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SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
/X/ Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
/ / Definitive Information Statement
U.S. MEDICAL PRODUCTS, INC.
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(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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U.S. MEDICAL, INC.
12201 TECHNOLOGY BOULEVARD, SUITE 100
AUSTIN, TEXAS 78727-6208
(512) 257-8787
INFORMATION STATEMENT
INTRODUCTION
This Information Statement is being furnished to holders of shares of
common stock, no par value (the "Common Stock"), of U.S. Medical Products,
Inc., a Texas corporation (the "Company"). It is in connection with the written
consent of Metrax Medical, Inc., a Delaware corporation ("MMI"), the holder
of approximately 80% of the Company's outstanding Common Stock, to the sale
to Hayes Medical, Inc., a California corporation ("Hayes Medical"), of
substantially all of the Company's assets pursuant to (i) a License Agreement
(the "License Agreement") and (ii) an Asset Purchase Agreement (the "Asset
Purchase Agreement"), both of which, dated as of May 20, 1997, are by and
between the Company and Hayes Medical (the proposed sale pursuant to the
License Agreement and the Asset Purchase Agreement is hereafter referred to
as the "Proposed Sale"). The consideration paid by Hayes Medical under the
License Agreement was $400,000 in cash and a promissory note in the amount of
$150,000. The consideration to be paid by Hayes Medical under the Asset
Purchase Agreement is equal to (i) $300,000 in cash (subject to adjustment);
(ii) a promissory note, which shall be in the principal amount of 56.25% of
the agreed upon historical cost of the assets less the certain liabilities to
be assumed by Hayes Medical, less the $300,000 cash payment. The promissory
notes will be due in eighteen equal monthly installments including accrued
interest. The notes will bear interest at ten percent (10%) per annum and
will be secured by inventory of Hayes Medical.
Hayes Medical has been the Company's exclusive distributor since January
1997. On January 15, 1997, the Company accepted a purchase order by a
wholly-owned subsidiary of Hayes Medical to purchase inventory with a book
value of $1,780,000 dollars in exchange for a cash purchase price of 56.25%
of the net book value of such inventory ($1,000,000). The Company used the
proceeds from this sale to pay to MMI $1,000,000 in partial satisfaction of
an obligation to MMI represented by a promissory note in the principal amount
of $1,100,000 (the "Company Note"). MMI acquired the Company Note and its 80%
equity interest in the Company from the Company's prior majority shareholder,
Durian Securities, Inc. ("Durian"), a private investment company managed and
administered by Smith (Management Co., Inc. ("Smith Management"). MMI used the
proceeds from the Company's repayment of the Company Note to satisfy its
outstanding obligation to Durian, which MMI incurred when it purchased the
Company Note and Common Stock of the Company. See, "The Proposed Sale --
Background of the Proposed Sale."
The final purchase price will be determined based on a final closing
statement, which the Company shall deliver to Hayes Medical within 30 days after
the Closing Date. The Company delivered to Hayes Medical a draft closing
statement, attached as Annex A to this Information Statement and is incorporated
herein by reference. See "The Asset Purchase Agreement--Purchase Price."
Copies of the License Agreement and the Asset Purchase Agreement are attached
hereto as Annex B and C, respectively.
This Information Statement is first being mailed to stockholders on or
about June __,1997, and it is accompanied by (i) a copy of the Company's latest
Form 10-KSB for the year ended December 31, 1996, as amended, and (ii) a copy of
the Company's latest Form 10-QSB for the quarter ended March 31, 1997.
This Information Statement is furnished for information purposes only. THE
COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
THE PROPOSED SALE IS CONDITIONED UPON, AMONG OTHER THINGS, THE SECURING OF
ALL NECESSARY APPROVALS AND CONSENTS. THERE CAN BE NO ASSURANCE THAT THE
CONDITIONS TO THE PROPOSED SALE WILL BE SATISFIED OR WAIVED AND THAT THE
PROPOSED SALE WILL BE CONSUMMATED. SEE "THE ASSET PURCHASE AGREEMENT--
CONDITIONS."
Since the Proposed Sale involves a sale of assets, the stockholders of the
Company will retain their equity interest in the Company following its
consummation, which will have received the proceeds from the Proposed Sale. See
"The Proposed Sale--Use of Proceeds; Conduct of Business Following the Proposed
Sale."
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THE INFORMATION CONTAINED HEREIN UNDER "SUMMARY--THE COMPANIES--HAYES
MEDICAL, INC." AND "CERTAIN INFORMATION CONCERNING HAYES MEDICAL" HAS BEEN
SUPPLIED BY HAYES MEDICAL. NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
INFORMATION STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material also can be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549 at prescribed rates. Until
June 16, 1997, the Common Stock and warrants to purchase Common Stock were
traded on the Boston Stock Exchange. Reports and other information
concerning the Company may be inspected at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's web site
is http://www.sec.gov.
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TABLE OF CONTENTS
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . ii
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Stockholder Consent . . . . . . . . . . . . . . . . . . . . . . . . 1
The Proposed Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE STOCKHOLDER CONSENT. . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE PROPOSED SALE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Background of the Proposed Sale . . . . . . . . . . . . . . . . . . . . 4
Opinion of the Advisor. . . . . . . . . . . . . . . . . . . . . . . . . 5
Approval of the Board of Directors; Reasons for the Proposed Sale . . . 8
Certain Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . 9
Use of Proceeds; Conduct of Business Following the Proposed Sale. . . . 9
Interests of Certain Persons in the Proposed Sale . . . . . . . . . . . 9
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Dissenters' Appraisal Rights. . . . . . . . . . . . . . . . . . . . . . 9
THE LICENSE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
THE ASSET PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 11
Assets to be Sold and Liabilities to be Assumed . . . . . . . . . . . . 11
Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Representations and Warranties and Certain Covenants. . . . . . . . . . 12
Employment and Employee Benefit Plans . . . . . . . . . . . . . . . . . 13
Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
CERTAIN INFORMATION CONCERNING THE HAYES MEDICAL . . . . . . . . . . . . . 14
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . 15
RECENT DEVELOPMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT. . . . . . . . . . . . . . . . . . . . 16
MARKET PRICE DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Annexes
A. Draft Closing Statement. . . . . . . . . . . . . . . . . . . . . . A-1
B. License Agreement. . . . . . . . . . . . . . . . . . . . . . . . . B-1
C. Asset Purchase Agreement . . . . . . . . . . . . . . . . . . . . . C-1
D. Opinion of the Advisor . . . . . . . . . . . . . . . . . . . . . . D-1
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is qualified
in its entirety by, the more detailed information contained in this Information
Statement and the Annexes hereto. Unless otherwise defined herein, capitalized
terms used in this summary have the respective meanings ascribed to them
elsewhere in this Information Statement. Stockholders are urged to read this
Information Statement and the Annexes hereto in their entirety.
THE COMPANIES
U.S. Medical Products, Inc. The Company was formed in 1991 to develop, market
and distribute hip and knee prostheses, together
with corresponding surgical instruments utilized
to implant such devices. Its products are joint
reconstructive devices, namely the Consensus -
Knee, Hip and Bipolar Systems, consisting of
prosthesis that replace all or a part of the
patient's own diseased or fractured joint,
together with the specialized surgical instruments
used to implant these devices. The Company
marketed these products in the United States,
Italy, Germany, Switzerland, Austria and Turkey.
Hayes Medical, Inc. Hayes Medical was formed to capitalize on emerging
business opportunities in the medical device
industry. Its mission is to become an industry
leader in the creation, evolution, and production
of world class medical products and technologies
for the orthopedic implant and device market. It
will sell its products to the medical profession
throughout the United States and other countries.
Hayes Medical is in the development stage and has
yet to generate any significant product revenue,
but has recently begun to sell its products to
outside customers.
THE STOCKHOLDER CONSENT
Consent Required Article 5.10 of the Texas Business Corporation Act
permits a Texas corporation to sell all, or
substantially all, of its assets if the sale is
approved by the affirmative vote of the holders of
at least two-thirds of the outstanding shares of
the corporation entitled to vote thereon. Article
fifteen of the Corporation's Articles of
Incorporation further allows such sale upon the
approval of a majority of the shares entitled to
vote for such a sale. MMI owns approximately 80%
of the outstanding Common Stock. In order to
satisfy a condition to the closing of the Asset
Purchase Agreement, MMI intends to consent in
writing to the adoption of the License Agreement
and the Asset Purchase Agreement pursuant to
Section 9.10 of the Texas Business Corporation
Act. Accordingly, no vote of any other stockholder
is necessary and stockholder votes are not being
solicited. See "The Stockholder Consent."
THE PROPOSED SALE
Assets to Be Sold The Company has agreed to sell to Hayes Medical
substantially all of the Company's assets and its
intellectual property, which constitute the
Company's business relating to its orthopedic
product lines (the "Product Lines"). The assets to
be sold or transferred by the Company to Hayes
Medical pursuant to the Asset Purchase Agreement
(the "Assets") include certain trade and other
notes and accounts receivable of the Company,
inventory, all intangible assets used in the
Company's operation or maintenance of the Company,
including, goodwill, and other assets of the
Company. Pursuant to the Asset Purchase
Agreement, Hayes Medical will assume and
thereafter be responsible for paying
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and satisfying certain of the Company's
liabilities (the "Assumed Liabilities"). Pursuant
to the License Agreement, Hayes will acquire the
Company's intellectual property relating to the
Product Lines.
Purchase Price The consideration paid by Hayes Medical under the
License Agreement was $400,000 in cash and a
promissory note, secured by the inventory of Hayes
Medical, in the amount of $150,000 at 10% interest
per annum payable over eighteen months.
The Asset Purchase Agreement provides for an
aggregate consideration, to be delivered to the
Company at the Closing, equal to: (i) $300,000 in
cash (subject to adjustment); (ii) a secured
promissory note, which shall be in the principal
amount of 56.25% of the agreed upon historical
cost of the Assets less the Assumed Liabilities at
the Closing, less the $300,000 cash payment and
less any reduction pursuant to Hayes Medical's
right of offset. The Note will be due in eighteen
equal monthly installments including accrued
interest with the first such monthly installment
being due the first day of the first month
beginning after the Closing Date and subsequent
installments being due the first day of each month
thereafter. The Note will bear interest at ten
percent (10%) per annum and will be secured by the
inventory of Hayes Medical.
The final purchase price will be determined based
on the Final Closing Statement, which the Company
shall deliver to Hayes Medical within 30 days
after the Closing Date.
Closing of the Proposed Sale The Closing will take place on that date and time
as the Company and Hayes Medical mutually agree
that all conditions precedent to the obligations
of the parties under the Asset Purchase Agreement
have been met. See "The Asset Purchase
Agreement--Conditions."
Approval by the Board The Board of Directors believes that the Proposed
Sale is expedient and for the best interests of the
Company, and has approved the Proposed Sale. The
Board of Directors' approval of the Proposed Sale
is based upon a number of factors described in this
Information Statement. See "The Proposed Sale
Approval by the Board of Directors; Reasons for the
Proposed Sale" and "The Proposed Sale--Interests
of Certain Persons in the Proposed Sale."
Opinion of The Advisor The William Jamieson Group, Inc., a Financial
Advisory Firm ("the Advisor"), was engaged to
render an opinion as to the fairness from a
financial point of view of the consideration to be
received by the Company pursuant to the Asset
Purchase Agreement and the License Agreement.
The Advisor has delivered to the Board of
Directors its opinion to the effect that, as of
the date of its opinion and subject to the
assumptions made, matters considered and limits of
the review undertaken, as set forth in such
opinion, the consideration to be received by the
Company pursuant to the Proposed Sale is fair from
a financial point of view to the Company.
A copy of the opinion of the Advisor is attached
to this Information Statement as Annex D. The
attached opinion sets forth the assumptions made,
matters considered, the scope and limitations of
the review undertaken and procedures followed by
the Advisor and should be read in its entirety.
See "The Proposed Sale--Opinion of Advisor."
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Use of Proceeds; Conduct All of the proceeds from the Proposed Sale will be
of Business Following the used to repay outstanding indebtedness of the
Proposed Sale Company, including indebtedness owed to MMI and to
an affiliate of MMI.
Following the proposed sale, the Company will
consider several alternative arrangements with
MMI to sell medical and personal wellness
products manufactured and marketed by Metrax
GmbH, MMI's wholly-owned subsidiary. Metrax
GmbH, which is based in Rottweil, Germany,
manufactures and markets medical and personal
wellness products worldwide. Its sales
revenues in 1996 exceeded $15 million. Its
primary markets presently are Europe, Asia and the
Middle East. MMI's objective is to expand product
sales and distribution of its products in the
United States through the Company.
In addition to a possible merger between MMI
and the Company, the Company is also
considering, in the alternative, an exclusive
distribution arrangement with MMI. The
ultimate arrangement will be determined in
large part based on the ability of the Company
to attract financing on favorable terms under
the arrangement. See "The Proposed Sale--Use of
Proceeds; Conduct of Business Following the
Proposed Sale."
Certain Tax Consequences The Proposed Sale will be a taxable transaction to
Federal Income Tax Purposes the Company for United States Federal income tax
purposes. The Company recorded at December 31,
1996 a net deferred tax liability of $432,264 in
anticipation of the estimated tax liability
resulting from the Proposed Sale.
Conditions to the Proposed The obligations of the Company and Hayes Medical
to consummate the Proposed Sale are subject
to the satisfaction or waiver of certain
conditions customary to a transaction of this
nature, including, among others, the occurrence of
certain events described in "The Asset Purchase
Agreement-Condition."
Termination The Asset Purchase Agreement may be terminated and
abandoned at any time prior to the Closing Date by
the written agreement of the Company and Hayes
Medical. See "The Asset Purchase
Agreement--Termination."
Interests of Certain Persons For information relating to the interests of
in the Proposed Sale certain persons in the Proposed Sale, see "The
Proposed Sale--Interests of Certain Persons in the
Proposed Sale."
Dissenters' Appraisal Rights Texas provides dissenters' rights for disposition
of all or substantially all of a Texas
corporation's assets. The Company will within ten
(10) days after the date the Proposed Sale is
effected, mail to each shareholder of record as of
the effective date of the Proposed Sale, notice of
the fact and date of the Proposed Sale and that
the shareholder may exercise the shareholder's
right to dissent from the Proposed Sale.
Shareholders may then make written demand, within
twenty (20) days after the mailing of the notice,
for payment of the fair value of the shareholder's
shares. Failure to make demand within the twenty
day period will result in the shareholder being
bound by the sale.
The Company must accept, or reject by making a
counteroffer as to the estimated fair value of the
shares, the dissenting shareholder's demand for
payment. Should the dissenting shareholder reject
the counteroffer, then within 120 days after the
date on which the Proposed Sale was effective, the
shareholder or the Company may file a petition in
any court of competent jurisdiction in the county
in which the principal office of the domestic
corporation is located, asking for a finding and
determination of the fair value of the
shareholder's share. See "The Proposed Sale
-Dissenters' Appraisal Rights."
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THE STOCKHOLDER CONSENT
Article 5.10 of the Texas Business Corporation Act permits a Texas
corporation to sell all, or substantially all, of its assets if the sale is
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding shares of the corporation entitled to vote thereon. Article fifteen
of the Corporation's Articles of Incorporation further allows such sale upon the
approval of a majority of the shares entitled to vote for such a sale.
MMI owns approximately 80% of the outstanding Common Stock. In order to
satisfy a condition to the closing of the Asset Purchase Agreement, MMI intends
to consent in writing to the adoption of the License Agreement and the Asset
Purchase Agreement pursuant to Section 9.10 of the Texas Business Corporation
Act. Accordingly, no vote of any other stockholder is necessary and stockholder
votes are not being solicited.
Subject to the terms and conditions of the Asset Purchase Agreement, it is
contemplated that the Proposed Sale will be consummated not earlier than 20 days
after the mailing of this Information Statement and following satisfaction or
waiver of the conditions contained in the Asset Purchase Agreement. See "The
Asset Purchase Agreement--Conditions." This Information Statement is first
being mailed to stockholders on _________ , 1997.
THE PROPOSED SALE
Background Of The Proposed Sale
U.S. Medical Products, Inc. (the "Company") was incorporated in Texas on
March 25, 1991. The Company was formed to develop, market and distribute hip
and knee prostheses, together with corresponding surgical instruments utilized
to implant such devices. The Company marketed these products in the United
States, Italy, Germany, Switzerland, Austria and Turkey.
Since as early as 1995, the Company has encountered a number of unexpected
delays in obtaining FDA approvals and in bringing its products to market. These
delays severely restricted the Company's ability to generate adequate cash flow
from operations, and the Company's cash requirements since have significantly
exceeded its capital resources and cash generated from operations.
Specifically, the Company experienced cash flow deficiencies from operations as
a result of significant expenditures, including expenditures related to research
and development, product introduction, obtaining FDA approvals or clearances to
market products, obtaining and maintaining manufacturing and distribution
arrangements, and maintaining inspection and clean room facilities.
During 1994 and 1995, the Company experienced cash flow deficiencies and
incurred operating losses that resulted in an accumulated deficit of $9,341,842
at December 31, 1995. During this period, the Company funded its operations
primarily through the sale of equity securities and the issuance of promissory
notes to its majority shareholder at that time, Smith Management and related
entities. During 1995, Smith Management provided $5,537,410 in debt
financing at 10% interest to the Company and purchased 1,257,532 shares of
Common Stock and 1,474,250 Class A Redeemable Common Stock Purchase Warrants
for $250,000 in cash. Additionally, during 1995, Smith Management converted
$899,551 of debt due from the Company into 2,432,534 shares of Common Stock
and 5,304,653 Class A Warrants. At December 31, 1995, the aggregate face
amount of convertible debt and promissory notes due to Smith Management was
$4,988,898 of which the principal amount of $4,637,859 was outstanding.
Subsequent to December 31, 1995, the Company issued demand notes in favor
of Smith Management in the amounts of $293,022 and $5,000,000. The note in the
amount of $293,022 was utilized to capitalize interest then due and owing to
Smith Management. A portion of the proceeds of the $5,000,000 note was used to
discharge the principal balances of other promissory notes to Smith Management
then outstanding. In February 1996, Smith Management transferred its promissory
notes then outstanding and its equity in the Company to Durian, a private
investment company managed and administered by Smith Management. On that same
date, Durian increased its equity position in the Company from 53% to 80%
through the conversion of $1,849,449 of convertible debt into 9,307,994 shares
of Common Stock and 10,492,046 Class A Warrants. At March 1996, the
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face amount of the promissory notes issued by the Company in favor of Durian was
$5,293,021 of which the principal amount of $4,289,021 was outstanding.
The Company's current majority shareholder, MMI, acquired control of the
Company on August 19, 1996, by acquiring from Durian, which is unrelated to
MMI, 12,998,060 shares of Common Stock of the Company and 17,270,948 Class A
Warrants and the Company Note issued by the Company to Durian, dated as of
August 19, 1996 in the principal amount of $1,100,000. In consideration for
Durian's equity interest in the Company and the Company Note, MMI paid Durian
$25,000 in cash and issued to Durian a promissory note in the principal
amount of $975,000, bearing interest at the rate of ten percent (10%) per
annum (the "MMI Note"). Consequently, at face value, the acquisition was at
no cost to MMI.
In connection with MMI's acquisition of Durian's interest in the Company,
Durian contributed to the capital of the Company principal and accrued
interest on debt owed by the Company to Durian in the aggregate amount of
$4,980,731, leaving a principal balance of $1,100,000, for which the Company
issued the Company Note. In consideration for this contribution by Durian,
MMI agreed that it would make a tax election that made the sale of Durian's
interest in the Company a deemed sale of the Company's assets. As a result of
this election, the assets of the Company were written down, for tax purposes,
by approximately $5 million (to the amount of consideration given for 80% of
the Company). This "loss from deemed sale of assets" was utilized by Durian.
At December 31, 1996, the Company recorded a distribution of $432,264 to its
former majority shareholder (Durian) for the benefit Durian received for the
use of the approximately $1.2 million current tax loss incurred through the
date of the sale to MMI. In addition, because, as a result of the writedown
of assets, the tax basis of the Company's assets was below its book basis at
December 31, 1996, the Company recorded a deferred tax liability at the end
of 1996, in anticipation of the tax liability resulting from the Proposed
Sale. See Note 6 to the Company's Financial Statement for the year ended
December 31, 1996 for more complete information regarding income taxes.
Principal and interest under the MMI Note were due and payable in four
installments in August 1996, November 1996, January 1997 and April 1997. The
MMI Note was secured by the Company Note and all collateral securing the
Company's obligations under the note, which consisted of substantially all of
the Company's assets. MMI's obligations under the note were also guaranteed
by Metrax GmbH, a German based medical products company ("Metrax GmbH"), and
the principal shareholder of Metrax GmbH. Metrax GmbH is a wholly owned
subsidiary of MMI. MMI's original purpose in purchasing the Company's Common
Stock and the Company Note was to effect a business combination between the
Company and MMI. Metrax GmbH is in the business of developing, manufacturing
and distributing internationally professional medical products and consumer
wellness products.
Following MMI's purchase of the Common Stock, the directors and
management of the Company resigned and were replaced by the Company's current
Board of Directors and management. When MMI acquired the Company, the
Company's cash requirements significantly exceeded its capital resources and
cash generated from operations. During the fourth quarter of 1996, the
current Board of Directors and management began an evaluation of the
Company's strategic alternatives in light of the Company's financial
condition, insolvency, market conditions and other considerations. During
this period, management was unsuccessful in its efforts to secure additional
working capital, in part because substantially all of the assets of the
Company were encumbered by Durian's security interest in the Company's
assets. In addition, MMI did not have suffient cash flow to provide working
capital to the Company. During this period of time, MMI also was unsuccessful
in seeking to obtain its own financing. In view of the inability to secure
financing, it was determined that a reduction in the Company's outstanding
indebtedness was necessary to address current liquidity demands to continue
as a going concern and to avoid an involuntary sale of its assets. In
addition, although MMI had paid the August 1996 and November 1996
installments on the MMI Note in the aggregate amount of $350,000, it was
unable to satisfy its remaining obligations under the MMI note, including the
January installment obligation of $250,000, until the Company satisfied its
obligation to MMI under the Company Note. An involuntary sale of the
Company's assets would likely have impaired the Company's ability to repay
its obligation to MMI under the Company Note.
In December 1996, the Company initiated discussions with Hayes Medical
about a sale of the Company's inventory. In order to obtain liquidity, on
January 15, 1997, The Company accepted a purchase order by a wholly-owned
subsidiary of Hayes Medical (the "Distributor") to purchase inventory with a
book value of $1.78 million dollars in exchange for a cash purchase price of
56.25% of the net book value of such inventory ($1.0 million) and accepted an
offer by the Distributor to act as the Company's exclusive domestic
distributor. In order to avoid an involuntary sale of the Company's assets
by its creditors, and by Durian, the Company used the proceeds from the sales
to the Distributor to pay to MMI $1,000,000 in partial satisfaction of the
Company Note. MMI then used approximately $575,000 of these proceeds to
satisfy its obligation to Durian under the MMI Note and at the same time
loaned $165,000 to the Company. On February 1, 1997, the Company granted to
the Distributor world wide distribution rights and accepted a purchase price
of 56.25% of the inventory's book value ($.3 million dollars). On February 1
the Company also entered into a letter of intent with Hayes Medical to sell
certain tangible and intangible assets related to the Company's orthopedic
product lines (the "Product Lines"). On April 7, 1997, the Company signed an
amendment to the distribution agreement whereby up to an additional $700,000
of inventory could be purchased at a price of 30% above cost (prior to
valuation reserves) for new inventory or 56.25% of historical cost (prior to
valuation reserves) for existing inventory. Additional future purchases made
under this agreement, if any, will be made at a price to be agreed upon by
both parties.
During its negotiations with Hayes Medical, the Company consulted its
independent Advisor on various issues concerning the Proposed Sale, including
the purchase price and other issues relating to the fairness of the terms of
the Proposed Sale. On May 20, 1997 the Board, considering the factors
referred to below under "Approval of the Board of Directors; Reasons for the
Proposed Sale," determined that the Proposed Sale was expedient and for the
best interests of the Company and voted to approve the Asset Purchase
Agreement and the License Agreement, subject to satisfaction of the
conditions of closing of the Asset Purchase Agreement.
Opinion Of The Independent Advisor
On February 11, 1997, the Company retained the Advisor to render a fairness
opinion in connection with the Proposed Sale. The Company selected the Advisor
based upon the Advisor's qualifications, expertise and
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reputation as a valuation advisor, as well as the Advisor's prior familiarity
with the Company. Prior to retention by the Company, the Advisor had been
retained jointly by MMI and its financial consultant to provide valuation
services in conjunction with proposed financing transactions for MMI and for
the Company. The Advisor provides business valuation, fairness and solvency
opinions, economic loss analysis, strategic and capital planning and related
investment banking services. It has offices in Los Angeles and San
Francisco, California. The Advisor delivered its opinion to the Company to
the effect that based upon the assumptions made, matters considered and
limits of the review undertaken, as set forth in such opinion, the Proposed
Sale is fair to the Company's shareholders and the Company from a financial
point of view.
The full text of the Advisor's written opinion dated the date of this
Information Statement is attached hereto as Annex D to this Information
Statement and is incorporated herein by reference. Stockholders of the Company
are urged to, and should, read the opinion carefully and in its entirety for the
assumptions made, matters considered and limits of the review undertaken by the
Advisor. Although the Company believes that the summary below describes the
material portions thereof, such summary of the opinion of the Advisor set forth
herein is qualified in its entirety by reference to the full text of such
opinion.
In arriving at its opinion, the Advisor reviewed the Asset Purchase
Agreement, the Distribution Agreement and the License Agreement and certain
publicly available business and financial information relating to the Company
and Hayes Medical. The Advisor also reviewed certain other information
furnished to the Advisor by the Company and discussed the business and
prospects of the Company with the Company's management. In addition, the
Advisor also considered certain financial data of the Company and compared
that data with stock market data for publicly held companies in businesses
similar to those of the Company. The Advisor also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which it deemed relevant.
In connection with its review, the Advisor did not assume any
responsibility for independent verification of any of the foregoing
information and relied on its being complete and accurate in all material
aspects. In addition, the Advisor did not make an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the
Company, nor was it furnished with any such evaluations or appraisals. The
Advisor's opinion was necessarily based upon financial, economic, market or
other conditions as they existed and could be evaluated on the date of the
opinion. In connection with its engagement, the Advisor was not requested
to, and did not, solicit third party indications of interest in acquiring the
business of the Company, nor was the Advisor retained to advise the Company
with regards to alternatives to the Prepared Sale. In addition, although the
Advisor evaluated the fairness of the consideration to be received by the
Company from a financial point of view, the Advisor was not asked to and did
not recommend the form or amount of consideration payable in the Proposed
Sale.
In arriving at its opinion and making its presentation to the Board of
Directors, the Advisor performed a variety of financial analyses, including
those summarized below. The summary set forth below includes certain of the
financial analyses discussed by the Advisor with the Board of Directors, but
does not purport to be a complete description of the analyses performed by the
Advisor in arriving at its opinion. Arriving at a fairness opinion is a complex
process that involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not necessarily
susceptible to partial analysis or summary description. The Advisor believes
that its analyses must be considered as a whole and that selecting portions of
its analyses or portions of the factors considered by it, without considering
all analyses and factors, could create an incomplete view of the evaluation
process underlying its opinion.
In performing its analyses, the Advisor made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control
of the Company. These assumptions included the accuracy of the Company's
management information and judgments with regard to the Company's general
business activities and strategic plans. Any estimates incorporated in the
analyses performed by the Advisor are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable
than suggested by such analyses. Additionally, estimates of the value of
businesses and securities neither purport to be appraisals nor necessarily
reflect the prices at which businesses or securities may actually be sold.
Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. An analysis of publicly traded comparable companies
is not mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies or the companies involved in comparable acquisition
transactions and other factors that could affect the public trading value of
the comparable companies or company or transaction to which they are being
compared.
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<PAGE>
The following is a summary of the Advisor's opinion. In connection with
preparing its opinion the Advisor reviewed a number of documents, including:
the letter of intent for sale of assets to Hayes Medical; the Asset Purchase
Agreement; the License Agreement; the Worldwide Exclusive Distributor
Agreement dated February 1, 1997, including executed purchase orders;
physical inventory detail dated March 31, 1997; audited financial statements
for the Company for December 31, 1996 and the net assets in liquidation of
the Company; audited financial statements for the Company for 1995 and 1994;
interim financial statements for March 31,1997; interim financial statement
through May 1997; the Company's 5 year pro forma income statement dated
November, 1996; 1996 Marketing Plan and quarterly pro forma income statement;
detailed list of account receivables with aging information, and list of all
account payables and creditors; detailed closing Binder dated May 21, 1997;
reports filed by the Company with the SEC under the Securities Exchange Act
of 1934; Purchase Agreement dated August 19, 1996 between MMI and Durian; the
Contribution Agreement dated August 21, 1996, between the Company and Durian;
the Company's shareholder list as of February 5, 1997; detail on various
stock option plans and warrants issued to purchase the common stock of the
Company; various documents, memoranda prepared by the Company management,
including but not limited to (i) a summary of the Company's operations and
history, (ii) background information on key management personnel, (iii) the
Company's organizational structure, (iv) intellectual property assets
schedule dated February 24, 1997, (v) summary of the Company's Premarket
510(k) notifications, (vi) joint defense agreement between USMP and Smith
Management relative to the defense of lawsuit entitled 1212 HP, Ltd. 1826,
Inc., et al. and documents related to a claim made by Meridian Capital Group
for fees in connection with financial advisory services provided to the
majority shareholder of the Company in conjunction with efforts to arrange
financing, (vii) various articles, scientific papers, product brochures and
documents describing among other things the Company's products and
technology, commercial applications along with industry and competitor
research covering certain segments of the orthopedics market - hip, knee and
small joint prostheses, trauma devices, and bone anchors; OTC bulletin Board
Daily stock price and volume detail; various documents, memoranda prepared by
the Company management, including but not limited to (i) management
discussion relative to its efforts to secure working capital financing to
meet operating shortfall along with weekly cash flow projections for various
periods in 1996 and 1997, (ii) management discussion relative to its
assessment of the alternatives to the Company to meet its financial
responsibilities to creditors, including reducing expenses, securing working
capital debt financing, sale or equity and or the sale of assets, as
alternatives to filing bankruptcy by the Company, (iii) management review of
the impact of the sale of assets on its employees, customers, suppliers and
creditors and (iv) schedule of cash to transactions between USMP and MMI;
copies of press releases made during the period 1997 and 1996; copies of all
employment agreements and list of officers and directors with background
information and organizational structure; schedule of contracts in which the
Company is obligated; the Company facilities description and general post
transaction relocation plan; business and marketing plan from Hayes Medical
including Hayes Medical current year assessment of distributor sales of the
Company's products; and the December 31, 1996 audited financial statement for
Hayes Medical.
In addition to the foregoing, the Advisor made inquiries of certain
officers of the Company who have senior responsibility for operating matters
regarding (i) the operations, financial condition, future prospects and
projected operations and performance of the Company, (ii) whether management
is aware of any events or conditions which might cause any of the assumptions
set forth in this Opinion to be incorrect, (iii) the nature of conversion of
debt equity of the Company and conversion of debt to capital by a third party
note holder during 1996, and (iv) management's continuing assessment of the
deteriorating financial condition of the Company during 1996 and since
December 31, 1996, the date of the Company's most recent Audited Consolidated
Statement of Financial Condition; certain financial forecasts and
accompanying assumptions prepared by the Company management for the years
ending December 31, 1996 and 1997 were reviewed, and the assumptions
underlying such forecasts were discussed with officers of the Company;
discussions were held with management of the Company to review certain key
aspects of the operating strategy for 1996 and 1997 following the acquisition
of a majority position in the Company's equity by MMI and the subsequent
management re-structuring, and the circumstances surrounding the Company's
decision to pursue the sale of substantially all of its assets and reorganize
its business activities through a planned merger with its majority
shareholder. In addition, the Advisor analyzed the Company's common stock
trading prices and volumes for the period from January 2, 1996 to March 10,
1997
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<PAGE>
to March 18, 1997 to ascertain stock price and volume levels and volatility.
The Advisor also performed generally recognized financial analysis and
valuation procedures to ascertain the financial condition of the Company as
well as to estimate its value based upon the appropriate standard of value
considering the circumstances. The Advisor's analysis included an examination
of the relative values received by the Company in contrast to the unadjusted
asset value reported by the Company in its financial statements at December
31, 1996 and March 31, 1997; an analysis of the distribution agreements
entered into between the Company and Hayes Medical; a liquidation analysis
estimated at $669,916, excluding direct and indirect liquidation costs, taxes
on income from asset disposal, if any, interim losses or gains and net
present value discount; an analysis of the present value of future license
royalty estimated at $553,000; an assessment of Hayes Medical; and an
analysis of the effect of the transactions on the Company's creditors,
vendors, employees and shareholders. This analysis was presented to the
Board of Directors of the Company.
Pursuant to the terms of the Advisor's engagement, the Company agreed to
pay the Advisor a fee for rendering a fairness opinion in connection with the
Proposed Sale. The Advisor's aggregate fee for rendering the fairness
opinion in connection with the Proposed Sale will be approximately $40,000,
in addition to reasonable out-of-pocket expenses, which is estimated to be
less than $3,000. The Advisor had been previously retained by MMI and MMI's
financial advisor in October 1996 in connection with proposed financing for MMI
and the Company. The Advisor was paid approximately $26,000 for these services.
Approval Of The Board Of Directors; Reasons For The Proposed Sale
The Board of Directors believes that the Proposed Sale is expedient and
for the best interests of the Company. Accordingly, the Board of Directors
has approved the Proposed Sale. In reaching its determination, the Board of
Directors consulted with the Company's management as well as the Advisor, and
considered the following factors:
1. Current industry, economic and financial market conditions relating to
the Company and the Product Lines, as well as the financial condition, assets,
liabilities, businesses and operations of the Company and the Product Lines,
both on a historical and prospective basis. In evaluating the Proposed Sale,
the Board of Directors of the Company considered the prospects for the Company.
The Company was not profitable in 1995 and 1996, and there is no assurance that
the Company would be profitable in the future. The accumulated deficit in
Stockholders' Equity declined in the prior two fiscal years, from $(5,984,203)
at the end of 1994, to $(9,341,482) at the end of 1995, to $(15,225,259) on
December 31, 1996. The Board of Directors determined that the Proposed Sale
would substantially reduce the Company's debt and increase its Stockholders'
equity, and that future operations in segments of the industry in which the new,
current management have expertise might maximize a return for Stockholders. The
Company's management believes that the Proposed Sale will allow the Company to
discontinue a business that has not been sufficiently profitable to allow the
Company to pay all of its obligations as they become due without liquidating the
Company.
2. The results of the Company's efforts to identify other alternatives
with respect to the Product Lines, including the Board of Directors' judgment
that a disposition of the Product Lines on terms more favorable to the Company
and its stockholders would not likely be consummated.
3. The condition to the Asset Purchase Agreement that the Advisor provide
an opinion to be received by the Company that the Proposed Sale is fair to the
Company and its shareholders from a financial point of view to the Company. See
"--Opinion of The Advisor."
4. The proposed terms and structure of the Proposed Sale, including the
terms of the Asset Purchase Agreement, Hayes Medical's desire to acquire the
assets of the Product Lines and its unwillingness to acquire the Company as a
whole. See "The Asset Purchase Agreement--Indemnification."
5. The utilization of the net cash proceeds received from the Proposed
Sale to repay indebtedness, including indebtedness owed to an affiliate of MMI.
The Board of Directors believes that the Proposed Sale will thus allow the
Company to divest itself from unprofitable product lines, and will place the
Company in a stronger position to enter businesses in its area of expertise.
See "Use of Proceeds; Conduct of Business Following the Proposed Sale."
A material disadvantage of the Proposed Sale is that the Company will lose
several product lines with revenue potential. However, the Board of Directors
concluded after due consideration of the Proposed Sale and alternatives to it,
that this disadvantage is substantially outweighed by opportunities that the
disposition of assets and the capital received therefrom will provide. Although
revenue was generated by the assets, continuing losses
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<PAGE>
were substantial due to the capital-intensive nature of the business, and
management believes that the Proposed Sale will serve the Company and its
shareholders better in short and long term prospects.
In view of the wide variety of factors considered in connection with its
evaluation of the Proposed Sale, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
Certain Tax Consequences
The Proposed Sale will be a taxable transaction to the Company for United
States Federal income tax purposes. The Company recorded at December 31, 1996 a
net deferred tax liability of $432,264 in anticipation of the estimated tax
liability resulting from the Proposed Sale.
Use Of Proceeds; Conduct Of Business Following The Proposed Sale
The net cash proceeds of the Proposed Sale received by the Company at the
Closing will be used to repay outstanding indebtedness of the Company and for
general working capital purposes. The consideration received by the Company
under the License Agreement was $650,000, of which Hayes Medical paid
$400,000 in cash. The Company used $100,000 of the cash proceeds it received
under the License Agreement to repay the balance of indebtedness to MMI under
the Company Note. Under the Asset Purchase Agreement, the preliminary
Closing Statement indicates a gross asset purchase price of $3,045,379, net
of liabilities to be paid by Hayes Medical at closing projected at
$2,459,623, resulting in a net consideration of $585,736, of which $300,000
is payable in cash upon the Closing Date. The final purchase price will be
determined based on a final closing statement, which the Company shall
deliver to Hayes Medical within 30 days after the Closing Date. The Company
intends to use the cash proceeds from the sale of assets for general working
capital purposes and to repay outstanding indebtedness to MMI, which is
currently in the amount of $51,000.
Following the proposed sale, the Company's assets will consist primarily
of the cash net proceeds resulting from the Proposed Sale and the promissory
notes issued to the Company by Hayes in connection with the License Asset
Purchase Agreement. The Company's business will be to sell medical and
personal wellness products manufactured and marketed by Metrax GmbH, MMI's
wholly-owned subsidiary. Metrax GmbH, which is based in Rottweil, Germany,
manufactures and markets medical and personal wellness products worldwide.
Its sales revenues in 1996 exceeded $15 million. Its primary markets
presently are Europe, Asia and the Middle East. MMI's objective is to expand
product sales and distribution of products in the United States through the
Company.
Following the merger the Company will consider several alternatives to
accomplish its business purpose. Although MMI originally acquired its
interest in the Company with the intention of merging with the Company, MMI
and the Company are considering, in the alternative, an exclusive
distribution arrangement with MMI. The ultimate arrangement will be
determined in large part based on the ability of the Company to attract
financing on favorable terms under the arrangement.
Metrax GmbH sells its medical products in the emergency, hospital,
physician, sub-acute, long term and home care markets and consumer wellness
products in the health and beauty and general consumer markets. Its
manufacturing facility received ISO 9001 certification in March 1997. In the
European market, Metrax GmbH is a leading manufacturer of air bubble baths,
certain cardiac defribrillators and electrotherapy devices. Metrac GmbH's
products are marketed through two product lines:
PRIMEDIC-Registered Trademark--Primedic medical systems consists of
medical devises for use by healthcare professionals in treating the clinical
needs of their patients. These devices are used in pain management, oxygen
therapy, mechanical ventilation, cardiac defibrillation, cardiac monitoring,
vital signs monitoring, and nerve/muscle stimulation.
VITEC-Registered Trademark--The Vitec product line consists of products
to enhance and contribute to improved consumer health, fitness, and general
well-being. These products are designed for personal home use and beauty
salons, health spas and other wellness establishments. Products currently
include air bubble baths, massage devices, manicure/pedicure devices and
circulatory and orthopedic support devices.
Interests Of Certain Persons In The Proposed Sale
The Company intends to use a portion of the net proceeds from the Proposed
Sale to repay outstanding indebtedness to MMI. For a description of the
intended application of proceeds from the Proposed Sale, see "--Background of
the Proposed Sale" and "--Use of Proceeds; Conduct of Business Following the
Proposed Sale."
Accounting Treatment
In accordance with GAAP, the results of the Company's business will be
included in the results of the Company through the Closing Date. Any gain or
loss on the disposition will be recognized as of the date the Proposed Sale is
closed. The Company recorded a writedown of inventory and fixed assets of
$3,325,000 for the year ended December 31, 1996, as a result of the realization
of impairment of inventory as of that date.
Dissenters' Appraisal Rights
Texas provides dissenters' rights for disposition of all or substantially
all of a Texas corporation's assets under Article 5.11A(2) of the Act.(5)
The procedure for dissent by shareholders is set out by Articles 5.12 of the Act
("Article 5.12"). USMP must, "within ten (10) days after the date the
[Disposition] is effected, mail to each shareholder of record as of the
effective date of the [Disposition], notice of the fact and date of the
[Disposition] and that the shareholder may exercise the shareholder's right to
dissent from the [Disposition].(6) The shareholder may then make written
demand, within twenty (20) days after the mailing of the notice, for payment of
the fair value of the shareholder's shares. Failure to make demand within the
twenty day period will result in the shareholder being bound by the sale.
- --------------------------------
(5)/ Tex. Bus. Corp. Act art 5.11A(2)
(6)/ Tex. Bus. Corp. Act art 5.12A(1)(b)
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The Company must accept, or reject by making a counteroffer as to the
estimated fair value of the shares, the dissenting shareholder's demand for
payment. Should the dissenting shareholder reject the counteroffer, then within
120 days after the date on which the disposition was effective, the shareholder
or the Company may "file a petition in any court of competent jurisdiction in
the county in which the principal office of the domestic corporation is located,
asking for a finding and determination of the fair value of the shareholder's
share."(7)
If the dissenting shareholder accepts payment by the Company for such
shareholder's shares, the shareholder shall cease to have any interest in the
shares of the Company.(8) Payment of the fair value of the shares is the sole
remedy for dissenting shareholder, unless there is fraud in the transaction.(9)
If the Company complies with the requirements set out in Article 5.12, then
failure of the shareholder to comply with the procedure as set out by Article
5.12 will result in such shareholder not being entitled "to bring suit for the
recovery of the value of his shares or money damages to the shareholder with
respect to the [sale].(10)
THE LICENSE AGREEMENT
Although the Company believes that the following summary describes the
material terms and conditions of the License Agreement, such summary is
qualified in its entirety by reference to the full text of the License
Agreement, a copy of which is attached as Annex B to this Information Statement
and is incorporated herein by reference. Terms which are not otherwise defined
in this summary have the meaning set forth in the License Agreement.
The License Agreement provides for the sale to Hayes Medical of the
Company's Intellectual Property related to the Product Lines. The License
Agreement provides Hayes Medical with an exclusive, royalty-free, worldwide,
irrevocable license, including the right to grant and authorize sublicenses, to
manufacture and otherwise distribute the Products Lines and apparatus useful for
manufacturing the Product Lines. Pursuant to the License Agreement the Company
retained a non-exclusive, non-assignable, royalty-free, worldwide irrevocable
license, without the right to grant or authorize sublicense under the
Intellectual Property; provided, however, on the earlier to occur of (i) the
closing of the Asset Purchase Agreement or (ii) July 15, 1997, the Company shall
take all actions necessary to transfer and assign all right title and interest
in the Intellectual Property to Hayes Medical and any license or other right
shall terminate immediately thereon. Notwithstanding the above, if there has
been no closing by July 15, 1997, the Company shall have the right to sell any
and all Inventory existing on July 15, 1997. The consideration paid by Hayes
Medical under the License Agreement was $400,000 and a promissory note, secured
by the inventory of Hayes Medical, in the amount of $150,000 at 10% interest per
annum payable over eighteen months.
The License Agreement also provides that until the earlier of the closing
of the Asset Purchase Agreement or until all of the existing Inventory of the
Company is sold, the Company shall continue to maintain product liability
insurance with a limit of not less than $1,000,000 per occurrence to cover
claims relating to Products manufactured and sold by the Company to any third
party, including distributors. For a period of five years following the earlier
of the closing of the Asset Purchase Agreement or until all of the existing
Inventory of the Company is sold, the Company shall maintain product liability
insurance with a limit of not less than $1,000,000 per occurrence to cover
claims relating to Products manufactured and sold by the Company to any third
party, including distributors.
- ----------------------------------------
(7)/Tex. Bus. Corp. Act art 5.12B
(8)/ Tex. Bus. Corp. Act art. 5.12A(1)1(b)
(9)/Tex. Bus. Corp. Act art. 5.12G
(10)/ld.
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THE ASSET PURCHASE AGREEMENT
Although the Company believes that the following summary describes the
material terms and conditions of the Asset Purchase Agreement, such summary is
qualified in its entirety by reference to the full text of the Asset Purchase
Agreement, a copy of which is attached as Annex ___ to this Information
Statement and is incorporated herein by reference. Terms which are not
otherwise defined in this summary have the meaning set forth in the Asset
Purchase Agreement.
Assets to be Sold and Liabilities to be Assumed
The Asset Purchase Agreement provides for the sale by the Company to Hayes
Medical of certain tangible and intangible assets relating to the Products and
for Hayes Medical to assume certain liabilities relating to the same. The
assets to be sold or transferred by the Company to Hayes Medical pursuant to the
Asset Purchase Agreement (the "Assets") constitute substantially all of the
assets of the Company and include: (a) all trade and other notes and accounts
receivable of the Company as selected by Hayes Medical arising out of the
operations related to the Products; (b) all current and usable inventories of
Products on hand or under consignment for use by the Company's customers (the
"Inventory"); (c) all rights and benefits of the Company under contracts and
agreements with any third parties made by the Company, as selected by Hayes
Medical, including leases of real or personal property and agreements to provide
services and any purchase options provided therein to acquire the property so
leased (the "Acquired Contracts"); (d) all lease and rent deposits, prepaid
expenses, and prepaid taxes related to the Company's operation of the Company;
(e) all permits, consents and certificates of any regulatory, administrative or
other governmental agency or body that are used in, or are required or necessary
for, the ownership, operation or maintenance of the Company; (f) all other
tangible assets of the Company, excluding leasehold improvements directly
related to the operation or maintenance of the Company, including by way of
example, furniture, business fixtures, office supplies and expendables; and (g)
all intangible assets used in the Company's operation or maintenance of the
Company, including, goodwill, the books and records of the Company in operating
the Business, the Company's trade names used in the operation of the Company
business and any confidential or proprietary information of the Company
developed or used in connection with its operation of the Company.
Pursuant to the Asset Purchase Agreement, Hayes Medical will assume and
thereafter be responsible for paying and satisfying the following liabilities
(the "Assumed Liabilities"): (a) the Company's liabilities arising on or
after the Closing Date with respect to the Acquired Contracts including
permitted returns and allowances in the ordinary course of business, which
amounts due as of the Closing Date are set forth in the final Closing
Statement; (b) all open purchase orders related to Products or related
instruments; or other open purchase orders related to the ongoing Business,
not to exceed $10,000.00 in the aggregate, unless otherwise approved by Hayes
Medical; (c) all liabilities set forth on the Final Closing Statement (as
hereinafter defined), but in no event is Hayes Medical liable for any amounts
coming due prior to or after the Closing Date beyond what is specifically set
forth in the Final Closing Statement; (d) all taxes and assessment (including
any liabilities with respect to penalties or interest thereon) imposed by any
governmental authority accruing after the Closing Date to the extent related
to the ownership or use of Assets or the conduct by Hayes Medical of the
Business after the Closing Date; and (e) liabilities with respect to any
alleged or actual injury to person or damage to property allegedly or
actually resulting from Products if the Product which gives rise to a claim
of alleged or actual injury or damage is manufactured and sold on or after
the Closing Date.
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The Asset Purchase Agreement requires that the Company, from the Closing
Date until the fifth anniversary of the Closing Date, maintain product liability
insurance with a limit of not less than $1,000,000 per occurrence to cover
claims relating to Products manufactured and sold by the Company to any third
party, including distributors, prior to the Closing Date.
Purchase Price
The Asset Purchase Agreement provides for an aggregate consideration, to be
delivered to the Company at the Closing, equal to: (i) $300,000 in cash
(subject to adjustment); (ii) a secured promissory note (the "Note"), which
shall be in the principal amount of 56.25% of the agreed upon historical cost of
the Assets (determined according to GAAP) less the Assumed Liabilities at the
Closing, less the $300,000 cash payment and less any reduction pursuant to Hayes
Medical's right of offset. The Note will be due in eighteen equal monthly
installments including accrued interest with the first such monthly installment
being due the first day of the first month beginning after the Closing Date and
subsequent installments being due the first day of each month thereafter. The
Note will bear interest at ten percent (10%) per annum and will be secured by
the inventory of Hayes Medical.
The final purchase price will be determined based on the Final Closing
Statement, which the Company shall deliver to Hayes Medical within 30 days after
the Closing Date. The Company delivered to Hayes Medical a draft closing
Statement, attached as Annex A to this Information Statement and is incorporated
herein by reference.
The Closing will take place on that date and time as the Company and Hayes
Medical mutually agree that all conditions precedent to the obligations of the
parties under the Asset Purchase Agreement have been met. See "--Conditions."
Representations and Warranties and Certain Covenants
The Asset Purchase Agreement contains various customary representations and
warranties of the Company and Hayes Medical. These include representations and
warranties by the Company as to its: (a) corporate organization; (b) authority;
(c) absence of violation of law; (d) contracts and commitments; (e) receivables;
(f) financial statements; (g) events subsequent to balance sheet date; (h)
assets; (i) title to property; (j) litigation; (k) taxes; (l) compliance with
law; (m) labor relations; (n) environmental matters; (o) undisclosed material
liabilities; (p) brokers, finders; (q) personnel; (r) insurance; (s) accuracy of
documents and information; (t) interests in real property; (u) property taxes;
(v) product warranties; (w) relations with customers, suppliers and vendors; (x)
change of name; (y) non-competition; (z) SEC filings; and (aa) schedules. Hayes
Medical's representations and warranties include those as to (a) corporate
organization; (b) authority, (c) absence of violation of law; and (d) brokers
and finders.
Pursuant to the Asset Purchase Agreement, each of the parties has agreed,
among other things, to use its commercially reasonable efforts to facilitate
the consummation of the Proposed Sale. Each party has agreed to make all
filings, applications, statements and reports to all governmental authorities
which are required to be made prior to the Closing Date by such party
pursuant to applicable law in connection with the Proposed Sale.
For a period of time extending from the Closing Date until the second
anniversary following the Closing Date, the Company will not, and the Company
will cause each of its employees, officers, directors (for so long as they serve
in such capacities) and persons having a controlling interest in the Company not
to, directly or indirectly compete with Hayes Medical or its subsidiaries in the
development, manufacturing, distribution, marketing or sale of any orthopaedic
hip or knee implants or related instruments or devices.
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Employment and Employee Benefit Plans
The Asset Purchase Agreement provides that the Hayes Medical will offer
employment to certain of the Company's employees as Hayes Medical, in its sole
discretion, elects to employ, effective as of the close of business on the
Closing Date, with a level of compensation and benefits and on other terms and
conditions of employment substantially similar to each such employee's existing
arrangements with the Company. Effective at the close of business on the
Closing Date, all employees of the Company who accept Hayes Medical's offer of
employment (collectively, the "Transferring Employees") shall cease to be
covered by the Company's employee welfare benefit plans, including plans,
programs, policies and arrangements which provide medical and dental coverage,
life and accident insurance and disability coverage (collectively, "Welfare
Plans"). The Company shall retain responsibility for all Welfare Plans claims
incurred by all employees of the Company (and their dependents) on or prior to
the Closing Date. Hayes Medical shall assume responsibility for all claims
under Hayes Medical's employee welfare benefit plans incurred by Transferring
Employees after the Closing Date.
Conditions
The obligations of Hayes Medical to consummate the Proposed Sale are
subject to the following conditions: (a) the Company shall have obtained and
delivered to Hayes Medical all consents which are necessary in order to
consummate the Proposed Sale, including the consent of the other parties to
the Acquired Contracts as to the assignment of such contracts; (b) all
obligations under the Asset Purchase Agreement which are to be performed or
complied with by the Company shall have been fully performed and complied
with in all material respects at or prior to the Closing Date; (c) there
shall be no material pending or threatened claim or action claiming that the
Asset Purchase Agreement is illegal; (d) there shall have been no material
adverse change in the properties, business or financial condition of, the
Assets, or Products of the Company since the Draft Closing Statement,
provided that changes in the value of the Assets arising in the ordinary
course of business or due to the sale of Inventory to Hayes Medical prior to
the Closing shall not be deemed a material adverse change; and in the Updated
Draft Closing Statement, the Assets shall exceed the Assumed Liabilities by
at least $300,000.00; (e) all representations and warranties (including any
Schedules contained therein) shall be true as of the Closing Date; (f) the
Company's Board shall have obtained the Advisor's fairness opinion; (g) the
Company shall have obtained the approval of the Board of Directors of the
Company and approval of the shareholders of the Company for the execution
and delivery of this Agreement and the transactions contemplated hereby; (h)
the Company shall have delivered to Hayes Medical a certificate executed by
its President or Chief Executive Officer, dated the date of the Closing, to
the effect that certain of the conditions set forth above have been
satisfied; (i) the form and substance of all certificates, instruments,
opinions and other documents delivered or to be delivered to Hayes Medical
under this Agreement shall be satisfactory to Hayes Medical and Hayes
Medical's counsel in all reasonable respects; (j) the parties shall have
complied with all applicable bulk sales and similar laws with respect to the
transfer of the Business; (k) Hayes Medical shall have received each of the
Bill of Sale, Assumption of Liabilities, the Assignment of Lease and all
other documents deemed necessary by Hayes Medical in connection with Closing
duly executed by authorized signatories of each party thereto; (l) Hayes
Medical shall have provided the Company with a survey of the real property
subject to the Facility Lease together with the improvements thereon, such
survey to be reasonably satisfactory to Hayes Medical and to be conducted at
Hayes Medical's cost; (m) the Company shall have provided Hayes Medical with
a release of all claims asserted against the Company and its parent, by a
certain investment banking firm in connection with a dispute over advisory
fees between MMI and the firm, which dispute management believes will not
materially affect the Company's results of operations or financial position;
(n) and all covenants, conditions and other obligations under the Worldwide
Exclusive Distributor Agreement and the License Agreement which are to be
performed or complied with by the Company shall have been fully performed and
complied with in all material respects at or prior to the Closing Date,
including the delivery of all assignments of the Intellectual Property under
the License Agreement.
Termination
The Asset Purchase Agreement may be terminated and abandoned at any time
prior to the Closing Date by the written agreement of the Company and Hayes
Medical.
13
<PAGE>
Indemnification
The Asset Purchase Agreement provides that the Company shall indemnify
Hayes Medical after the Closing against and in respect of any of the following
(collectively, "Hayes Medical Losses") and Hayes Medical's right to
indemnification from the Company shall include, but is not limited to, Hayes
Medical's right to offset the Note payments (pursuant to the terms of Asset
Purchase Agreement) for any of the Hayes Medical Losses: (i) any and all claims,
losses, costs, expenses, commitments, agreements, liabilities and obligations of
the Company, or arising from the operations, or employees of the Company either
before or after the Closing Date (including, without limitation, the operation
of the Company prior to the Closing Date), whether accrued, absolute, contingent
or otherwise and whether or not disclosed in the Asset Purchase Agreement or the
Schedules, to the extent not expressly assumed by Hayes Medical pursuant to the
Asset Purchase Agreement; (ii) any and all damages resulting to Hayes Medical
from any misrepresentation, breach of warranty or covenant made by the Company,
or nonfulfillment, in whole or in part, of any obligation on the part of the
Company under the Asset Purchase Agreement, the License Agreement or any
Schedule or document delivered pursuant hereto; (iii) any and all damages and
costs associated with Product recalls, notifications, or other actions for
Products manufactured and sold to third parties, including distributors, prior
to the Closing; (iv) any and all taxes of the Company, or applicable to
operation of the Business prior to the Closing Date to the extent not provided
for on the Final Closing Statement; and (v) all costs, assessments, judgments
(including reasonable costs and attorneys' fees and other expenses) arising out
of any claim, or the defense or investigation thereof, made with respect to any
of the matters described above.
Hayes Medical has agreed to indemnify the Company after the Closing
against and in respect of any of the following (collectively, "the Company
Losses"): (i) any and all claims, losses, costs, expenses, commitments,
agreements, liabilities and obligations of the Company to the extent
expressly included within the Assumed Liabilities; (ii) any and all damages
resulting to the Company from any misrepresentation, breach of warranty or
covenant made by the Company, or nonfulfillment, in whole or in part, of any
obligation on the part of Hayes Medical under the Asset Purchase Agreement or
any Schedule; (iii) any and all claims, losses, costs, expenses, commitments,
agreements, liabilities and obligations of Hayes Medical arising from events
occurring in the operation of the Business after the Closing Date; and (iv)
all costs, assessments, judgments (including reasonable costs and attorneys'
fees and other expenses arising out of any claim, or the defense or
investigation thereof, made with respect to any of the matters described
above.
CERTAIN INFORMATION CONCERNING HAYES MEDICAL
Hayes Medical was incorporated in 1992 to capitalize on emerg0ing business
opportunities in the medical device industry. Hayes Medical's mission is to
become an industry leader in the creation, evolution, and production of world
class medical products and technologies for the orthopedic implant and device
market. It will sell its products to the medical profession throughout the
United States and other countries. Hayes Medical is in the development stage
and has yet to generate any significant product revenue, but has recently begun
to sell its products to outside customers.
Research and development activities have been undertaken since Hayes
Medical's inception. This effort includes development of proprietary software
which is used for designing Hayes Medical's products and the development of
additional orthopedic products. Hayes Medical will continue research and
development of its product line.
Hayes Medical has engaged in consulting services to help fund its research
and development activities. This consulting is provided in five key areas:
product development, regulatory affairs, research, technical writing, and
education. Thirty-eight percent of revenues have resulted from these consulting
services.
During 1995, Hayes Medical purchased substantially all of the assets of
National Medical Specialty, Inc. (NMSI), a company engaged in the distribution
of medical specialty products. Sixty-one percent of Hayes Medical revenues have
resulted from distribution sales.
14
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following tables set forth pro forma condensed financial information of
the Company for the quarter ended March 31, 1997. The unaudited pro forma
condensed balance sheet gives pro forma effect to the Proposed Sale as if such
transactions had been consummated on March 31, 1997. The unaudited pro forma
condensed financial information has been prepared on the basis that the Company
would have received cash consideration of $300,000 (as of March 31, 1997) from
the Proposed Sale and does not give effect to any Purchase Price decrease
resulting from the Company's results of operations for the period from June 30,
1997, to the Closing Date or any other Purchase Price adjustment. See "The
Asset Purchase Agreement--Purchase Price" and "The Proposed Sale--Background of
the Proposed Sale."
The unaudited pro forma adjustments are based upon available information
and certain assumptions that the Company believes are reasonable. The pro forma
condensed financial information does not necessarily reflect the financial
position or the results of operations of the Company that actually would have
resulted had the transactions described above been consummated as of the date or
for the period indicated, or to project the Company's financial position or
results of operations at any future date or for any future period. The pro
forma condensed financial information should be read in conjunction with the
Company's Financial Statements for the year ended December 31, 1996 and the
Notes thereto incorporated by reference in this Information Statement.
<TABLE>
<CAPTION>
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
(All Amounts in 000's)
June 30, June 30,
1997 1997
Historical (A) As Adjusted
---------- -------- -----------
<S> <C> <C> <C>
Assets
Cash $241 $300 $ 541
Note receivable 142 59 201
All other assets 3,073 (2,907) 166
---------- -------- -------
Total Assets $3,458 ($2,548) $ 908
---------- -------- -------
---------- -------- -------
Liabilities and stockholders' equity
Liabilities $3,309 (2,548) $ 761
Stockholders' Equity (B) 147 147
---------- -------- -------
Total liabilities and stockholders'
equity $3,456 ($2,548) $ 908
---------- -------- -------
---------- -------- -------
</TABLE>
(A) To reflect the transaction with Hayes Medical whereby the Company will sell
substantially all of its assets for cash of $300,000 and a promissory
note for 56.25% of the agreed upon historical cost of the assets less
certain liabilities (accounts payable ($1,961); payroll ($95); property
taxes ($32); facility lease ($96); and other liabilities ($363)) to be
assumed by Hayes Medical, and less the cash payment.
(B) No adjustment to stockholders' equity is necessary, and no income statement
is presented herein, because the Company's June 30, 1997 historical
financial statements reflect a writedown of its assets to reflect an
impairment. Therefore, it is anticipated that the Hayes Medical
transaction will have no income statement effect on the Company.
RECENT DEVELOPMENTS
On June 16, 1997, the Boston Stock Exchange notified the Company that it
had suspended trading of the Company's common stock and warrants, and intended
to file for immediate delisting of the Company's securities with the Securities
and Exchange Commission. The Exchange's decision was based upon the Company's
inability to comply with the minimum maintenance requirements relating to market
value of public float and shareholder's equity.
15
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1997, the total number of
shares of Common Stock beneficially owned, and the percent so owned, by each
Director of the Company, by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, by the
Company's Chief Executive Officer and by all Directors and executive officers
(including two former executive officers) as a group. The number of shares
owned are those "beneficially owned," as determined under the rules of the
Commission, and such information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which a person has sole or shared voting power or
investment power and any shares of Common Stock which the person has the right
to acquire within 60 days through the exercise of any option, warrant or right,
through conversion of any security, or pursuant to the automatic termination of
power of attorney or revocation of trust, discretionary account or similar
arrangement.
As of December 31, 1996
Shares of Common Stock Percent of Outstanding
Common Stock
Metrax Medical, Inc. 12,998,060 (1) 80%
P.O. Box 41667
Nashville, Tennessee 37204
Heinz Bucher 12,998,060 (1) (2) 80%
Frederick Mindermann 12,998,060 (1) (2) 80%
Thomas Otto 12,998,060 (1) (2) 80%
Directors and executive officers 12,998,060 (2) 80%
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(1) Does not include 17,270,948 Class A Warrants to acquire, in the aggregate,
17,270,948 shares of Common Stock.
(2) Messrs. Bucher, Mindermann, and Otto are executive officers of Metrax
Medical. Consequently, for each of these individuals, the table includes
the 12,998,060 shares of Common Stock held by Metrax Medical, although each
of these individuals disclaims individual ownership of such shares.
16
<PAGE>
MARKET PRICE DATA
The following table sets forth high and low trade prices of the shares of
Common Stock of the Company for each quarterly fiscal period of 1996 and
1995, based on information received from the Boston Stock Exchange. As of
July 1997, the number of known beneficial owners of the Company's Common
Stock was 554, and the number of record holders was 165.
HIGH LOW
-------- -------
1997
First Quarter 15/64 1/4
1996
First Quarter 5/8 7/32
Second Quarter 1/2 1/2
Third Quarter 5/16 5/16
Fourth Quarter 1/4 1/4
1995
First Quarter n/a (1) n/a (1)
Second Quarter 19/32 1/2
Third Quarter 5/8 7/16
Fourth Quarter 3/16 3/16
(1) There was no active trading during the first quarter of 1995.
The Company's Common Stock and warrants were suspended from trading on the
Boston Stock Exchange on June 16, 1997, for failure to comply with the
Exchange's minimum maintenance requirements relating to market value of public
float and shareholder's equity.
August ___, 1997
17
<PAGE>
APPENDIX A:
USMP
PRELIMINARY CLOSING STATEMENT
PURCHASE PRICE ALLOCATION
DESCRIPTION ASSUMED HISTORICAL
BALANCES COST
(per 3/31/97 G/L)
CASH - -
ACCOUNTS RECEIVABLE 14,522 14,522
ALLOWANCE FOR DOUBTFUL ACCTS. - -
METRAX RECEIVABLE - -
HAYES RECEIVABLE 198,260 198,260
EMPLOYEE RECEIVABLE 542 542
INVENTORY 1,799,306 3,198,766
PREPAIDS 23,596 23,596
PREPAID INVENTORY 226,232 226,232
FIXED ASSETS 759,429 759,429
OTHER ASSETS 23,492 41,764
AP - TRADE 1,989,467 1,989,467
AP - EMPLOYEES 522 522
AP - PRIOR YEAR TAXES 18,011 18,011
PRODUCT LIABILITY -
METRAX LIABILITY -
PAYROLL RELATED 90,184 90,184
ACCRUED PROPERTY TAX 21,900 21,900
NMSI LIABILITY 228,825 228,825
SAB FEES - -
INCENTIVES 3,000 3,000
ACCRUED SALES TAXES -
OTHER ACCRUED LIAB. 1,800 1,800
LEASES 105,934 105,934
BLDG LEASE OBLIGATION ASSUMED 114,673
<PAGE>
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APPENDIX - B Page 1
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LICENSE AGREEMENT
This License Agreement (the "Agreement") effective as of May __, 1997 (the
"Effective Date"), is entered by and between U.S. Medical Products, Inc., a
Texas corporation ("Licensor") and Hayes Medical, Inc., a California corporation
("Licensee").
RECITALS
A. Licensor owns certain technology, including Intellectual Property (as
defined below) relating to any of Licensor's orthopaedic product lines (the
"Products" or "Product Lines");
B. Licensor wishes to grant to Licensee an exclusive, irrevocable,
royalty-free, worldwide license, with the right to sublicense, to the
Intellectual Property subject to the terms and conditions set forth herein;
C. Upon the closing of an Asset Purchase Agreement between Licensor and
Licensee pursuant to which Licensee acquires certain assets of the Licensor,
Licensor desires Licensee to be the sole and exclusive owner of the Intellectual
Property; and
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. DEFINITIONS.
1.1 "Intellectual Property" shall mean all rights in and to
trademarks, service marks, copyrights, trade names, trade secrets, Know-How,
technical information, business information, computer software, formulae, data,
plans, drawings, designs, models, patterns, documentation, ideas and inventions
(whether patentable or unpatentable and whether or not reduced to practice),
administrative processes, 510(k) clearances or approvals, all GMP, ISO-9000,
ISO-9001 and FDA clearance documentation, proposals, Patent Rights, patient,
customer, supplier and vendor lists and all other confidential information
relating to or arising out of the business of Licensor relating to the Product
Lines, including all rights associated with the use of the names CONSENSUS, U.S.
Medical Products and design; and U.S. and design or any variation or derivative
thereof and any other intellectual property or related rights now or hereafter
recognized by any country or jurisdiction in the world.
1.2 "Patent Rights" shall mean all patents and patent applications in
any country, including any division, continuation, continuation-in-part,
substitute,
<PAGE>
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Page 2
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renewal, reissue, extension, confirmation, reexamination, registration and/or
foreign counterpart thereof and any patent issuing thereon including any
substitute, renewal, reissue, extension, confirmation, reexamination,
registration and/or foreign counterpart thereof relating to the Product Lines,
including, but not limited to the Patents set forth on Exhibit A.
1.3 "Know-How" shall mean all confidential information and materials,
including without limitation, instructions, processes, formulas, biological,
chemical, physical, analytical, clinical, safety, manufacturing and quality
control data, standard operating procedures, work instructions and information
which is necessary or useful for the development, manufacture, use or sale of
the Product Lines.
2. LICENSE GRANT.
2.1 LICENSE. Licensor grants to Licensee:
(i) an exclusive, royalty-free, worldwide, perpetual,
irrevocable license, including the right to grant and authorize sublicenses,
under the Intellectual Property to (i) make, have made, use, sell, import,
export, reproduce, have reproduced, publicly display, publicly perform,
transmit, rent, lease, and otherwise distribute (directly or indirectly through
third parties) the Product Lines and to (ii) import, export, make, have made,
use, and have used apparatus useful for manufacturing the Product Lines and to
(iii) practice and have practiced any method or process involved in the
manufacture or use of the Product Lines. All Intellectual Property must be
delivered to Licensee on the Effective Date, in both hard copy and appropriate
magnetic media.
2.2 LICENSOR'S RIGHTS Subject to Section 2.1, Licensor shall retain
a non-exclusive, non-assignable, royalty-free, worldwide irrevocable license,
without the right to grant or authorize sublicenses under the Intellectual
Property provided, however, on the earlier to occur of (i) the closing of an
asset purchase agreement that sets forth the terms and conditions upon which
Licensee or its affiliate proposes to acquire certain tangible and intangible
assets of the Licensor (the "Closing Date") or (ii) July 15, 1997, Licensor
shall take all actions necessary to transfer and assign all right title and
interest in and to the Intellectual Property to Licensee and any license or
other right by implication, trademark or copyright of Licensor shall terminate
immediately thereon. Nothwithstanding the above, if there has been no closing
by July 15, 1997, Licensor shall have the right to sell any and all Inventory of
Licensor existing on July 15, 1997. Except for the above limited right,
Licensor shall have no other right or license, implied or otherwise. Licensor
shall retain title to the 510(k) clearances until the earlier of the Closing
Date or July 15, 1997. Licensor shall then notify and register the transfer of
title to such 510(k)'s with the U.S. Food and Drug Administration promptly
within thirty (30) days and take all such steps necessary to effect such
transfer.
2.3 RESTRICTED INTELLECTUAL PROPERTY. In the event that Licensor
does not have the right to grant a license under any particular Intellectual
Property of the scope
<PAGE>
- --------------------------------------------------------------------------------
Page 3
- --------------------------------------------------------------------------------
set forth above in Section 2.1, then the license granted herein under said
Intellectual Property shall be of the broadest scope which Licensor has the
right to grant within the scope set forth above.
2.4 FRUSTRATION OF INTENDED PURPOSE. Licensor may not license or
assign any of Intellectual Property to any third party. Licensor has not and
may not enter into any confidentiality agreements that would prevent it from
disclosing any Know-How or Intellectual Property to Licensee or prevent Licensee
from exercising any of its rights under Section 2.1 or prevent Licensee from
sublicensing such rights.
2.5 DELIVERY. Licensor shall disclose and provide to Licensee all
materials, inventions, know-how and/or trade secrets developed by Licensor that
have not already been disclosed or provided to Licensee at the time this
Agreement is executed.
3. CONSIDERATION
In full and complete consideration for the license granted under Section
2.1 herein and for the transfer of ownership, which will occur on the closing of
the Asset Purchase Agreement as described in Section 2.2, Licensee agrees to
pay Licensor $400,000 on the Effective Date and a promissory note, secured by
the inventory of Licensee, in the amount of $150,000 at 10% interest per annum
payable over eighteen months (the "Note").
4. PATENTS
4.1 Licensee shall be responsible for filing, prosecuting and
maintaining the Patent Rights, as the case may be. Prior to the earlier of July
15, 1997 or the Closing Date, Licensee shall provide to Licensor for review and
comment copies of all such patent applications relating to the Patent Rights
and a listing of countries in which filing is intended. Licensee shall give due
consideration to any comments made by Licensor.
5. INSURANCE
Until the earlier of the Closing Date or until all of the existing
Inventory of Licensor is sold, Licensor shall continue to maintain product
liability insurance with a limit of not less than One Million dollars
($1,000,000) per occurrence to cover claims relating to Products manufactured
and sold by Licensor to any third party, including distributors. For a period
of five years following the earlier of the Closing Date or until all of the
existing Inventory of Licensor is sold, Licensor shall maintain product
liability insurance with a limit of not less than One Million dollars
($1,000,000) per occurrence to cover claims relating to Products manufactured
and sold by Licensor to any third party, including distributors. Licensor shall
provide Licensee with a current Certificate of
<PAGE>
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Page 4
- --------------------------------------------------------------------------------
Insurance each year during the five year period, which provides evidence of such
product liability insurance, including broad form vendors coverage and naming
Licensee and its subsidiary, National Medical Specialty, Inc., as additional
insureds. Licensor shall promptly provide proof of such insurance coverage to
Licensee within 2 days of Licensee's request.
6. CONFIDENTIAL
6.1 OBLIGATIONS. Should either party (the "Disclosing Party")
disclose to the other any of such party's tangible information that is marked
"Confidential" or "Proprietary" ("Confidential Information"), the party
receiving the Confidential Information (the "Receiving Party") shall maintain
the Confidential Information in confidence, shall use at least the same degree
of care to maintain the secrecy of the Confidential Information as it uses in
maintaining the secrecy of its own proprietary, confidential and trade secret
information, shall always use at least a reasonable degree of care in
maintaining the secrecy of the Confidential Information, shall use the
Confidential Information only for the purpose of performing its obligations
under this Agreement and exercising its rights under this Agreement unless
otherwise agreed in writing by the Disclosing Party. No Receiving Party shall
disclose any Disclosing Party's Confidential Information to any person except
those of the Receiving Party's employees and consultants having a need to know
in order to accomplish the purposes and intent of this Agreement, and shall
ensure that each such employee has been instructed to keep confidential the
Confidential Information of the Disclosing Party and shall ensure that each such
consultant has signed a confidentiality agreement covering the Confidential
Information of the Disclosing Party. In no event shall the distribution of a
Licensee Product to a third party be deemed a breach of the provisions of this
Section 6.
6.2 EXCEPTIONS. A Receiving Party shall not have any obligation with
respect to any portion of Confidential Information of the Disclosing Party which
(i) was known to the Receiving Party prior to receipt from the Disclosing Party,
(ii) is lawfully obtained by the Receiving Party from a third party under no
obligation of confidentiality, (iii) is independently developed by the Receiving
Party without use of the Confidential Information of the Disclosing Party, (iv)
is or becomes publicly available other than as a result of any act or failure to
act of the Receiving Party or (v) is disclosed pursuant to subpoena or other
legal process, provided that the Disclosing Party is given prior notice of such
disclosure.
7. REPRESENTATIONS AND WARRANTIES
7.1 LICENSOR. Licensor represents and warrants that (i) it has full
and complete legal right, title and interest to the Intellectual Property, (ii)
it will use its best efforts to obtain consents to assign all of its rights
under the License Agreement to Licensee dated December 11, 1995 by and between
Licensor and Stelkast, Inc. (the "Stelkast License Agreement"), (iii) that to
Licensor's knowledge, there are no liens,
<PAGE>
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Page 5
- --------------------------------------------------------------------------------
licenses, options agreements, security interests or encumbrances of any kind
relating to the Intellectual Property, (iv) it has the full right and authority
to enter into this Agreement and grant the rights and exclusive licenses granted
herein, (v) the execution, delivery and performance of this Agreement have been
duly authorized by all necessary corporate action on the part of Licensor, (vi)
subject to the Stelkast License Agreement, it has not granted and will not grant
any rights in conflict with the rights and exclusive license granted to Licensee
herein, (vii) it is not aware of any third party right that would be infringed
by the practice of the Intellectual Property and (viii) to the best of
Licensor's knowledge, there are no pending or threatened claims, disputes,
litigation or proceeding challenging Licensor's right to and use of any
Intellectual Property.
7.2 LICENSEE. Licensee represents and warrants that (i) it has the
full right and authority to enter into this Agreement and (ii) the execution,
delivery and performance of this Agreement have been duly authorized by all
necessary corporate action on the part of Licensee.
8. INDEMNIFICATION.
8.1 LICENSOR'S INDEMNIFICATION. Licensor shall hold harmless and
indemnify Licensee, its officers, employees and agents from and against (i)
amounts paid to third parties as a result of claims, demands, or causes of
action resulting from whatsoever including, but not limited to intellectual
property infringement or arising on account of any injury or death of persons,
or related damages caused by, or arising out of, or resulting from the exercise
or practice of the rights and license granted under this Agreement by Licensor
for Products manufactured and sold by Licensor to any third party, including
distributors; provided that (a) Licensor receives prompt notice of any such
claim, demand or cause of action, (b) Licensor shall not be obligated to
indemnify any party for any claim, demand or cause of action in connection with
any settlement unless Licensor consents in writing to such settlement, and
(c) Licensor shall have the exclusive right to defend any such claim, demand or
cause of action or (ii) any damages, losses, costs or expenses (includingd
reasonable attorneys' and professional fees and other expenses of litigation
and/or arbitration) resulting from Licensor's breach of or failure to comply
with any provision of this Agreement (collectively, "Licensee Losses").
Licensee shall have the right to offset the Note for any of the Licensee Losses
as set forth herein pursuant to the offset provisions set forth on EXHIBIT B.
8.2 LICENSEE'S INDEMNIFICATION. Licensee shall hold harmless and
indemnify Licensor, its officers, employees and agents from and against (i)
amounts paid to third parties as a result of claims, demands, or causes of
action resulting from whatsoever including, but not limited to intellectual
property infringement or arising on account of any injury or death of persons,
or related damages caused by, or arising out of, or resulting from the exercise
or practice of the rights and license granted under this Agreement by Licensee
for Products manufactured and sold by Licensee; provided that (a) Licensee
receives prompt notice of any such claim, demand or cause of action,
(b) Licensee shall not be obligated to indemnify any party for any claim, demand
or cause of action in connection with any settlement unless Licensee consents in
writing to
<PAGE>
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Page 6
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such settlement, and (c) Licensee shall have the exclusive right to defend any
such claim, demand or cause of action or (ii) any damages, losses, costs or
expenses (includingd reasonable attorneys' and professional fees and other
expenses of litigation and/or arbitration) resulting from Licensee's breach of
or failure to comply with any provision of this Agreement.
8.3 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR LOST PROFITS, OR FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT OR
INCIDENTAL DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY OR WHETHER OR NOT
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING UNDER
ANY CAUSE OF ACTION AND IN ANY WAY OUT OF THIS AGREEMENT.
9. BANKRUPTCY PROTECTION.
9.1 RIGHTS IN BANKRUPTCY. Notwithstanding any provision
contained herein to the contrary, in case either party is under any proceeding
under the U.S. Bankruptcy Code and the trustee in bankruptcy rightfully elects
to reject this Agreement, the other party may, pursuant to 11 U.S.C. Section
365(n), retain any and all rights hereunder, to the maximum extent permitted by
law.
10. MISCELLANEOUS.
10.1 GOVERNING LAW. The internal laws of the State of California
(irrespective of its choice of law principles) shall govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties.
10.2 BINDING UPON SUCCESSORS AND ASSIGNS. Until the Note is paid
in full, neither party shall have the right to assign this Agreement without the
prior written consent of the other party to an entity that succeeds to all or
substantially all of the business or assets of the assigning party, except that
Licensee may assign this Agreement without the prior written consent of Licensor
to a subsidiary or affiliate. Subject to the foregoing, this Agreement shall be
binding upon, and inure to the benefit of, the successors and permitted assigns
of a party to this Agreement, provided that any successor or permitted assign
shall agree in writing, for the express benefit of the other party, to assume
all of the obligations of its predecessor under this Agreement. Any assignment
or attempted assignment of this Agreement not permitted by this section shall be
void.
10.3 SEVERABILITY. If any provision of this Agreement, or the
application of a provision, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement, and (if appropriate) such
provision to other persons or circumstances, shall remain in full force and
effect and be interpreted so as best to reasonably effect the intent of the
parties.
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10.4 ENTIRE AGREEMENT. This Agreement, including the Exhibits to
this Agreement, constitutes the entire understanding and agreement of the
parties with respect to their subject matter and supersede all prior and
contemporaneous agreements or understandings between the parties.
10.5 AMENDMENT AND CHANGES. No amendment, modification,
supplement or other purported alteration of this Agreement shall be binding
upon the parties unless it is in writing and is signed on behalf of the parties
by their own authorized representatives.
10.6 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original as against any party whose
signature appears on such counterpart and all of which together shall constitute
one and the same instrument.
10.7 NO WAIVER. The failure of either party to enforce any of
the provisions of this Agreement shall not be construed to be a waiver of the
right of such party thereafter to enforce such provisions.
10.8 NOTICES. Whenever any party desires or is required to give
any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, certified mail if desired, postage prepaid, or by
facsimile with confirmed answer back, addressed as follows:
(i) If to Licensor, then addressed to:
U.S. Medical Products, Inc.
12201 Technology Boulevard, Suite 100
Austin, Texas 78727
Attn: Fred Mindermann
With a copy to:
Petillon & Hansen
1260 Union Bank Tower
21515 Hawthorne Boulevard
Torrence, California 90503
Attn: Mark Hiraide
(ii) If to Licensee, then addressed to:
Hayes Medical, Inc.
819 Striker Avenue, Suite 10
Sacramento, CA 95834
Attn: Carolyn Preising
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With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attn: Judith M. O'Brien
Any such communications shall be effective when they are received by the
addressee; but if sent by certified mail in the manner set forth above, they
shall be effective five (5) days after being deposited in the mail. Any party
may change its address for such communications by giving an appropriate notice
to the other parties in conformity with this section.
10.9 NO JOINT VENTURE. Nothing contained in this Agreement shall
be deemed or construed as creating a joint venture or partnership between the
parties. Except as expressly set forth, neither party is by virtue of this
Agreement authorized as an agent, employee or legal representative of any other
party, and the relationship of the parties is, and at all times will continue to
be, that of independent contractors.
10.10 FURTHER ASSURANCES. Each party agrees to cooperate fully
with the other party and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by the other party, to better evidence and reflect the transactions
described in and contemplated by this Agreement, and to carry into effect the
intents and purposes of this Agreement.
IN WITNESS WHEREOF, the authorized representatives of the parties to this
Agreement have executed and delivered this Agreement, with the intent to be
bound as of the date first set forth above.
LICENSOR
U.S. Medical Products, Inc.
a Texas corporation
By:
Name: Frederick J. Mindermann
-----------------------
Title: Chief Executive Officer
-----------------------
LICENSEE
Hayes Medical, Inc.
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a California corporation
By:
Name: Daniel E.E. Hayes, Jr., Ph.D.
-----------------------------
Title: Chief Executive Officer
--------------------------
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EXHIBIT A
PATENTS AND PENDING APPLICATIONS
TYPE OF INVENTION U.S. PATENT NUMBER ISSUE DATE
----------------- ------------------ ----------
Tibial Prosthetic Implant 5,271,737 December 21, 1993
with Offset Stem
Surgical Broach and 5,324,293 June 28, 1994
Broach Holder
Prosthetic Socket 5,540,697 July 30, 1996
Installation Apparatus and
Method
Prosthetic Implant for Joint 5,425,779 June 20, 1995
Structures
Tibial Resection Guide 5,628,750 May 13, 1997
Alignment Apparatus and
Method
Tibial Prosthetic Implant Pending September 18, 1995 (filed)
with Offset Stem
Patella Recession Pending/Allowed June 30, 1995 (filed)
Instrument and Method for
Anatomically-Shaped
Patellar Prosthesis
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EXHIBIT B
OFFSET PROCEDURE
In the event Licensor breaches any representation, warranty or covenant, or
Licensee has a claim against Licensor under either the License Agreement or
Asset Purchase Agreement, following execution thereof or Licensee seeks
indemnification by Licensor, Licensee and Licensor shall attempt to resolve any
such disputes within ten (10) business days of Licensee's notice of claim. If
Licensee and Licensor are unable to resolve the matter within such ten (10)
business day period, they shall jointly select and engage an arbitrator to
determine whether the bases of the claim set forth in the notice are appropriate
and to make any adjustments to the Note necessitated thereby. The fees of such
arbitrator shall be divided equally between Licensor and Licensee. Both parties
agree to make any and all records available that are requested by the arbitrator
relating to the claim. Such arbitrator's determination shall be conclusive and
binding upon the parties and shall be delivered within (30) thirty days after
the Licensee's notice of claim. Notwithstanding the above, any offset by
Licensee for less than $1,000 shall be made by Licensee solely in its
discretion, and not subject to the arbitration procedure set forth above until
such claims aggregate over $10,000.
<PAGE>
APPENDIX C:
ASSET PURCHASE AGREEMENT
between
HAYES MEDICAL, INC.,
a California corporation, as "Buyer"
and
U. S. MEDICAL PRODUCTS, INC.,
a Texas corporation, as "Seller"
Dated as of May 20, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - PURCHASE OF ASSETS . . . . . . . . . . . . . . . . . . . . . .1
I.1 ASSET ACQUISITION. . . . . . . . . . . . . . . . . . . . . . . . . .1
I.2 RETAINED RIGHTS IN SELLER ASSETS . . . . . . . . . . . . . . . . . .2
ARTICLE II - ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . . . . .2
II.1 LIABILITIES ASSUMED . . . . . . . . . . . . . . . . . . . . . . . .2
II.2 RETAINED LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . .3
II.3 CERTAIN TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . .3
ARTICLE III - PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . .3
III.1 CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . . . . .3
III.2 CLOSING STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE IV - REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . .5
IV.1 REPRESENTATIONS OF BUYER. . . . . . . . . . . . . . . . . . . . . .5
IV.2 REPRESENTATIONS OF SELLER . . . . . . . . . . . . . . . . . . . . .5
ARTICLE V - COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 13
V.1 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . 13
V.2 ACCESS TO BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . 13
V.3 PRESERVATION OF RECORDS. . . . . . . . . . . . . . . . . . . . . . 13
V.4 INFORMATION REGARDING INTELLECTUAL PROPERTY. . . . . . . . . . . . 13
V.5 ANNOUNCEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
V.6 ACCESS TO PROPERTIES AND RECORDS . . . . . . . . . . . . . . . . . 14
V.7 GENERAL CONDUCT OF THE BUSINESS PRIOR TO CLOSING DATE. . . . . . . 14
V.8 MUTUAL COVENANT. . . . . . . . . . . . . . . . . . . . . . . . . . 15
V.9 FULFILLMENT OF CONDITIONS TO CLOSING . . . . . . . . . . . . . . . 16
V.10 OBTAINING CONSENTS TO ASSIGNMENTS . . . . . . . . . . . . . . . . 16
V.11 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VI - EMPLOYEE AND OTHER MATTERS. . . . . . . . . . . . . . . . . 16
VI.1 BUYER TO OFFER EMPLOYMENT . . . . . . . . . . . . . . . . . . . . 16
VI.2 PAYROLL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
VI.3 ACCRUED VACATION. . . . . . . . . . . . . . . . . . . . . . . . . 17
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ARTICLE VII - CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . 17
VII.1 TIME OF CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . 17
VII.2 DELIVERIES BY SELLER . . . . . . . . . . . . . . . . . . . . . . 17
VII.3 DELIVERIES BY BUYER. . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII - CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . . . . 18
VIII.1 CONDITIONS TO OBLIGATIONS OF BUYER. . . . . . . . . . . . . . . 18
VIII.2 CONDITIONS TO OBLIGATIONS OF SELLER . . . . . . . . . . . . . . 20
ARTICLE IX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 21
IX.1 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
IX.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . 21
IX.3 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
IX.4 KNOWLEDGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
IX.5 REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
IX.6 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 22
IX.7 INDEMNIFICATION.. . . . . . . . . . . . . . . . . . . . . . . . . 23
IX.8 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
IX.9 ALLOCATION OF ESTIMATED PURCHASE PRICE. . . . . . . . . . . . . . 25
IX.10 PRORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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EXHIBITS AND SCHEDULES
Exhibit III.1(b)-1 -- Note
Exhibit IV.2(f) -- Financial Statements
Exhibit VII.2(e) -- Assignments of Leases
Exhibit IX.7(a) -- Offset Procedures
Schedule I.1(a) -- Accounts Receivable
Schedule I.1(c) -- Acquired Contracts
Schedule IV.2(b) -- Authorization, Approval, Consents, Notices
Schedule IV.2(d) -- Contracts and Commitments
Schedule IV.2(g) -- Events Subsequent to Balance Sheet Date
Schedule IV.2(i) -- Liens
Schedule IV.2(k) -- Litigation
Schedule IV.2(l) -- Taxes
Schedule IV.2(m) -- Licenses, Permits, Approvals and Authorizations
Schedule IV.2(n) -- Labor Matters
Schedule IV.2(r) -- Personnel
Schedule IV.2(s) -- Insurance
Schedule IV.2(u) -- Interests in Real Property
Schedule IV.2(v) -- Property Taxes
Schedule V.2 -- Seller Retained Books and Records
Schedule VI.1 -- Employees
Schedule IX.9 -- Allocation of Estimated Purchase Price
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of May 20, 1997,
is entered into by and between Hayes Medical, Inc., a California corporation
(the "Buyer"), and U. S. Medical Products, Inc., a Texas corporation (the
"Seller").
RECITALS
A. Seller is in the business of designing, manufacturing, and selling
orthopaedic hip and knee implants (the "Products") through U. S. Medical
Products, Inc., 12201 Technology Boulevard, Suite 100, Austin, Texas 78727 (the
"Company"); and
B. Seller desires to sell and Buyer desires to purchase certain of the
tangible and intangible assets and assume specified and limited liabilities of
the Company. "Business" shall be defined as the Assets (as hereinafter defined)
and the Assumed Liabilities (as hereinafter defined).
AGREEMENT
In consideration of the mutual covenants, agreements, representations and
warranties contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE I
PURCHASE OF ASSETS
I.1 ASSET ACQUISITION. Upon the terms and subject to the conditions
set forth in this Agreement effective as of the Closing Date (as hereinafter
defined), Seller agrees to sell, transfer and deliver to Buyer, and Buyer agrees
to purchase and acquire from Seller, all right, title and interest of Seller in
and to the following assets (tangible and intangible) used in or pertaining to
the Company, and no other assets (collectively, the "Assets"):
(a) all trade and other notes and accounts receivable of Seller, as
selected by Buyer, arising out of the operations related to the Company
specifically identified on SCHEDULE 1.1(a) (the "Accounts Receivable");
(b) all current and usable inventories of Products on hand or under
consignment for use by Seller's customers (the "Inventory");
(c) all rights and benefits of Seller under contracts and agreements
with any third parties made by Seller, as selected by Buyer, including
leases of real or personal property and agreements to provide services
specifically identified on SCHEDULE 1.1(c) and any purchase options
provided therein to acquire the property so leased (the "Acquired
Contracts");
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(d) all lease and rent deposits, prepaid expenses, and prepaid taxes
related to Seller's operation of the Company;
(e) all permits, consents and certificates of any regulatory,
administrative or other governmental agency or body that are used in, or
are required or necessary for, the ownership, operation or maintenance of
the Company (the "Permits"), but only to the extent such Permits are
permitted to be assigned or transferred under the law, including all
regulatory compliance systems and approvals;
(f) all other tangible assets of Seller, excluding leasehold
improvements, directly related to the operation or maintenance of the
Company, including by way of example, furniture, business fixtures, office
supplies and expendables; and
(g) all intangible assets used in Seller's operation or maintenance
of the Company, including, goodwill, the books and records of Seller in
operating the Business, Seller's trade names used in the operation of the
Company business and any confidential or proprietary information of Seller
developed or used in connection with its operation of the Company.
I.2 RETAINED RIGHTS IN SELLER ASSETS. Notwithstanding anything herein
to the contrary, Seller retains all of its right, title and interest in and to
any assets of Seller, except as expressly provided in Section I.1 hereof (the
"Retained Assets").
ARTICLE II
ASSUMPTION OF LIABILITIES
II.1 LIABILITIES ASSUMED. Except as otherwise expressly provided in
this Article II, effective as of the Closing Date, Buyer hereby agrees to
assume, and shall thereafter be responsible for paying and satisfying, to the
extent not discharged prior to the Closing Date, certain debts, liabilities and
obligations of Seller arising in the ordinary course of the operation of the
Business, more particularly described as follows (collectively, the "Assumed
Liabilities"):
(a) Seller's liabilities arising on or after the Closing Date with
respect to the Acquired Contracts including permitted returns and
allowances in the ordinary course of business, which amounts due as of the
Closing Date are set forth in the Final Closing Statement;
(b) All open purchase orders related to Products or related
instruments; or other open purchase orders related to the ongoing Business,
not to exceed $10,000.00 in the aggregate, unless otherwise approved by
Buyer;
(c) All liabilities set forth on the Final Closing Statement (as
hereinafter
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defined), but in no event is Buyer liable for any amounts coming due prior
to or after the Closing Date beyond what is specifically set forth in the
Final Closing Statement;
(d) All taxes and assessments (including any liabilities with respect
to penalties or interest thereon) imposed by any governmental authority
accruing after the Closing Date to the extent related to the ownership or
use of Assets or the conduct by Buyer of the Business after the Closing
Date; and
(e) Liabilities with respect to any alleged or actual injury to
person or damage to property allegedly or actually resulting from Products
if the Product which gives rise to a claim of alleged or actual injury or
damage is manufactured and sold on or after the Closing Date.
II.2 RETAINED LIABILITIES. Seller shall retain, and Buyer shall not
assume or otherwise be responsible for, any liability or obligation of Seller
except as expressly provided in Section II.1 hereof (the "Retained
Liabilities").
II.3 CERTAIN TAX MATTERS. Seller shall bear all federal and state
taxes accruing or arising from the operations of the Company during any period
ending on or prior to the Closing Date, including without limitation all income
taxes arising out of the sale and purchase of the Assets hereunder. Buyer shall
bear all sales taxes (and in no event to include income-based taxes) arising out
of the sale and purchase of the Assets hereunder and shall bear all federal and
state taxes accruing or arising from the operations of the Assets during any
period commencing after the close of business on the Closing Date.
ARTICLE III
PURCHASE PRICE
III.1 CONSIDERATION. The consideration due at the Closing (the
"Consideration") for the Assets to be sold pursuant to this Agreement shall be
as follows:
(a) CASH PAYMENT TO SELLER. Buyer shall make a $300,000.00 cash
payment to Seller at the Closing; and
(b) PROMISSORY NOTE TO SELLER. Buyer shall issue a secured
promissory note (the "Note") in favor of Seller, which Note shall be in the
principal amount of 56.25% of the agreed upon historical cost of the Assets
(determined according to GAAP) less the Assumed Liabilities at the Closing, less
the $300,000.00 cash payment and less any reduction pursuant to Buyer's right of
offset set forth in the last sentence of Section III.2. The Note will be due in
eighteen equal monthly installments including accrued interest with the first
such monthly installment being due the first day of the first month beginning
after the Closing Date and subsequent installments being due the first day of
each month thereafter. The Note will bear interest at ten percent (10%) per
annum and will be secured by the inventory of Buyer. The Note may be prepaid
at any time, in full or in part, without premium or penalty, provided that the
Note shall be repaid immediately upon (i) any sale of
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all or substantially all of Buyer's assets, (ii) any sale of substantially all
of the shares of Common Stock (or securities exchangeable or exercisable
therefor or convertible thereto) of Buyer, (iii) any merger or consolidation
involving Buyer as a result of which, following any such event, Buyer's and its
respective affiliates and heirs own, in the aggregate, less than a majority of
all outstanding shares of Common Stock of Buyer or such successor, (or
securities exchangeable or exercisable therefor or convertible thereto) as
applicable, or (iv) any transaction or series of transactions that results in
the sale or transfer of equity securities (or securities exchangeable or
exercisable therefor or convertible thereto) of Buyer and results in proceeds to
Buyer or its subsidiary of consideration in excess of five million dollars
($5,000,000.00).
III.2 CLOSING STATEMENT. On the date hereof, Seller shall deliver
to Buyer (i) a closing balance sheet for the Company, prepared in accordance
with generally accepted accounting principles ("GAAP") and (ii) a detailed
schedule of all Assets and Assumed Liabilities (the "Draft Closing Statement").
Three days prior to the Closing Date, Seller shall deliver to Buyer (i) a
closing balance sheet for the Company, prepared in accordance with generally
accepted accounting principles ("GAAP") and (ii) a detailed schedule of all
Assets and Assumed Liabilities (the "Updated Draft Closing Statement"). Within
thirty (30) days after the Closing Date, Seller shall deliver to Buyer a Final
Closing Statement. Upon receipt of the Final Closing Statement, Buyer and
Buyer's independent accountants shall be permitted during the ten (10) business
day period to examine, at Buyer's expense, the books and records of Seller
associated with the Company and any work papers prepared by Seller or Seller's
accountants in the preparation of the Final Closing Statement. As promptly as
possible and in no event later than the last day of such ten (10) business day
period, Buyer shall either inform Seller in writing that the Final Closing
Statement is acceptable or object to the Final Closing Statement by delivering
to Seller a written statement setting forth a specific description of Buyer's
objections to the Final Closing Statement (the "Statement of Objections"). If
the Objection is based on an amount less than $5,000, then the Final Closing
Statement shall be deemed accepted without adjustment. In the event that a
Statement of Objections is made, Buyer may, at its option, elect not to proceed
with the Closing; provided, that Seller may follow the procedure set forth in
the next subsequent paragraph to determine whether such Statement of Objections
was appropriate.
In the event Buyer objects to the Final Closing Statement as provided
above, Seller and Buyer shall attempt to resolve any such objections within ten
(10) business days of Seller's receipt of Buyer's Statement of Objections. If
Seller and Buyer are unable to resolve the matter within such ten
(10) business-day period, they shall jointly select and engage a firm of U.S.
independent certified public accountants to determine whether the bases of the
objections set forth in the Statement of Objections were appropriate and to make
any adjustments to the Final Closing Statement necessitated thereby. The fees
of such third firm shall be divided equally between Seller and Buyer. Seller
and Buyer and their respective accountants shall each make readily available to
such firm all relevant books and records and work papers prepared by them
relating to the Final Closing Statement requested by such firm to resolve the
disputes. Such firm's resolution of the dispute and its adjustments to the
Final Closing Statement shall be conclusive and binding upon the parties and
shall be delivered within thirty (30) business days after it is selected. If
the resolution of
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the dispute results in a decrease of the Assets or an increase in the Assumed
Liabilities as set forth in the Final Closing Statement, then Buyer may, at its
option, offset all such amounts against the amount payable to Seller (i) under
the Note payable under this Agreement, and (ii) under the Note payable under the
License Agreement.
ARTICLE 1V
REPRESENTATIONS AND WARRANTIES
IV.1 REPRESENTATIONS OF BUYER. Buyer hereby represents and warrants
to Seller that:
(a) ORGANIZATION OF BUYER. Buyer is a corporation duly
organized and validly existing under the laws of the State of California.
(b) AUTHORITY. Buyer has full corporate power and authority to
enter into this Agreement, perform its obligations hereunder and consummate the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered and constitutes a valid and binding obligation of Buyer,
enforceable in accordance with its terms subject to bankruptcy, insolvency,
fraudulent transfer, moratorium, reorganization and other similar laws of
general applicability relating to creditors' rights and to general equity
principles.
(c) NO CONFLICT OR DEFAULT. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will violate any statute, regulation or ordinance of any governmental authority,
or conflict with or result in the breach of any provision of the charter or
bylaws of Buyer or of any agreement, deed, contract, mortgage, indenture, writ,
order, decree or instrument to which Buyer is a party or by which it is bound.
(d) BROKERS, FINDERS. There is no broker, finder or other
person who has been retained by Buyer or authorized to act on its behalf and who
is entitled to a commission, fee or like payment in connection with the
transactions contemplated by this Agreement.
IV.2 REPRESENTATIONS OF SELLER. For purposes of this Section IV.2,
"material" shall mean any amount greater than or equal to $5,000.00, or having a
duration of more than six months, or otherwise material to the Business. Seller
hereby represents and warrants to Buyer that:
(a) ORGANIZATION OF SELLER. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Texas with all requisite corporate power and authority to carry on the
business conducted by it. Seller is qualified to do business and is in good
standing in all of the states required by reason of its lease or ownership of
property or any of its operations or activities, except for any states wherein
the failure to be so qualified and in good standing will not have a material
adverse effect on Seller's business, operations or financial condition. Seller
has full power and authority to carry on its business as conducted at the
present time.
(b) AUTHORITY. Seller has full corporate power and authority to
enter into this Agreement, perform its obligations hereunder and consummate the
transactions contemplated
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hereby. This Agreement has been duly authorized, executed and delivered and
constitutes a valid and binding obligation of Seller, enforceable in accordance
with its terms subject to bankruptcy, insolvency, fraudulent transfer,
moratorium, reorganization and other similar laws of general applicability
relating to creditors' rights and to general equity principles. Except as set
forth in SCHEDULE IV.2(b), there are no authorizations, consents, approvals or
notices required to be obtained or given or waiting periods required to expire
in order that this Agreement and the transactions provided for herein may be
consummated by Seller.
(c) NO CONFLICT OR DEFAULT. To Seller's knowledge, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will violate any statute, regulation or
ordinance of any governmental authority, or conflict with or result in the
breach by Seller of any provision of the charter or governing regulations of
Seller or of any material agreement, deed, contract, mortgage, indenture, writ,
order, decree or instrument to which Seller is a party or by which it or any of
the Assets are bound, or constitute a default by Seller (or an event which, with
the lapse of time or the giving of notice, or both, would constitute a default)
thereunder, or result in the creation or imposition of any material lien, charge
or encumbrance, or restriction of any nature whatsoever with respect to any of
the Assets, or give to others any rights of termination, acceleration or
cancellation in or with respect to the Assets, or any agreement, understanding
or arrangement which it is a party or by which it is bound, except violations,
breaches, defaults or creation of liens or encumbrances that will not at any
time before or after the Closing result in a material change in the Assets or
Assumed Liabilities.
(d) CONTRACTS AND COMMITMENTS. SCHEDULE IV.2(d) sets forth all
material contracts, commitments, leases, permits, and other instruments binding
upon Seller (collectively, "Contracts"). Prior to the date of this Agreement,
Seller has delivered to Buyer true and complete copies of all items listed in
SCHEDULE IV.2(d), and any amendments thereof. Except as disclosed in
SCHEDULE IV.2(d), all such contracts, commitments, permits, instruments and
leases, including, without limitation, the lease for the property located at
12201 Technology Boulevard, Suite 100, Austin, Texas (the "Facility Lease"), are
in full force and effect and are valid, binding and enforceable in all material
respects in accordance with their respective provisions subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles, and neither Seller nor any other party is in default nor has
there occurred an event or condition which, with the passage of time or giving
of notice (or both), would constitute a default with respect to the payment or
performance of any obligation thereunder, except defaults that will not at any
time before or after the Closing result in a material loss or liability to or
against Seller or Buyer; and no claim of such a default has been asserted and
there is no reasonable basis upon which such a claim could validly be made.
(e) RECEIVABLES. The Accounts Receivable arose from valid sales of
Products in the ordinary course of the business, have been collected or, to the
best knowledge of Seller, are collectible in the book amounts thereof.
(f) FINANCIAL STATEMENTS. Seller has delivered to Buyer the
following financial
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statements (collectively, the "Financial Statements"), attached hereto as
Exhibit IV.2(f): (i) audited balance sheet and statement of operations and cash
flows for Seller as of and for the twelve-month period ended December 31, 1996
(the "Balance Sheet Date"); and (ii) unaudited balance sheet and statement of
operations of Seller for each month from the Balance Sheet Date through the
Closing Date. The Financial Statements fairly present the financial position of
Seller as of the date of each balance sheet included therein and results of
operations of Seller for the periods covered thereby and are consistent with the
books and records of Seller. The Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby except as set forth thereon.
(g) EVENTS SUBSEQUENT TO BALANCE SHEET DATE. Except as set forth on
Schedule IV.2(g), since the Balance Sheet Date, there has not been (i) any
material adverse change in the assets, liabilities, business, properties,
financial condition, or results of operations of Seller or, to the best
knowledge of Seller, future prospects for the Business; (ii) any transaction
entered into by Seller other than in the ordinary course of business; (iii) any
actual or threatened labor dispute (including any union representation
proceeding or organizational activities) which has materially adversely affected
the Business; (iv) any increase or decrease in the rates of direct compensation
payable or to become payable by Seller to any employee, agent or consultant, or
any bonus, percentage compensation, service award or other like benefit,
granted, made or accrued to or to the credit of any such employee, agent or
consultant, or any material welfare, pension, retirement or similar payment or
arrangement made or agreed to by Seller (other than such events occurring
pursuant to any previously existing collective bargaining agreement); or (v) any
modification of an existing contract having a materially adverse effect on the
Business.
(h) ASSETS OF SELLER. The Assets are sufficient to operate the
Business as presently conducted and are in good operating condition in all
material respects, normal wear and tear excepted, and are of sufficient quantity
as may be required under currently existing and required licensure and
certification requirements necessary and appropriate for the operation and
maintenance of the Business. The Inventory is merchantable and ready for sale
in the ordinary course of business.
(i) TITLE TO THE PROPERTY. Except as disclosed in SCHEDULE IV.2(i)
and except for (i) the lien of any current assessments or taxes not yet
delinquent and mechanics and similar liens arising in the ordinary course of
business not exceeding $5,000 in the aggregate, and (ii) with respect to Assets
that are contracts or rights thereunder, the express contractual rights of the
other parties thereto (collectively, the "Permitted Liens"), Seller has, or will
have, and upon Closing, Seller will convey or cause to be conveyed to Buyer,
good, marketable title to the Assets, free and clear of all claims, leases,
mortgages, pledges, liens, encumbrances, security interests, equities, charges,
clouds and restrictions of any nature whatsoever, except mortgages or security
interests shown on the Balance Sheet as securing specific liabilities or
obligations.
(j) INTELLECTUAL PROPERTY. Omitted intentionally.
(k) LITIGATION. Except as set forth on Schedule IV.2(k), there is no
claim,
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litigation, action, suit or proceeding, administrative or judicial, pending or,
to the best knowledge of Seller, threatened against or relating to Seller, the
Business, including products liability claims, at law or in equity, before any
federal, state, local or foreign court or regulatory agency, or other
governmental authority or any state of facts existing which could give rise to
such claim.
(l) TAXES. Except as set forth in Schedule IV.2(l), Seller has no
tax, deficiency or claim outstanding or assessed against it, or, to the best of
Seller's knowledge, proposed against it, and, to the best of Seller's knowledge,
there is no basis for any such deficiency or claim. All tax returns and reports
by Seller required to be filed by Seller have been duly and timely filed and all
taxes which were required to be paid have been paid.
(m) COMPLIANCE WITH LAW. Seller, to its knowledge, is in compliance
in all material respects with all applicable federal, state and local laws,
statutes, licensing requirements, rules and regulations, and judicial or
administrative decisions, except wherein the failure to be in compliance will
not have a material adverse effect on Seller's business, operations or financial
condition. Except for any such licenses, permits, authorizations or approvals
which are not individually or in the aggregate material to the Assets or conduct
of Seller's operations, Seller has been granted any and all licenses, permits
(temporary and otherwise), authorizations and approvals from federal, state,
local and foreign government regulatory bodies necessary to carry on Seller's
operations or the currently existing operations of the Assets as currently
conducted, all of which are valid and in full force and effect. Each such
license, permit, authorization and approval has been set forth in
SCHEDULE IV.2(m) hereto. As of the date of this Agreement, there has been no
order issued, investigation or proceeding pending, or, to the best knowledge of
Seller, threatened, or notice served with respect to any violation of any law,
ordinance, order, writ, decree, rule or regulation issued by any federal, state,
local or foreign court or governmental agency or instrumentality applicable to
Seller's operations.
(n) LABOR RELATIONS. Except as set forth on SCHEDULE IV.2(n), (i)
Seller is not a party to any collective bargaining or union contract; (ii)
there are no material disputes, grievances, charges, complaints, proceedings
or labor controversies pending or, to the best of Seller's knowledge,
threatened as of the date of this Agreement between Seller and any of the
employees of Seller or any labor union or other collective bargaining unit
representing any of the employees of Seller and Seller is not aware of any
basis for such controversies; and (iii) Seller is not a party to or bound by
any employment contracts with any of its employees. Seller is not a party to
any collective bargaining agreement and has suffered no strikes, lockouts or
general work stoppages which have caused a cessation of operations.
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(o) ENVIRONMENTAL MATTERS., Seller does not in the course of its
operation engage in the manufacture, processing, distribution, use, treatment,
storage, generation, disposal, transport or handling of hazardous wastes or
substances. Seller, to its knowledge, has not taken any action or failed to
take any action legally required to have been taken by Seller with respect to
the Business that might result in (i) actual or threatened violation of or
noncompliance with any environmental law or regulation; or (ii) actual or
threatened personal injury or property damage or contamination of any kind.
Seller has delivered to Buyer true and complete copies of all reports, studies
or tests in the possession of or initiated by Seller that pertain to Hazardous
Substances or other environmental concerns regarding the Business. To Seller's
knowledge, there is no contamination of the former or current real property
owned or leased by Seller for its Business. For purposes of this Agreement,
Hazardous Substance shall mean asbestos, urea formaldehyde, polychlorinated
biphenyls, nuclear fuel or materials, chemical waste, radioactive materials,
explosives, known carcinogens, petroleum products, pesticides, fertilizers, or
other substance which is dangerous, toxic or hazardous or, which is a pollutant,
contaminant, chemical material or substance defined as hazardous or as a
pollutant or contaminant in, or the use, transportation, storage, release or
disposal of which is regulated by, any environmental laws or regulations.
Seller neither knows nor has reason to know of any liabilities of Seller,
whether vested or unvested, contingent or fixed, which arise under or relate to
federal, state and local laws, rules and regulations governing the foregoing
activities or that relate to actions of Seller occurring on or prior to the
Closing Date respecting such activities.
(p) UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities of
Seller of any kind whatsoever that are material to the business of Seller that
are of a nature customarily reflected in financial statements prepared in
accordance with generally accepted accounting principles (and, to the knowledge
of Seller, there is no basis for any present or future charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand against
Seller giving rise to any such liability) except for (i) liabilities disclosed
or provided for on the Final Closing Statement and (ii) liabilities which have
arisen after the date of the Final Closing Statement in the ordinary course of
business and which would not reasonably be expected to have a material adverse
effect on the business, assets or results of operations of Seller or the
Company.
(q) BROKERS, FINDERS. There is no broker, finder or other person who
has been retained by Seller or authorized to act on its behalf and who is
entitled to a commission, fee or like payment in connection with the
transactions contemplated by this Agreement.
(r) PERSONNEL. SCHEDULE IV.2(r) constitutes a complete and correct
list of (i) all employment, bonus, profit-sharing, percentage compensation,
incentive plans, pension or retirement plans, contracts or agreements with
officers, employees or unions, or consulting agreements, to which Seller is a
party or is subject as of the date of this Agreement; (ii) the names, job
descriptions, titles, locations and current salary (or wage) rates of all
employees, consultants or agents of Seller; and (iii) the wage rates for the
non-executive employees of Seller by classification. SCHEDULE IV.2(r) also sets
forth a listing of all bonuses paid to employees of Seller since December 31,
1994.
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(s) INSURANCE. SCHEDULE IV.2(s) constitutes a list of all insurance
policies and all surety and other bonds in force with respect to Seller showing
for each such policy or bond: (i) the owner, (ii) the coverage of such policy or
bond, (iii) the premium, (iv) the name of the insurer, and (v) the termination
date of the policy or bond. All of such policies, sureties and bonds are valid
and in full force and effect at the present time, and no claim has been made, or
notice given, and there exists no ground, to cancel or avoid any of said
policies or bonds or to reduce the coverage provided thereby.
(t) ACCURACY OF DOCUMENTS AND INFORMATION. The copies of all
instruments, agreements, other documents and written information delivered to
Buyer by Seller or any representative of Seller are and will be complete and
correct in all material respects as of the date hereof and as of the Closing
Date, subject to changes made in the ordinary course of business. There is no
fact which, to the knowledge of Seller, materially and adversely affects the
Business, or Seller which has not been expressly and fully set forth in this
Agreement or the Schedules hereto.
(u) INTERESTS IN REAL PROPERTY. SCHEDULE IV.2(u) constitutes a true
and complete list and description of all real property owned by or leased to
Seller. Except as set forth on SCHEDULE IV.2(u): (i) none of the real property
owned by or leased to Seller is encroached upon by or encroaches upon the
property of others; (ii) there is no defect in or condition of any of the real
property owned by or leased to Seller which does or will impair the use of such
real property for the purposes presently being used; (iii) there is not, to the
knowledge of Seller, any pending or contemplated condemnation of any real or
personal property of Seller or any intended public improvement which will result
in any charge being levied or assessed against, or in the creation of any lien
or assessment upon, any real or personal property of Seller; (iv) there are not,
to the knowledge of Seller, any facts or conditions which will result in the
termination of any present access from any real property of Seller to any
utility services or from any real property of Seller to existing highways, roads
and alleys; (v) such leased property is free and clear of any zoning or use or
building restriction or any pending, proposed or threatened zoning or use or
building restriction which would either singly or in the aggregate, interfere in
any material way with the present or any intended use of any of such leased
property.
(v) PROPERTY TAXES. SCHEDULE IV.2(v) constitutes a complete list of
all real property and personal property tax bills of Seller for the current and
two prior property tax years, indicating whether or not Seller is aware of any
proposal by any such taxing authority to change the assessed values or
assessment rate reflected in such bills. Seller has timely and properly filed
all federal, state, local and foreign tax returns and reports and forms which it
is or has been required to file, either on its own behalf or on behalf of its
employees or other persons or entities, including but not limited to income,
profits, franchise, sales, use, occupation, property, excise, ad valorem and
payroll (including employee taxes withheld), all such returns and reports and
forms being true and correct and complete in all respects, and has paid all
taxes owing by it, including penalties and interest, if any, which have become
due pursuant to such returns or reports or forms or pursuant to assessments
received by Seller. To its knowledge, Seller has no liability for any taxes in
excess of the amounts stated in the Final Closing Statement.
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(w) PRODUCT WARRANTIES. No product warranty claims have been made
against Seller relating to the Products. Each Product manufactured by a vendor
and sold or delivered by Seller, its distributors or sales representatives has
been sold or delivered in conformity with all applicable contractual commitments
and all express and implied warranties, and Seller does not have any liability
(and there is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against Seller giving
rise to any liability) for replacement or repair thereof.
(x) RELATIONS WITH CUSTOMERS, SUPPLIERS AND VENDORS. No supplier or
vendor has canceled any contract or order for provision of, and, to the
knowledge of Seller, there has been no threat by any such supplier or vendor not
to provide Products, supplies or services to Seller either prior to or following
the Closing Date. Seller has not, to the knowledge of Seller, received any
information from any customer of Seller during the last full fiscal year to the
effect that such customer intends to materially decrease the amount of business
it does with Seller either prior to or following the Closing Date.
(y) CHANGE OF NAME OF SELLER. Seller shall, on the Closing Date or
as soon thereafter as reasonably possible, file all necessary documents and take
such other actions, if any, as are necessary or required to change its name.
(z) NON-COMPETE. For a period of time extending from the Closing
Date until the second anniversary following the Closing Date, Seller will not,
and Seller will cause each of its employees, officers, directors (for so long as
they serve in such capacities) and persons having a controlling interest in
Seller not to, directly or indirectly compete with Buyer or its subsidiaries in
the development, manufacturing, distribution, marketing or sale of any
orthopaedic hip or knee implants or related instruments or devices. Seller and
Buyer acknowledge that it would be difficult to measure the damages resulting
from the breach of the foregoing and that therefore the nonbreaching party shall
be entitled in case of any such breach, in addition to any legal remedies
available to it, to obtain equitable relief to enjoin any such breach or
threatened breach. The parties hereto desire that the foregoing provisions
shall be enforced to the fullest extent permissible under applicable law. If
any restriction contained in this Section IV.2(z) shall be deemed invalid or
unenforceable, such restriction shall be deemed automatically revised to permit
the restriction to remain in full force to the maximum extent permitted under
applicable laws. Seller represents that its parent company and Fred Mindermann,
Seller's CEO, as shareholders of Seller, have received sufficient consideration
through this Asset Purchase Agreement to enforce this non-compete provision.
(aa) SEC FILINGS. Seller has filed all forms, reports and documents
required to be filed with the SEC, and has made available to Buyer such forms,
reports and documents in the form filed with the SEC. All such required forms,
reports and documents (including those that Seller may file subsequent to the
date hereof) are referred to herein as "SEC Reports". As of their respective
dates, the SEC Reports (i) were prepared in accordance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC
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thereunder applicable to such SEC Reports, and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(bb) SCHEDULES. Seller has had full and adequate opportunity
to prepare, review, and complete the schedules attached hereto and represents
and warrants that these Schedules are true, complete and correct in all material
respects as of the date hereof and as of the Closing Date.
ARTICLE V
COVENANTS
V.1 FURTHER ASSURANCES
(a) At or after the Closing, Seller and Buyer shall prepare, execute
and deliver such further instruments of conveyance, sale, assignment or transfer
and shall take or cause to be taken such other or further action as either party
shall reasonably request at any time or from time to time in order to consummate
the terms and provisions of this Agreement.
(b) After the Closing, Seller and Buyer shall reasonably cooperate to
maintain in full force and effect all sales and supply contracts and agreements
between Seller and all third parties related to the operation of the Business
under which Seller or any entity affiliated with Seller has obligations which
continue after the Closing Date. Seller agrees to transfer promptly to Buyer
all orders for and correspondence and inquiries related the Business which it
receives on or after the Closing Date to Buyer.
V.2 ACCESS TO BOOKS AND RECORDS. After the Closing, both parties shall
provide each other with reasonable access to books and records pertinent to the
Business during regular business hours for five years following the Closing
Date. Except as set forth on SCHEDULE V.2, Seller agrees that, from and after
the Closing, Buyer shall have possession of all documents, books, records,
agreements and financial data of any sort relating to the Business, but shall
provide Seller with reasonable access to such books, records, agreements and
financial data. Seller shall retain books and records of Seller set forth on
SCHEDULE 5.2, but shall provide Buyer with reasonable access to such other books
and records. Seller will cooperate with Buyer in delivering the Final Closing
Statement pursuant to Section III.2(a).
V.3 PRESERVATION OF RECORDS. After the Closing, both parties agree to
preserve such books, records and filings relating to the Assets and Assumed
Liabilities as may be required by applicable law.
V.4 INFORMATION REGARDING INTELLECTUAL PROPERTY. After the Closing, both
parties agree to provide each other such documentation as is reasonably
requested relating to the Intellectual Property.
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V.5 ANNOUNCEMENTS. All press releases or other public communications
relating to this transaction will require the prior approval of both parties
(which approval shall not be unreasonably withheld), unless otherwise required
by law; provided, however, either party may issue such press release or public
communication to the extent such party reasonably determines that such action is
legally required.
V.6 ACCESS TO PROPERTIES AND RECORDS. Between the date of this Agreement
and the Closing Date, Seller shall give Buyer and Buyer's authorized
representatives full access as may be reasonably requested during reasonable
business hours, in such a manner as not unduly to disrupt the normal business
activities of the Company, to any and all of the premises and properties of the
Company and to the contracts, internal reports, data processing files and
records, state and local tax returns and records, commitments, books, records
and affairs of the Company. Seller shall furnish to Buyer any and all
financial, technical and operating data and other information pertaining to the
Business as Buyer shall from time to time reasonably request, including, without
limitation, financial statements and schedules. Such access shall also include,
but shall not be limited to, the placing of one or more employees or
representatives of Buyer at the Company's facilities for the purpose of enabling
such employees to become familiar with the operations of the Business. Buyer
shall not improperly use or disclose any confidential information pertaining to
the Business prior to the Closing.
V.7 GENERAL CONDUCT OF THE BUSINESS PRIOR TO CLOSING DATE. Pending the
Closing Date, and except as otherwise consented to or approved by an officer of
Buyer in writing (such requests to be directed to Daniel E. E. Hayes, Jr. or
Robert L. Addington) or as required or permitted by this Agreement, Seller
covenants as follows:
(a) Seller shall conduct the Company in the ordinary course and in a
normal business-like fashion and Seller shall use Seller's best efforts to
preserve and maintain the goodwill of the Business, including relationships with
providers, suppliers and customers.
(b) Seller shall not take any action, or suffer any action to be
taken against Seller, which would cause any material change in any of the items
and matters concerning Seller covered by the representations and warranties of
Seller set forth above in Article IV of this Agreement, including, without
limitation:
(i) incurring or becoming subject to, or agreeing to incur or
become subject to, any obligation or liability (absolute or contingent)
except current liabilities incurred and any obligations under contracts
entered into, in the ordinary course of business and provided specifically
that Seller shall not enter into any material lease, or extend or modify
any material lease (including the Facility Lease) with respect to any real
or personal property of Seller;
(ii) discharging or satisfying any lien or encumbrance or payment
of any obligation or liability (absolute or contingent) other than as
called for by the Agreement or
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current liabilities in the ordinary course of business;
(iii) mortgaging, pledging or assuming any lien, charge or
any other encumbrance, or the agreement so to do, with respect to any of
the Assets;
(iv) selling, transferring, or agreeing to sell or transfer, any
of the Assets, or canceling or agreeing to cancel any debts or claims,
except in each case in the ordinary course of business;
(v) entering into any transaction in which an extraordinary loss
would be incurred or waiving any rights of substantial value;
(vi) entering into any transaction other than in the ordinary
course of business;
(vii) increasing (other than pursuant to any collective
bargaining agreement in effect as of the date of this Agreement) the rate
of compensation payable or to become payable by Seller to any of the
Company's officers, employees or agents over the rate being paid to them on
the date of this Agreement except for routine regularly scheduled merit
increases;
(viii) terminating any material contract, agreement, license
or other instrument relating to the Business to which Seller is a party,
except agreements which are by their terms terminable in the ordinary
course of business;
(ix) negotiating or otherwise making any commitment or incurring
any liability or obligation to any labor organization not binding and
enforceable against Seller on the date of this Agreement;
(x) making, or agreeing to make, any accrual or arrangement for
or payment of any bonus or special compensation of any kind to any officer,
employee or agent other than pursuant to any program presently in effect;
(xi) entering into commitments for capital expenditures exceeding
the aggregate amount of $5,000.
V.8 MUTUAL COVENANT. Each of Seller and Buyer shall use its best efforts
to obtain all consents, approvals, orders, authorizations, registrations,
qualifications, designations or declarations from, and make any filings with,
any governmental authority required in connection with the consummation of the
transactions contemplated by this Agreement. Seller and Buyer each shall
furnish promptly to each other information reasonably requested by the other
party for inclusion in any statement or application made by either party to any
governmental or regulatory body in connection with the transactions contemplated
by this Agreement.
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V.9 FULFILLMENT OF CONDITIONS TO CLOSING. Each of Seller and Buyer
shall use its best efforts to cause the fulfillment at the earliest practicable
date of all of the conditions to the parties' respective obligations to
consummate the transactions contemplated hereby.
V.10 OBTAINING CONSENTS TO ASSIGNMENTS. Seller shall use its best
efforts to obtain all approvals, consents or waivers as shall be necessary to
convey and assign to and vest in Buyer all of its right, title and interest in
and to the Assets, including, without limitation, any claim, right, or benefit
arising thereunder or resulting therefrom, as soon as practicable after the date
hereof. To the extent that Seller's rights under any agreement, contract,
commitment, lease (including, without limitation, the Facility Lease), license,
permit, authorization or other Asset to be assigned to Buyer hereunder may not
be assigned without the consent of another person, and such consent has not been
obtained by the Closing Date, neither this Agreement nor any document executed
by the parties hereto in connection with this Agreement shall constitute an
agreement to assign the same if any attempted assignment would constitute a
breach thereof or would be unlawful.
V.11 INSURANCE From the Closing Date until the fifth anniversary of
the Closing Date, Seller shall continue to maintain product liability insurance
with a limit of not less than One Million dollars ($1,000,000.00) per occurrence
to cover claims relating to Products manufactured and sold by Seller to any
third party, including distributors, prior to the Closing Date. Seller shall
provide Buyer with a current Certificate of Insurance each year during the five
year period, which provides evidence of such product liability insurance,
including broad form vendors coverage and naming Buyer and its subsidiary,
National Medical Specialty, Inc., as additional insureds. Seller shall promptly
provide proof of such insurance coverage to Buyer within 2 days of Buyer's
request.
ARTICLE VI
EMPLOYEE AND OTHER MATTERS
VI.1 BUYER TO OFFER EMPLOYMENT.
(a) Buyer shall offer employment to the employees listed on
SCHEDULE VI.1, as Buyer, in its sole discretion, elects to employ, effective as
of the close of business on the Closing Date, with a level of compensation and
benefits and on other terms and conditions of employment substantially similar
to each such employee's existing arrangements with the Company, unless otherwise
agreed to by such employees.
(b) Effective at the close of business on the Closing Date, all
employees of the Company who accept Buyer's offer of employment (collectively,
the "Transferring Employees") shall cease to be covered by Seller's employee
welfare benefit plans, including plans, programs, policies and arrangements
which provide medical and dental coverage, life and accident insurance and
disability coverage (collectively, "Welfare Plans"). Seller shall retain
responsibility for all Welfare Plans claims incurred by all employees of Seller
(and their dependents) on or prior to the Closing Date. Buyer shall assume
responsibility for all claims under Buyer's employee welfare benefit plans
incurred by Transferring Employees after the Closing Date. For purposes of this
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paragraph, a claim shall be deemed to have been incurred on the date treatment
is rendered except as to claims resulting from Company confinement commencing on
or prior to the Closing Date or from illness, injury or a condition which
requires medical or dental treatment being treated on or prior to the Closing
Date.
(c) Other than as set forth herein, Buyer shall have no
obligation to any employees of Seller.
VI.2 PAYROLL. Seller shall pay all employees of the Company all wages
to which they are entitled through the Closing Date.
VI.3 ACCRUED VACATION. As of the Closing Date, Buyer shall assume all
liability for and thereafter have sole responsibility for all vacation time
accruing for the Transferring Employees. Seller shall remain liable for accrued
vacation of its employees, including Transferring Employees for all periods
through to and preceding the Closing Date.
ARTICLE VII
CLOSING
VII.1 TIME OF CLOSING. The closing (the "Closing") of the purchase and
sale of the Business shall take place at the offices of U. S. Medical Products,
Inc., 12201 Technology Boulevard, Suite 100, Austin, Texas 78727 on such date
and time as to which Buyer and Seller shall mutually agree that all Conditions
as set forth in Section VIII have been met (such date being referred to herein
as the "Closing Date"), and the transactions effected by this Agreement shall be
effective at the close of business on the Closing Date.
VII.2 DELIVERIES BY SELLER. At the Closing, Seller shall deliver to
Buyer the following, all duly and properly executed (where necessary):
(a) A good and sufficient Bill of Sale, which shall be in form
and substance satisfactory to Buyer and Seller, selling, delivering,
transferring and assigning to Buyer all of Seller's right, title and interest in
and to the Business (other than the contracts and agreements that are not
Acquired Contracts), free and clear of all liens other than Permitted Liens;
(b) Good and sufficient assignments of all Acquired Contracts,
which shall be in form and substance satisfactory to Buyer and shall include the
written consents of all parties necessary in order to transfer all of Seller's
rights thereunder to Buyer;
(c) A certificate of the President or Chief Executive Officer of
Seller in accordance with Section VIII.1(h);
(d) The Note and the Security Agreement, each duly and validly
executed;
(e) Such other separate instruments of sale, assignment or
transfer that Seller
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and Buyer may reasonably deem necessary or appropriate in order to perfect,
confirm or evidence in Buyer title to all or any part of the Business.
VII.3 DELIVERIES BY BUYER. At the Closing, Buyer shall deliver to
Seller the following, all duly and properly executed (where necessary):
(a) Cash in the amount of $300,000.00;
(b) The Note;
(c) A certificate of the President or Chief Executive Officer of
Buyer in accordance with Section VIII.2(e); and
(d) Such other separate instruments of assumption that Seller
and Buyer may reasonably deem necessary or appropriate in order to perfect,
confirm or evidence the assumption by Buyer of the Assumed Liabilities or the
effectuation of the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS
VIII.1 OBLIGATIONS OF BUYER. Each and every obligation of Buyer to be
performed at the Closing shall be subject to the satisfaction as of or before
the Closing Date of the following conditions (unless waived in writing by
Buyer):
(a) CONSENTS. Seller shall have obtained and delivered to Buyer
all consents which are necessary in order to consummate the transactions
contemplated herein, including the consent of the other parties to the Acquired
Contracts as to the assignment of such contracts;
(b) PERFORMANCE OF AGREEMENT. All covenants, conditions and
other obligations under this Agreement which are to be performed or complied
with by Seller shall have been fully performed and complied with in all material
respects at or prior to the Closing Date, including the delivery of the
instruments and documents in accordance with Section VII.2;
(c) NO ADVERSE PROCEEDING. There shall be no material pending
or threatened claim, action, litigation or proceeding, judicial or
administrative, or governmental investigation against Seller for the purpose of
enjoining or preventing the consummation of this Agreement, or otherwise
claiming that this Agreement or the consummation of any of the transactions
contemplated hereby is illegal;
(d) NO MATERIAL ADVERSE CHANGE. (i)There shall have been no
material adverse change in the properties, business or financial condition, the
Assets, or Products of Seller since the Draft Closing Statement provided on the
date hereof, or to the best knowledge of Seller, the prospects for the Business
or the Company, however, changes in the value of the Assets arising in the
ordinary course of business or due to the sale of Inventory to Buyer prior to
the Closing shall not be deemed a material adverse change; and(ii) in the
Updated Draft Closing Statement, the
17
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Assets shall exceed the Assumed Liabilities by at least $300,000.00;
(e) REPRESENTATIONS AND WARRANTIES. All representations and
warranties (including any Schedules contained therein) contained in Section IV.2
of this Agreement shall be true and correct as of the Closing Date;
(f) FAIRNESS OPINION. Seller's Board shall have obtained an opinion
regarding the fairness of the transaction covered by this Agreement from an
investment banking firm acceptable to Seller's Board, which opinion provides
reasonable support for the approval required by Seller's Board under Section
VIII.1(g);
(g) APPROVAL OF THE SHAREHOLDERS AND BOARD OF SELLER. Seller shall
have obtained the approval of the Board of Directors of Seller (Seller's Board)
and approval of the Shareholders of Seller for the execution and delivery of
this Agreement and the transactions contemplated hereby;
(h) Seller shall have delivered to Buyer a certificate executed by
its President or Chief Executive Officer, dated the date of the Closing, to the
effect that the conditions set forth in subsections (a), (b), (c), (d), (e), (f)
and (g) of this Section VIII.1 have been satisfied;
(i) APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments, opinions and other documents delivered or to be
delivered to Buyer under this Agreement shall be satisfactory to Buyer and
Buyer's counsel in all reasonable respects;
(j) BULK SALES LAWS. The parties shall have complied with all
applicable bulk sales and similar laws with respect to the transfer of the
Business;
(k) MATERIAL CLOSING DOCUMENTS. Buyer shall have received each of
the Bill of Sale, Assumption of Liabilities, the Assignment of Lease and all
other documents deemed necessary by Buyer in connection with Closing duly
executed by authorized signatories of each party thereto;
(l) FACILITY SURVEY. Buyer shall have provided Seller with a survey
of the real property subject to the Facility Lease together with the
improvements thereon, such survey to be reasonably satisfactory to Buyer and to
be conducted at Buyer's cost;
(m) MERIDIAN CAPITAL. Seller shall have provided Buyer with a
release of all claims asserted against Seller and its parent, by Meridian
Capital, in a letter from Meridian Capital's counsel dated February 27, 1997;
(n) PERFORMANCE OF DISTRIBUTOR AGREEMENT AND LICENSE AGREEMENT. All
covenants, conditions and other obligations under the Worldwide Exclusive
Distributor Agreement and the License Agreement which are to be performed or
complied with by Seller shall have been fully performed and complied with in all
material respects at or prior to the Closing Date, including
18
<PAGE>
the delivery of all assignments of the Intellectual Property under the License
Agreement;
(o) FAILURE OF CONDITIONS. In the event that any condition set
forth in this Section VIII.1 is not fulfilled within the time required, Buyer
shall either waive fulfillment of such condition or give Seller notice that such
condition has not been fulfilled, setting forth the reason that such condition
has not been fulfilled. In the event that any such failure to fulfill a
condition is curable, Seller shall have a reasonable period (but in no event to
exceed 20 days) to attempt to fulfill such condition. In the event such failure
is not curable or that Seller fails to secure fulfillment of such condition
within such period, Buyer shall within a reasonable period not to exceed 15
days, in the exercise of Buyer's absolute discretion, either elect to waive
fulfillment of such condition or to terminate this Agreement.
VIII.1 CONDITIONS TO OBLIGATIONS OF SELLER. Each and every obligation
of Seller to be performed at the Closing shall be subject to the satisfaction as
of or before the Closing of the following conditions (unless waived in writing
by Seller):
(a) PERFORMANCE OF AGREEMENT. All covenants, conditions and
other obligations under this Agreement which are to be performed or complied
with by Buyer shall have been fully performed and complied with in all material
respects at or prior to the Closing Date including the delivery of all payments
pursuant to Section VII.3(a) and the instruments and documents in accordance
with Section VII.3;
(b) NO ADVERSE PROCEEDING. There shall be no material pending
or threatened claim, action, litigation or proceeding, judicial or
administrative, or governmental investigation against Buyer for the purpose of
enjoining or preventing the consummation of this Agreement, or otherwise
claiming that this Agreement or the consummation of any of the transactions
contemplated hereby is illegal;
(c) REGULATORY APPROVALS. Buyer shall have obtained all other
governmental or regulatory permits, consents, certificates that are material and
necessary for the operation of the Business;
(d) APPROVAL OF THE BOARD OF BUYER. Buyer shall have obtained
the approval of the Board of Directors of Buyer (Buyer's Board) for the
execution and delivery of this Agreement and the transactions contemplated
hereby;
(e) CERTIFICATE. Buyer shall have delivered to Seller at the
Closing a certificate, dated the date of the Closing, executed by the Senior
Vice President or Chief Executive Officer of Buyer, to the effect that the
conditions set forth in subsection (a), (b), (c) and (d) of this Section VIII.2
have been satisfied; and
(f) APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments, opinions and other documents delivered or to be
delivered to Seller under this Agreement shall be satisfactory to Seller and
Seller's counsel in all reasonable respects.
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(g) FAILURE OF CONDITIONS. In the event that any condition set
forth in this Section VIII.2 is not fulfilled within the time required, Seller
shall either waive fulfillment of such condition or give Buyer notice that such
condition has not been fulfilled, setting forth the reasons that such condition
has not been fulfilled. In the event that any such failure to fulfill a
condition is curable, Buyer shall have a reasonable period (but not to exceed 20
days) to attempt to fulfill such condition. In the event such failure is not
curable within such period, Seller shall, within a reasonable period not to
exceed 15 days, in the exercise of Seller's absolute discretion, elect to waive
fulfillment of such condition or to terminate this Agreement.
ARTICLE IX
MISCELLANEOUS
IX.1 EXPENSES. Each party shall pay its own expenses and costs
incidental to the preparation of this Agreement and to the consummation of the
transactions contemplated hereby.
IX.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties and covenants contained in this Agreement shall survive the Closing
of the transactions contemplated hereby.
IX.3 NOTICES. All notices and other communications hereunder shall be
in writing and shall be delivered by facsimile transmission with telephone
confirmation of receipt, or, if such means should be available, by hand or sent
by first-class mail, postage prepaid, or by overnight courier, as follows:
If to Buyer: HAYES MEDICAL, INC.
819 Striker Avenue, Suite 10
Sacramento, CA 95834
Attn: Daniel E. E. Hayes, Jr.
CEO
If to Seller: U. S. MEDICAL PRODUCTS, INC.
12201 Technology Blvd., Suite 100
Austin, Texas 78727
Attn: Fred Mindermann
CEO
or, in each case, at such address and to the attention of such person as either
party shall have furnished to the other by notice.
IX.4 KNOWLEDGE. The phrase "to the knowledge" of an entity shall
refer to the actual knowledge of the chief executive officer, chief financial
officer and other officers (including all
20
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persons with the title Senior Vice President or Vice President) after
appropriate inquiry with respect thereto.
IX.5 REMEDIES. The parties hereto shall be entitled to enforce their
rights under this Agreement specifically to recover damages caused by reason of
any breach of any provision of this Agreement and to exercise all other rights
granted by law. The parties hereto agree and acknowledge that money damages may
not be an adequate remedy for any breach of the provisions of this Agreement and
that any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or prevent
violation of the provisions of this Agreement.
IX.6 MISCELLANEOUS. This Agreement together with all Schedules and
Exhibits hereto constitutes the entire understanding between the parties hereto,
and supersedes all prior agreements or letters of intent, representations and
understandings of the parties hereto. This Agreement may be modified or
terminated only by an instrument in writing signed by the party against which
enforcement is sought. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their successors and assigns, and may not be
assigned by any party without the express written consent of the other parties
hereto. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES. This Agreement may be executed in one or more separate
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The headings of the
sections of this Agreement are solely for convenience of reference and shall not
affect the meaning of any of the provisions hereof.
IX.7 INDEMNIFICATION.
(a) SELLER'S INDEMNIFICATION OF BUYER. Seller, and its
successor, shall indemnify Buyer and hold Buyer harmless at all times after the
Closing against and in respect of any of the following (collectively, "Buyer
Losses") and Buyer's right to indemnification from Seller shall include, but is
not limited to, Buyer's right to offset the Note payments (pursuant to the terms
of the Offset Procedures attached hereto as Exhibit IX.7(a)) for any of the
Buyer Losses:
(i) OBLIGATIONS NOT ASSUMED. Any and all claims, losses,
costs, expenses, commitments, agreements, liabilities and obligations of Seller,
or arising from the operations, or employees of Seller either before or after
the Closing Date (including, without limitation, the operation of the Company
prior to the Closing Date), whether accrued, absolute, contingent or otherwise
and whether or not disclosed in this Agreement or the Schedules, to the extent
not expressly assumed by Buyer pursuant to the Agreement, it being agreed that
the Assumed Liabilities shall be as set forth on the Final Closing Statement,
but to the extent such Assumed Liabilities exceed the amount of liabilities set
forth on the balance sheet as of the Closing Date delivered to Buyer pursuant to
Section III.2 hereof, Buyer shall have a right of offset as
21
<PAGE>
provided in Section III.2 hereof;
(ii) BREACH OF AGREEMENTS. Any and all damages
resulting to Buyer from any misrepresentation, breach of warranty or covenant
made by Buyer, or nonfulfillment, in whole or in part, of any obligation on the
part of Seller under this Agreement, the License Agreement or any Schedule or
document delivered pursuant hereto;
(iii) PRODUCT RECALLS. Any and all damages and costs
associated with Product recalls, notifications, or other actions for Products
manufactured and sold to third parties, including distributors, prior to the
Closing;
(iv) TAXES. Any and all taxes of Seller, or applicable
to operation of the Business prior to the Closing Date to the extent not
provided for on the Final Closing Statement; and
(v) ASSOCIATED COSTS. All costs, assessments,
judgments (including reasonable costs and attorneys' fees and other expenses)
arising out of any claim, or the defense or investigation thereof, made with
respect to any of the matters described in Section IX.7(a)(i), (ii), or (iii);
(b) BUYER'S INDEMNIFICATION OF SELLER. Buyer shall indemnify Seller
and hold Seller harmless at all times after the Closing against and in respect
of any of the following (collectively, "Seller Losses"):
(i) OBLIGATIONS ASSUMED. Any and all claims, losses,
costs, expenses, commitments, agreements, liabilities and obligations of Seller
to the extent expressly included within the Assumed Liabilities;
(ii) BREACH OF AGREEMENT. Any and all damages
resulting to Seller from any misrepresentation, breach of warranty or covenant
made by Seller, or nonfulfillment, in whole or in part, of any obligation on the
part of Buyer under this Agreement or any Schedule;
(iii) POST-CLOSING OPERATIONS. Any and all claims,
losses, costs, expenses, commitments, agreements, liabilities and obligations of
Buyer arising from events occurring in the operation of the Business after the
Closing Date; and
(iv) ASSOCIATED COSTS. All costs, assessments,
judgments (including reasonable costs and attorneys' fees and other expenses
arising out of any claim, or the defense or investigation thereof, made with
respect to any of the matters described in Section IX.7(b)(i), (ii) or (iii);
(c NOTICE OF CLAIMS - PARTICIPATION IN THIRD PARTY SUITS. Any party
with a right to indemnification pursuant to this Section IX.7 ("Indemnified
Party") shall be reimbursed by the
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<PAGE>
other party ("Indemnifying Party") for any damage subject to such
indemnification. Any Indemnified Party making any claim against an Indemnifying
Party for indemnification shall make such claim in writing, setting forth in
general terms the facts upon which the Indemnified Party bases such claim. In
the event of any claim or demand asserted against any Indemnified Party by a
third party upon which the Indemnified Party may claim indemnification under
this Section IX.7, the Indemnified Party shall give the Indemnifying Party
written notice within thirty (30) days after receipt thereof indicating whether
the Indemnified Party intends to assume the defense of such claim or demand.
The Indemnifying Party shall have the right, at its own expense, to participate
in such defense, by written notice given to the Indemnified Party within fifteen
(15) days from the date of the Indemnified Party's notice of such claim. If the
Indemnified Party assumes the defense and the Indemnifying Party does not
participate, the Indemnified party shall have the right fully to control and to
settle the proceeding. If the Indemnifying Party elects to participate in such
defense, and does not dispute liability for indemnification of all damages
arising out of such action, the Indemnifying Party may elect to control the
proceeding, but shall not settle the same without the consent of the Indemnified
Party, which consent shall not be unreasonably withheld. If the Indemnifying
Party does not so elect to control the proceeding, the Indemnified Party shall
control the proceeding but shall not settle the same without the consent of the
Indemnifying Party, which consent shall not be unreasonably withheld. If the
Indemnified Party elects not to assume the defense, the Indemnifying Party shall
have the right to do so and to control the proceeding, but the Indemnified Party
shall nonetheless have the right to participate therein, and the Indemnifying
Party shall not settle the same without the consent of the Indemnified Party,
which consent shall not be unreasonably withheld.
(d) OFFSET FOR SELLER'S INDEMNIFICATION OF BUYER. In the event
that Seller becomes liable to Buyer under the provisions of this Agreement,
Seller shall be entitled to a credit or offset against such liability of an
amount equal to the sum of: (A) the value of any asset of Seller which existed
(contingently or otherwise) on the Closing Date, excluding intangible assets
described herein, but was not reflected as an Asset on the Final Closing
Statement of Seller, which was transferred to Buyer under this Agreement, the
value of which must be mutually agreed upon by the parties; (B) the amount, if
any, by which the Accounts Receivable of Seller which are purchased by Buyer
under this Agreement are actually collected in excess of the net amount thereof
(after the applicable allowance for doubtful accounts, if any); and (C) the
amount, if any, by which the actual amount of any Assumed Liability shown on the
Final Closing Statement is less than that amount at which such liability or the
reserve therefor is recorded thereon.
IX.8 TERMINATION.
(a) MUTUAL AGREEMENT. This Agreement may be terminated and
abandoned at any time prior to the Closing Date by the written agreement of
Seller and Buyer.
(b) FAILURE OF CONDITIONS. This Agreement may be terminated on
the grounds of failure of fulfillment of conditions as provided in Sections
VIII.1 and VIII.2.
(c) FAILURE TO TIMELY CLOSE. This Agreement shall terminate if
the Closing is
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not consummated on or before JULY 15, 1997, unless otherwise extended by the
mutual written agreement of the parties.
(d) EFFECT OF TERMINATION. In the event of termination of
this Agreement in accordance with this Section IX.8, neither party shall have
any obligation to the other whatsoever with respect to this Agreement, the
transactions provided for herein, or the expenses either of them incurred in
connection with or in contemplation of such transactions.
IX.9 ALLOCATION OF ESTIMATED PURCHASE PRICE. SCHEDULE IX.9
constitutes the allocation agreed to by Seller and Buyer of the consideration
among the various items included in the Assets being transferred by Seller to
Buyer. Buyer and Seller shall file all tax returns and reports in a manner
consistent with SCHEDULE IX.9.
IX.10 PRORATIONS. All items of income or expense respecting the Assets
and the Business being transferred pursuant to this Agreement which properly
apply to periods commencing prior to and ending after the Closing Date shall be
prorated as of the close of business on the Closing Date. Such items of income
or expense shall include, without limitation, the following, which shall be
governed by any special proration principles set forth below:
(a) Current real and personal property taxes; in the event that
such taxes are not determinable on the Closing Date, such taxes shall be
tentatively prorated upon the basis of taxes for the preceding tax year and
appropriate adjustments shall be made when such taxes are finally determined;
(b) Premiums on any insurance policies transferred to Buyer
pursuant to this Agreement; and
(c) Buyer and Seller shall cooperate so as to cause utility
companies to read all utility meters on the morning of the Closing Date so as to
minimize the need for such proration.
[Signature Page to Asset Purchase Agreement Follows]
24
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IN WITNESS WHEREOF, the parties hereto have executed this Asset
Purchase Agreement on the date first above written.
U. S. MEDICAL PRODUCTS, INC.
By:
-------------------------------------
Frederick J. Mindermann
Chief Executive Officer
HAYES MEDICAL, INC.
By:
-------------------------------------
Daniel E. E. Hayes, Jr.
Chief Executive Officer
25
<PAGE>
USMP
PRELIMINARY CLOSING STATEMENT
PURCHASE PRICE ALLOCATION
DESCRIPTION ASSUMED HISTORICAL
BALANCES COST
(per 3/31/97 G/L)
CASH - -
ACCOUNTS RECEIVABLE 14,522 14,522
ALLOWANCE FOR DOUBTFUL ACCTS. - -
METRAX RECEIVABLE - -
HAYES RECEIVABLE 198,260 198,260
EMPLOYEE RECEIVABLE 542 542
INVENTORY 1,799,306 3,198,766
PREPAIDS 23,596 23,596
PREPAID INVENTORY 226,232 226,232
FIXED ASSETS 759,429 759,429
OTHER ASSETS 23,492 41,764
AP - TRADE 1,989,467 1,989,467
AP - EMPLOYEES 522 522
AP - PRIOR YEAR TAXES 18,011 18,011
PRODUCT LIABILITY -
METRAX LIABILITY -
PAYROLL RELATED 90,184 90,184
ACCRUED PROPERTY TAX 21,900 21,900
NMSI LIABILITY 228,825 228,825
SAB FEES - -
INCENTIVES 3,000 3,000
ACCRUED SALES TAXES -
OTHER ACCRUED LIAB. 1,800 1,800
LEASES 105,934 105,934
BLDG LEASE OBLIGATION ASSUMED 114,673
26
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APPENDIX D:
June 30, 1997
Mr. Fred Mindermann
Chief Executive Officer
U.S. Medical Products, Inc.
and
Board of Directors
U.S. Medical Products, Inc.
12201 Technology Blvd.
Suite 100
Austin, Texas 78727
Re: Fairness Opinion Letter
Gentlemen:
You have requested William Jamieson Group, Inc., (hereinafter "WJG"), to express
an opinion (the "Opinion") as to the fairness from a financial point of view to
U.S. Medical Products, Inc., (hereinafter the "Company" or "USMP"), and its
shareholders of the proposed sale by the Company of substantially all of the
assets of the Company including certain facility fixed assets, and technology
rights (hereinafter called the "Transaction"), to an unrelated third party Hayes
Medical, Inc., (hereinafter called "Hayes" or the "Buyer"). In addition,
certain employees of the Company will be transferred to Hayes. It is our
understanding that concurrent with the closing of the Transaction, the Company
will terminate a worldwide exclusive distribution agreement, (hereinafter the
"Distribution Agreement") with National Medical Specialty, Inc., a wholly-owned
subsidiary of Hayes Medical, Inc., (hereinafter the "Distributor").
DESCRIPTION OF THE TRANSACTION
It is our understanding that the Company is not able to continue as a
going-concern and intends to liquidate substantially all of the assets of the
Company by selling them to Hayes pursuant to the Asset Purchase Agreement, dated
May 20, 1997. Pursuant to the Asset Purchase Agreement, Hayes will acquire
substantially all of the Company's assets in exchange for a cash payment of
$300,000 and a promissory note. The purchase price is 56.25% of the agreed upon
historical cost of the assets (determined according to GAAP) less certain
liabilities to be assumed by Hayes, as more fully described in the Final Closing
Statement as of the closing of the Asset Purchase Agreement. The note will bear
interest at ten percent (10%) per annum and will be due in eighteen equal
monthly installments.
In addition, pursuant to the License Agreement, dated May 20, 1997, Hayes has
acquired an exclusive, irrevocable, royalty-free, worldwide license, with the
right to sublicense, to the Company's intellectual property relating to the
Company's orthopedic product lines. Upon the closing of the Asset Purchase
Agreement, Hayes will become the sole and exclusive owner of the
<PAGE>
intellectual property. The consideration for the license to Hayes and the
transfer of the Company's intellectual property rights is $550,000, payable as
follows: i) an initial cash payment of $400,000 and a promissory note in the
amount of $150,000 at 10% interest per annum payable over 18 months as scheduled
on a loan amortization table attached to the License Agreement. The first
payment pursuant to this agreement is due June 20, 1997 with the final payment
due November 20, 1998.
The Transaction shall close upon the approval of the Transaction by the Board of
Directors of U.S. Medical Products, Inc., and by its majority shareholder, (MMI
holds an 80% common shareholder stake), pursuant to written consent following
the delivery of an information disclosure statement to all shareholders.
Concurrent with the arm's length negotiations with Hayes for the sale of assets,
the Company also has executed a Distribution Agreement dated February 1, 1997,
whereby the Company entered into a "worldwide exclusive distribution agreement"
with a wholly owned subsidiary of Hayes (the "Distributor"). In conjunction with
this agreement, the Company sold to the Distributor inventory with a book value
of $1.78 million dollars in exchange for a cash purchase price of 56.25% of the
net book value of such inventory ($1.0 million). The Distributor also agreed to
purchase additional inventory with a net book value of $.533 million in exchange
for a cash purchase price of 56.25% of the inventory's book value ($.3 million
dollars). Any additional purchases by the Distributor pursuant to the worldwide
distribution agreement will be made at 60% of the Company's list price, (defined
as historical cost as determined by GAPP).
On April 7, 1997, the Company signed an amendment to the "world wide exclusive
distribution agreement," whereby up to an additional $700,000 of inventory may
be purchased at a price of 30% above cost (prior to valuation reserves) for new
inventory or 56.25% of fully burdened historical cost (prior to valuation
reserves) for existing inventory. Additional future purchases made under this
agreement, if any, will be made at a price to be agreed upon by both parties.
The Distribution Agreement shall expire concurrent with the closing of the Asset
Purchase Agreement.
The preliminary Closing Statement presented by Hayes and the Company indicates a
gross asset purchase price of $3,045,379, net of liabilities to be paid by Hayes
at closing projected at $2,459,623, the net cash proceeds to the Company is
estimated to be $585,756.
In addition, Hayes will pay the Company an additional $550,000 for the transfer
of the Company's intellectual property rights and shall be paid $550,000
pursuant to a License Agreement dated May 20, 1997.
This represents a total purchase price for the tangible and intangible assets
acquired by Hayes of $3,595,379.
Following the closing of the pending Transaction with Hayes, the Company is
projected to retain additional adjusted assets of approximately $527,335.
Following the pending Transaction, the Company plans to finalize the merger
negotiations with MMI, the majority shareholder of the Company. Upon completion
of the merger between the
<PAGE>
Company and MMI, the Company anticipates that it will remain as the surviving
entity, change its name to Metrax International, Inc., and continue the
operations of MM and Metrax GmbH.
The capital plan proposed by the Company and MMI would result in the existing
public shareholders of the Company maintaining substantially the same 20%
equity interest in the common shares of the Company immediately following the
merger.
ANALYSIS LEADING TO ADVISORY CONCLUSIONS
In connection with preparing this Opinion, we have made such analyses, reviews
and inquiries as we have deemed necessary and appropriate under the
circumstances. In conducting our analysis and forming our Opinion, we have
reviewed a number of documents, including but not limited to the following:
1. Asset Purchase Agreement dated May 20, 1997 and Preliminary Closing
Statement.
2. Licensing Agreement dated May 20, 1997
3. Worldwide Exclusive Distribution Agreement dated February 1, 1997 between
National Medical Specialty Inc., a wholly owned subsidiary of Hayes
Medical, Inc., including executed purchase orders.
4. Letter of Intent dated February 1, 1997.
5. Audited Financial Statement for U.S. Medical Products, Inc., for December
31, 1996 and presents the net assets in liquidation of the Company.
6. Audited Financial Statements for U.S. Medical Products, Inc. for 1995 and
1994.
7. U.S. Medical Products, Inc., Interim Financial Statement for the three (3)
months ending March 31, 1997. Also, a preliminary Interim Financial
Statement for the six (6) months ending June 30, 1997.
8. Management prepared monthly Financial Statements for the period ending
December 31, 1996 and January through May 1997.
9. U.S. Medical Products, Inc., 5 year proforma income statement, dated
November, 1996.
10. 1996 Marketing Plan and quarterly 1996 proforma income statement for U.S.
Medical Products, Inc.
11. Detailed list of accounts receivable with aging information; also, list of
all accounts payable and creditors.
12. Detailed Hayes and USMP Closing Binder presented by Hayes dated May 21,
1997, which includes numerous documents listed in the Table of Contents -
Documents #1 - #4 and Exhibits and Schedules #5 - #26.
13. SEC 10-KSB/A for December 31, 1996
<PAGE>
14. SEC 10-KSB for December 31, 1995 and December 31, 1994
15. SEC 8-K's dated May 20, 1997, August 21, 1996, and February 22, 1996..
16. Purchase Agreement dated August 19, 1996 between Metrax Medical, Inc., and
Durian Securities, Inc., for the acquisition of 12,998,060 shares of the
common stock of U.S. Medical Products, Inc., along with 17,270,948 Class A
warrants to purchase 17,270,948 shares of common stock of U.S. Medical
Products, Inc., and a $1,100,000 promissory note. Also, the Contribution
Agreement, dated August 19, 1996, between USMP and Durian Securities, Inc.,
for the contribution to USMP capital of certain outstanding note debt and
note interest.
17. Shareholder list for USMP as of February 5, 1997. Also, detail on various
stock option plans implemented by USMP and warrants issued to purchase the
common stock of the Company.
18. Various documents, memoranda prepared by the Company management, including
but not limited to (i) a summary of the Company's operations and history;
(ii) background information on key management personnel; (iii) USMP's
organizational structure; (iv) intellectual property assets schedule dated
February 24, 1997; (v) summary of U.S. Medical Products, Inc., Premarket
510(k) notifications; (vi) joint defense agreement between USMP and Smith
Management Company relative to the defense of lawsuit entitled 1212 HP,
Ltd. 1826, Inc., et al., and a draft settlement agreement to a claim made
by Meridian Capital Group, Inc., for fees in connection with financial
advisory services provided to the majority shareholder of the Company in
conjunction with efforts to arrange financing for the Company; (vii)
various articles, scientific papers, product brochures and documents
describing among other things USMP's products and technology, commercial
applications along with industry and competitor research covering certain
segments of the orthopedics market - hip, knee and small joint prostheses,
trauma devices, and bone anchors.
19. OTC Bulletin Board Daily stock price and volume detail for the period
January 2, 1996 through March 18, 1997.
20. Various documents, memoranda prepared by the Company management, including
but not limited to (i) management discussion relative to its efforts to
secure working capital financing to meet operating shortfall along with
weekly cash flow projections for various periods in 1996 and 1997; (ii)
management discussion relative to its assessment of the alternatives to the
Company to meet its financial responsibilities to creditors, including
reducing expenses, securing working capital debt financing, sale of equity
and or the sale of assets, as alternatives to the filing bankruptcy by the
Company; (iii) management review of the impact of the sale of assets on its
employees, customers, suppliers and creditors; and (iv) schedule of cash
transactions between USMP and MMI.
21. Copies of press releases made during the period 1997 and 1996.
22. Copies of all employment agreements and list of officers and directors with
background
<PAGE>
information and organizational structure.
23. Schedule of contracts in which USMP is obligated.
24. USMP assessment of annual distributor sales of its products by Hayes over a
four (4) year royalty term and their estimate of the net present value.
25. Business and marketing plan from Hayes dated September 1996 including
Hayes assessment of distributor sales of USMP products and the present
value of the future payments.
26. December 31, 1996 Audited Financial Statement for Hayes.
In addition to review of the above described documents, the following analytical
procedures were conducted in arriving at our Opinion.
1. Inquiries were made of certain officers of the Company who have senior
responsibility for operating matters regarding: (i) the operations,
financial condition, future prospects and projected operations and
performance of the Company; (ii) whether management is aware of any events
or conditions which might cause any of the assumptions set forth in this
Opinion to be incorrect; (iii) the nature of conversion of debt to equity
of the Company and conversion of debt to capital by a third party note
holder during 1996; and (iv) management's continuing assessment of the
deteriorating financial condition of the Company during 1996 and since
December 31, 1996, the date of the Company's most recent Audited
Consolidated Statement of Financial Condition.
2. Visits were made to the facilities and offices of the Company.
3. Certain financial forecasts and accompanying assumptions prepared by the
Company management for the years ending December 31, 1996 and 1997 were
reviewed, and the assumptions underlying such forecasts were discussed with
officers of the Company.
4. Discussions were held with management of the Company to review certain key
aspects of the operating strategy for 1996 and 1997 following the
acquisition of a majority position in the Company's equity by Metrax
Medical, Inc., and the subsequent management re-structuring, and the
circumstances surrounding the Company's decision to pursue the sale of
substantially all of its assets and re-organize its business activities
through a planned merger with its majority shareholder.
5. USMP common stock trading prices and volumes for the period from January 2,
1996 to December 31, 1996, as well as, January 2, 1997 to March 18, 1997
were analyzed to ascertain stock price and volume levels and volatility.
Trading price and volume activity for subsequent dates through June 30,
1997 were also reviewed.
6. Generally recognized financial analysis and valuation procedures were
undertaken to ascertain the financial condition of the Company as well as
to estimate its value based upon the appropriate standard of value
considering the circumstances. This analysis is incorporated in our due
diligence analysis and presentation of findings to the Board of Directors
of the Company.
<PAGE>
LIMITING CONDITIONS
The Opinion is subject to the following limiting conditions:
1. Neither WJG nor its principals have any present or intended interest in the
Company. WJG fees for the Opinion are based on professional time charges,
and are in no way contingent upon the final conclusions derived.
2. The Opinion is intended only for the specific use and purpose stated
herein. It is intended for no other uses and is not to be copied or given
to unauthorized persons without the direct written approval of WJG. The
Opinion, may however, be filed with the Securities and Exchange Commission
as required by the Commission's rules and regulations, and we hereby
consent to such filing. The Opinion and information contained herein are
valid only for the stated purpose and date of the study, and should in no
way be construed to be investment advice.
3. In the preparation of our Opinion, WJG used information provided by the
Company management and Hayes management. It has been represented to us
that the information is reasonably complete and accurate. We did not make
independent examinations of any financial statements, projections or other
information prepared by the Company management and Hayes management, which
were relied upon and, accordingly, we make no representations or warranties
nor do we express any opinion regarding the accuracy or reasonableness of
such.
4. In the preparation of our Opinion, WJG visited the principal operating
facilities of the Company. WJG did not visit nor make an independent
examination of the Hayes operations in Sacramento, California and
accordingly, we make no representations or warranties nor do we express any
opinion regarding the accuracy or reasonableness of the information
provided by Hayes.
5. It is beyond the scope of the Opinion to render any opinion relative to the
solvency or insolvency of Hayes either prior to or following the
Transaction. WJG has not been requested to render such an opinion, and
nothing in the Opinion should be construed as such. Further, we express
no opinion regarding the abilities of Hayes management to meet its duties
pursuant to the proposed Transaction.
6. It is beyond the scope of the Opinion to render any opinion relative to the
future prospective performance of the common stock of the Company following
the closing of the Transaction.
7. It is beyond the scope of the Opinion to express an opinion regarding the
market value of any tangible asset of the Company. We have relied on
information provided by the Company and its independent advisors with
regards to the value of such assets.
8. Publicly available information utilized in the analysis (e.g., economic,
financial industry, market, statistical and/or investment information) was
obtained from sources deemed to be reliable. It is beyond the scope of the
study to verify the accuracy of such information, and we make no
representation as to its accuracy.
<PAGE>
9. This engagement is limited to the production of the Opinion and the
conclusions and opinions contained herein. WJG was not retained by the
Company to advise relative to the existence of other alternatives to the
proposed Transaction. Further, WJG has no obligation to provide future
services (e.g., expert testimony in court or before governmental agencies)
related to the contents of the Opinion unless prior arrangements for such
services have been made.
10. The Opinion is necessarily based on economic and market conditions and
other factors as they existed as of the date of our presentation of
findings and oral opinion to the Board of Directors of the Company. WJG
has further relied upon the representations of both the Company that there
have been no material changes, economic, market condition or otherwise
since that date.
11. The Company has provided limited information regarding its post Transaction
business plans; we understand that it is the intent of the Company and its
majority shareholder to merge; however, it is beyond the scope of this
Opinion to render any opinion regarding the post Transaction merger or
management's capabilities relating to carrying out the proposed merger
plan.
12. The Company has indicated their intent to pursue a merger plan with MMI
which would result in the existing public minority shareholders maintaining
substantially the same equity interest in the common shares of the Company
immediately following the merger. However, the management advises that
they would expect the existing shareholder interests of all shareholders to
be diluted pursuant to any post merger third party financing.
At the present time management of MMI have presented only a very preliminary
business plan of their strategy and capital needs following the merger with the
Company. Management advises that they are in discussions with various financing
sources and believe that they will be successful in securing necessary post
merger capital to grow the business. We can offer no opinion as to the
viability of management's business plan, or express any opinion relative to
whether management will be successful in building the business or securing
necessary capital.
We have relied upon the representations of both the Company and its advisors
that there has been no adverse or other material change in the respective
assets, financial condition or business operations since the date of the most
recent financial statements made available to us, and that those statement's
accurately reflect the assets and financial condition of both the Company at
that point in time.
CONCLUSION
Based on the foregoing and in reliance thereon, it is our opinion that the
Transaction, assuming it is consummated as proposed, is fair to the shareholders
and the Company from a financial point of view. WJG reserves the right, in the
event that events or facts subsequent to the date of the Opinion become known
which have a material impact on the Company to supplement or withdraw the
Opinion prior to the closing date of the Transaction.
Delivery of this Opinion to the Company and the shareholders is, as to such
entities, subject to the conditions, limitations and assumptions set forth in
this Opinion, and our engagement letter dated February 11, 1997 to the Board of
Directors of the Company.
<PAGE>
William Jamieson Group, Inc.
by: Craig W. Lunsman
Managing Director
<PAGE>
APPENDIX E
Art. 5.11. Rights of Dissenting Shareholders in the Event of Certain
Corporate Actions
A. Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and the
shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise provided
in the articles of incorporation) of all, or substantially all, the property
and assets, with or without good will, of a corporation requiring the special
authorization of the shareholders as provided by this Act;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the shareholder
are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a shareholder
shall not have the right to dissent from any plan of merger in which there is
a single surviving or new domestic or foreign corporation, or from any plan
of exchange, if (1) the shares held by the shareholder are part of a class
shares of which are listed on a national securities exchange, or are held of
record by not less than 2,000 holders, on the record date fixed to determine
the shareholders entitled to vote on the plan of merger or the plan of
exchange, and (2) the shareholder is not required by the terms of the plan of
merger or the plan of exchange to accept for his shares any consideration
other than (a) shares of a corporation that, immediately after the effective
time of the merger or exchange, will be part of a class or series of shares
of which are (i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange, or (ii) held of record by not
less than 2,000 holders, and (b) cash in lieu of fractional shares otherwise
entitled to be received.
<PAGE>
Art. 5.12. Procedure for Dissent by Shareholders as to Said Corporate
Actions
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following
procedures:
(1)(a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action, setting
out that the shareholder's right to dissent will be exercised if the action
is effective and giving the shareholder's address, to which notice thereof
shall be delivered or mailed in that event. If the action is effected and
the shareholder shall not have voted in favor of the action, the corporation,
in the case of action other than a merger, or the surviving or new
corporation (foreign or domestic) or other entity that is liable to discharge
the shareholder's right of dissent, in the case of a merger, shall, within
ten (10) days after the action is effected, deliver or mail to the
shareholder written notice that the action has been effected, and the
shareholder may, within ten (10) days from the delivery or mailing of the
notice, make written demand on the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be, for payment of the
fair value of the shareholder's shares. The fair value of the shares shall
be the value thereof as of the day immediately preceding the meeting,
excluding any appreciation or depreciation in anticipation of the proposed
action. The demand shall state the number and class of the shares owned by
the shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the ten (10) day
period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant
to Section A of Article 9.10 of this Act, the corporation, in the case of
action other than a merger, and the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right
of dissent, in the case of a merger, shall, within ten (10) days after the
date the action is effected, mail to each shareholder of record as of the
effective date of the action notice of the fact and date of the action and
that the shareholder may exercise the shareholder's right to dissent from the
action. The notice shall be accompanied by a copy of this Article and any
articles or documents filed by the corporation with the Secretary of State to
effect the action. If the shareholder shall not have consented to the taking
of the action, the shareholder may, within twenty (20) days after the mailing
of the notice, make written demand on the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, for
payment of the fair value of the shareholder's shares. The fair value of the
shares shall be the value
<PAGE>
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, of
a demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or
other entity shall deliver or mail to the shareholder a written notice that
shall either set out that the corporation (foreign or domestic) or other
entity accepts the amount claimed in the demand and agrees to pay that amount
within ninety (90) days after the date on which the action was effected, and,
in the case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares,
together with an offer to pay the amount of that estimate within ninety (90)
days after the date on which the action was effected, upon receipt of notice
within sixty (60) days after that date from the shareholder that the
shareholder agrees to accept that amount and, in the case of shares
represented by certificates, upon the surrender of the certificates duly
endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may be,
do not so agree, then the shareholder or the corporation (foreign or
domestic) or other entity may, within sixty (60) days after the expiration of
the sixty (60) day period, file a petition in any court of competent
jurisdiction in the county in which the principal office of the domestic
corporation is located, asking for a finding and determination of the fair
value of the shareholder's shares. Upon the filing of any such petition by
the shareholder, service of a copy thereof shall be made upon the corporation
(foreign or domestic) or other entity, which shall, within ten (10) days
after service, file in the office of
<PAGE>
the clerk of the court in which the petition was filed a list containing the
names and addresses of all shareholders of the domestic corporation who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the corporation (foreign or domestic)
or other entity. If the petition shall be filed by the corporation (foreign
or domestic) or other entity, the petition shall be accompanied by such a
list. The clerk of the court shall give notice of the time and place fixed
for the hearing of the petition by registered mail to the corporation
(foreign or domestic) or other entity and to the shareholders named on the
list at the addresses therein stated. The forms of the notices by mail shall
be approved by the court. All shareholders thus notified and the corporation
(foreign or domestic) or other entity shall thereafter be bound by the final
judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing,
and they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules
of Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled
to payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other
entity, together with interest thereon, beginning 91 days after the date on
which the applicable corporate action from which the shareholder elected to
dissent was effected to the date of such judgment, to the shareholders
entitled to payment. The judgment shall be payable to the holders of
uncertificated shares immediately but to the holders of shares represented by
certificates only upon, and simultaneously with, the surrender to the
existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, of duly endorsed certificates for those shares.
Upon payment of the judgment, the dissenting shareholders shall cease to have
any interest in those shares or in
<PAGE>
the corporation. The court shall allow the appraisers a reasonable fee as
court costs, and all court costs shall be allotted between the parties in the
manner that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other
treasury shares.
F. The provisions of this Article shall not apply to a merger if, on the date
of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the
value of his shares or money damages to the shareholder with respect to the
action. If the existing, surviving, or new corporation (foreign or domestic)
or other entity, as the case may be, complies with the requirements of this
Article, any shareholder who fails to comply with the requirements of this
Article shall not be entitled to bring suit for the recovery of the value of
his shares or money damages to the shareholder with respect to the action.
<PAGE>
Art. 5.13. Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to
receive payment for his shares pursuant to the provisions of those articles
and the right to maintain an appropriate action to obtain relief on the
ground that the corporate action would be or was fraudulent, and the
respective shares for which payment has been demanded shall not thereafter be
considered outstanding for the purposes of any subsequent vote of
shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has
been made. The failure of holders of certificated shares to do so shall, at
the option of the corporation, terminate such shareholder's rights under
Articles 5.12 and 5.16 of this Act unless a court of competent jurisdiction
for good and sufficient cause shown shall otherwise direct. If
uncertificated shares for which payment has been demanded or shares
represented by a certificate on which notation has been so made shall be
transferred, any new certificate issued therefor shall bear similar notation
together with the name of the original dissenting holder of such shares and a
transferee of such shares shall acquire by such transfer no rights in the
corporation other than those which the original dissenting shareholder had
after making demand for payment of the fair value thereof.
C. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act may withdraw such demand at any time
before payment for his shares or before any petition has been filed pursuant
to Article 5.12 or 5.16 of this Act asking for a finding and determination of
the fair value of such shares, but no such demand may be withdrawn after such
payment has been made or, unless the corporation shall consent thereto, after
any such petition has been filed. If, however, such demand shall be
withdrawn as hereinbefore provided, or if pursuant to Section B of this
Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition
asking for a finding and determination of fair value of such shares by a
court shall have been filed within the time provided in Article 5.12 or 5.16
of this Act, as the case may be, or if after the hearing of a petition filed
pursuant to Article 5.12 or 5.16, the court shall determine that such
shareholder is not entitled to the relief provided by those articles, then,
in any such case, such shareholder and
<PAGE>
all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall
be bound thereby, the right of such shareholder to be paid the fair value of
his shares shall cease, and his status as a shareholder shall be restored
without prejudice to any corporate proceedings which may have been taken
during the interim, and such shareholder shall be entitled to receive any
dividends or other distributions made to shareholders in the interim.
