1
SCHEDULE 14C
(RULE 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
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
BIOCHEM INTERNATIONAL INC.
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/x/ 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:
Common Stock, par value $.02 per share
(2) Aggregate number of securities to which transaction applies:
13,212,782 shares of common stock
(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):
$6.28
(4) Proposed maximum aggregate value of transaction:
$83,000,000
(5) Total fee paid:
$16,600
/ / 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
2
BIOCHEM INTERNATIONAL INC.
N7 W22025 JOHNSON ROAD
WAUKESHA, WISCONSIN 53186
---------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 23, 1998
---------------------------------
Notice is hereby given that a special meeting (the "Special Meeting") of
stockholders of Biochem International Inc. ("BCI") will be held on November 23,
1998 at 10:00 a.m., local time, at the offices of BCI's attorneys, Holleb &
Coff, 55 E. Monroe Street, Suite 4100, Chicago, Illinois 60603, to consider and
act upon the following:
1. The approval of the Agreement and Plan of Reorganization, dated
as of October 9, 1998 (the "Agreement"), by and among BCI, Smiths Industries,
Inc., a Florida corporation ("Smiths"), BCI Merger Corp., a Delaware corporation
and wholly-owned subsidiary of Smiths ("Merger Sub"), Smiths Industries plc, a
corporation organized under the laws of England and Wales, David H. Sanders,
individually, David H. Sanders, as Trustee of the David H. Sanders Revocable
Trust U/A dated April 9, 1982, and Ruth Dunbar Davee, as Successor Trustee of
the Ken M. Davee Trust U/A dated August 16, 1990. Under the Agreement, Merger
Sub will be merged with and into BCI (the "Merger"), with BCI as the surviving
corporation. The surviving corporation will be a subsidiary of Smiths and will
change its name to SIMS Biochem, Inc. In connection with the Merger, each share
of BCI's common stock, par value $.02 per share ("Common Stock"), outstanding on
the effective date of the Merger, other than Common Stock held in BCI's treasury
or held by those stockholders who perfect their appraisal rights under Delaware
law, will be converted into the right to receive approximately $6.28 in cash,
without interest. Details of the Merger and other important information are set
forth more fully in the enclosed Information Statement, which you are urged to
read carefully.
2. The transaction of such other business as may properly come
before the Special Meeting and any adjournment thereof. BCI's Board of Directors
is not aware of, and does not intend to raise, any other matters for
consideration at the Special Meeting.
Reference is made to the enclosed Information Statement for more
complete information concerning the matters to be acted upon at the Special
Meeting.
Only holders of Common Stock at the close of business on October 26,
1998, are entitled to vote at the special Meeting on the approval and adoption
of the Agreement, and the consummation of the transactions contemplated thereby.
A list of such holders will be open to the examination of any stockholder
during regular business hours for a period of ten (10) days prior to the
Special Meeting at the offices of BCI at N7 W22025 Johnson Road, Waukesha,
Wisconsin 53186.
In a separate Voting Agreement dated October 9, 1998, by and among
David H. Sanders, individually, David H. Sanders, as Trustee of the David H.
Sanders Revocable Trust U/A dated April 9, 1982, Ruth Dunbar Davee, as Successor
Trustee of the Ken M. Davee Trust U/A dated August 16, 1990, Frank A. Katarow
(together, the "Significant Stockholders") and Smiths, the Significant
Stockholders have agreed to vote all outstanding Common Stock owned by them in
favor of the Merger. Approval of the Agreement requires the affirmative vote of
the holders of a majority of the outstanding Common Stock. The Significant
Stockholders control more than 73% of the outstanding Common Stock. Accordingly,
the Significant Stockholders will have sufficient voting power at the Special
Meeting to approve the Agreement without the vote of any other stockholder of
BCI.
Pursuant to Section 262 of the Delaware General Corporation Law (the
"DGCL"), if the Agreement is approved by the affirmative vote of the holders of
a majority of the outstanding Common
3
Stock at the Special Meeting and the Merger is effected by BCI, any stockholder
(i) who files with BCI, before the taking of the vote on the approval of the
Agreement, written objection to the Merger and that such stockholder thereby
intends to demand payment for such stockholder's shares if the Merger is
consummated, and (ii) whose shares are not voted in favor of the Agreement
(including any holder of Common Stock who abstains, which abstention will be
treated as a "no" vote for purposes of determining whether the Agreement has
been adopted or approved), may have the right to demand in writing from BCI,
within the time period specified in the notice from BCI in writing to such
stockholder that the Merger has been approved, payment for such stockholder's
shares and an appraisal of the value thereof. BCI and any such stockholder shall
in such cases have the rights and duties and shall follow the procedures set
forth in Section 262 of the DGCL.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
By order of the Board of Directors,
/s/ David H. Sanders
--------------------------------
David H. Sanders
Chairman and Assistant Secretary
October 30, 1998
Waukesha, Wisconsin
2
4
BIOCHEM INTERNATIONAL INC.
N7 W22025 JOHNSON ROAD
WAUKESHA, WISCONSIN 53186
(414) 542-3100
--------------------------
INFORMATION STATEMENT FOR THE SPECIAL MEETING OF STOCKHOLDERS
AND
NOTICE OF APPRAISAL RIGHTS
--------------------------
INTRODUCTION
This Information Statement and Notice of Appraisal Rights
(collectively, the "Information Statement") is being furnished on behalf of the
Board of Directors (the "Board") of Biochem International Inc., a Delaware
corporation ("BCI"), to holders of record of the common stock, par value $.02
per share, of BCI (the "Common Stock"), as of the close of business on October
26, 1998 (the "Record Date"), in connection with a special meeting (the "Special
Meeting") of stockholders of BCI to be held on November 23, 1998 at the offices
of BCI's attorneys, Holleb & Coff, 55 E. Monroe, Suite 4100, Chicago, Illinois
60603, at 10:00 a.m., local time. This Information Statement is first being
mailed or given to stockholders on or about October 30, 1998.
At the Special Meeting, holders of Common Stock as of the Record Date
will be entitled to consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Reorganization, dated as of October 9, 1998 (the
"Agreement"), by and among BCI, Smith Industries, Inc., a Florida corporation
("Smiths"), BCI Merger Corp., a Delaware corporation and a wholly-owned
subsidiary of Smiths ("Merger Sub"), Smiths Industries plc, a corporation
organized under the laws of England and Wales, David H. Sanders, individually,
David H. Sanders, as Trustee of the David H. Sanders Revocable Trust U/A dated
April 9, 1982, and Ruth Dunbar Davee, as Successor Trustee of the Ken M. Davee
Trust U/A dated April 16, 1990. Pursuant to the Agreement, Merger Sub will be
merged with and into BCI (the "Merger"), with BCI surviving the Merger as a
subsidiary of Smiths. The surviving corporation will change its name to SIMS
Biochem, Inc. In the Merger, each share of Common Stock outstanding at the
effective time of the Merger (the "Effective Time") (other than Common Stock
held by stockholders who perfect their appraisal rights under Delaware law or in
BCI's treasury) will be converted into the right to receive approximately $6.28
per share in cash, without interest.
-------------------------------
WE ARE NOT ASKING YOU FOR A PROXY,
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
-------------------------------
In a separate Voting Agreement (the "Voting Agreement"), dated October
9, 1998, by and among David H. Sanders, individually, David H. Sanders, as
Trustee of the David H. Sanders Revocable Trust U/A dated April 9, 1982, Ruth
Dunbar Davee, as Successor Trustee of the Ken M. Davee Trust U/A dated August
16, 1990, Frank A. Katarow (together, the "Significant Stockholders") and
Smiths, the Significant Stockholders have agreed to vote all outstanding Common
Stock owned by them in favor of the Merger. Approval of the Agreement requires
the affirmative vote of the holders of a majority of the voting power of the
outstanding Common Stock. The Significant Stockholders control more than 73% of
the outstanding Common Stock. Accordingly, the Significant Stockholders will
have sufficient voting power at the Special Meeting to approve the Agreement
without the vote of any other stockholder of BCI.
5
Only holders of record of Common Stock at the close of business on the
Record Date are entitled to vote at the Special Meeting on the approval and
adoption of the Agreement, including the consummation of the transactions
contemplated thereby. As of the Record Date, the Common Stock was held by
approximately 632 stockholders of record.
The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding Common Stock entitled to vote is necessary to
constitute a quorum at the Special Meeting with respect to the proposal to
approve the Agreement. Under the laws of the State of Delaware and BCI's
Certificate of Incorporation, the affirmative votes of the holders of at least a
majority of all votes entitled to be cast by holders of Common Stock issued and
outstanding on the Record Date are required to approve the Agreement. The
Significant Stockholders have sufficient voting power to approve the Agreement
at the Special Meeting without the vote of any other stockholder of BCI.
BCI has not authorized anyone to provide you with information that is
different than what is contained in this Information Statement. You should only
rely on information provided here or otherwise authorized by BCI. Smiths has
supplied all information in this Information Statement pertaining to Smiths and
Merger Sub and BCI has supplied all other information.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THIS TRANSACTION OR PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION OR THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The date of this Information Statement is October 30, 1998.
2
6
Table of Contents
[To be generated later]
Annex I Agreement and Plan of Reorganization
Annex II Voting Agreement
Annex III Section 262 of the Delaware General Corporation Law
Annex IV Annual Report on Form 10K
Annex V Current Report on Form 8-K, filed July 8, 1998
Annex VI Current Report on Form 8-K, filed September 9, 1998
Annex VII Current Report on Form 8-K, filed October 14, 1998
AVAILABLE INFORMATION
The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires BCI to file reports, proxy and information statements and other
information with the United States Securities and Exchange Commission (the
"SEC"). Those reports, proxy and information statements, and other information
can be inspected and copied at the public reference facilities of the SEC at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, 13th Floor, New
York, New York 10048. Anyone may obtain copies of these materials at prescribed
rates from the Public Reference Section of the SEC at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
SEC also maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC at http://www.sec.gov. In addition, BCI's Common Stock is listed
and traded on the over-the-counter market.
3
7
THE SPECIAL MEETING
Date, Time and Place. This Information Statement is being furnished to
the holders of record on the Record Date of Common Stock in connection with the
Special Meeting to be held on November 23, 1998, at 10:00 a.m. local time, at
the offices of BCI's attorneys, Holleb & Coff, 55 E. Monroe Street, Suite 4100,
Chicago, Illinois 60603.
Matters to be Considered. At the Special Meeting, holders of Common
Stock will be entitled to consider and vote on a proposal to approve the
Agreement and the transactions contemplated thereby. In addition, holders of
Common Stock will be entitled to consider and vote upon such other business as
may properly come before the Special Meeting.
Voting and Record Date. The Board has fixed the close of business on
October 26, 1998 as the Record Date for the determination of stockholders
entitled to notice of and to vote at the Special Meeting. Accordingly, only the
stockholders of record on the Record Date are entitled to vote at the Special
Meeting on the approval of the Agreement and the transactions contemplated
thereby. As of the Record Date, there were 13,050,282 shares of Common Stock
issued and outstanding and entitled to vote on the approval of the Agreement,
held by approximately 632 record holders.
Each stockholder of record of Common Stock on the Record Date is
entitled to cast one vote per share, exercisable in person or by a properly
executed proxy, with respect to the approval and adoption of the Agreement.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
The Board does not know of any other matters, other than those
described in the Notice of Special Meeting attached to the Information
Statement, which are to come before the Special Meeting.
THE PARTIES
BCI
BCI is a Delaware corporation with its principal executive office
located at N7 W22025 Johnson Road, Waukesha, Wisconsin 53186. Its telephone
number is (414) 542-3100. BCI is a designer, manufacturer and worldwide
distributor of monitoring systems for patient care. BCI primarily manufactures
non-invasive, real-time patient monitoring equipment. BCI's products are used to
monitor respiration, blood gases, exhaled gases, anesthetic agent gases, blood
pressure and related cardiovascular/pulmonary functions. Non-invasive monitoring
is used in patient care in operating and emergency rooms, intensive care units,
critical care units and neonatal facilities. Additionally, these monitoring
techniques have applications in recovery, radiology, respiratory therapy,
outpatient care, veterinary and ambulatory as well as home and sleep study
situations. BCI was organized on April 27, 1976, under the name International
Sensor Systems, Inc., and changed its name to Biochem International Inc. on June
30, 1977.
MERGER SUB
Merger Sub, a Delaware corporation and a wholly-owned subsidiary of
Smiths, was incorporated in Delaware on October 1, 1998, and has not conducted
any unrelated activities since its organization. Smiths owns all of the
outstanding shares of capital stock of Merger Sub. The principal executive
office of Merger Sub is located at the principal executive office of Smiths.
4
8
SMITHS
Smiths is a Florida corporation and a wholly owned subsidiary of Smiths
Industries plc, a corporation organized under the laws of England and
Wales. Smiths' headquarters are located at Suite 125, Valleybrooke Corporate
Center, 101 Lindenwood Drive, Malvern, Pennsylvania 19355. Smith acts inter
alia as the holding company for the US operating companies ultimately owned by
Smiths Industries plc.
Smiths Industries plc is a manufacturer of avionics, medical devices
and specialized industrial products. Through its international Medical Systems
Group of companies, it is one of the world's leading suppliers of medical
devices and equipment targeted for use in operating theaters and intensive and
critical care units of hospitals. It has also developed significant market share
in a number of specialized niche markets in home healthcare and veterinary
supplies.
BACKGROUND AND REASONS FOR THE MERGER
Smiths' interest in BCI was initiated as a result of a pre-existing
personal and professional relationship between David H. Sanders, the Chairman
and the trustee one of the Principal Stockholders, and Dave Buyher, the
President of SIMS North America. Recognizing that BCI's product line filled a
gap in Smiths' medical product offerings, and following a number of on-site
visits and due diligence sessions, Smiths' proposed the Merger substantially on
the terms, including the price, reflected in the Agreement.
Prior to Smiths' proposal, there were no past, present or proposed
national contracts, relationships or understandings between BCI and Smiths or
any parties on their respective behalf.
The terms of the Agreement were negotiated on behalf of BCI and its
stockholders, with the advice and consultation of BCI's legal and financial
advisors, and by Mr. Sanders, in his capacity as Chairman and the trustee of one
of the Principal Stockholders. Mr. Sanders conferred on the price and terms
proposed with Mr. Ken Davee, a former director, officer and significant
stockholder of BCI, prior to his death in August 1998. The Board has not sought
an independent opinion as to the fairness, from a financial point of view, of
the Merger or value of the purchase price, nor has the Board engaged independent
financial advisors to assist in the evaluation of the terms of the Merger.
While BCI has received acquisition proposals in the past, some sought
and some unsolicited, the purchase price to be paid in connection with the
Merger is the highest price offered to date and, in combination with the terms
proposed in the Agreement, the most favorable to BCI's stockholders received to
date.
Mr. Sanders has voted to approve the Merger in his capacity as a
director and, pursuant to the terms of the Voting Agreement, has contractually
committed to vote all of the shares he controls as a trustee in favor of the
Merger. Mrs. Ruth Dunbar Davee, the successor trustee to a trust that
constitutes a Principal Stockholder, has also committed to vote the shares
controlled by her in favor of the Merger. Mr. Sanders and Mrs. Davee control an
aggregate of 73% of the outstanding shares of BCI.
Mr. Sanders and Mrs. Davee, in their respective capacities as trustees,
have agreed to deposit an aggregate of $7,000,000 of the cash purchase price
otherwise payable to the trusts of which they serve as trustees or their trusts
pursuant to the Agreement into an escrow fund to support the representations and
warranties made on behalf of BCI and the Principal Stockholders in the
Agreement. No other stockholders of BCI will be liable for any breaches or
deficiencies in those representations and warranties, nor will their entitlement
to the cash proceeds for their shares be diminished as a result of any such
circumstance.
To the extent that this Information Statement contains forward looking
statements regarding the intent, belief or current expectations of BCI, its
directors or its officers, BCI claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. You are cautioned that any forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those in the forward-looking statements.
5
9
RECOMMENDATION OF THE BOARD
After considering the terms of the Agreement, the consideration to be
received by BCI's stockholders and the effect of the Merger on BCI's future
operations, the Board has concluded that the consideration is fair, from a
financial point of view, to BCI's stockholders. The Board has not sought an
independent opinion as to the fairness, from a financial point of view, of the
Merger or value of the purchase price, nor has the Board engaged independent
financial advisors to assist in the evaluation of the terms of the Merger. The
Board unanimously voted to approve the Agreement, the Merger and its related
transactions. The Board unanimously recommends that BCI's stockholders vote to
approve the Agreement and the Merger and the related transactions.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As a condition to the obligations of Smiths and Merger Sub to
consummate the Merger, BCI, Frank A. Katarow (the President of BCI), David H.
Sanders, as Trustee of the Frank Katarow Employment Trust (the "Katarow
Employment Trust") created pursuant to a Trust Agreement, dated January 24,
1996, by and between BCI and David H. Sanders (the "Trust"), and David H.
Sanders, individually, will enter into an Employment Agreement at the Closing
providing for the continuing employment of Frank A. Katarow by BCI from and
after the Closing Date. Pursuant to the Employment Agreement, Frank A. Katarow
will earn a base rate of annual compensation equal to or greater than the rate
of base salary earned by him prior to the Closing Date ($195,000), and the term
of his employment will continue for a period of one year from the Closing Date.
Smiths has agreed that, not later than ten (10) days following payment
by BCI to Frank A. Katarow of the Bonus Payment, as provided in Sections 5(a)
and 5(b) of the Employment Agreement, and receipt by BCI of all remaining funds
in the Katarow Employment Trust, Smiths will cause BCI to pay to David H.
Sanders (on behalf of the Principal Stockholders) from such funds the lesser of
(a) $1,200,000 or (b) the full amount of the funds distributed to BCI less the
amount distributed to Frank A. Katarow as provided in Sections 5(a) and 5(b) of
the Employment Agreement and all Deductions (as defined in the Employment
Agreement) applicable to such payments. The parties to the Agreement intend this
consideration to the Principal Stockholders to serve as a guarantee fee for
their willingness to: (i) make certain representations and warranties to Smiths
pursuant to the Agreement; (ii) obligate themselves to indemnify Smiths for
Damages sustained by Smiths in connection with breaches of representations,
warranties and covenants of BCI or the Principal Stockholders; and (iii) deposit
$7,000,000 of the purchase price payable to the Principal Stockholders in escrow
with American National Bank and Trust Company of Chicago as collateral security
for the payment of any indemnification obligation of the Principal Stockholders
pursuant to the Agreement.
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a summary of material federal income tax consequences
of the Merger to stockholders of BCI. This summary does not purport to discuss
all income tax consequences of the Merger that may be relevant to particular
stockholders in light of their individual circumstances or to certain types of
stockholders subject to special treatment, such as life insurance companies,
tax-exempt organizations and financial institutions, persons who are not
citizens or residents of the United States or who are foreign corporations, and
stockholders who acquired stock through the exercise of Company stock options or
otherwise as compensation.
The receipt of cash in exchange for Common Stock pursuant to the Merger,
or pursuant to the exercise of dissenter's appraisal rights in accordance with
Section 262 of the DGCL, will be a taxable transaction for federal income tax
purposes under the Internal Revenue Code of 1986, as amended, and the
regulations thereunder, and may also be a taxable transaction under applicable
state, local or foreign income or other tax laws. Generally, for federal income
tax purposes, a stockholder will recognize gain or loss equal to the difference
between the amount of cash received by the stockholder pursuant to the Merger,
or exercise of dissenter's appraisal rights, and the aggregate tax basis in the
Common Stock sold by the stockholder, or with respect to which dissenter's
rights are exercised, as the case may be.
6
10
If Common Stock is held by a stockholder as a capital asset, gain or
loss recognized by the stockholder will be treated as capital gain or loss,
which will be treated as long-term capital gain or loss if the stockholder's
holding period for the Common Stock exceeds twelve months. Under present law,
the ability of a stockholder to offset ordinary income with capital losses is
limited. Stockholders should consult their tax advisors regarding the applicable
rate of taxation and their ability to offset ordinary income with capital
losses.
A stockholder that surrenders Common Stock pursuant to the Merger (or
pursuant to the exercise of dissenter's rights) may be subject to backup
withholding unless the stockholder provides its taxpayer identification number
("TIN") and certifies that such number is correct or properly certifies that it
is awaiting a TIN, or unless an exemption applies. A stockholder that does not
furnish its TIN may be subject to a penalty imposed by the Internal Revenue
Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT CONSTITUTE
TAX ADVICE. STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICABILITY AND EFFECT
OF THE ALTERNATIVE MINIMUM TaX AND OF ANY STATE, LOCAL OR FOREIGN INCOME OR
OTHER TAX LAW) OF THE MERGER.
EFFECT OF THE MERGER ON BCI'S STOCKHOLDERS
STATUS AS STOCKHOLDERS
Consummation of the Merger is contingent upon, among other things,
approval of the Merger by the holders of Common Stock. At the Effective Time,
the current holders of BCI's Common Stock will cease to be stockholders of BCI.
Therefore, as a result of the Merger, the entire equity interest in BCI will be
owned by Smiths, and BCI's current stockholders will no longer have any equity
interest in BCI and will no longer share in future earnings and growth of BCI,
the risks associated with achieving any such earnings and growth, or the
potential to realize greater value for their shares of stock through
divestitures, strategic acquisitions or other corporate opportunities that may
be pursued by BCI in the future. Instead, each current holder of the Common
Stock will have only the right to receive approximately $6.28 per share.
SURRENDER OF AND PAYMENT FOR SHARES OF COMMON STOCK
At the Effective Time, holders of Common Stock (other than those who
have perfected their appraisal rights in accordance with the DGCL) will be
entitled to receive the merger consideration. As soon as practicable following
the Effective Time, the Paying Agent (as defined in the Agreement) will send a
letter of transmittal to each holder of Common Stock. The letter of transmittal
will contain instructions with respect to the surrender of certificates
representing shares of Common Stock in exchange for cash. Letters of transmittal
will be mailed after the Effective Time. WE REQUEST THAT YOU NOT SURRENDER YOUR
CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE THE TRANSMITTAL LETTER AND
INSTRUCTIONS.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates representing shares of Common Stock
shall, upon surrender to the Paying Agent of the certificate or certificates and
acceptance of the certificate or certificates by the Paying Agent, be entitled
to approximately $6.28 per share in cash, without interest, pursuant to the
Agreement. The Paying Agent will accept certificates upon compliance with the
terms and conditions as the Paying Agent may impose to effect an orderly
exchange in accordance with normal exchange practices.
After the Effective Time, there will be no further transfer on the
records of BCI or its transfer agent of certificates representing shares of
Common Stock that have been converted pursuant to the Agreement into the right
to receive cash, and if any certificates are presented to BCI for transfer, they
will be canceled against delivery of cash. Until surrendered as contemplated by
the Agreement, each certificate representing Common
7
11
Stock will be deemed at any time after the Effective Time to represent only the
right to receive the consideration contemplated by the Agreement upon proper
surrender. No interest will be paid or will accrue on any cash payable as
consideration in the Merger.
DISSENTING STOCKHOLDER'S RIGHTS
Pursuant to Section 262 of the DGCL, any holder of Common Stock may
dissent from the Merger and elect to have the fair value of such stockholder's
shares (the "Dissenting Shares") of Common Stock (exclusive of any element of
value arising from the accomplishment or expectation of the Merger) judicially
determined and paid to such stockholder in cash, together with a fair rate of
interest, if any; provided that such stockholder complies with the provisions of
Section 262. The following discussion is not a complete statement of the law
pertaining to appraisal rights under Delaware law, and is qualified in its
entirety by the full text of Section 262, which is provided in its entirety as
Annex III to this Information Statement. All references in Section 262 and in
this summary to a "stockholder" are to the record holder of Common Stock as to
which appraisal rights are asserted.
Under Section 262, where a proposed merger is approved by the vote of
stockholders, the corporation must notify each of its stockholders that
appraisal rights are available either before the effective date or within
ten (10) days thereafter, and must include in such notice a copy of Section 262.
This Information Statement constitutes such notice to stockholders of BCI. Any
stockholder who wishes to exercise such appraisal rights or who wishes to
preserve the right to do so should review carefully Annex III to this
Information Statement because failure to comply with the procedures specified in
Section 262 timely and properly will result in the loss of appraisal rights.
Moreover, because of the complexity of the procedures for exercising the right
to seek appraisal of Common Stock, BCI believes that stockholders who consider
exercising such rights should seek the advice of counsel.
Any holder of Common Stock wishing to exercise the right to dissent
from the Merger and demand appraisal under Section 262 of the DGCL must satisfy
each of the following conditions:
(i) Such stockholder must deliver to BCI a written demand for
appraisal of such stockholder's shares within 20 days after the date of
mailing of this notice of appraisal, which demand will be sufficient if
it reasonably informs BCI of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such
holder's shares;
(ii) Such stockholder must continuously hold such shares from
the date of making the demand through the Effective Time. Accordingly,
a stockholder who is the record holder of Common Stock on the date the
written demand for appraisal is made but who thereafter transfers such
shares prior to the Effective Time will lose any right to appraisal in
respect of such shares; and
(iii) Such stockholder must not have voted in favor of the
Merger or consented to the Merger in writing.
A demand for appraisal should be executed by or on behalf of the
stockholder of record, fully and correctly, as such stockholder's name appears
on such stock certificates, and should specify the stockholder's name and
mailing address, the number of shares of Common Stock owned and that such
stockholder intends thereby to demand appraisal of such stockholder's Common
Stock. If the shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the shares are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a stockholder; provided,
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is acting as agent
for such owner or owners. A person having a beneficial interest in shares held
of record in the name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps summarized below and in
a timely manner to perfect whatever appraisal rights the beneficial owner may
have. A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial
8
12
owners while not exercising such rights with respect to the shares held for one
or more beneficial owners. In such case, the written demand should set forth the
number of shares as to which appraisal is sought, and where no number of shares
is expressly mentioned the demand will be presumed to cover all shares held in
the name of the record owner. Stockholders who hold their shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such a nominee.
A stockholder who elects to exercise appraisal rights should mail or
deliver a written demand to: Biochem International Inc., N7 W22025 Johnson Road,
Waukesha, Wisconsin 53186, attention: Corporate Secretary.
Within 120 days after the Effective Time, but not thereafter, either
SIMS Biochem, Inc. (the "Surviving Corporation") or any stockholder who has
complied with the requirements of Section 262 may file a petition in the
Delaware Chancery Court demanding a determination of the value of the Common
Stock held by all dissenting stockholders. Stockholders seeking to exercise
appraisal rights should not assume that the Surviving Corporation will file such
a petition or that the Surviving Corporation will initiate any negotiations with
respect to the fair value of such shares. Accordingly, stockholders who desire
to have their shares appraised should initiate any petitions necessary for the
perfection of their appraisal rights within the time periods and in the manner
prescribed in Section 262. The failure of a stockholder to file a petition
within the period specified could nullify that stockholder's previous written
demand for appraisal.
Within 120 days after the Effective Time, any stockholder who has
complied with the provisions of Section 262 to that point in time will be
entitled to receive from the Surviving Corporation, upon written request, a
statement setting forth the aggregate number of shares not voted in favor of the
Agreement and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares. The Surviving Corporation must
mail such statement to the stockholder within ten days of receipt of such
request.
Upon the filing of any petition for appraisal by any stockholder in
accordance with Section 262 of the DGCL, service of a copy must be made upon
BCI, which must, within 20 days after service, file in the office of the
Register of Chancery in which the petition was filed, a duly verified list
containing the names and addresses of all stockholders who have demanded payment
for their shares and with whom agreements as to the value of their shares have
not been reached by the Surviving Corporation. If a petition is filed by the
Surviving Corporation, the petition must be accompanied by the verified list.
The Register of Chancery, if so ordered by the Court, will give notice of the
time and place fixed for the hearing of such petition by registered or certified
mail to the Surviving Corporation and to the stockholders shown on the list at
the addresses therein stated, and notice will also be given by publishing a
notice at least one week before the day of the hearing in a newspaper of general
circulation published in the City of Wilmington, Delaware, or such publication
as the Court deems advisable. The forms of notices by mail and by publication
must be approved by the Court, and the costs thereof shall be borne by the
Surviving Corporation.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine which stockholders are
entitled to appraisal rights and will appraise the "fair value" of their shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. The costs of the action may be
determined by the Delaware Chancery Court and taxed upon the parties as the
Delaware Chancery Court deems equitable. Upon application of a dissenting
stockholder, the Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all of
the shares entitled to appraisal. STOCKHOLDERS CONSIDERING SEEKING APPRAISAL
SHOULD BE AWARE THAT THE FAIR VALUE OF THEIR SHARES AS DETERMINED UNDER SECTION
262 COULD BE MORE THAN, THE SAME AS OR LESS THAN THE AMOUNT OF PROCEEDS THEY
COULD RECEIVE IF THEY SOLD THEIR SHARES IN OPEN MARKET TRANSACTIONS OR IF THEY
EXCHANGED THEIR SHARES IN CONNECTION WITH THE MERGER.
In determining fair value, the Delaware Chancery Court is to take into
account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods that are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that, in making this determination
of fair value, the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts that could
be ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
that are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262 provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger."
9
13
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of shares as of a record date prior
to the Effective Time).
At any time within 60 days after the Effective Time, any stockholder
who has demanded appraisal rights will have the right to withdraw such demand
for appraisal. After this period, the stockholder may withdraw such demand for
appraisal only with the consent of the Surviving Corporation. If no petition for
appraisal is filed with the Delaware Chancery Court within 120 days after the
Effective Time, or if such stockholder has withdrawn such demand for appraisal
as discussed in the preceding sentence, stockholders' rights to appraisal shall
cease. Any stockholder may withdraw such stockholder's demand for appraisal by
delivering to the Surviving Corporation a written withdrawal of such
stockholder's demand for appraisal and acceptance of the Merger, except that (i)
any such attempt to withdraw made more than 60 days after the Effective Time
will require written approval of the Surviving Corporation and (ii) no appraisal
proceeding in the Delaware Chancery Court shall be dismissed as to any
stockholder without the approval of the Delaware Chancery Court, and such
approval may be conditioned upon such terms as the Delaware Chancery Court deems
just. If (i) the Surviving Corporation does not approve a stockholder's request
to withdraw a demand for appraisal when such approval is required or (ii) the
Delaware Chancery Court does not approve the dismissal of an appraisal
proceeding, the stockholder would be entitled to receive only the appraised
value determined in any such appraisal proceeding.
FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH IN SECTION 262
OF THE DGCL WILL RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL
RIGHTS. CONSEQUENTLY, ANY STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS IS
URGED TO CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE THOSE RIGHTS.
THE AGREEMENT
The following is a summary of the material provisions of the Agreement.
Any references to the Agreement set forth below or included elsewhere in the
Information Statement are qualified in their entirety by reference to the
Agreement, which is attached as Annex I to this Information Statement. Terms
that are not otherwise defined in this summary have the meanings set forth in
the Agreement. Stockholders are strongly advised to read the Agreement in its
entirety.
THE MERGER
Merger and Conversion. The Agreement provides that, subject to its
terms and conditions and applicable law, Merger Sub will be merged with and into
BCI, with BCI as the surviving corporation. BCI will become a wholly-owned
subsidiary of Smiths and will change its name to SIMS Biochem, Inc. SIMS
Biochem, Inc. will succeed to all rights, assets, liabilities and obligations of
Merger Sub and BCI in accordance with the DGCL and will operate under the
Certificate of Incorporation and Bylaws, each as amended, of Merger Sub. Common
Stock held in BCI's treasury or held by any Subsidiary immediately prior to the
Effective Time will be cancelled. Each share of Common Stock, except for those
held in BCI's treasury, held by any Subsidiary or held by stockholders who
perfect their appraisal rights will be converted into the right to receive
approximately $6.28, without interest, upon surrender of the stock certificate
representing that share.
Merger Consideration. Smiths has agreed to pay $83,000,000 in cash as
the consideration for surrender of all of the outstanding equity interests in
BCI in the Merger. This consideration, equal to a value of approximately $6.28
per share of Common Stock and options exercisable for Common Stock currently
outstanding, will be distributed to each holder of an outstanding option to
purchase shares of Common Stock (net of the applicable option exercise price) as
provided in the Agreement and to each holder of Common Stock upon surrender of
the respective shares as a result of the Merger. There will be no change in the
number of shares of Common Stock outstanding or in the number of options for the
purchase of any such shares between the date of this Information Statement and
the Effective Time, since BCI has covenanted in the Agreement not to cause or
permit any such changes to occur.
10
14
For clarity of presentation in this Information Statement, the consideration
payable to holders of equity interests in BCI is stated to be approximately
$6.28 per share. In the event that any change occurs in the outstanding number
of shares of Common Stock or Common Stock equivalents (a circumstance that BCI
neither anticipates nor intends), the per share amount distributable to equity
holders will be adjusted accordingly.
Purchase Price and Payment for Shares. At least one full business day
before the Closing Date, Smiths will deposit with the Paying Agent $83,000,000,
less amounts previously delivered to BCI to settle outstanding options, which
the Paying Agent shall deliver to holders of Common Stock in accordance with the
terms of the Agreement.
The Paying Agent will mail a letter of transmittal to each stockholder
advising the stockholder of the procedure for surrendering certificates for
Common Stock. Upon the surrender and exchange of certificates, the stockholder
will be paid the amount to which that stockholder is entitled, less any
applicable withholdings. Upon conversion, all shares of Common Stock will be
cancelled and retired.
Option Cash Out Procedure. For the payment of options, BCI will deliver
written payment instructions to Smiths at least four business days prior to the
Closing Date. Immediately prior to the Effective Time, BCI will pay to each
holder of Options to purchase an aggregate of 162,500 shares of Common Stock an
aggregate amount equal to $540,442, less certain withholdings, if applicable.
The Effective Time. The Merger will become effective upon the filing of
a Certificate of Merger with the Secretary of State of the State of Delaware as
required by the DGCL or upon such later time as is agreed to by the parties and
specified in Certificate of Merger. No further notice of the occurrence of the
Effective Time will be given to stockholders before the Effective Time. The
Certificate of Merger will be filed as part of the closing of the transactions
contemplated by the Agreement.
Transfer of Shares after the Effective Time. At the Effective Time,
BCI's stock transfer books will be closed and no further Common Stock transfers
will be allowed.
REPRESENTATIONS AND WARRANTIES
The Agreement contains representations and warranties made by BCI and
the Principal Stockholders with respect to, among other things, the organization
and capitalization of BCI, its subsidiaries, the authority of BCI relative to
the Agreement, the absence of violations of law, the SEC filings of BCI, the
absence of certain changes or events and of any undisclosed liabilities,
environmental matters, contracts of BCI, taxes and tax returns, benefit plans,
intellectual property and transactions with affiliates.
The Agreement also contains representations and warranties of Smiths
and Merger Sub with respect to, among other things, their organization, their
authority relative to the Agreement and that such execution, delivery and
performance will not cause violations of law.
OTHER PROVISIONS
Commercially Reasonable Effort. During the period between the date of
the Agreement and the Closing, BCI has agreed to use all commercially reasonable
efforts to consummate and make effective the transactions contemplated by the
Agreement.
No Solicitation. During the period between the date of the Agreement
and the Closing, the Principal Stockholders, BCI or any of their agents or
representatives shall not solicit, encourage or initiate the submission of
proposals or offers from anyone in connection with a merger, consolidation or
business combination of BCI, and if BCI or any Principal Stockholder receives
such an unsolicited offer or proposal, BCI or such Principal Stockholder must
notify Smiths of such proposal.
11
15
Guaranty Fee. Smiths has agreed that, not later than ten (10) days
following payment by BCI to Frank A. Katarow of the Bonus Payment, as provided
in Sections 5(a) and 5(b) of the Employment Agreement, and receipt by BCI of all
remaining funds held in the Katarow Employment Trust, Smiths will cause BCI to
pay to David H. Sanders (on behalf of the Principal Stockholders) from such
funds the lesser of (a) $1,200,000 or (b) the full amount of the funds
distributed to BCI less the amount distributed to Frank A. Katarow as provided
in Sections 5(a) and 5(b) of the Employment Agreement and all Deductions
applicable to such payments. The parties to the Agreement intended such
additional consideration to the Principal Stockholders to serve as a guarantee
fee for their willingness to: (i) make certain representations and warranties to
Smiths pursuant to Article III of the Agreement; (ii) obligate themselves to
indemnify Smiths for Damages sustained by Smiths in connection with breaches of
representations, warranties and covenants of BCI or the Principal Stockholders;
and (iii) deposit $7,000,000 of the Purchase Price payable to the Principal
Stockholders in escrow with American National Bank and Trust Company of Chicago
as collateral security for the payment of any indemnification obligation of the
Principal Stockholders pursuant to the Agreement.
Covenant Not To Compete by David H. Sanders. As part of the Agreement,
Mr. Sanders shall not, for a period of three years from the Closing Date,
participate in any business engaged in the development, production, use and sale
of medical monitoring systems similar to those currently manufactured or
developed or currently under any stage of research and development by BCI.
CONDITIONS OF CLOSING
Conditions to Each Party's Obligations to Effect the Merger. The
obligations of each party to effect the Merger are subject to the satisfaction
prior to the Closing Date of the following conditions: (i) termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended; and (ii) no restraining orders, injunctions or other orders
issued by any court prohibiting the Merger or any related transactions shall
have been issued.
Additional Conditions to Obligations of Smiths and Merger Sub. The
obligations of Smiths and Merger Sub are subject to the satisfaction of certain
conditions including, without limitation: (i) each representation and warranty
of BCI shall have remained true and correct in all material respects; (ii) BCI
shall have performed in all material respects all obligations required of it;
(iii) there shall have been no material adverse changes in the business or
financial condition of BCI; (iv) Smiths will have received from BCI's counsel a
satisfactory closing opinion in form and substance mutually agreed to, (v)
there shall be no actions or proceedings before any court instituted or
threatened that seek to restrain or invalidate the transactions contemplated by
the Agreement that might materially adversely affect the right of Smiths to
consummate the Merger or to own, operate or control BCI, or that might subject
BCI to any material liability; and (vi) no more than 5% of BCI's stockholders
will have perfected dissenter's appraisal rights.
Additional Conditions to Obligations of BCI. BCI's obligations are also
subject to the satisfaction of the following conditions: each of the
representations and warranties of Smiths and Merger Sub shall have remained
materially true and correct in all material respects and Smiths and Merger Sub
shall have performed in all material respects all required obligations.
INDEMNIFICATION
Obligations of the Principal Stockholders to Indemnify. The Principal
Stockholders have jointly and severally agreed to indemnify Smiths from and
against any damages, losses, obligations, liabilities, claims, actions, causes
of action, costs or expenses sustained or suffered arising from a breach of any
representation, warranty or covenant contained in the Agreement. No other
stockholders of BCI will be liable for any breaches or deficiencies in BCI's
representations and warranties, nor will their entitlement to the cash proceeds
for their Common Stock be diminished as a result of any such circumstance.
Limitations on Indemnification. The Principal Stockholders' liability
for indemnification survives for two years after the Closing Date except for
certain liabilities relating to: (i) taxes, which terminate upon the expiration
of the applicable statutes of limitation; and (ii) relating to intellectual
property, which terminate three years after the Closing Date. Principal
Stockholders are not required to provide indemnification unless and until the
aggregate amount of indemnifiable damages exceeds $400,000. Should the aggregate
damages suffered by Smiths or Merger Sub exceed $400,000, Smiths is entitled to
receive damages only in excess of $250,000. The
12
16
maximum indemnification liability of the Principal Stockholders is limited to
the Escrow Account (i.e., $7,000,000). For claims for indemnification relating
to representations concerning the net worth of BCI, the Principal Stockholders
will be liable on a dollar-for-dollar basis to the extent that BCI's net worth
(calculated in accordance with the terms of the Agreement) is less than
$16,800,000 at the Effective Time or its cash (similarly calculated) is less
than $10,500,000 at that time.
Obligations of Smiths and Merger Sub to Indemnify. Smiths and Merger
Sub jointly and severally agree to indemnify BCI, its Principal Stockholders and
all of BCI's officers and directors against all damages sustained or arising
from a breach of any representation, warranty or covenant by Smiths or Merger
Sub and for any claim arising from the operation of the business after
the Closing Date.
TERMINATION
Termination Events. The Agreement may be terminated any time prior to
the Closing Date by the written consent of the parties. The Agreement may be
terminated if the Merger is not consummated by February 28, 1999, unless the
party seeking to terminate is the cause of the delay. The Agreement may be
terminated by either party if any of the other's representations or warranties
are untrue in any material respect or the other party shall have defaulted in
any material respect in the performance of any material obligation.
Fees and Expenses. If the Agreement is terminated, all further
obligations of the parties under the Agreement will be terminated without
further liability, and each party will pay its own costs and expenses in
relation to the negotiation and preparation of the Agreement; provided, however,
if either party terminates the Agreement due to a material breach of any
representation or warranty or any material obligation under the Agreement or the
Merger is not consummated by February 28, 1999, and the terminating party is not
in material breach of its covenants, the non-terminating party has agreed to
reimburse the terminating party for all of its out-of-pocket expenses and fees
actually incurred, up to $200,000 in the aggregate. If the Agreement is not
consummated due to BCI's approval of a conflicting transaction with a third
party, BCI will pay Smiths a break-up fee of $5,000,000, plus Smiths' costs
and expenses up to $200,000 in the aggregate.
OTHER AGREEMENTS
The following are summaries of the material provisions of the Voting
Agreement and the Escrow Agreement. Any references to the Voting Agreement or
the Escrow Agreement set forth below or included elsewhere in the Information
Statement are qualified in their entirety by reference to the actual agreements,
which are attached as Annex II to this Information Statement and as Exhibit A to
the Agreement (attached as Annex I to this Information Statement). Terms that
are not otherwise defined in these summaries have the meanings set forth in the
agreements. Stockholders are strongly advised to read each agreement in its
entirety.
THE VOTING AGREEMENT
The Significant Stockholders of BCI have entered into the Voting
Agreement in order to induce Smiths to enter into the Agreement. The material
terms of the Voting Agreement are summarized below.
Covenants of the Significant Stockholders. Except as specifically
provided in the Voting Agreement, the Significant Stockholders agreed not to
sell, transfer, pledge, assign or otherwise dispose of their Common Stock to
anyone other than Smiths, not to enter into any other voting arrangement with
respect to Common Stock held by them, and not to take any other action that
restricts their obligations under the Voting Agreement or the transaction
contemplated by it.
The Significant Stockholders agreed not to, and agreed not to allow
another to, take any action designed or likely to facilitate inquiries into or
offers for any business combination, change of control or similar transaction
involving BCI.
At any meeting called to vote upon the Merger or the Agreement, the
Significant Stockholders have agreed to vote their Common Stock in favor of the
Merger and its related transactions and the adoption of the
13
17
Agreement. The Significant Stockholders will vote against any Alternative
Transaction or any Frustrating Transaction.
The Significant Stockholders will use reasonable efforts to cooperate
with Smiths in consummating the Merger and its related transactions.
Grant of Irrevocable Proxy Coupled with an Interest; Appointment of
Proxy. The Significant Stockholders have granted their proxy to David H. Sanders
for any meeting of BCI's stockholders to vote in favor of the Merger and its
related transactions and against any Alternative Transactions. The proxies given
are coupled with an interest until the Voting Agreement terminates and are
irrevocable.
Termination. The Voting Agreement will terminate simultaneously with
the consummation of the Merger or the termination of the Agreement.
THE ESCROW AGREEMENT
David H. Sanders, as Trustee of the David H. Sanders Revocable Trust
U/A dated April 9, 1982, Ruth Dunbar Davee, as Successor Trustee of the Ken M.
Davee Trust U/A dated August 16, 1990, Smiths and American National Bank and
Trust Company of Chicago have entered into an Escrow Agreement whereby
$7,000,000 will be held as collateral security for the payment of any
indemnification obligations of the Principal Stockholders pursuant to the
Agreement.
MANAGEMENT OF BCI
Set forth below is the name, age, business address, present principal
occupation or employment and five-year employment history of each director and
executive officer of BCI. The business address of each person listed below is
Biochem International Inc., N7 W22025 Johnson Road, Waukesha, Wisconsin 53186.
Each named person is a citizen of the United States.
Name Age Office
- - - ---- --- ------
David H. Sanders (1) 67 Director - Class I, Chairman of the Board of Directors, Chief
Executive Officer, Treasurer and Assistant Secretary
Lee J. Knirko 74 Director - Class II
Frank A. Katarow 39 President and Chief Operating Officer
Keith R. Harper 49 Senior Vice President, Sales
Ann M. Johnson 36 Executive Vice President and
General Manager of SurgiVet, Inc. and Vice President of BCI
Robert H. Wesel 39 Vice President, International Sales
Mark S. Geisler 46 Vice President, Engineering
Donald Alexander 43 Vice President, Regulatory Affairs
Paul F. Pujanauski 47 Vice President, Sales and Marketing
- - - -------------------------
(1) Member of the Executive Committee
All directors are elected for two-year terms and serve until their
respective successors are duly elected and qualified. The terms for Classes I
and II expire as of the date set for the annual stockholders' meeting for
14
18
fiscal years ending June 30, 1998 and June 30, 1999, respectively. Officers are
appointed for a one-year term unless sooner replaced. Each of the above
individuals has served in the capacities indicated since September 14, 1984,
except as stated below.
Mr. Sanders received an undergraduate degree and, in 1956, a Masters in
Business Administration from the University of Wisconsin. Mr. Sanders
served as President of BCI from September 4, 1984 to October 4, 1984,
at which time he commenced serving as Chairman and Assistant Secretary.
Mr. Knirko, a certified public accountant, is a former audit manager of
Peat, Marwick, Main & Co. (now KPMG Peat Marwick), an accounting firm.
Mr. Katarow has been employed by BCI since October 1980 serving in
various capacities including Mechanical Designer, Manager of Product
Design, Manufacturing Manager, Director of Operations and was then
promoted to Vice President of Operations in June 1990. Responsibility
for OEM Sales was added in January 1991. He was promoted to Senior Vice
President and General Manager on March 1, 1992, and further promoted to
Executive Vice President effective January 1, 1993. On November 1,
1993, he became President and Chief Operating Officer of BCI.
Mr. Harper has been employed by BCI since October 1981, serving in
various capacities including National Service Manager, General
Manager-Quality Assurance and Service, Director of Regulatory Affairs,
Director of Operations, and Vice President of Operations since December
1986. In 1990 he became Vice President of International Sales. On
November 1, 1993, he commenced serving as Senior Vice President, Sales.
Ms. Johnson, a certified public accountant, received a Bachelor of
Business Administration degree in Accounting and in Risk Management and
Insurance from the University of Wisconsin in Madison. She received her
Masters of Business Administration degree in May 1997 from the
University of Wisconsin in Milwaukee. Prior to her employment at BCI,
she worked on the audit staff at Deloitte, Haskins & Sells (now
Deloitte & Touche) from 1984 to 1987 and at Coopers & Lybrand (now
PricewaterhouseCoopers) from 1987 to 1990. She joined BCI in April 1990
and has been Vice President of Finance and Personnel since December
1991. On November 1, 1993, she was promoted to Vice President of
Finance and Operations. On November 1, 1997, she was promoted to
Executive Vice President and General Manager at SurgiVet, Inc., BCI's
new veterinary division. Ms. Johnson is also a Vice President of BCI.
Mr. Wesel joined BCI in January 1991. He received an associates degree
from Milwaukee Area Technical College in Business Management and is
also a certified cardiopulmonary technologist and a pulmonary functions
technologist. Since coming to BCI, he has held several positions,
including Manager of Clinical Applications, Territory Sales Manager and
Director of Marketing Services. After a brief hiatus from BCI in 1994,
he became Vice President of International Sales effective January 4,
1994.
Mr. Geisler came to BCI in November 1994 as Vice President of
Engineering from Marquette Electronics. He worked at Marquette for
fourteen years at various positions in the areas of Research and
Development, most recently as Director of Research and Development. He
received his undergraduate degree in Electrical Engineering from the
University of Wisconsin in Madison and his masters degree in Electrical
Engineering from Marquette University. He is currently attending
Marquette University in pursuit of a Doctorate Degree in Electrical
Engineering.
Mr. Alexander started at BCI in August 1992 as Engineering Manager. In
August 1994 he transferred to the regulatory affairs department,
becoming Regulatory Affairs Manager, and was promoted to Vice
President, Regulatory Affairs in May 1995. He has a bachelors degree in
Electrical Engineering from the University of Maine.
Mr. Pujanauski started at BCI in August 1996 as National Sales Manager.
In July 1997, he was promoted to Director of Domestic Sales and
Marketing. He accepted the position of Vice President of Domestic Sales
and Marketing in May 1998. His prior experience includes eighteen years
in sales management for various medical equipment companies. He has a
bachelors degree in Business Administration from the University of
Wisconsin-Oshkosh.
15
19
'
CERTAIN INFORMATION WITH RESPECT TO BCI'S STOCK
MARKET PRICES
The Common Stock is principally traded on the over-the-counter market.
The last reported bid and ask quotation of the Common Stock on October 13, 1998
(the last full trading day prior to the public announcement of the execution of
the Agreement) were $5.50 and $6.00, respectively. The last reported bid and ask
quotation of the Common Stock on October [__], 1998, the last full trading day
prior to the mailing of this Information Statement, were $[______] and $[____],
respectively.
The following table sets forth, for the calendar quarters indicated,
the high and low bid and asked quotations per Common Stock, as provided by the
National Quotation Bureau. These quotations reflect interdealer prices, without
retail markup, markdown or commissions, and may not necessarily represent actual
transactions:
BID ASKED
--- -----
HIGH LOW HIGH LOW
---- --- ---- ---
Fiscal year ended
June 30, 1999
First Quarter 5 13/16 5 1/8 6 5 1/2
Second Quarter - - - -
Third Quarter - - - -
Fourth Quarter - - - -
Fiscal year ended
June 30, 1998
First Quarter 5 3/8 5 6 5 1/2
Second Quarter 5 7/8 5 6 1/8 5 1/2
Third Quarter 5 7/8 5 1/4 6 1/2 5 5/8
Fourth Quarter 5 7/8 5 1/8 6 1/4 5 3/8
Fiscal year ended
June 30, 1997
First Quarter 3 1/2 2 1/2 8 5 1/8
Second Quarter 6 3/4 4 3/4 6 3/4 4 3/4
Third Quarter 4 7/8 5 7/8 6 3/4 4 3/4
Fourth Quarter 5 3/4 5 6 5
DIVIDENDS
BCI has not paid any dividends on Common Stock. BCI does not anticipate
paying any such dividends and, further, is restricted from declaring or paying
dividends without the prior written consent of the banking institution with
which it currently has a lending facility.
HISTORICAL STOCK INFORMATION
For the fiscal
year ended June 30,
1998 1997 1996
Book value per share (based on
13,050,282 shares outstanding)...................$1.90 $1.52 $1.19
Dividends declared............................... 0 0 0
Earnings per share...............................$0.38 $0.35 $0.41
16
20
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial information presented below for, and as of, each
of the years in the five-year period ended June 30 has been derived from the
consolidated financial statements of Biochem International Inc. and its
subsidiaries, which financial statements have been audited by
PricewaterhouseCoopers, LLP, independent certified public accountants. This
information should be read in conjunction with BCI's consolidated financial
statements, the related notes, and the independent auditor's report thereon,
each of which is included in Annex IV.
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
EARNINGS (IN THOUSANDS):
Net Sales $28,532 $ 27,006 $ 29,000 $ 25,056 $ 17,861
Cost of sales 12,418 11,978 12,903 11,310 8,214
Gross profit 16,114 15,028 16,097 13,745 9,647
Earnings before income taxes and
cumulative effect of change in
accounting principle 7,380 7,179 8,471 6,735 3,504
Cumulative benefit from change in
accounting principle - - - - 5,197
Income tax expense 2,376 2,539 3,102 2,475 1,309
Net income 5,004 4,640 5,370 4,260 7,392
EARNING PER SHARE DATA:
Basic earnings per share .38 .35 .41 .32 .56
Diluted Earnings per share .38 .35 .41 .32 .56
COMMON STOCK:
Number of shareholders 639 694 750 793 850
Weighted average shares outstanding - 13,097,254 13,086,784 13,083,284 13,081,613 13,070,654
Basic
Effect of dilutive securities 79,265 114,187 103,665 88,029 58,314
Weighted average shares outstanding - 13,176,519 13,200,971 13,186,949 13,169,642 13,128,968
Dilutive
FINANCIAL POSITION (IN THOUSANDS):
Working capital $18,404 $ 16,347 $ 11,782 $ 8,388 $3,248
Capital expenditures 3,347 241 591 1,205 216
Total assets 27,959 22,616 18,429 12,336 12,767
Long-term debt - - - - -
Shareholders' equity 24,833 19,800 15,485 10,113 5,851
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
MANAGEMENT
The table below sets forth information provided by the individuals
named therein as to the amount of Common Stock beneficially owned by the
directors and executive officers of BCI, individually, and the directors
17
21
and executive officers as a group, all as of September 28, 1998. The issued and
outstanding Common Stock as of September 28, 1998 was 13,050,282 shares.
======================================== ================================================== ========================
Name of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class (3)
- - - ------------------------ ----------------------------------------- --------------------
- - - ---------------------------------------- -------------------------------------------------- ------------------------
David H. Sanders 5,222,498 shares - 4,636,566 shares of record, 39.38%
and 585,932 beneficially (1) (2)
- - - ---------------------------------------- -------------------------------------------------- ------------------------
Frank A. Katarow 30,700 shares - 5,700 of record and .23%
beneficially, and 25,000 beneficially as options
- - - ---------------------------------------- -------------------------------------------------- ------------------------
Keith R. Harper 25,000 shares - 25,000 beneficially as options .19%
- - - ---------------------------------------- -------------------------------------------------- ------------------------
Ann M. Johnson 34,500 shares - 34,500 beneficially as options .26%
- - - ---------------------------------------- -------------------------------------------------- ------------------------
Robert H. Wesel 16,000 shares - 2,000 of record and .12%
beneficially, and 14,000 beneficially as options
- - - ---------------------------------------- -------------------------------------------------- ------------------------
Mark S. Geisler 14,000 shares - 14,000 beneficially as options .11%
- - - ---------------------------------------- -------------------------------------------------- ------------------------
Donald Alexander 28,360 shares - 21,860 of record and .21%
beneficially and 6,500 beneficially as options
- - - ---------------------------------------- -------------------------------------------------- ------------------------
Paul F. Pujanauski 1,000 shares - 1,000 shares beneficially as .01%
options
- - - ---------------------------------------- -------------------------------------------------- ------------------------
All directors and officers as a group 5,372,058 shares - 4,666,126 of record and 40.50%
(8 persons) beneficially, 585,932 beneficially, and 120,000
as options (1) (3)
======================================== ================================================== ========================
- - - -------------------------
(1) Includes 355,932 shares owned indirectly by Mr. Sanders through family
members. Therefore, for the purposes of Rule 13d-3 of the Exchange Act, he may
be deemed to beneficially own that Common Stock. That beneficial ownership is
disclaimed.
(2) 230,000 shares are held of record by the Sanders Family Benefit Trust.
(3) The percent of class calculations above are based on a total class of
13,212,782 shares consisting of 13,050,282 shares issued and outstanding, and
162,500 shares issuable upon exercise of options granted under BCI's Incentive
Stock Option Plans.
PRINCIPAL STOCKHOLDERS
The following table shows the beneficial ownership of Stock by each
person who is known by BCI to be the beneficial owner of 5% or more of such
Stock as of September 28, 1998:
======================================== ================================================== ========================
Name of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class (3)
- - - ------------------------ ----------------------------------------- --------------------
- - - ---------------------------------------- -------------------------------------------------- ------------------------
David H. Sanders 5,222,498 shares - 4,636,566 shares of record, 39.53%
Biochem International Inc. and 585,932 beneficially (1) (2)
N7 W22025 Johnson Road
Waukesha, WI 53186
18
22
- - - ---------------------------------------- -------------------------------------------------- ------------------------
Mrs. Ruth Davee 4,992,500 shares - 4,992,500 shares of record 37.79%
180 E. Pearson
Chicago, IL 60611
======================================== ================================================== ========================
(1) See footnote (1) in the table above.
(2) See footnote (2) in the table above.
(3) See footnote (3) in the table above.
The above beneficial ownership information is based on the information
furnished by the specified persons and has been determined in accordance with
Rule 13d-3 of the Exchange Act. It is not intended to be an admission of
beneficial ownership for any other purpose and includes shares as to which
beneficial ownership has been disclaimed. BCI has not received any Schedule 13D
or Schedule 13G statements indicating that any person is a beneficial owner of
more than 5% of BCI Common Stock except as disclosed above.
CERTAIN TRANSACTIONS
On March 2, 1998, DS Medical Products Co., an Illinois corporation
principally owned by the Principal Stockholders ("DS Medical"), merged with and
into BCI, and the separate corporate existence of DS Medical ceased. The sole
asset of DS Medical at the effective time of such merger was approximately
76.99% of the outstanding shares of Common Stock. As consideration for such
merger, the stockholders of DS Medical received the same number of shares of
Common Stock previously owned by DS Medical, thereby resulting in no change to
the amount of issued or outstanding Common Stock. BCI and BCI's stockholders
neither received any consideration nor incurred any liability in connection with
such merger. The merger was structured so as to be, and was consummated for the
purpose of serving as, the most efficient means, from a federal income tax
perspective, of transferring the Common Stock owned by DS Medical to the
individual stockholders of DS Medical.
On July 1, 1998, pursuant to that certain Asset Purchase Agreement by
and between Anesco, Inc., a Kentucky corporation ("Anesco"), and SurgiVet, Inc.,
a Delaware corporation and a wholly-owned subsidiary of BCI ("SurgiVet"),
SurgiVet acquired substantially all of the assets of Anesco. The purchase price
for the assets, which remains subject to possible adjustment based on a closing
balance sheet prepared on a post-closing basis, was $4,000,000. Anesco was a
privately held company engaged in the development, production and sale of
veterinary anesthesia equipment. The assets of Anesco included cash and cash
equivalents, accounts receivable, inventory, machinery, equipment and
intangibles. SurgiVet intends to utilize the assets of Anesco in the same line
of business in which they were used prior to the acquisition, to complement
SurgiVet's line of monitoring equipment used by veterinarians.
REGULATORY MATTERS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the regulations promulgated thereunder provide that certain acquisition
transactions may not be consummated unless certain information is filed with the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") and certain waiting period
requirements have been satisfied. BCI filed the necessary information on October
14 , 1998. Smith filed the necessary information on October 15, 1998. The
waiting period applicable to the merger is 30 days after filing; therefore, the
waiting period will expire no later than November 14, 1998, unless earlier
terminated by the FTC or unless further information is requested by either the
FTC or the Antitrust Division. If more information is requested, the waiting
period will not expire until ten days after BCI provides the requested
information.
19
23
At any time before or after Merger Sub's acquisition of Common Stock
pursuant to the Agreement, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the Merger or seeking
the divestiture of Common Stock acquired by Merger Sub or the divestiture of
substantial assets of BCI or its subsidiaries or Smiths or its subsidiaries.
Private parties may also bring legal action under the antitrust laws under
certain circumstances. There can be no assurance that a challenge to the Merger
on antitrust grounds will not be made or, if such a challenge is made, of the
result thereof.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for under the "purchase" method of
accounting in accordance with generally accepted accounting principles.
Therefore, the aggregate consideration paid by Smiths in connection with the
merger will be allocated to BCI'S assets and liabilities based on their fair
market values, with any excess being treated as goodwill. The assets and
liabilities and results of operations of BCI will be consolidated into the
assets and liabilities and results of operations of Smiths subsequent to the
Effective Time.
INDEPENDENT ACCOUNTANTS
It is not expected that representatives of BCI's independent
accountants, PricewaterhouseCoopers, LLP, will attend the Special Meeting.
OTHER MATTERS
The Board knows of no business which will be presented for
consideration at the Special Meeting other than that described above.
Dated: October 30, 1998
By Order of the Board of Directors,
/s/ David H. Sanders
--------------------------
David H. Sanders
Chairman and Assistant Secretary
20
24
ANNEX I
AGREEMENT AND PLAN
OF
REORGANIZATION
DATED OCTOBER 9, 1998
BY AND AMONG
BIOCHEM INTERNATIONAL INC.
SMITHS INDUSTRIES, INC.
SMITHS INDUSTRIES PLC
BCI MERGER CORP.
AND
CERTAIN STOCKHOLDERS
OF
BIOCHEM INTERNATIONAL INC.
25
TABLE OF CONTENTS
-----------------
Section Page No.
ARTICLE I Certain Definitions...........................................2
1.1 Definitions...................................................2
1.2 Interpretation................................................7
ARTICLE II The Merger....................................................8
2.1 Merger and Conversion.........................................8
2.2 Option Proceeds...............................................9
2.3 Purchase Price; Payment for Shares........................... 9
2.4 Closing; Effective Time of the Merger........................11
2.5 Escrow Account...............................................11
2.6 Transfer of Shares after the Effective Time..................11
ARTICLE III Representations and Warranties of the Company................11
3.1 Authorization; Execution and Delivery; No Violation..........11
3.2 Organization, Existence and Authority........................12
3.3 Subsidiaries.................................................12
3.4 Capitalization; Ownership....................................12
3.5 Absence of Claims Against the Company........................13
3.6 Directors, Officers and Employees............................13
3.7 Financial Statements.........................................14
3.8 No Undisclosed Liabilities...................................14
3.9 No Conflicts.................................................14
3.10 Notes and Accounts Receivable; Inventories...................15
3.11 Absence of Certain Changes or Events.........................15
3.12 Absence of Litigation; Compliance with Laws, etc.............17
3.13 Environmental Matters........................................21
3.14 Debt Instruments.............................................24
3.15 Title to Assets; Absence of Liens and Encumbrances...........24
3.16 Real Property................................................25
3.17 Agreements, Contracts and Commitments........................28
3.18 Intellectual Property........................................30
3.19 Insurance....................................................31
3.20 Tax Matters..................................................31
3.21 Employee Benefit Plans.......................................33
3.22 Bank Accounts; Powers of Attorney; etc.......................36
3.23 Year 2000 Compliance.........................................36
3.24 Transactions with Affiliates.................................36
26
3.25 Product Warranties............................................36
3.26 Accounting System; Audits.....................................37
3.27 Full Disclosure...............................................37
3.28 No Broker's or Finder's Fees..................................37
3.29 SEC Reports...................................................37
ARTICLE IV Representations and Warranties of Buyer and Merger Sub........38
4.1 Organization, Existence and Authority.........................38
4.2 Authorization; Execution and Delivery; No Violation...........38
4.3 No Broker's or Finder's Fees..................................38
4.4 Financing.....................................................39
ARTICLE V Other Agreements..............................................39
5.1 Conduct of the Company's Business.............................39
5.2 Access to Information.........................................40
5.3 Stockholder Vote; Information Statement.......................41
5.4 Commercially Reasonable Efforts...............................42
5.5 Notification..................................................42
5.6 Regulatory and Other Authorizations...........................42
5.7 Further Assurances............................................43
5.8 No Solicitation...............................................43
5.9 Payment from Katarow Employment Trust.........................43
ARTICLE VI Covenants not to Compete by David H. Sanders..................44
6.1 Covenants not to Compete by David H. Sanders..................44
ARTICLE VII Conditions of Closing ........................................44
7.1 Conditions to Each Party's Obligation to Effect the Merger....44
7.2 Additional Conditions to Obligations of Buyer and Merger Sub..45
7.3 Additional Conditions to Obligations of the Company...........46
ARTICLE VIII Indemnification ..............................................47
8.1 Obligations of the Principal Stockholders to Indemnify........47
8.2 Limitations on Indemnification................................47
8.3 Claims for Indemnification....................................48
8.4 Claims Relating to Section 3.7(b).............................49
8.5 Defense by the Indemnifying Party.............................51
8.6 Survival of Representations and Warranties....................51
8.7 Right to Recover from Escrow Fund.............................51
8.8 Obligations of Buyer and Merger Sub to Indemnify..............51
ARTICLE IX Termination...................................................52
27
9.1 Termination Events............................................52
9.2 Fees and Expenses.............................................53
ARTICLE X Miscellaneous.................................................54
10.1 Expenses......................................................54
10.2 Amendments....................................................54
10.3 Entire Agreement..............................................54
10.4 Pre-Closing Publicity.........................................54
10.5 Counterparts..................................................54
10.6 Successors and Assigns........................................54
10.7 Headings......................................................55
10.8 Governing Law.................................................55
10.9 Notices.......................................................55
10.10 U.S. Dollars..................................................56
10.11 Waiver........................................................56
EXHIBITS
A Escrow Agreement
B Employment Agreement of Frank Katarow
C Resignation of David H. Sanders
28
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made as of
this 9th day of October, 1998, by and among Smiths Industries, Inc., a Florida
corporation ("Buyer"), Smiths Industries plc, a corporation organized under the
laws of England and Wales ("Smiths"), BCI Merger Corp., a Delaware corporation
and a wholly-owned subsidiary of Buyer ("Merger Sub"), Biochem International
Inc., a Delaware corporation (the "Company" or "Biochem"), David H. Sanders,
individually, and David H. Sanders, Trustee of the David H. Sanders Revocable
Trust U/A dated April 9, 1982, and Ruth Dunbar Davee, as Successor Trustee of
the Ken M. Davee Trust U/A dated August 16, 1990 (said Trusts referred to
collectively as the "Principal Stockholders", and individually as a "Principal
Stockholder").
WITNESSETH:
WHEREAS, Buyer, the Company and the Principal Stockholders
desire to have Merger Sub merge with and into the Company pursuant to a
transaction in which the separate existence of Merger Sub will cease (the
"Merger"), the Company shall continue as the surviving corporation and become a
wholly-owned subsidiary of Buyer, and each outstanding share of common stock,
par value $.02 per share, of the Company ("Company Common Stock") (except for
shares, if any, with respect to which the holder thereof shall have perfected
Dissenter Rights and shares described in Section 2.1(e) hereof) will be
converted into a right to receive the Per Share Common Price;
WHEREAS, immediately prior to the Effective Time, the Company
shall pay to each holder of an outstanding Option the Option Cash Out Price with
respect to each such Option; and
WHEREAS, in connection with the transactions contemplated by
this Agreement, the Principal Stockholders, David H. Sanders, Ruth Dunbar Davee,
Frank A. Katarow and Buyer have entered into a Voting Agreement of even date
herewith.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, Buyer, Smiths, Merger Sub, the Company, David
H. Sanders and the Principal Stockholders covenant and agree as follows:
-1-
29
ARTICLE I
Certain Definitions
1.1 Definitions. The following terms used in this Agreement shall have the
meanings ascribed below:
"Aggregate Option Cash Out Price" - Shall mean the aggregate amount
paid by the Company in connection with the surrender of the Options pursuant to
Section 2.3 hereof.
"Agreement" - See initial paragraph of this Agreement.
"Anesco" - Shall mean Anesco, Inc., a Kentucky corporation which sold
substantially all of its assets to the Company's Subsidiary, SurgiVet, Inc.
by a certain Asset Purchase Agreement dated July 1, 1998 (the "Anesco
Purchase Agreement").
"Balance Sheet" - See Section 3.7.
"Balance Sheet Date" - See Section 3.7.
"Biochem" - See initial paragraph of this Agreement.
"Buyer" - See initial paragraph of this Agreement.
"Buyer's Accountants" - Shall mean PricewaterhouseCoopers,
Minneapolis office.
"CAA" - Shall mean the Clean Air Act (42 U.S.C. Sections 7401,
et. seq.).
"CERCLA" - Shall mean the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Sections 9601, et. seq.).
"Certificate of Merger" - See Section 2.4.
"Claim" - See Section 8.3(a).
"Claim Response Period" - See Section 8.3(a).
"Cleanup" - See Section 3.13(b)(vii).
"Closing" - See Section 2.4.
"Closing Date" - See Section 2.4.
-2-
30
"Code" - Shall mean the Internal Revenue Code of 1986, as amended.
"Company" - See initial paragraph of this Agreement.
"Company 1998 Form 10-K" - See Section 3.29.
"Company Common Stock" - See first Whereas clause.
"Company Preferred Stock" - See Section 3.4.
"Company's Knowledge" - Shall mean the actual knowledge of David H.
Sanders, Frank A. Katarow, Mary K. Hamkins, Donald J. Alexander, Mark S.
Geisler, Keith Harper, Ann Johnson, Paul Pujanauski, Bob Wesel and Jeff Baker
(through conscious awareness) as to the existence or absence of facts that are
the subject of any representation or warranty contained herein.
"Company's SEC Reports" - See Section 3.29.
"Damages" - See Section 8.1.
"Delaware Law" - Shall mean the Delaware General Corporation Law.
"Dissenter Rights" - Shall mean the rights of Stockholders with
respect to mergers set forth in Section 262 of the Delaware Law.
"DOJ" - Shall mean the United States Department of Justice.
"Draft Net Worth Statement" - See Section 8.4(a).
"Effective Time" - See Section 2.4.
"Employment Agreement" - See Section 7.2(i).
"Encumbrances" - See Section 3.15(b).
"Environmental Laws" - See Section 3.13(b)(vii).
"Environmental Liabilities and Costs" - See Section 3.13(b)(vii).
"Environmental Permits" - See Section 3.13(b)(ii).
"EPCRA" - Shall mean the Emergency Planning and Community
Right-to-Know Act (42 U.S.C. Section 1101 et. seq.).
-3-
31
"ERISA" - Shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Account" - See Section 2.5.
"Escrow Agent" - See Section 2.5.
"Escrow Agreement" - See Section 2.5.
"Escrow Amount" - See Section 2.5.
"European Directive " - See Section 3.12(d)(v).
"Exchange Act" - See Section 3.11(1).
"FDA" - Shall mean the United States Food and Drug Administration.
"FDA Acts and Regulations" - See Section 3.12(d)(i).
"Financial Statements" - See Section 3.7.
"FTC" - Shall mean the United States Federal Trade Commission.
"Fully Diluted Company Common Stock" - Shall mean: (i) the number of
issued and outstanding shares of Company Common Stock (excluding any such shares
described in Section 2.1(e) hereof); and (ii) the shares of Company Common Stock
which are subject to outstanding Options, determined immediately prior to the
Effective Time.
"FWPCA" - Shall mean the Federal Water Pollution Control Act
(33 U.S.C. Section 1251, et. seq.).
"Hazardous Substances" - See Section 3.13(b)(vii).
"HSR Act" - Shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"IRS" - Shall mean the United States Internal Revenue Service.
"Indemnified Party" - See Section 8.3(a).
"Indemnifying Party" - See Section 8.3(a).
-4-
32
"Independent Accounting Firm" - See Section 8.4(d)(ii).
"Information Statement" - See Section 5.3.
"Insurance Proceeds" - See Section 8.2 (f).
"Intellectual Property" - See Section 3.18(a).
"Katarow" and "Katarow Employment Trust" - Shall mean respectively
Frank A. Katarow and that certain trust established pursuant to (i) a Trust
Agreement between the Company and David H. Sanders dated January 24, 1996 and
(ii) a certain Compensation Agreement dated January 24, 1996 between Katarow and
the Company, as amended.
"Laws" - See Section 3.16(c)(iv).
"Leased Real Property" - See Section 3.16(d).
"Letter of Transmittal" - See Section 2.3(b).
"Liability Assumption Agreement" - See Section 7.2(k).
"Liquidated Claim Response Period" - See Section 8.3(b).
"Meeting" - See Section 5.3(a).
"Merger" - See first Whereas clause.
"Merger Sub Stock" - See Section 4.1.
"Merger Sub" - See initial paragraph of this Agreement.
"Net Worth" and "Net Worth Statement" - See Section 8.4(d)(iii).
"Objections Report" - See Section 8.4(b).
"Option" or "Options" - Shall mean any option, warrant or conversion
right issued or granted by the Company entitling the holder thereof to purchase
Company Common Stock, including any such option, warrant or right which is not
yet exercisable in accordance with its terms.
"Option Cash Out Price" - Shall mean, with respect to each Option
outstanding immediately prior to the Effective Time, the amount, if any, by
which: (A) the product of (i) the Per
-5-
33
Share Common Price and (ii) the aggregate number of shares of Company Common
Stock which are subject to such Option exceeds (B) the exercise price payable
with respect to such Option.
"Option Payment" - See Section 2.2(b).
"Option Proceeds" - Shall mean the aggregate exercise price payable
with respect to all Options outstanding immediately prior to the Effective Time.
"Other Filings" - See Section 5.3(c).
"Paying Agent" - See Section 2.3(b).
"Per Share Common Price" - Shall mean the quotient obtained by
dividing (A) $83,000,000 by (B) the Fully Diluted Company Common Stock, rounded
to the nearest fourth decimal.
"Permitted Encumbrances" - See Section 3.16(c)(i).
"Principal Stockholders" - See initial paragraph of this Agreement.
"Product Registrations" - See Section 3.12(d)(vii)(A).
"Purchase Price" - Shall mean (A) $83,000,000, minus (B) the sum
of the Option Cash Out Price of all Options outstanding.
"QMS" - See Section 3.12(d)(v).
"RCRA" - Shall mean the Resource Conservation and Recovery Act
(42 U.S.C. Sections 6901, et. seq.).
"Real Property" - See Section 3.16(a).
"Release" - See Section 3.13(b)(vii).
"Schedules" - Shall mean the schedules attached to this Agreement.
"SDWA" - Shall mean the Safe Drinking Water Act (15 U.S.C. Sections
300F, et seq.).
"SEC" - See Section 3.29.
-6-
34
"SEC Filings" - See Section 5.3(d).
"Securities Act" - See Section 3.29.
"Smiths" - See initial paragraph of this Agreement.
"Stockholders" - Shall mean, collectively, all of the holders of
Company Common Stock, including any person who has exercised an Option and is
entitled to receive any Shares of Company Common Stock therefor, and
"Stockholder" shall mean such holders or persons individually.
"Stockholders' Accountants" - See Section 8.4(b).
"Stockholders' Representative" - See Section 8.4(a).
"Subsidiary" and "Subsidiaries" - Shall mean individually each, and
collectively all, subsidiaries of the Company.
"Surviving Corporation" - See Section 2.1(b).
"Structures" - See Section 3.16(c)(iii).
"SWDA" - Shall mean the Solid Waste Disposal Act (42 U.S.C.
Sections 6901, et seq.).
"Threshold" - See Section 8.2(b).
"TSCA" - Shall mean the Toxic Substances Control Act (U.S.C.
Sections 2601, et. seq.).
"Unliquidated Claim" - See Section 8.3(b).
1.2 Interpretation. Unless the context of this Agreement otherwise
requires: (a) words of any gender shall be deemed to include each other gender,
(b) words using the singular or plural number shall also include the plural or
singular number, respectively, and (c) references to "hereof," "herein,"
"hereby" and similar terms shall refer to this entire Agreement.
-7-
35
ARTICLE II
The Merger
2.1 Merger and Conversion. Subject to the terms and conditions hereof
and in accordance with Delaware Law, at the Effective Time:
(a) Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease;
(b) the Company, as the surviving corporation (the "Surviving
Corporation"),
(i) shall be a wholly-owned subsidiary of Buyer,
(ii) shall continue its corporate existence under the
laws of the State of Delaware,
(iii) shall change its present name to SIMS Biochem,
Inc., and
(iv) shall succeed to all rights, assets, liabilities and
obligations of Merger Sub and the Company in accordance with Delaware Law;
(c) the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, and as amended pursuant to the
Certificate of Merger (as defined herein), shall continue as the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with the provisions therein and as provided by the applicable
provisions of Delaware Law;
(d) the By-laws of Merger Sub, as in effect immediately prior to
the Effective Time, shall continue as the By-laws of the Surviving Corporation
until thereafter amended in accordance with their terms and the Certificate of
Incorporation of the Surviving Corporation and as provided by Delaware Law;
(e) any shares of Company Common Stock that are held in the
Company's treasury or held by any Subsidiary immediately prior to the Effective
Time shall be cancelled;
(f) each share of Merger Sub Stock that is outstanding immediately
prior to the Effective Time shall be converted at the Effective Time into one
share of common stock of the Surviving Corporation; and
(g) without any action on the part of Buyer, Merger Sub or the
Company, each share of Company Common Stock that is outstanding immediately
prior to the Effective Time shall
-8-
36
be deemed no longer outstanding and shall be cancelled and retired and shall
cease to exist, and (except for shares, if any, with respect to which the holder
thereof shall have perfected Dissenter Rights and shares described in Section
2.1(e)) will be converted into, and become a right to receive, at the Effective
Time, upon surrender of the certificate representing such share in accordance
with SECTION 2.3(b) hereof, the Per Share Common Price.
2.2 Option Proceeds.
(a) Prior to the Effective Time, the Company shall inform Buyer in
writing of the amount payable in respect of the Aggregate Option Cash Out Price
and will satisfy any reasonable enquiries by Buyer in relation thereto.
(b) Prior to the Effective Time, Buyer will provide or cause to be
provided to the Company the funds necessary to make all payments (the "Option
Payment") contemplated by this Section 2.2 in accordance with written payment
instructions delivered to Buyer at least four (4) business days prior to the
Closing Date.
(c) Immediately prior to the Effective Time, the Company shall pay to
each holder of outstanding Options an amount equal to the Option Cash Out Price
with respect to each such Option surrendered by such holder to the Company, less
the amount required to be withheld by applicable federal and state income tax
withholding laws and less any amounts due in respect of social security or other
statutory deductions.
2.3 Purchase Price; Payment for Shares.
(a) At the Effective Time, Buyer shall pay in the manner contemplated
by Section 2.3(b) for the benefit of each holder of outstanding shares of
Company Common Stock as of the Effective Time, an amount equal to the Per Share
Common Price for each share of Company Common Stock surrendered by such holder
(except for shares, if any, with respect to which the holder thereof shall have
perfected Dissenter Rights and shares described in Section 2.1(e)), which
aggregate amount payable to each such holder shall be rounded to the nearest
cent.
(b) From and after the Effective Time, American National Bank and
Trust Company of Chicago shall act as paying agent (the "Paying Agent") in
effecting the exchange for cash of certificates which, immediately prior to the
Effective Time, represented Company Common Stock entitled to payment pursuant to
Section 2.1(g) above. As soon as practicable after the Effective Time, the
Paying Agent shall mail a transmittal form (the "Letter of Transmittal") to each
holder of certificates theretofore representing any such shares advising such
holder of the procedure for surrendering to the Paying Agent any such share
certificates for exchange. If a payment for the cash amount to be paid pursuant
to Section 2.1(g) above is to be made to a person other than a person in whose
name the certificates for such shares surrendered for exchange are registered,
it shall be a condition of the exchange that the person requesting such exchange
shall pay to the Paying Agent
-9-
37
any transfer or other taxes required by reason of the delivery of such payment
to a person other than the registered owner of the certificates surrendered, or
shall establish to the satisfaction of the Paying Agent that such tax has been
paid or is not applicable. Notwithstanding the foregoing, neither the Paying
Agent nor any party hereto shall be liable to a holder of certificates
theretofore representing such shares for any amount paid to a public official
pursuant to any applicable abandoned property, escheat or similar law. Upon the
surrender and exchange of such a certificate, the holder shall be paid, without
interest thereon, the amount of cash to which he or she is entitled hereunder,
less only any amount required to be withheld under applicable backup withholding
federal income tax regulations, and such certificate shall forthwith be
cancelled. Until so surrendered and exchanged, each such certificate shall
represent solely the right to receive the cash into which the shares it
theretofore represented shall have been converted pursuant to Section 2.1(g)
above, without interest, until so surrendered and the Surviving Corporation
shall not be required to pay the holder thereof the cash to which such holder
otherwise be entitled. Buyer shall transmit by wire, or other acceptable means,
for deposit to the Paying Agent not later than one (1) full business day
preceding the Closing, a sum equal to the Purchase Price. The Paying Agent shall
agree to hold such funds in trust and deliver such funds (in the form of checks
of the Paying Agent) in accordance with this Section and such additional terms
as may be agreed upon by the Paying Agent and Buyer. Any portion of such funds
which has not been paid to stockholders of the Company pursuant to this Section
by six (6) months after the Effective Time shall promptly be paid to the
Surviving Corporation, and any stockholders of the Company who have not
theretofore complied with this Section thereafter shall look only to the
Surviving Corporation for payment of the amount of cash to which they are
entitled under this Agreement. If, after the Effective Time, subject to the
terms and conditions of this Agreement, certificates representing any such
shares are presented to the Surviving Corporation, they shall be cancelled and
exchanged for cash in accordance with this Section 2.3(b). All amounts payable
pursuant to Section 2.2 and this Section 2.3 hereof shall be paid in immediately
available funds, without interest thereon.
(c) Shares of capital stock of the Company that have not been
voted in favor of adoption of the Merger and with respect to which appraisal
rights shall have been properly demanded in accordance with Delaware Law shall
not be converted into the right to receive the Per Share Common Price as set
forth in Section 2.1(g) above at or after the Effective Time unless and until
the holder of such shares withdraws its demand for such appraisal in accordance
with applicable law or becomes ineligible for such appraisal, at which time such
shares shall be converted into and represent the right to receive the Per Share
Common Price as set forth in Section 2.1(g) above, without interest. The Company
shall give Buyer (i) notice of any written demands for appraisal, withdrawals of
demands for appraisal and any other instruments in respect thereof received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal. The Company will not voluntarily make any
payment with respect to any demands for appraisal and will not, except with the
prior written consent of Buyer, settle or offer to settle any such demands.
-10-
38
2.4 Closing; Effective Time of the Merger. Subject to the provisions of
Article VII hereof, the closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Holleb & Coff, 55
East Monroe Street, Suite 4100, Chicago, Illinois 60603-5896, at 10:00 a.m.,
Chicago time, on the third business day (or such later date as the parties
hereto may agree) following the first business day on which the last of the
conditions set forth in Article VII is fulfilled or waived (such date, the
"Closing Date"), or at such other time or place as the parties agree upon. Upon
the Closing, the parties hereto shall cause the Merger to be consummated by
immediately filing a certificate of merger (the "Certificate of Merger") with
the Secretary of State of the State of Delaware in such form as required by, and
executed in accordance with the relevant provisions of, Delaware Law (the date
and time of such filing, or such later date and time agreed upon by Buyer and
the Company and set forth therein, the "Effective Time").
2.5 Escrow Account. As collateral security for the payment of any
indemnification obligations of the Principal Stockholders pursuant to (and
subject to the limitations of) Article VIII, and pursuant to the terms of the
Escrow Agreement dated the date hereof (the "Escrow Agreement") between Buyer,
the Principal Stockholders, the Company and American National Bank and Trust
Company of Chicago, as Escrow Agent (the "Escrow Agent"), at the Closing, Buyer
shall pay to the Escrow Agent, on behalf of the Principal Stockholders, for
credit to the escrow account (the "Escrow Account") pursuant to the Escrow
Agreement an aggregate amount equal to $7,000,000 (the "Escrow Amount") which
amount will be deducted from the portion of the Purchase Price to be paid to the
Principal Stockholders pursuant to Section 2.2.
2.6 Transfer of Shares after the Effective Time. At the Effective Time, the
stock transfer books of the Company shall be closed, and no further transfers of
Company Common Stock shall be made on such stock transfer books at or after the
Effective Time.
ARTICLE III
Representations and Warranties of the Company
The Company and the Principal Stockholders, jointly and severally,
represent and warrant to Buyer as follows:
3.1 Authorization; Execution and Delivery; No Violation. The execution,
delivery and performance of this Agreement and all other agreements entered into
in connection with the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of the Company.
This Agreement and all other agreements entered into in connection with the
transactions contemplated hereby constitute (or upon execution and delivery will
constitute) the valid and binding obligations of the Company and the Principal
Stockholders and are enforceable (or upon execution and delivery will be
enforceable) in accordance with their respective terms. The execution, delivery
and performance of this Agreement and all other agreements entered
-11-
39
into in connection with the transactions contemplated hereby by the Company and
the Principal Stockholders does not and will not violate, conflict with, result
in a breach of or constitute a default under (or an event which with due notice
or lapse of time, or both, would constitute a breach of or default under),
result in the creation of any lien, charge, security interest or other
encumbrance on the Company or any Subsidiary or any of their respective
properties or accelerate the obligations of the Company or any Subsidiary under
(a) the Certificate of Incorporation or the By-Laws of the Company or any
Subsidiary, (b) any document, note, agreement, contract, license, instrument,
lease or other obligation to which the Company, any Subsidiary or the Principal
Stockholders are a party or by which the Company, any Subsidiary or the
Principal Stockholders are bound or to which any property or asset of the
Company or any Subsidiary or the Company Common Stock or the Company Preferred
Stock is subject, (c) any judgment, order, decree, ordinance, ruling or
injunction applicable to the Company, any Subsidiary or the Principal
Stockholders, or (d) any statute, law, regulation or rule of any governmental
agency or authority applicable to the Company, any Subsidiary or the Principal
Stockholders.
3.2 Organization, Existence and Authority. Each of the Company and
SurgiVet, Inc. is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Company's Subsidiary BCI
International Foreign Sales Corp. is a company duly organized and validly
existing and in good standing under the laws of Barbados. SCHEDULE 3.2 hereto
contains (i) a list of all jurisdictions in which the Company and each
Subsidiary conducts business as described therein; and (ii) a list of all
jurisdictions in which the Company or any Subsidiary is authorized or qualified
to do business as a foreign corporation. The Company and each Subsidiary is duly
qualified and licensed to do business as a foreign corporation in each
jurisdiction where the business transacted by the Company or such Subsidiary
requires qualification. Except as set forth in SCHEDULE 3.2 or SCHEDULE 3.12(b),
the Company and each Subsidiary has all authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental or regulatory
bodies necessary to own or lease its properties and assets and to conduct its
business as currently conducted. The Company has all requisite corporate power
and authority to enter into and perform this Agreement and all other agreements
entered into in connection with the transactions contemplated hereby. Copies of
the Company's and each Subsidiary's Certificate of Incorporation, as amended to
date, and By-Laws, as amended to date, have been delivered to Buyer and are
complete and correct. The complete minute books of the Company and each
Subsidiary have been made available to Buyer and its representatives.
3.3 Subsidiaries. Except as set forth on SCHEDULE 3.3, the Company does not
own, directly or indirectly, any capital stock or other equity securities of any
corporation or have any direct or indirect equity or ownership interest in any
business. The Company is not subject to any obligation or requirement to provide
funds for or to make any investment (in the form of a loan, capital contribution
or otherwise) in any entity.
3.4 Capitalization; Ownership. The authorized capital stock of the
Company consists of 1,000,000 shares of Preferred Stock, $1.00 par value (the
"Company Preferred Stock"), of which no
-12-
40
shares are outstanding on the date hereof, and 24,000,000 shares of Company
Common Stock, par value $0.02 per share, of which 13,100,282 shares are issued,
13,050,282 shares are outstanding, and 50,000 shares are held as treasury shares
on the date hereof. All of such shares are duly authorized, validly issued,
fully paid and non-assessable. All such shares have been issued in compliance
with applicable federal and state securities laws. SCHEDULE 3.4(a) hereto
identifies, with respect to each Principal Stockholder, director and officer of
the Company, the number of shares of Company Common Stock owned and each such
individual's percentage ownership of the Company. Except as set forth on
SCHEDULE 3.4(b), there are no outstanding subscriptions, options, warrants,
contracts, calls, rights or commitments of any character relating to the
issuance of or granting of rights in or to acquire any security of the Company,
nor are any outstanding securities convertible into or exchangeable for other
securities of the Company. Except as set forth on SCHEDULE 3.4(b), the Company
has no outstanding or prospective obligation to issue, repurchase, redeem, or
otherwise acquire any of its capital stock. Without prejudice to the generality
of the foregoing, neither the Company nor any of the Principal Stockholders is
under any obligation to Chicago Corporation in connection with the sale,
transfer or preemption of any stock in the Company or otherwise.
3.5 Absence of Claims Against the Company. Except as set forth on SCHEDULE
3.4(b), no Stockholder has any rights to acquire any assets of the Company or
any Subsidiary nor, except as set forth on SCHEDULE 3.4(b) or SCHEDULE 3.5, any
direct or indirect claim against the Company or any Subsidiary.
3.6 Directors, Officers and Employees.
(a) List. Attached hereto as SCHEDULE 3.6(a) is a list of (i) all
officers and directors of the Company and each Subsidiary, (ii) all employees of
the Company and each Subsidiary who, during the last calendar year, received
aggregate remuneration from the Company or any Subsidiary (including
commissions, cash bonuses and accrued but deferred compensation) of at least
$30,000, showing in each case their names, positions, years of service and
amounts of annual remuneration, and (iii) a description of all noncash fringe
benefits provided to any officer, director or employee who, during the last
calendar year, received aggregate remuneration from the Company or any
Subsidiary (including commissions, cash bonuses, and accrued but deferred
compensation) of at least $40,000.
(b) Compliance with Employment Laws; Employee Relations. The Company
and each Subsidiary is in material compliance with all federal, state and
municipal laws and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours, is not engaged in any
unfair labor practice, and is not in arrears in the payment of wages or
withholding taxes or any other employee benefit taxes or imposts. Except as set
forth on SCHEDULE 3.6(b), none of the Company's or any Subsidiary's employees is
represented by any labor union, and there is no labor strike, dispute, grievance
or other labor trouble pending or, to the Company's Knowledge, threatened with
respect to the Company or any Subsidiary.
-13-
41
3.7 Financial Statements.
(a) SCHEDULE 3.7(a) includes true and complete copies of the
consolidated balance sheets of the Company and its Subsidiaries for fiscal years
1993 through fiscal year 1998 and the related statements of operations, changes
in stockholders' equity and changes in financial position for the periods then
ended, in each case accompanied by the audit report of PricewaterhouseCoopers,
independent certified public accountants (collectively, the "Financial
Statements"). For purposes of this Agreement, the consolidated balance sheet as
of June 30, 1998 is referred to as the "Balance Sheet" and its date as the
"Balance Sheet Date." All such financial statements and information, including
the related notes, where applicable, are in accordance with the books and
records of the Company, present fairly the financial position, results of
operations, changes in stockholders' equity, and changes in financial position
of the Company and its Subsidiaries as of the respective dates and for the
respective periods indicated, and have been prepared in accordance with United
States generally accepted accounting principles.
(b) Net Worth of the Company and its Subsidiaries.
(i) The consolidated net worth of the Company and its
Subsidiaries as of the Closing Date as shown in the Net Worth Statement prepared
in accordance with the methods, policies and procedures set forth on SCHEDULE
3.7(b) and defined in Section 8.4(d)(iii) (the "Net Worth") will be greater than
or equal to $16,800,000.
(ii) The Cash of the Company and its Subsidiaries as of the
Closing Date will be greater than or equal to $10,500,000.
3.8 No Undisclosed Liabilities. Except as set forth on SCHEDULE 3.8(a),
neither the Company nor any Subsidiary has any liabilities or obligations,
fixed, accrued, contingent, assumed or otherwise and whether due or to become
due, which are not fully reflected or provided for on the Balance Sheet other
than liabilities and obligations incurred in or as a result of the ordinary
course of business since the Balance Sheet Date, none of which individually or
in the aggregate has been or is materially adverse to the business or condition
of the Company or any Subsidiary. For purposes of this Section 3.8, "materially
adverse" means any individual liability in excess of $15,000 and liabilities in
excess of $75,000 in the aggregate.
3.9 No Conflicts. Except as set forth on SCHEDULE 3.9, the execution,
delivery and performance of this Agreement, the consummation of the transactions
contemplated hereby, and the fulfillment of the terms hereof will not:
(a) result in termination or any impairment of any material permit,
license, franchise, surety bond, insurance coverage, contractual right or other
authorization of the Company or any Subsidiary; or
-14-
42
(b) require the consent of any third party.
3.10 Notes and Accounts Receivable; Inventories.
(a) Notes and Accounts Receivable. Except as set forth on SCHEDULE
3.10(a), the notes and accounts receivable reflected on the Balance Sheet or
arising since the date thereof are valid and genuine and have been collected or
will be collectible in the amounts shown, less any provisions shown on the
Balance Sheet for bad or doubtful debt. The provisions shown on the Balance
Sheet have been computed in a manner consistent with past practice. All notes
and accounts receivable reflected on the Balance Sheet have arisen only in the
ordinary course of business.
(b) Inventories. Except as set forth on SCHEDULE 3.10(b), the
inventories shown on the Balance Sheet and inventories acquired since the
Balance Sheet Date consist of items of a quantity and quality usable or salable
in the normal course of business of the Company and its Subsidiaries, and the
value of all items including obsolete materials or materials of below standard
quality or slow-moving and obsolete inventory have been written down to
realizable market value, or adequate provisions have been made therefor. The
value at which the inventories are carried on the Balance Sheet reflects the
normal inventory valuation policy of the Company.
3.11 Absence of Certain Changes or Events. Except as set forth on SCHEDULE
3.11, since the Balance Sheet Date there has not been, nor are there now
existing any conditions or events specifically affecting the Company or any
Subsidiary which may cause there to be, in relation either to the Company or any
Subsidiary, whether or not in the ordinary course of business:
(a) any material adverse change in the business, condition, operations
or properties of the Company or its Subsidiaries;
(b) any event, condition or state of facts which might materially and
adversely affect the business, condition, operations or properties of the
Company or its Subsidiaries;
(c) any damage, destruction, loss or other casualty, whether covered by
insurance or not, materially and adversely affecting the business, condition,
operations or properties of the Company or its Subsidiaries;
(d) any authorization, issuance, sale, redemption, repurchase, split,
combination or reclassification by the Company or its Subsidiaries of any debt
security or any shares of capital stock of the Company or any Subsidiary or any
declaration, setting aside or payment of a dividend (whether in cash, stock or
property) of the Company or its Subsidiaries;
(e) any secured or unsecured borrowing or any guaranty for the
borrowing of money by the Company or by any Subsidiary (other than borrowing,
repayment and re-borrowing in the ordinary course of business under the
Company's or such Subsidiary's existing line of credit)
-15-
43
or the issuance or creation of (or any commitment with respect thereto) any
bonds, debentures, notes or other obligations for the payment of money by the
Company or by any Subsidiary;
(f) any expenditures, or commitments therefor in excess of $10,000,
in the aggregate, for any items which would be treated under generally accepted
accounting principles as fixed capital assets;
(g) (i) any increase in the compensation payable or to become
payable by the Company to any of its directors, officers, agents or
consultants;
(ii) any increase in compensation payable or to become payable
by the Company or any Subsidiary to any of its employees other than consistent
with past practice;
(iii) any bonus, percentage compensation, service award or other
like benefit granted, made or accrued to the credit of any director, officer,
agent, consultant or employee of the Company or of any Subsidiary; or
(iv) other than in the ordinary course of business, any
contribution or payment to any profit sharing, pension, retirement or similar
plan or arrangement made or agreed to by the Company or by any Subsidiary for
the benefit of any director, officer, agent, consultant or employee;
(h) any material change in any method of accounting or accounting
practice of the Company or any Subsidiary;
(i) any notes or accounts receivable or portions thereof written off
by the Company or by any Subsidiary as uncollectible (except for write-offs in
the ordinary course of business and consistent with past practice);
(j) any sale, assignment, transfer, mortgage, pledge or encumbrance
of any of the assets of the Company or of any Subsidiary (real, personal or
mixed, tangible or intangible), cancellation or discharge of any debts or claims
or waiver of any rights of substantial value, except, in each case, in the
ordinary course of business and consistent with past practice;
(k) any sale, assignment or transfer of any patents, trademarks, trade
names, copyrights or other similar assets held by the Company or by any
Subsidiary, including applications or licenses therefor;
(l) any payment of any amounts or liability incurred in favor of, or
sale of any properties or assets (real, personal or mixed, tangible or
intangible) to, or any transaction or any agreement or arrangement with, any
corporation or business in which the Company or any Subsidiary or any of their
respective corporate officers or directors, or any "affiliate" or "associate"
-16-
44
(as such terms are defined in the rules and regulations promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of any such
person, has any direct or indirect ownership interest;
(m) any expenditures in excess of $10,000, or commitments therefor,
to acquire any property, real or personal, except the purchase of inventory and
equipment in the ordinary course of business consistent with past practice;
(n) any material change or, to the Company's Knowledge, threatened
change in the Company's or any Subsidiary's relationship with their respective
material suppliers, distributors, major customers and employees, and the Company
has no reason to believe that any such change will occur at this time or upon
consummation of the transactions contemplated by this Agreement;
(o) any change in the Certificate of Incorporation or By-laws of the
Company (or comparable document of any Subsidiary);
(p) any obligation, actual or contingent, to purchase or sell foreign
currency; or
(q) any investment in any financial instrument other than investments
in short-term United States treasury securities consistent with past practice;
or
(r) any other transaction or event other than in the ordinary course
of business and consistent with past practice or in connection with the
transactions contemplated by this Agreement.
3.12 Absence of Litigation; Compliance with Laws, etc.
(a) Except as set forth on SCHEDULE 3.12(a), there is no action,
suit, proceeding, claim or investigation pending or, to the Company's Knowledge,
threatened against or proposed in any manner, or directly or indirectly
involving, the Company or any Subsidiary or any of their respective assets,
businesses or operations or the transactions contemplated hereby. There is no
unsatisfied or outstanding order, writ, judgment, injunction, decree or
administrative mandate affecting the Company or any Subsidiary or any of their
respective assets, businesses or operations. Since January 1, 1994, neither the
Company nor any Subsidiary has submitted any claims in excess of $10,000 to its
insurance carriers seeking damages for personal or other injuries resulting from
the operation of its business.
(b) SCHEDULE 3.12(b) lists all licenses, franchises, permits and
other governmental authorizations held by the Company and any of its
Subsidiaries in the United States or abroad that are material to the conduct of
their businesses. Such licenses, franchises, permits and other governmental
authorizations are valid, and neither the Company nor any Subsidiary has
received any notice that any governmental authority intends to cancel, terminate
or not renew any such
-17-
45
license, franchise, permit or other governmental authorization. The Company and
each Subsidiary hold all licenses, franchises, permits and other governmental
authorizations the absence of any of which could have a material adverse effect
on their respective businesses. No license, franchise, permit or other
governmental authorization held by the Company or any Subsidiary will be
adversely affected by the transactions contemplated by this Agreement.
(c) Except as set forth on SCHEDULE 3.12(c), the Company and each
Subsidiary have materially complied with and are in material compliance with all
federal, state, local and foreign statutes, laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to the Company and such
Subsidiary or the Company's or the Subsidiary's properties, assets, operations
and businesses, and there does not exist any basis for any claim of default
under or violation of any such statute, law, ordinance, regulation, rule,
judgment, order or decree except such defaults or violations or such bases for
any claims of such defaults or violations, if any, that in the aggregate do not
and will not materially and adversely affect the property, operations, financial
condition or prospects of the Company or any Subsidiary. Except as set forth on
SCHEDULE 3.12(c), the Company and each Subsidiary is in material compliance
with: (i) all applicable requirements of all United States and foreign
governmental authorities with respect to environmental protection, including,
without limitation, regulations establishing quality criteria and standards for
air, water, land and hazardous materials, (ii) all applicable requirements of
the Occupational Safety and Health Act of 1970 within the United States and
comparable workplace-safety laws of all other jurisdictions and all rules,
regulations and orders thereunder and (iii) all applicable laws and related
rules and regulations of all United States and foreign jurisdictions affecting
labor union activities, civil rights or employment, including without
limitation, in the United States, the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Equal Employment Opportunity Act
of 1972, the Employee Retirement Income Security Act of 1974, the Equal Pay Act
and the National Labor Relations Act.
(d) (i) All necessary medical device pre-market notifications,
investigational device exemption applications, pre-market approval applications,
and amendments and/or supplements thereto, as required by the Federal Food, Drug
and Cosmetic Act, including the Safe Medical Devices Act of 1990, and the
regulations of the FDA adopted under such laws (collectively, the "FDA Acts and
Regulations"), and any policies issued by the FDA in connection with such
medical device pre-market notifications, investigational device exemption
applications, pre-market approval applications, and amendments and/or
supplements thereto, have been filed with the FDA for all medical devices sold
by the Company and all necessary approvals and acknowledgments have been
obtained from the FDA;
(ii) The Company and its Subsidiaries have complied with all
requirements imposed on the medical devices sold by the Company and its
Subsidiaries relating to the pre-market development, production, sale, post
marketing surveillance, adverse event reporting and marketing thereof, pursuant
to the FDA Acts and Regulations, and any policies issued by the FDA concerning
the pre-market development, production, sale, post marketing surveillance,
adverse
-18-
46
event reporting and marketing of such medical devices, including any conditions
for approval and/or post market requirements that are specific to such medical
devices except where the failure to be in such compliance or obtain such
approvals would not have a material adverse effect on the financial condition or
operations of the Company or its Subsidiaries; and
(iii) The following documents have been made available to Buyer:
(A) A list of all products manufactured or marketed by the
Company and its Subsidiaries since January 1, 1995, as well as a list of those
currently manufactured or marketed by the Company and its Subsidiaries, together
with a copy of all relevant import and/or marketing approvals relating to sales
in foreign countries;
(B) The current medical device listing/delisting forms of the
Company or any of its Subsidiaries;
(C) All FDA Section 510(k) pre-market notification acceptances
and device pre-market application approvals of the Company or of any Subsidiary;
(d) A list of all products sold by the Company and its
Subsidiaries since January 1, 1995 in, or for resale in, foreign countries, and
copies of all correspondence from the FDA approving export of the Company's or
its Subsidiaries' medical devices pursuant to Section 801 and 802 of the Federal
Food, Drug and Cosmetic Act or any similar approval for any products sold by any
Subsidiary;
(E) The Company's and any Subsidiary's Device Establishment
Registration with the FDA for 1997 and 1998;
(F) All FDA inspection reports, Forms 483 and follow-up
correspondence relating to the medical device products manufactured by the
Company or any Subsidiary after January 1, 1995; and
(G) A list of all products under development or currently
planned to be marketed by the Company or any Subsidiary. Except as set forth on
SCHEDULE 3.12(d), after January 1, 1995, there have been no (1) FDA inspections
of the Company, (2) adverse experience reports, medical device reports or Good
Manufacturing Practices or Quality System complaints, regulatory letters,
notices of adverse findings, warning letters or, other correspondence in which
the FDA has stated or explicitly suggested that the Company or any Subsidiary
has violated FDA laws, regulations, or policies or (3) recalls, market
withdrawals, FDA injunctions, seizures, criminal prosecutions, safety alerts,
notifications to medical practitioners or hospitals regarding safety risks or
describing other problems, or FDA requests to repair, refund or reimburse on
account of safety problems which have had or are reasonably likely to have a
material adverse effect on the financial condition or operations of the Company
or any Subsidiary.
-19-
47
(iv) All products which the Company or any Subsidiary has in the
past supplied, or is currently supplying or currently intends within the period
of nine (9) months commencing on the date hereof, to supply to customers in
Canada have been registered under Canadian device legislation and, in
particular, but without limitation, the Company and any relevant Subsidiary has
obtained all consents, permits and licenses required in relation thereto under
the Canadian Medical Devices Regulations published in May 1998. All fees and
expenses incurred in connection therewith have been paid. Neither the Company
nor any Subsidiary is in default under the said Regulations or under the terms
on which any such consent, license or permit has been issued.
(v) The Company has established and currently maintains quality
management systems ("QMS") which in all material respects comply with FDA's
Quality Systems Regulations and conform to the European Standards EN 29001 and
EN 46001. The Company's QMS have been certified as being in conformity with said
standards by TUV Rheinland acting in its capacity as a "Notified Body" appointed
by the German Ministry of Health pursuant to the European Medical Devices
Directive (93/42/EEC) (hereafter "the European Directive"). The Company has
complied with all conditions of such certification, including, without
limitation, the correction of any matters brought to its attention by said
Notified Body.
(vi) The Company has complied in all material respects with the
European Directive as the same has been implemented by each of the European
Union Member States to which the Company is supplying its products. In
particular, but without prejudice to the generality of the foregoing:
(A) the Company has implemented and is currently maintaining
systems to comply with the European Directive which have been certified to be so
compliant by TUV Rheinland acting as a Notified Body as aforesaid;
(B) the Company has made declarations of conformity with the
European Directive in respect of all of its current range of products other than
the products listed on SCHEDULE 3.12(d)(VI)(B) and either has applied or is in a
position immediately and properly, and without significant expense, to apply the
CE marking to the said products and their labeling and packaging thus denoting
compliance with the European Directive;
(C) all products currently under development by the Company
have been designed to comply with the European Directive and with FDA guidelines
on the design of medical licenses and software validation;
(D) Except as set forth on Schedule 3.12(d)(vi)(D), the
Company has or can immediately and without significant expense produce local
language labeling for each of
-20-
48
the member states of the European Union to which its products are currently
supplied or are planned to be supplied within nine (9) months from the date
hereof; and
(E) each of the Company's products (other than Model 8200)
conform in all material respects and so far as relevant to European Standards
EN 865 (Oximeters) and EN 864 (Capnographs) (or, if the applicable standard for
sale to European Union Member States at the time of sales, ISO 9918 and 9919),
and all products currently under development by the Company have been designed
so as to be in such conformity.
(vii) With respect to products sold outside the USA, the Company
and any relevant Subsidiary has:
(A) obtained directly or indirectly all licenses, permits,
approvals, registrations or consents which are required by law or are
commercially expedient to promote such products (hereafter "Product
Registrations"); and
(B) in countries other than Japan and if allowed under
applicable law, all Product Registrations have been obtained in the name of and
are owned by the Company (or such Subsidiary), or, at the Company's (or such
Subsidiary's) request, can be transferred at once (subject to reasonable time
periods necessary to process such transfer with the applicable authority) and
without material expense to the name and ownership of the Company or such
Subsidiary.
(viii) All products under development or currently planned to be
marketed by the Company or any Subsidiary are expected by the Company, within
nine (9) months from the date hereof, to receive regulatory clearance in the
United States and Europe and be marketable at a cost reasonably estimated by the
Company as set forth on SCHEDULE 3.12(d)(VIII), which costs remaining to be paid
after the Closing Date, shall not exceed $220,000.
(ix) There are no restrictions specific to the Company or its
products (other than compliance with applicable law, rules, regulations and
standards) on the Company selling and distributing both its current products and
those under development or currently planned to be marketed by the Company
either under the Company's own name and trademarks or in the form of an OEM
product supplied to a third party.
(x) All products, as designed and manufactured by the Company,
are safe and fit for their intended purpose.
3.13 Environmental Matters.
(a) Except as set forth on SCHEDULE 3.13, neither the Company nor any
Subsidiary has received any notice of any currently outstanding or currently
threatened civil, criminal or administrative action, suit, demand, claim, lien,
hearing, notice of violation, proceeding, or
-21-
49
investigation relating to the Company or such Subsidiary or their respective
present or former interests in real property alleging any material violation of
the Environmental Laws (as defined in this Section) or any written request for
information from any governmental agency pursuant to the Environmental Laws, and
their respective real property or interests therein are in material compliance
with all applicable Environmental Laws binding upon them as of the Closing Date;
(b) Except as authorized by any Environmental Permit (as defined in
this Section):
(i) Except as set forth on SCHEDULE 3.13, there are no
Hazardous Substances Released (as defined in this Section) by the Company or any
Subsidiary or, to the Company's Knowledge, any predecessor thereof on or beneath
their current or former properties in quantities or concentrations that could
give rise to material obligations, responsibilities, liabilities or debts under
the Environmental Laws.
(ii) The Company and each Subsidiary have obtained all
governmental licenses, permits, waivers, variances and other authorizations (the
"Environmental Permits") that are required to be obtained by the Company or each
such Subsidiary under all Environmental Laws for the ownership, use and
operation of their properties or the conduct of their businesses as currently
conducted. Any such Environmental Permits are in effect, no appeal nor any other
action is outstanding or threatened to revoke any such Environmental Permit and
the Company and each Subsidiary are in compliance with all terms and conditions
of all such Environmental Permits, except where any non-compliance will not
materially and adversely affect the operations or financial condition of the
Company or any Subsidiary.
(iii) Except as set forth on SCHEDULE 3.12(a), neither the
Company nor any Subsidiary has received any notice of any currently outstanding
or currently threatened claim alleging that any employee of the Company or any
Subsidiary in the course of his or her employment has been exposed to any
Hazardous Substances generated, produced or used by the Company or any
Subsidiary in concentrations exceeding those permitted under applicable laws,
including any provision of the Environmental Laws relating to worker health and
safety.
(iv) Except as set forth on SCHEDULE 3.13, neither the
Company nor any Subsidiary has received any notice or order from any
governmental agency or private or public entity in connection with its business
advising it that it is responsible for or potentially responsible for Cleanup or
paying for the cost of Cleanup of any Hazardous Substances and neither the
Company nor any Subsidiary has entered into any agreements concerning such
Cleanup.
(v) Except as set forth on SCHEDULE 3.13, none of the real
property currently or previously owned or operated by the Company or any
Subsidiary or, to the Company's Knowledge, by any predecessor thereof contains
any: (A) underground storage tanks, (B)
-22-
50
underground injection wells; (C) septic tanks in which process wastewater or any
Hazardous Substances have been disposed; or (D) any asbestos or equipment using
PCBs.
(vi) Except as set forth on SCHEDULE 3.13, neither the
Company nor any Subsidiary has entered into any agreement in connection with its
business that may now, or in the future, require it to pay to, reimburse,
guarantee, pledge, defend, indemnify or hold harmless any person for or against
Environmental Liabilities and Costs.
(vii) The following terms shall be defined as follows:
"Cleanup" - means all actions required to: (A) cleanup,
remove, treat or remediate Hazardous Substances in the indoor or
outdoor environment; (B) prevent the Release of Hazardous Substances
so that they do not migrate, endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; (C) perform
pre-remedial studies and investigations and post-remedial monitoring
and care; or (D) respond to any government requests for information or
documents in any way relating to cleanup, removal, treatment or
remediation or potential cleanup, removal, treatment or remediation of
Hazardous Substances in the indoor or outdoor environment.
"Environmental Laws" - means any applicable federal,
state or local law, rule, order, regulation, statute, decree or
requirement of any executive, legislative, regulatory, administrative,
judicial or other governmental authority regulating, relating to or
imposing liability or standards of conduct concerning the protection
of human health or the environment which is in effect and binding upon
the Company as of the Closing Date. For the sake of clarity,
"Environmental Laws" include the recordkeeping, disclosure,
notification and reporting requirements contained in such
Environmental Laws respecting Hazardous Substances, but do not include
land use or zoning laws or worker health and safety laws or any
provisions of Environmental Laws, even those respecting Hazardous
Substances, in so far as they pertain to worker health and safety.
"Environmental Liabilities and Costs" - means all
claims, losses, assessments, judgements, costs, expenses (including
reasonable fees and expenses of attorneys and experts, including but
not limited to, those incurred in connection with the defense or
prosecution of any indemnifiable claim and those incurred in
connection with the enforcement of this provision), obligations,
responsibilities, liabilities, debts and damages sustained by Buyer or
the Company or any Subsidiary prior to any reimbursement therefor.
"Hazardous Substances" - means (A) any "hazardous
substance" "pollutant" or "contaminant" as defined in Section 101(14)
and (33) of CERCLA; (B)
-23-
51
any pollutant, hazardous waste or hazardous substance as those terms
are defined in any applicable state or local law; and (C) oil as
defined under the Clean Water Act Section 311(a)(1).
"Release" - means when used as a noun, any release,
spill, emission, evaporation, discharge, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into
the environment (including, without limitation, ambient air, surface
water, groundwater, and surface or subsurface strata) or into or out
of any property, including the movement of Hazardous Substances
through or in the air, soil, surface water, groundwater or property,
and when used as a verb, the occurrence of any Release.
(viii) The Company on behalf of itself and each Subsidiary has
heretofore delivered to Buyer full copies of all environmental studies made in
the past five (5) years relating to any property or facility previously owned,
operated or leased by the Company or such Subsidiary.
3.14 Debt Instruments. SCHEDULE 3.14 lists and briefly describes the
material terms and conditions of all mortgages, indentures, notes and other
obligations for or relating to borrowed money or commitments therefor (including
conditional sales contracts and chattel mortgages) to which the Company or any
Subsidiary is a party or which have been assumed by the Company or any
Subsidiary or to which any of their material properties or assets are subject.
For purposes of this Section 3.14, the material terms and conditions shall
include the principal amount, interest rate, original and maturity dates,
sinking fund installments, prepayment premiums, restrictive covenants and any
other material provisions. Neither the Company nor any Subsidiary is in default
in any respect under any of the foregoing, and there has not occurred any event
which with the passage of time or the giving of notice would constitute such a
default or allow any party to accelerate the performance of the Company's or any
Subsidiary's obligations thereunder.
3.15 Title to Assets; Absence of Liens and Encumbrances.
(a) SCHEDULE 3.15(a) sets forth a true, correct and complete list of
all items of tangible personal property owned by the Company or any Subsidiary
as of the Balance Sheet Date having either a net book value per unit or an
estimated fair market value per unit in excess of $2,000.
(b) Except as set forth on SCHEDULE 3.15(b), the Company and each
Subsidiary have good and clear record and marketable title to, or a valid
leasehold interest in, all of their material assets and property reflected in
the Balance Sheet or acquired since the Balance Sheet Date, except: (i)
inventory disposed of in the ordinary course of business and consistent with
past practice since the Balance Sheet Date; and (ii) dispositions of other
assets and property in the ordinary course of business and consistent with past
practice, none of which disposals has been in respect of assets or property with
(A) a book value of more than $10,000 individually or $25,000 collectively; or
(B) a current replacement cost of more than $25,000 individually or $75,000
collectively; and none of
-24-
52
such assets or properties is subject to any material defects of title, mortgage,
pledge, lien, security interest, lease, charge, encumbrance, objection or joint
ownership (collectively, "Encumbrances").
(c) The facilities, machinery, furniture, office and other
equipment of each of the Company and each Subsidiary that are used in its
business are sufficient for the operations of the Company and such Subsidiary
and are in good operating condition and repair, subject only to ordinary wear
and tear. Each of the Company and its Subsidiaries is not in material default in
any respect under any Encumbrances to which it or its properties and assets are
subject.
3.16 Real Property.
(a) For purposes of this Agreement, "Real Property" means all of the
Company's and its Subsidiaries' interest in real property including, without
limitation, fee estates, leaseholds and subleaseholds, purchase options,
easements, licenses, rights to access and rights of way, and all buildings and
other improvements thereon, owned or used by the Company or such Subsidiary,
immediately prior to the Effective Time, together with any additions thereto or
replacements thereof.
(b) SCHEDULE 3.16(b) contains an accurate description as of the date
of this Agreement of all Real Property (including street address, legal
description (where known), owner, and the Company's or each Subsidiary's use
thereof) and any Encumbrances other than Permitted Encumbrances (defined below).
SCHEDULE 3.16(b) indicates whether the Real Property is owned or leased. The
Real Property listed on SCHEDULE 3.16(b) includes all interests in real property
necessary to conduct the business and operations of the Company and each
Subsidiary as their business and operations are currently conducted.
(c) Except as set forth on SCHEDULE 3.16(c):
(i) The Company or its relevant Subsidiary has good and marketable
title to the owned Real Property free and clear of any Encumbrances other than:
(A) liens for property taxes and assessments not yet delinquent, (B) easements,
covenants, conditions, restrictions, rights of way and title defects reflected
in the public records, and any matters which would be reflected in a current,
accurate survey of the owned Real Property and which do not individually, or in
the aggregate, materially interfere with the right or ability of the Surviving
Corporation to use or operate the owned Real Property as the owned Real Property
is currently used by the Company or its relevant Subsidiary, (C) landlord's
liens, (D) statutory liens that were created in the ordinary course of business,
(E) restrictions or rights granted to governmental authorities under applicable
law, (F) zoning, building, or similar restrictions relating to or affecting
property, and (G) all matters of record, including leasehold interests in real
property owned by others and operating leases for personal property and leased
interests in property leased to others (collectively, "Permitted Encumbrances").
-25-
53
(ii) Except as may be a Permitted Encumbrance, all
structures, facilities and improvements to the owned Real Property
("Structures") are located within the boundary lines of the owned Real Property,
and no structures, facilities or other improvements on any parcel adjacent to
the owned Real Property encroach onto any portion of the owned Real Property.
Except as may be a Permitted Encumbrance, the Structures do not encroach on any
easement which burdens any portion of the owned Real Property, and none of the
owned Real Property serves any adjacent parcel for any purpose inconsistent with
the use of the owned Real Property.
(iii) The Company and each Subsidiary have good and valid
rights of ingress and egress to and from all owned and leased Real Property from
and to the public street systems for all usual street, road and utility
purposes.
(iv) The owned Real Property and all of the Company's or its
Subsidiaries' present uses and operations of the Real Property comply, in all
material respects, with all applicable statutes, rules, regulations, ordinances,
orders, writs, injunctions, judgments, decrees, awards or restrictions of any
government entity having jurisdiction over any portion of the Real Property
(including, without limitation, applicable statutes, rules, regulations, orders
and restrictions relating to zoning, land use, safety, health, employment and
employment practices and access by the handicapped) (collectively, "Laws"),
covenants, conditions, restrictions, easements, disposition agreements and
similar matters affecting the owned Real Property. The Company or its relevant
Subsidiary has obtained all material approvals of governmental authorities
(including certificates of use and occupancy, licenses and permits) required in
connection with the Company's or its relevant Subsidiary's construction,
ownership (if applicable), use, occupation and operation of the owned Real
Property.
(v) Except for Permitted Encumbrances and except as
disclosed in SCHEDULE 3.16(c), none of the Structures, the appurtenances thereto
or the equipment therein or the operation or maintenance thereof, or the conduct
of the Company's or its relevant Subsidiary's business as currently operated and
conducted, violates in any material respect any restrictive covenant or
encroaches in any material respect on any property owned by others or any
easement, right of way or other Encumbrance or restriction affecting owned Real
Property in any respect. The owned Real Property and its continued use,
occupancy and operation as used, occupied and operated in the conduct of the
Company's or its relevant Subsidiary's business does not constitute a
nonpermitted nonconforming use in any material respect and is not the subject of
a special use permit under any applicable Law.
(vi) There are no pending or, to the Company's Knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the owned Real Property, nor has the Company or any Subsidiary
received notice of any pending or threatened special assessment proceedings
affecting any portion of the owned Real Property.
-26-
54
(vii) Except as may be a Permitted Encumbrance, there are no
parties other than the Company or any Subsidiary in possession of any of the
owned Real Property or any portion thereof, and there are no leases, subleases,
licenses, concessions or other agreements, written or oral, granting to any
party or parties the right of use or occupancy of any portion of the owned Real
Property or any portion thereof.
(viii) There are no outstanding options or rights of first
refusal to purchase the owned Real Property, or any portion thereof or interest
therein. Except for Permitted Encumbrances, neither the Company nor any
Subsidiary has transferred any air rights or development rights relating to the
owned Real Property.
(ix) Other than those disclosed on SCHEDULE 3.17(a), there
are no service contracts or other agreements relating to the use or operation of
the owned Real Property.
(x) All real property taxes and assessments that are then
due and payable with respect to the owned Real Property have been paid or will
be paid at or prior to Closing.
(d) Except as set forth on SCHEDULE 3.16(d): (i) neither the Company
nor any Subsidiary holds any interest as landlord in any Real Property; (ii) the
Company has a valid leasehold interest in all the Real Property listed as leased
by the Company on SCHEDULE 3.16(b) (the "Leased Real Property"); (iii) neither
the Company nor any Subsidiary is in default of any of its obligations under any
lease relating to the Leased Real Property, nor has an event occurred which,
with the giving of notice or the passage of time, could become an event of
default by the Company; (iv) to the Company's Knowledge, there has been no
default by the landlord under any lease relating to the Leased Real Property;
(v) the Company or its relevant Subsidiary has paid all rent under each lease
relating to the Leased Real Property with respect to the period through the date
hereof, and (vi) neither the Company nor its relevant Subsidiary has exercised
any termination or purchase option under any lease relating to the Leased Real
Property nor has the Company or its relevant Subsidiary exercised any renewal or
extension under any lease relating to the Leased Real Property with respect to
any renewal or extension period that will commence after the date hereof (other
than renewals or extensions that have been disclosed to Buyer).
(e) The Company has provided Buyer with true and complete copies of
each lease relating to the Leased Real Property and all amendments, renewals,
extensions, modifications or supplements thereto, and all correspondence
pursuant to which any party to any of such leases declared a default thereunder
or provided notice of the exercise of any option granted to such party under
such lease.
(f) Except as provided on SCHEDULES 3.16(b), none of the leases
relating to the Leased Real Property requires the consent or approval of any
party thereto in connection with the consummation of the transactions
contemplated hereby.
-27-
55
(g) The Company has completed the sale of the land and building
located at W238 N1650 Rockwood Drive, Waukesha, Wisconsin, and the adjacent land
located at Busse Road and Rockwood Drive, Waukesha, Wisconsin and has received
gross payment of $1,040,000 for such properties.
3.17 Agreements, Contracts and Commitments.
(a) The Schedules delivered hereunder accurately and completely
list all contracts, leases, licenses, other agreements and commitments to which
the Company or any Subsidiary is a party as of the date hereof and which are
material to the financial condition, business or operations of the Company or
any Subsidiary. Except as set forth on SCHEDULE 3.17(a), neither the Company nor
any Subsidiary is a party to or liable in connection with, any written, oral or
implied:
(i) bonus, deferred compensation, pension, profit-sharing,
stock option, employee stock purchase or retirement plan, contract or
arrangement or other employee benefit plan or arrangement;
(ii) union contract, collective bargaining agreement or any
employment agreement that contains any severance pay liabilities or obligations;
(iii) contract for personal services, consulting or
employment;
(iv) agreement or commitment containing a covenant limiting
or purporting to limit the freedom of the Company or any Subsidiary to compete
with any person in any geographic area or engage in any line of business;
(v) lease of personal property (other than equipment leases
under which the Company or any Subsidiary is lessor) to which the Company or any
Subsidiary is a party as lessor or lessee which (A) provides for future payments
of $25,000 or more, or (B) is material to the conduct of the business of the
Company or such Subsidiary;
(vi) joint venture contract or any other similar agreement
which is likely to involve a sharing of profits or future payments of $10,000
or more to other persons;
(vii) license agreement, distributor agreement, dealer
agreement, franchise agreement, manufacturer's representative agreement, sales
agency agreement or other similar contract or commitment;
(viii) contract or agreement for the future sale by the Company
or any Subsidiary of materials, products, services or supplies, which continues
for a period of more than twelve (12) months (including periods covered by any
option to renew by either party) or which
-28-
56
provides for payments in excess of $25,000, other than warranties and service
agreements entered into with respect to products sold in the ordinary course of
business and consistent with past practice; and
(ix) contract or agreement for the future purchase by the
Company or any Subsidiary of any materials, equipment, services, or supplies,
which provides for payments in excess of $15,000 and which cannot be terminated
by the Company or its relevant Subsidiary without penalty upon less than three
(3) months notice.
(b) All agreements, contracts, plans, leases, instruments,
arrangements, licenses and commitments required to be listed on SCHEDULE 3.17(a)
are valid and in full force and effect. Except as listed on SCHEDULE 3.17(b),
neither the Company nor any Subsidiary or any other party thereto has materially
breached any provision of, or is in material default under the terms of, nor, to
the Company's Knowledge, are there any facts or circumstances (including without
limitation the transactions contemplated hereby) which would reasonably indicate
that the Company or any Subsidiary will or may be in such material breach or
default under, any contract, agreement, instrument, arrangement, commitment,
plan, lease or license required to be listed on SCHEDULE 3.17(a).
(c) Except as listed in SCHEDULE 3.17(c), neither the Company nor any
Subsidiary is a party to any contract with the federal government.
(d) There is no bid or contract proposal made by the Company or any
Subsidiary that, if accepted or entered into, is reasonably anticipated to
result in a loss to the Company or such Subsidiary.
(e) Except as listed in SCHEDULE 3.17(e), neither the Company nor any
Subsidiary has any:
(i) contracts in default in the performance of any terms or
obligations to be performed by it;
(ii) contracts with funding limits, which limits have been
exceeded, or which may be exceeded in order to complete the contract work;
(iii) contracts under which work is being performed without
written contract coverage;
(iv) fixed price contracts which the Company or such Subsidiary
expects can only be completed at a loss; or
-29-
57
(v) contracts for which audits or other investigations are
being performed or have been performed by the Federal Government which have not
yet resulted in an audit or investigation report.
(f) Between the date of the Agreement and the Closing Date, neither
the Company nor any Subsidiary will, without the prior consent of Buyer, become
a party to any contract, agreement, or other instrument of the types listed in
Sections 3.14, 3.16 and 3.17.
3.18 Intellectual Property.
(a) The Company and its Subsidiaries own the patents, patent
applications, inventions, disclosures, copyrights, trademarks, trade names,
licenses and other legally protectable rights identified and described on
SCHEDULE 3.18(a) (the "Intellectual Property"). Except to the extent set forth
on SCHEDULE 3.18(a), to the Company's Knowledge, such items of Intellectual
Property are valid and in good standing, freely assignable, subject to no
material liens, charges, contractual rights, claims or other interests of any
other person, and are adequate and sufficient to permit the Company and its
Subsidiaries to conduct their businesses as presently being conducted. Except to
the extent set forth on SCHEDULE 3.18(a), no rights under any patents,
inventions, copyrights, trademarks, trade names, licenses or other legally
protectable rights owned solely or partially by others, including directors,
officers or employees of the Company, are required by the Company or any
Subsidiary in connection with the conduct of its business as presently
conducted, and the consummation of the transactions contemplated by this
Agreement will not alter or impair any such rights.
(b) Except as set forth on SCHEDULE 3.18(b)(i), there are no
circumstances in existence which have the effect that: (i) any product the
Company or any Subsidiary currently manufactures or sells or distributes or in
the past has sold or distributed or has under development (which products under
development are specifically identified on SCHEDULE 3.18(b)(ii)) or any services
the Company or any Subsidiary currently renders or in the past has rendered, or
the marketing or use by the Company or any Subsidiary or another of any such
product or service, may infringe any patent, trademark, trade name, copyright or
legally protectable right of another; or (ii) to the Company's Knowledge, any
person is manufacturing, selling or distributing any product or service that
infringes any Intellectual Property of the Company. All trade secrets, if any,
owned or used by the Company or any Subsidiary are owned free of any adverse
claims, rights or encumbrances as to its exclusive rights thereto, and the
Company or its Subsidiary has used reasonable efforts to protect its rights to
continued secrecy thereof.
(c) Any and all ideas, inventions, creative works, devices,
discoveries, designs, improvements, machines, processes, products, methods of
manufacture, formulae, mixtures or compounds either made, conceived, discovered,
developed or acquired by any employee of the Company or any Subsidiary who is
engaged by the Company or such Subsidiary to work wholly or
-30-
58
partly on the research, development or engineering of the Company's or such
Subsidiary's products is the sole property of the Company and its Subsidiaries.
(d) Except as set forth on SCHEDULE 3.18(a), neither the Company nor
any of its Subsidiaries has any obligation to compensate any person for the use
of any Intellectual Property, and neither the Company nor any of its
Subsidiaries has granted to any person any license, option or other rights to
use in any manner any of its Intellectual Property, whether requiring the
payment of royalties or not, other than licenses to the Company of franchises or
licenses in the ordinary course of business.
(e) Except as set forth on SCHEDULE 3.18(b)(i), neither the Company
nor any of its Subsidiaries has received any notice of invalidity or
infringement of any rights of others with respect to the Intellectual Property.
No person has notified the Company or any of its Subsidiaries that it is
claiming any ownership of or right to use such Intellectual Property.
3.19 Insurance. SCHEDULE 3.19 is a list of all insurance policies
(specifying the insurer, the amount of coverage, the type of insurance, the
policy number and the annual premium) maintained by the Company or any
Subsidiary. Such policies are owned solely by the Company or its Subsidiaries
and will be outstanding and duly in force on the Closing Date. Such policies are
in amounts deemed adequate by the Company's Board of Directors and management,
and are intended to insure against all risks usually insured against by persons
operating similar properties or conducting similar operations in the localities
where such properties are located or such operations are conducted under valid
and enforceable policies issued by insurers of recognized responsibility. All
premiums due on such policies or renewals thereof have been paid or have future
scheduled payments as described in the policy in detail, and there is no default
or, to the Company's Knowledge, threatened cancellation of any such policies.
Neither the Company nor its Subsidiaries has any pending disputes with any
insurance carrier regarding coverage, claims, settlements or premiums.
3.20 Tax Matters.
(a) Except as set forth on SCHEDULE 3.20: (i) all federal, state,
local and foreign tax returns and tax reports required to be filed by the
Company or any Subsidiary, have been timely filed with the appropriate
governmental agencies in all jurisdictions in which such returns and reports are
required to be filed and each such return correctly reflects the income,
franchise or other tax liability and all other information requested to be
reported thereon, and (ii) all federal, state, local and foreign income and
other taxes (including interest and penalties and franchise, property, sales,
employment, deferred or other taxes) due from the Company or any Subsidiary have
been fully paid or adequately provided for on the books and financial statements
of the Company or its Subsidiaries. Except as set forth on SCHEDULE 3.20, the
provisions for taxes due by the Company and its Subsidiaries in the Balance
Sheet are sufficient for all unpaid United States, state, local and foreign
taxes, whether or not disputed, in respect of its business and operations for
the period then ended and
-31-
59
all prior periods. There is no issue relating to any such return that, if
determined adversely to the Company or any Subsidiary, would result in the
assertion of any deficiency for any tax or interest or penalties in connection
therewith. Except as set forth on SCHEDULE 3.20, no claim has ever been made by
any taxing authority in any jurisdiction in which the Company or any Subsidiary
does not file tax returns that it is or may be subject to taxation by that
jurisdiction. Neither the Company nor any Subsidiary has (i) agreed to any
extension of the statute of limitations, or (ii) since the Balance Sheet Date
incurred any tax liability as a result of any transaction that was not fully
reflected or reserved against in the Balance Sheet, apart from taxes relating to
income incurred in the ordinary course of business.
(b) Neither the Company nor any Subsidiary is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or comparable
provisions of any state statutes, and none of the assets of the Company is
subject to an election under Section 341(f) of the Code or comparable provisions
of any state statutes.
(c) Neither the Company nor any Subsidiary is a party to any joint
venture, partnership or other arrangement that is treated as a partnership for
federal income tax purposes.
(d) Neither the Company nor any Subsidiary has any material income
which will be reportable in a period ending after the Closing Date which is
attributable to a transaction occurring in, or a change in accounting method
made for, a period ending on or prior to the Closing Date.
(e) Neither the Company nor any Subsidiary has received or requested
any ruling of a taxing authority related to taxes or entered into any written or
legally binding agreement with a taxing authority relating to taxes.
(f) There is no compensation, contingent or otherwise, payable to any
employee or former employee, including but not limited to, compensation payable
under any contract, plan or arrangement covering any employee or former employee
of the Company or any Subsidiary that, individually or collectively, could give
rise to any payment (or portion thereof) that would not be fully deductible
pursuant to Sections 280G, 404 or 162 of the Code.
(g) The Company currently has no liability, and there are no
circumstances existing or reasonably anticipated under which the Company will be
liable in the future, for any tax imposed on any employee of the Company or any
Subsidiary in connection with any compensation of any type paid to any employee
of the Company or any Subsidiary.
-32-
60
(h) The Company and each of its Subsidiaries have withheld and paid
over to the proper governmental authorities all taxes required to have been
withheld and paid over, and complied with all information reporting and backup
withholding requirements, including maintenance of required records with respect
thereto, in connection with amounts paid to any employee, independent
contractor, creditor or third party.
(i) BCI International Foreign Sales Corporation ("BCIFSC") is a
corporation duly organized, validly existing and in good standing under the laws
of Barbados, West Indies. Except as set forth on SCHEDULE 3.20(j), there are no
liabilities or obligations, fixed, accrued, contingent, assumed or otherwise and
whether due or to become due, either pending or threatened against BCIFSC. The
operations of BCIFSC have been established and maintained to provide the maximum
tax benefit allowable under United States law to the Company and each of its
Subsidiaries.
(j) Neither the Company nor any Subsidiary is a real property holding
company as defined under Section 897(c)(2) of the Code.
3.21 Employee Benefit Plans.
(a) List of Plans. Except as disclosed on SCHEDULE 3.21(a) (the
"Designated Plans"), neither the Company nor any Subsidiary sponsors or
maintains any plan, fund, program, policy, arrangement, contract or commitment,
whether or not qualified for federal income tax purposes, whether or not funded,
whether formal or informal, and whether for the benefit of a single individual
or more than one individual, which is in the nature of (i) an employee pension
benefit plan (as defined in Section 3(2) of ERISA), (ii) an employee welfare
benefit plan (as defined in Section 3(1) of ERISA), (iii) an incentive current
or deferred compensation, or other benefit or compensation arrangement for
employees, former employees, their dependents and/or their beneficiaries, or
(iv) an arrangement that could be characterized as providing for additional
compensation, compensation associated with a change of control, severance
benefits, perquisites, or fringe benefits.
(b) No Defined Benefit Plans. Neither the Company nor any Subsidiary
sponsors or maintains, is a contributing employer or otherwise a party to, or
has any obligation or liability under or with respect to, any defined benefit
plan within the meaning of Section 3(35) of ERISA. Except as set forth on
SCHEDULE 3.21(b), there are no circumstances pursuant to which the Company or
any Subsidiary may be liable to the Pension Benefit Guaranty Corporation
("PBGC"), to any Designated Plan, or to a trustee with respect to any defined
benefit pension plan, presently or heretofore sponsored or maintained by any
entity other than the Company or such Subsidiary, including within the concept
of "entity other than the Company" any predecessor of the Company, any former
employer of any present or former employees of the Company, or any "controlled
company" (as hereinafter defined in Subsection (i) of this Section 3.21)).
-33-
61
(c) Disclosed Plans. With respect to any Designated Plans, the
Company has delivered to Buyer true and complete copies of (i) all documents
governing such Designated Plans, and all amendments thereto, (ii) all reports
relating to such Designated Plans filed during the prior three (3) years by the
Company or officials of any Designated Plan with the United States Department of
Labor, the IRS or any other federal or state regulatory agency, (iii) all
summary plan descriptions, notices and other reporting and disclosure material
furnished during the prior three (3) years to participants in any such
Designated Plans, (iv) all actuarial, accounting and financial reports prepared
during the prior three (3) years with respect to any of such Employee Benefits
Plans, and (v) all currently effective IRS ruling or determination letters on
any of such Designated Plans. Each financial or other report delivered to Buyer
pursuant hereto is accurate in all material respects, and there have been no
material adverse changes in the financial status of any Designated Plan since
the date of the most recent report provided with respect thereto.
(d) Compliance with Law. The Company and its Subsidiaries have
operated, and have caused their respective appointees and nominees to operate,
each Designated Plan in a manner which is in material compliance with the terms
thereof and with all applicable law, regulations and administrative agency
rulings and requirements applicable thereto. Each employee, former employee, and
every dependent of the foregoing entitled to continuation of benefit coverage
under any employee welfare benefit plan sponsored by the Company or such
Subsidiary has been accorded all the rights to which such person is entitled as
a matter of law or regulation.
(e) Contributions. Full payment has been made of all amounts which
the Company or any Subsidiary is required, under applicable law or under any
Designated Plan or any agreement related to any Designated Plan to which the
Company or any Subsidiary is a party, to have paid as contributions thereto as
of the last day of the most recent fiscal year of each Designated Plan ended
prior to the date hereof. The Company and any relevant Subsidiary has made
adequate provision for reserves to meet contributions that have not been made
because they are not yet due under the terms of any Designated Plan or related
agreements. Benefits under all Designated Plans are as represented and have not
been increased subsequent to the date as of which documents have been provided.
(f) Tax Qualification. Each Designated Plan intended to be qualified
under Sections 401(a), 401(k) and 501(a) of the Code has been determined to be
so qualified by the IRS and nothing has occurred since the date of the last such
determination which resulted or is likely to result in the revocation of such
determination, other than changes in applicable law made by the Tax Reform Act
of 1986 and subsequent legislation, regulations and rulings. With respect to any
such changes in applicable law, any such plan has been or may be retroactively
amended to comply with such changes in order to avoid disqualification of the
plan.
(g) Tax or Civil Liability. None of the Company, the Principal
Stockholders or any "controlled company" (as hereinafter defined in Subsection
(i) of this Section 3.21) has participated, or will participate prior to the
Closing Date, in any conduct that could result in the
-34-
62
imposition upon the Company of any excise tax under Section 4971 through 4980B
of the Code or civil liability under Section 502(i) of ERISA.
(h) Claims Liability. There is no action, claim or demand of any
kind (other than routine claims for benefits) that has been brought or
threatened against any Designated Plan, or the assets thereof, against any
fiduciary of any such Designated Plan, or against the Company or any Subsidiary
with respect to any Designated Plan, and to the Company's Knowledge, there is no
pending or threatened investigation or administrative review that could result
in the imposition on the Company or any Subsidiary of any penalty or assessment
in connection with any Designated Plan.
(i) No Affiliated Company Liability. Neither the Company nor any
Subsidiary is presently or potentially liable with respect to any employee
benefit plan (as defined in Section 3(3) of ERISA) sponsored or maintained by
any controlled company, whether such plan is a single employer plan, a multiple
employer plan, or a multi-employer plan. A "controlled company" is any
enterprise which, with the Company or any Subsidiary, forms or formed at any
time since September 2, 1974 a controlled group of corporations within the
meaning of Section 414(b) of the Code, a group of trades or businesses under
common control within the meaning of Section 414(c) of the Code, or any
affiliated service group within the meaning of Section 414(m) of the Code.
Liability to which reference is made herein includes, but is not limited to,
liability for the under-funding of such plan, whether or not such plan is
terminated; liability for unamortized funding deficiencies (whether or not
waived); liability to or on account of any multiemployer plan under any
circumstances; penalties, late payment fees or taxes with respect to any plan or
the administration of any plan; and liability with respect to fiduciary conduct
in connection with any such plan.
(j) Fiduciary Appointments and Conduct. No circumstances have
occurred by reason of which the Company or any Subsidiary may be liable for (i)
the appointment of any person or entity as a fiduciary with respect to any
Designated Plan where such person was legally disqualified from serving in such
capacity; (ii) the failure to monitor the performance of the fiduciaries with
respect to any Designated Plan or to timely replace any such fiduciary whose
performance failed to meet the standards imposed by ERISA with respect to
fiduciary duties; or (iii) any action taken by a fiduciary with respect to any
Designated Plan upon the direction of, or with the acquiescence of, the Company
or any Subsidiary which failed to meet the standards imposed by ERISA with
respect to fiduciary duties.
(k) Multiemployer Plans. Neither the Company nor any Subsidiary
maintains or participates in, or is obligated to contribute to, or has ever
maintained or participated in, or been obligated to contribute to, any
"multiemployer plan" within the meaning of Section 3(37) of ERISA.
(l) Retiree Welfare Coverage. No Designated Plan provides any health,
life or other welfare coverage to employees of the Company or any Subsidiary
beyond termination of their employment with the Company or such Subsidiary by
reason of retirement or otherwise, other than
-35-
63
coverage as may be required under Section 4980B of the Code or Part 6 of
Subtitle B of Title I of ERISA, or under the continuation of coverage provisions
of the laws of any state or locality.
(m) Reporting and Disclosure Obligations. The Company has filed or
caused to be filed on a timely basis all returns, reports, statements, notices,
declarations and other documents required by any federal, state, local or
foreign governmental agency (including, without limitation, the IRS, the
Department of Labor, the PBGC and the Securities and Exchange Commission) with
respect to each Designated Plan sponsored by or maintained by the Company or any
Subsidiary or with which the Company or any Subsidiary has or had any filing
obligation. The Company shall deliver to Buyer at Closing all records with
respect to such Designated Plans as are required for their proper continued
reporting and disclosure. The Company has delivered or caused to be delivered to
every participant, beneficiary and every other party entitled to such material
all plan descriptions, returns, reports, schedules, notices, statements and
similar materials, including without limitation, summary plan descriptions and
reports as are required under Title I of ERISA and/or the Code.
(n) Group Health Plans. With respect to Designated Plans which
qualify as "group health plans" under Section 5000(b)(1) of the Code and
Sections 607(l) and 733(a) of ERISA and related regulations, the Company has
full stop-loss insurance.
3.22 Bank Accounts; Powers of Attorney; etc. Except as listed in SCHEDULE
3.22, neither the Company nor any Subsidiary has (a) any bank account, safe
deposit box or assets on deposit with any bank, or (b) any power of attorney or
other authorization outstanding, except for powers of attorney or authorizations
issued in the ordinary course of business with respect to patents, customs,
insurance and tax matters.
3.23 Year 2000 Compliance. All products made by the Company or its
Subsidiaries as of or prior to the Closing Date are Year 2000 Compliant. As used
in this Section 3.23, "Year 2000 Compliant" shall mean that such products, to
the extent applicable, will provide and/or receive all date/time data within,
from, into and between the years 1999-2000 and that the products' performance
and functionality will not be adversely affected by any dates/times prior to,
on, after or spanning January 1, 2000.
3.24 Transactions with Affiliates. There is no transaction now existing or
proposed to which the Company or any Subsidiary is to be a party and in which
any director or officer of the Company or any Subsidiary or any person owning of
record or beneficially more than 5% of the outstanding capital stock of any
class of the Company or any associate of any such person had or has a direct or
indirect material interest, other than obligations of the Company to the
Stockholders disclosed pursuant to Section 3.5. Any such transactions that
occurred in the three years prior to the date hereof were made on an
arm's-length basis.
3.25 Product Warranties. Except as set forth on SCHEDULE 3.25: (a) neither
the Company nor any Subsidiary has any unexpired expressed or implied (as
provided in the Uniform Commercial
-36-
64
Code or based upon relevant product specifications) product warranty with
respect to any product that it manufactures or sells or that it has heretofore
manufactured or sold; (b) since October 1, 1994, neither the Company nor any
Subsidiary has received any notice of any claim for loss or damage to person,
property or business in excess of $5,000 based on any product warranty; and (c)
neither the Company nor any Subsidiary is subject to any claim for loss or
damage to person, property or business in excess of $5,000 (actual or
threatened) based on any product warranty. Except as set forth on SCHEDULE 3.25,
neither the Company nor any Subsidiary makes any other warranties expressed or
implied, with respect to any of the products that it manufactures or sells.
3.26 Accounting System; Audits. There are no reports arising from audits or
other investigations of the Company's or any such Subsidiary's contracts (past
or present) that raise issues of overcharging or other defective pricing
practices by the Company or such Subsidiary, or any other issues that could
materially and adversely affect the properties, business or operations (present
or prospective) of the Company or such Subsidiary.
3.27 Full Disclosure. Without limiting the specific language of any other
representation and warranty herein, all information furnished by the Company or
any Subsidiary to Buyer pursuant to or in connection with this Agreement
(including but not limited to all information set forth in any Schedule) is and
will at the Closing be accurate in all material respects. All documents
furnished by the Company to Buyer pursuant to or in connection with this
Agreement are true and correct copies, and there are no amendments or
modifications to those documents that have not been furnished to Buyer. The
books and records of the Company and its Subsidiaries are accurate and complete
in all material respects and have been maintained in accordance with good
business practice.
3.28 No Broker's or Finder's Fees. No agent, broker, investment banker,
person or firm acting on behalf of the Company or any Subsidiary is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly in connection with any of the transactions contemplated
herein.
3.29 SEC Reports. The Company has filed all required forms, reports and
documents with the United States Securities and Exchange Commission (the "SEC")
since June 30, 1995 (collectively, the "Company's SEC Reports"), including
without limitation the Company's Annual Report on Form 10-K for the year ended
June 30, 1998 (the "Company 1998 Form 10-K"). The Company's SEC Reports have
complied in all material respects with all applicable requirements of the
Securities Act of the 1933 Act, as amended (the "Securities Act") and the
Exchange Act. As of their respective dates, none of the Company's SEC Reports,
including, without limitation, any financial statements or schedules included or
incorporated by reference therein, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated or incorporated
by reference therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. There
have been filed as exhibits to, or incorporated by reference in, the Company
1998 Form 10-K all contracts which, as of the date
-37-
65
hereof, are material as described in Item 601(b)(10) of Regulation S-K. The
Company has heretofore delivered to Buyer, in the form filed with the SEC, all
of the Company's SEC Reports.
ARTICLE IV
Representations and Warranties of Buyer and Merger Sub
Buyer and Merger Sub, jointly and severally, represent and warrant to the
Company and the Principal Stockholders as follows:
4.1 Organization, Existence and Authority. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Buyer and Merger
Sub has all requisite corporate power and authority to carry on its business as
it had been and is now being conducted and to own, lease and operate the
properties and assets used in connection therewith. Merger Sub has authorized
capital stock consisting of 1,000 shares of common stock, without par value per
share ("Merger Sub Stock"), of which 1,000 shares are outstanding as of the date
hereof.
4.2 Authorization; Execution and Delivery; No Violation. The execution,
delivery and performance of this Agreement and all other agreements entered into
in connection with the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of each of
Buyer and Merger Sub. This Agreement and all other agreements entered into in
connection with the transactions contemplated hereby constitute (or upon
execution and delivery will constitute) the valid and binding obligation of each
of Buyer and Merger Sub and are enforceable (or upon execution and delivery will
be enforceable) in accordance with their respective terms. The execution,
delivery and performance of this Agreement and all other agreements entered into
in connection with the transactions contemplated hereby by Buyer and Merger Sub
do not and will not violate, conflict with, result in a breach of or constitute
a default under (or an event which with due notice or lapse of time, or both,
would constitute a breach of or default under) or result in the creation of any
lien, security interest or other encumbrance under (a) the charter or by-laws of
Buyer or Merger Sub, (b) any note, agreement, contract, license, instrument,
lease or other obligation to which Buyer or Merger Sub is a party or by which
Buyer or Merger Sub is bound, (c) any judgment, order, decree, ruling or
injunction, or (d) any statute, law, regulation or rule of any governmental
agency or authority.
4.3 No Broker's or Finder's Fees. No agent, broker, investment banker,
person or firm acting on behalf of Buyer or Merger Sub or under the authority of
Buyer or Merger Sub is or will be entitled to any broker's or finder's fee or
any other commission or similar fee directly or indirectly in connection with
any of the transactions contemplated herein.
-38-
66
4.4 Financing. Buyer has provided or at the Closing Date will have provided
to Merger Sub the funds necessary to satisfy all of Buyer's and Merger Sub's
obligations under this Agreement.
ARTICLE V
Other Agreements
5.1 Conduct of the Company's Business. The Company covenants and
agrees, on behalf of itself and its Subsidiaries, that, between the date of this
Agreement and the Effective Time, unless Buyer, upon written request to George
M. Kennedy (or his designee), shall otherwise consent in writing, and except as
otherwise expressly contemplated hereby, the business of the Company and the
Subsidiaries shall be conducted only in, and such entities shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice; and the Company and its Subsidiaries will use their
commercially reasonable efforts to preserve substantially intact the business
organization of the Company and its Subsidiaries, to keep available the services
of those of its present officers, employees and consultants that are integral to
the operation of its business as presently conducted and to preserve the present
relationships of the Company and its Subsidiaries with customers, suppliers and
other persons with which the Company and the Subsidiaries have significant
business relations. By way of amplification and not limitation, except as
otherwise expressly contemplated by this Agreement, the Company agrees on behalf
of itself and its Subsidiaries that, without the prior written consent of Buyer,
upon written request to George M. Kennedy (or his designee), which consent will
not be unreasonably withheld, they will, between the date of this Agreement and
the Effective Time:
(a) not directly or indirectly do any of the following: (i) amend or
propose to amend its charter or by-laws; (ii) split, combine or reclassify any
outstanding shares of its capital stock, or declare, set aside or pay any
dividend payable in cash, stock, property or otherwise with respect to such
shares; (iii) redeem, purchase, acquire or offer to acquire any shares of its
capital stock; (iv) issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or securities convertible or
exchangeable for, or any options (except as otherwise contemplated herein),
warrants or rights of any kind to acquire any shares of, its capital stock of
any class or other property or assets whether pursuant to any agreement or stock
option plan described in the any Schedule hereto or otherwise; or (v) enter into
any contract, agreement, commitment or arrangement with respect to any of the
matters set forth in this paragraph (a);
(b) not, directly or indirectly (i) acquire (by merger, consolidation
or acquisition of stock or assets) any corporation, partnership or other
business organization or division thereof or make any equity investments
therein; (ii) issue, sell, pledge, dispose of or encumber any assets of the
Company or the Subsidiaries except in the ordinary course of business and
consistent with past practice; (iii) incur any indebtedness for borrowed money
or issue any debt securities, except in the ordinary course of business and
consistent with past practice, (iv) make any commitments or
-39-
67
agreements for capital expenditures or capital additions or betterments other
than those specified on SCHEDULE 5.1(b) hereto exceeding in the aggregate
$10,000; (v) enter into or modify any material contract, lease or agreement
except in the ordinary course of business and consistent with past practice;
(vi) terminate, modify, assign, waive, release or relinquish any material
contract rights or amend any material rights or claims not in the ordinary
course of business or except as expressly provided herein; or (vii) enter into
any contract, agreement, commitment or arrangement with respect to any of the
matters set forth in this paragraph (b);
(c) not, directly or indirectly, cause nor permit to occur any of the
events or occurrences described in Section 3.11 hereof;
(d) not, directly or indirectly (i) grant any increase in the salary
or other compensation of its employees or grant any bonus to any employee or
enter into any employment agreement or make any loan to or enter into any
material transaction of any other nature with any officer or employee of the
Company, except in the ordinary course of business and consistent with past
practice; (ii) take any action to institute any new severance or termination pay
practices with respect to any directors, officers or employees of the Company or
to increase the benefits payable under its severance or termination pay
practices; (iii) adopt or amend, in any respect, except as may be required by
applicable law or regulation, any bonus, profit sharing, compensation, stock
option, restricted stock, pension, retirement, deferred compensation, employment
or other employee benefit plan, agreement, trust, fund, plan or arrangement for
the benefit or welfare of any directors, officers or employees;
(e) not, directly or indirectly, take any action which would cause
its representations and warranties contained herein to become inaccurate in any
material respect;
(f) advise Buyer of each business decision outside the ordinary
course of business made by the senior management of the Company with respect to
matters involving more than $50,000 before such decision is implemented or
announced, and make available, from time to time at Buyer's request, senior
management of the Company to consult with senior management of Buyer concerning
the conduct of the business of the Company; and
(g) promptly disclose to Buyer any information contained in its
representations and warranties or on any Schedule which, because of an event
occurring after the date hereof, is incomplete or is no longer correct as of all
times after the date hereof until the Closing Date; provided, however, that none
of such disclosures shall be deemed to modify, amend or supplement the
representations and warranties of the Company or the Schedules hereto for the
purposes of this Agreement, unless Buyer shall have consented thereto in
writing, which consent shall not be unreasonably withheld.
5.2 Access to Information. Between the date of this Agreement and the
Closing Date, the Company with respect to itself and each Subsidiary will give
Buyer and its authorized
-40-
68
representatives reasonable access, during regular business hours upon reasonable
notice, to all offices, warehouses and other facilities and to all of its books
and records, permit Buyer to make such reasonable inspections as it may require,
and cause its officers and those of its Subsidiaries to furnish Buyer with such
financial and operating data and other information with respect to the business
and properties of the Company, as Buyer may from time to time reasonably request
and as the Company or its Subsidiaries may have on hand or be able to produce.
5.3 Stockholder Vote; Information Statement.
(a) As promptly as practicable after the date hereof, the Company
shall take all action necessary in accordance with Rules 14a-1 et. seq. of the
Exchange Act, Delaware Law and the Company's Certificate of Incorporation and
By-laws to call, give notice of, convene and hold a meeting of its stockholders
(a "Meeting") as promptly as practicable (unless such date shall be delayed due
to circumstances reasonably beyond the control of the Company) to consider and
vote upon the approval and adoption of this Agreement and approval of the
Merger. Subject to fiduciary duties under applicable law, the Board of Directors
of the Company shall use its commercially reasonable efforts to solicit and
secure from its Stockholders such approvals.
(b) As promptly as practicable after and in any event within ten
(10) working days of the date hereof, the Company shall prepare and file with
the SEC an information statement and notice of appraisal rights required under
the Exchange Act with respect to the Merger and will thereafter use its
commercially reasonable efforts to respond to any comments of the SEC with
respect thereto and to cause a definitive information statement and notice of
appraisal rights (including all supplements and amendments thereto, the
"Information Statement") to be mailed to the Stockholders as promptly as
practicable. The Information Statement shall include the unqualified
recommendation of the Company's Board of Directors that the Stockholders vote in
favor of the approval and adoption of this Agreement and approval of the Merger,
unless otherwise necessary due to applicable fiduciary duties under applicable
law, as determined by such directors in good faith after consultation with and
based upon the written advice of legal counsel.
(c) As soon as practicable after the date hereof, the Company and
Buyer shall prepare and file any other filings required to be filed by each
under the Exchange Act or any other federal or state laws relating to the Merger
and the transactions contemplated hereby (collectively, "Other Filings") and
will use their commercially reasonably efforts to respond to any comments of the
SEC or any other appropriate government official with respect thereto.
(d) The Company and Buyer shall cooperate with each other and provide
to each other all information necessary in order to prepare the Information
Statement and the Other Filings (collectively, the "SEC Filings") and shall
provide promptly to the other party any information that such party obtains or
becomes aware of that could necessitate amending any such document.
-41-
69
(e) The Company will notify Buyer promptly of the receipt of any
comments from the SEC or its staff or any other appropriate government official
and of any requests by the SEC or its staff or any other appropriate government
official for amendments or supplements to any of the SEC Filings or for
additional information and will supply Buyer with copies of all correspondence
between the Company or any of its representatives on the one hand, and the SEC
or its staff or any other appropriate government official, on the other hand,
with respect thereto. If at any time prior to the Effective Time, any event
shall occur that should be set forth in an amendment of, or a supplement to, any
of the SEC Filings, the Company agrees promptly to prepare and file such
amendment or supplement and to distribute such amendment or supplement as
required by applicable law, including, in the case of an amendment or supplement
to the Information Statement, mailing such supplement or amendment to the
Company's stockholders.
(f) The information provided and to be provided by the Company and
Buyer for use in SEC Filings shall at all times prior to the Effective Time be
true and correct in all material respects and shall not omit to state any
material fact required to be stated therein or necessary in order to make such
information not false or misleading, and the Company and Buyer each agree to
promptly correct any such information provided by it for use in the SEC Filings
that shall have become false or misleading. The SEC Filings, when filed with the
SEC or any appropriate government official, shall comply as to form in all
material respects with all applicable requirements of law.
5.4 Commercially Reasonable Efforts. Subject to the fiduciary duties of the
Company's Board of Directors, each of the parties hereto agrees to use its
commercially reasonable efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws, statutes, ordinances, codes, rules and
regulations to consummate and make effective the transactions contemplated by
this Agreement in the most expeditious manner practicable, including but not
limited to the satisfaction of all conditions to the Merger, and to consummate
the Merger as promptly as practicable.
5.5 Notification. Each party hereto shall, in the event of, or promptly
after obtaining knowledge of, the occurrence or threatened occurrence of, any
fact or circumstance that would cause or constitute a breach of any of its
representations and warranties set forth herein, give notice thereof to the
other parties and shall use its commercially reasonable efforts to prevent or
promptly to remedy such breach.
5.6 Regulatory and Other Authorizations. Each party hereto agrees to use
its commercially reasonable efforts to obtain all authorizations, consents,
orders and approvals of federal, state, local and foreign regulatory bodies and
officials and non-governmental third parties that may be or become necessary for
(a) its respective execution and delivery of, and the performance of its
respective obligations pursuant to, this Agreement and (b) the ownership of the
Surviving Corporation by Buyer. Each party will cooperate fully with the other
parties in promptly seeking to obtain all such authorizations, consents, orders
and approvals. Without limitation, the
-42-
70
Company and Buyer shall each make an appropriate filing of a Notification and
Report Form pursuant to the HSR Act no later than ten (10) days after the date
hereof and shall promptly respond to any request for additional information with
respect thereto. Each such filing shall request early termination of the waiting
period imposed by the HSR Act.
5.7 Further Assurances. Each of the parties hereto shall execute such
documents and other instruments and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and
consummate the transactions contemplated hereby or, at and after the Effective
Time, to evidence the consummation of the transactions contemplated by this
Agreement. Upon the terms and subject to the conditions hereof, each of the
parties hereto shall take or cause to be taken all actions and to do or cause to
be done all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement and to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings.
5.8 No Solicitation. None of the Principal Stockholders, the Company, or
any agent, officer, director or representative of the Company or the Principal
Stockholders will, during the period commencing on the date of this Agreement
and ending with the earlier to occur of the Closing or the termination of this
Agreement in accordance with its terms, directly or indirectly: (a) solicit,
encourage or initiate the submission of proposals or offers from any person for,
(b) subject to fiduciary duties imposed by applicable law, participate in any
discussions pertaining to, or (c) subject to fiduciary duties imposed by
applicable law, furnish any information to any person other than Buyer relating
to, any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, the Company or the Subsidiaries or a merger,
consolidation or business combination of the Company or any Subsidiary. In
addition to the foregoing, if the Company or either Principal Stockholder
receives any unsolicited offer or proposal, or has actual knowledge of any
unsolicited offer or proposal, relating to any of the above, the Company or such
Principal Stockholder shall immediately notify Buyer thereof, including the
identity of the party making such offer or proposal and the specific terms of
such offer or proposal.
5.9 Payment from Katarow Employment Trust. Buyer agrees that, not later
than ten (10) days following payment by the Company to Katarow of the Bonus
Payment, as provided in Sections 5(a) and 5(b) of the Employment Agreement, and
receipt by the Company of all remaining funds held in the Katarow Employment
Trust, the Buyer will cause the Company to pay to David H. Sanders (on behalf of
the Principal Stockholders) from such funds the lesser of (a) $1,200,000 or (b)
(i) the full amount of such funds distributed to the Company less (ii) the
amount distributed to Katarow as provided in Sections 5(a) and 5(b) of the
Employment Agreement and all Deductions (as defined in the Employment Agreement)
applicable to such payments.
-43-
71
ARTICLE VI
Covenant Not to Compete by David H. Sanders
6.1 Covenant Not to Compete by David H. Sanders. David H. Sanders agrees
that, as a result of his position as an officer and a Stockholder, he has
established valuable and recognized expertise in the development, production,
use and sale of medical monitoring systems. As a material inducement to Buyer to
execute this Agreement and in order to secure to Buyer the full enjoyment of the
transactions contemplated by this Agreement, David H. Sanders agrees that for a
period commencing with the Closing Date and continuing until three (3) years
from the Closing Date, without the prior written consent of Buyer he will not
participate as a director, officer, employee, agent, representative,
stockholder, partner or joint venturer, or have any material direct or indirect
financial interest (including as a creditor), in any business engaged in the
development, production, use and sale of medical monitoring systems comparable
to the systems currently manufactured or developed or currently under any stage
of research and development by the Company.
ARTICLE VII
Conditions of Closing
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act, and no action by the Department of Justice or the
Federal Trade Commission or any foreign Governmental Entity challenging or
seeking to enjoin the consummation of the Merger, shall have been instituted and
be pending.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
shall have been issued and be in effect (i) restraining or prohibiting the
consummation of the Merger or any of the transactions contemplated hereby or
(ii) prohibiting or limiting the ownership, operation or control by the Company,
Buyer or any of their respective subsidiaries of any portion of the business or
assets of the Company, Buyer or any of their respective subsidiaries, or
compelling the Company, Buyer or any of their respective subsidiaries to dispose
of, grant rights in respect of, or hold separate any portion of the business or
assets of the Company, Buyer or any of their respective subsidiaries; nor shall
any action have been taken or any statute, rule, regulation or order have been
enacted, entered or enforced or be deemed applicable to the Merger which makes
the consummation of the Merger illegal or prevents or prohibits the Merger.
-44-
72
7.2 Additional Conditions to Obligations of Buyer and Merger Sub. The
obligations of Buyer and Merger Sub to effect the Merger are subject to the
satisfaction or waiver of each of the following conditions, any of which may be
waived in writing exclusively by Buyer or Merger Sub:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and its Subsidiaries set forth in this Agreement that
is qualified by materiality shall be true and correct at and as of the Closing
Date as if made at and as of the Closing Date, and each of such representations
and warranties that is not so qualified shall be true and correct in all
material respects at and as of the Closing Date as if made at and as of the
Closing Date, in each case except as contemplated by this Agreement, and Buyer
shall have received a certificate signed on behalf of the President of the
Company to such effect.
(b) Performance of Obligations. The Company shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Buyer shall have received a
certificate signed on behalf of the Company by the President of the Company to
such effect.
(c) Absence of Material Adverse Change. There shall not have been any
material adverse change, alone or in the aggregate, in the business, assets,
liabilities, financial condition, results of operations or prospects of the
Company and the Subsidiaries since the date of this Agreement.
(d) Opinion of Counsel to the Company and the Principal Stockholders.
Buyer shall have received from Holleb & Coff, counsel to the Company and the
Principal Stockholders, an opinion dated the Closing Date in form and substance
mutually agreed to by the Company and Buyer.
(e) Adverse Proceedings. No action or proceeding by or before any
court or other governmental body shall have been instituted or threatened by any
governmental body or other person or entity which seeks to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might
materially adversely affect the right of Buyer to consummate the Merger or to
own, operate or control the Company, or which might subject the Company to any
material liability after the Closing.
(f) Stockholder Approval. No more than five percent (5%) of the
Stockholders shall have perfected Dissenter Rights in connection with the
transactions contemplated hereunder in accordance with the requirements set
forth in Delaware Law.
(g) Board Approval. The Board of Directors of the Company shall have
approved this Agreement and the transactions contemplated hereunder.
-45-
73
(h) Escrow Agreement. Buyer, David H. Sanders, the Principal
Stockholders and the Escrow Agent shall have executed the Escrow Agreement in
substantially the form of Exhibit A hereto.
(i) Employment Agreement. The Company, Katarow, the Katarow Employment
Trust and David H. Sanders shall have executed the Employment Agreement in
substantially the form of Exhibit B hereto (the "Employment Agreement").
(j) Resignation and Release of David H. Sanders. David H. Sanders
shall have executed the Resignation and Release in substantially the form of
Exhibit C hereto, and shall have resigned as trustee of the Katarow Employment
Trust.
(k) Repayment of Debt. The portion of the Purchase Price to be paid
to the Principal Stockholders pursuant to the terms of this Agreement shall be
reduced by $144,770 in satisfaction of the obligation of DS Medical Products Co.
to the Company which the Principal Stockholders assumed pursuant to the
Liability Assumption and Asset Assignment Agreement made as of January 12, 1998,
by and among DS Medical Products Co., Ken M. Davee, David H. Sanders and Katarow
(the "Liability Assumption Agreement").
7.3 Additional Conditions to Obligations of the Company. The obligation
of the Company to effect the Merger is subject to the satisfaction of each of
the following conditions, any of which may be waived, in writing, exclusively by
the Company:
(a) Representations and Warranties. Each of the representations and
warranties of Buyer and Merger Sub set forth in this Agreement that is qualified
by materiality shall be true and correct at and as of the Closing Date as if
made at and as of the Closing Date, and each of such representations and
warranties that is not so qualified shall be true and correct in all material
respects at and as of the Closing Date as if made at and as of the Closing Date,
in each case except as contemplated by this Agreement, and the Company shall
have received a certificate signed on behalf of Buyer by an officer of Buyer to
such effect.
(b) Performance of Obligations. Buyer and Merger Sub shall have
performed in all material respects all obligations required to be performed by
them under this Agreement at or prior to the Closing Date, and the Company shall
have received a certificate signed on behalf of Buyer by an officer of Buyer to
such effect.
(c) Adverse Proceedings. No action or proceeding by or before any
court or other governmental body shall have been instituted or threatened by any
governmental body or other person or entity which seeks to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might
materially adversely affect the right of the Stockholders to consummate the
Merger or to own, operate or control the Company, or which might subject the
Company or the Stockholders to any material liability after the Closing.
-46-
74
ARTICLE VIII
Indemnification
8.1 Obligations of the Principal Stockholders to Indemnify. The Principal
Stockholders jointly and severally (subject to Section 8.2(e) below) agree to
indemnify and hold harmless Buyer against any damages, losses, obligations,
liabilities, claims, actions, causes of action, costs or expenses (collectively,
"Damages") sustained or suffered by Buyer and arising from (a) a breach of any
representation, warranty or covenant of the Company or the Principal
Stockholders contained in or made pursuant to this Agreement, (b) a breach of
any representation or warranty contained in Section 3.8 or Section 3.20, without
regard to the disclosures contained in Items 1,2,5 and 6 of Schedule 3.8(a) to
this Agreement and without regard to the disclosure contained in Item 1 of
Schedule 3.20 to this Agreement, (c) (i) any obligation to pay to Katarow the
Bonus Payment (as defined in the Employment Agreement), including any tax
liability relating to such payment, other than the obligation of the Company to
provide that portion of the Bonus Payment contemplated by Sections 5(a) and 5(b)
of the Employment Agreement and (ii) any determination by applicable authorities
that such payment by the Company is not deductible by the Company under Section
280G of the Code and (d) any and all Damages incident to any of the foregoing or
the enforcement of this Section 8.1. Buyer and Merger Sub hereby acknowledge and
agree that their sole recourse to the Principal Stockholders for indemnification
pursuant to this Section 8.1 (other than for Damages sustained or suffered by
Buyer arising from a breach of the representations and warranties contained in
Section 3.20 hereof) is and shall be limited to those funds held in the Escrow
Account.
8.2 Limitations on Indemnification. Notwithstanding the provisions of
Section 8.1 above:
(a) The Principal Stockholders shall have no liability under
Section 8.1 for claims made by Buyer: (i) with respect to matters described in
Section 3.20 or subject to indemnification under 8.1(c), beyond the applicable
statutes of limitations; (ii) with respect to matters described in Section 3.18,
after the third anniversary of the Closing Date; and (iii) for all other claims,
after the two (2) year anniversary of the Closing Date.
(b) Except as provided in Section 8.2 (c) below:
(i) the Principal Stockholders shall not be obligated to Buyer
under Section 8.1 except to the extent that the aggregate amount of Damages
suffered by Buyer exceed $400,000 (on an "after-tax" basis to Buyer) (the
"Threshold"), and
(ii) in the event that the aggregate Damages suffered by Buyer
exceed the Threshold, Buyer shall be entitled to recover the amount of such
Damages in excess of $250,000 (on "after-tax" basis to Buyer). In this Section,
"after tax" means the net amount of Damages suffered by Buyer or its affiliates
after taking into account any tax deduction which has been allowed by a relevant
revenue or taxing authority or which the Buyer (or such affiliate) has been
advised by
-47-
75
Buyer's Accountants ought to be so deductible or would otherwise be treated by
Buyer in the ordinary course of business as a deductible item.
(c) Without prejudice to the generality of Section 8.2(b), the
Principal Stockholders shall be obligated to Buyer under Section 8.1 for the
whole of any claim pursuant to Section 3.7(b), or subject to indemnification
under Section 8.1(c), without the application of any threshold or deductible or
after tax calculation.
(d) The maximum aggregate liability of the Principal Stockholders to
Buyer under Section 8.1 shall be limited to the Escrow Amount.
(e) Claims by the Buyer for Damages sustained or suffered by Buyer
arising from a breach of the representations and warranties contained in Section
3.20 or subject to indemnification under Section 8.1(c), shall, until the
termination of the Escrow Account on the third anniversary of the Closing Date,
be limited to funds held in the Escrow Account. Such Claims made after the third
anniversary of the Closing Date will thereupon be limited to the amount of the
Escrow Funds released to each Principal Stockholder upon termination of the
Escrow Agreement, and the liability of each Principal Stockholder shall be
several but not joint.
(f) The Buyer and the Company will use commercially reasonable
efforts to make claims under their respective insurance policies for any actions
or circumstances giving rise to rights to indemnification hereunder. If the
Buyer or the Company recovers any amount under its insurance policies in respect
of any matter for which Buyer has already been fully indemnified by the
Principal Stockholders (such insurance recovery being hereafter termed the
"Insurance Proceeds"), Buyer shall pay to the Principal Stockholders
seventy-five percent (75%) of the Insurance Proceeds on an after tax basis. The
obligation of the Company and the Buyer under this Section 8.2(f) shall not
constitute cause for the Principal Stockholders to delay indemnification under
this Article VIII.
8.3 Claims for Indemnification.
(a) Whenever any claim shall arise for indemnification under this
Article VIII (a "Claim"), the party seeking indemnification (the "Indemnified
Party") shall promptly give written notice of the Claim (a "Claim Notice") to
the party from whom indemnification is sought (the "Indemnifying Party") and, if
such Claim is made by the Buyer, to the Escrow Agent and the Stockholders'
Representative on behalf of the Principal Stockholders; provided, however, that
failure to provide such notice shall discharge the Indemnifying Party from its
liabilities and obligations hereunder only if and to the extent that the
Indemnifying Party is actually prejudiced thereby. Such Claim Notice shall be
given in accordance with the requirements of the Escrow Agreement and Section
10.9 hereof and shall include the facts constituting the basis for such Claim
and, if known, the amount or an estimate of the amount of the liability arising
therefrom. The thirty (30)-day period immediately following the date on which
the Indemnified Party delivers the Claim Notice to the Indemnifying Party is
referred to herein as the "Claim Response Period."
-48-
76
(b) If the matter to which a Claim relates shall not have been
resolved as of the date of the Claim Notice, the Indemnified Party shall include
with the estimate of the amount of the Claim in the Claim Notice a statement
therein that the Claim has not yet been liquidated (an "Unliquidated Claim"). As
to any Claim Notice for an Unliquidated Claim, the Indemnified Party shall also
give a second Claim Notice within thirty (30) days after the matter giving rise
to the Claim becomes finally resolved, and such second Claim Notice shall
specify the amount of the Claim. The thirty (30)-day period immediately
following the date on which the Indemnified Party gives such a second Claim
Notice is referred to herein as the "Liquidated Claim Response Period."
(c) If the Indemnified Party (and, as to any Claim by the Buyer
seeking payment from the Escrow Account, the Escrow Agent) shall not have
received a written objection to a Claim from the Indemnifying Party prior to the
end of the Claim Response Period, or in the case of an Unliquidated Claim, prior
to the end of the Liquidated Claim Response Period, the Claim shall be
conclusively presumed to have been approved by the Indemnifying Party for the
purposes of this Agreement, and the amount of the Claim shall become due and
payable, and, in the case of any payment from the Escrow, shall be paid by the
Escrow Agent from the Escrow Funds together with any investment proceeds
attributable to such Escrow Funds, as provided in the Escrow Agreement.
(d) If during the Claim Response Period or the Liquidated Claim
Response Period, as the case may be, the Indemnifying Party shall provide a
written objection to a Claim Notice, then the Indemnifying Party and the
Indemnified Party shall endeavor to resolve the Claim, and, if such Claim is
made by the Buyer seeking payment from the Escrow Account, upon resolution, to
issue a joint written direction to the Escrow Agent in respect to the Claim at
issue.
8.4 Claims Relating to Section 3.7(b).
(a) Draft Net Worth Statement. As soon as practicable, but in
any event within one hundred twenty (120) calendar days after the Closing Date,
Buyer shall deliver to David H. Sanders (the "Stockholders' Representative"), an
unaudited net worth statement (and the related worksheets, working papers, notes
and schedule thereto) of the Company prepared in accordance with SCHEDULE 3.7(b)
as of the Closing Date (the "Draft Net Worth Statement").
(b) Review by Stockholders' Accountants. As soon as practicable, but
in any event within thirty (30) calendar days of receipt of the Draft Net Worth
Statement (and the related worksheets, working papers, notes and schedules
thereto), representatives of the Milwaukee, Wisconsin office of
PricewaterhouseCoopers (the "Stockholders' Accountants") shall review the Draft
Net Worth Statement related worksheets, working papers, notes and schedules
thereto). The Stockholders' Accountants shall provide the Stockholders'
Representative, with a copy to Buyer, a report indicating their agreement or
objections to the Draft Net Worth Statement. Any such objections shall be set
forth in reasonable detail and shall indicate the grounds upon which the
Stockholders' Accountants dispute that the Draft Net Worth Statement has been
drawn up in accordance with the rules set forth on SCHEDULE 3.7(b) (the
"Objections Report").
-49-
77
(c) Cooperation. During the period of review by the Stockholders'
Accountants of the Draft Net Worth Statement and the period of any dispute
referred to in Section 8.4(d) below, Buyer shall provide the Stockholders'
Representative and the Stockholders' Accountants full access to the books,
records, facilities and employees of Buyer, the Surviving Corporation and its
successors, if any, as such relate or are applicable to the preparation of the
Net Worth Statement, and shall cooperate fully with the Stockholders'
Representative and the Stockholders' Accountants, in each case to the extent
required by the Stockholders' Representative and the Stockholders' Accountants
in order to review the Draft Net Worth Statement; provided, however, that such
preparation shall be conducted in such a manner as not to interfere unreasonably
with the Surviving Corporation and (ii) Buyer shall not be required to supply
the Stockholders' Representative with any information which Buyer shall be under
a legal obligation not to supply, so long as Buyer provides the Stockholders'
Representative or the Stockholders' Accountants with a written explanation as to
why it is under a legal obligation not to supply such information, and so long
as such information is not required to complete the preparation of an accurate
and complete Net Worth Statement.
(d) Agreement on Net Worth Statement.
(i) Within fifteen (15) business days of the receipt by the
Stockholders' Representative and Buyer of the Objections Report, the
Stockholders' Representative and Buyer shall endeavor to agree on any matters in
dispute.
(ii) If Buyer and the Stockholders' Representative are unable to
agree on any matters in dispute within fifteen (15) business days after receipt
of the Objections Report, the matters in dispute will be submitted for
resolution to the Chicago, Illinois office of Ernst & Young LLP or such other
independent accounting firm of national reputation as may be mutually acceptable
to the Stockholders' Representative and Buyer (the "Independent Accounting
Firm"), which Independent Accounting Firm shall review such submissions based
solely upon the Draft Net Worth Statement, the Objections Report and the related
worksheets, working papers, notes and schedules thereto submitted to it by the
parties. The Independent Accounting Firm shall within thirty (30) calendar days
of such submission determine and issue a written report to the Stockholders'
Representative and Buyer relating to such disputed items, and such written
decision shall be final and binding upon the parties. The Stockholders'
Representative and Buyer agree to co-operate with each other and each other's
representatives to enable the Independent Accounting Firm to render a written
decision as promptly as possible. The fees and disbursements of the Independent
Accounting Firm shall be paid by Buyer. Thereafter, the Principal Stockholders
shall promptly reimburse Buyer for a portion of the fees and disbursements of
the Independent Accounting Firm in an amount equal to one-half of Buyer's cost
of such fees and disbursements.
(iii) The net worth statement incorporating the resolution of
matters in dispute (if any) is referred to as the "Net Worth Statement." "Net
Worth" shall mean the total of all assets of the Company and its Subsidiaries
less the total of all Liabilities of the Company and its Subsidiaries shown in
the Net Worth Statement, and "Cash" shall mean all the cash and cash
-50-
78
equivalents of the Company and its Subsidiaries on the Closing Date as shown in
the Net Worth Statement after deduction of any cash and cash equivalents
included in or payable by the Company to the Katarow Employment Trust.
(iv) The Net Worth Statement shall have the legal effect of an
arbitral award and shall be final, binding and conclusive on the parties hereto.
Buyer shall be entitled to indemnification to the extent available under Section
8.1 hereof on a dollar-for-dollar basis to the extent that the Net Worth is less
than the amount stated in the representation in Section 3.7(b).
(v) In acting under this Agreement, the Stockholders' Accountants,
Buyer's accountants and the Independent Accounting Firm shall be entitled to the
privileges and immunities of arbitrators.
8.5 Defense by the Indemnifying Party. In connection with any claim by a
third party which may give rise to indemnity hereunder, the Indemnifying Party,
at its sole cost and expense, may, upon written notice to the Indemnified Party
within fifteen (15) days after the date a claim is made, assume the defense of
any such claim or legal proceeding if the Indemnifying Party acknowledges in
writing its indemnification obligations with respect to such claim. If the
Indemnifying Party assumes the defense of any such claim or legal proceeding,
the Indemnifying Party shall select counsel reasonably acceptable to the
Indemnified Party to conduct the defense of such claims or legal proceedings and
shall take all steps necessary in the defense or settlement thereof. The
Indemnifying Party shall not consent to a settlement of, or the entry of any
judgment arising from, any such claim or legal proceeding, without the prior
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld or delayed). The Indemnified Party shall be entitled to
participate in (but not control) the defense of any such action, with its own
counsel and at its own expense.
8.6 Survival of Representations and Warranties. The representations of each
of the Company, the Principal Stockholders, Buyer and Merger Sub will survive
the Closing until, and will expire upon, the termination of the indemnification
obligations as provided in this Article VIII.
8.7 Right to Recover from Escrow Account. As more fully set forth in the
Escrow Agreement, Buyer shall have the right to recover, in whole or in part,
from the Escrow Account, amounts finally determined to be owed to Buyer by the
Principal Stockholders under this Article VIII.
8.8 Obligations of Buyer and Merger Sub to Indemnify. Buyer and Merger Sub
jointly and severally agree to indemnify and hold harmless the Company, its
Subsidiaries, the Principal Stockholders, David H. Sanders (both individually
and in his capacity as the Stockholders' Representative) and all of the persons
who as of the Closing are the officers and directors of the Company and the
Subsidiaries from and against all Damages sustained or suffered by any of them
and arising or resulting from or having been incurred with respect to: (a) a
breach of any
-51-
79
representation, warranty or covenant of Buyer or Merger Sub contained in or made
pursuant to this Agreement; (b) the ownership, conduct or operation of the
business of the Surviving Corporation or any other business of Buyer or Merger
Sub on and after the Closing Date, including, without limitation, any Damages
resulting from or in any way relating to environmental, employee, antitrust or
product warranty liability of any kind (provided, that Buyer and Merger Sub
shall not indemnify any of the Company, the Subsidiaries, the Principal
Stockholders, David H. Sanders or the officers and directors of the Company and
the Subsidiaries for any such Damages if the Principal Stockholders are required
to indemnify Buyer or Merger Sub for such Damages pursuant to Section 8.1); and
(c) any and all Damages incident to any of the foregoing or the enforcement of
this Section 8.8. Additionally, Buyer and Merger Sub jointly and severally agree
to indemnify and hold harmless all of the officers and directors of the Company
and the Subsidiaries from and against all Damages sustained or suffered by any
of them in connection with any claim, action, suit, proceeding or investigation,
based in whole or in part on the fact that such person is or was such an officer
or director and arising out of actions or omissions occurring at or prior to the
Effective Time to the fullest extent permitted under Delaware Law (provided,
that Buyer and Merger Sub shall not indemnify any of the officers and directors
of the Company or the Subsidiaries for any such Damages if the Principal
Stockholders are required to indemnify Buyer or Merger Sub for such Damages
pursuant to Section 8.1), and Buyer and Merger Sub jointly and severally agree
to pay expenses in advance of the final disposition of any such action or
proceeding to each officer and director to the fullest extent permitted under
Delaware Law (provided, that each officer and director to whom expenses are
advanced deliver to Buyer an undertaking to repay such advances as contemplated
by Delaware Law).
ARTICLE IX
Termination
9.1 Termination Events. Anything herein to the contrary notwithstanding,
this Agreement and the consummation of the transactions contemplated hereby may
be terminated at any time prior to the Closing Date as follows, and in no other
manner:
(a) By the mutual written consent of Buyer, the Principal
Stockholders and the Company;
(b) By Buyer or by the Company if the Merger shall not have been
consummated by February 28, 1999 (provided, however, that the right to terminate
this Agreement under this Section 9.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of or resulted in the failure of the Merger to occur on or before such date); or
-52-
80
(c) By Buyer or by the Company if any representation or warranty made
herein for the benefit of Buyer or the Company, respectively, or in any
certificate, schedule or documents furnished to Buyer or the Company and the
Principal Stockholders, respectively, pursuant to this Agreement is untrue in
any material respect or Buyer or the Company and the Principal Stockholders,
respectively, shall have defaulted in any material respect in the performance of
any material obligation under this Agreement.
(d) By Buyer if the Merger is not consummated because the Company,
through its Board of Directors, has approved a merger, consolidation, business
combination with, or the acquisition of, the Company or its assets by any other
person or entity, or has resolved to do any of the foregoing after the date
hereof.
9.2 Fees and Expenses. In the event that this Agreement shall be
terminated pursuant to the terms of this Article IX, all further obligations of
the parties hereto under this Agreement shall terminate without further
liability of any party to the other, and each party hereto will pay all costs
and expenses incident to its negotiation and preparation of this Agreement and
to its performance of and compliance with all agreements and conditions
contained herein, including, without limitation, the fees, expenses and
disbursements of its counsel; provided, that nothing herein shall relieve a
breaching or defaulting party for liability arising from any breach or default
by it hereunder. In the event this Agreement is terminated by Buyer or the
Company pursuant to Section 9.1(b) or (c) hereof as the result of a circumstance
other than acts of God, war, revolution, invasion, insurrection, riots, mob
violence, sabotage or other civil disorders, and the terminating party is not in
material breach of its covenants and agreements contained in this Agreement or
its representations and warranties contained in this Agreement, the
non-terminating party shall reimburse the terminating party for all
out-of-pocket expenses (other than travel-related expenses) and fees actually
incurred or accrued by the terminating party or on its behalf in connection with
the transactions contemplated by this Agreement up to $200,000 in the aggregate.
In the event this Agreement is terminated pursuant to Section 9.1(d), the
Company shall pay Buyer promptly (but in no event later than three (3) business
days after such event shall have occurred) a fee of $5,000,000, which amount
shall be payable in immediately available funds, plus all costs and expenses of
Buyer in an aggregate amount not to exceed $200,000.
ARTICLE X
Miscellaneous
10.1 Expenses.
-53-
81
(a) Subject to Section 9.2 hereof, the Company shall pay all costs
and expenses (including, without limitation, attorneys' fees and other legal
costs and expenses and accountants' fees and other accounting costs and
expenses) incurred by the Company or Katarow in connection with the Company's
participation in this Agreement and the Merger including costs and expenses
incurred in connection with the preparation and negotiation of all documents and
agreements to which the Company, the Principal Stockholders or Katarow is
required to be a party in order to accomplish the Merger and the transactions
contemplated by this Agreement.
(b) Subject to Section 9.2 hereof, Buyer and Merger Sub shall pay
all of their costs and expenses (including, without limitation, attorneys' fees
and other legal costs and expenses and accountants' fees and other accounting
costs and expenses) in connection with this Agreement and the Merger. Such costs
and expenses shall further include, without limitation, all costs and expenses
incurred in connection with any filings made by any party hereto pursuant to or
in connection with the HSR Act.
10.2 Amendments. Subject to applicable law, this Agreement may be amended
in a writing executed by all of the parties hereto at any time prior to the
Closing Date; provided, however, that after the approval and adoption of this
Agreement and the Merger by the Stockholders, no amendment may be made that
would reduce the amount or change the type of consideration into which the
Company Common Stock shall be converted upon consummation of the Merger.
10.3 Entire Agreement. This Agreement (together with the other agreements,
instruments and documents delivered pursuant hereto) constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated herein, and supersedes all prior agreements and understandings,
whether written or oral, between the parties with respect to the subject matter
of this Agreement.
10.4 Pre-Closing Publicity. Subject to the obligations of the parties
hereto imposed by applicable securities laws or rules of stock exchanges, prior
to the public announcement by the Company or Buyer of the execution hereof and
the expected closing of the transactions contemplated hereby, notices to third
parties and all other publicity relating to the transactions contemplated by
this Agreement shall be jointly planned, coordinated and approved by Buyer and
the Company; provided, that such approval shall not be unreasonably withheld.
10.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which,
together, shall constitute one and the same instrument.
10.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.
Neither Buyer nor the Company may assign or transfer any of its rights or
obligations under this Agreement, except with the prior
-54-
82
written consent of the other party; provided, however, that Buyer may assign its
rights hereunder to an affiliate of Buyer.
10.7 Headings. The headings of the various Sections and Articles of this
Agreement have been inserted only for convenience and shall not be deemed to
modify, explain, enlarge or restrict any of the provisions of this Agreement.
10.8 Governing Law. The validity, interpretation and effect of this
Agreement shall be governed exclusively by the laws of the State of Delaware,
without regard to the "conflict of laws" rules of that state.
10.9 Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and delivered in person, sent by telecopy or
sent by registered or certified mail, postage prepaid, and properly addressed as
follows:
To the Company or the Principal Stockholders:
Prior to the Closing Date:
Biochem International Inc.
N 7 W 22025 Johnson Road
Waukesha, Wisconsin 53186
Attention: David H. Sanders, Chairman
Fax: (00)1 414 542 2301
Telephone: (00)1 414 542 3100
Following the Closing Date:
David H. Sanders
1801 West Princeton Court
Lake Forest, Illinois 60045
Fax: (847) 283-0049
Telephone: (847) 295-0411
With Copy To:
Holleb & Coff
55 East Monroe Street, Suite 4100
Chicago, IL 60603-5896
Attention: Stephen A. Marcus
Fax: (312) 807-3900
Telephone: (312) 807-4600
-55-
83
To Smiths, Buyer or Merger Sub:
Smiths Industries, Inc.
c/o Smiths Industries PLC
765 Finchley Road
Childs Hill
London NW11 8DS
Attention: Alan Smith, Secretary
Fax: 081-201-8041
Telephone: 081-458-3232
With Copy To:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
Attention: Michael J. Pedrick, Esq.
Fax: (215) 963-5299
Telephone: (215) 963-4808
Any party may from time to time change its address for the purpose of
notices to that party by a similar notice specifying a new address, but no such
change shall be deemed to have been given until it is actually received by the
party sought to be charged with its contents.
All notices and other communications required or permitted under this
Agreement which are addressed as provided in this Section 10.9 if delivered
personally or sent by telecopy, shall be effective upon delivery, and if
delivered by mail, shall be effective two (2) days following deposit in the
United States mail, postage prepaid.
10.10 U.S. Dollars. All amounts expressed in this Agreement and all
payments required by this Agreement are in United States dollars. If any amount
to be paid hereunder is expressed in an amount expressed in another currency, it
will then be converted into U.S. dollars at the relevant exchange rate published
in the Wall Street Journal on the business day immediately preceding the day on
which payment is due.
10.11 Waiver. The failure by any party to this Agreement at any time or
times to require performance of any provision hereof shall in no manner affect
such party's right at a later time to enforce the same. No waiver by any party
of any condition, or of the breach of any term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be construed as a waiver of any such condition or of
a breach or waiver of any other condition or of a breach of any other term,
covenant, representation or warranty of this Agreement.
-56-
84
[SIGNATURE PAGE FOLLOWS]
-57-
85
IN WITNESS WHEREOF, the undersigned have executed this Agreement and
Plan of Reorganization as of the day and year first above written.
SMITHS INDUSTRIES, INC.
By: /s/ Walter E. Orme
-----------------------------
Title: Assistant Secretary
-----------------------------
BCI MERGER CORP.
By: /s/ Mr. G. M. Kennedy
-----------------------------
Title:
-----------------------------
BIOCHEM INTERNATIONAL INC.
By: /s/ David H. Sanders
-----------------------------
Title:
-----------------------------
PRINCIPAL STOCKHOLDERS:
/s/ Ruth Dunbar Davee
---------------------------------
Ruth Dunbar Davee, as Successor
Trustee of the Ken M. Davee Trust U/A dated
August 16, 1990
/s/ David H. Sanders
---------------------------------
David H. Sanders, Trustee of the
David H. Sanders Revocable Trust U/A
dated April 9, 1982
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
-58-
P
86
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
The undersigned hereby guarantees the obligations of
Smiths Industries, Inc. and BCI Merger Corp. to pay
the Purchase Price and the Option Payment, to perform
under Section 2.4 and to provide indemnification
pursuant to Section 8.8
SMITHS INDUSTRIES PLC
By: /s/ Mr. G. M. Kennedy
Title: Director
The undersigned hereby acknowledges his agreement
with, and agrees to be bound by, the provisions of
Article VI
/s/ David H. Sanders
----------------------------
David H. Sanders, personally
-59-
87
Exhibit A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of the [____] day of
__________, 1998 by and among Smiths Industries, Inc., a Florida corporation
(the "Buyer"), David H. Sanders, Trustee of the David H. Sanders Revocable Trust
U/A dated April 9, 1982, and Ruth Dunbar Davee, Successor Trustee of the Ken M.
Davee Trust U/A dated August 16, 1990 (the "Principal Stockholders"), and
American National Bank and Trust Company of Chicago (the "Escrow Agent").
Background
The Buyer, BCI Merger Corp., a Delaware corporation and a wholly-owned
subsidiary of the Buyer, the Principal Stockholders and Biochem International
Inc. ("Biochem") are parties to an Agreement and Plan of Reorganization, dated
October 9, 1998 (the "Merger Agreement"), pursuant to which BCI Merger Corp. and
Biochem will merge, resulting in the ownership by the Buyer of all of the issued
and outstanding shares of capital stock of Biochem.
This Agreement is the Escrow Agreement referred to in Section 2.5 of the
Merger Agreement. Unless otherwise defined herein, terms are used herein as
defined in the Merger Agreement.
Witnesseth:
NOW, THEREFORE, the parties hereto, each intending to be legally bound
hereby, and in consideration of the mutual covenants herein and in the Merger
Agreement, agree as follows:
1. Incorporation of Terms of Merger Agreement. The provisions of the
Merger Agreement, a conformed copy of which has been delivered to the Escrow
Agent, are hereby incorporated herein by reference, but only as the context of
this Agreement may require.
2. Appointment of Agent. The Principal Stockholders and the Buyer hereby
designate and appoint the Escrow Agent their agent hereunder to serve in
accordance with the terms and conditions of this Agreement. The Escrow Agent
hereby accepts such appointment and agrees to act as such agent in accordance
with such terms and conditions.
1
88
3. Appointment of Stockholders Representative.
(a) The Principal Stockholders each hereby designate and appoint
David H. Sanders as their representative (the "Stockholders' Representative")
hereunder to serve in accordance with the terms and conditions of this
Agreement, and the Stockholders Representative hereby accepts such appointment.
In the event of the death, resignation or incapacity of the Stockholders
Representative, the Principal Stockholders or their respective successors and
assigns shall promptly designate another individual to act as their
representative under this Agreement.
(b) The Principal Stockholders hereby authorize the Stockholders
Representative to (i) receive all notices or documents given by the Buyer or the
Escrow Agent pursuant hereto or in connection herewith and to receive and accept
service of process in connection with any suit or proceeding arising under this
Agreement, (ii) deliver all documents and certificates to be delivered by
Stockholders Representative or the Principal Stockholders hereunder, (iii) take
such actions on behalf of the Principal Stockholders as the Stockholders
Representative may deem appropriate to consummate this Agreement and the
transactions contemplated hereby and to make all determinations on behalf of the
Principal Stockholders required under this Agreement.
(c) The Buyer shall not be obligated to inquire into the authority
of the Stockholders Representative, and the Buyer shall be fully protected in
dealing with the Stockholders Representative in good faith.
4. Escrowed Funds and Investment Proceeds.
(a) Contemporaneously with the execution of this Agreement, the
Buyer is delivering to the Escrow Agent by wire transfer the amount of
$7,000,000, made payable to the order of the Escrow Agent (the "Escrowed
Funds"). The Escrow Agent shall maintain physical custody of the Escrowed Funds
and any investment proceeds therefrom (the "Investment Proceeds") and shall have
discretion, subject to the joint direction of the Buyer and the Stockholders
Representative and consent of the Escrow Agent, to invest the Escrowed Funds and
any Investment Proceeds in (i) short-term certificates of deposit of national
banks having capital, surplus and undivided profits totaling at least $100
million, but only to the extent that each such certificate of deposit is
fully-insured by an agency of the United States, (ii) short-term obligations of
or guaranteed by the United States, (iii) a money market fund that invests
solely in obligations of the United States, (iv) shares of open-end investment
companies that invest solely in obligations of the United States, or (v) such
other investments as the parties may agree; provided, however, that the Escrow
Agent shall not invest the Escrowed Funds or Investment Proceeds in any
investment that would not allow for disbursement at the time of termination of
this Escrow Agreement pursuant to Section 6 below.
2
89
(b) The Escrow Agent shall hold the Escrowed Funds and the
Investment Proceeds as a fund separate and apart from any other fund or account
maintained by the Escrow Agent, and the Escrowed Funds and the Investment
Proceeds shall not be subject to lien or attachment by any creditor of any party
hereto and shall be used solely for the purposes and subject to the conditions
set forth in this Agreement.
(c) The Investment Proceeds shall be allocated for income tax
purposes to the Principal Stockholders in accordance with the percentages listed
on Schedule A. Within thirty days following the end of each calendar quarter,
the Escrow Agent shall distribute to the Principal Stockholders an amount equal
to 45% of the income for the immediately preceding calendar quarter allocated
for income tax reporting purposes. The Principal Stockholders shall promptly
pay when due all federal, state and local taxes accruing on the Investment
Proceeds allocated to such Principal Stockholders. Upon request of the Escrow
Agent, the Principal Stockholders shall provide evidence of the payment of all
such taxes.
5. Claims under Merger Agreement.
(a) If the Buyer shall make a claim for indemnification under the
Merger Agreement (a "Claim"), the Buyer shall give written notice of the claim
(a "Claim Notice") to the Escrow Agent and the Stockholders Representative on
behalf of the Principal Stockholders in accordance with the requirements of the
Merger Agreement and Section 10 hereof. The 30-day period immediately following
the date on which the Buyer gives the Claim Notice to the Stockholders
Representative is referred to herein as the "Claim Response Period."
(b) If the matter to which a Claim relates shall not have been
resolved (as provided in the Merger Agreement) as of the date of the Claim
Notice, the Buyer shall include an estimate of the amount of the Claim in the
Claim Notice, along with a statement therein that the Claim has not yet been
liquidated (an "Unliquidated Claim"). If the Buyer gives a Claim Notice for an
Unliquidated Claim, the Buyer shall also give a second Claim Notice within 30
days after the matter giving rise to the Claim becomes finally resolved, and
such second Claim Notice shall specify the amount of the Claim. The 30-day
period immediately following the date on which the Buyer gives such a second
Claim Notice to the Stockholders Representative is referred to herein as the
"Liquidated Claim Response Period."
(c) If the Escrow Agent shall not have received a written objection
to a Claim from the Stockholders Representative prior to the end of the Claim
Response Period, or in the case of an Unliquidated Claim, prior to the end of
the Liquidated Claim Response Period, the Claim shall be conclusively presumed
to have been approved for the purposes of this Agreement by the Principal
Stockholders, and the Escrow Agent shall then pay over to the Buyer the amount
set forth in the applicable Claim Notice from the Escrowed Funds together with
any Investment Proceeds attributable to such Escrowed Funds which have not
theretofore been paid to the Principal Stockholders.
3
90
(d) If during the Claim Response Period or the Liquidated Claim
Response Period, as the case may be, the Escrow Agent receives from the
Stockholders Representative a written objection to a Claim Notice, then the
Stockholders Representative and the Buyer shall endeavor to resolve the claim,
and upon resolution, to issue a joint written direction to the Escrow Agent in
respect to the claim in issue. The Escrow Agent shall act in accordance with a
written direction from the Stockholders Representative and the Buyer if and when
issued. If no such joint written direction is delivered by the Stockholders
Representative and the Buyer to the Escrow Agent, the Escrow Agent may release
the Escrowed Funds and any Investment Proceeds attributable thereto upon receipt
of a court order directing that the Escrowed Funds together with any Investment
Proceeds attributable thereto be released in a specified manner.
6. Reduction and Termination of Escrow.
(a) On the second anniversary of the Closing Date, the Escrow Agent
shall deliver to the Principal Stockholders such part, if any, of the First
Remaining Escrowed Funds as shall exceed $3,500,000 together with any Investment
Proceeds attributable thereto. In this Section, "First Remaining Escrowed
Funds" shall mean the Escrowed Funds, if any, which remain in the Escrow Account
at the second anniversary of the Closing Date after deduction of any portion of
those Escrowed Funds that is equal to (i) any amounts already claimed by the
Buyer under any Claims pursuant to Section 5 above, being Claims that are
unresolved at that time (together with any Investment Proceeds attributable
thereto which have not theretofore been paid to the Principal Stockholders) and
(ii) the estimated amounts of any Unliquidated Claims (together with the
Investment Proceeds attributable thereto which have not theretofore been paid to
the Principal Stockholders). If the First Remaining Escrowed Funds are less
than $3,500,000, they shall be retained in the Escrow Account, and no delivery
as aforesaid shall be made to the Principal Stockholders.
(b) On the third anniversary of the Closing Date, the Escrow Agent
shall deliver the remaining Escrowed Funds, if any, together with any Investment
Proceeds attributable thereto, to the Principal Stockholders, except that if a
Claim under Section 5 is unresolved at that time, a portion of the Escrowed
Funds that is equal to any such outstanding Claim (together with corresponding
Investment Proceeds which have not theretofore been paid to the Principal
Stockholders), or the estimated amount in the case of an Unliquidated Claim
(together with corresponding Investment Proceeds which have not theretofore been
paid to the Principal Stockholders), shall continue to be held until the
resolution of the Claim in accordance with this Agreement. Upon delivery of all
the Escrowed Funds and Investment Proceeds to the Principal Stockholders or to
the Buyer pursuant to Section 5 above or this Section 6(b), the Escrow Account
shall be closed, and this Escrow Agreement will thereupon terminate.
7. Expenses. All expenses and fees (including attorneys' fees and costs)
of the Escrow Agent shall be paid in equal amounts by the Buyer, on the one
hand, and the Principal Stockholders, on the other hand. The Principal
Stockholders and the Buyer shall bear their own
4
91
expenses in connection with the resolution of any Claim or other dispute with
respect to this Agreement, except as may be provided in the Merger Agreement.
8. Liability of Escrow Agent.
(a) In performing any of its services under this Agreement, the
Escrow Agent shall not incur any liability to anyone for damages, loss or
expenses, except for damages, loss or expenses resulting from its willful
misconduct or gross negligence, and the Buyer and the Principal Stockholders
hereby indemnify Escrow Agent for any costs, including attorneys' fees and
costs, incurred in defending any claim against Escrow Agent arising out of this
Agreement.
(b) If a dispute arises between or among any of the parties to this
Agreement, then notwithstanding anything to the contrary herein, the Escrow
Agent shall be entitled, at its option and upon giving notice to the Buyer and
the Stockholders Representative, to tender into the custody of any federal court
of competent jurisdiction all funds and all materials that the Escrow Agent may
be holding under this Agreement and to begin such legal proceedings as the
Escrow Agent deems appropriate. After taking such actions, the Escrow Agent
shall then be discharged from any further duties and liability under this
Agreement except to the extent of any prior willful misconduct or gross
negligence of the Escrow Agent.
9. Resignation and Removal of Escrow Agent. The Escrow Agent may resign
at any time and for any reason upon notice to the Buyer and the Stockholders
Representative given at least 30 days prior to the effective date of such
resignation. During such 30-day period, the Stockholders Representative and the
Buyer shall endeavor to agree upon a successor Escrow Agent. If the
Stockholders Representative and the Buyer fail to agree on a successor Escrow
Agent within such 30-day period, the Escrow Agent shall deliver the funds and
all materials that it may then be holding to a court in accordance with Section
8(b) above. If the Escrow Agent becomes unable to fulfill its duties hereunder,
or if for any reason, the Stockholders Representative and the Buyer jointly
desire to remove the Escrow Agent hereunder, the Stockholders Representative and
the Buyer may jointly appoint a successor Escrow Agent for the purposes of this
Agreement. Upon the appointment of any successor Escrow Agent under this
Agreement, the successor Escrow Agent shall have all the rights, duties and
powers that applied to the original Escrow Agent hereunder and the original
Escrow Agent shall remit the Escrowed Funds and Investment Proceeds then held by
it to the successor Escrow Agent.
10. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if sent by registered or certified mail,
postage prepaid, by hand or by a reputable nationwide overnight express service,
addressed, if to the Buyer to Smiths Industries plc, 765 Finchley Road, London
NW11 8DS, England, Attention: Alan Smith, Telecopy: 011-44-181-458-8412, with a
copy to: Morgan, Lewis & Bockius LLP, 2000 One Logan Square, Philadelphia, PA
19103-6993, Attention: Michael J. Pedrick, Esquire, Telecopy: 215-963-5299; and
if to the Stockholders Representative or the Principal Stockholders, to David H.
Sanders, 1801 West Princeton Court, Lake Forest, Illinois 60045, Telecopy:
847-283-0049, with a copy to
5
92
Holleb & Coff, 55 East Monroe Street, Suite 4100, Chicago, Illinois 630603,
Attention: Stephen A. Marcus, Telecopy: 312-807-3900; or such other address as
shall be furnished in writing by a party, and any such notice or communication
shall be deemed to have been given as of the date personally given or the date
so mailed (except that a notice of change of address shall not be deemed to have
been given until received by the addressee).
11. General Terms.
(a) This Agreement shall be construed and enforced in accordance
with the laws of the State of Delaware.
(b) The parties hereto agree to execute and deliver any and all
papers and documents necessary to complete the actions contemplated hereby.
(c) This Agreement shall be binding upon the parties hereto and
their respective successors and assigns.
(d) This Agreement, together with the Merger Agreement, contains the
entire Agreement among the parties hereto with respect to the subject matter of
this Agreement. This Agreement may not be amended or revised except by a
written instrument signed by all the parties hereto.
(e) This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
hereto and delivered to each of the other parties hereto.
(f) Unless the context of this Agreement clearly requires otherwise,
(i) references to the plural include the singular, the singular the plural, the
part the whole, (ii) "or" has the meaning frequently identified with the phrase
"and/or" and (iii) "including" has the inclusive meaning frequently identified
with the phrase "but not limited to." The section and other headings contained
in this Agreement are for reference purposes only and shall not control or
affect the construction of this Agreement or the interpretation thereof in any
respect. Section, subsection, schedule and exhibit references are to this
Agreement unless otherwise specified. Each accounting term used herein that is
not specifically defined herein shall have the meaning given to it under
generally accepted accounting principles.
6
93
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.
SMITHS INDUSTRIES, INC.
By:____________________________________________
Its:___________________________________________
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO
By:____________________________________________
Its:___________________________________________
________________________________________________
DAVID H. SANDERS, Trustee of the David H.
Sanders Revocable Trust U/A dated April 9, 1982
_______________________________________________
RUTH DUNBAR DAVEE, Successor Trustee of
the Ken M. Davee Trust U/A dated August 16, 1990
7
94
SCHEDULE A
Allocation of Investment Proceeds between Principal Stockholders
for Income Tax Purposes
- - - ---------------------------------------------------------------------------------------------
NAME OF STOCKHOLDER ALLOCATION OF INVESTMENT PROCEEDS
- - - ---------------------------------------------------------------------------------------------
David H. Sanders Revocable Trust U/A dated
April 9, 1982, David H. Sanders, Trustee 48.15%
- - - ---------------------------------------------------------------------------------------------
Ken M. Davee Trust U/A dated August 16,
1990, Ruth Dunbar Davee, Successor Trustee 51.85%
- - - ---------------------------------------------------------------------------------------------
8
95
Exhibit B
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated ________________, 1998,
is by and among BIOCHEM INTERNATIONAL, INC., a Delaware corporation ("BCI" or
the "Company"), Frank A. Katarow, a resident of the State of Wisconsin
("Employee"), David H. Sanders as Trustee under the Trust Agreement (as defined
below) (hereafter the "Trustee"), David H. Sanders ("Mr. Sanders") and Ruth
Dunbar Davee, Successor Trustee of the Ken M. Davee Trust U/A dated August 16,
1990 (the "Davee Trust").
R E C I T A L S
WHEREAS, Smiths Industries, Inc., a Florida corporation ("Smiths"), BCI
Merger Corp., its wholly owned subsidiary, Smiths Industries plc, the Company
and certain stockholders of the Company have entered into an Agreement and Plan
of Reorganization, dated as of October ___, 1998 (the "Merger Agreement"); and
WHEREAS, Employee and the Company have previously entered into certain
agreements details of which are listed on Schedule I hereto (which agreements
are individually defined in the said Schedule I and which collectively are
called the "Katarow Compensation Agreements");
WHEREAS, the Company has established the "Frank Katarow Employment Trust"
(the "Trust") and has deposited certain sums with the Trust Account at American
and National Bank and Trust Company of Chicago (the "Trust Funds") pursuant to
its obligations under the Katarow Compensation Agreements;
WHEREAS the parties hereto (the "Parties") wish to terminate certain of the
Katarow Compensation Agreements and to replace them with certain terms of this
Agreement;
WHEREAS, the Company desires to employ Employee and to have the benefit of
his skills and services, and Employee desires to accept employment with the
Company, on the terms and conditions set forth herein; and
WHEREAS, the execution and delivery of this Agreement is a condition to the
obligations of Smiths to consummate the transactions contemplated by the Merger
Agreement.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the Parties
hereto, intending legally to be bound, hereby agree as follows:
1
96
AGREEMENTS
1. Certain Definitions.
"DS Medical Compensation Agreement" - See Schedule I hereto.
"BCI Compensation Agreement" - See Schedule I hereto.
"Trust Agreement" - See Schedule I hereto.
"Amendment Agreement" - See Schedule I hereto.
"Liability Assumption Agreement - See Schedule I hereto.
2. Employment; Term.
(a) BCI hereby continues the employment of the Employee and Employee
hereby accepts continued employment with BCI as its President in accordance
with the terms and conditions of this Agreement. Employee agrees to devote
his full time, skill, knowledge and attention to the business of BCI and
the performance of his duties under this Agreement.
(b) The "Term" of this Agreement shall commence on the Closing Date
of the Merger Agreement (as such date is defined in that Agreement)
(hereafter the "Commencement Date") and continue for a period of one (1)
year from the Commencement Date and thereafter unless and until either
party terminates this Agreement by giving to the other Party not less than
thirty (30) days written notice to that effect, such notice to take effect
on or after the first anniversary of the Commencement Date; provided,
however, that the Term of this Agreement may be terminated earlier at any
time as provided in Paragraph 6 below. This Agreement shall become
effective only upon the completion of the merger as contemplated by the
Merger Agreement. If the merger is not completed, and the Merger Agreement
is terminated in accordance with its terms, this Agreement will terminate
and be void ab initio.
3. Position and Duties.
(a) The Company agrees to employ Employee throughout the Term as an
officer of the Company with such responsibilities, duties and authority as
are assigned to him by the President of SIMS North America; provided that,
without the Employee's consent, there shall not be any reduction to
Employee's existing status nor imposition on Employee of travel
requirements or other duties which in aggregate are substantially more
onerous than those to which he was subject immediately prior to the date
hereof; provided that travel in connection with his employment causing
Employee to be away from the Milwaukee, Wisconsin vicinity no more than
forty (40) days in any twelve (12) month period shall not
2
97
be considered substantially more onerous than those to which Employee was
subject immediately prior to the date hereof. The Company agrees to
provide Employee with an office and executive secretarial support similar
to those provided immediately before the date hereof and further agrees
that Employee's site of employment will be in Waukesha, Wisconsin, or such
other location in the Milwaukee, Wisconsin vicinity to which the Company's
executive headquarters may be moved.
(b) Excluding periods of vacation and sick leave, Employee agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company to the extent necessary to discharge
responsibilities assigned to Employee hereunder and to use reasonable
efforts to perform such responsibilities faithfully and efficiently. No
greater time, attention or effort to discharge responsibilities shall be
required of Employee than was required prior to the date hereof. Employee
may:
(i) serve on corporate, civic and charitable boards or
committees,
(ii) deliver lectures, fulfill speaking engagements and teach at
educational institutions, and
(iii) manage personal investments,
so long as such activities do not significantly interfere with the
performance of Employee's responsibilities and the Company has given its
reasonable consent prior to service on any corporate Board. To the extent
that such activities have been conducted by Employee prior to the date
hereof, such prior conduct, and any subsequent conduct similar in nature
and scope, shall not be deemed to interfere with the performance of
Employee's responsibilities.
4. Compensation.
(a) BCI shall pay to Employee and Employee shall receive as
compensation from BCI for his employment (i) a base annual salary at a rate
of $195,000 per annum (the "Base Salary"), plus (ii) an annual bonus in the
period commencing July 1, 1998 and ending July 31, 1999 not less than the
average annual bonus (as a percentage of base salary) paid to Employee for
the three full fiscal years of the Company immediately preceding July 1,
1998.
(b) In addition, for his services as an employee during the Term of
employment, Employee will receive the further benefits listed on Schedule
II hereto.
(c) Amounts payable under this Paragraph 4 for services rendered by
Employee during his employment constitute reasonable compensation for such
services.
(d) Increases in Base Salary will be considered each August during the
duration of this Employment Agreement. Such increases, if any, will be
consistent with BCI's annual
3
98
budget for payroll increases. Employee's Base Salary shall not be
decreased. The Company shall reimburse Employee, upon submission of
appropriate vouchers and supporting documentation, all expenses of Employee
incurred in connection with the rendering of services to BCI as an employee
pursuant to this Agreement in accordance with BCI's usual and ordinary
practices.
(e) If the payments to Employee under this Paragraph 4 (whether
alone, or by reason of the payment of the Bonus Payment under Paragraph 5
below) are determined to be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any
successor provision, the Company will pay to Employee in cash an additional
amount necessary to cause the total payments (including the additional
payment required by this Paragraph 4 (e)) and benefits received by him
under this Paragraph 4 (net of all federal and state taxes, including all
taxes payable under Section 4999 of the Code) to be equal to the total
payments and benefits Employee would have received under this Paragraph 4
(net of all federal, state and local taxes) if Section 4999 of the Code had
not applied.
5. Bonus Payment.
(a) Unless (i) Employee resigns from his employment with the Company
prior to the first anniversary of the Commencement Date (the "Bonus Payment
Date") (except for a resignation in the circumstances set out in Paragraph
5(e) below) or (ii) Employee's employment is terminated by the Company
prior to the Bonus Payment Date for "Cause" (as defined in Paragraph 5(f)
below) the Company shall pay to Employee on the Bonus Payment Date the
"Bonus Payment" as defined below. The Bonus Payment shall, subject to
Paragraph 5(b), be a lump sum payment equal to the amount of the Trust
Funds held in the Trust on the Bonus Payment Date (less all Deductions, as
defined below); provided that in no event will the Bonus Payment result in
a net payment to the Employee (after all Deductions) of more than
$1,000,000. The Parties hereby acknowledge and agree that the Trust was
established for this purpose and the Trustee shall procure that the said
Trust Funds are made available to the Company for the purpose of this
payment. The Company and the Trustee shall cause all federal, state and
local tax and all social security and other statutory deductions
("Deductions") to be withheld from the Bonus Payment and shall account to
the proper authorities for the same.
(b) The Bonus Payment payable by the Company will be reduced to the
extent necessary so that no part of such payment will be deemed "excess
parachute payments" under Sections 280G or 4999 of the Code, or any
successor provision, or treated as not deductible by the Company under
Section 162(m) of the Code, or any successor provision.
(c) Mr. Sanders and the Davee Trust hereby acknowledge and agree
that the purpose of the Liability Assumption Agreement was in part to
assume the obligations of DS Medical Products Co. to make payments to
Employee as would fully compensate him for the
4
99
amount, if any, by which the Bonus Payment by the Company is reduced
pursuant to Paragraph (b) above or pursuant to the Deductions or otherwise,
below One Million Dollars ($1,000,000). Accordingly, Mr. Sanders and the
Davee Trust, jointly and severally, agree to pay to Employee in cash any
additional amount necessary to cause the total payments to be paid to
Employee in accordance with this Paragraph 5 (including the additional
payment required by this Paragraph 5(c)) (net of all Deductions, including
all taxes payable under Section 4999 of the Code or otherwise) to be equal
to $1,000,000.
(d) The Parties hereby agree that so far as they are still relevant
and binding agreements the following agreements are hereby terminated and
no Party has or shall have any claim, suit or cause of action against
another Party arising from or relating to those following agreements, and
each Party hereby releases all other Parties from any and all obligations
of such other Parties incurred or arising under the following agreements to
the extent that such obligations have not already been fulfilled, the
agreements being namely: the DS Medical Compensation Agreement; the BCI
Compensation Agreement; and the Amendment Agreement.
(e) (i) Upon the occurrence of any breach by the Company of this
Agreement within the meaning of Paragraph 5 (e)(ii) below, Employee may
give the Company written notice of his intention to resign effective the
30th day following the date of such notice. If the Company does not fully
remedy such breach within fifteen (15) days of the date of such notice,
Employee's resignation will become effective on such 30th day. If Employee
resigns in accordance with this Paragraph prior to the Bonus Payment Date,
his employment will be deemed to have been terminated by the Company for
reasons other than Cause (and he will be deemed to have offered to continue
to provide services to the Company), and he will be entitled to all the
payments and rights and benefits described in Paragraphs 5(a) and (c) above
within fifteen (15) days of such resignation; provided that such payments
and rights and benefits will in no event be less than they would have been
had such termination taken place on the date that the Company first
breached this Agreement.
(ii) The following events are breaches by the Company of this
Agreement within the meaning of this Paragraph 5(e)(ii):
(A) any reduction of, or failure to pay, Employee's
salary or bonus described in Paragraph 4(a) above;
(B) any failure to provide the benefits required by
Paragraph 4(b) above or to make any payment which might be due
in accordance with Paragraph 4(d) above;
(C) assignment to Employee of any duties inconsistent in
any respect with his position (including status, offices and
titles), authority, duties or responsibilities as contemplated
by Paragraph 3(a) above or any other
5
100
action by the Company which results in a diminution of such
position, authority, duties or responsibilities;
(D) relocation of the Company's principal executive
offices, or an event that causes Employee to have his
principal place of work changed, to any location outside of
the Milwaukee, Wisconsin area; and
(E) without limiting the generality or effect of the
foregoing, any other material breach of this Agreement by the
Company or any successor thereto or transferee of
substantially all of the assets thereof.
(f) If Employee is terminated by the Company for Cause, he will not
be entitled to the payments or benefits provided under Paragraph 5(a)
above. "Cause" means only the willful commission by Employee of theft,
embezzlement or other serious and substantial crimes against the Company.
For purposes of this Section, no act or omission shall be considered
to have been "willful" unless it was not in good faith and, Employee had
knowledge at the time that the act or omission was not in the best interest
of the Company.
(g) If Employee's employment is alleged to be terminated for Cause or
if Employee's right to resign under Paragraph 5(e) above is disputed,
Employee may initiate binding arbitration in Milwaukee, Wisconsin, before
the American Arbitration Association by serving a notice to arbitrate upon
the Company or, at Employee's election, institute judicial proceedings, in
either case within ninety (90) days of the effective date of his
termination, or such longer period as may be reasonably necessary for
Employee to take such action if illness or incapacity should impair his
taking such action within the 90-day period. The Company agrees:
(i) to pay the costs and expenses of any such arbitration
and/or judicial proceeding, including Employee's reasonable counsel
fees, and
(ii) to pay interest to Employee on any amounts ultimately
found to be due to Employee hereunder during any period of time that
such amounts are withheld pending arbitration and/or judicial
proceedings. Such interest will be at the "Prime Rate" most
recently announced by the American National Bank and Trust Company
of Chicago prior to the commencement of arbitration.
(h) If Employee dies following a termination of employment which
entitled him to benefits under this Paragraph 5 but prior to receipt of all
such benefits, his beneficiary (as designated to the Company in writing)
or, if none, his estate, will be entitled to receive within sixty (60) days
of the date of the Employee's death all unpaid amounts due hereunder.
6
101
(i) There shall be no requirement on the Employee's part to seek
other employment or otherwise mitigate in order to be entitled to the full
amount of any payments or benefits arising under this Agreement.
6. Early Termination
Notwithstanding the term set forth in Paragraph 2(b) hereof and
subject to the provisions of Paragraph 5 hereof, this Agreement may be
terminated prior to the expiration of such term as follows:
(a) At the option of the Company, in the event of Employee's death
or retirement.
(b) At the option of the Company, in the event of Employee's
disability.
(i) Employee shall be considered disabled if he is unable to
perform his normal duties under this Agreement for a continuous period
of sixty (60) days by reason of physical or mental incapacity. The
Company shall provide Employee with written notice of commencement of
the disability period. Termination in accordance with this provision
shall not affect Employee's right, if any, to receive benefits
otherwise available to him pursuant to any disability insurance plan
under which Employee is covered.
(ii) If there is any dispute as to whether Employee is or was
physically or mentally disabled under this Agreement, or whether his
disability has ceased and he is able to resume duties, such question
shall be submitted to a licensed physician agreed upon by the parties,
or if the parties are unable to agree, a licensed physician appointed
by the President of the Medical Society of Milwaukee County,
Wisconsin, at the request of either party. Employee shall submit to
such examinations and provide information as such physician may
request, and the determination of such physician as to Employee's
physical or mental condition shall be binding and conclusive on the
parties. The Company agrees to pay the cost of any such physician and
examinations.
(c) At the option of the Company in the event that Employee shall
commit any of the following acts:
(i) Personal material dishonesty, willful material misconduct,
insubordination, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
material law, rule, or regulation (other than traffic violations or
similar offenses), immoral or disreputable conduct, or habitual use of
alcohol or drugs which materially impairs Employee's ability to carry
out his duties hereunder; or
7
102
(ii) Material breach of any provision of Agreement following the
failure of Employee to cure such breach within fifteen (15) days
following notice to Employee.
(d) After the initial one-year term of this Agreement, at any time,
with or without notice, at the option of the Company or Employee for any
reason or no reason at all; provided however, that termination under this
subparagraph shall not prejudice the Employee's right to compensation or
other benefits under this Agreement.
(e) By Employee upon thirty (30) days notice to the Company.
If Employee's employment hereunder is terminated pursuant to Paragraphs
6(a) or 6(b), Employee shall be entitled to receive, and the appropriate parties
shall pay, the payments pursuant to Paragraphs 5(a) and 5(c) within thirty (30)
days of such termination. If Employee's employment is terminated pursuant to
Paragraph 6(c), and the actions by Employee giving rise to such termination do
not meet the criteria for "Cause" under Paragraph 5(f), Employee shall be
entitled to receive, and the appropriate parties shall pay, the payments
pursuant to Paragraphs 5(a) and 5(c) on the Bonus Payment Date.
7. Severance.
In the event that Employee's employment hereunder is terminated pursuant to
Paragraphs 6(c), 6(d) or 6(e), above, the Company shall pay or provide to
Employee the following benefits from the date of Employee's termination of
employment pursuant to such Paragraphs until the completion of the Non-Compete
Period (as defined below) (which the parties agree are provided in further
consideration for the obligations of Employee under Paragraphs 8, 9 and 10
below):
(i) Employee's Base Salary in effect on the date of termination of
his employment hereunder, which will be paid in accordance with the
Company's normal payroll practices;
(ii) BCI's standard health benefits, dental, 401(k), life insurance
and flex compensation plan, or, if such plans do not allow non-employees to
participate, such amount as may be necessary to allow Employee to obtain
comparable benefits.
If Employee obtains other employment prior to the expiration of the receipt
of severance payments hereunder, and the compensation received by the Employee
from the new employer is equal to or greater than his base pay with BCI, all
severance and benefits described in this Paragraph 7 will be discontinued. If
the base pay received from the new employer is less than the BCI base pay, the
Company will pay Employee the difference between the two, provided that proper
substantiation is provided.
If Employee's employment is terminated for "Cause" he shall not be entitled
to payment
8
103
under this Paragraph and the provisions of Paragraphs 8, 9 and 10 shall not be
applicable; provided, however, if the Company elects to make payments to
Employee under this Paragraph 7 following Employee's termination for Cause, the
provisions of Paragraphs 8,9 and 10 shall be effective.
Employee shall not be entitled to receive any severance pay or any other
compensation payments or benefits pursuant to this Paragraph 7 if Employee is
terminated pursuant to Paragraphs 6(a) or 6(b) above.
In the event severance payments are made as a result of Paragraph 6(e), Mr.
Sanders agrees to reimburse the Company for fifty percent (50%) of the amounts
paid to Employee pursuant to Paragraph 7(i).
8. Confidential Information.
Employee acknowledges that through the services to be performed for
the Company, he has obtained and will obtain confidential information
regarding the Company's and its affiliates business affairs, including such
matters as computer programs, research information, customer lists,
customer development, planning, purchasing, finance, marketing, customer
relations, and other proprietary information of a similar nature not
available to the public ("Confidential Information"). Confidential
Information may be oral or written and may be that which Employee
originates, as well as that which otherwise comes into his possession or
knowledge. During the Non-Compete Period, Employee agrees that he will
treat all Confidential Information as confidential and will not divulge or
disclose any Confidential Information to any other person, firm, or
corporation except upon the written request or instruction of the Company
or in the normal course of his duties as an employee of the Company. This
Paragraph 8 is intended to protect Confidential Information during the
Non-Compete Period.
9. Inventions and Creations.
(a) Employee agrees that all inventions, discoveries, developments,
improvements and mask works, whether or not patented or patentable, or
otherwise protectable in law, which are made, developed or acquired by
Employee, either individually or jointly, during his employment with the
Company and which relate in any manner to Employee's work, the research or
business of the Company, or fields to which the business of the Company may
reasonably extend (herein called collectively "Inventions"), shall belong
to the Company. Employee further agrees to assign and transfer to the
Company his entire right, title, and interest in and to the Inventions.
Employee further agrees to promptly and fully disclose the Inventions to
the Company, in writing if requested by the Company, and to execute and
deliver any and all lawful applications, assignments, and other documents
which the Company requests for protecting the Inventions in the United
States or any other country. The Company shall have the full and sole
power to prosecute such applications and to take all other action
concerning the Inventions, and Employee agrees to cooperate fully,
9
104
at the expense of the Company, in the preparation and prosecution of all
such applications and in any legal actions and proceedings concerning the
Inventions. The effective period of this Paragraph 9 shall be the
Non-Compete Period.
(b) Employee agrees to and does hereby assign, convey, and transfer to
the Company any and all manuscripts, programs, writings, pictorial
materials, and other creations, created by Employee, either individually or
jointly during his employment by the Company and which relate to the
business of the Company (herein called collectively "Creations"). The
Company shall have the full right to seek and procure copyright on the
Creations, and Employee shall cooperate fully, at the expense of the
Company, in securing copyrights and in any legal actions and proceedings
concerning the Creations.
10. Non-Competition Agreement.
As consideration for the Company's entering into this Agreement and
the Bonus payments contemplated hereby, provided in Paragraph 5 hereof,
Employee agrees that during the Term of his employment hereunder and for a
period ending on the second anniversary of the date of termination of
Employee's employment with the Company or any affiliate of the Company (the
"Non-Compete Period"), without the prior written consent of the Company and
Smiths, (a) he will not participate as a director, officer, employee,
agent, representative, stockholder, partner, or joint venturer, or have any
material direct or indirect financial interest (including as a creditor),
in any business engaged anywhere in the world in the development or
production, of competitive products, or engaged anywhere in North America,
Europe or Japan in the use and sale of competitive products (a "Competing
Business"); provided, however, Employee shall be permitted to acquire as an
investment not more than five (5) percent of the outstanding voting capital
stock of a Competing Business and (b) he will not solicit any employee of
the Company to terminate his or her employment with the Company. In this
Paragraph "competitive products" shall mean comprehensive medical
monitoring systems comparable to the systems which the Company, at the time
of termination of Employee's employment, is currently manufacturing or has
previously manufactured or which are currently developed or being developed
by the Company.
11. Remedies.
In addition to other remedies provided by law or equity, upon a breach
by Employee of any of the covenants contained herein, the Company shall be
entitled to have a court of competent jurisdiction enter an injunction
against Employee prohibiting any further breach of the covenants contained
herein. The parties further agree that the services to be performed
hereunder are of a unique, special, and extraordinary character.
Therefore, in the event of any controversy concerning the rights or
obligations under this Agreement, such rights or obligations shall be
enforceable in a court of competent jurisdiction at law or equity by a
decree of specific performance, or, if the Company elects, by obtaining
damages or such other relief as the Company may elect to pursue. Such
remedies, however, shall be
10
105
cumulative and nonexclusive and shall be in addition to any other remedies
which the company may have. In the event that Employee alleges his rights
under this Agreement have been violated, such dispute shall be submitted to
final and binding arbitration before an arbitrator mutually agreed to by
the parties, or if no agreement is reached, by the Chief Judge of the
Milwaukee County Circuit Court.
12. Assignment.
This Agreement and the respective rights, duties, and obligations of
the Parties hereunder may not be assigned or delegated by any of such
Parties.
11
106
13. Notice.
Any notice (including notice of change of address) permitted or
required to be given pursuant to the provisions of this Agreement shall be
in writing and sent by registered or certified mail, return receipt
requested, or by hand delivery to the parties at the following addresses:
If to the Company:
SIMS Biochem Inc.
N 7 W 22025 Johnson Road
Waukesha, Wisconsin 53186
Attn: the Financial Controller
With a copy to:
Company Secretary
Smiths Industries plc
765 Finchley Road
London NW11 8DS
If to Employee:
Frank A. Katarow
c/o SIMS Biochem Inc.
N 7 W 22025 Johnson Road
Waukesha, Wisconsin 53186
If to Mr. Sanders:
David H. Sanders
1801 West Princeton Court
Lake Forest, Illinois 60045
If to David H Sanders
As Trustee:
David H. Sanders (Trustee)
1801 West Princeton Court
Lake Forest, Illinois 60045
If to Ruth Dunbar Davee
As Successor Trustee:
180 East Pearson Street
Chicago, IL 60601
Notice properly given by mail shall be deemed effective one (1) business
day after mailing.
12
107
14. Entire Agreement.
This Agreement, together with the Trust Agreement and the Liability
Assumption Agreement, constitute the entire agreement and understanding
between the Company and Employee concerning Employee's employment by the
Company, and supersedes any and all previous agreements or understandings
concerning such employment, whether written or oral, between Employee and
the Company (including without limitation the BCI Compensation Agreement,
the DS Medical Compensation Agreement and the Amendment Agreement). This
Agreement may not be modified orally.
15. Waiver.
The waiver by either party of the breach of any covenant or provision
in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
16. Invalidity of Any Provision.
The provisions of this Agreement are severable, it being the intention
of the parties hereto that should any provisions hereof be invalid or
unenforceable, such invalidity or enforceability of any provision shall not
affect the remaining provisions here, but the same shall remain in full
force and effect as if such invalid or unenforceable provisions were
omitted.
17. Applicable Law.
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Wisconsin, without regard to the State
of Wisconsin's choice of law doctrines.
18. Counterparts.
This Agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
19. Resignation.
The Employee may resign his employment at any time. In the event of
such resignation, this Agreement shall be of no further force and effect
with the exception of those provisions provided in Sections 5, 7, 8, 9, 10,
11, 14, 16 and 17.
13
108
20. No Right of Set-Off.
There shall be no right of set-off or counterclaim, in respect of any
claim, debt or obligation, against any payments to Employee, his
dependents, beneficiaries or estate provided for in this Agreement.
21. Expenses.
If Employee determines in good faith that the Company has failed to
comply with any of its obligations under this Agreement, the Company
authorizes Employee from time to time to retain counsel of his choice, at
the expense of the Company as hereafter provided, to represent Employee in
connection with any and all actions and proceedings, whether by or against
the Company, or any director, officer, stockholder or other person
affiliated with the Company, which may adversely affect Employee's rights
under this Agreement. Without limiting the effect of the foregoing
provisions of this Paragraph 21, the Company shall pay or cause to be paid
and shall be solely responsible for any all attorneys' and related fees and
expenses incurred by Employee as a result of the Company's failure to
perform under this Agreement. Additionally, the Company agrees to pay
reasonable attorneys' fees incurred by Employee in connection with the
review of this Agreement.
22. Binding Effect.
This Agreement shall be binding upon the Company and any transferee,
successor or assign.
14
109
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
BIOCHEM INTERNATIONAL INC.
________________________________________
By:
Its:
EMPLOYEE
________________________________________
Frank A. Katarow
________________________________________
David H. Sanders
________________________________________
David H. Sanders as Trustee
________________________________________
Ruth Dunbar Davee as Successor Trustee
15
110
Schedule I
The Katarow Compensation Agreements
1. Trust agreement dated January 24, 1996 between the Company and David
H. Sanders as "Trustee" (the "Trust Agreement").
2. Compensation Agreement dated January 24, 1996 between Frank A. Katarow
and DS Medical Products Co. (the "DS Medical Compensation Agreement").
3. Compensation Agreement dated January 24, 1996 between the Company and
Frank A. Katarow (the "BCI Compensation Agreement"), as amended by an
Amendment Agreement dated January 12, 1998 by and among the Company,
Frank A. Katarow, DS Medical Products Co. and David H. Sanders as
Trustee under the Trust Agreement (the "Amendment Agreement").
4. Liability Assumption and Asset Assignment Agreement dated January 12,
1998 between DS Medical Products Co., Ken M. Davee and David H.
Sanders (the "Liability Assumption Agreement").
16
111
Schedule II
(1) Employee shall be entitled to participate fully in all pension,
profit sharing and similar benefit plans of the Company, if any.
(2) Employee shall be entitled to participate fully, together with his
dependents and beneficiaries, in all life insurance plans, accident and health
plans and other welfare plans, maintained or sponsored by the Company
immediately prior to the date hereof, or receive substantially equivalent
coverage from the Company.
(3) Employee shall be entitled to participate fully in any additional
benefit plans offered by the Company to executive employees after the date
hereof.
(4) Employee shall be entitled to receive fringe benefits (which shall
not include any benefit referred to in Paragraph 4 of the Agreement)
substantially equivalent to those provided to Employee immediately prior to the
date hereof.
In connection with the foregoing benefits, Employee will be credited with
his prior service to BCI for purposes of vesting, eligibility and participation
levels in such plans.
ADDITIONAL BENEFITS:
* Vacation - 4 weeks per annum.
* Car Payments consistent with the current arrangement between the Company
and Employee
17
112
Exhibit C
RESIGNATION AND RELEASE
This Resignation and Release (this "Release") is being executed and
delivered in accordance with Section 7.2(j) of the Agreement and Plan of
Reorganization dated October 9, 1998 (the "Agreement") by and among Biochem
International Inc. ("BCI"), Smiths Industries, Inc. ("Buyer"), Smiths Industries
plc, BCI Merger Corp. ("Merger Sub"), David H. Sanders and certain stockholders
of BCI. Capitalized terms used in this Release without definition have the
respective meanings given to them in the Agreement.
I, David H. Sanders, hereby resign from my positions as a director, officer
and employee of each of BCI, SurgiVet, Inc. and Biochem International Foreign
Sales Corp (collectively, the "Companies"), effective upon the Effective Date
(as defined in the Agreement).
I acknowledge that the execution and delivery of this Release is a
condition to Buyer's obligation to close the transactions contemplated by the
Agreement and that Buyer is relying on this Release in consummating such
transactions.
I, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound, in order to
induce Buyer to close the transactions contemplated by the Agreement, hereby
agree as follows:
I hereby release and forever discharge Buyer and the Company, and each of
their respective individual, joint or mutual, past, present and future
affiliates, stockholders, controlling persons, subsidiaries, successors and
assigns (individually, a "Releasee" and collectively, "Releasees") from any and
all claims, demands, proceedings, causes of action, orders, obligations,
contracts, agreements, debts and liabilities whatsoever, whether known or
unknown, suspected or unsuspected, both at law and in equity, which I have, have
ever had or may hereafter have against the respective Releasees arising
contemporaneously with or prior to the Closing Date or on account of or arising
out of any matter, cause or event occurring contemporaneously with or prior to
the Closing, including, but not limited to, any rights to indemnification or
reimbursement from any of the Companies, whether pursuant to its charter, any
contract or otherwise and whether or not relating to claims pending on, or
asserted after, the Closing Date; provided, however, that nothing contained
herein shall operate to release any obligations of Buyer, Merger Sub or Smiths
Industries plc arising under the Agreement, including, without limitation, the
indemnification obligations of the Buyer contained in Section 8.8, or relating
to the transactions contemplated thereby.
If any provision of this Release is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Release will
remain in full force and effect. Any provision of this Release held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
This Release may not be changed except in a writing signed by the person(s)
against whose interest such change shall operate. This Release shall be
governed by and construed under the laws of the State of Delaware without regard
to principles of conflicts of law.
113
All words used in this Release will be construed to be of such gender or
number as the circumstances require.
IN WITNESS WHEREOF, I have executed and delivered this Resignation and
Release this ____ day of _____________, 1998.
_________________________________
David H. Sanders
-2-
114
ANNEX II
VOTING AGREEMENT
This VOTING AGREEMENT, dated as of October 9, 1998, is made between Smiths
Industries Inc., a Florida corporation ("Buyer"), and the persons listed on
Schedule A hereto (collectively, the "Stockholders").
WHEREAS, Buyer, BCI Merger Corp., a Delaware corporation and a wholly-owned
subsidiary of Buyer ("Merger Sub"), Biochem International Inc. (the "Company")
and certain stockholders of the Company propose to enter into an Agreement and
Plan of Reorganization, dated the date hereof (as the same may be amended or
supplemented, the "Merger Agreement") providing for the merger of Merger Sub
with and into the Company (the "Merger");
WHEREAS, each Stockholder is the record and beneficial owner of the number
of shares of common stock, par value $.02 per share, of the Company (the "Common
Shares") and options to purchase Common Shares set forth opposite such
Stockholder's name on Schedule A hereto (such securities, as they may be
adjusted by stock dividend, stock split, recapitalization, combination or
exchange of shares, merger, consolidation, reorganization or other change or
transaction of or by the Company, together with securities that may be acquired
after the date hereof by such Stockholder including Common Shares issuable upon
the exercise of options to purchase Common Shares (as the same may be adjusted
as aforesaid), being collectively referred to herein as the "Securities"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Buyer has requested that the Stockholders enter into this Voting
Agreement, and the capitalized terms not otherwise defined herein shall have the
meanings set forth in Merger Agreement;
NOW, THEREFORE, to induce Buyer to enter into, and in consideration of it
entering into, the Merger Agreement, and in consideration of the premises and
the representations, warranties and agreements contained herein, the parties
agree as follows:
1. Covenants of the Stockholders. Each Stockholder agrees as follows:
(a) Such Stockholder will not to (i) sell, transfer, pledge, assign
or otherwise dispose of (including by gift), or enter into any Contract (as
defined below), option or other arrangement (including any profit sharing
arrangement) or understanding with respect to the sale, transfer, pledge,
assignment or other disposition of, the Securities owned by such Stockholder to
any person other than Buyer or Buyer's designee, (ii) enter into any voting
arrangement, whether by proxy, voting agreement, voting trust, power-of-attorney
or otherwise, with respect to the Securities (other than this Voting Agreement)
or (iii) take any other action that would in any way restrict, limit or
interfere with the performance of its obligations hereunder or the transactions
1
115
contemplated hereby; provided that David H. Sanders, as Trustee of the David H.
Sanders Revocable Trust U/A dated April 9, 1982, may make a charitable
contribution of Common Shares not to exceed 100,000 Common Shares.
(b) Until the Merger is consummated or the Merger Agreement is
terminated, such Stockholder shall not, nor shall such Stockholder permit any
investment banker, financial adviser, attorney, accountant or other
representative of such Stockholder to, directly or indirectly (i) solicit,
initiate or encourage (including, by way of furnishing information), or take any
other action designed or reasonably likely to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to lead
to, a proposal or offer for a merger, consolidation, sale or purchase of
substantial assets or stock, tender or exchange offer, or other business
combination or change in control or similar transaction involving the Company or
any of its subsidiaries (each, an "Acquisition Proposal") or (ii) participate in
any discussions or negotiations regarding any Acquisition Proposal. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding sentence by an investment banker, financial advisor,
attorney, accountant or other representative or agent of such Stockholder shall
be deemed to be a violation of this Section l(b) by such Stockholder.
(c) At any meeting of stockholders of the Company called to vote
upon the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval (including by
written consent) with respect to the Merger and the Merger Agreement is sought,
each Stockholder shall vote (or cause to be voted) such Stockholder's Securities
in favor of the Merger, the adoption of the Merger Agreement and the approval of
the other transactions contemplated by the Merger Agreement. At any meeting of
stockholders of the Company or at any adjournment thereof or in any other
circumstances upon which the stockholder's vote, consent or other approval is
sought, such Stockholder shall vote (or cause to be voted) such Stockholder's
Securities against (i) any merger agreement or merger (other than the Merger
Agreement and the Merger), consolidation. combination, sale of substantial
assets, reorganization, recapitalization, dissolution, liquidation or winding up
of or by the Company or any other Acquisition Proposal (collectively,
"Alternative Transactions") or (ii) any amendment of the Company's Certificate
of Incorporation or by-laws or other proposal or transaction involving the
Company or any of its subsidiaries, which amendment or other proposal or
transaction would in any manner impede, frustrate, prevent or nullify, the
Merger Agreement or any of the other transactions contemplated by the Merger
Agreement, including any consent to the treatment of any Securities in or in
connection with such transaction (collectively, "Frustrating Transactions").
Such Stockholder further agrees not to commit or agree to take any action
inconsistent with the foregoing.
(d) Such Stockholder shall use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with Buyer in doing all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner possible, the
Merger and the other transactions contemplated by the Merger Agreement.
2
116
2. Grant of Irrevocable Proxy Coupled with an Interest; Appointment of
Proxy.
(a) Each Stockholder hereby irrevocably grants to, and appoints
DAVID H. SANDERS such Stockholder's proxy and attorney-in-fact with full power
of substitution, for and in the name, place and stead of such Stockholder, to
vote such Stockholder's Securities, or grant a consent or approval in respect of
such Securities, at any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which their vote, consent
or their approval is sought, (i) in favor of the Merger, the adoption by the
Company of the Merger Agreement and the approval of the other transactions
contemplated by the Merger Agreement, and (ii) against any Alternative
Transaction or Frustrating Transaction.
(b) Each Stockholder represents that such Stockholder has previously
given no proxies in respect of such Stockholder's Securities.
(c) Each Stockholder hereby affirms that the proxy set forth in this
Section 2 is coupled with interest and is irrevocable until such time as this
Voting Agreement terminates in accordance with its terms. Such Stockholder
hereby further affirms that the irrevocable proxy is given in connection with
the execution of the Merger Agreement and that such irrevocable proxy is given
to secure the performance of the duties of such Stockholder under this Voting
Agreement. Such Stockholder hereby ratifies and confirms all that such
irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such
irrevocable proxy is executed and intended to be irrevocable in accordance with
provisions of Section 212 of Delaware General Corporation Law. Such irrevocable
proxy shall be valid until termination of this Voting Agreement in accordance
with its terms.
3. Representations and Warranties of the Stockholders. Each Stockholder
hereby represents and warrants to Buyer as follows:
(a) The Stockholder has all requisite power and authority to execute
and deliver this Voting Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Voting
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by the Stockholder. This Voting Agreement has been duly
executed and delivered by the Stockholder and, assuming this Voting Agreement
constitutes a valid and binding obligation of the Stockholder is enforceable
against the Stockholder in accordance with its terms. Except for the
informational filings with the Securities and Exchange Commission, neither the
execution, delivery or performance of this Voting Agreement by the Stockholder
of the transactions contemplated hereby will (i) require any filing with, or
permit, authorization, consent or approval of, any federal, state, local or
municipal foreign or other government or subdivision, branch, department or
agency thereof or any government or quasi-governmental authority of any nature,
including any court or other tribunal, (a "Governmental Entity"), (ii) result in
a violation or breach of , or constitute (with or without due notice or lapse of
time or both) a default under, or give rise to any right of termination,
amendment, cancellation or acceleration under, or result in the creation of any
lien upon any of the properties or assets of the Stockholder under any of the
terms, conditions or
3
117
provisions of any note, bond, mortgage, indenture, lease, license, permit,
concession, franchise, contract, agreement or other instrument or obligation
(each, a "Contract") to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets, including the
Stockholder's Securities, may be bound or (iii) violate any judgment, order,
writ, preliminary or permanent injunction or decree (each, an "Order") or any
statute, law, ordinance, rule or regulation of any Governmental Entity (each, a
"Law") applicable to the Stockholder or any of the Stockholder's properties or
assets, including the Stockholder's Securities.
(b) The Securities. The certificates representing the Stockholder's
Securities are now, and at all times during the term hereof will be, held by
such Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, and the Stockholder has good and marketable title to and the sole
right to vote, and the sole power of disposition with respect to such
Securities, free and clear of any liens, proxies, voting trusts or agreements,
understandings or arrangements, except for any such liens or proxies arising
hereunder. The Stockholder owns of record or beneficially no securities of the
Company, or any options, warrants or rights exercisable for securities of the
Company, other than such Stockholder's Securities and shares of Company Common
Stock issuable upon the exercise of outstanding Options (as defined in the
Merger Agreement), in each case as set forth on Schedule A hereto.
(c) Brokers. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Voting Agreement based upon arrangements made by or on behalf of such
Stockholder.
(d) Merger Agreement. The Stockholder understands and acknowledges
that Buyer is entering into the Merger Agreement in reliance upon such
Stockholder's execution and delivery of this Voting Agreement.
4. Further Assurances. Each Stockholder will, from time to time, execute
and deliver, or cause to be executed and delivered such additional or further
transfers, assignments, endorsements, consents and other instruments as Buyer
may reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Voting Agreement and to vest the power to vote
such Stockholder's Securities as contemplated by Section 2.
5. Assignment; Binding Effect. Neither this Voting Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Voting Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Voting Agreement to the contrary,
nothing in this Voting Agreement expressed or implied, is intended to confer on
any person other than the parties hereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Voting Agreement.
4
118
6. Termination. This Voting Agreement, and all rights and obligations
of the parties hereunder, shall terminate simultaneously with the consummation
of the Merger or the termination of the Merger Agreement in accordance with its
terms. Nothing in this Section 6 shall relieve any party from liability for
willful breach of this Voting Agreement.
7. General Provisions.
(a) Amendments. This Voting Agreement may not be amended except by
an instrument in writing signed by each of the parties hereto.
(b) Notice. All notices and other communications hereunder shall be
in writing and shall be deemed given upon receipt to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(i) if to Buyer, to
Smiths Industries, Inc.
c/o Smiths Industries PLC
765 Finchley Road
Childs Hill
London NW11 8DS
Attention: Alan Smith, Secretary
Fax: 081-201-8041
Telephone: 081-458-3232
with a copy to:
Morgan, Lewis & Bockius, LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
Attention: Michael J. Pedrick, Esq.
Fax: (215) 963-5299
Telephone: (215) 963-4808
(ii) if to a Stockholder, to the address set forth under the name of
such Stockholder on Schedule A hereto
5
119
with a copy to:
Holleb & Coff
55 East Monroe Street, Suite 4100
Chicago, Illinois 60603
Attention: Stephen A. Marcus, Esq.
Fax: (312) 807-3900
Telephone: (312) 807-4605
(c) Interpretation. When a reference is made in this Voting
Agreement to a Section, such reference shall be to a Section of this Voting
Agreement unless otherwise indicated. The headings contained in this Voting
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Voting Agreement. Wherever the words
"include," "includes" or "including" are used in this Voting Agreement, they
shall be deemed to be followed by the words "without limitation."
(d) Counterparts. This Voting Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
(e) Entire Agreement; No Third-Party Beneficiaries. This Voting
Agreement (including the documents and instruments referred to herein) (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (ii) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder,
(f) Governing Law. This Voting Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without regard to
any applicable conflicts of law.
(g) Publicity. Except as otherwise required by law, court process
or the rules of a national securities exchange or as contemplated or provided in
the Merger Agreement, for so long as this Voting Agreement is in effect, neither
any Stockholder nor Buyer shall issue or cause the publication of any press
release or other public announcement with respect to the transactions
contemplated by this Voting Agreement or the Merger Agreement without the
consent of the other parties, which consent shall not be unreasonably withheld.
8. Remedies. Each Stockholder acknowledges that money damages would be
both incalculable and an insufficient remedy for any breach of this Voting
Agreement by it, and that any such breach would cause Buyer irreparable harm.
Accordingly, each Stockholder agrees that in the event of any breach or
threatened breach of this Voting Agreement, Buyer, in addition to any other
remedies at law or in equity it may have, shall be entitled, without the
requirement of
6
120
posting a bond or other security, to equitable relief, including injunctive
relief and specific performance.
9. Severability. The invalidity or unenforceability of any provision of
this Voting Agreement in any jurisdiction shall not affect the validity or
enforceability of any other provision of this Voting Agreement in such
jurisdiction, or the validity or enforceability of any provision of this Voting
Agreement in any other jurisdiction.
7
121
IN WITNESS WHEREOF, Buyer has caused this Voting Agreement to be signed by
its officer thereunto duly authorized and each Stockholder has signed this
Voting Agreement, all as of the date first written above.
SMITHS INDUSTRIES, INC.
By: /s/ Walter E. Orme
-----------------------------------------
Name: Walter E. Orme
---------------------------------------
Title: Assistant Secretary
--------------------------------------
/s/ David H. Sanders
---------------------------------------------
DAVID H. SANDERS, Trustee of the David
H. Sanders Revocable trust U/A dated
April 9, 1982
/s/ Ruth Dunbar Davee
---------------------------------------------
RUTH DUNBAR DAVEE, Successor
Trustee of the Ken M. Davee Trust U/A
dated August 16, 1990
/s/ David H. Sanders
---------------------------------------------
DAVID H. SANDERS
/s/ Frank Katarow
---------------------------------------------
FRANK KATAROW
8
122
<Caption
SCHEDULE A
TABLE OF NAMES AND ADDRESSES OF STOCKHOLDERS AND
SHARES OF COMMON STOCK AND OPTIONS
HELD BY EACH STOCKHOLDER
- - - -------------------------------------------------------------------------------------------------------------------------
Shares of
Name of Stockholder Address Common Stock Options
- - - -------------------------------------------------------------------------------------------------------------------------
David H. Sanders Revocable Trust 1801 West Princeton Court 4,636,566 0
U/A dated April 9, 1982, David H. Lake Forest, Illinois 60045
Sanders, Trustee
- - - -------------------------------------------------------------------------------------------------------------------------
Ken M. Davee Trust U/A dated Ruth Davee, 4,992,500 0
August 16, 1990, Ruth Dunbar Trustee of Ken Davee Trust
Davee, Successor Trustee 180 East Pearson Street
Chicago, IL 60601
- - - -------------------------------------------------------------------------------------------------------------------------
David H. Sanders, 1801 West Princeton Court
individually Lake Forest, Illinois 60045 0 0
- - - -------------------------------------------------------------------------------------------------------------------------
Frank A. Katarow c/o SIMS Biochem Inc. 5,700 25,000
N 7 W 22025 Johnson Road
Waukesha, Wisconsin 53186
- - - -------------------------------------------------------------------------------------------------------------------------
9
123
ANNEX III
262 APPRAISAL RIGHTS. -
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section
228 of this title shall be entitled to an appraisal by the Court of Chancery of
the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were
either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation surviving
a merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale
124
of all or substantially all of the assets of the corporation. If the
certificate of incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and (e) of this section,
shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy
or vote against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective date
of such merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied with
this subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the record
date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after
125
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion
126
of the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
127
ANNEX IV
CONFORMED COPY
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
/_/ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-10005
BIOCHEM INTERNATIONAL INC.
A Delaware Corporation I.R.S. Employer Identification
No. 39-1272816
Address Telephone Number
- - - ------- ----------------
N7 W22025 Johnson Road (414) 542-3100
Waukesha, Wisconsin 53186-1856
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 par value.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No /_/
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-K is not contained in this form and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the Common Stock of the Company held by
non-affiliates on August 31, 1998 was approximately $15,080,767, computed by
reference to the average ($5.375) of the bid and ask prices of the Common Stock
as reported by the National Quotation Bureau. For purposes of this calculation,
officers and directors of the registrant were considered affiliates of the
registrant.
The number of shares outstanding of the Company's Common Stock, par value $.02
per share, on August 31, 1998 was 13,050,282.
Exhibit Index on Page 47
1
128
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS
The Registrant, Biochem International Inc. (the "Company" or "BCI" or "BCI
International"), was incorporated in April, 1976 to acquire from the Medical
Systems Business Division of General Electric Company certain assets, patents
and technology associated with its blood gas chemistry business. This
acquisition was completed in January, 1978.
D.S. Medical Products Company
In July, 1984, D.S. Medical Products Company ("DS Medical"), was formed for the
exclusive purpose of acquiring up to an 80% interest in BCI for investment
purposes. On March 2, 1998, DS Medical was merged with and into BCI, thus
dissolving DS Medical. Ken M. Davee and David H. Sanders, the principal
shareholders of DS Medical, then directly owned their shares in BCI. Mr. Sanders
and Mr. Davee are also directors and executive officers of the Company. On
August 13, 1998, Mr. Davee passed away, his spouse, Mrs. Ruth Davee, is now a
principal shareholder of the Company. At this time, the Company has not filled
this open Director and Officer position. (see ITEM 10.
Directors and Executive Officers of the Registrant).
NARRATIVE DESCRIPTION OF BUSINESS
The Company's Products
BCI International is a designer, manufacturer and worldwide distributor of
comprehensive monitoring systems for reliable and cost-effective patient care.
BCI is committed to innovation, ongoing development of lower cost products,
excellence in customer service and quality manufacturing. BCI manufactures
primarily non-invasive real time patient monitoring equipment. BCI's products
are used to monitor respiration, blood gases, exhaled gases, anesthetic agent
gases, blood pressure and related cardiovascular/pulmonary functions.
Non-invasive monitoring is used in patient care in operating and emergency
rooms, intensive care units, critical care units and neonatal facilities.
Additionally, these monitoring techniques have applications in recovery,
radiology, respiratory
2
129
therapy, out-patient care, veterinary and ambulatory as well as home and sleep
study situations. During the second quarter of fiscal 1998, BCI established a
subsidiary, SurgiVet, Inc. SurgiVet was established to design and distribute
medical equipment to the veterinary market.
BCI's product line includes monitoring devices for oxygen saturation, anesthetic
agents, ECG, both invasive and non-invasive blood pressure, temperature,
respiration, carbon dioxide and nitrous oxide. BCI engineers and technicians
continue to expand the Company's technology base by developing new products and
combining existing ones in new ways to meet the medical community's fast-growing
and changing needs.
New product releases in fiscal 1998 include a new handheld pulse oximeter
featuring an integrated printer and pulse tones. This device, labeled as the
Model 3401 FingerPrint(TM), is intended for a variety of markets to include home
health care, respiratory departments in both alternate care and hospitals, and
emergency medicine. The Company also received FDA 510(k) clearance in November
1997 for its Model 6004 Mini-Torr(TM) non-invasive blood pressure monitor which
includes the options of pulse oximetry and an integrated printer. Other products
released this fiscal year include a new Comfort Clip(TM) oximeter finger sensor
and a combination non-invasive blood pressure/pulse oximeter OEM module.
SurgiVet, the Company's veterinary subsidiary, launched five new monitors and
five new veterinary-specific pulse oximetry sensors. The monitors include three
new pulse oximeters, a combined end-tidal CO2/SpO2 monitor and a handheld CO2
device. The sensors were developed for use with these devices and were
customized to adapt to and monitor a variety of animals in the operating room
setting.
New product releases in fiscal 1997 include the Model 9004 Capnograph and the
Model 6004 Vital Signs monitor. Additionally, fiscal 1997 was the first full
year of sales of the Model 3304 Pulse Oximeter, approved by the FDA in August,
1996. The Model 9004 Capnograph, also known as the Capnocheck(R) Plus, is the
second in our Clarity(TM) series of monitors. The Capnocheck Plus is a compact,
lightweight monitor which provides for measurement of end-tidal CO2, pulse
oximetry and inspired oxygen. It is well suited to monitoring of both intubated
and non-intubated patients in all types of environments. The Model 6004 monitor,
also known as the Mini-Torr(TM) monitor, was released to the majority of the
international marketplace late in fiscal 1997. The Mini-Torr(TM) is the third
3
130
Clarity(TM) series monitor, which offers cost-effective non-invasive monitoring
of blood pressure and pulse oximetry. It is a transportable monitor, allowing
for use in hospital, transport and emergency settings.
New products in fiscal 1996 include the Model 3303 Pulse Oximeter and the Model
3304 Pulse Oximeter. The Model 3303 oximeter is a handheld unit with alarms,
featuring an internal rechargeable battery. This unit can be used both as a
handheld, spot-check device and also as a bedside, long-term monitoring device.
The Model 3304 Pulse Oximeter, the first product released in our new Clarity(TM)
series of monitors, was released to the international market late in fiscal
1996. It features advanced digital signal processing, designed for demanding
clinical environments.
BCI's mission is to provide cost-effective, quality patient monitoring equipment
to meet the rapidly-growing and ever-changing needs of the world-wide health
care community. Consequently, management contemplates that new products will
continue to be added to its existing product lines.
Marketing and Distribution
BCI International monitoring systems are marketed in the United States directly
through twenty-three Company sales representatives and selectively through
medical distributors. Health care facilities, principally hospitals, are
typically the purchasers of the Company's systems. BCI also sells into alternate
care markets, such as emergency medical services, surgery centers and home
health care. BCI's increased targeting of the alternate care market will allow
the Company to benefit from the trend away from hospitals toward the more cost
effective alternate care setting. International sales, promoted through medical
distributors and manufacturers worldwide, account for approximately 46% of
revenues. BCI technologies are also marketed to original equipment manufacturers
(OEM's) as individual components or as finished, private label products, and are
in turn then sold to end users. Generally, the Company sells its products to OEM
customers based on long-term contracts, which, in certain cases, provide for the
purchase of minimum quantities of products at specified prices.
4
131
Competition
The Company is in a highly fragmented industry characterized by rapid
technological change. Price and product features such as accuracy, ease-of-use
and flexibility are the primary bases for competition. The Company has a number
of competitors in each of its product areas, many of which are larger and
financially stronger than BCI. Due to the high costs of product development,
long development cycles and high regulatory costs, the risk of new competitors
entering the industry is moderate to low.
Product pricing is the most significant competitive factor in the health care
industry. Competition continues to cause price reductions. The Company is
continually seeking manufacturing cost reductions, but there can be no assurance
that these cost reductions will offset the impact of potential price declines.
Product quality is also a competitive factor, although the quality issue is
somewhat mitigated by the standards imposed by the Food and Drug Administration
("FDA").
Competition among international suppliers is generally based on the same set of
factors as in the U.S., with price as the primary factor. One of the
distinguishing characteristics of the international market is that many foreign
health care systems are state run. Thus, the government rather than a private
enterprise is often the customer. Additionally, each country has a different set
of regulatory standards and specifications which creates additional demands on
suppliers participating in the international market.
Manufacturing
The Company's products are manufactured and assembled in its Waukesha, Wisconsin
facility. The manufacture of the Company's products involves certain techniques
which, in the opinion of management, are proprietary.
Raw Materials
Raw materials utilized by the Company in its manufacturing process are generally
available from a number of domestic commercial sources. Since the Company has
historically experienced delivery delays and lead times as long as 22 to 24
weeks in acquiring certain electronic components, which is common in the
industry, it closely monitors and maintains higher inventory levels for such
components than for other raw materials.
5
132
Inventory
The Company maintains inventories of previously described materials and finished
goods at levels believed to be consistent with anticipated sales and at levels
required to respond quickly to customer needs. Inventories of demonstration
equipment are also maintained for use by BCI's salespeople. BCI also maintains
an inventory of finished goods to loan to customers at their request when the
Company is servicing their units. See "Service and Warranty" below in this ITEM
1.
The Company will, in general, not accept returns except consistent with the
terms of its warranties.
To the best of the Company's knowledge, the foregoing practices are consistent
with the practices of the industry.
Service and Warranty
A two year warranty is extended on all BCI International monitoring equipment.
During this time, the Company warrants to the purchaser that the equipment is
free from defects in material and workmanship. Any repairs needed during this
time period will be made free of charge to the customer unless the repairs
required are due to intentional damage. Service in foreign countries is provided
primarily by the Company's foreign distributors.
In the event a monitor requires service, the Company's policy during the
warranty period is to provide a free replacement on loan at the customer's
request, which requires that the Company maintain an inventory of monitors for
this purpose. BCI services monitors in its Waukesha, Wisconsin facility. The
Company believes that this approach generally permits the customer to have a
replacement system whenever needed and provides quality repair service.
Backlog
The Company had approximately $3,300,000 in backlog orders believed to be firm
at August 31, 1998, as compared to approximately $3,600,000 at August 31, 1997.
The decline in the backlog is mainly due to a decrease in the backorder of OEM
componentry. The Company's order activity is not seasonal in nature. The Company
6
133
usually manufactures and ships equipment ordered within 2 to 15 days following
receipt of an order, unless the customer requests later release dates.
Research and Development
The Company's research and development activities are dedicated to both product
enhancement and new product development. At the date of this report, the Company
employs twenty-two trained technicians and engineers, and utilizes outside
consultants in its research and development activities. For the three years
ended June 30, 1998, the Company incurred research and development expenses of
$6,045,571, all of which were Company sponsored. Of this amount, $2,414,103 was
attributable to fiscal 1998, $1,983,817 to fiscal 1997 and $1,647,651 to fiscal
1996.
Patents
The Company owns numerous domestic patents related to its products.
The electronic medical instruments industry is permeated with patented products
and processes and new patents are being issued regularly. Therefore, the Company
cannot be certain that its existing products, or those it expects to produce, do
not infringe on valid patents owned by others, or will not be subject to
technological obsolescence.
Government Regulation
The medical devices manufactured and marketed by BCI are subject to regulation
by the FDA, and, in many cases, by foreign governments and other regulatory
organizations. Under the Federal Food, Drug and Cosmetics Act ("FDC Act"), as
amended, manufacturers of medical devices must comply with certain provisions
and regulations promulgated by the FDA governing the testing, manufacturing,
packaging and marketing of medical devices. Under the FDC Act, medical devices
are subject to varying levels of review, the most comprehensive of which
requires that a device receive pre-market approval by the FDA for commercial
distribution in the United States.
As a manufacturer of medical devices, the Company is also subject to certain
other FDA regulations, such as general controls provisions which include
manufacturing process requirements. The Company's
7
134
manufacturing processes and facility are subject to a biannual inspection by the
FDA. The FDA has the power to order a limited detention of products and to
exercise other remedies where it finds the devices to be in violation of the FDC
Act. BCI believes it is generally in compliance with the FDA regulations.
Federal and foreign regulations regarding the manufacture and sale of medical
devices are subject to change. The Company cannot predict what impact, if any,
such changes might have on its business. The Company also seeks, where
appropriate, to comply with safety standards of Underwriters Laboratories, the
Canadian Standards Association, the European Community standards and the
standards of other countries in which it markets its products.
Compliance with international standards is an expanding factor in conducting
business in international markets. The Company has obtained ISO 9001/EN46001
certification and certification to Annex II of the Medical Device Directive. By
certification to these standards, the Company is permitted to place a "CE" mark
on its products which indicates product compliance as specifically required by
the European marketplace. To date, foreign regulations have not adversely
affected the Company's business. However, there can be no assurance that any
such regulations will not have a material adverse effect on the Company's
business and financial condition in the future.
Environmental Matters
The Company is engaged in only light manufacturing and its capital expenditures,
earnings or competitive position have not been, and are not expected to be,
materially affected by compliance with federal, state, or local provisions which
have been enacted or adopted regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment.
Employees
As of August 31, 1998, the Company employed 121 persons, consisting of 27 in
production and 94 in sales, administration, engineering and research.
Financial Information About Export Sales
Export sales, which were principally in the Far East, Central and
8
135
South America and Western Europe were approximately $13,253,000, $13,523,000 and
$14,872,000 in fiscal 1998, 1997 and 1996, respectively. The decrease in sales
is a result of many factors. Although BCI continues to expand its international
sales network and regions covered, some key regions experienced decreased sales
due to the weakness of the local currency as compared to the strength of the
dollar. The financial conditions in these markets could continue to impact
future sales. Additionally, sales of the Company's higher end OEM componentry
have decreased significantly. All foreign sales are denominated in U.S. Dollars,
so the Company is not exposed to foreign currency valuation fluctuations.
ITEM 2. PROPERTIES
The Company's executive offices and production facilities are located at N7
W22025 Johnson Road, Waukesha, Wisconsin. The building contains approximately
55,600 square feet, of which approximately 27,800 square feet constitutes
administrative office space, with the balance used for production and storage.
BCI purchased this facility in November, 1997, and began the build-out of the
interior in January, 1998. The build-out was completed in early July and
operations and administration moved during July, 1998. Manufacturing was not
operational for 2 days, and administration was down for less than a day;
accordingly, the impact on operations was minimal. The Company used current cash
and cash equivalent balances to fund the purchase and build-out. This new
facility will allow the Company the space needed for growth and efficient
operations. Additionally, the Company leases a small amount of office space
located several miles from the main facility, which is used for additional
engineering personnel. The Company also leases space at an outside location for
file storage purposes only.
The Company closed on the sale of its previous facility located at W238 N1650
Rockwood Drive, Waukesha, Wisconsin on July 24, 1998. The land and building were
sold for $785,000, which constitutes a small gain over net book value. BCI had
purchased this facility on June 30, 1995. It had previously been leased from a
related party (see Item 12, Related Party Information). The Company has also
closed on the sale of the land adjacent to its previous facility on September
24, 1998 for $255,000, an amount approximately equal to net book value. BCI had
purchased this land in April, 1996, with the intent to expand its then current
facility. After an investigation of the available options, it was decided that a
new
9
136
facility was the best course of action, and the Rockwood properties should
be sold.
The Company owns all of its machinery and manufacturing equipment, and leases
certain office equipment. The Company does not anticipate the need to purchase
any material amounts of capital equipment in the coming fiscal year.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended June 30, 1998, no matters
were submitted to a vote of security holders.
10
137
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock ($.02 par value) is traded in the over-the-counter
market. Price quotations are recorded on The OTC Bulletin Board.
The following table sets forth the bid and asked quotations for the Company's
common stock for the quarterly periods indicated, as provided by the National
Quotation Bureau. These quotations reflect interdealer prices, without retail
markup, markdown or commissions, and may not necessarily represent actual
transactions.
Bid Asked
--- -----
High Low High Low
---- --- ---- ---
Fiscal year ended
June 30, 1998
1st Quarter 5 3/8 5 5 3/8 6
2nd Quarter 5 7/8 5 5 5/8 6
3rd Quarter 5 7/8 5 1/4 5 7/8 6 1/4
4th Quarter 5 7/8 5 1/8 5 5/16 5 5/8
Fiscal year ended
June 30, 1997
1st Quarter 6 3/4 4 3/4 8 5 1/8
2nd Quarter 6 1/2 4 3/4 6 3/4 4 3/4
3rd Quarter 5 7/8 4 7/8 6 3/4 4 3/4
4th Quarter 5 3/4 5 6 5
The approximate number of record holders of the Company's common stock on August
31, 1998 was 639. BCI International has not paid dividends on its common stock.
The Company does not anticipate paying any such dividends, and further, is
restricted from declaring or paying dividends without the prior written consent
of the banking institution with which it currently has a lending facility.
11
138
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA
Years ended June 30
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
EARNINGS (IN THOUSANDS):
Net Sales $28,532 $ 27,006 $ 29,000 $ 25,056 $ 17,861
Cost of sales 12,418 11,978 12,903 11,310 8,214
Gross profit 16,114 15,028 16,097 13,745 9,647
Earnings before income taxes and
cumulative effect of change in accounting
principle 7,380 7,179 8,471 6,735 3,504
Cumulative benefit from change in
accounting principle - - - - 5,197
Income tax expense 2,376 2,539 3,102 2,475 1,309
Net income 5,004 4,640 5,370 4,260 7,392
EARNING PER SHARE DATA:
Basic earnings per share .38 .35 .41 .32 .56
Diluted Earnings per share .38 .35 .41 .32 .56
COMMON STOCK:
Number of shareholders 639 694 750 793 850
Weighted average shares outstanding - 13,097,254 13,086,784 13,083,284 13,081,613 13,070,654
Basic
Effect of dilutive securities 79,265 114,187 103,665 88,029 58,314
Weighted average shares outstanding - 13,176,519 13,200,971 13,186,949 13,169,642 13,128,968
Dilutive
FINANCIAL POSITION (IN THOUSANDS):
Working capital $18,404 $ 16,347 $ 11,782 $ 8,388 $3,248
Capital expenditures 3,347 241 591 1,205 216
Total assets 27,959 22,616 18,429 12,336 12,767
Long-term debt - - - - -
Shareholders' equity 24,833 19,800 15,485 10,113 5,851
12
139
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1998 versus Fiscal 1997
The Company realized income before income tax expense of $7,379,532 in 1998, as
compared to $7,179,312 in 1997. Net income realized in fiscal 1998 and 1997
after income tax expense is $5,003,810 and $4,639,797, respectively. Based upon
the weighted average number of basic and diluted common shares outstanding,
these translate into net income per share of $.38 and $.35 in 1998 and 1997,
respectively. It is the opinion of management that these amounts may be
compared, and are attributable to the factors discussed below.
Net sales in fiscal 1998 increased by $1,526,041, or by 5.7% when compared to
fiscal 1997. The growth in sales was experienced both in the domestic and the
international marketplaces. The increases were predominantly due to sales of our
Clarity(TM) series products and our Model 3303 Pulse Oximeter. The Clarity(TM)
products are a series of compact, tabletop, transport monitors designed for use
in hospitals, transport and emergency settings. Sales of these products in
fiscal 1998 were approximately $3.4 million compared to $1.1 million world-wide
in fiscal 1997. Sales of the Model 3303 Pulse Oximeter were approximately $2.1
million in fiscal 1998 compared to $1.3 million world-wide in fiscal 1997.
Additionally, on March 18, 1998, the Company was awarded its second contract by
the U.S. Government for the Clarity(TM) series Model 3304 AutoCorr pulse
oximeter. This contract will provide needed ground-based monitoring equipment to
the government on a worldwide basis. The Company, like its competitors, is
focusing on sales to alternate care markets, sales of replacement equipment and
sales of follow-on quantities of this product line to initial purchasers. The
challenge for the Company, which it is addressing through product development
and marketing activities, is to enhance its existing product line by adding not
only new products, but also new features, functionality and product
configuration to existing products.
Domestic BCI label sales increased 21.9% from fiscal 1997. The increase was in
virtually all product areas: sales of our handheld pulse oximeters (Model
numbers 3301, 3303 and 3401) increased about $650,000 or about 16% over fiscal
1997, sales of our Clarity(TM) products increased nearly $600,000 or about 165%
and sales of our
13
140
higher-end vital signs and multi-parameter products were up about $391,000 or
about 74%. Domestic OEM sales declined by 27.0% from fiscal 1997 sales, in part
because approximately $640,000 of sales revenues were reclassified from domestic
OEM to our SurgiVet division. Additionally, there were decreases in sales of our
Model 3101 and 3302 pulse oximeters to this market. International dealer sales
of BCI-labeled products increased by 21.8%, largely due to sales of our
Clarity(TM) products. Sales of these products increased $962,000 or about 150%
over fiscal 1997. International OEM sales decreased by 13.8% when compared to
fiscal 1997 due to decreased sales of our higher end OEM componentry. SurgiVet
sales were $1,174,000, consisting mostly of sales of our Model numbers 3101,
3303, and 3304 that were reconfigured for veterinary applications. Selling
prices have not fluctuated significantly during these time periods.
Cost of goods sold as a percentage of net sales decreased slightly in fiscal
1998 going from 44.4% in fiscal 1997 to 43.5% in fiscal 1998. The decrease is
primarily due to decreased raw material costs.
Selling, general and administrative expenses increased by approximately $570,000
when comparing 1998 to 1997. The increase is partially attributable to the
startup and continuing costs of the Company's new division, SurgiVet.
Additionally, the Company continues to invest in its sales and marketing
efforts. During fiscal 1996, BCI began focusing more on the alternate care
markets, and increased the amount spent on marketing to those areas. That
spending continued in fiscal 1997 and into fiscal 1998. In fiscal 1998 the
Company also began to expand its domestic sales force in order to support and
increase sales. Also in fiscal 1998, the Company increased its international
marketing efforts through additional advertising and promotions. BCI feels these
increases were needed to strengthen the domestic and international sales efforts
and position the Company for the future. BCI also continues to invest in its OEM
sales efforts.
Research and development expenses increased by approximately $430,000 when
comparing fiscal 1998 to 1997. The engineering staff grew in fiscal 1998 to
twenty-two employees, who continued to focus their time and efforts on new
product releases. As a result, payroll and related expenses increased.
Additionally, work continues on several new product releases scheduled for
fiscal 1999 and beyond.
14
141
Other income is comprised primarily of interest received from investments of the
Company's excess cash. The increase from 1997 to 1998 is due to the increased
investment balances.
Federal and state income tax paid in fiscal 1998 amounted to approximately $2.7
million, versus $2.6 million in fiscal 1997. BCI's effective tax rate is 32.2%
in fiscal 1998 versus 35.4% in fiscal 1997. The decrease in the effective tax
rate is due to additional benefits related to the Company's FSC.
It is management's opinion that the Company's future success is primarily a
function of its sales level. Management believes that it is not only necessary
to improve the sales of the Company's products which were available for sale
this year, but also to introduce other products to provide increased revenue.
Plans are in progress to achieve these results.
The rate of inflation continues to have a marginal impact on the operations of
the Company. While management routinely assesses the possible effects of
inflation with respect to the Company's future business plans, the rate of
inflation is not expected to have a material impact upon the growth of the
Company during Fiscal 1999. All export sales are denominated in U.S. currency
and therefore, the Company is not exposed to foreign currency risk.
Fiscal 1997 versus Fiscal 1996
The Company realized income before income tax expense of $7,179,312 in 1997, as
compared to $8,471,494 in 1996. Net income realized in fiscal 1997 and 1996
after income tax expense is $4,639,797 and $5,369,669. Based upon the weighted
average number of basic and diluted common shares outstanding, these translate
into net income per share of $.35 and $.41 in 1997 and 1996, respectively. It is
the opinion of management that these amounts may be compared, and are
attributable to the factors discussed below.
Net sales in fiscal 1997 decreased by $1,994,028, or by 6.9% when compared to
fiscal 1996. The drop in sales was experienced both in the domestic and the
international marketplaces. The decreases were predominantly due to decreased
sales of our handheld products and our other oximetry products. Sales of the
Model 3300/3301 hand-held oximeter during this fiscal year were approximately
$7.5 million versus $9.7 million world-wide in fiscal 1996. The Company believes
that the industry-wide market demand for first generation hand-held pulse
oximeters is flattening in the institutional hospital market.
15
142
Domestic BCI label sales decreased 9.5% from fiscal 1996. The decline was
primarily in the hand-held pulse oximeter as mentioned above, and in its sales
to the U.S. Government. In late fiscal 1997, however, the Company was awarded a
new contract with the Department of Defense, which should increase its
governmental sales in fiscal 1998. The award is for its Model 3303 Pulse
Oximeter, for use in aeromedical and other applications. Sales to hospitals
declined, but sales to the alternate care market (physicians' offices, clinics,
emergency medical and home health care companies) increased, due to the
Company's shift in marketing to these areas. Domestic OEM sales increased by
5.5% over fiscal 1996 sales, due to sales of our Model 3301 and 3303 handheld
pulse oximeters being sold into the home health care market. International
dealer sales of BCI-labeled products decreased by 9.1% and international OEM
sales decreased by 9.3% when compared to fiscal 1996 due to decreased sales of
oximetry products as well. Selling prices have not fluctuated significantly
during these time periods.
Cost of goods sold as a percentage of net sales decreased slightly in fiscal
1997 going from 44.5% in fiscal 1996 to 44.4% in fiscal 1997. The decrease is
primarily due to decreased raw material costs.
Selling, general and administrative expenses increased by approximately $182,000
when comparing 1997 to 1996. The increase is primarily attributable to continued
investment in the domestic sales and engineering departments. During fiscal
1996, BCI began focusing more on the alternate care markets, and increased the
amount spent on marketing to those areas. That spending continued in fiscal
1997. BCI feels these increases were needed to strengthen the domestic sales
efforts and position the Company for the future. Additional investments were
continued from fiscal 1996 in BCI's OEM sales efforts.
Research and development expenses increased by approximately $335,000 when
comparing fiscal 1997 to 1996. The engineering staff grew in fiscal 1997 to
twenty employees, who continued to focus their time and efforts on new product
releases. As a result, payroll and related expenses increased. Work continues on
several new product releases scheduled for fiscal 1998 and beyond.
Interest expense was not incurred in fiscal 1997 or fiscal 1996 due to the
long-term debt and related accrued interest being paid off in full during the
third quarter of fiscal 1995.
16
143
During fiscal 1996, BCI utilized the balance of the net operating loss
carryforwards and various federal credit carryforwards available. BCI
International set up a foreign sales corporation (FSC) subsidiary in fiscal 1996
in order to help defray the cost of income taxes on its foreign sales. Federal
and state income tax paid in fiscal 1997 amounted to approximately $2.6 million,
versus $1.7 million in fiscal 1996. BCI's effective tax rate is 35.4% in fiscal
1997 versus 36.6% in fiscal 1996. The drop is due to the Company enjoying a full
year of benefit from the FSC in fiscal 1997.
Liquidity and Capital Resources
Net income recorded in the current year continued to improve the Company's
working capital position. The additional working capital provided by the income
helped to finance the purchase of the new facility and fund the build out as
well as the growth in expenses discussed above. Additionally, the Company
increased its investment in cash and cash equivalents by $2.4 million during the
fiscal 1998 and $4.8 million in fiscal 1997. The Company intends to use the cash
and cash equivalents and funds generated in fiscal 1997 and 1998 to support its
growth into fiscal 1999 and beyond.
In comparing the year end receivable balances in fiscal 1998 versus fiscal 1997,
the accounts receivable balance decreased by approximately $500,000. This
decrease is largely due to decreased sales in the months of May and June when
comparing them to the previous year. Additionally, the Company had several large
international shipments in June with cash in advance terms, thus, these sales
did not increase the receivables balance. As a result of sales decreases
experienced in fiscal 1997 versus 1996, the accounts receivable balance
decreased by approximately $800,000, or 16%. Additionally, a $500,000 payment on
a past due receivable was received in fiscal 1997 from a large customer which
helped improve days sales outstanding. Notwithstanding selective credit
extensions, the Company continues to place emphasis on tight credit monitoring
and collection procedures.
Inventory levels increased by $108,000 in fiscal 1998 versus fiscal 1997. This
increase is due to increased levels of finished goods inventory in anticipation
of the down time the Company would experience when it moved its facility in
July, 1998. Inventory levels increased by $450,000 in fiscal 1997 versus fiscal
1996 primarily due to increased inventories of demonstration equipment used by
the domestic sales force and increased inventories for new
17
144
products being released in the first half of fiscal 1997. No products were
discontinued in fiscal 1998 or fiscal 1997. It is expected that inventory
balances will remain at the current level during fiscal 1999.
The increase in property, plant and equipment in fiscal 1998 from fiscal 1997 is
primarily due to the purchase of the new land and building and the build out of
this new facility. The land and building were purchased for $1,975,000, and the
build out cost approximately $1,200,000. The decrease in property, plant and
equipment in fiscal 1997 from 1996 is principally due to depreciation of
underlying assets. No major purchases were made in fiscal 1997.
Trade accounts payable and accrued liabilities increased by $311,000 when
comparing fiscal 1998 to fiscal 1997. This increase is primarily due to
increased trade payables relating to expenses of the new division, SurgiVet.
Trade accounts payable and accrued liabilities decreased by approximately
$107,000 when comparing fiscal 1997 to 1996. This decrease is primarily related
to trade payables and the timing of the year end payment cycle.
The Company continues to experience improved liquidity over the past fiscal
years. Operating activities of the Company have been the main source of this
liquidity. It is the belief of management that if operations continue at the
same level, funds generated from operations will be adequate to fund working
capital requirements, both in the short and long term.
The Company currently has in place a bank loan and security agreement that
provides for demand borrowings under a line of credit not to exceed the lesser
of the borrowing base or $10,000,000. The borrowing base, as defined in the
agreement is the sum of 80% of eligible accounts receivable and 25% of eligible
inventory. Interest is calculated based on the LIBOR rate. The borrowing base
currently exceeds $10,000,000, and there is no loan balance outstanding at June
30, 1998, so the available credit is $10,000,000.
It is the belief of management that if continued success in the achievement of
the above-noted goals is experienced, funds generated from future operations and
borrowing potential under the bank line of credit will be adequate to fund the
Company's working capital requirements during 1999.
BCI does not anticipate paying dividends on its common stock.
18
145
Impact of Recently Issued Accounting Standards
In June, 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." In February 1998 the FASB
issued SFAS No. 132, "Disclosures about Pensions and other Postretirement
Benefits." These statements will be adopted by the Company, as required, for the
periods beginning after December 15, 1997. These standards expand or modify
disclosures and, accordingly, will not have an effect on the Company's
liquidity, financial position, or results of operations. In June 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement will be adopted by the Company, as required, for the
periods beginning after June 15, 1999. Implementation of this statement is not
expected to have a material impact on the financial statements of the Company.
Subsequent Event
Effective July 1, 1998, SurgiVet, Inc., a wholly owned subsidiary of the
Company, purchased the assets of Anesco, Inc. for $4,000,000 cash. Upon
completion of the purchase, the Company recorded $3,258,000 of goodwill.
Forward Looking Statements
Except for the historical information contained herein, this report contains
certain forward-looking statements that are subject to certain risks and
uncertainties that could cause actual future results and developments to differ
materially from those currently projected. Such risks and uncertainties include,
but are not limited to, the timing of new product introductions, the current
uncertainties surrounding the Company's principal market segments including the
effect of consolidation of hospital groups and the move toward managed care, and
general economic conditions affecting the Company's market segments.
Quantitative and Qualitive Information about Market Risk
The Company has limited exposure to market risks. All export sales are
denomiated in U. S. currency and, therefore, the Company is not
19
146
exposed to foreign currency risk. The Company does hold an investment held for
trust that is subject to interest rate risk. The investment is a U.S. Treasury
note that matures in August, 1999 and has a stated interest rate of 5.875%. The
Company classifies this security as held-to-maturity. At June 30, 1998 the fair
market value is $1,852,565
Year 2000
The Company has reviewed its computer and other systems to identify those areas
that could be adversely affected by Year 2000 software failures. It has been
determined that the Company's products are fully Year 2000 compliant. Many of
the off-the-shelf variety of software programs the Company uses are already
compliant, the few that are not will be upgraded to compliant versions or
replaced at minimal cost. We have determined that our business system is not
Year 2000 compliant, as a result, we have begun the research and analysis needed
to replace the current system. Based on this initial analysis, the Company
estimates that it will cost approximately $300,000 to replace this system. The
Company is also currently verifying the Year 2000 compliance of our computer
hardware and operating systems. This review is expected to be completed by the
end of the calendar year. Additionally, the Company has assessed the compliance
of its office equipment (fax machines, copiers, telephone system, etc.) and
determined that these systems are fully compliant. The Company plans to begin
its review of the Year 2000 compliance of its customers and vendors and intends
to complete this assessment by the end of fiscal 1999.
Beyond the above review procedures, the Company is in the process of developing
a Year 2000 contingency plan, should a Year 2000 compliance issue arise.
However, there can be no assurance that customers, suppliers and service
providers on which the Company relies will resolve their Year 2000 issues.
Failure to complete the Year 2000 project in a timely manner could have a
material adverse effect on future operating results or financial condition
20
147
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Biochem International Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Biochem International Inc. and Subsidiaries at June 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
August 7, 1998
21
148
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
ASSETS 1998 1997
---- ----
Current assets:
Cash and cash equivalents $13,323,922 $10,892,915
Accounts receivable, net of allowance for
doubtful accounts of $100,000 and $125,000,
respectively 3,656,363 4,158,002
Inventories 3,856,206 3,747,955
Deferred income taxes 295,000 320,000
Income taxes recoverable 327,382 --
Prepaid expenses and other 71,632 43,376
----------- -----------
Total current assets 21,530,505 19,162,248
Investment, held for trust 1,845,000 1,847,739
Property and equipment, net 4,552,103 1,599,679
Intangible asset 22,916 --
Other 8,104 5,987
----------- -----------
Total assets $27,958,628 $22,615,653
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 2,147,765 $ 1,813,985
Accrued liabilities:
Salaries, wages and commissions 775,060 754,165
Other 203,279 212,018
Income taxes -- 35,000
------------ ------------
Total current liabilities 3,126,104 2,815,168
Stockholders' equity:
Preferred stock, $1.00 par value,
authorized 1,000,000 shares; none issued -- --
Common stock, $.02 par value, authorized
14,000,000 shares; 13,100,282 issued,
13,050,282 outstanding as of June 30,
1998, and 13,091,784 shares issued, 13,041,284
outstanding as of June 30, 1997 262,006 261,826
Additional paid-in capital 11,744,179 11,707,975
Retained earnings 13,166,764 8,162,954
------------ ------------
25,172,949 20,132,755
Less Treasury Stock at cost, 50,000 shares (187,500) (187,500)
Receivable from shareholders (152,925) (144,770)
------------ ------------
Total stockholders' equity 24,832,524 19,800,485
------------ ------------
Total liabilities and stockholders' equity $ 27,958,628 $ 22,615,653
============ ============
The accompanying notes are an integral part of these financial statements.
22
149
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
1998 1997 1996
----------- ----------- -----------
Net sales $28,532,251 $27,006,210 $29,000,238
Cost of goods sold 12,418,275 11,977,951 12,903,308
----------- ----------- -----------
Gross profit 16,113,976 15,028,259 16,096,930
Selling, general and
administrative expenses 7,106,695 6,537,099 6,355,041
Research and development expenses 2,414,103 1,983,817 1,647,651
----------- ----------- -----------
Income from operations 6,593,178 6,507,343 8,094,238
Other income, net 786,354 671,969 377,256
----------- ----------- -----------
Income before income tax expense 7,379,532 7,179,312 8,471,494
Provision for income taxes 2,375,722 2,539,515 3,101,825
----------- ----------- -----------
Net income $ 5,003,810 $ 4,639,797 $ 5,369,669
=========== =========== ===========
Basic earnings per share $ 0.38 $ 0.35 $ 0.41
Diluted earnings per share $ 0.38 $ 0.35 $ 0.41
Weighted average common shares
outstanding - Basic 13,097,254 13,086,784 13,083,284
Effect of dilutive securities 79,265 114,187 103,665
----------- ----------- -----------
Weighted average common shares
outstanding - Dilutive 13,176,519 13,200,971 13,186,949
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
23
150
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
Retained
Common Stock Additional Earnings/
------ ----- Paid-in (Accumulated
Shares Amount Capital Deficit)
------ ------ ------- --------
Balances, July 1,
1995 13,083,284 $ 261,666 $11,698,173 $(1,846,512)
Net income - - - 5,369,669
Exercise of common
stock options at
$.375 to $.625 per
share 3,500 70 1,478 -
Payments made on
behalf of shareholder - - - -
Balances, June 30,
1996 13,086,784 261,736 11,699,651 3,523,157
Net income - - - 4,639,797
Exercise of common
stock options at
$.625 to $4.29 per
share 4,500 90 8,324 -
Purchase of treasurey
stock - - - -
Payments made on
behalf of shareholder - - - -
Balances, June 30,
1997 13,091,284 261,826 11,707,975 8,162,954
Net income - - - 5,003,810
Exercise of common
stock options at
$3.31 to $5.25 per
share 9,000 180 36,204 -
Paymeents made on
behalf of shareholder - - - -
Cancellation of DS
Medical shares at par (2) - - -
Balances, June 30,
1997 13,100,282 $ 262,006 $11,744,179 $13,166,764
Treasury Stock
at Cost Receivable Total
-- ---- from Stockholders
Shares Amount Shareholder Equity
------ ------ ----------- ------
Balances, July 1,
1995 - $ - $ (101,828) $10,011,499
Net income - - 5,369,669
Exercise of common
stock options at
$.375 to $.625 per
share - - 1,548
Payments made on
behalf of shareholder - - (41,920) (41,920)
Balances, June 30,
1996 - - (143,748) 15,340,796
Net income - - - 4,639,797
Exercise of common
stock options at
$.625 to $4.29 per
share - - - 8,414
Purchase of treasurey
stock 50,000 (187,500) - (187,500)
Payments made on
behalf of shareholder - - (1,022) (1,022)
Balances, June 30,
1997 50,000 (187,500) (144,770) 19,800,485
Net income - - 5,003,810
Exercise of common
stock options at
$3.31 to $5.25 per
share - - 36,384
Paymeents made on
behalf of shareholder (8,155) (8,155)
Cancellation of DS
Medical sahres at par -
Balances, June 30,
1997 50,000 $(187,500) $ (152,925) $24,832,524
The accompanying notes are an integral part of these financial statements.
24
151
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
1998 1997 1996
------------ ----------- ------------
Cash flows from operating activities:
Net income $ 5,003,810 $ 4,639,797 $ 5,369,669
Adjustments to reconcile to net cash provided
by operating activities:
Deferred income taxes 25,000 20,000 1,310,000
Amortization of U.S. Treasury Note premium 2,739 16,143 5,334
Depreciation and Amortization 376,417 353,442 316,776
Change in assets and liabilities:
Receivables 501,639 615,316 (1,209,441)
Inventories (108,251) (451,320) (610,134)
Prepaid expenses and other (30,373) 5,713 (6,055)
Income taxes (362,382) (45,000) 80,000
Accounts payable and accrued liabilities 345,936 (61,653) 650,286
------------ ------------ ------------
Net cash provided by operating activities 5,754,535 5,092,438 5,906,435
------------ ------------ ------------
Cash flows from investing activities:
Property and equipment additions (3,347,310) (241,201) (591,006)
Proceeds from sale of equipment 20,553 - -
Investment in U.S. Treasury Notes - (1,869,216)
Intangible asset additions (25,000) - -
------------ ------------ ------------
Net cash used in
investing activities (3,351,757) (241,201) (2,460,222)
------------ ------------ ------------
Cash flows from financing activities:
Loan to shareholder (8,155) (1,022) (41,920)
Proceeds from exercise of stock options 36,384 8,414 1,548
------------ ------------ ------------
Net cash provided by (used in) financing activities 28,229 7,392 (40,372)
------------ ------------ ------------
Net increase in cash and cash equivalents 2,431,007 4,858,629 3,405,841
Cash and cash equivalents:
Beginning of year 10,892,915 6,034,286 2,628,445
----------- ----------- -----------
End of year $13,323,922 $10,892,915 $ 6,034,286
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 2,713,154 $ 2,564,515 $ 1,711,825
Non-cash activity:
The Company acquired 50,000 shares of its common stock owned by a major customer
during 1997 in satisfaction of the customer's $187,500 outstanding accounts
receivable balance.
The accompanying notes are an integral part of these financial statements.
25
152
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Biochem International Inc. (the "Company") designs and manufactures medical
equipment used in the monitoring of respiration, blood gases, exhaled gases,
anesthetic agent gases and related cardiovascular functions. The following
is a summary of significant accounting policies of the Company:
A. REVENUE RECOGNITION: The Company recognizes revenue from product
sales upon shipment to the customer.
B. CONSOLIDATION PRINCIPLES: The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries,
SurgiVet, Inc. and BCI International Foreign Sales Corporation. All
intercompany transactions have been eliminated. Effective October 1,
1997, the Company incorporated SurgiVet, Inc. as a wholly-owned
subsidiary to design and distribute monitoring equipment to the
veterinary market.
C. ESTIMATES: The Company prepares its consolidated financial
statements in conformity with generally accepted accounting principles,
which require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
D. CONCENTRATION OF CREDIT RISK: Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with a
high credit quality financial institution. The Company's trade
receivables subject it to credit risk. Its customers are primarily
health care providers, both domestically and internationally. The
Company's international receivables are generally supported by letters
of credit denominated in U.S. dollars. The domestic receivables are
generally not collateralized.
E. CASH EQUIVALENTS: All highly liquid investments purchased with a
maturity of three months or less are considered cash equivalents.
26
153
F. INVENTORIES: Inventories are valued at the lower of cost
(determined on a first-in, first-out basis) or market. Loaner and
demonstration equipment is recorded at cost and included in inventory
until sold.
G. INVESTMENT, HELD FOR TRUST: Investment, held for trust at June 30,
1998 represents an investment in a U.S. government security which
matures in August, 1999. The investment is classified as
held-to-maturity and is stated at amortized cost. The fair market value
of this security at June 30, 1998 is $1,852,565.
H. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are
stated at cost. Depreciation is provided on the straight-line method
over the estimated useful lives of these assets. The estimated useful
lives are principally 25 years for building and 3 to 10 years for
machinery and equipment. Upon sale or retirement of depreciable assets,
the related cost and accumulated depreciation are removed from the
accounts and any resultant gain or loss is reflected in operations.
I. INCOME TAXES: Deferred income tax assets and liabilities are
determined based on the difference between the financial statement and
tax bases of assets and liabilities using enacted income tax rates in
effect for the year in which the differences are expected to reverse.
J. NET INCOME PER SHARE: During the second quarter of 1998, the
Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share", which establishes new standards for
reporting earnings per share. The earnings per share computations for
prior periods have been restated to conform with the provisions of SFAS
128. Basic earning per share is computed by dividing net earnings by
the weighted average shares outstanding during each period. Diluted
earnings per share is computed similar to basic earnings per share
except that the weighted average shares outstanding is increased to
include the number of additional shares that would have been
outstanding if stock options were exercised and the proceeds from such
exercise were used to acquire shares of common stock at the average
market price during the period.
K. OTHER INCOME: Other income is comprised primarily of interest
received from the Company's interest-bearing cash accounts.
27
154
L. RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." In February 1998, the FASB
issued SFAS No. 132, "Disclosures about Pensions and other
Postretirement Benefits." These statements will be adopted by the
Company, as required, for the periods beginning after December 15,
1997. These standards expand or modify disclosures and, accordingly,
will not have an effect on the Company's liquidity, financial position,
or results of operations. In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement will be adopted by the Company, as required, for the periods
beginning after June 15, 1999. Implementation of this statement is not
expected to have a material impact on the financial statements of the
Company.
M. RECLASSIFICATION: Certain reclassifications were made to the 1997
consolidated financial statements to conform to the 1998 presentation
2. INVENTORIES:
Inventories are comprised of:
1998 1997
---- ----
Finished goods $ 561,440 $ 230,390
Loaner and demonstration 935,367 920,734
Work-in-process 1,043,103 1,070,564
Purchased material 1,316,296 1,526,267
----------- -----------
$ 3,856,206 $ 3,747,955
=========== ===========
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of:
1998 1997
---- -----
Land $ 583,943 $ 342,262
Building 724,699 724,699
Leasehold improvements 126,841 126,841
Machinery and equipment 2,121,650 1,366,871
Office furniture and equipment 227,024 184,295
Contruction in progress 2,502,690 -
----------- -----------
6,286,847 2,983,578
Less accumulated depreciation 1,734,444 1,383,899
----------- -----------
$ 4,552,103 $ 1,599,679
=========== ===========
28
155
4. INVESTMENT, HELD FOR TRUST:
A U.S. government security is held in a restricted trust as part of a
compensation agreement entered into between the Company and its president in
January 1996. The balance of this restricted trust as of June 30, 1998 and
1997 was $1,845,000 and $1,847,739, respectively. Under the terms of the
agreement, the president will receive earnings of the trust assets currently
and, should he remain employed by the Company for a period of one year
following a change in control, the assets in trust will become the property
of the president. The principal shareholders of the Company have guaranteed
the Company's obligation to its president.
5. BORROWING ARRANGEMENT:
The Company has a bank loan and security agreement which, as amended January
16, 1996, provides for borrowings not to exceed $10,000,000 that are due on
demand under a revolving line of credit. No amounts were outstanding under
this arrangement at June 30, 1998 or 1997. Interest is at the London
Interbank Offered Rate (LIBOR) plus 1.75%. The bank has a security interest
in all the assets of the Company. Under the terms of the agreement, any
borrowings under the line of credit must be used for working capital or
acquisition purposes. The terms of the agreement also subject the Company to
certain covenants, including restriction on paying dividends without prior
written consent of the bank, maintaining a minimum tangible net worth of
$7,500,000 and restriction of Company acquisitions to the medical products
industry.
6. COMMON STOCK AND STOCK OPTIONS:
Effective October 1, 1992, the Company adopted the 1992 Stock Program which
includes a Stock Option Plan and a Restricted Stock Rights Plan. This
program provides for the issuance of common stock options to officers,
employees and independent consultants. An aggregate of 250,000 shares were
originally reserved for issuance under the program. All options available
for grant at June 30, 1998 relate to the 1992 stock program. Stock purchase
rights granted under the Restricted Stock Rights Plan are exercisable for a
period of 30 days at a price equal to 10% of the stock's fair market value
at the date of grant. No stock purchase rights had been granted at June 30,
1998 under this plan.
At June 30, 1998, the Company also has outstanding options to purchase 3,000
shares of common stock under a Stock Option Plan which was terminated in
1991.
29
156
Options granted under the Stock Option Plans are exercisable for a period of 10
years at a price equal to market value, as defined, on the date of grant.
Participants are fully vested in their options when granted.
The following is a summary of the stock option shares and the weighted average
exercise price per share:
1998 1997 1996
---------------- --------------- --------------
Shares Price Shares Price Shares Price
Outstanding and exercisable
beginning of year 171,500 $3.013 181,000 $2.248 133,500 $1.557
Granted - - 26,000 5.250 51,000 3.931
Exercised (9,000) 4.043 (4,500) 1.870 (3,500) 0.442
Purchased - - (30,500) 0.586 - -
Forfeited - - (500) 0.625 - -
------- --------- -------
Outstanding and exerciseable
end of year 162,500 2.957 171,500 3.013 181,000 2.248
======= ======== =======
Available for grant,
end of year 73,000 73,000 68,000
======= ======= =======
Options outstanding and exercisable as of June 30, 1998:
Weighted-Average
Range of Weighted-Average Exercise Price
Exercise Prices Remaining Life per Share Shares
--------------- -------------- ---------------- ------
$0.250 - 0.346 3.87 $0.334 23,500
$0.625 - 1.359 5.31 0.855 25,500
$3.313 - 5.250 7.45 3.971 113,500
-------
2.957 162,500
=======
6. COMMON STOCK AND STOCK OPTIONS, CONTINUED:
In March, 1997, the Company purchased from the president of the Company his
option rights to purchase 30,500 shares of the Company's stock. These rights
were granted to the president during the years 1989 through 1994. The value paid
for the options was $163,211, determined as the average between the prices bid
and asked for the stock on the date of the authorization to purchase ($5.9375
per share) less the aggregate underlying options exercise price of $17,883.
After this transaction, the president owned options to purchase up to 20,000
shares of the Company's stock at exercise prices ranging from $3.3125 to $4.29
per share.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" (the "standard"). The Company adopted the new standard effective
July 1, 1996. The Company has
30
157
continued to measure compensation expense for its stock - based compensation
plans under Accounting Principles Board Opinion No. 25; therefore, the new
standard has no effect on the Company's operating results.
31
158
6. COMMON STOCK AND STOCK OPTIONS, CONTINUED:
Had the Company recognized compensation expense based on the fair value at the
grant for awards under the plan, consistent with the method prescribed by the
standard, the Company's net income and basic and diluted net income per share
for the years ended June 30, 1998 and 1997 would have been as follows:
1998 1997
----------- -----------
Net earnings as reported $ 5,003,810 $ 4,639,797
Net earnings pro forma $ 5,003,810 $ 4,567,076
Net earnings per share as reported $ 0.38 $ 0.35
Net earnings per share pro forma $ 0.38 $ 0.35
There were no stock options granted during the year ended June 30, 1998. The
following assumptions were used to compute the fair value of the option grants
for the year ended 1997, using the Black-Scholes option-pricing model: a
risk-free interest rate ranging from 5.88% to 6.43%; stock volatility of 40%;
dividend yield of 0% and expected option life of seven years.
7. INCOME TAXES:
The provision for income taxes consists of the following:
1998 1997 1996
---- ---- ----
Current:
Federal $ 2,089,360 $ 2,266,635 $ 1,763,623
State 261,362 252,880 28,202
--------- --------- ---------
Total current 2,350,722 2,519,515 1,791,825
--------- --------- ---------
Deferred:
Federal 16,375 45,961 1,067,000
State 8,625 (25,961) 243,000
----------- ----------- -----------
Total deferred 25,000 20,000 1,310,000
----------- ----------- -----------
$ 2,375,722 $ 2,539,515 $ 3,101,825
=========== =========== ===========
The following reconciles the Federal statutory income tax rate with the
Company's effective tax rate:
1998 1997 1996
---- ---- ----
Statutory Federal income tax rate 34.0 % 34.0 % 34.0 %
FSC benefit (3.4) (1.7) (0.9)
State income taxes, net of federal benefit 1.8 2.1 2.1
Nondeductible expenses and other (0.2) 1.0 1.4
------ ------ ------
32.2 % 35.4 % 36.6 %
====== ====== ======
32
159
7. INCOME TAXES, CONTINUED:
Deferred income taxes reflected in the balance sheet at June 30, 1997 and 1996
relate to the following:
1998 1997
---- ----
Deferred tax assets:
Current:
Inventories and receivables 136,110 130,257
Accrued employee benefits 95,150 109,405
Other 63,740 80,338
------- -------
Current deferred tax assets 295,000 320,000
------- -------
8. EXPORT SALES:
Export sales to various regions for the years ended June 30, 1998, 1997, and
1996 approximate:
1998 1997 1996
---- ---- ----
Western Europe $ 6,309,000 $ 5,832,000 $ 7,727,000
Far East 3,394,000 3,698,000 3,485,000
Central and South America 1,982,000 1,811,000 1,412,000
Other 1,568,000 2,182,000 2,248,000
------------ ------------ ------------
$ 13,253,000 $ 13,523,000 $ 14,872,000
============ ============ ============
The Company's export sales are denominated in U.S. currency.
9. EMPLOYEE BENEFIT PLAN:
The Company sponsors a defined contribution retirement plan for all eligible
employees of the Company. An employee becomes eligible to participate in the
plan upon completion of one full calendar month of employment. Employees may
contribute up to 12% of their compensation and the Company provides a matching
contribution of 50% of the employees' contributions up to 6% of the employees'
compensation. The Company's contributions to the Plan were $142,277, $139,384,
and $125,805 in 1998, 1997 and 1996, respectively.
The Company is not obligated to provide any postretirement medical or life
insurance benefits to employees.
33
160
10. RELATED PARTY TRANSACTIONS:
In July 1984, DS Medical Products Co. ("DS Medical") was formed for the
exclusive purpose of acquiring up to an 80% interest in the Company for
investment purposes. A former president of the Company, and a principal
shareholder of DS Medical, had an interest in the common stock of the Company
which is held by DS Medical. On August 1, 1993, the Company paid $101,828 to the
former president on behalf of DS Medical in exchange for those securities. In
addition, the Company paid approximately $40,000 in state taxes in March 1996
and approximately $11,000 in other expenses in 1997 and 1998 on behalf of DS
Medical. The Company has recorded these transactions as a reduction of
stockholders' equity.
On March 2, 1998, DS Medical was merged with and into the Company, thus
dissolving DS Medical. At that time, 9,984,998 shares of the Company's common
stock held by DS Medical were transferred to the principal shareholders of DS
Medical. The remaining two shares of the Company's common stock held by DS
Medical were cancelled.
The receivable from DS Medical of $152,925, recorded as a reduction of
stockholders' as of June 30, 1998, was assumed by the principal shareholders of
DS Medical on the date DS Medical was dissolved.
11. SUBSEQUENT EVENT:
Effective July 1, 1998, SurgiVet, Inc., a wholly-owned subsidiary of the
Company, purchased the assets of Anesco Inc. for $4,000,000 cash. Upon
completion of the purchase, the Company recorded $3,258,000 of goodwill.
34
161
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and principal executive officers of the Company and their offices
are:
Name Age Office
---- --- ------
David H. Sanders (1) 67 Director - Class I, Chairman of the Board of
Directors, Chief Executive Officer, Treasurer
and Assistant Secretary
Lee J. Knirko 75 Director - Class II
Frank A. Katarow 37 President and Chief Operating Officer
Keith R. Harper 49 Senior Vice President, Sales
Ann M. Johnson 36 Executive Vice President and General Manager,
SurgiVet, Inc. Vice President, BCI International
Robert H. Wesel 39 Vice President,
International Sales
Mark S. Geisler 46 Vice President, Engineering
Donald Alexander 43 Vice President,
Regulatory Affairs
Paul F. Pujanauski 47 Vice President,
Sales and Marketing
(1) Member of the Executive Committee
All directors are elected for two (2) year terms and serve until their
respective successors are duly elected and qualified. Mr. Kenneth Davee was a
Class I Director, Vice Chairman of the Board of Directors and Secretary of the
Company until his death on August 13, 1998. His position as an officer and
director of the Company has not been filled. The terms for Classes I and II
expire as of the date set for the annual stockholders' meeting for fiscal years
ending June 30, 1998 and June
35
162
30, 1997, respectively. Officers are appointed for a one (1) year term unless
sooner replaced. Each of the above individuals has served in the capacities
indicated since September 14, 1984, except as stated below.
MR. SANDERS received an undergraduate degree and, in 1956, a Masters in Business
Administration from the University of Wisconsin. Prior to his employment in 1973
by MEC, Mr. Sanders was with Pfizer International for four (4) years, and
Sandoz, Inc., for fifteen (15) years, at which companies he was involved in
marketing and general management. In 1973, he became President and Chief
Executive Officer of MEC, a position he held through December of 1984. Mr.
Sanders served as President of the Company from September 4, 1984 to October 4,
1984 at which time he commenced serving as Chairman and Assistant Secretary.
MR. KNIRKO, a certified public accountant, is a former treasurer of the Dr.
Scholl Foundation, a non-profit organization. He is a former audit manager of
Peat, Marwick, Main & Co. (now KPMG Peat Marwick), an accounting firm.
MR. KATAROW has been employed by the Company since October, 1980 serving in
various capacities including Mechanical Designer, Manager of Product Design,
Manufacturing Manager, Director of Operations and was then promoted to Vice
President of Operations in June, 1990. Responsibility for OEM Sales was added in
January, 1991. He was promoted to Senior Vice President and General Manager on
March 1, 1992 and further promoted to Executive Vice President effective January
1, 1993. On November 1, 1993 he became President and Chief Operating Officer of
the Company.
MR. HARPER has been employed by the Company since October, 1981, serving in
various capacities including National Service Manager, General Manager-Quality
Assurance and Service, Director of Regulatory Affairs, Director of Operations,
and Vice President of Operations since December, 1986. In 1990 he became Vice
President of International Sales. On November 1, 1993 he commenced serving as
Senior Vice President, Sales.
MS. JOHNSON, a certified public accountant, received a Bachelor of Business
Administration degree in Accounting and in Risk Management and Insurance from
the University of Wisconsin in Madison. She received her Masters of Business
Administration degree in May, 1997 from the University of Wisconsin in
Milwaukee. Prior to her employment at BCI, she worked on the audit staff at
Deloitte, Haskins & Sells (now Deloitte & Touche) from 1984 to 1987 and at
Coopers & Lybrand (now PricewaterhouseCoopers) from 1987 to 1990. She joined BCI
in April, 1990 and has been Vice President of Finance and Personnel since
December, 1991. On November 1, 1993 she was promoted to Vice President
36
163
of Finance and Operations. On November 1, 1997 she was promoted to Executive
Vice President and General Manager of SurgiVet, Inc., BCI's new veterinary
division. Ms. Johnson is also a Vice President of BCI.
MR. WESEL worked in the health care field for over ten years before starting at
BCI in January, 1991. He received an associates degree from Milwaukee Area
Technical College in Business Management and is also a certified cardiopulmonary
technologist and a pulmonary functions technologist. His most recent clinical
position was as Technical Director/Business Manager of Anesthesia at a 400 bed
hospital. Since coming to BCI, he has held several positions, including Manager
of Clinical Applications, Territory Sales Manager and Director of Marketing
Services. After a brief hiatus from the company in fiscal 1994, he became Vice
President of International Sales effective January 4, 1994.
MR. GEISLER came to BCI in November, 1994 as Vice President of Engineering from
Marquette Electronics. He worked at Marquette for 14 years at various positions
in the areas of Research and Development, most recently as Director of Research
and Development. He received his undergraduate degree in Electrical Engineering
from the University of Wisconsin in Madison and his masters degree in Electrical
Engineering from Marquette University. He is currently attending Marquette
University in pursuit of a Doctorate Degree in Electrical Engineering.
MR. ALEXANDER started at BCI in August, 1992 as Engineering Manager. In August,
1994 he transferred to the regulatory affairs department, becoming Regulatory
Affairs Manager, and was promoted to Vice President, Regulatory Affairs in May,
1995. Before coming to BCI, Mr. Alexander was a project leader at Life Fitness
Corp., an equipment manufacturer in Illinois. He has a Bachelors Degree in
Electrical Engineering from the University of Maine.
MR. PUJANAUSKI started at BCI in August, 1996 as National Sales Manager. In
July, 1997 he was promoted to Director of Domestic Sales and Marketing. He
accepted the position of Vice President of Domestic Sales and Marketing in May
1998. His prior experience includes 18 years in sales management for various
medical equipment companies. He has a Bachelors Degree in Business
Administration from the University of Wisconsin-Oshkosh.
37
164
Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's executive officers and directors and persons holding ten percent or
more of the Company's equity securities to file reports of ownership and changes
in ownership with the Securities and Exchange Commission. Based solely on its
review of copies of such reports furnished to the Company, the Company believes
that all of its executive officers, directors and greater than ten percent
beneficial owners were in compliance with their Section 16 filing requirements.
38
165
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash, cash-equivalent
and non-cash forms of remuneration for services to the Company for the past
three fiscal years for the Chief Executive Officer of the Company and each of
the Company's four other most highly compensated executive officers:
Long-term
Annual Compensation Compensation
------------------ ------------
Stock All Other
Name and Capacity Year Salary Bonus Other(1) Options(#) Compensation(2)
- - - ----------------- ---- ------ ----- -------- --------------------------
David H. Sanders 1998 $200,000 $-0- $-0- -0- $ 4,750
Chairman and CEO 1997 200,000 -0- -0- -0- 4,750
1996 200,000 -0- -0- -0- 4,600
Frank A. Katarow 1998 $188,500 $24,500 $-0- -0- $114,297
President and COO 1997 169,308 18,200 -0- 5,000 115,450
1996 153,134 30,050 -0- 10,000 10,218
Keith R. Harper 1998 $120,280 $ -0- $-0- -0- $3,639
Senior Vice President 1997 125,973 -0- -0- 2,000 3,869
1996 117,367 8,500 -0- 4,000 3,776
Robert H. Wesel 1998 $127,221 $-0- $-0- -0- $2,591
Vice President 1997 122,088 -0- -0- 2,000 3,663
1996 113,520 -0- -0- 4,000 3,406
Paul F. Pujanauski 1998 $122,589 $-0- $-0- -0- $3,551
Vice President(3) 1997 80,301 -0- -0- 1,000 2,793
1996 -0- -0- -0- -0- -0-
(1) While the above named Executive Officers enjoy certain perquisites, for the
year ended June 30, 1998, these did not exceed $50,000 or ten percent of any
officer's salary and bonus.
(2) These figures represent the amount of the Company's contribution to its
401(k) Plan allocated to the officer. Additionally, the amount for the year
ended June 30, 1998 allocated to Mr. Katarow includes a $109,546 payment
representing interest earned on the funds held in trust relating to the
Compensation Agreement in effect for Mr.
Katarow, as discussed below.
(3) Mr. Pujanauski began employment with the Company on August 5, 1996, and was
promoted to Vice President on May 15, 1998.
Directors receive no fees or expense reimbursement allowances.
39
166
STOCK OPTIONS
For the fiscal year ended June 30, 1998, there were no stock options issued.
There were no options exercised by directors or officers of the Company during
fiscal 1998. The following table shows the value of unexercised options on an
aggregated basis at June 30, 1998 for each of the executive officers and
directors:
Shares Number of Value of
Acquired on Value Unexercised Unexercised
Exercise Realized Options at Options at
Fiscal 1998 Fiscal 1998 6/30/98 6/30/98 (1)
----------- ----------- ---------- ------------
D.H. Sanders -0- -0- -0- N/A
K.M. Davee -0- -0- -0- N/A
L.J. Knirko -0- -0- -0- N/A
F.A. Katarow -0- -0- 25,000 $ 29,175
K.R. Harper -0- -0- 25,000 72,987
A.M. Johnson -0- -0- 34,500 101,644
R.H. Wesel -0- -0- 14,000 22,827
M.S. Geisler -0- -0- 14,000 18,920
D.J. Alexander -0- -0- 6,500 5,326
P.F. Pujanauski -0- -0- 1,000 375
(1) Value of unexercised options is calculated by determining the difference
between the fair market value of the securities underlying the options and the
exercise price of the options at fiscal year end.
In March, 1997, the Company purchased from the president of the Company his
option rights to purchase 30,500 shares of the Company's stock. These rights
were granted to the president during the years 1989 through 1994. The value paid
for the options was $163,211, determined as the average between the prices bid
and asked for the stock on the date of the authorization to purchase ($5.9375
per share) less the aggregate underlying options exercise price of $17,883.
After this transaction, the president owned options to purchase up to 20,000
shares of the Company's stock at exercise prices ranging from $3.3125 to $4.29
per share.
On January 24, 1996, the Company entered into a Compensation Agreement with its
President, Frank A. Katarow ("Katarow"). Under the terms of that Compensation
Agreement, Katarow has undertaken to remain in the employ of the Company for a
period of at least one (1) year following a change of control of the Company
(defined as a change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A under the
Securities Exchange Act of 1934). The intention of the Agreement is to retain
Katarow's services in the event of a sale, transfer or
40
167
other disposition of the business or ownership of the Company, for the benefit
of any acquiring party, in order to provide for continuity of management of the
Company, if so desired by any such acquiror.
Under the terms of the Agreement, for the one (1) year period following a change
of control, Katarow would be entitled to receive base salary at a rate at least
equal to the rate in effect immediately prior to such a change of control,
together with an annual bonus equal to the average bonus paid in the three (3)
years preceding such change of control. In addition, at the end of the one (1)
year period (or sooner if Katarow's employment with the Company or its successor
is earlier terminated without cause, as defined), Katarow would be entitled to
receive an amount equal to the amount remaining in a trust fund concurrently
established to provide for payment under the Compensation Agreement. That trust
fund, established pursuant to a complementary Trust Agreement and funded with a
cash deposit of $1,870,200.00, is intended to constitute a grantor trust as
described in Section 671 et. seq. of the Internal Revenue Code of 1986, as
amended (the "Code"). As such, all income earned by the trust is attributable to
the Company. Nevertheless, the trust instrument provides for payment of earnings
of the trust to Katarow on an annual basis. This amount, attributable to the
Company as income and deductible by it as an employee salary expense, is to be
treated as earned income to Katarow, who is responsible for payment of
individual income tax on such amount. Payment of these annual earnings to
Katarow will constitute a material increase in Katarow's salary payments from
the Company on a current basis. While earnings from the trust fund are payable
to Katarow on an annual basis commencing immediately, payment of the principal
of the trust fund is payable only upon his satisfaction of his continuing
post-change of control employment undertaking.
Until actually paid to Katarow, the assets of the trust are subject to
intervening claims of general creditors of the Company, including Katarow, whose
rights therein are no greater than those of other general creditors. Katarow may
not assign, anticipate, alienate or encumber his rights in the trust. David H.
Sanders, Chairman of the Board of the Company, has been designated as trustee
under the Trust Agreement.
Katarow concurrently entered into a similar Compensation Agreement with DS
Medical Products Co. ("DS Medical"), the principal shareholder of the Company.
This Agreement was amended January 12, 1998, in relation to the Merger of DS
Medical with and into the Company. Pursuant to this Amendment, Mr. Sanders and
Mr. Davee
41
168
jointly and severally assumed this Obligation. Under the terms of the respective
Compensation Agreements, to the extent that payments otherwise due Katarow from
the Company would be considered (I) "excess parachute payments" under Section
280G or 4999 of the Code, or (ii) not deductible by the Company by reason of
Section 162(m) of the Code, such payments become the obligation of the principal
shareholders, and the Trustee is directed to return to the Company the balance
of the assets in the trust that would otherwise be available to make those
payments.
The intention of the foregoing arrangement with Katarow is to assure his
continuing service to the Company on a current basis, and his availability to
any potential acquiror of the Company or its business or assets into the future.
The Company, its management and Board of Directors have determined that the
existence of continuity of present management would be an important aspect in
the valuation of the Company by any potential acquiror, and the Company and its
Board of Directors, deem it, in their best business judgment, to be important to
provide for retention of management in order to enhance the value of the Company
for the benefit of its shareholders. As disclosed in the Report on Form 8-K,
dated September 9, 1998, and previously mentioned herein, the Company is
currently negotiating a possible sale of the Company to Smiths Industries plc, a
United Kingdom-based avionics, medical systems and specialized industrial
products manufacturer. Management and ownership believe that the value of the
Company, will be enhanced in any sales discussions by the foregoing Compensation
Agreements.
The Company entered into employment contracts with four of its officers,
including Mssrs. Wesel and Harper, in April, 1995. The contracts have a three
year term, and are renewable for one year periods thereafter with agreement by
both parties. In the event employment is terminated without cause, the employee
shall be entitled to: severance pay for the greater of 12 months or one month
for each year of service, and continuation of employee benefits for the
severance period. The severance period terminates when the employee has found
other work if that occurs sooner than the predefined end of the severance
period. No other long term incentive plans or change-in-control arrangements are
currently in force at the Company.
42
169
COMPENSATION COMMITTEE REPORT
The objectives of the Company's compensation program are to attract and retain
the best available executives, to motivate these executives to achieve the
Company's goals, and to recognize individual contributions as well as overall
business results. To achieve these objectives, the Company reviews its
compensation program on a regular basis and attempts to tie a portion of each
executive's potential compensation to Company performance.
The key elements of the Company's executive compensation program consist of
fixed salary plus variable pay, taking the form of annual incentive compensation
directly tied to Company performance, and long-term compensation via stock
option awards. In determining each element of compensation to be awarded to each
executive, the Compensation Committee considers the executive's benefits
package, his/her responsibilities and experience, as well as the competitive
marketplace for executive talent. Whenever possible, a comparison to
compensation packages for executives with similar experience and
responsibilities was made when determining the packages at the Company.
In determining the compensation package for Mr. Sanders, the Company's Chairman
of the Board and Chief Executive Officer, the Committee took into consideration
both the compensation packages of CEOs at companies the Committee deemed
comparable, and the Committee's assessment of Mr. Sanders and the Company's
overall performance. Because of his substantial stock holdings, Mr. Sanders is
not eligible to participate in the stock option plan. Additionally, due to his
position, he is not eligible for any incentive compensation awards. Mr. Sanders
took no part in the determination of his compensation.
The Compensation Committee reviewed the proposed 1998 salaries and bonuses for
the executive officers. The Committee believed the proposed salary levels were
in line with or below the salary levels of executives in comparable positions of
responsibility. In an effort to tie a substantial portion of an executive's
compensation to Company performance, the Committee approved an incentive
compensation program in which all of the executive officers, other than Mr.
Sanders, Mr. Harper, Mr. Wesel and Mr. Pujanauski, are eligible to participate.
The program provides for a percentage of the participant's salary to be paid to
that officer if operating profits are above specified levels. Mr. Harper, Mr.
Wesel, and Mr. Pujanauski receive commission based on the sales performance of
their divisions. All executive officers, other than Mr. Sanders as
43
170
mentioned above, are eligible for discretionary stock option awards. The
committee believes that selective grants of stock options, along with the
performance-based cash compensation described above promote a commonality of
interest between the Company's officers and its stockholders.
The Compensation Committee is of the opinion that the compensation levels for
the executive officers are reasonable when compared to similar positions of
responsibility and scope in similar sized companies and in similar industries,
and that an appropriate amount of total compensation is based on the performance
of the Company, and therefore provides sufficient incentive for these
individuals to attain improved results in the future.
Compensation Committee:
David H. Sanders
Ken M. Davee (1)
(1) Mr. Davee's position on the Compensation Committee, made vacant upon his
death, has not been filled at this time.
44
171
COMPANY STOCK PRICE PERFORMANCE
The following table tracks the value of $100 invested on June 30, 1993 in
Biochem International Inc. Common Stock as compared to the change in the
Standard & Poor's 500 Index and the Standard & Poor's Health Care Composite
Index. The table shows that $100 invested five years ago in the Company's stock
was worth $351 at June 30, 1998, compared to $272 for the S&P 500 Index and $335
for the Health Care Composite Index.
MEASUREMENT HEALTH CARE
DATE BCI STOCK S & P 500 COMPOSITE
---- --------- --------- ---------
6/30/93 $ 100 $ 100 $ 100
6/30/94 250 99 100
6/30/95 223 125 145
6/30/96 314 157 202
6/30/97 342 212 262
6/30/98 351 272 335
The following graph depicts a five-year comparison of cumulative total
stockholder returns for the Company, the Standard & Poor's 500 Stock Index and
the Standard & Poor's Health Care Composite Index from June 30, 1993 through
June 30, 1998.
[GRAPH]
45
172
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table shows the beneficial ownership of common stock, $.02 par
value, of the Company by each person who is known by the Company to be the
beneficial owner of five (5) percent or more of such stock as of August 31,
1998:
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (3)
---------------- -------------------- ---------
Mrs. Ruth Davee 4,992,500 shares 37.79%
180 East Pearson 4,992,500 of record
Chicago, IL 60611
David H. Sanders 5,222,498 shares 39.53%
BCI International 4,636,566 of record
N7 W22025 Johnson Road 585,932 beneficially (1)(2)
Waukesha, WI 53186
(1) Includes 355,932 shares owned indirectly by Mr. Sanders through family
members. Therefore, for the purposes of Rule 13d-3 of the Securities
and Exchange Commission, he may be deemed to beneficially own the BCI
stock. Such beneficial ownership is disclaimed.
(2) 230,000 shares are held of record by the Sanders Family Benefit Trust.
(3) The percent of class calculations above are based on a total of
13,212,782 shares consisting of 13,050,282 shares outstanding, and
162,500 shares issuable upon exercise of options granted under the
Company's Incentive Stock Option Plans. See ITEM 8. Financial
Statements and Supplementary Data, Note 6, Common Stock and Stock
Options.
46
173
The following table shows the ownership of common stock of the Company held
beneficially by each director and officer holding shares, and by all directors
and officers of the Company as a group, as of August 31, 1998:
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (3)
- - - ---------------- -------------------- ---------
David H. Sanders 5,222,498 shares- 39.38%
4,636,566 of record
585,932 beneficially (1)(2)
Frank A. Katarow 30,700 shares-5,700 of .23%
record and beneficially,
and 25,000 beneficially as
options
Keith R. Harper 25,000 shares-25,000 .19%
beneficially as options
Ann M. Johnson 34,500 shares-34,500 .26%
beneficially as options
Robert H. Wesel 16,000 shares-2,000 of .12%
record and beneficially,
and 14,000 beneficially
as options
Mark S. Geisler 14,000 shares-14,000 .11%
beneficially as options
Donald Alexander 28,360 shares-21,860 of .21%
record and beneficially
and 6,500 beneficially
as options
Paul F. Pujanauski 1,000 shares-1,000 .01%
beneficially as options
All directors and 5,372,058 shares-4,666,126 40.50%
officers as a group of record and beneficially,
(8 persons) 585,932 beneficially, and
120,000 as options (1)(3)
(1) See footnote 1 to the preceding table.
(2) See footnote 2 to the preceding table.
(3) See footnote 3 to the preceding table.
The above beneficial ownership information is based on the information furnished
by the specified persons and has been determined in accordance with Rule 13d-3.
It is not intended to be an admission of beneficial ownership for any other
purpose and includes shares as to
47
174
which beneficial ownership has been disclaimed. BCI has not received any
Schedule 13D or Schedule 13G statements indicating that any person is a
beneficial owner of more than 5% of its common stock except as disclosed above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As previously discussed, in July, 1984, D.S. Medical Products Company ("DS
Medical"), was formed for the exclusive purpose of acquiring up to an 80%
interest in BCI for investment purposes. On March 2, 1998, DS Medical was merged
with and into BCI, thus dissolving DS Medical. Ken M. Davee and David H.
Sanders, the principal shareholders of DS Medical, then directly owned their
shares in BCI. Mr. Sanders and Mr. Davee are also directors and executive
officers of the Company. On August 13, 1998, Mr. Davee passed away, his spouse,
Mrs. Ruth Davee, is now a principal shareholder of the Company. At this time,
the Company has not filled this open Director and Officer position. (see ITEM
10. Directors and Executive Officers of the Registrant).
Prior to June 30, 1995, Mr. Davee owned the building which the company occupied
prior to moving into its new facility in July, 1998. BCI purchased the previous
building from Mr. Davee on that date, based upon an Option to Purchase (the
"Option") agreement relating to the property sold. Under the terms of the
Option, BCI had the right to purchase the leased property at any time after the
initial term of the Lease for $670,000 plus increases in the consumer price
index as defined in the agreement. The purchase price plus filing fee costs was
$812,899. The Company closed on the sale of this property on July 24, 1998 for a
selling price of $785,000, which constitutes a small gain over book value.
The former president of the Company had an interest in the common stock of the
Company which was held by DS Medical Products Co. On August 1, 1993, the Company
paid $101,828 to the former president on behalf of DS Medical Products Co. in
exchange for those securities. As a result, the Company has recorded these
transactions as a reduction of stockholders' equity in the same amount at June
30, 1997 and 1996.
The Company paid approximately $40,000 in state taxes in March 1996 on behalf of
DS Medical Products Co., a related party. The Company has recorded this payment
as a reduction of stockholders' equity at June 30, 1996.
The Company paid approximately $8,000 in legal bills in January 1998 on behalf
of DS Medical Products Co., a related party. The Company has added this payment
to the reduction in stockholders' equity at June 30, 1998.
48
175
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
(a) FINANCIAL STATEMENTS:
Page
1. Included in Part II of this report:
Report of Independent Accountants..............................20
Consolidated Balance Sheets at June 30, 1998 and 1997..........21
Consolidated Statements of Income for the years
ended June 30, 1998, 1997 and 1996.............................22
Consolidated Statements of Changes in Stockholders'
Equity for the years ended June 30, 1998, 1997 and 1996........23
Consolidated Statements of Cash Flows for the years
ended June 30, 1998, 1997 and 1996.............................24
Notes to Consolidated Financial Statements.....................25
2. Included in Part IV of this report:
Independent Accountants' Report on Financial Statement
Schedule for the years ended June 30, 1998, 1997
and 1996.......................................................54
Schedule II - Valuation and Qualifying Accounts................55
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, or in ITEM 8. Financial Statements and Supplementary Data.
(b) REPORTS ON FORM 8-K
The following Forms 8-K were filed with the Commission during the quarter ended
June 30, 1998 and the period following up to the date of this report:
(1) Form 8-K dated July 8, 1998:
Item 2. Acquisition of Assets: The Company's wholly-owned subsidiary, SurgiVet,
Inc., acquired substantially all of the assets of Anesco, Inc., pursuant to an
Asset Purchase Agreement effective July 1, 1998.
(2) Form 8-K dated September 9, 1998:
49
176
Item 5. Other Events: The company announced it has entered into discussions with
Smiths Industries plc, for the acquisition of the Company .
50
177
(C) EXHIBITS FILED WITH THIS FORM 10-K: Page
----
3(i)(a) Certificate of Incorporation of registrant
filed April 27, 1976.............................................. (1)
3(i)(b) Amendment to Certificate of Incorporation
filed June 8, 1976................................................ (1)
3(i)(c) Amendment to Certificate of Incorporation
filed June 30, 1977............................................... (1)
3(i)(d) Amendment to Certificate of Incorporation
filed July 31, 1979............................................... (1)
3(i)(e) Amendment to Certificate of Incorporation
filed October 22, 1980............................................ (2)
3(i)(f) Amendment to Certificate of Incorporation
filed September 13, 1984.......................................... (3)
3(ii) By-Laws of Registrant as amended through
December 19, 1988.................................................(12)
4.1 BCI Stock Purchase Warrant to purchase 8,000,000 shares of
common stock exercisable after 5:00 p.m., Chicago Time,
December 31, 1986, through December 31, 1992...................... (4)
10.1 Mortgage Loan and Security Agreement dated as
of December 1, 1980, between Registrant and
Town of Pewaukee, Wisconsin....................................... (5)
10.2 1981 Stock Program as amended through June 30,
1989..............................................................(13)
10.3 Loan Agreement dated July 18, 1984, by and
between Biochem International Inc. and
DS Medical Products Co............................................ (6)
10.4 Amended 10% Debenture due April 1, 1990........................... (3)
10.5 Biochem 10% Debenture, face amount $1,500,000 dated September
14, 1984, and due December 31, 1992............................... (4)
51
178
Page
----
10.6 Security Agreement by and between DS Medical and
Biochem dated September 14, 1984, assigning
DS Medical a security interest in Biochem's
accounts, chattel paper, contracts, contract
rights, documents, equipment, fixtures, general
intangibles, goods, instruments, inventory,
trademarks, trade names, trade secrets and good-
will products thereof and certain other assets
described therein................................................. (4)
.........
10.7 Second Mortgage to BCI's principal offices and
manufacturing facility commonly known as W238
N1650 Rockwood Drive, Waukesha, Wisconsin......................... (4)
10.8 Assignment of Rents to BCI's principal offices and
manufacturing facility commonly known as W238 N1650
Rockwood Drive, Waukesha, Wisconsin, 53188-1199................... (4)
10.9 Patent Collateral Assignment dated September 18, 1984 between
BCI and DS Medical with respect to all of BCI's
patent applications and patents................................... (4)
10.10 Trademark Collateral Assignment dated September 14, 1984
between BCI and DS Medical with respect to all of BCI's
trademark applications and trademarks............................. (4)
10.11 First Amendment to Mortgage, Loan and Security
Agreement, Biochem International Inc. and Town of
Pewaukee (or Pewaukee City), Wisconsin, dated as of
March 1, 1985..................................................... (7)
10.12 First Supplemental Indenture of Trust, Town of Pewaukee
(or Pewaukee City), Wisconsin, and The Marine Trust
Company N.A., as Trustee, dated as of March 1, 1985............... (7)
10.13 Confirmation of Real Estate Mortgage Subordination
by DS Medical Products Company dated as of
March 1, 1985..................................................... (7)
10.14 BCI 10% Debenture, Face Amount $500,000, dated
September 13, 1985, and due December 31, 1992..................... (8)
52
179
Page
----
10.15 Waiver of Defaults by IDRB Bondholder............................. (8)
10.16 January 1986 Waiver of Default by IDRB Bondholder................. (9)
10.17.Promissory Notes, dated July 17, 1986, between
Ken M. Davee and David H. Sanders, and BCI........................(10)
10.18 Commercial Offer to Purchase, dated July 21, 1987.................(11)
10.19 Lease, dated August 7, 1987.......................................(11)
10.20 Option to Purchase, dated August 7, 1987..........................(11)
10.22 1992 Stock Option Program, dated October 1, 1992..................(14)
10.23 Compensation Agreement between Frank A. Katarow
and Biochem International Inc.....................................(15)
10.24 Compensation Agreement between Frank A. Katarow
and DS Medical Products Co........................................(15)
10.25 Trust Agreement for Katarow Employment Trust......................(15)
24.0 Consent of Independent Accountants with
respect to Company's Form S-8.......................................55
53
180
Footnotes to ITEM 14
--------------------
(1) Previously filed as Exhibits 3(a) through 3(d) respectively to
Registrant's Registration Statement on Form S-1 No. 2-65273, and
incorporated herein by reference.
(2) Previously filed as Exhibit 20(a) to Registrant's Form 10-Q for the
quarter ended September 30, 1980, and incorporated herein by reference.
(3) Previously filed as Exhibits 3(f) and 10.34 respectively to
Registrant's Form 10-K for the period ended June 30, 1984, and
incorporated herein by reference.
(4) Previously filed as Exhibits 28.2, 28.1, 28.3, 28.4, 28.5, 28.7 and
28.8 respectively to Registrant's Form 8-K dated September 13, 1984,
and incorporated herein by reference.
(5) Previously filed as Exhibit 10(g) to Registrant's Registration
Statement on Form S-1 No. 2-70811, and incorporated herein by
reference.
(6) Previously filed as Exhibit 28.1 to Registrant's Form 8-K dated July
18, 1984, and incorporated herein by reference.
(7) Previously filed as Exhibits 10.51, 10.52 and 10.53 respectively to
Registrant's Form 10-Q for the quarter ended March 31, 1985, and
incorporated herein by reference.
(8) Previously filed as Exhibits 10.45 and 10.47 respectively to
Registrant's Form 10-K for the period ended June 30, 1985, and
incorporated herein by reference.
(9) Previously filed as Exhibit 10.48 to Registrant's Form 10-Q for the
quarter ended December 31, 1985, and incorporated herein by reference.
(10) Previously filed as Exhibit 10.50 to Registrant's Form 10-K for the
period ended June 30, 1986, and incorporated herein by reference.
(11) Previously filed as Exhibits 10.1, 10.2 and 10.3 respectively to
Registrant's Form 8-K dated August 7, 1987, and incorporated herein by
reference.
(12) Previously filed as Exhibit 3(g) to Registrant's Form 10-Q for the
period ended December 31, 1988, and incorporated herein by reference.
(13) Previously filed as Exhibit 10.2 to Registrant's Form 10-K for
54
181
the period ended June 30, 1989, and incorporated herein by reference.
(14) Previously filed as Exhibit 10.22 to Registrant's Form 10-K for the
period ended June 30, 1993, and incorporated herein by reference.
(15) Previously filed as Exhibit 10.23 through 10.25 to Registrant's Form
10-Q for the period ended December 31, 1995, and incorporated by
reference.
55
182
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BIOCHEM INTERNATIONAL INC.
Dated: September 28, 1998. By: /s/ David H. Sanders
---------------------------
David H. Sanders, Chairman
of the Board of Directors and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 28th day of September, 1998.
By: /s/ David H. Sanders By: /s/ Frank A. Katarow
------------------------------ ---------------------------
David H. Sanders, Chairman Frank A. Katarow,
of the Board of Directors President and Chief
and Chief Executive Officer Operating Officer
By: /s/ Lee J. Knirko. By: /s/ Mary K. Hamkins
------------------------------ ---------------------------
Lee J. Knirko, Director Mary K. Hamkins,
Director of Finance
(Chief Accounting Officer)
56
183
INDEPENDENT ACCOUNTANT'S REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Directors of
Biochem International Inc. and Subsidiaries
Our report on the consolidated financial statements of Biochem International
Inc. and Subsidiaries is included on page 19 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 47 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
August 7, 1998
57
184
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Biochem International Inc. on Form S-8 (File No. O-10005) of our report dated
August 7, 1998 on our audits of the consolidated financial statements and
financial statement schedule of Biochem International Inc. and Subsidiaries as
of June 30, 1998 and 1997, and for each of the three years in the period ended
June 30, 1998, which report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
September 21, 1998
58
185
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to Balance
Beginning Costs and (a) at End of
Description of Period Expenses Deductions Period
----------- --------- -------- ---------- ------
1998
----
Allowance for doubtful accounts $ 125,000 $205,650 $ 230,650 $ 100,000
Allowance for inventory obsolescence 175,000 139,885 199,885 115,000
--------- -------- --------- ---------
Total $ 300,000 $345,535 $ 430,535 $ 215,000
========= ======== ========= =========
1997
----
Allowance for doubtful accounts $ 140,000 $ (1,506) $ 13,494 $ 125,000
Allowance for inventory obsolescence 175,000 55,308 55,308 175,000
--------- --------- --------- ---------
Total $ 315,000 $ 53,802 $ 68,802 $ 300,000
========= ========= ========= =========
1996
----
Allowance for doubtful accounts $ 110,000 $ 48,491 $ 8,491 $ 140,000
Allowance for inventory obsolescence 150,000 74,568 49,568 175,000
--------- --------- --------- ---------
Total $ 250,000 $ 123,059 $ 58,059 $ 315,000
========= ========== ========= =========
(a) Deductions consist solely of doubtful accounts and inventory written off.
59
186
ANNEX V
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 1, 1998
-------------------------------
Biochem International Inc.
- - - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-10005 39-1272816
--------------- ------------- --------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
N7 W22025 Johnson Road, Waukesha, Wisconsin 53186
- - - -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 542-3100
- - - -----------------------------------------------------------------------------
W238 N1650 Rockwood Drive, Waukesha, Wisconsin 53188
- - - -----------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Exhibit Index on Page 4
187
Page 2 of 31
ITEM 2. ACQUISITION OF ASSETS.
On July 1, 1998, the registrant's wholly-owned subsidiary, SurgiVet, Inc.,
a Delaware corporation (the "Company"), acquired substantially all of the
assets of Anesco, Inc., a Kentucky corporation ("Anesco"), pursuant to an Asset
Purchase Agreement effective as of July 1, 1998. The purchase price for the
assets, which is subject to possible adjustment based on a closing balance
sheet prepared on a post-closing basis, was $4,000,000. The purchase price was
determined by negotiation between the Company and Anesco. On the closing date,
the Company paid 90% of the estimated purchase price to Anesco, and the balance
to an escrow account that is to be disbursed to Anesco in the absence of
post-closing liabilities to the Company. The purchase price was funded from
the Company's available working capital.
Prior to the acquisition, there were no material relationships between the
Company and Anesco, or any of their respective affiliates, directors, or
officers or, to the knowledge of the Company, any associate of any such
director or officer. The two principals of Anesco have been engaged as
employees of the Company.
Anesco, based in Georgetown, Kentucky, was a privately held company
engaged in the development, production and sale of veterinary anesthesia
equipment. The assets of Anesco included cash and cash equivalents, accounts
receivable, inventory, machinery, equipment and intangibles. The Company
intends to utilize the assets of Anesco in the same line of business in which
they were used prior to the acquisition, to complement the Company's line of
monitoring equipment used by veterinarians.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Neither the Company nor Anesco is required to provide financial
statements pursuant to Regulation 210.3-05(b)(2)(i).
(b) The following exhibit is filed as a part of this report:
2.1 Asset Purchase Agreement dated as of July 1, 1998.
[signature page follows]
188
Page 3 of 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOCHEM INTERNATIONAL INC.
(Registrant)
DATE: July 1, 1998 By: /s/ David H. Sanders
--------------------
Name: David H. Sanders
Title: Chairman
189
Page 4 of 31
EXHIBIT INDEX
Exhibit Number Description
2.1 Asset Purchase Agreement dated as of July 1, 1998
190
EXHIBIT 2.1
ALL EXHIBITS AND SCHEDULES IN THIS EXHIBIT 2.1 HAVE BEEN OMITTED. BIOCHEM
INTERNATIONAL INC. WILL FURNISH A COPY OF ANY EXHIBITS OR SCHEDULES TO THE
COMMISSION UPON REQUEST.
Page 5 of 31
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of the 1st day
of July, 1998, by and between Anesco, Inc., a Kentucky corporation ("Seller"),
and SurgiVet, Inc., a Delaware corporation ("Purchaser").
RECITALS
A. Seller is engaged in the development, production and sale of veterinary
anesthesia equipment (the "Business"); and
B. Purchaser desires to purchase from Seller, and Seller desire to sell,
transfer and assign to Purchaser, substantially all of the assets of the
Business except Excluded Assets (as hereinafter defined), and Purchaser has
agreed to assume certain specified liabilities related to the Business, for the
Final Purchase Price (as hereinafter defined) and upon the terms and subject to
the conditions hereinafter set forth.
In consideration of the mutual covenants and agreements hereinafter set
forth, the parties hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE OF BUSINESS AND ASSETS
1.1 Assets Transferred. Seller will sell, assign and deliver to Purchaser
and Purchaser will acquire from Seller, at the Closing (as hereinafter
defined), substantially all of Seller's assets relating to and used in
connection with the Business (except for the Excluded Assets), and including,
without limitation, those assets described on Schedule 1.1 attached hereto
(collectively, the "Purchased Assets").
1.2 Excluded Assets. Seller will retain and not transfer the assets
described on Schedule 1.2 attached hereto (collectively, the "Excluded
Assets").
1.3 Transfer at Closing. At the Closing, Seller shall assign, transfer or
otherwise convey the Purchased Assets to Purchaser free and clear of all
liabilities, obligations, liens and encumbrances whatsoever.
1.4 Assumed Liabilities. At the Closing, the Purchaser shall assume, and
thereafter perform and fully satisfy, only the following described specific
liabilities and obligations of the Seller:
(a) Seller's obligation to manufacture and deliver to Abbott
Laboratories, Inc. [QUANTITY] [PRODUCT DESCRIPTION] pursuant to
[CONTRACT/PURCHASE ORDER] dated _________________, 199__, for which
Seller has been pre-paid and for which Purchaser will not seek
reimbursement from Seller.
191
Page 6 of 31
(b) the incremental amount of accounts payable in excess of
historical ordinary course levels (defined as the simple average of the
prior twelve (12) months' ending accounts payable balances) that are
incurred by Seller in obtaining the inventory necessary to permit
Purchaser to have available for shipment sufficient Products (as
hereinafter defined) during the period between the Closing Date (as
hereinafter defined) and the time when Purchaser begins production at
its Waukesha, Wisconsin facility (provided that such inventory shall not
be considered as Seller's property for purposes of computing any portion
of the Final Purchase Price due hereunder).
(c) Seller's liability for purchase of used Ohmeda vaporizers at
prices not exceeding Two Hundred Dollars ($200) per unit.
(d) Seller's royalty and other obligations owed to Dr. David S.
Hodgson under the terms of that certain Consulting Contract, dated
December 1, 1993.
(e) Seller's warranty service obligations for all Products
manufactured and sold by the Business.
ARTICLE II
CLOSING
2.1 Time and Place of Closing. The closing of the sale of the Purchased
Assets (the "Closing") shall take place at 10:00 a.m., local time, on the 1st
day of July, 1998, at ____________________________, or at such other time and
place as the parties may agree (the "Closing Date").
ARTICLE III
PURCHASE PRICE
3.1 Calculation and Payment of Preliminary Purchase Price.
(a) Preliminary Purchase Price. At Closing, in consideration of the
sale, assignment and delivery of the Purchased Assets by Seller to
Purchaser, Purchaser shall (i) pay to Seller an amount equal to Four
Million Dollars ($4,000,000) (the "Preliminary Purchase Price") less the
Escrow Funds (as defined below), and (ii) deposit the sum of Four Hundred
Thousand Dollars ($400,000) (the "Escrow Funds") with American National
Bank and Trust Company of Chicago to be held pursuant to the terms of an
Escrow Agreement in the form attached as Exhibit A hereto. The Escrow
Funds shall be used for (i) settlement of the Final Purchase Price as set
forth in Section 3.1(c), and (ii) payment of any amounts due under
Article XIV.
(b) Preparation of Balance Sheets. Seller and Purchaser acknowledge
that the Preliminary Purchase Price has been established with reference
to that certain unaudited balance sheet of Seller as of April 30, 1998
(the "Initial Balance Sheet"), a
192
Page 7 of 31
copy of which is attached hereto as Schedule 3.1(b). Immediately after
the Closing Date, Purchaser and Seller will jointly prepare a balance
sheet that reflects Seller's balance sheet as of the opening of business
on the Closing Date (the "Closing Balance Sheet"). The Closing Balance
Sheet will be completed no later than thirty (30) days following the
Closing Date. The Closing Balance Sheet will be prepared in accordance
with the same accounting procedures used in preparing the Initial Balance
Sheet. The amounts set forth on the Closing Balance Sheet will be the
basis for determination of the Final Purchase Price (as hereinafter
defined) with no further right of either party to object to the Final
Purchase Price. If Seller and Purchaser are unable to agree upon
completion of the Closing Balance Sheet, Seller and Purchaser will submit
such dispute to binding resolution before a nationally recognized firm of
independent auditors mutually acceptable to Seller and Purchaser whose
decision will be final and binding on the parties. The parties will
split equally the cost of any third party auditing firm as used
hereunder.
(c) Calculation of Final Purchase Price. Immediately after the
Closing Balance Sheet is finalized pursuant to Section 3.1(b) above, the
parties shall calculate the "Final Purchase Price." Such Final Purchase
Price shall be equal to the Preliminary Purchase Price diminished, on a
dollar-for-dollar basis, by the amount, if any, that the carrying amount
of the Purchased Assets reflected on the Closing Balance Sheet decreases
from the carrying amount of the Purchased Assets reflected on the Initial
Balance Sheet, by more than the sum of (x) One Hundred Thousand Dollars
($100,000) plus (y) five percent (5%) of the carrying amount of the
Purchased Assets reflected on the Initial Balance Sheet.
(d) Settlement Payments. In the event the Preliminary Purchase
Price exceeds the Final Purchase Price, the Purchaser and Seller shall
direct the Escrow Agent to pay the difference to the Purchaser, in
immediately available funds from the Escrow Funds, together with interest
at the rate earned on those Escrow Funds.
(e) Payment and Settlement Not Remedy for Breach. The provisions
provided in this Section 3.1 are intended to derive, and provide for
payment and settlement of, the Final Purchase Price assuming compliance
by both parties with the representations, warranties, covenants and
agreements contained in this Agreement. Any breach of a representation,
warranty, covenant or agreement shall be remedied by application of the
indemnification provisions set forth in Article XIV of this Agreement.
ARTICLE IV
ALLOCATION OF PURCHASE PRICE
4.1 Allocation of Purchase Price. The Final Purchase Price shall be
allocated by Purchaser, in accordance with generally accepted accounting
principles and applicable Internal Revenue Service guidelines, among the
Purchased Assets for all purposes, including the filing of all tax returns and
Internal Revenue Service Form 8594, which shall be prepared
193
Page 8 of 31
by Purchaser upon final determination of the Final Purchase Price and delivered
to Seller and thereupon incorporated into this Agreement as Schedule 4.1
hereto. The amount allocated to assets that result in ordinary income tax
treatment to the Seller, in excess of the carrying amount of those assets on
the Closing Balance Sheet, shall not exceed One Million Dollars ($1,000,000).
Seller and Purchaser covenant and agree that each will prepare its tax returns
employing the allocation made pursuant to Schedule 4.1 and will not take a
position in any tax proceeding or audit inconsistent with such allocation.
Each party will promptly notify the other if the Internal Revenue Service or
any other taxing authority proposes to challenge or revise such allocation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser that:
5.1 Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Kentucky. Seller
has all requisite power and authority to own, lease, license and operate its
properties and assets, including the Purchased Assets, and to conduct the
Business now owned, leased, licensed and operated by it. Seller is duly
qualified, licensed and in good standing in each jurisdiction where the nature
of its activities conducted in connection with the Business, or the character
of the properties owned, leased or operated by it in connection with the
Business, require such qualification or licensing.
5.2 Corporate Authorization, Certain Corporate Actions, No Conflicts.
Seller has all requisite power and authority to execute and deliver this
Agreement and all necessary corporate proceedings have been taken to authorize
the execution, delivery and performance by Seller of this Agreement and the
transactions described herein. This Agreement has been duly authorized,
executed and delivered by Seller, is the legal, valid and binding obligation of
Seller, and is enforceable as to Seller in accordance with its terms, except as
such validity, binding effect or enforcement may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally or by
equitable principles relating to the availability of remedies. Neither the
execution, delivery nor performance of this Agreement by Seller will, with or
without the giving of notice or the passage of time, or both, conflict with,
result in a default, right to accelerate or loss of rights under, or result in
the creation of any lien, charge or encumbrance pursuant to, any provision of
Seller's certificate of incorporation, bylaws or any franchise, mortgage, deed
of trust, lease, license, agreement, understanding, law, rule or regulation or
any order, judgment, or decree to which the Seller is a party or by which the
Seller may be bound or affected.
5.3 Financial Information. The unaudited financial statements of Seller
for the fiscal years ended December 31, 1997 and December 31, 1996,
respectively, and the unaudited financial statements of Seller for the four (4)
month period ending April 30, 1998, complete copies of which have been provided
to Purchaser: (a) are true and correct in all respects, and (b) fairly present
in accordance with Generally Accepted Accounting Principles ("GAAP"),
consistently applied, (i) the consolidated financial position of Seller as of
said dates, and (ii) changes in financial position, stockholders' equity and
cash flows, and the
194
Page 9 of 31
results of operations for such fiscal years. The foregoing financial
statements are hereinafter referred to collectively as the "Historical
Financial Statements."
5.4 Operations of the Business; Adequacy of Purchased Assets. The
Business is operated and conducted only through Seller by its officers and
employees, and not through any direct or indirect subsidiary, affiliate, agent
or representative of Seller. The Purchased Assets and the Excluded Assets
comprise all the assets, properties and rights of every type and description
used in or necessary to the operation of the Business in the ordinary course.
No assets of Seller, other than Purchased Assets and Excluded Assets, are used
by the Business. All machinery and equipment constituting part of the
Purchased Assets are in good repair and working order, normal wear and tear
excepted.
5.5 Absence of Certain Changes or Events. Since April 30, 1998, there has
not been any Material Adverse Change in the Condition of the Business (as
defined in Section 5.29), or event or development likely to give rise to a
Material Adverse Change in the Condition of the Business, and Seller has not,
in any amount or manner: (a) sold, transferred, leased to others or otherwise
disposed of any of the assets used in the Business, except for inventory sold
in the ordinary course of business; (b) canceled or compromised any debt or
claim, or waived or released any right of value relating to the Business; (c)
received any notice of termination of any contract, lease or other agreement
relating to the Business; (d) had any actual or threatened employee strikes,
work stoppages, slow-downs or lockouts affecting the Business, or had any
change in its relations with its key employees, agents, customers, or suppliers
relating to the Business; (e) transferred or granted any rights under, or
entered into any settlement regarding the breach or infringement of, any
license, patent, copyright, trademark, trade name, invention or similar right
relating to the Business, or modified any existing right with respect thereto;
(f) made any change in the rate of compensation, commission, or other direct or
indirect remuneration payable, or paid or agreed or orally promised to pay,
conditionally or otherwise, any bonus, extra compensation, pension, severance
or vacation pay, to any officer, employee, salesman, distributor or agent of
Seller relating to the operation of the Business, other than in the ordinary
course of business; (g) made any capital expenditures or capital additions or
betterments in respect of the Business in excess of an aggregate amount of Five
Hundred Dollars ($500); (h) failed to replenish Seller's inventories and
supplies in a normal and customary manner consistent with prudent business
practices, or made any purchase commitment in excess of the normal, ordinary
and usual requirements of the Business or at any price in excess of the then
current market price or upon terms and conditions more onerous than those usual
and customary in the industry, or made any change in its selling, pricing,
advertising or personnel practices inconsistent with its prior practice and
prudent business practices; (i) made any loans or advances to any Person (as
defined in Section 5.29) or assumed, guaranteed or otherwise become responsible
for the obligations of any Person; (j) made any change in accounting methods;
or (k) entered into any agreement or made any commitment to take any of the
types of action described in subparagraphs (a) through (j) above.
195
Page 10 of 31
5.6 Undisclosed Liabilities. Seller has no debts, liabilities or
obligations, contingent, accrued or absolute, of a nature required by GAAP to
be reflected on a consolidated balance sheet, other than those debts,
liabilities or obligations reflected or reserved against in the balance sheets
of the Seller included as part of the Historical Financial Statements, except
for the matter identified on Schedule 5.7 hereto. Since December 31, 1997,
Seller has incurred no debts, liabilities or obligations, contingent, accrued
or absolute, of a nature required by GAAP to be reflected on a balance sheet of
Seller, other than those in the ordinary course of the Business. A complete
and accurate list of the employees of the Business as of the Closing Date,
together with all amounts each such employee is now or will by the passage of
time hereafter become entitled to receive on account of accrued vacation time,
vacation pay or severance pay, attributable to the time prior to and through
the Closing Date, including amounts that each such employee becomes entitled to
receive as a result of the consummation of the transactions contemplated
hereby, is provided on Schedule 5.6 attached hereto. All such amounts will be
paid by Seller.
5.7 Litigation; Orders. Except for the matter identified on Schedule 5.7
hereto, there is no claim, legal action, administrative proceeding,
governmental investigation, arbitration or other proceeding pending, nor to
Seller's Knowledge (as defined in Section 5.29), threatened, against Seller
arising from or otherwise relating to the Business, and Seller has no reason to
be aware of any basis for the same. There is no judgment or outstanding order,
injunction, decree, stipulation or award (whether rendered by a court or
administrative agency, or by arbitration) against Seller relating to the
Business or that would prohibit the consummation of the transaction
contemplated by this Agreement. No citations, fines or penalties have been
asserted against Seller with respect to the Business since April 30, 1998,
under any foreign, federal, state or local law.
5.8 Intellectual Property. Schedule 5.8 contains a complete and correct
list of all patents, trade names, trademarks, trademark registrations, service
marks, registered user names and copyright, and applications for registration
of the foregoing, both domestic and foreign, presently owned, possessed, used
or held by Seller relating to the Business. All of the Intellectual Property
(as defined in Schedule 1.1) is valid or in full force and effect and Seller
has not received any notice or claim that any of the Intellectual Property is
invalid or unenforceable by it. The Intellectual Property and Know-How (as
defined in Schedule 1.1) are owned by Seller free and clear of any license,
sublicense, agreement, right, understanding, judgment, order, decree,
stipulation, lien, charge or encumbrance. The rights being transferred to
Purchaser pursuant to this Agreement, including rights to the Intellectual
Property, constitute all such rights necessary to produce, market and sell the
products of the Business and to conduct the Business as currently conducted by
the Seller. None of the Intellectual Property, the technology covered thereby
or the Know-How has been misappropriated from any Person. Seller is not, in
connection with the Business, infringing upon or otherwise acting adversely to
any intellectual property owned by any other Person, and there is no claim or
action by any Person pending, or to Seller's Knowledge threatened, with respect
thereto. There is no infringement or improper use by any third party of the
Intellectual Property or the Know-How relating to the Business, and there is no
action or
196
Page 11 of 31
proceeding instituted by Seller pending in which an act constituting an
infringement of any of the rights to such Intellectual Property or Know-How was
alleged to have been committed by a third party. Seller has not taken or
omitted to take any action that would have the effect of waiving any rights to
any Intellectual Property or Know-How related to the Business. Schedule 5.8
lists all licenses, sublicenses or agreements relating to the use by third
parties of the Intellectual Property and Know-How, or the use by the Business
of the Intellectual Property of another Person, and there is no default under
any such license, sublicense or agreement.
5.9 Labor Matters. As of the date hereof, there is no collective
bargaining agreement or any labor dispute, arbitration, lawsuit or
administrative proceeding relating to labor matters involving employees of the
Business. There is no labor strike or work stoppage pending or threatened, and
none has occurred during the last five (5) years. The Business is in
compliance with all applicable federal, state and local laws and regulations
respecting employment and employment practices.
5.10 Compliance with Laws. The conduct of the Business complies in all
respects with all applicable statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable thereto. To Seller's Knowledge, there
are no proposed laws, rules, regulations (including zoning regulations),
ordinances, orders, judgments, decrees, governmental takings, condemnations or
other proceedings that would be applicable to the Business and that could have
a Material Adverse Effect on the Condition of the Business.
5.11 Insurance. Seller presently maintains liability insurance, including
product liability, casualty, property loss and other insurance coverage upon
its properties and related to the conduct of the Business, in such amounts, of
such kinds and with such insurance carriers as are generally deemed appropriate
and sufficient for companies of a similar size engaged in similar types of
business and operations, and which will be sufficient to fully indemnify
Purchaser from and against any claims, losses or expenses attributable to any
actions or inactions of Seller prior to the Closing Date. Seller has provided
Purchaser with: (i) a true and complete list of all policies of fire,
liability, indemnity and other forms of insurance relating to Seller or the
Business, whether currently in force or otherwise applicable to any current or
future liabilities, setting forth the type and amount of coverage, policy
number, policy periods and the status of premiums paid thereon; and (ii) a true
and complete description of all product liability claims pertaining to Seller
or the Business that have been brought against Seller during the immediately
preceding five (5) years, detailing for each such claim, the claimant thereof,
the basis therefor, and the status or ultimate resolution thereof, as
applicable.
5.12 Taxes. Seller has timely filed all federal, state, local and foreign
income tax returns and other tax reports relating to the operations of the
Business and required under applicable law to be filed on or prior to the date
hereof. All taxes, assessments and other governmental charges relating to the
income, receipts, payrolls, transactions, or capital of the Business reflected
on such tax returns and reports that are due and payable have been or will
197
Page 12 of 31
prior to Closing be paid, other than those currently payable without penalty or
interest. Without limiting the foregoing, Seller has paid all sales and use
taxes due on account of operations of the Business or has obtained exemption
certificates where applicable. Seller has filed all federal, foreign, state,
local and other returns and reports with respect to employee income tax
withholding and social security and unemployment taxes in compliance with
applicable tax withholding provisions applicable to the Business. There are no
existing deficiencies (or proposed deficiencies or adjustments) for any taxes,
or interest or penalties thereon that have been asserted or proposed in writing
or assessed against Seller relating to the Business by any governmental unit.
5.13 Contracts.
(a) There is no contract, agreement, commitment or arrangement
("Contract"), or any outstanding unaccepted offer ("Offer"), whether
written or oral, express or implied, fixed or contingent, that affects
any of the Purchased Assets or to which Seller is bound and which relates
to the Business:
(i) that is or relates to a mortgage, indenture, security
agreement or other agreement or instrument relating to the
borrowing of money by, or any extension of credit either by or
to, Seller;
(ii) that is or relates to a collective bargaining
agreement or other union contract;
(iii) that contains or relates to covenants or other
provisions limiting Seller's right to compete in any line of
business or with any person or in any area;
(iv) that is or relates to a license agreement, either as
licensor or licensee;
(v) that provides for or relates to any sharing of profits
with others or any joint venture or similar enterprise;
(vi) that is or relates to a revocable or irrevocable
power of attorney or proxy granted to any person for any
purpose whatsoever;
(vii) that involves any remaining or unsatisfied
obligation (A) to make capital expenditures (whether through
the purchase of real or personal property or otherwise)
involving Twenty-Five Thousand Dollars ($25,000) or more in the
case of any one item or group of items, (B) to purchase goods
involving Twenty-Five Thousand Dollars ($25,000) or more in the
case of any one item or group of items, or (C) other than the
contract referred to in Section 1.4(a) above, to supply
products or provide
198
Page 13 of 31
services involving Twenty-Five Thousand Dollars ($25,000) or
more in the case of any one item or group of items;
(viii) that involves any sales agency, manufacturer's
representative, distributorship or marketing agreement that is
not cancelable without cost or payment on not more than thirty
(30) days' notice;
(ix) that relates to a lease or other arrangement relating
to the Business to which Seller is a lessee of personal
property or equipment other than as described on Schedule
5.13(a)(ix); or
(x) that is any other agreement, contract or commitment
that in any case involves payment or receipts of more than
Twenty-Five Thousand Dollars ($25,000) or that is in any way
material to the Business.
(b) Seller is not a party to: (a) any agreements with any
executive officer or other key employee of the Business, (i) the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Business of
the nature of the transaction contemplated by this Agreement, (ii)
providing any term of employment or compensation guarantee, (iii)
providing severance benefits or other benefits after the termination of
employment of such employee regardless of the reason for such
termination of employment; or (b) any other employee agreement or plan
including, without limitation, any incentive or bonus plan, stock
option plan, stock appreciation right plan or stock purchase plan.
(c) Neither Seller nor any other party to a Contract is in breach
thereof or default thereunder, and there does not exist any event,
including the execution, delivery and performance of this Agreement and
the transactions contemplated hereby, that, with the giving of notice
or the lapse of time, would constitute such a breach or default, and
all Contracts to which the Seller is a party that relate to the
Business are in full force and effect. To the extent any Contract or
Offer can be transferred only with the consent or approval of or notice
to another party, such necessary consent, notice or approval has been
obtained, or will be obtained, without cost to Purchaser prior to
Closing.
5.14 Receivables. All receivables relating to the Business (including
accounts receivable, loans receivable and advances) that are reflected on the
Seller's balance sheet as of December 31, 1997 have, and all receivables
resulting from operations of the Business between December 31, 1997 and the
Closing Date will have, arisen only from bona fide transactions in the ordinary
course of the Business and (to the extent not already collected) are fully
collectible when due, or in the case of each account receivable, within ninety
(90) days after it arose, without resort to litigation and without offset or
counterclaim, except to the extent of the allowance for doubtful accounts with
respect to accounts receivable as set
199
Page 14 of 31
forth or reflected on the Closing Balance Sheet.
5.15 Inventories. The inventories of raw materials, work in process,
finished products, goods, spare parts, replacement and component parts that are
reflected on the Seller's balance sheet as of December 31, 1997 (and not
subsequently disposed of in the ordinary course of business) are, and all such
inventories resulting from operations of the Business between December 31, 1997
and the Closing Date (and not subsequently disposed of in the ordinary course
of business) will be, in all respects merchantable, or suitable and useable for
the production or completion of merchantable products, for sale in the ordinary
course of business, are valued at the lower of cost or market in accordance
with GAAP and are sufficient but not excessive in order to meet the normal
requirements of the Business (as well as the requirements referred to in
Section 1.4(b) above), in each case subject to applicable reserves as required
by GAAP for valuation, excess and obsolete inventory.
5.16 Backlog. Schedule 5.16 lists all of Seller's Contracts to supply
goods or services involving Five Thousand Dollars ($5,000) or more in the case
of any one item or group of items that are not substantially complete on the
date of this Agreement. Schedule 5.16 also sets forth, by Contract, the
current estimate of Seller of the total revenues remaining to be earned with
respect to each such Contract and Seller's current estimate of the cost of
completion and gross profit remaining. The list of Contracts described in this
Section 5.16 has been prepared by management of Seller on a reasonable basis
consistent with past practices, and there is no fact or circumstance that casts
doubt in any material respect on the accuracy or completeness thereof.
5.17 Consents, Approvals, etc. To Seller's Knowledge, there are no
filings required to be made by Seller with, and there are no consents,
approvals, permits or authorizations required to be obtained by Seller from,
governmental and regulatory authorities of the United States, the several
states or any other jurisdiction in connection with the execution and delivery
of this Agreement by Seller and the consummation by Seller of the transactions
contemplated hereby.
5.18 Certain Payments; Absence of Certain Business Practices. Neither
Seller nor any of its representatives or agents has made or will cause to be
made by or on behalf of the Business, any payments, loans or gifts or promises
or offers of payments, loans or gifts of any money or anything of value,
directly or indirectly, (i) to or for the use or benefit of any official or
employee of any government, (ii) to any political party or official or
candidate thereof, (iii) to any other person either in advance or as a
reimbursement if he or it knows or has reason to suspect that any part of such
payment, loan or gift will be directly or indirectly given or paid by such
other person, or will reimburse such other person for payments, gifts or loans
previously made, to any governmental official or political party or candidate
or official thereof, or (iv) to any other person or entity, the payment of
which would violate the laws, or regulations having the force of law, of the
United States or the country of domicile and/or residence of such party.
Neither the Internal Revenue Service nor any other federal, state, local or
foreign government agency or entity has notified Seller of any pending or
200
Page 15 of 31
threatened investigation of any payment made by or on behalf of the Business
of, or alleged to be of, the type described in this Section 5.18.
5.19 Licenses and Permits. To Seller's Knowledge, Seller has obtained and
maintains all governmental licenses and permits necessary to conduct the
Business. Such licenses and permits are valid and in full force and effect,
and none of such licenses or permits will be terminated or impaired or become
terminable as a result of the transactions contemplated by this Agreement, and
each of such licenses and permits can be transferred to Purchaser without
consent or payment.
5.20 Employee Benefit Plans and Employee Matters.
(a) Schedule 5.20 lists each pension, retirement, profit sharing,
deferred compensation, bonus and other incentive plan, other employee
benefit programs, arrangements, agreements and understandings, medical,
vision, dental and other health plans, life insurance and disability
plans, and any other employee benefit plans, employment contracts and
severance agreements including, without limitation, any "employee benefit
plan" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") to which Seller contributes or
is a party or is bound or under which it may have liability and under
which employees or former employees of the Business (or their
beneficiaries) are eligible to participate or derive a benefit ("Employee
Benefit Plans"). Seller has delivered to Purchaser true, correct and
complete copies of all Employee Benefit Plans. There are no claims,
pending or threatened, based on asbestosis, carpal tunnel syndrome,
hearing loss or impairment, extensive back injury or any other exposure
or alleged exposure to cumulative trauma injuries or exposures, and there
is no basis for the same.
(b) All contributions required by law or collective bargaining
agreement to have been made under any of the Employee Benefit Plans
(without regard to any funding waivers granted under applicable law) to
any funds or trusts established thereunder or in connection therewith
have been made by the due date thereof (including any valid extension).
Neither the Seller nor any of the Purchased Assets is subject to any
liability for or any lien with respect to any of the following: (i)
excise taxes imposed under Chapter 43 of the Internal Revenue Code of
1986, as amended (the "Code"); (ii) liability to the PBGC under Title IV
of ERISA; (iii) liability under ERISA Section 502 (other than claims for
benefits in the ordinary course) or Section 4071; (iv) liability imposed
under Title IV, Subtitle E of ERISA with respect to any "multiemployer
plan" as defined in Section 3(37)(A) of ERISA; or (v) liability arising
as the result of a failure to make required contributions under Section
412 of the Code or Section 302 of ERISA. No Employee Benefit Plan is a
"welfare benefit plan" within the meaning of Section 3(l) of ERISA that
provides for continuing benefits or coverage for any participant or any
beneficiary of a participant after the participant's retirement or other
termination of employment, except as may be required under Section 4980B
of the Code and Part 6 of Subtitle B of Title I of ERISA and proposed
201
Page 16 of 31
regulations thereunder and at the sole expense of the participant or the
participant's beneficiary.
5.21 Transactions with Interested Persons. No officer, director or
affiliate of Seller owns directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
customer, competitor or supplier of Seller or any organization that has a
contract, agreement, arrangement or commitment with Seller relating to the
Business. Seller is not indebted to any director, officer, employee or agent
of Seller, except for amounts due as normal salaries, commissions, wages,
bonuses and in reimbursement of ordinary expenses on a current basis. Except
as set forth on Schedule 5.21, no employee or agent of Seller is indebted to
Seller except for advances for ordinary business expenses in a normal amount.
5.22 Environmental Matters.
(a) Without in any manner limiting the scope of the representations
set forth elsewhere in this Agreement, the operations of the Business are
in compliance in all material respects with, and Seller has not received
oral or written, direct or indirect, notice of violations under, any
federal, state or local environmental laws as enacted, re-authorized or
amended, including by way of illustration, but not limited to (i) the
Clean Air Act, 42 U.S.C. 7401 et seq., its implementing regulations and
state analogues or equivalents to such act and regulations provided
thereunder; (ii) the Clean Water Act, 33 U.S.C. 1251 et seq., its
implementing regulations and state analogues or equivalents to such act
and regulations provided thereunder; (iii) the Rivers and Harbors Act of
1899, 33 U.S.C. 401 et seq. and its implementing regulations; (iv) the
Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq., its implementing regulations and
state analogues or equivalents to such act and the regulations provided
thereunder; (v) the Toxic Substances Control Act, 15 U.S.C. 2601-2629,
and the regulations promulgated thereunder; (vi) the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLA"),
42 U.S.C. 9601 et seq., as amended by the Superfund Amendment and
Reauthorization Act of 1986 ("SARA" and "SARA, Title III"), subsequent
amendments, revisions and regulations in effect on the date hereof,
implementing regulations and state analogues or equivalents to CERCLA,
SARA and SARA, Title III and regulations provided thereunder; (vii) all
federal, state, and local statutes and regulations governing underground
storage tanks; and (viii) all common law decisions restricting or
regulating noise, air, or water emissions or discharge;
(b) Schedule 5.22 identifies (i) all environmental audits or
assessments or occupational health studies relating to property or
facilities of the Business undertaken by governmental agencies or by
employees, agents, or independent contractors working at the request of a
federal, state or local government agency, (ii) properties and facilities
of the Business with respect to which Seller or the Business has received
202
Page 17 of 31
oral or written communication from a federal, state or local
environmental agency (or their designees) in the last five (5) years or
concerning which a violation has at any time in the past been brought,
but which has not been formally resolved, and (iii) all claims made or
attributions, warnings or reports relating to or arising under the
Occupational Safety and Health Act during the past five (5) years;
(c) There has not been, and is not occurring, any "release" of any
"hazardous substance" on real estate presently occupied by the Business,
nor has Seller any reason to believe such a "release" either is occurring
or has occurred in the past at any such facility. For purposes of this
provision the terms "release" and "hazardous substance" shall have the
same meaning as those terms are given in CERCLA at 42 U.S.C. 9601 (22)
and (14), respectively, except that the terms shall include petroleum,
gasoline (leaded or unleaded), oil, fuel, diesel fuel, petroleum
solvents, or crude oil or, any fraction thereof, whether or not it is
specifically listed or designated as a hazardous substance under Sections
A through F of 42 U.S.C. 6901 (14) or any state equivalent of that
exclusion;
(d) The Business has not sent wastes to a site that, pursuant to
CERCLA or any similar state or federal law (i) has been placed on the
"National Priorities List" (the "NPL") of hazardous waste sites or state
equivalent of the NPL or (ii) is subject to a claim, administrative
order, or other request to take "removal" or "remedial" action as those
terms are defined under CERCLA at 42 U.S.C. 9601 (23) and (24),
regardless of whether such claim, order or request is made pursuant to a
validly enacted federal, state or local statute or regulation;
(e) Schedule 5.22 sets forth all environmental licenses, permits,
approvals, authorizations, exemptions, classifications, certificates and
registrations (collectively the "Permits") in existence with respect to
and necessary to continue to operate the Business consistent with past
practice and at historical levels, together with a description of any
compliance schedules relating thereto. All such Permits are in full
force and effect and there does not exist under any of them or under any
compliance schedule, any default, event of default, or event which, with
notice or lapse of time or both, would constitute an event of default;
and
(f) Schedule 5.22 identifies (i) all on-site and off-site locations
where the Business has stored, disposed or arranged for the disposal of
hazardous substances or wastes, (ii) all underground storage tanks, and
the capacity and contents of such tanks, located on the real property
owned by the Seller or any leased property, (iii) all asbestos contained
in or forming part of any building, building component, structure or
office space owned or leased by Seller pertaining to the Business, and
(iv) all polychlorinated biphenyls used or stored at any property owned
or leased by Seller pertaining to the Business.
203
Page 18 of 31
5.23 Defects in Products or Designs. There are no defects in the design
or manufacture of any of the products of the Business ("Products"), designed,
manufactured or sold by the Business that would adversely affect the
performance or quality of the Products to any third parties (excluding
normal-course warranty obligations).
5.24 Products. Schedule 5.24 sets forth the warranty experience of Seller
since December 31, 1996. The Products manufactured and sold by Seller have
been designed and manufactured in compliance with all regulatory, engineering,
industrial and other codes generally recognized as being applicable thereto.
There have been no product recalls or material defects in the design or
manufacture of any Products sold by Seller (excluding normal-course warranty
obligations) that would materially and adversely affect the performance or
quality of such Products.
5.25 Properties. Seller has good, marketable and legal title, or holds by
valid and existing leases or licenses, free and clear of all mortgages,
pledges, liens, or security interests, to each piece of its real and personal
property, except for such imperfections of title, mortgages, pledges, liens, or
security interests that are not material to Seller's ability to perform its
obligations hereunder. All such leases and other agreements are legal, valid,
and effective in accordance with their terms, and there does not exist
thereunder any default or event or condition which, after notice, lapse of time
or both, would constitute a default thereunder by any party thereto.
5.26 Letters of Credit, Surety Bonds, Guarantees. There are no letters of
credit, performance or payment bonds, guaranty arrangements and surety bonds of
any nature, issued by or on behalf of the Seller, relating to the Business.
5.27 All Material Information; Disclosure. All material facts concerning
the Business have been disclosed to Purchaser, and no representation or
warranty made herein by Seller, and no statement contained in any certificate
or other instrument furnished or to be furnished to Purchaser in connection
with the transaction contemplated by this Agreement (all of which statements
shall be deemed to have been made by Seller for all purposes of this
Agreement), contains or will contain any untrue statement of a material fact or
omits or will omit to state any material facts necessary to make the
information contained therein not misleading or necessary in order to provide a
prospective purchaser of the Business with adequate information as to the
condition, properties, assets, liabilities, business and prospects of the
Business, and Seller has disclosed to Purchaser in writing all material facts
known to it relating to the same.
5.28 Brokers. The Seller has not entered into any arrangement for the
provision of services in connection with this Agreement or the transactions
contemplated hereby that may give rise to an obligation to pay any brokers' or
finders' fees or other commissions.
5.29 Certain Defined Items. References in Article V and elsewhere in this
Agreement to (i) "Seller's Knowledge" shall mean the facts and circumstances
that Seller
204
Page 19 of 31
knew or should have known after appropriate inquiry; (ii) "Material Adverse
Change in the Condition of the Business" or "Material Adverse Effect on the
Condition of the Business" shall mean a change or effect that likely would,
independently or in combination with other changes or events, have a material
adverse change or effect on the business, assets, properties, financial
condition, results of operations or prospects of the Business; and (iii)
"Person" shall mean any individual, corporation, partnership, proprietorship or
other entity of any kind.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller that:
6.1 Corporate Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has all requisite power and authority to own and operate its properties and
assets and to conduct the businesses now conducted by it.
6.2 Corporate Authorization, Certain Corporate Actions, No Conflicts.
Purchaser has all requisite power and authority to execute and deliver this
Agreement and all necessary corporate proceedings have been taken to authorize
the execution, delivery and performance by Purchaser of this Agreement and the
transaction described herein. This Agreement is the legal, valid and binding
obligation of Purchaser, and is enforceable as to Purchaser in accordance with
its terms, except as such validity, binding effect or enforcement may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally or by equitable principles relating to the availability of remedies.
Neither the execution, delivery or performance of this Agreement by Purchaser
will, with or without the giving of notice or the passage of time, or both,
conflict with, result in a default, right to accelerate or loss of rights
under, or result in the creation of any lien, charge or encumbrance pursuant to
any provision of Purchaser's certificate of incorporation or bylaws or any
franchise, mortgage, deed of trust, lease, license, agreement, understanding,
law, rule or regulation or any order, judgment, or decree to which Purchaser is
a party or by which Purchaser may be bound or affected.
6.3 Litigation; Orders. As of the date hereof, there is no judgment or
outstanding order, injunction, decree, stipulation or award against Purchaser
that would prohibit the consummation of the transaction contemplated by this
Agreement.
6.4 Consents, Approvals, etc. No filings are required to be made by
Purchaser with, and no consents, approvals, permits or authorizations are
required to be obtained by Purchaser from, governmental and regulatory
authorities of the United States, the several states or any other jurisdiction
in connection with the execution and delivery of this
205
Page 20 of 31
Agreement by Purchaser and the consummation by Purchaser of the transaction
contemplated hereby.
6.5 Brokers. Purchaser has not entered into any arrangement for the
provision of any services in connection with this Agreement or the transactions
contemplated thereby that may give rise to an obligation to pay brokers' or
finders' fees or other commissions.
ARTICLE VII
CONDUCT OF BUSINESS PRIOR TO CLOSING
7.1 Conduct of the Business. Prior to the Closing, Seller shall conduct
the business and affairs of the Business only in the ordinary course and
consistent with its prior practice and shall maintain, keep and preserve the
assets and properties of the Business in good condition and repair and maintain
insurance thereon in accordance with present practices, and, except as
otherwise agreed by Purchaser and Seller, will use its best efforts to: (i)
preserve the Business intact, (ii) keep available to Purchaser the services of
the present employees, agents, and independent contractors of the Business,
(iii) preserve for the benefit of Purchaser the goodwill of the suppliers,
customers, landlords and others having business relations with the Business,
and (iv) obtain, with the assistance and cooperation of Purchaser, the consent
of any lessor or other party to any lease or contract with Seller where the
consent of such lessor or other party may be required by reason of the
transaction contemplated hereby. Without limiting the generality of the
foregoing, prior to the Closing, Seller will not, without Purchaser's prior
written approval: (i) enter into or modify any contract, agreement, commitment
or any other understanding or arrangement relating to the Business; or (ii)
perform, take any action or incur or permit to exist any act, transaction,
event, or occurrence of any type that would have been inconsistent with the
representations and warranties of Seller set forth in Section 5 hereof had the
same occurred prior to the date hereof. THE FOREGOING NOTWITHSTANDING,
Seller's increase in accounts payable, and a resulting increase in inventory
levels, for the purpose contemplated by Section 1.4(b) above shall not be
deemed to violate this provision.
7.2 Changes in Information. Seller shall give Purchaser prompt written
notice of any change in any of the information contained in the representations
and warranties made in Article V, elsewhere in this Agreement or the schedules
or exhibits referred to herein that occurs prior to the Closing.
7.3 Contracts and Policies. Seller shall consult with Purchaser with
respect to (i) the cancellation of contracts, agreements, commitments or other
understandings or arrangements to which Seller is a party relating to the
Business including, without limitation, purchase orders for items of inventory
and commitments for capital expenditures or improvements, and (ii) Seller's
purchasing, pricing or selling policies (including, without limitation, selling
merchandise at discounts); provided, however, that nothing contained in this
Section shall require Seller to take or fail to take any action that, in
Seller's reasonable
206
Page 21 of 31
judgment, is likely to give rise to a penalty or claim for damages by any third
party against Seller, or is likely to result in losses to Seller, or is
otherwise likely to prejudice in any material respect, or unduly interfere with
the conduct of, Seller's business operations in the ordinary course consistent
with prior practice, or is likely to result in a breach by Seller of any of its
representations, warranties, or covenants contained in this Agreement (unless
any such breach is first waived in writing by Purchaser).
ARTICLE VIII
ACCESS TO INFORMATION AND DOCUMENTS
8.1 Access Prior to Closing. Upon reasonable notice and during regular
business hours, Seller will give Purchaser and Purchaser's attorneys,
accountants and other representatives full access to the personnel and all
properties, documents, contracts, books and records of Seller relating to the
Business or the Purchased Assets and will furnish Purchaser with copies of such
documents (certified by Seller's officers if so requested) and with such
information with respect to the affairs of the Business as Purchaser may from
time to time request. Any such furnishing of such information to Purchaser or
any investigation by Purchaser shall not affect Purchaser's right to rely on
any representation or warranty made in this Agreement or in connection herewith
or pursuant hereto. Seller shall keep Purchaser informed as to the affairs of
the Business and to consult with the representatives of Purchaser on important
matters pertaining to the Business and the Purchased Assets.
8.2 Access After Closing.
(a) After the Closing Date, upon reasonable notice and during
regular business hours, Seller will give Purchaser and its attorneys,
accountants and other representatives full access to all properties,
documents, contracts, books and records of Seller relating to the
Business or the Purchased Assets. In connection herewith, Seller hereby
agrees to retain all such books and records for a period of not less than
five (5) years after the Closing Date in order to afford Purchaser such
access, and Purchaser shall have the right at any time to make copies
thereof. If Seller wishes to destroy any such books or records at any
time during such period, Seller shall give Purchaser not less than sixty
(60) days' prior written notice thereof, whereupon Purchaser may elect to
take possession of such books and records. In addition, Seller shall
provide Purchaser with access to any officers, employees and agents of
Seller as may be necessary in connection with the prosecution or defense
of any tax audits or third party claims, suits or actions by or against
Purchaser.
(b) After the Closing Date, upon reasonable notice and during
regular business hours, Purchaser will give Seller reasonable access to
any records and files of the Business transferred pursuant to this
Agreement, relating to a period prior to the Closing Date, and to any
employees of Purchaser formerly employed by Seller as may be necessary in
connection with the prosecution or defense of any tax audits or
207
Page 22 of 31
third party claims, suits or actions by or against Seller relating to the
Business.
ARTICLE IX
EMPLOYEES
9.1 Employee-Related Liabilities. Purchaser will assume no
employee-related liabilities or expenses based on events or pursuant to service
by employees of Seller prior to the Closing Date, nor will Purchaser be liable,
directly or by way of reimbursement, for any accrued vacation pay due Seller's
employees for any time prior to July 6, 1998. Seller will not file Form UI-21
or any similar notice with the Kentucky Department of Employment Services nor
discontinue any worker's or unemployment compensation insurance coverage or
other existing employee-related benefit programs until such time as all of
Seller's post-closing services for Purchaser hereunder have been completed.
ARTICLE X
ADDITIONAL COVENANTS
10.1 Name Change. As soon as possible after Closing, Seller shall change
its name to a name which is not similar to "Anesco, Inc." or any derivation
thereof, and shall discontinue use thereof.
10.2 Post-Closing Services. From and after the Closing Date, pending
Purchaser's removal of the Purchased Assets from Seller's premises in
Georgetown, Kentucky to Purchaser's facility in Waukesha, Wisconsin, Seller
will continue the conduct of the Business on a sub-contract basis in the name
and for the benefit of Purchaser. For such services, Purchaser will reimburse
Seller, on a dollar-for-dollar basis, for Seller's expenses for rent,
utilities, maintenance and upkeep, insurance (including worker's and
unemployment compensation insurance), payroll costs and taxes (including
benefits and claims costs relating to the post-Closing period) and any other
direct, out-of-pocket expenses incurred by Seller (but none of the foregoing in
excess of current rates, other than as agreed in advance by the parties). In
addition, upon withdrawal from Seller's premises, Purchaser will pay Seller an
additional amount equal to the aggregate weekly straight-time salary of each of
Seller's employees who is not becoming an employee of Purchaser and who has
remained in the employ of the Seller from the Closing Date to such date of
withdrawal. In such undertaking, Seller shall retain all liability and
responsibility for its employees and any employment-related claims. Purchaser
shall reimburse Seller only for the actual time during which Purchaser makes
use of such facilities. Subject to Purchaser's performance of its obligations
hereunder, Seller will protect Purchaser and hold it harmless from any lien or
assertion of lien or adverse interest on property or assets of Purchaser on
Seller's premises, whether asserted by the owner of such property or any other
party. Purchaser agrees to indemnify Seller for any liability exceeding
Seller's CGL insurance coverage.
208
Page 23 of 31
ARTICLE XI
FURTHER ASSURANCES
11.1 Further Assurances. After the Closing and for no further
consideration, Seller shall (a) perform all acts (including, without
limitation, the use of Seller's commercially reasonable efforts to enable
Purchaser to accomplish transfer of registration, permits, approvals, and the
like as contemplated by this Agreement), and (b) execute, acknowledge and
deliver such assignments, transfers, consents and other documents and
instruments as Purchaser or its counsel may reasonably request, in each case,
to vest in Purchaser or protect Purchaser's right, title and interest in, and
enjoyment of, the Purchased Assets.
ARTICLE XII
BULK SALES COMPLIANCE
12.1 Bulk Sales Compliance. Purchaser hereby waives compliance by Seller
with the provisions of the bulk sales laws of any state, and Seller warrants
and agrees to give prompt notice immediately following the Closing to, and pay
and discharge when due all claims of, creditors (including any governmental
agencies and taxing authorities) that could be asserted against Purchaser by
reason of such non-compliance to the extent that such liabilities are not
specifically assumed by Purchaser. Seller hereby agrees to indemnify and hold
Purchaser harmless from, against and in respect of (and shall on demand
reimburse Purchaser for) any loss, liability, cost or expense including,
without limitation, reasonable attorneys' fees, suffered or incurred by
Purchaser by reason of the failure of Seller to pay or discharge any such
claim. Seller shall furnish to Purchaser such evidence as Purchaser may
reasonably request in order to confirm that Seller has complied with the
provisions of this Article.
ARTICLE XIII
CONDITIONS TO OBLIGATIONS OF THE PARTIES
13.1 Conditions to Obligations of Each Party. The respective
obligations of Seller and Purchaser to consummate the transactions contemplated
by this Agreement are subject to the conditions that: (a) there shall be no
decision by any court or administrative body restraining, enjoining or
otherwise preventing the consummation of the transactions contemplated hereby;
and (b) the parties will have received all necessary approvals and clearances.
13.2 Conditions Precedent to Purchaser's Obligations. All obligations
of Purchaser hereunder are subject, at the option of Purchaser, to the
fulfillment of each of the following conditions at or prior to the Closing, and
Seller shall exert its reasonable commercial effort to cause each such
condition to be so fulfilled:
209
Page 24 of 31
(a) All representations and warranties of Seller contained herein or
in any document delivered pursuant hereto shall be true and correct in
all respects as of the date hereof, and shall then be true and correct in
all respects except for changes in the ordinary course of business after
the date hereof in conformity with the covenants and agreements contained
herein;
(b) All covenants, agreements and obligations required by the terms
of this Agreement to be performed by Seller at or before the Closing Date
shall have been duly and properly performed in all respects;
(c) There shall not have occurred any Material Adverse Change in the
Condition of the Business;
(d) Purchaser shall have received an opinion of Kinkead, Stilz &
Alford, legal counsel to Seller, dated the Closing Date, substantially in
the form of Exhibit B;
(e) Seller shall have delivered to Purchaser at the Closing the Bill
of Sale and Assignment in the form of Exhibit C, and all other documents,
certificates and agreements necessary to transfer to Purchaser good,
marketable and legal title to the Purchased Assets, free and clear of any
and all liens thereon including, without limitation:
(i) assignments of all Intellectual Property, Contracts and
other agreements of Seller dated the Closing Date, assigning to
Purchaser all of Seller's right, title and interest in and to all
such Intellectual Property, Contracts and agreements, with any
required consent endorsed thereon;
(ii) certificates of title to all motor vehicles to be
transferred to Purchaser hereunder, duly endorsed for transfer to
Purchaser as of the Closing Date; and
(iii) assignments of all leases with any required consents of
the lessors endorsed thereon;
(f) All corporate and other proceedings of Seller in connection
with the transactions contemplated by this Agreement, and all documents
and instruments incident to such proceedings, shall be reasonably
satisfactory in form and substance to Purchaser and its counsel, and
Purchaser and its counsel shall have received all such documents and
instruments, or copies thereof (certified if requested) as may be
reasonably requested;
(g) This Agreement and the transactions contemplated hereby shall
have been approved by Purchaser's Board of Directors;
210
Page 25 of 31
(h) The results of Purchaser's due diligence review shall be
satisfactory to Purchaser;
(i) All permits and licenses necessary for the conduct of the
Business shall have been transferred to Purchaser; and
(j) Purchaser shall have entered into Employment Agreements with
certain key employees of the Business for their continued employment as
Purchaser shall require, in the form of Exhibit D as attached hereto.
13.3 Conditions Precedent to Seller's Obligations. All obligations of
Seller at the Closing are subject, at the option of Seller, to the fulfillment
of each of the following conditions at or prior to the Closing Date, and
Purchaser shall exert its reasonable commercial efforts to cause each such
condition to be so fulfilled:
(a) All representations and warranties of Purchaser contained herein
or in any document delivered pursuant hereto shall be true and correct in
all respects when made and as of the Closing;
(b) All covenants, agreements and obligations required by the terms
of this Agreement to be performed by Purchaser at or before the Closing
shall have been duly and properly performed in all respects; and
(c) All corporate and other proceedings by Purchaser in connection
with the transactions contemplated by this Agreement, and all documents
and instruments incident to such proceedings, shall be reasonably
satisfactory in form and substance to Seller and its counsel, and Seller
and its counsel shall have received all such documents and instruments, or
copies thereof (certified if requested) as may reasonably be requested.
ARTICLE XIV
INDEMNIFICATION
The indemnification provisions set forth in this Article XIV are
independent of and in addition to any purchase price adjustment contained in
Article III of this Agreement and any other provision of this Agreement.
14.1 Seller's Indemnification. Seller hereby agrees to indemnify and
hold Purchaser harmless from, against and in respect of (and shall on demand
reimburse Purchaser for):
(a) any and all loss, liability, or damage, including reasonable
attorneys' fees and expenses (collectively "Damages") suffered or
incurred by Purchaser by
211
Page 26 of 31
reason of any untrue representation, breach of warranty or
non-fulfillment or non-performance of any covenant or agreement of Seller
contained herein or in any certificate, document or instrument delivered
to Purchaser pursuant hereto or in connection herewith;
(b) any and all Damages suffered or incurred by Purchaser in respect
of or in connection with any liabilities of Seller not expressly assumed
by Purchaser including, without limitation, any Damages arising out of or
relating to the conduct of the Business prior to the Closing Date, and
claims of, or relating to, Seller's employees, including those engaged in
providing Seller's services pursuant to Section 10.2 hereof; and
(c) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses including, without limitation,
legal fees and expenses, incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the imposition
thereof, or in enforcing this indemnity.
14.2 Purchaser's Indemnification. Purchaser hereby agrees to indemnify
and hold Seller harmless from, against, and in respect of (and shall on demand
reimburse Seller for):
(a) any and all Damages suffered or incurred by Seller by reason of
any untrue representation, breach of warranty or non-fulfillment or
nonperformance of any covenant or agreement by Purchaser contained herein
or in any certificate, document or instrument delivered to Seller
pursuant hereto or in connection herewith;
(b) any and all Damages suffered or incurred by Seller in respect of
or in connection with liabilities or obligations expressly assumed by
Purchaser;
(c) any and all Damages suffered or incurred by Seller by reason of
or in connection with any claim for finders' or brokers' fees or other
commission arising by reason of any services alleged to have been
rendered to or at the instance of Purchaser with respect to this
Agreement or any of the transactions contemplated hereby; and
(d) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses including, without limitation,
reasonable attorneys' fees and expenses, incident to any of the foregoing
or incurred in investigating or attempting to avoid the same or oppose
the imposition thereof, or in enforcing this indemnity.
14.3 Limitations on Indemnification.
(a) Notwithstanding the other provisions of this Article XIV, Seller
shall not be liable to indemnify Purchaser for Purchaser's Damages and
Purchaser shall not
212
Page 27 of 31
be liable to indemnify Seller for Seller's Damages, arising from or
relating to a breach of representation or warranty set forth in this
Agreement unless the Indemnified Party (as hereinafter defined) notifies
the Indemnifying Party (as hereinafter defined) in writing of its claim
or potential claim for indemnification not later than the day that is
thirty-six (36) months after the Closing Date, and except as set forth in
subsection (b) below or Article XV.
(b) The limitations in Section 14.3(a) shall not apply to any claim
by a party for indemnification based on Purchaser's failure to receive
good title to any personal property included in the Purchased Assets or
to any other breach of the representation contained in Section 5.25, nor
to any breach of a representation relating to compliance with laws, taxes
or environmental matters as set forth in Sections 5.10, 5.12 and 5.22.
14.4 Procedure.
(a) In order for a party (the "Indemnified Party"), to be entitled
to any indemnification provided under this Agreement in respect of,
arising out of or involving a claim made by any third party against the
Indemnified Party (a "Third Party Claim"), such Indemnified Party shall
notify the other party (the "Indemnifying Party") in writing of the Third
Party Claim within twenty (20) business days after receipt by such
Indemnified Party of written notice of the Third Party Claim; provided,
however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the Indemnifying
Party can demonstrate actual monetary prejudice as a direct or indirect
result of such failure. Thereafter, the Indemnified Party shall deliver
to the Indemnifying Party, within five (5) business days after the
Indemnified Party's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnified Party relating to
the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnified Party, the
Indemnifying Party will be entitled to participate in the defense thereof
and, if it acknowledges in writing its obligations to indemnify the party
seeking indemnification and so chooses to assume the defense thereof, it
may do so with counsel selected by the Indemnifying Party. Should the
Indemnifying Party so elect to assume the defense of a Third Party Claim,
the Indemnifying Party will not be liable to the Indemnified Party for
any legal expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof. If the Indemnifying Party assumes
such defense, the Indemnified Party shall have the right to participate
in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the Indemnifying Party, it being
understood that the Indemnifying Party shall control such defense. The
Indemnifying Party shall be liable for the fees and expenses of counsel
employed by the Indemnified Party for any period during which the
Indemnifying Party has not assumed the defense thereof (other than after
the 20-day
213
Page 28 of 31
period described in Section 14.4(a) if the Indemnified Party shall have
failed to give notice of the Third Party Claim). If the Indemnifying
Party chooses to defend or prosecute a Third Party Claim, the parties
hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the Indemnifying
Party's request) the provision to the Indemnifying Party of records and
information that are reasonably relevant to such Third Party Claim, and
making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided
hereunder. If the Indemnifying Party chooses to defend or prosecute any
Third Party Claim, the Indemnified Party will consent to any settlement,
compromise or discharge of such Third Party Claim that the Indemnifying
Party may recommend and that by its terms involves the payment of money
only and which the Indemnifying Party will pay in full in connection with
such Third Party Claim. If the Indemnifying Party shall have assumed the
defense of a Third Party Claim, the Indemnified Party shall not admit any
liability with respect to, or settle, compromise or discharge, such Third
Party Claim without the Indemnifying Party's prior written consent, which
shall not be unreasonably withheld.
ARTICLE XV
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
15.1 Survival. All statements, representations and warranties made by
each of the parties hereto shall survive the Closing for a period of
twenty-four (24) months, except the representations contained in Sections 5.25,
5.10, 5.12 and 5.22, which shall survive indefinitely thereafter. All
indemnities, covenants and agreements made herein shall survive for the period
expressly indicated herein, or, if not so indicated, indefinitely.
ARTICLE XVI
MISCELLANEOUS
16.1 Entire Agreement; Modification. This writing constitutes the entire
agreement of the parties with respect to the subject matter and supersedes any
prior agreements, oral or written, with respect thereto and may not be
modified, amended or terminated except by written agreement specifically
referring to this Agreement and signed by each party hereto.
16.2 Notices. Any and all notices or other communications required or
permitted to be given under any of the provisions of this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered,
sent by express mail, or overnight courier service or first class registered
mail, return receipt requested, or telefaxed (with a copy also sent by express
mail or overnight courier services) addressed to parties at the addresses set
forth below or at such other address as any party may specify by notice to the
other parties, or, in the case of a telefax, to the telefax number indicated:
214
Page 29 of 31
If to Purchaser: SurgiVet, Inc.
N7 W22025 Johnson Drive
Waukesha, Wisconsin 53186
Attention: Ann M. Johnson
Telefax: 414-513-9069
with a copy to: Holleb & Coff
55 East Monroe Street, Suite 4100
Chicago, Illinois 60603
Attention: Stephen A. Marcus, Esq.
Telefax: 312-807-3900
If to Seller: Anesco, Inc.
115 Etter Lane
Georgetown, Kentucky 40324
Attention: John Engle
Telefax: 502-867-0390
with a copy to: Kinkead, Stilz & Alford
PNC Bank Plaza, Suite 300
200 W. Vine Street
Lexington, Kentucky 40507
Attention: D. Barry Stilz
Telefax: 606-255-1965
16.3 Waiver. No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party giving such waiver,
and no such waiver shall be deemed a waiver of any subsequent breach or default
of the same or similar nature.
16.4 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of each party hereto, its successors and assigns.
16.5 Numbers and Headings. The section and paragraph numbers and
headings contained herein are for the purposes of reference and convenience
only and are not intended to define or limit the contents of said paragraphs or
sections.
16.6 Exhibits and Schedules. The exhibits and schedules referred to
herein are hereby incorporated by reference as if set out in full and form an
integral part of this Agreement.
16.7 Further Actions. Each party hereto shall cooperate and shall take
such further action and shall execute and deliver such further documents as may
be reasonably requested by the other party in order to carry out the provisions
and purposes of this Agreement.
215
Page 30 of 31
16.8 Transaction Taxes. Seller will pay all sales, transfer and
documentary taxes, if any, and any and all further taxes arising by virtue of
the sale, transfers and deliveries to be made to Purchaser as contemplated
hereby. Gains, income and similar taxes shall be paid by the entity or person
on which such tax is imposed.
16.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall be deemed one original.
16.10 Expenses. Subject to any express provisions of this Agreement to
the contrary, each party shall bear the expenses, costs and fees incurred by it
in connection with the transactions contemplated hereby, whether or not the
transaction shall be consummated. Any such payments by Seller shall be made
out of Seller's assets other than the Purchased Assets and shall not reduce the
Purchased Assets being transferred hereunder.
16.11 Validity of Provisions. If any provision of this Agreement or any
agreement referenced herein shall be held or deemed to be or shall, in fact, be
inoperative or unenforceable as applied in any particular case because it
conflicts with any other provision or provisions hereof or any constitution,
statute, rule of public policy, or for any other reason, such circumstances
shall not have the effect of rendering the provision in question inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision or provisions herein contained invalid, inoperative or unenforceable
to any extent whatsoever. The invalidity of any one or more phrases,
sentences, clauses, sections, or, subsections of this Agreement or any other
agreements referenced herein shall not affect the remaining portions thereof.
16.12 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Wisconsin applicable to contracts
made and to be performed therein.
16.13 Consent to Jurisdiction and Waiver of Jury Trial. The parties
hereto hereby consent to the exclusive jurisdiction of any federal or state
court situated in Waukesha County, Wisconsin, and waive any objection based on
lack of personal jurisdiction, improper venue or forum non convenience with
regard to any actions, claims, disputes or proceedings related to this
Agreement or any other document delivered pursuant thereto. In addition, the
parties hereto waive their rights to a jury trial in any judicial proceedings
involving, directly or indirectly, in any matter in any way arising out of,
related to or connected with this Agreement whether sounding in contract, tort
or otherwise.
16.14 Risk of Loss. The risk of any loss, damage, impairment,
confiscation or condemnation of the Purchased Assets, or any part thereof,
shall be upon the Seller at all times prior to the Closing Date. In any such
event, the proceeds of, or any claims or any loss payable under, Seller's
insurance policy, judgment or award with respect thereto shall be
216
Page 31 of 31
payable to Seller, which shall repair, replace or restore any such property to
Purchaser's reasonable satisfaction as soon as possible after its loss,
impairment, confiscation or condemnation, or make such other provision as the
parties may agree.
IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement to be duly executed as of the date first above written.
PURCHASER:
SURGIVET, INC.
By: /s/ Frank Katarow
-------------------------
Its: President
-------------------------
SELLER:
ANESCO, INC.
By: /s/ John Engle
-------------------------
Its: President
-------------------------
By: /s/ Jeff Baker
-------------------------
Its: Vice President
-------------------------
217
ANNEX VI
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report(Date of earliest event reported) September 8, 1998
--------------------------------
Biochem International Inc.
- - - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-10005 39-1272816
- - - -------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
N7 W22025 Johnson Road, Waukesha, Wisconsin 53186
- - - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 542-3100
-----------------------------
N/A
- - - -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
218
Page 2 of 4
ITEM 5. OTHER EVENTS.
The registrant issued the following press release on September 8, 1998:
"FOR IMMEDIATE RELEASE Contact: Mary Hamkins
414-542-3100
Waukesha, Wisconsin
September 8, 1998
BIOCHEM INTERNATIONAL INC. (BCI) of Waukesha, Wisconsin, has entered into
acquisition discussions with Smiths Industries plc, a United Kingdom based
avionics, medical systems and specialized industrial products manufacturer, for
the acquisition of the Company at an indicated value of $83 million. Based on
the Company's current outstanding capitalization, this would provide a price of
approximately $6.30 per share to the Company's shareholders.
Following preliminary discussions with the Company and its principal
shareholders (together holding three-quarters of BCI's outstanding common
stock) the parties are negotiating an agreement to merge BCI into a Smiths
Industries US subsidiary. The negotiations are based on 100% of the share
capital, payable in cash and subject to the outcome of due diligence inquiries
currently in progress. BCI has net assets of $22 million, including $10
million of cash. For the year ended June 30, 1998, the Company earned
operating profits of $7.3 million.
"While there are a number of legal qualifications and conditions for completion
of the acquisition, such as the approval by BCI shareholders following normal
SEC procedure and US regulatory approval under the Hart-Scott-Rodino Act, we
wanted our shareholders, customers and suppliers to be fully aware of the
current interest being focused on the Company," noted David H. Sanders,
Chairman and CEO of BCI. "We look forward to assisting Smiths and its
representatives with these matters to conclude the transaction as soon as
possible."
BCI designs, manufactures and distributes, on a world-wide basis, a broad range
of patient monitoring equipment used in the monitoring of respiration, blood
gases, exhaled gases, anesthetic agent gases and related cardiovascular/
pulmonary functions, primarily through non-invasive real time monitoring.
Through its SurgiVet subsidiary, the Company has recently extended its product
line for use in the rapidly growing veterinary markets, including gas
anesthesia machines, ventilator products and related accessories.
Smiths Industries, through its Smiths Industries Medical Systems Group, is one
of the world's leading suppliers of medical devices and equipment targeted
mainly for use in operating rooms,
219
Page 3 of 4
intensive care units and critical care departments in hospitals, but also has
significant shares of a number of specialist niche markets in home health care,
dentistry and veterinary supplies.
BCI employs around 120 people and has an experienced senior management team who
will remain with the Company at its present location as part of Smiths
Industries.
Biochem International is traded on the over the counter Bulletin Board as BCHM."
[signature page follows]
220
Page 4 of 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOCHEM INTERNATIONAL INC.
(Registrant)
DATE: September 8, 1998 By: /s/ David H. Sanders
-------------------------------
Name: David H. Sanders
Title: Chairman
221
ANNEX VII
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 9, 1998
--------------------------------
Biochem International Inc.
- - - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-10005 39-1272816
- - - --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
N7 W22025 Johnson Road, Waukesha, Wisconsin 53186
- - - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 542-3100
------------------------------
N/A
- - - --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
222
ITEM 5. OTHER EVENTS.
On October 9, 1998, the registrant entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") by and among the registrant, Smiths
Industries, Inc., a Florida corporation ("Buyer"), BCI Merger Corp., a Delaware
corporation and a wholly-owned subsidiary of Buyer, Smiths Industries plc, a
corporation organized under the laws of England and Wales, David H. Sanders,
individually, David H. Sanders, as Trustee of the David H. Sanders Revocable
Trust U/A dated April 9, 1982, and Ruth Dunbar Davee, as Successor Trustee of
the Ken M. Davee Trust U/A dated August 16, 1990.
The aggregate consideration to be received by the stockholders of the
registrant in connection with the merger will be $83,000,000. Based on the
registrant's current outstanding capitalization, the merger consideration will
provide a price of approximately $6.28 per share to the registrant's
stockholders. The merger consideration will be paid by Buyer entirely in cash.
The registrant is preparing to take the actions necessary to consummate
the merger in accordance with applicable laws and its governing documents,
including, without limitation, to call, give notice of, convene and hold a
meeting of its stockholders to consider and vote upon the approval and adoption
of the Merger Agreement and the transactions contemplated thereby and to make
all required filings under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. The registrant is currently preparing to file an Information
Statement and Notice of Appraisal Rights relating to the merger transaction with
the United States Securities and Exchange Commission (the "SEC").
Provided that various conditions to the obligations of all of the
parties to the Merger Agreement to close the merger transaction will be
satisfied or waived, the meeting of the registrant's stockholders and the
closing of the merger transaction is currently expected to take place in late
November or early December of this year.
Additional detail relating to the terms and conditions of the Merger
Agreement will be provided to the registrant's stockholders in the Information
Statement and Notice of Appraisal Rights, which the registrant anticipates will
be filed with the SEC in preliminary form shortly.
[signature page follows]
223
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOCHEM INTERNATIONAL INC.
(Registrant)
DATE: October 14, 1998 By: /s/ David H.Sanders
-------------------------------------
Name: David H. Sanders
Title: Chairman