<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2000
--------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file Number: 0-18338
I-Flow Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0121984
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
20202 Windrow Drive, Lake Forest, CA 92630
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(949) 206-2700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ x ] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of March 31, 2000 there were 14,970,016 shares outstanding of Common
Stock.
<PAGE> 2
I-FLOW CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Operations for the three-month
periods ended March 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the three-month periods
ended March 31, 2000 and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
Part II: Other Information 10
Signatures 12
</TABLE>
<PAGE> 3
I-FLOW CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,490,000 $ 3,192,000
Accounts receivable, net 9,728,000 8,748,000
Inventories, net 4,308,000 3,785,000
Prepaid expenses and other 575,000 553,000
Deferred taxes 2,837,000 2,837,000
------------ ------------
Total current assets 18,938,000 19,115,000
------------ ------------
Property, net 3,266,000 2,985,000
Goodwill and other intangibles, net 7,204,000 5,846,000
Notes receivable and other 822,000 782,000
Deferred taxes 3,040,000 3,040,000
------------ ------------
TOTAL $ 33,270,000 $ 31,768,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,280,000 $ 1,800,000
Accrued payroll and related expenses 1,489,000 1,526,000
Income taxes payable 607,000 607,000
Current portion of long-term debt 1,394,000 1,443,000
Borrowings under line-of-credit 114,000 88,000
Other liabilities 101,000 86,000
------------ ------------
Total current liabilities 5,985,000 5,550,000
------------ ------------
LONG-TERM DEBT 1,190,000 1,548,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock - no par value; 5,000,000 shares
authorized; no shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively -- --
Common stock - no par value; 40,000,000 shares
authorized; 14,970,016 and 14,692,125 shares
issued and outstanding at March 31, 2000 and
December 31, 1999, respectively 40,384,000 39,414,000
Common stock warrants 615,000 615,000
Cumulative other comprehensive income 50,000 26,000
Accumulated deficit (14,954,000) (15,385,000)
------------ ------------
Net shareholders' equity 26,095,000 24,670,000
------------ ------------
TOTAL $ 33,270,000 $ 31,768,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
I-FLOW CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net revenues $ 7,467,000 $ 6,218,000
----------- -----------
Costs and expenses:
Cost of sales 2,989,000 2,439,000
Selling and marketing 1,222,000 1,067,000
General and administrative 2,154,000 1,769,000
Product development 321,000 241,000
----------- -----------
Total costs and expenses 6,686,000 5,516,000
Operating income 781,000 702,000
Interest expense (62,000) (123,000)
Income taxes (288,000) (21,000)
----------- -----------
Net income $ 431,000 $ 558,000
=========== ===========
Net income per share
Basic and diluted $ 0.03 $ 0.04
----------- -----------
Comprehensive Operations:
Net income $ 431,000 $ 558,000
Foreign currency translation adjustment 50,000 24,000
----------- -----------
Comprehensive income $ 481,000 $ 582,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
I-FLOW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 431,000 $ 558,000
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 754,000 595,000
Compensation expense for stock option grants 56,000
Change in allowance for doubtful accounts (8,000)
Change in inventory obsolescence reserve (150,000)
Changes in operating assets and liabilities:
Accounts receivable (971,000) 188,000
Inventories (468,000) (434,000)
Prepaid expenses and other 74,000 55,000
Accounts payable, accrued and other liabilities (39,000) 94,000
----------- -----------
Net cash provided (used) by operating activities (321,000) 1,056,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions (582,000) (200,000)
Cash paid for acquisition (853,000) --
Change in other assets (245,000) (388,000)
----------- -----------
Net cash used by investing activities (1,680,000) (588,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) proceeds from line of credit 16,000 (274,000)
Proceeds from issuance of notes payable 306,000 --
Payments on notes payable (252,000) (417,000)
Proceeds from exercise of stock options and warrants 220,000 --
----------- -----------
Net cash provided (used) by financing activities 290,000 (691,000)
----------- -----------
Effect of exchange rates on cash 8,000 24,000
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,703,000) (199,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 3,192,000 971,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,489,000 $ 772,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 94,000 $ 125,000
----------- -----------
Income tax payments $ 61,000 $ 12,000
----------- -----------
Preferred stock dividends payable $ -- $ 20,000
----------- -----------
Liabilities issued and assumed in connection with acquisition:
Fair value of assets acquired (including intangibles) $ 1,911,000
Cash outflows for business acquisition (853,000)
Common stock issued (750,000)
-----------
Liabilities issued and assumed $ 308,000
===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
I-FLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring adjustments) that,
in the opinion of management, are necessary to present fairly the
financial position of I-Flow Corporation (the Company) at March 31,
2000 and the results of its operations and its cash flows for the
three-month periods ended March 31, 2000 and 1999. Certain information
and footnote disclosures normally included in financial statements have
been condensed or omitted pursuant to rules and regulations of the
Securities and Exchange Commission although the Company believes that
the disclosures in the financial statements are adequate to make the
information presented not misleading.
The financial statements included herein should be read in conjunction
with the financial statements of the Company included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999 filed
with the Securities and Exchange Commission on March 30, 2000.
Certain amounts previously reported have been reclassified to conform
with the presentation at March 31, 2000.
2. INVENTORIES
Inventories consisted of the following as of March 31, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
Raw Materials $ 4,182,000 $ 3,581,000
Work in Process 373,000 164,000
Finished Goods 1,206,000 1,708,000
Reserve for Obsolescence (1,453,000) (1,668,000)
----------- -----------
Total $ 4,308,000 $ 3,785,000
=========== ===========
</TABLE>
3. EARNINGS PER SHARE
Basic net income per share is computed using the weighted average
number of common shares outstanding during the periods presented.
Diluted net income per share is computed using the weighted average
number of common and common equivalent shares outstanding during the
periods presented assuming the conversion of all shares of the
Company's convertible preferred stock into common stock and the
exercise of all in-the-money stock options. Common equivalent shares
have not been included where inclusion would be antidilutive.
6
<PAGE> 7
The following is a reconciliation between the net income and the number
of shares used in the basic and diluted net income per share
calculations:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
(Amounts in thousands) 2000 1999
------- --------
<S> <C> <C>
Net income $ 431 $ 558
Less preferred stock dividends -- (4)
------- --------
Net income available to common shareholders $ 431 $ 554
------- --------
Basic net income per share
Weighted average number of shares outstanding 14,886 14,099
Effect of dilutive securities:
Preferred stock -- 140
Stock options 897 454
------- --------
Diluted net income per share
Weighted average number of shares outstanding 15,783 14,693
------- --------
</TABLE>
4. BUSINESS SEGMENTS
The Company operates in two business segments: manufacturing and
marketing of medical infusion products and rentals of medical infusion
pumps.
Business segment information is as follows for the three-month periods
ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
(Amounts in Manufacturing
thousands) and Marketing Rentals Consolidated
------------- ------- ------------
<S> <C> <C> <C>
2000
Revenues $ 5,271 $ 2,196 $ 7,467
Operating income 259 522 781
Assets 23,243 10,027 33,270
1999
Revenues 4,228 1,990 6,218
Operating income 292 410 702
Assets 15,770 8,549 24,319
</TABLE>
5. ACQUISITION OF SPINAL SPECIALTIES, INC.
On January 14, 2000, the Company acquired Spinal Specialties, Inc., a
designer and manufacturer of custom spinal, epidural and nerve block
infusion kits based in San Antonio, Texas, for $1.5 million. The
purchase price consisted of $750,000 in cash and 200,000 shares of
I-Flow common stock. The acquisition was accounted for under the
purchase method of accounting and the purchase price has been allocated
to the net assets acquired and goodwill.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain disclosures made by the Company in this report and in other
reports and statements released by the Company are and will be
forward-looking in nature, such as comments that express the Company's
opinions about trends and factors that may impact future operating
results. Disclosures that use words such as the Company "believes,"
"anticipates," or "expects" or use similar expressions are intended to
identify forward-looking statements. Such statements are subject to
certain risks and uncertainties that could cause actual results to
differ from those expected. Readers are cautioned not to place undue
reliance on these forward-looking statements. The Company undertakes no
obligation to publish revised forward-looking statements to reflect the
occurrence of unanticipated events. Readers are also urged to carefully
review and consider the various disclosures made by the Company in this
report that seek to advise interested parties of the risks and other
factors that affect the Company's business, as well as in the Company's
periodic reports on Forms 10-K, 10-Q, and 8-K filed with the Securities
and Exchange Commission. The risks affecting the Company's business
include reliance on the success of the home health care industry, the
ability to penetrate hospital accounts, the health care reimbursement
system in place now and in the future, competition in the industry,
demand in foreign countries, customer credit risks, technological
changes and product availability. Any such forward-looking statements,
whether made in this report or elsewhere, should be considered in
context with the various disclosures made by the Company about its
business.
RESULTS OF OPERATIONS
Net revenues during the three-month period ended March 31, 2000 were
$7,467,000 compared to $6,218,000 for the same period in the prior
year, representing an increase of 20%. In January 2000, the Company
acquired a new subsidiary, Spinal Specialties, Inc., a designer and
manufacturer of custom spinal, epidural and nerve block infusion kits
based in San Antonio, Texas. Revenues generated by Spinal Specialties,
Inc. of $448,000 were included in net revenues for the three-month
period ended March 31, 2000. The balance of the revenue increase
resulted from an approximate $600,000 increase in product sales and an
approximate $200,000 increase in infusion pump rental revenue.
In March 1999, the Company entered into an agreement with B. Braun
Melsungen AG (G.BRN), a world leader in the manufacture and
distribution of pharmaceuticals and infusion products, to distribute
I-Flow's elastomeric infusion pumps in Western Europe, Eastern Europe,
the Middle East, Asia Pacific, South America and Africa. The Company
also entered into a similar agreement under which B. Braun of America,
Inc. distributes I-Flow's elastomeric pumps to its full line IV
solution customers in the United States.
In May 1999, the Company entered into an agreement with dj Orthopedics
LLC (formerly DonJoy, a division of Smith & Nephew, Inc.), a leading
provider of orthopedic braces, to distribute the Company's PainBuster
pain management system exclusively in the United States and Canada for
orthopedic surgery applications. I-Flow's PainBuster pain management
system provides continuous infusion of a non-narcotic, local anesthetic
directly into the intraoperative site for post-operative pain
management.
In June 1999, the Company signed a distribution agreement with Ethicon
Endo-Surgery, Inc., a Johnson & Johnson Company, under which Ethicon
Endo-Surgery became the exclusive, worldwide distributor of I-Flow's
ON-Q Pain Management System for all surgical applications excluding
orthopedics. The ON-Q Pain Management System infuses non-narcotic local
anesthetics directly into the intraoperative site, the patient's
primary source of post-operative pain. This multi-year agreement
requires Ethicon Endo-Surgery to meet minimum purchase commitments to
maintain exclusive distribution rights.
Cost of sales of $2,989,000 were incurred during the three-month period
ended March 31, 2000, compared to $2,439,000 in the prior year. As a
percentage of net revenue, cost of sales was relatively unchanged
compared to the same period in the prior year.
8
<PAGE> 9
Selling and marketing expenses for the three-month period ended March
31, 2000 increased over the same period in the prior year by $155,000,
or 15%, due primarily to the addition of $90,000 in selling expenses
for Spinal Specialties for the three-month period in 2000. As a percent
of net revenues, selling and marketing expenses for the three-month
period ended March 31, 2000 were down by 1% compared to the same period
in the prior year.
General and administrative expenses for the three-months ended March
31, 2000 increased $385,000 or 22% from the same period in the prior
year. These increases are due primarily to the addition of Spinal
Specialties for the three-month period in 2000, as well as increased
personnel costs, insurance costs and various other costs associated
with the growth in the business.
Product development expenses for the three-months ended March 31, 2000
increased over the same period in the prior year by $80,000, or 33%,
due primarily to increased efforts on the new pain management products.
The Company will continue to incur product development expenses as it
continues its efforts to introduce new and improved technology and
cost-efficient products into the market.
LIQUIDITY AND CAPITAL RESOURCES
During the three-month period ended March 31, 2000, funds of $321,000
were used by operating activities consisting of net income of $431,000
plus non-cash expenses of $652,000 less net changes in operating assets
and liabilities of $1,404,000. These changes in operating assets and
liabilities consisted of: (1) an increase in accounts receivable of
$971,000, (2) an increase in inventories of $468,000, (3) a decrease in
prepaid expenses and other of $74,000, less (4) a decrease in accounts
payable, accrued expenses, and other liabilities of $39,000.
The Company used funds for investing activities during the three-month
period ended March 31, 2000 aggregating $1,680,000. These expenditures
consisted of $582,000 for acquiring furniture, fixtures and equipment
for use in its operations and an increase in other assets of $245,000.
Additionally, in January 2000, the Company used $853,000 in connection
with the acquisition of Spinal Specialties, Inc. (see Note 5 of Notes
to Consolidated Financial Statements).
During the three-month period ended March 31, 2000, funds of $290,000
were provided by financing activities consisting primarily of $220,000
in proceeds from the exercise of stock options. Additionally, the
Company had proceeds on notes payable net of payments of $54,000 and a
net increase on the Company's line of credit of $16,000.
As of March 31, 2000, the Company had cash funds of $1,490,000 and net
receivables of $9,728,000. Management believes the Company's funds are
sufficient to provide for its short and long-term projected needs for
operations. However, the Company may decide to sell additional equity
or increase its borrowings in order to fund increased product
development or for other purposes.
YEAR 2000 COMPLIANCE
The Company did not experience any significant malfunctions or errors
in its operating or business systems when the date changed from 1999 to
2000. Based on operations since January 1, 2000, the Company does not
expect any significant impact to its ongoing business as a result of
the "Year 2000 issue." However, it is possible that the full impact of
the date change, which was of concern due to computer programs that use
two digits instead of four digits to define years, has not been fully
recognized. For example, it is possible that Year 2000 or similar
issues such as leap year-related problems may occur with billing,
payroll, or financial closings at month, quarter or year-end. The
Company believes that any such problems are likely to be minor and
correctable. In addition, the Company could still be negatively
affected if the Year 2000 or similar issues adversely affect its
customers or suppliers. The Company
9
<PAGE> 10
currently is not aware of any significant Year 2000 or similar problems
that have arisen for its customers and suppliers.
The Company expended less then $150,000 on Year 2000 readiness efforts
from 1998 to 1999. These efforts included replacing some outdated,
noncompliant hardware and noncompliant software as well as identifying
and remediating Year 2000 problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
FOREIGN CURRENCY
The Company has a subsidiary operating in Mexico. Accordingly, the
Company is exposed to transaction gains and losses that could result
from changes in foreign currency exchange rates. The Company believes
that this foreign currency market risk is not material.
PART II - OTHER INFORMATION
Items 1. - 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
3.1 Restated Articles of Incorporation of the Company (2)
3.2 Certificate of Amendment to Restated Articles of
Incorporation dated June 14, 1991 (3)
3.3 Certificate of Amendment to Restated Articles of
Incorporation dated May 12, 1992 (4)
3.4 Certificate of Determination covering Company's Series B
Preferred Stock filed with the Secretary of State on October
5, 1992 (4)
3.5 Restated Bylaws as of July 22, 1991 of the Company (3)
4.1 Specimen Common Stock Certificate (4)
4.2 Warrant Agreement between the Company and American Stock
Transfer & Trust Company, as Warrant Agent, dated February
13, 1990 (1)
4.3 Form of Warrant dated July 22, 1996, issued in conjunction
with the acquisition of Block Medical, Inc. (5)
10.1 Employment Agreement with Donald M. Earhart dated May 16,
1990 (2)(6) *
10.2 1987-1988 Incentive Stock Option Plan and Non-Statutory
Stock Option Plan Restated as of March 23, 1992 (5)(6) *
10.3 1992 Non-Employee Director Stock Option Plan (4)(6)
10.4 License and Transfer Agreement with SoloPak Pharmaceuticals
Inc., dated March 6, 1996 (7)
10.5 1996 Stock Incentive Plan (6)(9) *
10.6 Agreement for Purchase and Sale of Assets dated as of July
3, 1996 by and among I-Flow Corporation, Block Medical, Inc.
and Hillenbrand Industries, Inc. (8)
</TABLE>
10
<PAGE> 11
<TABLE>
<C> <S>
10.7 Employment Agreement with James J. Dal Porto dated September
6, 1996 (10) *
10.8 Lease Agreement Between Industrial Developments
International, Inc. as Landlord and I-Flow Corporation as
Tenant dated April 14, 1997 (11)
10.9 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. (12)
10.10 Loan and Security Agreement between Silicon Valley Bank and
I-Flow Corporation dated September 28, 1995 (13)
10.11 Amendment to Loan Agreement between Silicon Valley Bank and
I-Flow Corporation dated March 2, 1999 (13)
10.12 Agreement and Plan of Merger By and Among I-Flow
Corporation, Spinal Acquisition Corp., Spinal Specialties,
Inc. and the Shareholders of Spinal Specialties, Inc. dated
January 13, 2000
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-32263-LA) declared effective
February 1, 1990.
(2) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended September 30, 1990.
(3) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-41207-LA) declared effective
August 8, 1991.
(4) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1991.
(5) Incorporated by reference to exhibit with this title filed with the
Company's Post Effective Amendment to its Registration Statement
(#33-41207-LA) declared effective November 6, 1992.
(6) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to applicable rules of the Securities and
Exchange Commission.
(7) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1995.
(8) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated July 22, 1996.
(9) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#333-16547) declared effective
November 20, 1996.
(10) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1996.
(11) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated April 14, 1997.
(12) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated February 9, 1999.
(13) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1997.
- ---------------
* Compensation plan, contract or arrangement required to be filed as an
exhibit pursuant to applicable rules of the Securities and Exchange
Commission.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
I-FLOW CORPORATION
------------------
(Registrant)
Date: May 12, 2000 /s/ Donald M. Earhart
----------------------------- -----------------------------------
Donald M. Earhart,
Chairman, President and CEO
Date: May 12, 2000 /s/ Gayle L. Arnold
----------------------------- -----------------------------------
Gayle L. Arnold,
Chief Financial Officer
12
<PAGE> 13
INDEX TO EXHIBITS
Set forth below is a list of the exhibits included or incorporated by
reference as part of this report:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.1 Restated Articles of Incorporation of the Company (2)
3.2 Certificate of Amendment to Restated Articles of
Incorporation dated June 14, 1991 (3)
3.3 Certificate of Amendment to Restated Articles of
Incorporation dated May 12, 1992 (4)
3.4 Certificate of Determination covering Company's Series B
Preferred Stock filed with the Secretary of State on October
5, 1992 (4)
3.5 Restated Bylaws as of July 22, 1991 of the Company (3)
4.1 Specimen Common Stock Certificate (4)
4.2 Warrant Agreement between the Company and American Stock
Transfer & Trust Company, as Warrant Agent, dated February
13, 1990 (1)
4.3 Form of Warrant dated July 22, 1996, issued in conjunction
with the acquisition of Block Medical, Inc. (5)
10.1 Employment Agreement with Donald M. Earhart dated May 16,
1990 (2)(6) *
10.2 1987-1988 Incentive Stock Option Plan and Non-Statutory
Stock Option Plan Restated as of March 23, 1992 (5)(6) *
10.3 1992 Non-Employee Director Stock Option Plan (4)(6)
10.4 License and Transfer Agreement with SoloPak Pharmaceuticals
Inc., dated March 6, 1996 (7)
10.5 1996 Stock Incentive Plan (6)(9) *
10.6 Agreement for Purchase and Sale of Assets dated as of July
3, 1996 by and among I-Flow Corporation, Block Medical, Inc.
and Hillenbrand Industries, Inc. (8)
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.7 Employment Agreement with James J. Dal Porto dated September
6, 1996 (10) *
10.8 Lease Agreement Between Industrial Developments
International, Inc. as Landlord and I-Flow Corporation as
Tenant dated April 14, 1997 (11)
10.9 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. (12)
10.10 Loan and Security Agreement between Silicon Valley Bank and
I-Flow Corporation dated September 28, 1995 (13)
10.11 Amendment to Loan Agreement between Silicon Valley Bank and
I-Flow Corporation dated March 2, 1999 (13)
10.12 Agreement and Plan of Merger By and Among I-Flow
Corporation, Spinal Acquisition Corp., Spinal Specialties,
Inc. and the Shareholders of Spinal Specialties, Inc. dated
January 13, 2000
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-32263-LA) declared effective
February 1, 1990.
(2) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended September 30, 1990.
(3) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-41207-LA) declared effective
August 8, 1991.
(4) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1991.
(5) Incorporated by reference to exhibit with this title filed with the
Company's Post Effective Amendment to its Registration Statement
(#33-41207-LA) declared effective November 6, 1992.
(6) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to applicable rules of the Securities and
Exchange Commission.
(7) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1995.
(8) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated July 22, 1996.
(9) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#333-16547) declared effective
November 20, 1996.
(10) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1996.
(11) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated April 14, 1997.
(12) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated February 9, 1999.
(13) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1997.
- ---------------
* Compensation plan, contract or arrangement required to be filed as an
exhibit pursuant to applicable rules of the Securities and Exchange
Commission.
<PAGE> 1
EXHIBIT 10.12
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
I-FLOW CORPORATION
"PARENT"
SPINAL ACQUISITION CORP.
"NEWCO"
SPINAL SPECIALTIES, INC.
"COMPANY"
AND
THE SHAREHOLDERS OF
SPINAL SPECIALTIES, INC.
"SELLERS"
January 13, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS.................................................................. 5
ARTICLE II MERGER AND REORGANIZATION................................................... 9
Section 2.1 Merger............................................................ 9
Section 2.2 Purchase Price.................................................... 9
Section 2.3 Closing........................................................... 11
Section 2.4 Payment and Holdback.............................................. 12
Section 2.5 Closing Obligations............................................... 12
Section 2.6 Post Closing Obligations.......................................... 13
Section 2.7 Effect of the Merger.............................................. 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS................. 14
Section 3.1 Organization and Good Standing.................................... 14
Section 3.2 Authority of Sellers; No Breach................................... 14
Section 3.3 Capitalization.................................................... 15
Section 3.4 Financial Statements.............................................. 15
Section 3.5 Licenses and Permits.............................................. 16
Section 3.6 Books and Records................................................. 16
Section 3.7 Title to Properties; Encumbrances................................. 17
Section 3.8 Conditions and Sufficiency of Assets.............................. 17
Section 3.9 Accounts Receivable............................................... 17
Section 3.10 Inventory...................................................... 17
Section 3.11 Backlog; Customers............................................. 18
Section 3.12 No Undisclosed Liabilities..................................... 18
Section 3.13 Absence of Certain Changes..................................... 18
Section 3.14 Progress Payments.............................................. 19
Section 3.15 Environmental Matters.......................................... 19
Section 3.16 Intangible Personal Property................................... 20
Section 3.17 Labor and Employment Agreement................................. 20
Section 3.18 Employee Benefit Plans; ERISA.................................. 21
Section 3.19 Material Contracts and Relationships........................... 23
Section 3.20 Absence of Certain Business Practices.......................... 24
Section 3.21 Transactions with Related Parties.............................. 24
Section 3.22 Compliance with Laws........................................... 25
Section 3.23 Regulatory Approvals........................................... 25
Section 3.24 Litigation..................................................... 25
Section 3.25 Taxes.......................................................... 25
Section 3.26 Insurance...................................................... 26
Section 3.27 No Brokerage Fees.............................................. 26
Section 3.28 Product Warranty and Liability................................. 26
Section 3.29 Consents and Approvals......................................... 27
Section 3.30 Bank Accounts.................................................. 27
Section 3.31 Securities Matters............................................. 27
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
Section 3.32 Indebtedness................................................... 28
Section 3.33 Disclosure..................................................... 28
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO.......................... 29
Section 4.1 Organization...................................................... 29
Section 4.2 Authority of Parent and Newco..................................... 29
Section 4.3 No Brokerage Fees................................................. 29
Section 4.4 Stock Consideration............................................... 30
Section 4.5 Disclosure........................................................ 30
Section 4.6 Consents and Approvals............................................ 30
Section 4.7 Knowledge and Expertise........................................... 30
ARTICLE V CERTAIN AGREEMENTS AND UNDERSTANDINGS........................................ 30
Section 5.1 Collection of Other Assets........................................ 30
Section 5.2 Conduct of Business............................................... 31
Section 5.3 No Solicitation................................................... 32
Section 5.4 Access and Information............................................ 32
Section 5.5 Public Announcements.............................................. 33
Section 5.6 Confidentiality................................................... 33
Section 5.7 Further Actions................................................... 33
Section 5.8 Document Retention................................................ 34
ARTICLE VI CLOSING CONDITIONS.......................................................... 34
Section 6.1 Conditions to Obligation of Sellers............................... 34
Section 6.2 Conditions to Obligation of Parent and Newco...................... 35
ARTICLE VII INDEMNIFICATION............................................................ 36
Section 7.1 Indemnification by Sellers........................................ 36
Section 7.2 Indemnification by Parent and Newco............................... 37
Section 7.3 Claims for Indemnification........................................ 38
Section 7.4 Defense Claims.................................................... 38
Section 7.5 Interest.......................................................... 39
Section 7.6 Manner of Indemnification......................................... 39
Section 7.7 Additional Limitations on Indemnification......................... 39
Section 7.8 Release of Claims Against the Company............................. 39
ARTICLE VIII TERMINATION............................................................... 40
Section 8.1 Termination....................................................... 40
Section 8.2 Effect of Termination............................................. 41
ARTICLE IX MISCELLANEOUS............................................................... 41
Section 9.1 Fees and Expenses................................................. 41
Section 9.2 Notices........................................................... 41
Section 9.3 Attorneys' Fees and Costs......................................... 42
Section 9.4 Assignability and Parties in Interest............................. 42
Section 9.5 Governing Law..................................................... 42
Section 9.6 Counterparts...................................................... 42
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
Section 9.7 Complete Agreement................................................ 42
Section 9.8 Modifications Amendments and Waivers.............................. 43
Section 9.9 Due Diligence Investigation; Knowledge............................ 43
Section 9.10 Limit on Interest.............................................. 43
Section 9.11 Post Closing Matters; Further Assurances....................... 43
Section 9.12 Contract Interpretation; Construction of Agreement............. 43
Section 9.13 Survival of Representations and Warranties..................... 43
Section 9.14 Arbitration.................................................... 44
Section 9.15 Severable Provisions........................................... 44
EXHIBIT A SHAREHOLDERS AND SHARE HOLDINGS.............................................. --
EXHIBIT 2.5(A)(II) EMPLOYMENT AGREEMENT................................................ --
EXHIBIT 2.5(A)(III) NONCOMPETITION AGREEMENT........................................... --
EXHIBIT 2.5(A)(VIII) AT-WILL EMPLOYMENT AGREEMENT...................................... --
</TABLE>
4
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of January 13, 2000 by and among I-Flow Corporation, a
California corporation ("Parent"), Spinal Acquisition Corp., a Delaware
corporation ("Newco"), Spinal Specialties, Inc., a Texas corporation (the
"Company"), and each of the persons named on Exhibit A hereto (all such persons,
"Sellers"), such Sellers being all of the shareholders of the Company.
WHEREAS, Sellers own all of the issued and outstanding shares of the
Company's Common Stock, no par value (the "Shares");
WHEREAS, the parties hereto desire to merge the Company with and into
Newco, with Newco to continue as the surviving corporation and the separate
corporate existence of the Company to cease at such time;
WHEREAS, for federal income tax purposes, it is intended by all parties
that the Merger qualify as a reorganization under Section 368 of the Internal
Revenue Code of 1986 (the "Code"), as amended, and that this Agreement
constitutes a plan of reorganization under Section 368 of the Code;
WHEREAS, in furtherance of the Merger, the Boards of Directors of
Parent, Newco, and the Company have each approved the Merger in accordance with
applicable laws and upon the terms and subject to the conditions set forth
herein; and
WHEREAS, in furtherance of the Merger, the shareholders of Newco and
the Company each approve the Merger hereby upon execution of this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein and
intending to be legally bound, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
indicated below:
"Accounts Receivable" shall have the meaning set forth in Section 3.9.
"Affiliate" shall mean, in respect of any specified Person, any other
Person, whether or not a separate legal entity, that, directly or indirectly,
controls, is controlled by, or is under common control with, such specified
Person or if such specified Person bears a familial relationship of parent,
child, spouse or sibling with such other Person, and such meaning shall include
without limitation subsidiaries, divisions, departments, partners, joint
venturers, product lines or products (the terms "controls," "controlled" or
"control" meaning the possession, directly or indirectly, of the power to direct
or cause the direction of management policies of a Person, whether through the
ownership of securities, by contract or credit arrangement, as trustee or
executor, or otherwise).
5
<PAGE> 6
"Affiliated Parties" shall have the meaning set forth in Section 7.1.
"Agreement" shall have the meaning set forth in the Preamble.
"At-Will Employment Agreements" shall have the meaning set forth in
Section 2.5(a)(viii).
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.).
"Closing" shall have the meaning set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Closing Value" shall mean the average of the last sale price of
Parent's common stock for the five business days ending three business days
prior to Closing, as reported on the Nasdaq SmallCap Market.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the Preamble.
"Company Employee Plans" shall have the meaning set forth in Section
3.18.
"Contracts" shall mean all of the contracts, purchase orders and
agreements (whether written or oral) to which the Company is a party or by which
it is bound.
"Delaware Law" means the Delaware General Corporation Law, as amended.
"Effective Time" shall have the meaning set forth in Section 2.3(b).
"Employment Agreements" shall have the meaning set forth in Section
2.5(a)(ii).
"Employment-related Agreements" shall mean (i) any employment,
consulting, collective bargaining or similar agreement, whether written or oral,
to which the Company is a party or by which it is bound, (ii) any plan,
agreement or arrangement sponsored by or contributed to by the Company,
including, without limitation, any life or health insurance, hospitalization,
savings, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, holiday, vacation, severance pay, sick pay, sick leave,
disability, educational assistance, tuition refund, service award, company car,
scholarship, relocation, fringe benefit, severance contracts, pension
arrangements, and other policies, practices or commitments, whether written or
unwritten, providing employee or executive compensation or benefits to employees
of the Company, (iii) any employee benefit plan as defined in Section 3(3) of
ERISA, and (iv) any arrangement or understanding for the payment of
post-retirement benefits.
"Environmental Protection Laws" shall mean all federal, state, local
and foreign laws, statutes, regulations having the force and effect of law,
permits, court decrees, judgments, injunctions and written orders concerning (i)
public health and safety relating to toxic or hazardous substances or (ii)
pollution or protection of the environment or natural resources,
6
<PAGE> 7
including, without limitation, CERCLA; the Hazardous Materials Transportation
Act (49 U.S.C. Section 1801 et seq.); the Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.); the Clean Water Act (33 U.S.C.
Section 1251 et seq.); the Safe Drinking Water Act (14 U.S.C. Section 1401 et
seq.); the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.); the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et
seq.); the Clean Air Act (42 U.S.C. Section 7401 et seq.); and the Emergency
Planning and Community Right-to-Know Act (42 U.S.C. Sections 11001-11005,
11021-11023, and 11041-11050).
"EPA" shall mean the United States Environmental Protection Agency, or
any successor United States governmental agency.
"Equipment" shall mean all equipment, machinery, tools, vehicles,
computers, software and furniture owned by the Company.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA Affiliate" of the Company shall mean any other Person that,
together with the Company as of the relevant measuring date under ERISA, was or
is required to be treated as a single employer under Section 414 of the Code.
"FAR" shall mean the Federal Acquisition Regulations, as supplemented
or amended from time to time.
"Financials" shall have the meaning set forth in Section 3.4.
"GAAP" shall mean generally accepted accounting principles as in effect
at the time in question.
"Holdback" shall have the meaning set forth in Section 2.4.
"Indemnified party" shall have the meaning set forth in Section 7.3.
"Indemnifying party" shall have the meaning set forth in Section 7.3.
"Intangible Personal Property" shall have the meaning set forth in
Section 3.16.
"Interim Balance Sheet" shall have the meaning set forth in Section
3.4(a).
"Inventories" shall have the meaning set forth in Section 3.10.
"IRS" shall mean the Internal Revenue Service.
"Lease" shall have the meaning set forth in Section 3.7.
"Licenses" shall have the meaning set forth in Section 3.16.
7
<PAGE> 8
"Material", in respect of the Company, means a fact, matter,
circumstance or condition on which a reasonable businessman would expend money
to correct or change, or which has a cost or value, in excess of $15,000.
"Material Contracts" shall have the meaning set forth in Section
3.19(a)
"Merger" shall have the meaning set forth in Section 2.1(a).
"Newco" shall have the meaning set forth in the Preamble.
"Noncompetition Agreements" shall have the meaning set forth in Section
2.5(a)(iii).
"Organizational Documents" means the Articles of Incorporation and the
Bylaws of the Company and any amendment thereto.
"Person" shall mean any entity or natural person or any corporation,
partnership, joint venture or other entity, whether or not a legal entity.
"Prime Rate" shall mean the reference rate as reported by Bank of
America, NT&SA.
"Progress Payments" shall have the meaning set forth in Section 3.14.
"Purchase Price" shall have the meaning set forth in Section 2.2.
"RCRA" shall have the meaning set forth within the definition of
"Environmental Protection Laws."
"Regulated Substance" shall mean any chemical or substance subject to
or regulated under any Environmental Protection Law including, without
limitation, any "pollutant or contaminant" or "hazardous substance" as those
terms are defined in CERCLA, any "hazardous waste" as that term is defined in
RCRA, and any other hazardous or toxic wastes, substances, or materials,
petroleum (including crude oil and refined and unrefined fractions thereof),
polychlorinated biphenyls ("PCBs"), infectious waste, special waste, pesticides,
fungicides, solvents, herbicides, flammables, explosives, asbestos and
asbestos-containing material, and radioactive materials, whether injurious by
themselves or in combination with other materials.
"Related Parties" shall have the meaning set forth in Section
3.19(a)(viii).
"Seller" shall mean Michael Wakely, Robert B. Keahey, Robert A. Keahey,
Robert D. Duffet, Camilla B. Doe, R. Bryan Stone, and J. Elliot Cunningham, each
individually.
"Sellers" shall have the meaning set forth in the Preamble, and are
Michael Wakely, Robert B. Keahey, Robert A. Keahey, Robert D. Duffet, Camilla B.
Doe, R. Bryan Stone, and J. Elliot Cunningham, collectively.
"Sellers' Closing Documents" shall have the meaning set forth in
Section 3.2(a).
"Shares" shall have the meaning set forth in the Preamble.
8
<PAGE> 9
"Subsidiaries" shall mean any corporation or other Person of which the
Company directly or indirectly holds securities or other interests having the
power to elect a majority of such corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of such corporation or other Person.
"Surviving Corporation" shall have the meaning set forth in Section
2.1(a).
"Tax" or "Taxes" shall mean any and all taxes imposed or required to be
collected by any federal, state or local taxing authority in the United States,
or by any foreign taxing authority under any statute or regulation, including,
without limitation, all income, gross receipts, sales, use, personal property,
use and occupancy, business occupation, mercantile, ad valorem, transfer,
license, withholding, payroll, employment, excise, real estate, environmental,
capital stock, franchise, alternative or add-on minimum, estimated or other tax
of any kind whatsoever, including any interest, penalties and other additions
thereto.
"Texas Law" shall mean the Texas Business Corporation Act, as amended.
"Transactions" shall mean, in respect of any party, all transactions
contemplated by this Agreement that involve, relate to or affect such party.
"Unregistered Shares" shall mean shares of common stock of I-Flow
Corporation that have not been registered pursuant to the Securities Act of
1933, as amended.
ARTICLE II
MERGER AND REORGANIZATION
SECTION 2.1 MERGER.
(a) At the Effective Time, and subject to and upon the terms
and conditions of this Agreement, Delaware Law and Texas Law, the Company shall
be merged with and into Newco (the "Merger"). The separate corporate existence
of the Company shall cease and Newco shall continue as the surviving
corporation. Newco 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 Newco shall be changed to Spinal Specialties,
Inc., a Delaware corporation.
(b) Parent, as the sole shareholder of Newco, hereby approves
and adopts this Agreement and the Merger contemplated hereby in accordance with
applicable law and the Certificate of Incorporation and Bylaws of Newco.
(c) Sellers, as the sole shareholders of the Company, hereby
approve and adopt this Agreement and the Merger contemplated hereby in
accordance with applicable law and the Articles of Incorporation and Bylaws of
the Company.
SECTION 2.2 PURCHASE PRICE.
(a) Consideration. The purchase price (the "Purchase Price")
for the Shares will be comprised of: (i) cash in the amount of $750,000, offset
by an amount equal to any
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<PAGE> 10
indebtedness of the Company at the time of the Closing in excess of $590,000,
including general trade payables and any debts of the Company paid by Parent or
Newco at or in connection with Closing, including payments pursuant to Section
6.1(f) (the "Cash Consideration"), and (ii) a number of Unregistered Shares
equal to $750,000 divided by the Closing Value, payable no later than 5 business
days after the Closing Date (the "Stock Consideration").
(b) Conversion. At the Effective Time, each holder of the
Shares that are outstanding immediately prior to the Effective Time, other than
any Dissenting Shares (defined in Section 2.2(g)), shall be entitled to receive
in exchange for his or her portion of the Shares, a pro rata portion of the
Purchase Price equal to that Seller's proportionate ownership of the Shares.
Each holder of a certificate representing any of the Shares
(except for Dissenting Shares) shall, after the Effective Time, cease to have
any rights with respect to such stock, except the right to receive his or her
pro rata share of the Purchase Price upon the surrender of such certificate,
payable in accordance with this Section 2.
(c) Fractional Shares. No fractional shares of Parent shall be
issued in the Merger. In lieu of the issuance of any such fractional shares,
Parent shall pay to each Seller who otherwise would have been entitled to
receive fractional shares, 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 Parent's stock which such holder would otherwise have been entitled to
receive.
(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 Surviving Corporation of shares of the Company that were
registered as outstanding immediately prior to the Effective Time. In the event
that any registered certificate of any Seller shall have been lost, stolen or
destroyed, the Surviving Corporation, upon the making of an affidavit of that
fact by the Seller claiming such certificate to be lost, stolen or destroyed and
an indemnification (subject to the following sentence) shall make payment of the
Seller's pro rata share of the Purchase Price for the Shares represented by such
certificate in accordance with this Section to persons legally entitled thereto.
The Surviving Corporation, in its sole discretion and as a condition precedent
to the delivery of the Seller's pro rata share of the Purchase Price, in
exchange for the shares 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 Seller to receive the
Purchase Price as provided herein shall be subject to and reduced by the amount
of any required tax withholding obligation, if any. To the extent that Parent
withholds taxes from payments to Sellers, Parent will provide each such Seller
with documentary evidence of any amounts so withheld and information as to the
basis therefore.
(f) Newco Capital Stock. Each share of common stock of Newco
issued and outstanding immediately prior to the Effective Time shall continue to
represent one share of issued and outstanding common stock of the Surviving
Corporation and shall not be affected by the Merger.
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(g) Dissenting Shares.
(i) Notwithstanding any provision of this Agreement
to the contrary, any holder of any of the Shares who has exercised his or her
dissenter's rights and demanded payment of the fair value of such shares in
accordance with Texas 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 his/her pro rata portion of the
Purchase Price pursuant to this Section, but shall only be entitled to such
rights as are granted under Texas Law.
(ii) Notwithstanding the provisions of this Section,
if any holder of the Shares who exercise his or her dissenter's rights under
Texas Law shall effectively withdraw or lose (through a 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 or her pro rata share of the
Purchase Price applicable to such shares as provided in this Section, without
interest thereon, upon surrender of the certificate(s) representing such shares.
(iii) The Company shall give (A) Newco and Parent
prompt notice of any exercise of any dissenter's rights by the holders of any of
the Shares, withdrawals of such exercise, and any other instruments served
pursuant to Texas Law and received by the Company, and (B) the opportunity to
direct all negotiations and proceedings with respect to dissenter's rights under
Texas Law. Except with the prior written consent of Parent and Newco, the
Company shall not voluntarily make any agreement or payment with respect to any
demand for appraisal of the Shares or offer to settle any such demands.
SECTION 2.3 CLOSING.
(a) The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Parent's counsel at 4 Park Plaza,
Suite 1700, Irvine, California at 10:00 a.m. (local time) on January 14, 2000,
or at such other time and place as the parties may agree (the "Closing Date").
(b) If, at the Closing, each of the conditions set forth in
Article VI 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 transactions
contemplated herein shall be consummated on such date and, then and thereupon
the parties hereto shall carry out the procedures specified under the applicable
provisions of Delaware Law and Texas Law, to the end that the Merger shall
become effective. The Merger shall be consummated and become effective by filing
the Certificate of Merger (the "Delaware Certificate of Merger") with the
Delaware Secretary of State and the Articles of Merger (the "Texas Articles of
Merger") with the Texas Secretary of State, in such form as required by and
executed in accordance with the relevant provisions of Delaware Law and Texas
Law, respectively. When used in this Agreement, "Effective Time" shall mean the
time at which the Delaware Certificate of Merger and the Texas Articles of
Merger are so filed in accordance with Delaware Law and Texas Law, respectively.
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SECTION 2.4 PAYMENT AND HOLDBACK.
As security for Sellers' indemnities set out in Section 7.1, but
without limitation of Sellers' liability under that Section, Parent shall retain
out of the Cash Consideration payable under Section 2.2(a), the sum of $150,000
(the "Holdback"). From time-to-time, on not less than 10 days' prior notice to
Sellers, Parent may apply all or any part of the Holdback to pay, or to provide
for the payment of, any liability of Sellers arising under the indemnities
contained in Section 7.1. One year from the Effective Date, Parent will pay
Sellers, pro rata, a sum equal to the Holdback, minus any amounts for which
Parent has given the notice provided for above by the date of the payment, plus
interest on the difference thereof accrued at the Prime Rate and compounded
monthly.
Nothing in this Section will be construed as limiting the liability of
Sellers under this Agreement to the amount of the Holdback, nor will that amount
be considered as liquidated damages for any breach under this Agreement.
SECTION 2.5 CLOSING OBLIGATIONS.
(a) At the Closing, the Company and Sellers will deliver, or
cause to be delivered, to Parent and Newco:
(i) certificates representing all of the Shares, duly
endorsed (or accompanied by duly executed stock powers), for transfer to Newco;
(ii) employment agreements, executed by Michael
Wakely and Robert B. Keahey, in the form of Exhibit 2.5(a)(ii) (the "Employment
Agreements");
(iii) noncompetition agreements, executed by Michael
Wakely and Robert B. Keahey, in the form of Exhibit 2.5(a)(iii) (the
"Noncompetition Agreements");
(iv) a certificate executed by Sellers representing
and warranting to Parent and Newco (A) that each of his or her and the Company's
representations and warranties in this Agreement were accurate in all respects
as of the date of this Agreement and are accurate in all respects as of the
Closing Date as if made on the Closing Date and (B) as to the amount of cash on
hand in the Company and the amount of indebtedness of the Company at Closing
(including amounts to be paid by Parent pursuant to Section 6.1(f));
(v) assignments, in form and substance satisfactory
to Parent and Newco, executed by Sellers, transferring to the Company each such
persons' respective rights, title and interest in and to any assets, including
trade secrets or intellectual property, made use of by the Company in the
conduct of its business;
(vi) written evidence of termination of any Company
Employee Plans other than United Healthcare health insurance policy identified
on Schedule 3.18;
(vii) written resignations and releases, effective as
of the Closing Date, executed by all directors, officers and employees of the
Company;
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(viii) at-will employment agreements, executed by all
employees of the Company other than Michael Wakely and Robert B. Keahey, in the
form of Exhibit 2.5(a)(viii) (the "At-Will Employment Agreements");
(ix) signature cards and executed powers of attorney
for all bank accounts identified on Schedule 3.30 hereto; and
(x) payoff letters relating to all debts listed on
Schedule 6.1 executed by all creditors and lien holders listed thereon.
(b) At the Closing Parent or Newco will deliver to Sellers:
(i) a sum equal to the Cash Consideration minus the
Holdback and a certificate stating the number of Unregistered Shares that will
be paid in satisfaction of the Stock Consideration, with the actual stock
certificates to be delivered within 5 business days from the Closing Date;
(ii) a certificate executed by Parent and Newco to
the effect that each of Parent and Newco's representations and warranties in
this Agreement were accurate in all respects as of the date of this Agreement
and is accurate in all respects as of the Closing Date as if made on the Closing
Date;
(iii) the Employment Agreements, executed by Newco
and Parent;
(iv) the Noncompetition Agreements, executed by Newco
and Parent; and
(v) the At-Will Employment Agreements executed by
Newco.
SECTION 2.6 POST CLOSING OBLIGATIONS.
Within 5 business days after the Closing, Parent will deliver to
Sellers certificates representing the Stock Consideration.
SECTION 2.7 EFFECT OF THE MERGER.
At the Effective Time:
(a) the Company will be merged with and into Newco, with Newco
as the Surviving Corporation;
(b) the separate existence of the Company will cease and the
Surviving Corporation shall succeed, without other transfer, to all rights and
properties of the Company and shall be subject to all the debts and liabilities
of the Company;
(c) the Certificate of Incorporation of Newco will be the
Certificate of Incorporation of the Surviving Corporation (except that the name
of the Surviving Corporation shall be changed to Spinal Specialties, Inc.);
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(d) the Bylaws of Newco shall be the Bylaws of the Surviving
Corporation;
(e) the directors and officers of Newco shall be the 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;
(g) the Merger, from and after the Effective Time, shall have
all the effects provided by Delaware Law, Texas Law and any other applicable
law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND SELLERS
Sellers and the Company jointly and severally, hereby represent and
warrant to Parent and Newco that:
SECTION 3.1 ORGANIZATION AND GOOD STANDING.
Schedule 3.1 is a complete and accurate list, for the Company, of its
name, jurisdiction of incorporation, other jurisdictions in which it is
authorized to do business, and its capitalization (including the identity of
each stockholder and the number of shares held by each). The Company is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to own or
lease its properties and to conduct its business in the manner and in the places
where such properties are owned or leased or such business is currently
conducted. The Company is qualified to do business and is in good standing in
each other jurisdiction in which either the ownership or use of the properties
owned or used by it, or the nature of the activities conducted by it, requires
such qualification, except where the failure to be qualified, if required, could
not result in a material liability to the Company. The Company does not have and
has never had any Subsidiaries or Affiliate companies.
SECTION 3.2 AUTHORITY OF SELLERS; NO BREACH.
(a) This Agreement constitutes the legal, valid, and binding
obligation of the Company and Sellers, enforceable against the Company and
Sellers in accordance with its terms. Upon the execution and delivery by Sellers
of this Agreement and the other agreements required to be delivered by Sellers,
or any of them, pursuant to Section 2.5 hereof (collectively, the " Sellers'
Closing Documents"), the Sellers' Closing Documents will, to the extent any such
Seller is a party thereto, constitute the legal, valid, and binding obligations
of Sellers, enforceable against Sellers in accordance with their respective
terms. The Company and Sellers each have the absolute and unrestricted right,
power, authority, and capacity to execute and deliver this Agreement and, to the
extent any such Seller is a party thereto, the Sellers' Closing Documents, and
to perform their respective obligations under this Agreement and, to the extent
any such Seller is a party thereto, the Sellers' Closing Documents.
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(b) Except as set forth in Schedule 3.2, neither the execution
and delivery of this Agreement nor the consummation or performance of any of the
Transactions will, directly or indirectly (with or without notice or lapse of
time):
(i) violate any provision of the Articles of
Incorporation or Bylaws of the Company;
(ii) violate any laws of the United States, or any
state or other jurisdiction applicable to Sellers or the Company or require
Sellers or the Company to obtain any approval, consent or waiver of, or make any
filing with, any person or entity (governmental or otherwise) that has not been
obtained or made;
(iii) result in a violation or any breach of,
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in the acceleration of any indebtedness
under or performance required by, result in any right of termination of,
increase any amounts payable under, decrease any amounts receivable under,
change any other rights pursuant to, or conflict with, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which any of Sellers or the Company is a party
or by which he or his, or it or its, properties is bound; or
(iv) result in the creation or imposition of any
lien, charge, encumbrance or restriction upon any of the Shares or any assets of
the Company.
SECTION 3.3 CAPITALIZATION.
The authorized equity securities of the Company consists entirely of
10,000,000 shares of Common Stock, of which 104,000 shares are issued and
outstanding (the "Shares"). Sellers are, and will be on the Closing Date, the
record and beneficial owners and holders of the Shares, free and clear of any
and all liens, encumbrances, security agreements, options, claims, charges and
restrictions. Each Seller owns the number of Shares set forth opposite his/her
or its name on Exhibit A. No legend or other reference to any purported
encumbrance appears upon any certificate representing the Shares. All of the
outstanding equity securities of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. There are no outstanding
warrants, stock options or other Contracts relating to the issuance, sale, or
transfer of any equity securities or other securities of the Company. None of
the outstanding equity securities or other securities of the Company was issued
in violation of the Securities Act of 1933, as amended, any state securities
laws, or any other legal requirement. The Company does not own, and has no
Contract to acquire, any equity securities or other securities of any Person or
any direct or indirect equity or ownership interest in any other business.
SECTION 3.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent and Newco: (i)
unaudited balance sheets of the Company as of December 31 in each of the years
1996, 1997 and 1998, and the related unaudited statements of operations, for
each of the fiscal years then ended, and (ii) an unaudited balance sheet of the
Company as of November 30, 1999 (the "Interim Balance Sheet") and the related
unaudited statements of operations for the eleven months then ended, excluding
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in each case any notes thereto. Such financial statements (the "Financials") are
complete and correct, and fairly present the financial condition and the results
of operations, of the Company as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP
consistently applied throughout the periods covered.
(b) The Financials have been prepared from, and are consistent
with, the accounting books and records of the Company. There are no material
transactions, agreements or accounts that have not been properly reflected in
the Financials and recorded in the accounting books and records of the Company
underlying the Financials. All transactions with Related Parties, including, but
not limited to, sales, purchases, loans, transfers, leasing arrangements,
guarantees and amounts receivable from or payable to Related Parties, have been
properly reflected in the Financials and recorded in the accounting books and
records of the Company. For purposes of the Financials, revenue, including sales
under fixed price contracts, has been recognized upon shipment of products, and
not on the percentage completion method or any other method. The Financials
reflect all costs and expenses incurred in connection with the business of the
Company throughout the respective periods covered. The Financials contain and
reflect the establishment and inclusion in the balance sheets, and in cost of
goods sold or operating expense, for the respective periods covered of all
appropriate accruals and reserves affecting the carrying value of the assets and
liabilities of the Company. Liabilities for amounts unpaid to suppliers are
recorded for all items included in inventories at each of the respective balance
sheet dates of the Financials, and all quantities billed to customers at those
dates are excluded from the inventory balances. Adequate provision has been made
in the Financials for all anticipated losses on contracts, including contracts
on which work has not started. Except for the liabilities reflected in the
Financials or as otherwise specifically disclosed in Schedules to this
Agreement, there are no other liabilities, obligations or gain or loss
contingencies that would be required by GAAP to be accrued or disclosed in notes
to the Financials, or considered for disclosure in notes to the Financials. The
Financials do not contain any items of extraordinary or nonrecurring income or
any other income not earned in the ordinary course of business.
SECTION 3.5 LICENSES AND PERMITS.
The Company has received and holds all permits, registrations,
licenses, franchises, certifications and other approvals required from federal,
state or local authorities in order for the Company to conduct and operate its
business as currently conducted or operated by it and to permit the Company to
own or use its assets in the manner in which such assets are currently owned or
used including, but not limited to, a Medical Device Facility license in good
standing issued by the Federal Food and Drug Administration ("FDA"), a Medical
Device Facility license, and a Wholesale Drug Distributor license, both in good
standing, issued by the State of Texas Department of Health.
SECTION 3.6 BOOKS AND RECORDS.
The accounting books and records, minute books, stock record books, and
other records of the Company, all of which have been made available to Parent
and Newco, are complete and correct and have been maintained in accordance with
sound business practices, including the maintenance of an adequate system of
internal controls. The minute books of the Company contain accurate and complete
records of all meetings held of, and corporate action taken by, the
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stockholders, the Board of Directors, and committees of the Board of Directors
of the Company, and no meeting of any such stockholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the Company.
SECTION 3.7 TITLE TO PROPERTIES; ENCUMBRANCES.
Schedule 3.7 contains a complete and accurate list of all real property
leaseholds, or other interests in real property, owned by the Company. The
Company does not own any real property. The Company owns all the properties and
assets that it purports to own, including all of the properties and assets
reflected in the Financials (except for items of Inventory sold since the date
of the Interim Balance Sheet, in the ordinary course of business and consistent
with past practice). Except as disclosed on Schedule 3.7, all properties and
assets reflected in the Financials are free and clear of all encumbrances or
limitations of any nature. Each lease (a "Lease") of real property to which the
Company is a party is valid, binding, enforceable and in full force and effect.
No default or breach has occurred under any Lease, and no event has occurred
which, with the passage of time or giving of notice or both, would constitute a
breach or default thereunder or would cause the acceleration of any obligation
of any party thereto or the creation of a lien or encumbrance upon any asset of
the Company.
SECTION 3.8 CONDITIONS AND SUFFICIENCY OF ASSETS.
The buildings, plants, structures, and equipment owned or used by the
Company are structurally sound, are in good operating condition and repair, and
are adequate for the uses to which they are being put, and none of such
buildings, plants, structures, or equipment is in need of maintenance or
repairs. The building, plants, structures, and equipment of the Company are
sufficient for the continued conduct of the Company's businesses after the
Closing in substantially the same manner as conducted prior to the date hereof.
SECTION 3.9 ACCOUNTS RECEIVABLE.
All accounts receivable of the Company that are reflected on the
Interim Balance Sheet or on the accounting records of the Company as of the
Closing Date (collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. Each of the Accounts
Receivable either has been or will be collected in full, without any set-off.
There is no contest, claim or right of set-off under any Contract with any
obligor of an Accounts Receivable relating to the amount or validity of such
Accounts Receivable.
SECTION 3.10 INVENTORY.
All inventories of the Company that are reflected on the Interim
Balance Sheet or on the accounting records of the Company as of the Closing Date
(collectively, the "Inventories") are stated at the lower of cost or market,
cost being determined on the actual cost basis, and due provision has been made
to reduce all slow-moving, obsolete, or unusable inventories to their estimated
useable or scrap values. Except for finished goods inventory with a carrying
value of less than $25,000, all of the Inventories consist of raw materials and
work in process inventories purchased or built by the Company only in support of
firm customer backlog.
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SECTION 3.11 BACKLOG; CUSTOMERS.
(a) Schedule 3.11(a) sets forth a complete and correct listing
of the amount of firm customer backlog by customer as of the Closing Date, and
calendar year of scheduled delivery. As used in this Agreement, "firm customer
backlog" means purchase orders or contracts from customers of the Company with
fixed prices, fixed quantities and fixed delivery dates. The Company has not
received any notification from any customer that any of such firm customer
backlog may be canceled or rescheduled.
(b) Except as set forth on Schedule 3.11(b), the Company has
not received notice from any customers that any such customer intends materially
to reduce the purchase of products from the Company in the future, relative to
its historic past practice.
SECTION 3.12 NO UNDISCLOSED LIABILITIES.
Except as set forth in Schedule 3.12, the Company has no liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) except for liabilities or obligations
reflected or reserved against in the Interim Balance Sheet and current
liabilities incurred in the ordinary course of business since the date thereof.
SECTION 3.13 ABSENCE OF CERTAIN CHANGES.
(a) Except as disclosed on Schedule 3.13, since December 31,
1998, there has not occurred:
(i) Any adverse change in the assets, liabilities
(whether absolute, accrued, contingent or otherwise), condition (financial or
otherwise), results of operations, business or prospects of the Company not
reflected in the Financials and that has resulted in or may result in a material
loss to the Company;
(ii) Any guarantee by the Company of any obligation,
or any mortgage, pledge or encumbrance on any of the properties or assets of the
Company;
(iii) Any amendment or modification of any Material
Contract, or any termination of any agreement that would have been a Material
Contract were such agreement in existence on the date hereof;
(iv) Any transaction by the Company, whether or not
covered by the foregoing, not in the ordinary course of business, including,
without limitation, any purchase or sale of any assets;
(v) Any alteration in the manner of keeping the
books, accounts or records of the Company, or in the accounting principles,
policies or procedures therein reflected;
(vi) Any loss or threatened loss of a customer or
customers;
(vii) Any material increase in the salary, wages,
vacation pay, sick pay, bonuses or other compensation of any employee,
consultant, representative or agent;
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(viii) Any transactions involving any of the Sellers
or their Affiliates, and the Company;
(ix) Any change in the capital structure of the
Company, including any grant or exercise of warrants, options or other rights to
acquire stock, the issuance or repurchase or redemption of any shares of capital
stock or otherwise, or the declaration or payment of any dividends or
distributions;
(x) Any payment of any fees or other compensation to
directors;
(xi) Any loans or guarantees of indebtedness, or the
incurrence of any indebtedness generally, by the Company;
(xii) Any material damage or destruction to, or loss
of, any assets or property owned, leased or used by the Company (whether or not
covered by insurance); or
(xiii) Any agreement or commitment to do any of the
things described in the preceding subsections (i) - (xii) of this Section
3.13(a).
(b) In the event of a change in accounting principles,
policies or procedures, Schedule 3.13 sets forth a complete and correct
description of each such change in accounting principles, policies and
procedures, including, but not limited to, the date of such change, the reason
for such change, a description of such change and the effect of such change on
the financial results of the Company as reflected in the Financials.
SECTION 3.14 PROGRESS PAYMENTS.
The Company has not received any progress payments, milestone payments,
advance payments, deposits or other similar payments from customers
(collectively, "Progress Payments") with respect to the Contracts. All Progress
Payment requests submitted by the Company have been in material compliance with
the contractual terms and with applicable U.S. Government laws and regulations,
including but not limited to, the FAR and related cost accounting standards.
SECTION 3.15 ENVIRONMENTAL MATTERS.
(a) The Company has complied and is in compliance in all
material respects with all applicable Environmental Protection Laws pertaining
to any of its properties and assets at which the business of the Company has
ever been conducted, and the use and ownership thereof. No violation by the
Company is being alleged of any applicable Environmental Protection Law relating
to any of the properties and assets at which the business of the Company has
ever been conducted or the use or ownership thereof.
(b) Neither the Company nor any other Person (including any
tenant or subtenant) has caused or taken any action that will result in, and the
Company is not subject to, any liability or obligation on the part of the
Company or any of its Affiliates, relating to (i) the environmental conditions
on, under, or about the Real Property or other properties or assets owned,
leased, operated or used by the Company or any predecessor thereto at the
present time
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or in the past including without limitation, the air, soil and groundwater
conditions at such properties or (ii) the past or present use, management,
handling, transport, treatment, generation, storage, disposal or release of any
Regulated Substance.
(c) The Company has disclosed and made available to Parent and
Newco all information, including, without limitation, all studies, analyses and
test results, in the possession, custody or control of or otherwise known to the
Company relating to (i) the environmental conditions on, under or about the Real
Property or other properties or assets owned, leased, operated or used by the
Company or any predecessor in interest thereto at the present time or in the
past, and (ii) any Regulated Substance used, managed, handled, transported,
treated, generated, stored, disposed of or released by the Company or any other
Person in connection with the use or operation of any of the business,
properties or assets of the Company.
SECTION 3.16 INTANGIBLE PERSONAL PROPERTY.
Schedule 3.16 sets forth (i) a complete and correct list of each
patent, patent application, copyright, copyright application, trademark,
trademark application (in any such case, whether registered or to be registered
in the United States of America or elsewhere), process, invention, trade secret,
trade name, computer program, formula and customer list (collectively, the
"Intangible Personal Property") owned by or used in the business of the Company,
and (ii) a complete and correct list of all licenses or similar agreements or
arrangements ("Licenses") to which the Company is a party either as licensee or
licensor for each such item of Intangible Personal Property. The conduct by the
Company of its businesses, and the manufacture and sale by the Company of its
products, does not conflict with, infringe upon or violate any patent,
copyright, trademark, registration or other intellectual property right of any
other person or entity.
SECTION 3.17 LABOR AND EMPLOYMENT AGREEMENT.
The Company is not a party to or bound by any collective bargaining
agreement and there are no labor unions or other organizations representing,
purporting to represent or attempting to represent any employees of the Company.
Since January 1, 1996, there has not occurred or, to the knowledge of the
Company, have there been threatened any material strike, slowdown, picketing,
work stoppage, concerted refusal to work overtime or other similar labor
activity. There are no labor disputes currently subject to any grievance
procedure, arbitration or litigation and there is no representation petition
pending, or to the knowledge of the Company, threatened. The Company has
complied with all provisions of applicable law pertaining to the employment of
employees, including, without limitation, all such laws relating to labor
relations, the Consolidated Omnibus Budget Reconciliation Act (commonly known as
"COBRA"), equal employment, fair employment practices, entitlements, prohibited
discrimination or other similar employment practices or acts, except for any
failure so to comply that, individually or together with all such other
failures, has not and will not result in a material liability or obligation on
the part of the Parent, Newco or the Company, and has not had or resulted in,
and will not have or result in, an adverse effect on the business, operations or
prospects of the Company.
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SECTION 3.18 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Schedule 3.18 lists, with respect to the Company, any
subsidiary of the Company and any trade or business (whether or not
incorporated) that is treated as a single employer with the Company within the
meaning of Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate"),
whether written or unwritten, (i) all employee benefit plans (as defined in
Section 3(3) of ERISA), (ii) each loan to a non-officer employee in excess of
$5,000, any loans to officers and directors, and any stock option, stock
purchase, phantom stock, stock appreciation right, supplemental retirement,
severance, sabbatical, medical, dental, vision care, disability, employee
relocation, cafeteria benefit (Code Section 125) or dependent care (Code Section
129), life insurance or accident insurance plans, programs or arrangements,
(iii) all bonus, pension, profit sharing, savings, deferred compensation or
incentive plans, programs or arrangements, (iv) all other fringe or employee
benefit plans, programs or arrangements that apply to senior management of the
Company and that do not generally apply to all employees, and (v) all current or
former employment agreements, executive compensation or severance agreements for
the benefit of, or relating to, any present or former employee, consultant or
director of the Company (together, the "Company Employee Plans").
(b) The Company has furnished to Parent and Newco a copy of
(i) each of the Company Employee Plans and related plan documents (including
trust documents, insurance policies or contracts, funding arrangements, employee
booklets, summary plan descriptions, amendments, other authorizing documents,
summaries of material modifications, any material employee communications
relating thereto and, if unwritten, a summary of plan provisions), (ii) with
respect to each Company Employee Plan that is subject to ERISA reporting
requirements, copies of the Form 5500 for the three most recent plan years,
including all schedules attached thereto and actuarial reports, if any, (iii)
the most recent determination letter received from the IRS, (iv) the most recent
application for a determination letter filed with the IRS, (v) the latest
actuarial valuations, (vi) the latest financial statements, and (vii) in the
case of any stock options or stock appreciation rights issued under any Company
Employee Plan, a list of holders, dates of grant, number of shares, the exercise
price per share and dates exercisable.
(c) Any Company Employee Plan intended to be qualified under
Sections 401(a) or 501(c)(9) of the Code has either obtained from the IRS a
favorable determination letter as to its qualified status under the Tax Reform
Act of 1986 and subsequent legislation, or has applied to the IRS for such a
determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or IRS pronouncements in which to apply for such
determination letter and to make any amendments necessary to obtain a favorable
determination, and nothing has occurred since the issuance of each such letter
which could reasonably be expected to cause the loss of the tax-qualified status
of any Company Employee Plan subject to Code Sections 401(a) or 501(c)(9).
(d) With respect to each and every Company Employee Plan, (i)
there are no promises express or implied to provide retiree medical or other
retiree welfare benefits to any person, (ii) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section 4975
of the Code, (iii) each has been administered in accordance with its terms and
in compliance with the requirements prescribed by any and all statutes, rules
and regulations (including ERISA and the Code), and the Company and each
subsidiary or ERISA
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Affiliate have performed all obligations required to be performed by them under,
are not in any respect in default under or violation of, and have no knowledge
of any default or violation by any other party to, any of the Company Employee
Plans, (iv) neither the Company nor any subsidiary or ERISA Affiliate is subject
to any liability or penalty under Sections 4976 through 4980 of the Code or
Title I of ERISA with respect to any of the Company Employee Plans, (v) all
contributions required to be made by the Company or any subsidiary or ERISA
Affiliate to any Company Employee Plan have been made on or before their due
dates and a reasonable amount has been accrued for contributions to each Company
Employee Plan for the current plan years, (vi) no "reportable event" within the
meaning of Section 4043 of ERISA (excluding any such event for which the thirty
(30) day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA
has occurred, and (vii) no Company Employee Plan is covered by, and neither the
Company nor any subsidiary or ERISA Affiliate has incurred or expects to incur
any liability under, Title IV of ERISA or Section 412 of the Code. With respect
to each Company Employee Plan subject to ERISA as either an employee pension
plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit
plan within the meaning of Section 3(1) of ERISA, the Company has prepared in
good faith and timely filed all requisite governmental reports (which were true
and correct as of the date filed) and has properly and timely filed and
distributed or posted all notices and reports to employees required to be filed,
distributed or posted with respect to each such Company Employee Plan. No suit,
administrative proceeding, action or other litigation has been brought, or to
the best knowledge of the Company is threatened, against or with respect to any
Company Employee Plan, including any audit or inquiry by the IRS or United
States Department of Labor. Neither the Company nor any Company subsidiary or
other ERISA Affiliate is a party to, or has made any contribution to or
otherwise incurred any obligation or liability under, any "multiemployer plan"
as defined in Sections 3(37) and 4001(a)(3) of ERISA.
(e) With respect to any Group Health Plan (as defined in
Section 5000(b)(1) of the Code) maintained by the Company or any subsidiary or
ERISA Affiliate, each such plan has been operated in compliance with the
provisions of Part 6 of Title I of ERISA and Sections 4980B, 9801 and 9802 of
the Code. The Company is not obligated to provide health care or other welfare
benefits of any kind to its retired or former employees or their dependents, or
to any person not actively employed by it, pursuant to any agreement or
understanding.
(f) There are no contracts, agreements, plans or arrangements
covering any of the Company's employees with "change of control" or similar
provisions. The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or other service provider of
the Company, any Company subsidiary or any other ERISA Affiliate to severance
benefits or any other payment, or (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee or service
provider. There is no contract, agreement, plan or arrangement covering the
Company or any employee, that individually or collectively could give rise to
the payment of any amount that would not be deductible pursuant to Section 280G
of the Code.
(g) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company, any Company subsidiary or
other ERISA Affiliate relating to, or change in participation or coverage under,
any Company Employee Plan that would materially increase the expense of
maintaining such Plan above the level of expense
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incurred with respect to that Plan for the most recent fiscal year included in
the Company's financial statements.
SECTION 3.19 MATERIAL CONTRACTS AND RELATIONSHIPS.
(a) Except for agreements specifically identified on other
Schedules, Schedule 3.19(a) sets forth a complete and correct list of the
following:
(i) All agreements (or groups of agreements with one
or more related entities) between the Company and any customer or supplier in
excess of $10,000 and all agreements and blanket purchase orders extending
beyond one year;
(ii) All credit and loan agreements, promissory
notes, and other obligations in respect of borrowed money;
(iii) All guarantees, letters of credit, performance
or other bonds, and any other financial instruments;
(iv) All general or special powers of attorney;
(v) All agreements that create or continue any claim,
lien, charge or encumbrance against, or right of any third party with respect
to, any of the assets of the Company;
(vi) All agreements by which the Company leases any
capital equipment and all other leases involving the Company as lessee or
lessor;
(vii) All agreements to which the Company is a party
not in the ordinary course of business;
(viii) All agreements to which the Company, on the
one hand, and any of the Company's Affiliates (all such Affiliates being
collectively referred to herein as "Related Parties"), on the other hand, are
parties or by which they are bound that relate to or are connected in any way
with the Company or its operations, business or prospects;
(ix) All contracts or commitments relating to
commission arrangements with others;
(x) All license agreements, whether as licensor or
licensee;
(xi) All agreements between the Company and its sales
representatives, distributors and dealers;
(xii) All agreements between the Company and its
customers relating to volume rebates or price reductions;
(xiii) All other agreements to which the Company is a
party or by which it is bound and that involve $10,000 or more or that extend
for a period of one year or more; and
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(xiv) All other agreements to which the Company is a
party or by which it is bound and that are or may be material to the assets,
liabilities (whether absolute, accrued, contingent or otherwise), condition
(financial or otherwise), results of operations, business or prospects of the
Company.
As used in this Section 3.19, the word "agreement" includes both oral
and written contracts, leases, understandings, arrangements and all other
agreements. The term "Material Contracts" means the agreements of the Company
required to be disclosed on Schedule 3.19(a), including agreements specifically
identified in other Schedules.
(b) All of the Material Contracts are in full force and effect
and will remain so through the Closing, and are valid and binding and
enforceable in accordance with their terms in favor of the Company and against
any third party that is a party thereto, except for bankruptcy and similar laws
affecting the enforcement of creditors rights generally. There are no
liabilities of any party to any Material Contract arising from any breach or
default of any provision thereof and no event has occurred that, with the
passage of time or the giving of notice or both, would constitute a breach or
default by any party thereto.
(c) The Company has fulfilled all material obligations
required pursuant to each Material Contract to have been performed by the
Company prior to the date hereof, and to the knowledge of the Company the
Company will be able to fulfill, when due, all of its obligations under the
Material Contracts that remain to be performed after the date hereof.
(d) The Company has maintained and continues to maintain good
relations with its customers, agents and suppliers, and to the knowledge of the
Company such relations will not in the foreseeable future deteriorate or suffer
any changes adverse to the Company, whether as a result of the Transactions or
otherwise.
SECTION 3.20 ABSENCE OF CERTAIN BUSINESS PRACTICES.
Neither the Company nor any employee, agent or other person acting on
its behalf, has, directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, supplier, competitor or governmental employee
or official (domestic or foreign): (i) that would subject the Company to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, or (ii) the past non-payment of which would have had a material
adverse effect on the Company.
SECTION 3.21 TRANSACTIONS WITH RELATED PARTIES.
Except as set forth on Schedule 3.21, (i) there have been no
transactions by the Company with any Related Party since December 31, 1996, (ii)
there are no agreements or understandings now in effect between the Company and
any Related Party and (iii) no expenses of the Company have been paid by a
Related Party, and no non-business expenses of a Related Party have been paid by
the Company. In addition, none of the transactions with the Company or Related
Parties that have occurred since December 31, 1996 has provided to the Company
assets, income, financing or business on a basis significantly more or less
favorable than that available from unaffiliated persons. Schedule 3.21 also (i)
states the amounts due from the Company to any Related Party and the amounts due
from any Related Party to the Company, (ii) describes the
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transactions out of which such amounts due arose and (iii) describes any
interest of any Related Party in any supplier or customer of, or any other
entity that has had business dealings with, the Company since December 31, 1996.
After the Closing, there will be no obligations or other liabilities, including
inter-company obligations, between the Company, on the one hand, and any Related
Party, on the other hand, other than as specifically contemplated by this
Agreement.
SECTION 3.22 COMPLIANCE WITH LAWS.
The operation, conduct and ownership of the property or business of the
Company is being, and at all times have been, conducted, in all material
respects, in full compliance with all federal, state, local and other (domestic
and foreign) laws, rules, regulations and ordinances and all judgments and
orders of any court, arbitrator or governmental authority applicable to the
Company. Without limiting the foregoing, the operation, conduct and ownership of
the property or business of the Company is being, and has at all times been,
conducted in full compliance with all laws, rules and regulations relating to
United States government contracts and subcontracts, including but not limited
to the FAR and related cost accounting standards. The Company has not engaged in
defective pricing with respect to United States government contracts or
subcontracts.
SECTION 3.23 REGULATORY APPROVALS.
The Company is in compliance with Federal regulations governing the
manufacture and distribution of medical devices, including but not limited to:
registration and listing pursuant to 21 CFR 801; Quality procedures pursuant to
21 CFR 820; Medical Device Reporting pursuant to 21 CFR 803; device clearances
for all products sold pursuant to 21 CFR 807 or compliance with exemptions
permitted thereunder. Schedule 3.23(a) sets forth all Notices of Inspections,
(FD482) issued by the Federal FDA or the State of Texas Health Department, and
all resultant Inspectional Observations issued, (FD483). Schedule 3.23(b) sets
forth all Letters of Substantial Equivalence issued by FDA on products sold, or
otherwise promoted, by the Company.
SECTION 3.24 LITIGATION.
Except as set forth on Schedule 3.24, there is, and during the past
three (3) years there has been, no legal, administrative, arbitration or other
proceeding, or any governmental investigation pending or, to the knowledge of
the Company, threatened against or otherwise affecting the Company, or any of
its assets, and to the best knowledge of the Company there is no fact that might
reasonably be expected to form the basis for any such proceeding or
investigation.
SECTION 3.25 TAXES.
Except as set forth on Schedule 3.25:
(a) The Company has timely filed all Tax returns and reports
required to have been filed by it for all taxable periods ending on or prior to
the date hereof, and has paid all Taxes as due to any taxing authority with
respect to all taxable periods ending on or prior to the date hereof, or
otherwise attributable to all periods prior to the date hereof. The Tax returns
and reports filed are true and correct in all material respects and reflect
accurately all liability for Taxes for the periods covered thereby;
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(b) The Company has not received notice that the IRS or any other
taxing authority has asserted against it any deficiency or claim for additional
Taxes in connection therewith;
(c) All Tax deficiencies asserted or assessed against the Company
have been paid or finally settled and no issue has been raised by the IRS or any
other taxing authority in any examination which, by application of the same or
similar principles, reasonably could be expected to result in a proposed
deficiency for any other period not so examined. Further, no state of facts
exists or has existed which would constitute grounds for the assessment of any
liability for Taxes with respect to periods which have not been examined by the
IRS or any other taxing authority;
(d) There is no pending or, to the best knowledge of the Company,
threatened action, audit, proceeding, or investigation with respect to: (i) the
assessment or collection of Taxes or (ii) a claim for refund made by the Company
with respect to Taxes previously paid;
(e) All amounts that are required to be collected or withheld by the
Company, or with respect to Taxes of the Company, have been duly collected or
withheld; all such amounts that are required to be remitted to any taxing
authority have been duly remitted;
(f) The Company has not waived any statute of limitations with
respect to the assessment of any Tax; and
(g) There are no liens for Taxes due and payable upon any assets of
the Company.
SECTION 3.26 INSURANCE.
Schedule 3.26 sets forth a complete and correct list of all insurance
policies and of all claims made by the Company on any liability or other
insurance policies (or to the extent the Company is self insured that would have
been made on such policies) during the past five years. No notice or other
communication has been received by the Company from any insurance company within
the five years preceding the date hereof canceling or materially amending or
materially increasing the annual or other premiums payable under any of its
insurance policies, and, to the best knowledge of the Company, no such
cancellation, amendment or increase of premiums is threatened.
SECTION 3.27 NO BROKERAGE FEES.
No Person is entitled to any brokerage or finder's fee or other commission
from Sellers or the Company in respect of this Agreement or the Transactions.
SECTION 3.28 PRODUCT WARRANTY AND LIABILITY.
Each product designed, used, manufactured, supplied, sold or leased by the
Company and all services performed by the Company have been in conformity with
all applicable contractual commitments and all express and implied warranties,
and the Company has no liability, and there is no basis for any present or
future action, suit or proceeding giving rise to any liability, for
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replacement or repair thereof or other damages in connection therewith, subject
only to returns of product for warranty in the ordinary course of business
consistent with past experience. The Company has no liability arising out of any
injury to persons or property as a result of any products of the Company
designed, used, manufactured, supplied, sold or leased or any services relating
to or in connection with such products. The Company has not received any notice
that an action, suit or proceeding has been, or in the future may be, made
alleging that products of the Company or services relating to or in connection
with such products are or were defective in any way.
SECTION 3.29 CONSENTS AND APPROVALS.
Except as set forth on Schedule 3.29, the execution and delivery of this
Agreement by Sellers, and the Company do not, and the performance of the
Transactions contemplated by this Agreement by Sellers, and the Company will
not, require any filing with or notification to, or any consent, approval,
authorization or permit from, any governmental or regulatory authority or any
other Person.
SECTION 3.30 BANK ACCOUNTS.
Schedule 3.30 is a true and complete list of all accounts maintained by
the Company with any bank, brokerage house or other financial institution. Such
Schedule 3.30 lists for each such account the name and address of the financial
institution, the name and telephone number of the principal contact person at
such institution, the nature of the account, the account number, the name of the
account holder, the names of each person with authority to draw on such account
or to have access to such account, and any passwords or other information
necessary to provide access to such account or to change the persons authorized
to draw on the account.
SECTION 3.31 SECURITIES MATTERS.
(a) Sellers understand that (i) neither the Stock Consideration
issued by Parent, nor the offer and sale thereof, have been registered or
qualified under the Securities Act of 1933, as amended, or any state securities
or "Blue Sky" laws, on the ground that the sale provided for in this Agreement
and the issuance of stock hereunder is exempt from registration and
qualification under Section 4(2) of the Securities Act of 1933, as amended, and
(ii) Parent and Newco's reliance on such exemptions is predicated on Sellers'
representations set forth herein.
(b) The Sellers acknowledge that an investment in Parent involves a
high degree of risk, lack of liquidity and substantial restrictions on
transferability and that Sellers may lose their entire investment in the Stock
Consideration issued by Parent (the "SECURITIES").
(c) Parent has made available to Sellers or Sellers' advisors
information for the purpose of evaluating the merits and risks of the investment
in the Securities, and Sellers have received from Parent all information
requested. Sellers have had an opportunity to ask questions and receive answers
from Parent regarding the terms and conditions of the offering of the Securities
and the business, properties, plans, prospects, and financial condition of
Parent and
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to obtain additional information as Sellers have deemed appropriate for purposes
of investing in the Securities pursuant to this Agreement.
(d) Sellers, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Parent and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Parent. In connection with the
purchase of the Securities, Sellers have relied solely upon independent
investigations made by Sellers, and have consulted its own investment advisors,
counsel and accountants. Sellers have adequate means of providing for current
needs and personal contingencies, and have no need for liquidity and can sustain
a complete loss of the investment in the Securities.
(e) The Securities to be issued by Parent hereunder will be acquired
for Sellers' own account(s), for investment purposes, not as a nominee or agent,
and not with a view to or for sale in connection with any distribution of the
Securities in violation of applicable securities laws.
(f) Sellers understand that no federal or state agency has passed
upon the Securities or made any finding or determination as to the fairness of
the investment in the Securities.
(g) Neither the Company nor Sellers have received any general
solicitation or general advertising concerning the Securities, nor is the
Company or any Seller aware of any such solicitation or advertising.
SECTION 3.32 INDEBTEDNESS.
Schedule 3.32 lists each person or entity that owns any direct or indirect
debt interest (other than accounts payable incurred in the ordinary course of
the Company's business) in the Company (including, without limitation, any
indebtedness for borrowed money, whether or not evidenced by a note or other
written instrument) and a description of each such debt interest.
SECTION 3.33 DISCLOSURE.
The information provided by Sellers or the Company in connection with this
Agreement, including, without limitation, the schedules hereto, and in any other
writing pursuant hereto does not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated herein or
therein or necessary to make the statements and facts contained herein or
therein, in light of the circumstances under which they are made, not false or
misleading. Copies of all documents heretofore or hereafter delivered or made
available by Sellers or the Company to Parent or Newco pursuant hereto were or
will be complete and accurate records of such documents.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO
Parent and Newco hereby represent and warrant to Sellers that:
SECTION 4.1 ORGANIZATION.
Parent and Newco are duly organized, validly existing and in good standing
under the laws of their respective states of incorporation with full corporate
power and authority to own or lease their properties and to conduct their
business in the manner and in the places where such properties are owned or
leased or such business is currently conducted. Parent and Newco are qualified
to do business and are in good standing in each other jurisdiction in which
either the ownership or use of the properties owned or used, or the nature of
the activities conducted, requires such qualification, except where the failure
to be qualified, if required, could not result in a material liability for
Parent or Newco.
SECTION 4.2 AUTHORITY OF PARENT AND NEWCO.
Parent and Newco have all necessary authority and power to enter into this
Agreement and to carry out the Transactions contemplated hereby. The execution,
delivery and performance of this Agreement by Parent and Newco and the
consummation of the Transactions contemplated hereby have been duly authorized
by all necessary corporate action and no other action on the part of Parent or
Newco is required in connection therewith. This Agreement constitutes a valid
and binding obligation of Parent and Newco, enforceable in accordance with its
terms. The execution, delivery and performance of this Agreement does not, and
the performance of the Transactions contemplated hereby will not, directly or
indirectly:
(i) violate any provision of the Articles of Incorporation or the
Bylaws of Parent or Newco;
(ii) violate any laws of the United States, or any state or other
jurisdiction applicable to Parent or Newco or require Parent or Newco to obtain
any approval, consent or waiver of, or make any filing with, any person or
entity (governmental or otherwise) that has not been obtained or made; or
(iii) result in a violation or any breach of, constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, result in the acceleration of any indebtedness under or performance
required by, result in any right of termination of, increase any amounts payable
under, decrease any amounts receivable under, change any other rights pursuant
to, or conflict with, any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or Newco is a party or by which it or its properties is bound.
SECTION 4.3 NO BROKERAGE FEES.
No Person is entitled to any brokerage or finder's fee or other commission
from Parent or Newco in respect of this Agreement or the Transactions.
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SECTION 4.4 STOCK CONSIDERATION.
When issued and delivered to Sellers as contemplated hereunder, the Stock
Consideration will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of any liens, claims or encumbrances attributable
to Parent or Newco.
SECTION 4.5 DISCLOSURE.
The information provided by Parent and Newco in this Agreement and in any
other writing furnished pursuant hereto does not and will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated herein or therein or necessary to make the statements and facts contained
herein or therein, in light of the circumstances under which they are made, not
false or misleading. Copies of all documents heretofore or hereafter delivered
or made available by Parent or Newco to Sellers pursuant hereto were or will be
complete and accurate records of such documents.
SECTION 4.6 CONSENTS AND APPROVALS.
Except as set forth on Schedule 4.6, the execution and delivery of this
Agreement by Parent and Newco does not, and the performance of the transactions
contemplated by this Agreement by Parent and Newco will not, require any filing
with or notification to, or any consent, approval, authorization or permit from,
any governmental or regulatory authority or any other Person, except where the
failure to make or obtain any such filing, notification, consent, approval,
authorization or permit would not have a material adverse effect on the
aggregate business and operations of Parent and Newco.
SECTION 4.7 KNOWLEDGE AND EXPERTISE.
Parent and Newco acknowledge that each has sufficient knowledge and
expertise in business and financial matters to evaluate the merits and risks
associated with the transactions contemplated by this Agreement. Parent and
Newco each have made its respective decisions to enter into this Agreement and
to consummate the "Transactions" without relying upon any express or implied
warranties and representations from Sellers, Company, and Sellers except as set
forth in this Agreement.
ARTICLE V
CERTAIN AGREEMENTS AND UNDERSTANDINGS
SECTION 5.1 COLLECTION OF OTHER ASSETS.
Subsequent to the Closing, Sellers agree that they will promptly transfer
or deliver to Parent and Newco from time to time, any assets, cash or other
property that Sellers may discover or receive with respect to any contracts,
commitments, sales orders, purchase orders or any other items of the Company.
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SECTION 5.2 CONDUCT OF BUSINESS.
From the date hereof to the Closing Date, except as expressly permitted or
required by this Agreement or as otherwise consented to by Parent and Newco in
writing, the Company will and, Sellers will cause the Company to:
(a) carry on the business of the Company in, and only in, the
ordinary course, in substantially the same manner as heretofore conducted, and
use all reasonable efforts to preserve intact its present business organization,
maintain its properties in good operating condition and repair, keep available
the services of its present significant employees, and preserve its relationship
with customers, suppliers and others having business dealings with it, to the
end that the goodwill and going business of the Company shall be in all material
respects unimpaired following the Closing;
(b) not offer any payment discounts to customers or take any other
actions to collect accounts receivable other than in the ordinary course of
business consistent with prior practice;
(c) purchase raw materials, supplies and inventory, and build work
in process inventory in the ordinary course of business consistent with prior
action, and as necessary to timely deliver product to customers under firm
customer backlog and with respect to orders anticipated from customers;
(d) not pay any salary, wages, vacation pay, sick pay, bonuses or
other compensation except in the ordinary course of business consistent with
prior practice;
(e) pay accounts payable and other obligations of the Company when
they become due and payable in the ordinary course of business consistent with
prior practice;
(f) perform in all material respects all of its obligations under
all Contracts and other agreements and instruments relating to or affecting the
Company, and comply in all material respects with all laws applicable to the
Company in its business or operations;
(g) not enter into or assume any material agreement, contract or
instrument relating to the Company, or enter into or permit any material
amendment, supplement, waiver or other modification in respect thereof;
(h) not grant (or commit to grant) any increase in the compensation
(including incentive or bonus compensation) of any employee, director,
consultant or agent of the Company or institute, adopt or amend (or commit to
institute, adopt or amend) any compensation or benefit plan, policy, program or
arrangement or collective bargaining agreement applicable to any such employee,
director, consultant, or agent;
(i) not sell, transfer or convey any of the Company's assets except
in the ordinary course of business;
(j) not make any dividend or distribution to any holder of the
Shares or repurchase or redeem any of the Shares; and
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(k) not take any action or omit to take any action, which action or
omission would result in a breach of any of the representations and warranties
set forth in Sections 3.12 or 3.24.
SECTION 5.3 NO SOLICITATION.
(a) On and after the date hereof, neither the Company nor any
Seller, nor will the Company permit any of its officers, employees,
shareholders, 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 the Company's business and properties to, or (iii) afford
any access to the Company'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 any of the
Company's capital stock or a merger, consolidation or sale of all or a
substantial portion of the Company's assets, or any similar transaction (a
"Material Transaction"). The Company and/or the Sellers, as the case may be,
will provide written notice to Parent and Newco 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, the
particulars of the discussions, inquiries or proposal, and copies of all
relevant written materials.
(b) In the event that the Company or any Seller breaches the
covenants set forth in the preceding paragraph or receives an Acquisition
Proposal during the term of this Agreement and the Company or any Seller
subsequently enters into 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 Parent shall,
immediately upon the execution of documentation relating to such Material
Transaction, be entitled to receive a cash payment from the Company in the
amount of Two Hundred Fifty Thousand Dollars ($250,000.00).
SECTION 5.4 ACCESS AND INFORMATION.
So long as this Agreement remains in effect, the Company and Sellers will,
and will cause each of their respective Affiliates, accountants, counsel,
consultants, employees and agents to, give and provide Parent and Newco and
Parent and Newco's accountants, counsel, consultants, employees and agents, full
access during normal business hours to, and furnish them with all documents,
records, work papers and information with respect to, all of such Person's
properties, assets, books, contracts, commitments, reports and records relating
to the Company and its businesses and operations, as Parent and Newco shall from
time to time reasonably request for the purpose of Parent and Newco's due
diligence investigation. In addition, the Company and Sellers will permit Parent
and Newco and their accountants, counsel, consultants, employees and agents
reasonable access to such personnel of the Company during normal business hours
as may be necessary or useful to Parent and Newco in their review of the
properties, assets and business affairs of the Company and the above-mentioned
documents,
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records and information. The Company and Sellers will keep Parent and Newco
generally informed as to the affairs of the Company.
SECTION 5.5 PUBLIC ANNOUNCEMENTS.
Except as required by applicable law, Sellers and the Company, and each
shall not permit any Affiliate to make any public announcement in respect of
this Agreement or the transactions contemplated hereby without the prior written
consent of Parent and Newco.
SECTION 5.6 CONFIDENTIALITY.
For purposes hereof, the Company and Sellers will keep the matters
contemplated herein and all information provided by Parent and Newco related to
Parent and Newco and the Transactions confidential, and will not provide
information about such matters to any party or use such information except to
the extent necessary to effect the transactions contemplated hereby. Parent and
Newco will keep the matters contemplated herein and all information provided by
the Company and Sellers, related to the Company and the business confidential,
and will not provide information about such matters to any party or use such
information except to the extent necessary to effect the transactions
contemplated hereby. Parent, Newco and the Company shall each cause their
respective Affiliates, officers, directors, employees, agents, and advisors to
keep confidential all information received in connection with the transactions
contemplated hereby. If this Agreement terminates without consummation of the
Closing, the Company and Sellers, Parent and Newco shall, and shall cause their
Affiliates to, each maintain the confidentiality of any information obtained
from the other in connection with the transactions contemplated hereby and
Parent or Newco's business plans (the "Information"), other than Information
that: (i) was in the public domain before the date of this Agreement or
subsequently came into the public domain other than as a result of disclosure by
the party to whom the Information was delivered; or (ii) was lawfully received
by a party from a third party free of any obligation of confidence of or to such
third party; or (iii) was already in the possession of the party prior to
receipt thereof, directly or indirectly, from the other party; or (iv) is
required to be disclosed in a judicial or administrative proceeding after giving
the other party as much advance notice of the possibility of such disclosure as
practicable so that the other party may attempt to stop such disclosure; or (v)
is subsequently and independently developed by employees of the party to whom
the Information was delivered without reference to the Information. If this
Agreement terminates without consummation of the Closing, Parent and Newco, on
the one hand, and Sellers, and the Company, on the other, shall return to the
other all material containing or reflecting the Information provided by the
other, shall not retain any copies, extracts, or other reproductions thereof or
derived therefrom, and shall thereafter refrain from using the Information and
shall maintain its confidentiality pursuant to this Agreement.
SECTION 5.7 FURTHER ACTIONS.
(a) The Company and Sellers agree to use all reasonable good faith
efforts to take all actions and to do all things necessary, proper or advisable
to consummate the transactions contemplated hereby by the Closing Date,
including without limitation obtaining the certificates and other documents
specifically referred to in Section 2.5(a).
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(b) The Company and Sellers will, as promptly as practicable, file
or supply, or cause to be filed or supplied, all applications, notifications and
information required to be filed or supplied by the Company pursuant to
applicable law in connection with the transactions contemplated hereby.
(c) The Company and Sellers as promptly as practicable, will obtain,
or cause to be obtained, all consents (including, without limitation, all
governmental approvals and any consents required under any Contract and all
consents listed on Schedule 3.29) necessary to be obtained in order to
consummate the Merger, and to permit the Surviving Corporation to continue the
business and operations of the Company after the Effective Date.
(d) At all times prior to the Closing, the Company and Sellers shall
promptly notify Parent and Newco in writing of any fact, condition, event or
occurrence that will or may result in the failure of any of the conditions
contained in Section 6.2 to be satisfied, promptly upon either of them becoming
aware of same.
(e) Prior to Closing, the Company and Sellers shall cause the
ownership of any assets used in the business of the Company as of the date
hereof, including any such intellectual property, owned by any Affiliate of the
Company to be transferred to the Company without encumbrance.
(f) Prior to the Closing, the Company and Sellers shall cause the
Company to take such actions as may be necessary to terminate any Employee
Benefit Plans.
SECTION 5.8 DOCUMENT RETENTION
Prior to the Closing Date the Company shall properly maintain its books
and records as necessary or appropriate to the filing of the Tax returns
described in this Agreement, and on or before the Closing Sellers shall cause
all such books and records and all other books and records related to the
Company's Tax returns and Tax matters to be delivered to the Parent and Newco.
Newco shall cause the Company to retain all such books and records delivered as
provided hereunder until the expiration of the statute of limitations (including
any waivers or extensions thereof) with respect to the taxable periods to which
the Tax returns relate.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.1 CONDITIONS TO OBLIGATION OF SELLERS.
The obligation of Sellers to consummate the transactions to be performed
by it in connection with the Closing is subject to satisfaction of the following
conditions:
(a) The representations and warranties of Parent and Newco set forth
herein shall be true and correct at and as of the Closing Date;
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(b) Parent and Newco shall have fully performed and complied with
all of its covenants hereunder through the Closing;
(c) No action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement
or (ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(d) Parent and Newco shall have delivered to Sellers a certificate
to the effect that each of the conditions specified above in Section 6.1 (a)-(c)
is satisfied in all respects;
(e) At Closing, Parent shall deliver to Sellers the Cash
Consideration, minus the Holdback and a certificate stating the number of
Unregistered Shares that will be paid in satisfaction of the Stock
Consideration, with the actual certificates to be delivered within 5 business
days from the Closing Date;
(f) Parent will pay off all debt listed in Schedule 6.1; and
(g) All actions to be taken by Parent and Newco in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby, as provided in Sections 2.5(b) and 2.5(c) or otherwise,
will be reasonably satisfactory in form and substance to Sellers. Sellers may
waive any condition specified in Section 6.1 if they each execute a writing so
stating at or prior to the Closing.
SECTION 6.2 CONDITIONS TO OBLIGATION OF PARENT AND NEWCO.
The obligation of Parent and Newco to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the
following conditions:
(a) The representations and warranties of the Company and Sellers
set forth herein shall be true and correct at and as of the Closing Date;
(b) The Company and Sellers shall have performed and complied with
all of their respective covenants hereunder through the Closing;
(c) The Company and Sellers shall have procured all of the consents
and approvals specified in Schedule 3.29;
(d) No action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded
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following consummation, or (iii) affect adversely the right of Parent or Newco
to own the Shares or to operate the businesses of the Company;
(e) The Company and Sellers shall each have delivered to Parent and
Newco a certificate to the effect that each of the conditions specified above in
Section 6.2(a)-(d) is satisfied in all respects;
(f) Parent and Newco shall be satisfied in their sole discretion
with the results of its due diligence investigation of all aspects of the
Company and its business; and
(g) All actions to be taken by the Company and Sellers in connection
with consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby, as provided in Section 2.5(a) or otherwise will be
reasonably satisfactory in form and substance to Parent and Newco. Parent and
Newco may waive any condition specified in this Section 6.2 if they execute a
writing so stating at or prior to the Closing.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 INDEMNIFICATION BY SELLERS.
Sellers shall indemnify and hold harmless the Company and Parent and Newco
and each of their Affiliates, directors, officers, employees, attorneys, agents,
representatives, successors and assigns (collectively, the "Affiliated Parties")
in respect of any and all claims, losses, damages, liabilities, declines in
value, penalties, interest, costs and expenses (including, without limitation,
actual attorneys', accountants' and consultants' fees and other expenses,
including any such expenses incurred in connection with investigating, defending
against or settling any such claims) incurred by the Company, Parent or Newco or
their respective Affiliated Parties, in connection with, arising out of, or
resulting from, any or all of the following (collectively, "Indemnified
Damages"):
(a) Any breach (or any allegation by a third party that, if true,
would constitute a breach) of any representation or warranty made by Sellers or
the Company in this Agreement or pursuant hereto or in any document or
instrument delivered by Sellers or the Company pursuant hereto;
(b) Any misrepresentation contained in any written statement or
certificate furnished by any Seller or the Company pursuant to this Agreement or
in connection with the Transactions;
(c) Any breach of any covenant, agreement or obligation of Sellers
or the Company contained in this Agreement or any other document or instrument
contemplated by this Agreement or delivered pursuant hereto;
(d) Any litigation, administrative proceeding, investigation, claim,
suit, cause of action, dispute, audit or arbitration to the extent arising out
of or based upon the conduct of the
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business of the Company prior to Closing (including, without limitation, the
supply, distribution and sale of all products and services); or
(e) (i) Any Taxes of the Company or its Affiliates relating to
periods before the Closing Date in excess of the provision for unpaid taxes
reflected on the Interim Balance Sheet ("Excess Taxes"), (ii) any Taxes arising
in connection with the Transactions, (iii) any liability of the Company for
Taxes of any other Person, as a transferee or successor, by contract or
otherwise and (iv) any Taxes of the Company arising from or relating to a change
in the method of accounting from a cash and/or hybrid method to an accrual
method, whether such Taxes are owed in respect to periods before the Closing or
after the Closing.
No claim, demand, suit or cause of action shall be brought against the
Seller under Section 7.1 unless and until the aggregate amount of claims under
this Section exceeds $10,000, in which event the Company, Parent or Newco and
their respective Affiliated Parties shall be entitled to indemnification only
for all such claims.
None of the rights to indemnification provided by this Section 7.1 shall
be limited, mitigated or in any manner nor to any extent ameliorated or
diminished by virtue of Parent or Newco having conducted, or having had the
right to conduct, a due diligence investigation, nor by any information actually
or purportedly received or made available to Parent or Newco which is not a part
of this Agreement.
SECTION 7.2 INDEMNIFICATION BY PARENT AND NEWCO.
Parent and Newco shall indemnify and hold harmless Sellers in respect of
any and all claims, losses, damages, liabilities, declines in value, penalties,
interest, costs and expenses (including, without limitation, actual attorneys',
accountants' and consultants' fees and other expenses, including any such
expenses incurred in connection with investigating, defending against or
settling any such claims) incurred by Sellers, in connection with, arising out
of, or resulting from, any or all of the following:
(a) Any breach (or any allegation by a third party that, if true,
would constitute a breach) of any representation or warranty made by Parent or
Newco in this Agreement or pursuant hereto or in any document or instrument
delivered by Parent or Newco to Sellers pursuant to this Agreement;
(b) Any misrepresentation contained in any written statement or
certificate furnished by Parent or Newco pursuant to this Agreement or in
connection with the Transactions;
(c) Any breach of any covenant, agreement or obligation of Parent or
Newco contained in this Agreement or any other document or instrument
contemplated by this Agreement or delivered pursuant hereto; or
(d) Any litigation, administrative proceeding, investigation, claim,
suit, cause of action, dispute, audit or arbitration to the extent arising out
of or based upon the conduct of the business of the Company after Closing.
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No claim, demand, suit or cause of action shall be brought against
Parent or Newco under this Section unless and until the aggregate amount of
claims under this Section exceeds $10,000, in which event, Sellers shall be
entitled to indemnification from Parent and Newco for all such claims.
SECTION 7.3 CLAIMS FOR INDEMNIFICATION.
Whenever any claim shall arise for indemnification hereunder, the party or
parties entitled to indemnification (the "indemnified party") shall promptly
notify the party or parties obligated to provide indemnification (the
"indemnifying party") of the claim and, when known, the facts constituting the
basis for such claim; provided, however, that the failure to so notify the
indemnifying party shall not relieve the indemnifying party of its obligation
hereunder to the extent such failure does not materially prejudice the
indemnifying party. In the event of any claim for indemnification hereunder
resulting from, arising out of, or in connection with any claim or legal
proceedings by a third party, the notice to the indemnifying party shall
specify, if known, the amount or an estimate of the amount of the liability
arising therefrom.
SECTION 7.4 DEFENSE CLAIMS.
In connection with any claim giving rise to indemnity hereunder resulting
from or arising out of any claim or legal proceeding by a person who is not a
party to this Agreement, the indemnifying party at its sole cost and expense and
with counsel reasonably satisfactory to the indemnified party may, upon written
notice to the indemnified party, assume the defense of any such claim or legal
proceeding if:
(a) the indemnifying party acknowledges to the indemnified party
in writing, within fifteen (15) calendar days after receipt of notice from the
indemnified party, its obligations to indemnify the indemnified party with
respect to all elements of such claim;
(b) the indemnifying party provides the indemnified party with
evidence reasonably acceptable to the indemnified party that the indemnifying
party will have the financial resources to defend against such third-party claim
and fulfill its indemnification obligations hereunder;
(c) the third-party claim involves only money damages and does not
seek an injunction or other equitable relief; and
(d) settlement or an adverse judgment of the third-party claim is
not, in the good faith judgment of the indemnified party, likely to establish a
pattern or practice adverse to the continuing business interests of the
indemnified party.
The indemnified party shall be entitled to participate in (but not
control) the defense of any such action, with its counsel and at its own
expense; provided, however, that if there are one or more legal defenses
available to the indemnified party that conflict with those available to the
indemnifying party, or if the indemnifying party fails to take reasonable steps
necessary to defend diligently the claim after receiving notice from the
indemnified party that it believes the indemnifying party has failed to do so,
the indemnified party may assume the defense of such claim; provided, further,
that the indemnified party may not settle such claim without the prior
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written consent of the indemnifying party, which consent may not be unreasonably
withheld, delayed or conditioned. If the indemnified party assumes the defense
of the claim, the indemnifying party shall reimburse the indemnified party on a
monthly basis for the actual fees and expenses of counsel retained by the
indemnified party and the indemnifying party shall be entitled to participate in
(but not control) the defense of such claim, with its counsel and at its own
expense. If the indemnifying party thereafter seeks to question the manner in
which the indemnified party defended such third party claim or the amount or
nature of any such settlement, the indemnifying party shall have the burden to
prove by a preponderance of the evidence that the indemnified party did not
defend or settle such third party claim in a reasonably prudent manner. The
parties agree to render, without compensation, to each other such assistance as
they may reasonably require of each other in order to ensure the proper and
adequate defense of any action, suit or proceeding, whether or not subject to
indemnification hereunder.
SECTION 7.5 INTEREST.
Any amount of money owed by an indemnifying party to an indemnified party
hereunder shall be paid with interest, at an annual rate equal to the Prime Rate
then in effect (or, if less, the maximum rate permitted by law), from the date
that the loss or damage was sustained or cash disbursement made by the
indemnified party until such amount is paid by the indemnifying party.
SECTION 7.6 MANNER OF INDEMNIFICATION.
All indemnification payments hereunder shall be effected by payment of
cash or delivery of a certified or official bank check in the amount of the
indemnification liability.
SECTION 7.7 ADDITIONAL LIMITATIONS ON INDEMNIFICATION.
(a) No claim for indemnification shall be made by Parent or Newco
pursuant to Section 7.1 or by Sellers pursuant to Section 7.2 if made more than
three (3) years after the Closing Date.
(b) Notwithstanding the provisions of this Section 7.7 to the effect
that an indemnifying party's obligations under such section shall expire at the
specified time set forth herein, such obligations shall continue: (i) as to any
matter as to which a claim is submitted in writing to the indemnifying party
prior to such specified time and identified as a claim for indemnification
pursuant to this Agreement, and (ii) as to any matter that is based upon fraud
or willful misconduct by the indemnifying party, until such time as such claims
and matters are resolved.
SECTION 7.8 RELEASE OF CLAIMS AGAINST THE COMPANY.
(a) In consideration of and subject to the terms of this Agreement,
Sellers on behalf of themselves and their Affiliates and all persons acting by,
through, under or in concert with them, if any, effective as of the Closing
release and discharge the Company, Parent and Newco and their respective
Affiliates from any and all rights, causes of action, demands, damages, costs,
loss of services, expenses and compensation whatsoever, claims, duties,
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obligations and actions which Sellers and their Affiliates now have or as may
hereinafter arise against the Company, whether matured or contingent, and
whether known or unknown. In no event shall the Sellers' rights hereunder
arising out of or relating to any representations or warranties made by Parent
or Newco in this Agreement be affected in any way by the release in this Section
7.8.
(b) In connection with the release contained in this Section 7.8,
Sellers (on behalf of themselves and their Affiliates and all Persons acting by,
through, under or in concert with them, if any) hereby expressly waive the
benefits of Section 1542 of the California Civil Code, which provides that:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE AGREEMENT, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR.
This Section 7.8 releases any and all rights, causes of action, demands,
damages, costs, loss of services, expenses and compensation whatsoever, claims,
duties, obligations and actions to the maximum extent permitted by law. Sellers
acknowledge that they understand and acknowledge the significance and
consequences of such specific waiver of Section 1542.
ARTICLE VIII
TERMINATION
SECTION 8.1 TERMINATION.
This Agreement may be terminated at any time prior to the Closing Date:
(a) by the written agreement of Parent and Newco on the one hand and
the Sellers on the other hand;
(b) by Parent and Newco by written notice to the Company and Sellers
if: (i) the representations and warranties of Sellers or the Company shall not
have been true and correct in all respects as of the date when made, or (ii) if
any of the conditions set forth in Section 6.2 shall not have been, or if it
becomes apparent that any of such conditions will not be, fulfilled by 5:00 p.m.
California time on January 21, 2000, unless such failure shall be due to the
failure of Parent or Newco to perform or comply with any of the covenants,
agreements or conditions hereof to be performed or complied with by it prior to
the Closing; or
(c) by Sellers, by written notice to Parent and Newco if: (i) the
representations and warranties of Parent or Newco shall not have been true and
correct in all respects as of the date when made, or (ii) if any of the
conditions set forth in Section 6.1 shall not have been, or if it becomes
apparent that any of such conditions will not be, fulfilled by 5:00 p.m.
California time on January 21, 2000, unless such failure shall be due to the
failure of Sellers or any of them to perform or comply with any of the
covenants, agreements or conditions hereof to be performed or complied with by
it prior to the Closing.
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SECTION 8.2 EFFECT OF TERMINATION.
In the event of the termination of this Agreement pursuant to the
provisions of Section 8.1, this Agreement shall become void and have no effect,
without any liability to any Person in respect hereof or of the transactions
contemplated hereby on the part of any party hereto, or any of its directors,
officers, employees, agents, consultants, representatives, advisers,
stockholders or Affiliates except for any liability resulting from such party's
breach of this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 FEES AND EXPENSES.
Sellers, on the one hand, and Parent and Newco, on the other hand, will
bear their own expenses in connection with the negotiation and the consummation
of the Transactions contemplated by this Agreement, including, without
limitation, any broker's commission or finder's fee incurred by such party.
Neither the Company nor Parent nor Newco shall assume, directly or indirectly,
any of Sellers' or the Company's fees, costs and expenses incurred in connection
with the negotiation and preparation of this Agreement, due diligence, or
consummation of the transactions contemplated by this Agreement. At Sellers'
option, all or any portion of such expenses of Sellers and the Company may be
paid at Closing by the Company, in which event the cash portion of the Purchase
Price referred to at Section 2.2(a) shall be reduced dollar-for-dollar by the
amount of all such expenses paid and accrued and payable.
SECTION 9.2 NOTICES.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by facsimile
transmission (with subsequent letter confirmation by mail) or three calendar
days after being mailed by certified or registered mail, postage prepaid, return
receipt requested, to the parties, their successors in interest or their
assignees at the following addresses, or at such other addresses as the parties
may designate by written notice in the manner aforesaid:
If to Parent or Newco: I-Flow Corporation
20202 Windrow Dr.
Lake Forest, California 92630
Facsimile: (949) 206-2603
Attention: President and Chief Executive Officer
With a concurrent copy to: Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, California 92614
Facsimile: (949) 451-4200
Attention: Mark W. Shurtleff, Esq.
If to Sellers: To the address of each such Seller as set forth
opposite his, her or its name on Exhibit A.
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If to the Company: Spinal Specialties, Inc.
12001 Network, Building F, Suite 208
San Antonio, Texas 78249
Facsimile: (210) 558-8101
Attention: Michael Wakely and Robert B. Keahey
With a concurrent copy to: R. Bryan Stone
Law Offices of Stone & Stone
900 Tower II
555 N. Carancahua
Corpus Christi, TX 78478
Facsimile: (361) 884-3853
SECTION 9.3 ATTORNEYS' FEES AND COSTS.
Should any party institute any action or proceeding in any court to
enforce any provision of this Agreement, the prevailing party shall be entitled
to receive from the losing party actual attorneys' fees and costs incurred in
such action or proceeding, whether or not such action or proceeding is
prosecuted to judgment.
SECTION 9.4 ASSIGNABILITY AND PARTIES IN INTEREST.
This Agreement shall not be assignable by any of the parties. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective permitted successors and assigns.
SECTION 9.5 GOVERNING LAW.
This Agreement shall be governed by, and construed and enforced in
accordance with, the internal law, and not the law pertaining to conflicts or
choice of law, of the State of California.
SECTION 9.6 COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
SECTION 9.7 COMPLETE AGREEMENT.
This Agreement, the Exhibits and Schedules and the documents delivered or
to be delivered pursuant to this Agreement contain or will contain the entire
agreement among the parties with respect to the Transactions and shall supersede
all previous oral and written and all contemporaneous oral negotiations,
commitments and understandings.
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SECTION 9.8 MODIFICATIONS AMENDMENTS AND WAIVERS.
This Agreement may be modified, amended or otherwise supplemented only by
a writing signed by all of the parties. No waiver of any right or power
hereunder shall be deemed effective unless and until a writing waiving such
right or power is executed by the party waiving such right or power.
SECTION 9.9 DUE DILIGENCE INVESTIGATION; KNOWLEDGE.
All representations and warranties contained herein that are made to the
knowledge of a party shall require that such party make reasonable investigation
and inquiry with respect thereto to ascertain the correctness and validity
thereof. Without limiting the foregoing sentence, when any fact is stated to be
to the "knowledge of Sellers or the Company" or similar such language, such
reference shall mean that any one or more of the Sellers know or should have
known of the existence or non-existence of such fact based upon a reasonable
investigation and inquiry of the books and records, employees, accountants and
attorneys of the Company.
SECTION 9.10 LIMIT ON INTEREST.
Notwithstanding anything in this Agreement to the contrary, no party shall
be obligated to pay interest at a rate higher than the maximum rate permitted by
applicable law. In the event that an interest rate provided in this Agreement
exceeds the maximum rate permitted by applicable law, such interest rate shall
be deemed to be reduced to such maximum permissible rate.
SECTION 9.11 POST CLOSING MATTERS; FURTHER ASSURANCES.
Each party shall promptly execute and deliver such further instruments and
take such further actions as any other party may reasonably require or request
in order to carry out the intent of this Agreement and to consummate the
transactions contemplated hereunder.
SECTION 9.12 CONTRACT INTERPRETATION; CONSTRUCTION OF AGREEMENT.
(a) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Article, section, exhibit, schedule, preamble, recital and party
references are to this Agreement unless otherwise stated.
(b) No party, nor its respective counsel, shall be deemed the
drafter of this Agreement for purposes of construing the provisions of this
Agreement, and all language in all parts of this Agreement shall be construed
simply and in accordance with its fair meaning, and not strictly for or against
any party.
SECTION 9.13 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The various representations and warranties made by Parent, Newco, Sellers,
and the Company hereunder will survive for a period of three (3) years from the
date of this Agreement.
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SECTION 9.14 ARBITRATION.
(a) Any controversy, dispute or claim arising under this Agreement
shall be settled by arbitration conducted in Orange County, California in
accordance with the then existing Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon any award rendered by the arbitrator
may be entered by any federal or state court having jurisdiction thereof. The
parties expressly provide that the provisions of Section 1283.05 of the
California Code of Civil Procedure are incorporated into, and made a part of,
this Section 9.14. The decision of the arbitrator shall be final and binding
upon the parties. The arbitrator shall be authorized to award any relief,
whether legal or equitable, to the party so entitled to such relief.
(b) In respect of any action, suit or other proceeding relating to
the enforcement of the award rendered by the arbitrator pursuant to this Section
9.14, each party hereby irrevocably submits to the non-exclusive jurisdiction of
any state or federal court located in the County of Orange, State of California.
EACH PARTY HEREBY WAIVES ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS, TO ASSERT THAT IT IS NOT SUBJECT TO THE JURISDICTION OF THE
AFORESAID COURTS, OR TO OBJECT TO VENUE TO THE EXTENT THAT ANY ACTION, SUIT OR
OTHER PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 9.14.
SECTION 9.15 SEVERABLE PROVISIONS.
The terms, provisions and covenants of this Agreement are severable, and
if one or more terms or provisions are determined to be unenforceable, in full
or part, by a court of competent jurisdiction, the validity of the remaining
provisions, including any partially unenforceable terms or provisions, to the
extent enforceable, shall not be affected in any respect whatsoever.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first above written.
PARENT:
I-FLOW CORPORATION,
a California corporation
By:
-----------------------------------------
Donald M. Earhart
President and Chief Executive Officer
NEWCO:
SPINAL ACQUISITION CORP.,
a Delaware corporation
By:
-----------------------------------------
Donald M. Earhart
President
COMPANY:
SPINAL SPECIALTIES, INC.,
a Texas corporation
By:
-----------------------------------------
Name:
Title:
SELLERS:
--------------------------------------------
Michael Wakely
--------------------------------------------
Robert B. Keahey
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<PAGE> 46
--------------------------------------------
Robert A. Keahey
--------------------------------------------
Robert D. Duffet
--------------------------------------------
Camilla B. Doe
--------------------------------------------
R. Bryan Stone
--------------------------------------------
J. Elliot Cunningham
46
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