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S.D. Firm Sues Smith Labs to Hold It to Terms of Sale

San Diego County Business Editor

Smith Laboratories has been sued by Rehabilitation Technologies, the San Diego company that in March signed a definitive agreement to pay $12.5 million for Smith’s only operating subsidiary, Sutter Corp.

The suit is designed to cause Smith to perform up to terms of the sale agreement, Rehabilitation Technologies President William Eisenecher said Thursday. The suit also seeks unspecified damages resulting from the sale not having been approved by Smith shareholders by June 30 as called for in the agreement, Eisenecher said.

The suit, filed in San Diego Superior Court, also asks the court to prevent Smith from selling Sutter to another company.

Smith Vice President Gary Moranz said that Smith is “still very interested” in selling Sutter to RTI, but that the transaction has become “protracted along the way.” He declined to specify the causes for the delay. A shareholder vote approving the sale now is not likely until October, the two sides said.

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“It’s obvious that we are not going to get the full benefit of our bargain. If you expect to run a business starting July 1 and don’t run it until Nov. 1, you will incur some expenses,” Eisenecher said, adding that the delay has deprived Rehabilitation Technologies the use of Sutter’s cash flow. He said he has also spent money recruiting staff for Sutter.

Both Sides Hopeful

Both sides in the dispute said they were hopeful that the sale of Sutter will go through as planned.

“We’re not going to comment on what has held up the sale because we’re trying to work that out,” Moranz said. He said there is no dispute over terms of the deal, which remain as outlined in the March agreement: Rehabilitation Technologies will pay Smith $8.5 million in cash and $4 million in notes for Sutter, a manufacturer of orthopedic rehabilitation devices.

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Sutter reported an operating profit of $1.6 million on sales of $12.4 million in fiscal 1988, up from a profit of $568,000 on sales of $9.5 million in 1987.

Moranz declined to comment on how the snag would affect Smith’s previously announced plan to merge with International Power Machines, a publicly owned company based in New York. Smith said only that it had not yet signed a definitive merger agreement with IPM.

Rehabilitation Technologies was set up by Eisenecher, a co-founder of Sutter, in 1987 to acquire companies that specialize in making patient rehabilitation devices.


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