ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of April 2, 1998, among Armor
Holdings, Inc., a Delaware corporation with offices at 00000 Xxxxxxxxxxxxx
Xxxxxxx, Xxxxxxxxxxxx, Xxxxxxx 00000 ("AHI"), Federal Laboratories, Inc., a
Delaware corporation and a wholly-owned subsidiary of AHI with offices at 00000
Xxxxxxxxxxxxx Xxxxxxx, Xxxxxxxxxxxx, Xxxxxxx 00000 (the "Purchaser") and Xxxx
Security International, Inc., a Delaware corporation with offices at 000 Xxxxxxx
Xxxxxx, Xxxxxxxxxx, Xxxxxxx 00000 (the "Seller").
W I T N E S E T H :
WHEREAS, AHI desires to acquire, through the Purchaser, and the
Seller desires to sell, certain of the property and assets of the Seller upon
the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, hereby agree as
follows:
ARTICLE I
Definitions
In addition to terms defined elsewhere in this Agreement, the
following terms when used in this Agreement shall have the meanings indicated
below:
"Affiliate" shall mean, with respect to any Person, any Person that
directly or indirectly controls, is controlled by or is under common control
with the Person in question.
"Agreement" shall mean this Asset Purchase Agreement, together with
all exhibits and schedules referred to herein.
"Backlog" shall mean all of the Seller's (i) international orders
evidenced by fully executed purchase orders and license applications that are A)
set forth on Schedule 1.1 hereto (with margins determined at Seller's Standard
Cost), or B) with respect to international orders received by the Seller from
and after the date hereof, approved in writing by the Purchaser, and (ii)
domestic orders evidenced by fully executed purchase orders that are A) set
forth set forth on Schedule 1.1 hereto , or B) in excess of $7,500, received by
the Seller from and after the date hereof and are approved in writing by the
Purchaser, or C) $7,500 or less, received by the Seller from and after the date
hereof that are either (i) approved in writing by Purchaser or (ii) provide for
the Seller's standard gross margins and accompanied by a guaranty of full
payment made by the Seller in favor of the Purchaser, all of which are entered
on the books of the Seller prior to the Closing Date in the ordinary course of
its business but not yet shipped; provided, however, that Backlog shall be
deemed to exclude the orders set forth on Schedule 1.2 hereto;
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall mean the common stock of AHI, par value $.01
per share.
"Consumer Market" shall mean all markets other than the Law
Enforcement Market.
"CS" shall mean O-chlorobenzalmalononitrile.
"CS-1" shall mean a compound consisting of CS and a flow agent.
"Environmental Laws" shall mean all laws, regulations and other
federal, state or local governmental requirements, and all applicable judgments,
orders, writs, notices, decrees, permits, licenses, approvals, consents or
injunctions relating to the generation, management, handling, transportation,
treatment, disposal, storage, delivery, discharge, release or emission of any
waste, pollutant or toxic or hazardous substance (including, without limitation,
asbestos, radioactive material and pesticides) utilized by the Seller in its
business or to any other actions, omissions or conditions affecting the
environment.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Financial Statements" shall mean the audited balance sheets of the
Seller as at December 31, 1997, December 31, 1996 and December 31, 1995 and the
related statements of income, cash flows and retained earnings for the fiscal
years then ended, including any related notes, each prepared in accordance with
United States generally accepted accounting principles ("GAAP") consistently
applied with prior periods and publicly filed or to be publicly filed in its
next annual report with the Securities and Exchange Commission.
"Law Enforcement Market" shall mean the market consisting of
domestic and international law enforcement, military, correctional and
governmental agencies and personnel (in their professional capacity), but
exclusive of retail sales of aerosol products at cop shop or security center
stores that are owned or franchised by the Seller and/or its Affiliates.
"Licensed Xxxx", or "Licensed Marks" shall mean the Xxxx trademarks
set forth on Schedule 1.3 hereto limited to use as set forth in the License
Agreement, as hereinafter defined.
"Xxxx Common Stock" shall mean the common stock of the Seller, par
value $.01 per share.
"Patent" shall mean the Patent on the Xxxx VI mold (Patent No.
5,348,193).
"Person" shall mean any natural person, corporation, unincorporated
organization, limited liability company, partnership, limited liability
partnership, association, joint stock company, joint venture, trust or
government, or any agency or political subdivision of any government, or any
other entity.
"Product" shall have the meaning ascribed to it in Section 3.18
hereof.
"Purchased Marks" shall mean all trademarks, tradenames and service
marks listed on Schedule 1.4 hereto and used exclusively by the Law Enforcement
Division, except for the Licensed Xxxx and the Patent.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Unrelated Accounting Firm" shall mean a nationally recognized "Big
Six" accounting firm that has not provided audit services to AHI, the Purchaser
or the Seller within two
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years prior to the date of this Agreement.
ARTICLE II
Purchase of Assets; Consideration
ss.2.1 Terms of the Purchase.
On the basis of the representations, warranties, covenants,
and agreements contained in this Agreement and subject to the terms and
conditions of this Agreement:
(a) The Seller shall sell, assign, transfer, and convey to the
Purchaser at the Closing, as hereinafter defined, pursuant to instruments of
assignment and bills of sale reasonably satisfactory to the Purchaser, those
properties and assets of the Seller, through the date of the Closing, used in
the operation of the Seller's Federal Laboratories business and law enforcement
aerosol business, which comprise its Law Enforcement Division (the "LE
Division"), and those products manufactured, developed, distributed or sold by
the LE Division or sold by the Seller to the Law Enforcement Market, including,
without limitation, the Purchased Marks, contractual rights, books and records
(other than stock ledgers and stock transfer books), business and good will of
or relating to the foregoing, including, without limitation, those assets more
fully set forth on Schedule 2.1(a) hereto (collectively, the "Purchased
Assets").
(b) Anything in this Agreement to the contrary
notwithstanding, there shall be excluded from the Purchased Assets (the
"Excluded Assets") those assets, properties and rights (i) which pertain
exclusively to the Seller's business of selling products to the Consumer Market,
such as aerosol and buy-sell consumer products (the "Consumer Division"), (ii)
all assets of the Seller's Xxxx Anti-Crime Bureau, a division that manufactures,
markets and sells products relating to financial security, including but not
limited to security training videos, training materials and publications, dye
packs, alarms, and security transport devices, and the technology and
formulations relating thereto ("MACB"), (iii) comprised of the Licensed Xxxx,
the Patent and all other trademarks, trade names, service marks and patents used
by the Seller for the manufacture, marketing or sale of its products to the
Consumer Market, exclusive of the Purchased Marks, (iv) which are specifically
set forth in Schedule 2.1(b) hereto, including, but not limited to, CS-1, and
(v) designated by the Purchaser or AHI on or prior to the Closing Date, without
affecting the Purchase Price, as hereinafter defined. The Seller shall continue
to assume all liability for all of such Excluded Assets. The Seller agrees that
the only assets of the Seller used in the operation of both the LE Division and
the Consumer Division are comprised of Xxxx III, Xxxx XX molds, and such other
assets listed on Schedule 2.1(c) hereto. The Seller agrees to give the Purchaser
reasonable access to such assets and will reasonably cooperate with the
Purchaser to ensure that the Purchaser is provided with parts from such molds on
substantially the same terms as currently provided by the Seller to the
Purchaser (i.e. any profit margins and costs).
(c) The Purchaser shall pay to the Seller, as set forth below,
aggregate consideration of an amount (the "Purchase Price") equal to the net
book value of the Purchased Assets, which shall be the sum of the following,
but, with respect to (ii), (iii) and (iv) below, in no event less than
$3,117,325.00 , plus the sum of $200,000, less any deposits received by Seller
for Backlog:
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(i) $2,636,526, representing 100% of the net book
value of inventory of the LE Division (as more fully set forth
on Schedule 2.1(a) hereto), as shown on the audited balance
sheet of the Seller for the fiscal year ended December 31,
1997, and consistent with the Seller's valuation as of
December 31, 1996 for the LE Division, which book value shall
be (a) increased by all inventory purchases from December 31,
1997 through the Closing Date (as defined in Section 2.2
hereof) in an amount equal to the Seller's standard cost for
such inventory, and (b) decreased by A) all sales of inventory
from December 31, 1997 through the Closing Date, and B) all
inventory relating to unshipped orders set forth on Schedule
1.2 (all such increases and decreases to inventory shall be
valued consistent with the accounting policies and procedures
applied by the Seller in the preparation of its audited
balance sheets as at December 31, 1997 and 1996, which shall
be consistent with GAAP);
(ii) $1,540,835, representing 100% of the net book
value of the fixed assets of the LE Division (as more fully
set forth on Schedule 2.1(a) hereto), as shown on the audited
financial statements of the Seller for the fiscal year ended
December 31, 1997; provided, however, that the book value of
such fixed assets shall not exceed $1,569,613;
(iii) $926,490, representing 100% of the net book
value of the intangible property of the LE Division, inclusive
of goodwill and the Purchased Marks but exclusive of the
Licensed Xxxx and Patent (as more fully set forth on Schedule
2.1(a) hereto), priced as shown on the audited financial
statements of the Seller for the fiscal year ended December
31, 1997; provided, however, that the book value of such
intangible property (exclusive of the Xxxx(R) trademark) shall
not exceed $926,490, and
(iv) $650,000.00, payable to Trademark Corp. (as
hereinafter defined) representing a one-time fee in
consideration for the use of the Licensed Xxxx and the Patent
pursuant to the License Agreement.
(d) The Purchase Price shall be paid at the Closing by the
Purchaser, in its sole and absolute discretion, in one of the following methods:
(i) 100% of the Purchase Price shall be paid in
cash, by wire transfer or certified or bank cashier's check,
subject to adjustment as set forth in Section 2.4 hereof, of
which the first $600,000 shall be held back and dealt with by
the Purchaser as provided in Section 5.3(d) hereof, and the
remainder thereof shall be paid directly to the Seller; or
(ii) The first $5,200,000 (or if the Purchase
Price is less, such lesser amount) of the Purchase Price shall
be paid in cash, by wire transfer or certified or bank
cashier's check, subject to adjustment as set forth in Section
2.4 hereof, and the remaining portion thereof shall be paid
through the issuance of certificates registered in the
Seller's name for an aggregate
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number of shares registered under the Securities Act and as to
which no stop order is in effect of Common Stock (the "AHI
Shares") having a value, as determined by the average closing
price of the Common Stock on the American Stock Exchange for
the ten consecutive trading day period ending three days prior
to the Closing Date, of which a certificate representing such
number of shares of Common Stock having a value of $600,000
(valued as described above) together with stock powers duly
executed in blank and medallion guaranteed in appropriate form
for transfer and with cash equal and to the extent the AHI
Shares have a value of less than $600,000, shall be held back
and dealt with as provided in Section 6.3(d) hereof.
Notwithstanding the foregoing, the Purchaser shall be
permitted to deliver AHI Shares which are not registered under
the Securities Act, in the event additional time beyond the
Closing Date, as hereinafter defined, is needed to comply with
the Securities Act with respect to the filing of a
post-effective amendment or a prospectus supplement to its
Registration Statement on Form S-4, Registration No.
333-38759, pursuant to which the AHI Shares will be issued;
provided, however that if the AHI Shares are not registered
under the Securities Act by the first Release Date, as
hereinafter defined, then the Seller shall return the AHI
Shares to the Purchaser within ten (10) days of such Release
Date in exchange for payment of the balance of Purchaser Price
(to the Seller and/or the Holdback Account, as appropriate) in
cash as set forth above.
(e) Neither AHI nor the Purchaser shall assume or be
responsible for any obligation or liability of the Seller of any nature, fixed,
absolute, accrued, contingent or otherwise, except for contracts, purchase
orders and similar obligations included in the Purchased Assets.
(f) The Purchaser shall determine allocations among the
Purchased Assets and shall submit such allocations to the Seller and the parties
agree to file tax returns consistent with such allocations.
(g) With respect to any properties or assets sold hereunder
that cannot be physically delivered to the Purchaser because they are in the
possession of third parties or otherwise, the Seller shall give irrevocable
instructions to the party in possession thereof, if such be the case, with
copies to the Purchaser, that all right, title, and interest therein have been
vested in the Purchaser and that the same are to be held for the Purchaser's
exclusive use and benefit.
(h) Except as set forth on Schedule 2.1(h), to the extent
that the assignment by the Seller to the Purchaser of any contract, agreement,
instrument, lease, license, understanding, or arrangement to be assigned to the
Purchaser hereunder shall require the consent of a party other than the Seller
which has not been obtained by the Closing and if AHI and the Purchaser shall
nevertheless elect to consummate the transactions contemplated by this
Agreement, this Agreement shall not constitute an agreement to assign the same
if an attempted assignment without such consent would constitute a breach
thereof unless the Purchaser before or at the Closing elects in a writing
delivered to Seller, specifically identifying such absent consent, to waive such
consent. Except as set forth on Schedule 2.1(h), nothing in this Section 2.1(h)
regarding such non-assignment or such election shall limit any rights AHI or the
Purchaser may have against the Seller as a result of the failure to obtain such
consent.
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ss.2.2 The Closing
The closing of the transactions contemplated by this Agreement
shall take place at the offices of Xxxx Xxxxxxx, P.C., 1350 Avenue of the
Americas, New York, New York, at 10:00 A.M., New York time on or about June 1,
1998, or such other date, time or place as the parties may agree (the "Closing
Date"); provided, however, that the Seller shall be permitted to delay the
Closing Date for up to a maximum of forty-five (45) days to the extent required
to comply with (i) any rules and regulations of the Nasdaq National Market
System requiring shareholder approval of the transactions contemplated hereby,
and (ii) the Exchange Act with respect to the distribution of an Information
Statement to the Seller's stockholders and the filing of such Information
Statement with the Commission. The closing of the transactions contemplated by
this Agreement is herein called the "Closing."
ss.2.3 Transactions at the Closing
The following transactions shall take place at the Closing:
(a) The Seller shall deliver to the Purchaser all such bills
of sale, assignments, evidences of consent, and other instruments or documents
as in the opinion of the Purchaser and its counsel may be necessary or desirable
to evidence or perfect the sale, assignment, transfer, and conveyance of good
and marketable title to the Purchased Assets, in each case free and clear of all
liens, mortgages, security interests, pledges, charges, and encumbrances. The
Seller shall also deliver to the Purchaser all books and records of the Seller
relating to or used in the business of the LE Division, or copies thereof to the
extent such books and records are also used by Seller in connection with its
operation of the Consumer Division.
(b) The Purchaser shall pay the Purchase Price to the Seller,
in accordance with Section 2.1(c) and (d) hereof.
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ss.2.4 Right of the Purchaser to Withhold Future Payments
Without limiting such other rights as AHI or the Purchaser may
have, if, prior to the time the Purchase Price, including, if applicable, the
AHI Shares, are delivered pursuant to Section 2.1(d), the Purchaser has actual
knowledge (as defined in Section 5.2) of a breach of any representation,
warranty, covenant, or agreement of the Seller contained in this Agreement, the
Purchaser shall give written notice thereof to the Seller, who shall then have
ten (10) days to cure, or commence a cure which can and shall be completed
within thirty (30) of such commencement, but in no event later than June 30,
1998, of any such breach (during which time the Closing shall be delayed). After
the expiration of any such ten (10) day period, if such breach shall continue,
the Closing shall, at the election of the Purchaser, be held provided that the
Purchaser may deduct from the cash portion of the Purchase Price payable
pursuant to Section 2.1(d)(i) or (ii) hereof an amount, which shall in no event
exceed $400,000.00, which the Purchaser in good faith believes to be, equal to
the aggregate of Liabilities, as hereinafter defined incurred or demonstrably in
prospect of being incurred by AHI or the Purchaser in connection with such
breach. The Seller shall then have thirty (30) days after the Closing to give
notice to the Purchaser of any objections to the amount of such deduction. If no
such notice of objection is given, then the deduction made by the Purchaser
shall be final and binding on the Seller. If notice of objection is given, the
parties shall consult with each other with respect to the objections. If the
parties are unable to reach agreement within thirty (30) days after the notice
of objection has been given, the issue as to whether a breach occurred shall be
resolved by arbitration in accordance with Section 8.19 hereof and the amount of
any adjustment shall be determined by an Unrelated Accounting Firm. Such
resolution shall be final and binding on the parties. Any adjustments in favor
of the Seller made by the Unrelated Accounting Firm shall be paid to the Seller
with interest accruing from the Closing Date at the thirty (30) day treasury
rate. The fees and expenses of the arbitrators and the Unrelated Accounting Firm
shall be paid half by the Seller and half by the Purchaser. Notwithstanding the
foregoing, within twelve months following the Closing, the Purchaser shall
submit to the Seller written documentation of all Liabilities incurred by the
Purchaser as a direct result of any breach that causes a reduction in the amount
payable to the Seller at Closing pursuant to this Section 2.4. The Purchaser
shall pay to the Seller the amount by which the actual Liabilities incurred by
the Purchaser as a result of any such breach is less than any such deducted
amount. In the same manner the Seller shall reimburse the Purchaser the amount
by which the Liabilities actually incurred by the Purchaser as a result of such
breach exceeds any amount deducted pursuant to this Section 2.4.
ARTICLE III
Representations and Warranties of the Seller
In order to induce AHI and the Purchaser to enter into this
Agreement and the License Agreement and to consummate the transactions
contemplated hereby, the Seller makes the representations, warranties and
covenants set forth below to AHI and the Purchaser. For purposes of this Article
III, all references to the LE Division shall be deemed to include the Purchased
Marks, the Licensed Xxxx and the Patent.
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ss.3.1 Organization
(a) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Seller is duly qualified to transact business in all jurisdictions where the
ownership or leasing of the Purchased Assets or the conduct of the business of
the LE Division requires such qualification. Each jurisdiction in which the
Seller is so qualified is listed on Schedule 3.1 hereto. The Seller has the
requisite corporate power and authority to own or lease and operate its
properties and conduct the business of the LE Division as presently conducted.
(b) Trademark Corp. , is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Trademark
Corp. is duly qualified to transact business in all jurisdictions where the
ownership or leasing of the Licensed Xxxx requires such qualification. Trademark
Corp. has the requisite corporate power and authority to own and license the
Licensed Marks.
ss.3.2 Authorization; Enforceability
The Seller has the corporate power and authority to execute,
deliver and perform this Agreement. This Agreement and all other documents to be
executed and delivered by the Seller and/or Trademark Corp. pursuant to this
Agreement has been or will be duly authorized, executed and delivered and, when
executed and delivered, will constitute the legal, valid and binding obligations
of the Seller or Trademark Corp., as applicable, enforceable in accordance with
their respective terms, except to the extent that their enforcement is limited
by bankruptcy, insolvency, reorganization or other laws relating to or affecting
the enforcement of creditors' rights generally and by general principles of
equity.
ss.3.3 No Violation or Conflict
The execution, delivery and performance of this Agreement and
the documents attached as Exhibits hereto, as applicable, by the Seller, and the
Security Agreement (as hereinafter defined), by Trademark Corp. and the
consummation by the Seller and Trademark Corp. of the transactions contemplated
hereby and thereby: (a) except as forth on Schedule 3.3 do not violate or
conflict with any provision of law or regulation (whether federal, state or
local), or any writ, order or decree of any court or governmental or regulatory
authority, or any provision of the Seller's Certificate of Incorporation or
Bylaws; and (b) except as set forth on Schedule 3.3 hereto, do not, with or
without the passage of time or the giving of notice, or both, result in the
breach of, or constitute a default, cause the acceleration of performance or
require any consent under, or result in the creation of any lien, charge or
encumbrance upon any of the Purchased Assets, Licensed Xxxx or the Patent,
(other than pursuant to the Security Agreement) pursuant to any instrument or
agreement to which the Seller or Trademark Corp. is a party or by which the
Seller or Trademark Corp. or their respective properties may be bound or
affected, other than instruments or agreements as to which consent shall have
been obtained or waived at or prior to the Closing.
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ss.3.4 Consents of Governmental Authorities and Others
Except as set forth on Schedule 3.4 hereto, no consent,
approval or authorization of, or registration, qualification or filing with, any
federal, state or local governmental or regulatory authority, or any other
Person, is required in connection with the execution, delivery or performance of
this Agreement by the Seller or the consummation by the Seller of the
transactions contemplated hereby.
ss.3.5 Conduct of Business
Except as disclosed on Schedule 3.5 hereto, since December 31,
1997, the Seller has conducted business of the LE Division in the ordinary and
usual course and there has not occurred any material adverse change in the
condition (financial or otherwise), results of operations, por business of the
LE Division or the Purchased Assets. Without limiting the generality of the
foregoing, except as disclosed on Schedule 3.5 hereto, since December 31, 1997,
the Seller has not, with respect to or affecting the LE Division or its
liabilities or the Purchased Assets: (a) suffered any damage, destruction or
loss, whether or not covered by insurance, on any of its properties, assets, or
business used in the operation of the LE Division; (b) granted or made any
mortgage or pledge or subjected any of its properties or assets used in the
operation of the LE Division or the Purchased Assets to any lien, charge or
encumbrance of any kind, except liens for taxes not currently due other than
liens and encumbrances that will be released at or prior to the Closing; or (c)
received notice of any material adverse change in its relationship with any
financial institution, customer or supplier with which it currently does
business, nor is it aware of any circumstances that could reasonably lead to
such a change, nor does the Seller have any knowledge of any of the foregoing.
ss.3.6 Litigation
Except as set forth on Schedule 3.6 hereto, there are no
actions, suits, investigations, claims or proceedings ("Litigation") pending or,
to the knowledge of the Seller, threatened before any court or by or before any
governmental or regulatory authority or arbitrator, (a) affecting the LE
Division (as plaintiff or defendant) which could reasonably be expected to, have
a material adverse effect on the condition (financial or otherwise), results of
operations, or business of the LE Division or (b) against the Seller relating to
the Purchased Assets, the transactions contemplated by this Agreement or product
liability or similar liability and there exist no facts or circumstances known
to Seller creating any reasonable basis for the institution of any such action,
suit, investigation, claim or proceeding described above. Schedule 3.6 reflects
whether or not Litigation referred to thereon is covered by Seller's insurance
policies for product liability.
ss.3.7 Brokers
The Seller has not employed any financial advisor, broker or
finder, with respect to which the Purchaser has incurred or will incur any
broker's, finder's, investment banking or similar fees, commissions or expenses
in connection with the transactions contemplated by this Agreement.
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ss.3.8 Compliance
The Seller, with respect or relating to the LE Division and
the Purchased Assets is in material compliance with all federal, state, local
and foreign laws, ordinances, regulations, judgments, rulings, orders and other
requirements applicable to it including, without limitation, those relating to
(a) the development, manufacture, packaging, distribution and marketing of
products and (b) employment, safety and health. The Seller is not subject to any
judicial, governmental or administrative order, judgment or decree which relate
to or bind the LE Division or the Purchased Assets. The Purchaser has been
furnished with true and correct copies of all material reports of inspections of
the LE Division through the date hereof, under all applicable federal, state,
foreign and local laws and regulations.
ss.3.9 Rights, Warrants, Options
Except as set forth in Schedule 3.9 hereto, there are no
outstanding (a) securities or instruments convertible into or exercisable for
any of the capital stock or other equity interests of the Seller; (b) options,
warrants, subscriptions or other rights to acquire capital stock or other equity
interests of the Seller; or (c) commitments, agreements or understandings of any
kind, including employee benefit arrangements, relating to the issuance or
repurchase by the Seller of any capital stock or other equity interests of the
Seller.
ss.3.10 Financial Statements and Other Financial Information
The Seller has previously delivered to the Purchaser true and
complete copies of certain financial information other than projections (the
"Financial Information"), it being understood that any portions thereof
pertaining exclusively to the Consumer Division may be deleted. The Financial
Statements and the Financial Information: (a) have been prepared in accordance
with the books of account and records of the Seller; and (b) fairly present, and
are true, correct and complete statements in all material respects of the
Seller's financial condition and the results of its operations at the dates and
for the periods specified therein; and (c) have been prepared in accordance with
GAAP consistently applied with prior periods.
ss.3.11 Title to Personal Property
The Seller has, or will have as of the Closing, good and
marketable title to the Purchased Assets, free and clear of any security
interests, liens, claims, charges or encumbrances whatsoever, except as set
forth in Schedule 3.11 hereto or specifically identified as such in the December
31, 1997 Financial Statements. Except for the Leases specifically identified in
Schedule 3.11 hereto, there are no assets owned by any third party which are
used in the operation of the LE Division, as presently conducted.
ss.3.12 Board Approval
The Board of Directors of the Seller and of Trademark Corp.
has approved this Agreement, the License Agreement and the transactions
contemplated hereby and thereby, in accordance with applicable law and as of the
Closing Date the Board of Directors of Trademark Corp. will have approved the
License Agreement, as hereinafter defined, and the Security Agreement.
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ss.3.13 Insurance
Schedule 3.13 sets forth a true and complete list of all
material insurance policies, exclusive of worker's compensation policies and
directors and officer's insurance (the "Insurance Policies") providing insurance
coverage of any nature used in the operation of the LE Division. The Seller has
previously made available to Purchaser a true and complete copy of all of such
insurance policies, as amended to the date hereof. Such policies are sufficient
for compliance by the Seller with all requirements of law and all agreements to
which the Seller is a party or by which any of its assets are bound. All of such
policies are in full force and effect and are valid and enforceable in
accordance with their terms, and the Seller has complied with all material terms
and conditions of such policies, including premium payments. None of the
insurance carriers has indicated to the Seller an intention to cancel any such
policy. Except as set forth on Schedule 3.13, the Seller has no material claim
pending against any of the insurance carriers under any of such policies
relating to the LE Division and Seller has no knowledge of any actual or alleged
occurrence which could reasonably be expected to give rise to any such claim.
ss.3.14 Licenses
Schedule 3.14 hereto lists all authorizations, consents,
approvals, franchises, licenses, including operating licenses, and permits
required under applicable law or regulation for the operation of the LE Division
as presently operated (the "Governmental Authorizations"). Schedule 3.14 hereto
also lists all products of the LE Division which are exported by part number
(listed under "item") and commodity jurisdiction export numbers (listed under
"class") and also lists all products of the LE Division which are exported but
that do not require Governmental Authorizations. All the Governmental
Authorizations have been duly issued or obtained and are in full force and
effect, and the Seller is in compliance with the terms of all the Governmental
Authorizations. The Seller does not have any knowledge of any facts which could
reasonably be expected to cause it to believe that the Governmental
Authorizations will not be renewed by the appropriate governmental authorities
in the ordinary course. Neither the execution, delivery nor performance of this
Agreement shall adversely affect the status of any of the Governmental
Authorizations.
ss.3.15 Proprietary Rights
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Set forth on Schedule 3.15(a) hereto is a list of (i) the
Purchased Marks, and (ii) books and other records containing each formulation,
procedure, process, trade secret, know-how and proprietary information,
including the formulations, procedures, processes, trade secrets, know-how and
proprietary information licensed pursuant to the License Agreement ("Licensed
Formulations") or used or necessary in connection with the operation of the LE
Division (together with the licensed Formulations, the "Formulations"). Except
as set forth on Schedule 3.15(a) hereto: (a) the Seller is the sole and
exclusive owner of all right, title and interest in and to all of the trademark
registrations and applications for the Purchased Marks and the Licensed marks
listed on Schedule A to License Agreement (the "Schedule A Marks") and has the
right to use all such intellectual property and to license the Licensed Marks,
the Patent and the Licensed Formulations; (b) no royalties or fees (license or
otherwise) are payable by the Seller to any Person by reason of the ownership or
use of any of the Purchased Marks, Licensed Marks, Patent or Formulations
(collectively, the "Intangible Property"); (c) there have been no claims made
against the Seller asserting the invalidity, abuse, misuse, or unenforceability
of the Licensed Marks and the Purchased Marks (the "Marks") and with respect to
the Schedule A Marks and the Purchased marks only (the "Premier Marks"), Seller
has no knowledge of the existence of any reasonable grounds for any such claims;
(d) the Seller has not made any claim of any violation or infringement by others
of its rights in the Marks and, with respect to the Premier Marks only, Seller
has no knowledge of any reasonable grounds for such claims to exist; (e) to the
Seller's knowledge, the use of the Marks is not infringing upon the asserted
rights of others and, to the Seller's actual knowledge, none of the use of the
Intangible Property by the Seller, the operation of the LE Division, the
manufacture of its products, nor are the Formulations infringing upon any rights
of others; (f) the Intangible Property includes all rights necessary for the
Seller to be engaged in the business of the LE Division as presently being
conducted; (g) to Seller's good faith belief, the consummation of the
transactions contemplated hereby will not alter or impair the Marks; (h) no
interest of the Seller's rights to any of the Marks has been assigned,
transferred, licensed or sublicensed by the Seller to third parties, other than
to AHI or an Affiliate of AHI; (i) to the extent that any item constituting part
of the Intangible Property has been registered with, filed in or issued by, as
the case may be, any governmental or other regulatory authority, such
registrations, filings or issuances are listed on Schedule 3.15(a) hereto, and,
to Seller's knowledge, remain in full force and effect.
Notwithstanding the foregoing, Seller makes no representations
or warranty that the Patent or Marks or any registration covered by this
Agreement are valid or that any Formulation constitutes legally protected
proprietary information. Furthermore, it is understood and agreed that Seller
makes no representation or warranty that AHI's or Purchaser's or any of their
respective Affiliate's exercise of any rights under this Agreement will not
result in the infringement of any rights of a third party. Seller shall have no
liability to AHI or Purchaser or any of their respective Affiliates for any
damages of any kind resulting from the infringement of the rights of any third
party as a result of the exercise of the rights granted under the License
Agreement or as a result of any determination that any or all of the Marks or
Patent or any registrations are invalid or unenforceable or any determination
that the Formulations are not legally protected as confidential proprietary
information.
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ss.3.16 Major Customers and Suppliers; Supplies
Attached as Schedule 3.16 hereto is a list of the ten (10)
largest customers (measured by dollar volume) of the LE Division and all
suppliers of significant goods or services used in the operation of the LE
Division for the period ended December 31, 1997. Except as set forth in Schedule
3.16 hereto, there has not been and, to its knowledge, there will not be any
material adverse change in the relations of the Seller with its respective
suppliers, contractors, licensors and lessors used in the operation of the LE
Division, as a result of the announcement or consummation of the transactions
contemplated by this Agreement and the Seller has no knowledge that any of the
Seller's suppliers used in the operation of the LE Division, has or is
contemplating terminating its relationship with the LE Division of the Seller.
To the Seller's knowledge, no such major customer or supplier has experienced
any type of work stoppage or other material adverse circumstances or conditions
that may materially adversely affect the Purchaser's future relationship with
any such supplier. Except as set forth on Schedule 3.16, there are no pending
disputes or controversies between any such supplier of the Seller, and to
Seller's knowledge there exist no facts which in the future could reasonably be
expected to impair the relationship of the Purchaser with such suppliers.
ss.3.17 Tax Matters
All tax returns and tax reports required to be filed with
respect to the LE Division have been timely filed (or appropriate extensions
have been obtained or the issue has been remedied in accordance with applicable
law) with the appropriate governmental agencies in all jurisdictions in which
such returns and reports are required to be filed, all of the foregoing as filed
are true, correct and complete and, in all respects, reflect accurately all
liability for taxes of the Seller for the periods to which such returns relate,
and all amounts shown as owing thereon have been paid. All income, profits,
franchise, sales, use, value added, occupancy, property, excise, payroll, FICA,
FUTA and other taxes (including interest and penalties), if any, collectible or
payable by the Seller or relating to or chargeable against any of its assets,
revenues or income through December 31, 1997, and through the Closing Date, were
fully collected and paid by such date or provided for by adequate reserves in
the December 31, 1997 Financial Statements and all similar items due through the
Closing Date will have been fully paid by that date or provided for by adequate
reserves.
ss.3.18 Products
Except as set forth on Schedule 3.18 hereto, Seller has no
knowledge of any set of facts (i) which could reasonably be expected to furnish
a basis for the recall, withdrawal or suspension of any product, governmental
license, approval or consent of any governmental or regulatory agency with
respect to any product manufactured, developed, distributed or sold by the LE
Division (the "Products"), (ii) which could reasonably be expected to furnish a
basis for the recall, withdrawal or suspension by order of any state, federal or
foreign court of law of any Product, or (iii) which could reasonably be expected
to cause the Seller to recall, withdraw or suspend any such Product from the
market or to change the marketing classification of any such Product. True,
correct and complete copies of all material correspondence received or sent by
or on behalf of the Seller relating to violations of governmental laws, rules or
regulations affecting the LE Division during the past year.
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ss.3.19 Solvency
The Seller is able to pay its debts as they mature and, to the
best of its knowledge, the transfer of the Purchased Assets by the Seller to
Purchaser in accordance with the terms of this Agreement shall not constitute a
voidable preference or transfer in fraud by any creditor of the Seller under
applicable federal or state insolvency law.
ss.3.20 Inventories
The Seller has and, until the Closing, will continue to have
adequate quantities and types of inventory to enable it to conduct the business
of the LE Division as presently conducted and as anticipated to be conducted.
Except as set forth on Schedule 3.20 hereto, all inventory of the Seller and all
fixed and tangible assets which are included in the Purchased Assets is located
in its warehouse facility in Bennington, Vermont. Schedule 3.20 discloses the
locations of such assets.
ss.3.21 Absence of Certain Business Practices
Except as set forth in Schedule 3.21, none of the Seller, its
related parties or any Affiliate of the Seller, or to its knowledge, any other
Person acting on behalf of the Seller, acting alone or together, has with
respect to the business or activities of the LE Division: (a) received, directly
or indirectly, any rebates, payments, commissions, promotional allowances or any
other economic benefits, regardless of their nature or type, from any customer,
supplier, trading company, shipping company, governmental employee or other
Person with whom the Seller has done business directly or indirectly; or (b)
directly or indirectly, given or agreed to give any gift or similar benefit to
any customer, supplier, trading company, shipping company, governmental employee
or other Person who is or may be in a position to help or hinder the business of
the Seller (or assist the Seller in connection with any actual or proposed
transaction) which (i) may subject the Seller to any material damage or any
penalty in any civil, criminal or governmental litigation or proceeding, (ii) if
not given in the past, may have had a material adverse effect on the assets,
business or, operations of the Seller as reflected in the Financial Statements
or (iii) if not continued in the future, may materially adversely affect the
condition (financial or otherwise), business or results of operations of the LE
Division or subject the LE Division to suit or penalty in any private or
governmental litigation or proceeding.
ss.3.22 Accounts and Notes Receivable
In order to facilitate the Seller's continued collection
thereof, the Seller has delivered or will deliver as of the Closing Date to
Purchaser a true and complete aged list of unpaid accounts and notes receivable
owing to the Seller in connection with its operation of the LE Division as of
December 31, 1997, March 31 , 1998 and as of the Closing Date (together with the
Closing Date Receivables referred to in Section 5.12, the "Receivables"). All of
the Receivables (as in effect as of the Closing Date constitute or will
constitute as of the Closing Date only bona fide, valid and binding claims
arising in the ordinary course of the Seller's operation of the LE Division,
subject to no valid counterclaims or setoffs, at the aggregate recorded amount
thereof subject to normal reserves for doubtful accounts.
ss.3.23 LE Division Assets
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The Purchased Assets, except for the Excluded Assets and any
Copyright interests owned by parties other than the Seller, include all assets
owned or used by the Seller which relate to or are used or useful in the
operation of the LE Division or the manufacture or development of the Products.
ss.3.24 Disclosure
The Seller has filed or will file, within required time
periods, in compliance with applicable law, all reports, registration statements
and filings, including any necessary amendments thereto ("Filings"), required to
be filed by it pursuant to the Exchange Act and the Securities Act. No
representation or warranty of the Seller contained in this Agreement, and no
statement, report, Filing or certificate furnished by or on behalf of the Seller
pursuant hereto or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading or omits or will omit to state a
material fact necessary in order to provide the Seller's stockholders with full
and proper information as to the business, financial condition, or results of
operations of the LE Division.
ARTICLE IV
Representations and Warranties of AHI and the Purchaser
In order to induce the Seller to enter into this Agreement and
to consummate the transactions contemplated hereby, AHI and the Purchaser,
jointly and severally, make the representations and warranties set forth below
to the Seller.
ss.4.1 Organization; Standing and Power
Each of AHI and the Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation. Each of AHI and the Purchaser is, or will be as of the Closing
Date, duly qualified to transact business as a foreign corporation in all
jurisdictions where the ownership or leasing of its respective properties or the
conduct of its respective businesses requires such qualification. Each of AHI
and the Purchaser has all requisite corporate power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby.
ss.4.2 Authorization; Enforceability
The execution, delivery and performance of this Agreement by
AHI and the Purchaser and the consummation by AHI and the Purchaser of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of AHI and the Purchaser. This Agreement and any
and all other documents to be executed and delivered by AHI and the Purchaser
pursuant to this Agreement have been duly executed and delivered by AHI and the
Purchaser, and constitutes the legal, valid and binding obligation of AHI and
the Purchaser, enforceable in accordance with their terms, except to the extent
that their enforcement is limited by bankruptcy, insolvency, reorganization or
other laws relating to or affecting the enforcement of creditors' rights
generally and by general principles of equity.
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ss.4.3 No Violation or Conflict
The execution, delivery and performance of this Agreement by
AHI and the Purchaser and the consummation by AHI and the Purchaser of the
transactions contemplated hereby: (a) except as set forth on Schedule 3.3 do not
violate or conflict with any provision of law or regulation (whether federal,
state or local), or any writ, order or decree of any court or governmental or
regulatory authority, or any provision of AHI's or the Purchaser's Certificate
of Incorporation or Bylaws; and (b) except as set forth on Schedule 3.3 hereto,
do not, with or without the passage of time or the giving of notice, or both,
result in the breach of, or constitute a default, cause the acceleration of
performance or require any consent under, any instrument or agreement to which
AHI or the Purchaser is a party or by which AHI or the Purchaser or their
respective properties may be bound or affected, other than instruments or
agreements as to which consent shall have been obtained or waived at or prior to
the Closing.
ss.4.4 Validity of AHI Common Stock
The AHI Shares, when issued in accordance with the terms and
provisions of this Agreement, will be validly authorized, validly issued, fully
paid and nonassessable. Such AHI Shares shall be of the same class and having
the same rights as the duly authorized shares of Common Stock. Except as set
forth in Section 2.1(d), as of the Closing Date, the AHI Shares have been or
will be registered with the Commission under the Securities Act, such
registration statement is or shall be declared effective and no stop order shall
be in effect as of the Closing Date, with respect to the AHI Shares.
ss.4.5 Brokers
Neither AHI nor the Purchaser has employed any financial
advisor, broker or finder with respect to which the Seller will incur any
broker's, finder's, investment banking or similar fees, commissions or expenses,
in connection with the transactions contemplated by this Agreement.
ARTICLE V
Additional Agreements
ss.5.1 Survival
The representations, warranties, covenants and agreements of
AHI, the Purchaser and the Seller set forth in this Agreement shall survive the
Closing Date for a period of one year; provided, however, that such limitation
shall not apply with respect to any action based upon wrongful intent or
fraudulent actions, or wrongfully intentional: misrepresentations or breaches of
any party.
ss.5.2 Investigation
The representations, warranties, covenants and agreements set
forth in this
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Agreement shall not be affected or diminished in any way by any investigation
(or failure to investigate) at any time by or on behalf of the party for whose
benefit such representations, warranties, covenants and agreements were made;
provided, however, that each of the parties hereto agrees not to intentionally
conceal, prior to the Closing, from the other parties hereto, any actual
knowledge of any breach of any of such representations, warranties, covenants
and agreements. With respect to AHI or the Purchaser, the phrase "actual
knowledge" means the conscious awareness of Xxx Xxxxxxxx, Xxxxxx Xxxxxx, Xxxxxxx
Xxxxxx, and, with respect to inventory only, Xxx Xxxxxxx. All statements
contained herein or in any schedule, certificate, exhibit, list or other
document delivered pursuant hereto, shall be deemed to be representations and
warranties for purposes of this Agreement.
ss.5.3 Indemnification
(a) By Seller. Subject to the limitations set forth in Section
5.1, the Seller agrees to indemnify and hold harmless AHI, the Purchaser, and
their respective directors, officers, employees and agents from, against and in
respect of, the full amount of any and all liabilities, actions, suits,
proceedings, damages, claims, deficiencies, fines, assessments, judgments,
losses, taxes, penalties, interest, costs and expenses, including, without
limitation, reasonable fees and disbursements of counsel ("Liabilities"),
arising from, (i) any breach or violation of any of the representations,
warranties, covenants or agreements of the Seller contained in this Agreement or
any agreement referred to herein and delivered at or prior to the Closing; (ii)
any act or failure to act of the Seller or the conduct of its business arising
or occurring on or prior to the Closing Date without regard to whether such
claim exists on the Closing Date or arises at any time thereafter in respect of
or relating to, directly or indirectly, the Purchased Assets, the Licensed Xxxx
or the Patent; (iii) any obligation or liability of the Seller of any nature,
fixed, absolute, accrued, contingent or otherwise, not assumed by AHI or the
Purchaser in accordance with this Agreement, including any obligation or
liability relating to any product distributed, manufactured or sold by the
Seller prior to or after the Closing Date; (iv) any third party claims relating
to the use by the Seller of the Licensed Marks, the Patent or the formulations
licensed pursuant to the License Agreement that do not arise primarily out of or
relate primarily to any act or failure to act on the part of the Purchaser or
AHI; (v) any breach or violation of the Non-Compete Agreements by the parties
thereto, provided, however, that, the Seller shall have no obligation to the
Purchaser under this clause (v) for any actions other than by the Seller; (vi)
any sale by the Purchaser of any of the Products in accordance with Section 5.15
hereof, to the extent any such Liability arises out of any act or failure to act
on the part of the Seller prior to the Closing Date; (vii) any failure by the
Seller to comply with any applicable "bulk sales, "bulk transfer" or similar
laws including the time period and other requirements thereof as then in effect
(the "Bulk Sale Provisions"); and (viii) any violation or alleged violation of
any Environmental Laws relating to the Purchased Assets.
(b) By AHI and the Purchaser. Subject to the limitations set
forth in Section 5.1, AHI and the Purchaser agree, jointly and severally, to
indemnify and hold harmless the Seller and its directors, officers, employees
and agents, from, against and in respect of, the full amount of any and all
Liabilities arising from (i) any breach or violation of any of the
representations, warranties, covenants or agreements of AHI or the Purchaser
contained in this Agreement or any agreement referred to herein and delivered at
or prior to the Closing; (ii) any act or failure to act relating to the
operation by the Purchaser or AHI of the Purchased Assets, the Licensed Xxxx,
the Patent or the Formulations occurring from and after the Closing Date that
does not arise primarily out of or relate primarily to any act or failure to act
on the part of the Seller; and
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(iii) the sale of any Product by AHI or the Purchaser from and after the Closing
Date, except to the extent that any such Liability arises out of any act of or
failure to act on the part of the Seller that occurred prior to the Closing
Date; provided, however, that such indemnification shall not cover or apply to
any liability for sales taxes imposed upon the Purchaser under applicable law.
(c) Indemnity Procedure. A party or parties hereto agreeing to
be responsible for or to indemnify against any matter pursuant to this Agreement
is referred to herein as the "Indemnifying Party" and the other party or parties
claiming indemnity is referred to as the "Indemnified Party".
(i) An Indemnified Party under this Agreement shall,
with respect to claims asserted against such party by any third party, give
written notice to the Indemnifying Party of any liability which might give rise
to a claim for indemnity under this Agreement within sixty (60) business days of
the receipt of any written claim from any such third party, but not later than
twenty (20) days prior to the date any answer or responsive pleading is due, and
with respect to other matters for which the Indemnified Party may seek
indemnification, give prompt written notice to the Indemnifying Party of any
liability which might give rise to a claim for indemnity; provided, however,
that (i) any failure to give such notice will not waive any rights of the
Indemnified Party except to the extent the rights of the Indemnifying Party are
materially prejudiced, and (ii) with respect to claims by a party hereto, the
Indemnifying Party shall have a period of twenty (20) days in which to cure or
otherwise remedy any claim, provided, that if such breach or claim can be cured
within sixty (60) days, the Indemnified Party shall have up to sixty (60) days
in which to cure such claim and the parties shall first reasonably attempt to
settle any disputes regarding the amount of indemnification through direct
discussions.
(ii) With respect to claims by a third party, the
Indemnifying Party shall have the right, at its election, to take over the
defense or settlement of such claim by giving written notice to the Indemnified
Party at least fifteen (15) days prior to the time when an answer or other
responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes such election, it may conduct the defense of such claim
through counsel of its choosing (subject to the Indemnified Party's approval of
such counsel, which approval shall not be unreasonably withheld), shall be
solely responsible for the expenses of such defense and shall be bound by the
results of its defense or settlement of the claim. The Indemnifying Party shall
not settle any such claim without prior notice to and consultation with the
Indemnified Party, and no such settlement involving any equitable relief or
which might have an adverse effect on the Indemnified Party may be agreed to
without the written consent of the Indemnified Party (which consent shall not be
unreasonably withheld). So long as the Indemnifying Party is diligently
contesting any such claim in good faith, the Indemnified Party may pay or settle
such claim only at its own expense and the Indemnifying Party will not be
responsible for the fees of separate legal counsel to the Indemnified Party,
unless the named parties to any proceeding include both parties and
representation of both parties by the same counsel would be inappropriate. If
the Indemnifying Party does not make such election, or having made such election
does not, in the reasonable opinion of the Indemnified Party proceed diligently
to defend such claim, then the Indemnified Party may (after 20 days prior
written notice to the Indemnifying Party, or such shorter period as may be
necessary in order that the Indemnified Party's rights are not prejudiced), at
the expense of the Indemnifying Party, elect to take over the defense of and
proceed to handle such claim in its discretion and the Indemnifying Party shall
be bound by any defense or settlement that the Indemnified Party may make in
good faith with respect to such claim. In connection therewith, the
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Indemnifying Party will fully cooperate with the Indemnified Party should the
Indemnified Party elect to take over the defense of any such claim.
(iii) The parties agree to cooperate in defending such
third party claims and the Indemnified Party shall provide such cooperation and
such access to its books, records and properties as the Indemnifying Party shall
reasonably request with respect to any matter for which indemnification is
sought hereunder; and the parties hereto agree to cooperate with each other in
order to ensure the proper and adequate defense thereof.
(iv) With regard to claims of third parties for which
indemnification is payable hereunder, such indemnification shall be paid by the
Indemnifying Party upon the earlier to occur of: (i) the entry of a judgment
against the Indemnified Party and the expiration of any applicable appeal
period, or if earlier, five (5) days prior to the date that the judgment
creditor has the right to execute the judgment; (ii) the entry of an
unappealable judgment or final appellate decision against the Indemnified Party;
or (iii) a settlement of the claim in accordance herewith. Notwithstanding the
foregoing, provided that there is no dispute as to the applicability of
indemnification, the reasonable legal fees and expenses of counsel to the
Indemnified Party shall be reimbursed on a current basis by the Indemnifying
Party if such legal fees and expenses are a liability of the Indemnifying Party.
With regard to other claims for which indemnification is payable hereunder, such
indemnification shall be paid promptly by the Indemnifying Party upon demand by
the Indemnified Party.
(d) Holdback Provisions. In order to secure the obligations of
the Seller hereunder, the Purchaser will retain and hold back from the Purchase
Price, $600,000 of the Purchase Price (the "Holdback Fund") in cash and/or stock
(in accordance with Section 2.1(d) hereof), any cash portion of which will be
deposited by the Purchaser in a segregated interest bearing account, and
$480,000 of which will be released and remitted to the Seller on the 180th day
following the Closing Date, and the remainder of which will be released from the
Holdback Fund on the one year anniversary of the Closing Date (each, a "Release
Date"). Should the Indemnified Party be notified of any claims made while any of
the Holdback Funds are held by the Purchaser as set forth above, an amount equal
to a reasonable estimate of the amount to be indemnified shall remain in escrow
until the final resolution of such claim, notwithstanding the passing of a
Release Date. Upon final resolution of any claim, the Purchaser shall have the
right, to set-off and deduct from the Holdback Fund, upon written notice to the
Seller, such cash or that number of AHI Shares having a value equal to the
amount of any losses for which Seller is required to indemnify the Purchaser
pursuant to the provisions of Section 5.3(a) above. For purpose of this Section
5.3(d), the value of the AHI Shares shall equal the average closing price of
AHI's Common Stock on the American Stock Exchange (or such other exchange as
such shares may then be listed) for the ten consecutive trading day period
ending three trading days prior to the date of determination. In the event any
shares of AHI Common Stock are sold at the request of the Seller while held in
the Holdback Fund, the proceeds of any such sale shall be remitted to and held
as part of the Holdback Fund until released in accordance with the provisions of
this Section. So long as there is no claimed breach of any representation,
warranty, covenant or agreement by the Seller under this Agreement or the other
agreements contemplated hereby, and subject to any rights in favor of third
parties that may be granted by the Seller, the Seller shall be entitled to vote
the AHI Shares in the Holdback Fund and to receive dividends thereon, when, as
and if declared by the Board of Directors of AHI. Notwithstanding anything
contained in this Section 5.3(d) to the contrary, including the passing of a
Release Date, no cash or AHI Shares shall be released from the Holdback Fund
until such time as
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the Warrant Shares (as defined in Section 6.1(n)) have been registered with the
Commission under the Securities Act in accordance with the terms thereof.
(e) No indemnification payment shall be made pursuant to this
Section 5.3 unless and until the amounts the Indemnified Party would otherwise
be entitled to receive as indemnification under this Section 5.3 exceeds
$200,000, (which amount shall be reduced by claims for non-delivery of assets
set forth on Schedule 5.5 on or prior to the due date therefor as set forth in
Section 5.5 based on the net book value thereof at December 31, 1997), excluding
(for purposes of this Section 5.3(e) only) fees and expenses of counsel. If such
amount exceeds $200,000 the Seller shall provide indemnification under this
Section 5.3 for all Liabilities to the extent they exceed $200,000.
(f) Notwithstanding the foregoing, each party assumes
responsibility for the design and manufacture of products using the Formulations
after the date hereof.
ss.5.4 Preparation of Closing Date Schedule
The Seller shall conduct a physical count of all inventory
included in the Purchased Assets during the three day period immediately
preceding the Closing Date and shall prepare a schedule of the inventory
included in the Purchased Assets as of the Closing Date, which shall identify
inventory relating to orders set forth on Schedule 1.2 (the "Closing Date
Schedule"). The Purchaser and its independent accountants shall have the right
and opportunity to observe and confirm the taking of such inventory and shall be
afforded access to the working papers and other records of the Seller and its
accountants in connection with such inventory count. The inventory will be
priced at the value shown on the audited books and records of the Purchaser at
December 31, 1997, and shall be (i) increased by all inventory purchases in
accordance with the terms hereof from December 31, 1997 through the Closing at
the Seller's standard costs for such inventory, and (ii) decreased by (A) all
sales of inventory from December 31, 1997 through the Closing and (B) all
inventory relating to orders set forth on Schedule 1.2 (all such increases and
decreases to inventory) valued consistent with the Seller's policies and
procedures applied in the audited balance sheet dated December 31, 1997).
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ss.5.5 Delivery of Purchased Assets
The Seller shall pack, under the supervision of, and at the
specific and reasonable direction of, the representatives of the Purchaser, all
inventory, raw materials, work in process, finished goods and all of the other
tangible Purchased Assets including inventory and equipment and shall forward
such Purchased Assets from the Seller's plant to the location designated by the
Purchaser in the United States, as promptly as practicable, but in no event
later than ninety (90) days following the Closing Date. The cost of such packing
and shipping shall be borne by the Seller to the extent of $200,000 evidenced by
reasonably satisfactory books and records, and the Seller shall be responsible
for such costs in excess of $200,000. Costs for purposes of this section shall
include Seller's out of pocket costs (including salaries and benefits).
Notwithstanding the foregoing, the Purchaser shall not take delivery of the
Purchased Assets specified on Schedule 5.5 hereto until the earlier of to occur
sixty (60) days following the Closing Date and the fulfillment of the orders set
forth in Schedule 1.2 hereto, upon which occurrence the Seller shall pack such
items at its own expense (in accordance with the Purchaser's reasonable
specifications) and deliver them to the Purchaser within fifteen (15) days
thereof.
ss.5.6 CS Inventory
The Seller is in possession of a quantity of CS-1. To the
extent that the Seller can convert any available quantity of the CS-1 to CS on a
commercially reasonable basis, as determined in good faith by the Seller, the
Seller shall offer for sale to the Purchaser, prior to offer or sale to any
third party, such quantities of CS as the Purchaser, AHI or its Affiliates may,
from time to time request (the "Offered CS"), at such prices to be agreed to
from time to time by the parties, provided, however, that such prices shall at
all times be $3.00 per pound less than the lowest available alternative price
offered by suppliers of CS tear gas satisfying the military specification
MIL-C-51029C, other than AHI of its Affiliates. The parties agree that the
Seller shall have no obligation to maintain any quantity of CS tear gas. In the
event the Purchaser desires to purchase the Offered CS but was unable to agree
with the Seller to a purchase price, then the Offered CS shall not be offered to
any third parties on terms more favorable than was required to be offered to the
Purchaser in accordance with this Section 5.6.
ss.5.7 Xxxx VI Molds
The Seller shall license to the Purchaser, as part of the
License Agreement, the Patent for the Seller's Xxxx VI mold, the right to
manufacture such mold and the right to use the Xxxx VI mold currently in the
possession of AHI for use by the Purchaser for the remainder of such Patents'
useful life for the sale of products in accordance with the terms and conditions
set forth in the License Agreement. The Seller agrees to sell to AHI or its
Affiliates, from time to time, a reasonable supply of Xxxx VI parts for use in
connection with the sale of products for use by AHI or its Affiliates, at 1.5
times Seller's cost of manufacture for so long as Seller is manufacturing such
parts. The License Agreement shall supersede any and all licenses or rights
granted by the Seller to AHI, its Affiliates or the Purchaser with respect to
such molds. The Seller agrees to give AHI and the Purchaser 90 days written
notice prior to any sale by it of the Patent or the Xxxx VI mold of the material
terms of such proposed sale.
ss.5.8 Transition
21
The Seller agrees to assist the Purchaser with the transition
of the Purchased Assets from the Seller to the Purchaser including the
installation of the equipment comprising Purchased Assets at the facility
designated by the Purchaser. In connection therewith, the Seller agrees to make
the services of its employee, Xxxxxxx Xxxxxx (at his sole discretion no more
than two consecutive days at a time), or another individual with comparable
background and experience, available to the Purchaser at its offices in Wyoming,
at mutually convenient times upon ten (10) days prior notice by the Purchaser,
to assist with such transition, for an aggregate of fifteen (15) business days
following the Closing Date. The Seller shall make such employee available to the
Purchaser at its offices in Wyoming to assist with such transition, for such
number of additional days as the Purchaser shall reasonably request as set forth
above for a per diem fee equal to 130% of such employee's salary for each such
day (computed on the basis of such employee's annual salary paid to him by the
Seller during the year in which services are rendered) plus reasonable expenses
of travel, lodging and meals.
ss.5.9 Insurance Policies
The Seller agrees to maintain in full force and effect, until
the fifth anniversary of the Closing Date, product liability insurance policies
with companies having an "A" rating or better naming the Purchaser as an
additional insured with respect to all Products in the amount of $1 million per
occurrence, $3 million in the aggregate and a $2 million umbrella. The Purchaser
agrees to maintain in full force and effect, until the seventh anniversary of
the Closing Date, product liability insurance policies with companies having an
"A" rating or better naming the Seller as an additional insured with respect to
all Products using the Licensed Xxxx, the Patent, the Formulations or the
Purchased Assets, in the amount of $1 million per occurrence, and $3 million in
the aggregate and a $2 million umbrella. As proof of such insurance, each party
will submit to the other a fully paid certificate of insurance naming the other
party as an additional insured.
ss.5.10 Bulk Sale
The Seller agrees to comply with all Bulk Sales Provisions
applicable to the transactions contemplated hereby. The Seller agrees to pay
when due and discharge (a) all claims of creditors and all taxes and interest
and penalties and all other liabilities of any nature and which could be
collected from the Purchaser by reason of the Seller's failure to fully comply
with any of the Bulk Sales Provisions and (b) all sales and other state and
local taxes owing by the Seller in respect of the operation of the LE Division
up to and including the Closing Date.
ss.5.11 Intellectual Property Assignment
(a) The Seller agrees to transfer and assign, at Closing, all
of its right title and interest in and to the Licensed Xxxx and the Patent, to a
newly formed wholly-owned subsidiary corporation of the Seller organized under
the laws of the State of Delaware ("Trademark Corp.") having a duly adopted
Certificate of Incorporation and By-Laws in the form attached hereto as Exhibit
A (the "Organizational Documents") and By-Laws in the form reasonably acceptable
to Purchaser. The Seller shall cause Trademark Corp. to license to the
Purchaser, pursuant to a License Agreement substantially in the form attached
hereto as Exhibit B (the "License Agreement"), the Licensed Xxxx and the Patent.
The Seller shall pledge to the Purchaser all of its stock and any other interest
that it owns in Trademark Corp., pursuant to a Pledge Agreement in the form
attached hereto as Exhibit C (the "Pledge Agreement"). The Seller shall cause
Trademark
22
Corp. to grant to the Purchaser a first priority security interest in the
Licensed Xxxx and the Patent pursuant to a Security Agreement in the form
attached hereto as Exhibit D (the "Security Agreement").
(b) During the term the term of the License Agreement the
Seller shall not, (i) alter, amend or repeal or permit the same to occur
(without the unanimous consent of the Board of Directors of Trademark Corp.) any
of the provisions of the Organizational Documents of Trademark Corp. (the
"Charter"), (ii) take or permit to be taken any action in violation of the
Organizational Documents, (iii) make loans to Trademark Corp. provided it may
make capital contributions from time to time due, (iv) transfer, assign or
otherwise convey any interest in Trademark Corp. to any Person, other than AHI
or the Purchaser, that does not agree to be bound by the terms of this Section
5.11(b), the Pledge Agreement and the Security Agreement, or (v) cause the
Trademark Corp. to pledge or encumber any of its assets unless such pledge or
encumbrance is subordinated to the security interest of AHI and the Purchaser
under the Pledge Agreement and the holder thereof agrees in writing to waive the
right to file an involuntary bankruptcy petition against Trademark Corp. with
regard to such debt. The Seller shall cause and maintain at all times the
election of one designee of Licensee (under the License Agreement) to the Board
of Directors of Trademark Corp.
ss.5.12 Receivables
The Seller will deliver to the Purchaser a true and complete
aged list of unpaid accounts and notes receivable owing to the Seller in
connection with its operation of the LE Division as of the Closing Date (the
"Closing Date Receivables").
ss.5.13 Issuance of Warrant
The Seller shall issue to AHI at the Closing the Warrant (as
defined in Section 6.1(n) hereof), which Warrant shall include, but not be
limited to, the terms described in Section 6.1(n) hereof.
ss.5.14 Information Statement
As soon as is practicable following the execution of this
Agreement by the parties, but in no event more than fifteen (15) days following
execution hereof so long as Seller is provided the information with respect to
AHI and/or the Purchaser that is required to be contained in the Information
Statement, the Seller shall prepare and file with the Commission an Information
Statement complying with the Exchange Act and the rules and regulations
promulgated thereunder, and thereafter use its best efforts to timely respond to
the Commission's comments thereto. The Seller further agrees to mail such
Information Statement to its stockholders as soon as is practicable following
the filing of the Information Statement with the Commission and the Seller's
response to the Commission's comments thereto, if any. The Seller further agrees
that the only subject to be addressed in the Information Statement shall be this
Agreement and the transactions contemplated hereby. The Purchaser and AHI agree
to reasonably cooperate with the Seller, and to provide reasonably requested
information with respect to AHI and the Purchaser necessary to complete the
Information Statement.
ss.5.15 Backlog
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(a) Upon the consummation of the transactions contemplated
hereby on the Closing Date, the Backlog shall become the property of the
Purchaser. The Purchaser shall pay to the Seller a commission on each Backlog
order (the "Backlog Commission") shipped following the Closing Date in an amount
equal to 25% of the gross profit on such order, based upon the Seller's standard
costs, earned by the Purchaser on each such item of Backlog. For purposes of
calculating commissions, gross profit shall be selling price less Seller's
standard costs. The Backlog Commission shall be earned by and paid to the Seller
by the Purchaser only upon the satisfaction of the account receivable of the
Purchaser for such item of Backlog. The Purchaser shall pay the Backlog
Commission in cash to the Seller within the earlier to occur of (i) two business
days of an aggregate of $50,000.00 or more in outstanding Backlog Commissions
being earned and owing to the Seller, and (ii) the fifteenth (15th) day of each
month with respect to payment of Backlog Commissions earned during the prior
month. Backlog Commission shall be deemed earned and owing to the Seller upon
satisfaction of the account receivable for such item of Backlog.
(b) The Seller agrees that specifications for all Backlog
orders shall be as set forth on Schedule 5.15 hereto. The Purchaser agrees to
satisfy all specifications for Backlog orders set forth on Schedule 5.15 hereto
and shall not be responsible for satisfying any specifications not set forth
thereon. Schedule 5.15 shall be delivered at Closing.
(c) In the event any Product delivered or attempted to be
delivered by the Purchaser to fill a Backlog order is returned by the customer
due to the fault of the Purchaser in fulfilling such order, the estimated
Backlog Commission (based upon the Seller's standard costs) shall be paid to the
Seller. Such determination of fault shall be made in good faith by the Purchaser
and the Seller; provided, however, that in the event the Purchaser and the
Seller can not agree as to any such determination, such dispute shall be
submitted to arbitration in accordance with Section 8.19 hereof.
(d) Notwithstanding anything in this Agreement to the
contrary, from and after the date hereof, before agreeing to acceptance of any
international order or any domestic order greater than $7,500.00 the Seller
shall first provide the Purchaser with a gross margin report, copy of the
purchase order and terms and product specifications, with respect thereto.
5.16 Joint Obligations
All agreements, covenants, representations and warranties contained
herein on the part of the Purchaser shall be the joint obligation of AHI.
ARTICLE VI
Conditions Precedent; Termination
ss.6.1 Conditions Precedent to the Obligations of AHI and the
Purchaser
Each and every obligation of AHI and the Purchaser to
consummate the transactions described in this Agreement and any and all
liability of AHI and the Purchaser to the Seller shall be subject to the
fulfillment or waiver by AHI and Purchaser on or before the Closing
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Date of the following conditions precedent:
(a) Representations and Warranties True. Each of the
representations and warranties of the Seller contained herein or in any
certificate or other document delivered pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be true and correct
in all respects as of the Closing Date with the same force and effect as though
made on and as of such date (except for changes specifically permitted by this
Agreement), which shall include changes to the schedules as a result of
occurrences following the execution date of this Agreement that are accepted by
Purchaser in writing.
(b) Performance. The Seller shall have performed and complied
in all material respects with all of the agreements, covenants and obligations
under this Agreement to be performed or complied with by each of them on or
prior to the Closing Date.
(c) No Adverse Change. Except as expressly permitted or
contemplated by this Agreement, no event or condition shall have occurred which
has materially adversely affected or may materially adversely affect in any
respect the condition (financial or otherwise) results of operations or business
of the LE Division since the date hereof.
(d) Certificates. The Seller shall have delivered to the
Purchaser a certificate dated the Closing Date, certifying that the conditions
specified in Section 6.1(a), (b) and (c) above have been fulfilled and as to
such other matters as the Purchaser may reasonably request. The Secretary or
Assistant Secretary of the Seller shall have delivered to the Purchaser a
certificate, dated the Closing Date, certifying the names and signatures of the
officers thereof authorized to sign this Agreement and the Exhibits hereto to
which it is a party, the Certificate of Incorporation and Bylaws of the Seller,
resolutions duly adopted by the Board of Directors of the Seller, which have not
been rescinded or modified, authorizing the Agreement and the transactions
contemplated hereby, and the good standing of the Seller as evidence by
certificates of appropriate state authorities.
(e) No Litigation. No litigation, arbitration or other legal
or administrative proceeding shall have been commenced or be pending by or
before any court, arbitration panel or governmental authority or official, and
no statute, rule or regulation of any foreign or domestic, national or local
government or agency thereof shall have been enacted after the date of this
Agreement, and no judicial or administrative decision shall have been rendered,
which in each case enjoins or prohibits, or seeks to enjoin or prohibit, the
consummation of all or any of the transactions contemplated by this Agreement.
(f) Consents. The Seller shall have obtained all
authorizations, consents, waivers and approvals and given all notices as may be
required to consummate the transactions contemplated by this Agreement
including, but not limited to, approval of the Seller's stockholders, delivery
of the Information Statement to its stockholders, notices to creditors of the
Seller in respect of bulk transfer laws, if applicable, or otherwise.
(g) Opinion of Counsel. An opinion letter from counsel to the
Seller addressed to AHI and the Purchaser, in form and substance satisfactory to
the Purchaser shall have been delivered to AHI and the Purchaser at the Closing.
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(h) License Agreement. The Trademark Corp. shall have entered
into the License Agreement.
(i) Pledge Agreement. The Seller shall have entered into the
Pledge Agreement.
(j) Security Agreement. The Seller shall have caused Trademark
Corp. to enter into the Security Agreement.
(k) Non-Competition Agreements. The Seller shall have entered
into on each of the Non-Competition Agreements in the forms attached hereto as
Exhibits E and F, respectively (collectively, the "Non-Competition Agreement").
Each of Xxx Xxxxxxxx, Chief Executive Officer of the Seller ("Xxxxxxxx") and
certain the employees of the Seller whose names are set forth in Schedule 6.1(k)
hereto shall have entered into non-competition and confidentiality agreements in
the form reasonably acceptable to AHI and Purchaser;.
(l) Board Approval. The Board of Directors of AHI and the
Purchaser shall have approved this Agreement and the transactions contemplated
hereby.
(m) Competent Authority. The Seller shall have transferred to
the Purchaser "Competent Authority," to the extent allowed by, and in accordance
with applicable law, to enable the Purchaser to ship the Purchased Assets to the
locations designated by the Purchaser.
(n) Warrant. The Seller shall have issued to AHI an
immediately exercisable three (3) year Warrant, in the form reasonable
acceptable to AHI (the "Warrant"), to purchase 300,000 shares of Xxxx Common
Stock at an exercise price of $1.25 per share, having customary anti-dilution
protection (the "Warrant Shares"). The principal terms of such Warrant shall
include, but not be limited to, those terms set forth in this Section 6.1(n) and
registration rights imposing an affirmative duty upon the Seller to use its best
efforts to file with the Commission a registration statement on Form S-3 (or
other appropriate form) under the Securities Act covering the Warrant Shares,
have such registration statement declared effective by the Commission as soon as
practicable following the Closing Date, but in no event later than 180 days
following the Closing Date and keep such registration statement effective for a
period of three years after it has been declared effective. All costs relating
to such registration statement, other than underwriting commissions, discounts
and related costs and the fees and expenses of counsel for AHI and the Purchaser
incurred in connection therewith, shall be borne by the Seller.
(o) Closing Date Receivables. The Seller shall have delivered
to the Purchaser or AHI the list of Closing Date Receivables.
ss.6.2 Conditions Precedent to the Obligations of Seller
Each and every obligation of Seller to consummate the transactions
described in this Agreement and any and all liability of Seller to AHI and the
Purchaser shall be subject to the fulfillment or waiver by Seller on or before
the Closing Date of the following conditions precedent:
(a) Representations and Warranties True. Each of the
representations and warranties of AHI and the Purchaser contained herein or in
any certificate or other document
26
delivered pursuant to this Agreement or in connection with the transactions
contemplated hereby shall be true and correct in all respects as of the Closing
Date with the same force and effect as though made on and as of such date.
(b) Performance. AHI and the Purchaser have performed and
complied in all respects with all of the agreements, covenants and obligations
required under this Agreement to be performed or complied with by them on or
prior to the Closing Date.
(c) Officers' Certificate. Purchaser shall have delivered to
the Seller a certificate addressed to Seller executed by Purchaser's President
or Chief Executive Officer, dated the Closing Date, certifying that the
conditions specified in Sections 6.2(a) and (b) above have been fulfilled.
(d) Board Approval. The Board of Directors of the Purchaser
and AHI shall have approved this Agreement and the transactions contemplated
hereby.
(e) Registered Shares. In the event the Purchaser elects to
deliver AHI Shares in partial payment of the Purchase Price, the AHI Shares
shall, except as otherwise provided in Section 2.1(d) herein, have been
registered under the Securities Act, the Registration Statement with respect
thereto shall have been declared effective, and no stop order with respect to
the AHI Shares shall be in effect.
(f) Opinion of Counsel. In the event the Purchaser elects to
deliver AHI Shares in partial payment of the Purchase Price, an opinion letter
from counsel to the Purchaser and AHI with respect to the AHI Shares addressed
to the Seller, in form and substance satisfactory to the Seller shall have been
delivered to the Seller at the Closing.
(g) Reaffirmed License Agreement. Purchaser or its appropriate
affiliate shall have reaffirmed the License Agreement dated August 10, 1993
between Seller (formerly known as Xxxx Sport, Inc.) and Defense Technology Corp
of America.
(h) Fairness Opinion. Seller shall have received an opinion
from an independent investment banking firm that the transactions contemplated
hereby are fair, from a financial point of view, to the Shareholders of Seller;
provided that this condition precedent shall be deemed automatically waived if
such opinion is not received by Seller on or prior to April 14, 1998.
ss.6.3 Best Efforts
Subject to the terms and conditions provided in this
Agreement, each of the parties shall use their respective best efforts in good
faith to take or cause to be taken as promptly as practicable all reasonable
actions that are within its power to cause to be fulfilled those of the
conditions precedent to its obligations or the obligations of the other parties
to consummate the transactions contemplated by this Agreement that are dependent
upon its actions, including obtaining all necessary consents, authorizations,
orders, approvals and waivers. In furtherance of the foregoing, the Seller shall
cooperate fully with Purchaser and the Purchaser and AHI shall cooperate fully
with the Seller, in accordance with the terms hereof.
ss.6.4 Termination
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(a) This Agreement and the transactions contemplated hereby
may be terminated (i) at any time by the mutual consent of the parties hereto;
(ii) by the Seller or the Purchaser, if the Closing has not occurred on or prior
to June 30, 1998 (such date of termination being referred to herein as the
"Termination Date"), provided the failure of the Closing to occur by such date
is not the result of the failure of the party seeking to terminate this
Agreement to perform or fulfill any of its obligations hereunder; (iii) by the
Purchaser at any time at or prior to Closing in its sole discretion if (1) any
of the representations or warranties of the Seller in this Agreement are not in
all respects true, accurate and complete or if the Seller breaches in any
material respect any covenant contained in this Agreement, provided that such
misrepresentation or breach is not cured within ten (10) days or thirty (30)
days if such breach can be cured within such period of time after written notice
thereof, but in any event prior to the Termination Date or (2) any of the
conditions precedent to AHI's or the Purchaser's obligations to conduct the
Closing have not been satisfied by the date required thereof; (iv) by the Seller
at any time at or prior to Closing in its sole discretion if (1) any of the
representations or warranties of AHI or the Purchaser in this Agreement are not
in all respects true, accurate and complete or if AHI or the Purchaser breaches
in any material respect any covenant contained in this Agreement, provided that
such misrepresentation or breach is not cured within ten (10) days or thirty
(30) days if such breach can be cured within such period of time after notice
thereof, but in any event prior to the Termination Date or (2) any of the
conditions precedent to the Seller's obligations to conduct the Closing have not
been satisfied by the date required thereof. If this Agreement is terminated
pursuant to this Section 6.4, written notice thereof shall promptly be given by
the party electing such termination to the other party and, subject to the
expiration of the cure periods provided in clauses (iii) and (iv) above, if any,
this Agreement shall terminate without further actions by the parties and no
party shall have any further obligations under this Agreement. Notwithstanding
the preceding sentence, the respective obligations of the parties under Sections
7.3, 7.7, 8.9, 8.15 and 8.18 shall survive the termination of this Agreement.
Notwithstanding anything to the contrary contained herein, if the termination of
this Agreement is a result of the willful misrepresentation, willful inaccuracy
or omission in a representation, willful breach of warranty, fraud or any
willful failure to perform or comply with any covenant or agreement contained
herein, the aggrieved party shall be entitled to recover from the non-performing
party all out-of-pocket expenses which such aggrieved party has incurred and the
termination of this Agreement shall not be deemed or construed as limiting or
denying any other legal or equitable right or remedy of such party.
ARTICLE VII
Covenants
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ss.7.1 Seller's Interim Operation of the LE Division and the
Purchased Assets
During the period from the date of this Agreement to the
Closing Date, except with Purchaser's prior specific written consent or as
expressly contemplated by this Agreement, the Seller shall operate the LE
Division only in the ordinary and usual course and to preserve intact its
business organization and good will in all respects. Additionally, during the
period from the date of this Agreement to the Closing Date, the Seller shall
not, with respect to the business or activities of the LE Division where
applicable, do any of the following (unless otherwise expressly contemplated by
this Agreement or permitted in writing by Purchaser):
(i) amend its Certificate of Incorporation or By-Laws;
(ii) issue, sell or authorize for issuance or sale, shares of any
class of its securities (including, but not limited to, by way
of stock split or dividend) or any subscriptions, options,
(except as contemplated by Schedule 3.9) warrants, rights or
convertible securities, or enter into any agreements or
commitments of any character obligating it to issue or sell
any such securities;
(iii) declare or pay any stock dividend or similar distribution with
respect to its capital stock;
(iv) voluntarily sell, transfer, surrender, abandon or dispose of
any of its assets or property rights (tangible or intangible),
other than in the ordinary course of business;
(v) grant or make any mortgage or pledge or subject itself or any
of its properties or assets to any lien, charge or encumbrance
of any kind, except liens for taxes not currently due;
(vi) create, incur or assume any liability or indebtedness in
excess of $50,000.00, except for inventory purchases to fill
open purchase orders in the ordinary course of business;
(vii) accept any domestic order in excess of $7,500.00 or any
international order;
(viii) apply any of its assets to the direct or indirect payment,
discharge, satisfaction or reduction of any amount payable
directly or indirectly to or for the benefit of the Seller or
any Affiliate of the Seller or any related party or to the
prepayment of any such amounts, other than compensation
benefits, and expenses payable in the ordinary course of
business to the Seller;
(ix) enter into any agreement which would be a material agreement,
or amend or terminate any existing material agreement, which
is outside the ordinary course of business. With respect to
the foregoing, the Seller shall
29
provide Purchaser with a complete list of any such material
agreement not entered into in the ordinary course of business
between the date hereof and the Closing Date;
(x) alter the manner of keeping its books, accounts or records, or
change in any manner the accounting practices therein
reflected;
(xi) enter into any commitment or transaction other than in the
ordinary course of business including, but not limited to, the
making of any loan to any Person;
(xii) do any act, or omit to do any act, or permit to the extent
within the Company's or the Seller's control, any act or
omission to act which would cause a violation or breach of any
of the representations, warranties or a material violation or
breach of the covenants of the Seller set forth in this
Agreement;
(xiii) take any action which has a material adverse effect on the
condition (financial or otherwise), results of operations, or
business of the Seller;
(xiv) alter in any manner any of the Seller's existing working
capital facilities;
(xv) ship to any customer dated or obsolete inventory;
(xvi) produce, purchase or manufacture any inventory, finished goods
or work in process or purchase any fixed assets beyond what is
necessary and needed to fill existing orders; or
(xvii) agree, whether in writing or otherwise, to do any of the
foregoing.
ss.7.2 Access
The Seller shall afford the Purchaser and its agents and
representatives, access throughout the period prior to the Closing Date to the
properties, books, records and contracts of the Seller with respect to the LE
Division and the Purchased Assets, for the purpose of permitting Purchaser to
fully investigate and perform a due diligence review of the Seller, its
businesses, assets and properties, and financial condition, provided that such
access shall be granted during normal business hours in such a manner as to not
unreasonably interfere with the Seller's normal business operations. During such
period the Seller shall furnish promptly to the Purchaser copies of (i) all
correspondence relating to the LE Division received or sent by or on behalf of
the Seller from or to any governmental authority and (ii) all other information
and documents concerning the business, assets, liabilities and properties of or
relating to the LE Division as the Purchaser may reasonably request.
30
ss.7.3 Confidentiality (through Closing Date)
Except as otherwise required in the performance of obligations
under this Agreement and except as otherwise required by law, any non-public
information received by a party or its advisors from the other party shall be
kept confidential and shall not be used or disclosed for any purpose other than
in furtherance of the transactions contemplated by this Agreement. The Purchaser
shall not use (or permit to be used) any confidential information in any manner
to compete against the Seller, whether with respect to corporate acquisitions,
sales, financing, development, management, investment, or otherwise. The
obligation of confidentiality shall not extend to information (a) which is or
shall become generally available to the public other than as a result of an
unauthorized disclosure by a party to this Agreement or a person to whom a party
has provided such information, (b) which was available to a party to this
Agreement on a nonconfidential basis prior to its disclosure by one party to the
other pursuant to this Agreement or (c) which is disclosed by the Purchaser in
any legal proceeding requiring any such disclosure. Upon termination of this
Agreement, each party shall promptly return any confidential information
received from the other party and, upon request, shall destroy any copies of
such information in its possession. The covenants of the parties contained in
this Section 7.3 shall survive any termination of this Agreement until the
earlier of (i) three (3) years from the date hereof, or (ii) the date when such
information becomes generally available to the public. Notwithstanding anything
to the contrary contained herein, the foregoing shall in no way prevent or limit
AHI or the Purchaser in conducting its existing and prospective businesses.
ss.7.4 Notification
Each party to this Agreement shall promptly notify the other
party in writing of the occurrence, or pending or threatened occurrence, of any
event that would constitute a breach or violation of this Agreement by any party
or that would cause any representation or warranty made by the notifying party
in this Agreement to be false or misleading in any respect (including without
limitation, any event or circumstance which would have been required to be
disclosed on any schedule to this Agreement had such event or circumstance
occurred or existed on or prior to the date of this Agreement). Any such
notification shall not limit or alter any of the representations, warranties or
covenants of the parties set forth in this Agreement nor any rights or remedies
a party may have with respect to a breach of any representation, warranty or
covenant.
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ss.7.5 Exclusivity
(a) The Seller agrees that unless this Agreement has been
terminated in accordance with Section 6.4 hereof neither the Seller, its Board
of Directors, Xxxx Xxxxxx, the Treasurer of the Seller, nor counsel for the
Seller (collectively, "Agents") will, commencing on the date of this Agreement
and continuing through the Termination Date (the "Exclusive Period"), directly
or indirectly, (i) solicit, encourage or negotiate any proposal (whether
solicited or unsolicited) for, or execute any agreement relating to, a sale of
all or any part of the Seller or its assets or a sale of any equity or debt
security of the Seller or any merger, consolidation, recapitalization or similar
transaction involving the Seller with any other party (any of the foregoing is
referred to as an "Acquisition Proposal"), or (ii) provide any information
regarding the LE Division to any third party for the purpose of soliciting,
encouraging or negotiating an Acquisition Proposal relating to or affecting the
LE Division (it being understood that nothing contained in clauses (i) or (ii)
above shall restrict the Seller or any of its Agents from providing information
as required by legal process). The Seller agrees that neither it nor its Board
of Directors will authorize any person other than Xxxx Xxxxxx, the Chief
Financial Officer of the Seller, to enter into negotiations for or negotiate the
sale of the Purchased Assets, or any portion thereof.
(b) Notwithstanding any contained in Section 7.5(a) to the
contrary, the Board of Directors of the Seller may review and act upon an
unsolicited good faith proposal ("Unsolicited Offer") from any other person
relating to any transaction of the type set forth in this Agreement, and may
participate in any negotiations regarding, furnish to any other person any
information with respect to, and facilitate and encourage, any effort or attempt
by any other person to do or seek any of the foregoing, if the Board of
Directors of the Seller determines, based as to legal matters on the written
advice of counsel, that failing to review or act would constitute a breach of
their fiduciary duty.
(c) In the event that the Purchaser does not consummate the
transactions contemplated by this Agreement as a result of (i) the Seller's
breach of Section 7.5(a) hereof, or (ii) the Seller having received an
Unsolicited Offer and the Board of Directors of the Seller, in the exercise of
their fiduciary duties, shall have recommended an alternate transaction or taken
any alternative action, as permitted by Section 7.5(b) hereof, the Seller shall
pay to the Purchaser a break up fee in the amount of $250,000, together with all
costs and expenses incurred by the Purchaser (including attorneys and other
professional fees and expenses) in connection with the transactions contemplated
hereby.
ss.7.6 Intentionally omitted.
ss.7.7 General Confidentiality
The Seller acknowledges that the Intangible Property and all
other confidential or proprietary information with respect to the business and
operations of the LE Division are valuable, special and unique assets of the
Seller and are an integral part of the Purchased Assets. The Seller shall not,
at any time after the Closing Date, disclose, directly or indirectly, to any
Person, or use or purport to authorize any Person to use any confidential or
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proprietary information with respect to the LE Division, the Purchased Assets,
AHI or the Purchaser without the prior written consent of the Purchaser or
unless required by law, including without limitation, information as to the
financial condition, results of operations, customers, suppliers, products,
products under development, inventions, sources, leads or methods of obtaining
new products or business, Intangible Property, pricing methods or formulas, cost
of supplies, marketing strategies or any other information relating to the
Purchased Assets, AHI or the Purchaser, which could reasonably be regarded as
confidential. The Seller acknowledges that Purchaser would not enter into this
Agreement without the assurance that all such confidential and proprietary
information will be used for the exclusive benefit of AHI and the Purchaser.
ss.7.8 Right of First Offer.
The Seller agrees not to offer, sell or accept an unsolicited
offer (an "Offer") for the sale (the "Sale") of all or any portion of its rights
in and to the Licensed Xxxx or the Patent, including, but not limited to, any
trademark, tradename, copyright, service xxxx or other intellectual property
right relating thereto (the "XXXX Rights") for a purchase price of less than
$5,000,000 in cash without first giving AHI and the Purchaser written notice of
the Offer (the "Offer Notice") containing the purchase price and, to the extent
known, other material terms and conditions of such proposed Sale (the "Terms").
Upon delivery of the Offer Notice to AHI and the Purchaser, the XXXX Rights
shall be deemed to have been offered for sale to AHI and the Purchaser subject
to the Terms. AHI and the Purchaser shall then have the right, exercisable by
giving written notice thereof to the Seller within ten (10) business days
following delivery of the Offer Notice to give notice to the Seller of AHI's
and/or the Purchaser's intent to purchase the XXXX Rights, and AHI and the
Purchaser shall thereafter have a period of thirty (30) business days following
delivery of their notice to Seller within such ten (10) day period, to negotiate
with the Seller to purchase the XXXX Rights proposed to be sold subject to the
Terms. If AHI or the Purchaser shall exercise its right of first offer with
respect to the XXXX Rights proposed to be sold, such purchase shall be closed
within such thirty (30) business day period as hereinabove described. Failure by
AHI or the Purchaser to respond to an Offer Notice within the time periods set
forth above shall be deemed an election by AHI and the Purchaser not to exercise
its right of first offer herein contained, in which case the Sale may be
consummated with a third-party purchaser provided such Sale is (i) of all of the
XXXX Rights proposed to be sold at a purchase price or equivalent economic terms
equal to or greater than that set forth in the Offer Notice and (ii) consummated
within sixty (60) days after the delivery of the Offer Notice. The term "Sale"
as used in this Section 7.8 shall be deemed to include any sale of assets or
stock, merger, consolidation, tender offer or other business combination
involving the Seller which would include the "XXXX" name or any rights therein.
Notwithstanding the foregoing, the Seller shall provide ten (10) days prior
written notice to AHI and the Purchaser of any sale of the XXXX Rights
regardless of the purchase price therefor.
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ss.7.9 Collection of Closing Date Receivables
The Purchaser shall use its best efforts to collect the
Closing Date Receivables on behalf of the Seller. Any Closing Date Receivables
actually collected by the Purchaser shall be paid to the Seller by the Purchaser
not later than the earlier to occur of (i) two business days following their
receipt of an aggregate of $10,000.00 or more in such Receivables by the
Purchaser, and (ii) the fifteenth (15th) day of the month with respect to
Receivables received by the Purchaser during the prior month. The Purchaser
shall have no obligation to resort to legal action or other third party
collection methods with respect to the Closing Date Receivables. Any amounts
received by the Purchaser from the account debtor of a receivable shall be
applied as designated by the account debtor and, if not so designated, then to
the oldest unpaid invoice, provided such invoice is not being disputed by the
customer relating thereto, that is substantially similiar in outstanding amount
to the amount of the funds received, or if there not be any invoice with an
outstanding amount substantially similar to the funds so received, as the
parties may agree. To the extent that any receivable of the Seller remains
outstanding upon expiration of the seventy five (75) day period subsequent to
the due date of such receivable, the Purchaser shall notify the Seller by the
77th day following the Closing Date and the Seller shall have full rights to
collect any such receivables and the Purchaser shall reasonably cooperate with
the Seller in connection therewith. After the expiration of such seventy seven
(77) day period, the Seller may implement any collection methods; provided,
however, that the Seller shall not adversely affect any customer relationships
of the Purchaser in connection with any uncollected receivable.
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ss.7.10 Continuing Obligations
The restrictions set forth in Sections 7.6 and 7.7 are
considered by the parties to be reasonable for the purposes of protecting the
value of the business and good will purchased by Purchaser. AHI, the Purchaser
and the Seller acknowledge that AHI and the Purchaser would be irreparably
harmed and that monetary damages would not provide an adequate remedy to AHI and
the Purchaser in the event the covenants contained in Sections 7.6 and 7.7 were
not complied with in accordance with their terms. Accordingly, the Seller agrees
that any breach or threatened breach by any of them of any provision of Sections
7.6 or 7.7 shall entitle AHI and the Purchaser to injunctive and other equitable
relief to secure the enforcement of these provisions, in addition to any other
remedies (including damages) which may be available to AHI and the Purchaser. If
the Seller breaches the covenant set forth in Section 7.6, the running of the
five (5) year non-compete period described therein shall be tolled for so long
as such breach continues. It is the desire and intent of the parties that the
provisions of Sections 7.6 and 7.7 be enforced to the fullest extent permissible
under the laws and public policies of each jurisdiction in which enforcement is
sought. If any provisions of Sections 7.6 and 7.7 relating to the time period,
scope of activities or geographic area of restrictions is declared by a court of
competent jurisdiction to exceed the maximum permissible time period, scope of
activities or geographic area, as the case may be, the time period, scope of
activities or geographic area shall be reduced to the maximum which such court
deems enforceable. If any provisions of Section 7.6 or 7.7 other than those
described in the preceding sentence are adjudicated to be invalid or
unenforceable, the invalid or unenforceable provisions shall be deemed amended
(with respect only to the jurisdiction in which such adjudication is made) in
such manner as to render them enforceable and to effectuate as nearly as
possible the original intentions and agreement of the parties. In addition, if
any party brings an action to enforce Sections 7.3, 7.6 or 7.7 hereof or to
obtain damages for a breach thereof, the prevailing party in such action shall
be entitled to recover from the non-prevailing party all attorney's fees and
expenses incurred by the prevailing party in such action.
ARTICLE VIII
Miscellaneous
ss.8.1 Notices
Any notice, demand, claim or other communication under this
Agreement shall be in writing and shall be deemed to have been given upon the
delivery, mailing or transmission thereof, as the case may be, if delivered
personally or sent by certified mail, return receipt requested, postage prepaid,
or sent by facsimile or prepaid overnight courier to the parties at the
addresses set forth herein (or at such other addresses as shall be specified by
the parties by like notice). A copy of any notices delivered to AHI or the
Purchaser shall also be sent to Xxxx Xxxxxxx, P.C., 0000 Xxxxxx xx xxx Xxxxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxxx X. Xxxxxxxx, Esq., Fax No. (212)
000-0000. A copy of any notices delivered to the Seller shall also be sent to
Xxxxxx Xxxxxxxx & Xxxxxxxxx, 00 Xxxx Xxxxxx, Xxxxxx, Xxx Xxxx 00000, Attention:
Xxxxxxxx Curtain, Esq.
ss.8.2 Entire Agreement
This Agreement contains every obligation and understanding
between the
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parties relating to the subject matter hereof and merges all prior discussions,
negotiations and agreements, if any, between them, and none of the parties shall
be bound by any conditions, definitions, understandings, warranties or
representations made prior to the date hereof other than as expressly provided
or referred to herein.
ss.8.3 Binding Effect
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors, heirs, personal
representatives, legal representatives, and permitted assigns. AHI agrees that
it shall be financially responsible to the Seller for all obligations of the
Purchaser under this Agreement.
ss.8.4 Knowledge of the Parties
Except as otherwise specifically set forth in Section 2.4 and
5.2 hereof, where any representation or warranty contained in this Agreement is
expressly qualified by reference to the best knowledge or to the knowledge of
any of the parties hereto, each of the parties hereto acknowledges and confirms
that the persons responsible for negotiating this Agreement and the transactions
contemplated hereby and management selected to complete or review schedules,
and/or perform due diligence with respect thereto, including but not limited to,
Xxx Xxxxxx has made due and diligent inquiry as to the matters that are the
subject of such representations and warranties.
ss.8.5 Assignment
This Agreement may not be assigned by any party without the
written consent of the other party, provided, that Purchaser may assign this
Agreement to a corporation of which the Purchaser maintains majority control.
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ss.8.6 Waiver and Amendment
Any representation, warranty, covenant, term or condition of
this Agreement which may legally be waived, may be waived, or the time of
performance thereof extended, at any time by the party hereto entitled to the
benefit thereof, and any term, condition or covenant hereof (including, without
limitation, the period during which any condition is to be satisfied or any
obligation performed) may be amended by the parties thereto at any time. Any
such waiver, extension or amendment shall be evidenced by an instrument in
writing executed on behalf of the appropriate party by its President or any Vice
President or other person, who has been authorized by its Board of Directors to
execute waivers, extensions or amendments on its behalf. No waiver by any party
hereto, whether express or implied, of its rights under any provision of this
Agreement shall constitute a waiver of such party's rights under such provisions
at any other time or a waiver of such party's rights under any other provision
of this Agreement. No failure by any party thereof to take any action against
any breach of this Agreement or default by another party shall constitute a
waiver of the former party's right to enforce any provision of this Agreement or
to take action against such breach or default or any subsequent breach or
default by such other party.
ss.8.7 No Third Party Beneficiary
Except for the provisions of Section 8.5, nothing expressed or
implied in this Agreement is intended, or shall be construed, to confer upon or
give any Person other than the parties hereto and their respective heirs,
personal representatives, legal representatives, successors and permitted
assigns, any rights or remedies under or by reason of this Agreement.
ss.8.8 Severability
In the event that any one or more of the provisions contained
in this Agreement shall be declared invalid, void or unenforceable, the
remainder of the provisions of this Agreement shall remain in full force and
effect, and such invalid, void or unenforceable provision shall be interpreted
as closely as possible to the manner in which it was written.
ss.8.9 Expenses
Each party agrees to pay, without right of reimbursement from
the other party, the costs incurred by it incident to the performance of its
obligations under this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, costs incident to the
preparation of this Agreement, and the fees and disbursements of counsel,
accountants and consultants employed by such party in connection herewith.
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ss.8.10 Headings
The section and other headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of any provisions of this Agreement.
ss.8.11 Counterparts
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
ss.8.12 Time of the Essence
Wherever time is specified for the doing or performance of any
act or the payment of any funds, time shall be considered of the essence.
ss.8.13 Injunctive Relief
It is possible that remedies at law may be inadequate and,
therefore, the parties hereto shall be entitled to equitable relief including,
without limitation, injunctive relief, specific performance or other equitable
remedies in addition to all other remedies provided hereunder or available to
the parties hereto at law or in equity.
ss.8.14 Remedies Cumulative
No remedy made available by any of the provisions of this
Agreement is intended to be exclusive of any other remedy, and each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity.
ss.8.15 Governing Law
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This Agreement has been entered into and shall be construed
and enforced in accordance with the laws of the State of New York without
reference to the choice of law principles thereof. In any litigation in
connection with or arising out or related to this Agreement, any of the
documents referred to herein or transactions contemplated hereby, the Seller
irrevocably consents to and confer personal jurisdiction on the courts of the
State of New York or the United States located within the City of New York and
expressly waive any objections as to venue in any such courts.
ss.8.16 Participation of Parties
The parties hereto acknowledge that this Agreement and all
matters contemplated herein, have been negotiated among all parties hereto and
their respective legal counsel and that all such paries have participated in the
drafting and preparation of this Agreement from the commencement of negotiations
at all times through the execution hereof.
ss.8.17 Further Assurances
The parties hereto shall deliver any and all other instruments
or documents required to be delivered pursuant to, or take such other action
required to be taken, or necessary or proper in order to give effect to, all of
the terms and provisions of this Agreement including, without limitation, all
necessary instruments of assignment and transfer and such other documents as may
be necessary or desirable to transfer ownership of the Purchased Assets.
ss.8.18 Publicity
The first public announcement by each of the parties hereto
regarding this Agreement or the transactions contemplated hereby or thereby
shall only be made with the prior consent, which shall not be unreasonably
withheld, of the other party as to form, content, timing and manner of
distribution. No other public announcement or other publicity regarding this
Agreement or the transactions contemplated hereby or thereby shall be made
without consulting with and the giving of notice to the other party as to form,
content, timing and manner of distribution. Notwithstanding the foregoing,
nothing in this Agreement shall preclude AHI or the Seller from making any
public announcement or filing required by federal or state securities laws or
stock exchange rules provided, that, the other party is afforded the opportunity
to review and comment upon such announcement.
8.19 Arbitration
Any dispute, controversy or claim to be settled by arbitration
pursuant to Section 2.4 and 5.15 hereof shall be settled by arbitration in New
York, New York, in accordance
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with the commercial rules of the American Arbitration Association, by an
arbitration panel consisting of three members, and judgment upon any such
arbitration award rendered by the arbitrators may be entered in any court of
competent jurisdiction. Such arbitrators shall have knowledge and expertise in
the subject matter of the arbitration proceeding. Each of the parties and the
arbitrators shall use its best efforts to keep confidential the existence of any
dispute and arbitration proceedings and all information relating thereto or
submitted in connection therewith and, in the event of judicial proceedings for
the enforcement of this paragraph or any award pursuant thereto, shall cooperate
to seal the record of any such arbitration or judicial proceeding. Each party to
any arbitration shall bear its own expenses in relation thereto, including but
not limited to such party's attorneys' fees, if any; provided however that the
expenses and fees of the arbitration not capable of being attributed to any one
party shall be borne half by the Seller and half by the Purchaser.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have each executed and
delivered this Agreement as of the day and year first above written.
ARMOR HOLDINGS, INC.
By: /s/ Xxxxxx Xxxxxxxx
--------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Vice President
Corporate Development
FEDERAL LABORATORIES, INC.
By: /s/ Xxxxxx Xxxxxxxx
--------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Vice President
XXXX SECURITY INTERNATIONAL, INC.
By: /s/ Xxxx X. Xxxxxx
--------------------------------
Name: Xxxx X. Xxxxxx
Title: Treasurer and CFO
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