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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
AMONG
ESCALON MEDICAL CORP.,
SONOMED, INC.
AND
THE STOCKHOLDERS OF SONOMED, INC.
JANUARY 14, 1999
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TABLE OF CONTENTS
I. Representations and Warranties of the Company and Xxxx...................................................1
1.01 Organization and Qualification..................................................................1
1.02 Authorization...................................................................................1
1.03 Capitalization..................................................................................2
1.04 Financial Condition.............................................................................2
1.05 Tax Liabilities.................................................................................3
1.06 Legal Proceedings and Compliance with Legal Requirements........................................5
1.07 Properties and Assets...........................................................................6
1.08 Contracts.......................................................................................8
1.09 ERISA...........................................................................................9
1.10 Patents and Other Intellectual Property........................................................11
1.11 Questionable Payments..........................................................................12
1.12 Consents and Approvals.........................................................................13
1.13 Subsidiaries and Investments...................................................................13
1.14 Sales..........................................................................................13
1.15 Liabilities....................................................................................13
1.16 Insurance......................................................................................13
1.17 Employee Relations.............................................................................14
1.18 Warranties.....................................................................................14
1.19 Customers, Distributors and Suppliers..........................................................14
1.20 Finder's Fees..................................................................................14
1.21 Transactions with Certain Persons..............................................................14
1.22 Year 2000 Compliance...........................................................................15
1.23 Accuracy of Information........................................................................16
II. Representations and Warranties of the Stockholders......................................................16
2.01 Authorization..................................................................................16
2.02 Ownership of Company Common Stock and Related Matters..........................................16
2.03 S Corporation Status...........................................................................16
2.04 Consents and Approvals.........................................................................16
III. Representations and Warranties of the Purchaser.........................................................17
3.01 Organization and Qualification.................................................................17
3.02 Authority......................................................................................17
3.03 Consents and Approvals.........................................................................17
3.04 SEC Documents..................................................................................17
3.05 Investment Intent..............................................................................18
3.06 Representations of the Company and the Stockholders............................................18
3.07 Finder's Fees..................................................................................18
IV. Purchase and Sale of the Company Common Stock...........................................................18
4.01 Terms of the Purchase and Sale.................................................................18
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4.02 The Closing....................................................................................19
4.03 Purchase Price Adjustment......................................................................19
4.04 Escrow.........................................................................................20
V. Conditions to Obligations of the Purchaser..............................................................21
5.01 Accuracy of Representations and Compliance with Conditions.....................................21
5.02 Opinions of Counsel............................................................................21
5.03 Other Closing Documents........................................................................21
5.04 Legal Action...................................................................................22
5.05 No Governmental Action.........................................................................22
5.06 No Claims Regarding Stock Ownership or Sale Proceeds...........................................22
5.07 Financing......................................................................................22
5.08 Tangible Net Worth.............................................................................22
5.09 Required Consents..............................................................................23
5.10 Resignations...................................................................................23
5.11 Releases.......................................................................................23
5.12 Employment Agreement...........................................................................23
VI. Conditions to the Obligations of the Company and the Stockholders.......................................23
6.01 Accuracy of Representations and Compliance with Conditions.....................................23
6.02 No Injunction; Legal Action....................................................................23
6.03 Employment Agreement...........................................................................24
6.04 Stock Option Agreement.........................................................................24
6.05 Secretary's Certificate........................................................................24
6.06 Consent........................................................................................24
VII. Covenants and Agreements of the Company and the Stockholders............................................24
7.01 Access.........................................................................................24
7.02 Conduct of Business............................................................................25
7.03 Advice of Changes..............................................................................25
7.04 Confidentiality................................................................................25
7.05 Public Statements..............................................................................25
7.06 Other Proposals................................................................................25
7.07 Consents Without Any Condition.................................................................26
7.08 Release by the Stockholders....................................................................26
7.09 Noncompetition.................................................................................26
7.10 Voting by the Stockholders.....................................................................27
7.11 Code Section 338(h)(10) Election...............................................................27
7.12 Company Tax Returns............................................................................28
7.13 Maintenance of Tangible Net Worth..............................................................29
7.14 Inventory Value Adjustment.....................................................................29
7.15 Reasonable Efforts.............................................................................30
VIII. Covenants and Agreements of the Purchaser...............................................................30
8.01 Financing......................................................................................30
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8.02 Employee Matters...............................................................................30
8.03 Reasonable Efforts.............................................................................30
IX. Termination.............................................................................................30
9.01 Termination Events.............................................................................30
9.02 Effect of Termination..........................................................................31
X. Indemnification; Remedies...............................................................................31
10.01 Survival; Right to Indemnification Not Affected by Knowledge...................................31
10.02 Indemnification and Payment of Damages by the Stockholders
for the Obligations of the Company and Xxxx....................................................31
10.03 Indemnification and Payment of Damages by the Stockholders.....................................32
10.04 Indemnification and Payment of Damages by the Purchaser........................................32
10.05 Limitations on Amount, Time and Remedies.......................................................32
10.06 Limitations on Amount -- Purchaser.............................................................33
10.07 Procedure for Indemnification -- Third Party Claims............................................33
10.08 Procedure for Indemnification -- Other Claims..................................................34
XI. Miscellaneous...........................................................................................34
11.01 Further Actions................................................................................34
11.02 Availability of Equitable Remedies.............................................................35
11.03 Appointment of Agent...........................................................................35
11.04 Modification...................................................................................38
11.05 Notices........................................................................................38
11.06 Expenses.......................................................................................40
11.07 Waiver.........................................................................................40
11.08 Binding Effect.................................................................................40
11.09 No Third Party Beneficiaries...................................................................40
11.10 Separability...................................................................................40
11.11 Headings.......................................................................................40
11.12 Counterparts; Governing Law....................................................................40
XII. Definitions.............................................................................................41
LIST OF EXHIBITS
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Release
Exhibit C - Form of Employment Agreement
Exhibit D - Allocation of Sales Price
Exhibit E - Form of Note
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STOCK PURCHASE AGREEMENT
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Agreement dated as of January 14, 2000 among Escalon Medical Corp., a
Delaware corporation (the "Purchaser"); Sonomed, Inc., a New York corporation
(the "Company"); Xxxxx Xxxx ("Xxxx"), the principal stockholder of the Company;
and the stockholders of the Company listed on Schedule I hereto (such persons,
including Xxxx, being hereinafter sometimes referred to individually as a
"Stockholder" and collectively as the "Stockholders").
RECITALS:
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The Stockholders desire to sell to the Purchaser, and the Purchaser
desires to purchase from the Stockholders, all of the issued and outstanding
capital stock of the Company for the consideration and on the terms and
conditions set forth in this Agreement. Xxxx is an officer and director of the
Company and the holder of approximately 46.28% of the Company's outstanding
capital stock. Certain capitalized terms used herein are defined in Article XII
of this Agreement.
NOW, THEREFORE, in consideration of the premises, covenants and
agreements set forth herein, and intending to be legally bound hereby, the
parties agree as follows:
I. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND XXXX.
Except to the extent set forth on the Company Disclosure Schedule, the
Company and Xxxx jointly and severally represent and warrant to the Purchaser as
follows:
1.01 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York, and has all requisite corporate power and authority to own or lease
and operate its properties and carry on its business as it is now being
conducted, and to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby. The Company is qualified to do business as
a foreign corporation and is in good standing in the jurisdictions listed in
Section 1.01 of the Company Disclosure Schedule, which are the only
jurisdictions where the Company is required to be so qualified, except where the
failure to so qualify would not have a Material Adverse Effect. The Company has
no subsidiaries.
1.02 AUTHORIZATION. The Company has the requisite power and authority
to execute and deliver the Transaction Documents to which the Company is or will
be a party and to perform the Transactions to be performed by the Company. Such
execution, delivery and performance by the Company has been duly authorized by
all necessary corporate action. The Transaction Documents executed by the
Company on or before the date hereof constitute, and the Transaction Documents
to be executed
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by the Company after the date hereof will constitute, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general equitable
principles and by bankruptcy, moratorium, insolvency, fraudulent conveyance or
similar laws.
1.03 CAPITALIZATION. The authorized capital stock of the Company
consists of 10,000,000 shares of common stock, par value $.01 per share (the
"Company Common Stock"). The shares of Company Common Stock shown on Schedule I
hereto constitute all of the issued and outstanding shares of capital stock of
the Company. Each outstanding share of Company Common Stock is validly
authorized, validly issued and fully paid and nonassessable, has not been issued
and is not owned or held in violation of any preemptive right of stockholders,
and is owned of record by the Stockholders as shown on Schedule I hereto. There
is no commitment, plan or arrangement to issue, and no outstanding option,
warrant or other right calling for the issuance of, any share of capital stock
of the Company or any security or other instrument convertible into, exercisable
for or exchangeable for capital stock of the Company. There are no outstanding
instruments convertible into or exchangeable for capital stock of the Company.
1.04 FINANCIAL CONDITION.
(a) The Company has delivered to the Purchaser true and
correct copies of the following financial statements, initialed by the chief
executive officer of the Company: (i) audited balance sheets of the Company as
of December 31, 1998 and 1997; (ii) the unaudited balance sheet of the Company
as of December 31, 1999 (the "Last Balance Sheet"); (iii) audited statements of
income, statements of retained earnings and statements of cash flows of the
Company for the years ended December 31, 1998 and 1997; and (iv) the unaudited
statement of income of the Company for the twelve months ended December 31,
1999. Each such balance sheet, including the notes thereto, presents fairly the
financial condition, assets, liabilities and stockholders' equity of the Company
as of its date; each such statement of income and consolidated statement of
retained earnings presents fairly the results of operations of the Company for
the period indicated; and each such statement of cash flows presents fairly the
information purported to be shown therein, except, with respect to any unaudited
statement, the absence of footnotes, necessary interim accounting practices and
procedures and year-end audit adjustments. The financial statements referred to
in this Section 1.04 have been prepared in accordance with GAAP consistently
applied throughout the periods involved and were prepared in accordance with the
books and records of the Company, except, with respect to any unaudited
statement, the absence of footnotes, necessary interim accounting practice and
procedures and year-end audit adjustments.
(b) Except as set forth on Section 1.04 of the Company
Disclosure Schedule, since the date of the Last Balance Sheet (the "Last Balance
Sheet Date"):
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(i) There has at no time been a change in the
financial condition, results of operations, business,
properties, assets or liabilities of the Company that has had
a Material Adverse Effect.
(ii) The Company has not authorized, declared, paid
or effected any dividend or liquidating or other distribution
in respect of its capital stock or any direct or indirect
redemption, purchase or other acquisition of any stock of the
Company.
(iii) The operations and business of the Company have
been conducted only in the ordinary course, consistent with
past practices of the Company.
(iv) There has been no accepted purchase order or
quotation, arrangement or understanding for future sale of the
products or services of the Company that was outside the
ordinary course of business or not consistent with the past
practices of the Company.
(v) The Company has not suffered an extraordinary
loss (whether or not covered by insurance) or waived any right
of substantial value.
(c) Except as set forth in Section 1.04(c) of the Company
Disclosure Schedule, there is no fact known to the Company or Xxxx that
materially adversely affects or in the future (as far as the Company or Xxxx can
reasonably foresee) is reasonably likely to materially adversely affect the
financial condition, results of operations, business, properties, assets,
liabilities or future prospects of the Company; provided, however, that the
Company and Xxxx express no opinion as to changes or effects relating to United
States or foreign economic conditions or financial markets in general or to the
Company's industry in general.
1.05 TAX LIABILITIES. Except as otherwise set forth in Section 1.05 of
the Company Disclosure Schedule:
(a) The Company has duly and timely filed all Returns that it
was required to file on or prior to the date hereof. All such Returns were true,
complete and correct. All Taxes owed or required to be remitted by the Company
(whether or not shown on any Return) have been paid or remitted, or are being
contested and adequately reserved in accordance with GAAP on the financial
statements of the Company. The Company is not currently the beneficiary of any
extension of time within which to file any Return. The most recent financial
statements delivered to the Purchaser by the Company hereunder reflect an
adequate reserve in accordance with GAAP for all Taxes of the Company for all
taxable periods and portions thereof through the date of such financial
statements. The Company has maintained and will continue to maintain reserves in
accordance with GAAP for all Taxes for the period from the date of the most
recent financial statements through the Closing Date.
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(b) The Company has satisfied all federal, state, local and
foreign withholding tax requirements, including but not limited to income,
social security and employment tax.
(c) None of the assets of the Company (i) is property that is
required to be treated as owned by another person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code, (ii) is "tax-exempt
use property" within the meaning of Section 168(h) of the Code or (iii) directly
or indirectly secures any debt the interest of which is tax-exempt under Section
103(a) of the Code.
(d) There are no liens for Taxes on any of the assets of the
Company.
(e) The Company is not a party to any tax allocation, tax
sharing or tax benefit transfer agreement. The Company (i) has not been a member
of an affiliated, combined or unitary group filing a consolidated, combined or
unitary Return (other than a group the common parent of which was the Company)
and (ii) has no liability for the Taxes of any Person under regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(f) Except as set forth in Section 1.05(f) of the Company
Disclosure Schedule, no claim has ever been made by a Governmental Body in a
jurisdiction where the Company does not file Returns that the Company is or may
be subject to taxation by that jurisdiction.
(g) There is no dispute or claim now pending concerning any
Tax Liability of the Company either (i) claimed or raised by any Governmental
Body in writing or (ii) as to which the Company or Xxxx has knowledge based upon
personal contact with any agent of such Governmental Body. No Governmental Body
is now asserting or, to the knowledge of the Company or Xxxx, threatening to
assert, any deficiency or assessment for additional Taxes of the Company or has
notified the Company or Xxxx of its intent to examine or audit the Company. The
Company has not (i) waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency
or (ii) received any notice of deficiency of assessment from any Governmental
Body with respect to Liability for Taxes that has not been fully paid or finally
settled.
(h) The Company has delivered to the Purchaser correct and
complete copies of all federal income tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company since
December 31, 1993.
(i) The Company has not filed a consent under Code Section
341(f) concerning collapsible corporations.
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(j) For all tax periods from and after October 1, 1987 up to
and including the Closing (collectively the "S Corporation Tax Period"), the
Company has elected, in compliance with all applicable legal requirements, to be
taxed under Subchapter S of the Code and corresponding provisions under New York
State laws, and such elections are in effect for the Company. No action has been
taken by the Company or, to the knowledge of the Company or Xxxx, any
Stockholder that may result in the revocation of any such elections and, with
respect to the S Corporation Tax Period, the Company has no Liability, absolute
or contingent, for the payment of any income Taxes under the Code or under the
laws of such states or localities which afford tax treatment similar to that
under Subchapter S of the Code, except as set forth in Section 1.05(j) of the
Company Disclosure Schedule.
1.06 LEGAL PROCEEDINGS AND COMPLIANCE WITH LEGAL REQUIREMENTS.
(a) Except as disclosed in Section 1.06 of the Company
Disclosure Schedule, there (i) is no Litigation that is pending against the
Company and (ii) to the knowledge of the Company and Xxxx, there is no
Litigation threatened against the Company that, in either case, relates to or
could have a Material Adverse Effect on the operations of the Company. To the
knowledge of the Company and Xxxx, there has been no Default under any Legal
Requirements applicable to the Company, including Legal Requirements relating to
pollution or protection of the environment or Legal Requirements promulgated by
the FDA. There has been no Default with respect to any Court Order applicable to
the Company, except for any Defaults that would not have a Material Adverse
Effect.
(b) To the knowledge of the Company and Xxxx, the Company has
complied in all material respects with all Legal Requirements and Court Orders
applicable to the business of the Company and the sale of the Company's
products. The Company has obtained and, to the knowledge of the Company and
Xxxx, is in compliance in all material respects with all federal, state, local
and foreign governmental permits, licenses, registrations, certificates of
occupancy, approvals and other authorizations (the "Governmental Permits"). All
of the Governmental Permits are listed in Section 1.06 of the Company Disclosure
Schedule along with their respective expiration dates, and, to the Knowledge of
the Company and Xxxx, such Governmental Permits constitute all Governmental
Permits required for the operation of the Company's business as currently
operated. All of the Governmental Permits are currently valid and in full force,
and to the knowledge of the Company and Xxxx, no violations of a material nature
are or have been recorded in respect of any of the Governmental Permits and no
revocation, cancellation or withdrawal thereof has been threatened. The Company
has filed such timely and complete renewal applications as may be required with
respect to its Governmental Permits, except as set forth in Section 1.06(b) of
the Company Disclosure Schedule.
(c) Section 1.06(c) of the Company Disclosure Schedule sets
forth a list of all of the products of the Company. Except as set forth in
Section 1.06(c) of the
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Company Disclosure Schedule, the Company has not received any written complaints
or, to its knowledge or the knowledge of Xxxx, any other complaints, from any
customer or distributor concerning any of the Company's products, which has not
been resolved or withdrawn, or where the failure to resolve the same would have
a Material Adverse Effect. To the knowledge of the Company and Xxxx, there are
no defects in design, construction or manufacture of its products that could
adversely affect performance or create an usual risk of injury to persons or
property. To the knowledge of the Company and Xxxx, all products of the Company
are and have been in all material respects in compliance with all applicable
Legal Requirements of the FDA applicable to such products. There is no
reasonable basis known to the Company for the FDA, the ISO or any other
Governmental Body to deny or rescind any approval or clearance to market any of
the Company's commercially distributed products for the purpose or indication
for which they are being manufactured, assembled, marketed or sold. None of the
Company's products is or has been the subject of any replacement, field fix,
retrofit, modification or recall campaign and, to the knowledge of the Company
and Xxxx, no facts or conditions exist that could reasonably be expected to
result in such a recall campaign. The Company's products have been designed and
manufactured so as to meet and comply in all material respects with all
applicable governmental and regulatory standards and specifications currently in
effect in North America and Europe, and have received all governmental and
regulatory approvals necessary to allow their sale and use in all jurisdictions
where they are currently being sold in North America and Europe. Neither the
Company nor Xxxx has any reason to believe that the Company's products fail to
meet any standards or specifications or do not have any necessary governmental
or regulatory approval necessary for the sale or use of such products in any
jurisdiction other than in North America or Europe. There are no outstanding
notices of Defaults or warning letters received by the Company from the FDA or
the ISO nor are there outstanding good manufacturing practice warning notices
received by the Company from the FDA or the ISO. The Company has previously
provided to the Purchaser access to the Company's complete file with respect to
all FDA and other Governmental Body approvals and certifications of the
Company's products and the facility in which they are being manufactured.
1.07 PROPERTIES AND ASSETS.
(a) Except as disclosed in Section 1.07 of the Company
Disclosure Schedule, the Company has good and marketable title to all properties
and assets used in its business or owned by it, free and clear of all
Encumbrances.
(b) All accounts and notes receivable reflected on the Last
Balance Sheet, or arising since the Last Balance Sheet Date, have been
collected, or are and will be good and collectible, in each case at the
aggregate recorded amounts thereof less any reserves therefor reflected in the
Last Balance Sheet in accordance with GAAP without right of recourse, defense,
deduction, return of goods, counterclaim, offset or set off on the part of the
obligor, and, if not collected, to the knowledge of the
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Company and Xxxx, can reasonably be anticipated to be paid within 120 days of
the date incurred.
(c) Section 1.07(c) of the Company Disclosure Schedule sets
forth a true and complete list of all real property owned or leased by the
Company, a list of all personal property leased by the Company and a list of the
properties and assets owned by the Company (but not including inventory or
Intellectual Property) as set forth on the Depreciation Projections dated as of
October 31, 1999 attached to Section 1.07(c) of the Company Disclosure Schedule,
which contains a statement of cost, book value and (except for land) reserve for
depreciation of each item for tax purposes, and net book value of each item for
financial reporting purposes. Except as set forth in Section 1.07(c) of the
Company Disclosure Schedule, all such real and other properties and assets
(including Intellectual Property) owned by the Company are reflected on the Last
Balance Sheet (except for acquisitions and dispositions in the ordinary course
of business subsequent to the Last Balance Sheet Date and prior to the Closing
or that are either disclosed in Section 1.07 of the Company Disclosure Schedule
or are approved in writing by the Purchaser).
(d) Except as set forth in Section 1.07(d) of the Company
Disclosure Schedule, to the knowledge of the Company or Xxxx: no real property
or Facility owned, leased or licensed by the Company lies in an area which is or
will be subject to zoning, use or building code restrictions that would
prohibit, and no state of facts relating to the actions or inaction of another
Person or its ownership, leasing, licensing or use of any real or personal
property exists or will exist, that would prevent the continued effective
ownership, leasing, licensing or use of such real property in the business in
which the Company is now engaged.
(e) The real and other properties and assets (including
Intellectual Property) owned by the Company or leased or licensed by the Company
from a third party constitute all such properties and assets that are necessary
to the business of the Company as presently conducted or as it currently
contemplates conducting.
(f) Except as set forth in Section 1.07(f) of the Company
Disclosure Schedule, the Company has not caused nor permitted its business,
Facilities, properties or assets to be used to generate, manufacture, refine,
transport, treat, store, handle, dispose of, transfer, produce or process any
Hazardous Substance (as hereinafter defined) except in compliance with all
applicable laws, rules, regulations, orders, judgments and decrees, except where
the failure to so comply could not individually or in the aggregate have a
Material Adverse Effect, and has not caused nor permitted the Release (as
hereinafter defined) of any Hazardous Substance on or off the site of any
property or Facilities of the Company that individually or in the aggregate
could have a Material Adverse Effect. The term "Hazardous Substance" shall mean
any hazardous waste, as defined by 42 U.S.C. 6903(5), any hazardous substance,
as defined by 42 U.S.C. 9601(14), any pollutant or contaminant, as defined by 42
U.S.C. 9601(33), and all toxic substances, hazardous materials, or other
chemical substances regulated
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by any other law, rule, or regulation. The term "Release" shall have the meaning
set forth in 42 U.S.C. 9601(22).
1.08 CONTRACTS.
(a) Section 1.08(a) of the Company Disclosure Schedule lists
each Contract of the following types to which the Company currently is a party,
or by which it is bound, that relates to or could affect the operations of the
Company, except for (i) any Contract that is not material to the Company or its
business and that may be terminated by the Company on not more than 30 days'
notice without any Liability to the Company and (ii) any Contract under which
the executory obligation of the Company involves an amount less than $25,000
(such excepted Contracts are referred to collectively as "Minor Contracts"):
(i) Contracts with any present or former stockholder,
director, officer, employee, partner or consultant of the
Company or Affiliate thereof;
(ii) Contracts for the future purchase of, or payment
for, supplies or products, or for the lease of any asset from
or the performance of services by a third party, in excess of
$25,000 in any individual case, or any Contracts for the sale
of inventory or products that involve an amount in excess of
$25,000 with respect to any one supplier or other party;
(iii) Contracts to sell or supply products or to
perform services that involve an amount in excess of $25,000
in any individual case;
(iv) Contracts to lease to or to operate for any
other party any asset that involve an amount in excess of
$25,000 in any individual case;
(v) Any notes, debentures, bonds, conditional sale
agreements, equipment trust agreements, letter of credit
agreements, guaranty and other reimbursement agreements, loan
agreements or other Contracts for the borrowing or lending of
money (including loans to or from officers, directors,
partners, stockholders or Affiliates of the Company or any
members of their immediate families), agreements or
arrangements for a line of credit or for a guarantee of, or
other undertaking in connection with, the indebtedness of any
other Person;
(vi) Any Contracts under which any Encumbrances exist
with respect to any assets of the Company; and
(vii) Any other Contracts (other than Minor Contracts
and those described in any of subsections (i) through (vi)
above) not made in the ordinary course of business.
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(b) Copies of all Contracts identified in Section 1.08(a) of
the Company Disclosure Schedule have been made available for inspection by the
Purchaser. No outstanding purchase commitment by the Company is in excess of its
ordinary business requirements or at a price in excess of market price at the
date thereof. Except as set forth in Section 1.08(b) of the Company Disclosure
Schedule, none of such Contracts will expire or be terminated or be subject to
any modification of terms or conditions by reason of the consummation of the
Transactions contemplated by this Agreement, except where any such termination
or modification will not have a Material Adverse Effect. With respect to the
Contracts described in clause (iii) hereinabove, none of the agents who is party
to any such agreement has terminated, threatened to terminate or given any
notice of an intention to terminate its agreement with the Company or to
substantially reduce the volume of business placed with or through the Company,
and neither the Company nor Xxxx knows of any condition or state of facts or
circumstances that would cause any such termination or reduction in the
foreseeable future. The Company is not in Default in any material respect under
the terms of any Contract nor is it in Default in the payment of any insurance
premiums due to insurance carriers nor any principal of or interest on any
indebtedness for borrowed money nor, to the knowledge of the Company or Xxxx,
has any event occurred that, with the passage of time or giving of notice or
both, would constitute such a Default by the Company and, to the knowledge of
the Company and Xxxx, no other party to any such contract is in Default in any
material respect thereunder nor has any such event occurred with respect to such
party, except that no representation is made with respect to any Contract that
is not material to the Company or its business and that may be terminated by the
Company on not more than 30 days' notice without any Liability to the Company.
1.09 ERISA.
(a) Section 1.09(a) of the Company Disclosure Schedule
contains a complete list of all Benefit Plans currently sponsored or maintained
by the Company or under which the Company may be obligated. The Company has made
available to the Purchaser (i) accurate and complete copies of all Benefit Plan
documents and all other material documents relating thereto of the Company,
including all summary plan descriptions and summary annual reports, if any, (ii)
accurate and complete summaries of all unwritten Benefit Plans, (iii) accurate
and complete copies of the most recent financial statements and actuarial
reports, if any, with respect to all Benefit Plans for which financial
statements or actuarial reports are required or have been prepared and (iv)
accurate and complete copies of all annual reports, if any, for all Benefit
Plans (for which annual reports are required) prepared within the last three
years.
(b) All Benefit Plans conform (and at all times have
conformed) in all material respects to, and are being administered and operated
(and to the knowledge of the Company and Xxxx have at all times been
administered and operated) in material compliance with, the applicable
requirements of ERISA, the Code and all
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other applicable Legal Requirements, except where the failure to comply would
not have a Material Adverse Effect. All returns, reports and disclosure
statements required to be made under ERISA and the Code with respect to all
Benefit Plans have been timely filed or delivered. There have not been any
"prohibited transactions," as such term is defined in Section 4975 of the Code
or Section 406 of ERISA involving any of the Benefit Plans that could subject
the Company to any material penalty or tax imposed under the Code or ERISA.
(c) None of the Benefit Plans is an employee pension benefit
plan (as defined in Section 3(2) of ERISA). The Company has no current or
contingent obligation to contribute to any multiemployer plan (as defined in
Section 3(37) of ERISA).
(d) There are no pending or, to the knowledge of the Company
or Xxxx, threatened claims by or on behalf of any Benefit Plans, or by or on
behalf of any individual participants or beneficiaries of any Benefit Plans,
alleging any breach of fiduciary duty on the part of the Company or any of its
stockholders, officers, directors or employees under ERISA or any other
applicable regulations, or claiming benefit payments other than those made in
the ordinary operation of such plans, nor is there, to the knowledge of the
Company or Xxxx, any reasonable basis for such claim.
(e) Except to the extent set forth in Section 1.09(e) of the
Company Disclosure Schedule, the Company has made all required contributions
under the Benefit Plans on a timely basis.
(f) With respect to any Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(l) of ERISA) (a "Welfare
Plan"): (i) each Welfare Plan for which contributions are claimed as deductions
under any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, except where the failure to comply
would not have a Material Adverse Effect, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code and (iii) any Benefit Plan that is a group health plan
(within the meaning of Section 4980B(g)(2) of the Code) is in material
compliance with all of the material requirements of Section 4980B of the Code,
Part 6 of Title I of ERISA and the applicable provisions of the Social Security
Act, except where the failure to comply would not have a Material Adverse
Effect.
(g) Except as set forth in Section 1.09(g) of the Company
Disclosure Schedule, the Company has no Benefit Plans or agreements that, by
their terms, would create liability for severance pay to any employee of the
Company as a result of any of the Transactions.
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(h) Except as disclosed in Section 1.09(h) of the Company
Disclosure Schedule, no Benefit Plan has any liability of any material nature,
accrued or contingent, including without limitation liabilities for Taxes,
other than for routine payments to be made in due course to participants and
beneficiaries.
(i) The Company has provided the Purchaser with a true and
correct summary of the names, relationship with the Company, present rates of
compensation (whether in the form of salary, bonuses, commissions, or other
supplemental compensation now or hereafter payable), and aggregate compensation
for the fiscal year ended December 31, 1998 and currently in effect for each
director, officer, or other employee of the Company. Except as set forth in
Section 1.09(i) of the Company Disclosure Schedule, since January 1, 1999, the
Company has not changed the rate of compensation of any of its directors,
officers or employees nor has any Benefit Plan or program been instituted or
amended to increase benefits thereunder.
1.10 PATENTS AND OTHER INTELLECTUAL PROPERTY.
(a) Except as set forth in Section 1.10(a) of the Company
Disclosure Schedule, the Company has exclusive title to, owns, possesses, has
the sole right to use or, where necessary, has made timely and proper
application for, all copyrights, trademarks, trade names, service marks,
franchises, certificates of public convenience and necessity, patents, patent
rights, licenses, trade secrets, information, proprietary rights and processes,
intellectual property rights listed on Section 1.10(a) of the Company Disclosure
Schedule (the "Intellectual Property"). To the knowledge of the Company and
Xxxx, all of the Intellectual Property is owned or otherwise lawfully used by
the Company, and the Company is not infringing upon, conflicting with or
unlawfully or wrongfully using any patent, trademark, trade name, service xxxx,
copyright, trade secret or other intellectual property right owned or claimed by
another Person. Except as set forth in Section 1.10(a) of the Company Disclosure
Schedule, the Company has not received any notice of any claim of infringement
or any other Claim or proceeding, with respect to any such patent, trademark,
trade name, service xxxx, copyright or trade secret which has not been favorably
resolved. No current employee of the Company and, to the knowledge of the
Company and Xxxx, no other Person, including any former employee, owns or has
any proprietary, financial or other interest, direct or indirect, in whole or in
part, in any of the Intellectual Property, or in any application therefor.
(b) The Company has taken appropriate measures to reasonably
protect and preserve the security, confidentiality and value of its Confidential
Information, which measures are described in Section 1.10(b) of the Company
Disclosure Schedule. "Confidential Information" means those items of the
Intellectual Property that are confidential and any other proprietary or
confidential information owned or obtained on a confidential basis by the
Company. Except as disclosed in Section 1.10(b) of the Company Disclosure
Schedule, each of those employees and consultants of the Company who are
involved in the design, review, evaluation or development
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of products or Intellectual Property and are listed in Section 1.10(b) of the
Company Disclosure Schedule has executed a nondisclosure and assignment of
inventions agreement in the form provided to the Purchaser. To the knowledge of
the Company and Xxxx, all Confidential Information that constitutes Intellectual
Property is currently valid and protectible and is not part of the public domain
or knowledge, nor to the knowledge of the Company or Xxxx, has it been used,
divulged or appropriated for the benefit of any Person other than the Company or
otherwise to the detriment of the Company, except as set forth in Section
1.10(b) of the Company Disclosure Schedule.
(c) The Company has all right, title and interest in and to
all of the Intellectual Property, and the Company has not created or permitted
any Encumbrance of any nature whatsoever. Except as set forth in Section
1.10(c) of the Company Disclosure Schedule, the Company has not granted any
licenses to its proprietary property and is not aware of any third parties who
are claiming any right, title or interest in or to such Intellectual Property or
who are infringing or violating any of such Intellectual Property. Except as set
forth in Section 1.10(c) of the Company Disclosure Schedule, the Company is not
bound by or a party to any option, license or agreement of any kind with respect
to patents, patent applications, inventions, trademarks, service marks, trade
names, licenses, franchises, copyrights, trade secrets, information and other
proprietary rights and processes or with respect to any such property and rights
of any other person or entity relating to the operation of the Company.
(d) Except as set forth in Section 1.10(d) of the Company
Disclosure Schedule, no royalties, consulting or advisory fees or other payments
are payable by the Company to any other person by reason of the ownership or use
of the Intellectual Property.
1.11 QUESTIONABLE PAYMENTS. To the knowledge of the Company and Xxxx,
neither the Company, any director, officer, agent, employee nor any other person
associated with or acting on behalf of the Company has: (i) used any corporate
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity; (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; (iii) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended; (iv)
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets; (v) made any false or fictitious entry on the books or records of
the Company; (vi) made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment; or (vii) made any bribe, kickback or other payment of an
unlawful nature to any person or entity, private or public whether in money,
property, or services, to obtain favorable treatment in securing business or to
obtain special concessions, or to pay for favorable treatment for business
secured or for special concessions already obtained.
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1.12 CONSENTS AND APPROVALS. Except for the consents specified in
Section 1.12 of the Company Disclosure Schedule (the "Required Consents"), and
except as set forth in Section 1.12 of the Company Disclosure Schedule, neither
the execution and delivery by the Company of the Transaction Documents to which
the Company is or will be a party, nor the performance of the Transactions to be
performed by the Company, will require any notice, filing, consent, waiver or
approval or constitute a Default under (a) any Legal Requirement or Court Order
to which the Company is subject, (b) the Charter Documents or by-laws of the
Company or (c) any Contract, Governmental Permit or other document to which the
Company is a party, except any Contract that is not material to the Company or
its business and that may be terminated by the Company on not more than 30 days'
notice without any liability to the Company.
1.13 SUBSIDIARIES AND INVESTMENTS. The Company does not own, directly
or indirectly, any interest or investment (whether equity or debt) in any
limited liability company, corporation, partnership, business, trust, joint
venture or other legal entity.
1.14 SALES. The Company has provided the Purchaser with a schedule
showing the revenues generated by all products sold by the Company during each
calendar month commencing January 1, 1995 and the number of units of each type
of product sold by the Company on a monthly basis since January 1, 1995.
1.15 LIABILITIES. Except as specified in Section 1.15 of the Company
Disclosure Schedule, none of the assets of the Company is subject to any
Liabilities, except: (a) Liabilities under any Contracts specifically disclosed
on the Company Disclosure Schedule, (b) Liabilities under Minor Contracts and
(c) Liabilities reflected in the Last Balance Sheet or incurred in the ordinary
course of business after the Last Balance Sheet Date and reflected in the books
and records of the Company.
1.16 INSURANCE. The Company has provided the Purchaser with a summary
of all policies or binders of insurance held by or on behalf of the Company
specifying with respect to each policy the insurer, the amount of the coverage,
the type of insurance, the risks insured, the expiration date, the policy number
and any pending claims thereunder. To the knowledge of the Company and Xxxx,
there is no Default with respect to any such policy or binder, nor has there
been any failure to give any notice or present any claim under any such policy
or binder in a timely fashion or in the manner or detail required by the policy
or binder, except for any of the foregoing that would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. There is no notice
of nonrenewal or cancellation with respect to, or disallowance of any claim
under, any such policy or binder that has been received by the Company, except
for any of the foregoing that would not, individually or in the aggregate, have
a Material Adverse Effect on the Company.
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1.17 EMPLOYEE RELATIONS. Except as disclosed in Section 1.17 of the
Company Disclosure Schedule, the Company is not (a) a party to, involved in or,
to the knowledge of the Company and Xxxx, threatened by, any labor dispute or
unfair labor practice charge relating to the Company or (b) currently
negotiating any collective bargaining agreement with any employees of the
Company, and the Company has not experienced any work stoppage by any of its
employees during the three years immediately preceding the execution of this
Agreement.
1.18 WARRANTIES. All goods sold or distributed by the Company were of
merchantable quality, and, except as set forth in Section 1.18 of the Company
Disclosure Schedule, neither the Company nor Xxxx has any knowledge that the
Company has breached any express or implied warranties in connection with the
sale or distribution of such goods, except for breaches that have been resolved
without any further liability on the part of the Company and/or that,
individually and in the aggregate, would not have a Material Adverse Effect. The
Company has provided the Purchaser with a description of the Company's
warranties applicable to any goods that have been sold or distributed by the
Company.
1.19 CUSTOMERS, DISTRIBUTORS AND SUPPLIERS. The Company uses
commercially reasonable efforts to maintain, and currently maintains, good
working relationships with its customers, distributors and suppliers. Section
1.19 of the Company Disclosure Schedule lists any Contracts (excluding Minor
Contracts) relating to the operation of the Company with customers or
distributors or former customers or distributors of the Company that have been
terminated or canceled during the two-year period prior to the date hereof.
Section 1.19 of the Company Disclosure Schedule also contains a list of the
names of each of the Major Customers and Major Distributors of the Company.
Except as disclosed in Section 1.19 of the Company Disclosure Schedule, none of
such Major Customers or Major Distributors has given the Company notice
terminating, canceling or threatening to terminate or cancel any Contract or
relationship with the Company, and none of such customers or distributors is, or
has been during the two-year period immediately preceding the execution of this
Agreement, a related party to the Company. Section 1.19 of the Company
Disclosure Schedule also contains a list of the names of the Major Suppliers of
components of and materials used in the manufacture of the products of the
Company. None of such Major Suppliers has given the Company written notice, or
to the knowledge of the Company or Xxxx, any other notice, terminating,
canceling or threatening to terminate or cancel any Contract or relationship
with the Company.
1.20 FINDER'S FEES. No Person retained by the Company is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
1.21 TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth in Section
1.21 of the Company Disclosure Schedule, no officer or director of the Company
or any of its Affiliates, no employee of the Company or any of its Affiliates
and, to the knowledge of the Company and Xxxx, no member of any such person's
immediate
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family is presently a party to any material transaction with the Company or any
of its Affiliates relating to the businesses of the Company or any of its
Affiliates, including, without limitation, any contract, agreement or other
arrangement (a) providing for the furnishing of services by, (b) providing for
the rental of real or personal property from or (c) otherwise requiring payments
to (other than for services as officers, directors or employees of the Company
or its Affiliates) any such person or corporation, partnership, trust or other
entity in which any such person has a substantial interest as a stockholder,
officer, director, trustee or partner.
1.22 YEAR 2000 COMPLIANCE.
(a) Except as set forth in Section 1.22 of the Company
Disclosure Schedule, none of the personal property, equipment or assets owned or
utilized by the Company, including but not limited to computer software,
databases, hardware, controls and peripherals, has characteristics or qualities
that may cause such items to fail in any material respect to (i) operate and
produce data on and after January 1, 2000 (including taking into account that
such year is a leap year) or use data based on time periods on and after January
1, 2000 (including taking into effect that such year is a leap year) accurately
and without delay, interruption or error relating to the fact that the time at
which and the date on which such items are operating is on or after 12:00 a.m.
on January 1, 2000 (including taking into account that such year is a leap year)
and/or (ii) accept, calculate, process, maintain, store and output accurately
and without delay, interruption or error, all times or dates or both, whether
before, on or after 12:00 a.m. January 1, 2000 (including taking into account
that such year is a leap year) and any time periods determined or to be
determined based on such times or date or both ("Year 2000 Defects"), except
where any such failure would not have a Material Adverse Effect.
(b) Except as set forth in Section 1.22 of the Company
Disclosure Schedule, none of the property or assets owned or utilized by the
Company will fail to perform in any material respect or require any material
repair, rewrite, conversion or other adaptation because of, or due in any way
to, any Year 2000 Defect, except where any such failure would not have a
Material Adverse Effect.
(c) No products sold by the Company contain any Year 2000
Defects, except where any such failure would not have a Material Adverse Effect.
(d) The Company has no obligations under warranty agreements,
service agreements or otherwise to rectify any Year 2000 Defect of any customer
of the Company or to indemnify any customer of the Company in the event that the
Company experiences a Year 2000 Defect, except those arising under the Company's
general warranty policy. Neither the Company nor Xxxx has any knowledge that any
of the Company's distributors, vendors or suppliers may experience a Year 2000
Defect that would have a Material Adverse Effect.
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1.23 ACCURACY OF INFORMATION. No representation or warranty by the
Company or Xxxx in any Transaction Document, and no information contained
therein, is false or misleading in any material respect, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not misleading.
II. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.
Each of the Stockholders severally represents and warrants to the
Purchaser and to the other Stockholders with respect to himself and the shares
of Company Common Stock set forth opposite the name of such Stockholder on
Schedule I as follows:
2.01 AUTHORIZATION. Such Stockholder has the requisite power and
authority to execute and deliver the Transaction Documents to which such
Stockholder is or will be a party and to perform the Transactions to be
performed by such Stockholder. The Transaction Documents executed by such
Stockholder on or before the date hereof constitute, and the Transaction
Documents to be executed after the date hereof will constitute, valid and
binding obligations of such Stockholder, enforceable against such Stockholder in
accordance with their respective terms, except as such enforceability may be
limited by general equitable principles and by bankruptcy, moratorium,
insolvency, fraudulent conveyance or similar laws.
2.02 OWNERSHIP OF COMPANY COMMON STOCK AND RELATED MATTERS. Such
Stockholder is the owner of record and the sole beneficial owner of all shares
of Company Common Stock set forth opposite the name of such Stockholder on
Schedule I hereto and has good and marketable title to such shares, free and
clear of all Encumbrances. No Person has any right or option to purchase or
acquire such shares of Company Common Stock owned by such Stockholder, except as
provided for in this Agreement.
2.03 S CORPORATION STATUS. No action has been taken by such
Stockholder, or to the knowledge of such Stockholder by any other Stockholder,
that may result in the revocation of any Subchapter S election made by the
Company referred to in Section 1.05(j).
2.04 CONSENTS AND APPROVALS. Neither the execution and delivery by such
Stockholder of the Transaction Documents to which such Stockholder is or will be
a party, nor the performance of the Transactions to be performed by such
Stockholder, will require any filing, notice, consent, waiver or approval or
constitute a Default under (a) any Legal Requirement or Court Order to which
such Stockholder is subject, or (b) any Contract, Governmental Permit or other
document to which such Stockholder is a party.
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III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants to the Company and the
Stockholders as follows:
3.01 ORGANIZATION AND QUALIFICATION. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to carry
on its business as it is now being conducted, to own the shares of Company
Common Stock and carry on the business of the Company as currently operated and
to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The Company is qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in which the
Company is required to be so qualified, except where the failure to so qualify
would not have a Material Adverse Effect.
3.02 AUTHORITY. The Purchaser has the requisite power and authority to
execute and deliver the Transaction Documents to which it is or will be a party
and to perform the Transactions to be performed by it. Such execution, delivery
and performance by the Purchaser has been duly authorized by all necessary
corporate action. The Transaction Documents executed on or before the date
hereof constitute, and the Transaction Documents to be executed after the date
hereof will constitute, valid and binding obligations of the Purchaser,
enforceable against it in accordance with their terms, except as such
enforceability may be limited by general equitable principles and by bankruptcy,
moratorium, insolvency, fraudulent conveyance or similar laws. Copies of the
Certificate of Incorporation and the Bylaws, each as amended, of the Purchaser
(collectively, the "Purchaser Charter Documents") have been made available to
the Company. The Purchaser is not in violation of any Purchaser Charter
Documents.
3.03 CONSENTS AND APPROVALS. Neither the execution and delivery by the
Purchaser of the Transaction Documents to which the Purchaser is or will be a
party, nor the performance of the Transactions to be performed by the Purchaser,
will require any notice, filing, consent, waiver or approval or constitute a
Default under (a) any Legal Requirement or Court Order to which the Purchaser is
subject, (b) the Charter Documents or by-laws of the Purchaser or (c) any
Contract, Governmental Permit or other document to which the Purchaser is a
party.
3.04 SEC DOCUMENTS.
(a) The Purchaser has filed all forms, reports and documents
required to be filed by it with the Securities and Exchange Commission (the
"SEC") since June 30, 1997 (collectively, the "Purchaser Reports"). As of their
respective dates, the Purchaser Reports, and any such reports, forms and other
documents filed by the Purchaser with the SEC after the date of this Agreement:
(i) complied, or will comply, as to form in all material respects with the
applicable requirements of the Securities
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Act, the Exchange Act, and the rules and regulations thereunder and (ii) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
The representation in clause (ii) of the preceding sentence shall not apply to
any misstatement or omission in any Purchaser Report filed prior to the date of
this Agreement that was superseded by a subsequent Purchaser Report filed prior
to the date of this Agreement that specifically corrected such misstatement or
omission in the applicable Purchaser Report.
(b) Each of the consolidated balance sheets included in or
incorporated by reference into the Purchaser Reports (including the related
notes and schedules) fairly presents the consolidated financial position of the
Purchaser and its subsidiaries as of its date, and each of the consolidated
statements of income, retained earnings and cash flows included in or
incorporated by reference into the Purchaser Reports (including any related
notes and schedules) fairly presents the results of operations, retained
earnings or cash flows, as the case may be, of the Purchaser and its
subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments that would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein.
3.05 INVESTMENT INTENT. The Purchaser is purchasing the shares of
Company Common Stock being purchased hereunder for the Purchaser's own account
and not with a view to the distribution of such shares within the meaning of
Section 2(11) of the Securities Act. The Purchaser is an "accredited investor"
as defined in Regulation D under the Securities Act.
3.06 REPRESENTATIONS OF THE COMPANY AND THE STOCKHOLDERS. The Purchaser
is not relying on any representations or warranties of the Company or any
Stockholder, except for the representations and warranties set forth herein and
in the other Transaction Documents.
3.07 FINDER'S FEES. No Person retained by the Purchaser is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
IV. PURCHASE AND SALE OF THE COMPANY COMMON STOCK.
4.01 TERMS OF THE PURCHASE AND SALE. On the basis of the
representations, warranties, covenants, and agreements contained in this
Agreement and subject to the terms and conditions of this Agreement:
(a) Each Stockholder agrees to sell, assign, transfer and
convey to the Purchaser at the Closing all of the shares of Company Common Stock
set forth
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opposite the name of the respective Stockholder on Schedule I hereto. Each Stock
holder shall deliver to the Purchaser at the Closing certificates representing
the shares of Company Common Stock owned by such Stockholder, duly endorsed in
blank or accompanied by stock powers duly endorsed in blank, in each case in
proper form for transfer, with all stock transfer and any other required
documentary stamps affixed thereto.
(b) In consideration for the purchase of the shares of Company
Common Stock referred to in Section 4.01(a), the Purchaser agrees to pay to the
Stockholders the aggregate amount of $12,050,000, of which (i) $11,050,000 shall
be paid to the Stockholders at the Closing, by certified or bank check or wire
transfer, in accordance with the respective percentages of share ownership set
forth opposite their names on Schedule I and (ii) $1,000,000 shall be placed in
escrow as described in Section 4.04 hereof. The purchase price shall be subject
to adjustment in accordance with Section 4.03 hereof.
4.02 THE CLOSING. The closing of the transactions contemplated by
Sections 4.01(a) and 4.01(b)(i) shall take place at the offices of Duane, Morris
& Heckscher LLP, 0000 Xxx Xxxxxxx Xxxxx, Xxxxxxxxxxxx, XX 00000-0000, at 10:00
a.m., local time, on the third business day after the date the conditions in
Articles V and VI have been satisfied. The closing may occur at such different
place, such different time or such different date as the Purchaser, the Company
and the Representative agree in writing. The closing of the transactions
contemplated by Section 4.02 is herein called the "Closing," and the date of the
Closing is herein called the "Closing Date."
4.03 PURCHASE PRICE ADJUSTMENT.
(a) At the Closing, the Company shall deliver to the Purchaser
a calculation of the Tangible Net Worth of the Company as of the Closing, which
calculation shall be reasonably acceptable to the Purchaser. If the Tangible Net
Worth of the Company as shown in such calculation shall exceed $1,000,000, the
Purchaser shall thereupon deliver to the Representative on behalf of the
Stockholders a promissory note in the form of Exhibit E hereto (the "Note") in
the principal amount equal to the amount by which the Tangible Net Worth of the
Company exceeds $1,000,000, which Note shall be payable in full within five days
after the Reconciliation Date. All obligations under the Note shall thereupon be
assigned to and assumed by the Company, and the Purchaser shall remain obligated
thereunder. Promptly after the Closing Date, the Company shall cause Ernst &
Young LLP to prepare an unaudited balance sheet (the "Closing Balance Sheet")
for the Company as of the close of business on the Closing Date. The Closing
Balance Sheet shall be prepared in accordance with GAAP consistently applied. If
the Tangible Net Worth of the Company, as shown on the Closing Balance Sheet,
shall differ from the calculation of the Company's Tangible Net Worth made on
the Closing Date, the principal amount of the Note shall be increased or
decreased accordingly, so that the principal amount of the Note, as so adjusted,
reflects the amount by which the Tangible Net Worth of the Company
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as shown on the Closing Balance Sheet exceeds $1,000,000. If the Tangible Net
Worth as calculated on the Closing Date shall not have exceeded $1,000,000, as a
result of which no Note was issued on the Closing Date, but the Tangible Net
Worth shown on the Closing Balance Sheet exceeds $1,000,000, a Note in the
principal amount of such excess shall be issued by the Purchaser and assigned to
and assumed by the Company, and the Purchaser shall remain obligated thereunder.
(b) The Tangible Net Worth of the Company as of the Closing
Date shall be recalculated as of the close of business on the 120th day after
the Closing Date (the "Reconciliation Date") by reference to the Closing Balance
Sheet but by decreasing the amount of the accounts receivable shown thereon by
the amount of those accounts receivable shown on the Closing Balance Sheet that
have not been collected by the close of business on the Reconciliation Date (the
"Delinquent Accounts Receivable"). The principal amount of the Note shall be
decreased by the amount by which the Tangible Net Worth of the Company, as
calculated pursuant to this Section 4.03(b), shall be less than the Tangible Net
Worth shown on the Closing Balance Sheet. If the Tangible Net Worth as so
calculated on the Reconciliation Date shall be less than $1,000,000, the
deficiency shall be paid to the Purchaser from the escrow referred to in Section
4.04 hereof within five days after the Reconciliation Date.
(c) In the event that the amount of the Delinquent Accounts
Receivable exceeds $1,000 in the aggregate, the Representative may elect to have
the Delinquent Accounts Receivable transferred to him as agent for the
Stockholders by giving the Purchaser written notice of such election within five
days after the Reconciliation Date. Upon such election, the Purchaser shall
cause the Company to transfer the Delinquent Accounts Receivable to the
Representative as agent for the Stockholders provided that the Representative
agrees, in writing in form and substance reasonably satisfactory to the
Purchaser, that the Company shall continue to receive any payments made on such
Delinquent Accounts Receivable in trust for the Stockholders and shall remit
such payments to the Representative net of collection and processing costs. If
any payments with respect to accounts receivable are received by the Company
from customers indebted to the Company on account of the Delinquent Accounts
Receivable, such payments shall be applied first to the Delinquent Accounts
Receivable in order of their aging, with the oldest account receivable to be
paid first and the most recent account receivable to be paid last.
4.04 ESCROW. At the Closing, the Purchaser shall pay a portion of the
purchase price equal to $1,000,000 into escrow pursuant to the provisions of an
Escrow Agreement (the "Escrow Agreement") among the Purchaser, the Company, the
Stockholders and Chase Manhattan Trust Company, National Association, as escrow
agent, which Escrow Agreement shall be in substantially the form attached hereto
as Exhibit A and shall provide, inter alia, that (i) such funds be placed in an
interest-bearing account (the "Escrow") and the interest shall be earned by the
recipient(s) of the funds; provided, however, that no interest shall be
distributed until funds are released from the Escrow as provided therein, (ii)
the funds in the Escrow shall and
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may only be used to satisfy such indemnification obligations of Xxxx and the
Stockholders to the Purchaser hereunder, (iii) the portion of the Escrow not
used to satisfy such indemnification obligations shall be released to the
Representative on behalf of the Stockholders upon the termination of the Escrow
on the later of (A) the second anniversary of the Closing Date and (B) the
resolution of any dispute regarding the Escrow for which notice pursuant to the
terms of the Escrow Agreement has been given prior to the second anniversary of
the Closing Date; provided, however, that if the Damages reasonably foreseeably
arising from all such disputes that remain unresolved as of the second
anniversary of the Closing Date shall in the aggregate amount to less than the
amount in escrow, the amount in excess shall be released to the Representative
on behalf of the Stockholders as provided above and as more specifically
provided in the Escrow Agreement.
V. CONDITIONS TO OBLIGATIONS OF THE PURCHASER.
The obligations of the Purchaser under this Agreement are subject, at
the option of the Purchaser, to the following conditions:
5.01 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS. All
representations and warranties of the Company and each Stockholder contained in
this Agreement shall be accurate in all material respects when made and, in
addition, unless the context otherwise requires, shall be accurate as of the
Closing as though such representations and warranties were then made in exactly
the same language by the Company and each respective Stockholder. As of the
Closing, the Company and each of the Stockholders shall have performed and
complied in all material respects with all covenants and agreements and
satisfied all conditions required by this Agreement and the other Transaction
Documents to be performed and complied with by any of them at or before such
time, all of the Transaction Documents shall have been duly authorized, executed
and delivered by the parties thereto and, upon execution thereof by the
Purchaser, shall be in full force and effect, and the Purchaser shall have
received certificates executed by the chief executive officer of the Company and
by the Representative on behalf of each Stockholder, dated the Closing Date, to
those effects, in form and substance reasonably satisfactory to the Purchaser.
5.02 OPINIONS OF COUNSEL. The Company and the Stockholders shall have
delivered to the Purchaser on the Closing Date the opinion of Xxxxxxx Xxxxx
Xxxxxxxxxx & Xxxxx, counsel to the Company and Xxxx, and Xxxxxxxx, Xxxxx & Xxxx,
counsel to the Stockholders other than Xxxx, each dated as of such date, in form
and substance satisfactory to counsel for the Purchaser.
5.03 OTHER CLOSING DOCUMENTS. The Stockholders shall have delivered to
the Purchaser at or prior to the Closing such other documents (including
certificates of the secretary and other officers of the Company) as the
Purchaser may reasonably request in order to carry out the provisions of this
Agreement.
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5.04 LEGAL ACTION. There shall not have been instituted or threatened
any legal proceeding relating to, or seeking to prohibit or otherwise challenge
the consummation of, the Transactions contemplated by this Agreement and the
other Transaction Documents, or to obtain substantial damages with respect
thereto.
5.05 NO GOVERNMENTAL ACTION. There shall not have been any action
taken, or any law, rule, regulation, order or decree proposed, promulgated,
enacted, entered, enforced or applicable to the Transactions contemplated by
this Agreement and the other Transaction Documents by any Governmental Body,
including the entry of a preliminary or permanent injunction, which: (a) makes
any of the Transactions contemplated by this Agreement illegal, (b) requires the
divestiture by the Purchaser of any of the shares of the Company Common Stock to
be sold pursuant to this Agreement or of a material portion of the business of
the Purchaser or of the Company or (c) otherwise prohibits or restricts the
consummation of any of the Transactions contemplated by this Agreement.
5.06 NO CLAIMS REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. There shall
not have been made or threatened by any Person any Claim asserting that such
Person (a) is the holder or the beneficial owner of, or has the right to acquire
or to obtain beneficial ownership of, any stock of, or any other voting, equity
or ownership interest in the Company or (b) is entitled to all or any portion of
the purchase price payable to the Stockholders hereunder.
5.07 FINANCING. The financing necessary to consummate the transactions
contemplated hereby in the aggregate amount of $12,000,000 (the "Financing")
shall, at the Closing, be evidenced by duly authorized, executed and delivered
definitive agreements (the "Definitive Financing Agreements") satisfactory in
all respects to the Purchaser, the Definitive Financing Agreements at the
Closing shall be in full force, valid and binding upon the parties thereto, the
Definitive Financing Agreements shall (subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors' rights
generally) be enforceable as to the parties thereto in accordance with their
terms at the Closing, all conditions to the drawdown or receipt of funds under
the Definitive Financing Agreements shall have been satisfied or waived at the
Closing, and the Purchaser shall have received at the Closing cash in an amount
equal to the Financing.
5.08 TANGIBLE NET WORTH. The Company and the Stockholders shall have
delivered the Closing Balance Sheet to the Purchaser, and the Tangible Net Worth
of the Company as shown on the Closing Balance Sheet shall be not less than
$1,000,000.
5.09 REQUIRED CONSENTS. Each of the Required Consents shall have been
obtained and shall be in full force and effect.
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5.10 RESIGNATIONS. All directors of the Company shall have resigned at
or prior to the Closing as directors and members of all committees of the Board
of Directors in writing effective immediately after the Closing. All officers of
the Company shall have resigned at or prior to the Closing in writing effective
immediately after the Closing subject to acceptance by the Purchaser.
5.11 RELEASES. The Purchaser shall have received at or prior to the
Closing from each person who is, who before the Closing becomes, or who at any
time between that date which is one year prior to the date this Agreement is
executed and the date this Agreement is executed was, an officer or a director
of the Company a Release in the form of Exhibit B hereto, dated the date of the
Closing, in form and substance reasonably satisfactory to the Purchaser.
5.12 EMPLOYMENT AGREEMENT. The Purchaser shall have received at or
prior to the Closing from Xxxxx Xxxx an Employment Agreement in the form of
Exhibit C hereto.
VI. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS.
The obligations of the Company and the Stockholders under this
Agreement are subject, at the option of the Company and the Stockholders, to the
following conditions:
6.01 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS. All
representations and warranties of the Purchaser contained in this Agreement
shall be accurate in all material respects when made and, in addition, unless
the context otherwise requires, shall be accurate as of the Closing as though
such representations and warranties were then made in exactly the same language
by the Purchaser. As of the Closing, the Purchaser shall have performed and
complied in all material respects with all covenants and agreements and
satisfied all conditions required by this Agreement and the other Transaction
Documents to be performed and complied with by it at or before such time, all of
the Transaction Documents shall have been duly authorized, executed and
delivered by the parties thereto and, upon the execution thereof by the Company
and the Stockholders, will be in full force and effect, and the Company and the
Representative shall have received a certificate executed by the chief executive
officer of the Purchaser, dated the Closing Date, to those effects, in form and
substance reasonably satisfactory to the Company and the Representative on
behalf of the Stockholders.
6.02 NO INJUNCTION; LEGAL ACTION. There shall not be in effect any
Legal Requirement, Court Order or injunction that: (a) prohibits the sale of the
Company Common Stock by the Stockholders or any of them, (b) makes any of the
Transactions contemplated by the Agreement illegal, or (c) otherwise prohibits
the consummation of any of the Transactions contemplated by this Agreement.
There shall not have been instituted any legal proceeding seeking to prohibit or
otherwise challenge the consummation
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of the Transactions contemplated by this Agreement, which state colorable claims
and which reasonably seek substantial damages with respect thereto.
6.03 EMPLOYMENT AGREEMENT. The Purchaser shall have entered into an
Employment Agreement with Xxxx in the form of Exhibit C hereto.
6.04 STOCK OPTION AGREEMENT. The Purchaser shall have entered into
stock option agreements with Xxxxx Xxxx, Xxxxx Xxxx, Xxx Xxxx and Xxxxx Xxxx,
providing for the grant of options (the "Options") exercisable for the purchase
of 90,000 shares, 85,000 shares, 80,000 shares and 75,000 shares, respectively,
of the Purchaser's Common Stock at an exercise price equal to the closing price
of the Purchaser's Common Stock on the Nasdaq Stock Market on the Closing Date.
6.05 SECRETARY'S CERTIFICATE. The Purchaser shall have delivered to the
Company at or prior to the Closing a certificate of the secretary or assistant
secretary of the Company certifying the resolutions of the Board of Directors
approving the Transactions.
6.06 CONSENT. PNC Bank N.A. shall have consented to the assumption and
payment by the Company of the Note to be issued pursuant to Section 4.03 hereof
and to the transfer to the Stockholders of the Delinquent Accounts Receivable,
if any, pursuant to Section 4.03(c) hereof.
VII. COVENANTS AND AGREEMENTS OF THE COMPANY AND THE STOCKHOLDERS.
The Company and the Stockholders covenant and agree as follows:
7.01 ACCESS. Until the earlier of the Closing and the termination of
this Agreement pursuant to Article IX or otherwise (the "Release Time"), the
Company will afford, upon reasonable notice during normal business hours, and
Xxxx will cause the Company to afford, the officers, employees, counsel, agents,
investment bankers, accountants and other representatives of the Purchaser and
lenders, investors and prospective lenders and investors free and full access to
the plants, properties, books and records of the Company, will permit them to
make extracts from and copies of such books and records and will from time to
time furnish the Purchaser with such additional financial and operating data and
other information as to the financial condition, results of operations,
businesses, properties, assets, liabilities or future prospects of the Company
as the Purchaser from time to time may reasonably request, subject to the terms
of the Confidentiality Agreement. Until the Release Time, the Company and Xxxx
will use all reasonable efforts to cause the independent certified public
accountants of the Company to make available to the Purchaser and its
independent certified public accountants the work papers relating to the audits
of the Company referred to in Section 1.04.
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7.02 CONDUCT OF BUSINESS. Except as otherwise requested by the
Purchaser in writing, until the Release Time, the Company will, consistent with
past practice, use all reasonable efforts to preserve the business operations of
the Company intact, to keep available the services of the Company's present
personnel, to preserve in full force and effect the Contracts, agreements,
instruments, leases, Governmental Permits, arrangements and understandings of
the Company, and to preserve the good will of the Company's suppliers,
customers, employees and others having business relations with the Company.
Until the Release Time, the Company will conduct its business and operations in
all respects only in the ordinary course consistent with past practices.
7.03 ADVICE OF CHANGES. Until the Release Time, the Company and Xxxx
will promptly advise the Purchaser in a written notice of any fact or occurrence
or any pending or threatened occurrence of which any of them obtains knowledge
and which (if existing and known at the date of the execution of this Agreement)
would have been required to be set forth or disclosed in or pursuant to this
Agreement or any of the Transaction Documents that (if existing and known at any
time prior to or at the Closing) would make the performance by any party of a
covenant contained in this Agreement impossible or make such performance
materially more difficult than in the absence of such fact or occurrence, or
which (if existing and known at the time of the Closing) would cause a condition
to any party's obligations under this Agreement not to be fully satisfied.
7.04 CONFIDENTIALITY. The Company and Xxxx shall take appropriate
measures, consistent with past practices, to ensure that all Confidential
Information of the Company shall not be published, disclosed or made accessible
by any of them to any other person or entity at any time or used by any of them
except in the business and for the benefit of the Company.
7.05 PUBLIC STATEMENTS. Before the Purchaser, the Company or Xxxx shall
release any information concerning this Agreement or any of the Transaction
Documents or the transactions contemplated by this Agreement that is intended
for or may result in public dissemination thereof, they shall cooperate with
each other, shall furnish drafts of all documents or proposed oral statements to
each other for comments, and shall not release any such information without the
written consent of the other, except to the extent that the other party may be
obligated to do so under law. Nothing contained herein shall prevent any party
from releasing any information to any Governmental Body if required to do so by
law.
7.06 OTHER PROPOSALS. Until the Release Time, the Company and the
Stockholders shall not, and shall not authorize or permit any officer, director,
employee, counsel, agent, investment banker, accountant, or other representative
of any of them, to: (a) initiate contact with any person or entity in an effort
to solicit any Takeover Proposal (as hereinafter defined); (b) cooperate with,
or furnish or cause to be furnished any non-public information concerning the
business, properties, or assets
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of the Company to, any person or entity in connection with any Takeover
Proposal; (c) negotiate with any person or entity with respect to any Takeover
Proposal; or (d) enter into any agreement or understanding with the intent to
effect a Takeover Proposal. The Company and Xxxx will promptly give written
notice to the Purchaser of the details of any Takeover Proposal of which either
of them becomes aware.
7.07 CONSENTS WITHOUT ANY CONDITION. Neither the Company nor Xxxx shall
make any agreement or reach any understanding that could have a Material Adverse
Effect on the Company or the Purchaser as a condition for obtaining any consent,
authorization, approval, order, certificate or Governmental Permit required for
the consummation of the Transactions contemplated by this Agreement, unless such
agreement or understanding is approved in writing by the Purchaser, which
approval shall not be unreasonably withheld or delayed.
7.08 RELEASE BY THE STOCKHOLDERS. If the Closing takes place, effective
upon the Closing, each Stockholder fully and unconditionally releases and
discharges all claims and causes of action which such Stockholder or such
Stockholder's heirs, personal representatives, successors or assigns ever had,
now have, or hereafter may have, which arose on or prior to the Closing Date,
against the Purchaser, the Company, and, when acting as such, their respective
officers, directors, employees, counsel, agents and stockholders, in each case
past, present, or as they may exist at any time after the date of this
Agreement, and each person, if any, who controls, controlled, or will control
any of them within the meaning of Section 15 of the Securities Act or Section
20(a) of the Securities Exchange Act of 1934, except claims and causes of action
arising out of, based upon, or in connection with this Agreement or any of the
other Transaction Documents.
7.09 NONCOMPETITION. If the Closing takes place, Xxxx agrees, in
consideration of the obligations of the Purchaser hereunder: (a) for a period of
five years after the date of the Closing, he will not (i) compete with or be
engaged in the same business as, or Participate In (as hereinafter defined) any
other business or organization which at any time during the five-year period
after the date of the Closing competes with or is engaged in the same business
as, the Company, with respect to any product or service sold or activity engaged
in up to the time of the Closing in any geographical area in which at the time
of the Closing such product or service is sold or activity engaged in or (ii)
Participate In any other business or organization that at any time during the
five-year period after the date of the Closing uses a name containing either the
word "Sonomed" or words similar to or susceptible of confusion with the word
"Sonomed" or any combination or abbreviation thereof; (b) for a period of five
years after the date of the Closing, he will not directly or indirectly reveal
the name of, solicit or interfere with, or endeavor to entice away from the
Company or the Purchaser any of their respective suppliers, customers or
employees; and (c) for a period of five years after the date of the Closing, he
will not directly or indirectly employ any person who, at any time up to the
date of the Closing, was an employee of the Company or the Purchaser within a
period of one year after such person leaves
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the employ of such corporation. Xxxx agrees that the provisions of this Section
7.09 are necessary and reasonable to protect the Company and the Purchaser in
the conduct of their businesses. If any restriction contained in this Section
7.09 shall be deemed to be invalid, illegal or unenforceable by reason of the
extent, duration, or geographical scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof, and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby. Nothing
set forth in this Section 7.09 shall prohibit activities engaged in or services
performed for the Company.
7.10 VOTING BY THE STOCKHOLDERS. Each Stockholder agrees that until the
Release Time, such Stockholder will vote all securities of the Company which he
is entitled to vote against (a) any merger, consolidation, reorganization, other
business combination, or recapitalization involving the Company, (b) any sale of
assets of the Company outside the ordinary course of business, (c) any stock
split, stock dividend, or reverse stock split relating to any class or series of
the Company's capital stock, (d) any issuance of any shares of capital stock of
the Company, any option, warrant or other right calling for the issuance of any
such share of capital stock, or any security convertible into or exchangeable
for any such share of capital stock, (e) any authorization of any other class or
series of stock of the Company, or (f) the amendment of the Charter Documents
or the by-laws of the Company.
7.11 CODE SECTION 338(H)(10) ELECTION. Each Stockholder severally
represents and warrants that such Stockholder is qualified to make a Code
Section 338(h)(10) election under regulations section 1.338(h)(10)-l with
respect to the sale of the Company Common Stock to the Purchaser pursuant to
this Agreement, and agree to join the Purchaser in making an election under
Section 338(h)(10) of the Code and, at the sole discretion of the Purchaser, one
or more similar elections under any applicable state income tax law
(individually, a "Section 338(h)(10) Election" and collectively, the "Section
338(h)(10) Elections"), with respect to the Purchaser's acquisition of the
shares of Company Common Stock. The Purchaser shall prepare Internal Revenue
Service Form 8023 (and any required attachments) and any similar state forms
(and any required attachments) that may be required to make the Section
338(h)(10) Elections (collectively, the "Forms") and shall submit the Forms to
the Stockholders no later than 60 days prior to the date the Forms are required
to be filed. The Stockholders agree to provide the necessary information to the
Purchaser in connection with the preparation of the Forms promptly upon the
Purchaser's request. At the Closing, the Representative on behalf of the
Stockholders and the Purchaser will mutually agree upon an allocation of the
modified aggregate deemed sales price (as such term is defined in regulations
promulgated under Code Section 338) among the Company's assets (the
"Allocation") in accordance with Exhibit D hereto. The Stockholders shall
deliver to the Purchaser the Forms, which shall have been duly executed by the
Stockholders or their authorized representatives no later than 30 days prior to
the date the Forms are required to be filed. The Purchaser shall then promptly
cause the Forms to be duly executed and shall file the Forms in accordance
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with applicable Tax laws. The Stockholders and the Purchaser shall take or cause
to be taken any other actions that are reasonably necessary for making or
perfecting the Section 338(h)(10) Elections. The Purchaser shall provide the
Representative with a copy of the Forms as filed. With respect to each Section
338(h)(10) Election, the Stockholders shall treat the Section 338(h)(10)
Election as valid and shall not take any action inconsistent with such
treatment, except to the extent otherwise provided under applicable Tax law. The
Purchaser shall indemnify and reimburse the Stock holders with respect to the
excess of (i) the total amount of federal, state and local Taxes that such
Stockholders, and the Company solely if and to the extent any such Taxes paid by
the Company are suffered economically by the Stockholders, shall be required to
pay, and shall have paid, as a result of the Section 338(h)(10) Elections
determined in accordance with the Allocation over (ii) the total amount of
federal, state and local Taxes that would otherwise result and be required to be
paid by such Stockholders if the Section 338(h)(10) Elections were not made (the
"Excess Amount"). The Representative shall prepare and submit to Purchaser, for
its review, a statement showing in detail the calculation of the Excess Amount.
If the Purchaser agrees with the calculation of the Excess Amount, the Purchaser
shall pay the Excess Amount to the Representative, who shall then distribute
such amount to the Stockholders in accordance with their respective percentages
set forth on Schedule I hereto. In the event of a disagreement between the
Representative and the Purchaser as to the calculation of the Excess Amount, the
parties shall act in good faith in resolving such dispute.
7.12 COMPANY TAX RETURNS.
(a) The Representative, on behalf of the Stockholders, shall
cause to be prepared and timely filed all Returns required to be filed by or on
behalf of the Company for taxable periods ending on or before the Closing Date.
Such returns will be prepared in a manner consistent with past practice, it
being understood that the income tax returns of the Company for the period
ending on the Closing Date shall reflect, where appropriate, the Allocation and
the Section 338(h)(10) Elections to be made pursuant to Section 7.11 hereof. The
Stockholders shall deliver the originals of those returns to the Purchaser for
its review and approval (which shall not be unreasonably withheld). The
Purchaser shall cause each of the returns to be signed by an appropriate officer
of the Company and shall then cause the signed returns to be returned to the
Representative within an appropriate amount of time so as to permit the timely
filing of such returns by the Representative on behalf of the Stockholders. The
Stockholders shall be responsible for the payment of any Taxes due with respect
to such returns, subject to Section 7.11 hereof.
(b) The Purchaser shall cause to be prepared and timely filed
all Returns required to be filed by or with respect to the Company for all
taxable periods ending after the Closing Date and shall be responsible for the
payment of any Taxes due with respect to returns that begin and end after the
Closing Date. With respect to any periods that begin on or before and end after
the Closing Date, the Stockholders
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will be responsible for the payment of any Taxes due that relate to the portion
of the taxable period up to and including the Closing Date and the Purchaser
will be responsible for the payment of any Taxes due that relate to the portion
of the taxable period after the Closing Date. For purposes of the preceding
sentence, Taxes will be apportioned in accordance with Section 7.12(c) hereof.
(c)(1) All Tax Returns of the Company described in Section
7.12(a) and (b) hereof shall be prepared and, where applicable, filed on the
basis of a taxable period ending at the Closing Date, unless clearly otherwise
required by applicable Tax law.
(2) Any Taxes for any such period that are measured or
measurable in whole or in part by reference to net or gross income or receipts,
capital expenses, or compensation expenses shall be allocated based on the net
or gross income or receipts, capital expenses, or compensation expenses actually
earned or incurred for the portion of such period before and including, and
after, the Closing Date, respectively, as determined from the books and records
of the Company, as if a taxable period ended on the Closing Date, so that (I)
the portion of such Taxes so allocable to the portion of any such period from
the beginning of such period up to and including the Closing Date shall be for
the account of the Stockholders and (II) the portion of such Taxes so allocable
to the portion of such period after the Closing Date to the end of such period
shall be for the account of the Purchaser.
(d) The Stockholders, on the one hand, and the Purchaser, on
the other hand, shall provide reasonable cooperation to each other in connection
with (i) the preparation of and filing of any Return, Tax election, Tax consent
or certification, or any claim for refund, (ii) any determination of liability
for Taxes, and (iii) any audit, examination or other proceeding in respect of
(A) Taxes of the Company or (B) Taxes of the Stockholders resulting from the
Subchapter S status of the Company. The parties will preserve all information,
records or documents relating to the liability for Taxes of the Company or of a
Stockholder (provided, however, as to a Stockholder, such information, records
or documents relate, in whole or in part, to the Company) until the expiration
of any applicable statute of limitations or extensions thereof.
7.13 MAINTENANCE OF TANGIBLE NET WORTH. At all times from and after the
date of this Agreement through the Closing Date, the Company shall maintain a
Tangible Net Worth of not less than $1,500,000.
7.14 INVENTORY VALUE ADJUSTMENT. Promptly after the completion of the
observation of the Company's inventory by Ernst & Young LLP, the Company, Xxxx
and the Purchaser shall mutually agree on a value of the inventory as of the
Closing Date and such amount shall be reflected on the Closing Balance Sheet as
prepared in accordance with Section 4.03(a) of this Agreement.
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7.15 REASONABLE EFFORTS. Between the date of this Agreement and the
Closing Date, the Company and each of the Stockholders shall use all reasonable
efforts to cause the conditions in Articles V and VI hereof to be satisfied.
VIII. COVENANTS AND AGREEMENTS OF THE PURCHASER.
The Purchaser covenants and agrees as follows:
8.01 FINANCING. The Purchaser will use all reasonable efforts to
promptly obtain the Financing. The Purchaser shall promptly notify the Company
and the Representative of any fact or occurrence that leads the Purchaser to
believe that it will be unable to obtain the Financing.
8.02 EMPLOYEE MATTERS. The Purchaser agrees that it shall offer
employment to those employees of the Company who are employed as of the Closing
Date at the same compensation and comparable benefits.
8.03 REASONABLE EFFORTS. Between the date of this Agreement and the
Closing Date, the Purchaser will use all reasonable efforts to cause the
conditions in Article VI hereof to be satisfied.
8.04 REGISTRATION UNDER THE SECURITIES ACT OF 1933. Promptly following
the Closing Date, the Purchaser shall cause the shares of Common Stock of the
Purchaser purchasable upon exercise of the Options to be registered under the
Securities Act of 1933 (the "Securities Act") and shall use its best efforts to
ensure that such registration remains valid and effective under the Securities
Act at least until all of the Options have been exercised.
IX. TERMINATION.
9.01 TERMINATION EVENTS. This Agreement may, by notice given prior to
or at the Closing, be terminated:
(a) by either the Purchaser, the Company or the Representative
on behalf of the Stockholders upon written notice if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived or cured within five business days after receipt of
notice of such Breach, which notice shall specify the nature of the Breach;
(b) by (i) the Purchaser if any of the conditions in Article V
has not been satisfied by January 15, 2000; or (ii) the Company or the
Representative on behalf of the Stockholders, if any of the conditions in
Article VI or the condition in Section 5.07 hereof has not been satisfied by
January 15, 2000; or
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(c) by mutual consent of the Purchaser, the Company and the
Representative on behalf of the Stockholders at any time.
9.02 EFFECT OF TERMINATION. Each party's right of termination under
Section 9.01 is in addition to any other rights such party may have under this
Agreement or otherwise, and the exercise of a right of termination shall not be
an election of remedies. If this Agreement is terminated pursuant to Section
9.01, all further obligations of the parties under this Agreement shall
terminate, except that the obligations in Section 11.06 shall survive; provided,
however, that if this Agreement is terminated by a party because of the Breach
of the Agreement by the other party or because one or more of the conditions to
the terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies shall
survive such termination unimpaired.
X. INDEMNIFICATION; REMEDIES.
10.01 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE. All
representations and warranties in this Agreement, the Transaction Documents, the
Company Disclosure Schedule and any other certificate or document delivered
pursuant to this Agreement shall survive the Closing for a period of two years,
except that (a) the representations and warranties set forth in Sections 1.03,
1.07(a) and 2.02 shall survive the Closing for an indefinite period of time and
(b) the representations and warranties set forth in Section 1.05, solely as they
relate to federal, state and local income taxes, shall survive the Closing until
the expiration of the applicable statutes of limitation relating thereto,
respectively. The right to indemnification, payment of Damages or other remedy
based on such representations, warranties, covenants and obligations shall not
be affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, shall not affect the right to any
indemnification or other remedy provided for in this Agreement.
10.02 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE STOCKHOLDERS FOR
THE OBLIGATIONS OF THE COMPANY AND XXXX. Subject to Section 10.05 hereof, each
of the Stockholders shall severally indemnify and hold harmless the Purchaser,
the Company and their respective representatives, stockholders, controlling
persons and Affiliates (collectively, the "Indemnified Persons") for, and shall
pay to the Indemnified Persons the amount of, any loss, liability, claim, damage
(including incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees) or diminution of
value, whether or not involving a third party claim (collectively "Damages"),
arising, directly or indirectly, from
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or in connection with: (a) any Breach of any representation or warranty made by
the Company or Xxxx in this Agreement, any other Transaction Document, the
Company Disclosure Schedule or any other certificate or document delivered by
the Company or Xxxx pursuant to this Agreement; (b) any Breach by the Company of
any covenant or obligation of the Company in this Agreement or any other
Transaction Document; (c) any amount by which the Tangible Net Worth of the
Company calculated pursuant to Section 4.03(b) hereof shall be less than
$1,000,000; or (d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with Xxxx or the Company (or any
Person acting on behalf of either of them) in connection with any of the
Transactions.
10.03 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE STOCKHOLDERS.
Subject to Section 10.05 hereof, each of the Stockholders shall severally
indemnify and hold harmless the Indemnified Persons for, and shall pay to the
Indemnified Persons, Damages arising, directly or indirectly, from or in
connection with: (a) any Breach of any representation or warranty made by such
Stockholder in this Agreement, in any other Transaction Document or any other
certificate or document delivered by such Stockholder pursuant to this
Agreement; (b) any Breach by such Stockholder of any covenant or obligation of
such Stockholder in this Agreement or any other Transaction Documents; or (c)
any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by any such Person with such Stockholder (or any person acting on behalf of
such Stockholder) in connection with any of the Transactions.
10.04 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE PURCHASER. The
Purchaser shall indemnify and hold harmless the Stockholders, and shall pay to
the Stockholders the amount of any Damages arising, directly or indirectly, from
or in connection with: (a) any Breach of any representation or warranty made by
the Purchaser in this Agreement, any other Transaction Document or in any
certificate delivered by the Purchaser pursuant to this Agreement, (b) any
Breach by the Purchaser of any covenant or obligation of the Purchaser in this
Agreement or in any other Transaction Document, or (c) any claim by any Person
for brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by such Person with the
Purchaser (or any Person acting on its behalf) in connection with any of the
Transactions.
10.05 LIMITATIONS ON AMOUNT, TIME AND REMEDIES. Notwithstanding
anything to the contrary set forth in this Agreement or any of the other
Transaction Documents, the Stockholders shall have no liability (for
indemnification or otherwise) with respect to the matters described in clauses
(a) or (b) of Section 10.02 hereof or in clauses (a) or (b) of Section 10.03
hereof until the total of all Damages with respect to such matters exceeds
$25,000, and then only for the amount by which such Damages exceed $25,000. In
addition, except with respect to breaches of representations and warranties set
forth in Sections 1.03, 1.05 (solely as such representations and
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warranties relate to federal, state and local income taxes), 1.07(a) and 2.02,
with respect to which no limits shall apply; (a) the maximum amount of Damages
for which the Stockholders shall be obligated to indemnify the Indemnified
Persons pursuant to Section 10.02 or 10.03 hereof shall not exceed $1,000,000 in
the aggregate, (b) the Stockholders including Xxxx shall have no obligations or
liability to indemnify any of the Indemnified Persons including the Purchaser
for any Damages or Claims for which an Indemnification Notice shall not have
been delivered to the Representative on or prior to the second anniversary date
of the Closing Date, and (c) the right of any of the Indemnified Persons
including the Purchaser to indemnification pursuant to Section 10.02 or Section
10.03 or to seek the equitable remedies of rescission, injunctive relief or
specific performance shall be the sole and exclusive remedies for any Damages or
Claims arising under or in connection with this Agreement or any of the
Transaction Documents, and the sole and exclusive remedies of the Indemnified
Persons including the Purchaser in respect thereof shall be to assert a claim
and seek recovery against the Escrow in accordance with Section 4.04 and the
Escrow Agreement or to seek the equitable remedies of rescission, injunctive
relief or specific performance.
10.06 LIMITATIONS ON AMOUNT -- PURCHASER. The Purchaser shall have no
liability (for indemnification or otherwise) with respect to the matters
described in clause (a) or (b) of Section 10.04 until the total of all Damages
with respect to such matters exceeds $25,000, and then only for the amount by
which such Damages exceed $25,000; however, the limitations set forth in this
Section 10.06 shall not apply to any Breach of any of the Purchaser's
representations and warranties of which the Purchaser had knowledge at any time
prior to the date on which such representation and warranty is made or any
intentional Breach by the Purchaser of any covenant or obligation, and the
Purchaser shall be liable for all Damages with respect to such Breaches.
10.07 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under
Section 10.02, 10.03 or 10.04 of notice of the commencement of any Litigation or
other Claim against it, such indemnified party shall, if a Claim is to be made
against an indemnifying party under such section, give notice (an
"Indemnification Notice") to the indemnifying party of the commencement of such
Claim, but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnifying party's failure to give such
notice.
(b) If any Litigation or other Claim referred to in Section
10.07(a) is brought against an indemnified party and the indemnified party gives
notice to the indemnifying party of the commencement of such Litigation or
Claim, the indemnifying party shall be entitled to participate in such
Litigation or Claim and, to the extent
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that it wishes (unless (i) the indemnifying party is also a party to such
Litigation or Claim and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Litigation or Claim and provide indemnification with
respect to such Litigation or Claim), to assume the defense of such Litigation
or Claim with counsel reasonably satisfactory to the indemnified party and,
after notice from the indemnifying party to the indemnified party of its
election to assume the defense of such Litigation or Claim, the indemnifying
party will not, as long as it diligently conducts such defense, be liable to the
indemnified party under this Article X for any fees of other counsel or any
other expenses with respect to the defense of such Litigation or Claim, in each
case subsequently incurred by the indemnified party in connection with the
defense of such Litigation or Claim, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of any Litigation
or Claim, no compromise or settlement of such Claims may be effected by the
indemnifying party without the indemnified party's consent, which shall not be
unreasonably withheld. If notice is given to an indemnifying party of the
commencement of any Litigation or Claim and the indemnifying party does not,
within 15 business days after the indemnified party's notice is given, give
notice to the indemnified party of its election to assume the defense of such
Litigation or Claim, the indemnifying party will be bound by any determination
made in such Litigation or Claim or any compromise or settlement effected by the
indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that any
Litigation or Claim may adversely affect it or its Affiliates other than as a
result of monetary damages for which it would be entitled to indemnification
under this Agreement, the indemnified party may, by notice to the indemnifying
party, assume the exclusive right to defend, compromise or settle such
Litigation or Claim, but the indemnifying party will not be bound by any
determination of any Litigation or Claim so defended or any compromise or
settlement effected without its consent (which may not be unreasonably
withheld).
10.08 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a third party claim may be
asserted by notice to the party from whom indemnification is sought.
XI. MISCELLANEOUS.
11.01 FURTHER ACTIONS. At any time and from time to time, each party
agrees, at its or his expense, to furnish such information, to take such actions
and to execute and deliver such documents as any other party may reasonably
request to effectuate the purposes and intent of this Agreement.
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11.02 AVAILABILITY OF EQUITABLE REMEDIES. Because a Breach of the
provisions of this Agreement could not adequately be compensated by money
damages, any party shall be entitled, either before or after the Closing, in
addition to any other right or remedy available to it, to an injunction
restraining such Breach or a threatened Breach and to specific performance of
any such provision of this Agreement, and in either case no bond or other
security shall be required in connection therewith, and the parties hereby
consent to the issuance of such an injunction and to the ordering of specific
performance.
11.03 APPOINTMENT OF AGENT.
(a) Each Stockholder hereby irrevocably makes, constitutes and
appoints Xxxxx Xxxx as such Stockholder's agent and representative (the
"Representative") for purposes of taking all actions under this Agreement that
are necessary and/or appropriate to effectuate the transactions contemplated by
this Agreement. In the event of the death, incapacity, resignation or discharge
of Xxxxx Xxxx, the Stockholders shall promptly designate another individual or
individuals hereunder so that at all times there will be at least one
Representative with the authority provided in this Section 11.03. Such successor
Representative shall be designated by the Stockholders by an instrument in
writing signed by those Stockholders (or their successors in interest) holding
on the Closing Date a majority of the shares of Company Common Stock listed on
Schedule I (a "Majority of the Shares"), and such appointment shall become
effective as to each successor Representative when such instrument shall have
been delivered to such person and a copy thereof delivered to the Purchaser.
(b) The appointment of the Representative hereunder is
irrevocable and any action taken by the Representative pursuant to the authority
granted in this Section 11.03 shall be effective and absolutely binding on each
Stockholder notwithstanding any contrary action of or direction from a
Stockholder. The death or incapacity of any Stockholder shall not terminate the
prior authority and agency of the Representative.
(c) The Representative may resign at any time by giving notice
to the Stockholders and the Purchaser, and, if there does not exist any
previously designated successor thereto, the appointment and qualification of a
successor as provided herein. A Representative may be discharged, and replaced
by another person to act as successor, by an instrument in writing signed by the
Stockholders (or their successors in interest) holding on the Closing Date a
Majority of the Shares and delivered to the Representative and the Purchaser. In
the event of the death of the Representative, if there does not exist any
previously designated successor thereto, within five business days after the
death of the Representative, a new Representative shall be appointed by an
instrument in writing signed by Stockholders (or their successors in interest)
holding on the Closing Date a Majority of the Shares.
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(d) Each Stockholder hereby authorizes the Representative, on
behalf and in the name of such Stockholder, to take all actions necessary and/or
appropriate to effectuate the transactions contemplated by this Agreement and
the Transaction Documents including, without limitation, the following:
(i) Receive all notices or documents given or to be
given to such Stockholder by the Purchaser pursuant to this
Agreement or in connection herewith and to receive and accept
service of legal process in connection with any suit or other
proceeding arising under this Agreement. The Representative
promptly shall forward a copy of such notice or process to
each Stockholder.
(ii) Deliver to the Purchaser at the Closing the
certificates for the shares of Company Common Stock of such
Stockholder in exchange for such Stockholder's portion of the
purchase price for the purchase by the Purchaser of such
Stockholder's shares of Company Common Stock.
(iii) Deliver to the Purchaser at the Closing all
certificates and documents to be delivered to the Purchaser by
such Stockholder pursuant to this Agreement, together with any
other certificates and documents executed by such Stockholder
and deposited with the Representative for such purpose.
(iv) Execute and deliver each and every Transaction
Document on behalf of such Stockholders.
(v) Engage such legal counsel, and such accountants
and other advisors for such Stockholder and incur such other
expenses on behalf of such Stockholder in connection with
this Agreement and the transactions contemplated hereby as the
Representative may deem appropriate.
(vi) Deduct from the purchase price payable to such
Stockholder such sums as shall be necessary to satisfy any
Encumbrances that may encumber such Stockholder's shares of
Company Common Stock as of the Closing Date.
(vii) Receive and hold, and following the deduction
from the purchase price for such Stockholder's shares of
Company Common Stock of all fees and expenses incurred in
connection with the consummation of the transactions
contemplated by this Agreement, the satisfaction of any
Encumbrances that may encumber such Stockholder's shares of
Company Common Stock as of the Closing Date and the resolution
of any disputes under this Agreement and/or any claims for
contribution arising hereunder among any of the Stockholders,
the satisfaction of any liabilities or claims against the
Company or the Stockholders or the establishment of such
reserves as the Representative shall deem appropriate in
respect thereof all of which the Representative shall have the
sole and absolute right to satisfy, compromise or settle, as
the case may be, distribute to each Stockholder the pro rata
portion of the purchase price for such Stockholder's shares of
Company Common Stock to be
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paid to each of the Stockholders (following the deduction of
said fees and expenses) in accordance with the terms of this
Agreement.
(viii) Execute and deliver such amendments to this
Agreement as the Representative shall in his sole discretion
deem necessary and/or appropriate including, without
limitation, a termination of this Agreement as and when the
Representative shall, in his sole discretion, deem necessary
and/or appropriate.
(ix) To take all action necessary to comply with all
applicable laws in connection with the transactions
contemplated by this Agreement including, without limitation,
the making of such filings and/or disclosures as shall be
necessary and/or appropriate.
(x) To take any action in respect of any claim
against the Company or any of the Stockholders under Article X
of this Agreement including the payment or settlement of any
claim as the Representative shall deem appropriate.
(xi) To take such action on behalf of such
Stockholder as the Representative may deem appropriate in
respect of:
(1) Waiving any inaccuracies in the
representations and warranties of the Purchaser
contained in this Agreement or in any documents
delivered by the Purchaser pursuant hereto;
(2) Waiving the fulfillment of any of the
conditions precedent to the Stockholders' obligations
hereunder;
(3) Taking such other action as the
Representative is authorized to take under this
Agreement; and
(4) All such other matters as the
Representative may deem necessary or appropriate to
consummate this Agreement and the transactions
contemplated hereby.
(e) The appointment of the Representative to effectuate the
transactions contemplated by this Agreement is for the accommodation of the
Stockholders and the Purchaser. The duties of the Representative shall be
determined solely by the express provisions of this Agreement. The Stockholders
authorize the Representative without creating any obligation on the
Representative's part, in the event this Agreement shall become involved in
litigation, to deposit the purchase price with the clerk of the court in which
the litigation is pending and thereupon, or if there does not exist any
previously designated successor to the Representative, upon the appointment and
qualification of a successor, the Representative shall be fully relieved and
discharged of any further responsibility as Representative under this Agreement.
Each Stockholder also authorizes the Representative, if he is threatened with
litigation,
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to interplead all interested parties in any court of competent jurisdiction and
to deposit the purchase price with the clerk of the court in which the
litigation is pending and thereupon, or, if there does not exist any previously
designated successor to the Representative, upon the appointment and
qualification of a successor, the Representative shall be fully relieved and
discharged of any further responsibility as Representative under this Agreement.
(f) The Representative shall not be liable to the Stockholders
for any mistake of fact or error of judgment or any acts or omissions of any
kind unless caused by his willful misconduct or gross negligence. The
Representative shall be entitled to rely on any instrument or signature believed
by him to be genuine and may assume that any person purporting to give any
writing, notice or instrument in connection with this Agreement is duly
authorized to do so by the party on whose behalf such writing, notice or
instruction is given.
(g) The Stockholders, severally, will indemnify the
Representative for and hold him harmless against any loss, liability or expense
incurred without negligence or bad faith on the Representative's part arising
out of or in connection with the acceptance of, or the performance of his duties
under this Agreement as well as the costs and expenses of defending against any
claim or liability arising under this Agreement.
11.04 MODIFICATION. This Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof, shall supersede all
existing agreements among them concerning such subject matter, and may be
modified only by a written instrument duly executed by each party with the
approval of an officer of each corporate party (except as otherwise provided in
Section 11.03), except that, notwithstanding anything to the contrary set forth
in this Agreement, the Confidentiality Agreement between the Purchaser and the
Company shall survive the execution and delivery of this Agreement and remain in
full force and effect.
11.05 NOTICES. Subject to Section 11.03, any notice or other
communication required or permitted to be given hereunder shall be in writing
and shall be mailed by certified mail, return receipt requested or by overnight
delivery or courier service or delivered in person or by telecopy against
receipt to the party to whom it is to be given at the address of such party set
forth below (or to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 11.05) with a copy to
each of the other parties hereto.
If to the Purchaser:
Escalon Medical Corp.
000 Xxxx Xxxxxxxxx Xxxx
Xxxxx, XX 00000
Attention: Xxxxxxx X. XxXxxxx,
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Chief Executive Officer
Telecopy: (000) 000-0000
with a copy to:
Duane, Morris & Heckscher LLP
Xxx Xxxxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000-0000
Attention: Xxxxxxxx X. Xxxx, Esquire
Telecopy: (000) 000-0000
If to the Company:
Sonomed, Inc.
0000 Xxxxxx Xxxxxx
Xxxx Xxxxxxx, XX 00000
Attention: Xxxxx Xxxx,
President
Telecopy: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxx Xxxxxxxxxx & Xxxxx LLP
00 Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esquire
Telecopy: 000-000-0000
If to any Stockholder, to the Representative and such Stockholder at
such Stockholder's address set forth on Schedule I hereto, with a copy to
Xxxxxxx Xxxxx Xxxxxxxxxx & Xxxxx LLP as provided above in the case of the
Company.
Notice to the estate of any Stockholder shall be sufficient if addressed to the
party as provided in this Section 11.05. Any notice or other communication given
by certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address, which will be deemed given at
the time of receipt thereof. Any notice given by other means permitted by this
Section 11.05 shall be deemed given at the time of receipt thereof.
11.06 EXPENSES. The Purchaser and the Stockholders shall pay its or
their own expenses (including, without limitation, legal and accounting fees and
expenses) incident to the negotiation and preparation of this Agreement and the
other Transaction Documents and to such party's performance and compliance with
the Transactions.
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11.07 WAIVER. Any waiver by any party of a Breach of any term of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any Breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing and, in the case of
a corporate party, be authorized by an officer of the waiving party.
11.08 BINDING EFFECT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the Company and the Purchaser and their
respective successors and permitted assigns and each Stockholder and his
assigns, heirs and personal representatives, and shall inure to the benefit of
each Indemnified Person and its successors and assigns (if not a natural person)
and his assigns, heirs and personal representatives (if a natural person). The
Purchaser may not assign this Agreement to any Person other than a subsidiary
without the prior written consent of the Company and the Representative;
provided, however, that the Purchaser shall remain liable for the performance of
the obligations of the Purchaser hereunder.
11.09 NO THIRD PARTY BENEFICIARIES. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement (except as provided in Section 11.08).
11.10 SEPARABILITY. If any provision of this Agreement is invalid,
illegal or unenforceable, the balance of this Agreement shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
11.11 HEADINGS. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
11.12 COUNTERPARTS; GOVERNING LAW. This Agreement may be executed in
any number of counterparts, by facsimile or otherwise, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. It shall be governed by and construed in accordance with the laws of
the State of New York, without giving effect to conflict of laws.
XII. DEFINITIONS.
For purposes of this Agreement:
"Affiliate" means, with respect to a particular party, a Person
controlling, controlled by or under common control with that party, including
but not limited to
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any officer, director and majority-owned entity of that party and of that
party's other Affiliates.
"Agreement" means this Agreement and the exhibits and schedules hereto.
"Allocation" is defined in Section 7.11.
"Benefit Plans" means all employee benefit plans of the Company within
the meaning of Section 3(3) of ERISA and any related or separate Contracts,
plans, trusts, programs, policies, arrangements, practices, customs and
understandings, in each case whether formal or informal, that provide benefits
of economic value to any present or former employee, officer or director of the
Company, or present or former beneficiary, dependent or assignee of any such
employee, officer or director or former employee, officer or director.
"Breach" means, with respect to any representation, warranty, covenant,
obligation or other provision of this Agreement or any Transaction Document any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, bylaws, general or limited partnership agreement,
certificate of limited partnership, operating agreement, joint venture agreement
or similar document governing the entity.
"Claim" means any allegation, claim, action, cause of action, lawsuit
or other legal proceeding, whether at law, in equity or before any Governmental
Body, for damages, costs, losses or expenses incurred by any Person as a result
of any actions or failure to act by any party, or its officers, directors,
employees or authorized agents.
"Closing" means the closing on the Transactions.
"Closing Balance Sheet" is defined in Section 4.03.
"Closing Date" is defined in Section 4.02.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"Company Common Stock" is defined in Section 1.03.
"Company Disclosure Schedule" means the disclosure schedule provided by
the Company in connection with this Agreement.
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"Confidential Information" is defined in Section 1.10(b).
"Confidentiality Agreement" shall mean the Confidentiality Agreement
dated July 13, 1999 between the Company and the Purchaser.
"Contract" means any written or oral contract, agreement, lease,
instrument or other commitment that is binding on any Person or its property
under applicable law.
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory body
or authority that is binding on any Person or its property under applicable law.
"Damages" is defined in Section 10.02.
"Default" means (i) a material breach, default or violation or (ii) the
occurrence of an event that with the passage of time or the giving of notice, or
both, would constitute a material breach, default or violation.
"Definitive Financing Agreements" is defined in Section 5.09.
"Delinquent Accounts Receivable" is defined in Section 4.03(b).
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other Claim, charge or
Encumbrance of any nature whatsoever on any property or property interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow" is defined in Section 4.04.
"Escrow Agreement" is defined in Section 4.04.
"FDA" means the United States Food and Drug Administration.
"Facilities" means any real property, leaseholds or other interests
currently owned or operated by the Company and any buildings, plants, structures
or equipment (including motor vehicles, tank cars and rolling stock) currently
owned or operated by the Company.
"Financing" is defined in Section 5.09.
"GAAP" means generally accepted accounting principles.
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"Governmental Body" means any federal, state, local or foreign
government entity or any court, administrative or regulatory agency or
commission or other governmental authority or agency.
"Governmental Permits" is defined in Section 1.06(b)
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment or use (including any
withdrawal or other use of groundwater) of any Hazardous Substance in, on,
under, about or from the Facilities or any part thereof into the environment,
and any other act, business, operation or thing that increases the danger, or
risk of danger, or poses an unreasonable risk of harm to persons or property on
or off the Facilities, or that may affect the value of the Facilities or the
Company.
"Hazardous Substances" is defined in Section 1.07(g).
"Indemnified Persons" is defined in Section 10.02.
"Indemnification Notice" is defined in Section 10.07.
"Intellectual Property" is defined in Section 1.10(a).
"Last Balance Sheet" is defined in Section 1.04.
"Last Balance Sheet Date" is defined in Section 1.04.
"Legal Requirement" means any applicable statute, law, ordinance,
regulation, order or rule of any federal, state, local, foreign or other
governmental agency or body or of any other type of regulatory body, including
those covering medical devices, food and drug, manufacturing processes,
environmental, energy, safety, health, transportation, consumer protection,
bribery, recordkeeping, zoning, warranties, anti-discrimination, antitrust,
employment and price and wage control matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, Claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, audit,
administrative or other proceeding, prosecution or investigation or inquiry,
whether civil, criminal, administrative, investigative or informal, commenced,
brought, conducted or heard by or before, or otherwise involving, any
Governmental Body, arbitrator, mediator or other disparate resolution forum.
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"Major Customer" and "Major Distributor" means a customer or
distributor that has accounted for 10% or more of the Company's revenue during
its 1998 fiscal year or during the twelve calendar months preceding the date of
this Agreement.
"Major Supplier" means a supplier that has provided goods to the
Company having a purchase price of $25,000 or more in the aggregate during the
Company's 1999 fiscal year or during the twelve calendar months preceding the
date of this Agreement.
"Majority of the Shares" is defined in Section 11.03(a).
"Material Adverse Effect" means a material adverse effect on the
financial condition, results of operations, products, customers or operations of
the Company; provided, however, that in determining whether a Material Adverse
Effect has occurred, changes or effects relating to United States or foreign
economic conditions or financial markets in general or to the Company's industry
in general shall not be considered.
"Minor Contracts" is defined in Section 1.08(a).
"Note" is define in Section 4.03(a).
"Participate In" means directly or indirectly, for a Stockholder's own
benefit or for, with or through any other person or entity, own, manage,
operate, control, loan money to, or participate in the ownership, management,
operation, or control of, or be connected as a director, officer, employee,
partner, consultant, agent, independent contractor, or otherwise with, or
acquiesce in the use of his name in. Notwithstanding the foregoing, the term
"Participate In" shall not include participation in social activities or
charitable or non-profit or community endeavors and/or owning not more than 1%
of the outstanding shares of stock of any public company.
"Person" means any natural person, corporation, partnership, limited
liability company, proprietorship, association, trust or other legal entity.
"Purchaser Charter Documents" is defined in Section 3.02.
"Reconciliation Date" is defined in Section 4.03.
"Release" is defined in Section 1.07(e).
"Release Time" is defined in Section 7.01.
"Representative" is defined in Section 11.03(a).
"Required Consents" is defined in Section 1.12.
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"Returns" means all returns, reports, forms, declarations, claims for
refunds or other information required to be filed or supplied to any Person in
connection with Taxes (including without limitation information returns and
declarations of estimated Tax). (Any reference to "filed" or "file" with respect
to Taxes shall also be deemed to include "supplied" or "supply.")
"S Corporation Tax Period" is defined in Section 1.05(k).
"Section 338(h)(10) Election" is defined in Section 7.11.
"Securities Act" means the Securities Act of 1933, as amended.
"Takeover Proposal" means any proposal, other than as contemplated by
this Agreement, (i) for a merger, consolidation, reorganization, other business
combination, or recapitalization involving the Company, for the acquisition of a
5% or greater interest in the equity or in any class or series of capital stock
of the Company, for the acquisition of the right to cast 5% or more of the votes
on any matter with respect to the Company, or for the acquisition of a
substantial portion of any of its assets other than in the ordinary course its
business or (ii) the effect of which may be to prohibit or restrict the
consummation of any of the transactions contemplated by this Agreement or
materially impair the contemplated benefits to the Purchaser of any of the
transactions contemplated by this Agreement.
"Tangible Net Worth" means the excess of the net tangible assets of the
Company over the liabilities of the Company; provided, however, that the
accounts receivable shown on the Closing Balance Sheet shall be included in the
calculation of Tangible Net Worth only if and to the extent that they are
collected prior to the Reconciliation Date.
"Tax" means all U.S. federal, state, local and non-U.S. income taxes
plus all charges, fees, levies or other assessments whether federal, state,
local or non-U.S. based upon or measured by income, capital, net worth or gain
and any other tax including but not limited to all net income, gross income,
advance corporate tax, gross receipts, value-added, sales, use ad valorem,
transfer, franchise, profits, withholding, payroll, employment, social security,
unemployment, FICA, FUTA, excise, occupation, property or other taxes, customs,
duties, fees, assessments or charges of any kind whatsoever including all
interest and penalties thereon, and additions to tax or additional amounts
imposed by any Governmental Body.
"Transactions" means the transactions contemplated by the Transaction
Documents.
"Transaction Documents" means this Agreement and the other agreements
and documents contemplated hereby and thereby.
45
50
"Welfare Plan" is defined in Section 1.09(f).
"Year 2000 Defects" is defined in Section 1.22(a).
[PAGES 47 AND 48 ARE INTENTIONALLY LEFT BLANK;
SIGNATURES BEGIN ON PAGE 49]
46
51
47
52
48
53
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
Attest: ESCALON MEDICAL CORP.
By: /s/ Xxxxxxx X. XxXxxxx
----------------------------------- --------------------------------
Secretary Chief Executive Officer
Attest: SONOMED, INC.
By: /s/ Xxxxx Xxxx
----------------------------------- --------------------------------
Secretary President
Witness: /s/ Xxxxx X. Xxxxx
--------------------------- ------------------------------------
Xxxxx X. Xxxxx
Witness: /s/ Xxxxxx Xxxxxxx
--------------------------- ------------------------------------
Xxxxxx Xxxxxxx
Witness: /s/ Xxxxxx X. Xxxxxx
--------------------------- ------------------------------------
Xxxxxx X. Xxxxxx
Witness: /s/ Xxxxxxx Xxxxxxxx
--------------------------- ------------------------------------
Xxxxxxx Xxxxxxxx
Witness: /s/ Xxxxxxxx X. Xxxxx, Executrix
--------------------------- ------------------------------------
Estate of Xxxxxxx X. Xxxxx
Witness: /s/ Xxxxxxx Xxxxxx
--------------------------- ------------------------------------
Xxxxxxx Xxxxxx
Witness: /s/ Xxxxxxx Xxxxxxxxx
--------------------------- ------------------------------------
Xxxxxxx Xxxxxxxxx
49
54
Witness: /s/ Xxxxxx X. Xxxxxxxx
--------------------------- ------------------------------------
Xxxxxx X. Xxxxxxxx
Witness: /s/ Xxxxx Xxxx
--------------------------- ------------------------------------
Xxxxx Xxxx
Witness: /s/ Xxxxx Xxxx
--------------------------- ------------------------------------
Xxxxx Xxxx
Witness: /s/ Xxxxx Xxxx
--------------------------- ------------------------------------
Xxxxx Xxxx
Witness: /s/ Xxxxx Xxxx
--------------------------- ------------------------------------
Xxxxx Xxxx
Witness: /s/ Xxxx Xxxx
--------------------------- ------------------------------------
Xxxx Xxxx
Witness: /s/ Xxxxx Xxxx
--------------------------- ------------------------------------
Xxxxx Xxxx
Witness: /s/ Xxxxxx Xxxxxxx
--------------------------- ------------------------------------
Xxxxxx Xxxxxxx
Witness: /s/ Xxxxx XxXxxx
--------------------------- ------------------------------------
Xxxxx XxXxxx
Witness: /s/ Xxxxx Xxxxxxx
--------------------------- ------------------------------------
Xxxxx Xxxxxxx
Witness: /s/ Xxxxxx Xxxxx
--------------------------- ------------------------------------
Xxxxxx Xxxxx
50
55
Witness: /s/ Xxxxx Xxxxx
--------------------------- ------------------------------------
Xxxxx Xxxxx
Witness: /s/ J. Xxxxxxx Xxxxxxx
--------------------------- ------------------------------------
J. Xxxxxxx Xxxxxxx
Witness: /s/ Xxxxxxxx X. Xxxx
--------------------------- ------------------------------------
Xxxxxxxx X. Xxxx
Witness: /s/ Xxxxxx Xxxx
--------------------------- ------------------------------------
Xxxxxx Xxxx
Witness: /s/ Xxxxx Xxxxxxxxxx
--------------------------- ------------------------------------
Xxxxx Xxxxxxxxxx
Witness: /s/ Xxxxx Xxxxxxxxx
--------------------------- ------------------------------------
Xxxxx Xxxxxxxxx
Witness: /s/ Xxxxxx Xxxxxx
--------------------------- ------------------------------------
Xxxxxx Xxxxxx
51
56
SCHEDULE I
SONOMED STOCKHOLDERS
NUMBER OF PERCENT
NAME AND ADDRESS SHARES OF SHARES
---------------- ------ ---------
Xxxxx X. Xxxxx 4,100 0.15%
c/o Xxxxxxxx, Xxxxx & Xxxx
000 Xxxxxxxx Xxxxxxxx
Xxxxxxx Xxxx, XX 00000
Xxxxxx Xxxxxxx 3,750 0.14
000 Xxxx Xxx Xxxxxx
Xxx. 00X
Xxx Xxxx, XX 00000
Xxxxxx X. Xxxxxx 4,084 0.15
000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Xxxxxxx Xxxxxxxx 37,691 1.39
c/o Xxxxxxxx, Xxxxx & Xxxx
000 Xxxxxxxx Xxxxxxxx
Xxxxxxx Xxxx, XX 00000
Xxxxxxx X. Xxxxx 53,500 1.97
000 Xxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Xxxxxxx Xxxxxx 900 0.03
0000 Xxxxx Xxxxxxx
Xxxxxxxx, XX 00000
Xxxxxxx Xxxxxxxxx 5,000 0.18
0000 Xxxxxxxxx Xx.
Xxxxxx, XX 00000
Xxxxxx X. Xxxxxxxx 250,000 9.20
00 Xxxxxx Xxxxxx Xxxx
Xxxxxxxxx, XX 00000
Xxxxx Xxxx 447,200 16.46
00-00 000 Xxxxxx
Xxxxxxxx, XX 00000
Xxxxx Xxxx 123,000 4.53
000 X. 00xx Xxxxxx
Xxxxxxxx, XX 00000
I-1
57
NUMBER OF PERCENT
NAME AND ADDRESS SHARES OF SHARES
---------------- ------ ---------
Xxxxx Xxxx 123,000 4.53
00-00 000 Xxxxxx
Xxxxxxxx, XX 00000
Xxxxx Xxxx 123,100 4.53
00-X Xxxxxx Xxxxx
Xxxxxx, XX 00000
Xxxx Xxxx 123,000 4.53
00-00 000 Xxxxxx
Xxxxxxxx, XX 00000
Xxxxx Xxxx 1,257,300 46.28
00-00 000 Xxxxxx
Xxxxxxxx, XX 00000
Xxxxxx Xxxxxxx 2,000 0.07
00-00 Xxxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Xxxxx XxXxxx 10,000 0.37
0000 Xxxxxx Xxxxxx
Xxxxx, XX 00000
Xxxxx Xxxxxxx 11,600 0.43
00 Xxxxx Xxxxxx
Xxxx Xxxxxxx, XX 00000
Xxxxxx Xxxxx 75,000 2.80
000 Xxxxxxx Xxxx Xxxx, Xxx. 0X
Xxx Xxxx, XX 00000
Xxxxx Xxxxx 750 0.03
0 Xxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
J. Xxxxxxx Xxxxxxx 500 0.02
00 Xxxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Xxxxxxxx X. Xxxx 8,100 0.30
c/o Xxxxxxxx, Xxxxx & Xxxx
000 Xxxxxxxx Xxxx.
Xxxxxxx Xxxx, XX 00000
Xxxxxx Xxxx 25,000 0.92
00 Xxxxxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
I-2
58
NUMBER OF PERCENT
NAME AND ADDRESS SHARES OF SHARES
---------------- ------ ---------
Xxxxx Xxxxxxxxxx 3,000 0.11
00 Xxxxxx Xxxxx Xxxxx
Xxx. 0X
Xxx Xxxx, XX 00000
Xxxxx Xxxxxxxxx 25,000 0.92
00000 XxXxxxx Xxxxxx
Xxxx, XX 00000
Xxxxxx Xxxxxx 525 0.02
0000 Xxxxxxxxxx Xxxx
Xxxxxx Xxxxx, XX 00000
-------- -------
Total 2,717,000 100.00%
========= =======
I-3
