TENDER OFFER AGREEMENT
THIS TENDER OFFER AGREEMENT ("Agreement") dated as of the 28th
day of December 2000, by and among The Xxxxxx Biomechanics Group, Inc., a
New York corporation (the "Company"), and OrthoStrategies, Inc., a New York
corporation ("OS") and OrthoStrategies Acquisition Corp., a New York corporation
and wholly owned subsidiary of OS ("Purchaser").
RECITALS
WHEREAS, the respective Boards of Directors of OS, Purchaser and
the Company have determined that it is in the best interests of their
respective shareholders for Purchaser to acquire majority ownership of the
Company on the terms and condition set forth herein;
WHEREAS, it is intended that such acquisition be accomplished by
Purchaser's effecting a cash tender offer to purchase up to 75% of the issued
and outstanding shares of common stock, $.02 par value per share, of the Company
(the "Shares"); and
WHEREAS, the Company, OS and Purchaser desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
SECTION I
THE TENDER OFFER
A. Tender Offer. (i) Provided that this Agreement shall not have
been terminated in accordance with Section X hereof, as promptly as
practicable (but in no event later than eight (8) business days following the
execution and delivery of this Agreement, unless the Company and the Purchaser
have otherwise agreed), Purchaser will commence a tender offer (the "Offer") for
up to 1,959,886 Shares (representing 75% of the Shares currently outstanding as
represented by the Company in Section III.D) at a price of $1.525 per Share, net
to the seller in cash (as such Offer may be amended in accordance with the terms
of this Agreement) (the "Offer Price"), which Offer shall be subject to the
terms and conditions set forth in Annex A hereto (the "Offer Conditions"). The
initial expiration date of the Offer shall be the date 20 business days from and
including the date (the "Commencement Date") the Offer is commenced (in
accordance with the applicable regulations). Purchaser expressly reserves the
right, in its sole discretion, to waive any condition and to set forth or change
any other term or condition of the Offer, provided that, unless previously
approved by the Company in writing, no provision may be set forth or changed
which decreases the price per Share payable in the Offer, changes the form of
consideration payable in the Offer (other than by adding consideration), or
imposes conditions to the Offer in addition to those set forth herein that are
materially adverse to holders of the Shares. Purchaser covenants and agrees
that, subject to the terms and conditions of the Offer, including but not
limited to the Offer Conditions and the provisions regarding proration of the
Shares to be purchased, it will accept for payment and pay for all Shares
validly tendered and not withdrawn that it is obligated to purchase (i.e., if at
least 1,959,886 Shares are tendered, then 1,959,886 Shares will be purchased),
as soon as it is permitted to do so under applicable law. Purchaser shall have
the right, in its sole discretion, to extend the Offer from time to time;
provided, however, that, without the written consent of the Company, Purchaser
cannot extend the Offer for more than five business days unless applicable laws
or regulations so require or a condition which is a prerequisite to fixing the
Closing Date has not been satisfied. In addition, the Offer Price may be
increased and the Offer may be extended to the extent required by law in
connection with such increase in each case without the consent of the Company.
(ii) The Company hereby approves of and consents to the Offer and
represents and warrants that: (i) its Board of Directors (the "Board"), at a
meeting duly called and held on December 19, 2000, unanimously (A) determined
that this Agreement and the transactions contemplated hereby, including the
Offer, are fair to and in the best interests of the holders of Shares, (B)
approved this Agreement and the transactions contemplated hereby, including the
Offer, and (C) resolved to recommend, subject to its continued fiduciary duties,
that the stockholders of the Company accept the Offer and tender their Shares to
Purchaser; and (ii) Xxxxxxxx & Xxxxxxx (the "Financial Advisor") delivered to
the Board on December 28, 2000, its opinion that the consideration to be
received by holders of Shares pursuant to the Offer is fair to such holders and
the Company from a financial point of view and such opinion has not been revoked
or withdrawn. The Company has been authorized by the Financial Advisor (such
consent not to be unreasonably withdrawn), to include a copy of such fairness
opinion (or a reference thereto) in a Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9") to be filed with the Securities and
Exchange Commission ("SEC") upon commencement of the Offer. The Company hereby
consents to the inclusion in the Offer Documents (as defined in Section
1.A(iii)) of the recommendations of the Board described herein.
(iii) On the date the Offer is commenced, Purchaser shall file with
the SEC a Tender Offer Statement on Schedule TO with respect to the Offer
(together with all amendments and supplements thereto and including the exhibits
thereto, the "Schedule TO"). The Schedule TO will include, as exhibits, the
Offer to Purchase and a form of letter of transmittal and summary advertisement
(collectively, together with any amendments and supplements thereto, the "Offer
Documents"). The Offer Documents will comply in all material respects with the
provisions of applicable federal securities laws and, on the date filed with the
SEC and on the date first published, sent or given to the Company's
shareholders, shall not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Notwithstanding the foregoing, no representation is
made by Purchaser with respect to the information supplied by the Company in
writing for inclusion in the Offer Documents. Purchaser further agrees to use
commercially reasonable efforts to cause the Offer Documents to be filed with
the SEC and to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. Purchaser, on the one
hand, and the Company, on the other hand, agree promptly to correct any
information provided by it for use in the Offer Documents if and to the extent
that it shall have become false and misleading in any material respect and
Purchaser
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further agrees to use commercially reasonable efforts to cause the Offer
Documents as so corrected to be filed with the SEC and to be disseminated to
holders of the Shares, in each case as and to the extent required by applicable
federal securities laws. The Company and its counsel shall be given the
opportunity to review the initial Schedule TO, and any and all amendments
thereto, before they are filed with the SEC. In addition, Purchaser agrees to
provide the Company and its counsel copies of any written comments or other
communications that Purchaser or its counsel may receive from time to time from
the SEC or its staff with respect to the Offer Documents promptly after the
receipt of such comments or other communications.
(iv) Concurrently with the commencement of the Offer, the Company
shall file with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 which, subject to the terms of this Agreement, shall contain the
recommendation referred to in clause (C) of Section 1.A(ii) hereof. The Schedule
14D-9 will comply in all material respects with the provisions of applicable
federal securities laws and, on the date filed with the SEC and on the date
first published, sent or given to the Company's stockholders, shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, no representation is made by the
Company with respect to information supplied by Purchaser in writing for
inclusion in the Schedule 14D-9. The Company further agrees to use commercially
reasonable efforts to cause the Schedule 14D-9 to be filed with the SEC and to
be disseminated to holders of Shares, in each case as and to the extent required
by applicable federal securities laws. The Company, on the one hand, and
Purchaser, on the other hand, agree promptly to correct any information provided
by it for use in the Schedule 14D-9 if and to the extent that it shall have
become false and misleading in any material respect and the Company further
agrees to use commercially reasonable efforts to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and to be disseminated to holders of the
Shares, in each case as and to the extent required by applicable federal
securities laws. Purchaser and its counsel shall be given the opportunity to
review the initial Schedule 14D-9, and any and all amendments thereto, before
they are filed with the SEC. In addition, the Company agrees to provide
Purchaser and its counsel copies of any written comments or other communications
that the Company or its counsel may receive from time to time from the SEC or
its staff with respect to the Schedule 14D-9 promptly after the receipt of such
comments or other communications.
(v) In connection with the Offer, the Company will promptly furnish or
cause to be furnished to Purchaser, security position listings and any available
listing or computer file containing the names and addresses of the record
holders of the Shares as of the most recent practicable date, and shall furnish
Purchaser with such information and assistance as Purchaser or its agents may
reasonably request in communicating the Offer to the stockholders of the
Company.
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SECTION II
CLOSING; CLOSING DATE
The closing of the purchase of Shares pursuant to the Offer (the
"Closing") shall take place at the offices of Xxxxxxx, Xxxxxxxxx LLP, 0 Xxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 10:00 a.m. (i) on the first business day on
which the last to be fulfilled or waived of the conditions set forth in Section
IX hereof shall be fulfilled or waived in accordance with this Agreement or (ii)
on such other date as the Company and Purchaser may agree (the "Closing Date").
SECTION III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to OS and Purchaser that as
of the date hereof and as of the Closing Date, except as disclosed on the
Company Disclosure Schedule (the "Company Disclosure Schedule") delivered by the
Company to OS simultaneously with the execution and delivery hereof (although a
disclosure in response to any Section on the Company Disclosure Schedule shall
be deemed a disclosure in response to all other relevant Sections, the Company
will endeavor to provide appropriate cross references):
A. Organization and Qualification. The Company is duly organized,
validly existing and in good standing under the laws of the State of New York
and has full corporate power and authority to own its properties and to conduct
the businesses in which it is now engaged. The Company is authorized or
qualified to do business and is in good standing in each other jurisdiction in
which the character of the property owned, leased or operated by the Company, or
the nature of the business or activities conducted by the Company, make such
authorization or qualification necessary. The Company Disclosure Schedule sets
forth all jurisdictions in which the Company is authorized or qualified to do
business. Except for the Subsidiaries (as defined in III.E.), the Company has no
subsidiaries, owns no capital stock or other proprietary interest, directly or
indirectly, in any other corporation, association, trust, partnership, limited
liability company, joint venture or other entity ("Entity") and has no agreement
with any person, firm, corporation group or other Entity (collectively,
"Person") to acquire any such capital stock or other proprietary interest. The
Company has full power, authority and legal right, and all necessary approvals,
permits, licenses and authorizations to own its properties and to conduct its
business in the manner in which it is presently operated and to enter into and
consummate the transactions contemplated under this Agreement. The copies of the
articles of incorporation and by-laws of the Company and each of the
Subsidiaries ("Charter Documents") and minute books and stock ledgers of the
Company and the Subsidiaries, all of which have been delivered to or made
available to OS, are complete and correct, in all material respects, and neither
the Company nor any Subsidiaries are in violation of any Charter Documents.
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B. Authority. The Company has the full legal right, corporate power
and authority to enter into this Agreement and perform the transactions
contemplated hereby and to perform its obligations pursuant to the terms of this
Agreement. The execution and delivery of this Agreement by the Company, the
performance by the Company of its covenants and agreements hereunder and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action. This Agreement constitutes a
valid and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms, except that the enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws, affecting creditors' rights generally and general principles of
equity.
C. No Legal Bar; Conflicts. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the articles of incorporation or by-laws of the
Company or, assuming compliance with applicable requirements of the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder (the
"Exchange Act"), any statute, ordinance, regulation, order, judgment or decree
of any court or governmental agency or board, or conflicts with or will result
in any breach of any of the terms of or constitutes a default under or results
in the termination of or the creation of any lien pursuant to the terms of any
contract or agreement to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of the assets of the Company or any
Subsidiary is bound. Other than compliance with applicable requirements of the
Exchange Act and the applicable provisions of the New York Business Corporation
Law (BCL 1600 et. seq.), no consents, approvals or authorizations of, or filings
with, any governmental authority or any other person or entity are required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, except for required
consents, if any, to assignment of permits, certificates, contracts, leases and
other agreements as set forth in the Company Disclosure Schedule.
D. Capitalization. The authorized capital stock of the Company
consists of (i) 10,000,000 shares of common stock, par value $.02 per share (as
previously defined, the "Shares"), and (ii) 250,000 shares of preferred stock,
$1.00 par value per share, of which 1,306 shares were issued as Series A
Preferred Stock and later converted into Shares. As of the date hereof, there
are outstanding (w) 2,613,181 Shares, (x) no shares of preferred stock and (y)
options to purchase an aggregate of 301,000 Shares(collectively, the "Options").
All outstanding shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable and free of preemptive
rights. Except as set forth in this Section III.D. there are outstanding (1) no
shares of capital stock or other voting securities of the Company, (2) no
securities of the Company convertible into or exchangeable for shares of capital
stock or voting securities of the Company, and (3) no options, warrants or other
rights to acquire from the Company, and no obligation of the Company to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company (as used
herein, the term "Company Securities" shall be deemed to include (i) shares of
capital stock or other voting securities of the Company, (ii) securities of the
Company convertible into or exchangeable for shares of capital stock or voting
securities of the Company, and (iii) options, warrants and other rights to
acquire from the Company any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company). There are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities.
As of the
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date of this Agreement, (i) the Company is a NASDAQ small-cap company and
to its knowledge is in compliance with the rules and regulations governing or
relating to a NASDAQ small-cap listing company, and (ii) has not received
notification that (a) it is in violation of the rules or regulations of NASDAQ
or (b) is being considered for delisting of its shares.
E. Subsidiaries. (i) Each Subsidiary of the Company is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Subsidiary has all corporate power and all
governmental licenses, permits, authorizations, consents and approvals required
to carry on its business as now conducted and is duly qualified to do business
as a foreign corporation and in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary. For purposes of this Agreement, "Subsidiary"
of the Company means any corporation or other entity of which all of the
outstanding securities or other ownership interests are owned directly or
indirectly by the Company. Unless otherwise noted or as the context shall
otherwise require, references herein to the Company shall include the Company
and each of the Subsidiaries.
(ii) All of the outstanding capital stock of each Subsidiary of the
Company is owned by the Company, directly or indirectly, free and clear of any
lien, encumbrance, security interest or claim whatsoever. The Company Disclosure
Schedule sets forth, for each Subsidiary, the outstanding capital stock,
jurisdiction of incorporation and all jurisdictions in which it is qualified to
do business as a foreign corporation. There are no outstanding (a) securities of
the Company or any of its Subsidiaries convertible into or exchangeable for
shares of capital stock or other voting securities or ownership interests in any
Subsidiary of the Company, or (b) options, warrants or other rights to acquire
from the Company or any of its Subsidiaries, and there is no other obligation of
the Company or any of its Subsidiaries to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable for any capital stock, voting securities or ownership interests
in, any Subsidiary of the Company (as used herein, the term "Company Subsidiary
Securities" shall be deemed to include (i) shares of capital stock or other
voting securities of any Subsidiary, (ii) securities of the Company or any
Subsidiary convertible into or exchangeable for shares of capital stock or other
voting securities of any Subsidiary, or (iii) options, warrants or other rights
to acquire from the Company or any Subsidiary any capital stock, voting security
or other security convertible into or exchangeable for capital stock or voting
securities of any Subsidiary). There are no outstanding obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any outstanding Company Subsidiary Securities. The Company has completed the
purchase of the minority interests in its UK Subsidiary and now owns 100% of the
outstanding capital stock of such Subsidiary.
F. Corporate Records. The corporate record books (including the stock
records) of the Company and the Subsidiaries have been made available to
Purchaser and are complete, accurate and up to date in all material respects
with all necessary signatures and set forth all meetings and actions taken by
the shareholders and directors of the Company as required by law or the Company
By-Laws and all transactions involving the Shares.
G. SEC Filings; Financial Statements. (i) The Company has delivered to
OS (a) the Company's annual report on Form 10-K for the fiscal year ended
February 29, 2000 (the "Company 10-K"), (b) its quarterly reports on Form 10-Q
for its fiscal quarters ended May 27, 2000
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and August 26, 2000, (c) its current reports on Form 8-K dated September
21, 2000, Form 8-K/A dated September 22, 2000 and Form 8-K dated November 17,
2000, (d) its proxy or information statements relating to meetings of, or
actions taken without a meeting by, the stockholders of the Company since
February 29, 2000, and (e) all of its other reports, statements, schedules and
registration statements filed with the SEC since February 29, 2000, and all
materials incorporated therein by reference (the filings referred to in clauses
(a) through (e) and delivered to OS prior to the date hereof being hereinafter
referred to as the "Company Reports").
(ii) As of their respective filing dates, the Company Reports complied
with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder. As of their respective filing dates, the Company Reports
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 light of the circumstances in which they were made, not
misleading. The audited consolidated financial statements and unaudited
consolidated interim financial statements of the Company and its Subsidiaries
included in the Company 10-K and the quarterly reports on Form 10-Q referred to
in Section III. G(i) (collectively, the "Financial Statements") fairly present,
in conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of the Company and its Subsidiaries as of the
dates thereof and their consolidated results of operations and cash flows for
the periods then ended (subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments, none of which, individually or in
the aggregate, would have a material adverse effect on the financial condition,
business or results of operations of the Company and the Subsidiaries taken as a
whole (a "Company Material Adverse Effect").
(iii) All issued and outstanding Company Securities were offered,
issued, sold and delivered by the Company in compliance with all applicable
federal and state laws concerning the issuance of securities.
(iv) The Company is not a party to any agreement or commitment
obligating it to register or offer for sale any Company Securities.
(v) Since January 1, 1997, the Company has made all necessary filings
with the SEC required of it under the Exchange Act and other federal securities
laws.
H. Absence of Certain Changes. Except as contemplated hereby or as set
forth on the Company Disclosure Schedule, subsequent to August 26, 2000, there
has not been any (i) material adverse change in the condition of the Company,
financial or otherwise, or in the results of the operations of the Company; (ii)
material damage or destruction (whether or not insured) affecting the properties
or business operations of the Company; (iii) labor dispute or threatened labor
dispute involving the employees of the Company or notice that any groups of
employees or executive employees of the Company intend to take leaves of
absence, with or without pay; (iv) actual or, to the best knowledge of the
Company, threatened disputes pertaining to the business of the Company with any
Significant Customers of the Company, or, except as noted in Section III.O(b),
actual or, to the best knowledge of the Company, threatened loss of all or
substantially all the business from any Significant Customers of the Company;
(v) changes in the methods or procedures for billing or collection of customer
accounts or recording of customer accounts receivable or reserves for doubtful
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accounts with respect to the Company; (vi) sale, transfer, license or
disposition of tangible or intangible assets other than the sale of inventory in
the ordinary course of business, or any purchase, acquisition or license of
tangible or intangible assets other than the purchase of inventory in the
ordinary course of business; (vii) transaction by the Company outside the
ordinary course of business other than transactions involving only nominal
amounts; (viii) declaration or payment of any dividend or distribution in
respect of the capital stock, or any direct or indirect redemption, purchase, or
other acquisition of any capital stock, of the Company; (ix) change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by the Company or any revaluation by the Company
of any of its assets; (x) cancellation, termination, waiver, non- renewal or
breach of any material contract, agreement, license, permit or other rights to
which the Company is a party (including without limitation, any material
modification, alteration or cancellation of the Company's insurance policy
coverages); or (xi) other event or condition of any character, known to the
Company or which in the exercise of reasonable diligence should be known to the
Company, not disclosed in this Agreement pertaining to and materially adversely
affecting the Company, its business or the assets of the Company. As of the date
of this Agreement, the Company is in compliance with the covenants set forth in
Sections 6.6, 6.7 and 6.8 of its loan agreement with American National Bank.
I. Liabilities. Except as set forth on the Company Disclosure
Schedule, subsequent to August 26, 2000, the Company has not (i) incurred any
bank or other indebtedness for borrowed money, entered into any leases,
licenses, notes, loan agreements, or contracts, guarantees, obligations or
arrangements of any kind, including, without limitation, for the payment of
money or property to any person except for (x) contracts, obligations or
arrangements entered into in the ordinary course of business consistent with
past practices or (y) contracts and agreements specifically contemplated or
required by the terms and conditions of this Agreement, (ii) permitted any liens
or encumbrances to attach to any of the assets of the Company or (iii) provided
any loan, advance, guaranty or other financial accommodation to or for the
benefit of any other person or entity. The Company is not liable for or subject
to any liabilities except (x) those liabilities reflected on the balance sheet
contained in the Company's quarterly report on Form 10-Q for its fiscal quarter
ended August 26, 2000 (the "Interim Balance Sheet"); (y) trade accounts payable,
accrued payroll, accrued payroll taxes, and other current liabilities of the
Company arising in the ordinary course of business consistent with past practice
since such date; and (z) those liabilities arising in the ordinary course of
business consistent with past practice under any contract, commitment or
agreement set forth on the Company Disclosure Schedule. The Company Disclosure
Schedule sets forth a detailed budget of all capital expenditures, hiring,
compensation increases, contracts (providing for payments from or receipts by
the Company in excess of $12,500), leases and other commitments incurred or
planned by the Company since the date of the Interim Balance Sheet.
J. Real Property Owned or Leased. The Company does not own any real
property. A list and description of all real property leased to or by the
Company or in which the Company has any interest is set forth in the Company
Disclosure Schedule ("Company Premises"). All leased real property is held
subject to written leases or other agreements which are valid and effective in
accordance with their respective terms, and, to the best knowledge of the
Company, except for "Immaterial Defaults" (as defined below) there are no
existing defaults or events of default, or events which with notice or lapse of
time or both would constitute defaults, other than Immaterial Defaults,
thereunder on the part of the Company. For purposes of this Agreement,
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Immaterial Defaults are defaults which do not, individually or in the aggregate,
cause the Company to fail to comply in all material respects with the terms and
conditions of the applicable lease, contract, agreement or instrument. All rent
and other charges due and owing by the Company under any lease has been paid in
full and there are no disputes or claims between the Company and any other party
to any lease. No construction, improvements, or alterations are in process,
under construction or planned at any Company Premises, other than the movement
of partitions and similar activities in connection with the relocation of
Company personnel. The Company has no knowledge of any material default or
claimed or purported or alleged material default or state of facts which with
notice or lapse of time or both would constitute a material default on the part
of any other party in the performance of any obligation to be performed or paid
by such other party under any lease referred to in the Company Disclosure
Schedule. The Company has not received any written or oral notice to the effect
that any lease will not be renewed at the termination of the term thereof or
that any such lease will be renewed only at a substantially higher rent.
All structural, mechanical and other physical systems, including but
not limited to heating, ventilating, air conditioning, plumbing, electrical,
mechanical, sewer and drainage systems at Company Premises are in good operating
condition and repair. All water, sewer, gas, electric, telephone, drainage and
other utilities required for use and operation of the Company Premises are
connected to municipal or public utility services and are fully operable and
adequate to service the operation of the business of the Company at the Company
Premises. The Company Premises and all present uses and operations at the
Company Premises, including the conduct of the business of the Company and
related manufacturing activity, comply in all material respects with all
statutes, rules, regulations, ordinances, orders, judgments, and restrictions of
any government entity having jurisdiction thereon (including without limitation,
applicable zoning, land use, fire, building codes, safety, health and
handicapped access requirements), as well as all covenants, conditions,
restrictions, easements and similar matters affecting the Company Premises. The
Company has obtained all Certificates of Use and Occupancy and similar licenses
and permits required in connection with the use of the Company Premises for the
conduct of the business of the Company. To the Company's knowledge, there are no
pending or threatened condemnation, fire, health, safety, building, zoning, land
use, assessment, or similar proceedings relating to the Company Premises. There
are no parties other than the Company in possession of any Company Premises and
there are no sublease, concession, occupancy, license or similar arrangements
affecting the Company Premises.
K. Title to Assets; Condition of Property. The Company has good and
valid title to the assets owned by the Company, including, without limitation,
the properties and assets reflected in the Interim Balance Sheet (except for
assets leased under leases set forth in the Company Disclosure Schedule,
inventory and other assets sold or retired and accounts receivable collected
upon, since August 26, 2000, in the ordinary course of business consistent with
past practices). The Company leases, licenses or owns all properties and assets
used or necessary for use in the operations of its business as currently
conducted other than inventory and supplies which need to be purchased and
replenished in the ordinary course of business; except for motor vehicles,
inventory held by certain of the Company's suppliers and personal items assigned
to individual employees, such as mobile phones, pagers and laptop computers, all
of such assets are located on Company Premises. All such properties and assets
are in all material respects in good condition and repair, ordinary wear and
tear excepted, consistent with their respective ages, and have been maintained
and serviced in
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accordance with the normal practices of the Company and as necessary in the
normal course of business. None of the assets of the Company are subject to any
liens, charges, encumbrances or security interests except as set forth in the
agreements listed in the Company Disclosure Schedule and for liens for taxes not
yet due and payable or which are being contested in good faith; and liens of
mechanics, materialmen, warehouseman, carriers, landlords and other like liens
securing obligations incurred in the ordinary course of business that are not
yet due and payable or which are being contested in good faith. None of the
assets of the Company (or uses to which they are put) fails to conform with any
applicable agreement, law, ordinance or regulation in a manner which is likely
to be materially adverse to the operations of the business of the Company. The
Company Disclosure Schedule sets forth a complete and accurate Depreciation
Lapse Schedule as of November 25, 2000, with respect to the Company's personal
property. All leases of personal property used by the Company and set forth on
the Company Disclosure Schedule are in full force and effect and all rent and
other charges thereunder have been paid by the Company.
L. Taxes. The Company and each Subsidiary has filed or caused to be
filed on a timely basis all federal, state, local, foreign and other tax
returns, reports and declarations (collectively, "Tax Returns") required to be
filed by it. All Tax Returns filed by or on behalf of the Company and each
Subsidiary are true, complete and correct in all material respects. The Company
and each Subsidiary has paid all income, estimated, excise, franchise, gross
receipts, capital stock, profits, stamp, occupation, sales, use, transfer, value
added, property (whether real, personal or mixed), payroll, employment,
unemployment, disability, withholding, social security, workers' compensation
and other taxes, and interest, penalties, fines, costs and assessments
(collectively, "Taxes"), reflected as due and payable on such Tax Returns. There
are no tax liens on any of the properties or assets, real, personal or mixed,
tangible or intangible, of the Company or any of the Subsidiaries except for
liens for Taxes not yet due and payable or which are being contested in good
faith. The accrual for Taxes reflected in the Financial Statements accurately
reflects the total amount of all unpaid Taxes, whether or not disputed and
whether or not presently due and payable, of the Company and each Subsidiary as
of the close of the periods covered by the Financial Statements, and the amount
of the Company's and each Subsidiary's unpaid Taxes on August 26, 2000 does not
exceed in any material respect the accrual for Taxes reflected in the Financial
Statements for the period ended August 26, 2000. The amount of the Company's
liability for unpaid Taxes for all periods or portions thereof ending August 26,
2000 did not exceed in any material respect the amount of the current liability
accruals for Taxes, as such accruals were reflected on the books and records of
the Company on August 26, 2000. Since August 26, 2000, neither the Company nor
any of the Subsidiaries has incurred any Tax liability other than in the
ordinary course of business. No deficiency in Taxes for any period has been
asserted by any taxing authority which remains unpaid at the date hereof (the
results of any settlement being set forth in the Company Disclosure Schedule),
no written inquiries or notices have been received by the Company or any of the
Subsidiaries from any taxing authority with respect to possible claims for
Taxes, and neither the Company nor any of the Subsidiaries has any reason to
believe that such an inquiry or notice is pending or threatened, and, to the
best knowledge of the Company, there is no basis for any additional claims or
assessments for Taxes. Neither the Company nor any of the Subsidiaries has
agreed to the extension of the statute of limitations with respect to any Tax
Return or Tax period. The Company and each Subsidiary has delivered to OS copies
of the federal and state income Tax Returns filed by the Company and each
Subsidiary for the past three years and for all other past periods as to which
the appropriate statute of limitations has not lapsed.
-10-
None of the Company's assets are treated as "tax exempt use property"
within the meaning of Section 168(h) of the Internal Revenue Code of 1986, as
amended (the "Code"). There are no contracts, agreements, plans or arrangements,
covering any employee or former employee of the Company, that individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that could not be deductible pursuant to Section 280G, 404 or 162 of the Code.
The Company has not filed any consent agreement under Section 341(f) of the Code
or agreed to have 341(f) of the Code apply to disposition of any asset owned by
the Company. The Company's tax basis in its assets is accurately reflected on
the Company's tax books and records. The Company Disclosure Schedule sets forth
the Company's federal and state "Net Operating Losses" and tax credits as of
February 29, 2000.
M. Permits; Compliance with Applicable Law.
(i) General. The Company is not in default under any, and has complied
in all material respects with all, federal, state, local and foreign statutes,
ordinances, regulations and laws (including, but not limited to, all federal and
state fraud and abuse, "anti-kickback" and "self- referral" laws), and all
orders, judgments and decrees of any court or governmental entity or agency,
relating to the Company, its business or any of the assets of the Company. The
Company has no knowledge of any basis for assertion of any violation of the
foregoing or for any claim for compensation or damages or otherwise arising out
of any violation of the foregoing. The Company has not received any notification
of any asserted present or past failure to comply with any of the foregoing.
(ii) Permits. Set forth in the Company Disclosure Schedule is a
complete and accurate list of all permits, licenses, approvals, franchises,
notices and authorizations issued by governmental entities or other regulatory
authorities, federal, state or local (collectively the "Permits"), held by the
Company in connection with its business. To the best knowledge of the Company,
the Permits set forth in the Company Disclosure Schedule are all the Permits
required or appropriate for the conduct of its business. All the Permits set
forth in the Company Disclosure Schedule are in full force and effect, and the
Company has not engaged in any activity which would cause or permit revocation
or suspension of any such Permit, and no action or proceeding looking to or
contemplating the revocation or suspension of any such Permit is pending or, to
the best knowledge of the Company, threatened. There are no existing material
defaults or events of default or event or state of facts which with notice or
lapse of time or both would constitute a material default by the Company under
any such Permit. The Company has no knowledge of any default or claimed or
purported or alleged default or state of facts which with notice or lapse of
time or both would constitute a default on the part of any other party in the
performance of any obligation to be performed or paid by any other party under
any Permits set forth in the Company Disclosure Schedule. The use by the Company
of any proprietary rights relating to any Permit does not involve any claimed
infringement of such Permit or rights.
(iii) Environmental.
(a) The Company has no liability under, has never violated, and
is presently in compliance in all material respects with all environmental,
health or safety-related laws,
-11-
regulations, ordinances or by-laws at the federal, state and local level
(the "Environmental Laws") applicable to the Company Premises and any facilities
and operations thereon, except as listed in the Company Disclosure Schedule.
(b) There exist no conditions with respect to the environment on
the Company Premises, that could or do result in any damage, loss, cost,
expense, claim, demand, order or liability to or against the Company by any
third party including, without limitation, any condition resulting from the
operation of the business of the Company, except as set forth in the Company
Disclosure Schedule or except for such conditions which, individually or in the
aggregate, do not cause the Company to fail to comply in all material respects
with applicable Environmental Laws and contractual obligations.
(c) The Company has not generated, manufactured, refined,
transported, treated, stored, handled, disposed, transferred, produced, or
processed any pollutant, toxic substance, hazardous waste, hazardous material,
hazardous substance, or oil as defined in or pursuant to any Environmental Laws
("Hazardous Material") or any solid waste at the Company Premises, or at any
other location, except in compliance with all applicable Environmental Laws and
except as listed in the Company Disclosure Schedule.
(d) The Company has no knowledge of the releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping of any Hazardous Materials into the soil,
surface waters, ground waters, land, stream sediments, surface or subsurface
strata, ambient air, sewer system, or any environmental medium with respect to
the Company Premises ("Environmental Condition"), except as listed in the
Company Disclosure Schedule.
(e) No lien has been imposed on the Company Premises by any
governmental entity at the federal, state, or local level in connection with the
presence on or off the Company Premises of any Hazardous Material, except as
listed in the Company Disclosure Schedule.
(f) The Company has not (i) entered into or been subject to any
consent decree, compliance order, or administrative order with respect to the
Company Premises or any facilities or operations thereon; (ii) received notice
under the citizen suit provision of any of the Environmental Laws in connection
with the Company Premises or any facilities or operations thereon; (iii)
received any request for information, notice, demand letter, administrative
inquiry, or formal or informal complaint or claim with respect to any
Environmental Condition relating to the Company Premises or any facilities or
operations thereon; or (iv) been subject to or threatened with any governmental
or citizen enforcement action with respect to the Company Premises or any
facilities or operations thereon, except as set forth in the Company Disclosure
Schedule; and the Company has no knowledge that any of the above will be
forthcoming.
(g) The Company has all permits necessary pursuant to
Environmental Laws for the conduct of the Company's activities and operations at
the Company Premises and for any past or ongoing alterations or improvements by
the Company at the Company Premises, which permits are listed in the Company
Disclosure Schedule.
-12-
(h) None of the following exists at the Company Premises in
amounts or conditions which, individually or in the aggregate, cause the Company
to fail to comply in all material respects with applicable Environmental Laws:
(1) underground storage tanks, (2) asbestos-containing materials in any form or
condition, (3) materials or equipment containing polychlorinated biphenyls, (4)
lead paint, pipes or solder, or (5) landfills, surface impoundments or disposal
areas, except as listed in the Company Disclosure Schedule.
(i) The Company has provided to OS copies of all documents,
records and information in its possession or control or available to the Company
concerning Environmental Conditions relevant to the Company Premises or any
facilities or operations thereon, whether generated by Company or others,
including, without limitation, environmental audits, environmental risk
assessments, or site assessments of the Company Premises, documentation
regarding off-site disposal of Hazardous Materials, spill control plans, and
environmental agency reports and correspondence.
(j) The Company has taken or caused to be taken all actions
necessary to ensure that as of the consummation of the Offer the Company
Premises, all activities and operations thereon, and all alterations and
improvements thereto, comply in all material respects with all applicable
Environmental Laws and with any and all agreements with governmental entities,
court orders, and administrative orders regarding Environmental Conditions.
(iv) Product Requirements. Except as set forth on the Company
Disclosure Schedule, the manufacture, distribution and marketing of the
Company's products does not require the consent or approval of, or any filing
with, the United States Food and Drug Administration or any other governmental
agency. The Company sells its products at wholesale to distributors, retailers
and professionals for use by their customers and patients and, except for its
Protect and Repairs program, does not sell any of its products at retail or
directly to consumers or patients. The Company does not look to any governmental
agency (Medicare, Medicaid, etc.) or insurance carrier for payment for its
products. Accordingly, the Company does not require any Medicare/Medicaid or
similar vendor numbers or registrations. The activities of the Company do not
require that it or any of its employees qualify or maintain any professional
license or require that the Company or any of its employees obtain any
certification from a trade group or similar self-regulatory body.
(v) Government Relations. The Company has not, offered or agreed to
offer anything of value to any governmental official, political party or
candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect. Except as set forth on the
Company Disclosure Schedule, the Company is not a party to any government
contracts. The Company has not been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of any federal,
state, local or foreign government. The Company has never been the subject of
any regulatory or disciplinary proceeding by the United States Department of
Health and Human Services or any other federal or state agency relating to
Medicare, Medicaid or other health care reimbursement or insurance programs.
(vi) OSHA. The Company and the Company Premises comply in all material
respects with the Occupational Health and Safety Act ("OSHA") and the Company is
not subject to
-13-
any consent decree, compliance order, administrative order, or a
Cooperative Compliance Plan with respect to OSHA.
N. Inventories; Accounts Payable; Accounts Receivable.
(i) Inventory. The Company's Disclosure Schedule includes a complete
and accurate list of the Company's inventory, other than work in progress, as of
November 25, 2000 (the "Run"). The inventory of the Company consists of raw
materials and supplies, manufactured and purchased parts, goods in process and
finished goods, all of which are merchantable and fit for the purposes for which
they were procured or manufactured, and none of which is slow moving, obsolete,
damaged, or defective, subject to a reserve for inventory calculated in
accordance with generally accepted accounting principles applied on a basis
consistent with the past practices of the Company. The inventory of the Company
is valued in accordance with generally accepted accounting principles applied on
a basis consistent with the past practices of the Company.
(ii) Accounts Payable. The accounts and notes payable and other
accrued expenses reflected on the Interim Balance Sheet, and the accounts and
notes payable and accrued expenses incurred by the Company subsequent to August
26, 2000, are in all respects valid payables that arose in the ordinary course
of business. Since August 26, 2000, the accounts and notes payable and other
accrued expenses of the Company have been paid in a manner consistent with past
practice.
(iii) Accounts and Notes Receivable. The Company has delivered to OS a
complete and accurate list, as of November 25, 2000, of the accounts and notes
receivable of the Company (including without limitation receivables from and
advances to employees, officers, directors and consultants), which includes an
aging of all accounts and notes receivable showing amounts due in thirty (30)
day aging categories. All accounts and notes receivable of the Company
(collectively, the "Accounts Receivable") represent valid obligations arising
from sales actually made or services actually performed in the ordinary course
of business. The Company has no reason to believe that its Accounts Receivable
will not be collected in the ordinary course, net of any respective reserves
shown on the Company's books and records (which reserves are adequate and
calculated consistent with past practice). There currently is no contest, claim,
or right of setoff, other than rebates and returns in the ordinary course of
business, under any contract with any obligor of an Account Receivable relating
to the amount or validity of such Account Receivable.
O. Contractual and Other Obligations; Significant Customers. Set forth
in the Company Disclosure Schedule is a list as of the date of this Agreement of
all (i) contracts, agreements, licenses, leases, arrangements (written or oral)
and other documents to which the Company is a party or by which the Company or
any of the assets of the Company is bound (including, in the case of loan
agreements, a description of the amounts of any outstanding borrowings
thereunder and the collateral, if any, for such borrowings) other than contracts
or agreements under which the consideration to be paid by or received by the
Company is less than $12,500; (ii) obligations and liabilities of the Company
pursuant to uncompleted orders for the purchase of materials, supplies,
equipment and services for the requirements of the business of the Company with
respect to which the remaining obligation of the Company is in excess of
$12,500; (iii) all open purchase orders by the Company for the purchase or sale
of inventory, supplies and
-14-
equipment; and (iv) contingent obligations and liabilities of the Company;
all of the foregoing being hereinafter referred to as the "Contracts". All of
the Contracts are in full force and effect and (A) neither the Company nor, to
the best knowledge of the Company, any other party is in default, in any
material respect, in the performance of any covenant or condition under any
Contract and no claim of such a default has been made, (B) to the best knowledge
of the Company, no event has occurred which with the giving of notice or the
lapse of time would constitute a material default under any covenant or
condition under any Contract, (C) the Company has complied, in all material
respects, with all of its commitments and obligations and is not in default, in
any material respect, under any of the Contracts, and no notice of default has
been received with respect to any thereof, (D) to the Company's knowledge, each
party to a Contract other than the Company has complied, in all material
respects, with all of its commitments and obligations with respect to, and is
not in default, in any material respect, under any Contract and (E) there are no
Contracts that were not negotiated at arm's length. The Company is not a party
to any Contract which would terminate or be violated or under which its
obligations would be accelerated as a result of the consummation of the
transactions contemplated by this Agreement. Originals or true, correct and
complete copies of all Contracts have been provided to OS.
(a) The Company Disclosure Schedule sets forth a complete and
accurate list of all Significant Customers and Significant Suppliers. For
purposes of this Agreement, "Significant Customers" are the twenty (20)
customers that effected the most purchases, in dollar terms, from the Company
during the year ended August 26, 2000, and "Significant Suppliers" are the
twenty (20) suppliers who supplied the largest amount by dollar volume of
products or services to the Company during the year ended August 26, 2000.
(b) Except to the extent set forth on the Company Disclosure
Schedule and except for normal attrition which has not had a material adverse
effect on the Company's customer base, (i) none of the Company's Significant
Customers has canceled or substantially reduced or, to the knowledge of the
Company, is currently attempting or threatening to cancel or substantially
reduce, any purchases from the Company and (ii) none of the Company's
Significant Suppliers has canceled or substantially reduced or, to the knowledge
of the Company, is currently attempting to cancel or substantially reduce, the
supply of products or services to the Company. The Company has not received any
material customer complaints concerning its products and/or services, nor has it
had any of its products returned by a purchaser thereof except for normal
warranty returns consistent with past history and those returns that would not
result in a reversal of any material revenue.
P. Compensation. Set forth in the Company Disclosure Schedule is a
list of all agreements between the Company and each person employed by or
independently contracting with the Company with regard to compensation, whether
individually or collectively, and set forth in the Company Disclosure Schedule
is a list of all employees or independent contractors of the Company entitled to
receive annual compensation in excess of $40,000 and their respective salaries.
Except as provided in Section VIII. G and the Company Disclosure Schedule, the
transactions contemplated by this Agreement will not result in any liability for
severance pay to any employee or independent contractor of the Company. Except
as set forth on the Company Disclosure Schedule, since August 26, 2000, the
Company has not informed any employee or independent contractor providing
services to the Company who is entitled to receive compensation in excess of
$40,000 per annum, that such
-15-
person will receive any increase in compensation or benefits or any
ownership interest in the Company.
Q. Employee Benefit Plans. Except as set forth in the Company
Disclosure Schedule, the Company does not maintain or sponsor, or contribute to,
any pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plan.
All pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (hereinafter referred to as "ERISA"), in which the
Company's employees participate are hereinafter referred to as the "Benefit
Plans". All Benefit Plans comply in all material respects with all requirements
of the Department of Labor and the Internal Revenue Service, and with all other
applicable laws and regulations and the constituent documents and terms of such
Benefit Plans, and the Company has not taken or failed to take any action with
respect to the Benefit Plans which might create any liability on the part of the
Company except for claims in the ordinary course for benefits with respect to
the Benefit Plans and any requirements of the Company to contribute to a Benefit
Plan as set forth in the terms and conditions of such Benefit Plan. True,
correct and complete copies of the following documents with respect to each
Benefit Plan have been delivered by the Company to OS: (A) all documents
constituting the Benefit Plan, including but not limited to, trust agreements,
plan documents, insurance policies and amendments thereto, (B) the most recent
Forms 5500 or 5500 C/R and any financial statements attached thereto and those
for the prior three (3) years; (C) the Internal Revenue Service determination
letters; (D) the most recent Summary Plan Description; (E) all actuarial
valuations for the three (3) years preceding the date of this Agreement; (F) all
notices that have been given to the Company or such Benefit Plans within the
three (3) years preceding the date of this Agreement by the IRS, Department of
Labor, or any other governmental agency with respect to any Benefit Plan, and
(G) all employee manuals or handbooks containing personnel or employee relations
policies of the Company. No Benefit Plan contains any provision or is subject to
any legal requirement that would prohibit the transactions contemplated by this
Agreement or that would give rise to any vesting of benefits, severance,
termination or other payments or liabilities as a result of the transactions
contemplated by this Agreement. The Benefit Plans are not presently under audit
or examination (nor has notice been received of a potential audit or
examination) by the IRS, the Department of Labor or any other governmental
agency. With respect to each Benefit Plan, there has occurred no "prohibited
transaction" within the meaning of the Code or ERISA. In addition:
(i) Each Benefit Plan intended to qualify under Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue
Service as to its qualification;
(ii) Except as set forth in the Company Disclosure Schedule, the
Company does not maintain, sponsor or contribute to, and has never maintained,
sponsored or contributed to, a "defined benefit plan" (within the meaning of
Section 3(35) of ERISA) or a "multiemployer plan" (within the meaning of Section
3(37) of ERISA);
(iii) Except as set forth in the Company Disclosure Schedule, there
are no contributions which are or hereafter will be required to have been made
to trusts in connection with
-16-
any Benefit Plan that would constitute a "defined contribution plan"
(within the meaning of Section 3(34) of ERISA);
(iv) Other than claims in the ordinary course for benefits with
respect to the Benefit Plans, there are no actions, suits or claims (including
claims for income Taxes, interest, penalties, fines or excise Taxes with respect
thereto) pending with respect to any Benefit Plan, or, to the best knowledge of
the Company, any circumstances which might give rise to any such action, suit or
claim (including claims for income Taxes, interest, penalties, fines or excise
Taxes with respect thereto); and
(v) The Company has no obligation to provide health or other welfare
benefits to former, retired or terminated employees, except as specifically
required under Section 4980B of the Code or Section 601 of ERISA. The Company
has complied with the notice and continuation requirements of Section 4980B of
the Code and Section 601 of ERISA and the regulations thereunder.
R. Labor Relations. Since January 1, 1995, the Company has complied in
all material respects with all federal, state or local statutes, laws,
ordinances, rules, regulations, orders or directives with respect to the
employment of individuals by, or the employment practices or work conditions of,
the Company, or the terms and conditions of employment, wages and hours. The
Company is not engaged in any unfair labor practice or other unlawful employment
practice and there are no charges of unfair labor practices or other
employee-related complaints pending or, to the best knowledge of the Company,
threatened against the Company before the National Labor Relations Board, the
Equal Employment Opportunity Commission, the Occupational Safety and Health
Review Commission, the Department of Labor or any other federal, state, local or
other governmental authority. There is no strike, picketing, slowdown or work
stoppage or organizational attempt pending, threatened against (to the best
knowledge of the Company) or involving the business of the Company. No issue
with respect to union representation is pending or, to the best knowledge of the
Company, threatened with respect to the employees of the Company. No union or
collective bargaining unit or other labor organization has ever been certified
or recognized by the Company as the representative of any of the employees of
the Company.
S. Increases in Compensation or Benefits. Subsequent to August 26,
2000, there have been no increases in the compensation payable or to become
payable to any of the employees of the Company earning in excess of $40,000 per
annum and there have been no payments or provisions for any awards, bonuses,
loans, profit sharing, pension, retirement or welfare plans or similar or other
disbursements or arrangements for or on behalf of such employees (or related
parties thereof), in each case, other than as set forth in the Company
Disclosure Schedule. Except for bonuses that may be due to employees of the
Company for the current year as set forth in the Company Disclosure Schedule,
all bonuses heretofore granted to employees of the Company have been paid in
full to such employees. Pursuant to the Company's vacation policy, employees
earn three weeks vacation per year which can be carried forward for two years.
No employee of the Company is entitled to vacation time in excess of three weeks
in respect of the current calendar year and no employee of the Company has more
than six weeks accrued vacation time in respect of prior years or any accrued
sick time with respect to any prior year which can be carried forward.
-17-
T. Insurance. A list of each of the insurance policies maintained by
the Company is set forth in the Company Disclosure Schedule. Such insurance
policies are in full force and effect and all premiums due thereon prior to or
at the date hereof have been paid. The Company has complied in all material
respects with the provisions of such policies. Such insurance is of comparable
amounts and coverage as that which companies engaged in similar businesses
maintain in accordance with good business practices. Except as set forth on the
Company Disclosure Schedule, there are no notices of any pending or threatened
termination or premium increases (other than normal increases due on renewal),
with respect to any such policies. The Company has not had any material casualty
loss or occurrence which may give rise to any claim of any kind not covered by
insurance and the Company is not aware of any occurrence which may give rise to
any material claim of any kind not covered by insurance. No third party has
filed any claim against the Company for personal injury or property damage of a
kind for which liability insurance is generally available which is not fully
insured, subject only to the standard deductible. All claims against the Company
covered by insurance have been reported to the insurance carrier on a timely
basis. The Company Disclosure Schedule sets forth a list of all claims made
against such policies during the three (3) years preceding the date of this
Agreement as well as Xxxxxxx'x Compensation claims made within the three (3)
years preceding the date of this Agreement.
U. Conduct of Business. The Company is not restricted from
conducting business in any location by agreement or court decree.
V. Products.
(i) The Company Disclosure Schedule sets forth a listing and
description of the Company's products. Current catalogues and marketing
materials for all of the Company's current products, as well as descriptions of
all product research and development activities of the Company, have been
provided to OS. The Company's products have never been subject to any "recall"
whether initiated by the Company or by any governmental authority.
(ii) The Company has no obligation outside of the ordinary course of
business or pursuant to the terms and conditions of managed care contracts to
make allowances to any customers.
(iii) The Company Disclosure Schedule sets forth the Company's
standard product warranties and Company policies regarding warranty, refund,
replacement or adjustment of products. Except as set forth on the Company
Disclosure Schedule, within the past four years, the Company has not had any
products liability claims.
W. Use of Names. (i) All names under which the Company currently
conducts business and all names, trademarks and service marks by which it
identifies it products are listed in the Company Disclosure Schedule. To the
knowledge of the Company, except as set forth in the Company Disclosure
Schedule, there are no other persons or businesses conducting businesses similar
to those of the Company in the States of New York, New Jersey and California or
in the United Kingdom having the right to use or using the names set forth in
the Company Disclosure Schedule or any variants of such names; and within the
past three years no person or business has attempted to restrain the Company
from using such names or any variant thereof. Except as
-18-
indicated in the Company Disclosure Schedule, none of such names are
registered trademarks, trade names, service marks or service names under federal
or state law.
(ii) All websites, URL's, domain names and related registrations of
the Company are identified on the Company Disclosure Schedule. The Company
Disclosure Schedule identifies the hosting agency of all Company websites. The
Company owns or validly licenses all Intellectual Property (as defined below)
relating to its Websites and all software and web development vendors utilized
by the Company in the development of its websites have been paid in full.
X. Power of Attorney. The Company has not granted any power of
attorney or proxy (revocable or irrevocable) to any person, firm or corporation
for any purpose whatsoever.
Y. Intellectual Property.
(a) The Company is the true and lawful owner of, or is licensed
or otherwise possesses legally enforceable rights to use, the registered and, to
its knowledge, the unregistered Marks (as defined below) listed on the Company
Disclosure Schedule. Such Schedule lists (i) all of the Marks registered in the
United States Patent and Trademark Office ("PTO") or the equivalent thereof in
any state of the United States or in any foreign country, and (ii) all of the
unregistered Marks, that the Company now owns or uses in connection with its
business. Except with respect to those Marks shown as licensed on the Company
Disclosure Schedule, the Company owns all of the Marks. The Marks listed on the
Company Disclosure Schedule will not cease to be valid rights of the Company by
reason of the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby. For purposes of this
Agreement, the term "Xxxx" shall mean all right, title and interest in and to
any United States or foreign trademarks, service marks and trade names now held
by the Company, including any registration or application for registration of
any trademarks and services marks in the PTO or the equivalent thereof in any
state of the United States or in any foreign country, as well as any
unregistered marks used by the Company, and any trade dress (including logos,
designs, company names, business names, fictitious names and other business
identifiers) used by the Company in the United States or any foreign country.
(b) The Company is the true and lawful owner of, or is licensed
or otherwise possesses legally enforceable rights to use, all rights in the
Patents (as defined below) listed on the Company Disclosure Schedule and in the
Copyright (as defined below) registrations listed on the Company Disclosure
Schedule. Such Patents and Copyrights constitute all of the Patents and
Copyrights that the Company now owns or is licensed to use. The Company owns or
is licensed to practice under all Patents and Copyright registrations that the
Company now owns or uses in connection with its business. For purposes of this
Agreement, the term "Patent" shall mean any United States or foreign patent to
which the Company has title as of the date of this Agreement, as well as any
application for a United States or foreign patent made by the Company; the term
"Copyright" shall mean any United States or foreign copyright owned by the
Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign country, as well as any application for a United States or foreign
copyright registration made by the Company.
-19-
(c) The Company owns or is licensed to practice under all
technology, inventions, know how, trade secrets, franchises, or similar rights
(collectively, "Other Rights") that it owns, uses or practices under, except for
such Other Rights that are not material to its business.
(d) The Marks, Patents and Copyrights listed on the Company
Disclosure Schedule and the Other Rights are referred to collectively herein as
the "Intellectual Property." The Intellectual Property owned by the Company is
referred to herein collectively as the "Company Intellectual Property." All
other Intellectual Property is referred to herein collectively as "Third Party
Intellectual Property." Except as indicated on the Company Disclosure Schedule,
the Company has no obligations to compensate any person for the use of any
Intellectual Property nor has the Company granted to any person any license,
option or other rights to use in any manner any Intellectual Property, whether
requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Third Party Intellectual Property license,
sublicense or agreement. No claims with respect to the Company Intellectual
Property or Third Party Intellectual Property are currently pending or, to the
knowledge of the Company, threatened against the Company by any person, nor, to
the Company's knowledge, do any grounds for any claims exist: (i) to the effect
that the manufacture, sale, licensing or use of any product as now used, sold or
licensed or proposed for use, sale or license by the Company infringes on any
copyright, patent, trademark, service xxxx or trade secret; (ii) against the use
by the Company of any trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer software programs and applications
used in the Company's business as currently conducted by the Company; (iii)
challenging the ownership, validity or effectiveness of any of the Company
Intellectual Property or other trade secret material of the Company; or (iv)
challenging the Company's license or legally enforceable right to use of Third
Party Intellectual Property. To the Company's knowledge, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property by any third party. Neither the Company nor any of its
Subsidiaries (x) has been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim or infringement of
trade secrets, any patents, trademarks, service marks, or copyrights and which
has not been finally terminated or been informed or notified by any third party
that the Company may be engaged in such infringement or (y) has knowledge of any
infringement liability with respect to, or infringement by, the Company or any
of its Subsidiaries of any trade secret, patent, trademark, service xxxx, or
copyright of another.
(f) Except as set forth on the Company Disclosure Schedule, all
Intellectual Property relating to the business of the Company which originated
with employees, officers, directors and consultants of the Company has been
validly transferred, licensed and assigned to the Company and is not separately
owned or retained by such persons or entities.
Z. Litigation; Disputes. Except as set forth on the Company Disclosure
Schedule, (i) there is no litigation, action, suit or proceeding pending or, to
the best knowledge of the Company, threatened against or affecting the Company,
its business or any of the assets of the Company and (ii) to the knowledge of
the Company there is no basis for any litigation, action, suit or proceeding for
an amount in excess of $12,500, against or affecting the Company, its business
or any of the assets of the Company. The Company has no knowledge of any default
under any such
-20-
action, suit or proceeding set forth in the Company Disclosure Schedule.
The Company is not in default in respect of any judgment, order, writ,
injunction or decree of any court or of any federal, state, municipal or other
government department, commission, bureau, agency or instrumentality or any
arbitrator.
AA. Computer Software. The Company has the right to use all computer
software, including all property rights constituting part of the computer
software, used in connection with the Company's business operations (the
"Computer Software") except where the lack of such rights in "off-the-shelf"
software, individually or in the aggregate, are not material. Except for
Immaterial Defaults there are no existing defaults or events which with notice
or lapse of time or both would constitute defaults under the terms and
conditions of the applicable agreements under which the Company uses the
Computer Software. A list of all written licenses pertaining to the Computer
Software is set forth in the Company Disclosure Schedule (the "Licenses"). The
Company has no knowledge that any of the Licenses may not be valid or
enforceable by the Company or that the use of the Computer Software or any of
the Licenses may infringe upon or conflict with the rights of any third party.
The Company has not granted any licenses to use the Computer Software or any
sub- licenses with respect to any of the Licenses.
BB. Finders' Fees. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of the Company or any Subsidiary who might be entitled to any fee or commission
in connection with the transactions contemplated by this Agreement, except for
the Financial Advisor which will receive a fee for rendering its opinion.
CC. Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
DD. Bank Accounts. The Company Disclosure Schedule sets forth a
complete and accurate list as of the date of this Agreement, of all bank,
investment, brokerage, money market and related accounts or safe deposit boxes
of the Company and the name of each person authorized to draw thereon or have
access thereto.
EE. Disclosure. No representation or warranty made under any Section
hereof and none of the information set forth herein or in the Company Disclosure
Schedule contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
No representations or warranties are made by the Company except as set forth in
this Agreement or in the Company Disclosure Schedule.
-21-
SECTION IV
REPRESENTATIONS AND WARRANTIES,
OF OS AND PURCHASER
Each of OS and Purchaser hereby represents and warrants jointly and
severally to the Company that as of the date hereof and as of the Closing Date:
A. Organization. Each of OS and Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has full corporate power and authority to own its properties and to
conduct the businesses in which it is now engaged.
B. Authority. Each of OS and Purchaser has the full legal right,
corporate power and authority to enter this Agreement and perform the
transactions contemplated hereby and to perform their respective obligations
pursuant to the Agreement. The execution and delivery of this Agreement by each
of OS and Purchaser, the performance by each of OS and Purchaser of its
respective covenants and agreements hereunder and the consummation by each of OS
and Purchaser of the transactions contemplated hereby have been duly authorized
by all necessary corporate action, and this Agreement constitutes a valid and
legally binding obligation of OS and Purchaser, respectively, enforceable
against each of them in accordance with its terms, except that the
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws, affecting creditors rights
generally, and general principles of equity.
C. No Legal Bar; Conflicts. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the certificate of incorporation or by-laws of either
OS or Purchaser or any statute, ordinance, regulation, order, judgment or decree
of any court or governmental agency or board, or conflicts with or will result
in any breach of any of the terms of or will constitute a default under or
result in the termination of or the creation of any lien pursuant to the terms
of any contract or agreement to which either OS or Purchaser is a party or by
which either OS or Purchaser or any of their assets is bound.
D. Ownership. OS owns 100% of the issued and outstanding capital
stock of Purchaser.
E. Corporate Affiliations. Set forth on the OS Disclosure Schedule
(the "OS Disclosure Schedule") are lists of the officers and directors of
Purchaser and OS, and the identity of all shareholders of Purchaser and OS.
Except for shares of capital stock of OS owned by the shareholders identified on
the OS Disclosure Schedule, there are outstanding, (1) no shares of capital
stock or other voting securities of OS or Purchaser, (2) no securities of OS or
Purchaser convertible into or exchangeable for shares of capital stock or voting
securities of OS or Purchaser, and (3) no options, warrants or other rights to
acquire from OS or Purchaser, and no obligation of OS or Purchaser to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of OS or Purchaser.
-22-
F. Prior Activities. Each of Purchaser and OS was organized no earlier
than September, 2000. Except for its organizational activities and activities
related to the negotiation, delivery and consummation of this Agreement,
including activities related to the financing of the transactions contemplated
hereby, neither OS nor Purchaser has engaged in any substantive business
activities. OS and Purchaser have not incurred any liabilities or have any
commitments other than in connection with the transactions contemplated by this
Agreement.
G. Litigation. There is no action or proceeding pending, or to the
best knowledge of OS and Purchaser and related investors, threatened
against or affecting OS or Purchaser and to the knowledge of OS and Purchaser
there is no basis for any such action or proceeding.
H. Funds. Purchaser has received binding commitments from shareholders
of OS and related investors to deliver to Purchaser at the Closing the funds
necessary to consummate the purchase of the Shares in accordance with the Offer,
or to purchase the Shares to be acquired pursuant to the Offer, and to pay the
expenses of OS and Purchaser in connection with the transactions contemplated
hereby. Such shareholders and related investors have the financial wherewithal
to provide the funding to which they are committed.
I. Contractual Obligations. Set forth on the OS Disclosure Schedule is
a list of all contracts, agreements, licenses, leases, arrangements (written or
oral) and other documents to which either OS or Purchaser is a party or by which
OS or Purchaser or any of their respective assets is bound other than contracts
or agreements under which the consideration to be paid or received by OS or
Purchaser is less than $12,500.
J. Disclosure. No representation or warranty made by OS or Purchaser
under any Section hereof and none of the information set forth herein or in the
OS Disclosure Schedule by OS or Purchaser contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein not misleading. No representations or warranties are made by
OS or Purchaser except as set forth in this Agreement or in the OS Disclosure
Schedule.
SECTION V
COVENANTS OF THE COMPANY
The Company agrees that:
A. Interim Operations of the Company. The Company covenants and agrees
that, prior to the earlier of the purchase of the Shares pursuant to the Offer
or the termination of this Agreement in accordance with its terms (unless
Purchaser or OS shall otherwise agree in writing and except as otherwise
expressly contemplated by this Agreement):
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary and usual course and the Company and each of its
Subsidiaries shall use commercially reasonable efforts to preserve its business
organization intact and maintain its existing
-23-
relations with customers, suppliers, employees, creditors and business
associates in the ordinary and usual course of business;
(b) the Company shall not (i) sell or pledge or agree to sell or
pledge any stock owned by it in any of its Subsidiaries; (ii) amend its
Certificate of Incorporation or By-Laws; (iii) split, combine or reclassify the
outstanding Shares; or (iv) declare, set aside or pay any dividend payable in
cash, stock or property with respect to the Shares;
(c) neither the Company nor any of its Subsidiaries shall (i)
issue, sell, pledge, dispose of or encumber any additional shares of, or
securities convertible or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of any
class of the Company or any Subsidiary or any other property or assets (other
than, in the case of the Company, Shares issuable pursuant to the Options
outstanding on the date hereof which are not to be redeemed pursuant to Section
V.G.); (ii) transfer, lease, license, guarantee, sell, mortgage, pledge, dispose
of or encumber any assets other than the sale of inventory and the sale or
disposal of assets of insignificant value in the ordinary and usual course of
business; (iii) incur or modify any indebtedness; provided, however, that the
Company's loan agreement with American National Bank (as extended) will
terminate on the earlier to occur of February 28, 2001 or the Closing Date and
at such time the Company will repay the approximately $90,000 owed to such
institution; (iv) acquire directly or indirectly by redemption or otherwise any
shares of the capital stock of the Company; (v) make or authorize capital
expenditures other than in the ordinary and usual course of business and in
amounts not exceeding those contemplated by the Company's current capital
expenditure budget set forth in the Company Disclosure Schedule; or (vi) make or
authorize any acquisition of, or investment in, assets or stock of any other
person or entity or merge or consolidate with any person or entity;
(d) except as provided in Sections VIII. F and VIII. G or on the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
shall grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer, employee or consultant of the
Company or its Subsidiaries; and neither the Company nor any of its Subsidiaries
shall establish, adopt, enter into, make any new grants or awards under or
amend, any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, employee stock ownership,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement or any other benefit plan for the
benefit of any directors, officers or employees;
(e) except as set forth on the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries shall (i) settle or compromise
any claims or litigation (including any claims for Taxes made by a Governmental
Entity) whereby the Company would be liable for in excess of $12,500, (ii)
modify, amend or terminate any of its material contracts or waive, release or
assign any material rights or claims, (iii) cancel or forgive any indebtedness
owed to the Company or any of its Subsidiaries by any officer, director,
employee or consultant of the Company or any of its Subsidiaries, or (iv) cancel
or forgive any other indebtedness owed to the Company or any of its Subsidiaries
other than inter-company debt;
-24-
(f) neither the Company nor any of its Subsidiaries shall make
any Tax Election for a Tax Return or permit any insurance policy naming it as a
beneficiary or a loss payable payee to be canceled or terminated;
(g) neither the Company nor any of its Subsidiaries shall enter
into any contract or agreement under which the consideration to be paid or
received by the Company exceeds $15,000 other than open purchase orders for
materials or inventory in the ordinary course of business;
(h) neither the Company nor any of its Subsidiaries knowingly
shall take or fail to take any action that (i) is reasonably likely to result in
any failure of the Offer, unless such action is taken by the Board after
consultation with Company counsel to fulfill its fiduciary obligations to the
Company's shareholders; or (ii) is reasonably likely to make any representation
or warranty of the Company contained herein inaccurate at, or as of any time
prior to, Purchaser's purchase of Shares pursuant to the Offer; and
(i) neither the Company nor any of its Subsidiaries will
authorize or enter into an agreement to do any of the foregoing.
B. Access to Information. From the date hereof until the earlier of
the purchase of the Shares or the termination of this Agreement in accordance
with its terms, upon reasonable prior notice during normal business hours, the
Company will give OS, its counsel, financial advisors, accountants and other
authorized representatives reasonable access to the offices, properties, books
and records of the Company and its Subsidiaries, will furnish to OS, its
counsel, financial advisors, accountants and other authorized representatives
such financial and operating data and other information as such persons may
reasonably request and will instruct the Company's employees, counsel and
financial advisors to cooperate with OS in its investigation of the business of
the Company and its Subsidiaries; provided that no investigation pursuant to
this Section shall affect any representation or warranty given by the Company to
OS hereunder.
C. Other Offers. From the date hereof until the earlier of the
purchase of the Shares or the termination of this Agreement in accordance with
its terms, the Company and its Subsidiaries and the officers, directors,
employees or other agents of the Company and its Subsidiaries and any other
related party will not, directly or indirectly, (i) take any action to solicit,
initiate or encourage any Company Acquisition Proposal (as defined below) or
(ii) unless otherwise required in accordance with the fiduciary duties of the
Board under applicable law as advised by counsel to the Company, engage in
discussions or negotiations with, or disclose any nonpublic information relating
to the Company or any of its Subsidiaries or afford access to the properties,
books or records of the Company or any of its Subsidiaries to, any Person that
may be considering making, or has made, a Company Acquisition Proposal. The
Company will promptly notify OS after receipt of any Company Acquisition
Proposal or any request for nonpublic information relating to the Company or any
of its Subsidiaries or for access to the properties, books or records of the
Company or any of its Subsidiaries by any Person that may be considering making,
or has made, a Company Acquisition Proposal. For purposes of this Agreement,
"Company Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger, consolidation, reorganization,
recapitalization or other business combination involving the Company or any of
its
-25-
Subsidiaries or the acquisition of any equity interest in, or a substantial
portion of the assets of, the Company or any of its Subsidiaries, whether
pursuant to a tender offer or otherwise, other than the transactions
contemplated by this Agreement.
D. Notices of Certain Events. The Company shall promptly notify OS
of, and in the case of the items in clauses (i) through (v) provide, if
applicable, OS with copies of:
(i) any notice or other communication from any Person alleging that
the consent of such Person (or another Person) is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge, threatened against, relating to or
involving or otherwise affecting the Company or any of its Subsidiaries which,
if pending on the date of this Agreement, would have been required to have been
disclosed pursuant to the terms hereof or which relate to the consummation of
the transactions contemplated by this Agreement; and
(iv) the receipt by the Company of any documents, records,
environmental agency reports and correspondence related to or concerning any
Environmental Condition relevant to the Company Premises or any facilities or
operations thereon, or any off-site disposal of Hazardous Wastes; and
(v) the occurrence of any Company Material Adverse Effect.
E. Financial Reports. No later than fifteen days (22 days in the case
of December, 2000) after the end of each fiscal month commencing with November
2000 and continuing through the earlier of the purchase of the Shares or the
termination of this Agreement in accordance with its terms, the Company shall
deliver to OS unaudited, consolidated and consolidating financial statements
(without footnotes) as at the end of such month, including balance sheets,
statements of operations and statements of cash flows (collectively, the
"Financials"), which Financials shall in the case of each month which is the end
of a fiscal quarter of the Company be prepared also on a quarterly basis.
F. Takeover Statute. If any "fair price", "moratorium", "control share
acquisition", "business combination," "interested stockholder" or other similar
antitakeover statute, regulation or provision contained in the New York Business
Corporation Law ("BCL") or the Company's Certificate of Incorporation or Bylaws
(each a "Takeover Statute") becomes applicable to the transactions contemplated
hereby, the Company, to the extent reasonably possible, and consistent with
fiduciary duties and applicable law, shall grant such approvals and take such
actions and execute and deliver such documents and instruments as are necessary
so that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of such statute or regulation on the transactions
contemplated hereby.
-26-
G. Existing Options. Prior to the purchase of the Shares the
Company will redeem from each of the individuals set forth on Schedule V. G the
Options to purchase Shares set forth opposite their respective names. The
aggregate redemption price to be paid to each individual will be the amount
indicated on Schedule V. G.
H. Provision of Information. During the period commencing as of the
date hereof and ending on the Closing Date, Xxxxxx X. Xxxxxx, the Chairman of
OS, and Xxxxxxx X. Xxxxx, the Chairman of the Company, will coordinate so as to
provide Xx. Xxxxxx with data and information on the Company's operations.
I. Interim Employment. From the date hereof through the earlier of the
Closing Date or the termination of this Agreement, Xx. Xxxxxx shall be employed
by the Company in an advisory capacity and be appointed an "Observer" to the
Board with the right to receive all notices and reports provided to the Board
and to attend all meetings of the Board except that he shall not be able to
receive reports or vote, and shall recuse himself from all deliberations
regarding the transactions contemplated by this Agreement or the Company's
relationship with Xx. Xxxxxx, OS or Purchaser (if a meeting relates solely to
the transactions contemplated by this Agreement, it is contemplated that Xx.
Xxxxxx will not be invited to attend such meeting). Xx. Xxxxxx shall not receive
any compensation for services rendered prior to the consummation of the Offer,
but shall be reimbursed for agreed upon expenses.
J. Individual Options. The Stock Option Agreement between the Company
and Xx. Xxxxxx dated the date hereof in the form of Exhibit V. J(i) (providing
for the grant of options concurrently herewith), shall be effective on the date
hereof. Such Stock Options shall not become exercisable until, without
limitation, the Closing Date and the approval by the Stockholders of the Company
of an increase in the shares underlying the Stock Option Plan. The Board has
confirmed its acceptance of the terms of the Stock Option Agreement with Xx.
Xxxxxx in a resolution adopted by the Board. The Company shall not be deemed in
violation of the covenants in this Section V. J if Xx. Xxxxxx elects not to
serve the Company or the Company has the right to terminate his employment and
Stock Option Agreement for "Cause" as reasonably determined by the Board.
K. Option Grant. To enable OS to fund the growth of the Company, the
Company will grant to OS or its designees effective the Closing Date an option
to purchase up to 1,400,000 Shares (the "OS Options"). The OS Options shall be
exercisable for a period of one- hundred eighty days commencing on the Closing
Date. The exercise price of the OS Options shall initially be $1.525 per share;
shall increase to $1.550 per share ninety-one days after the Closing Date, shall
increase to $1.575 per share one-hundred twenty one days after the Closing Date
and shall be $1.60 per share from the one-hundred fifty first day after the
Closing Date until the expiration of the OS Options. The OS Options shall be
evidenced by an Option Agreement in the form of Exhibit V. K.
The Offer Documents will disclose that the OS Options may or may not
be exercised; that the Company may need additional financing to achieve its
growth objectives and that, subject to approval of the then current Board,
financing may be provided by OS or other related parties upon other terms,
including by the purchase of convertible notes or preferred stock of the Company
or
-27-
other methods and the sale prices, conversion prices, or the exercise
prices of such securities may be lower or higher than the exercise price of the
OS Options or the then current market price of the Shares.
L. Transaction Costs. It is estimated that the legal fees and fairness
opinion costs incurred by the Company in connection with the negotiation,
documentation and consummation of the transactions contemplated hereby
(collectively, the "Transaction Costs") shall be $150,000. The Company shall
notify OS if the Transaction Costs are reasonably expected to exceed that
amount.
M. Filings. The Company shall comply with all requirements imposed
upon it by the Exchange Act and the rules and regulations promulgated
thereunder. All reports required by the Exchange Act and such rules and
regulations will be timely filed, will comply with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder, and will 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 light of the circumstances in which they were made, not misleading.
SECTION VI
DIRECTORS OF THE COMPANY
The Company will use its best efforts to facilitate the election to
the Board, effective as of the purchase of (i) at least a majority of the issued
and outstanding Shares and, (ii) subject to the conditions of the Offer, all
Shares tendered pursuant to the Offer, of Xxxxxx X. Xxxxxx and, at Purchaser's
option, four additional persons designated by Purchaser subject to the
reasonable approval by the Board of each designee. Further, the Company will use
its best efforts to facilitate the resignation, effective as of the purchase of
(i) at least a majority of the issued and outstanding Shares and, (ii) subject
to the conditions of the Offer, all Shares tendered pursuant to the Offer, of
Xxxxxxx Xxxxxx, Xxxxxx Xxxxxxx and Xxxxxxx Xxxxx from the Board. Upon the
purchase of Shares pursuant to the Offer, the Company, if so requested by
Purchaser, will use reasonable efforts to facilitate the appointment of such
persons designated by Purchaser necessary to constitute the same proportionate
representation of each committee of the Board, each board of directors of each
Subsidiary and each committee of each such board (in each case to the extent of
the Company's ability to elect such persons) as Purchaser's representatives
constitute of the Board. The Company's obligations to facilitate the appointment
of designees of Purchaser to the Board shall be subject to Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly
take all actions required pursuant to such Section and Rule in order to fulfill
its obligations under this Section and shall include in the Schedule 14D-9, or
in a separate Rule 14f-1 information statement provided to stockholders, such
information with respect to the Company and its officers and directors as is
required under Section 14(f) and Rule 14f-1 to fulfill its obligations under
this Article. Purchaser will supply to the Company and will be solely
responsible for any information with respect to Purchaser and its nominees,
officers, directors and affiliates required by Section 14(f) and Rule 14f-1.
-28-
SECTION VII
COVENANTS OF OS AND PURCHASER
OS and Purchaser each agree that:
A. Access to Information. From the date hereof until the earlier of
the purchase of the Shares or the termination of this Agreement in accordance
with its terms, OS and Purchaser will give the Company, its counsel, financial
advisors, accountants and other authorized representatives reasonable access to
the properties, books and records of OS and Purchaser and will furnish to the
Company, its counsel, financial advisors, accountants and other authorized
representatives such financial data and other information as such persons may
reasonably request to confirm the ability of OS and Purchaser to comply with
their agreements herein; provided that no investigation pursuant to this Section
shall affect any representation or warranty given by OS or Purchaser to the
Company.
B. Purchase of Shares. Subject to the terms and conditions of this
Agreement each of OS and Purchaser agrees that it will take all actions
necessary to perform its obligations hereunder and to cause Purchaser to
purchase the Shares on the terms and conditions of the Offer, including, but not
limited to such actions as are necessary or appropriate to ensure that
Purchaser, on a timely basis, has the funds necessary to purchase the Shares.
C. Takeover Statute. If any Takeover Statute becomes applicable to the
transactions contemplated hereby, each of OS, Purchaser and their respective
Board of Directors, to the extent reasonably possible, and consistent with
fiduciary duties and applicable law, shall grant such approvals and take such
actions and execute and deliver such documents and instruments as are necessary
so that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of such statute or regulation on the transactions
contemplated hereby.
SECTION VIII
COVENANTS OF OS, PURCHASER AND THE COMPANY
The parties hereto agree that:
A. Best Efforts. Subject to the terms and conditions of this
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement.
B. Public Announcements. The initial press release relating to the
execution of this Agreement shall be a joint press release and thereafter the
Company and Purchaser, unless they have previously agreed in writing to the
contrary, will not issue any press release or otherwise make a public statement
with respect to the transactions contemplated hereby or make any filings with
any
-29-
governmental authority or with any national securities exchange with respect
thereto, unless in the opinion of the party desiring to make such disclosure,
such disclosure is required by or consistent with applicable law or NASDAQ rule
or regulation, and in such event the party making the press release or public
statement shall provide a draft to the other party hereto and provide the other
party the opportunity to comment thereon in a timely manner, unless emergency
circumstances preclude such procedure.
C. Confidentiality. In the course of the discussions, negotiations and
due diligence conducted in furtherance of the transactions contemplated hereby,
each party (on its own or through its agents) has and may disclose to the other
certain proprietary, confidential or other non- public information
(collectively, the "Information") relating to its respective business, the
proprietary, confidential and non-public nature of which information both
parties desire to maintain. Except as herein set forth, neither party shall (a)
reveal or make known to any person, firm, corporation or entity or (b) utilize
in its own business or (c) make any other usage of, any Information heretofore
or hereafter disclosed to it by the other (on its own or through its agents) in
connection with the discussions, negotiations and due diligence activities above
mentioned. A party's obligations with respect to any item of Information
disclosed to it shall terminate if that item of Information becomes disclosed in
published literature or otherwise becomes generally available to the public;
provided, however, that such public disclosure did not result, directly or
indirectly, from any act, omission or fault of such party with respect to that
item of Information. Further, this paragraph shall not apply to any item of
Information which at the time of disclosure was already generally available to
the public or which, prior to July 26, 2000, was already in the possession of
the party intending to utilize the item of Information and was not acquired by
such party, directly or indirectly, from the other party to this Agreement, or
is required to be disclosed under court order, subpoena or other legal process
or disclosure required pursuant to applicable law. Both parties agree that the
Information it either has received or may receive from the other has been and
will be used by the receiving party solely for the limited purpose of its
investigation and evaluation of the other party in connection with the potential
Offer.
Notwithstanding this Section, the Company acknowledges that OS has
disclosed and may need to disclose Information of the Company to the individuals
or entities providing the financing to enable Purchaser to purchase the Shares
and their representatives as well as to governmental agencies under federal and
state securities laws and the Company hereby consents to the same; provided that
any such disclosure is accompanied by a copy of these provisions regarding
confidentiality concerning the transaction contemplated herein and the party
receiving the Information agrees to abide by the terms hereof. The Company
further agrees that OS can disclose such Information as OS, in consultation with
its counsel, determines it is necessary or appropriate to disclose in connection
with any filing required by the SEC, including the Offer Documents and any
filing made subsequent thereto to advise the shareholders of the Company of
material information related to the Offer, and any related press release in
connection with the transactions contemplated hereby. OS and the Purchaser agree
that the Company can disclose such Information and such information regarding OS
and Purchaser, as the Company, in consultation with its counsel, determines it
is necessary or appropriate to disclose in connection with any filing required
by the SEC, including the Offer Documents and any filing made subsequent thereto
to advise the shareholders of the Company of material information related to the
Offer, and any related press release in connection with the transactions
contemplated hereby.
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D. Certain Filings; Other Actions.
(i) Subject to the terms and conditions herein provided, the Company,
OS and Purchaser shall: (i) promptly make their respective regulatory filings
with respect to the Offer; and (ii) use all reasonable efforts to promptly take,
or cause to be taken, all other action and do, or cause to be done, all other
things necessary, proper or appropriate under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including but not limited to cooperating in the preparation and filing of the
Offer Documents, the Schedule 14D-9 and any amendments to any thereof. The
Company shall use all reasonable efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company and the Subsidiaries as
are necessary for the Company and the Subsidiaries to consummate the
transactions contemplated by this Agreement and to fulfill the conditions to the
Offer. OS and Purchaser shall use all reasonable efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with OS and Purchaser as are
necessary for OS and Purchaser to consummate the transactions contemplated by
this Agreement. Notwithstanding anything contained herein to the contrary,
Purchaser shall be under no obligation whatsoever to make or accept or engage in
negotiations for any settlement with any governmental entity or any other
arrangement involving the sale, disposition, or separate holding, through the
establishment of a trust, or otherwise, of the business or any of the assets of
the Company or the Subsidiaries acquired pursuant to this Agreement, or any
portion thereof, or particular assets of Purchaser or its subsidiaries in order
to complete the transactions contemplated herein.
(ii) The Company, on the one hand, and Purchaser and OS, on the other,
each shall keep the other apprised of the status of matters relating to
completion of the transactions contemplated hereby, including promptly
furnishing the other with copies of notices or other communications received by
Purchaser, OS or the Company, as the case may be, or any of their subsidiaries,
from any governmental entity with respect to the Offer or any of the other
transactions contemplated by this Agreement.
E. Directors' and Officers' Insurance. After the purchase of Shares
pursuant to the Offer, the Company shall continue to maintain the Company's
existing officers' and directors' liability insurance ("D&O Insurance") for a
period of three years, provided, however, that (x) the Company may substitute
therefor policies (which may be "tail" policies) containing terms with respect
to coverage and amount no less favorable in any material respect to such
directors and officers, and (y) if the existing D&O Insurance expires, is
terminated or canceled during such three- year period, the Company will use
commercially reasonable efforts to obtain similar D&O Insurance.
F. Certain Compensation. Notwithstanding anything in this Agreement
to the contrary, the Company is permitted to pay up to $25,000 in the aggregate
to its directors for services rendered in their active roles in connection with
the negotiation of the transactions contemplated by this Agreement, of which
$12,500 was paid prior to the date hereof.
G. Bonus. If the Net Worth and the Net Working Capital (as such terms
are defined below) of the Company as of the end of the Company's fiscal month
immediately preceding
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the month during which the Closing occurs (the "Target Date") are equal to
or greater than $2,522,500 and $1,917,500 respectively (the "Target Net Worth"
and "Target Working Capital") the Company shall pay to Xxxxxx Xxxxxx, Xxxxxx
Xxxxxxxx and Xxxxxx Xxxxxxxx $10,000, $15,000 and $10,000 respectively. If the
Net Worth as of the Target Date exceeds the Target Net Worth and the Net Working
Capital as of the Target Date exceeds the Target Working Capital then, in
addition to the amounts provided in the immediately preceding sentence, Messrs.
Xxxxxx, Xxxxxxxx and Xxxxxxxx will each be paid 10% of the lesser of (x) the Net
Worth as of the Target Date over the Target Net Worth and (y) the Net Working
Capital as of the Target Date over the Target Working Capital, up to the maximum
additional amount of $10,000 each. Notwithstanding the foregoing, and subject to
the following sentence, the bonuses paid under this Section to Messrs. Archbold
and Xxxxxxxx will be a guaranteed minimum of $5,000 each. The bonuses provided
for in this Section will be payable to any of Messrs. Xxxxxx, Xxxxxxxx and
Xxxxxxxx only if the Closing occurs under this Agreement and only if such
individual is employed by the Company for at least ninety days following the
purchase of the Shares (or is terminated prior to such date without cause) and
will be paid, less applicable withholding taxes, no later than 120 days after
such date.
For purposes of this agreement, "Net Working Capital" of the Company
as of the Target Date is defined as the excess of the inventory, accounts
receivable and cash of the Company as of the Target Date over the trade accounts
payable, accrued payroll, accrued payroll taxes and the other current
liabilities of the Company as of the Target Date. For purposes of this
Agreement, the "Net Worth" of the Company as of the Target Date shall mean the
excess of the total assets of the Company over the total liabilities of the
Company, in each case as of the Target Date.
The Net Worth and Net Working Capital of the Company shall be computed
by the Company's Chief Financial Officer and verified by Purchaser's accountants
in accordance with generally accepted accounting principles applied on a basis
consistent with the past practices of the Company, except as specifically
provided herein.
In computing the Company's Net Worth and Net Working Capital, no
accrual shall be taken or amounts otherwise deducted for the bonuses payable
pursuant to this Section or for the legal, accounting, printing, transfer agent,
fairness opinion and other expenses incurred by the Company in connection with
the transactions contemplated hereby.
SECTION IX
CONDITIONS TO THE OFFER
A. Conditions to the Obligations of OS and Purchaser. The
obligations of OS and Purchaser to consummate the purchase of the Shares
pursuant to the Offer are subject to the satisfaction or waiver of the following
conditions:
(i) Effective on the Closing Date, Xx. Xxxxxx shall have been elected
President and Chief Executive Officer of the Company (unless he declines to
serve as such) and the employment of Xx. Xxxxxx shall not have been terminated
by the Company without "Cause," as reasonably determined by the Board of
Directors;
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(ii) The Company or the Board, shall have received the written opinion
of the Financial Advisor, that the terms of the Offer are fair, from a financial
point of view, to the stockholders of the Company and such opinion shall not
have been withdrawn;
(iii) Xxxxxxx X. Xxxxx, Xxxxxxx Xxxxxx, Xxxxxx X. Xxxxxxx and Xxxxxx
Xxxxxxx shall have resigned from the Company's Board of Directors, provided,
however, that Purchaser has designated Xxxxxx X. Xxxxxx, and/or another director
who shall be reasonably acceptable to the Board, willing to serve as a director.
Xxxxxx X. Xxxxxx and up to four additional individuals designated by Purchaser
and reasonably acceptable to the Board shall have been appointed to the Board.
The Company shall not be deemed to have failed to meet this condition if
Purchaser fails to timely designate its nominees for election to the Board, such
nominees are, in the reasonable judgment of the Board, not qualified to serve as
members of the Board or Xxxxxx X. Xxxxxx or such designees resign or otherwise
refuse to serve as directors of the Company.
(iv) Purchaser shall have received the legal opinion of Xxxxxxx &
Xxxxxxxx, LLC, counsel to the Company, in the form attached hereto as Exhibit
IX.(A)(iv).
(v) The Shareholders Agreement dated the date hereof among OS,
Purchaser, the Company, Xxxxxxx Xxxxxx, Xxxxxxx X. Xxxxx, Xxxxxx X. Xxxxxxx,
Xxxxxx Xxxxxxx, Xxxxxx Xxxxxx, Xxxxxx Xxxxx, Trigran Investments, L.P., The
Xxxxxx Family Limited Partnership and Xxxxxxx Xxxxxx 1990 Family Trust (the
"Shareholders Agreement") providing among other things, for the tender of Shares
pursuant to the Offer shall remain in full force and effect unless breached or
terminated by OS or Purchaser;
(vi) No change shall have occurred in any governmental regulation of
and reimbursement rules relating to business of the Company, or the products
sold by the Company, which has a Company Material Adverse Effect;
(vii) The Company shall have obtained and OS shall have received
copies of all consents, agreements and governmental approvals necessary or
appropriate for consummation of the transaction contemplated hereby, including
any consent, which if not obtained, would give the other party to any agreement,
license or lease with the Company, the right to terminate such agreement, or
accelerate any obligation of the Company thereunder or which would otherwise
constitute a default thereunder by the Company provided, the Company shall not
be required to obtain the consent of the other party to any agreement which
provides for receipt of or repayment by the Company of less than $12,500 or
which is set forth on the Company Disclosure Schedule;
(viii) Except for the bonuses required pursuant to Section VIII.G., or
otherwise set forth on the Company Disclosure Schedule, consummation of the
Offer will not give rise to any obligation for any severance, bonus, change of
control or "golden parachute" payments to any employees of the Company;
(ix) As of the Closing Date, the Company shall have issued and
outstanding no more than 2,613,181 Shares plus such number of Shares as may be
issued pursuant to the exercise of Options outstanding as of the date hereof as
indicated on the Company Disclosure Schedule. As
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of the Closing Date, the Company shall have no options, warrants or other
rights to purchase or acquire Shares outstanding other than the Options
indicated on the Company Disclosure Schedule, less those which are exercised or
redeemed subsequent to the date hereof;
(x) The representations and warranties made by the Company herein
shall have been correct as of the date of this Agreement, except for such
exceptions, which individually or in the aggregate, would not constitute a
material breach of any representation or warranty of the Company contained
herein. The representations and warranties made by the Company herein shall be
correct as of the Closing Date in all respects with the same force and effect as
though such representations and warranties had been made as of the Closing Date,
except for such exceptions which, individually or in the aggregate, would not
constitute a Company Material Adverse Effect;
(xi) The Agreement evidencing the OS Options and the corresponding
Registration Rights Agreement with respect to the shares underlying the OS
Options shall have been executed and delivered by the Company and such OS
Options shall have been granted;
(xii) The Company's loan agreements with American National Bank and
the extension thereof to the earlier to occur of February 28, 2001 or the
Closing Date shall remain in full force and effect;
(xiii) The Stock Option Agreement dated the date hereof between the
Company and Xx. Xxxxxx shall remain in full force and effect (unless he shall
have declined to accept or continue employment with the Company or was
terminated by the Company for cause);
(xiv) Each of the Offer Conditions shall have been satisfied.
B. Conditions to the Obligations of the Company. The obligations of
the Company to take any of the actions required to be taken by it at Closing are
subject to the satisfaction of the following conditions:
(i) The Company or the Board shall have received the written opinion
of the Financial Advisor, that the terms of the Offer are fair, from a financial
point of view, to the stockholders of the Company and such opinion shall not
have been withdrawn;
(ii) The Company shall have received the legal opinion of Xxxxxxx,
Xxxxxxxxx XX, counsel to OS and Purchaser, in the form attached hereto as
Exhibit IX. B(ii);
(iii) OS and Purchaser shall have obtained and the Company shall have
received copies of all consents, agreements and governmental approvals necessary
or appropriate for consummation of the transaction contemplated hereby by OS and
Purchaser;
(iv) The representations and warranties made by OS and Purchaser
herein shall be correct as of the Closing Date in all respects with the same
force and effect as though such representations and warranties had been made as
of the Closing Date, except for such exceptions which, individually or in the
aggregate, would not have a material adverse effect on the financial condition,
business, assets or results of operations of the Purchaser and OS.
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(v) Purchaser or its assignees shall, at the Closing, have sufficient
funds to purchase, subject to the terms and conditions of the Offer, all Shares
(up to 1,959,886) tendered and not withdrawn.
SECTION X
TERMINATION
A. Termination. This Agreement may be terminated and the Offer may
be abandoned at any time prior to the purchase of Shares pursuant thereto:
(i) by mutual written consent of the Company and OS upon a vote of
their respective Boards of Directors;
(ii) by either the Company or OS, if there shall be any applicable
domestic law, rule or regulation that makes consummation of the Offer illegal or
otherwise prohibited or if any judgment, injunction, order or decree of a court
of competent jurisdiction shall restrain or prohibit the consummation of the
Offer, and such judgment, injunction, order or decree shall become final and
nonappealable;
(iii) by Purchaser by action of the Board of Directors of Purchaser at
any time prior to the time Purchaser purchases Shares pursuant to the Offer, if
(w) the Company shall have failed to comply in any material respect with any of
the covenants or agreements contained in this Agreement to be complied with or
performed by the Company, and such failure shall not have been cured prior to
the earlier of (A) five (5) business days following the giving of written notice
to the Company of such failure or (B) the business day prior to the date on
which the Offer is then scheduled to expire, (x) the Board shall have amended or
modified in a manner adverse to Purchaser its approval or recommendation of the
Offer, shall have withdrawn such recommendation or shall have, approved or
recommended any other Company Acquisition Proposal, or shall have resolved to do
any of the foregoing, or (y) the shareholders of the Company shall have tendered
less than 1,332,722 of the Shares or the shareholders which are party to the
Shareholders Agreement shall have tendered in the aggregate less than 1,305,606
of their Shares in accordance with the Shareholders Agreement; and, in each
case, OS and Purchaser are not in violation of Section IX. B(iv).
(iv) by the Company by action of the Board at any time prior to the
time Purchaser purchases Shares pursuant to the Offer, if Purchaser (x) shall
have failed to comply in any material respect with any of the covenants or
agreements contained in this Agreement to be complied with or performed by
Purchaser, and such failure shall not have been cured prior to the earlier of
(A) five (5) business days following the giving of written notice to Purchaser
of such failure or (B) the business day prior to the date on which the Offer is
then scheduled to expire or (y) shall have failed to commence the Offer within
the time required in Section I.A. and the Company is not in violation of Section
IX. A(x).
-35-
(v) by the Company by action of the Board, if the Board receives or
there is publicly announced a bona fide written Company Acquisition Proposal
(which Company Acquisition Proposal was unsolicited and did not otherwise result
from a breach of Section V.C.) and the Board determines in good faith (i) that
such Company Acquisition Proposal is reasonably likely, if consummated, to
result in a transaction more favorable to the Company's shareholders from a
financial point of view than the transaction contemplated by this Agreement (a
"Superior Proposal") and (ii) after consultation with outside counsel, that
approval, acceptance or recommendation of such Company Acquisition Proposal or
tender or exchange offer is necessary in order for its directors to comply with
their respective fiduciary duties, and the Company shall substantially
concurrently with such termination enter into a definitive agreement containing
the terms of a Superior Proposal; provided, however, that the Company shall not
exercise its right to terminate this Agreement pursuant to this Section X.A.(v)
until after three (3) days following Purchaser's receipt of written notice (a
"Notice of Superior Proposal") from the Company advising Purchaser that the
Company's Board of Directors has received a Superior Proposal (or that a tender
or exchange offer with respect to the Shares has been commenced) and that the
Board will, subject to any action taken by Purchaser pursuant to this sentence,
cause the Company to accept such Superior Proposal (or recommend such tender or
exchange offer), and specifying the material terms and conditions of the
Superior Proposal and identifying the person making such Superior Proposal (it
being understood and agreed that any amendment to the price or any other
material term of a Superior Proposal shall require an additional Notice of
Superior Proposal and a new three day period).
(vi) by either the Company or OS if the Offer shall not have been
consummated by March 31, 2001 (other than through the failure of the party
seeking termination to comply with its obligations under this Agreement).
B. Effect of Termination.
If this Agreement is terminated pursuant to Article X.A., no party
hereto (or any of its directors or officers) shall have any liability or further
obligation to any other party to this Agreement, except as provided in this
Section X.B and Section XI below.
(i) If this Agreement shall be terminated by the Company pursuant to
Section X. A. (v), then the Company shall promptly, but in no event later than
ten days after receipt of a statement, reimburse Purchaser's reasonable out of
pocket costs and expenses actually incurred in connection with this Agreement
and the transactions contemplated hereby.
(ii) If (X) the Purchaser shall terminate this Agreement pursuant to
clause (x) of Section X.A.(iii), or the Company shall have terminated this
Agreement when it did not have a right to do so under Section X.A., then,
notwithstanding the fact that grounds may also exist to terminate this Agreement
under clause (w) or (y) of Section X.A. (iii), the Company shall promptly, but
in no event later than ten days after receipt of a statement, reimburse
Purchaser's reasonable out-of-pocket costs and expenses actually incurred in
connection with this Agreement and the transactions contemplated hereby; and (Y)
the Purchaser shall terminate this Agreement pursuant to clause (w) or (y) of
Sections X.A. (iii), then the Company shall promptly, but in no event later than
ten days after receipt of a statement, reimburse Purchaser's reasonable
out-of-pocket expenses actually incurred in connection with this Agreement and
the transactions contemplated hereby up to a
-36-
maximum of $325,000, of which the first $250,000 would be paid in cash and
the excess over $250,000 paid in Shares valued at $1.525 per share.
(iii) If the Company shall terminate this Agreement pursuant to
Section X.A.(iv), or the Purchaser shall have terminated this Agreement when it
did not have a right to do so under Section X.A., then Purchaser shall promptly,
but in no event later than ten days after receipt of a statement, reimburse the
Company's reasonable out-of-pocket costs and expenses actually incurred in
connection with this Agreement and the transactions contemplated hereby up to a
maximum of $150,000.
The parties agree that the amounts provided for in the preceding
clauses (i) through (iii) constitute a fair and reasonable estimate of the
damages to the intended recipient thereof resulting from the failure to
consummate the Offer and that upon payment of the specified amount, neither
party shall have any further liability to the others under this Agreement or in
connection with the transactions contemplated hereby.
Each of the parties acknowledges that the agreements contained in this
Section to reimburse the other for its expenses are an integral part of this
Agreement and that without these agreements neither would have entered into this
Agreement. Accordingly, if either party fails to promptly pay the amount due
pursuant to clauses (i) through (iii) of this Section and, in order to obtain
payment the aggrieved party commences a suit which results in a judgment against
the defaulting party for the fee provided above, the defaulting party shall pay
to the aggrieved party its costs and expenses (including reasonable attorneys'
fees) in connection with such suit and interest on the amount due at the base
rate of Citibank, N.A. on the date such payment was required to be made.
SECTION XI
MISCELLANEOUS
A. Notices. All notices, requests or instructions hereunder shall
be in writing and delivered personally, sent by telecopy, nationally recognized
overnight courier, or registered or certified mail, postage prepaid, as follows:
(1) If to the Company:
The Xxxxxx Biomechanics Group, Inc.
000 Xxxxxxx Xxxx
Xxxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxxx
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with a copy to:
Xxxxxxx & Xxxxxxxx, LLC
Xxxxx 000
00 Xxxxxxx Xxxxxxxxx Xxxx.
Xxxxxxx Xxxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxx, Esq.
(2) If to OS:
OrthoStrategies, Inc.
c/o Xxxxxx X. Xxxxxx
31 The Birches
Xxxxxx Xxxxxxx, XX 00000
with a copy to:
Xxxxxxx, Xxxxxxxxx LLP
0 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx X. Xxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
(3) If to the Purchaser:
OrthoStrategies Acquisition Corp.
c/o Xxxxxx X. Xxxxxx
31 The Birches
Xxxxxx Xxxxxxx, XX 00000
with a copy to:
Xxxxxxx, Xxxxxxxxx LLP
0 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx X. Xxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, with a confirmation copy delivered by overnight
courier, one business day after delivery to an overnight courier and two
business days after the date of mailing, if mailed.
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-p
B. Survival of Representations. The covenants and agreements of the
parties contained in Sections VIII.C., VIII.E., VIII.F, VIII.G, X.B and XI
shall survive the purchase of Shares pursuant to the Offer or any other
termination of this Agreement. All other representations, warranties and
agreements contained herein and in any certificate or other writing delivered
pursuant hereto shall not survive the purchase of the Shares in the Offer.
C. Expenses. Except as otherwise provided herein, each of the
parties hereto shall bear such party's own expenses in connection with this
Agreement and the transactions contemplated hereby.
D. Invalidity. Should any provision of this Agreement be held by a
court of competent jurisdiction to be enforceable only if modified, such holding
shall not affect the validity of the remainder of this Agreement, the balance of
which shall continue to be binding upon the parties hereto with any such
modification to become a part hereof and treated as though originally set forth
in this Agreement. The parties further agree that any such court is expressly
authorized to modify any such unenforceable provision of this Agreement in lieu
of severing such unenforceable provision from this Agreement in its entirety,
whether by rewriting the offending provision, deleting any or all of the
offending provision, adding additional language to this Agreement, or by making
such other modifications as it deems warranted to carry out the intent and
agreement of the parties as embodied herein to the maximum extent permitted by
law. The parties expressly agree that this Agreement as modified by the court
shall be binding upon and enforceable against each of them. In any event, should
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall be construed
as if such invalid, illegal or unenforceable provisions had never been set forth
herein.
E. Successors and Assigns. Purchaser shall have the right, at Closing,
to assign the right to purchase the Shares, in whole or in part, to another
entity controlled by OS or to any of the shareholders of OS or related investors
which have committed to fund Purchaser (or designees thereof) as noted in
Section IV.H, provided that no such assignment shall relieve Purchaser or OS
from any of its obligations hereunder. Such designees shall at the Closing
deliver affirmative representations as to their organization, authority,
capacity, and lack of conflicts in purchasing the Shares. Subject to the
limitations of the first sentence of this paragraph, this Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company, Purchaser and OS, respectively.
F. Governing Law. The validity of this Agreement and of any of its
terms or provisions, as well as the rights and duties of the parties under this
Agreement, shall be governed by and construed pursuant to and in accordance with
the laws of the State of New York, without regard to its conflict of laws
principles.
G. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
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H. Entire Agreement; Amendments. This Agreement and the documents
referred to herein constitute the entire agreement among the parties with
respect to the subject matter hereof. Any provision of this Agreement may be
amended or waived prior to the purchase of Shares pursuant to the Offer if, and
only if, such amendment or waiver is in writing and signed, in the case of an
amendment, by the Company, OS and Purchaser or, in the case of a waiver, by the
party against whom the waiver is to be effective.
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IN WITNESS WHEREOF, this Tender Offer Agreement has been duly executed
by the parties hereto as of the date first above written.
ORTHOSTRATEGIES, INC.
By: /s/ Xxxxxx X. Xxxxxx
----------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President
ORTHOSTRATEGIES ACQUISITION CORP.
By: /s/ Xxxxxx X. Xxxxxx
----------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President
THE XXXXXX BIOMECHANICS GROUP, INC.
By: /s/ Xxxxxx X. Xxxxx
----------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Chairman
-41-
Annex A
I. Certain Conditions of the Offer.
(i) The capitalized terms used in this Annex A have the meanings set
forth in the attached Tender Offer Agreement. Notwithstanding any other
provision of the Offer, Purchaser shall not be required to accept for payment
or, subject to any applicable rules and regulations of the SEC, including Rule
14e-l(c) under the Exchange Act (relating to Purchaser's obligation to pay for
or return tendered Shares promptly after termination or withdrawal of the
Offer), pay for, or may delay the acceptance for payment of or payment for, any
tendered Shares, or may, in its sole discretion, terminate or amend the offer as
to any Shares not then paid for if, (i) prior to the expiration of the Offer,
(x) less than 1,332,722 Shares shall have been validly tendered and not
withdrawn prior to the expiration of the Offer (the "Minimum Condition") or (y)
any necessary or required consent, registration, approval, permit or
authorization of any governmental entity applicable to the Offer shall not have
been obtained or (ii) on or after December 29, 2000 and at or before the time of
payment for any of such Shares (whether or not any Shares have theretofore been
accepted for payment), any of the following events shall occur:
(a) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the NASDAQ SmallCap Market
for a period in excess of three hours (other than a suspension or limitation
triggered by price fluctuations and suspensions or limitations resulting from
physical damage to or interference with the systems of NASDAQ provided such
interference is not related to market conditions), (ii) a declaration of a
banking moratorium in the United States or any suspension of payments in respect
of banks in the United States, (iii) a commencement or escalation of a war,
armed hostilities or other international or national calamity resulting in a
general mobilization of a substantial portion of the armed forces of the United
States; (iv) the imposition by the Federal Reserve of a limitation on the
extension of credit by United States banks or a decline of at least 30% in
either the Dow Xxxxx Average of Industrial Stocks or the Standard & Poor's 500
index from the date of the Tender Offer Agreement;
(b) the Company shall have breached or failed to perform in any
material respect any of its obligations, covenants or agreements contained in
the Tender Offer Agreement; any representation or warranty made by the Company
in the Tender Offer Agreement shall have been inaccurate or incomplete as of the
date of the Tender Offer Agreement, except for such exceptions, which
individually or in the aggregate, would not constitute a material breach of any
representation or warranty of the Company contained in the Tender Offer
Agreement; or any representation or warranty of the Company set forth in the
Tender Offer Agreement shall have been inaccurate or incomplete as of the
Closing Date, except for such exceptions as of the Closing Date which,
individually or in the aggregate, would not constitute a Company Material
Adverse Effect.
(c) there shall be instituted or pending any action, litigation,
proceeding, investigation or other application (herein an "Action") before any
court or other governmental authority by any governmental authority or
instituted or pending any action by any other person, domestic or foreign: (i)
challenging the acquisition by Purchaser of Shares, seeking to restrain or
prohibit the consummation of the transactions contemplated by the Offer, seeking
to obtain any material damages or otherwise directly or indirectly relating to
the transactions contemplated by the
-42-
Offer; (ii) seeking to prohibit, or impose any material limitations on,
Purchaser's ownership or operation of all or any portion of its or the Company's
business or assets (including the business or assets of their respective
affiliates and subsidiaries), or to compel Purchaser to dispose of or hold
separate all or any portion of Purchaser's or the Company's business or assets
(including the business or assets of their respective affiliates and
subsidiaries) as a result of the transactions contemplated by the Offer; (iii)
seeking to make the acceptance for payment, purchase of, or payment for, some or
all of the Shares illegal or render Purchaser unable to, or result in a delay
in, or restrict, the ability of Purchaser to, accept for payment, purchase or
pay for some or all of the Shares; (iv) seeking to impose material limitations
on the ability of Purchaser effectively to acquire or hold or to exercise full
rights of ownership of the Shares including, without limitation, the right to
vote the Shares purchased by it on an equal basis with all other Shares on all
matters properly presented to the stockholders; or (v) that, in any event, is
reasonably likely to have a Company Material Adverse Effect.
(d) any statute, rule, regulation, order or injunction shall be
enacted, promulgated, entered, enforced or deemed applicable to the Offer, or
any other action shall have been taken, proposed or threatened, by any court or
other Governmental Entity that could be expected to, directly or indirectly,
result in any of the effects of, or have any of the consequences sought to be
obtained or achieved in, any action referred to in clauses (i) through (v) of
paragraph (c) above;
(e) any person, entity or group shall have entered into a
definitive agreement or an agreement in principle with respect to a tender offer
or exchange offer for some portion or all of the Shares or a merger,
consolidation, acquisition, reorganization, recapitalization or other business
combination with or involving the Company;
(f) the Board of Directors of the Company (or a special committee
thereof) shall have amended, modified or withdrawn its approval or
recommendation of the Offer or the Tender Offer Agreement or shall have
endorsed, approved or recommended any other Company Acquisition Proposal, or
shall have resolved to do any of the foregoing; or
(g) the Agreement shall have been terminated by the Company or
Purchaser in accordance with its terms or Purchaser shall have reached an
agreement or understanding in writing with the Company providing for termination
or amendment of the Offer or delay in payment for the Shares;
which in the reasonable judgment of Purchaser, in any such case, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment of
or payment for Shares.
The foregoing conditions are for the sole benefit of Purchaser and may
be asserted by Purchaser regardless of the circumstances giving rise to such
condition or may be waived by Purchaser, by express and specific action to that
effect, in whole or in part at any time and from time to time in its sole
discretion.
The failure by Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right, the waiver of any such
right with respect to particular facts and other circumstances shall not be
deemed a waiver with respect to any other facts and circumstances, and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
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EXHIBITS TO TENDER OFFER AGREEMENT
Annex A Tender Conditions
V.G. Option Redemption Schedule
X.X. Form of Option Agreement -
Xxxxxx Xxxxxx
V.K. Form of Option Agreement -
OS Options; form of Registration Rights Agreement
IX(A)(iv) Xxxxxxx & Xxxxxxxx Opinion Letter
IX(B)(ii) Xxxxxxx, Xxxxxxxxx LLP Opinion Letter
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