<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From ____________to _____________
Commission File Number 0-20532
LIFEQUEST MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2559866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12961 Park Central, Suite 1300
San Antonio, Texas 78216
(Address of principal executive offices)
(Zip Code)
(210) 495-8787
(Registrant's telephone number, including area code)
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
---------------
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
On November 10, 1997, there were outstanding 6,410,883 shares of Common
Stock, $.001 par value, of the registrant.
Page 1 of 14
<PAGE> 2
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
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<S> <C> <C>
Item 1: Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - December 31, 1996, and September 30, 1997 3
Consolidated Statements of Operations - For the Three Months and Nine Months
Ended September 30, 1996 and 1997 4
Consolidated Statements of Cash Flows - For the Nine Months Ended
September 30, 1996 and 1997 5
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1996 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 294,143 $ 966,119
Short-term investments 2,464,743 243,801
Accounts receivable (net of allowance for doubtful accounts of
$231,891 in 1996 and $86,891 in 1997) 1,162,880 1,789,771
Accounts receivable from related party 14,871 19,818
Interest receivable 60,381 2,824
Inventories 1,628,913 1,671,885
Prepaid and other assets 74,379 16,810
------------ ------------
Total current assets 5,700,310 4,711,028
------------ ------------
Property, Plant and Equipment 1,253,277 1,556,413
Less-Accumulated depreciation (785,897) (879,855)
------------ ------------
467,380 676,558
------------ ------------
Intangible Assets:
Licensed technology rights 441,358 441,358
Goodwill, net 2,677,142 2,545,957
------------ ------------
Total assets $ 9,286,190 $ 8,374,901
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,689,686 $ 2,118,881
Accrued expenses 999,375 295,388
Current portion of long-term debt and
capital lease obligations 11,577 777,143
------------ ------------
Total current liabilities 2,700,638 3,191,412
Long-term debt and capital lease obligations 790,991 13,895
------------ ------------
Total liabilities 3,491,629 3,205,307
------------ ------------
Minority Interest 120,380 116,165
------------ ------------
Stockholders' Equity:
Common Stock, $.001 par value; 10,000,000 shares authorized;
shares issued and outstanding: 6,191,071 (1996)
and 6,410,883 (1997) 6,191 6,411
Additional paid-in capital 19,989,467 20,121,673
Accumulated deficit (14,321,477) (15,074,655)
------------ ------------
Total stockholders' equity 5,674,181 5,053,429
------------ ------------
Total liabilities and stockholders' equity $ 9,286,190 $ 8,374,901
============ ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
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<PAGE> 4
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------------------- -------------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Retail Value of Product and Commission Sales $ 1,784,899 $ 4,771,710 $ 5,365,969 $ 13,290,397
============ ============ ============ ============
Net Sales
Product Sales $ 1,413,903 $ 3,718,765 $ 4,368,933 $ 10,079,602
Commissions Earned 69,698 200,099 164,987 559,226
------------ ------------ ------------ ------------
1,483,601 3,918,864 4,533,920 10,638,828
------------ ------------ ------------ ------------
Cost And Expenses:
Cost of sales 899,394 2,301,661 2,723,450 6,188,081
Research and development 100,821 23,567 278,752 32,424
Selling, general and administrative 782,692 2,089,490 2,561,611 4,868,678
Depreciation and amortization 25,280 96,822 85,302 297,341
------------ ------------ ------------ ------------
1,808,187 4,511,540 5,649,115 11,386,524
------------ ------------ ------------ ------------
Income (loss) from operations (324,586) (592,676) (1,115,195) (747,696)
------------ ------------ ------------ ------------
Other income (expense):
Investment income 48,572 17,687 170,159 85,012
Interest expense (14,511) (30,194) (48,762) (59,365)
Merger and acquisition costs (6,238) (29,425) (112,975) (500)
------------ ------------ ------------ ------------
Net Income (Loss) Before Minority Interest (296,763) (634,608) (1,106,773) (722,549)
Minority interest in net loss of
consolidated subsidiary 631 1,674 15,917 4,215
------------ ------------ ------------ ------------
Net Income (Loss $ (296,132) $ (632,934) $ (1,090,856) $ (718,334)
============ ============ ============ ============
Net Income (Loss) Per Share of Common Stock $ (.07) $ (.10) $ (.25) $ (.11)
============ ============ ============ ============
Weighted Average Shares Used In Computing
Net Income (Loss) Per Share of Common Stock 4,316,821 6,410,883 4,309,756 6,325,793
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 5
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash Flow From Operating Activities:
Net Income (Loss) $(1,090,856) $ (718,334)
Adjustments to reconcile net income (net loss) to net cash
provided by (used in) operating activities -
Depreciation and amortization 85,302 297,341
Issuance of stock, marketing agreement expense 17,500 --
Minority interest in net (loss) income of consolidated subsidiary (15,917) (4,215)
Changes in operating assets and liabilities-
(Increase) in accounts receivable, net (321,960) (626,891)
Decrease in interest receivable 1,855 57,557
(Increase) in inventories (227,096) (42,972)
Decrease in prepaid and other assets 59,726 57,569
(Increase) in accounts receivable from related party (49,689) (4,947)
(Decrease) increase in accounts payable (9,580) 429,195
Increase (decrease) in accrued expenses 36,004 (703,987)
----------- -----------
Net cash used in operating activities (1,514,711) (1,259,684)
----------- -----------
Cash Flows From Investing Activities:
Additions to property and equipment (276,021) (304,872)
Purchases of investments (1,976,458) (2,248,153)
Investment maturities 3,386,946 4,469,095
Acquisitions, net of cash acquired -- (70,462)
----------- -----------
Net cash provided by investing activities 1,134,467 1,845,608
----------- -----------
Cash Flows From Financing Activities:
Proceeds from issuance of notes payable 1,016,000 263,076
Proceeds from exercise of stock options 13,440 132,426
Payments on long-term debt and capital lease obligations (681,660) (274,606)
Payments to Stockholder (28,767) (34,844)
----------- -----------
Net cash provided by financing activities 319,013 86,052
----------- -----------
Net (decrease) increase in cash and cash equivalents (61,231) 671,976
Cash and cash equivalents, beginning of period 309,952 294,143
----------- -----------
Cash and cash equivalents, end of period $ 248,721 $ 966,119
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 6
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
--------------------
1996 1997
------- -------
<S> <C> <C>
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for -
Interest $48,762 $59,365
Income taxes -- 70,462
</TABLE>
Noncash Investing And Financing Activities:
The Company issued 950,000 shares of common stock in 1996 in connection
with the mergers of G. M. Engineering, Inc. and Klein Medical, Inc. For a
discussion of these mergers, see the Company's annual report on Form 10-KSB.
The Company also issued 57,143 shares of common stock in 1997 in connection
with the merger of Trimedica, Inc. See Note 5 in the financial statements.
The Company also issued 466,473 and 98,246 shares of common stock in 1997
in connection with the mergers of W. H. Bookwalter and Associates, Inc. and
Mishbucha, Inc., respectively. See Notes 7 and 8 in the financial statements.
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 7
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of LifeQuest Medical,
Inc. (the "Company"), LifeQuest Endoscopic Technologies, Inc. ("LQET"), Klein
Medical, Inc. ("KMI"), Val-U-Med, Inc. ("VMI"), wholly-owned subsidiaries of the
Company, and the Company's 82% ownership interest in ValQuest Medical, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. However, all adjustments have been made
which are, in the opinion of the Company, necessary for a fair presentation of
the results of operations for the periods covered. In addition, all such
adjustments are of a normal recurring nature. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. It is
recommended that these consolidated financial statements be read in conjunction
with the financial statements and the notes thereto for the fiscal year ended
December 31, 1996, included in the Company's Form 10-KSB. Certain
reclassifications have been made in the prior period financial statements to
conform with the current period presentation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Product sales are recognized upon the shipment of products to customers.
Commissions earned are recognized when customer orders are placed with product
suppliers. Retail Value of Product and Commission Sales as presented on the
consolidated statement of income includes product sales, plus the gross sales of
products for which the Company receives commissions and is presented for
informational purposes.
NOTE 3 - NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of Common Stock and common stock equivalents
outstanding during the period. Common stock equivalents are not considered in
the computation of net loss per share when their effect is antidilutive.
NOTE 4 - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
---------- ----------
<S> <C> <C>
Raw materials $ 66,979 $ 47,977
Work-in-process 128,774 116,276
Finished Goods 1,433,160 1,507,632
---------- ----------
$1,628,913 $1,671,885
========== ==========
</TABLE>
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<PAGE> 8
NOTE 5 - TRIMEDICA, INC. MERGER
Effective June 1997, Trimedica, Inc., a Colorado corporation
("Trimedica"), was acquired by the Company and merged into KMI, a wholly-owned
subsidiary of the Company. Trimedica was purchased for an aggregate of 57,143
shares of Common Stock. The transaction was accounted for using the
pooling-of-interests accounting method, therefore, the assets, liabilities, and
operations of Trimedica are included in the consolidated financial statements
for all periods reported herein. Trimedica business activity will constitute the
new orthopedic sales force of KMI.
The following table shows the net sales and net income (loss) related
to Trimedica that have been included in the consolidated statements of
operations:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 33,822 $ -- $138,699 $148,464
Net Income (Loss) $ 2,678 $ -- $ 52,239 $ 49,230
</TABLE>
NOTE 6 - STOCK OPTION PLAN
At the Annual Meeting of Stockholders held June 17, 1997, the proposal
to amend the Company's 1989 Stock Option Plan to increase the number of shares
authorized for issuance under the Option Plan to 1,500,000 was approved as
2,383,894 shares of Common Stock were voted "For", 666,753 shares were voted
"Against", 206,707 shares abstained from voting and 1,971,460 were unvoted.
NOTE 7 - W. H. BOOKWALTER AND ASSOCIATES, INC. MERGER
Effective September 1997, W. H. Bookwalter and Associates, Inc., a
Vermont corporation ("WHB") was acquired by the Company and merged into VMI, a
wholly-owned subsidiary of the Company. WHB was purchased for an aggregate of
466,473 shares of Common Stock. The transaction was accounted for using the
pooling-of-interests accounting method, therefore, the assets, liabilities, and
operations of WHB are included in the consolidated financial statements for all
periods reported herein. WHB business activity will provide the Company with
distribution coverage in the northeastern region of the United States.
The following table shows the net sales and net income (loss) related
to WHB that have been included in the consolidated statements of operations:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 501,260 $ 554,001 $ 1,503,780 $ 1,790,572
Net Income (Loss) $ (10,357) $ 501 $ (31,071) $ (89,839)
</TABLE>
NOTE 8 - MEDEX SURGICAL MERGER
Effective September 1997, Mishbucha, Inc., a Texas corporation d/b/a
Medex Surgical ("Medex"), was acquired by the Company and merged into KMI, a
wholly-owned subsidiary of the company. Medex was purchased for an aggregate of
98,246 shares of Common Stock. Medex was formed during 1997 and the transaction
was accounted for using the pooling-of-interests accounting method, therefore,
the assets, liabilities, and operations of Medex are included in the
consolidated financial statements for all 1997 periods reported herein. Medex
business activity will allow the Company to further expand its geographical
area.
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<PAGE> 9
The following table shows the net sales and net income (loss) related
to Medex that have been included in the consolidated statements of operations:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1997 1996 1997
------ -------- ------ --------
<S> <C> <C> <C> <C>
Net Sales $ -- $ 58,579 $ -- $ 58,579
Net Income (Loss) $ -- $ (5,757) $ -- $ (5,757)
</TABLE>
NOTE 9 - DEBT
On February 26, 1996, the Company borrowed $750,000 from a commercial
bank pledging a like amount of short-term investments as collateral. The loan
proceeds were used to replace more expensive debt, mainly capital equipment
leases, acquired with the acquisition of G. M. Engineering, Inc. On September 3,
1997, the loan was converted to a line of credit maturing September 1998 whereby
all inventories, accounts receivable and intangibles are pledged as collateral.
The line of credit is further secured by a Treasury Bill with a maturity value
of $250,000. The balance of this debt at September 30, 1997, is $600,000.
-9-
<PAGE> 10
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Certain statements contained in this Item 2, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Specifically, all statements other than
statements of historical facts included in this Item 2 regarding the Company's
financial position, business strategy and plans and objectives of management of
the Company for future operations are forward-looking statements. These
forward-looking statements are based on the beliefs of the Company's management,
as well as assumptions made by and information currently available to the
Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect" and "intend" and words or phrases of similar
import, as they relate to the Company or Company management are intended to
identify forward-looking statements. Such statements reflect the current view of
the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions related to certain factors including, without
limitation, competitive factors, general economic conditions, customer
relations, relationships, relationships with vendors, the interest rate
environment, governmental regulation and supervision, product introductions and
acceptance, technological change, changes in industry practices, one-time events
and other factors described herein, in the Company's Registration Statement on
Form S-3 filed on February 7, 1997, and in the Company's annual, quarterly and
other reports filed with the Securities and Exchange Commission (collectively,
"cautionary statements"). Although the Company believes that its expectations
are reasonable, it can give no assurance that such expectations will prove to be
correct. Based upon changing conditions, should any one or more of these risks
or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the applicable
cautionary statements.
OVERVIEW
From inception through December 31, 1995, the Company was a development
stage enterprise whose efforts and resources were devoted primarily to research
and development activities related to its initial products. During this
development stage, the Company received minimal operating revenues and, thus,
was unprofitable. As of September 30, 1997, the Company had an accumulated
deficit of approximately $15,075,000. There can be no assurance that the Company
will be able to attain profitability.
The Company's future operating results will depend on many factors,
including the Company's ability to manufacture and market its products on a
cost-effective basis, demand for the Company's products and the level of
competition in the market place.
Effective September 1997, W. H. Bookwalter and Associates, Inc., a
Vermont corporation ("WHB"), was acquired by the Company and merged into
Val-U-Med, Inc. ("VMI"), a Nevada corporation and a wholly-owned subsidiary of
the Company, in consideration for an aggregate of 466,473 shares of Common
Stock. The transaction was accounted for using the pooling-of-interests
accounting method, therefore, the assets, liabilities, and operations of WHB are
included in the consolidated financial statements for all periods reported
herein. WHB business activity will provide the Company with distribution
coverage in the northeastern region of the United States.
Effective September 1997, Mishbucha, Inc., a Texas corporation d/b/a
Medex Surgical ("Medex"), was acquired by the Company and merged into Klein
Medical, Inc. ("KMI"), a Nevada corporation and a wholly-owned subsidiary of
the Company, in consideration for an aggregate of 98,246 shares of Common
Stock. Medex was formed during 1997 and the transaction was accounted for using
the pooling-of-interests accounting method, therefore, the assets, liabilities,
and operations of Medex are included in the consolidated financial statements
for all 1997 periods reported herein. Medex business activity will allow the
Company to further expand its geographical area.
Effective June 1997, Trimedica, Inc., a Colorado corporation
("Trimedica"), was acquired by the Company and merged into KMI, a wholly-owned
subsidiary of the Company, in consideration for an aggregate of 57,143 shares of
Common Stock. The transaction was accounted for using the pooling-of-interests
accounting method, therefore, the assets, liabilities, and operations of
Trimedica are included in the consolidated financial statements for all periods
reported herein. Trimedica business activity will be managed by the new
orthopedic sales force of KMI.
In December 1996, Val-U-Med, Inc., a Georgia corporation
("Val-U-Med"), was acquired by the Company and merged into VMI, a wholly-owned
subsidiary of the Company, in consideration for an aggregate of 1,200,000 shares
of Common Stock and an aggregate of $400,000. The transaction was accounted for
using the purchase method of accounting. VMI is involved in the distribution and
marketing of minimally invasive surgical products.
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<PAGE> 11
In November, 1996, Klein Medical, Inc., a Texas corporation ("Klein"),
was acquired by the Company and merged into KMI, a Nevada corporation and
newly-formed, wholly-owned subsidiary of the Company, in consideration for an
aggregate of 600,000 shares of Common Stock. The transaction was accounted for
using the pooling-of-interests accounting method, therefore, the assets,
liabilities, and operations of KMI and Klein are included in the consolidated
financial statements for all periods reported herein. KMI is involved in the
distribution and marketing of minimally invasive surgical products.
In February 1996, the Company completed the merger of GM Engineering,
Inc., a California corporation ("GME"), with and into LifeQuest Endoscopic
Technologies, Inc., ("LQET") a Nevada corporation and newly formed wholly-owned
subsidiary of the Company, in consideration for 350,000 shares of Common Stock.
The transaction was recorded using the pooling-of-interests method of
accounting, therefore, the assets, liabilities, and operations of GME are
included in the consolidated financial statements for all periods reported
herein. LQET develops, manufactures, and markets surgical and related
instruments used in minimally invasive surgery.
In May, 1994, the Company and Valdor Fiber Optics ("Valdor") of San
Jose, California, formed a corporate joint venture called ValQuest Medical, Inc.
("ValQuest"). In accordance with the terms of the joint venture agreement,
Valdor transferred to ValQuest the exclusive worldwide rights to develop,
manufacture, and market all present and future medical applications of Valdor's
patented fiber optic connector technology. The Company paid $100,000 to Valdor
in consideration for the transfer of these rights to ValQuest. Valdor
contributed such rights, which had an initial value of $327,273 in the
consolidated financial statements, to ValQuest in exchange for a 45 percent
interest in ValQuest. The Company contributed $400,000 to be used as working
capital in exchange for a 55 percent interest in ValQuest. Currently, subsequent
purchases of stock have increased the Company's ownership interest in ValQuest
to 82 percent.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had current assets of $4,711,000 and
current liabilities of $3,191,000 resulting in working capital of $1,520,000.
This compares to a working capital position of $3,000,000 at December 31, 1996.
The decline in working capital is primarily due to costs related to establishing
the larger infrastructure necessary to support the geographical expansion of the
Company's business activity and sales force.
Capital expenditures, including purchase business combinations, were
$375,000 during the first nine months of 1997. The Company anticipates further
capital expenditures as the Company's geographical expansion continues.
On February 26, 1996, the Company borrowed $750,000 from a commercial
bank pledging a like amount of short-term investments as collateral. The loan
proceeds were used to replace more expensive debt, mainly capital equipment
leases, acquired with the acquisition of GME. On September 3, 1997, the loan was
converted to a line of credit maturing September 1998 whereby all inventories,
accounts receivable and intangibles of the Company are pledged as collateral.
The line of credit is further secured by a Treasury Bill with a maturity value
of $250,000. The balance of this debt at September 30, 1997 is $600,000.
Based upon the current level of operations, the Company believes that
cash flow from operations plus the Company's cash from the realization of its
current assets will be adequate to meet its anticipated requirements for working
capital and capital expenditures. However, additional capital may be required in
order for the Company to take advantage of any additional attractive acquisition
opportunities or to participate in future alliances or joint ventures.
RESULTS OF OPERATIONS
For the three months ended September 30, 1997, the Company reported a
net loss of $633,000 or $.10 per share. This compares with a net loss of
$296,000 for the three months ended September 30, 1996. For the nine months
ended September 30, 1997, the Company reported a net loss of $718,000 versus a
net loss of $1,091,000 for the comparable period of 1996. The increase in the
net loss for the quarter was primarily caused by the Company's acceleration of
the geographic expansion of its business activity and sales force as well as its
distribution and sales support infrastructure. Also, the increase in loss was
due to development expense associated with the Company's new customized line of
trocars and cannulas. The decrease in net loss for the nine months ended
September 30, 1997 as compared to the same period in 1996 was due to the
business activity from the acquisition of VMI. Due to management's business
strategy to aggressively invest in growth opportunities which are expected to
lead to long-term profitability, the Company anticipates operating losses for
the remainder of 1997.
Product sales increased 163% in the third quarter 1997 and 131% in the
first nine months of 1997 as compared with the same periods in 1996. Product
sales were $3,719,000 for the third quarter of 1997 and $1,414,000 for the third
quarter of
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<PAGE> 12
1996. Product sales for the first nine months of 1997 and 1996 were
$10,080,000 and $4,369,000 respectively. These increases were due to continued
sales growth throughout the Company and the acquisition of Val-U-Med.
Gross profit from product sales in the third quarter was $1,417,000 in
1997 versus $515,000 in 1996. The corresponding gross profit margins were 38% in
1997 and 36% in 1996. For the nine months ending September 30, gross profit was
$3,892,000 or 39% in 1997 and $1,645,000 or 38% in 1996. The increase in margins
in the third quarter 1997 is a result of the realization of the efficiencies
incurred through expanding volumes and economies of scale. On July 18, 1997, the
Company completed its previously announced relocation which combines its
corporate offices, San Antonio warehouse and distribution center, repair and
service center, and manufacturing facility in one new San Antonio location. The
Company believes this move and the related February 1997 move of VMI and the
Atlanta distribution center into a new larger facility prepares the Company for
continual growth and positions the Company to capture further operating
efficiencies.
Research and development expenses continued at de minimus levels
through September 30, 1997. This decline is due to the Company's decision to
severely curtail research activity and to concentrate its resources on sales
growth through geographical and product line expansion.
For the third quarter, selling, general and administrative expenses,
which consist primarily of sales commissions, salaries and other costs necessary
to support the Company's infrastructure, increased to $2,089,000 in 1997 from
$783,000 in 1996. For the nine months ending September 30, these expenses
increased 90% in 1997. These costs reflect higher sales commissions due to the
Companywide sales growth, overall increased activity due to the inclusion of VMI
and costs associated with development of a new customized line of trocars and
cannulas.
The minority interest in net loss of consolidated subsidiary reflects
the minority ownership share of ValQuest's operations.
Investment income represents interest earned on the Company's
short-term investments. Therefore, investment income declined as the level of
short-term investments declined from year to year.
As of September 30, 1997, the Company had net operating loss
carryforwards of approximately $13.3 million for federal income tax purposes
which are available to reduce future taxable income and will expire in 2006
through 2012 if not utilized. For federal income tax purposes the Company
deferred for future amortization certain acquisition and research and
development costs in the amount of approximately $2.5 million. Such costs, which
have been expensed for financial reporting purposes, will be amortized for tax
purposes over future years when commercial operations commence. The Company
received IRS approval of its request for a change of tax accounting method to
expense research and development costs for expenditures incurred in 1992 and
future years. The Company also has Research and development credit carryforwards
available to offset future income taxes and expire in 2005 through 2010.
The Company's ability to use its NOL carryforwards to offset future
taxable income is subject to restrictions enacted in the United States Internal
Revenue Code of 1986, as amended (the "Code"). These restrictions provide for
limitations on the Company's utilization of its NOL carryforwards following
certain ownership changes described in the Code. As a result of ownership
changes, the Company's existing NOL carryforwards are subject to the limitation.
Of the $13.3 million of NOL carryforwards, approximately $550,000 is subject to
limitation. Approximately $40,000 of the $550,000 can be utilized annually.
-12-
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not applicable
Item 2. Changes in Securities
(a) Not applicable.
(b) Not applicable.
(c) Pursuant to a Plan of Acquisition and Merger Agreement
(the "Agreement") among the Company, Val-U-Med, Inc., a
Nevada corporation and wholly-owned subsidiary of the
Company, W. H. Bookwalter and Associates, Inc., a Vermont
corporation ("WHB"), William H. Bookwalter, John R.
Bookwalter, M.D., and Frederick F. Judd, III (the "WHB
Shareholders") dated effective September 30, 1997, whereby
the Company acquired substantially all of the assets of WHB,
the Company issued 466,473 shares of common stock, $.001 par
value ("Common Stock"), to the WHB Shareholders. Such Common
Stock was not registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to the exemptions of
such registration provided under Regulation D ("Regulation
D") of the rules and regulations promulgated under the
Securities Act by the Securities and Exchange Commission. The
Company relied upon certain representations and warranties of
the WHB Shareholders, including, among other things, as to
their ability, along with that of their Purchaser
Representatives (as that term is defined in Rule 501(h) of
Regulation D), to evaluate the merits and risks of the
transactions contemplated in the Agreement and that the
Common Stock was acquired solely for their own accounts for
investment and not with a view to distribution.
Pursuant to a Plan of Acquisition and Merger Agreement (the
"Agreement") among the Company, Klein Medical, Inc., a Nevada
corporation and wholly-owned subsidiary of the Company,
Mishbucha, Inc., a Texas corporation ("Medex"), Robert Kraus
and Edward Kraus (the "Medex Shareholders") dated effective
September 30, 1997, whereby the Company acquired
substantially all of the assets of Medex, the Company issued
98,246 shares of common stock, $.001 par value ("Common
Stock"), to the Medex Shareholders. Such Common Stock was not
registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to the exemptions of such
registration provided under Regulation D. The Company relied
upon certain representations and warranties of the Medex
Shareholders, including, among other things, as to their
ability, along with that of their Purchaser Representatives
(as that term is defined in Rule 501(h) of Regulation D), to
evaluate the merits and risks of the transactions
contemplated in the Agreement and that the Common Stock was
acquired solely for their own accounts for investment and not
with a view to distribution.
Item 3. Defaults Upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not applicable
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number 2.1*: Plan of Merger and Acquisition
Agreement Among the Company, Val-U-Med,
Inc., W. H. Bookwalter and Associates,
Inc., William H. Bookwalter, John R.
Bookwalter, M.D., and Frederick F.
Judd, III
Exhibit Number 2.2*: Plan of Merger and Acquisition
Agreement Among the Company, Klein
Medical, Inc., Mishbucha, Inc., Robert
Kraus, and Edward Kraus, effective
September 30, 1997.
Exhibit Number 10.1*: Employment Agreement dated
September 30, 1997 between William H.
Bookwalter and LifeQuest Medical, Inc.
Exhibit Number 27*: Financial Data Schedule
(b) Reports on Form 8-K: Not applicable
* Filed herewith
-13-
<PAGE> 14
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.
LIFEQUEST MEDICAL, INC.
(Registrant)
Dated: November 13, 1997 By /s/ HERBERT H. SPOON
--------------------------------------
Herbert H. Spoon
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 13, 1997 By /s/ RANDALL K. BOATRIGHT
---------------------------------
Randall K. Boatright
Vice President and Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
-14-
<PAGE> 15
INDEX TO EXHIBITS
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number 2.1*: Plan of Merger and Acquisition
Agreement Among the Company, Val-U-Med,
Inc., W. H. Bookwalter and Associates,
Inc., William H. Bookwalter, John R.
Bookwalter, M.D., and Frederick F.
Judd, III
Exhibit Number 2.2*: Plan of Merger and Acquisition
Agreement Among the Company, Klein
Medical, Inc., Mishbucha, Inc., Robert
Kraus, and Edward Kraus, effective
September 30, 1997.
Exhibit Number 10.1*: Employment Agreement dated
September 30, 1997 between William H.
Bookwalter and LifeQuest Medical, Inc.
Exhibit Number 27*: Financial Data Schedule
(b) Reports on Form 8-K: Not applicable
* Filed herewith
<PAGE> 1
EXHIBIT 2.1
PLAN OF MERGER AND ACQUISITION AGREEMENT
among
LIFEQUEST MEDICAL, INC.
a Delaware corporation
VAL-U-MED, INC.,
a Nevada corporation
and
W. H. BOOKWALTER AND ASSOCIATES, INC.
a Vermont corporation
William H. Bookwalter
an individual
John R. Bookwalter, M.D.
an individual
Frederick F. Judd, III
an individual
William Bookwalter, as Trustee
for the Bookwalter Family Trust
<PAGE> 2
THIS PLAN OF MERGER AND ACQUISITION AGREEMENT ("Agreement") executed
and effective this 30th day of September, 1997, by and among W. H. BOOKWALTER
AND ASSOCIATES, INC., a Vermont corporation ("WHB"), William H. Bookwalter, an
individual ("Bookwalter"), John R. Bookwalter, M.D., an individual ("Dr.
Bookwalter"), Frederick F. Judd, III ("Judd"), an individual, and William
Bookwalter, as Trustee for the Bookwalter Family Trust ("Trustee"), as
shareholders of WHB (Bookwalter, Dr. Bookwalter, Judd and Trustee collectively
referred to as the "Shareholders," or individually as a "Shareholder"),
LIFEQUEST MEDICAL, INC., a Delaware corporation ("LifeQuest"), and VAL-U-MED,
INC., a Nevada corporation ("Purchaser," and together with LifeQuest, the
"LifeQuest Parties").
W I T N E S S E T H:
WHEREAS, LifeQuest is primarily in the business of developing and
commercializing minimally invasive surgery devices; and
WHEREAS, LifeQuest owns all of the issued and outstanding stock of Purchaser;
and
WHEREAS, WHB is in the business of selling and repairing general
surgical products in the northeastern United States;
WHEREAS, the Shareholders are individuals constituting the only
shareholders of WHB; holding 100% of the issued and outstanding stock of WHB;
WHEREAS, the respective boards of directors of Purchaser and WHB have
approved the merger of WHB with and into Purchaser (the "Merger") pursuant to
the terms and subject to the conditions of this Agreement; and
WHEREAS, this Agreement is intended to qualify under Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto agree that WHB shall be merged with and into
Purchaser and that the terms and conditions of the Merger, the method of
carrying the Merger into effect and certain other provisions relating thereto
shall be as hereinafter set forth and as set forth:
ARTICLE 1
DEFINITIONS
Defined Terms. As used herein, the terms below shall have the
following meanings herein specified applicable to both the singular and plural
forms of any of the terms.
1.1 "Affiliate" shall mean, with respect to a Person, any Person
that, directly or indirectly, controls or is controlled by or is under common
control with the Person.
<PAGE> 3
1.2 "Assets" shall mean the assets, properties and rights of WHB
of every nature, kind and description, wherever located, tangible and
intangible, real, personal and mixed, whether or not reflected in the books and
records of WHB necessary or desirable to permit the business of WHB to be
carried on in the manner as is presently conducted.
1.3 "Benefit Plans" shall mean bonus, deferred compensation,
severance, pension, profit sharing, retirement, stock purchase, stock option,
medical, hospitalization, accident insurance or any other employee benefit
plan, arrangement or practice, whether written or unwritten, which covers
employees of WHB.
1.4 "Certificate" shall mean each stock certificate representing
shares of WHB Stock.
1.5 "Closing" shall mean the meeting held on the Closing Date.
1.6 "Closing Date" shall have the meaning assigned to it in
Article 7.
1.7 "Effective Time" shall mean the time at which a properly
executed certificate of merger in substantially the form attached to this
agreement as Exhibit A (together with other documents required by law to effect
the Merger) shall have been filed with the Secretary of State of Nevada, and in
any other jurisdiction where such a certificate of merger is required.
1.8 "Environmental Conditions" shall mean material conditions with
respect to soil, surface waters, ground waters, stream sediments, underground
tanks, asbestos and similar conditions on-site and off-site of properties
owned, occupied or used by WHB, as the case may be, related to the presence or
Release of Hazardous Substances, which conditions could require remedial action
or may result in claims, demands and liabilities against, upon or,
respectively, by third parties, including, without limitation, governmental
entities, adjacent property owners and any individuals suffering property
damage or personal injury.
1.9 "Environmental Laws" shall mean all federal, state and local
laws, rules, regulations, codes, judgments and decrees concerning pollution or
protection of the environment.
1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.11 "Financial Statements" shall mean the internally prepared
balance sheets, statements of income and retained earnings of WHB for the years
or periods ended June 30, 1997, December 31, 1996 and December 31, 1995.
1.12 "Former WHB Shareholder" shall mean each Person who was,
immediately before the Effective Time, a holder of issued and outstanding
shares of WHB Stock.
2
<PAGE> 4
1.13 "Hazardous Substances" shall include any dangerous substances,
toxic substances, hazardous materials or hazardous substances as defined in or
pursuant to the Resource Conservation and Recovery Act (42 U.S.C. Section 6901,
et seq.), as amended, the Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. Section 9601, et seq.) ("CERCLA"), as amended, or
any other Environmental Law.
1.14 "Intellectual Property" shall have the meaning assigned to it
in Section 3.8.
1.15 "IRS" shall mean the Internal Revenue Service.
1.16 "LifeQuest SEC Documents" shall mean each report, schedule,
registration statement and definitive proxy statement filed by LifeQuest with
the SEC since January 1, 1997.
1.17 "LifeQuest Stock" shall mean the common stock, $.001 par value
of LifeQuest.
1.18 "Losses" shall mean all damages, losses, obligations,
liabilities, claims, encumbrances, deficiencies, costs and expenses including,
without limitation, reasonable attorneys' fees and other costs and expenses
incident to any suit, action, investigation, claim or proceeding.
1.19 "Market Price" shall mean the average of the closing bid and
asked prices of a share of LifeQuest Stock for the 10 consecutive trading days
immediately prior to the third trading day prior to the Closing Date, as
reported in the over-the-counter market as reported by the National Association
of Securities Dealers Automated Quotation System.
1.20 "Merger Consideration" shall have the meaning assigned to it
in Section 2.6.
1.21 "Notice" shall mean any summons, citation, directive, order,
claim, litigation, proceeding, judgment, letter or other communication, written
or oral, actual or threatened, from the United States Environmental Protection
Agency or other federal, state or local agency or authority or any other entity
or any individual concerning any intentional or unintentional act or omission
which has resulted or may result in the Release of Hazardous Substances into
waters, or into the "environment" as such term is defined in CERCLA, from or on
property owned, occupied or used by WHB, and shall include the imposition of
any lien on property occupied or used by WHB, pursuant to any violation of any
Environmental Law, or any knowledge, after due inquiry and investigation, of
any acts that could give rise to any of the above.
1.22 "Person" shall mean an individual, corporation, partnership,
joint venture, trust or unincorporated organization, or a government or any
agency or political subdivision thereof.
1.23 "Purchaser Stock" shall mean the common stock, $.01 par value
of Purchaser.
3
<PAGE> 5
1.24 "Release" shall mean releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, disposing or
dumping.
1.25 "SEC" shall mean the United States Securities and Exchange
Commission.
1.26 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.27 "Subsidiary" shall mean, with respect to any Person (the
"parent"), (i) any corporation, association, joint venture, partnership or
other business entity of which securities or other ownership interests
representing more than 50% of the ordinary voting power or beneficial interest
are, at the time as of which any determination is being made, owned or
controlled by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent and (ii) any joint venture or
partnership of which the parent or any Subsidiary of the parent is a general
partner or has responsibility for its management (provided, however, that the
term "Subsidiary" shall not include joint operating agreements).
1.28 "Surviving Corporation" shall mean the corporation existing at
and after the Effective Time as a result of the Merger.
1.29 "WHB Stock" shall mean the common stock, $1.00 par value, of
WHB.
1.30 "WHB's Contracts" shall mean (a) the contracts described on
Schedule 3.12, (b) purchase orders from customers accepted in the ordinary
course of business, and (c) employment contracts terminable on not more than 30
days' notice.
ARTICLE 2
MERGER
2.1 The Merger. Subject to the terms and conditions of this
agreement, WHB shall be merged with and into Purchaser in accordance with all
applicable laws, with Purchaser being the Surviving Corporation. Purchaser and
WHB shall cause a certificate of merger to be filed with the Secretary of State
of Nevada, and in any other jurisdiction where such a certificate of merger is
required, on the Closing Date, unless legally prohibited from doing so. The
Merger shall be effective at the Effective Time.
2.2 Surviving Corporation. From and after the Effective Time, the
Surviving Corporation shall have the name "Val-U-Med, Inc." and shall possess
all assets and property of every description, and every interest in the assets
and property, wherever located, and the rights, privileges, immunities, powers,
franchises and authority, of a public as well as of a private nature, of each
of WHB and Purchaser, and all debts and all other things in action or belonging
or due to each of WHB and Purchaser, all of which shall be vested in the
Surviving Corporation without further act or deed, and title to any real estate
or any interest in the real estate vested in either WHB or Purchaser shall not
revert or in any way be impaired.
4
<PAGE> 6
2.3 Liabilities. The Surviving Corporation shall be liable for
all the debts, liabilities and duties of each of WHB and Purchaser; any action
or proceeding pending, by or against either WHB or Purchaser, may be prosecuted
to judgment, with right of appeal, as if the Merger had not taken place, or the
Surviving Corporation may be substituted in its place, and all the rights of
creditors of each of WHB and Purchaser shall be preserved unimpaired, and all
liens upon the property of each of WHB and Purchaser shall be preserved
unimpaired, on only the property affected by the liens immediately prior to the
Effective Time.
2.4 Certificate of Incorporation and Bylaws. The certificate of
incorporation and bylaws of Purchaser in effect immediately prior to the
Effective Time shall be the certificate of incorporation and bylaws of the
Surviving Corporation following the Merger until otherwise amended or repealed.
2.5 Directors and Officers. The directors and officers of
Purchaser immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation until their successors are duly elected
or appointed and qualified in the manner provided in the bylaws of the
Surviving Corporation, or as otherwise provided by law.
2.6 Conversion or Cancellation of Stock Upon Merger. In
consideration for the Merger and the non-competition agreements in Section 12
hereof, as of the Effective Time, by virtue of the Merger and without any
action on the part of the holders of any shares of WHB Stock, or the holder of
the shares of Purchaser Stock, (a) the WHB Stock outstanding immediately before
the Effective Time shall be converted into the right to receive, subject to
Section 2.7 below, an aggregate number of shares of LifeQuest Stock, equal to
the quotient of $2,000,000 divided by the Market Price of a share of LifeQuest
Stock (the "Merger Consideration") and (b) each share of Purchaser Stock
outstanding immediately before the Effective Time shall be converted into one
share of common stock of the Surviving Corporation.
2.7 Fractional Shares. Notwithstanding Section 2.6, no
certificates or scrip representing fractional shares of LifeQuest Stock shall
be issued upon the surrender for exchange of certificates that prior to the
Effective Time represented shares of WHB Stock, no dividend or distribution of
LifeQuest shall relate to any fractional share interest and no fractional share
interest shall entitle the owner thereof to vote or to exercise any rights of a
shareholder of LifeQuest. In the event that any Former WHB Shareholder shall
be entitled to any fractional share interest then any fractional amount shall
be rounded up to the nearest whole share.
2.8 Exchange Requirements. After the Effective Time, (a) each
outstanding Certificate shall, until duly surrendered to Purchaser, be deemed
to represent only the right to receive the Merger Consideration, (b) there
shall be no further transfer on the records of WHB of Certificates, and (c)
each share of WHB Stock presented or surrendered to Purchaser shall be canceled
in exchange for the Merger Consideration as contemplated by Section 2.6. In no
event shall Purchaser be obligated to deliver Merger Consideration to any
holder of a Certificate until such holder surrenders such Certificate as
provided herein.
5
<PAGE> 7
2.9 Interim Dividends. No dividends or other distributions
declared after the Effective Time on LifeQuest Stock issuable pursuant to the
Merger and payable to any Former WHB Shareholder after the Effective Time shall
be paid to the holder of any unsurrendered certificates formerly representing
shares of WHB Stock until the certificates shall be surrendered as provided
herein, provided, however, that (a) upon surrender there shall be paid to the
shareholder in whose name the certificates representing the shares of LifeQuest
Stock shall be issued the amount of unpaid dividends with respect to the
holder's shares of LifeQuest Stock and (b) at the appropriate payment date, or
as soon as practicable thereafter, there shall be paid to the shareholder the
amount of dividends declared with respect to whole shares of LifeQuest Stock
with a record date on or after the Effective Time but before surrender and a
payment date subsequent to surrender, subject in any case to any applicable
escheat laws. No interest shall be payable with respect to the payment of
dividends or other distributions on surrender of outstanding certificates.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BOOKWALTER
Bookwalter represents and warrants to the LifeQuest Parties as
follows:
3.1 Corporate Organization. WHB is a corporation duly organized,
validly existing and in good standing under the laws of Vermont, and has full
power and authority to own its properties and to carry on its business as and
in the places where such properties are now owned or such business is now being
conducted. Complete and correct copies of the Articles of Incorporation of WHB
and all amendments thereto, certified in each case by the Secretary of State of
the State of Vermont, and of the Bylaws of WHB and all amendments thereto,
certified by the Secretary of WHB, heretofore have been delivered to LifeQuest.
Other than in the states of Maine, New Hampshire, New York and Rhode Island,
WHB is duly qualified to do business and is in good standing in all
jurisdictions (each such jurisdiction is set forth on Schedule 3.1 attached
hereto and made a part hereof) in which such qualification is necessary because
of the character of the properties owned, leased or operated by it or the
nature of its activities. WHB has not knowingly taken any action, or failed to
take any action which action or failure will preclude or prevent WHB's business
from being conducted in substantially the same manner in which WHB has
heretofore conducted the same.
3.2 Subsidiaries. WHB has no subsidiaries.
3.3 Capitalization. WHB's authorized capital stock consists of
10,000 shares of WHB Stock, of which 111 shares are issued and outstanding and
are owned of record and beneficially by the Shareholders free and clear of all
liens, encumbrances or other obligations and issued without violation of the
preemptive, subscriptive or other similar rights of any person or entity.
There are no outstanding subscriptions, options, warrants, rights or other
agreements obligating WHB to issue any additional shares of WHB Stock, except
as set forth on Schedule 3.3 attached hereto and made a part hereof.
3.4 Authorization. Except as set forth on Schedule 3.4, WHB has
full power and authority, corporate and otherwise, to enter into this Agreement
and to assume and
6
<PAGE> 8
perform its obligations hereunder. The execution and delivery of this
Agreement and the performance by WHB of its obligations hereunder have been
duly authorized by the Board of Directors and the shareholders of WHB and no
further action or approval, corporate or otherwise, by WHB is required in order
to constitute this Agreement as a binding and enforceable obligation of WHB.
The execution and delivery of this Agreement and the performance by WHB of its
obligations hereunder do not and will not violate any provisions of the
Articles of Incorporation or Bylaws of WHB and, except as set forth on Schedule
3.4, do not and will not conflict with or result in any breach of any condition
or provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the Assets by reason
of the terms of any contract, mortgage, lien, lease, agreement, indenture,
instrument or judgment to which WHB is a party, or which is or purports to be
binding upon WHB or which affects or purports to affect any of the Assets.
3.5 Approvals and Consents. No action, approval, consent or
authorization, including, but not limited to, any action, approval, consent or
authorization by any governmental or quasi-governmental agency, commission,
board, bureau, or instrumentality is necessary as to WHB or the Shareholders in
order to constitute this Agreement as a valid, binding and enforceable
obligation of WHB and the Shareholders in accordance with its terms.
3.6 Permits, Licenses, Etc. Except as set forth on Schedule 3.6
WHB has all permits, licenses, orders and approvals, exclusive of those
required under Environmental Laws, of all federal, state, or local governmental
or regulatory bodies required for it to conduct its business as presently
conducted. All such permits, licenses, orders and approvals are in full force
and effect and no suspension or cancellation of any of them is threatened. WHB
is operating in compliance with all such permits, licenses, orders and
approvals, and none of such permits, licenses, orders or approvals will be
adversely affected by the consummation of the transactions contemplated by this
Agreement. WHB is in compliance in all material respects with each law, rule
and regulation other than Environmental Laws applicable to its business
including, without limitation, laws, rules and regulations respecting
occupational safety and employment practices. The conduct of the business of
WHB and all assets and properties utilized by WHB therein are in conformance
with the requirements and regulations of the Occupational Safety and Health
Administration ("OSHA").
3.7 Environmental Laws. WHB has, or has applied for, all permits,
licenses, orders and approvals of, and has made all required filings with, all
federal, state or local governmental or regulatory bodies relating to, arising
under or required by the Environmental Laws. All such permits, licenses,
orders and approvals are in full force and effect and no suspension or
cancellation of any of them is pending or threatened. None of such permits,
licenses, orders or approvals will be adversely affected by the consummation of
the transactions contemplated by this Agreement. WHB is in compliance with all
such permits, licenses, orders and approvals and with all limitations,
conditions, standards and requirements contained in Environmental Laws
applicable to it and the business conducted by it. Schedule 3.7 attached
hereto and made a part hereof contains a description of each summons, citation,
order, letter or other written communication received or sent by WHB from any
federal, state or local
7
<PAGE> 9
governmental or regulatory body under any of the Environmental Laws during the
five-year period ending on the date hereof.
There are no currently existing Environmental Conditions with respect
to properties owned, occupied or used by WHB. WHB has received no Notice with
respect to any Environmental Condition at any time prior to the date hereof.
3.8 Intellectual Property and Other Intangible Assets. Schedule
3.8 sets forth a description of all intellectual property owned, licensed or
claimed by WHB. To the best of Bookwalter's knowledge, WHB (a) owns or has the
right to use all inventions, discoveries, patents, copyrights, trademarks,
trade names, service marks, corporate names, licenses, trade secrets and know
how and all other intellectual property rights with respect to the foregoing,
used in or necessary for the conduct of its business as now conducted or as
proposed to be conducted without infringing upon or otherwise acting adversely
to the right or claimed right of any Person under or with respect to any of the
foregoing (such inventions, discoveries, patents, copyrights, trademarks, trade
names, service marks, corporate names, licenses, trade secrets and know how and
all other intellectual property rights with respect thereto being herein
referred to as the "Intellectual Property") and (b) is not obligated or under
any liability or claim whatsoever to make any payments by way of royalties,
fees or otherwise to any owner or licensee of, or other claimant to, any
inventions, discoveries, patents, copyrights, trademarks, trade names, service
marks, corporate names, licenses, trade secrets and know how and all other
intellectual property rights, with respect to the use thereof or in connection
with the conduct of its business or otherwise. A list of all such Intellectual
Property and a statement whether such Intellectual Property is owned or
licensed is set forth in Schedule 3.8 hereto. Except as specifically set forth
in Schedule 3.8 hereto, the Intellectual Property has been duly registered or
patented or sought to be registered or patented with appropriate state, federal
and foreign jurisdictions and, to the best of Bookwalter's knowledge, WHB is
the sole and exclusive owner or has the sole and exclusive right to use the
Intellectual Property.
3.9 Financial Statements. Attached hereto as Schedule 3.9 and
made a part hereof are the Financial Statements, prepared in accordance with a
tax basis of accounting. Any adjustment made to the Financial Statements in
order to bring them into compliance with generally accepted accounting
principles shall not be deemed to be a Loss for the purposes of this Agreement.
At the date of the Financial Statements, WHB had no liabilities or obligations
of any kind or nature, fixed or contingent, matured or unmatured or otherwise,
which are not fully reflected or reserved against on the Financial Statements
or disclosed on Schedule 3.9A; nor does WHB have any liability or obligation of
any kind or nature arising since that date other than those incurred in the
ordinary course of business consistent with past practices, none of which are
material except as disclosed on Schedule 3.9A. WHB owns outright and has good
and indefeasible title to all of the Assets, including, without limitation, all
of the assets and properties reflected on the Financial Statements or acquired
thereafter, free and clear of any mortgage, lien, pledge, charge, claim,
conditional sales or other agreement, lease, right or encumbrance of any sort
except: (x) to the extent stated or reserved against on the Financial
Statements and for changes occurring in the ordinary course of business after
the date thereof, none of which changes is adverse, and (y) as set forth on
Schedule 3.9A attached hereto and made a part hereof. Each such asset
8
<PAGE> 10
and item has been fully operational in the ordinary course of business for at
least the six months immediately preceding the date hereof. The Assets include
all assets and properties (real, personal and mixed, tangible and intangible)
and all rights necessary or desirable to permit WHB's business to be carried on
as presently conducted by WHB, and WHB has complete and unrestricted power and
the unqualified right to transfer, convey and assign the Assets.
3.10 Material Adverse Changes Since the Date of the Financial
Statements. Since June 30, 1997, except as set forth on Schedule 3.10, there
has been no material adverse change in the financial condition, assets,
liabilities, properties or business of WHB. Since June 30, 1997, except as set
forth on Schedule 3.10, WHB has not:
(a) issued or sold any stock, notes, bonds or other
securities, or any option to purchase the same, or entered into any agreement
with respect thereto;
(b) declared, set aside or made any dividend or other
distribution on its capital stock or redeemed, purchased or acquired any shares
thereof or entered into any agreement in respect of the foregoing;
(c) incurred any damage, destruction or similar loss, whether
or not covered by insurance, materially affecting its business or properties;
(d) other than in the ordinary course of business, sold,
assigned or transferred any of its tangible assets or any trade name,
franchise, design, or other intangible assets or property;
(e) other than in the ordinary course of business, mortgaged,
pledged or granted or suffered to exist any lien or other encumbrance or charge
on any of its assets or properties, tangible or intangible;
(f) other than in the ordinary course of business, waived any
rights of material value or canceled or modified any material debts or claims;
(g) incurred any liability or obligation for borrowed money
to any shareholder of WHB or any Affiliate of WHB;
(h) incurred any obligation or liability (absolute or
contingent) except current liabilities and obligations incurred in the ordinary
course of its business or paid any liability or obligation (absolute or
contingent) other than current liabilities and obligations incurred in the
ordinary course of business, none of which were material;
(i) entered into any transaction other than in the ordinary
course of business;
(j) became obligated to make any payment to any shareholder
or any Affiliate of WHB in any capacity, or entered into any transaction of any
nature with any shareholder or any Affiliate of WHB in any capacity, except in
respect of the foregoing for compensation to shareholders or Affiliates who are
employees of WHB in their capacity as such;
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(k) except for increases in the ordinary course and customary
in the business of WHB, which increases did not inure to officers, directors or
shareholders of WHB or to consultants to WHB, increased the compensation
payable to any employee of WHB or became obligated to increase any such
compensation, or their capacities as such; or
(l) entered into any transaction with any Affiliate of WHB,
except in respect of the foregoing for compensation to Affiliates who are
employees of WHB in their capacity as such.
3.11 Tax Returns. Except as set forth on Schedule 3.11, WHB has
duly filed all federal, state, county and local income, excise, sales and other
tax returns and reports required to have been filed by it to the date hereof,
after giving effect to any extensions of time to file duly obtained by WHB.
Each such return and report is true and correct and WHB has paid all taxes,
interest and penalties shown on such returns or reports to be due or claimed to
be due prior to the date hereof to any federal, state, county, local or other
taxing authority. Except as set forth on Schedule 3.11, WHB has no liability
for any taxes, assessments, amounts, interest or penalties of any nature
whatsoever other than as shown on the Financial Statements and there is no
basis for any additional claim or assessment. The IRS has not examined the
federal income tax returns of WHB. No waiver of the statute of limitations has
been given with respect to any taxable year of WHB. No government or
governmental authority is now asserting or threatening to assert any deficiency
or assessment for additional taxes or any interest, penalties or fines with
respect to WHB. Complete and correct copies of the federal income tax return
of WHB for the fiscal year ended December 31, 1996, as well as any other tax
returns requested by LifeQuest, have been heretofore delivered to LifeQuest.
3.12 Contracts. WHB is not a party to nor has any contract or
commitment of any kind or nature whatsoever, written or oral, including,
without limitation, any lease, license, franchise, employment, consultant or
commission agreement, pension, profit sharing, bonus, stock purchase,
retirement, hospitalization, insurance or other plan or arrangement involving
employee benefits, contract with any labor union or contract for services,
materials, supplies or equipment or for the sale or purchase of any of its
products or assets. Except as set forth therein, each of the WHB's Contracts
referred to on Schedule 3.12 is valid and existing, in full force and effect
and enforceable in accordance with its terms and no party thereto is in default
and no claim of default by any party has been made or is now pending and there
does not exist any event that with notice or the passing of time or both would
constitute a default or would excuse performance by any party thereto. None of
WHB's Contracts, except as expressly set forth therein, requires any consents
or approvals by any party to such contract to prevent a breach or to protect
and preserve the rights of the Surviving Corporation thereunder subsequent to
the consummation of the Merger. WHB has heretofore delivered to LifeQuest
complete and correct copies of each of WHB's Contracts.
3.13 Tangible Personal Property. Schedule 3.13 attached hereto and
made a part hereof is a true and complete list of all tangible personal
property owned by WHB having a book value at the date of the Financial
Statements. WHB owns and has good
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and indefeasible title in fee to all of its assets and properties including,
without limitation, all of the assets and properties reflected in the Financial
Statements and those identified on Schedule 3.13, free and clear of any
mortgage, lien, pledge, charge, claim, conditional sales or other agreement,
lease, right or encumbrance except (a) to the extent stated or reserved against
in the Financial Statements, (b) vendors' or other statutory liens which may
have resulted in the ordinary course of business, (c) minor imperfections of
title, liens and encumbrances which do not materially detract from the value or
the utility of the property subject thereto or materially impair the operations
of the owner thereof, and (d) as set forth in Schedule 3.13 attached hereto and
made a part hereof.
3.14 Real Property. WHB owns no real property. Except as set
forth on Schedule 3.14, WHB leases no real property. All leases of property
under which WHB purports to be a lessee are valid, binding and in full force
and effect, and WHB is not in default thereunder and there is no event or fact
which upon the passage of time or the giving of notice, or both, could
constitute a default by WHB under such lease.
3.15 Insurance. Schedule 3.15 attached hereto and made a part
hereof, is a true and complete list and brief description of all policies of
fire, liability and other forms of insurance owned or held by WHB. All of such
policies are valid and binding and in full force and effect as of the date
hereof and are in such amounts and cover such risks as are customarily carried
by other businesses similar to those conducted by WHB.
3.16 Banking. Schedule 3.16 attached hereto and made a part hereof
is a true and complete list setting forth the names and locations of all banks
at which WHB has an account or safe deposit box, the numbers of the accounts
and the names of all persons authorized to draw thereon.
3.17 Litigation. Except as set forth on Schedule 3.17, there are
no actions, suits, proceedings or investigations pending or threatened against
or affecting the assets or the business, operations or financial condition of
WHB, at law or in equity, in any court or before any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, nor is there any basis for any such action, suit, proceeding
or investigation. There are no judgments outstanding against WHB and WHB is
not in default in respect of any judgment, order, writ, injunction, or decree
of any court or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality.
3.18 Labor. There are no threats of strikes, work stoppages or
demands for collective bargaining by any union or labor organization against or
including WHB, no grievances, disputes or controversies with any union or any
other organization of the employees of WHB, and no pending or threatened
arbitration proceedings involving an employment grievance, dispute or
controversy.
3.19 Employee Benefit Plans. Except as set forth on Schedule 3.19
attached hereto and made a part hereof, WHB has no Benefit Plans, including,
without limitation, any "employee pension benefit plan" or "employee welfare
benefit plan" within the meaning of the Employee Retirement Income Security Act
of 1974, as
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amended (29 U.S.C. Section 1001, et seq.) ("ERISA"), and the final regulations
thereunder. True and complete copies of each written Benefit Plan sponsored by
WHB have heretofore been delivered to LifeQuest. WHB has no commitment,
written or oral, and whether legally binding or not, to create any Benefit
Plans in addition to those shown on Schedule 3.19. WHB has no benefit plan
that is a defined benefit plan within the meaning of ERISA Section 3(35)
maintained or contributed to by WHB and that covers employees of WHB. WHB has
no liability on account of any Benefit Plans, including but not limited to
liability for (a) additional contributions accruing under such Benefit Plans
with respect to periods commencing on or prior to the Closing Date; (b)
fiduciary breaches by WHB, the trustees under the trust created under any of
such plans, or any other persons under ERISA, or any other applicable statute,
regulation or rule; or (c) income taxes by reason of non-qualification of such
Benefit Plans. There are no pending claims against any Benefit Plan (other
than for benefits in accordance with its terms), nor has any claim been
threatened in writing by any participant thereof or beneficiary thereunder.
Without limiting the generality of the foregoing, all Benefit Plans are in full
compliance with all applicable reporting, disclosure, filing and other
administrative requirements pertaining to employee benefit plans set forth in
the Code and ERISA and rules and regulations promulgated under either.
3.20 Inventory. Inventory reflected on the Financial Statements as
of the date thereof was stated, on an aggregate basis, at historic cost and
consists solely of merchandise usable or saleable in the ordinary course of
business. The inventory conforms to customary trade standards for marketable
goods. Since the date of the Financial Statements, there have been no changes
in the inventory reflected on the Financial Statements except in the ordinary
course of business, none of which have been material.
3.21 Accounts Receivable. Except as set forth on Schedule 3.21,
each account receivable reflected on the Financial Statements constitutes a
bona fide receivable resulting from a bona fide sale to a customer in the
ordinary course of business, the amount of which was actually due on the date
thereof and has been or will be collected in the ordinary course of business,
net of the allowance for doubtful accounts reflected on the Financial
Statements. Except as set forth on Schedule 3.21, there are no defenses,
claims of disabilities, counterclaims, offsets, refusals to pay or other rights
of set-off against any accounts receivable and there is no threatened, intended
or proposed defense, claim of disability, counterclaim, offset, refusal to pay
or other right of set-off with respect thereto. Each account receivable, each
document and instrument and each transaction underlying or relating thereto
conforms, including, without limitation, in respect of interest rates charged,
notices given and disclosures made, to the requirements and provisions of each
applicable law, rule, regulation or other relating to credit, consumer credit,
credit practices, credit advertising, credit reporting, retail installment
sales, credit cards, collections, usury, interest rates and truth-in-lending,
including, without limitation, the Federal Truth in Lending Act, as amended,
and Regulation Z issued by the Board of Governors of the Federal Reserve System
thereunder. Of the accounts receivable existing on the Closing Date, net of
the allowances for doubtful accounts reflected in the Financial Statements, 90%
will be paid in full by not later than the 180th day after the closing. Such
reserves and allowances have been established on the basis of historical
experience and good faith estimates made by WHB management.
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3.22 Employee and Other Compensation. Schedule 3.22 attached
hereto and made a part hereof is a complete and correct list of the names and
current annual salary, bonus, commission and perquisite arrangements, written
or unwritten, for each director, officer and employee of WHB, including those
whose compensation was paid in whole or in part by persons or entities other
than WHB. No current or former shareholder, director, officer, employee or
Affiliate of WHB, nor any relative, associate or agent of such shareholder,
director, officer, employee or Affiliate, has any interest in any property of
WHB except as a shareholder, or is a party, directly or indirectly, to any
contract for employment or otherwise or any lease or has entered into any
transaction with WHB including, without limitation, any contract for the
furnishing of services by, or rental of real or personal property from or to,
or requiring payments to, any such stockholder, director, officer, employee,
Affiliate, relative, associate or agent. To the best knowledge of WHB and each
of the Shareholders, no employee listed thereon intends to terminate his
employment relationship with WHB and WHB has no contract for the future
employment of any officer or employee not listed on Schedule 3.22.
3.23 Customers and Suppliers. Schedule 3.23 attached hereto and
made a part hereof is a complete and correct list of the names and addresses of
the 10 largest customers and suppliers, respectively, of WHB during the last
fiscal year, and the total sales to or purchases from such customers and
suppliers made by WHB during the last fiscal year. No supplier or customer of
WHB representing in excess of 5% of WHB's purchases or sales during the last
fiscal year has advised WHB, formally or informally, that it intends to
terminate, discontinue or substantially reduce its business with WHB by reason
of the transactions contemplated by this Agreement or otherwise.
3.24 No Omission of Material Fact. No representation or warranty
by Bookwalter in this Agreement or under any documents, instruments,
certificates or schedules furnished pursuant hereto or in connection with the
transactions contemplated hereby, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements or
facts contained herein or therein not misleading.
3.25 Closing Date Effect. All of the representations and
warranties of each of the Shareholders are true and correct as of the date
hereof and shall be true and correct on and as of the Closing Date, with the
same force and effect as if such representations and warranties were made by
each of the Shareholders to the LifeQuest Parties on the Closing Date.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE LIFEQUEST PARTIES
The LifeQuest Parties represent and warrant to the Shareholders as
follows:
4.1 LifeQuest Corporate Organization. LifeQuest is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power and authority to own its properties and to
carry on its business as
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and in the places where such properties are now owned or such businesses are
now being conducted.
4.2 Purchaser Corporate Organization. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada and has full power and authority to own its properties and to
carry on its business as and in the places where such properties are now owned
or such businesses are now being conducted.
4.3 Authorization. The LifeQuest Parties have full power and
authority, corporate and otherwise, to enter into this Agreement and to assume
and perform their respective obligations hereunder. The execution and delivery
of this Agreement and the performance by the LifeQuest Parties of their
respective obligations hereunder have been or will be duly authorized by the
Boards of Directors of the LifeQuest Parties and no further action or approval,
corporate or otherwise, by the LifeQuest Parties is or will be required in
order to constitute this Agreement as a binding and enforceable obligation of
the LifeQuest Parties.
ARTICLE 5
LIFEQUEST STOCK AND LIFEQUEST SEC DOCUMENTS
5.1 LifeQuest SEC Documents. LifeQuest has furnished each of the
Shareholders with a true and complete copy of the LifeQuest SEC Documents. As
of its filing date (and, with respect to any registration statement, the date
on which it was declared effective), each LifeQuest SEC Document was in
compliance, in all material respects, with the requirements of its form,
contained no untrue statement of a material fact and did not omit any statement
of a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of LifeQuest included in the
LifeQuest SEC Documents complied, at the time of filing with the SEC (and, with
respect to any registration statement, the date on which it was declared
effective), as to form, in all material respects, with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (subject,
in the case of unaudited statements, to the omission of certain footnotes) and
fairly present, in all material respects (subject, in the case of the unaudited
statements, to normal, recurring year-end audit adjustments) the consolidated
financial position of LifeQuest as at the dates thereof and the consolidated
results of their operations and changes in financial position for the periods
then ended. The consolidated financial statements of LifeQuest as of June 30,
1997, included in the LifeQuest SEC Documents disclose all liabilities of
LifeQuest required to be disclosed therein and contained adequate reserves for
taxes and all other material accrued liabilities. Since June 30, 1997, there
has not been any change in the business, assets, properties, condition
(financial or otherwise), results of operations or prospects of LifeQuest, and
no condition exists, which in any case would have or be a material adverse
effect on, or with respect to, LifeQuest.
5.2 No Omission of Material Fact. No representation or warranty
by the LifeQuest Parties in this Agreement or under any documents, instruments,
certificates
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or schedules furnished pursuant hereto or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or omits
to state a material fact necessary to make the statements or facts contained
herein or therein not misleading.
5.3 Closing Date Effect. All of the representations and
warranties of the LifeQuest Parties are true and correct as of the date hereof
and shall be true and correct on and as of the Closing Date with the same force
and effect as if such representations and warranties were made by the LifeQuest
Parties to WHB on the Closing Date.
ARTICLE 6
AGREEMENT AND PLAN OF REORGANIZATION
6.1 Tax Treatment. WHB and the Shareholders, LifeQuest and
Purchaser intend that the transactions contemplated hereunder constitute a
tax-free reorganization (a "Reorganization") under Section 368 of the Code, and
agree to treat and report the transactions hereunder as a Reorganization. This
Agreement shall be construed in a manner to result in treatment of the
transactions hereunder as a Reorganization.
ARTICLE 7
CLOSING
7.1 The closing of the transactions contemplated hereby shall take
place on the Closing Date, September 30, 1997, at the offices of LifeQuest
Medical, Inc., 12961 Park Central, Suite 1300, San Antonio, Texas 78216, or at
such other place and on such other date as the parties shall agree. The date
of closing so determined is herein sometimes called the "closing" or the
"Closing Date."
ARTICLE 8
CONDITIONS OF CLOSING
8.1 LifeQuest Parties. The obligation of the LifeQuest Parties to
close hereunder shall be subject to the satisfaction of the following
conditions or the written waiver thereof by the LifeQuest Parties:
(a) Each of the agreements and covenants of WHB and each of
the Shareholders to be performed under this Agreement at or prior to the
Closing shall have been duly performed in all material respects.
(b) The representations and warranties of WHB and each of the
Shareholders in this Agreement shall be true and correct in all material
respects on and as of the Closing Date.
(c) No injunction or restraining order shall be in effect to
forbid or enjoin the consummation of the transactions contemplated by this
Agreement and no Federal, state, local or foreign statute, rule or regulation
shall have been enacted which prohibits, restricts or delays the consummation
hereof.
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(d) All consents, authorizations, orders or approvals of, and
filings or negotiations with, any Federal, state, local or foreign governmental
agency, commission, board or other regulatory body which are required for or in
connect on with the execution, delivery and performance of this Agreement by
WHB and each of the Shareholders and the consummation of the transactions
contemplated hereby, and in order to permit or enable the Surviving
Corporation, after the closing to operate a business substantially similar to
WHB's business as conducted by WHB as of the date hereof, shall have been duly
obtained or made, including, but not limited to, any approvals required under
the Hart- Scott-Rodino Antitrust Improvement Act.
(e) LifeQuest shall have received a certified copy of
resolutions duly adopted by each of the Board of Directors and the shareholders
of WHB authorizing and approving the execution and delivery of this Agreement
and performance by WHB of its obligations hereunder.
(f) William H. Bookwalter shall have executed and delivered
to the Company an Employment Agreement and a Non-Qualified Stock Option
Agreement in the forms attached hereto as Exhibit B and Exhibit C,
respectively.
(g) LifeQuest shall have received such further certificates
and documents as shall have been reasonably requested by the LifeQuest Parties,
including consents of all requisite third parties.
(h) The LifeQuest Parties shall have completed their
diligence activities to their satisfaction.
8.2 The Shareholders and WHB. The obligation of the Shareholders
and WHB to close hereunder shall be subject to the satisfaction of the
following conditions or the written waiver thereof by the Shareholders and WHB:
(a) Each of the agreements and covenants of the LifeQuest
Parties to be performed under this Agreement at or prior to the Closing shall
have been duly performed in all material respects.
(b) The representations and warranties of the LifeQuest
Parties in this Agreement shall be true and correct in all material respects on
and as of the Closing Date.
(c) The Board of Directors of LifeQuest shall elect one
person designated by the Shareholders to be a member of the Board of Directors
of LifeQuest. Following the Closing Date, so long as the Shareholders
collectively are the beneficial owners of at least 5% of the outstanding shares
of LifeQuest Stock, Purchaser shall use its best efforts to cause the Board of
Directors to nominate one person designated by the Shareholders for election to
the Board of Directors of LifeQuest.
(d) LifeQuest shall have executed and delivered to Richard
Judd an Incentive Stock Option Agreement in the form attached hereto as Exhibit
D.
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(e) No injunction or restraining order shall be in effect to
forbid or enjoin the consummation of the transactions contemplated by this
Agreement and no Federal, state, local or foreign statute, rule or regulation
shall have been enacted which prohibits, restricts or delays the consummation
hereof.
(f) The Shareholders shall have received the Merger
Consideration.
(g) The indebtedness described on Schedule 8.2 shall have
been paid.
(h) The Shareholders shall have received such further
certificates and documents as he shall have reasonably requested.
ARTICLE 9
REMEDIES FOR BREACH
9.1 Arbitration. The Company and each of the Shareholders agree
that any dispute or controversy arising out of or in connection with this
Agreement or any alleged breach hereof shall be settled by arbitration in San
Antonio, Texas pursuant to the rules of the American Arbitration Association.
If the parties to such arbitration cannot jointly select a single arbitrator to
determine the matter, one arbitrator shall be chosen by each party (or, if a
party fails to make a choice, by the American Arbitration Association on behalf
of such party) and the two arbitrators so chosen will select a third. The
decisions of the single arbitrator jointly selected by the parties thereto, or,
if three arbitrators are selected, the decision of any two of them, will be
final and binding upon the parties thereto and the judgment of a court of
competent jurisdiction may be entered thereon. Fees of the arbitrators and
costs of arbitration shall be borne by the parties thereto in such manner as
shall be determined by the arbitrator or arbitrators.
9.2 Survival of Representations, Warranties and Agreements. All
of the representations, warranties, covenants and agreements made by the
parties to this Agreement shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereunder.
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification. Bookwalter shall defend and indemnify the
LifeQuest Parties and save and hold them harmless from, against, for and in
respect of, and pay any and all Losses in excess of $75,000 suffered,
sustained, incurred or required to be paid by any of the LifeQuest Parties by
reason of any breach or failure of observance or performance of any
representation, warranty, covenant, agreement or commitment made by WHB or any
of the Shareholders hereunder or relating to or as a result of any such
representation, warranty, covenant, agreement or commitment being untrue or
incorrect, or, as to products currently manufactured or sold by WHB, any action
for infringement upon or use adverse to the right or claimed right of any
Person to use all inventions, discoveries, patents, copyrights, trademarks,
trade names, service marks, corporate names, licenses, trade secrets and know
how and all other intellectual property rights with respect to the foregoing.
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10.2 Limitations on Indemnity. Bookwalter will have no liability
(for indemnification or otherwise) under this Article 10 unless on or before
March 31, 1999, the LifeQuest Parties notify Bookwalter of a claim specifying
the factual basis of such claim in reasonable detail to the extent then known
by such party. In the event Bookwalter shall become obligated to indemnify any
of the LifeQuest Parties under this Article 10, Bookwalter may, at his sole
option, satisfy such obligation, in whole or in part, with LifeQuest Stock,
valued at the per share closing price as reported by the National Association
of Securities Dealers Automated Quotation System on the date immediately prior
to the date Bookwalter satisfies such obligation. The maximum liability of
Bookwalter under this Article 10 shall be $2,000,000.
10.3 Procedure for Indemnification. In the event that Bookwalter
shall be obligated to the LifeQuest Parties pursuant to this Article 10, or in
the event that a suit, action, investigation, claim or proceeding is begun,
made or instituted as a result of which Bookwalter may become obligated to the
LifeQuest Parties hereunder, the LifeQuest Parties shall give prompt written
notice to Bookwalter of the occurrence of such event. Bookwalter agrees to
defend, contest or otherwise protect against any such suit, action,
investigation, claim or proceeding at Bookwalter's own cost and expense. The
LifeQuest Parties shall have the right, but not the obligation, to participate,
at its own expense, in the defense thereof by counsel of its own choice. In
the event that Bookwalter fails timely to defend, contest or otherwise protect
against any such suit, action, investigation, claim or proceeding, the
LifeQuest Parties shall have the right to defend, contest or otherwise protect
against the same, and, upon 10 days' written notice to Bookwalter, make any
compromise or settlement thereof and recover the entire cost thereof from
Bookwalter, including, without limitation, reasonable attorneys' fees,
disbursements and all amounts paid as a result of such suit, action,
investigation, claim or proceeding or compromise or settlement thereof.
ARTICLE 11
REQUIREMENTS OF SECURITIES LAWS
11.1 Shareholders' Representations and Warranties. Each
Shareholder recognizes that the Merger Consideration is not being registered
under the Securities Act in reliance upon an exemption from the Securities Act
which is predicated, in part, on the representations and agreements of each of
the Shareholders set forth in this Agreement. Each Shareholder represents and
warrants to the LifeQuest Parties that he, together with his Purchaser
Representative, as that term is defined in Rule 501(h) of the Securities Act,
has such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the transactions contemplated and
contained herein, and that the Merger Consideration is being acquired solely
for his own account for investment and not with a view to, or for offer or
resale in connection with, a distribution thereof within the meaning of the
Securities Act. Each Shareholder understands that the effect of such
representation and warranty is that the Merger Consideration must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available at the time for any proposed sale
or other transfer thereof. Each Shareholder also understands that LifeQuest is
under no obligation to file a registration statement under the Securities Act
covering the Merger Consideration or to take any other action to enable a
Shareholder to transfer or otherwise dispose of the Merger Consideration.
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Each Shareholder represents that he has consulted with his counsel in regard to
the Securities Act and that he is fully familiar with the circumstances under
which he is required to hold the Merger Consideration and the limitations upon
the transfer or other disposition thereof. Each Shareholder acknowledges that
the LifeQuest Parties are relying upon the truth and accuracy of the foregoing
representations and warranties in issuing the Merger Consideration under the
Securities Act. Each Shareholder agrees to indemnify and hold the LifeQuest
Parties harmless against all liabilities, costs and expenses, including
reasonable attorneys' fees, incurred by the LifeQuest Parties as a result of
any sale, transfer or other disposition by such Shareholder of all or any part
of the Merger Consideration in violation of the Securities Act.
11.2 Legend. The Merger Consideration shall bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT."
11.3 SEC Documents. Each Shareholder acknowledges that he has been
furnished by the LifeQuest Parties with (a) a copy of the Annual Report to
Stockholders of Lifequest for the year ended December 31, 1996, (b) a copy of
the Annual Report on Form 10-KSB of LifeQuest for the fiscal year ended
December 31, 1996, in the form filed with the SEC, and (c) copies of all
filings since December 31, 1996, by LifeQuest with the SEC in compliance with
Section 13 or 14 of the Exchange Act. Each Shareholder represents that he has
reviewed the foregoing documents and acknowledges that they have been afforded
the opportunity to obtain any additional information necessary to verify the
accuracy of the information contained in the foregoing documents, including the
opportunity to ask questions of, and receive answers from, officers and
representatives of LifeQuest concerning the LifeQuest Parties and the terms and
conditions of the transactions contemplated by this Agreement.
11.4 Incidental Registration. If, at any time between the
Effective Time and the one-year anniversary of the Effective Time, LifeQuest
proposes to register any of the LifeQuest Stock (whether unissued, yet to be
authorized or held by any person) under the Securities Act, LifeQuest shall, at
least 30 days prior to the filing under the Securities Act of the registration
statement relating thereto, give written notice to the Shareholders of its
intention to do so, and, upon the written request of any of the Shareholders
given within 10 days after the giving of any such notice (which request shall
state the proposed method of distribution), LifeQuest shall include or cause to
be included in any such registration statement, up to 20% of the Merger
Consideration; provided, however, that LifeQuest may at any time withdraw or
cease proceeding with any such registration if it shall at the time withdraw or
cease proceeding with the registration of such LifeQuest Stock originally
proposed to be registered; and provided further, that if the registration
proposed by LifeQuest relates to an underwritten offering, none of the
Shareholders shall have any right to sell the Merger Consideration
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in any manner or through any underwriter other than in the manner and through
the managing underwriter or underwriters being used by LifeQuest.
(a) Notwithstanding any other provision of this Section
11.4, if a registration pursuant to this Section 11.4 involves a firm
commitment, underwritten offering of the securities so being registered and if
the managing underwriter of such offering informs LifeQuest and the
Shareholders by letter of its belief that marketing factors require a
limitation of the number of shares to be underwritten, LifeQuest may limit the
amount of Merger Consideration to be included in the registration and
underwriting; provided that no such reduction shall reduce the securities being
offered by LifeQuest for its own account; and provided that those shares which
are excluded from the underwritten offering shall be withheld from the market
by the holders thereof for a period, not to exceed 180 days, which the managing
underwriter reasonably determines as necessary in order to effect the
underwritten offering.
(b) Registration Procedures and Expenses. If and
whenever LifeQuest is required to include a portion of the Merger Consideration
in a registration statement under the Securities Act, as provided in Section
11.4 hereof, LifeQuest shall, as expeditiously as is reasonably practicable, do
each of the following:
(i) prepare and file with the SEC a registration
statement with respect to the Merger Consideration and, subject to the
limitations under Section 11.4 hereof, use its best efforts to cause
such registration statement to become effective;
(ii) cooperate with the Shareholders and any underwriter
who shall sell the Merger Consideration in connection with their
review of LifeQuest made in connection with such registration;
(iii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for 120 days from the date of its effectiveness,
and to comply with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all the Merger
Consideration covered by such registration statement for such period;
(iv) furnish to the Shareholders such number of copies of
the prospectus forming a part of such registration statement
(including each preliminary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as the
Shareholders may reasonably request in order to facilitate the
disposition of the Merger Consideration; and
(v) LifeQuest shall (a) notify the Shareholders at any time
when a prospectus relating to the Merger Consideration is required to
be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus forming a part of such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing, and (b) at the
20
<PAGE> 22
request of the Shareholders, prepare and furnish to the Shareholders a
reasonable number of copies of any supplement to or any amendment of
such prospectus that may be necessary so that, as thereafter delivered
to the purchasers of the Merger Consideration, such prospectus shall
not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing.
(c) Agreement by each of the Shareholders. In the event
that any Shareholder participates, pursuant to this Section 11.4, in the
offering of the Merger Consideration, such Shareholder shall;
(i) furnish LifeQuest all material information reasonably
requested by LifeQuest concerning such Shareholder and the proposed
method of sale or other disposition of the Merger Consideration and
such other information and undertakings as shall be reasonably
required in connection with the preparation and filing of the
registration statement covering the Merger Consideration in order to
ensure full compliance with the Securities Act and the rules and
regulations of the SEC thereunder;
(ii) cooperate in good faith with LifeQuest and its
underwriters, if any, in connect on with such registration, including
placing the Merger Consideration in escrow or custody to facilitate
the sale and distribution thereof provided that such escrow or custody
arrangement shall be no more restrictive upon such Shareholder than
upon any other holder of LifeQuest Stock for the benefit of whom such
registration is undertaken; and
(iii) make no further sales or other dispositions, or offers
therefor, of the Merger Consideration under such registration
statement if, during the effectiveness of such registration statement,
an intervening event should occur which, in the opinion of counsel to
LifeQuest, makes the prospectus included in such registration
statement no longer comply with the Securities Act, so long as written
notice containing the facts and legal conclusions relied upon by
LifeQuest in this regard has been received by such Shareholder from
LifeQuest, until such time as such Shareholder has received from
LifeQuest copies of a new, amended or supplemented prospectus
complying with the Securities Act, which prospectus shall be delivered
to such Shareholder by LifeQuest as soon as practicable after such
notice.
(d) Allocation of Expenses. If and whenever LifeQuest is
required by the provisions of this Section 11.4 to use its best efforts to
effect the registration of the Merger Consideration under the Securities Act,
LifeQuest shall pay the costs and expenses in connection therewith; provided,
however, that the Shareholders shall pay, in all events, all underwriting
discounts, selling commissions and stock transfer taxes attributable to the
Merger Consideration under such registration statement.
(e) Indemnification. In the event of any registration of
any of the Merger Consideration under the Securities Act pursuant to this
Section 11.4, each Shareholder shall indemnify and hold harmless, LifeQuest,
each director of LifeQuest,
21
<PAGE> 23
each officer of LifeQuest who shall sign such registration statement, each
underwriter and any person who controls LifeQuest or such underwriter within
the meaning of the Securities Act, with respect to any statement in or omission
from such registration statement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, if such
statement or omission was made in reliance upon and in conformity with written
information furnished to LifeQuest or its underwriter through an instrument
duly executed by such Shareholder specifically for use in the preparation of
such registration statement, preliminary prospectus, final prospectus or
amendment or supplement.
11.5 Rule 144 Stock. Notwithstanding the foregoing provisions of
this Article 11, LifeQuest shall not be obligated to effect a registration
pursuant to Section 11.4(a) with respect to the Merger Consideration which
could then be sold pursuant to Rule 144 under the Securities Act.
ARTICLE 12
NON-COMPETITION AGREEMENT
12.1 Customer Lists; Non-Solicitation. Each Shareholder hereby
further covenants and agrees that he shall not, commencing on the Closing Date
and ending on the first anniversary date of the Closing Date, directly or
indirectly, (a) use or make known to any person or entity the names or
addresses of any clients or customers of WHB or any of the LifeQuest Parties or
any other information pertaining to them, (b) call on, solicit, take away or
attempt to call on, solicit or take away any clients or customers of WHB or any
of the LifeQuest Parties, nor (c) solicit for employment, recruit, hire or
attempt to recruit or hire any employees of WHB or any of the LifeQuest
Parties.
12.2 Covenants Independent. The covenants of each Shareholder
contained in Section 12.1 of this Agreement will be construed as independent of
any other provision in this Agreement; and the existence of any claim or cause
of action by a Shareholder against any of the LifeQuest Parties will not
constitute a defense to the enforcement by the LifeQuest Parties of said
provisions. Each Shareholder understands that the provisions contained in
Section 12.1 are essential elements of the transactions contemplated by this
Agreement and, but for the agreement of each Shareholder to Section 12.1, the
LifeQuest Parties would not have agreed to enter into this Agreement and the
transactions contemplated herein. Each Shareholder has been advised to consult
with counsel in order to be informed in all respects concerning the
reasonableness and propriety of Section 12.1 with specific regard to the nature
of the business conducted by WHB and any of the LifeQuest Parties. Each
Shareholder acknowledges that Section 12.1 is reasonable in all respects.
12.3 Remedies. In the event of a breach or a threatened breach by
a Shareholder of any of the provisions contained in Sections 12.1 or 12.2 of
this Agreement, each Shareholder acknowledges that the LifeQuest Parties will
suffer irreparable injury not fully compensable by money damages and,
therefore, will not have an adequate remedy available at law. Accordingly, the
LifeQuest Parties shall be entitled to obtain such injunctive relief or other
equitable remedy from any court of competent jurisdiction as may be necessary
or appropriate to prevent or curtail any
22
<PAGE> 24
such breach, threatened or actual. The foregoing shall be in addition to and
without prejudice to any other rights that the LifeQuest Parties may have under
this Agreement, at law or in equity, including, without limitation, the right
to sue for damages.
ARTICLE 13
CONFIDENTIALITY
13.1 Nondisclosure. No Shareholder shall, without the prior
written consent of the Board of Directors of LifeQuest, disclose or use for any
purpose confidential information or proprietary data of WHB, Purchaser or
LifeQuest (or any of their respective subsidiaries), except as required by
applicable law or legal process; provided, however, that confidential
information shall not include any information known generally to the public or
ascertainable from public or published information (other than as a result of
unauthorized disclosure by such Shareholder) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by WHB or LifeQuest (or any of their
respective subsidiaries).
ARTICLE 14
GENERAL PROVISIONS
14.1 Expenses. Each of the parties hereto shall pay all expenses
incurred by it incident to preparing for, entering into and carrying into
effect this Agreement.
14.2 Notices. Any notice, report, demand or payment required,
permitted or desired to be given pursuant to any of the provisions of this
Agreement shall be deemed to have been sufficiently given or served for all
purposes if hand delivered or delivered by responsible overnight courier or
sent by certified or registered air mail, return receipt requested, and postage
prepaid as follows:
If to the LifeQuest Parties:
LifeQuest Medical, Inc.
12961 Park Central, Suite 1300
San Antonio, Texas 78216
Attn: Randall K. Boatright
with a copy to: Fulbright & Jaworski L.L.P.
300 Convent Street
San Antonio, Texas 78205
Attn: Phillip M. Renfro, Esq.
Facsimile No. (210) 270-7205
If to Bookwalter: William H. Bookwalter
113 Cedar Street Suite S-5
Milford, Massachusetts 01757
23
<PAGE> 25
with a copy to: Clarke Demas & Baker
One Lawson Lane
Burlington, Vermont 05402
Attention: Bruce D. Baker
Facsimile No: (802) 652-1405
If to Dr. Bookwalter: John R. Bookwalter, M.D.
Box 120 RFD Number 3
Putney, Vermont 05346
with a copy to: Clarke Demas & Baker
One Lawson Lane
Burlington, Vermont 05402
Attention: Bruce D. Baker
Facsimile No: (802) 652-1405
If to Judd: Frederick F. Judd III
73 East Street
Litchfield, Connecticut 06759
with a copy to: Clarke Demas & Baker
One Lawson Lane
Burlington, Vermont 05402
Attention: Bruce D. Baker
Facsimile No: (802) 652-1405
If to Trustee: William H. Bookwalter
123 Marlborough Street Apt 2
Boston Massachusetts 02116
with a copy to: Clarke Demas & Baker
One Lawson Lane
Burlington, Vermont 05402
Attention: Bruce D. Baker
Facsimile No: (802) 652-1405
Any of the foregoing parties may at any time and from time to time
change the address to which notice shall be sent hereunder, by notice to the
other parties given under this subsection. The date of the giving of such
notice delivered by hand or by responsible overnight courier shall be the date
of its delivery, and the date of the giving of such notice by certified or
registered mail shall be the date three days after the posting of the mail.
14.3 Finders. Each of the parties covenants and represents to the
other that there are no claims for brokerage commissions or finder's fees in
connection with the negotiation of this Agreement and the performance of the
transactions contemplated hereunder resulting from any action taken by it.
Each of the parties agrees to
24
<PAGE> 26
indemnify and hold harmless the other in respect of any and all Losses
sustained by the other as a result of any liability to any broker or finder on
the basis of any arrangement, agreement or acts made by or on behalf of such
party with any other person or persons whatsoever.
14.4 Complete Agreement. The representations, warranties,
covenants and agreements set forth in this Agreement and in any financial
statement, schedule or exhibit delivered pursuant hereto, constitute all of the
representations, warranties, covenants and agreements among the parties hereto
and upon which the parties have relied, and, except as may be specifically
provided herein, no change, modification, addition or termination of the
Agreement or any part thereof shall be valid unless in writing and signed by or
on behalf of the party to be charged therewith.
14.5 Prior Agreements. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes prior agreements relating thereto.
14.6 No Waiver. No waiver of the provisions hereof shall be
effective unless in writing and signed by the party to be charged with such
waiver. No waiver shall be deemed a continuing waiver or waiver in respect of
any subsequent breach or default, either of similar or different nature unless
expressly so stated in writing.
14.7 Headings. The headings or captions under Sections of this
Agreement are for convenience and reference only, and do not form a part
hereof, and do not in any way modify, interpret or construe the intent of the
parties or affect any of the provisions of this Agreement.
14.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
NON-EXCLUSIVE VENUE FOR ANY ACTION PERMITTED HEREUNDER SHALL BE PROPER IN SAN
ANTONIO, BEXAR COUNTY, TEXAS, AND EMPLOYEE CONSENTS TO SUCH VENUE.
14.9 Assignment. Neither this Agreement nor the rights of the
parties hereto shall be assignable, unless otherwise specifically provided.
14.10 Severability. If any term or provision of this Agreement
shall be held to be invalid or unenforceable for any reason, such term or
provision shall be ineffective to the extent of such invalidity or
unenforceability without invalidating the remaining terms and provisions
hereof, and this Agreement shall be construed as if such invalid or
unenforceable term or provision had not been contained herein. Whenever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be held to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
14.11 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together
25
<PAGE> 27
shall constitute one and the same instrument. This Agreement shall be binding
when one or more counterparts hereof, individually or taken together, shall
bear the signatures of the parties reflected hereon as signatories.
14.12 Telecopy Execution and Delivery. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any party hereto, all parties
hereto agree to execute an original of this Agreement as well as any facsimile,
telecopy or other reproduction hereof.
[signatures on following page]
26
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this Plan of Merger
and Acquisition Agreement to be signed on the date and year first above
written.
LIFEQUEST MEDICAL, INC.
By:
---------------------------------------
Herbert H. Spoon,
President and Chief Executive Officer
VAL-U-MED, INC.
By:
---------------------------------------
Herbert H. Spoon,
Chief Executive Officer
W. H. BOOKWALTER AND ASSOCIATES, INC.
By:
---------------------------------------
William H. Bookwalter
President
------------------------------------------
William H. Bookwalter
------------------------------------------
John R. Bookwalter, M.D.
------------------------------------------
Frederick F. Judd III
BOOKWALTER FAMILY TRUST
By:
---------------------------------------
William Bookwalter, as Trustee
27
<PAGE> 29
SCHEDULES
Schedule 3.1 States In Which Qualified for Business
--------------------------------------
Schedule 3.3 Capitalization/List of Stockholders
-----------------------------------
Schedule 3.4 Exceptions to Authorizations
----------------------------
Schedule 3.6 Exceptions to Permits
---------------------
Schedule 3.7 Environmental
-------------
Schedule 3.8 Intellectual Property and Other Tangible Assets
-----------------------------------------------
Schedule 3.9 Financial Statements
--------------------
Schedule 3.9A Exceptions to Financial Statements
----------------------------------
Schedule 3.10 Material Adverse Changes
------------------------
Schedule 3.11 Exceptions to Tax Returns
-------------------------
Schedule 3.12 Contracts
---------
Schedule 3.13 Tangible Personal Property
--------------------------
Schedule 3.14 Real Property
-------------
Schedule 3.15 Insurance
---------
Schedule 3.16 Banking
-------
Schedule 3.17 Litigation
----------
Schedule 3.19 Employee Benefit Plans
----------------------
Schedule 3.21 Exceptions for Accounts Receivable
----------------------------------
Schedule 3.22 Employee and Other Compensation
-------------------------------
Schedule 3.23 Customers and Suppliers
-----------------------
Schedule 8.2 Indebtedness
------------
<PAGE> 30
SCHEDULE 3.1
STATES IN WHICH QUALIFIED TO DO BUSINESS
<PAGE> 31
SCHEDULE 3.3
CAPITALIZATION/LIST OF SHAREHOLDERS
William H. Bookwalter
John R. Bookwalter, M.D.
Frederick F. Judd, III
William Bookwalter, as Trustee of the Bookwalter Family Trust
<PAGE> 32
SCHEDULE 3.4
EXCEPTIONS TO AUTHORIZATION
<PAGE> 33
SCHEDULE 3.6
EXCEPTIONS TO PERMITS
<PAGE> 34
SCHEDULE 3.7
ENVIRONMENTAL
<PAGE> 35
SCHEDULE 3.8
INTELLECTUAL PROPERTY AND OTHER TANGIBLE ASSETS
<PAGE> 36
SCHEDULE 3.9
FINANCIAL STATEMENTS
<PAGE> 37
SCHEDULE 3.9A
EXCEPTIONS TO FINANCIAL STATEMENTS
<PAGE> 38
SCHEDULE 3.10
MATERIAL ADVERSE CHANGES
<PAGE> 39
SCHEDULE 3.11
EXCEPTIONS TO TAX RETURNS
<PAGE> 40
SCHEDULE 3.12
CONTRACTS
<PAGE> 41
1. Joint Venture Agreement dated April 10, 1995 by and between
Hanna-Lemaire, Inc. and WHB dba Beta Teq whereby the parties create a
joint venture to organize and operate a general and endo surgical
instrumentation repair operation for profit. The Agreement expires
April 10, 1998, but it can be terminated by any party upon thirty (30)
days written notice to all parties. On September 24, 1997
Hanna-Lemaire waived its objection to the transfer of WHB's interest
in the Joint Venture as a result of WHB's merger into Val-U-Med, Inc.
2. Distributor Agreement (unexecuted and not dated) by and between
Poly-Vac, Inc. and WHB whereby WHB purchases products from Poly-Vac,
Inc. and resells them in Missouri, Kansas, Nebraska and Iowa. Either
party may terminate the Agreement by giving sixty (60) days written
notice to the other party. Any transaction effecting a substantial
change in the ownership of or in control of WHB shall be deemed an
assignment by WHB.
3. Distribution Agreement dated August, 1996 by and between Alliance of
Choice Enterprises Operating Room Products, L.C., and WHB whereby WHB
markets A.C.E. products. The Agreement expires twelve months from
execution date and, thus, has expired.
4. EOGas Sterilizer Agreement dated May 20, 1997 by and between H.W.
Andersen Products, Inc. and WHB whereby Andersen provides specific
products and services to WHB. The Agreement runs for a period of one
year. Either party may terminate the Agreement upon thirty (30) days
written notice to the other party.
5. Distributor Agreement dated July 21, 1996 by and between Saber
Endoscopy, L.L.C. and WHB whereby WHB agrees to actively promote
Saber's products. The Agreement may be terminated by either party
with sixty (60) days written notice to the other party.
6. Miltex Distributor Agreement (unexecuted and not dated) by and between
Miltex Instrument Company, Inc. and WHB whereby WHB agrees to sell the
products of Miltex. Miltex can terminate without cause with thirty
(30) days written notice or with cause with ten (10) days written
notice. If all or substantially all of the assets of WHB are
transferred to another person or entity, Miltex may cancel the
Agreement.
7. Non-Disclosure Agreement dated effective October 29, 1996 by and
between WHB and Nuell Air Equipment and Hospital Supplies, Inc.
Nuell's obligation to maintain in confidence proprietary information
with regard to WHB continues for five years from date of Agreement or
until information is no longer proprietary.
8. Distributor Sales and Service Agreement dated ________, 1997 by and
between Nuell Air Equipment and Hospital Supplies, Inc. and WHB
whereby WHB purchases and sells products of Nuell. Either party may
terminate the
<PAGE> 42
Agreement with ninety (90) days written notice. Nuell may, at its
option, terminate at once with written notice.
9. A letter of agreement by and between Everest Medical and WHB whereby
WHB sells the Everest Medical Laparoscopy product line may exist (see
fax dated April 18, 1996).
10. Agreement between Bill Butler of W.N. Butler & Associates, Inc. and
WHB whereby Bill Butler acquires and services accounts for WHB.
11. Agreement between Beta-TEQ Repair Service and Pilling Weck dated
November 13, 1996 whereby Beta-TEQ Repair Service agrees to comply
with certain repair and inspection criteria.
12. Contract dated July 1, 1995 between Boston City Hospital and WHB
whereby WHB provides maintenance and repair of surgical instruments.
Contract expired June 30, 1996.
13. Agreement dated September 1, 1993 by and between WHB and Codman &
Shurtleff, Inc. whereby WHB grants Codman a right of last refusal for
a period of five (5) years from date of Agreement [renewable for an
additional five (5) year period at Codman's option] to develop and
exclusively license certain medical instruments and a right of last
refusal on the sale of WHB to a third party. On September 26, 1997,
Codman & Shurtleff, Inc. waived its right of last refusal on the sale
of WHB to a third party.
14. Agreement effective May 1, 1994 whereby WHB distributes the retractor
blades of J. Hugh Knight Instrument Company. The agreement can be
terminated by either party with thirty (30) days written notice.
15. Agreement dated ____________, 1996 by and between Johnson & Johnson
Professional, Inc. and WHB whereby WHB sells the Bookwalter Retraction
System on a commission basis. The initial term of the agreement is
one year. It is unclear whether the renewal option is for one year or
five years.
16. Company Policy of WHB dated September 1, 1996 outlining the
obligations of the employees of WHB to WHB and the obligations of WHB
to its employees.
17. SBA Loan evidenced by Note dated October 4, 1996 in the amount of
$99,000.00 payable to The Milford National Bank and Trust Company
executed by WHB.
18. Confidential Non-Disclosure Agreement dated August 8, 1997 by and
between LifeQuest Medical, Inc. and WHB whereby each promises to hold
the Proprietary Information of the other in trust and confidence. The
agreement expires in three years but may be terminated sooner by
either party with thirty (30) days written notice.
<PAGE> 43
SCHEDULE 3.13
TANGIBLE PERSONAL PROPERTY
<PAGE> 44
SCHEDULE 3.14
REAL PROPERTY
<PAGE> 45
SCHEDULE 3.15
INSURANCE
<PAGE> 46
SCHEDULE 3.16
BANKING
<PAGE> 47
SCHEDULE 3.17
LITIGATION
<PAGE> 48
SCHEDULE 3.19
EMPLOYEE BENEFIT PLANS
<PAGE> 49
SCHEDULE 3.21
EXCEPTIONS TO ACCOUNTS RECEIVABLE
<PAGE> 50
SCHEDULE 3.22
EMPLOYEE AND OTHER COMPENSATION
<PAGE> 51
SCHEDULE 3.23
CUSTOMERS AND SUPPLIERS
<PAGE> 52
SCHEDULE 8.2
INDEBTEDNESS
<PAGE> 53
LIST OF EXHIBITS
Exhibit A - Certificates of Merger
Exhibit B - Employment Agreement of William H. Bookwalter
Exhibit C - Non-Qualified Stock Option Agreement of William H. Bookwalter
Exhibit D - Incentive Stock Option Agreement of Frederick F. Judd III
<PAGE> 54
Exhibit A
<PAGE> 55
Exhibit B
<PAGE> 56
Exhibit C
<PAGE> 57
Exhibit D
<PAGE> 1
EXHIBIT 2.2
PLAN OF MERGER AND ACQUISITION AGREEMENT
among
LIFEQUEST MEDICAL, INC.
a Delaware corporation
KLEIN MEDICAL, INC.,
a Nevada corporation
and
MISHBUCHA, INC., a Texas corporation
d/b/a MEDEX SURGICAL
Edward Kraus,
an individual
Robert Kraus,
an individual
<PAGE> 2
THIS PLAN OF MERGER AND ACQUISITION AGREEMENT ("Agreement") is
executed effective the 30th day of September, 1997, by and among Mishbucha,
Inc, a Texas corporation, d/b/a Medex Surgical ("Medex"), Edward Kraus, an
individual ("Edward"), Robert Kraus, an individual ("Robert") as the only
shareholders of Medex (referred to as the "Shareholders," or individually as a
"Shareholder"), LIFEQUEST MEDICAL, INC., a Delaware corporation ("LifeQuest"),
and KLEIN MEDICAL, INC., a Nevada corporation ("Purchaser," and together with
LifeQuest, the "LifeQuest Parties").
W I T N E S S E T H:
WHEREAS, LifeQuest is primarily in the business of developing and
commercializing minimally invasive surgery devices; and
WHEREAS, LifeQuest owns all of the issued and outstanding stock of
Purchaser; and
WHEREAS, Medex is in the business of selling minimally invasive
orthopaedic surgical products in Northern Texas.
WHEREAS, the Shareholders are individuals constituting the only
shareholders of Medex; collectively holding 100% of the issued and outstanding
stock of Medex; and
WHEREAS, the respective boards of directors of Purchaser and Medex
have approved the merger of Medex with and into Purchaser (the "Merger")
pursuant to the terms and subject to the conditions of this Agreement; and
WHEREAS, this Agreement is intended to qualify under Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto agree that Medex shall be merged with and into
Purchaser and that the terms and conditions of the Merger, the method of
carrying the Merger into effect and certain other provisions relating thereto
shall be as hereinafter set forth and as set forth:
ARTICLE 1
DEFINITIONS
Defined Terms. As used herein, the terms below shall have the
following meanings herein specified applicable to both the singular and plural
forms of any of the terms.
1.1 "Affiliate" shall mean, with respect to a Person, any Person
that, directly or indirectly, controls or is controlled by or is under common
control with the Person.
1.2 "Assets" shall mean the assets, properties and rights of Medex
of every nature, kind and description, wherever located, tangible and
intangible, real, personal and mixed, whether or not reflected in the books and
records of Medex necessary or
<PAGE> 3
desirable to permit the business of Medex to be carried on in the manner as is
presently conducted.
1.3 "Benefit Plans" shall mean bonus, deferred compensation,
severance, pension, profit sharing, retirement, stock purchase, stock option,
medical, hospitalization, accident insurance or any other employee benefit
plan, arrangement or practice, whether written or unwritten, which covers
employees of Medex.
1.4 "Certificate" shall mean each stock certificate representing
shares of Medex Stock.
1.5 "Closing" shall mean the meeting held on the Closing Date.
1.6 "Closing Date" shall have the meaning assigned to it in
Article 7.
1.7 "Effective Time" shall mean the time at which a properly
executed certificate of merger in substantially the form attached to this
agreement as Exhibit A (together with other documents required by law to effect
the Merger) shall have been filed with the Secretary of State of Nevada, and in
any other jurisdiction where such a certificate of merger is required.
1.8 "Environmental Conditions" shall mean material conditions with
respect to soil, surface waters, ground waters, stream sediments, underground
tanks, asbestos and similar conditions on-site and off-site of properties
owned, occupied or used by Medex, as the case may be, related to the presence
or Release of Hazardous Substances, which conditions could require remedial
action or may result in claims, demands and liabilities against, upon or,
respectively, by third parties, including, without limitation, governmental
entities, adjacent property owners and any individuals suffering property
damage or personal injury.
1.9 "Environmental Laws" shall mean all federal, state and local
laws, rules, regulations, codes, judgments and decrees concerning pollution or
protection of the environment.
1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.11 "Financial Statements" shall mean the balance sheets,
statements of income and retained earnings and changes in cash flows of Medex
since the creation and organization of Medex.
1.12 "Former Medex Shareholder" shall mean each Person who was,
immediately before the Effective Time, a holder of issued and outstanding
shares of Medex Stock.
2
<PAGE> 4
1.13 "Hazardous Substances" shall include any dangerous substances,
toxic substances, hazardous materials or hazardous substances as defined in or
pursuant to the Resource Conservation and Recovery Act (42 U.S.C. Section 6901,
et seq.), as amended, the Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. Section 9601, et seq.) ("CERCLA"), as amended, or
any other Environmental Law.
1.14 "Intellectual Property" shall have the meaning assigned to it
in Section 3.8.
1.15 "IRS" shall mean the Internal Revenue Service.
1.16 "LifeQuest SEC Documents" shall mean each report, schedule,
registration statement and definitive proxy statement filed by LifeQuest with
the SEC since January 1, 1997.
1.17 "LifeQuest Stock" shall mean the common stock, $.001 par value
of LifeQuest.
1.18 "Losses" shall mean all damages, losses, obligations,
liabilities, claims, encumbrances, deficiencies, costs and expenses including,
without limitation, reasonable attorneys' fees and other costs and expenses
incident to any suit, action, investigation, claim or proceeding.
1.19 "Market Price" shall mean the average of the closing bid and
asked prices of a share of LifeQuest Stock for the 10 consecutive trading days
immediately prior to the third trading day prior to the Closing Date, as
reported in the over-the-counter market as reported by the National Association
of Securities Dealers Automated Quotation System.
1.20 "Merger Consideration" shall have the meaning assigned to it
in Section 2.6.
1.21 "Medex Stock" shall mean the common stock, $0.10 par value, of
Medex.
1.22 "Medex's Contracts" shall mean (a) the contracts described on
Schedule 3.12, (b) purchase orders from customers accepted in the ordinary
course of business, and (c) employment contracts terminable on not more than 30
days' notice.
1.23 "Notice" shall mean any summons, citation, directive, order,
claim, litigation, proceeding, judgment, letter or other communication, written
or oral, actual or threatened, from the United States Environmental Protection
Agency or other federal, state or local agency or authority or any other entity
or any individual concerning any intentional or unintentional act or omission
which has resulted or may result in the Release of Hazardous Substances into
waters, or into the "environment" as such term is defined in CERCLA, from or on
property owned, occupied or used by Medex, and shall include the imposition of
any lien on property occupied or used by Medex, pursuant to any violation of
any Environmental Law, or any knowledge, after due inquiry and investigation,
of any acts that could give rise to any of the above.
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1.24 "Person" shall mean an individual, corporation, partnership,
joint venture, trust or unincorporated organization, or a government or any
agency or political subdivision thereof.
1.25 "Purchaser Stock" shall mean the common stock, $.01 par value
of Purchaser.
1.26 "Release" shall mean releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, disposing or
dumping.
1.27 "SEC" shall mean the United States Securities and Exchange
Commission.
1.28 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.29 "Subsidiary" shall mean, with respect to any Person (the
"parent"), (i) any corporation, association, joint venture, partnership or
other business entity of which securities or other ownership interests
representing more than 50% of the ordinary voting power or beneficial interest
are, at the time as of which any determination is being made, owned or
controlled by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent and (ii) any joint venture or
partnership of which the parent or any Subsidiary of the parent is a general
partner or has responsibility for its management (provided, however, that the
term "Subsidiary" shall not include joint operating agreements).
1.30 "Surviving Corporation" shall mean the corporation existing at
and after the Effective Time as a result of the Merger.
ARTICLE 2
MERGER
2.1 The Merger. Subject to the terms and conditions of this
agreement, Medex shall be merged with and into Purchaser in accordance with all
applicable laws, with Purchaser being the Surviving Corporation. Purchaser and
Medex shall cause a certificate of merger to be filed with the Secretary of
State of Nevada, and in any other jurisdiction where such a certificate of
merger is required, on the Closing Date, unless legally prohibited from doing
so. The Merger shall be effective at the Effective Time.
2.2 Surviving Corporation. From and after the Effective Time, the
Surviving Corporation shall have the name "Klein Medical, Inc." and shall
possess all assets and property of every description, and every interest in the
assets and property, wherever located, and the rights, privileges, immunities,
powers, franchises and authority, of a public as well as of a private nature,
of each of Medex and Purchaser, and all debts and all other things in action or
belonging or due to each of Medex and Purchaser, all of which shall be vested
in the Surviving Corporation without further act or deed, and title to any real
estate or any interest in the real estate vested in either Medex or Purchaser
shall not revert or in any way be impaired.
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2.3 Liabilities. The Surviving Corporation shall be liable for
all the debts, liabilities and duties of each of Medex and Purchaser; any
action or proceeding pending, by or against either Medex or Purchaser, may be
prosecuted to judgment, with right of appeal, as if the Merger had not taken
place, or the Surviving Corporation may be substituted in its place, and all
the rights of creditors of each of Medex and Purchaser shall be preserved
unimpaired, and all liens upon the property of each of Medex and Purchaser
shall be preserved unimpaired, on only the property affected by the liens
immediately prior to the Effective Time.
2.4 Certificate of Incorporation and Bylaws. The certificate of
incorporation and bylaws of Purchaser in effect immediately prior to the
Effective Time shall be the certificate of incorporation and bylaws of the
Surviving Corporation following the Merger until otherwise amended or repealed.
2.5 Directors and Officers. The directors and officers of
Purchaser immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation until their successors are duly elected
or appointed and qualified in the manner provided in the bylaws of the
Surviving Corporation, or as otherwise provided by law.
2.6 Conversion or Cancellation of Stock Upon Merger. In
consideration for the Merger and the non-competition agreement in Section 12
hereof, as of the Effective Time, by virtue of the Merger and without any
action on the part of the holders of any shares of Medex Stock, or the holder
of the shares of Purchaser Stock, (a) the Medex Stock outstanding immediately
before the Effective Time shall be converted into the right to receive, subject
to Section 2.7 below, an aggregate number of shares of LifeQuest Stock, equal
to the quotient of $420,000 divided by the Market Price of a share of LifeQuest
Stock (the "Merger Consideration") and (b) each share of Purchaser Stock
outstanding immediately before the Effective Time shall be converted into one
share of common stock of the Surviving Corporation.
2.7 Fractional Shares. Notwithstanding Section 2.6, no
certificates or scrip representing fractional shares of LifeQuest Stock shall
be issued upon the surrender for exchange of certificates that prior to the
Effective Time represented shares of Medex Stock, no dividend or distribution
of LifeQuest shall relate to any fractional share interest and no fractional
share interest shall entitle the owner thereof to vote or to exercise any
rights of a shareholder of LifeQuest. In the event that any Former Medex
Shareholder shall be entitled to any fractional share interest then any
fractional amount shall be rounded up to the nearest whole share.
2.8 Exchange Requirements. After the Effective Time, (a) each
outstanding Certificate shall, until duly surrendered to Purchaser, be deemed
to represent only the right to receive the Merger Consideration, (b) there
shall be no further transfer on the records of Medex of Certificates, and (c)
each share of Medex Stock presented or surrendered to Purchaser shall be
canceled in exchange for the Merger Consideration as contemplated by Section
2.6. In no event shall Purchaser be obligated to deliver Merger Consideration
to any holder of a Certificate until such holder surrenders such Certificate as
provided herein.
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2.9 Interim Dividends. No dividends or other distributions
declared after the Effective Time on LifeQuest Stock issuable pursuant to the
Merger and payable to any Former Medex Shareholder after the Effective Time
shall be paid to the holder of any unsurrendered certificates formerly
representing shares of Medex Stock until the certificates shall be surrendered
as provided herein, provided, however, that (a) upon surrender there shall be
paid to the shareholder in whose name the certificates representing the shares
of LifeQuest Stock shall be issued the amount of unpaid dividends with respect
to the holder's shares of LifeQuest Stock and (b) at the appropriate payment
date, or as soon as practicable thereafter, there shall be paid to the
shareholder the amount of dividends declared with respect to whole shares of
LifeQuest Stock with a record date on or after the Effective Time but before
surrender and a payment date subsequent to surrender, subject in any case to
any applicable escheat laws. No interest shall be payable with respect to the
payment of dividends or other distributions on surrender of outstanding
certificates.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders each represent and warrant to the LifeQuest Parties
as follows:
3.1 Corporate Organization. Medex is a corporation duly
organized, validly existing and in good standing under the laws of Texas, and
has full power and authority to own its properties and to carry on its business
as and in the places where such properties are now owned or such business is
now being conducted. Complete and correct copies of the Articles of
Incorporation of Medex and all amendments thereto, certified in each case by
the Secretary of State of the State of Texas, and of the Bylaws of Medex and
all amendments thereto, certified by the Secretary of Medex, heretofore have
been delivered to LifeQuest. Medex is duly qualified to do business and is in
good standing in all jurisdictions (each such jurisdiction is set forth on
Schedule 3.1 attached hereto and made a part hereof) in which such
qualification is necessary because of the character of the properties owned,
leased or operated by it or the nature of its activities. Medex has not
knowingly taken any action, or failed to take any action which action or
failure will preclude or prevent Medex's business from being conducted in
substantially the same manner in which Medex has heretofore conducted the same.
3.2 Subsidiaries. Medex has no subsidiaries.
3.3 Capitalization. Medex's authorized capital stock consists of
10,000 shares of Medex Stock, of which 10,000 shares are issued and outstanding
and are collectively owned of record and beneficially by the Shareholders free
and clear of all liens, encumbrances or other obligations and issued without
violation of the preemptive, subscriptive or other similar rights of any person
or entity. There are no outstanding subscriptions, options, warrants, rights
or other agreements obligating Medex to issue any additional shares of Medex
Stock, except as set forth on Schedule 3.3 attached hereto and made a part
hereof.
3.4 Authorization. Medex has full power and authority, corporate
and otherwise, to enter into this Agreement and to assume and perform its
obligations
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hereunder. The execution and delivery of this Agreement and the performance by
Medex of its obligations hereunder have been duly authorized by the Board of
Directors and the shareholders of Medex and no further action or approval,
corporate or otherwise, by Medex is required in order to constitute this
Agreement as a binding and enforceable obligation of Medex. The execution and
delivery of this Agreement and the performance by Medex of its obligations
hereunder do not and will not violate any provisions of the Articles of
Incorporation or Bylaws of Medex and do not and will not conflict with or
result in any breach of any condition or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the Assets by reason of the terms of any contract,
mortgage, lien, lease, agreement, indenture, instrument or judgment to which
Medex is a party, or which is or purports to be binding upon Medex or which
affects or purports to affect any of the Assets.
3.5 Approvals and Consents. No action, approval, consent or
authorization, including, but not limited to, any action, approval, consent or
authorization by any governmental or quasi-governmental agency, commission,
board, bureau, or instrumentality is necessary as to Medex or either of the
Shareholders in order to constitute this Agreement as a valid, binding and
enforceable obligation of Medex and each of the Shareholders in accordance with
its terms.
3.6 Permits, Licenses, Etc. Medex has all permits, licenses,
orders and approvals, exclusive of those required under Environmental Laws, of
all federal, state, or local governmental or regulatory bodies required for it
to conduct its business as presently conducted. All such permits, licenses,
orders and approvals are in full force and effect and no suspension or
cancellation of any of them is threatened. Medex is operating in compliance
with all such permits, licenses, orders and approvals, and none of such
permits, licenses, orders or approvals will be adversely affected by the
consummation of the transactions contemplated by this Agreement. Medex is in
compliance in all material respects with each law, rule and regulation other
than Environmental Laws applicable to its business including, without
limitation, laws, rules and regulations respecting occupational safety and
employment practices. The conduct of the business of Medex and all assets and
properties utilized by Medex therein are in conformance with the requirements
and regulations of the Occupational Safety and Health Administration ("OSHA").
3.7 Environmental Laws. Medex has all permits, licenses, orders
and approvals of, and has made all required filings with, all federal, state or
local governmental or regulatory bodies relating to, arising under or required
by the Environmental Laws. All such permits, licenses, orders and approvals
are in full force and effect and no suspension or cancellation of any of them
is pending or threatened. None of such permits, licenses, orders or approvals
will be adversely affected by the consummation of the transactions contemplated
by this Agreement. Medex is in compliance with all such permits, licenses,
orders and approvals and with all limitations, conditions, standards and
requirements contained in Environmental Laws applicable to it and the business
conducted by it. Schedule 3.7 attached hereto and made a part hereof contains
a description of each summons, citation, order, letter or other written
communication received by Medex from any federal, state or local
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governmental or regulatory body under any of the Environmental Laws during the
five-year period ending on the date hereof.
There are no currently existing Environmental Conditions with respect
to properties owned, occupied or used by Medex. Medex has received no Notice
with respect to any Environmental Condition at any time prior to the date
hereof.
3.8 Intellectual Property and Other Intangible Assets. Schedule
3.8 sets forth a description of all intellectual property owned, licensed or
claimed by Medex. Medex (a) owns or has the right to use all inventions,
discoveries, patents, copyrights, trademarks, trade names, service marks,
corporate names, licenses, trade secrets and know how and all other
intellectual property rights with respect to the foregoing, used in or
necessary for the conduct of its business as now conducted or as proposed to be
conducted without infringing upon or otherwise acting adversely to the right or
claimed right of any Person under or with respect to any of the foregoing (such
inventions, discoveries, patents, copyrights, trademarks, trade names, service
marks, corporate names, licenses, trade secrets and know how and all other
intellectual property rights with respect thereto being herein referred to as
the "Intellectual Property") and (b) is not obligated or under any liability or
claim whatsoever to make any payments by way of royalties, fees or otherwise to
any owner or licensee of, or other claimant to, any inventions, discoveries,
patents, copyrights, trademarks, trade names, service marks, corporate names,
licenses, trade secrets and know how and all other intellectual property
rights, with respect to the use thereof or in connection with the conduct of
its business or otherwise. A list of all such Intellectual Property and a
statement whether such Intellectual Property is owned or licensed is set forth
in Schedule 3.8 hereto. Except as specifically set forth in Schedule 3.8
hereto, the Intellectual Property has been duly registered or patented or
sought to be registered or patented with appropriate state, federal and foreign
jurisdictions and Medex is the sole and exclusive owner or has the sole and
exclusive right to use the Intellectual Property.
3.9 Financial Statements. Attached hereto as Schedule 3.9 and
made a part hereof are the Financial Statements, prepared in accordance with
U.S. generally accepted accounting principles consistently applied throughout
the periods indicated. The Financial Statements (a) are true, correct and
complete, (b) fairly, completely and accurately present the financial position
of Medex at the dates specified and the results of its operations for the
period covered, and (c) reflect expenses and liabilities of Medex in a
consistent manner throughout the periods to which the Financial Statements
relate. At the date of the Financial Statements, Medex had no liabilities or
obligations of any kind or nature, fixed or contingent, matured or unmatured or
otherwise, which are not fully reflected or reserved against on the Financial
Statements; nor does Medex have any liability or obligation of any kind or
nature arising since that date other than those incurred in the ordinary course
of business consistent with past practices, none of which are material. Medex
owns outright and has good and indefeasible title to all of the Assets,
including, without limitation, all of the assets and properties reflected on
the Financial Statements or acquired thereafter, free and clear of any
mortgage, lien, pledge, charge, claim, conditional sales or other agreement,
lease, right or encumbrance of any sort except: (x) to the extent stated or
reserved against on the Financial Statements and for changes occurring in the
ordinary course of business after the date thereof, none of which changes is
adverse, and (y) as set forth on Schedule 3.9A
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attached hereto and made a part hereof. Each such asset and item has been
fully operational in the ordinary course of business for at least the six
months immediately preceding the date hereof. The Assets include all assets
and properties (real, personal and mixed, tangible and intangible) and all
rights necessary or desirable to permit Seller's business to be carried on as
presently conducted by Seller, and Medex has complete and unrestricted power
and the unqualified right to transfer, convey and assign the Assets.
3.10 Material Adverse Changes Since the Date of the Financial
Statements. Since June 30, 1997, except as set forth on Schedule 3.10, there
has been no material adverse change in the financial condition, assets,
liabilities, properties or business of Medex. Since June 30, 1997, Medex has
not:
(a) issued or sold any stock, notes, bonds or other
securities, or any option to purchase the same, or entered into any agreement
with respect thereto;
(b) declared, set aside or made any dividend or other
distribution on its capital stock or redeemed, purchased or acquired any shares
thereof or entered into any agreement in respect of the foregoing;
(c) incurred any damage, destruction or similar loss, whether
or not covered by insurance, materially affecting its business or properties;
(d) other than in the ordinary course of business, sold,
assigned or transferred any of its tangible assets or any trade name,
franchise, design, or other intangible assets or property;
(e) other than in the ordinary course of business, mortgaged,
pledged or granted or suffered to exist any lien or other encumbrance or charge
on any of its assets or properties, tangible or intangible;
(f) other than in the ordinary course of business, waived any
rights of material value or canceled or modified any material debts or claims;
(g) incurred any liability or obligation for borrowed money
to any shareholder of Medex or any Affiliate of Medex;
(h) incurred any obligation or liability (absolute or
contingent) except current liabilities and obligations incurred in the ordinary
course of its business or paid any liability or obligation (absolute or
contingent) other than current liabilities and obligations incurred in the
ordinary course of business, none of which were material;
(i) entered into any transaction other than in the ordinary
course of business;
(j) became obligated to make any payment to any shareholder
or any Affiliate of Medex in any capacity, or entered into any transaction of
any nature with any shareholder or any Affiliate of Medex in any capacity,
except in respect of the
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foregoing for compensation to shareholders or Affiliates who are employees of
Medex in their capacity as such;
(k) except for increases in the ordinary course and customary
in the business of Medex, which increases did not inure to officers, directors
or shareholders of Medex or to consultants to Medex, increased the compensation
payable to any employee of Medex or became obligated to increase any such
compensation, or their capacities as such; or
(l) entered into any transaction with any Affiliate of Medex,
except in respect of the foregoing for compensation to Affiliates who are
employees of Medex in their capacity as such.
3.11 Tax Returns. Medex has duly filed all federal, state, county
and local income, excise, sales and other tax returns and reports required to
have been filed by it to the date hereof, after giving effect to any extensions
of time to file duly obtained by Medex. Each such return and report is true
and correct and Medex has paid all taxes, interest and penalties shown on such
returns or reports to be due or claimed to be due prior to the date hereof to
any federal, state, county, local or other taxing authority. Medex has no
liability for any taxes, assessments, amounts, interest or penalties of any
nature whatsoever other than as shown on the Financial Statements and there is
no basis for any additional claim or assessment. The IRS has not examined the
federal income tax returns of Medex. No waiver of the statute of limitations
has been given with respect to any taxable year of Medex. No government or
governmental authority is now asserting or threatening to assert any deficiency
or assessment for additional taxes or any interest, penalties or fines with
respect to Medex.
3.12 Contracts. Except for commissions payable to Edward and
Robert as set forth in the Financial Statements, Medex is not a party to nor
has any contract or commitment of any kind or nature whatsoever, written or
oral, including, without limitation, any lease, license, franchise, employment,
consultant or commission agreement, pension, profit sharing, bonus, stock
purchase, retirement, hospitalization, insurance or other plan or arrangement
involving employee benefits, contract with any labor union or contract for
services, materials, supplies or equipment or for the sale or purchase of any
of its products or assets. Except as set forth therein, each of the Medex's
Contracts referred to on Schedule 3.12 is valid and existing, in full force and
effect and enforceable in accordance with its terms and no party thereto is in
default and no claim of default by any party has been made or is now pending
and there does not exist any event that with notice or the passing of time or
both would constitute a default or would excuse performance by any party
thereto. None of Medex's Contracts, except as expressly set forth therein,
requires any consents or approvals by any party to such contract to prevent a
breach or to protect and preserve the rights of the Surviving Corporation
thereunder subsequent to the consummation of the Merger. Medex has heretofore
delivered to LifeQuest complete and correct copies of each of Medex's
Contracts.
3.13 Tangible Personal Property. Schedule 3.13 attached hereto and
made a part hereof is a true and complete list of all tangible personal
property owned by Medex
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having a book value at the date of the Financial Statements. Medex owns and
has good and indefeasible title in fee to all of its assets and properties
including, without limitation, all of the assets and properties reflected in
the Financial Statements and those identified on Schedule 3.13, free and clear
of any mortgage, lien, pledge, charge, claim, conditional sales or other
agreement, lease, right or encumbrance except (a) to the extent stated or
reserved against in the Financial Statements, (b) vendors' or other statutory
liens which may have resulted in the ordinary course of business, (c) minor
imperfections of title, liens and encumbrances which do not materially detract
from the value or the utility of the property subject thereto or materially
impair the operations of the owner thereof, and (d) as set forth in Schedule
3.13 attached hereto and made a part hereof.
3.14 Real Property. Medex owns no real property. Except as set
forth on Schedule 3.14, Medex leases no real property. All leases of property
under which Medex purports to be a lessee are valid, binding and in full force
and effect, and Medex is not in default thereunder and there is no event or
fact which upon the passage of time or the giving of notice, or both, could
constitute a default by Medex under such lease.
3.15 Insurance. Schedule 3.15 attached hereto and made a part
hereof, is a true and complete list and brief description of all policies of
fire, liability and other forms of insurance owned or held by Medex. All of
such policies are valid and binding and in full force and effect as of the date
hereof and are in such amounts and cover such risks as are customarily carried
by other businesses similar to those conducted by Medex.
3.16 Banking. Schedule 3.16 attached hereto and made a part hereof
is a true and complete list setting forth the names and locations of all banks
at which Medex has an account or safe deposit box, the numbers of the accounts
and the names of all persons authorized to draw thereon.
3.17 Litigation. There are no actions, suits, proceedings or
investigations pending or threatened against or affecting the assets or the
business, operations or financial condition of Medex, at law or in equity, in
any court or before any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, nor is there
any basis for any such action, suit, proceeding or investigation. There are no
judgments outstanding against Medex and Medex is not in default in respect of
any judgment, order, writ, injunction, or decree of any court or any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality.
3.18 Labor. There are no threats of strikes, work stoppages or
demands for collective bargaining by any union or labor organization against or
including Medex, no grievances, disputes or controversies with any union or any
other organization of the employees of Medex, and no pending or threatened
arbitration proceedings involving an employment grievance, dispute or
controversy.
3.19 Employee Benefit Plans. Except as set forth on Schedule 3.19
attached hereto and made a part hereof, Medex has no Benefit Plans, including,
without
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limitation, any "employee pension benefit plan" or "employee welfare benefit
plan" within the meaning of the Employee Retirement Income Security Act of
1974, as amended (29 U.S.C. Section 1001, et seq.) ("ERISA"), and the final
regulations thereunder. True and complete copies of each written Benefit Plan
sponsored by Medex have heretofore been delivered to LifeQuest. Medex has no
commitment, written or oral, and whether legally binding or not, to create any
Benefit Plans in addition to those shown on Schedule 3.19. Medex has no
benefit plan that is a defined benefit plan within the meaning of ERISA Section
3(35) maintained or contributed to by Medex and that covers employees of Medex.
Medex has no liability on account of any Benefit Plans, including but not
limited to liability for (a) additional contributions accruing under such
Benefit Plans with respect to periods commencing on or prior to the Closing
Date; (b) fiduciary breaches by Medex, the trustees under the trust created
under any of such plans, or any other persons under ERISA, or any other
applicable statute, regulation or rule; or (c) income taxes by reason of
non-qualification of such Benefit Plans. There are no pending claims against
any Benefit Plan (other than for benefits in accordance with its terms), nor
has any claim been threatened in writing by any participant thereof or
beneficiary thereunder. Without limiting the generality of the foregoing, all
Benefit Plans are in full compliance with all applicable reporting, disclosure,
filing and other administrative requirements pertaining to employee benefit
plans set forth in the Code and ERISA and rules and regulations promulgated
under either.
3.20 Inventory. Inventory reflected on the Financial Statements as
of the date thereof was determined in accordance with generally accepted
accounting principles consistently applied, stated, on an aggregate basis, at
the lower of cost (based on the first-in, first-out method) or market value and
consists solely of merchandise usable or saleable in the ordinary course of
business at not less than gross cost. The inventory conforms to customary
trade standards for marketable goods. Since the date of the Financial
Statements, there have been no changes in the inventory reflected on the
Financial Statements except in the ordinary course of business, none of which
have been material.
3.21 Accounts Receivable. Each account receivable reflected on the
Financial Statements constitutes a bona fide receivable resulting from a bona
fide sale to a customer in the ordinary course of business, the amount of which
was actually due on the date thereof and has been or will be collected in the
ordinary course of business, net of the allowance for doubtful accounts
reflected on the Financial Statements. There are no defenses, claims of
disabilities, counterclaims, offsets, refusals to pay or other rights of
set-off against any accounts receivable and there is no threatened, intended or
proposed defense, claim of disability, counterclaim, offset, refusal to pay or
other right of set-off with respect thereto. Each account receivable, each
document and instrument and each transaction underlying or relating thereto
conforms, including, without limitation, in respect of interest rates charged,
notices given and disclosures made, to the requirements and provisions of each
applicable law, rule, regulation or other relating to credit, consumer credit,
credit practices, credit advertising, credit reporting, retail installment
sales, credit cards, collections, usury, interest rates and truth-in-lending,
including, without limitation, the Federal Truth in Lending Act, as amended,
and Regulation Z issued by the Board of Governors of the Federal Reserve System
thereunder. Such reserves and allowances have been established on the basis of
historical experience in accordance with U.S. generally accepted accounting
principles
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consistently applied. Purchaser hereby agrees to use its best efforts to
collect the accounts receivable reflected in the Financial Statements. All
payments received by Purchaser for accounts receivable will be applied to the
outstanding accounts receivable in accordance with the normal and customary
practice of Purchaser.
3.22 Employee and Other Compensation. Schedule 3.22 attached
hereto and made a part hereof is a complete and correct list of the names and
current annual salary, bonus, commission and perquisite arrangements, written
or unwritten, for each director, officer and employee of Medex, including those
whose compensation was paid in whole or in part by persons or entities other
than Medex. No current or former shareholder, director, officer, employee or
Affiliate of Medex, nor any relative, associate or agent of such shareholder,
director, officer, employee or Affiliate, has any interest in any property of
Medex except as a shareholder, or is a party, directly or indirectly, to any
contract for employment or otherwise or any lease or has entered into any
transaction with Medex including, without limitation, any contract for the
furnishing of services by, or rental of real or personal property from or to,
or requiring payments to, any such stockholder, director, officer, employee,
Affiliate, relative, associate or agent. To the best knowledge of Medex and
each of the Shareholders, no employee listed thereon intends to terminate his
employment relationship with Medex and Medex has no contract for the future
employment of any officer or employee not listed on Schedule 3.22.
3.23 Customers and Suppliers. Schedule 3.23 attached hereto and
made a part hereof is a complete and correct list of the names and addresses of
the 10 largest customers and suppliers, respectively, of Medex during the last
fiscal year, and the total sales to or purchases from such customers and
suppliers made by Medex during the last fiscal year. No supplier or customer
of Medex representing in excess of 5% of Medex's purchases or sales during the
last fiscal year has advised Medex, formally or informally, that it intends to
terminate, discontinue or substantially reduce its business with Medex by
reason of the transactions contemplated by this Agreement or otherwise.
3.24 No Breach of Other Agreements. The entering into, execution
and performance of this Agreement and the other Agreements contemplated herein
and the performance of the terms, conditions, provisions, duties and
obligations contained herein and referred to and contemplated herein shall not
cause or result in any of Medex, Robert or Edward breaching any term or
provision of any other agreement, written or otherwise.
3.25 No Omission of Material Fact. No representation or warranty
by either of the Shareholders in this Agreement or under any documents,
instruments, certificates or schedules furnished pursuant hereto or in
connection with the transactions contemplated hereby, contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements or facts contained herein or therein not misleading.
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3.26 Closing Date Effect. All of the representations and
warranties of each of the Shareholders are true and correct as of the date
hereof and shall be true and correct on and as of the Closing Date, with the
same force and effect as if such representations and warranties were made by
each of the Shareholders to the LifeQuest Parties on the Closing Date.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE LIFEQUEST PARTIES
The LifeQuest Parties represent and warrant to the Shareholders as
follows:
4.1 LifeQuest Corporate Organization. LifeQuest is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power and authority to own its properties and to
carry on its business as and in the places where such properties are now owned
or such businesses are now being conducted.
4.2 Purchaser Corporate Organization. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada and has full power and authority to own its properties and to
carry on its business as and in the places where such properties are now owned
or such businesses are now being conducted.
4.3 Authorization. The LifeQuest Parties have full power and
authority, corporate and otherwise, to enter into this Agreement and to assume
and perform their respective obligations hereunder. The execution and delivery
of this Agreement and the performance by the LifeQuest Parties of their
respective obligations hereunder have been or will be duly authorized by the
Boards of Directors of the LifeQuest Parties and no further action or approval,
corporate or otherwise, by the LifeQuest Parties is or will be required in
order to constitute this Agreement as a binding and enforceable obligation of
the LifeQuest Parties.
ARTICLE 5
LIFEQUEST STOCK AND LIFEQUEST SEC DOCUMENTS
5.1 LifeQuest SEC Documents. LifeQuest has furnished each of the
Shareholders with a true and complete copy of the LifeQuest SEC Documents. As
of its filing date (and, with respect to any registration statement, the date
on which it was declared effective), each LifeQuest SEC Document was in
compliance, in all material respects, with the requirements of its form,
contained no untrue statement of a material fact and did not omit any statement
of a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of LifeQuest included in the
LifeQuest SEC Documents complied, at the time of filing with the SEC (and, with
respect to any registration statement, the date on which it was declared
effective), as to form, in all material respects, with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis
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during the periods involved (subject, in the case of unaudited statements, to
the omission of certain footnotes) and fairly present, in all material respects
(subject, in the case of the unaudited statements, to normal, recurring
year-end audit adjustments) the consolidated financial position of LifeQuest as
at the dates thereof and the consolidated results of their operations and
changes in financial position for the periods then ended. The consolidated
financial statements of LifeQuest as of June 30, 1997, included in the
LifeQuest SEC Documents disclose all liabilities of LifeQuest required to be
disclosed therein and contained adequate reserves for taxes and all other
material accrued liabilities. Since June 30, 1997, there has not been any
change in the business, assets, properties, condition (financial or otherwise),
results of operations or prospects of LifeQuest, and no condition exists, which
in any case would have or be a material adverse effect on, or with respect to,
LifeQuest.
5.2 No Omission of Material Fact. No representation or warranty
by the LifeQuest Parties in this Agreement or under any documents, instruments,
certificates or schedules furnished pursuant hereto or in connection with the
transactions contemplated hereby, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements or
facts contained herein or therein not misleading.
5.3 Closing Date Effect. All of the representations and
warranties of the LifeQuest Parties are true and correct as of the date hereof
and shall be true and correct on and as of the Closing Date with the same force
and effect as if such representations and warranties were made by the LifeQuest
Parties to Medex on the Closing Date.
ARTICLE 6
AGREEMENT AND PLAN OF REORGANIZATION
6.1 Tax Treatment. Medex and the Shareholders, LifeQuest and
Purchaser intend that the transactions contemplated hereunder constitute a
tax-free reorganization (a "Reorganization") under Section 368 of the Code, and
agree to treat and report the transactions hereunder as a Reorganization. This
Agreement shall be construed in a manner to result in treatment of the
transactions hereunder as a Reorganization.
ARTICLE 7
CLOSING
7.1 The closing of the transactions contemplated hereby shall take
place on the Closing Date, September 30, 1997, at the offices of LifeQuest
Medical, Inc., 12961 Park Central, Suite 1300, San Antonio, Texas 78216, or at
such other place and on such other date as the parties shall agree. The date
of closing so determined is herein sometimes called the "closing" or the
"Closing Date."
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ARTICLE 8
CONDITIONS OF CLOSING
8.1 LifeQuest Parties. The obligation of the LifeQuest Parties to
close hereunder shall be subject to the satisfaction of the following
conditions or the written waiver thereof by the LifeQuest Parties:
(a) Each of the agreements and covenants of Medex and each of
the Shareholders to be performed under this Agreement at or prior to the
Closing shall have been duly performed in all material respects.
(b) The representations and warranties of Medex and each of
the Shareholders in this Agreement shall be true and correct in all material
respects on and as of the Closing Date.
(c) No injunction or restraining order shall be in effect to
forbid or enjoin the consummation of the transactions contemplated by this
Agreement and no Federal, state, local or foreign statute, rule or regulation
shall have been enacted which prohibits, restricts or delays the consummation
hereof.
(d) All consents, authorizations, orders or approvals of, and
filings or negotiations with, any Federal, state, local or foreign governmental
agency, commission, board or other regulatory body which are required for or in
connection with the execution, delivery and performance of this Agreement by
Medex and each of the Shareholders and the consummation of the transactions
contemplated hereby, and in order to permit or enable the Surviving
Corporation, after the closing to operate a business substantially similar to
Medex's business as conducted by Medex as of the date hereof, shall have been
duly obtained or made, including, but not limited to, any approvals required
under the Hart-Scott-Rodino Antitrust Improvement Act.
(e) LifeQuest shall have received a certified copy of
resolutions duly adopted by the Board of Directors and shareholders of Medex
authorizing and approving the execution and delivery of this Agreement and
performance by Medex of its obligations hereunder.
(f) Edward Kraus shall have executed and delivered to the
Company an Employment Agreement and a Non- Qualified Stock Option Agreement in
the forms attached hereto as Exhibit B and Exhibit C, respectively.
(g) Robert Kraus shall have executed and delivered to the
Company an Employment Agreement and a Non- Qualified Stock Option Agreement in
the forms attached hereto as Exhibit D and Exhibit E, respectively.
(h) LifeQuest shall have received such further certificates
and documents as shall have been reasonably requested by the LifeQuest Parties,
including consents of all requisite third parties.
(i) The LifeQuest Parties shall have completed their
diligence activities to their satisfaction.
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8.2 The Shareholders and Medex. The obligation of the
Shareholders and Medex to close hereunder shall be subject to the satisfaction
of the following conditions or the written waiver thereof by the Shareholders
and Medex:
(a) Each of the agreements and covenants of the LifeQuest
Parties to be performed under this Agreement at or prior to the Closing shall
have been duly performed in all material respects.
(b) The representations and warranties of the LifeQuest
Parties in this Agreement shall be true and correct in all material respects on
and as of the Closing Date.
(c) No injunction or restraining order shall be in effect to
forbid or enjoin the consummation of the transactions contemplated by this
Agreement and no Federal, state, local or foreign statute, rule or regulation
shall have been enacted which prohibits, restricts or delays the consummation
hereof.
(d) The Shareholders shall have received the Merger
Consideration.
(e) The Shareholders shall have received such further
certificates and documents as the Shareholders shall have reasonably requested.
ARTICLE 9
REMEDIES FOR BREACH
9.1 Arbitration. The Company and each of the Shareholders agree
that any dispute or controversy arising out of or in connection with this
Agreement or any alleged breach hereof shall be settled by arbitration in San
Antonio, Texas pursuant to the rules of the American Arbitration Association.
If the parties thereto cannot jointly select a single arbitrator to determine
the matter, one arbitrator shall be chosen by each party (or, if a party fails
to make a choice, by the American Arbitration Association on behalf of such
party) and the two arbitrators so chosen will select a third. The decisions of
the single arbitrator jointly selected by the parties, or, if three arbitrators
are selected, the decision of any two of them, will be final and binding upon
the parties and the judgment of a court of competent jurisdiction may be
entered thereon. Fees of the arbitrators and costs of arbitration shall be
borne by the parties in such manner as shall be determined by the arbitrator or
arbitrators.
9.2 Survival of Representations, Warranties and Agreements. All
of the representations, warranties, covenants and agreements made by the
parties to this Agreement shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereunder.
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification. The Shareholders shall jointly and severally
defend and indemnify the LifeQuest Parties and save and hold them harmless
from, against, for and in respect of, and pay any and all Losses suffered,
sustained, incurred or required
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to be paid by the LifeQuest Parties by reason of any breach or failure of
observance or performance of any representation, warranty, covenant, agreement
or commitment made by Medex or either if the Shareholders hereunder or relating
to or as a result of any such representation, warranty, covenant, agreement or
commitment being untrue or incorrect, or, as to products currently manufactured
or sold by Medex, any action for infringement upon or use adverse to the right
or claimed right of any Person to use all inventions, discoveries, patents,
copyrights, trademarks, trade names, service marks, corporate names, licenses,
trade secrets and know how and all other intellectual property rights with
respect to the foregoing; provided, however, the Shareholders shall have no
liability under this Article 10 unless on or before December 31, 1999, any of
the LifeQuest Parties notify the Shareholders of a claim specifying the factual
basis of such claim in reasonable detail to the extent known by such party.
10.2 Procedure for Indemnification. In the event that either of
the Shareholders shall be obligated to the LifeQuest Parties pursuant to this
Article, or in the event that a suit, action, investigation, claim or
proceeding is begun, made or instituted as a result of which either Shareholder
may become obligated to the LifeQuest Parties hereunder, the LifeQuest Parties
shall give prompt written notice to such Shareholder of the occurrence of such
event. Each Shareholder agrees to defend, contest or otherwise protect against
any such suit, action, investigation, claim or proceeding at such Shareholder's
own cost and expense. The LifeQuest Parties shall have the right, but not the
obligation, to participate, at its own expense, in the defense thereof by
counsel of its own choice. In the event that a Shareholder fails timely to
defend, contest or otherwise protect against any such suit, action,
investigation, claim or proceeding, the LifeQuest Parties shall have the right
to defend, contest or otherwise protect against the same, and, upon 10 days'
written notice to such Shareholder, make any compromise or settlement thereof
and recover the entire cost thereof from such Shareholder, including, without
limitation, reasonable attorneys' fees, disbursements and all amounts paid as a
result of such suit, action, investigation, claim or proceeding or compromise
or settlement thereof.
ARTICLE 11
REQUIREMENTS OF SECURITIES LAWS
11.1 Shareholders' Representations and Warranties. Each
Shareholder recognizes that the Merger Consideration is not being registered
under the Securities Act in reliance upon an exemption from the Securities Act
which is predicated, in part, on the representations and agreements of each of
the Shareholders set forth in this Agreement. Robert represents and warrants
to the LifeQuest Parties that he, along with his purchaser representative, as
that term is defined in Rule 501(h) of the Securities Act (the "Purchaser
Representative"), has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the
transactions contemplated and contained herein, and that the Merger
Consideration is being acquired solely for his own account for investment and
not with a view to, or for offer or resale in connection with, a distribution
thereof within the meaning of the Securities Act. Edward represents and
warrants to the LifeQuest Parties that he is an accredited investor, as that
term is defined in Rule 501(a) of the Securities Act and has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the transactions contemplated and contained herein,
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and that the Merger Consideration is being acquired solely for his own account
for investment and not with a view to, or for offer or resale in connection
with, a distribution thereof within the meaning of the Securities Act. Each
Shareholder understands that the effect of such representation and warranty is
that the Merger Consideration must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration is
available at the time for any proposed sale or other transfer thereof. Each
Shareholder also understands that LifeQuest is under no obligation to file a
registration statement under the Securities Act covering the Merger
Consideration or to take any other action to enable a Shareholder to transfer
or otherwise dispose of the Merger Consideration. Each Shareholder represents
that he has consulted with his counsel in regard to the Securities Act and that
he is fully familiar with the circumstances under which he is required to hold
the Merger Consideration and the limitations upon the transfer or other
disposition thereof. Each Shareholder acknowledges that the LifeQuest Parties
are relying upon the truth and accuracy of the foregoing representations and
warranties in issuing the Merger Consideration under the Securities Act. The
Shareholders agree to jointly and severally indemnify and hold the LifeQuest
Parties harmless against all liabilities, costs and expenses, including
reasonable attorneys' fees, incurred by the LifeQuest Parties as a result of
any sale, transfer or other disposition by either Shareholder of all or any
part of the Merger Consideration in violation of the Securities Act.
11.2 Legend. The Merger Consideration shall bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT."
11.3 SEC Documents. Each Shareholder acknowledges that he has been
furnished by the LifeQuest Parties with (a) a copy of the Annual Report to
Stockholders of Lifequest for the year ended December 31, 1996, (b) a copy of
the Annual Report on Form 10-KSB of LifeQuest for the fiscal year ended
December 31, 1996, in the form filed with the SEC, and (c) copies of all
filings since December 31, 1996, by LifeQuest with the SEC in compliance with
Section 13 or 14 of the Exchange Act. Each Shareholder represents that he, or
his Purchaser Representative, has reviewed the foregoing documents and
acknowledges that they have been afforded the opportunity to obtain any
additional information necessary to verify the accuracy of the information
contained in the foregoing documents, including the opportunity to ask
questions of, and receive answers from, officers and representatives of
LifeQuest concerning the LifeQuest Parties and the terms and conditions of the
transactions contemplated by this Agreement. Each Shareholder acknowledges
that Addison Wilson, III, P.C., attorneys at law, have advised him during the
course of the negotiation of this Agreement, and that he has consulted Addison
Wilson, III, P.C., attorneys at law, with respect to the transactions
contemplated by this Agreement.
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11.4 Incidental Registration. If, at any time between the
Effective Time and the one-year anniversary of the Effective Time, LifeQuest
proposes to register any of the LifeQuest Stock (whether unissued, yet to be
authorized or held by any person) under the Securities Act, LifeQuest shall, at
least 30 days prior to the filing under the Securities Act of the registration
statement relating thereto, give written notice to the Shareholders of its
intention to do so, and, upon the written request of a Shareholder given within
10 days after the giving of any such notice (which request shall state the
proposed method of distribution), LifeQuest shall include or cause to be
included in any such registration statement, up to 20% of the Merger
Consideration; provided, however, that LifeQuest may at any time withdraw or
cease proceeding with any such registration if it shall at the time withdraw or
cease proceeding with the registration of such LifeQuest Stock originally
proposed to be registered; and provided further, that if the registration
proposed by LifeQuest relates to an underwritten offering, a Shareholder shall
not have any right to sell the Merger Consideration in any manner or through
any underwriter other than in the manner and through the managing underwriter
or underwriters being used by LifeQuest.
(a) Notwithstanding any other provision of this Section
11.4, if a registration pursuant to this Section 11.4 involves a firm
commitment, underwritten offering of the securities so being registered and if
the managing underwriter of such offering informs LifeQuest and the
Shareholders by letter of its belief that marketing factors require a
limitation of the number of shares to be underwritten, LifeQuest may limit the
amount of Merger Consideration to be included in the registration and
underwriting; provided that no such reduction shall reduce the securities being
offered by LifeQuest for its own account; and provided that those shares which
are excluded from the underwritten offering shall be withheld from the market
by the holders thereof for a period, not to exceed 180 days, which the managing
underwriter reasonably determines as necessary in order to effect the
underwritten offering.
(b) Registration Procedures and Expenses. If and
whenever LifeQuest is required to include a portion of the Merger Consideration
in a registration statement under the Securities Act, as provided in Section
11.4 hereof, LifeQuest shall, as expeditiously as is reasonably practicable, do
each of the following:
(i) prepare and file with the SEC a registration
statement with respect to the Merger Consideration and, subject to the
limitations under Section 11.4 hereof, use its best efforts to cause
such registration statement to become effective;
(ii) cooperate with the Shareholders and any underwriter
who shall sell the Merger Consideration in connection with their
review of LifeQuest made in connection with such registration;
(iii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for 120 days from the date of its effectiveness,
and to comply with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all the Merger
Consideration covered by such registration statement for such period;
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(iv) furnish to the Shareholders such number of copies of
the prospectus forming a part of such registration statement
(including each preliminary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as the
Shareholders may reasonably request in order to facilitate the
disposition of the Merger Consideration; and
(v) LifeQuest shall (a) notify the Shareholders at any time
when a prospectus relating to the Merger Consideration is required to
be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus forming a part of such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing, and (b) at the request of a Shareholder, prepare and furnish
to such Shareholder a reasonable number of copies of any supplement to
or any amendment of such prospectus that may be necessary so that, as
thereafter delivered to the purchasers of the Merger Consideration,
such prospectus shall not include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light
of the circumstances then existing.
(c) Agreement by each Shareholder. In the event that a
Shareholder participates, pursuant to this Section 11.4, in the offering of the
Merger Consideration, such Shareholder shall;
(i) furnish LifeQuest all material information reasonably
requested by LifeQuest concerning such Shareholder and the proposed
method of sale or other disposition of the Merger Consideration and
such other information and undertakings as shall be reasonably
required in connection with the preparation and filing of the
registration statement covering the Merger Consideration in order to
ensure full compliance with the Securities Act and the rules and
regulations of the SEC thereunder;
(ii) cooperate in good faith with LifeQuest and its
underwriters, if any, in connection with such registration, including
placing the Merger Consideration in escrow or custody to facilitate
the sale and distribution thereof provided that such escrow or custody
arrangement shall be no more restrictive upon the Shareholders than
upon any other holder of LifeQuest Stock for the benefit of whom such
registration is undertaken; and
(iii) make no further sales or other dispositions, or offers
therefor, of the Merger Consideration under such registration
statement if, during the effectiveness of such registration statement,
an intervening event should occur which, in the opinion of counsel to
LifeQuest, makes the prospectus included in such registration
statement no longer comply with the Securities Act, so long as written
notice containing the facts and legal conclusions relied upon by
LifeQuest in this regard has been received by such Shareholder from
LifeQuest, until such time as such Shareholder has received from
LifeQuest copies of a new, amended or supplemented prospectus
complying with the Securities Act, which prospectus
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shall be delivered to such Shareholder by LifeQuest as soon as
practicable after such notice.
(d) Allocation of Expenses. If and whenever LifeQuest is
required by the provisions of this Section 11.4 to use its best efforts to
effect the registration of the Merger Consideration under the Securities Act,
LifeQuest shall pay the costs and expenses in connection therewith; provided,
however, that the Shareholders shall pay, in all events, all underwriting
discounts, selling commissions and stock transfer taxes attributable to the
Merger Consideration under such registration statement.
(e) Indemnification. In the event of any registration of
any of the Merger Consideration under the Securities Act pursuant to this
Section 11.4, the Shareholders shall jointly and severally indemnify and hold
harmless, LifeQuest, each director of LifeQuest, each officer of LifeQuest who
shall sign such registration statement, each underwriter and any person who
controls LifeQuest or such underwriter within the meaning of the Securities
Act, with respect to any statement in or omission from such registration
statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, if such statement or omission was made in
reliance upon and in conformity with written information furnished to LifeQuest
or its underwriter through an instrument duly executed by a Shareholder
specifically for use in the preparation of such registration statement,
preliminary prospectus, final prospectus or amendment or supplement.
11.5 Rule 144 Stock. Notwithstanding the foregoing provisions of
this Article 11, LifeQuest shall not be obligated to effect a registration
pursuant to Section 11.4(a) with respect to the Merger Consideration which
could then be sold pursuant to Rule 144 under the Securities Act.
ARTICLE 12
NON-COMPETITION AGREEMENT
12.1 Customer Lists; Non-Solicitation. Each Shareholder hereby
further covenants and agrees that a Shareholder shall not, commencing on the
Closing Date and ending on the first anniversary date of the Closing Date,
directly or indirectly, (a) use or make known to any person or entity the names
or addresses of any clients or customers of Medex or the LifeQuest Parties or
any other information pertaining to them, (b) call on, solicit, take away or
attempt to call on, solicit or take away any clients or customers of Medex or
the LifeQuest Parties, nor (c) solicit for employment, recruit, hire or attempt
to recruit or hire any employees of Medex or the LifeQuest Parties.
12.2 Covenants Independent. The covenants of each Shareholder
contained in Section 12.1 of this Agreement will be construed as independent of
any other provision in this Agreement; and the existence of any claim or cause
of action by a Shareholder against the LifeQuest Parties will not constitute a
defense to the enforcement by the LifeQuest Parties of said provisions. Each
Shareholder understands that the provisions contained in Section 12.1 are
essential elements of the transactions contemplated by this Agreement and, but
for the agreement of each Shareholder to the terms and provisions of Section
12.1, the LifeQuest Parties would not have agreed to enter into
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this Agreement and the transactions contemplated herein. Each Shareholder has
been advised to consult with counsel in order to be informed in all respects
concerning the reasonableness and propriety of Section 12.1 with specific
regard to the nature of the business conducted by Medex and the LifeQuest
Parties and each Shareholder acknowledges that Section 12.1 is reasonable in
all respects.
12.3 Remedies. In the event of a breach or a threatened breach by
a Shareholder of any of the provisions contained in Sections 12.1 or 12.2 of
this Agreement, each Shareholder acknowledges that the LifeQuest Parties will
suffer irreparable injury not fully compensable by money damages and,
therefore, will not have an adequate remedy available at law. Accordingly, the
LifeQuest Parties shall be entitled to obtain such injunctive relief or other
equitable remedy from any court of competent jurisdiction as may be necessary
or appropriate to prevent or curtail any such breach, threatened or actual.
The foregoing shall be in addition to and without prejudice to any other rights
that the LifeQuest Parties may have under this Agreement, at law or in equity,
including, without limitation, the right to sue for damages.
ARTICLE 13
CONFIDENTIALITY
13.1 Nondisclosure. No Shareholder shall, without the prior
written consent of the Board of Directors of LifeQuest, disclose or use for any
purpose confidential information or proprietary data of Medex, Purchaser or
LifeQuest (or any of their respective subsidiaries), except as required by
applicable law or legal process; provided, however, that confidential
information shall not include any information known generally to the public or
ascertainable from public or published information (other than as a result of
unauthorized disclosure by a Shareholder) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by Medex or LifeQuest (or any of their
respective subsidiaries).
ARTICLE 14
GENERAL PROVISIONS
14.1 Expenses. Each of the parties hereto shall pay all expenses
incurred by it incident to preparing for, entering into and carrying into
effect this Agreement.
14.2 Notices. Any notice, report, demand or payment required,
permitted or desired to be given pursuant to any of the provisions of this
Agreement shall be deemed to have been sufficiently given or served for all
purposes if hand delivered or delivered by responsible overnight courier or
sent by certified or registered air mail, return receipt requested, and postage
prepaid as follows:
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If to the LifeQuest Parties:
LifeQuest Medical, Inc.
9601 McAllister Freeway, Suite 1120
San Antonio, Texas 78216
Attn: Randall K. Boatright
with a copy to: Fulbright & Jaworski L.L.P.
300 Convent Street
San Antonio, Texas 78205
Attn: Phillip M. Renfro, Esq.
Facsimile No. (210) 270-7205
If to Edward Kraus: Edward Kraus
2605 Woods Lane
Garland, Texas 75044
with a copy to: Addison Wilson III, P.C.
5500 Preston Road, Suite 330
Dallas, Texas 75205
Facsimile No. (214) 521-8013
with a copy to: Robert Kraus
2605 Woods Lane
Garland, Texas 75044
If to Robert Kraus: Robert Kraus
2605 Woods Lane
Garland, Texas 75044
with a copy to: Addison Wilson III, P.C.
5500 Preston Road, Suite 330
Dallas, Texas 75205
Facsimile No. (214) 521-8013
with a copy to: Edward Kraus
2605 Woods Lane
Garland, Texas 75044
Any of the foregoing parties may at any time and from time to time
change the address to which notice shall be sent hereunder, by notice to the
other parties given under this subsection. The date of the giving of such
notice delivered by hand or by responsible overnight courier shall be the date
of its delivery, and the date of the giving of such notice by certified or
registered mail shall be the date three days after the posting of the mail.
14.3 Finders. Each of the parties covenants and represents to the
other that there are no claims for brokerage commissions or finder's fees in
connection with the
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negotiation of this Agreement and the performance of the transactions
contemplated hereunder resulting from any action taken by it. Each of the
parties agrees to indemnify and hold harmless the other in respect of any and
all Losses sustained by the other as a result of any liability to any broker or
finder on the basis of any arrangement, agreement or acts made by or on behalf
of such party with any other person or persons whatsoever.
14.4 Complete Agreement. The representations, warranties,
covenants and agreements set forth in this Agreement and in any financial
statement, schedule or exhibit delivered pursuant hereto, constitute all of the
representations, warranties, covenants and agreements among the parties hereto
and upon which the parties have relied, and, except as may be specifically
provided herein, no change, modification, addition or termination of the
Agreement or any part thereof shall be valid unless in writing and signed by or
on behalf of the party to be charged therewith.
14.5 Prior Agreements. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes prior agreements relating thereto.
14.6 No Waiver. No waiver of the provisions hereof shall be
effective unless in writing and signed by the party to be charged with such
waiver. No waiver shall be deemed a continuing waiver or waiver in respect of
any subsequent breach or default, either of similar or different nature unless
expressly so stated in writing.
14.7 Headings. The headings or captions under Sections of this
Agreement are for convenience and reference only, and do not form a part
hereof, and do not in any way modify, interpret or construe the intent of the
parties or affect any of the provisions of this Agreement.
14.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
NON-EXCLUSIVE VENUE FOR ANY ACTION PERMITTED HEREUNDER SHALL BE PROPER IN SAN
ANTONIO, BEXAR COUNTY, TEXAS, AND EMPLOYEE CONSENTS TO SUCH VENUE.
14.9 Assignment. Neither this Agreement nor the rights of the
parties hereto shall be assignable, unless otherwise specifically provided.
14.10 Severability. If any term or provision of this Agreement
shall be held to be invalid or unenforceable for any reason, such term or
provision shall be ineffective to the extent of such invalidity or
unenforceability without invalidating the remaining terms and provisions
hereof, and this Agreement shall be construed as if such invalid or
unenforceable term or provision had not been contained herein. Whenever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be held to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
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14.11 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This Agreement
shall be binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of the parties reflected hereon as
signatories.
14.12 Telecopy Execution and Delivery. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any party hereto, all parties
hereto agree to execute an original of this Agreement as well as any facsimile,
telecopy or other reproduction hereof.
[signatures on following page]
26
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this Plan of Merger
and Acquisition Agreement to be signed on the date and year first above
written.
LIFEQUEST MEDICAL, INC.
By:
----------------------------------------
Herbert H. Spoon,
President and Chief Executive Officer
KLEIN MEDICAL, INC.
By:
----------------------------------------
Herbert H. Spoon,
Chief Executive Officer
MISHBUCHA, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
-------------------------------------------
Edward Kraus
-------------------------------------------
Robert Kraus
27
<PAGE> 29
SCHEDULES
Schedule 3.1 Corporate Organization
Schedule 3.3 Capitalization/List of Shareholder
Schedule 3.7 Environmental
Schedule 3.8 Intellectual Property and Other Tangible Assets
Schedule 3.9 Financial Statements
Schedule 3.9A Exceptions to Financial Statements
Schedule 3.10 Material Adverse Changes
Schedule 3.12 Contracts
Schedule 3.13 Tangible Personal Property
Schedule 3.14 Real Property
Schedule 3.15 Insurance
Schedule 3.16 Banking
Schedule 3.19 Employee Benefit Plans
Schedule 3.22 Employee and Other Compensation
Schedule 3.23 Customers and Suppliers
<PAGE> 30
SCHEDULE 3.1
TEXAS
<PAGE> 31
SCHEDULE 3.3
CAPITALIZATION/LIST OF SHAREHOLDERS
Edward Kraus
Robert Kraus
<PAGE> 32
SCHEDULE 3.7
ENVIRONMENTAL
NONE
<PAGE> 33
SCHEDULE 3.8
INTELLECTUAL PROPERTY AND OTHER TANGIBLE ASSETS
NONE
<PAGE> 34
SCHEDULE 3.9
FINANCIAL STATEMENTS
<PAGE> 35
SCHEDULE 3.9A
EXCEPTIONS TO FINANCIAL STATEMENTS
NONE
<PAGE> 36
SCHEDULE 3.10
MATERIAL ADVERSE CHANGES
NONE
<PAGE> 37
SCHEDULE 3.13
TANGIBLE PERSONAL PROPERTY
NONE
<PAGE> 38
SCHEDULE 3.14
REAL PROPERTY
NONE
<PAGE> 39
SCHEDULE 3.15
INSURANCE
NONE
<PAGE> 40
SCHEDULE 3.19
EMPLOYEE BENEFIT PLANS
NONE
<PAGE> 41
LIST OF EXHIBITS
Exhibit A - Certificate of Merger
Exhibit B - Employment Agreement of Edward Kraus
Exhibit C - Non-Qualified Stock Option Agreement of Edward Kraus
Exhibit D - Employment Agreement of Robert Kraus
Exhibit E - Non-Qualified Stock Option Agreement of Robert Kraus
<PAGE> 42
Exhibit A
<PAGE> 43
Exhibit B
<PAGE> 44
Exhibit C
<PAGE> 45
Exhibit D
<PAGE> 46
Exhibit E
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Agreement is made by and between LifeQuest Medical, Inc. (the
"Company"), a Delaware corporation, and William H. Bookwalter ("Employee").
ARTICLE 1
COMPENSATION AND TERM
1.01 Basic Compensation. As compensation for the services to be
rendered hereunder, the Company shall pay Employee a salary of $8,333 per month
("Base Salary"), which shall be payable in at least monthly installments during
the term of this Agreement. Employee shall also be entitled to receive cash
commissions upon the terms set forth in Section 1.02 below.
In addition, the Company, Inc. ("LifeQuest") and the Employee have
entered into a Non-Qualified Stock Option Agreement of even date herewith
pursuant to which LifeQuest has granted to Employee non-qualified stock options
to receive up to 60,000 shares of Common Stock, $.001 par value ("Common
Stock"), of the Company, Inc. upon the terms and conditions set forth in such
agreement.
1.02 Commission. As additional compensation for the services to be
rendered hereunder, the Company shall pay Employee, within 30 days after the
end of each fiscal quarter in which Employee is employed by the Company, a
commission equal to 2% of Gross Annual Profit during the preceding calendar
quarter, beginning with the calendar quarter ending December 31, 1997.
For the purpose of calculating Employee's commission, "Gross Annual
Profit" shall mean the gross profit of the Company on sales of "WHB Products"
sold during each 12-month period during the term of this Agreement beginning
with the 12-month period ending September 30, 1998, as determined according to
generally accepted accounting principles but excluding commissions. The term
"WHB Products" as used herein shall mean those general surgical products
(excluding minimally invasive surgical products) and repair services sold or
initiated by Employee or any of the Company's sales force under the management
of Employee located in the States of Maine, Vermont, New Hampshire,
Connecticut, Massachusetts, Rhode Island, New York, New Jersey, Virginia and
such other states as the Company, in its sole discretion, may designate from
time to time.
1.03 Term. Subject to earlier termination pursuant to Article 5
hereof, this Agreement shall have a term commencing as of the execution date of
this Agreement and ending on September 30, 2000.
<PAGE> 2
ARTICLE 2
DUTIES OF EMPLOYEE
2.01 Duties. The Company hereby employs Employee to serve as Vice
President of the Company and General Manager of the W.H. Bookwalter business
operations of the Company, or in such other capacities as the Board of the
Company may direct from time to time, reporting directly to the Chief Executive
Officer of the Company, and Employee agrees to perform the duties of such
office as set forth in the bylaws of the Company or as the Board of the Company
may direct from time to time.
2.02 Other Activities. During the term of this Agreement Employee
shall devote his full-time efforts to his duties hereunder.
ARTICLE 3
EMPLOYEE BENEFITS
3.01 Medical and Dental Benefits. The Company agrees to include
Employee in any hospital, surgical, medical, disability and dental benefit
plan(s) that it or LifeQuest may adopt for their respective employees of the
Company.
3.02 Other Benefits. Employee shall be entitled to reasonable and
customary holidays and other benefits that are generally made available to
employees of the Company.
ARTICLE 4
OBLIGATIONS OF THE COMPANY
4.01 Office and Support Staff. The Company shall provide
Employee with such support services as are reasonable to Employee's position or
required for the performance of his duties.
ARTICLE 5
TERMINATION OF EMPLOYMENT
5.01 Termination by the Company for Cause. The Company may at its
option terminate this Agreement for "Cause" (as hereinafter defined) by giving
10 days written notice of termination to Employee.
The term "Cause" shall be limited to the occurrence of the following
events, as determined by the Board of Directors of the Company in its
reasonable judgment: (i) Employee breaches any of the terms of this Agreement,
and fails to cure such breach within 20 days after written notice by the
Company to Employee of such breach; (ii) Employee is convicted of a felony;
(iii) Employee fails, after at least one written warning, to perform duties
ordinarily and reasonably assigned to a vice president of the Company (other
than a failure due to death or physical or mental disability); (iv) Employee
intentionally engages in conduct which is demonstrably and materially injurious
to LifeQuest or one of its subsidiaries (the Company and
2
<PAGE> 3
LifeQuest and all of their affiliates and subsidiaries are hereinafter
collectively referred to as the "LifeQuest Parties") subject to any applicable
limitations and procedures contained in the Company's Employee Handbook; (v)
Employee commits fraud or theft of personal or the LifeQuest Parties' property
from any of the LifeQuest Parties' premises; (vi) Employee falsifies any of the
LifeQuest Parties' documents or records; (vii) Employee engages in acts of
gross carelessness or willful negligence to endanger life or property on any of
the LifeQuest Parties' premises; (viii) Employee engages in sexual harassment;
(ix) Employee uses, distributes, possesses or is under the influence of illegal
drugs, alcohol or any other intoxicant on any of the LifeQuest Parties'
premises; or (x) Employee intentionally violates state, federal or local laws
and regulations.
5.02 Termination on Grounds Other Than for Cause. This Agreement
shall terminate immediately on the occurrence of any one of the following
events:
(a) The occurrence of circumstances that make it
impossible or impracticable for the business of the
Company to be continued.
(b) The death of Employee.
(c) The loss of legal capacity by Employee.
(d) Insolvency of the Company.
(e) The continued incapacity on the part of Employee, in
the reasonable opinion of the Company, to perform his
duties for a continuous period of 60 days, unless
waived by the Company and a reasonable determination
by the Company that Employee has not performed his
duties during such period.
5.03 Option to Terminate if Employee Permanently Disabled. If
Employee becomes permanently disabled because of sickness, physical or mental
disability, or any other reason, so that it reasonably appears that Employee
will be unable to perform the essential aspects of his duties under this
Agreement, the Company shall have the option to terminate this Agreement
immediately by giving written notice of termination to Employee.
5.04 Effect of Termination on Compensation. In the event of the
termination of this Agreement prior to the completion of the term of employment
specified in it, pursuant to Section 5.01, 5.02 or 5.03, Employee shall be
entitled to the basic compensation earned by Employee under Section 1.01 to the
date of termination as provided in the Agreement, computed pro rata up to and
including that date, and 2.0% of Adjusted Gross Profit, if any, from the
preceding October 1, to the date of termination, and Employee shall be entitled
to no further compensation, including any compensation under Section 1.02 or
1.03, after the date of such termination.
3
<PAGE> 4
ARTICLE 6
PROPRIETARY PROPERTY; CONFIDENTIAL
INFORMATION; NON-COMPETITION
6.01 Duties. Employee understands and agrees that during the term
of this Agreement Employee's duties will include the conception and development
of valuable technology during the course and scope of employment, to be
collectively referred to in this Agreement as "Proprietary Information".
6.02 Ownership. Employee understands and agrees that Company
shall own all right, title and interest in and to all Proprietary Information
created within the scope of Employee's employment. In the case of works
authored or created by Employee, such works are considered a "work made for
hire" under 17 United States Code Section 101. All information and technology,
if any, created by Employee prior to his employment with the Company, and in
which Employee claims ownership, is shown in Schedule 6.2 attached hereto, and
shall not be included in the Proprietary Information.
6.03 Notice and Assistance. Employee shall give adequate written
notice to the Company as soon as practicable of all Proprietary Information
created by Employee during Employee's employment with the Company, assist the
Company in evaluating the Proprietary Information for patent, trade secret and
copyright protection and sign all documents and do all things necessary at the
expense of the Company to assist the Company in the protection, development,
marketing or transfer of such Proprietary Information.
6.04 Assignment. Employee hereby assigns and agrees to assign all
right, title and interest in and to such Proprietary Information to the Company
or its nominee. At the request of the Company, whether during or after the
termination of Employee's employment, Employee shall timely execute or join in
executing all papers or documents required for the filing of patent
applications and copyright registrations in the United States of America and
such foreign countries as the Company may in its sole discretion select, and
shall assign all such patent applications and copyrights to the Company or its
nominee, and shall provide the Company or its agents or attorneys with all
reasonable assistance in the preparation and prosecution of patent applications
and copyright registrations, including drawings, specifications, and the like,
all at the expense of the Company, and shall do all that may be necessary to
establish, protect or maintain the rights of the Company or its nominee in the
inventions, patent applications, Letters Patent and copyrights in accordance
with the spirit of this Agreement.
6.05 Confidential Information. Employee agrees to keep
confidential (i) all Proprietary Information, and (ii) all other information
protected by any of the LifeQuest Parties as trade secrets during the term of
this Agreement (including any leaves of absence) and will neither use nor
disclose the confidential information without written authorization by the
applicable LifeQuest Party for ten years thereafter. For the purposes of this
Agreement, such confidential information shall include information set forth in
any application for Letters Patent unless and until such information is
ultimately published. The Company and Employee mutually agree that the
following types of information shall not be protected by this Agreement:
4
<PAGE> 5
(a) Information already in the public domain at the time
Employee received it;
(b) Information which although disclosed in confidence to
Employee is later disseminated by the Company into the public domain;
(c) Information which although received in confidence by
Employee is subsequently disseminated into public domain by a third party
who has not breached any duty to any other party in disseminating such
information; and
(d) Information given by any of the LifeQuest Parties in
confidence to Employee which Employee is expressly authorized in writing by
the applicable LifeQuest Party to use or disclose thereafter.
Employee also understands and agrees that he will maintain in confidence all
information known to him by reason of his employment even if such information
is included in a redacted deposit of a work filed with an application for
copyright registration, if such deposit has been abridged in order to protect
the confidentiality of the information deposited with the Copyright Office.
For purposes of this Agreement, a trade secret "...may consist of any formula,
pattern, device or compilation of information which is used in one's business,
and which gives him an opportunity to obtain an advantage over competitors who
do not know or use it. It may be a formula for a chemical compound, a process
of manufacturing, trading or preserving materials, a pattern for machine or
other device, or a list of customers..." as commonly interpreted by the courts
of the State of Texas. Upon the termination of this Agreement, regardless of
how such termination may be brought about, Employee shall deliver to the
Company any and all documents, instruments, notes, papers or other expressions
or embodiments of Proprietary Property or confidential information which are in
Employee's possession or control.
6.06 Fiduciary Relationship. Employee, by virtue of his high
position of trust and reliance on him by the LifeQuest Parties, understands
that Employee enjoys a fiduciary relationship with the LifeQuest Parties in
carrying out his obligations under this Article 6. Accordingly, Employee
agrees to honor his obligations under this Agreement by conducting himself with
the highest degree of fairness and trust toward the LifeQuest Parties.
6.07 Customer Lists; Non-Solicitation. In consideration of the
benefits of this Agreement, including Employee's access to and limited use of
proprietary and confidential information of the Company, as well as training,
education and experience provided to Employee by the Company directly and/or as
a result of work projects assigned by the Company with respect thereto,
Employee hereby further covenants and agrees that for a period of one year
following the termination of this Agreement for any reason other than an
occurrence of an event described in the provisions of Sections 5.02(a) and
5.02(d) herein, Employee shall not, directly or indirectly, (a) use or make
known to any person or entity the names or addresses of any clients or
customers of any of the LifeQuest Parties, or any other information pertaining
to them, (b) call on, solicit, take away or attempt to call on, solicit or take
away any clients or customers of any of the LifeQuest Parties, nor (c) solicit
for employment, recruit, hire or attempt to recruit or hire any employees of
any of the LifeQuest Parties.
5
<PAGE> 6
6.08 Covenants Independent. The covenants contained in Section
6.07 of this Agreement will be construed as independent of any other provision
in this Agreement; and the existence of any claim or cause of action by
Employee against the Company will not constitute a defense to the enforcement
by the Company of said provisions. Employee understands that the provisions
contained in Section 6.07 are essential elements of the employment of Employee
and, but for the agreement of Employee to Section 6.07, the Company would not
have agreed to enter into this Agreement. Employee has been advised to consult
with counsel in order to be informed in all respects concerning the
reasonableness and propriety of Section 6.07 with specific regard to the nature
of the business conducted by the Company and Employee acknowledges that Section
6.07 is reasonable in all respects.
6.09 Equitable Relief. In the event of a breach or a threatened
breach by Employee of any of the provisions contained in Article 6 of this
Agreement, Employee acknowledges that the LifeQuest Parties will suffer
irreparable injury not fully compensable by money damages and, therefore, will
not have an adequate remedy available at law. Accordingly, any of the
LifeQuest Parties shall be entitled to obtain such injunctive relief or other
equitable remedy from any court of competent jurisdiction as may be necessary
or appropriate to prevent or curtail any such breach, threatened or actual. The
foregoing shall be in addition to and without prejudice to any other rights
that any of the LifeQuest Parties may have under this Agreement or at law or in
equity, including, without limitation, the right to sue for damages.
ARTICLE 7
GENERAL PROVISIONS
7.01 Notices. All notices or other communications required under
this Agreement may be effected either by personal delivery in writing or by
certified mail, return receipt requested. Notice shall be deemed to have been
given when delivered or mailed to the parties at their respective addresses as
set forth above or when mailed to the last address provided in writing to the
other party by the addressee.
7.02 Entirety of Agreement. This Agreement supersedes all other
agreements, either oral or in writing, between the parties to this Agreement,
with respect to the employment of the Employee by the Company. This Agreement
contains the entire understanding of the parties and all of the covenants and
agreements between the parties with respect to such employment.
7.03 Arbitration. Except for the provisions of Section 6 of this
Agreement, with respect to which the Company expressly reserves the right to
petition a court directly for injunctive and other relief, any controversy of
any nature whatsoever, including, but not limited to, tort claims or contract
disputes between the parties to this Agreement or between Employee, his heirs,
executors, administrators, legal representatives, successors and assigns, and
the LifeQuest Parties and their affiliates arising out of or related to this
Agreement, including the implementation, applicability and interpretation
thereof, shall, upon the written request of one party served upon the other, be
submitted to and settled by arbitration in San Antonio, Texas pursuant to the
rules of the American Arbitration Association. If the two parties cannot
jointly select a single arbitrator to determine the matter, one arbitrator
shall be chosen by each party
6
<PAGE> 7
(or, if a party fails to make a choice, by the American Arbitration Association
on behalf of such party) and the two arbitrators so chosen will select a third.
The decisions of the single arbitrator jointly selected by the parties, or, if
three arbitrators are selected, the decision of any two of them, will be final
and binding upon the parties and the judgment of a court of competent
jurisdiction may be entered thereon. Fees of the arbitrators and costs of
arbitration shall be borne by the parties in such manner as shall be determined
by the arbitrator or arbitrators.
7.04 Governing Law; Venue. This Agreement shall be subject to and
governed by the laws of the State of Texas. Non-exclusive venue for any action
permitted hereunder shall be proper in San Antonio, Bexar County, Texas, and
Employee hereby consents to such venue.
7.05 Assignment. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. Employee's rights under this Agreement
are not assignable and any attempted assignment thereof shall be null and void.
7.06 Headings. The headings of sections and subsections of this
Agreement are for convenience only and shall not in any way affect the
interpretation of any provision of this Agreement or of the Agreement itself.
7.07 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. If any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
7.08 Waiver. The waiver by any party of a breach of any provision
hereof shall not be deemed to constitute the waiver of any prior or subsequent
breach of the same provision or any other provisions hereof. Further, the
failure of any party to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement unless such party expressly waives such
provision pursuant to a written instrument which refers to this Agreement and
is signed by such party.
7.09 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This Agreement
shall be binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of the parties reflected hereon as
signatories.
EXECUTED the day of September, 1997.
------
LIFEQUEST MEDICAL, INC.
By:
-------------------------------------
Herbert H. Spoon,
President and Chief Executive Officer
------------------------------------
William H. Bookwalter
7
<PAGE> 8
<PAGE> 9
SCHEDULE 6.2
PROPRIETARY PROPERTY CLAIMED BY EMPLOYEE
Proprietary Property Claimed:*
----------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ---------------------------------
* None, if left blank
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997, AND THE YEAR TO DATE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PERIOD THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 966,119
<SECURITIES> 243,801
<RECEIVABLES> 1,876,662
<ALLOWANCES> 86,891
<INVENTORY> 1,671,885
<CURRENT-ASSETS> 4,711,028
<PP&E> 1,556,413
<DEPRECIATION> 879,855
<TOTAL-ASSETS> 8,374,901
<CURRENT-LIABILITIES> 3,191,412
<BONDS> 13,895
0
0
<COMMON> 6,411
<OTHER-SE> 5,047,018
<TOTAL-LIABILITY-AND-EQUITY> 8,374,901
<SALES> 10,638,828
<TOTAL-REVENUES> 10,723,840
<CGS> 6,188,081
<TOTAL-COSTS> 11,386,524
<OTHER-EXPENSES> 500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,365
<INCOME-PRETAX> (718,334)
<INCOME-TAX> 0
<INCOME-CONTINUING> (718,334)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (718,334)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
