Exhibit 10.1
ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
by and among
BIO-VASCULAR, INC.,
MCA ACQUISITION, INC.,
MEDICAL COMPANIES ALLIANCE, INC.
AND
XXXXXXX X. XXXXXXXX
Dated as of July 6, 2001
TABLE OF CONTENTS
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Page
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ARTICLE I - DEFINITIONS........................................................1
1.1. Definitions..........................................................1
1.2. Interpretation.......................................................5
ARTICLE II - THE MERGER AND THE SURVIVING CORPORATION..........................5
2.1. The Merger...........................................................5
2.2. Effective Time of the Merger.........................................6
2.3. Articles of Incorporation, By-laws and Board of Directors of
Surviving Corporation................................................6
ARTICLE III - CONVERSION OF SHARES.............................................6
3.1. Conversion of Shares.................................................6
3.2. Newco Shares.........................................................7
3.3. Delivery of Merger Consideration.....................................7
3.4. Additional Merger Consideration......................................7
ARTICLE IV - CLOSING...........................................................7
4.1. Closing..............................................................7
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.................8
5.1. Due Organization and Qualification...................................8
5.2. Authorization; Non-Contravention; Approvals..........................8
5.3. Capitalization and Ownership.........................................9
5.4. Subsidiaries.........................................................9
5.5. Financial Statements.................................................9
5.6. Liabilities and Obligations.........................................10
5.7. Accounts and Notes Receivable.......................................10
5.8. Assets..............................................................10
5.9. Material Customers and Contracts....................................11
5.10. Permits.............................................................12
5.11. Environmental Matters...............................................12
5.12. Labor and Employee Relations........................................13
5.13. Insurance...........................................................13
5.14. Compensation; Employment Agreements.................................13
5.15. Noncompetition, Confidentiality and Nonsolicitation Agreements......13
5.16 Employee Benefit Plans..............................................13
5.17. Litigation and Compliance with Law..................................15
5.18. Taxes...............................................................16
5.19. Absence of Changes..................................................16
5.20. Accounts with Banks and Brokerages; Powers of Attorney..............17
5.21. Absence of Certain Business Practices...............................18
5.22. Competing Lines of Business; Related Party Transactions.............18
5.23. Intangible Property.................................................18
5.24. Tax Reorganization Representation...................................18
5.25. Inventory...........................................................18
5.26. Product Liability Claims............................................18
5.27. Warranty of Products................................................19
5.28 Food and Drug Administration........................................19
5.29. Disclosure..........................................................19
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF BVI AND NEWCO..................19
6.1. Organization........................................................19
6.2. Authorization; Non-Contravention; Approvals.........................19
6.3. BVI Securities......................................................20
6.4. Tax Reorganization Representations..................................20
6.5. SEC Filings.........................................................21
6.6. Disclosure..........................................................21
6.7. Ownership of Newco; No Prior Activities.............................21
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ARTICLE VII - CERTAIN COVENANTS...............................................22
7.1. Future Cooperation; Tax Matters.....................................22
7.2. Expenses............................................................22
7.3. Legal Opinions......................................................22
7.4. Employment Agreement................................................23
7.5. Repayment of Related Party Indebtedness.............................23
7.6. Resignations........................................................23
7.7. Prime Source Surgical, Inc..........................................23
ARTICLE VIII - INDEMNIFICATION................................................24
8.1. Indemnification by the Stockholder..................................24
8.2. Indemnification by BVI..............................................24
8.3. Third Person Claims.................................................24
8.4. Additional Notice; Cooperation......................................25
8.5. Exclusive Remedy....................................................26
ARTICLE IX - NONCOMPETITION COVENANTS.........................................26
9.1. Prohibited Activities...............................................26
9.2. Equitable Relief....................................................27
9.3. Reasonable Restraint................................................27
9.4. Severability; Reformation...........................................27
9.5. Material and Independent Covenant...................................28
ARTICLE X - NONDISCLOSURE OF CONFIDENTIAL INFORMATION.........................28
10.1. General.............................................................28
10.2. Equitable Relief....................................................28
ARTICLE XI - INTENDED TAX TREATMENT...........................................28
11.1. Tax-Free Reorganization.............................................28
ARTICLE XII - FEDERAL SECURITIES ACT OF 1933 AND CONTRACTUAL RESTRICTIONS
ON BVI COMMON STOCK.............................................29
12.1. Compliance with Law.................................................29
12.2. Economic Risk; Sophistication.......................................29
12.3. Rule 144 Reporting..................................................30
ARTICLE XIII - MISCELLANEOUS..................................................30
13.1. Successors and Assigns..............................................30
13.2. Entire Agreement....................................................30
13.3. Counterparts........................................................30
13.4. Brokers and Agents..................................................30
13.5. Notices.............................................................31
13.6. Exercise of Rights and Remedies.....................................32
13.7. Reformation and Severability........................................32
13.8. Third Party Beneficiaries...........................................32
13.9. Governing Law; Jurisdiction; Service of Process.....................32
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ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
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THIS ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of the 6th day of July, 2001, by and among Bio-Vascular, Inc., a Minnesota
corporation ("BVI"), MCA Acquisition, Inc., a Minnesota corporation that is a
subsidiary of BVI ("Newco"), Medical Companies Alliance, Inc., a Utah
corporation (the "Company"), and Xxxxxxx X. Xxxxxxxx (the "Stockholder"), with
the Stockholder being the Company's only stockholder.
WHEREAS, the respective Boards of Directors of Newco and the Company
(collectively referred to as "Constituent Corporations") deem it advisable and
in the best interests of the Constituent Corporations and their respective
Stockholder that the Company merge with and into Newco (the "Merger"); and
WHEREAS, the Boards of Directors of the Constituent Corporations have approved
and adopted this Agreement as a plan of reorganization within the provisions of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Stockholder of the Constituent Corporations have approved the
Merger in accordance with the MBC Act and the URBC Act.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements,
representations, warranties, provisions and covenants contained herein, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms used in this Agreement shall have the
following meanings:
"Affiliate" of, or "Affiliated" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"Agreement" has the meaning set forth in the first paragraph of this Agreement.
"Balance Sheet Date" has the meaning set forth in Section 5.5.
"Broker" has the meaning set forth in Section 13.4.
"Business" means the business of developing, manufacturing, distributing,
marketing or selling any technology that involves a joining together of vessels
such as, but not in limitation, arteries,
veins or nerves, including sutureless, mechanical anastomatic devices, in any
market, geographic or otherwise.
"BVI" has the meaning set forth in the first paragraph of this Agreement.
"BVI Common Stock" means BVI's common stock, par value $.01 per share.
"Closing" has the meaning set forth in Section 4.1.
"Closing Date" has the meaning set forth in Section 4.1.
"Closing Date Merger Consideration" has the meaning set forth in Section 3.1.
"Code" has the meaning set forth in the third paragraph of this Agreement.
"Company" has the meaning set forth in the first paragraph of this Agreement.
"Company Common Stock" has the meaning set forth in Section 3.1.
"Company Products" means those products sold by the Company on the Closing Date
and set forth in Schedule 1.1, including: (a) products that are either new sizes
and/or new applications and that have resulted from further development of
existing licensed technology and (b) products in replacement of the Company's
current distributed products (technology not owned or licensed by the Company)
if the products are used for essentially the same medical and/or surgical
function.
"Constituent Corporations" has the meaning set forth in the second paragraph of
this Agreement.
"Contingent Merger Consideration" has the meaning set forth in Section 3.1.
"Effective Time" has the meaning set forth in Section 2.2.
"Encumbrances" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, options, preemptive rights,
rights of first refusal, reservations, restrictions or other encumbrances or
defects in title.
"Employee benefit plan" has the meaning set forth in Section 5.16.
"Employee pension benefit plan" has the meaning set forth in Section 5.16.
"Employment Agreements" has the meaning set forth in Section 7.4.
"Environmental Laws" means any Law or agreement with any Governmental Authority
relating to (a) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (b) the exposure to,
or the use, storage, recycling, treatment, generation, transportation,
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processing, handling, labeling, production, release or disposal of any
substance, in each case as amended and as in effect on the Closing Date. The
term "Environmental Law" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any substance.
"ERISA" has the meaning set forth in Section 5.16.
"ERISA Affiliate" has the meaning set forth in Section 5.16.
"Financial Statements" has the meaning set forth in Section 5.5.
"GAAP" means generally accepted accounting principles, consistently applied by
the respective party.
"Governmental Authority" means any federal, state, local or foreign government,
political subdivision or governmental or regulatory authority, agency, board,
bureau, commission, instrumentality or court or quasi-governmental authority.
"Hazardous Substances" means any substance presently listed, defined, designated
or classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law. The term "Hazardous Substances"
includes, without limitation, any substance to which exposure is regulated by
any Governmental Authority or any Environmental Law including, without
limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste, industrial substance or petroleum or
any derivative or by-product thereof, radon, radioactive material, asbestos or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated biphenyls.
"Indemnified Party" has the meaning set forth in Section 8.3.
"Indemnifying Party" has the meaning set forth in Section 8.3.
"Knowledge" means, in the case of the Company or the Stockholder, the actual
knowledge of the Stockholder, as such knowledge has been obtained in the normal
conduct of the Company's business, and including such knowledge as a reasonably
prudent person in similar business or ownership positions would have obtained
upon the exercise of reasonable diligence.
"Law" or "Laws" means any and all federal, state, local or foreign statutes,
laws, ordinances, code, regulations, published requirements, orders, decrees,
judgments, injunctions and rules of
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any Governmental Authority, including, without limitation, those covering
environmental, Tax, energy, safety, health, transportation, bribery,
record-keeping, zoning, discrimination, antitrust and wage and hour matters, in
each case as amended and in effect from time to time.
"Loss" or "Losses" means all liabilities, losses, damages, assessments,
adjustments, fees, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and costs and expenses of investigation
and reasonable attorney's fees and costs and expenses relating to or arising
from any claim, action, suit, proceeding or demand), net of income tax effects
with respect thereto (including, without limitation, income tax benefits
recognized in connection therewith and income taxes upon any indemnification
recovery thereof) and net of any insurance proceeds, and any indemnity,
contribution or similar payment, collected by Newco, BVI or the Surviving
Corporation or any Affiliate thereof from any third party with respect thereto.
"Material Customers" has the meaning set forth in Section 5.9.
"Merger Filing" has the meaning set forth in Section 2.2.
"Merger" has the meaning set forth in the second paragraph of this Agreement.
"MBC Act" means the Minnesota Business Corporation Act, as amended.
"Net Revenues from Sales" means gross product sales revenue less returns,
discounts, external commissions, and external sales agent fees. No other
expenses or costs, including product costs, direct and/or allocated, are to be
subtracted from sales revenue to arrive at Net Revenues from Sales for purposes
of this Agreement. In addition, shipping and/or handling fees are excluded from
the definition of Net Revenues from Sales for purposes of this Agreement.
"Newco" has the meaning set forth in the first paragraph of this Agreement.
"Noncompete Term" has the meaning set forth in Section 9.1(a).
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Permits" has the meaning set forth in Section 5.10.
"Permitted Encumbrances" means (a) liens for taxes, assessments and governmental
charges or levies (i) not yet due and payable or (ii) which are being contested
in good faith by appropriate proceedings and for which an appropriate reserve
has been established under GAAP; (b) Encumbrances imposed by Law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's liens and other
similar liens arising in the ordinary course of business securing obligations
that are being contested in good faith by appropriate proceedings and for which
an appropriate reserve has been established under GAAP; (c) pledges or deposits
to secure obligations under workers' compensation laws or similar legislation or
to secure public or statutory obligations; (d) survey exceptions, reciprocal
easement agreements or other customary encumbrances on title to real property
that (i) were not incurred in connection with any
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indebtedness, (ii) do not render title to the property encumbered thereby
unmarketable or uninsurable, and (iii) do not, individually or in the aggregate,
adversely affect the value of or the use of such property for its present
purposes; and (e) Encumbrances reflected in the Financial Statements.
"Plan" has the meaning set forth in Section 5.16.
"Qualified Plans" has the meaning set forth in Section 5.16.
"Restricted Shares" has the meaning set forth in Section 12.1.
"Rule 144" means Rule 144 as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"Stockholder" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Taxes" has the meaning set forth in Section 5.18.
"Territory" has the meaning set forth in Section 9.1.
"Third Person" has the meaning set forth in Section 8.3.
"URBC Act" means the Utah Revised Business Corporation Act, as amended.
1.2 Interpretation. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in Section 1.1 and elsewhere in this Agreement
include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the meanings
ascribed to them in accordance with GAAP; and
(c) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1 The Merger. Upon the terms and subject to the conditions of this Agreement,
at the Effective Time in accordance with the MBC Act and the URBC Act, the
Company shall be merged with and into Newco and the separate existence of the
Company shall thereupon cease.
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Newco shall be the surviving corporation in the Merger (hereinafter sometimes
referred to as the "Surviving Corporation").
2.2 Effective Time of the Merger. The Merger shall become effective at such time
(the "Effective Time") as the articles of merger, in a form mutually acceptable
to BVI and the Company, are filed with the Secretary of State of the State of
Minnesota and the Secretary of State of the State of Utah (the "Merger Filing").
The Merger Filings shall be made simultaneously with or as soon as practicable
after the execution of this Agreement and the Closing.
2.3 Articles of Incorporation, By-laws and Board of Directors of Surviving
Corporation. As a result of the Merger and at the Effective Time, the following
shall occur:
(a) The Articles of Incorporation of Newco shall be amended as follows:
"FIRST. The name of the corporation is Medical Companies
Alliance, Inc."
(b) The Articles of Incorporation of Newco in effect immediately prior
to the Effective Time, as so amended hereby, shall become the Articles of
Incorporation of the Surviving Corporation. After the Effective Time, the
Articles of Incorporation of the Surviving Corporation may be amended in
accordance with their terms and as provided in the MBC Act.
(c) The Bylaws of Newco in effect immediately prior to the Effective
Time shall become the Bylaws of the Surviving Corporation, and thereafter may be
amended in accordance with their terms and as provided by the Articles of
Incorporation of the Surviving Corporation and MBC Act.
(d) The Board of Directors of Newco as constituted immediately prior to
the Effective Time shall be the Board of Directors of the Surviving Corporation.
ARTICLE III
CONVERSION OF SHARES
3.1 Conversion of Shares. At the Effective Time, by virtue of the Merger, and
without any action on the part of any holder of any capital stock of the
Company, the issued and outstanding shares of common stock, $0.10 par value per
share, of the Company as of the Effective Time (the "Company Common Stock")
shall be converted into the right to receive, and become exchangeable for, (a)
$500,000 in cash, (b) that number of shares of BVI Common Stock equal to
$1,200,000 divided by the closing price of BVI Common Stock as reported on the
NASDAQ Stock Exchange for the day which is four trading days prior to the
Closing Date (the "Calculation Date"), provided, however, that the number of
shares of BVI Common Stock issued to the Stockholder under this Section 3.1
shall not exceed 300,000 shares, with the difference paid in cash at closing,
and (c) the contingent right to receive the cash payments, if any, payable to
the Stockholder as provided in Section 3.4 below (the Contingent Merger
Consideration"). The
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shares of BVI Common Stock shall be issued to or at the direction of the
Stockholder as set forth in Schedule 3.1. The BVI Common Stock and cash paid
pursuant to clauses (a) and (b) herein in exchange for the Company Common Stock
are collectively referred to as the "Closing Date Merger Consideration."
As an example, assume the closing price of BVI Common Stock on the Calculation
Date is $3.50. The Closing Date Merger Consideration would consist of (a)
$500,000 in cash, plus (b) 300,000 shares of BVI Common Stock, plus (c) $150,000
(representing the difference between $1,200,000 and the $1,050,000 (300,000
shares x $3.50) worth of BVI Common Stock received pursuant to clause (b)).
3.2 Newco Shares. The outstanding shares of common stock, par value $.01 per
share, of Newco shall remain outstanding following the Merger.
3.3 Delivery of Closing Date Merger Consideration. At the Closing, (a) the
Stockholder shall furnish to BVI the certificates representing his Company
Common Stock, duly endorsed in blank by the Stockholder or accompanied by duly
executed blank stock powers, and (b) BVI shall deliver to or at the direction of
the Stockholder cash (by wire transfer in accordance with the wiring
instructions for the Stockholder set forth on Schedule 3.1) and a certificate
representing the shares of BVI Common Stock to be delivered to the Stockholder
pursuant to Section 3.1. The Stockholder agrees promptly to cure any
deficiencies with respect to the endorsement of the certificates or other
documents of conveyance with respect to the Company Common Stock or with respect
to the stock powers accompanying such stock.
3.4 Additional Merger Consideration. In addition to the Closing Date Merger
Consideration set forth in Section 3.1 above, BVI shall pay to the Stockholder
the following Contingent Merger Consideration: an amount, up to a maximum of
$1,350,000, equal to 5% of Net Revenues from Sales of Company Products occurring
after the Closing Date; provided, however, that BVI's obligation to pay
Contingent Merger Consideration shall end after 10 years, even if the maximum of
$1,350,000 has not yet been paid. Such payments shall be made within 45 days of
the end of each fiscal quarter ended January 31, April 30, July 31 and October
31 until the earlier of 10 years after the Closing Date or such time as the
payments have aggregated $1,350,000. For example, if the Net Revenue from Sales
of Company Products for the fiscal quarter ended October 31, 2001 is $1,500,000,
BVI would pay to the Stockholder $75,000 ($1,500,000 times 5%) in cash within 45
days thereafter. BVI shall provide, together with any such payment, a
calculation of the quarterly payment of Contingent Merger Consideration. Upon
Shareholder's request, BVI shall also provide Shareholder with all information
reasonably necessary for Shareholder to determine the correctness of such
quarterly calculation of net revenue until the maximum Contingent Merger
Consideration has been paid or until ten years has lapsed, whichever is earlier.
ARTICLE IV
CLOSING
4.1 Closing. The consummation of the Merger and delivery of the Closing Date
Merger Consideration and the other transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Winthrop & Weinstine, P.A.
3000 Xxxx Xxxxxxxx Plaza, 60 South
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Xxxxx Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxx, concurrently with the execution of this
Agreement which date is herein referred to as the "Closing Date."
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
In connection with and as an inducement to BVI to enter into and be bound by the
terms of this Agreement, the Stockholder in his individual capacity represents
and warrants to BVI as follows:
5.1 Due Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Utah and is duly authorized and qualified to do business under all applicable
Laws and to carry on its business in the places and in the manner as now
conducted. The Company has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as such business
is currently being conducted. Schedule 5.1 contains a list of all jurisdictions
in which the Company is authorized or qualified to do business. A true, complete
and correct copy of the Articles of Incorporation, as amended, of the Company,
is attached hereto and included as part of Schedule 5.1. The Company currently
has no Bylaws (or cannot find a copy of its Bylaws) and is operating under the
general corporation law of the state of Utah. In addition, the stock records and
minute books of the Company have been lost, and have therefore not been provided
to BVI.
5.2 Authorization; Non-Contravention; Approvals.
(a) The Company has the requisite power and authority to enter into
this Agreement and to effect the Merger. The Stockholder has the full legal
right, power and authority to enter into this Agreement. The execution, delivery
and performance of this Agreement have been approved by the board of directors
of the Company and by the Stockholder. No additional corporate proceedings on
the part of the Company are necessary to authorize the execution and delivery of
this Agreement and the consummation by the Company of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company and the Stockholder, and, assuming the due
authorization, execution and delivery hereof by BVI and Newco, constitutes a
valid and binding agreement of the Company and the Stockholder, enforceable
against each of them in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights or by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law.)
(b) The execution and delivery of this Agreement by the Company and the
Stockholder does not, and the consummation by the Company and the Stockholder of
the transactions contemplated hereby will not, violate or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration under, or result in the creation of any
Encumbrance upon any of the properties or assets of the Company under any of the
terms, conditions or provisions of, (i) the Articles of Incorporation of the
Company, (ii) any Laws applicable to the Stockholder, the Company or any of its
properties or assets, or (iii) except as set forth in Schedule 5.2, any
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note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, lease or other instrument, obligation or agreement of any kind to
which the Stockholder or the Company is now a party or by which the Company or
any of its properties or assets may be bound or affected.
(c) Except for the Merger Filings and as set forth in Schedule 5.2, no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any Governmental Authority or third party is necessary
for the execution and delivery of this Agreement by the Company and the
Stockholder or the consummation by the Company and the Stockholder of the
transactions contemplated hereby. Except as set forth in Schedule 5.2, none of
the contracts or agreements with Material Customers or contracts providing for
purchases or services individually in excess of $25,000, or other material
agreements, licenses or permits, in each case to which the Company is a party,
requires notice to, or the consent or approval of, any third party for the
execution and delivery of this Agreement by the Company and the Stockholder and
the consummation of the transactions contemplated hereby.
5.3 Capitalization and Ownership. The authorized capital stock of the Company
consists solely of 3,500,000 shares of Company Common Stock, of which 3,000,000
shares are issued and outstanding, and 1,000,000 shares of Company preferred
stock, par value $1.00 per share, of which no shares are issued or outstanding.
All of the issued and outstanding shares of Company Common Stock are owned
beneficially and of record by the Stockholder free and clear of all
Encumbrances. All of the issued and outstanding shares of the Company Common
Stock have been duly authorized and validly issued, are fully paid and
nonassessable, and were offered, issued, sold and delivered by the Company in
compliance with all applicable Laws, including, without limitation, those Laws
concerning the issuance of securities. None of such shares were issued in
violation of the preemptive rights of any past or present stockholder. Except as
set forth in Schedule 5.3, no subscription, option, warrant, call, convertible
or exchangeable security, other conversion right or commitment of any kind
exists which obligates the Company to issue any of its capital stock or the
Stockholder to transfer any of the capital stock of the Company.
5.4 Subsidiaries. Except as set forth in Schedule 5.4, the Company owns, of
record or beneficially, or controls, directly or indirectly, no capital stock,
securities convertible into or exchangeable for capital stock or any other
equity interest in any corporation, association or other business entity. Except
as set forth in Schedule 5.4, the Company is not, directly or indirectly, a
participant in any joint venture, limited liability company, partnership or
other noncorporate entity.
5.5 Financial Statements.
(a) The Company has delivered to BVI complete and correct copies of the
following financial statements: The unaudited balance sheet (the "Balance
Sheet") of the Company as of April 30, 2001 (the "Balance Sheet Date") and the
related unaudited statement of income, for the interim period ended on the
Balance Sheet Date (such financial statements referred to herein as the
"Financial Statements"). The Financial Statements are attached as Schedule 5.5
to this Agreement.
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(b) Except as set forth in Schedule 5.5, the Financial Statements have
been prepared from the books and records of the Company in accordance with GAAP,
consistently applied (except for the absence of notes in the Financial
Statements) and present fairly the financial position and results of operations
of the Company as of the date of such statements and for the period covered
thereby. From July 19, 2000, through the Closing Date, the books of account of
the Company have been kept accurately in all material respects in the ordinary
course of business, the transactions entered therein represent bona fide
transactions, and the revenues, expenses, assets and liabilities of the Company
have been properly recorded therein in all material respects.
5.6 Liabilities and Obligations. Except as set forth in Schedule 5.6, as of the
Balance Sheet Date the Company did not have, nor has it incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature except (a) liabilities, obligations or contingencies
(i) that are reflected, accrued or reserved against in the Financial Statements
or (ii) that were incurred after the Balance Sheet Date and were incurred in the
ordinary course of business, consistent with past practices, (b) obligations to
perform or pay pursuant to executory arrangements or agreements, loans, leases
or other contracts identified on the schedules hereto, and (c) liabilities and
obligations that are of a nature not required to be reflected in the Financial
Statements prepared in accordance with GAAP and that were incurred in the
ordinary course of business and are described in Schedule 5.6. Schedule 5.6
contains a reasonable estimate of the maximum amount that may be payable with
respect to liabilities which are not fixed. For each such liability for which
the amount is not fixed or is contested, the Company has provided a summary
description of the liability together with copies of all relevant documentation
relating thereto. Schedule 5.6 sets forth the Company's outstanding principal
amount of indebtedness for borrowed money (including overdrafts) as of April 30,
2001.
5.7 Accounts and Notes Receivable. Schedule 5.7 sets forth an accurate list of
the accounts and notes receivable of the Company as of the Balance Sheet Date
and as of June 25, 2001. Receivables from and advances to employees, the
Stockholder and any entities or persons related to or Affiliates of the
Stockholder are separately identified in Schedule 5.7. Schedule 5.7 also sets
forth an accurate aging of all accounts and notes receivable as of the Balance
Sheet Date, showing amounts due in 30-day aging categories. The trade and other
accounts receivable of the Company, including without limitation those
classified as current assets on the Balance Sheet, are bona fide receivables,
were acquired in the ordinary course of business, are stated in accordance with
GAAP and are collectible in the amounts shown on Schedule 5.7, net of reserves
reflected in the Financial Statements with respect to the accounts receivable as
of the Balance Sheet Date, and net of reserves reflected in the books and
records of the Company (consistent with the methods used in the Financial
Statements) with respect to receivables of the Company created after the Balance
Sheet Date.
5.8 Assets.
(a) Schedule 5.8 sets forth an accurate list of all real and tangible
personal property included in "property and equipment" on the Balance Sheet and
all other tangible assets of the Company with a book value in excess of $10,000
(i) owned by the Company as of the Balance Sheet Date or (ii) acquired since the
Balance Sheet Date. Schedule 5.8 indicates which assets used in the operation of
the business of the Company are currently owned by the Stockholder or
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Affiliates of the Company or the Stockholder. Except as specifically identified
in Schedule 5.8, all of the tangible assets, vehicles and other significant
machinery and equipment of the Company listed in Schedule 5.8 are in materially
good working order and condition, ordinary wear and tear excepted. Except as
specifically described in Schedule 5.8, all fixed assets used by the Company in
its business are either owned by the Company or leased under agreements
identified in Schedule 5.8. All leases set forth in Schedule 5.8 are in full
force and effect and constitute valid and binding agreements of the Company and,
to the Knowledge of the Stockholder, the other parties thereto in accordance
with their respective terms. Schedule 5.8 is a true, complete and correct list
of all title reports and title insurance policies received or owned by the
Company.
(b) The Company has good and indefeasible title to the tangible and
intangible personal property and the real property owned and used in its
business, including the properties identified in Schedule 5.8 as owned real
property, free and clear of all Encumbrances other than Permitted Encumbrances
and those set forth in Schedule 5.8.
(c) Except as specifically described in Schedule 5.8, the owned
tangible and intangible assets of the Company include all the assets owned and
used in the operation of the business of the Company as conducted at the Balance
Sheet Date, except for dispositions of such assets since such date in the
ordinary course of business, consistent with past practices or except as
contemplated hereby.
5.9 Material Customers and Contracts.
(a) Schedule 5.9 sets forth an accurate list of (i) all customers of
the Company as of June 26, 2001 (the "Material Customers"), and (ii) all
material executory contracts, warranties, commitments and similar agreements to
which the Company is currently a party or by which it or any of its properties
is bound, including, but not limited to, (A) all customer contracts in excess of
$10,000, individually, or $25,000 in the aggregate, including, without
limitation, consignment contracts, (B) contracts with any labor organizations,
(C) leases providing for annual rental payments in excess of $5,000,
individually, or $10,000 in the aggregate, (D) loan agreements, (E) pledge and
security agreements, (F) indemnity or guaranty agreements or obligations, (G)
bonds, (H) notes, (I) mortgages, (J) joint venture or partnership agreements,
(K) options to purchase real or personal property, and (L) agreements relating
to the purchase or sale by the Company of assets (other than oral agreements
relating to sales of inventory or services in the ordinary course of business,
consistent with past practices) or securities for more than $5,000,
individually, or $10,000 in the aggregate. Prior to the date hereof, the Company
has made available to BVI complete and correct copies of all such agreements.
(b) Except to the extent set forth in Schedule 5.9, (i) no Material
Customer has canceled or substantially reduced or, to the Knowledge of the
Stockholder, has threatened to cancel or substantially reduce its purchases of
the Company's products or services, and (ii) the Company is in compliance with
all material commitments and obligations pertaining to it under such agreements
and is not in default under any of the agreements described in subsection (a),
no notice of default has been received by the Company, and the Stockholder and
the Company are aware of no basis therefor.
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(c) Except to the extent set forth in Schedule 5.9, the Company is not
a party to any governmental contracts subject to price redetermination or
renegotiation. Schedule 5.9 sets forth the Company's material bonding or other
financial security requirements or arrangements in connection with any
transactions with any of its customers or suppliers.
(d) Schedule 5.9 sets forth a summary of each outstanding bid or
proposal by the Company that, if awarded to the Company, contemplates payments
to the Company in excess of $25,000 and that is subject to acceptance or award
by a third party.
5.10 Permits. Schedule 5.10 contains an accurate list of all licenses,
franchises, permits, transportation authorities and other governmental
authorizations held by the Company, including, without limitation, permits,
licenses and operating authorizations, titles (including motor vehicle titles
and current registrations), fuel permits, franchises and certificates owned or
held by the Company (the "Permits"). The Permits are valid, and the Company has
not received any written notice that any Governmental Authority intends to
cancel, terminate or not renew any such Permit. To the Knowledge of the
Stockholder, the Permits are all the permits that are required by Law for the
operation of the business of the Company as conducted at the Balance Sheet Date.
The Company has conducted and is conducting its business in substantial
compliance with the requirements, standards, criteria and conditions set forth
in the Permits, as well as the applicable orders, approvals and variances
related thereto, and is not in violation of any of the foregoing. Except as
specifically provided in Schedule 5.10, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any
Permits.
5.11 Environmental Matters. Except as set forth in Schedule 5.11, to the
Knowledge of the Stockholder, (a) the Company has complied with and is in
compliance with all Environmental Laws, including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Substances;
(b) the Company has obtained and complied with all necessary permits and other
approvals necessary for the treatment, transportation, storage, disposal and
other handling by the Company of Hazardous Substances and with respect to all
past and present sites owned or operated by the Company where Hazardous
Substances have been treated, stored, disposed of or otherwise handled by the
Company, there have been no violations of any reporting obligations under any
Environmental Laws so as to create any liability for the Company; (c) there have
been no "releases" or threats of "releases" (as defined in any Environmental
Laws) by the Company at, from, in or on any property owned or operated by the
Company in such form or substance so as to create any liability for the Company;
(d) there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Substances or arranged for the
transportation or disposal of Hazardous Substances which is the subject of any
federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against the Surviving Corporation, BVI or Newco
for any clean-up cost, remedial work, damage to natural resources or personal
injury, including, but not limited to, any claim under (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, (ii)
the Resource Conservation and Recovery Act, (iii) the Hazardous Materials
Transportation Act, or (iv) comparable state and local statutes and regulations;
and (e) the Company has no contingent liability in connection with any release
or disposal by the Company of any Hazardous Substance into the environment. To
the Knowledge of the Stockholder, none of the past or present sites
12
owned or operated by the Company is currently or has ever been designated as a
treatment, storage and/or disposal facility pursuant to 42 U.S.C. ss. 6925 as a
result of any actions taken by the Company, nor has the Company ever applied for
a Permit designating any such facility as a treatment, storage and/or disposal
facility pursuant to 42 U.S.C. ss. 6925.
5.12 Labor and Employee Relations. Except as set forth in Schedule 5.12, the
Company is not bound by or subject to any arrangement with any labor union.
Except as set forth in Schedule 5.12, no employees of the Company are
represented by any labor union or covered by any collective bargaining agreement
nor is any campaign to establish such representation in progress. There is no
pending or, to the Knowledge of the Stockholder, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any significant labor interruptions over the past five years.
Neither the Company nor the Stockholder has any Knowledge of any significant
issues or problems in connection with the relationship of the Company with its
employees.
5.13 Insurance. Schedule 5.13 sets forth an accurate list as of the Balance
Sheet Date of all insurance policies carried by the Company and of insurance
loss runs and claims for the current policy year. Except as set forth in
Schedule 5.13, all of such policies are "claims made" policies. The policies
listed in Schedule 5.13 are currently in full force and effect.
5.14 Compensation; Employment Agreements. Schedule 5.14 sets forth an accurate
schedule of all officers, directors and employees of the Company with annual
compensation of $50,000 or more, listing the rate of compensation (and the
portions thereof attributable to salary and bonus), and, to the extent not
generally made available to all employees of the Company, other benefits and
other compensation, respectively, of each of such persons as of the Balance
Sheet Date. Schedule 5.14 sets forth a true, complete and correct list of each
employment or consulting agreement between the Company and any employee of the
Company or any Stockholder.
5.15 Noncompetition, Confidentiality and Nonsolicitation Agreements. Schedule
5.15 sets forth a true, complete and correct list of all agreements other than
that certain Noncompetition Agreement dated July 19, 2000 between PrimeSource
Surgical, Inc. ("PrimeSource"), the Company and the Stockholder (the
"PrimeSource Agreement"), containing covenants not to compete or solicit
employees or to maintain the confidentiality of information to which the Company
and/or the Stockholder is bound or under which the Company and/or the
Stockholder has any rights or obligations.
5.16 Employee Benefit Plans.
(a) Schedule 5.16 sets forth an accurate schedule of each "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all nonqualified deferred
compensation arrangements, whether formal or informal and whether legally
binding or not, covering any present or former director, officer or employee of
the Company under which the Company has any current or future obligation or
liability or under which any present or former director, officer or employee of
the Company, or such present or former director's, officer's or employee's
dependents or beneficiaries, has any current or future right to benefits (each
such plan and arrangement referred to hereinafter as a
13
"Plan"). Except as set forth in Schedule 5.16, the Company does not sponsor,
maintain or contribute currently, or at any time during the preceding five
years, to any plan, program, fund or arrangement that constitutes an employee
pension benefit plan. Each Plan may be terminated by the Company, at any time
without any liability, cost or expense, other than costs and expenses that are
customary in connection with the termination of a Plan. For purposes of this
Agreement, the term "employee pension benefit plan" shall have the meaning given
that term in Section 3(2) of ERISA.
(b) Each Plan listed in Schedule 5.16 is in compliance in all material
respects with the applicable provisions of ERISA, the Code, the Public Health
Service Act and any other applicable Law. Except as set forth in Schedule 5.16,
with respect to each Plan of the Company (other than a "multiemployer plan," as
defined in Section 4001(a)(3) of ERISA), all reports and other documents
required under ERISA or other applicable Law to be filed with any Governmental
Authority, the failure of which to file could reasonably be expected to result
in a liability to the Company, or required to be distributed to participants or
beneficiaries, have been duly and timely filed or distributed. True and complete
copies of all such reports and other documents with respect to the past three
years for each Plan have been provided to BVI. No "accumulated funding
deficiency" (as defined in Section 412(a) of the Code) with respect to any Plan
has been incurred (without regard to any waiver granted under Section 412 of the
Code), nor has any funding waiver from the Internal Revenue Service been
received or requested. Except as set forth in Schedule 5.16, each Plan that is
intended to be "qualified" within the meaning of Section 401(a) of the Code (a
"Qualified Plan") is, and has been during the period from its adoption to the
date hereof, so qualified, both as to form and operation and all necessary
approvals of Governmental Authorities, including a favorable determination as to
the qualification under the Code of each of such Qualified Plans and each
amendment thereto, have been timely obtained. Except as set forth in Schedule
5.16, all accrued contribution obligations of the Company with respect to any
Plan have either been fulfilled in their entirety or are fully reflected in the
Financial Statements.
(c) No Plan has incurred or will incur, and the Company has not
incurred and will not incur with respect to any Plan, any liability for excise
tax or penalty due to the Internal Revenue Service. There have been no
terminations, partial terminations or discontinuances of contributions to any
Qualified Plan during the preceding five years without notice to and approval by
the Internal Revenue Service and payment of all obligations and liabilities
attributable to such Qualified Plan.
(d) Except as set forth in Schedule 5.16, the Company has not made any
promises of retirement or other benefits to employees, except as set forth in
the Plans, and the Company neither maintains nor has established any Plan that
is a "welfare benefit plan" within the meaning of Section 3(1) of ERISA that
provides for retiree medical benefits or any other continuing benefits or
coverage for any participant or any beneficiary of a participant after such
participant's termination of employment, except as may be required by Part 6 of
Subtitle B of Title I of ERISA and Section 4980B of the Code and similar state
Law provisions, and at the expense of the participant or the beneficiary of the
participant. The Company neither maintains, has established nor has ever
participated in a multiple employer welfare benefit arrangement as described in
Section 3(40)(A) of ERISA. Except as set forth in Schedule 5.16, the Company has
no current or
14
future obligation or liability with respect to a Plan pursuant to the provisions
of a collective bargaining agreement.
(e) The Company has not incurred any material liability to the Pension
Benefit Guaranty Corporation in connection with any Plan. The assets of each
Plan that are subject to Title IV of ERISA are sufficient to provide the
benefits under such Plan, the payment of which the Pension Benefit Guaranty
Corporation would guarantee if such Plan were terminated, and such assets are
also sufficient to provide all other "benefits liabilities" (as defined in ERISA
Section 4001(a)(16)) due under such Plan upon termination.
(f) No "reportable event" (as defined in Section 4043 of ERISA) has
occurred and is continuing with respect to any Plan subject to Title IV of
ERISA. There are no pending claims, lawsuits or actions (other than routine
claims for benefits in the ordinary course) asserted or instituted against, and
to the Knowledge of the Stockholder there are no threatened litigation or claims
against, the assets of any Plan or its related trust or against any fiduciary of
a Plan with respect to the operation of such Plan. There are no investigations
or audits of any Plan by any Governmental Authority currently pending and there
have been no such investigations or audits that have been concluded that
resulted in any liability to the Company that has not been fully discharged. The
Company has not participated in any voluntary compliance or closing agreement
programs established with respect to the form or operation of a Plan.
(g) The Company has not engaged in any prohibited transaction, within
the meaning of Section 406 of ERISA or Section 4975 of the Code, in connection
with any Plan for which exemption was not available. Except as set forth in
Schedule 5.16, the Company neither is, nor ever has been, a participant in or is
obligated to make any payment to a multiemployer plan. No person or entity that
was engaged by the Company as an independent contractor within the last five
years reasonably can or will be characterized or deemed to be an employee of the
Company under applicable Laws for any purpose whatsoever, including, without
limitation, for purposes of federal, state and local income taxation, workers'
compensation and unemployment insurance and Plan eligibility.
(h) The Company has no liability or obligation with respect to any plan
or program maintained by any ERISA Affiliate which would be a Plan if it were
maintained by the Company for its employees. For purposes of this subsection
(h), the term "ERISA Affiliate" means any corporation or trade or business under
common control with the Company as determined under Section 414(b), (c), (m) or
(o) of the Code.
5.17 Litigation and Compliance with Law. Except as set forth in Schedule 5.17,
there are no claims, actions, suits or proceedings, pending or to the Knowledge
of the Stockholder, threatened against or affecting the Company, at law or in
equity, or before or by any Governmental Authority having jurisdiction over the
Company. No written notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the Company and there is no basis
therefor. Except to the extent set forth in Schedule 5.17, the Company has
conducted and is conducting its business in compliance with all Laws applicable
to the Company, its assets or the operation of its business, except where such
noncompliance would not have a material adverse effect upon the financial
condition, operations, results of operations or business of the Company.
15
5.18 Taxes. For purposes of this Agreement, the term "Taxes" shall mean all
taxes, charges, fees, levies or other assessments including, without limitation,
income, gross receipts, excise, property, sales, withholding, social security,
unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any such taxes,
charges, fees, levies or other assessments. The Company has timely filed all
requisite federal, state, local and other tax returns for all fiscal periods
ended on or before the Closing, and has duly paid in full or made adequate
provision in the Financial Statements for the payment of all Taxes for all
periods ending at or prior to the Balance Sheet Date and has duly paid in full
or made adequate provision in the books and records of the Company for the
payment of all Taxes for all periods commencing after the Balance Sheet Date and
ending at or prior to the Closing Date. From July 19, 2000, through the Closing
Date, the Company has duly withheld and paid or remitted all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other person or
entity that required withholding under any applicable Law, including, without
limitation, any amounts required to be withheld or collected with respect to
social security, unemployment compensation, sales or use taxes or workers'
compensation, and to the Knowledge of the Stockholder, the Company has duly
withheld and paid or remitted such Taxes prior to July 19, 2000. Except as set
forth in Schedule 5.18, there are no examinations in progress or claims against
the Company relating to Taxes for any period or periods prior to and including
the Balance Sheet Date. No written notice of any claim for Taxes, whether
pending or threatened, has been received. The Company has not granted or been
requested to grant any extension of the limitation period applicable to any
claim for Taxes or assessments with respect to Taxes. The Company is not a party
to any Tax allocation or sharing agreement and is not otherwise liable or
obligated to indemnify any person or entity with respect to any Taxes. The
amounts shown as accruals for Taxes on the Financial Statements as of the
Balance Sheet Date are sufficient for the payment of all Taxes for all fiscal
periods ended on or before that date. A true and complete copy of the federal
Tax returns of the Company for the fiscal year ended June 30, 2000 has been
previously provided to BVI, and to the Stockholder's Knowledge, no other Tax
returns of the Company for periods within the last three fiscal years are
available. There are no requests for ruling in respect of any Tax pending
between the Company and any Taxing authority. The Company currently utilizes the
accrual method of accounting for income tax purposes.
5.19 Absence of Changes. Since the Balance Sheet Date, except as set forth in
Schedule 5.19 and except as contemplated by this Agreement, the Company has
conducted its operations in the ordinary course and there has not been:
(a) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities (contingent or
otherwise), results or prospects of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company,
individually or in the aggregate;
16
(c) any change in the authorized capital stock of the Company or in its
outstanding securities or any grant by the Company of any options, warrants,
calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company by the Company;
(e) any increase in the compensation payable or to become payable by
the Company to the Stockholder or any of its officers, directors, employees,
consultants or agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice, which bonuses and
salary increases are set forth in Schedule 5.19;
(f) any significant work interruptions, labor grievances or claims
filed;
(g) any sale or transfer, or any agreement to sell or transfer, any
assets, properties or rights of the Company to any person, including, without
limitation, the Stockholder and his Affiliates outside of the ordinary course of
the Company's business;
(h) any cancellation, or agreement to cancel, any indebtedness or other
obligation owing to the Company;
(i) any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business, consistent with past
practices or incurred in connection with the transactions contemplated by this
Agreement;
(j) any plan, agreement or arrangement granting any preferential rights
to purchase or acquire any interest in any of the assets, property or rights of
the Company or requiring consent of any party to the transfer and assignment of
any such assets, property or rights;
(k) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the ordinary
course of the Company's business;
(l) any waiver of any rights or claims of the Company;
(m) any breach, amendment or termination of any contract, agreement,
Permit or other right to which the Company is a party or any of its property is
subject; or
(n) any other transaction by the Company outside the ordinary course of
business.
5.20 Accounts with Banks and Brokerages; Powers of Attorney. Schedule 5.20 sets
forth an accurate schedule as of the date of this Agreement, of (a) the name of
each financial institution or brokerage firm in which the Company has accounts
or safe deposit boxes; (b) the names in which the accounts or boxes are held;
(c) the type of account and the cash, cash equivalents and securities held in
such account as of the third business day prior to the Closing, none of which
assets have been withdrawn from such accounts since such date except for bona
fide business purposes in the ordinary course of the business of the Company;
and (d) the name of each person
17
authorized to draw thereon or have access thereto. Schedule 5.20 also sets forth
the name of each person, corporation, firm or other entity holding a general or
special power of attorney from the Company and a description of the terms
thereof.
5.21 Absence of Certain Business Practices. Neither the Company nor any of its
Affiliates has given or offered to give anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would constitute a violation of the Foreign
Corrupt Practices Act of 1977, as amended, or any similar Law.
5.22 Competing Lines of Business; Related Party Transactions. Except as set
forth in Schedule 5.22, and except for any equity interest of less than 1% owned
by the Stockholder in any entity, neither the Stockholder nor, to the Knowledge
of the Stockholder, any other Affiliate of the Company owns, directly or
indirectly, any interest in, or is an officer, director, employee or consultant
of or otherwise receives remuneration from, any business which is in the
Business or is a lessor, lessee, customer or supplier of the Company. Except as
set forth in Schedule 5.22 the Stockholder does not have and, to the Knowledge
of the Stockholder, no officer or director of the Company has, any interest in
any property, real or personal, tangible or intangible, used in or pertaining to
the business of the Company.
5.23 Intangible Property. To the Knowledge of the Stockholder, Schedule 5.23
sets forth an accurate list of all patents, patent licenses, patent
applications, trademarks, service marks, technology, licenses, trade names,
registered copyrights and other intellectual property or proprietary property
rights owned or used by the Company. The Company owns or possesses, and the
assets of the Company include, sufficient legal rights to use all of such items
without conflict with or infringement of the rights of others.
5.24 Tax Reorganization Representation. The Surviving Corporation will acquire
substantially all of the properties of the Company within the meaning of Section
368(a)(2)(D) of the Code.
5.25 Inventory. Except as set forth in Schedule 5.25, the inventory of the
Company on the Closing Date (the "Inventory") represents the normal supplies and
stock and trade of Company on hand as of the close of business on the Closing
Date. Except to the extent reserved against in the Financial Statements and the
books and records of the Company, the Inventory is and will be as of the Closing
Date, good, merchantable and saleable at customary prices in the ordinary course
of business and is and will be, as of the Closing Date, of a quality, quantity
and mix consistent with the demands of Company's customers. Any obsolete
inventory has been properly reserved to reflect its net realizable value on each
part number in the Financial Statements or the books and records of the Company,
and such reserve is set forth in Schedule 5.25.
5.26 Product Liability Claims. All products which Company has sold have been
merchantable and free from material defects in material or workmanship under the
conditions set forth in the Company's applicable standard written limited
product warranties. To the Knowledge of the Stockholder, except as set forth on
Schedule 5.26, during the last three (3) years the Company has not received any
claim based upon an alleged breach of product warranty arising from Company's
sale of its products (hereinafter collectively referred to as "Product Liability
Claims"). Company has no reasonable grounds to believe that future Product
Liability Claims
18
with respect to products of Company sold prior to the Closing Date will result
in losses or damages payable by the Company which will be in excess of Company's
past experience with respect thereto as set forth herein.
5.27 Warranty of Products. The Company has not made or given any express
warranty or guaranty with respect to any products manufactured or sold by the
Company except as set forth in Schedule 5.27.
5.28 Food and Drug Administration. Except as set forth on Schedule 5.28, with
respect to the Company Products, the Company has complied with all applicable
regulatory requirements and legal guidelines of the United States Food and Drug
Administration ("FDA") relating to the investigation, design, development,
testing, production, marketing, packaging, distribution and sale thereof, and
has not received any notice of violation thereof. Except as set forth on
Schedule 5.28, the Company Products conform in all material respects to all
literature, product descriptions or other written material of the Company given
or made available by the Company to the FDA.
5.29 Disclosure. The Stockholder and the Company have provided BVI or its
representatives all the information that BVI has requested in analyzing whether
to consummate the Merger and the other transactions contemplated by this
Agreement. None of the information so provided nor any representation or
warranty of the Stockholder to BVI or Newco in this Agreement contains any
untrue statement of a material fact or, to the Knowledge of the Stockholder,
omits to state a material fact necessary in order to make the statements herein,
in light of the circumstances under which they were made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BVI AND NEWCO
BVI and Newco jointly and severally represent and warrant to the Stockholder as
follows:
6.1 Organization. Each of BVI and Newco is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Minnesota, and is
duly authorized and qualified under all applicable Laws to carry on its business
in the places and in the manner now conducted. Each of BVI and Newco has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as such business is currently being
conducted. True, complete and correct copies of the Articles of Incorporation
and Bylaws, each as amended, of each of BVI and Newco have been previously
delivered to counsel for the Company.
6.2 Authorization; Non-Contravention; Approvals.
(a) Each of BVI and Newco has the requisite power and authority to
enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement has been approved by the boards of directors of
BVI and Newco, and BVI, as the sole stockholder of Newco. No additional
corporate proceedings on the part of BVI or Newco are necessary to authorize the
execution and delivery of this Agreement and the consummation by BVI and
19
Newco of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by BVI and Newco, and, assuming the due
authorization, execution and delivery by the Company and the Stockholder,
constitutes valid and binding agreements of BVI and Newco, enforceable against
BVI and Newco in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights or by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(b) The execution and delivery of this Agreement by BVI and Newco do
not, and the consummation by BVI and Newco of the transactions contemplated
hereby will not, conflict, violate or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under any of the terms, conditions or provisions of (i) the
Articles of Incorporation or By-Laws of BVI or Newco, (ii) any Law applicable to
either BVI or Newco or any of its properties or assets or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which BVI or Newco is now a party or by which either BVI or Newco or any of
their properties or assets may be bound or affected.
(c) Except for the Merger Filings and such filings as are required
under federal or state securities Laws, no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any Governmental
Authority, court or other third party is necessary for the execution and
delivery of this Agreement by BVI and Newco or the performance of and
consummation by BVI and Newco of the transactions contemplated hereby.
6.3 BVI Securities. The shares of BVI Common Stock to be issued to the
Stockholder pursuant to the Merger are duly authorized and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable and free and clear of all Encumbrances, except for any
Encumbrances created by the Stockholder and encumbrances resulting from
restrictions on transferability imposed by federal and state securities laws.
Upon delivery to the Stockholder of the certificates evidencing the Restricted
Shares, the Stockholder shall acquire valid title to the Restricted Shares.
6.4 Tax Reorganization Representations.
(a) Prior to the Merger, BVI will be in control of Newco within the
meaning of Section 368(c) of the Code.
(b) BVI has no plan or intention to cause the Surviving Corporation to
issue additional shares of its stock that would result in BVI losing control of
the Surviving Corporation within the meaning of Section 368(c) of the Code.
(c) BVI has no plan or intention to reacquire any of its stock issued
in the Merger.
(d) BVI has no plan or intention to liquidate the Surviving
Corporation; to merge the Surviving Corporation with or into another
corporation; to sell or otherwise dispose of the stock
20
of the Surviving Corporation except for transfers of stock to another
corporation controlled by BVI; or to cause the Surviving Corporation to sell or
otherwise dispose of any of its assets, except for dispositions made in the
ordinary course of business or transfers of assets to a corporation controlled
by BVI.
(e) Following the Closing, BVI's intention is that the Surviving
Corporation will continue the historic business of the Company or use a
significant portion of the historic business assets of the Company in a
business, all as required to satisfy the "continuity of business enterprise"
requirement under Section 368 of the Code.
(f) BVI does not own, nor has it owned during the past five years, any
shares of the stock of the Company.
(g) Each of BVI and Newco is undertaking the Merger for a bona fide
business purpose and not merely for the avoidance of federal income tax.
(h) Neither BVI nor Newco is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(i) As of the Closing Date but prior to the Effective Time, the fair
market value of the assets of Newco will exceed the sum of Newco's liabilities
plus the amount of other liabilities, if any, to which Newco's assets are
subject.
(j) No Newco stock will be given as consideration in connection with
the transaction.
6.5 SEC Filings. BVI has filed with the SEC all material forms, statements,
reports and documents required to be filed by it prior to the date hereof under
each of the 1933 Act, the 1934 Act, and the respective rules and regulations
thereunder, (a) all of which, as amended, if applicable, complied when filed in
all material respects with all applicable requirements of the applicable Act and
the rules and regulations thereunder, and (b) none of which, as amended, if
applicable, including any financial statements or schedules included therein,
contains any untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
6.6 Disclosure. BVI has fully provided the Stockholder or his representatives
with all the information that the Stockholder has requested in analyzing whether
to consummate the Merger. None of the information so provided nor any
representation or warranty of BVI contained in this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in light of the circumstances
under which they were made, not misleading.
6.7 Ownership of Newco; No Prior Activities. Newco was formed solely for the
purpose of engaging in the transactions contemplated hereby. As of the date
hereof and the Effective Time, the capital stock of Newco is and will be owned
100% by BVI directly. Further, there are not as of the date hereof and there
will not be at the Effective Time any outstanding or authorized
21
options, warrants, calls, commitments or any other agreements of any character
which Newco is a party to, or may be bound by, requiring it to issue, transfer,
sell, purchase, redeem or acquire any shares of capital stock or any securities
or rights convertible into, exchangeable for, or evidencing the right to
subscribe for or acquire, any shares of capital stock of Newco. As of the date
hereof and the Effective Time, except for obligations or liabilities incurred in
connection with its incorporation or organization and the transactions
contemplated hereby, Newco has not and will not have incurred, directly or
indirectly through any subsidiary or Affiliate, any obligations or liabilities
or engaged in any business or activities of any type or kind whatsoever or
entered into any agreements or arrangements with any person or entity. BVI will
take all action necessary to ensure that Newco at no time prior to the Effective
Time owns any asset other than an amount of cash necessary to incorporate Newco
and to pay the expenses of the Merger attributable to Newco in connection with
the Merger.
ARTICLE VII
CERTAIN COVENANTS
7.1 Future Cooperation; Tax Matters. The Stockholder and BVI shall each deliver
or cause to be delivered to the other following the Closing such additional
instruments as the other may reasonably request for the purpose of fully
carrying out this Agreement. The Stockholder will cooperate with BVI and the
Surviving Corporation at and after the Closing in furnishing information,
evidence, testimony and other assistance in connection with any actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing. The Stockholder will cooperate
with the Surviving Corporation in the preparation of all tax returns covering
the period from the beginning of the Company current tax year through the
Closing. In addition, BVI will provide the Stockholder with access to such of
its books and records as may be reasonably requested by the Stockholder in
connection with federal, state and local tax matters relating to periods prior
to the Closing. The party requesting cooperation, information or actions under
this Section 7.1 shall reimburse the other party for all reasonable
out-of-pocket costs and expenses paid or incurred in connection therewith, which
costs and expenses shall not, however, include per diem charges for employees or
allocations of overhead charges.
7.2 Expenses. BVI will pay the fees, expenses and disbursements of BVI and its
agents, representatives, financial advisors, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
any amendments thereto. The Stockholder will pay the fees, expenses and
disbursements of his and the Company's agents, representatives, financial
advisors, accountants and counsel incurred in connection with the execution,
delivery and performance of this Agreement and any amendments hereto and the
consummation of the transactions contemplated hereby.
7.3 Legal Opinions.
(a) At the Closing, the Company and the Stockholder shall cause their
legal counsel, Xxxxxx and Xxxxxxx, P.C., to deliver to BVI a legal opinion in
form and substance acceptable to BVI.
22
(b) At the Closing, BVI and Newco shall cause their legal counsel,
Winthrop & Weinstine, P.A. to deliver to the Company and the Stockholder a legal
opinion in form and substance acceptable to the Company and the Stockholder.
7.4 Employment Agreement. Concurrently with the execution of this Agreement, the
Surviving Corporation shall enter into a mutually acceptable Employment
Agreement with the Stockholder (the "Employment Agreement").
7.5 Repayment of Related Party Indebtedness. Immediately after the consummation
of the Merger contemplated herein, the Stockholder shall repay to the Company
all amounts outstanding as advances to or receivables from the Stockholder, each
of which advance or receivable is specifically reflected in Schedule 5.7.
Further, immediately after the Merger, BVI agrees to cause the Surviving
Corporation to repay all amounts outstanding under the loans to the Company from
the Stockholder or his Affiliates, each of which loan to the Company is
specifically reflected in Schedule 5.6.
7.6 Resignations. The Stockholder and Xxxxx X. Xxxxxxxx shall deliver their
resignations as officers and directors of the Company effective as of the
Closing Date.
7.7 Prime Source Surgical, Inc. To the extent that the transactions contemplated
by this Agreement result in any personal liability to the Stockholder under the
PrimeSource Agreement, BVI shall pay the first $50,000 of any such liability
(after taxes), the Stockholder shall pay the second $50,000 of any such
liability, and BVI and the Stockholder shall share any liability in excess of
$100,000 (the "Excess Liability"), with BVI paying 90% of the Excess Liability
and the Stockholder paying 10% of the Excess Liability. Notwithstanding the
foregoing, in no event shall the Stockholder be personally liable to pay more
than $100,000 in total (the "Cap") for any personal liability resulting from the
PrimeSource Agreement, and BVI shall pay 100% of any excess over the Cap. For
example, assume PrimeSource initiates an action against the Stockholder under
the PrimeSource Agreement and such action results in personal liability to the
Stockholder of $175,000. BVI would pay $117,500 (the first $50,000, plus 90% of
$75,000) and the Stockholder would pay $57,500 (the second $50,000 plus 10% of
$75,000). As another example, assume PrimeSource initiates an action against the
Stockholder under the PrimeSource Agreement and such action results in personal
liability to the Stockholder of $2,000,000. BVI would pay $1,900,000 (the first
$50,000, plus 90% of $1,900,000, plus that amount which would have been paid by
the Stockholder but for the Cap) and the Stockholder would pay $100,000 (the
second $50,000 plus 10% of $1,900,000, which would be $190,000 but is limited by
the Cap).
BVI's obligations under this Section 7.7 are subject to the Stockholder's having
provided full disclosure as to the underlying facts, as the Stockholder knows
them, related to his relationship with PrimeSource as it relates to the
PrimeSource Agreement, and provided that none of the Stockholder's
representations or statements regarding his relationship with PrimeSource as it
relates to the PrimeSource Agreement contains any untrue statement of a material
fact.
23
ARTICLE VIII
INDEMNIFICATION
The Stockholder, BVI and Newco each make the following covenants:
8.1 Indemnification by the Stockholder. The Stockholder covenants and agrees
that the Stockholder will indemnify, defend, protect and hold harmless BVI,
Newco and the Surviving Corporation, and their respective officers, directors,
employees, Stockholder, agents, representatives and Affiliates, from and against
all Losses incurred by any of such indemnified persons as a result of or arising
from (i) any breach of the representations and warranties of the Stockholder set
forth in Article V and Sections 12.1 and 12.2, and (ii) any breach or
nonfulfillment of any covenant or agreement on the part of the Stockholder under
this Agreement.
8.2. Indemnification by BVI. BVI , Newco and the Surviving Corporation covenant
and agree that they will jointly and severally indemnify, defend, protect and
hold harmless the Stockholder and his agents, representatives, Affiliates,
beneficiaries and heirs and employees from and against all Losses incurred by
any of such indemnified persons as a result of or arising from (i) any breach of
the representations and warranties of BVI or Newco set forth herein, and (ii)
any breach or nonfulfillment of any covenant or agreement on the part of BVI or
Newco under this Agreement.
8.3. Third Person Claims.
(a) Notice. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), of the commencement of
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Indemnified
Party shall give to the party obligated to provide indemnification pursuant to
Section 8.1, or 8.2 hereof (hereinafter the "Indemnifying Party") written notice
of such claim or the commencement of such action or proceeding; provided, that
the failure of the Indemnified Party promptly to notify the Indemnifying Party
of any such matter shall not release the Indemnifying Party, in whole or in
part, from its obligations under this Article VIII except to the extent the
Indemnified Party's failure to so notify in breach of this paragraph materially
prejudices the Indemnifying Party's ability to defend against such third party
claim or litigation. Such notice shall state the nature and the basis of such
claim.
(b) Defense by Indemnifying Party. The Indemnifying Party shall have
the right to defend and settle, at its own expense and by its own counsel, any
such matter so long as the Indemnifying Party pursues the same diligently and in
good faith. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
all commercially reasonable respects in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records and other information
reasonably requested by the Indemnifying Party and in the Indemnified Party's
possession or control. After the Indemnifying Party has notified the Indemnified
Party of its intention to undertake to defend or settle any such asserted
liability, and
24
for so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability; provided, however, that the Indemnified Party shall
be entitled, at its expense, to participate in the defense of such asserted
liability and the negotiations of the settlement thereof and provided, further,
if the defendants in any action include both the Indemnified Party and the
Indemnifying Party and the Indemnified Party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
Indemnifying Party, or if there is a conflict of interest which would prevent
counsel for the Indemnifying Party from also representing the Indemnified Party,
the Indemnified Party or parties shall have the right to select separate counsel
to participate in the defense of such action on behalf of such Indemnified Party
or Parties, at the expense of the Indemnifying Party.
(c) Settlement. The Indemnifying Party shall not settle any such Third
Person claim without the consent of the Indemnified Party, unless the settlement
thereof imposes no liability or obligation on, and includes a complete release
from liability of, the Indemnified Party. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person;
provided, however, that notwithstanding the foregoing, the Indemnified Party
shall be entitled to refuse to consent to any such proposed settlement and the
Indemnifying Party's liability hereunder shall not be limited by the amount of
the proposed settlement if such settlement does not provide for the complete
release of the Indemnified Party.
(d) Defense by Indemnified Party. If, upon receiving notice, the
Indemnifying Party does not undertake to defend such matter within thirty (30)
days to which the Indemnified Party is entitled to indemnification hereunder, or
fails diligently to pursue such defense, the Indemnified Party may undertake
such defense through counsel of its choice, at the cost and expense of the
Indemnifying Party, and the Indemnified Party may settle such matter, in its
sole and absolute discretion, and the Indemnifying Party shall reimburse the
Indemnified Party to the extent the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith are indemnifiable Losses under this Agreement.
(e) No Waiver. Except as provided in writing to such effect signed by
such person, no action or inaction of an Indemnifying Party under this Section
8.3 shall be deemed a waiver of such person's right to contest any claim for
indemnification under this Agreement.
8.4. Additional Notice; Cooperation. In addition to any notice which BVI, the
Surviving Corporation or Newco may give to the Stockholder pursuant to this
Article VIII, BVI, the Surviving Corporation and Newco agree that they shall
give written notice to the Stockholder promptly upon the receipt by BVI, the
Surviving Corporation or Newco of knowledge of a state of facts which, if not
corrected, would in BVI's, the Surviving Corporation's or Newco's judgment be
reasonably likely to become the subject of a claim for indemnification
hereunder; provided, that the failure of BVI, the Surviving Corporation or Newco
promptly to notify the Stockholder of any such matter shall not release the
Stockholder, in whole or in part, from his obligations under this Article VIII.
25
8.5. Limits on Indemnification. With the exception of the representations and
warranties of the Stockholder contained in Sections 5.1 and 5.3, the obligations
contained in Section 7.7, and the obligation contained in Article IX, with
respect to any claims arising under Section 8.1 or 8.2, the Indemnified Party
shall not be entitled to indemnification until the aggregate Losses suffered by
such party, or its successors and assigns, exceeds $17,000, after taking into
account any allowable tax benefits, insurance or other third party
reimbursements attributable to the Losses which gave rise to the indemnification
claim; at which time, and thereafter, the Indemnified Party shall be entitled to
recover from the Indemnifying Party for the amount of Losses suffered.
Notwithstanding the foregoing, in no event shall the Indemnified Party be able
to recover the aggregate amount of Losses exceeding $850,000, provided, however,
that this Section 8.5 shall not apply to any breach of the representations and
warranties of the Stockholder contained in Sections 5.1 and 5.3, the obligations
contained in Section 7.7, the obligation contained in Article IX, or any
representation or warranty set forth in this Agreement if such representation or
warranty was willfully breached or made with the intent to deceive or with
actual knowledge that it contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statement of facts
contained therein not misleading. Neither party shall be entitled to assert a
claim for recovery to the extent such claim was paid by insurance.
8.6. Survival of Representations and Warranties. The representations and
warranties set forth in ARTICLE V and ARTICLE VI shall survive the Closing for a
period of twenty-four months from the Closing Date (the "Expiration Date"),
except that the representations and warranties set forth in Section 5.18 hereof
shall survive the Closing for a period of six months after all applicable
statutes of limitations with respect to any claims governing the respective
matters set forth therein have expired, and the representations and warranties
set forth in Sections 5.1 and 5.3 hereof shall survive the transaction
contemplated by this Agreement and not terminate and the Expiration Date shall
not be applicable to said representations. Notwithstanding anything in this
Article VIII to the contrary, an Indemnifying Party's indemnification
obligations under Article VIII shall not terminate as of the Expiration Date
with respect to any claims for indemnification to which the Expiration Date
would otherwise be applicable which are asserted in writing prior to the
Expiration Date and have not been finally resolved prior to the Expiration Date.
8.7. Exclusive Remedy. The indemnification provisions of this Article VIII shall
be the sole and exclusive remedy of BVI, Surviving Corporation, Newco and the
Stockholder relative to the matters set forth herein and are in lieu of any
other statutory, equitable, common law or other remedy BVI, Surviving
Corporation, Newco or the Stockholder may have relative to the matters set forth
therein, other than claims for specific performance or other equitable relief
pursuant to Sections 9.2 and 10.2 and other than claims based in fraud.
ARTICLE IX
NONCOMPETITION COVENANTS
9.1. Prohibited Activities.
(a) For no additional consideration, the Stockholder hereby agrees that
the Stockholder will not for seven (7) years following the Closing Date directly
or indirectly, for
26
himself or on behalf of or in conjunction with any other person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial or
advisory capacity, whether as an employee,
independent contractor, consultant or advisor, or as
a sales representative, in the Business anywhere in
the world (such areas being herein referred to as the
"Territory");
(ii) call upon any person, who is, at that time, an
employee or consultant of BVI or the Surviving
Corporation or any of their respective subsidiaries,
for the purpose or with the intent or effect of
enticing such employee or consultant away from or out
of the employ or contract with BVI or the Surviving
Corporation or any of their respective subsidiaries;
or
(iii) call upon any person or entity which is, at that
time, or which has been, within one year prior to
that time, a customer of the Company, BVI or the
Surviving Corporation or any of the subsidiaries of
such parties within the Territory for the purpose of
soliciting or selling services or products in the
Business within the Territory.
(b) Notwithstanding the above, Section 9.1(a) shall not be deemed to
prohibit the Stockholder from acquiring, as a passive investor with no
involvement in the operations of the business, not more than 4.99 percent of the
capital stock of an entity engaged in the Business whose stock is traded on a
national securities exchange, the Nasdaq Stock Market or over the counter.
9.2. Equitable Relief. Because of the difficulty of measuring economic losses to
BVI and the Surviving Corporation as a result of a breach of the foregoing
covenant, because a breach of such covenant would diminish the value of the
Company being sold pursuant to this Agreement, and because of the immediate and
irreparable damage that could be caused to BVI and the Surviving Corporation for
which they would have no other adequate remedy, the Stockholder agrees that the
foregoing covenant may be enforced against him by injunction, restraining order
and other equitable actions.
9.3. Reasonable Restraint. It is agreed by the parties hereto that the foregoing
covenants in this ARTICLE IX are necessary in terms of time, activity and
territory to protect BVI's and the Surviving Corporation's interest in the
shares being acquired pursuant to the terms of this Agreement and impose a
reasonable restraint on the Stockholder in light of the activities and
businesses of the Company on the date of the execution of this Agreement and the
current plans of the Company.
9.4. Severability; Reformation. The covenants in this ARTICLE IX are severable
and separate, and the unenforceability of any specific covenant shall not affect
the continuing validity and enforceability of any other covenant. In the event
any court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth in this ARTICLE IX are
27
unreasonable and therefore unenforceable, then it is the intention of the
parties that such restrictions be enforced to the fullest extent which the court
deems reasonable and this Agreement shall thereby be reformed.
9.5. Material and Independent Covenant. The Stockholder acknowledges that his
agreements and the covenants set forth in this ARTICLE IX are material
conditions to BVI's and Newco's agreements to execute and deliver this Agreement
and to consummate the transactions contemplated hereby and that BVI and Newco
would not have entered into this Agreement without such covenants. All of the
covenants in this ARTICLE IX shall be construed as an agreement independent of
any other provision in this Agreement.
ARTICLE X
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
10.1. General. The Stockholder recognizes and acknowledges that he has in the
past or currently has access to certain confidential information relating to the
businesses of the Company, such as lists of customers, operational policies, and
pricing and cost policies that are, and following the Closing will be, valuable,
special and unique assets of the Surviving Corporation. The Stockholder agrees
that he will not use or disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose whatsoever,
except as is required in the course of performing his duties, if any, to the
Surviving Corporation and/or BVI, unless (a) such information becomes known to
the public generally through no fault of the Stockholder, or (b) disclosure is
required by Law, provided that prior to disclosing any information pursuant to
this clause (b) the Stockholder shall, if possible, give prior written notice
thereof to BVI and the Surviving Corporation and provide BVI with the
opportunity to contest such disclosure. In the event of a breach or threatened
breach by the Stockholder of the provisions of this Section, BVI shall be
entitled to an injunction restraining the Stockholder from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed as
prohibiting BVI from pursuing any other available remedy for such breach or
threatened breach, including, without limitation, the recovery of damages.
10.2. Equitable Relief. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants, because a breach of such
covenant would diminish the value of the Company being sold pursuant to this
Agreement, and because of the immediate and irreparable damage that would be
caused for which the Surviving Corporation and/or BVI would have no other
adequate remedy, the Stockholder agrees that the foregoing covenants may be
enforced against him by injunction, restraining order and other equitable
actions.
ARTICLE XI
INTENDED TAX TREATMENT
11.1. Tax-Free Reorganization. BVI and the Stockholder are entering into this
Agreement with the intention that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a)(2)(D) of the Code for
federal income tax purposes, except to the extent of any "boot" received, and
neither BVI nor the Stockholder will take any actions that disqualify the Merger
for
28
such treatment. Notwithstanding the foregoing, the parties acknowledge that none
of them has filed a request for a private letter ruling with the Internal
Revenue Service that the Merger is a tax-free reorganization within the meaning
of Section 368(a) of the Code. In the event of a final determination by the
Internal Revenue Service that the Merger is not a tax-free reorganization, BVI
and the Surviving Corporation hereby agree that (i) they, and not the
Stockholder, shall be responsible for any taxes, interest and penalties that
would result from the taxation of the Company, and (ii) the Stockholder, and not
BVI or the Surviving Corporation, shall be responsible for any taxes, interest
and penalties resulting from his status as a Stockholder of the Company or from
his receipt of the Merger Consideration in the Merger.
ARTICLE XII
FEDERAL SECURITIES ACT OF 1933 AND CONTRACTUAL RESTRICTIONS
ON BVI COMMON STOCK
12.1. Compliance with Law. The Stockholder acknowledges that the shares of BVI
Common Stock to be issued at the Closing in accordance with the terms of this
Agreement (the "Restricted Shares") will not as of the Closing Date be
registered under the 1933 Act and therefore may not be resold without compliance
with the 1933 Act. The Restricted Shares are being or will be acquired by the
Stockholder solely for his own account and without a view to distribution within
the meaning of the 1933 Act. The Stockholder covenants, warrants and represents
that none of the Restricted Shares will be, directly or indirectly, offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and regulations thereunder. Certificates representing the
Restricted Shares shall bear a legend in substantially the following language:
The shares represented by this certificate were not issued in a
transaction registered under the Securities Act of 1933, as amended
("1933 Act"), or any applicable state securities laws. The shares
represented hereby have been acquired without a view to distribution
within the meaning of the 1933 Act and may not be sold or transferred
unless such sale or transfer is covered by an effective registration
statement under the 1933 Act and applicable state securities laws or,
in the opinion of counsel to the issuer, is exempt from the
registration requirements of the 1933 Act and such laws.
12.2. Review of SEC Materials; Economic Risk; Sophistication. The Stockholder
has received and has carefully examined copies of BVI's Annual Report on From
10-K for the year ended October 31, 2000, its Quarterly Report on From 10-Q for
the quarter ended April 30, 2001, its Annual Report to Shareholders for the year
ended October 31, 2000, its proxy statement for the BVI annual meeting of
shareholders held in 2001, and its Current Reports on Form 8-K dated April 26,
2001 and May 11, 2001 (collectively, the "SEC Materials"). The Stockholder is
able to bear the economic risk of an investment in the Restricted Shares and can
afford to sustain a total loss of such investment. The Stockholder represents to
BVI and Newco that the Stockholder is an "accredited investor," as that term is
defined in Regulation D under the 1933 Act for the reasons specified on such
Stockholder's Certification, the form of which is attached hereto as Schedule
12.2. The Stockholder or his representatives have had an adequate opportunity to
ask questions and receive answers from the officers of BVI and Newco concerning,
among other
29
matters, BVI, its management, its plans for the operation of its business and
potential additional acquisitions and to verify and supplement the information
contained in the SEC Materials.
12.3. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the resale of BVI
Common Stock to the public without registration and to maintain eligibility for
the use of Form S-3, for a period of two years after the Closing, BVI agrees to
use its commercially reasonable efforts to:
(a) make and keep current public information (as contemplated by Rule
144) regarding BVI available;
(b) file with the SEC in a timely manner all reports and other
documents required of BVI under the 1933 Act and the 1934 Act; and
(c) furnish to the Stockholder upon written request a written statement
by BVI as to its compliance with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, a copy of the most recent annual or quarterly report
of BVI, and such other reports and documents so filed as the Stockholder may
reasonably request in availing himself of any rule or regulation of the SEC
allowing the Stockholder to resell any such shares without registration.
ARTICLE XIII
MISCELLANEOUS
13.1. Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of Law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
BVI, Newco, the Surviving Corporation and the Company, and the heirs and legal
representatives of the Stockholder.
13.2. Entire Agreement. This Agreement (including the Schedules, exhibits and
annexes attached hereto) and the documents delivered pursuant hereto constitute
the entire agreement and understanding among the Stockholder, the Company, Newco
and BVI and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. Except for the representations and warranties
of BVI, Newco, the Company and the Stockholder, which are contained in this
Agreement, there are no other representations and warranties by or on behalf of
BVI, Newco, the Company or the Stockholder which are being relied upon by the
parties hereto. Any provision of this Agreement may be modified, amended or
waived only by a written instrument duly executed by the Stockholder, the
Company, Newco and BVI in the case of an amendment or modification, or by the
party against whom the waiver is to be effective, in the case of a waiver.
13.3. Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
13.4. Brokers and Agents. Except as set forth on Schedule 13.4, each party
hereto represents and warrants that it employed no broker or agent (collectively
"Broker") in connection with the
30
transactions contemplated by this Agreement. Each party agrees to indemnify each
other party against all loss, cost, damages or expense arising out of claims for
fees or commissions of brokers employed or alleged to have been employed by such
Indemnifying Party. Any fee or commission payable to the Brokers described in
Schedule 13.4 shall be paid by the Stockholder.
13.5. Notices. All notices and communications required or permitted hereunder
shall be in writing and may be given by depositing the same in the United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, by fax or telecopy or by delivering the
same in person to an officer or agent of such party, or by a national courier
service as follows:
(a) If to BVI, Newco or the Surviving Corporation, addressed to them
at:
Bio-Vascular, Inc.
0000 Xxxxxxxxxx Xxxxxx
Xx. Xxxx, XX 00000-0000
Attn: Xxxxx Xxxxxx Xxxxxx
Fax number (000) 000-0000
With a copy (which shall not constitute notice) to:
Xxxxxxx X. Xxxx, Esq.
Winthrop & Weinstine, P.A.
3000 Xxxx Xxxxxxxx Plaza
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Fax number (000) 000-0000
(b) If to the Stockholder, addressed as follows:
Xxxxxxx X. Xxxxxxxx
0000 Xxxxxxxxxxx Xxxxxxx
Xxxxxxxxxx, XX 00000
With a copy (which shall not constitute notice) to:
Xxxxxxx X. Xxxxxx, Esq.
Xxxxxx & Xxxxxxx, P.C.
0000 0xx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
or such other address as any party hereto shall specify pursuant to this Section
13.5 from time to time.
All such notices or other communications shall be deemed to have been received
as follows: when delivered by hand, if personally delivered; three (3) business
days after being deposited in the U.S. mail, postage pre-paid, if delivered by
mail; when receipt is electronically
31
acknowledged, if faxed or telecopied; and the next day after being delivered to
an overnight delivery service if sent by overnight delivery service.
13.6. Exercise of Rights and Remedies. Except as otherwise provided herein, no
delay of or omission in the exercise of any right, power or remedy accruing to
any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
13.7. Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable, but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case, the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
13.8. Third Party Beneficiaries. Nothing provided in this Agreement is intended
to provide any rights or benefits to third parties.
13.9. Governing Law; Jurisdiction; Service of Process. This Agreement shall be
governed by the laws of the State of Minnesota, its rules of conflict of laws
notwithstanding.
THIS SPACE INTENTIONALLY LEFT BLANK
32
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
BIO-VASCULAR, INC.
By:
------------------------------------
Its:
------------------------------------
MCA ACQUISITION, INC.
By:
------------------------------------
Its: Chief Executive Officer
MEDICAL COMPANIES ALLIANCE, INC.
By:
------------------------------------
Its:
------------------------------------
---------------------------------------------
Xxxxxxx X. Xxxxxxxx, individually
33
