Exhibit 2
Share Exchange Agreement by and among Innovative Medical Systems Corp.
("Seller"), OXIS International, Inc. ("Buyer") and each of The Shareholders Who
Are Signatories Hereto (collectively, the "Shareholders")
SHARE EXCHANGE AGREEMENT
BY AND AMONG
INNOVATIVE MEDICAL SYSTEMS CORP. ("SELLER"),
OXIS INTERNATIONAL, INC. ("BUYER")
AND EACH OF
THE SHAREHOLDERS OF SELLER WHO ARE SIGNATORIES HERETO
(COLLECTIVELY, THE "SHAREHOLDERS").
2
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT ("Agreement") is entered into as of this
1/st/ day of November, 1997, by and among INNOVATIVE MEDICAL SYSTEMS CORP., a
Pennsylvania corporation (herein referred to as "Seller"), OXIS INTERNATIONAL,
INC., a Delaware corporation (herein referred to as "Buyer"), and each of the
shareholders of the Seller who are signatories hereto (collectively, the
"Shareholders", and each individually a "Shareholder").
RECITALS
--------
A. Seller is in the business of medical instrument design, manufacturing,
marketing and selling and providing services related thereto as
described more fully in Section 3.1 hereof (the "Business").
B. The Shareholders are the owners of all of the issued and outstanding
shares of capital stock of the Seller as set forth adjacent to their
names in Section 3.24 hereto (the issued and outstanding shares of
capital stock of the Seller are sometimes referred to as the "Seller
Stock"). Xxxxxx X. Xxxxxxxxx, Xx., together with his wife, Xxxxxxx
Xxxxxxxxx, is the majority owner of the issued and outstanding capital
stock of Seller (the "Majority Shareholder").
C. The parties hereto desire for Seller and Buyer to engage in the
acquisition by Buyer of all of the Seller Stock solely in exchange for
shares of the common stock, par value $.50 per share of the Buyer
("OXIS Stock") upon the terms and subject to the conditions set forth
herein (the "Exchange").
D. The parties intend and desire for the Exchange to constitute a
nontaxable reorganization within the meaning of Section 368(a)(1)(B) of
the Internal Revenue Code of 1986, as amended (the "Code"), for federal
income tax purposes.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions herein contained, Buyer, Seller and Shareholders hereby
agree as follows:
1.1 The Exchange.
------------
(a) Upon the performance of all covenants and obligations of the
parties contained herein and upon the fulfillment of all conditions to the
obligations of the parties contained herein (other than such covenants,
obligations and conditions as shall have been waived in accordance with the
terms hereof), each Shareholder shall assign, transfer and deliver to Buyer the
number of shares of Seller Stock owned by such Shareholder, as set forth
opposite such
3
Shareholder's name in Section 3.24 hereto, free and clear of all liens,
encumbrances, restrictions and claims of every kind. In exchange for all of the
shares of the Seller Stock transferred to Buyer, Buyer shall issue and deliver
to each Shareholder (i) at Closing, the number of shares of OXIS Stock
determined by multiplying (A) the percentage set forth next to each
Shareholder's name in Exhibit "A" attached hereto and made a part hereof, times
(B) the Total Number of Initial Exchange Shares calculated in accordance with
Section 2.1(a) below (the "Initial Exchange"), and (ii) on an annual basis as
provided in Section 2.1(c) below, OXIS shall issue to the Shareholders
additional shares of OXIS Stock determined by multiplying (A) the percentage set
forth next to each Shareholder's name in Exhibit "A" attached hereto and made a
part hereof, times (B) the Total Number of Earnout Exchange Shares calculated in
accordance with Section 2.1(c) below (the "Earnout Exchange") (all such shares
of OXIS Stock issued to the Shareholders, collectively, the "Shares"). Each
certificate representing shares of Seller Stock shall be accompanied by a stock
power duly executed by the Shareholder transferring such shares in favor of
Buyer. The shares of OXIS Stock constituting the Initial Exchange shall be
delivered at Closing, and the shares of OXIS Stock constituting the Earnout
Exchange shall be delivered to the Shareholders within ninety (90) days
following the end of each calendar year throughout the Earnout Period (as
hereafter defined) as specified in Section 2.1(c) below.
(b) On the Closing Date, each of the Shareholders shall be deemed to
have waived, without further action, all of such Shareholder's preemptive,
dissenters or similar rights, if any, with respect to any share or other
securities of the Seller.
2.1 Initial Exchange Shares/Earnout Exchange Shares.
-----------------------------------------------
(a) The Total Number of Initial Exchange Shares to be delivered
to the Shareholders pursuant to the terms of this Agreement shall be as
defined and determined in subsection (b) below. In the event that between
the date of this Agreement and the Closing, Buyer shall change the number
of shares of OXIS Stock that are issued and outstanding as a result of any
stock split, stock dividend or similar recapitalization, the Initial
Average Share Price (as defined and determined in subsection (b) below) and
the Total Number of Initial Exchange Shares shall each be proportionately
adjusted correspondingly.
(b) Definitions for Initial Exchange. For purposes of Section
--------------------------------
2.1(a), the following capitalized terms shall have the respective meanings
set forth below:
(i) "Initial Average Share Price" means the average of the
-----------------------------
closing bid price of OXIS Stock for the ten (10) trading
days prior to one (1) business day before Closing, provided
that in no event shall such average price per share of OXIS
Stock be less than the par value of $.50 per share. The
Initial Average Share Price is also sometimes referred to
below as the "Floor Price".
(ii) "Total Number of Initial Exchange Shares" means the
----------------------------------------
lesser of (A) the number (rounded to four (4) decimal
places) determined by dividing Seven Hundred Fifty Thousand
Dollars ($750,000) by the Initial Average Share Price, or
(B) 1,000,000 shares of OXIS
4
Stock.
(c) Earnout Exchange. In addition to the shares of OXIS Stock
----------------
constituting the Initial Exchange to be delivered at Closing, the Shareholders
shall be entitled to an annual Earnout Exchange, based upon Seller's Actual
Revenues (as hereafter defined), for each calendar year commencing January 1,
1998 and ending December 31, 2002, provided that Actual Revenues for November
and December of 1997 shall be deemed included in the 1998 calendar year (the
"Earnout Period"), all as more fully set forth in Section 2.1(d) below and
Schedule 1 attached hereto and made a part hereof. "Actual Revenues" means, for
each of the aforementioned calendar years in the Earnout Period, the gross
revenues generated by the assets of Seller (including those revenues which arise
from internal sales within Buyer's business organization), including revenues
from the sale of instruments, technology licensing fees relating to Seller's
technology, proceeds from the sale of any and all such assets including
disposables, and revenues from development contracts performed by Seller's
employees, but not including revenues from the sale of reagents or other
products or services of the Buyer in existence today or developed or offered in
the future relating to Seller's technology.
The Total Number of Earnout Exchange Shares to be delivered to the Shareholders
under the terms of this Agreement shall be defined and determined as set forth
in subsection (d) below. In the event that between the Closing and the dates on
which the Total Number of Earnout Exchange Shares is determined, Buyer shall
change the number of shares of OXIS Stock that are issued and outstanding as a
result of any stock split, stock dividend or similar recapitalization, the
Earnout Average Share Price (as defined below) and the Total Number of Earnout
Exchange Shares shall each be proportionately adjusted correspondingly. In
addition, in the event that an individual product or product line constituting
more than five percent (5%) of Actual Revenues for the 1997 calendar year is
affected by any decision of Buyer to discontinue the product or product line so
that the result is a reduction of fifty percent (50%) or more in the Actual
Revenues attributable to such product or product line for any calendar year
during the Earnout Period from those Actual Revenues achieved in the 1997
calendar year, then, provided that Majority Shareholder expressed his opposition
to such business decision in writing, Majority Shareholder may elect to have the
dollar amount of such reduction deemed to be included in the calculation
determining the Total Number of Earnout Exchange Shares due to the Shareholders
for each calendar year of the Earnout Period, all as set forth in Section 2.1(d)
below, but the proceeds from the sale of such product line shall be excluded
from the calculation.
(d) Definitions for Earnout Exchange. For purposes of Section 2.1(c), the
--------------------------------
following capitalized terms shall have the respective meanings set forth below.
(i) "Earnout Average Share Price" means the average of the
-----------------------------
closing bid price of OXIS Stock for the last ten (10)
trading days for the calendar year upon which the Earnout
Exchange is being determined, but in no event shall such
price be less than the Floor Price.
5
(ii) "Total Number of Earnout Exchange Shares" means the
----------------------------------------
number determined by dividing the Payout (as defined in
(iii) below) by the Earnout Average Share Price.
(iii) "Payout" means:
--------
Guarantee +
*Min. Pay. + [(Act. Rev. - Min. Rev.) X $.25]
*only if Min. Rev. achieved
Where:
Act. Rev. = Actual Revenue (defined in Section 2.1(c))
Min. Pay. = Minimum Payout (defined in Schedule 1)
Min. Rev. = Minimum Revenue (defined in Schedule 1)
Guarantee = Guarantee (defined in Schedule 1);
The Payout for the calendar year ended December 31, 1998 shall be
determined without regard to the foregoing formula, and shall consist
of (i) a Guarantee of $250,000, and (ii) in the event that Actual
Revenues for the calendar year ended December 31, 1998 exceed the
Minimum Revenue target of $5,000,000 set forth in Schedule 1, an
additional $250,000.
In the event that Actual Revenues exceed Maximum Revenues for a given
calendar year during the Earnout Period (the "Excess Earnout"), the Excess
Earnout shall be carried forward to the following year or years during the
Earnout Period and added to the following year's Actual Revenues for the purpose
of calculating (A) the annual Payout for such year and (B) the resulting number
of shares of OXIS Stock which shall be determined and delivered to the
Shareholders within ninety (90) days following the end of each calendar year
during the Earnout Period, provided that in no year shall the dollar amount of
the Excess Amount added to the Actual Revenues for any one year exceed the
Maximum Revenues (as defined in Schedule 1 hereto) for such year, and any such
excess amount of Actual Revenues shall be carried forward.
(e) OXIS Stock Cap. Notwithstanding the foregoing, in no event shall
--------------
the total number of shares of OXIS Stock issued to Shareholders pursuant to this
Section 2.1 equal or exceed a number equal to 20% of the number of shares of
OXIS Stock outstanding (the "20% Threshold"), which number shall be determined
based upon the number of shares of OXIS Stock outstanding as of the close of
trading on the business day immediately preceding the Closing Date.
(f) Adjustment. Notwithstanding anything to the contrary contained in
----------
this Agreement, in the event that (i) the aggregate dollar value of the Total
Number of Initial
6
Exchange Shares is less than $750,000 (based on the Initial Average Share Price)
(the difference between $750,000 and the aggregate value of the Total Number of
Initial Exchange Shares being the "Initial Exchange Deficiency"), and (ii) the
Actual Revenues for any year during the Earnout Period exceed the Maximum
Revenues for such year (each, an "Excess Year"), Buyer shall pay that portion of
the Initial Exchange Deficiency which is "earned" (as defined below) in such
Excess Year, in the form of delivery of shares of OXIS Stock within ninety (90)
days following the end of the Excess Year. For purposes of this Section 2.1(f),
the number of shares of OXIS Stock constituting that portion of the Initial
Exchange Deficiency which is deemed "earned" in an Excess Year shall equal the
number determined by dividing (A) [(Actual Revenues- Maximum Revenues) x $.25],
by (B) the Earnout Average Share Price for the Excess Year. To the extent that
any portion of the Initial Exchange Deficiency remains unearned, it may be
earned following the foregoing formula in any subsequent Excess Year.
(g) Accounting and Tax Treatment. The Buyer, the Shareholders and
----------------------------
the Seller intend for the transactions contemplated by this Agreement to qualify
as a nontaxable reorganization under Section 368(a)(1)(B) of the Code.
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS.
---------------------------------------------------------
Majority Shareholder hereby represents and warrants on behalf of himself
and the Seller, jointly and severally, except as otherwise set forth (with a
reference to the relevant subparagraph below) in Exhibit B (Schedule of
Exceptions) attached hereto, the following Sections 3.1 through 3.23.
3.1 Organization, Qualification, Subsidiaries and Address.
-----------------------------------------------------
Seller is engaged in the business of designing, developing,
marketing, selling and manufacturing instruments or parts of instruments and
disposables for use in the medical, environmental and industrial fields and
providing services related thereto, and is not engaged in any other business.
Seller is a corporation validly existing and in good standing, under the laws of
the Commonwealth of Pennsylvania. Seller has all requisite power to own its
properties and carry on its business as now conducted. The only office and
facility of Seller is located at 00 Xxxxx Xxxxxxx Xxxxx, Xxxxxxx, Xxxxxxxxxxxx.
Seller does not own or lease property or conduct any activities outside of
Pennsylvania or is not otherwise required to be licensed or qualified to do
business in any other jurisdiction. Except as set forth in Schedule 3.1 of
Exhibit B, Seller has no subsidiary corporations, or investments in any other
business ventures and is not a partner or joint venturer in any partnership or
joint venture enterprise. Seller does not use any fictitious or assumed business
or other names, except for "IMS" and "Innovative Medical Systems".
3.2 Due Execution.
-------------
This Agreement and the consummation of the transactions
contemplated hereby have been duly and validly approved by Seller, and this
Agreement has been duly and validly executed and delivered by Seller and it is a
valid and binding obligation of Seller enforceable against it in accordance with
its respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or by equitable principles
7
relating to or limiting creditor's rights generally.
3.3 Effect of Agreement.
-------------------
Except as set forth in Schedule 3.3 of Exhibit B, the execution,
delivery and performance of this Agreement by Seller and consummation of the
transactions contemplated hereby will not (i) require the consent, approval or
authorization of any person or public authority, (ii) violate any provision of
law applicable to Seller or (iii) conflict with, violate or constitute a breach
of or default under any indenture, mortgage, deed of trust or other agreement or
instrument, or any order, judgment, award, decree, statute, ordinance,
regulation or any other restriction of any kind or character, to which Seller is
a party, or by which Seller or any of its assets or properties is bound.
3.4 Capital Stock and Ownership.
---------------------------
All of the issued and outstanding shares of Seller are owned
beneficially and of record as set forth in Section 3.24 hereof. All of the
issued and outstanding shares of capital stock of Seller are fully paid and
nonassessable. All of the issued and outstanding shares of Seller are owned by
the individuals set forth in Section 3.24, and, to the knowledge of Seller and
Majority Shareholder, are held free and clear of any liens, encumbrances and
obligations. Except as set forth in Schedule 3.4 to Exhibit B, there are no
existing warrants, options, convertible rights, calls, puts or other rights or
commitments of any character relating to the capital stock of Seller, and both
the issued and the unissued capital stock of Seller are free from any voting or
pooling trusts, agreements and similar arrangements, any redemption and cross
purchase (buy/sell) agreements, preemptive purchase rights or any other
restrictions.
3.5 Financial Statements.
--------------------
Seller has furnished Buyer with audited financial statements
(balance sheets and income statements), for each of the years ended October 31,
1995 and 1996 and unaudited financial statements for the twelve-month period
ended October 31, 1997. All of said balance sheets and income statements
(hereinafter referred to as "Financial Statements") are attached hereto as
Exhibit C. The audited financial statements:
(i) have been prepared in accordance with GAAP on a basis
consistent with prior accounting methodology;
(ii) are in accordance and consistent with the books and records
of Seller in all material respects;
(iii) fairly present in all material respects the financial
condition and the results of operations for Seller at and for the periods
therein specified;
(iv) contain and reflect all necessary adjustments for a fair
presentation of the results of operations and financial condition for the
periods covered by said financial statements; and
(v) with respect to any contracts and commitments and accounts
receivable of Seller contain and reflect reserves for all material
liabilities and for all reasonably anticipated material losses and costs in
excess of expected receipts, with a
8
full description of the bases of calculation of such reserves set forth
therein or in Exhibit B attached hereto.
The unaudited financial statements present fairly in all material
respects the financial condition of Seller as at October 31, 1997 and the
results of its operations for the twelve-month period ending October 31,
1997, are correct and complete, and are consistent with the books and
records of Seller, and have been prepared on a consistent basis with
interim financial statements for prior periods.
3.6 Absence of Certain Changes or Events.
------------------------------------
Except as (i) specifically disclosed in Schedule 3.6 to Exhibit
B, or (ii) specifically disclosed in the Financial Statements attached hereto as
Exhibit C, since October 31, 1997, Seller has not:
(a) incurred any obligation or liability (contingent or otherwise
in an amount in excess of $5,000), except normal trade or business obligations
incurred in the ordinary course of business and obligations under contracts,
agreements, leases and documents referred to in Exhibit B hereto, which remain
in existence as of the date of this Agreement;
(b) mortgaged, pledged or subjected to lien, charge, security
interest or to any other encumbrance, any of its assets or properties which
remain in existence as of the date of this Agreement;
(c) transferred, leased or otherwise disposed of any of its
material assets or properties other than in the ordinary course of Seller's
business;
(d) canceled or compromised any material debt or claim or waived
or released any material rights;
(e) transferred or granted any rights under any concessions,
leases, licenses, agreements, trademarks or trade names;
(f) made or granted any general wage or salary increase or paid
any bonuses or similar payments to employees (other than normal annual or
regularly scheduled increases or bonuses consistent with prior business
practices) or entered into any employment contract with any officer or employee;
(g) entered into, amended or terminated any material agreement,
contract or commitment other than in the ordinary course of Seller's business;
(h) suffered any material casualty loss or material damage,
whether or not such loss or damage shall have been covered by insurance;
(i) except as disclosed in this Agreement or the Exhibits hereto,
suffered any material adverse change in its financial condition, earnings,
assets, properties or business;
9
(j) acquired any additional material assets except as acquired in
the ordinary course of business as consistent with Seller's prior business
practices;
(k) issued, sold or otherwise granted any rights to an ownership
interest in Seller or its business or assets;
(l) made any change in its accounting methods; or
(m) entered into any agreement to do any of the things described
in the preceding clauses (a) to (l).
3.7 Absence of Defaults and Undisclosed Liabilities.
-----------------------------------------------
Except as specifically disclosed in the Financial Statements or
in Exhibit B with respect to Section 3.6(a), Seller is not obligated for, nor
are any of Seller's assets subject to, any obligations or liabilities of any
kind (fixed or contingent, whether known or unknown), whether or not such
obligations or liabilities are normally shown or reflected on a balance sheet in
a manner consistent with GAAP. Seller is not in default with respect to any
material term or condition of any of its indebtedness or liability or any
material amount of trade payables, except as otherwise set forth in Schedule 3.7
of Exhibit B. In addition, there are no facts in existence on the date hereof
and known to either Seller or Majority Shareholder which, insofar as can be
reasonably foreseen, might serve as the basis, in whole or in part, for any
liabilities or obligations of Seller of a type which would cause an adverse
effect on the business of Seller.
3.8 Taxes.
-----
(a) Seller has (i) filed all federal, state, local and foreign
income, franchise, real and personal property, and other tax returns, estimates
and statements which are required to be filed by it or them as of the date
hereof, (ii) paid all taxes, (whether income, sales, use, property,
unemployment, social security, payroll, employee withholding, import duties,
export duties and/or other) owed by Seller, with respect to Seller, as of the
date hereof (other than amounts which are being actively and validly contested
(as described in Exhibit B)), whether or not shown on said returns, estimates
and statements and (iii) made appropriate provision for the payment of all such
taxes where returns, estimates and statements are not yet required to be filed.
Prior to the Closing Date, Seller (i) will have filed all such returns,
estimates and statements which are required to be filed by it or them by the
Closing Date, and (ii) paid all such taxes owed and required to be paid by it or
them through the Closing Date. All of said tax returns and statements correctly
set forth and report the entire liability for such taxes; are otherwise
consistent with the Financial Statements; and contain accurate and complete
information in the form, manner and content as required by the relevant taxing
authorities in all material respects. Seller also has paid all such other taxes
and governmental assessments and charges as are due and payable by it. Except as
set forth in Schedule 3.8, no income tax return of Seller has been audited by
the Internal Revenue Service or any state tax agency.
(b) There are no tax liens or tax liabilities which have not been
paid as of the date of this Agreement (other than inchoate tax liens).
3.9 Litigation.
----------
10
Except as set forth in Schedule 3.9 of Exhibit B, neither Seller
nor Majority Shareholder has been served with any summons, complaint or notice
to arbitrate with respect to any actions presently unresolved involving the
business of Seller, or any of its assets, business or operations, and no such
action, suit, proceeding or investigation is currently pending; and neither
Seller nor Majority Shareholder has any knowledge of any suit or action
(equitable, legal or administrative), arbitration or other proceeding pending or
threatened against Seller which could involve Buyer relative to any of the
transactions contemplated herein.
3.10 Title to and Condition of Assets and Compliance with Contracts.
--------------------------------------------------------------
Except as provided to the contrary in Schedule 3.10 to Exhibit
B, Seller has good and marketable title, free and clear of restraints on or
conditions to transfer or assignment and free and clear of all liens, mortgages,
pledges, encumbrances, security interests, or charges of any kind, other than
liens for taxes, assessments or other governmental charges not yet due and
payable, to all of Seller's assets whether tangible, intangible, real, personal
or mixed. All of such assets are in good operating condition and repair and free
of any material defects except such as are normal in the conduct of operations
and will not interfere with the conduct of sound operations. All accounts
receivable of the Business as of the date hereof arose, and all of the accounts
receivable as of the Closing Date will have arisen, from valid sales in the
ordinary course of business. Seller owns or possesses all of the names
(including the names "Innovative Medical Systems" and "IMS"), trade secrets,
trademarks and service marks, trade names, copyrights and other proprietary
rights reasonably necessary to conduct the Business as presently conducted, all
of which are described in Schedule 3.10 to Exhibit B attached hereto. Seller has
not received any claim of, or been served with any legal action or proceeding
alleging its infringement of any proprietary rights, names or marks of any other
person or entity and neither Seller nor Majority Shareholder has any knowledge
of any such infringement. Seller is in possession of all premises leased to it
by others. All leases pursuant to which Seller leases any property are valid and
binding in accordance with their respective terms, and there is not any existing
default, event of default or event which with notice and/or lapse of time would
constitute a default under any such lease with respect to such Seller which
default would have a material adverse effect on the Business of Seller or its
assets, nor is there, to the best of Seller's and Majority Shareholder's
knowledge, any such default, event of default or event with respect to other
parties to such leases. Seller has materially performed the obligations required
to be performed by it pursuant to its contracts and legal commitments.
3.11 Compliance with Laws.
--------------------
Seller has complied with all material laws, regulations and
orders applicable to its operations, except where the failure to so comply would
not have a material adverse effect on the business of Seller. Without limiting
the foregoing, none of the operations of Seller violates any state or federal
occupational, health or safety laws or rules, any federal or state worker's
notification laws, any federal or state anti-discrimination or affirmative
action law or administrative requirement or governmental regulations or rules,
except where such violation would not have a material adverse effect on the
business of Seller; and there is no pending or to the best of Seller's and
Majority Shareholder's knowledge threatened action against Seller relating to
any such matters.
3.12 Key Employees and Customers.
---------------------------
11
Neither Seller nor Majority Shareholder has any knowledge of
any:
(i) intention of any employee of Seller to sever employment
relations; or
(ii) plan or intention of any of the customers, suppliers or
other parties which do business with Seller to cancel presently existing
contracts or other business arrangements or relationships with Seller or to
take any other action which would adversely affect the business,
operations, or anticipated earnings of the Business.
3.13 Interests in Competitors, Suppliers, Customers, etc.
----------------------------------------------------
Seller and the Majority Shareholder, and, to the knowledge of
Seller and Majority Shareholder, affiliates of Seller or Majority Shareholder,
(with respect to Majority Shareholder which are natural persons) and members of
any of their immediate families do not own, directly or indirectly (whether as
undisclosed principal or otherwise), individually or collectively, or own any
interest in any corporation (other than holdings in any such corporation (the
stock of which is publicly traded) which constitutes less than five percent (5%)
of the voting stock of such corporation), partnership, firm or other entity
which owns, any interest in:
(i) a competitor, customer or supplier of Seller;
(ii) any contractual relationship with Seller, including, but
not limited to, leases of real and/or personal property leased to Seller or
rights or options to extend contractual or lease terms or to purchase stock
or other property as are exercisable by Seller or said other party; or
(iii) any tangible or intangible property (including trade
secrets, copyrights and other proprietary rights) used in the business
activities of Seller.
3.14 List of Properties, Contracts and Other Data.
--------------------------------------------
All of the following documents, instruments and/or information,
if any, are described or listed, as is applicable, in Exhibit B attached hereto,
with a specific reference to the appropriate and relevant paragraph under this
Section 3.14 set forth therein:
(a) any contract or agreement, to which Seller is a party, with
a labor union or any local or subdivision thereof;
(b) any unresolved claim of an unfair labor practice involving
Seller or any present union organizing activity among any employees of Seller;
(c) any employment contract or commitment or any consulting
contract or commitment, entered into by Seller extending beyond the Closing
Date, with any employee or consultant;
(d) any insurance policies applied for and/or obtained by Seller
upon the life of any of its employees;
12
(e) all real property owned of record or beneficially by Seller,
and all leases of real property to which Seller is a party;
(f) all material rights, licenses, leases of personal property,
permits, franchises and concessions to which Seller is a party;
(g) a list of all employees of Seller showing position, start
date, current compensation, commission and/or bonus arrangements and perquisites
(e.g., club memberships, etc.), latest compensation review date or date of last
change in compensation and a description of all compensation changes made at
that time;
(h) any outstanding retirement plans, stock option plans and/or
medical, health or other fringe benefit plans of Seller for the benefit of any
of its employees and directors, including a description of all perquisites
provided for employees and directors (to the extent not otherwise described
pursuant to any other paragraph of this Section 3.14);
(i) a list of customers of Seller and approximate annual
revenues from such customers, if any, whose xxxxxxxx constituted $5,000 or more
of the revenues of Seller during the ten-month period ended August 31, 1997 and
the years ended October 31, 1995 and 1996 has been previously delivered to
Buyer;
(j) any material warranty or guaranty given to any customer or
other party by Seller relative to Seller's performance or the performance of its
employees;
(k) a list of all persons and entities which are independent
sales representatives or sales agents of Seller;
(l) any written contract, agreement or instrument, or any oral
contract or agreement, involving Seller and extending beyond the Closing Date,
material to the conduct of the business of Seller (including, without
limitation, material customer contracts and sales representative agreements);
(m) a description and list of all material licenses, leases,
contracts and other arrangements under which Seller is using any assets or
operations which are owned by other parties or by another party or which are
jointly owned by Seller with any other party or parties which has not otherwise
been described pursuant to any other paragraph of this Section 3.14 (with any
such relationship identified in such description);
(n) a list of all assets owned by Seller or used by Seller in
connection with its business describing each such asset or asset group, the
original cost thereof and its current book value, and all property on any
premises which is not owned or leased by Seller (excluding the personal effects
of Seller's employees); and
(o) all customer files, inventory files and historical records
regarding the same, which are kept in an electronic medium by Seller, are
available for inspection by Buyer at Seller's offices.
13
(p) all material licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities required
to conduct the business of Seller which has not otherwise been described
pursuant to any other paragraph of this Section 3.14.
3.15 Transfer of Rights.
------------------
Except as set forth in Schedule 3.15 to Exhibit B, all of
Seller's right, title and interest in the assets and contracts (the "Material
Contracts") listed in Schedule 3.14 to Exhibit B are being transferred to Buyer
(together, the "Intangible Assets") by operation of law under the terms and
conditions of this Agreement. As of the date of the Closing, Buyer will have the
same rights with respect thereto as possessed by Seller prior to the Closing.
All consents or other actions by or involving any other party required for the
survival and continuance of the Intangible Assets and the Material Contracts
have been, or will be prior to Closing, secured.
3.16 Intellectual Property.
---------------------
Set forth on Schedule 3.16 is a description of all the Seller's
Intellectual Property Rights with all registration numbers and dates of filing
and registration, if any, except that the trade secrets referenced in subsection
(ii) below are not described on such Schedule 3.16. The term "Intellectual
Property Rights" means (i) all patent rights and all rights, title, and interest
in and to all letters patent and applications for letters patent, industrial
models, industrial designs, utility models, and other government issued or
granted indicia of invention ownership including any reissue, division,
continuation, or continuation-in-part applications throughout the world; (ii)
all rights, title, and interest in and to all trade secrets and trade secret
rights arising under the common law, state law, federal law, and laws of foreign
countries; (iii) all copyrights; (iv) all mask work rights including mask work
registration rights and mask work registrations throughout the world; (v) all
rights, title and interest in and to all know-how and show-how whether or not
protectable by intellectual property law; and (vi) all trademarks, trade names,
and service marks, whether registered or arising under the common law, state
law, federal law, and laws of foreign countries and all registrations thereof
and interest therein throughout the world and all associated goodwill and the
right to xxx for past infringement. Except as otherwise set forth in Schedule
3.16, (i) the Seller owns the entire right, title, and interest in and to all
Intellectual Property Rights of Seller used or useful in or associated with
software developed by Seller ("Seller Software"), the Seller's assets, or the
Business; and (ii) neither Seller Software nor Seller's Intellectual Property
Rights are subject to any outstanding orders, decrees, judgments, stipulations,
claims, or settlements, nor is any such software or any item of such
Intellectual Property Rights subject to any mortgage, option, lease, covenant,
condition, agreement, lien, security interest, adverse claim, restriction,
charge, or encumbrance. Furthermore, except as otherwise set forth on Schedule
3.16, there are no pending or threatened claims, proceedings or lawsuits
relating to, affecting or otherwise impairing Seller's rights in Seller Software
or in Seller's Intellectual Property Rights, and no person or entity has
misappropriated any of Seller Software or has or is violating or infringing
Seller's Intellectual Property Rights. There is no restriction on the use or
transfer of any of Seller's Intellectual Property Rights or Seller Software.
Seller has no knowledge of any facts, which would be detrimental to the
ownership, use, or validity of any of Seller's Intellectual Property Rights or
Seller Software. To Seller's knowledge, Seller is not infringing upon or
violating any Intellectual Property Rights of any other person or entity in the
conduct of Business, and to Seller's knowledge, Buyer's use of Seller's
Intellectual Property Rights and Seller
14
Software will not infringe upon or violate any Intellectual Property Rights of
any other person or entity.
3.17 Licenses For Third-Party Software.
---------------------------------
Set forth on Schedule 3.17 to Exhibit B is a description of each
license under which Seller is the licensee of any Third-Party Software along
with a description of such Third-Party Software. Seller has delivered to Buyer
a true, correct, and complete copy of each license agreement identified in
Schedule 3.17. Seller presently uses the software described in such licenses as
licensee under terms of such licenses. All royalties due under such licenses
have been paid and there exists no default under the terms of such licenses and
no event has occurred which, upon the passage of time or the giving of notice,
or both, would result in any event of default or prevent Seller from exercising
and obtaining the benefits of any options contained therein. The Seller has all
rights, title, and interest of the licenses under the terms of such licenses,
free of all liens, claims, or encumbrances, all such licenses are valid and in
full force and effect and Seller is in compliance with the terms thereof. There
will be no default or basis for acceleration under any such license as a result
of the transactions contemplated by this Agreement. Seller has not received any
notice of infringement, violation, or conflict with any Intellectual Property
Rights of third parties with respect to its use of any Third-Party Software.
3.18 Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section
-----------
3.18, shall have the following meanings. Any of these terms may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference.
(i) "Release" shall mean and include any spilling,
-------
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into the environment or the
workplace of any Hazardous Substance, and otherwise as defined in any
applicable Environmental Law.
(ii) "Hazardous Substance" shall mean any quantity of
-------------------
asbestos, urea formaldehyde, PCBs, radon gas, crude oil or any fraction
thereof, all forms of natural gas, petroleum products or by-products, any
radioactive substance, any toxic, infectious, reactive, corrosive,
ignitable or flammable chemical or chemical compound and any other
hazardous substance, material or waste (as defined in or for purposes of
any applicable Environmental Law), whether solid, liquid or gas.
(iii) "Facility " shall mean each plant, facility, office or
--------
other item of real property owned or leased by Seller relating to the
Business.
(iv) "Permits" shall mean all licenses, permits,
-------
franchises, approvals, authorizations, consents or orders of, or filings
with, any governmental authority, whether foreign, federal, state or local,
or any other person, necessary or desirable for the present or anticipated
conduct of, or relating to the operation of the Business.
15
(b) Compliance with Applicable Environmental Laws. The Facility
---------------------------------------------
has been maintained by Seller in substantial compliance with all applicable
federal, state and local laws, statutes, ordinances, regulations, rules,
judgments, orders, notice requirements, court decisions, agency guidelines or
principles of law, restrictions, licenses, with respect to the Facility in
effect on the Closing Date, which (i) regulate or relate to the protection or
clean-up of the environment, the use, treatment, storage, transportation,
handling or disposal of hazardous, toxic or otherwise dangerous substances,
wastes or materials (whether gas, liquid or solid), the preservation or
protection of waterways, groundwater, drinking water, air, wildlife, plants or
other natural resources, or the health and safety of persons or property,
including without limitation protection of the health and safety of employees or
(ii) impose liability with respect to any of the foregoing, including without
limitation the Federal Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.),
Resource Conservation & Recovery Act (42 U.S.C. (S) 6901 et seq.) ("RCRA"), Safe
Drinking Water Act (21 U.S.C. (S) 349, 42 U.S.C. (S)(S) 201, 300f), Toxic
Substances Control Act (15 U.S.C. (S) 2601 et seq.), Clean Air Act (42 U.S.C.
(S) 7401 et seq.), Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. (S) 9601 et seq.) ("CERCLA"), or any other similar
federal, state or local law of similar effect, each as amended. ("Environmental
Laws").
(c) Facility. The Facility is, and at all times when leased or
--------
operated by Seller, leased and operated in substantial compliance in all
material respects with all applicable Environmental Laws and in a manner that
will not give rise to any material liability under any applicable Environmental
Laws;
(d) Permits. Seller has, and at all times has had, all Permits
-------
required under any applicable Environmental Law and the Facility is, and at all
times has been, in substantial compliance in all material respects with all such
Permits;
(e) Permits Required. The consummation of any of the
----------------
transactions contemplated by this Agreement will not require an application for
issuance, renewal, transfer or extension of, or any other administrative action
regarding, any Permit required under any applicable Environmental Law;
(f) Notice of Violation. Seller has not received any written
-------------------
notice at any time that it is or was claimed to be in violation of or in non-
compliance in any material respect with the conditions of any Permit required
under any applicable Environmental Law or the provisions of any applicable
Environmental Law;
(g) Pending Actions. There is not now pending or to the
---------------
knowledge of Seller, threatened, nor any basis for, nor has there ever been, any
Action against Seller under any applicable Environmental Law or otherwise with
respect to any Release or mishandling of any Hazardous Substance;
(h) Judgments. To the knowledge of Seller, there are no consent
---------
decrees, judgments, judicial or administrative orders or agreements with, or
liens by, any governmental authority or quasi-governmental entity relating to
any applicable Environmental Law which regulate, obligate, bind or in any way
affect Seller or the Facility;
16
(i) Hazardous Substances. During the period of time which Seller
--------------------
has leased the Facility, there is not and has not been any Hazardous Substance
used, generated, treated, stored, transported, disposed of, handled or otherwise
existing on, under, about or from the Facility, except for quantities of any
such Hazardous Substances stored or otherwise held on, under or about the
Facility in substantial compliance in all material respects with all applicable
Environmental Laws and necessary for the operation of the Business.
(j) Handling of Hazardous Substances. Seller has at all times
--------------------------------
used, generated, treated, stored, transported, disposed of or otherwise handled
its Hazardous Substances in substantial compliance in all material respects with
all applicable Environmental Laws and in a manner that will not result in
liability of Seller under any applicable Environmental Law;
(k) Environmental Conditions. To the knowledge of Seller, there
------------------------
are no present or past Environmental Conditions (as defined below) of any
material nature in any way relating to the Business, and the Facility.
"Environmental Conditions" means the introduction into the environment of any
Hazardous Substance (whether or not upon the Facility, or other property of the
Business) as a result of which Seller has or may become liable to any person or
by reason of which the Facility or any of the Seller's assets may suffer or be
subjected to any lien;
(l) CERCLA or RCRA. To the knowledge and belief of Seller, no
--------------
current or past use, generation, treatment, transportation, storage, disposal or
handling practice of Seller with respect to any Hazardous Substance has or
likely will result in any liability under the CERCLA or RCRA or any state or
local law of similar effect, as in effect on the Closing Date;
(m) Storage Tank or Pipeline. To the knowledge of Seller, there
------------------------
is not now and has not been at any time in the past any underground or above-
ground storage tank or pipeline at the Facility where the installation, use,
maintenance, repair, testing, closure or removal of such tank or pipeline was
not in substantial compliance in all material respects with all applicable
Environmental Laws and there has been no material Release from or rupture of any
such tank or pipeline, including without limitation any Release from or in
connection with the filling or emptying of such tank;
(n) Environmental Audits or Assessments. Copies of the written
-----------------------------------
reports, and all parts thereof, including any drafts of such reports if such
drafts are in the possession or control of Seller, of all environmental audits
or assessments which have been conducted at the Facility or any former Facility
within the past five years, either by Seller or any attorney, environmental
consultant or engineer engaged for such purpose, have been delivered to Buyer
and a list of all such reports, audits and assessments and any other similar
report, audit or assessment of which Seller has knowledge is included on
Schedule 3.18 of Exhibit "B" hereto;
(o) Indemnification Agreements. Except as set forth in Exhibit B
--------------------------
hereto, Seller is not a party, whether as a direct signatory or as successor,
assign or third party beneficiary, or otherwise bound, to any lease or other
contract (excluding insurance policies disclosed on Exhibit B hereto) under
which Seller is obligated by or entitled to the benefits of, directly or
indirectly, any representation, warranty, indemnification, covenant, restriction
or other undertaking concerning environmental conditions;
17
(p) Releases or Waivers. Except as set forth in Exhibit B,
-------------------
Seller has not released any other person from any claim under any applicable
Environmental Law or waived any rights concerning any Environmental Condition;
and
(q) Notices, Warnings and Records. Seller has given all notices
-----------------------------
and warnings, made all reports, and has kept and maintained all records required
by and in material compliance with all applicable Environmental Laws.
3.19 Inventory. All inventories of raw materials, work-in-progress
---------
and finished goods set forth or reflected in the October 31, 1997 Balance Sheet,
attached as part of Exhibit "C" to this Agreement (the "Balance Sheet"), consist
of a quality and quantity usable and saleable in the ordinary course of
business, except for obsolete items and materials of below standard quality, all
of which have been written down to net realizable market value as reflected in
the Balance Sheet. The value at which inventories are carried on the Balance
Sheet reflects the normal inventory valuation policy of Seller, as applicable,
in accordance with GAAP at the lower of cost or market value and on a basis
consistent with that of preceding periods.
3.20 Labor Controversies. There are no labor controversies pending
-------------------
or, to the best of Seller's and Majority Shareholder's knowledge, threatened
between Seller and its employees. Seller has substantially complied with all
laws relating to the employment of labor, including any thereof relating to
wages, hours, collective bargaining and the payment of social security and
similar taxes, and Seller is not liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing.
3.21 ERISA. Except as set forth in Schedule 3.21 of Exhibit B, there
-----
are no employee benefit plans as defined in section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), maintained by
Seller or under which Seller has any present or future obligation or liability.
Seller does not participate in or have any present or future obligation or
liability under any "multi-employer plan" or "employee pension benefit plan," as
those terms are defined under ERISA.
3.22 Accounts Receivable . Schedule 3.22 to Exhibit B lists the
-------------------
accounts receivable of Seller as of August 31, 1997, including the name of each
account; the account number; the invoice number and date; payment terms; and the
age of each such account on the basis of thirty (30), sixty (60) and ninety (90)
days and over, from the date of original invoice. Each such account receivable
listed arose from valid sales in the ordinary course of business. The dollar
value of the number of shares of OXIS Stock constituting the Earnout Exchange
(including the Guarantee) for the first year of the Earnout Period shall be
adjusted downward by the dollar amount of any such account receivable or portion
thereof which Seller is not able to collect by the end of such year, and such
adjustment shall be Buyer's sole remedy for such non-collectible accounts
receivable. In the event that such adjustment occurs, Buyer shall promptly
assign such non-collectible accounts receivable to the Shareholders for
collection, provided that as a result of such assignment the Shareholders shall
be entitled to retain any monies collected with respect thereto. Except as
reflected in Schedule 3.22 , no refunds, reimbursements, discounts or other
adjustments are payable by Seller with respect to any of its accounts receivable
other than those arising in the ordinary course of business. Except as set
forth in Schedule 3.22, neither Seller nor
18
Majority Shareholder, know, or have any reasonable grounds to know, of any
defenses, rights of setoff, recoupment, assignments, pledges, liens,
encumbrances, claims, equities or conditions enforceable by third parties with
respect to or affecting the accounts receivable of Seller.
3.23 Disclosure. No representation or warranty (whether or not
----------
relating to Seller) by Seller or Majority Shareholder in this Agreement, any
Schedule or Exhibit hereto, or in any certificate furnished or to be furnished
pursuant hereto or at the Closing, or in connection with the transactions
contemplated hereby contains any knowingly untrue statement of a material fact
as of the date hereof or thereof, or omits to state a material fact necessary to
make the statements contained herein or therein as of the date hereof or thereof
not misleading.
Each of the Shareholders hereby represents and warrants, severally with
respect to himself or herself, except as otherwise set forth (with a reference
to the relevant subparagraph below) in Exhibit B (Schedule of Exceptions)
attached hereto, the following Sections 3.24 through 3.28:
3.24 Capital Stock and Ownership. The issued and outstanding shares
---------------------------
of Seller are owned beneficially and of record by the Shareholder as set forth
next to his or her name as follows:
Name of Shareholder Number of Shares
---------------------------------------- -------------------
Xxxxxx X. Xxxxxxxxx, Xx. and Xxxxxxx 465,400
Catarious, husband and wife
Xxxx X. Xxxxxxx 32,800
Xxxxx Xxxxxx and Xxxxxx Xxxxxx, husband 25,000
and wife
Xxxxxx X. Xxxxxxxx 24,000
Xxxxxxx X. Xxxxxx and Xxxxxxxx X. 21,800
Xxxxxx, husband and wife
Xxxx Xxxxx 12,000
Xxxxxxxx X. Xxxxxxx and Xxxxxxxx X. 12,000
Strange, husband and wife
Xxxx X. Xxxxxx and Xxxxxxxxxx X. 12,000
Xxxxxx, husband and wife New Jersey resident
Xxxxxxx X. Xxxx 10,900
19
Xxxxxx X. Xxxxxxxx 7,300
Maryland resident
Xxxxxxxxx Xxxxxxxxx and Xxxxxx X. 4,400
Radnetter, husband and wife
All of the issued and outstanding shares of capital stock of Seller held by
the Shareholder are fully paid and nonassessable. All of the issued and
outstanding shares of Seller held by the Shareholder are held free and clear of
any liens, encumbrances and obligations. Except as set forth in Schedule 3.24
to Exhibit B, there are no existing warrants, options, convertible rights,
calls, puts or other rights or commitments of any character relating to the
capital stock of Seller held by the Shareholder, and such capital stock is free
from any voting or pooling trusts, agreements and similar arrangements, any
redemption and cross purchase (buy/sell) agreements, preemptive purchase rights
or any other restrictions.
3.25 Due Execution. This Agreement and the consummation of the
-------------
transactions contemplated hereby have been duly and validly approved by
Shareholder, and this Agreement has been duly and validly executed and delivered
by Shareholder and it is a valid and binding obligation of Shareholder
enforceable against him or her in accordance with its respective terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or by equitable principles relating to or limiting creditor's
rights generally.
3.26 Effect of Agreement. The execution, delivery and performance of
-------------------
this Agreement by the Shareholder and consummation of the transactions
contemplated hereby will not (i) require the consent, approval or authorization
of any person or public authority, (ii) violate any provision of law applicable
to the Shareholder or (iii) conflict with, violate or constitute a breach of or
default under any indenture, mortgage, deed of trust or other agreement or
instrument, or any order, judgment, award, decree, statute, ordinance,
regulation or any other restriction of any kind or character, to which
Shareholder is a party, or by which Shareholder or any of his or her assets or
properties is bound.
3.27 Investment Representations.
--------------------------
(a) Investment Purpose. Shareholder is acquiring the OXIS Stock
------------------
pursuant to Sections 1.1 and 2.1 of this Agreement (collectively, the
"Securities") for his or her own account for investment only and not with a
present view towards the public sale or distribution thereof, except pursuant to
sales registered under the Securities Act of 1933, as amended (the "1933 Act").
(b) Reliance on Exemptions. Shareholder understands that the
----------------------
Securities are being offered and sold to him or her in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that Buyer is relying upon the truth and accuracy of, and
the Shareholder's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Shareholder
20
set forth herein in order to determine the availability of such exemptions and
the eligibility of the Shareholder to acquire the Securities.
(c) Information. Shareholder and his or her advisors, if any,
-----------
have been furnished with all materials relating to the business, finances and
operations of Buyer and material relating to the offer and sale of the
Securities which have been requested by Shareholder or its advisors. Shareholder
and his or her advisors, if any, have been afforded the opportunity to ask
questions of Buyer and have received what such persons believe to be
satisfactory answers to such inquiries. Shareholder understands that
Shareholder's investment in the Securities involves a high degree of risk.
(d) Governmental Review. Shareholder understands that no United
-------------------
States federal or state agency or any other governmental agency has passed upon
or made any recommendation or endorsement of the Securities.
(e) Transfer or Resale. Shareholder understands that (i) the
------------------
Securities have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be transferred unless (a) subsequently
registered thereunder, or (b) Shareholder shall have delivered to Buyer an
opinion of counsel (which opinion and counsel shall be reasonably acceptable to
Buyer and its counsel) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration or (c) sold pursuant to Rule 144 promulgated under the 1933 Act (or
a successor rule); (ii) any sale of such Securities made in reliance on Rule 144
may be made only in accordance with the terms of said Rule and further, if said
Rule is not applicable, any resale of such Securities under circumstances in
which the seller (or the person through whom the sale is made) may be deemed to
be an underwriter (as that term is defined in the 0000 Xxx) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the U.S. Securities and Exchange Commission thereunder; and (iii)
neither Buyer nor any other person is under any obligation to register such
Securities under the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.
(f) Legends. Shareholder understands that certificates
-------
evidencing the Securities may bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be sold,
transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion of counsel,
in form, substance and scope reasonably acceptable to the Company,
that registration is not required under said Act or unless sold
pursuant to Rule 144 under said Act."
(g) Residency. Shareholder is a resident of the Commonwealth of
---------
Pennsylvania, except as noted next to his or her name in Section 3.24 hereof.
21
3.28 Disclosure. No representation or warranty (whether or not
----------
relating to Shareholder) by Shareholder in this Agreement, any Schedule or
Exhibit hereto, or in any certificate furnished or to be furnished pursuant
hereto or at the Closing, or in connection with the transactions contemplated
hereby contains any knowingly untrue statement of a material fact as of the
date hereof or thereof, or omits to state a material fact necessary to make the
statements contained herein or therein as of the date hereof or thereof not
misleading.
4. Representations and Warranties of Buyer. Buyer hereby represents and
---------------------------------------
warrants to Seller and the Shareholders the following:
4.1 Organization. Buyer is a corporation duly organized and validly
------------
existing, in good standing, under the laws of the State of Delaware. Buyer has
the requisite corporate power to own its properties and carry on its business as
now conducted.
4.2 Due Execution. This Agreement and the agreements and instruments
-------------
contemplated hereby and the consummation of the transactions contemplated hereby
and thereby have been duly and validly approved by the Board of Directors of
Buyer and each of this Agreement and such other agreements and instruments has
been or, will be as of the Closing Date, duly and validly executed and delivered
by Buyer and is a valid and binding obligation of Buyer enforceable against it
in accordance with its respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws or by equitable
principles relating to or limiting creditor's rights generally.
4.3 Effect of Agreement. The execution, delivery and performance of
-------------------
this Agreement and the agreements and instruments contemplated hereby by Buyer
and consummation of the transactions contemplated hereby and thereby will not
(i) require the consent, approval or authorization of any person or public
authority, (ii) violate any provision of law applicable to Buyer including
without limitation, federal and state securities laws, or (iii) conflict with,
violate or constitute a breach of or default under the Certificate of
Incorporation, Bylaws, or any indenture, mortgage, deed of trust or other
agreement or instrument, or any order, judgment, award, decree, statute,
ordinance, regulation or any other restriction of any kind or character, to
which Buyer is a party, or by which Buyer or any of its assets or properties is
bound.
4.4 Capitalization. Buyer is authorized to issue 50,000,000 shares
---------------
of its common stock, par value $.50 per share and 15,000,000 shares of its
preferred stock, par value $0.01 per share. On September 30, 1997, the capital
of Buyer was comprised of the following issued and outstanding capital stock:
26,573,175 shares of Common Stock, 642,583 shares of Series B Preferred Stock;
1,021,697 shares of Series C Preferred Stock; and 1,150 shares of Series D
Preferred Stock. The issued and outstanding shares of Buyer's Preferred Stock
are convertible into shares of Common Stock as follows: Series B into 642,583
shares of Common Stock; Series C into 1,475,785 shares of Common Stock; and
Series D into 1,202,386 shares of Common Stock. Buyer has also issued warrants
and stock options exercisable for 4,516,318 shares of Common Stock. In
addition, Buyer has outstanding term promissory notes convertible into 1,290,809
shares of Common Stock. The conversion rates of Buyer's Series C Preferred
Stock, Series D Preferred Stock, and term promissory notes are based on trading
prices of
22
Buyer's Common Stock at or around the time of conversion. The foregoing
conversion rates are based on trading prices as of September 30, 1997. Actual
conversion rates may be higher or lower than those calculated as of September
30, 1997. The maximum number of shares of Common Stock into which the Series C
and D Preferred Stock and term promissory notes may be converted is as follows:
Series C Preferred into 1,475,785 shares of Common Stock; Series D Preferred
into 1,202,386 shares of Common Stock; and term promissory notes into 2,141,593
shares of Common Stock. The total number of common shares outstanding as of
September 30, 1997, was 26,573,175 and the number of shares which could be
issued through the conversion of convertible securities, as listed above, or the
exercise of stock options or warrants, at any time, was 9,127,881 as of
September 30, 1997.
4.5 Compliance with Securities Laws. Buyer has filed all
--------------------------------
registration statements, proxy statements, reports and other filings, including
without limitation reports on Form 10-K, Form 10-Q, and Form 8-K and all
amendments thereto required to be made, which it was required to file with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). As of its date, none of such documents contained
any untrue statement of material fact or omitted any material fact required to
be stated therein or necessary to make the statements therein not misleading,
except to the extent any such statement or omission has been modified or
superseded in a document subsequently filed with the SEC. Except as may be set
forth in the documents filed by Buyer with the SEC and other publicly available
documents or materials, Buyer does not have any liabilities or obligations
(including legal proceedings or investigations) which, in the aggregate, would
have a material adverse effect on the business, financial condition or results
of operations of buyer and its subsidiaries taken as a whole.
4.6 Disclosure. No representation or warranty (whether or not
----------
relating to Seller) by Buyer in this Agreement, any Schedule or Exhibit hereto,
or in any certificate furnished or to be furnished pursuant hereto or at the
Closing, or in connection with the transactions contemplated hereby contains any
knowingly untrue statement of a material fact as of the date hereof or thereof,
or omits to state a material fact necessary to make the statements contained
herein or therein as of the date hereof or thereof not misleading.
5. Business and Obligations Pending Closing. Each of Seller and Majority
----------------------------------------
Shareholder, jointly and severally, covenants and agrees that, except as
otherwise required in this Agreement or unless Buyer otherwise conditionally or
absolutely consents in writing, throughout the period from the date hereof to
the Closing Date:
5.1 Good Standing. Seller will maintain itself at all times as a
-------------
corporation in good standing under the laws of the Commonwealth of Pennsylvania.
5.2 Conduct of Business. The business of Seller will be operated in
-------------------
the manner as presently conducted and its business shall be conducted in, and it
will not be caused to engage in any transaction or make any commitment or
expenditure other than as contemplated hereby or in the ordinary course of
business (consistent with its prior practices) and in material compliance with
all applicable laws and legal requirements; Seller shall not, directly or
indirectly, purchase,
23
lease, enter into a partnership or joint venture concerning, otherwise acquire,
begin or enter into any other ownership (debt or equity) arrangement or
relationship respecting any business or business activity other than that
presently conducted by Seller; Seller shall not enter into any contracts or
leases, except in the ordinary course of its business; Seller shall not sell,
distribute, lease, mortgage, pledge, subject to any lien, encumbrance or other
security interest, or otherwise dispose of, any of its business assets, except
in the ordinary course of its business. Seller shall not make any declaration of
a dividend or other distribution of any of the assets of its business, or
commitment involving said assets; and Seller shall not otherwise conduct its
business in any manner to violate the purpose and effect of this Agreement and
the transactions contemplated herein.
5.3 Access and Information. Each of Seller and Majority Shareholder
----------------------
agrees that Buyer and its counsel, accountants, auditors, and other
representatives will be afforded full access during normal business hours upon
reasonable advance notice to all of the properties, books, contracts,
commitments and records of Seller, and further agrees to furnish Buyer with all
information concerning the affairs of Seller as Buyer may reasonably request for
purposes hereof.
5.4 Preservation of Organization and Compensation. Each of Seller
---------------------------------------------
and Majority Shareholder will use their respective best efforts to cause Seller,
in all material respects consistent with prior practices, to preserve its
business organization intact, keep available for itself (and/or Buyer) the
services of the present employees of Seller, continue to render efficient
services and preserve for itself (and/or Buyer) its business relations with its
customers and suppliers and others having business relations with it. Seller
shall not increase the compensation of, or pay (or obligate itself to pay) any
bonus or commission to, or enter into any special contract of employment with,
any of its employees, except as consistent with prior business practices.
5.5 Ownership. Shareholders shall not sell, pledge, hypothecate or
---------
otherwise dispose of or enter into any other commitments relating to any
ownership interest in Seller or its assets or business.
6. The Closing.
-----------
6.1 Closing. Upon the terms and subject to the conditions
-------
hereinbefore and hereinafter set forth, the consummation of this Agreement, and
of the transactions contemplated herein to take place on the Closing Date, shall
take place by mail and/or via facsimile, as of November 1, 1997 (the "Closing");
provided that this may be changed to such other place, date and/or time as may
be agreed by the mutual consent of Seller, Majority Shareholder and Buyer. All
acts and transactions to be taken or effected at the Closing shall be deemed to
have been taken simultaneously and shall be deemed to be effective as of the
close of business on the date of the Closing (the "Closing Date").
6.2 Deliveries at the Closing by Seller and Shareholders. At the
----------------------------------------------------
Closing, Seller and Shareholders shall deliver or cause to be delivered all
instruments, duly executed, which are required by the terms hereof to be
delivered at the Closing, including:
24
(a) the Employment and Non-Competition Agreement of Xxxxxx X.
Xxxxxxxxx, Xx. in the form attached hereto as Exhibit D;
(b) General Releases of all claims Majority Shareholder may have
against Seller or any of its then incumbent or past directors, officers,
employees or agents arising out of or in connection with the business of Seller
in the form attached hereto as Exhibit E;
(c) the opinion of Mesirov Xxxxxx Xxxxx Xxxxxx & Xxxxxxxx,
counsel for Seller and Shareholders, substantially identical in form and
substance to Exhibit F-1 attached hereto;
(d) a Secretary's Certificate (as to incumbency and certain
other matters), in form and substance substantially identical to Exhibit G-1
attached hereto, duly executed by the Secretary of Seller;
(e) a certificate of Seller and Majority Shareholder dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.11, 7.13, and 7.14;
(f) stock certificates of Seller held by Shareholders, duly
endorsed for transfer to the Buyer; and
(g) all other consents, waivers, documents, instruments and
writings required to be delivered by Seller and/or Shareholder on or prior to
the Closing Date pursuant to
25
this Agreement or otherwise required to consummate the transactions contemplated
by the Agreement, or reasonably requested by Buyer in connection therewith.
6.3 Deliveries at the Closing by Buyer. At the Closing, Buyer shall
----------------------------------
deliver or cause to be delivered to Seller the following:
(a) the opinion of Xxxxxxx Tufts Cole & Black, counsel for
Buyer, substantially identical in form and substance to Exhibit F-2 attached
hereto;
(b) a Secretary's Certificate (as to incumbency and certain
other matters), in form and substance substantially identical to Exhibit G-2
attached hereto, duly executed by the Secretary of Buyer;
(c) a certificate of Buyer dated the Closing Date, certifying to
the fulfillment of the conditions specified in Sections 8.1, 8.2, 8.3 and 8.4;
(d) stock certificates for the appropriate number of shares of
OXIS Stock constituting the Total Number of Initial Exchange Shares, as provided
in Section 2.1 hereof; and
(e) all documents, instruments and writings required to be
delivered by Buyer on or prior to the Closing Date pursuant to this Agreement or
otherwise required to consummate the transactions contemplated by the Agreement,
or reasonably requested by Seller or Shareholder in connection herewith,
including, without limitation, the promissory note made in favor of the Majority
Shareholder referenced in Section 7.14 hereof
6.4 Consummation of Transactions. Each of the parties hereto
----------------------------
agrees to use its best efforts to consummate all of the transactions
contemplated herein and to be performed by it and/or by its affiliates relative
to the Closing hereunder.
7. Conditions Precedent to Buyer's Obligations. All obligations of Buyer
-------------------------------------------
hereunder are subject to the fulfillment at, or before, the Closing Date of each
of the following conditions (unless waived, conditionally or absolutely, in
writing, by Buyer):
7.1 Accuracy of Representations. All representations and warranties
---------------------------
of Seller and Shareholders contained in this Agreement (whether or not relating
to Seller) shall be true and correct in all material respects on, and as of, the
Closing Date as though such representations and warranties had been made upon,
and as of, such date.
7.2 Fulfillment of Covenants. Each of Seller and Shareholders shall
------------------------
have performed and complied in all material respects with all of their
respective covenants, agreements, and obligations hereunder required to be
performed or complied with on or before the Closing including specifically the
deliveries to be made by Seller and Shareholders pursuant to Section 6.2 hereof.
26
7.3 Absence of Destruction or Damage. None of the Seller's assets
--------------------------------
shall have been destroyed or damaged by fire, other casualty or otherwise in any
material respect.
7.4 Litigation. At the Closing Date, there shall be no litigation
----------
pending or, to the best of Seller and Majority Shareholder's knowledge,
threatened, in which any injunction is or may be sought to prevent the
transactions contemplated hereby, or in which any relief is or may be sought
against Buyer as a result of this Agreement.
7.5 Employees. Each of Seller and Majority Shareholder shall have
---------
used their best efforts to make available to Buyer, at Closing, the services of
all of the employees of Seller.
7.6 Consents. All consents or other orders, if any, from any
--------
applicable third party or governmental agency as required to effectuate the
closing of the transactions contemplated by this Agreement shall have been
obtained or waived, and copies thereof shall have been delivered to Buyer.
7.7 Employment and Non-Competition Agreement. Xxxxxx X. Xxxxxxxxx,
----------------------------------------
Jr. shall have entered into an Employment and Non-Competition Agreement (the
"Employment and Non-Competition Agreement") with Buyer substantially in the form
and content set forth in Exhibit D, attached hereto.
7.8 Due Diligence. Buyer and its representatives shall have
-------------
completed a due diligence review of Seller's books and records, financial
statements, and other records and accounts relating to the Business, and, in the
reasonable discretion of Buyer, Buyer shall be satisfied with the results of
such review.
7.9 Physical Inventory. A physical inventory shall be taken of all
-------------------
inventories of Seller on the date which is three (3) business days prior to the
Closing Date (the "Inventory Valuation Date") under the supervision of
representatives of Buyer. The purpose of the physical inventory will be to
determine value of the Seller's inventories. The value at which inventories are
carried on the Financial Statements reflect normal inventory valuation policy of
Seller, as applicable, in accordance with GAAP, at the lower of cost or market
value, and on a basis consistent with that of preceding periods, provided,
however, all inventory which has been held for more than 2 years will be written
off unless the inventory was purchased in connection with a contract between the
Seller and one of its customers, and inventory of the same type has been sold by
the Seller within the immediately preceding 60 days, and provided further, with
respect to inventory held for more than one year which was not purchased in
connection with such a contract, the inventory will be written off if not
subject to a purchase order from a customer (except that any inventory held in
connection with the Ortho settlement shall not be written off as aforesaid). To
the extent that the value of the inventories, as of the Inventory Valuation
Date, is less than $800,000, adjusted for purchases of inventory and inventory
used in the ordinary course of business since September 30, 1997 (the "Inventory
Threshold"), the Total Number of Initial Exchange Shares shall be recalculated
by first reducing the dollar value of the $750,000 by $1.00 for every $1.00 by
which the value of the inventory is less than the Inventory Threshold, and then
recalculating the Total Number of Initial Exchange Shares based upon the revised
dollar value following the reduction as aforesaid.
27
7.10 Environmental Assessment. Buyer shall have received and be
-------------------------
satisfied in its sole discretion, with the results of its Phase I environmental
assessment or audit of Seller.
7.11 FPI Instrument Patent Application. Seller shall cause to be
----------------------------------
filed a U.S. patent application, the claims of which shall cover the FPI
Instrument/System being developed pursuant to the Development and Supply
Agreement, dated June 27, 1997, entered into between Buyer and Seller. Seller
shall have an opportunity to review and comment upon such application prior to
its filing with the U.S. Patent & Trademark Office.
7.12 Refinance of Seller's Notes. Buyer shall have received, and be
----------------------------
satisfied in its sole discretion with, a written commitment from one or more
lenders regarding the assumption or refinance of Seller's notes payable to
Mellon Bank, N.A. and AT&T Small Business Lending Corporation.
7.13 Contracts. Seller shall obtain the consent of each other party
---------
to each contract listed in Schedule 3.14 to Exhibit B (the "Contracts") , to the
extent required thereunder, to the transactions contemplated by this Agreement.
Seller shall furnish evidence of such consents to Buyer on or prior to the
Closing Date.
7.14 Shareholder Loans and Backpay. Those certain promissory notes
-----------------------------
dated May 14, 1997, June 9, 1997 and June 16, 1997, in the original principal
amounts of $71,999.99, $24,748.22 and $29,785.54, respectively, each made by
Seller in favor of Majority Shareholder, shall be consolidated into a single
promissory note made by Seller in favor of Majority Shareholder, guaranteed by
Buyer, in the principal amount of $126,533.75, payable over three (3) years at
an annual interest rate of eight percent (8%). Majority Shareholder hereby
agrees that any of his undrawn salary related to services which he performed on
behalf of the Seller prior to the Closing Date is hereby waived, and neither
Seller nor Buyer shall be obligated to pay such undrawn salary to Majority
Shareholder.
7.15 No Material Adverse Effect. No act, event or condition shall
---------------------------
have occurred after the date of this Agreement which Buyer determines has had or
could have a material adverse effect on the business, financial condition,
assets, profitability, prospects, or operations of Seller.
8. Conditions Precedent to Obligations of Seller and Shareholder. All
-------------------------------------------------------------
obligations of Seller and Shareholders hereunder are subject to the fulfillment
at, or before, the Closing Date of each of the following conditions (unless
waived, conditionally or absolutely, in writing, by Seller and Majority
Shareholder):
8.1 Accuracy of Representations and Fulfillment of Covenants. All
--------------------------------------------------------
representations and warranties of Buyer contained in this Agreement shall be
true and correct, in all material respects, on, and as of, the Closing Date as
though such representations and warranties had been made upon, and as of, such
date, and Buyer shall have performed and
28
complied in all material respects with all of its covenants, agreements and
obligations hereunder required to be performed or complied with on or before the
Closing.
8.2 Consents. All consents or other orders, if any, from any
--------
applicable third party or governmental agency as required to effectuate the
closing of the transactions contemplated by this Agreement by the Buyer shall
have been obtained or waived, and copies thereof shall have been delivered to
Seller and Majority Shareholder.
8.3 Litigation. At the Closing Date, there shall be no litigation
----------
pending or threatened in which any injunction is or may be sought to prevent the
transactions contemplated hereby, or in which any relief is or may be sought
against Seller or Shareholder as a result of this Agreement.
8.4 Employment and Non-Competition Agreement. Buyer shall have
----------------------------------------
entered into an Employment and Non-Competition Agreement with Xxxxxx X.
Xxxxxxxxx, Xx.
8.5 No Material Adverse Effect. No act, event or condition shall
---------------------------
have occurred after the date of this Agreement which Seller determines has had
or could have a material adverse effect on the business, financial condition,
assets, profitability, prospects, or operations of Buyer.
9. Risk of Loss. Any risk of loss or damage to the assets of Seller shall
------------
be borne by Seller until the Closing hereunder.
10. Post-Closing Obligations, Indemnity and Survival of Representations.
-------------------------------------------------------------------
10.1 Cooperation. Seller and Shareholders hereby agree to cooperate
-----------
with Buyer in every reasonable manner and to the fullest extent reasonably
requested by Buyer to enable the transaction as set forth herein to be
consummated under the terms hereof with minimum goodwill disruption.
10.2 Indemnification.
---------------
(a) Indemnification Obligation of Seller and Shareholders. The
-----------------------------------------------------
Seller and Shareholders hereby agree to indemnify and hold harmless Buyer
against any loss, cost, claim, demand, damage, liability or expense (including
reasonable attorneys' fees, costs and expenses) (collectively "Adverse
Consequences") incurred and/or paid by Buyer, Buyer's subsidiaries (which shall
include Seller following the Closing), parent corporations, successors, assigns
and/or affiliates by reason of Seller or any Shareholder's breach of any of
their representations, warranties, covenants, obligations and agreements
contained herein, which has not been expressly waived, subject to the applicable
survival periods set forth in Section 10.4 hereof and the limitations set forth
in Section 10.2(c) hereof, or by reason of any action, suit, proceeding, demand
or judgment incident to any of the matters indemnified against in this Section
10.2(a). The representations and warranties of each of the Shareholders in
Sections 3.24 through 3.28 above and the post-closing covenants of the
Shareholders are several obligations; this means that the particular Shareholder
making the representation, warranty, or covenant will be solely responsible to
the extent provided in Section 10.2(c) below for any Adverse Consequences
29
suffered as a result of any breach thereof. The remainder of the
representations, warranties, and covenants in this Agreement are joint and
several obligations; this means that the Seller and Majority Shareholder will be
responsible to the extent provided in Section 10.2(c) below for the entirety of
any Adverse Consequences suffered as a result of any breach thereof, except that
if the breach is discovered following the Closing, only the Majority
Shareholder, and not the Seller, shall be responsible for the Adverse
Consequences as aforesaid.
(b) Indemnification Obligation of Buyer. Buyer hereby agrees to
-----------------------------------
indemnify and hold harmless Seller and Shareholders against any Adverse
Consequences incurred and/or paid by Seller or Shareholders by reason of Buyer's
breach of any of its representations, warranties and covenants contained herein,
which have not been expressly waived, subject to the applicable survival periods
set forth in Section 10.4 hereof and the limitations set forth in Section
10.2(c) hereof, or by reason of any action, suit, proceeding, demand or judgment
incident to any of the matters indemnified against in this Section 10.2(b).
(c) Limits on Indemnification Obligation. Notwithstanding
------------------------------------
anything in this Section 10.2 to the contrary Seller and Shareholders, on the
one hand, and Buyer, on the other hand, shall not be liable under the indemnity
provisions of this Section 10.2 in any instance until such time as the Adverse
Consequences under Section 10.2(a) or Section 10.2(b), as the case may be,
exceeds $20,000 (the "Indemnification Threshold")(in which event the
indemnifying parties shall be liable for all of such amounts), except that those
matters set forth on Schedule 2 attached hereto and made a part hereof shall not
be subject to the Indemnification Threshold. In no event shall the aggregate
indemnification obligation exceed $2,000,000.
(d) Notice and Defense of Claims. Any party seeking
----------------------------
indemnification pursuant to Section 10.2(a) or Section 10.2(b) above (an
"Indemnified Party") shall give prompt notice to Seller and Shareholder if
pursuant to Section 10.2(a) or to Buyer if pursuant to Section 10.2(b) (each, as
is applicable, the "Indemnifying Party") of the assertion of any claim, or the
commencement of any action, suit or proceeding, in respect of which indemnity
may be sought hereunder and will give the Indemnifying Party such information
with respect thereto as the Indemnifying Party may reasonably request, but no
failure to give such notice shall relieve the Indemnifying Party of any
liability hereunder except to the extent (and only to the extent) the
Indemnifying Party has been prejudiced by the failure to give such notice. The
Indemnifying Party may, at its expense, participate in or assume the defense of
any such action, suit or proceeding involving a third party; provided, however,
that such defense is conducted with counsel mutually and reasonably satisfactory
to the Indemnified Party and the Indemnifying Party. The Indemnified Party and
the Indemnifying Party shall consult with each other regarding the conduct of
such defense and shall submit any proposed settlement under this Section 10.2
for the other party's approval, which approval shall not be unreasonably
withheld or delayed. The Indemnified Party shall have the right (but not the
duty) to participate in the defense thereof, and to employ counsel, at its own
expense (except that the Indemnifying Party shall pay the fees and expenses of
such counsel to the extent the Indemnified Party reasonably concludes that there
is a conflict of interest between the Indemnified Party and the Indemnifying
Party), separate from counsel employed by the Indemnifying Party in any such
action. The Indemnifying Party shall be liable for the fees and expenses of
counsel employed by the Indemnified Party if the Indemnifying Party has not
assumed the defense thereof. Whether or not the Indemnifying Party chooses to
defend or prosecute any
30
claim involving a third party, all the parties hereto shall cooperate in the
defense or prosecution thereof and shall furnish such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
and appeals, as may be reasonably requested in connection therewith.
10.3 Right of Offset. Subject to the provisions of this Section
---------------
10.3, Buyer has the right to offset and credit any and/or all payments to be
made by it under this Agreement, to or for the benefit of Seller or any
Shareholder against amounts owed by Seller or such Shareholder to Buyer by
reason of any claim by Buyer against any of such parties for indemnification
pursuant to Section 10.2 hereof (including a claim arising under Section 2
hereof).
10.4 Survival of Representation and Warranties. All representations,
-----------------------------------------
warranties and agreements contained in Section 3.10 relating to title shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of Buyer, Seller or Shareholder. All representations,
warranties and agreements contained in Sections 3.8 shall remain operative and
in full force and effect until the applicable statute of limitations expires
with respect thereto, and all representations, warranties and agreements
contained in Section 3.18 shall remain operative and in full force and effect
for the five (5) years following the Closing Date. All other representations,
warranties and agreements contained herein shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of Buyer,
Seller or Shareholder and shall expire three (3) years after the Closing Date
and the indemnities set forth in Section 10.2 shall expire as of such date. The
foregoing sentence notwithstanding, any liability which results from any
liability of Buyer, or its subsidiaries, parent corporations, successors,
assigns or affiliates to third parties which indemnity would be available under
Sections 10.2(a) may be asserted at any time after the Closing Date subject to
the deductible and other indemnification limitations set forth in Section 10.2
(c) hereof.
10.5 Use of Name. Shareholders hereby agree that they will not use
-----------
the name "Innovative Medical Systems Corp." or "IMS" or any derivations thereof
(the "Names") in the conduct of any of its business activities.
11. Expenses. Except as expressly provided herein, all of the expenses of
---------
Seller and Shareholders (including attorneys' fees and costs) in connection with
the preparation, execution and consummation of this Agreement with the
transactions contemplated herein (and only upon the closing of the transactions
contained herein) shall be paid by Buyer at the Closing upon Seller's
presentation of an invoice detailing such expenses up to a maximum of $60,000,
and all of Buyer's expenses in such connection shall be paid by Buyer.
Notwithstanding the foregoing, Shareholders shall pay all income taxes they
incur with respect to this Agreement and the transactions contemplated herein.
12. Commissions or Finder's Fees. Each of Seller and Shareholders
-----------------------------
warrants that it has not made any commitment or done any other act which would
result in any liability on Buyer for any brokerage, finder's or similar fee or
commission in connection with the transactions contemplated by this Agreement
and with the transactions contemplated by this Agreement; and Buyer warrants
that it has not made any commitment or done any other act which would impose any
such liability on Seller or Shareholders.
31
13. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing, and shall be deemed to have been duly given if
delivered by overnight courier, sent by mail to the respective parties or
personally delivered addressed as follows:
If to Buyer: OXIS International, Inc.
------------ 0000 X. Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: General Counsel
With copy to: Xxxxxxx Xxxxx Xxxx & Black, LLP
------------- 00 Xxxxx Xxxxxx Xxxxxx, 00/xx/ Xxxxx
Xxx Xxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx Xxxxxxxxxx, Esq.
If to Seller or Shareholders: Xxxxxx X. Xxxxxxxxx, Xx.
----------------------------- 000 Xxxxxxx Xxxx
Xxxxxxxxxxxxxx, XX 00000
Mesirov Xxxxxx Xxxxx Xxxxxx & Xxxxxxxx
0000 Xxxxxx Xxxxxx, 38/th/ Floor
With copy to: Xxxxxxxxxxxx, XX 00000
------------- Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
or to such other address as Buyer, Seller or Shareholder may designate by
written notice to the other parties hereto. Any such notices, requests, demands
or other communications shall be deemed to have been duly given when received if
delivered personally or, if mailed, on the date five days after the date so
deposited in the mails, postage prepaid, return receipt requested or on the day
following the day sent if sent by prepaid overnight delivery service. Notices,
requests and other communications hereunder may be delivered by electronic
facsimile transmission (fax) if confirmation by sender is made within three
business days by mail or personal delivery. All periods of notice shall be
measured from the date of deemed delivery thereof.
14. Termination of Agreement
------------------------
14.1 Termination by Buyer. The foregoing sections of this Agreement
--------------------
notwithstanding, the parties hereto agree that Buyer may terminate this
Agreement if (a) Seller or Shareholders fail to perform any material covenant of
Seller or Shareholders contained in this Agreement and after ten (10) days
following written notice from Buyer, Seller or Shareholders fail to cure such
breach to the reasonable satisfaction of Buyer; or (b) on or after November 1,
1997, any of the conditions set forth in Article 7 have not been satisfied
before such date. Buyer shall have no liability to Seller or Shareholders for
terminating this Agreement as a result of such determination.
14.2 Termination by Seller and Shareholders. The foregoing sections
--------------------------------------
of this
32
Agreement notwithstanding, the parties hereto agree that Seller and Shareholders
may terminate this Agreement jointly (and not severally) if (a) Buyer fails to
perform any material covenant of Buyer contained in this Agreement and after ten
(10) days following written notice from Seller, Buyer fails to cure such breach
to the reasonable satisfaction of Seller; or (b) on or after November 1, 1997,
any of the conditions set forth in Article 8 have not been satisfied before such
date. Seller and Shareholders shall have no liability to Buyer for terminating
this Agreement as a result of the foregoing.
15. Construction and Successors.
---------------------------
15.1 Governing Law. This Agreement shall be governed and construed
-------------
under the laws of the State of Oregon without regard to conflict of laws
principles.
15.2 Amendment. This Agreement covers the entire understanding of
---------
the parties hereto, superseding all prior agreements or understandings relating
to any of the subject matters hereof, and no modification or amendment of its
terms and conditions shall be effective unless in writing and signed by the
parties or their respective duly authorized agents.
15.3 Successors and Assigns. This Agreement inures to the benefit
----------------------
of, and is binding upon, the successors, permitted assigns, distributees and
personal representatives of the parties hereto, such permitted assigns to
include, without limitation, the entity or person pursuant to which Buyer
assigns substantially all of the assets of the Business or sells or transfers
the Business through the sale of stock, merger or distribution of such stock to
the stockholders of the Buyer, provided that upon such assignment, sale or other
transfer the consideration due to the Shareholders hereunder, including but not
limited to the Earnout Exchange, shall be equitably and appropriately adjusted
to fulfill the intentions of the parties set forth in this Agreement, such
adjustment to be determined by a valuation professional appointed by Xxxxxx
Xxxxxxxxxx Xxxxx and mutually agreed to by the parties. The determination of
such valuation professional shall be final and binding.
15.4 Headings. This Agreement shall not be interpreted by reference
--------
to any of the titles or headings to the sections or paragraphs of this
Agreement, which have been inserted for convenience purposes only and are not
deemed a part hereof.
15.5 Schedules; Exhibits. This Agreement is deemed to include all of
-------------------
the schedules and exhibits hereto, which are made a part hereof by this
reference thereto.
15.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which together shall be deemed to constitute one and the
same instrument.
15.7 Gender and Number. This Agreement shall be construed by the
-----------------
actual gender and/or number of the person, persons, entity and/or entities
referenced herein, regardless of the gender and/or number used in such
reference.
15.8 Severability. This Agreement shall be fully enforceable and
------------
effective as to the parties hereto as to its remaining provisions in the event
any provision is held to be invalid, illegal or unenforceable.
33
15.9 Shareholders' Release. By executing this Agreement, each of the
----------------------
Shareholders who are signatories hereto hereby remise, release and forever
discharge Seller, its successors and assigns, or any of its incumbent or past
directors, officers, employees or agents, of and from debts, dues, contracts,
judgments, damages, claims and demands and all manner of actions, causes of
action, suits and proceedings whatsoever relating to the Seller's Business, in
law or in equity, which such Shareholder now has against Seller or the
aforementioned parties, or which such Shareholder or its successors and assigns
hereafter can, shall or may have against Seller or the aforementioned parties,
on or by reason of any matter, cause or thing whatsoever from the beginning of
the universe to the end of time, except that the foregoing release shall not
include any matter related to Seller's or Buyer's obligations or such
Shareholder's rights under this Agreement.
16. Press Release. The parties hereto agree that Buyer shall be permitted
-------------
to issue a press release stating that the parties have entered this Agreement,
following the entering into of this Agreement by the parties hereto.
17. Confidentiality. Each of the parties hereto agrees that they will
---------------
maintain and treat as confidential and shall cause their affiliates to maintain
and treat as confidential, all confidential information concerning Seller or
Buyer (and its affiliates), and the operation of their businesses. In the event
of a termination of this Agreement, the parties agree to return to each other
all information provided to the other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER: OXIS INTERNATIONAL, INC.
By ____________________________
Name: _________________________
Title: ________________________
SELLER: INNOVATIVE MEDICAL SYSTEMS CORP.
By ____________________________
Name: _________________________
Title: ________________________
MAJORITY SHAREHOLDER:
_______________________________
Xxxxxx X. Xxxxxxxxx, Xx.
34
OTHER SHAREHOLDERS:
_______________________________
Xxxxxxx Xxxxxxxxx
_______________________________
Xxxx X. Xxxxxxx
_______________________________
Xxxxx Xxxxxx
_______________________________
Xxxxxx Xxxxxx
_______________________________
Xxxxxx X. Xxxxxxxx
_______________________________
Xxxxxxx X. Xxxxxx
_______________________________
Xxxxxxxx X. Xxxxxx
_______________________________
Xxxx Xxxxx
_______________________________
Xxxxxxxx X. Xxxxxxx
_______________________________
Xxxxxxxx X. Xxxxxxx
_______________________________
Xxxx X. Xxxxxx
_______________________________
Xxxxxxxxxx X. Xxxxxx
_______________________________
Xxxxxxx X. Xxxx
_______________________________
Xxxxxx X. Xxxxxxxx
35
_______________________________
Xxxxxxxxx X. Xxxxxxxxx
_______________________________
Xxxxxx X. Xxxxxxxxx
36
EXHIBIT "A"
NAME OF SHAREHOLDER NUMBER OF SHARES OF SELLER PERCENTAGE OF SHARES OF
STOCK CURRENTLY HELD OXIS STOCK TO BE RECEIVED
Catarious 465,400 74.15556
Dobisch 32,800 5.22625
Xxxxxx 25,000 3.98342
Sheridan 24,000 3.82409
Xxxxxx 21,800 3.47355
Kumar 12,000 1.91204
Strange 12,000 1.91204
Xxxxxx 12,000 1.91204
Rose 10,900 1.73677
Xxxxxxxx 7,300 1.16316
Radnetter 4,400 0.70108
TOTALS: 627,600 100.00000
37
SCHEDULE 1
SCHEDULE OF EARNOUT PAYMENTS
YEAR REVENUES EARNOUT GUARANTEE DATE PAYABLE NOT LATER
------ -------------------- -------- --------- ----------------------
PAYOUT THAN
-------- -----
1998 Maximum $ 7,000,000 $250,000 $250,000 MARCH 31, 1999
Minimum 5,000,000 250,000
1999 Maximum 8,000,000 500,000 250,000 MARCH 31, 2000
Minimum 7,000,000 250,000
2000 Maximum 10,000,000 500,000 250,000 MARCH 31, 2001
Minimum 9,000,000 250,000
2001 Maximum 11,000,000 500,000 250,000 MARCH 31, 2002
Minimum 10,000,000 250,000
2002 Maximum 13,000,000 500,000 250,000 MARCH 31, 2003
Minimum 12,000,000 250,000
38
SCHEDULE 2
MATTERS EXCLUDED FROM INDEMNIFICATION THRESHOLD
-----------------------------------------------
! Potential Claims of Xxxxxx Xxxxxx Associates and Windsor Laboratories
relating to Technology Transfer Agreement dated October 27, 1995.
! Potential Claims of Xxxxx Xxxxx, past President of Seller, relating to his
separation from Seller.
-i-
SCHEDULES AND EXHIBITS
----------------------
Schedules
-------------
Schedule 1 Actual Revenue/Earnout Schedule
Schedule 2 Matters Excluded from Indemnification Threshold
Exhibits
-------------
Exhibit A Percentage of OXIS Shares for each Shareholder
Exhibit B Schedule of Exceptions and List of Contracts
Exhibit C Financial Statements
Exhibit D Employment and Noncompetition Agreement
Exhibit E General Release
Exhibit F-1 Opinion of Counsel to Seller and Shareholders
Exhibit F-2 Opinion of Counsel to Buyer
Exhibit G-1 Secretary's Certificate for Seller
Exhibit G-2 Secretary's Certificate for Buyer
-i-
