Shareholders. I-FLOW shall notify
the VMI Shareholders and the INFUSYSTEM Shareholders in writing of the existence
of any Buyer's Claim to which the VMI Shareholders and the INFUSYSTEM
Shareholders' indemnification would apply, but failure to so notify the VMI
Shareholders and the INFUSYSTEM
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Shareholders shall not relieve the VMI Shareholders and the INFUSYSTEM
Shareholders of any liability hereunder unless and then to the extent such
failure causes the VMI Shareholders and the INFUSYSTEM Shareholders to lose the
right to assert a reasonable defense to such Buyer's Claim.
10.5 Manner of Indemnification of I-FLOW and I-FLOWSUB.
Indemnification by the VMI Shareholders and the INFUSYSTEM Shareholders under
this Article X shall be effected by the delivery of a cashier's or certified
check by the VMI Shareholders and INFUSYSTEM Shareholders not later than ten
(10) business days from the date notice of such Buyer's Claim was given to the
VMI Shareholders and the INFUSYSTEM Shareholders.
10.6 Indemnification of VMI and INFUSYSTEM. I-FLOW and I-FLOWSUB
jointly and severally shall indemnify, defend and hold harmless the VMI
Shareholders and the INFUSYSTEM Shareholders against and in respect of any and
all Seller's Claims.
10.7 Claims for Indemnification. Whenever any Seller's Claim
shall arise for indemnification of under this Article X, the VMI Shareholders
and the INFUSYSTEM Shareholders shall notify I-FLOW and I-FLOWSUB of the
Seller's Claim and, when known, the facts constituting the basis for such
Seller's Claim. In the event of any Seller's Claim for indemnification hereunder
resulting from or in connection with any Seller's Claim or legal proceedings by
a third party, such notice shall also specify, if known, the amount or an
estimate of the amount of the liability arising therefrom. The VMI Shareholders
and the INFUSYSTEM Shareholders shall give I-FLOW and I-FLOWSUB a reasonable
opportunity to defend any such Seller's Claim at its own expense and with
counsel of their own selection and reasonably acceptable to the VMI Shareholders
and the INFUSYSTEM Shareholders, provided that the VMI Shareholders and the
INFUSYSTEM Shareholders shall at all times also have the right to fully
participate in the defense at their own expense. If I-FLOW and I-FLOWSUB shall,
within a reasonable time after notice, fail to defend, the VMI Shareholders and
the INFUSYSTEM Shareholders shall have the right to undertake the defense of,
and to compromise or settle (exercising reasonable business judgment) the
Seller's Claim on behalf, for the account, and at the risk of, I-FLOW and
I-FLOWSUB. The VMI Shareholders and the INFUSYSTEM Shareholders shall notify
I-FLOW and I-FLOWSUB in writing of the existence of any Seller's Claim to which
I-FLOW and I-FLOWSUB's indemnification would apply, but failure to so notify
I-FLOW and I-FLOWSUB shall not relieve I-FLOW and I-FLOWSUB of any liability
hereunder unless and to the extent such failure causes I-FLOW and I-FLOWSUB to
lose the right to assert a reasonable defense to such Seller's Claim.
10.8 Manner of Indemnification of the VMI Shareholders and the
INFUSYSTEM Shareholders. Indemnification by I-FLOW and I-FLOWSUB under this
Article X shall be effected by the delivery of a cashier's or certified check
not later than ten (10) business days from the date the notice of such Claim was
given to I-FLOW and I-FLOWSUB.
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10.9 Equitable Contribution. Nothing herein shall diminish any
party's right to seek equitable contribution from another party.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon personal delivery, facsimile
transmission (with written or facsimile confirmation of receipt), telex or
delivery by an overnight express courier service (delivery, postage or freight
charges prepaid), or on the fourth day following deposit in the United States
mail (if sent by registered or certified mail, return receipt requested,
delivery, postage or freight charges prepaid), addressed to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
<TABLE>
<S> <C>
(a) if to I-FLOW and I-FLOWSUB, to: I-FLOW Corporation
20202 Windrow Drive
Lake Forest, CA 92630
Attention: Donald M. Earhart
FAX: (714) 206-2603
with a copy to: Gibson, Dunn & Crutcher LLP
Jamboree Center
4 Park Plaza
Irvine, CA 92614
Attention: Mark W. Shurtleff, Esq.
FAX: (714) 451-4220
(b) if to VMI or INFUSYSTEM, to: Steven E. Watkins
1551 E. Lincoln Avenue
Madison Heights, MI 48071
FAX: (248) 541-6404
</TABLE>
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<TABLE>
<S> <C>
with a copy to: Cohen & Ellias, P.C.
6735 Telegraph Road, Suite 340
Bloomfield Hills, Michigan 48301-3145
Attention: Frank J. Ellias, Esq.
FAX: (248) 258-8742
(c) if to the VMI Shareholders, to: the address set forth under each VMI
Shareholder's name on the signature page
hereto
(d) if to the INFUSYSTEM Shareholders, to: the address set forth under each INFUSYSTEM
Shareholder's name on the signature page
hereto
</TABLE>
11.2 Interpretation. When a reference is made in this Agreement
to an Article, Section, Exhibit or Schedule, such reference shall be to an
Article, Section, Exhibit or Schedule to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. The language of this Agreement has been jointly negotiated and
shall not be strictly construed for or against any party hereto.
11.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
11.4 Miscellaneous. This Agreement and the Exhibits, Schedules,
documents, instruments and other agreements among the parties hereto (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof;
(b) are not intended to confer upon any other person any rights or remedies
hereunder (except with regard to indemnification obligations as provided
herein); and (c) shall not be assigned by operation of law or otherwise except
as otherwise specifically set forth herein; provided, however, that I-FLOW and
I-FLOWSUB may assign any of their rights and obligations hereunder to any wholly
owned, direct or indirect subsidiary of I-FLOW.
11.5 Governing Law. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the internal laws of
the State of Michigan.
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11.6 Attorneys' Fees. If any action, suit or proceeding is filed
by any party to enforce this Agreement or otherwise with respect to the subject
matter of this Agreement, the prevailing party or parties shall be entitled to
recover its actual attorneys' fees and disbursements incurred in connection with
such action, suit or proceeding.
11.7 Severability. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to the maximum extent
possible, and all other provisions of this Agreement shall be deemed valid and
enforceable to the maximum extent possible.
11.8 Amendment. This Agreement shall not be modified or amended
except pursuant to an instrument in writing executed and delivered on behalf of
each of the parties hereto.
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IN WITNESS WHEREOF, I-FLOW, I-FLOWSUB, VMI, INFUSYSTEM, the VMI
Shareholders and the INFUSYSTEM Shareholders have caused this Agreement to be
duly executed and delivered as of the date first written above.
<TABLE>
<S> <C>
I-FLOW CORPORATION, VENTURE MEDICAL, INC.,
A CALIFORNIA CORPORATION A MICHIGAN CORPORATION
By: By:
---------------------------------- ----------------------------------
Donald M. Earhart Steven E. Watkins
President and Chief Executive Officer President
By: By:
---------------------------------- ----------------------------------
James J. Dal Porto Stephen Krstevich
Assistant Secretary Secretary
I-FLOW SUBSIDIARY, INC., INFUSYSTEMS II, INC.,
A CALIFORNIA CORPORATION A MICHIGAN CORPORATION
By: By:
---------------------------------- ----------------------------------
James J. Dal Porto Steven E. Watkins
President and Chief Executive Officer President
By: By:
---------------------------------- ----------------------------------
Gayle L. Arnold Stephen Krstevich
Secretary Secretary
</TABLE>
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VMI SHAREHOLDERS
<TABLE>
<S> <C>
By: By:
---------------------------------- ----------------------------------
Frederick L. Erlich Stephen Krstevich
Address: 35436 Quaker Valley Address: 22519 Windemere Court
Farmington Hills, MI 48331 Novi, Michigan 48374
No. of Shares: 50,000 No of Shares: 50,000
By: By:
---------------------------------- ----------------------------------
Steven E. Watkins Richard Moss
Address: 22544 Lange Address: 4928 Panorama Circle
St. Clair Shores, MI 48080 W. Bloomfield, MI 48323
No. of Shares: 50,000 No. of Shares: 50,000
By:
----------------------------------
Fredrick Kamienny
Address: 1241 Water Cliff Drive
Bloomfield Hills, MI 48302
No. of Shares: 50,000
</TABLE>
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INFUSYSTEM SHAREHOLDERS
<TABLE>
<S> <C>
By: By:
---------------------------------- ----------------------------------
Frederick L. Erlich Richard Moss
Address: 35436 Quaker Valley Address: 4928 Panorama Circle
Farmington Hills, MI 48331 W. Bloomfield, MI 48323
No. of Shares: 1,210 No. of Shares: 1,000
By: By:
---------------------------------- ----------------------------------
Stephen Krstevich Fredrick Kamienny
Address: 22519 Windemere Court Address: 1241 Water Cliff Drive
Novi, Michigan 48374 Bloomfield Hills, MI 48302
No. of Shares: 1,129 No. of Shares: 1,210
By: By:
---------------------------------- ----------------------------------
Steven E. Watkins Scott Spinka
Address: 22544 Lange Address: 16508 Kingsport Lake Lane
St. Clair Shores, MI 48080 Chesterfield, MO 63005
No. of Shares: 1,096 No. of Shares: 355
</TABLE>
69
