UNITED STATES
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): March 17, 2003
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 0-26224 51-0317849
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
311 Enterprise Drive
Plainsboro, NJ 08536
(Address of principal executive offices) (Zip Code)
(609)-275-0500
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
ITEM 2. Acquisition or Disposition of Assets.
On March 17, 2003, Integra LifeSciences Corporation (the "Purchaser"), a
wholly-owned subsidiary of Integra LifeSciences Holdings Corporation (the
"Company"), acquired all of the issued and outstanding capital stock of J.
Jamner Surgical Instruments, Inc., a Delaware corporation (doing business as
JARIT(R) Surgical Instruments) ("JARIT") for $44.5 million in cash on hand,
subject to a working capital adjustment and other adjustments with respect to
certain income tax elections. The acquisition was made pursuant to a Stock
Purchase Agreement dated as of March 17, 2003 among the Purchaser and Howard
Jamner and other individual stockholders of JARIT. JARIT markets a wide variety
of high quality, reusable surgical instruments for use in virtually all surgical
disciplines.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of the business acquired
Audited financial statements for J. Jamner Surgical Instruments, Inc. as of and
for the year ended December 31, 2002 are attached hereto as Exhibit 99.1.
(b) Pro forma financial information
An unaudited pro forma condensed combined balance sheet as of December 31, 2002
and an unaudited pro forma condensed combined statement of operations for the
year ended December 31, 2002 are attached hereto as Exhibit 99.2.
(c) Exhibits.
Exhibit
Number Description of Exhibit
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2.1 Stock Purchase Agreement, dated as of March 17, 2003, between Integra
LifeSciences Corporation and Howard Jamner and other individual
stockholders of J. Jamner Surgical Instruments, Inc.*
23.1 Consent of WithumSmith+Brown
99.1 Audited financial statements for J. Jamner Surgical Instruments, Inc.
as of and for the year ended December 31, 2002
99.2 Unaudited pro forma condensed combined balance sheet as of December
31, 2002 and unaudited pro forma condensed combined statement of
operations for the year ended December 31, 2002
* Integra agrees to furnish supplementally a copy of any omitted schedules or
attachments to the Commission upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, as of the 25th day of March, 2003.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
By: /s/ Stuart M. Essig
-----------------------------
Stuart M. Essig
President and Chief Executive Officer
Exhibit Index
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Exhibit
Number Description of Exhibit
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2.1 Stock Purchase Agreement, dated as of March 17, 2003, between Integra
LifeSciences Corporation and Howard Jamner and other individual
stockholders of J. Jamner Surgical Instruments, Inc.*
23.1 Consent of WithumSmith+Brown
99.1 Audited financial statements for J. Jamner Surgical Instruments, Inc.
as of and for the year ended December 31, 2002
99.2 Unaudited pro forma condensed combined balance sheet as of December
31, 2002 and unaudited pro forma condensed combined statement of
operations for the year ended December 31, 2002
* Integra agrees to furnish supplementally a copy of any omitted schedules or
attachments to the Commission upon request.
Exhibit 2.1
STOCK PURCHASE AGREEMENT
by and between
HOWARD JAMNER
and the other Sellers identified on the signature pages hereof
as "Sellers"
and
INTEGRA LIFESCIENCES CORPORATION
as "Buyer"
with respect to the Shares of
J. JAMNER SURGICAL INSTRUMENTS, INC.
(the "Company")
Dated as of March 17, 2003
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................................................................1
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1.1 CERTAIN DEFINED TERMS....................................................................................1
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1.2 OTHER DEFINED TERMS......................................................................................6
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ARTICLE II PURCHASE AND SALE OF SHARES............................................................................7
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2.1 TRANSFER OF SHARES.......................................................................................7
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2.2 PURCHASE PRICE...........................................................................................7
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2.3 POST-CLOSING ADJUSTMENT..................................................................................8
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2.4 ALLOCATION OF PURCHASE PRICE.............................................................................9
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2.5 TRANSFER TAXES...........................................................................................9
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ARTICLE III CLOSING..............................................................................................10
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3.1 CLOSING.................................................................................................10
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3.2 CLOSING DOCUMENTS.......................................................................................10
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3.3 APPOINTMENT OF SELLERS' AGENT...........................................................................10
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS.............................................................10
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4.1 ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES OR OTHER INTERESTS......................................11
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4.2 AUTHORIZATION, ETC......................................................................................11
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4.3 NO CONFLICT OR VIOLATION................................................................................11
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4.4 THIRD-PARTY CONSENTS....................................................................................11
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4.5 BROKERS.................................................................................................12
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4.6 FINANCIAL STATEMENTS....................................................................................12
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4.7 NO MATERIAL ADVERSE CHANGE.............................................................................12
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4.8 ABSENCE OF CERTAIN CHANGES AND EVENTS SINCE BALANCE SHEET DATE..........................................12
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4.9 PERMITS.................................................................................................13
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4.10 COMPLIANCE WITH CERTAIN LAWS AND PERMITS................................................................13
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4.11 TITLE TO SHARES; TITLE TO AND CONDITION OF CERTAIN ASSETS...............................................13
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4.12 REAL PROPERTY...........................................................................................13
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4.13 CERTAIN CONTRACTS AND COMMITMENTS.......................................................................15
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4.14 INTELLECTUAL PROPERTY...................................................................................15
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4.15 LITIGATION..............................................................................................16
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4.16 INVENTORY...............................................................................................16
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4.17 CERTIFICATIONS; PRODUCT SAFETY..........................................................................16
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4.18 CERTAIN RELATIONSHIPS...................................................................................17
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4.19 EXPORT..................................................................................................17
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4.20 INSURANCE...............................................................................................17
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4.21 EMPLOYEES AND PLANS.....................................................................................17
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4.22 ENVIRONMENTAL MATTERS...................................................................................18
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4.23 NO UNDISCLOSED LIABILITIES..............................................................................18
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4.24 COPIES OF CERTAIN DOCUMENTS.............................................................................18
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4.25 TAXES...................................................................................................18
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4.26 BANK ACCOUNTS...........................................................................................21
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4.27 DISCLOSURE..............................................................................................21
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER................................................................21
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5.1 ORGANIZATION, AUTHORIZATION, ETC........................................................................21
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5.2 NO CONFLICT OR VIOLATION................................................................................21
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5.3 THIRD-PARTY CONSENTS....................................................................................22
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5.4 NO BROKERS..............................................................................................22
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5.5 DISCLOSURE..............................................................................................22
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ARTICLE VI SURVIVAL AND INDEMNIFICATION..........................................................................22
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6.1 SURVIVAL OF REPRESENTATIONS.............................................................................22
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6.2 INDEMNIFICATION.........................................................................................22
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ARTICLE VII CERTAIN EMPLOYEE MATTERS.............................................................................26
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7.1 CERTAIN EMPLOYEE BONUSES................................................................................26
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7.2 KEY EXECUTIVE EMPLOYMENT AGREEMENTS.....................................................................26
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ARTICLE VIII NONCOMPETITION AND POST-CLOSING CONFIDENTIALITY.....................................................26
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8.1 NONCOMPETITION..........................................................................................26
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8.2 POST-CLOSING CONFIDENTIALITY............................................................................27
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ARTICLE IX TAX AND ACCOUNTING MATTERS............................................................................27
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9.1 SECTION 338(H)(10) ELECTION.............................................................................27
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9.2 TAX RETURN FILINGS......................................................................................27
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9.3 COOPERATION ON TAX MATTERS..............................................................................28
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9.4 TAX FORMS...............................................................................................28
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9.5 SECTION 338 CERTIFICATES................................................................................29
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ARTICLE X CERTAIN POST-CLOSING MATTERS...........................................................................29
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10.1 RELEASE OF LIEN ON BANK ACCOUNT.........................................................................29
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ARTICLE XI.......................................................................................................30
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MISCELLANEOUS....................................................................................................30
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11.1 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES................................................................30
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11.2 NOTICES.................................................................................................30
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11.3 CHOICE OF LAW, ETC......................................................................................30
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11.4 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS................................................................31
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11.5 COUNTERPARTS............................................................................................31
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11.6 EXPENSES................................................................................................31
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11.7 INVALIDITY..............................................................................................31
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11.8 CUMULATIVE REMEDIES.....................................................................................31
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11.9 TIME; CAPTIONS; EXHIBITS AND SCHEDULES..................................................................32
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11.10 NO STRICT CONSTRUCTION...............................................................................32
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EXHIBITS
EXHIBIT 1.1(a) - Base Amount
EXHIBIT 1.1(b) - Certain Equipment
EXHIBIT 1.1(c) - Financial Statements
EXHIBIT 1.1(d) - Form of Seller Release
EXHIBIT 2.4(a) - Preliminary Allocation
EXHIBIT 2.4(d) - Preliminary Section 338 (h)(10) Amount
EXHIBIT 3.2 - Closing Agenda
EXHIBIT 4.24 - Copies of Certain Documents
This Stock Purchase Agreement (this "Agreement") is entered into as of
March 17, 2003, by and between Integra LifeSciences Corporation, a Delaware
corporation ("Buyer"), Howard Jamner, an individual ("Jamner"), and each other
individual identified as a "Seller" on the signature pages hereof (each,
including Jamner, a "Seller" and, collectively, "Sellers).
RECITALS
A. Sellers own, of record and beneficially, all of the outstanding
stock (the "Shares") of J. Jamner Surgical Instruments, Inc., a Delaware
corporation (the "Company").
B. Buyer desires to purchase from Sellers, and Sellers desire to sell
to Buyer, the Shares, upon the terms contained in this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and
representations contained in this Agreement and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms
As used in this Agreement:
"Action" shall mean any legal action, product liability claim or other
claim, proceeding, audit or governmental investigation.
"Additional Agreements" shall mean the following agreements:
(i) the Jamner Employment and Noncompetition Agreement;
(ii) the Employee Matters Letter Agreement; and
(iii) the Seller Releases.
"Affiliate" shall mean, with respect to any Person, a Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Balance Sheet" shall mean the balance sheet of the Company dated as of
December 31, 2002, a copy of which is attached to this Agreement as part of
Exhibit 1.1(c).
"Balance Sheet Date" shall mean December 31, 2002.
"Base Amount" shall mean the "Base Amount" shown on Exhibit 1.1(a)
(which exhibit is based in part on the Balance Sheet), and calculated as set
forth therein.
"Books and Records" shall mean all records used in or relating to the
Company or customers or suppliers of the Business, including in each case (i)
all records that are in electronic form, (ii) all records relating to quality
assurance, including all quality system procedures, policies, orders, complaints
and related records, (iii) all lists of suppliers, vendors, or current or past
customers, and all lists or other documents describing prospective customers
(such as sales leads), (iv) all owned information describing marketing and
selling tactics and strategy, (v) all regulatory filings and submissions to the
FDA, (vi) all corporate minute books and stock records of the Company, (vii) all
records relating to the Company's employees, and (viii) all financial and
accounting records of the Company.
"Business" shall mean the Company's business of developing, marketing,
purchasing and selling surgical instruments and other medical devices anywhere
in the world.
"Closing Amount" shall mean:
(i) (x) those categories of current assets of
the Company specified in Exhibit 1.1(a) as
being included in the calculation of "Base
Amount", less (y) those categories of
current liabilities of the Company specified
in Exhibit 1.1(a) as being included in the
calculation of "Base Amount", in each case
(A) as of the Closing, (B) calculated in all
respects in a manner consistent with the
calculation of the Final Base Amount and
without taking into account amounts
described in (ii) and (iii) below;
(ii) plus the following items:
(A) the amount of accrued expenses and other
payables incurred in connection with the
audit of the Company's financial
statements as of and for the year ended
December 31, 2002 (the "Audit");
(B) if it is determined, pursuant to
Sections 2.3(a), (b) and (c), that the
Definitive Section 338 (h)(10) Amount is
greater than the Preliminary Section
338(h)(10) Amount, the amount of such
difference;
(iii) less the following items:
(A) the amount of the Special Bonuses and
any payroll Taxes payable thereon by the
Company;
(B) the amount of all unpaid legal,
accounting (other than Audit), out-of-
pocket and other expenses of Sellers or
the Company incident to the negotiation
and execution of, and Closing under,
this Agreement; and
(C) if it is determined, pursuant to
Sections 2.3(a), (b) and (c), that the
Definitive Section 338(h)(10) Amount is
less than the Preliminary Section 338(h)
(10) Amount, the amount of such
difference;
all as finally determined pursuant to Section 2.3.
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"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"Confidential Information" shall mean all written or unwritten
information about any Person and its business that is not available to the
general public (unless such availability occurs as a result of a breach of this
Agreement, any Additional Agreement, or any other agreement between parties
hereto), including proprietary information, trade secrets, formulae, operational
and financial data, product and process specifications and related costs, price
and sales information, marketing methods, systems and procedures, data bases,
computer programs and other computerized information, employee qualifications,
salaries and resumes, client and consumer lists and all records (including
computer records) and documents containing such information.
"Contract" shall mean any agreement, contract, Real Property Lease,
other lease, obligation, nongovernmental license or commitment to which the
Company is a party or by which the Company or the Business is bound, whether
oral or written, including any of the foregoing relating to Intellectual
Property.
"Disclosure Schedule" shall mean the schedule attached to and
incorporated in this Agreement which sets forth the exceptions to the
representations and warranties contained in Article IV of this Agreement and
certain other information called for by Article IV.
"Employee Matters Letter Agreement" shall mean the Letter Agreement
(with respect to the form of Key Executive Employment Agreement, the Special
Bonuses Schedule and the Offer Terms Schedule) dated as of the Closing and
executed immediately thereafter by Buyer and by Sellers' Agent, on behalf of
Sellers.
"Encumbrance" shall mean any claim, lien, pledge, mortgage, deed of
trust, security interest, restriction, easement, option or other preemptive
right, Leasehold, possessory right, encumbrance or other similar right.
"Environmental Law" shall mean any federal, state, local or foreign
statute, rule, regulation, order or judgment of any governmental authority
designed to minimize, prevent, punish or remedy the consequences of, actions
that damage or threaten the environment (including land surface, subsurface
strata, above- and below-ground water, indoor and outdoor air and plant and
animal life) or threaten public health or safety.
"Equipment" shall mean all furnishings, machinery, supplies, equipment,
tools and other tangible personal property used in or related to the Business,
wherever located, including those items set forth in Exhibit 1.1(b).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the regulations promulgated thereunder.
"FDA" shall mean the United States Food and Drug Administration.
"Final Base Amount" shall mean the Base Amount, recalculated, with
respect to those Balance Sheet line items that are included in Exhibit 1.1(a),
to reflect any adjustments made to such Balance Sheet line items in the Audit.
"Financial Statements" shall mean the Company's balance sheet dated as
of December 31, 2002 (which is "the Balance Sheet") and the related statements
of income, changes in stockholders' equity and cash flows for the fiscal year
ended on such date, including any notes thereto, attached to this Agreement as
Exhibit 1.1(c).
"Fixtures" shall mean all structures, portions of structures, roofs,
elevators, heating or cooling systems, plumbing or water systems, electrical or
gas systems, and other fixtures, improvements or similar tangible property
(other than Equipment) used in or related to the Business, wherever located.
"GAAP" shall mean generally accepted accounting principles for
financial reporting in the United States.
"GPO" shall mean any group purchasing association.
"Hazardous Substance" shall mean any substance, material or waste that
is subject to regulation, control or mediation under any Environmental Law.
"including" shall mean including without limitation.
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"Intellectual Property" shall mean all Copyrights, Patents, Know-How,
Trademarks and rights (including moral rights) used in or related to the
Business, including the items set forth on Schedule 4.14(a). For purposes of
this definition:
(a) "Copyrights" shall mean registered claims of copyright,
assignments of copyright, design rights, rights to mask works
and database rights, and registrations and applications for
registration of any of the foregoing;
(b) "Know-How" shall mean methods, devices, technology, software,
trade secrets, industrial designs, instrument drawings,
know-how, show-how, technical and training manuals and
documentation and other proprietary information, including
proprietary processes, designs and formulae, and invention
disclosures and rights in inventions;
(c) "Patents" shall mean United States patents and United States
patent applications, continuations, continuations-in-part,
divisions, reissues, reexam certificate, extensions, and
foreign counterparts of such patents and related items; and
(d) "Trademarks" shall mean (i) United States registered
trademarks (including "Jarit") and United States registered
service marks, applications for registration of such
trademarks and service marks, renewal registrations and
applications for renewal registrations, extensions and foreign
counterparts of such registered trademarks, registered service
marks and related items; (ii) material unregistered trademarks
and service marks; (iii) corporate names, business names and
trade names, whether registered or unregistered, including the
name "Jarit"; and (iv) internet domain names and associated
addresses and URLs.
"Inventory" shall mean (i) all inventory held for resale with respect
to the Business, including all inventory on consignment, and (ii) all raw
materials, parts, supplies, components, work-in-process, finished products
and packaging materials and similar items with respect to the Business, in each
case wherever located.
"Jamner Employment and Noncompetition Agreement" shall mean the
Employment and Noncompetition Agreement, dated as of the Closing, between Howard
Jamner and the Company.
"Key Executives" shall mean (i) Robert Rogowski, (ii) Ditmar Schaaf,
(iii) Mark Sherrard, (iv) Patrice Downey, and (v) Karl Leber.
"knowledge" shall mean, (i) with respect to Sellers, the knowledge of
Jamner, Robert Rogowski, or Ditmar Schaaf, and (ii) with respect to Buyer, the
knowledge of Stuart M. Essig or John B. Henneman, III; provided, that, in each
case, such individual shall be deemed to have knowledge if: (x) he or she has
actual knowledge, or (y) a prudent individual would acquire actual knowledge in
the course of a reasonable investigation regarding the accuracy of the relevant
representation or warranty in this Agreement.
"Law" shall mean any federal, state, local or foreign (including
German) statute, rule, regulation, order, or judgment of any governmental
authority applicable to the Company or the Business, including any Environmental
Law.
"Leased Real Property" shall mean all real property, including all
rights, easements and privileges appertaining or relating to such real property,
and all Fixtures located on such real property, that is leased, licensed, or
otherwise possessed (whether or not such possession is exclusive) by the
Company.
"Losses" shall mean all costs, losses (including diminution in value),
Taxes, liabilities, obligations, damages, Actions, claims, costs of mitigation
or remedial action, and expenses, including attorneys' fees and all amounts paid
in investigation, defense or settlement of any of the foregoing, whether or not
pursuant to a third-party claim.
"Material Adverse Effect" or "Material Adverse Change" shall mean a
material adverse effect on, or change in, the condition (financial or other),
business, results of operations, assets, prospects, liabilities or operations of
the Company.
"Offer Terms Schedule" shall mean the schedule so headed and attached
to the Employee Matters Letter Agreement.
"Owned Fixtures and Equipment" shall mean all Fixtures and Equipment
owned by the Company.
"Owned Real Property" shall mean all real property, including all
rights, easements and privileges appertaining or relating to such real property,
and all Fixtures located on such real property, that is owned in fee by the
Company.
"Permit" shall mean any license, permit, authorization, certificate or
order of any governmental authority used in or related to the Business,
including any environmental permit.
"Person" shall mean any individual, corporation, general or limited
partnership, limited liability company, trust, governmental body or other
entity.
"Real Property Lease" shall mean any agreement pursuant to which the
Company holds a possessory interest in any of the Leased Real Property, and all
amendments thereto and renewals or extensions thereof.
"Representative" shall mean, with respect to any Person, any officer,
director, principal, attorney, agent, employee or other representative of such
Person.
"Seller Releases" shall mean a release, executed by each Seller, in the
form attached hereto as Exhibit 1.1(d).
"Sellers' Agent" shall mean Howard Jamner, acting for himself as a
Seller and for the other Sellers pursuant to Section 3.3.
"Special Bonus Schedule" shall mean the schedule so headed and attached
to the Employee Matters Letter Agreement.
"Special Bonuses" shall mean bonuses to be paid to the Specified
Persons, pursuant to Section 7.2, in the amounts set forth on the Special
Bonuses Schedule.
"Specified Person" shall mean any Person identified as a recipient of a
Special Bonus on the Special Bonuses Schedule. .
"Tax" or "Taxes" shall mean, with respect to any Person, all federal,
state, local, county,foreign (including German) and other taxes, assessments or
other government charges, including income, estimated income, gross receipts,
profits, business, license, occupation, franchise, capital stock, real or
personal property, sales, use, transfer, value added, employment or
unemployment, social security, disability, alternative or add-on minimum,
customs, excise, stamp, environmental, commercial rent or withholding taxes,
including interest, penalties and additions in connection therewith for which
such Person may be liable (including any such Tax related to any other Person
for which such Person is liable, by contract, as transferee or successor, by
law or otherwise).
"Tax Return" shall mean any return (including any information return),
report, statement, schedule, notice, form, election, estimated Tax filing or
other document (including any amendments thereof and attachments thereto) filed
with or submitted to, or required to be filed with or submitted to, any
governmental authority in connection with the determination, assessment,
collection, or payment of any Tax or in connection with the administration,
implementation, or enforcement of or compliance with any requirement of law
relating to any Tax.
1.2 Other Defined Terms
Each of the following terms shall have the meaning given it in the
Section set forth opposite such term below:
Term Section
Agreement Preamble
Audit 1.1 ("Closing Amount")
Business Employees 4.21(a)
Buyer Preamble
Buyer Indemnified Persons 6.2(a)
Calculations 2.3(a)
Closing 3.1
Closing Agenda 3.2
Closing Date 3.1
Company Recitals
Definitive Allocation 2.4(a)
Definitive Section 338(h)(10) Amount 2.3(a)
Dispute Notice 2.3(c)
Employee Plan 4.21(b)
Indemnity Claim 6.2(c)(i)
Indemnity Claim Notice 6.2(c)(i)
Jamner Preamble
Per Diem Taxes 6.2(a)
Permitted Encumbrances 4.12(b)
Preliminary Allocation 2.4(a)
Preliminary Section 338 (h)(10) Amount 2.4(d)
Pre-Closing Tax Audits 9.3
Pre-Closing Returns 9.3
Purchase Price 2.2
Section 338(h)(10) Election 9.1
Section 338 Forms 9.1
Seller Preamble
Seller Indemnified Persons 6.2(b)
Shares Recitals
Tax Audits 9.3
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1 Transfer of Shares
At the Closing, Sellers will sell and transfer to
Buyer, and Buyer will purchase from Sellers, the
Shares, free and clear of all Encumbrances.
2.2 Purchase Price
The purchase price for the Shares (the "Purchase Price") shall be:
(a) (i) $43,000,000 (Forty-Three Million Dollars);
(ii) plus the Preliminary Section 338(h)(10) Amount;
all payable at Closing by wire transfer of immediately available funds
from Buyer as follows:
(X) An amount specified by Sellers' Agent, to an
account designated by Seller's Agent, in full repayment of all
debt of the Company to Howard Jamner;
(Y) An amount specified by Sellers' Agent, to an
account designated by Seller's Agent, in full repayment of all
debt of the Company to the Estate of Jay Jamner; and
(Z) the remainder to other accounts designated by
Sellers' Agent;
(b) plus or minus the amount of the adjustment provided for in
Section 2.3 of this Agreement.
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2.3 Post-Closing Adjustment
(a) Closing Amount. No later than sixty (60) days after the Closing,
Buyer shall deliver to Sellers' Agent (x) a calculation of the Final Base
Amount, and (y) a calculation of the Closing Amount, in each case prepared in
collaboration with Sellers' Agent. The calculation of the Closing Amount shall
include a calculation of the Definitive Section 338(h)(10) Amount, prepared by
Buyer in collaboration with Seller's Agent and in a manner consistent with both
the calculation of the Preliminary Section 338(h)(10) Amount contained in
Exhibit 2.4(d) and the requirements of the Code. As finally agreed pursuant to
this Section 2.3, such amount shall be the "Definitive Section 338(h)(10)
Amount". The provisions of Sections 2.3(b) and (c) below regarding review,
cooperation and dispute resolution shall apply to the calculations of (i) the
Final Base Amount, (ii) the Closing Amount, (iii) the Definitive Allocation, and
(iv) the Definitive Section 338(h)(10) Amount (the "Calculations").
(b) Review and Cooperation. Sellers' Agent and his Representatives
shall have the right to review the Calculations, and Buyer will cooperate with
them in the review process and will provide them reasonable access to all
Company information used in the preparation of the Calculations.
(c) Dispute Resolution. Pursuant to such review, no later than thirty
(30) days after his receipt of the Calculations, Sellers' Agent shall deliver to
Buyer a notice (the "Dispute Notice") describing any item or amount in any of
the Calculations that is disputed by Sellers. The parties shall attempt to
resolve any such dispute, but if they cannot do so within fifteen (15) days
after the date that Buyer receives the Dispute Notice, then the parties shall
jointly select an independent accountant to do so, which the parties initially
agree will be Ernst & Young, if such firm will accept such appointment. The
determination made by such independent accountant will be final and binding on
the parties, and Buyer, on the one hand, and Sellers, on the other hand, will
share equally the cost of retaining such independent accountant.
(d) Adjustment Payment. If it is determined, pursuant to Sections
2.3(a), (b) and (c) above, that the Closing Amount is less than the Final Base
Amount, then, not later than five (5) business days after such determination,
Sellers will pay to the Company the difference between the two, by wire transfer
of immediately available funds. If it is determined, pursuant to Sections
2.3(a), (b) and (c) above, that the Closing Amount is greater than the Final
Base Amount, then, not later than five (5) business
days after such determination, the Company will pay to Sellers' Agent the
difference between the two, by wire transfer of immediately available funds.
2.4 Allocation of Purchase Price
(a) Preliminary Allocation. Attached as Exhibit 2.4(a) is a preliminary
purchase price allocation that has been agreed by Buyer and Sellers (the
"Preliminary Allocation"). This Preliminary Allocation was prepared based on
currently available financial information, but the parties wish to base their
definitive agreed allocation and their calculation of the Definitive Section
338(h)(10) Amount on financial information as of the Closing. Accordingly, the
parties agree that, no later than sixty (60) days after the Closing, Buyer shall
deliver to Sellers' Agent a definitive purchase price allocation prepared in
collaboration with Sellers' Agent and in a manner consistent with the
preparation of the Preliminary Allocation and the requirements of the Code, but
based on financial information as of the Closing. This definitive Exhibit 2.4(a)
shall then replace the attached preliminary version and shall be the "Definitive
Allocation".
(b) Definitive Allocation. The Purchase Price shall be allocated among
the Company's assets in accordance with the Definitive Allocation. Buyer and
Sellers agree (i) to prepare and file all Tax Returns in a manner consistent
with the Definitive Allocation, including IRS Form 8883 (Asset Allocation
Statement Under Section 338), using where applicable the "aggregate deemed sales
price (ADSP)" and the "adjusted grossed-up basis (AGUB)" as described in
Treasury Regulation Sections 1.338-4 and 1.338-5, respectively, (ii) not to take
any position contrary thereto unless required to do so pursuant to a
determination (as defined in Section 1313(a) of the Code or any similar
provision of state, local or foreign law), and (iii) to cooperate in the
preparation of any applicable Tax Returns and file such Tax Returns in the
manner required by applicable law.
(c) Allocation Regarding Any Subsequent Adjustments. Subsequent
adjustments to the Purchase Price, if any, shall be reflected in a revised
Exhibit 2.4(a) as agreed to by the parties and shall be prepared in a manner
consistent with the applicable provisions of the Code, and the parties agree to
file a supplemental Form 8883 consistent with any such revised Exhibit 2.4(a).
(d) Preliminary Section 338(h)(10) Amount. Attached as Exhibit 2.4(d)
is a preliminary calculation of the "Preliminary Section 338(h)(10) Amount",
agreed by the parties on the basis of the Preliminary Allocation. The parties
wish to base their final calculation of such amount, however, on the Definitive
Allocation, and therefore have agreed to determine finally such amount pursuant
to Section 2.3.
2.5 Transfer Taxes
Sellers shall be responsible for any documentary, transfer
(including German real estate transfer), and other
similar Taxes imposed by reason of the
transactions contemplated hereby.
ARTICLE III
CLOSING
3.1 Closing
The Closing of the transactions contemplated by this Agreement (the
"Closing") shall take place on March 17, 2003, or on such other date as the
parties may agree (in any case, the "Closing Date"). The Closing shall be
effective for all purposes as of 11:59 p.m. on the Closing Date.
3.2 Closing Documents
At the Closing, (i) Buyer shall deliver to Sellers' Agent the items
shown in the Closing Agenda attached hereto as Exhibit 3.2 (the "Closing
Agenda") as being delivered by Buyer or Buyer's counsel, and such other
instruments and documents as may be reasonably requested by Sellers' Agent, all
in form reasonably satisfactory to Sellers' counsel; and (ii) Sellers shall
deliver to Buyer the items shown in the Closing Agenda as being delivered by
Sellers, Sellers' Agent or Sellers' counsel, and such other instruments and
documents as may be reasonably requested by Buyer, all in form reasonably
satisfactory to Buyer's counsel.
3.3 Appointment of Sellers' Agent
Each Seller agrees that, beginning as of the Closing, Sellers,
individually and as a group, shall deal with the Buyer and with other
appropriate parties, including Sellers' counsel, Lucash, Gesmer & Updegrove,
LLP, in connection with all matters arising in connection with this Agreement,
only through Sellers' Agent, who is hereby appointed by each Seller to act in
such capacity. Buyer and its Affiliates and Representatives shall be entitled to
deal only with Sellers' Agent for all such purposes. Sellers' Agent shall have
the power to act for and on behalf of Sellers, and each of them individually,
without further consultation therewith, for all purposes relevant to the
transactions contemplated by this Agreement, including the power to (i) give and
receive notices and communications; (ii) to agree to, negotiate, enter into
settlements and compromises of and take legal action with respect to claims and
indemnities arising under this Agreement; (iii) to agree to adjustments
contemplated by this Agreement; (iv) to review, agree to and dispute
Calculations and post-closing adjustments; (v) to amend this Agreement in
accordance with Section 11.4 hereof; and (vi) to take all actions and execute
all documents necessary or appropriate in the judgment of Sellers' Agent for the
accomplishment of the foregoing. Absent the gross negligence or willful
misconduct of Sellers' Agent, Sellers' Agent shall not be liable in any way to
the Sellers, or any of them, for any act done or omitted hereunder as Sellers'
Agent or for any loss or liability arising from or as a result of any such act
or omission, and any act done or omitted pursuant to the advice of counsel shall
be conclusive evidence of an absence of such gross negligence or willful
misconduct.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
The Disclosure Schedule shall be arranged in paragraphs corresponding
to the numbered and lettered paragraphs contained in this Article IV; however,
any information disclosed therein under any section number shall be deemed
disclosed and incorporated into any other section of the Disclosure Schedule
where it is cross-referenced or it is clearly apparent from the disclosure
contained therein that such cross-reference would be appropriate. Except as
otherwise set forth on the Disclosure Schedule, Sellers jointly and severally
represent and warrant to Buyer as follows:
4.1 Organization and Qualification; No Subsidiaries or Other
---------------------------------------------------------
Interests
---------
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with full corporate power
and authority to conduct the Business as it is presently being conducted and to
own and lease its properties and assets. The Company is qualified to do business
as a foreign corporation and in good standing in the jurisdictions listed on
Schedule 4.1(a), and the Company does not engage in business or own properties
such as to require it to qualify to do business in any other jurisdiction,
except where the failure to do so would not have a Material Adverse Effect. The
Company has no subsidiaries and owns no direct or indirect interest in any
Person.
4.2 Authorization, etc.
-------------------
(a) Power and Actions Taken. The Company has all requisite corporate
power and authority, and has taken all corporate action necessary, to execute
and deliver any Additional Agreement to which it is a party, to consummate the
transactions contemplated on its part under any such Additional Agreement, and
to perform its obligations under any such Additional Agreement.
(b) Due Execution, Delivery and Enforceability. Each Seller and the
Company has duly executed and delivered this Agreement and each Additional
Agreement to which it is a party, and this Agreement and each such Additional
Agreement is a valid and legally binding obligation of such party, enforceable
against such party in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally and subject to
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in law or at equity).
4.3 No Conflict or Violation
The execution, delivery and performance of this Agreement and any
Additional Agreement to which it is a party by each Seller and the Company: (a)
will not violate or conflict with the certificate of incorporation or bylaws of
the Company; (b) will not violate any Law; and (c) except as set forth on
Schedule 4.3(c), will not violate, conflict with, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the creation of any Encumbrance upon any of the assets of
the Company or the Business pursuant to, any Contract to which the Company or
any Seller is a party or to which any assets of the Company or the Business are
subject.
4.4 Third-Party Consents
No consent or approval of, notice to, or filing with, any Person is
required to be obtained, given or made by any Seller or the Company to permit
Sellers to transfer the Shares to Buyer, except any such consent, approval,
notice or filing that (i) has been listed on Schedule 4.3(c) and obtained by
Sellers or the Company, as applicable, before the Closing, or (ii) the failure
of which to be obtained, given, or made would not have a Material Adverse Effect
or materially impair Sellers' ability to perform their obligations under this
Agreement.
4.5 Brokers
Other than with respect to The Walden Group, Inc. (whose
fees will be paid by Sellers or the Company), none
of Sellers, the Company and their respective
agents have incurred any obligation for brokerage
fees or similar payments on behalf of the Company
or Sellers in connection with the transactions
contemplated by this Agreement.
4.6 Financial Statements
The Financial Statements: (i) have been prepared from
and are in accordance with the Books and Records;
(ii) have been prepared in accordance with GAAP;
and fairly present, in accordance with GAAP, the
financial condition and the results of operations,
changes in stockholders equity and cash flows of
the Company as at the date of and for the period
referred to therein.
4.7 No Material Adverse Change
Since the Balance Sheet Date, there has been no Material Adverse
Change, or event or circumstance that will, or could reasonably be expected to,
result in a Material Adverse Change (other than as a result of any change in
general economic, business or political conditions not having a disproportionate
effect on the Business compared to its effect on other entities engaged in
businesses similar to the Business).
4.8 Absence of Certain Changes and Events Since Balance Sheet Date
--------------------------------------------------------------
Except as set forth on Schedule 4.8, since the Balance
Sheet Date the Business has been conducted only in
the ordinary course of business, consistent with
past practices, and there has not been any: (i)
damage to or destruction or loss of any asset of
the Company, whether or not covered by insurance,
which had a Material Adverse Effect or would, if
it had not been covered by insurance, have had a
Material Adverse Effect; (ii) entry into,
termination of, or receipt of notice of
termination of (x) any material Contract or (y)
any Contract with a GPO, whether or not material;
(iii) sale (other than sales of inventory in the
ordinary course of business), lease, or other
disposition of any asset or mortgage, pledge, or
imposition of any Encumbrance on any material
asset of the Company; (iv) waiver of any claim or
right having a material value to the Business; (v)
material change in the accounting methods used by
the Company (other than the preparation of the
Financial Statements on a GAAP basis); or (vi)
agreement, whether oral or written, by the Company
or any Seller to do any of the foregoing.
4.9 Permits
To Seller's knowledge, Schedule 4.9 contains a list of the Permits that
is complete and accurate. The Permits constitute all licenses, permits,
authorizations, certificates or orders of any governmental authority which are
required to operate the Business as it is now being conducted, other than those
the absence of which would not have a Material Adverse Effect.
4.10 Compliance with Certain Laws and Permits
----------------------------------------
Except with respect to Environmental Laws and Permits thereunder (which
are covered in Section 4.22), the Company has not violated any Law or Permit,
except where such violation has not had, will not have and could not reasonably
be expected to have, a Material Adverse Effect, and neither the Company nor any
Seller has received any notice to the effect that, or otherwise been advised
that, the Company or the Business is not in compliance with any Law or Permit.
4.11 Title to Shares; Title to and Condition of Certain Assets
---------------------------------------------------------
(a) Title to Shares. The authorized equity securities of the Company
consist of 2,000 (Two Thousand) shares of common stock, no par value, of which
500 (Five Hundred) shares are issued and outstanding and constitute the Shares.
Each Seller is the record and beneficial owner and holder, free and clear of all
Encumbrances, of the Shares set forth opposite such Seller's name on Schedule
4.11(a). No legend or other reference to any purported Encumbrance appears upon
any certificate representing the Shares. The Shares have been duly authorized
and validly issued and are fully paid and nonassessable. Except for this
Agreement, there are no agreements or arrangements relating to the issuance,
sale, or transfer of the Shares. None of the Shares was issued in violation of
any preemptive right. There are no outstanding or authorized options, warrants,
preemptive, conversion or other rights, agreements or commitments to which any
Seller or the Company is a party or which are binding upon any Seller or the
Company providing for the issuance, redemption, disposition or acquisition of
any equity securities of the Company.
(b) Title to and Condition of Certain Assets. The Company has good and
marketable title to the Owned Fixtures and Equipment, the Inventory and the
other tangible, non-real property assets owned by the Company, free and clear of
any Encumbrances. The Fixtures and the Equipment are usable and operable, in
good working order and condition, and are in a reasonable state of repair,
subject only to ordinary wear and tear, and have been subject to regular
maintenance.
4.12 Real Property
(a) Owned Real Property. Schedule 4.12(a) contains a complete and
accurate list of the Owned Real Property, setting forth the street addresses,
and attaching the legal descriptions, of the Owned Real Property.
(b) Title. Except for liens for taxes not yet due and payable and the
items set forth on Schedule 4.12(b) ("Permitted Encumbrances"), the Company
holds good and marketable fee simple title to the Owned Real Property, free and
clear of all Encumbrances. There are no leases, agreements to lease, or
tenancies in effect with respect to the Owned Real Property other than Permitted
Encumbrances.
(c) Leased Real Property. Schedule 4.12(c) contains a complete and
accurate list of the Leased Real Property, and there are no subleases or
agreements to sublease, or other tenancies in effect with respect to the Leased
Real Property.
(d) No Violations. Except for violations which would not have a
material adverse effect on the use thereof in the Business, the Owned Real
Property complies with all Laws, including all building, zoning, fire and health
Laws, and all covenants, conditions, restrictions, rights-of-way or easements of
record or otherwise affecting the Owned Real Property.
(e) No Defects. No material structural defect exists in any of the
buildings or other improvements situated on the Owned Real Property or, to
Sellers' knowledge, the Leased Real Property and each Fixture owned, leased or
used by the Company and required for the conduct of the Business as currently
conducted is in all material respects in good working condition (reasonable wear
and tear excepted) and adequate for the operation of the Business as currently
conducted. No part of the Owned Real Property is located in a flood prone or
flood-risk area.
(f) Utilities. The Owned Real Property and the Leased Real Property,
and all improvements thereon, are served by gas, electricity, water, sewage and
water disposal, and other utilities adequate to operate the Business.
(g) Real Property Taxes. There are no challenges or pending appeals
regarding the amount of Taxes on, or the assessed valuation of, the Owned Real
Property (or if the Company is liable for the payment of such Taxes assessed
against the Leased Real Property, the Leased Real Property), and no special
arrangements or agreements exist with any governmental authority with respect
thereto. No special assessments are currently levied against the Owned Real
Property (or if the Company is liable for the payment of such special
assessments assessed against the Leased Real Property, the Leased Real Property)
or any portion thereof, and, to Sellers' knowledge, there are no intended public
improvements which would result in any special assessments being levied against
the Owned Real Property (or if the Company is liable for the payment of such
special assessments assessed against the Leased Real Property, the Leased Real
Property) or any portions thereof.
(h) Condominium Assessments. No regular or special assessments are
currently charged against the Owned Real Property or the Leased Real Property by
any applicable condominium association or equivalent organization, and to
Sellers' knowledge, there are no intended improvements which would result in any
such special assessments being charged.
(i) Pending Actions. To Sellers' knowledge, there are no pending or
threatened legal actions, lawsuits or administrative proceedings, including
condemnation actions or rezoning proceedings, affecting all or any material
portion of the Owned Real Property or the Leased Real Property.
(j) Certain Commitments. Except as set forth on Schedule 4.12(j), the
Company is not a party to or bound by: (i) any agreement for the purchase, sale
or lease of any real estate, or (ii) any obligation to make any contribution or
dedication of money or property (whether real or personal) to construct or
maintain any road or other improvement of a public or private nature.
4.13 Certain Contracts and Commitments
(a) Certain Contracts Listed. Schedule 4.13(a) contains a complete and
accurate list (and description, if the Contract is oral) of all Contracts:
(i) that the Company has entered into with GPOs, distributors
or surgeons;
(ii) under which the Company is required to make payments of
(or deliver goods and services having a value of) more than $5,000
(Five Thousand Dollars) in any year;
(iii) that are not cancelable by the Company upon 30 days'
or less notice without penalty; or
(iv) that are of the following types: (A) collective
bargaining agreement or contract with any labor union; (B) Contract or
arrangement with any employee or Affiliate, including loan or
arrangement governing the right to use assets used in the Business; (C)
confidentiality agreement restricting the Company from disclosing any
information; (D) confidentiality agreement restricting others from
disclosing any information regarding the Company; (E) non-compete
agreement restricting the Company, its Affiliates, Jamner or any of the
Key Executives from freely engaging in business anywhere in the world;
(F) other agreement binding or purporting to bind Affiliates of the
Company; (G) non-compete agreement with the Company restricting others
from freely engaging in business in competition with the Company
anywhere in the world; (H) power of attorney or agency agreement; (I)
Real Property Lease; (J) forward foreign currency Contract, or (K)
Contract entered into other than in the ordinary course of business.
(b) Enforceability, etc. The Contracts described in Section 4.13(a)
above, whether or not actually listed on Schedule 4.13(a), are valid and legally
binding obligations of the Company and, to the knowledge of Sellers, of the
other parties thereto, enforceable in accordance with their terms against the
Company and, to the knowledge of Sellers, against the other parties thereto, in
each case except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally and subject to general principles of equity (regardless of
whether such enforcement is considered in a proceeding in law or at equity). The
Company has not breached any such Contract in any material respect. Neither the
Company nor any of Sellers has received any notice of alleged breach, and
Sellers have no knowledge of any breach by any other party. Neither the Company
nor any of Sellers has received any notice of termination or non-renewal under
any such Contract.
4.14 Intellectual Property
(a) List. Schedule 4.14(a) contains a complete and accurate list of the
Intellectual Property.
(b) Title. The Company's right, title and interest in the Intellectual
Property as owner or, subject to the terms of any applicable license, as
licensee, is valid, enforceable, and uncontested, and is free and clear of all
Encumbrances (except to the extent any of the Intellectual
Property is licensed to the Company), and all of the Intellectual Property is
either owned by or licensed to the Company.
(c) No Infringement. To Sellers' knowledge, there is no infringement,
unlawful use or default by any third party under any license or other Contract
with respect to the Intellectual Property. The Company is not in default under
any such license or other Contract, or infringing upon any rights of any third
party, in its use of the Intellectual Property (nor does any Intellectual
Property provided by the Company to its direct or indirect customers for their
use infringe upon the rights of any third party), and neither the Company nor
any Seller has received any notice alleging any such default or infringement.
4.15 Litigation
There is no Action pending or, to Sellers' knowledge, threatened: (i)
except as set forth on Schedule 4.15, relating to the Company or the Business;
or (ii) seeking to delay, limit or enjoin any transaction contemplated by this
Agreement.
4.16 Inventory
Schedule 4.16 contains a complete and accurate list of addresses at
which Inventory is located. All Inventory reflected in the Balance Sheet and all
other Inventory acquired by the Company since the Balance Sheet Date was
acquired in the ordinary course of business and in a manner consistent with the
Company's regular inventory practices. Except for demonstration Inventory, all
such Inventory is in good and saleable condition. Except as set forth on
Schedule 4.16, no Inventory is held by any Person (including any Affiliate of
the Company) on consignment. Except as set forth on Schedule 4.16 and except for
Inventory for which a valuation reserve has been taken on the Balance Sheet or
on the Company's books after the Balance Sheet Date, there is no excessive and
obsolete Inventory (it being agreed that, for the purposes of this Section 4.16
the term "excessive and obsolete Inventory" shall refer to any Inventory which
(i) cannot be sold at current prices in the ordinary course of business, or (ii)
is not usable in the production of current products).
4.17 Certifications; Product Safety
All operations of the Company that have ISO 9001
certification and compliance have achieved and
maintained the applicable ISO and quality
certifications and are compliant, in all material
respects, with the applicable FDA Quality System
Regulations, EEC directives and the German Medical
Product Act, and there is no pending, and, to
Sellers' knowledge, no threatened, Action to
audit, repeal, fail to renew or challenge any such
certification. Except as set forth in Schedule
4.17, (i) none of the Company, any of Sellers, or
any of their respective Affiliates has been
required to file any notification or other report
with or provide information to any product safety
agency, commission, board or other governmental
authority of any jurisdiction concerning actual or
potential hazards with respect to any product
purchased, distributed, sold or leased, or with
respect to service rendered, by the Company or the
Business or any employee or agent thereof,
and (ii) to Sellers' knowledge, each product
distributed, sold or leased, or service rendered,
by the Company or the Business complies in all
material respects with all product safety
standards of each applicable product safety
agency, commission, board or other governmental
authority.
4.18 Certain Relationships
Except as set forth in Schedule 4.18, none of the
Company, Sellers or their respective Affiliates
has received written notice that, and Sellers have
no knowledge that, any customer or distributor of,
or supplier or licensor to, or GPO contracting
with, the Company or the Business has taken any
action or clearly intends to take any action,
which could reasonably be expected to materially
adversely affect the business relationship of the
Company or the Business with such customer,
distributor, supplier, licensor or GPO.
4.19 Export
The Company has not sold, directly or indirectly through any Affiliate,
or (to Sellers' knowledge) through a distributor or other Person, any products
in or to any of the following countries (or to any Person acting on behalf of
any of the following countries): the Balkans, Burma (Myanmar), Cuba, Iran, Iraq,
Liberia, Libya, North Korea, Sierra Leone, Sudan, Syria, Yugoslavia, the Taliban
in Afghanistan or UNITA in Angola.
4.20 Insurance
Schedule 4.20 contains a complete and accurate list of all policies or
binders of fire, liability, worker's compensation, product liability and other
forms of insurance (showing as to each policy or binder the carrier, policy
number, and a general description of the type of coverage provided) maintained
by the Company or any Seller on the Business or the Business Employees. Such
insurance provides coverage to the extent and in the manner required by Law,
required by any material Contract and customary in the industry. Neither the
Company nor any Seller (i) is in material default under any such policy or
binder, (ii) has received any notice alleging any default under any such binder
or policy, (iii) has any received any notice requesting any repair or
modification pursuant to such policy or binder, or (iv) has received any notice
of termination or non-renewal with respect to any such policy or binder.
4.21 Employees and Plans
(a) Business Employees. Schedule 4.21(a) lists all current employees of
the Company who work in the Business (the "Business Employees"), stating their
names, job titles, hourly rate of compensation or base salary for 2002, total
compensation for 2002, and the commencement dates of their employment.
(b) Employee Plans or Policies. There does not exist, with respect to
the Business Employees, the Company or the Business: (i) except as set forth on
Schedule 4.13(a), any employment contract (all Business Employees are "at-will"
employees); (ii) except as set forth on Schedule 4.21(b), any "employee benefit
plan" (as defined under Section 3(3) of ERISA), welfare, incentive, bonus,
deferred compensation, vacation, holiday, cafeteria, medical, disability, fringe
benefit, stock purchase, stock option, stock appreciation, phantom stock,
restricted stock or other stock-based compensation plan, policy, program,
practice or arrangement maintained or contributed to by the Company, any Seller
or any of their respective Affiliates (each, an "Employee Plan"); (iii) any
right on the part of any former Business Employee to be rehired prior to the
hiring of any new employee; (iv) any obligation to provide retiree medical
benefits; or (v) any request for union representation, strike, or labor dispute.
(c) Compliance. Each Employee Plan has been maintained and operated in
material compliance with all applicable Laws, including ERISA and the Code. The
Company (i) has no material liability to any Employee Plan which is subject to
Title IV of ERISA, and (ii) has not incurred any material excise Tax or other
penalty under ERISA or the Code. Except pursuant to any Contract disclosed or
required to be disclosed in Schedule 4.13(a), no Business Employee will become
entitled to any payment or increase in compensation or benefits as a result of
the transactions contemplated hereby.
4.22 Environmental Matters
Neither the Company nor any Seller has received any notice, citation,
inquiry or complaint from any governmental authority with respect to the Owned
Real Property or the Leased Real Property relating to Environmental Laws. To the
knowledge of Sellers, the Company has complied in all material respects with all
Environmental Laws and no material violation of any Environmental Law by the
Company exists with respect to the Owned Real Property or the Leased Real
Property. To the knowledge of Sellers, any Hazardous Substances generated or
handled on the Owned Real Property or the Leased Real Property during the
Company's possession thereof have been stored, transported, treated and disposed
of in a lawful manner.
4.23 No Undisclosed Liabilities
The Company has no liabilities or obligations (whether
absolute, accrued or contingent, whether matured
or unmatured, and whether known or unknown)
except: (i) liabilities which are reflected on the
Balance Sheet or in any footnotes to the Financial
Statements; (ii) current liabilities incurred in
the ordinary course of the Business and consistent
with past practice since the Balance Sheet Date,
and adjusted for in (or specifically excluded
from) the calculation of Closing Amount; (iii)
liabilities described in the Disclosure Schedule;
and (iv) unknown liabilities arising out of
product liability claims.
4.24 Copies of Certain Documents
Seller has delivered to Buyer complete and accurate copies of the
documents listed in Exhibit 4.24 and such copies include all amendments to such
documents.
4.25 Taxes
(a) S Corporation. The Company is an "S Corporation" (within the
meaning of Section 1361(a) of the Code) for which a valid election under Section
1362 of the Code has always been in effect (and which has also always been in
effect (or a similar state or local tax election has always been in effect) for
state or local income tax purposes in all jurisdictions in which the Company has
been obligated to file income Tax Returns). A Section 338(h)(10) Election with
respect to the sale of the Shares will not result in any Tax being imposed under
Section 1374 of the Code.
(b) Tax Returns. The Company has timely filed with the appropriate
governmental authorities all Tax Returns in respect of Taxes of the Company
required to be filed through the date hereof. Such Tax Returns are complete,
correct and accurate in all material respects. With respect to each Tax period
for which any governmental authority may assert a Tax liability, the Company has
not requested any extension of time within which to file any such Tax Returns.
(c) Tax Liabilities. All Taxes due and payable by the Company, in
respect of periods or portions thereof ending on or before the Closing Date,
have been paid. The Company has no liability for Taxes which are due and payable
in excess of the amounts so paid. All Taxes that the Company has been required
to collect or withhold have been duly collected or withheld and, to the extent
due, have been or will be duly paid to the proper governmental authority.
(d) Tax Administrative Matters. Except as set forth on Schedule 4.25,
no deficiencies for Taxes of the Company have been claimed, proposed or assessed
by any governmental authority. There are no pending or, to the knowledge of
Sellers, threatened, Actions for or relating to any liability in respect of
Taxes of the Company, and there are no matters under discussion with any
governmental authority with respect to Taxes of the Company. There have been no
audits of Company Tax Returns by the relevant governmental authorities at any
time during the last three (3) years. The Company has not been notified that any
governmental authority intends to audit a Company Tax Return for any other
period. No waiver or extension of a statute of limitations relating to Taxes is
in effect with respect to the Company. No claim has ever been made by a United
States (federal, state or local) or German governmental authority in a
jurisdiction where the Company does not file Tax Returns that it is or may be
subject to taxation in that jurisdiction, and, to Sellers' knowledge, no such
claim has ever been made by any non-U.S. (federal, state or local), non-German
governmental authority.
(e) Tax Elections. All elections of a material nature with respect to
Taxes affecting the Company (not including its election to be taxable as an S
Corporation) are set forth in Schedule 4.25. The Company has not made an
election, and is not required, to treat any asset of the Company as owned by
another person or as tax-exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code or under any comparable
provision of state or local Tax law. The Company has not filed a consent
pursuant to the collapsible corporation provisions of Section 341(f) of the Code
(or any corresponding provision of state or local law) or agreed to have Section
341(f)(2) of the Code (or any corresponding provision of state or local law)
apply to any disposition of any asset owned by it. The Company has not agreed to
make, nor is required to make, any adjustment under Section 481(a) of the Code
by reason of a change in accounting method or otherwise for any taxable year.
(f) Tax Liens. There are no Encumbrances for Taxes (other than for
Taxes not yet due and payable) upon the assets of the Company.
(g) Affiliated Group. The Company has never been a member of an
affiliated group of corporations, within the meaning of Section 1504 of the Code
or any comparable provision of state, local or foreign Tax law, nor has the
Company (or any predecessor or Affiliate thereof) become liable (whether by
contract, as transferee or successor, by law or otherwise) for the Taxes of any
other Person under Treasury Regulation Section 1.1502-6 or any similar provision
of state, local or foreign law.
(h) Tax Sharing Agreement. The Company is not a party to or bound by
any tax sharing, tax indemnity or tax allocation agreement or other similar
arrangement with any other party.
(i) Tax Withholding. The transactions contemplated herein are not
subject to the tax withholding provisions of Section 3406 or of Subchapter A of
Chapter 3 of the Code or of any other provisions of Law. The Company has
properly requested, received and retained all necessary exemption certificates
and other documentation supporting any claimed exemption or waiver of Taxes on
sales or other transactions as to which the Company would have been obligated to
collect or withhold Taxes. The Company is in compliance with, and its records
contain all information and documents necessary to comply with, all applicable
information reporting and Tax withholding requirements under Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Code.
(j) The Company has not agreed to make, nor is required to make, any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise for any taxable year.
(k) The Company has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under Section
280G of the Code.
4.26 Bank Accounts
Schedule 4.26 contains a complete and accurate list of the Company's
bank accounts and the authorized signatories thereon.
4.27 Disclosure
No representation or warranty of Sellers contained in Article IV of
this Agreement contains an untrue statement of a material fact or omits to state
a material fact necessary to make such representation or warranty not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
5.1 Organization, Authorization, etc.
(a) Power and Actions Taken. Buyer is a corporation
duly organized, validly existing and in good
standing under the laws of the State of Delaware.
Buyer has all requisite corporate power and
authority, and has taken all corporate action
necessary, to execute and deliver this
Agreement and each Additional Agreement to which
it is a party, to consummate the transactions
contemplated on its part under this Agreement and
each such Additional Agreement, and to perform
its obligations under this Agreement and each
such Additional Agreement.
(b) Due Execution, Delivery and Enforceability. Buyer
has duly executed and delivered this Agreement and
each Additional Agreement to which it is a party,
and this Agreement and each such Additional
Agreement is a valid and legally binding
obligation of Buyer, enforceable against Buyer in
accordance with its terms, except to the extent
that enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting
the enforcement of creditors' rights generally and
subject to general principles of equity
(regardless of whether such enforcement is
considered in a proceeding in law or at equity).
5.2 No Conflict or Violation
The execution, delivery and performance by Buyer of
this Agreement and each Additional Agreement to
which it is a party: (i) will not violate or
conflict with the governing documents of Buyer;
(ii) will not violate any federal, state, local or
foreign statute, rule, regulation, order or
judgment of any governmental authority applicable
to Buyer; and (iii) will not violate, conflict
with, or constitute a default (or an event which,
with notice or lapse of time or both, would
constitute a default) under, any contract, lease
or agreement to which Buyer is a party, except for
any such violation, conflict or default which
would not materially
impair Buyer's ability to
perform its obligations under this Agreement or
any such Additional Agreement.
5.3 Third-Party Consents
No consent or approval of, notice to, or filing with, any Person is
required to be obtained, given or made by Buyer to permit Buyer to purchase the
Shares from Sellers.
5.4 No Brokers
Buyer and its agents have incurred no obligation for brokerage fees or
similar payments in connection with the transactions contemplated by this
Agreement.
5.5 Disclosure
No representation or warranty of Buyer contained in Article V of this
Agreement contains an untrue statement of a material fact or omits to state a
material fact necessary to make such representation or warranty not misleading.
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.1 Survival of Representations
The representations and warranties of the parties made in this
Agreement shall survive the Closing as follows:
(i) the representations and warranties made in Section 4.11(a) ("Title
to Shares") shall survive without limitation;
(ii) the representations and warranties made in Section 4.25 ("Taxes")
shall survive until sixty (60) days after the expiration of the applicable
statute of limitations (with extensions); and
(iii) all other representations and warranties made in this Agreement
shall survive until June 30, 2004;
provided, however, that in each case such representations and warranties shall
survive, with respect to any Indemnity Claim, until the resolution of such
Indemnity Claim, so long as notice of such Indemnity Claim was provided on or
prior to such date.
6.2 Indemnification
(a) By Sellers. Sellers hereby jointly and severally indemnify and save
and hold harmless Buyer, the Company, its and their respective Affiliates and
its and their respective Representatives (collectively, the "Buyer Indemnified
Persons"), from and against any and all Losses (other than any Losses
specifically taken into account in the purchase price adjustment provided for in
Article II) incurred in connection with or arising out of:
(i) subject to Section 6.2(d)(i), any breach of a
representation or warranty made by Sellers in this Agreement or in any
document delivered at the Closing (without regard, for purposes of this
Section 6.2(a)(i), to any qualifications as to materiality, Material
Adverse Change or Material Adverse Effect in any representations and
warranties other than those contained in Section 4.7);
(ii) any breach of a covenant made by any Seller in this
Agreement;
(iii) [intentionally omitted];
(iv) any liability by the Company to, or claim against the
Company by, any Seller or such Seller's heirs, Representatives or
assigns, in each case arising out of acts, omissions, events, facts or
circumstances occurring before the Closing;
(v) except to the extent otherwise indemnified pursuant to the
foregoing clauses (i) and (ii) or covered by Section 2.5, any and all
liability for Taxes of: (A) the Company and any Seller (to the extent
liability for Taxes of any Seller is imposed on the Company or Buyer)
with respect to the transactions contemplated by this Agreement
(including any Taxes resulting from the application of Sections 1374
and 1375 of the Code); and (B) the Company and any Seller (to the
extent liability for Taxes of any Seller is imposed on the Company or
Buyer) with respect to Tax years ending on or before the Closing Date
(and for any Tax year beginning before and ending after the Closing
Date, for the portion of such Tax year ending on the Closing Date),
except to the extent such Taxes have been reflected as a liability in
Closing Amount. For purposes of this Section 6.2(a)(v), in the case of
any Taxes that are imposed on a periodic basis and are payable for a
Tax period that includes (but does not end on) the Closing Date, the
portion of such Tax which relates to the portion of such Tax period
ending on the Closing Date shall (x) in the case of any real, personal
and intangible property Taxes and any other Taxes incurred on a ratable
basis (collectively, "Per Diem Taxes"), be deemed to be the amount of
such Tax for the entire Tax period multiplied by a fraction, the
numerator of which is the number of days in the Tax period ending on
the Closing Date and the denominator of which is the number of days in
the entire Tax period, and (y) in the case of any Tax other than Per
Diem Taxes, be deemed equal to the amount which would be payable if the
relevant Tax period ended on the Closing Date (any credits relating to
a Tax period that begins before and ends after the Closing Date shall
be taken into account as though the relevant Tax period ended on the
Closing Date, and all determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with the
prior practice of the Company). Taxes shall include the amount of Taxes
which would have been paid but for the application of any credit or net
operating loss or capital loss deduction attributable to a Tax period
ending after the Closing Date. The parties agree that the payment by
Buyer of the Definitive Section 338(h)(10) Amount, through payment at
Closing and the purchase price adjustment provided for in Article II,
shall constitute an indemnifiable Loss of Buyer hereunder (X) if the
Section 338(h)(10) Election is deemed invalid or ineffective because of
facts or circumstances constituting a breach of any representation
contained in Section 4.25 or if Sellers breach any of the covenants
contained in Section 9.1, but Buyer's Losses arising out of any such
breach or breaches shall not be deemed to be limited to such amount,
and (Y) to the extent that it constitutes overpayment for the ultimate
incremental Tax liability of Sellers resulting from the Section
338(h)(10) Election (determined in a manner consistent with the
determination of the Definitive Section 338(h)(10)Amount and the
requirements of the Code).
(b) By Buyer. Buyer hereby indemnifies and saves and holds harmless
Sellers, Sellers' Affiliates, and its and their respective Representatives
(collectively, "Seller Indemnified Persons"), from and against any and all
Losses (other than any Losses specifically taken into account in the purchase
price adjustment provided for in Article II) incurred in connection with or
arising out of:
(i) subject to Section 6.2(d)(ii), any breach of a
representation or warranty made by Buyer in this Agreement or in any
document delivered at the Closing (without regard, for purposes of this
Section 6.2(b)(i), to any qualifications as to materiality, Material
Adverse Change or Material Adverse Effect);
(ii) any breach of a covenant made by Buyer in this Agreement;
(iii) except to the extent otherwise indemnified pursuant
to the foregoing clauses (i) and (ii), any and all
liability for Taxes of the Company with respect to
Tax years beginning after the Closing Date (and for
any Tax year beginning before and ending after the
Closing Date, for the portion of such Tax year
beginning on the day after the Closing Date);
(iv) to the extent that it exceeds the Definitive Section
338(h)(10) Amount, any and all incremental liability
for Taxes of Sellers resulting from the Section
338(h)(10) Election (determined in a manner
consistent with the determination of the Definitive
Section 338(h)(10)Amount and the requirements of the
Code); or
(v) the operation of the Business by Buyer after the Closing.
(c) Notice and Defense.
(i) Notice. If a claim for Losses (an "Indemnity Claim") is to
be made by a party entitled to indemnification hereunder, the party
claiming such indemnification shall give notice (an "Indemnity Claim
Notice") to the indemnifying party as promptly as practicable after the
party entitled to indemnification becomes aware of any fact, condition
or event which may give rise to Losses for which indemnification may be
sought. If any Action in the form of a lawsuit is filed against any
party entitled to indemnification hereunder, notice thereof shall be
given to the indemnifying party as promptly as practicable (and in any
event within fifteen (15) calendar days after service). The failure of
any indemnified party to give timely notice hereunder shall not affect
rights to indemnification hereunder, except to the extent that the
indemnifying party demonstrates actual damage caused by such failure.
(ii) Conduct of Defense. After such notice, the indemnifying
party shall be entitled, if it so elects: (x) to take control of the
defense and investigation of such Action; (y) to employ and engage
attorneys of its own choice to handle and defend the same (unless the
named parties to such Action include both the indemnifying party and
the indemnified party and the indemnified party has been advised in
writing by counsel that there may be one or more legal defenses
available to such indemnified party that are different from or
additional to those available to the indemnifying party, in which event
the indemnified party shall be entitled, at the indemnifying party's
expense, to separate counsel of its own choosing); and (z) to
compromise or settle such Action, which compromise or settlement shall
be made only with the written consent of the indemnified party, which
consent shall not be unreasonably withheld. If the indemnifying party
fails to assume the defense of such Action within fifteen (15) calendar
days after receipt of the Indemnity Claim Notice, the indemnified party
against which such Action has been asserted will (upon delivering
notice to such effect to the indemnifying party) have the right to
undertake, at the indemnifying party's expense, the defense, compromise
or settlement of such Action; provided, however, that such Action shall
not be compromised or settled without the written consent of the
indemnifying party, which consent shall not be unreasonably withheld.
(d) Limits on Liability.
(i) Limits on Liability of Sellers.
(x) Sellers shall not be obligated to indemnify any
Buyer Indemnified Person under Section 6.2(a)(i) (Breach of
Representation) (other than for a Loss arising from a breach
of representation or warranty contained in Section 4.25)
unless such Losses collectively suffered or incurred by all
Buyer Indemnified Persons aggregate more than $250,000 (Two
Hundred Fifty Thousand Dollars), in which event Sellers shall
be obligated to indemnify the applicable Buyer Indemnified
Persons for the amount of such Losses in excess of $250,000
(Two Hundred Fifty Thousand Dollars), up to a maximum amount
equal to Fifteen Percent (15%) of the Purchase Price; and
(y) Sellers shall be obligated to indemnify the Buyer
Indemnified Persons for Losses arising from any breaches of
representation or warranty contained in Section 4.25, up to a
maximum amount of such Losses (collectively suffered or
incurred by all Buyer Indemnified Persons in the aggregate)
equal to (A) the Purchase Price less (B) the amount of all
other indemnification payments made to Buyer Indemnified
Persons under this Agreement.
(ii) Limits on Liability of Buyer. Buyer shall not be
obligated to indemnify any Seller Indemnified Person under Section
6.2(b)(i) (Breach of Representation) for Losses pursuant to such
Section unless such Losses collectively suffered or incurred by all
Seller Indemnified Persons aggregate more than $250,000 (Two Hundred
Fifty Thousand Dollars), in which event Buyer shall be obligated to
indemnify the applicable Seller Indemnified Persons for the amount of
such Losses in excess of $250,000 (Two Hundred Fifty Thousand Dollars),
up to a maximum amount equal to Fifteen Percent (15%) of the Purchase
Price.
(e) Sole Remedy. The parties acknowledge that, in the absence of fraud,
the rights accorded to each Buyer Indemnified Person or Seller Indemnified
Person under this Article VI shall be the sole rights to money damages that any
such Person may have under this Agreement or for breach of this Agreement, at
common law or otherwise; provided, however, that notwithstanding the foregoing
or anything to the contrary contained in this Agreement, nothing in this Article
VI shall restrict or limit any rights that any Buyer Indemnified Person or
Seller Indemnified Person may have to seek equitable relief; provided, further,
that nothing in this Article VI shall be deemed to limit any party's obligation
hereunder to pay the full amount of the Purchase Price, the amount of any
adjustment thereto (including any amount related to the Section 338(h)(10)
Election), or any amount contemplated by Article VII, nor shall any party's
indemnification obligation with respect to Losses resulting from failure to pay
in full any such amount be subject to any basket or other limit contained in
this Article VI.
ARTICLE VII
CERTAIN EMPLOYEE MATTERS
7.1 Certain Employee Bonuses
No later than thirty (30) days after the Closing, Buyer shall cause the
Company to pay, to each Specified Person, the Special Bonus described in the
Special Bonus Schedule. Payment of the Special Bonuses shall not be subject to
any contingency and shall be made in consideration of prior service.
Accordingly, Buyer shall cause the Company to make such payments whether or not
any of the Specified Persons remain employees of the Company and whether or not
they enter into any new employment arrangements with the Company or Buyer.
7.2 Key Executive Employment Agreements
Buyer shall cause the Company, on the date that is fifteen (15) days
after the Closing, to execute and enter into a Key Executive Employment
Agreement, in the form attached to the Employee Matters Letter Agreement and
having the terms as to compensation (salary, bonus, and options) and title with
respect to the applicable Key Executive set forth on the Offer Terms Schedule,
with any Key Executive (other than Mr. Ditmar Schaaf, who is entering into a
different form of such agreement at Closing) who has executed an agreement in
such form by such date.
ARTICLE VIII
NONCOMPETITION AND POST-CLOSING CONFIDENTIALITY
8.1 Noncompetition
Each Seller agrees that, until the fifth anniversary of the Closing
Date, such Seller shall not, without the prior written consent of Buyer,
directly or indirectly engage in, own or invest in any business or activity that
competes with the Business; provided, that Seller shall not be deemed to be in
violation of this Agreement solely by reason of being the owner of up to three
percent (3%) of the outstanding stock (or other form of equity interest) in any
publicly traded corporation (or other publicly traded entity).
8.2 Post-Closing Confidentiality
After the Closing, Sellers shall, and shall cause their Affiliates to,
continue to maintain the confidentiality of all Confidential Information
relating to Buyer, the Company or the Business, including all such materials
which remain in the possession of any Seller or such Affiliates, except to the
extent that disclosure of any such information is required by law or authorized
by Buyer or reasonably occurs in connection with any dispute over the terms of
this Agreement. Buyer shall, and shall cause its Affiliates to, maintain the
confidentiality of all Confidential Information relating to Sellers or Sellers'
Affiliates (other than that relating to the Business) which Buyer or any of its
Affiliates has obtained in connection with this Agreement or with the
transactions contemplated herein, except to the extent disclosure of such
information is required by law or authorized by Sellers, or reasonably occurs in
connection with any dispute over the terms of this Agreement. In the event that
any party reasonably believes that it or any of its Affiliates is required by
law to disclose any such Confidential Information, the disclosing party will (i)
provide the other parties with prompt notice (before such disclosure, unless
this is impractical because an applicable warrant requires immediate disclosure)
in order that such parties may attempt to obtain a protective order or other
assurance that confidential treatment will be accorded such confidential
information and (ii) cooperate with such other parties in attempting to obtain
such order or assurance.
ARTICLE IX
TAX AND ACCOUNTING MATTERS
9.1 Section 338(h)(10) Election
Each of the Sellers will join with Buyer in making an election under
Section 338(h)(10) of the Code (and any corresponding election under state,
local and foreign tax law) with respect to the purchase and sale of the Shares
of the Company hereunder (collectively, the "Section 338(h)(10) Election"). The
Sellers and Buyer shall report the transaction consistent with such Section
338(h)(10) Election and hereby agree not to take any action that could cause
such Section 338(h)(10) Election to be invalid, and shall take no position
contrary thereto unless required to do so pursuant to a determination (as
defined in Section 1313(a) of the Code or any similar state, foreign or local
tax provision). Buyer shall prepare copies of Internal Revenue Service Form 8023
(Elections Under Section 338 for Corporations Making Qualified Stock Purchases),
including any schedules thereto, and any similar state, local or foreign forms
(collectively, the "Section 338 Forms") as may be required, the Sellers shall
cooperate with Buyer in the preparation of such Section 338 Forms, and Buyer and
the Sellers shall deliver duly executed final copies of such Section 338 Forms
on the Closing Date. Buyer and the Sellers shall also cooperate with each other
to take all actions necessary and appropriate (including, without limitation,
filing such additional forms, Tax Returns, elections, schedules and other
documents as may be required) to effect and preserve the Section 338(h)(10)
Election in accordance with the provisions of Treasury Regulation Section
1.338(h)(10)-1 (and comparable provisions of each applicable state, foreign and
local tax law) or any successor provisions.
9.2 Tax Return Filings
Buyer shall cause the Company (at its expense) to prepare or cause to
be prepared, consistent with the requirements of applicable law, and file or
cause to be filed all Tax Returns for the Company for all Tax periods beginning
prior to the Closing Date which are filed after the Closing Date; provided,
however, that Sellers, at Sellers' expense, shall prepare, consistent with the
requirements of applicable law, and Buyer shall cause the Company to file or
cause to be filed, the state and federal income Tax Returns of the Company for
the 2002 Tax year and the short Tax year of the Company as an S corporation from
January 1, 2003, through the Closing Date; provided, that the approval of Buyer
shall be required for any Tax Return position that Buyer determines will
increase the Tax liability of the Company by more than $10,000 for tax periods
ending after the Closing Date. To the extent required by applicable Law, Sellers
shall include any income, gain, loss, deduction or other Tax items for such
period on Sellers' income Tax Returns in a manner consistent with the Company's
Schedule K-1s for such periods (including any income, gain, loss, deduction or
other Tax items resulting from the Section 338(h)(10) Election).
9.3 Cooperation on Tax Matters
Sellers and Buyer shall cooperate fully, as and to the extent
reasonably requested by the other parties, in connection with the filing of Tax
Returns pursuant to Section 9.2 and any audit, litigation or other proceeding
with respect to Taxes. Such cooperation shall include the retention (through the
expiration of the applicable statute of limitations) and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. Each party agrees to use such party's
reasonable best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed on the parties (including with
respect to the transactions contemplated hereby) and to take any necessary steps
(including making any necessary adjustments on their respective Tax Returns) as
described in Section 1362(f) of the Code (and any comparable provision of state
or local law) to preserve the Company's status as a valid S Corporation for Tax
purposes for all taxable periods ending on or before the Closing Date. From and
after the Closing Date, subject to the obligations of Buyer under this Article
IX, Buyer and its Affiliates will have full control over, and the right to
represent the interests of the Company for all taxable periods of the Company,
including the preparation of Tax Returns and the conduct of Tax audit and other
Tax proceedings with governmental authorities ("Tax Audits"); provided, however,
that Buyer or its Affiliates shall provide prompt notice to Sellers' Agent of
such Tax Audits that relate to Tax periods ending on or before the Closing Date
("Pre-Closing Tax Audits"), and Sellers shall, after providing prompt notice to
Buyer of their desire to, control a Pre-Closing Tax Audit (at Sellers' expense)
except for the resolution of any issue that Buyer determines will increase the
Tax liability of the Company by more than $10,000 for Tax periods ending after
the Closing Date. With respect to any Pre-Closing Tax Audit that Sellers have
assumed control of, Sellers shall keep Buyer adequately informed of any issues
the resolution of which may impact the Company in a Tax period ending after the
Closing Date.
9.4 Tax Forms
At or prior to Closing, Sellers shall provide Buyer with properly
executed Internal Revenue Service Forms W-9 and Section 338 Forms.
9.5 Section 338 Certificates.
(a) First Certificate. No later than June 1, 2004, Sellers' Agent shall
deliver to Buyer, on behalf of Sellers, a certificate certifying their good
faith estimate, as of such date and subject to further audit by any Tax
governmental authority, of the amount of the ultimate incremental Tax liability
of Sellers resulting from the Section 338(h)(10) Election.
(b) Second Certificate. No later than sixty (60) days after the
expiration of the applicable statute of limitations (with extensions) with
respect to any audit by a Tax governmental authority, Sellers' Agent shall
deliver to Buyer, on behalf of Sellers, a certificate certifying the amount of
the ultimate incremental Tax liability of Sellers resulting from the Section
338(h)(10) Election.
ARTICLE X
CERTAIN POST-CLOSING MATTERS
10.1 Release of Lien on Bank Account
Buyer will use commercially reasonable efforts to cause, within thirty
(30) days after the Closing, the release of the Lien created in favor of the
Chase Manhattan Bank, pursuant to the Pledge Security Agreement dated June 4,
2001, on a bank account currently owned by either Halina Jamner or the estate of
Jay Jamner.
ARTICLE XI
MISCELLANEOUS
11.1 Assignment; No Third Party Beneficiaries
Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party
without the prior written consent of the other
parties, provided that (i) Sellers' Agent may
provide such consent on behalf of Sellers, and
(ii) Buyer may assign its rights and obligations
hereunder to one or more of its Affiliates. This
Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective
successors and permitted assigns, and no other
Person (including any Business Employee) shall
have any right, benefit or obligation under this
Agreement as a third party beneficiary or
otherwise.
11.2 Notices
All notices and other communications which are required or may be given
under this Agreement shall be in writing and shall be deemed to have been duly
given: (a) when received if personally delivered; (b) the day after being sent,
if sent for next-day delivery within the United States by recognized overnight
delivery service (e.g., Federal Express); and (c) upon receipt, if sent by
certified or registered mail, return receipt requested. In each case notice
shall be sent to the following address or to such other place and with such
other copies as either party may designate as to itself by notice to the other:
If to any Seller, addressed to: If to Buyer or the Company, addressed to:
------------------------------ ----------------------------------------
Howard Jamner, as Sellers' Agent Integra LifeSciences Corporation
29 Michaels Way 311 Enterprise Drive
Weston, CT 06883 Plainsboro, NJ 08536
Attention: Vice President and
General Counsel
With a copy to: With a copy to:
Lucash, Gesmer & Updegrove LLP GoodSmith, Gregg & Unruh
40 Broad Street 105 West Adams Street, 26th Floor
Boston, Massachusetts 02109 Chicago, IL 60603
Attention: William Contente Attention: Marilee C. Unruh
11.3 Choice of Law, etc.
This Agreement shall be construed and interpreted in accordance with
the internal laws of the State of New York, except with respect to matters of
law concerning the internal affairs of any business entity which is a party to
this Agreement, and as to those matters the law of the jurisdiction under which
the relevant business entity derives its powers shall govern. Each party
irrevocably and unconditionally: (i) agrees that any Action arising out of this
Agreement or any Additional Agreement may be brought in any court having
jurisdiction over the County of Westchester, New York, (ii) consents to such
jurisdiction, (iii) waives any objection to such venue; and (iv) waives trial by
jury in any Action relating to this Agreement, any Additional Agreements or the
transactions contemplated hereby or thereby.
11.4 Entire Agreement; Amendments and Waivers
This Agreement and the Additional Agreements, together
with all exhibits and schedules hereto and thereto
(including the Disclosure Schedule), constitute
the entire agreement among the parties pertaining
to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and
discussions, whether oral or written, of the
parties with respect thereto. No amendment,
supplement, modification or waiver of this
Agreement shall be binding unless executed in
writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of
any other provision hereof, nor shall such waiver
constitute a continuing waiver unless otherwise
expressly provided in such waiver.
11.5 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.
11.6 Expenses
Except as otherwise specifically provided in this Agreement, Buyer
shall pay its own legal, accounting, out-of-pocket and other expenses incident
to the negotiation and execution of, and Closing under, this Agreement, and the
Company shall pay such expenses of the Sellers.
11.7 Invalidity
In the event that any of the provisions contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then, to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement.
11.8 Cumulative Remedies
Except as otherwise specifically provided in this
Agreement (in Section 6.2(e) or otherwise) or any
Additional Agreement, all rights and remedies of
any party hereto are cumulative of each other and
of every other right or remedy such party may
otherwise have at law or in equity, and the
exercise of one or more rights or remedies shall
not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies.
11.9 Time; Captions; Exhibits and Schedules
Time is of the essence of this Agreement. The captions contained in
this Agreement in no way define, limit or extend any provision of this
Agreement. The Exhibits and Schedules which are attached to this Agreement are a
part of this Agreement and are incorporated herein by reference.
11.10 No Strict Construction
The language used in this Agreement shall be deemed to be the language
chosen by the parties hereto to express their mutual intent, and no rule of
strict construction shall be applied against any Person.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Agreement as of this 17th day of March, 2003.
"BUYER"
Integra LifeSciences Corporation
By:
----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
"SELLER" "SELLER"
Estate of Jay Jamner
By: ________________________________ ____________________________
Name: Halina Jamner Howard Jamner
Title: Executrix
"SELLER" "SELLER"
-------------------------------- -----------------------------
Halina Jamner Jessica Jamner
"SELLER" "SELLER"
Joshua Jamner Drew Jamner
By: ________________________________ By: __________________________
Name: Howard Jamner Name: Howard Jamner
Title:Custodian under the New York Title: Custodian under the New York
Uniform Gift to Minors Act Uniform Gift to Minors Act
"SELLER"
Alanna Jamner
By: ________________________________
Name: Howard Jamner
Title:Custodian under the New York
Uniform Gift to Minors Act
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report on the 2002
financial statements of J. Jamner Surgical Instruments, Inc. included in this
Form 8-K, into the Registration Statements on Form S-8 (File Nos. 333-46024,
333-82233, 333-58235, 333-06577, and 333-73512) of Integra LifeSciences Holdings
Corporation and Subsidiaries.
/s/ WithumSmith+Brown
------------------------------
New Brunswick, New Jersey
March 24, 2003
Exhibit 99.1.
Audited financial statements for J. Jamner Surgical Instruments, Inc. as of and
for the year ended December 31, 2002
J. JAMNER SURGICAL INSTRUMENTS, INC. CONTENTS TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
Page
------
Independent Auditors' Report 1
Balance Sheet at December 31, 2002 2
Statement of Income and Retained Earnings For the Year Ended December 31, 2002 3
Statement of Cash Flows For the Year Ended December 31, 2002 4
Notes to Financial Statements 5-11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders,
J. Jamner Surgical Instruments, Inc.:
We have audited the accompanying balance sheet of J. Jamner Surgical
Instruments, Inc. as of December 31, 2002, and the related statements of income
and retained earnings and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of J. Jamner Surgical Instruments,
Inc. as of December 31, 2002, and the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ WithumSmith+Brown
------------------------------
March 18, 2003
New Brunswick, NJ
J. JAMNER SURGICAL INSTRUMENTS, INC. BALANCE SHEET
DECEMBER 31, 2002
ASSETS
Current Assets:
Cash and cash equivalents $ 1,685,668
Accounts receivable, net 4,148,740
Inventory 7,628,799
Employee loans 38,857
Prepaid expenses and other current assets 97,586
Derivative instruments, current portion 942,357
-----------
Total Current Assets 14,542,007
Property and equipment, net 991,732
Derivative instruments 2,230,402
Other assets 103,700
-----------
TOTAL ASSETS $17,867,841
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,974,099
Deferred income taxes 13,650
State taxes payable 61,364
Loans payable - stockholders 9,192,825
-----------
Total Current Liabilities 11,241,938
Stockholders' Equity:
Common stock, no par value, 2,000
shares authorized, 500 shares
issued and outstanding 5,000
Retained earnings 6,620,903
-----------
Total Stockholders' Equity 6,625,903
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,867,841
===========
The Notes to Financial Statements are an integral part of this statement
J. JAMNER SURGICAL INSTRUMENTS, INC. STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2002
Net Sales $30,879,036
Cost of Goods Sold 13,819,700
-----------
Gross Profit 17,059,336
Selling, General and Administrative Expenses 13,417,658
-----------
Income From Operations 3,641,678
Other Income (Expense):
Interest income 34,545
Interest expense (375,549)
Miscellaneous (loss) (27,987)
Foreign currency transaction losses, net (981,646)
Change in fair value of derivative instruments 5,461,570
-----------
Total Other Income (Expense), Net 4,110,933
-----------
Income Before Provision for State Income Taxes 7,752,611
Provision for State Income Taxes 100,711
-----------
Net Income $ 7,651,900
Retained Earnings - Beginning of Year 29,386
Distributions to Stockholders (1,060,383)
-----------
Retained Earnings - End of Year $ 6,620,903
===========
The Notes to Financial Statements are an integral part of this statement
J. JAMNER SURGICAL INSTRUMENTS, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 2002
Cash Flows From Operating Activities:
Net income $ 7,651,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 91,521
Deferred taxes 34,525
Provision for doubtful accounts 5,240
Change in fair value of derivatives (5,461,570)
Loss on disposal of fixed assets 64,666
Changes in:
Accounts receivable (574,446)
Inventory (1,704,047)
Employee loans 16,883
Prepaid expenses and other current assets 19,912
Other assets (15,000)
Accounts payable and accrued expenses 90,074
State taxes payable 61,095
-----------
Net Cash Provided By Operating Activities 280,753
Cash Flows From Investing Activities:
Purchases of property and equipment (150,888)
Proceeds from sales of property and equipment 31,400
-----------
Net Cash Used In Investing Activities (119,488)
Cash Flows From Financing Activities:
Proceeds from stockholder loans 1,061,000
Principal repayments of stockholder loans (650,000)
Distributions to shareholders (1,060,383)
-----------
Net Cash Used In Financing Activities (649,383)
-----------
Net Decrease in Cash and Cash Equivalents (488,118)
Cash and Cash Equivalents at Beginning of Year 2,173,786
-----------
Cash and Cash Equivalents at End of Year $ 1,685,668
===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $375,549
Income taxes $5,581
The Notes to Financial Statements are an integral part of this statement
J. JAMNER SURGICAL INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies:
------------------------------------------
Significant accounting policies followed by the Company in the preparation of
the accompanying financial statements are summarized below:
Nature of Business Operations
J. Jamner Surgical Instruments, Inc. (the Company) markets a wide variety of
high quality surgical instruments for use in both traditional and minimally
invasive surgery. In the United States, the Company sells primarily through a
twenty-person sales management force that works with over one hundred
distributor sales representatives. Internationally, the Company sells through
distributors.
The Company was founded in 1971 and is a privately held American company with
corporate offices, research and development, sales, marketing and warehouse
facilities in Hawthorne, New York. Additionally, the Company has a procurement
facility located in Tuttlingen, Germany where supplier control, testing and
quality system standards are ISO 9001 certified.
The Company manages its business on the basis of one reportable segment - the
marketing and distribution of surgical instruments.
Use of Estimates
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventory
Inventory consists of work-in-process, samples and finished goods and is valued
at the lower of cost or market determined on a first-in first-out basis.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the following
estimated useful lives of the assets:
Estimated
Description Life (Years)
------------
Building and Building Improvements 40
Leasehold Improvements 10
Furniture, Fixtures and Office Equipment 5-10
Automobiles 5
Computer Software 3
Expenditures for maintenance and repairs are charged to operations as incurred.
Expenditures for betterments and major renewals are capitalized and, therefore,
are included in property and equipment.
For physical properties not fully depreciated, the cost of the assets retired or
sold is credited to the asset accounts, and the related accumulated depreciation
is charged to the accumulated depreciation accounts. The resulting gain or loss
from sale or retirement of property and equipment is reflected in income.
J. JAMNER SURGICAL INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (Continued):
----------------------------------------------------
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Revenue Recognition and Product Warranty
Revenue from sales of products is generally recognized either upon shipment to
customers or arrival at destination, based upon shipment terms. License fees
paid to group purchasing organizations are included as a reduction to revenue.
The Company warrants products against defects in design, materials and
workmanship generally for periods up to three years. Provisions for estimated
future costs relating to warranty obligations and sales returns are estimated
based upon historical information and recorded in the same period as a the sale.
Impairment of Long-Lived Assets
The Company periodically evaluates the net realizable value of long-lived
assets, including property and equipment, relying on a number of factors
including operating results, business plans, economic projections and
anticipated future cash flows. An impairment in the carrying value of an asset
is recognized whenever anticipated future cash flows (undiscounted) from an
asset are estimated to be less than its carrying value. The amount of the
impairment recognized is the difference between the carrying value of the asset
and its fair value.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. In addition, the Company has elected to be taxed as an
"S-Corporation" for the State of New York. Under those provisions, the
stockholders are liable for federal and state income taxes on the Company's
taxable income. The Company does not pay federal corporate taxes on their
taxable income and are liable for state income tax at reduced rates.
The Company accounts for state income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred state income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities. The primary deferred tax items
at December 31, 2002 were related to the fair value of derivative instruments,
calculation of inventory reserves and reserves sales returns for warranty costs.
Concentration of Credit Risk
The Company maintains cash balances, at times, with financial institutions in
amounts which are more than the amount insured by the Federal Deposit Insurance
Corporation. Management monitors the soundness of these institutions and
considers the Company's risk negligible.
The Company places its short-term investments, considered cash equivalents, in
short-term debt instruments of high quality commercial paper. The Company does
not believe there is a significant credit risk relating to these investments.
J. JAMNER SURGICAL INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (Continued):
----------------------------------------------------
Concentration of Credit Risk (Continued)
The Company has a concentration of their sales with group purchasing
organizations (GPO) whose members are primarily hospitals. Sales are made to a
variety of members of the organization under terms negotiated by the GPO. For
the year ended December 31, 2002, sales to members of one of these GPO's
amounted to approximately 52 percent of total sales and sales to members of
another one of these GPO's amounted to approximately 11 percent of total sales.
The current contracts with the GPO's have various expirations, one of which is
an open ended contract. In addition, the contracts allow for short-term
terminations without cause. The Company's receivables relating to these sales
are from the individual distributors that sell to end users. At December 31,
2002, receivables from one distributor amounted to 12% of net accounts
receivable.
Derivative Instruments
All derivative financial instruments are reported on the Balance Sheet at fair
value, and changes in a derivative's fair value are recognized currently in
earnings.
The Company purchases significant amounts of inventory in currency other than
the U.S. dollar, principally the Euro. As such, the Company is exposed to
movements in foreign currency exchange rates. The Company enters into foreign
exchange forward contracts to minimize the impact of foreign currency
fluctuations on anticipated foreign currency purchases. Because the forward
contracts were not designated for hedge accounting treatment under Statement of
Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and
Hedging Activities", as amended, gains and losses on the contracts are included
in other income (expense). The Company's foreign exchange forward contracts
generally mature within 3 years.
The Company has forward exchange contracts to purchase 30,970,000 Euros which
expire in the years ending December 31, as follows:
Year Amount
------ -------------
2003 $10,850,000
2004 9,000,000
2005 9,000,000
Amounts included in current assets represent forward exchange contracts maturing
within one year.
Foreign Currency Transactions
Assets and liabilities denominated in foreign currencies are translated at the
year-end rate of exchange and any adjustments are recorded in other income
(expense).
Financial Instruments
The carrying values of accounts receivable, derivative instruments, accounts
payable and accrued expenses approximate their fair values. It was not practical
to estimate the fair value of the stockholders' loans payable due to the related
party nature of these items.
J. JAMNER SURGICAL INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (Continued):
----------------------------------------------------
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
144, Accounting for Impairment or Disposal of Long-Lived Assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, addressing financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
was effective for the Company's year beginning January 1, 2002. The adoption of
this statement did not have a significant impact on the Company's financial
position or results of operations.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which supercedes Emerging Issues Task Force (EITF)
Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and requires that a liability
be recognized when it is incurred and should initially be measured and recorded
at fair value. This statement is effective for exit or disposal activities that
are initiated after December 31, 2002 and the adoption will not have an impact
on the Company's historical financial position or results of operations.
Retirement Plans
The Company has a profit sharing plan and a noncontributory thrift and savings
plan for salaried employees meeting certain service requirements, which
qualifies under Section 401(k) of the Internal Revenue Service Code.
Contributions into the profit sharing plan are at the discretion of management.
For the year ended December 31, 2002, profit sharing expense amounted to
$50,000.
Note 2 - Accounts Receivable and Credit Policies:
---------------------------------------
Customer accounts receivable at December 31, 2002 are summarized as follows:
Currently Due $ 4,185,903
Less: Allowance for Doubtful Accounts (37,163)
-----------
Net Due $ 4,148,740
Receivables are obligations due from customers under terms requesting payments
from thirty to sixty days from the shipment dates depending on the customer. The
Company does not accrue interest on unpaid receivables. Customer receivable
balances with invoice dates over ninety days old are considered delinquent. At
December 31, 2002, the amount considered delinquent was $154,670. Management
reviews these accounts taking into consideration the size of the outstanding
balance and the past history with the customer.
Payments of accounts receivable are allocated to the specific invoices
identified on the customer's remittance advice or, if unspecified, are applied
to the earliest unpaid invoices.
The carrying amount of receivables is reduced by a valuation allowance that
reflects management's best estimate of the amount that will not be collected.
Management individually reviews all accounts receivable balances that exceed
ninety days from invoice date and based on an assessment of current
creditworthiness, estimates the portion, if any, of the balance that will not be
collected.
J. JAMNER SURGICAL INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3 - Inventory:
---------------
Inventory at December 31, 2002 consisted of the following:
Work-in-Process $ 836,550
Finished Goods 6,792,249
----------
Total Inventory $7,628,799
Note 4 - Property and Equipment:
---------------------------
Property and Equipment consisted of the following at December 31, 2002:
Land $ 129,317
Building and Building Improvements 747,168
Leasehold Improvements 32,256
Furniture, Fixtures and Office Equipment 275,349
Automobiles 36,566
Computer Software 178,944
----------
Total Property and Equipment 1,399,600
Less: Accumulated Depreciation 407,868
----------
Property and Equipment, Net $ 991,732
Depreciation and amortization expense amounted to $91,521 for the year ended
2002.
Note 5 - State Income Taxes:
-----------------------
The provision for state income taxes consisted of the following for the year
ended December 31, 2002:
Current $ 66,186
Deferred 34,525
--------
Total $100,711
Deferred tax assets and liabilities are summarized as follows at December 31,
2002:
Deferred Tax Assets:
Inventory reserves $ 4,000
Accrued warranty costs 3,000
Deferred Tax Liabilities:
Derivative instruments (20,650)
--------
Net Deferred Tax Liability $(13,650)
J. JAMNER SURGICAL INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Accounts Payable and Accrued Expenses:
---------------------------------------
Accounts payable and accrued expenses consisted of the following at December 31,
2002:
Accounts payable $ 97,199
Accrued material purchases 833,389
Other accrued expenses 1,043,511
----------
Total accounts payable and accrued expenses $1,974,099
Note 7 - Commitments and Contingent Liabilities:
---------------------------------------
Leases
The principal type of property leased by the Company is for office and warehouse
facilities and automobiles. The most significant obligations under the term of
the leases are the maintenance of the facilities and charges for insurance,
utilities and tools.
Aggregate minimum annual lease commitments of the Company under non-cancelable
operating leases as of December 31, are as follows:
Year Total
------ ---------
2003 $ 31,800
2004 22,500
2005 2,200
2006 and thereafter --
---------
Total Minimum Lease Payments $ 56,500
The preceding data reflects existing leases and does not include replacements
upon their expiration.
Rent expense, including rent paid to a related party (see Note 8), incurred for
the year ended December 31, 2002 amounted to $209,887.
The Company is contingently liable under outstanding letters of credit in the
amount of $10,182 at December 31, 2002.
The Company has entered into various foreign exchange forward contracts. In
connection with one of the agreements, the stockholders have pledged as
collateral certain personal investments, which are being held in a custodian
account. In addition, the Company has pledged as collateral for one of the
foreign exchange forward contracts, the land, building and improvements located
in Tuttlingen, Germany with a net carry value of approximately $750,000.
The Company has entered into purchase commitments with some of the suppliers.
Aggregate purchase commitments issued by the Company amounted to approximately
$7,750,000 as of December 31, 2002. The Company anticipates the majority of
these commitments will be executed in 2003.
J. JAMNER SURGICAL INSTRUMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 8 - Related Party Transactions:
-----------------------------
At December 31, 2002, the Company was obligated to the stockholders for
$9,192,825 in loans, which bear interest at 4.5 percent per annum. Interest
expense paid to the stockholders on these loans amounted to $375,549 for the
year ended December 31, 2002. The loan was repaid in full on March 17, 2003,
therefore the amount is included in current liabilities.
Rent expense included in Note 7, paid to stockholders of the Company, amounted
to $155,520 for the year ended December 31, 2002. The lease agreement expired in
2002 and currently the Company is under a month-to-month lease requiring monthly
payments of $12,960.
Directors' fees were paid to the stockholders' during 2002 in the amount of
$48,000.
Note 9 - Subsequent Event:
----------------------
On March 17, 2003, all of the Company's outstanding shares of common stock were
acquired for $44.5 million, subject to certain adjustments.
Exhibit 99.2.
Unaudited pro forma condensed combined statements of operations for the year
ended December 31, 2002 and unaudited pro forma condensed combined balance sheet
as of December 31, 2002.
On March 17, 2003 (the "Closing Date"), Integra LifeSciences Corporation
("Integra"), a wholly-owned subsidiary of Integra LifeSciences Holdings
Corporation (the "Company"), acquired all of the issued and outstanding capital
stock of J. Jamner Surgical Instruments, Inc., a Delaware corporation (doing
business as JARIT(R) Surgical Instruments) ("JARIT"), for $44.5 million in cash,
subject to a working capital adjustment and other adjustments with respect to
certain income tax elections. The acquisition was made pursuant to a Stock
Purchase Agreement (the "Purchase Agreement") dated as of March 17, 2003 among
Integra and Howard Jamner and other individual stockholders of JARIT. JARIT
markets a wide variety of high quality, reusable surgical instruments for use in
virtually all surgical disciplines.
The unaudited pro forma condensed combined financial statements have been
prepared to give effect to the acquisition by Integra of all of the issued and
outstanding capital stock of JARIT. These pro forma statements are presented for
illustrative purposes only. The pro forma adjustments are based upon available
information and assumptions that the Company believes are reasonable. The
condensed combined pro forma financial statements do not purport to represent
what the consolidated results of operations or financial position of the Company
would actually have been if the acquisition had occurred on the dates referred
to below, nor do they purport to project the results of operations or financial
position of the Company for any future period or as of any date.
The unaudited pro forma condensed combined balance sheet as of December 31, 2002
was prepared by combining the historical balance sheet at December 31, 2002 for
the Company with the historical balance sheet of JARIT at December 31, 2002,
giving effect to the acquisition as though it was completed on that date.
The unaudited pro forma condensed combined statement of operations for the year
ended December 31, 2002 was prepared by combining the Company's historical
statement of operations for the year ended December 31, 2002 with JARIT's
historical statement of operations for the year ended December 31, 2002, giving
effect to the acquisition as though it had occurred on January 1, 2002. This
unaudited pro forma condensed combined statement of operations does not give
effect to any potential cost savings or other operating efficiencies that could
result from the acquisition, nor any non-recurring expenses resulting from the
transaction.
Unaudited Pro Forma Condensed Combined Balance Sheet
December 31, 2002
In thousands
Integra J. Jamner
LifeSciences Surgical
Holdings Instruments, Pro Forma
Corporation Inc. Adjustments Note Consolidated
----------- ----------- ----------- ---- ------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 43,583 $ 1,686 $ (1,686) 2A $ 43,583
Short-term investments 55,278 -- (44,650) 2B 10,628
Trade accounts receivable 19,412 4,149 -- 23,561
Inventories 28,502 7,629 763 2C 36,894
Prepaid expenses and other current assets 5,498 1,078 -- 6,576
----------- ----------- ----------- ---- ------------
Total current assets 152,273 14,542 (45,573) 121,242
Noncurrent investments 33,450 -- -- 33,450
Property, plant, and equipment, net 16,556 992 244 2C 17,792
Deferred income taxes, net 25,218 -- -- 25,218
Goodwill and other intangible assets, net 45,164 -- 29,510 2D 74,674
Other assets 2,007 2,334 -- 4,341
----------- ----------- ----------- ---- ------------
Total assets $ 274,668 $ 17,868 $ (15,819) $ 276,717
========== =========== =========== ==== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable to stockholders -- 9,193 (9,193) 2E --
Accounts payable, trade 3,764 97 -- 3,861
Income taxes payable -- 61 -- 61
Deferred revenue and customer advances 8,724 -- -- 8,724
Accrued expenses and other current liabilities 9,433 1,891 -- 11,324
----------- ----------- ----------- ---- ------------
Total current liabilities 21,921 11,242 (9,193) 23,970
Deferred revenue 3,263 -- -- 3,263
Other liabilities 1,887 -- -- 1,887
----------- ----------- ----------- ---- ------------
Total liabilities 27,071 11,242 (9,193) 29,120
Commitments and contingencies
Total stockholders' equity 247,597 6,626 (6,626) 2F 247,597
----------- ----------- ----------- ---- ------------
Total liabilities and stockholders' equity $ 274,668 $ 17,868 $ (15,819) $ 276,717
=========== =========== =========== ==== ============
See notes to pro forma condensed combined financial statements.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2002
In thousands, except per share amounts
Integra J. Jamner
LifeSciences Surgical
Holdings Instruments, Pro Forma
Corporation Inc. Adjustments Note Consolidated
----------- ----------- ----------- ---- ------------
Total revenue $ 117,822 $ 30,879 $ -- $ 148,701
COSTS AND EXPENSES
Cost of product revenue 45,772 13,820 59,592
Research and development 8,304 -- -- 8,304
Acquired in-process research and development 2,328 -- -- 2,328
Selling, general and administrative 40,587 13,417 (5,511) 2G 48,493
Amortization 1,644 -- 1,203 2H 2,847
----------- ----------- ----------- ---- ------------
Total costs and expenses 98,635 27,237 (4,308) 121,564
Operating income 19,187 3,642 4,308 27,137
Interest income (expense), net 3,535 (341) (740) 2I,2J 2,454
Foreign currency transaction losses, net -- (982) -- (982)
Change in fair value of derivative instruments -- 5,462 -- 5,462
Other income (expense), net 3 (28) -- (25)
----------- ----------- ----------- ---- ------------
Income before income taxes 22,725 7,753 3,568 34,046
Income tax expenses (benefit) (12,552) 101 4,372 2K (8,079)
----------- ----------- ----------- ---- ------------
Net income $ 35,277 $ 7,652 $ (804) $ 42,125
=========== =========== =========== ==== ============
Net income per share
Basic $ 1.21 $ 1.45
Diluted $ 1.14 $ 1.36
Weighted average common shares outstanding:
Basic 29,021 29,021
Diluted 30,895 30,895
See notes to pro forma condensed combined financial statements.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Basis of Pro Forma Presentation
For the pro forma condensed combined balance sheet as of December 31, 2002, the
preliminary $44.7 million purchase price, including the initial $44.5 million of
cash paid on the Closing Date plus $200,000 of estimated costs incurred by the
Company directly as a result of the acquisition, has been allocated based on
management's preliminary estimate of the fair values of assets acquired and
liabilities assumed as of December 31, 2002. The preliminary purchase price
allocation was as follows (amounts in thousands):
Accounts receivable $ 4,149
Inventory 8,392
Prepaid expenses and other current assets 1,078
Property and equipment 1,236
Intangible assets 29,510
Other assets 2,334
Accounts payable and accrued expenses (1,988)
Income taxes payable (61)
--------
Total purchase price $ 44,650
The acquired intangible assets consist primarily of customer relationships and
tradename and will be amortized over lives ranging from five to forty years.
This purchase price allocation is considered preliminary until the Company
receives financial information for JARIT as of the Closing Date. The final
purchase price amount will be allocated to assets acquired and liabilities
assumed on the Closing Date based on management's estimate of their fair values
as of that date.
For the pro forma statement of operations for the year ended December 31, 2002,
the preliminary $44.7 million purchase price has been allocated based on
management's preliminary estimate of the fair values of assets acquired and
liabilities assumed as of January 1, 2002. Accordingly, the pro forma $1.2
million intangible asset amortization adjustment in 2002 is based on this
preliminary allocation.
These pro forma condensed combined financial statements should be read in
conjunction with the audited financial statements of the Company included in its
Annual Report on Form 10-K for the year ended December 31, 2002, and the audited
financial statements of JARIT included in Exhibit 99.1 to this Form 8-K.
2. Pro Forma Adjustments
The pro forma condensed combined financial statements include the following
adjustments:
2A The sellers were entitled to withdraw all cash from the business prior
to the Closing Date without any effect on the working capital purchase
price adjustment.
2B The Company liquidated a portion of its short term investments to
finance the preliminary purchase price.
2C This adjustment is made to increase JARIT's inventory and property and
equipment balance as of December 31, 2002 to their estimated fair value.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements (continued)
2. Pro Forma Adjustments
2D This adjustment represents the amount of the preliminary purchase price
in excess of the fair value of the tangible assets as of December 31,
2002. The acquired intangible assets consisted primarily of customer
relationships and tradename. There was no goodwill included in this
amount.
2E Loans payable to stockholders were settled on the Closing Date and not
assumed by the Company.
2F This adjustment eliminates the ending balance of JARIT's stockholders'
equity.
2G This adjustment reduces the actual 2002 compensation paid to a certain
JARIT employee to an amount that this employee would have been paid by
the Company subject to the terms of an employment agreement between the
Company and this employee executed in connection with this acquisition.
2H This adjustment records pro forma amortization expense for intangibles
assets based on the preliminary purchase price allocation as of January
1, 2002.
2I This adjustment reduces the $376,000 of interest expense recorded by
JARIT in 2002 on the loans payable to stockholders of JARIT which were
not assumed by the Company.
2J This reduces interest income by approximately $1.1 million for the
estimated interest income earned by the Company in 2002 on the $44.7
million of short term investments used to finance the acquisition. This
reduction in interest income assumes the $44.7 million was paid on
January 1, 2002 and the average interest rate earned on short term
investments in 2002 was 2.5%. The effect of a 1/8 percent variance in
the interest rate on net income is approximately $56,000.
2K The inclusion of the financial results of JARIT for the full year ended
December 31, 2002 in the Company's consolidated results would have
reduced the Company's income tax benefit by approximately $4.4 million
in 2002. This adjustment results from the fact that JARIT was an "S"
Corporation for federal and New York state income tax purposes and
therefore did not record income tax expense at the same rate that a "C"
Corporation would have.
3. Pro Forma Net Income Per Share
Amounts used in the calculation of pro forma basic and diluted net income per
share were as follows (In thousands, except per share amounts):
2002
--------
Basic:
------
Pro forma net income $ 42,125
Dividends on preferred stock (159)
--------
Pro forma net income applicable to common stock $ 41,966
Pro forma basic net income per share $ 1.45
Weighted average common shares outstanding 29,021
Diluted:
--------
Pro forma net income $ 42,125
Dividends on preferred stock --
--------
Pro forma net income applicable to common stock $ 42,125
Pro forma diluted net income per share $ 1.36
Weighted average common shares outstanding 30,895
Notes to Unaudited Pro Forma Condensed Combined Financial Statements (continued)
4. Other Matters
In connection with the acquisition, the Company liquidated all of the foreign
currency forward purchase contracts acquired from JARIT. The fair value of these
contracts as of December 31, 2002 was $3.2 million and this value is included in
prepaid expenses and other current assets ($942,000) and other assets ($2.2
million) in the pro forma condensed combined balance sheet as of December 31,
2002. In 2002, JARIT recorded $4.5 million of non-operating income related to
these contracts. The liquidation of these contracts is not reflected in these
pro forma condensed combined financial statements.
5. Inventory
The pro forma condensed combined income statement for the year ended December
31, 2002 does not reflect any increase in cost of product revenue for the
estimated fair value adjustment to inventory discussed in Item 2C above. The
preliminary estimate of the amount that would have been recorded is $600,000.