EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
Dated December 11, 2002
Among
Xxxxxxxxxx Laboratories, Inc.
and
Creative Beauty Innovations, Inc.
and
Xxxxxxx Xxxx and A. Xxx Xxxxxx,
solely for the purposes of Article VI hereof
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF ASSETS............................... 1
1.1. Purchase and Sale of Assets and Assumption of Liabilities. 1
1.2. Consideration for Purchased Assets........................ 5
1.3. Closing................................................... 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER................. 9
2.1. Corporate Organization.................................... 9
2.2. Authorization............................................. 9
2.3. Non-Contravention......................................... 9
2.4. Consents and Approvals.................................... 10
2.5. Financial Information..................................... 10
2.6. Assets.................................................... 11
2.7. Inventories............................................... 11
2.8. Intellectual Property..................................... 11
2.9. Litigation................................................ 11
2.10. Contracts. .............................................. 12
2.11. Orders, Commitments and Returns. ........................ 13
2.12. Labor Matters. .......................................... 13
2.13. Permits and Other Operating Rights. ..................... 14
2.14. Compliance with Law. .................................... 14
2.15. Environmental Matters. .................................. 14
2.16. Brokers.. ............................................... 14
2.17. No Adverse Change.. ..................................... 15
2.18. Absence of Certain Changes. ............................. 15
2.19. Taxes. .................................................. 15
2.20. Undisclosed Liabilities.. ............................... 17
2.21. Employees. .............................................. 17
2.22. Insurance Policies and Reserves. ........................ 19
2.23. Relationship with Customers and Suppliers ............... 19
2.24. Disclosure.. ............................................ 19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER............. 19
3.1. Corporate Organization.................................... 20
3.2. Authorization............................................. 20
3.3. Non-Contravention......................................... 20
3.4. Consents and Approvals.................................... 20
3.5. Brokers................................................... 21
3.6. Actions and Proceedings................................... 21
3.7. Disclosure. ............................................. 21
ARTICLE IV COVENANTS................................................ 21
4.1. Public Announcement....................................... 21
4.2. Employee Matters.......................................... 21
4.3. Tax Matters............................................... 23
4.4. Records Retention......................................... 24
4.5. Further Assurances........................................ 24
4.6. Conduct of Business.:..................................... 25
4.7. Notifications.:........................................... 27
4.8. Intellectual Property..................................... 27
4.9. Full Access............................................... 27
4.10. Risk of Loss.. .......................................... 28
4.11. Liability for Defective Products.. ...................... 28
4.12. Cooperation in Litigation. .............................. 28
4.13. Insurance.. ............................................. 29
4.14. Best Efforts. ........................................... 29
ARTICLE V CONDITIONS TO CLOSING..................................... 29
5.1. Conditions to the Obligations of Seller................... 29
5.2. Conditions to the Obligations of Purchaser................ 29
ARTICLE VI NON-COMPETITION.......................................... 30
6.1. Terms..................................................... 30
6.2. Remedies.................................................. 30
6.3. Reformation............................................... 31
ARTICLE VII INDEMNIFICATION......................................... 31
7.1. Survival of Representations, Warranties and Covenants..... 31
7.2. Indemnification........................................... 31
7.3. Claims for Indemnification................................ 33
ARTICLE VIII TERMINATION............................................ 34
8.1. Purchaser's Right.:....................................... 34
8.2. Additional Rights......................................... 34
8.3. Effect of Termination..................................... 34
ARTICLE IX MISCELLANEOUS............................................ 35
9.1. Expenses.................................................. 35
9.2. Amendment and Modification................................ 35
9.3. Waiver of Compliance; Consents............................ 35
9.4. No Third-Party Beneficiaries.............................. 35
9.5. No Joint Venture, etc..................................... 35
9.6. Notices.:................................................. 35
9.7. Assignment................................................ 36
9.8. Governing Law............................................. 36
9.9. Counterparts.............................................. 36
9.10. Headings.. .............................................. 37
9.11. Entire Agreement.. ...................................... 37
9.12. Schedules; Certain References. .......................... 37
9.13. Severability. ........................................... 37
9.14. No Third Party Beneficiaries. ........................... 37
9.15. Interpretation. ......................................... 37
9.16. Jurisdiction.. .......................................... 38
LIST OF SCHEDULES AND EXHIBITS
------------------------------
Title Number
----- ------
FDA and Other Approvals Schedule 1.1(a)(i)
Manufacturing and Other Agreements Schedule 1.1(a)(ii)
Employment Agreements Schedule 1.1(a)(iv)
Restrictions on Competition and
Confidentiality Agreements Schedule 1.1(a)(v)
Permits Schedule 1.1(a)(vi)
Selected Equipment Schedule 1.1(a)(viii)
Additional Purchased Assets Schedule 1.1(a)(x)
Additional Excluded Assets Schedule 1.1(b)(x)
Custom Division Customers Schedule 1.2(a)(iv)(A)
Fair Market Value of Selected Equipment Schedule 1.2(b)
Allocation of Purchase Price Schedule 1.2(d)
Financial Information Schedule 2.5(a)
Net Sales Schedule 2.5(b)
Litigation Schedule 2.9
Other Contracts Schedule 2.10
Warranty Claims and Pending Returns Schedule 2.11
Changes in Business Schedule 2.18
Tax Actions and Disputes Schedule 2.19
Employee Matters Schedule 2.21
Insurance Schedule 2.22
Relationships with Customers and Suppliers Schedule 2.23
Escrow Agreement Exhibit A
Xxxx of Sale Exhibit B
Assignment and Assumption Agreement Exhibit C
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated December 11, 2002 (the "Agreement"), by
and among Creative Beauty Innovations, Inc., a Texas corporation ("Seller"),
Xxxxxxxxxx Laboratories, Inc., a Texas corporation ("Purchaser") and, solely
for the purposes of Article VI hereof, Seller's principal shareholders,
Xxxxxxx Xxxx and A. Xxx Xxxxxx (each, a "Seller's Shareholder," and
collectively, "Seller's Shareholders").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the production of certain cosmetic
products for various customers in the United States of America through
one of its business divisions (the "Custom Division");
WHEREAS, Seller wishes to sell to Purchaser, and Purchaser wishes
to purchase from Seller, certain specified assets of the Custom Division
relating to certain customers of the Custom Division and, in connection
therewith, Purchaser will assume certain specified liabilities and
obligations of Seller relating to the Custom Division, all as hereinafter
set forth; and
WHEREAS, Seller's Shareholders, as shareholders of Seller, benefit from
any consideration received by Seller for the purchase and sale contemplated
hereby;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound hereby,
the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1. Purchase and Sale of Assets and Assumption of Liabilities.
(a) Purchase and Sale of Assets. Subject to the terms and conditions
of this Agreement, at the closing of the transactions contemplated hereby
(the "Closing"), on the Closing Date (as defined below), Seller shall sell,
transfer, convey, assign and deliver to Purchaser, and Purchaser shall
purchase and acquire from Seller, free and clear of any mortgage, lien,
pledge, option, defense, security interest, claim, charge, financing
statement, rights of others or other encumbrance or restriction of any kind
whatsoever, whether or not of record ("Encumbrances"), all of (but only)
the following rights, properties, assets, contracts, privileges and business
directly related to Seller's Custom Division (other than the Excluded Assets
(as defined below)) (the "Purchased Assets"):
(i) FDA and Other Approvals. To the fullest extent transferable,
all of Seller's right, title and interest in and to approvals granted
by and validation protocols with (A) the United States Food and Drug
Administration (the "FDA"), (B) the various states of the United
States, and (C) in any relevant foreign country, other than those which
relate solely to Seller's present manufacturing facility, all as listed
on Schedule 1.1(a)(i) hereto, and all of the data supporting such
approvals and validation protocols (the "FDA and Other Approvals");
(ii) Manufacturing and Other Agreements. All of Seller's right,
title, interest and benefits in, to and under the licensing,
manufacturing, purchasing, supply and distribution agreements listed
on Schedule 1.1(a)(ii) hereto, being all such licensing, manufacturing,
purchasing, supply and distribution agreements to which Seller
is a party and which relate directly to the Custom Division (the
"Manufacturing Agreements") and any other contracts, sales orders,
purchase orders and any other agreements, arrangements, understandings
and commitments not otherwise included in this Section 1.1(a)(ii),
whether written or oral, related directly to the Custom Division and
directly related to the 30 Customers (as defined in Section 1.1(a)(v)
below) (the "Contracts"); and;
(iii) Intellectual Property. All of Seller's right, title and
interest in and to any and all trade names, product names, discoveries,
inventions, improvements, designs, processes, formulae, trade
secrets, confidential business information, research and development,
proprietary rights and data, ideas, concepts and know-how, whether or
not patentable or registrable and all copies and tangible embodiments
of any of the foregoing (in whatever form or medium) (collectively,
the "Intellectual Property"), which constitute all the Intellectual
Property owned, used or held by Seller for use in connection with
the Custom Division, together with associated goodwill, to the extent
applicable;
(iv) Employment Agreements. All of Seller's right, title and
interest in and to the employment agreements listed on Schedule
1.1(a)(iv) hereto (the "Employment Agreements"); but excluding, except
as otherwise expressly provided in this Section 1.1(a)(iv), any and all
other employment contracts, agreements or arrangements and any employee
benefit plans, programs, policies, practices or arrangements pursuant
to which Seller provides benefits or compensation to or with respect
to any current or former employee or independent contractor with
respect to Seller or the Custom Division (or any spouse, dependent
or beneficiary thereof);
(v) Restrictions on Competition and Confidentiality. All of
Seller's right, title and interest in and to all restrictions on
competition and obligations regarding confidentiality which relate
directly to the customers of the Custom Division listed on Schedule
1.2(a)(iv)(A) (the "30 Customers") and are imposed on third parties
and present and former employees of Seller listed on Schedule 1.1(a)(v)
hereto (the "Confidentiality Agreements");
(vi) Permits. All of Seller's right, title and interest in and to
all licenses, permits, franchises, approvals, registrations, variances,
certificates, qualifications and other authorizations used in
connection with the Custom Division, other than those which relate
solely to its present manufacturing facility, together with any
renewals, extensions or modifications thereof or additions thereto
as listed on Schedule 1.1(a)(vi) hereto (the "Permits");
(vii) Information and Records. All of Seller's right, title
and interest in and to all current and past business information and
complete and correct copies, to be provided by Seller, of all related
books and records used or held for use by Seller and related directly
to the operation of the Custom Division, including, but not limited
to, files, data, ledgers, invoices, credit and sales records, purchase
orders, computer records, batch records, personnel records (subject
to applicable law), customer lists (including customer contracts,
commitments and other agreements), supplier lists (including supplier
cost information), manuals, drawings, business plans and other plans
and specifications, correspondence and other documents, accounting
books and records, sales literature, current price lists and discounts,
promotional signs and literature, marketing and sales programs and
manufacturing and quality control records and procedures, whether
written or stored electronically or otherwise; provided, however,
Seller shall retain rights to and copies of such information, books
and records as Seller deems reasonably necessary in connection with
tax filings, although Purchaser shall have access to, and may have
copies of, any such retained information, books and records
(collectively, "Information");
(viii) Selected Equipment. All of Seller's right, title and
interest in and to certain fixed assets and equipment, as selected by
Purchaser (the "Selected Equipment"), used by Seller in the production
of products for the customers of the Custom Division, as listed on
Schedule 1.1(a)(viii) hereto;
(ix) Inventory. All of Seller's right, title and interest in
and to all raw materials and packaging materials or components (the
"Inventory"), required to meet the needs and requirements of the 30
Customers; and
(x) Miscellaneous. All other properties and assets of every kind
and nature owned by Seller and related directly to and used primarily
for the Custom Division as specifically set forth on Schedule 1.1(a)(x)
hereto and exclusively limited thereto.
(b) Excluded Assets. All other assets of Seller not expressly
included in the provisions of Section 1.1(a) hereof are expressly excluded
from the Purchased Assets, including the following assets (all of the assets
so excluded from the Purchased Assets are collectively referred to as the
"Excluded Assets"):
(i) Cash. All cash on hand, cash equivalents, investments and
bank accounts (including the consideration delivered to Seller at
Closing pursuant to this Agreement for the Purchased Assets);
(ii) Receivables. All accounts, notes and other receivables;
(iii) Contracts. All of Seller's rights and benefits under any
contracts, sales orders, purchase orders and any other agreements,
arrangements, understandings and commitments that are not being assumed
by Purchaser pursuant to this Agreement, including, but not limited to,
the Xxxxx Xxxxxx contract and all products produced under the Xxxxx
Xxxxxx contract but not produced for any other customer of the Custom
Division;
(iv) Excluded Inventory. All of Seller's right, title and
interest in and to any raw materials, finished goods, work in progress
and packaging materials or components, other than the Inventory;
(v) Fixed Assets. All of Seller's right, title and interest in
and to all fixed assets, property, plant or equipment, other than the
Selected Equipment;
(vi) Assets Related to Other Businesses. All of Seller's assets
primarily relating to any line of business of Seller other than the
Custom Division;
(vii) Minute Books and Other Information. All of Seller's
minute books, corporate seals and stock records; and all other
documents, books and records that are not related directly to the
Custom Division;
(viii) Tax Refunds. Federal, state or local tax refunds and
tax refund claims relating to taxes paid by Seller for all periods;
(ix) Prepaid Insurance. All prepaid premiums for insurance of
Seller; and
(x) Additional Excluded Assets. Those certain additional
Excluded Assets set forth on Schedule 1.1(b)(x) hereto.
(c) Liabilities. Purchaser will on the Closing Date, assume and agree
to pay or otherwise discharge, in accordance with the stated written terms
of the applicable obligations, only the following liabilities of Seller (the
"Assumed Liabilities"):
(i) Assumed Contracts. The obligations of Seller accruing or
to be performed after the Closing Date under the contracts, purchase
orders, licenses and permits included among the Purchased Assets,
including the FDA and Other Approvals, the Manufacturing Agreements,
the Employment Agreements, the Confidentiality Agreements, the
Contracts and the Other Contracts (as defined in Section 2.10 below)
(collectively, the "Assumed Contracts").
Except for the Assumed Liabilities, Purchaser shall not assume or agree
to pay, perform or discharge, and hereby expressly disclaims any assumption
of, any other liabilities or obligations of any nature of Seller or Seller's
Shareholders, whether fixed or contingent, known or unknown, liquidated or
unliquidated, secured or unsecured, accrued or unaccrued or otherwise (the
"Excluded Liabilities").
1.2. Consideration for Purchased Assets.
(a) Purchase Price. In addition to assuming the Assumed Liabilities
subject to the terms and conditions of this Agreement, in reliance on the
representations, warranties and agreements of Seller contained herein, and
in consideration of the sale, assignment, transfer and delivery of the
Purchased Assets, the purchase price (the "Purchase Price") for the
Purchased Assets shall consist of:
(i) Five Hundred Thousand Dollars ($500,000), plus the additional
amounts payable to Seller, if any, pursuant to Section 1.2(b) (the
"Initial Cash Amount"), payable on the Closing Date as provided in
Section 1.3(c)(i) hereof;
(ii) Five Hundred Thousand Dollars ($500,000) (the "Escrow
Amount"), to be deposited by Purchaser into escrow on the Closing Date
and held in escrow until the earlier of (A) Purchaser certifying to
the Escrow Agent (as defined in Section 1.2(e) below) in writing that
Purchaser is now ready to manufacture all of the products necessary
to meet the demands and requirements of the customers of the Custom
Division, or (b) February 28, 2003, all pursuant to the terms of
an Escrow Agreement, dated as of the Closing Date (the "Escrow
Agreement"), substantially in the form of Exhibit A hereto;
(iii) An amount not exceeding Seven Hundred Thousand Dollars
($700,000) (the "Inventory Amount") for the Inventory (such amount to
be determined pursuant to Section 1.2(c)), payable six months from the
Closing Date by check payable to the order of Seller; and
(iv) For the five (5) year period commencing on the Closing Date
and terminating on the fifth anniversary of the Closing Date, Purchaser
shall pay Seller:
(A) 9.0909% of the first $6,600,000 of the Net Sales (as
defined below) recorded by Purchaser in each Contract Year (as
defined below) to the 30 Customers (constituting the customers
of the Custom Division listed on Schedule 1.2(a)(iv)(A) hereto).
Such payments shall be made no later than thirty (30) days of
the end of each quarter of the relevant Contract Year (a "Payment
Date") by check payable to the order of Seller. If any such
Payment Date shall not be a Business Day, payment may be made by
Purchaser on the next succeeding Business Day with the same force
and effect as if made on the applicable Payment Date.
For purposes of this Agreement: (1) "Net Sales" shall mean
the amount actually received by Purchaser for the sale of the
products of the Custom Division to the 30 Customers, less to the
extent paid, allowed or given (a) any sales or value added tax,
(b) custom duties and fees, (c) freight allowed, (d) allowances
for lost or damaged merchandise, and (e) returns and such
discounts or rebates as may have been granted on account of
quantity purchase (but not discounts granted for promptness of
payment); provided, that on no account shall separately billed
shipping and insurance costs be deemed included in the Net Sales
of any product of the Custom Division; (2) "Contract Year" shall
mean any of the twelve month periods, the first of which begins on
the first day of the first complete calendar month after Closing
and each subsequent one of which begins on an anniversary of
such date; and (3) "Business Day" shall mean any day on which the
commercial banks are generally open for business in the State of
Texas; and
(B) 8.5% of the Net Sales in excess of $6,600,000 recorded
by Purchaser in each Contract Year to the 30 Customers. Such
payments shall be made no later than sixty (60) days of the end of
each Contract Year (a "Yearly Payment Date") by Purchaser by check
payable to the order of Seller. If any such Yearly Payment Date
shall not be a Business Day, payment may be made by Purchaser on
the next succeeding Business Day with the same force and effect as
if made on the applicable Yearly Payment Date.
(b) Selected Equipment. The fair market value of each of the Selected
Equipment as determined by Xxxxx Systems Inc., appraisers, is set forth on
Schedule 1.2(b) hereto. If the Selected Equipment has a fair market value
in excess of One Hundred Thousand Dollars ($100,000), Purchaser shall pay
such excess amount to Seller on the Closing Date, payable in accordance
with Section 1.3(c)(i) hereof. Purchaser shall pay any shipping and
transportation expenses or costs incurred in the delivery of the Selected
Equipment to Purchaser's facility.
(c) Inventory. Purchaser shall purchase the Inventory at a price
equal to the to Seller's actual documented cost which cost, in the
aggregate, shall constitute the Inventory Amount payable in accordance
with Section 1.2(a)(iii) hereof. The Inventory Amount shall be agreed upon
immediately prior to the Closing. Purchaser shall pay for any shipping or
transportation expenses or costs incurred in the delivery of the Inventory
to Purchaser's facility.
(d) Allocation of Purchase Price. The Purchase Price shall be
allocated among the Purchased Assets in accordance with Schedule 1.2(d)
hereto by each of the parties hereto for all Federal, state and local tax
purposes. This allocation shall be binding upon the parties who shall file
their tax returns in accordance with this allocation.
(e) Escrow Agreement. As more fully set forth in the Escrow
Agreement, the Escrow Amount shall be held by Patterson, Belknap, Xxxx &
Xxxxx LLP (the "Escrow Agent") until the earlier of (i) Purchaser certifying
to the Escrow Agent in writing that Purchaser is now ready to manufacture
all of the products necessary to meet the demands and requirements of the
customers of the Custom Division, or (ii) February 28, 2003.
1.3. Closing.
(a) The Closing. The Closing shall take place at the offices of
Purchaser on December 16, 2002, commencing at 10:00 a.m. local time, or such
other place, time or date as the parties may agree, and shall be deemed to
be effective as of 11:59 p.m. on the Closing Date. The date on which the
Closing actually occurs is referred to in this Agreement as the "Closing
Date."
(b) Seller's Deliverables. At the Closing (or at such earlier time as
may be specified in this Agreement), Seller will deliver to Purchaser the
following (the "Seller's Deliverables"):
(i) Possession and control of the Purchased Assets, together with
a Xxxx of Sale substantially in the form of Exhibit B hereto, and such
other deeds, assignments, endorsements and other instruments and
documents of conveyance, transfer and assignment, dated as of the
Closing Date, as counsel for Purchaser may require as necessary or
desirable to transfer, assign and convey to and vest in Purchaser good,
valid and marketable title to the Purchased Assets, free and clear of
any and all Encumbrances;
(ii) The Escrow Agreement;
(iii) A long form Certificate of Good Standing of Seller, issued
by the Secretary of State of the State of Texas, and a Franchise Tax
Certification of Account Status, issued by the Texas Comptroller of
Public Accounts, both dated within five (5) Business Days of Closing;
(iv) A certificate from a duly authorized officer of Seller
certifying that all representations and warranties made herein by
Seller are true and correct in all respects when made and shall be true
and correct in all respects at and as of the Closing as though such
representations and warranties were made at and as of the Closing and
that Seller has performed and complied with each covenant and condition
required by this Agreement to be performed or complied with by it
before or at the Closing;
(v) A certificate of the Secretary of Seller attaching true,
correct and complete copies of the Articles of Incorporation and Bylaws
of Seller as in effect on the Closing Date, and certifying as to the
incumbency and signatures of all officers of Seller who will execute
this Agreement, any Ancillary Document (as defined in Section 2.2
below) or any other agreement or document prepared in connection
with this Agreement or any Ancillary Document or the consummation of
the transactions contemplated hereby or thereby and all resolutions
duly adopted by the Board of Directors and shareholders of Seller
authorizing the execution and delivery of this Agreement, the Ancillary
Documents and all other documents being entered into by Seller related
to, or arising from, this Agreement or any Ancillary Document;
(vi) All documentation constituting the FDA and Other Approvals,
Permits and Information; and
(vii) Such other duly executed agreements, deeds, certificates
or other instruments of conveyance, transfer and assignment as shall be
reasonably necessary to vest in Purchaser good, valid and marketable
title to the Purchased Assets.
(c) Purchaser's Deliverables. At the Closing (or at such earlier time
as may be specified in this Agreement), Purchaser will deliver to Seller the
following (the "Purchaser's Deliverables"):
(i) The Initial Cash Amount (together with any amount payable
pursuant to Section 1.2(b)) in immediately available funds by wire
transfer to an account or accounts as directed by Seller by notice to
Purchaser not later than two (2) business days prior to the Closing
Date;
(ii) The Escrow Agreement, together with the Escrow Amount which
shall be deposited into escrow with the Escrow Agent by Purchaser
subject to the terms of the Escrow Agreement;
(iii) A long form Certificate of Good Standing of Purchaser,
issued by the Secretary of State of the State of Texas, and a Franchise
Tax Certification of Account Status, issued by the Texas Comptroller of
Public Accounts, both dated within five (5) Business Days of Closing;
(iv) A certificate from a duly authorized officer of Purchaser
certifying that all representations and warranties made herein by
Purchaser are true and correct in all respects when made and shall be
true and correct in all respects at and as of the Closing as though
such representations and warranties were made at and as of the Closing
and that Purchaser has performed and complied with each covenant and
condition required by this Agreement to be performed or complied with
by it before or at the Closing;
(v) A certificate of the Secretary of Purchaser attaching true,
correct and complete copies of the Articles of Incorporation and Bylaws
of Purchaser as in effect on the Closing Date, and certifying as to the
incumbency and signatures of all officers of Purchaser who will execute
this Agreement, any Ancillary Document (as defined in Section 2.2
below) or any other agreement or document prepared in connection
with this Agreement or any Ancillary Document or the consummation of
the transactions contemplated hereby or thereby and all resolutions
duly adopted by the Board of Directors of Purchaser authorizing the
execution and delivery of this Agreement, the Ancillary Documents and
all other documents being entered into by Purchaser related to, or
arising from, this Agreement or any Ancillary Document;
(vi) An instrument of assumption evidencing the assumption of the
Assumed Liabilities substantially in the form of Exhibit C hereto
(vii) Such other previously undelivered documents required to
be delivered by Purchaser to Seller pursuant to this Agreement or the
transactions contemplated hereby at or prior to the Closing, including
the counterpart signature pages of the documents referenced in Section
1.3(b) hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
In order to induce Purchaser to purchase the Purchased Assets, Seller
represents and warrants to Purchaser as follows:
2.1. Corporate Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas
with requisite corporate power and authority to carry on its business as
it is now being conducted and to own, operate and lease its properties and
assets. There are no pending actions or proceedings to dissolve Seller.
True and complete copies of the Articles of Incorporation and Bylaws of
Seller, as amended to date, have been furnished by Seller to Purchaser.
Each of such documents is in full force and effect in the form delivered
to Purchaser.
2.2. Authorization. Seller has full corporate power and authority to
enter into this Agreement, the Escrow Agreement and all other agreements,
certificates and documents delivered or to be delivered at or before the
Closing in connection with the transactions contemplated hereby and thereby
(such other agreements, certificates and documents, together with the Escrow
Agreement, the "Ancillary Documents") to which it is a party and to carry
out the transactions contemplated hereby and thereby. The execution and
delivery by Seller of this Agreement and the Ancillary Documents to which
it is a party, the consummation by Seller of the transactions contemplated
hereby and thereby, and the performance by Seller of its obligations
hereunder and thereunder have been, or will have been by the Closing Date,
duly authorized by all necessary corporate and shareholder action on the
part of Seller. This Agreement has been duly and validly executed and
delivered by Seller and is the valid and binding legal obligation of Seller
enforceable against Seller in accordance with its terms. Upon the execution
and delivery thereof by Seller, the Ancillary Documents to which it is
a party will constitute valid and binding legal obligations of Seller
enforceable against Seller in accordance with their respective terms.
2.3. Non-Contravention. Neither the execution, delivery and
performance of this Agreement or the Ancillary Documents, the consummation
of the transactions contemplated hereby or thereby nor the performance by
Seller of its obligations hereunder or thereunder will: (a) violate or be
in conflict with any provision of the Articles of Incorporation or Bylaws of
Seller; (b) violate any statute, treaty, law, judgment, writ, injunction,
decision, decree, order, regulation, ordinance or other similar
authoritative matters (sometimes hereinafter separately referred to as
"Laws") of any foreign, federal, state or local governmental or quasi-
governmental, administrative, regulatory or judicial court, department,
commission, agency, board, bureau, instrumentality or other authority
(hereinafter sometimes separately referred to as an "Authority" and
sometimes collectively as "Authorities"), or (c) be in conflict with, result
in a breach of or constitute a default, however defined (or an event which,
with the giving of due notice or lapse of time, or both, would constitute
such a default) under, or cause or permit the acceleration of the maturity
of, or give rise to any right of termination, cancellation, imposition of
fees or penalties under, any debt, note, bond, lease, mortgage, indenture,
deed of trust, license, obligation, contract, commitment, franchise, permit,
authorization, instrument or other agreement or obligation to which Seller
is a party or by which Seller or any of Seller's properties or assets is or
may be bound or result in the creation or imposition of any Encumbrance upon
any property or assets of Seller included in the Purchased Assets under any
debt, note, bond, lease, mortgage, indenture, deed of trust, license,
obligation, contract, commitment, franchise, permit, authorization,
instrument or other agreement or obligation to which Seller is a party or
by which Seller or any of Seller's assets or properties is or may be bound.
2.4. Consents and Approvals. No consent, approval, order, waiver,
exemption or authorization of or from, or registration, notification,
declaration or filing (hereinafter sometimes collectively referred to as
"Consents," and individually a "Consent") is required from, with or by any
individual or entity, including any Authority, in connection with the
execution, delivery or performance of this Agreement or the Ancillary
Documents by Seller, the consummation by Seller of the transactions
contemplated hereby or thereby or the performance by Seller of its
obligations hereunder and thereunder, other than any Consent that may be
required solely by reason of Purchaser's participation in the transactions
contemplated hereby or thereby.
2.5. Financial Information.
(a) Schedule 2.5(a) hereto contains an unaudited statement of the
sales of Seller for the nine-month period ended September 30, 2002 to the
30 Customers, including information by product of the revenues, profits
(defined as revenue less the costs of materials and labor to manufacture the
products of the Custom Division for the 30 Customers and other manufacturing
overhead costs, but before selling and administrative expenses, interest,
depreciation, amortization, taxes and other indirect expenses) (the "Nine-
Month Statement") prepared by Seller's management.
(b) Schedule 2.5(b) hereto sets forth a list of the sales of the
Custom Division to each of the 30 Customers for the calendar years ended
December 31, 2000 and 2001 and the nine-month period ended September 30,
2002 (the "Summary Statement"; together with the Nine _Month Statement,
the "Statements") prepared by Seller's management.
(c) The Statements (i) are true, correct and complete, have been
derived from and are consistent with the books and records of Seller
and have been prepared in conformity with generally accepted accounting
principles consistently applied for all periods (except for the absence of
notes), and (ii) fairly present the revenues and gross profits of, and the
direct labor costs and materials costs and other manufacturing expenses
incurred by, Seller as it relates to the 30 Customers for the periods then
ended.
2.6. Assets.
(a) Seller directly owns and has good and valid title to all of the
Purchased Assets free and clear of any Encumbrance, and is a party to all
licenses and other agreements, presently used or necessary to carry on the
business and operations of the Custom Division as presently conducted.
(b) Seller has complete and unrestricted power and the unqualified
right to, and will at Closing sell, assign and transfer to Purchaser good
and marketable title to all of the Purchased Assets, free and clear of any
Encumbrance.
(c) The Selected Equipment is in good operating condition and repair,
ordinary wear and tear excepted.
2.7. Inventories. The Inventory is (a) usable in the ordinary and
customary course of business of and in accordance with past practices of the
Custom Division, as presently conducted by Seller, (b) does not infringe any
third-party patent or other intellectual property rights, (c) is not damaged
or defective, and (d) meets Seller's specifications applicable to such
Inventory.
2.8. Intellectual Property. Seller is the sole and beneficial owner of
and has the full right to use all Intellectual Property related directly to
the business of the Custom Division as currently conducted. Seller is not
aware of any other person's operations which conflict with Seller's use
of the Intellectual Property. There are no interferences, oppositions,
cancellations, claims for infringement or other contested proceedings
pending or threatened against Seller in any federal, state or local court
or before any other Authority, relating to any of the Intellectual Property
and Seller does not have knowledge of any facts that could reasonably be
expected to give rise to any such interferences, oppositions, cancellations,
claims of infringement or other contested proceedings. The use of such
Intellectual Property does not conflict with or infringe on the rights of
any person. The Intellectual Property is free and clear of all Encumbrances
and Seller has no contractual obligation to pay any royalty to any person
under or in connection with any of the Intellectual Property and has the
sole right to bring actions for the infringement thereof. Seller has not
granted any licenses or other rights and Seller has no obligation to grant
licenses or other rights to any of the Intellectual Property to any other
person nor are there any agreements affecting Seller's right to use the
Intellectual Property. Seller does not own, use or hold for use in
connection with the Custom Division any registered or unregistered
trademarks, patents or patent rights.
2.9. Litigation. There is no legal, administrative, arbitration or
other proceeding, suit, claim or action of any nature, or investigation,
review or audit of any kind (including a proceeding, suit, claim or action,
or an investigation, review, audit or notice of violation, involving
environmental laws, product liability, laws relating to occupational safety
and health or any other matter), or unsatisfied or pending judgment, decree,
decision, injunction, writ or order now pending, noticed, scheduled or
threatened against or applicable to Seller, the Custom Division nor any of
their respective officers, directors, employees or agents affecting or
related in any way to the Custom Division or the Purchased Assets, whether
at law or in equity, before or by any person or entity or Authority, or
which seeks or provides for any injunctive relief, which has or could effect
the ability of Seller to consummate the transactions contemplated hereby or
by the Ancillary Documents, or which could affect Purchaser's acquisition,
ownership or operation of any of the Purchased Assets, or questions or
challenges the validity of this Agreement or any Ancillary Document or
any action taken or to be taken by the parties hereto pursuant to this
Agreement or any Ancillary Document or in connection with the transactions
contemplated hereby or thereby and no events have occurred which give rise
to such proceedings, suits, claims or actions nor has Seller been a party to
any such proceeding, suit, claim or action, except as listed on Schedule 2.9
hereto, with respect the business which constitutes the Custom Division
since Seller commenced such business.
2.10. Contracts. All of the Manufacturing Agreements, Employment
Agreements and Confidentiality Agreements are listed on Schedules
1.1(a)(ii), 1.1(a)(iv) and 1.1(a)(v) hereto, respectively. Schedule 2.10
hereto sets forth a complete and correct list of the following additional
contracts (the "Other Contracts"), whether written or oral, to which Seller
is a party, which relate directly to and which are material only to the
operation of, the Custom Division, and directly relate to the 30 Customers,
or any of the Purchased Assets: (a) sales agency agreements, (b) any
agreement (or group of related agreements) under which Seller has created,
incurred, assumed, or guaranteed any indebtedness for borrowed money, or any
capitalized lease obligation or under which it has imposed an Encumbrance on
any of the Purchased Assets, (c) agreements for the sale of any properties
or assets of the Custom Division other than sales of products in the
ordinary and customary course of business in accordance with past practices,
(d) contracts, other than contracts, purchase orders or other agreements
for the purchase of raw materials or other supplies in the ordinary and
customary course of business in accordance with past practices or for the
purchase of machinery, equipment, tools, furniture or fixtures which will
extend over a period of less than thirty (30) days after the Closing Date or
involve aggregate payments of less than $50,000, pursuant to which Seller is
or may be obligated to make payments, contingent or otherwise, on account of
or arising out of the acquisition, prior, pending or future, of the business
or other assets of another enterprise, (e) secrecy or invention agreements
(other than the Confidentiality Agreements) under which Seller or any of
the present officers or employees of Seller, has any obligation relating
directly to the Custom Division or the Purchased Assets, (f) requirements
contracts with Seller related directly to the Custom Division or other such
agreements for the purchase or sale of goods or services related directly to
the Custom Division not terminable without liability by Seller on thirty
(30) days' notice or involving payments by or to Seller in excess of $5,000,
(g) agreements with a customer or supplier for rebates, sharing of expenses
or any similar device for the effective reduction or increase of prices or
other charges and involving products with a value in excess of $5,000
related directly to the Custom Division, (h) to the extent applicable to the
Custom Division or the Purchased Assets, agreements or arrangements limiting
the freedom of Seller or any of its present officers or employees, to
compete in any line of business with any person or other entity or in any
geographical area, (i) agreements pursuant to which Seller has shared tax
liability with any party and relating to the Custom Division, and (j)
contracts, commitments or agreements not referred to above in this Section
2.10 which relate directly to the Custom Division, by which the Custom
Division or any of the Purchased Assets or any purchaser thereof may be
bound, and which involve aggregate payments by or to Seller or the Custom
Division of $5,000 or more. All of the Manufacturing Agreements, Employment
Agreements, Confidentiality Agreements, Contracts and Other Contracts (1)
are legal, valid, binding and enforceable by and against Seller in
accordance with their respective terms and in full force and effect, and (2)
will continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms immediately following the consummation of the
transactions contemplated hereby. Seller is not in breach, violation or
default, however defined, in the performance of its obligations thereunder,
and no event, facts or circumstances exist which, whether with the giving of
due notice, lapse of time, or both, would constitute such breach, violation
or default thereunder or thereof and no other parties thereto are in breach,
violation or default, however defined, thereunder or thereof, and no facts
or circumstances exist which, whether with the giving of due notice, lapse
of time, or both, would constitute such a breach, violation or default
thereunder or thereof. Seller has delivered to, or made available for
inspection by, Purchaser a correct and complete copy of each of the
Manufacturing Agreements, Employment Agreements, Confidentiality Agreements,
Contracts and Other Contracts which are in written form and has delivered to
Purchaser a written summary setting forth the terms and conditions of each
of the Manufacturing Agreements, Employment Agreements, Confidentiality
Agreements, Contracts and Other Contracts which are oral.
2.11. Orders, Commitments and Returns. All accepted and unfulfilled
orders for the sale of products of the Custom Division with a customer
and all outstanding contracts or commitments for the purchase of
supplies, materials and services directly related to the business of the
Custom Division with a supplier were made in bona fide transactions in the
ordinary and customary course of business in accordance with past practices.
Except as set forth on Schedule 2.11 hereto, there are no outstanding
claims, whether for breach of warranty or otherwise, with respect to any
products of the Custom Division or any supplies, materials or services
utilized in the Custom Division nor are there any pending returns of such
products.
2.12. Labor Matters. With respect to employees employed on the
Closing Date or formerly employed by Seller with respect to the Custom
Division, (a) Seller is and has been in compliance in all material respects
with all applicable Laws respecting employment and employment practices,
terms and conditions of employment and wages and hours, including any such
Laws respecting employment discrimination and occupational safety and health
requirements, and has not and is not engaged in any unfair labor practice;
(b) there is no unfair labor practice complaint pending against Seller or
threatened against Seller before the National Labor Relations Board or any
other comparable Authority; (c) there is no labor strike, or material
slowdown or stoppage actually pending or threatened against Seller; (d)
there is not pending or threatened any activity which is reasonably likely
to result in a labor representation vote respecting the employees of Seller;
(e) no collective bargaining agreement is binding and in force against
Seller or currently being negotiated by Seller; and (f) Seller is not
delinquent in payments to any persons for any wages, salaries, commissions,
bonuses or other direct or indirect compensation (including, as applicable,
with respect to any payroll-based or other withholding tax obligations with
respect thereto) for any services performed by them or amounts required to
be reimbursed to such persons.
2.13. Permits and Other Operating Rights. Seller possesses all FDA
and Other Approvals and Permits (including those issued under or pursuant
to any Environmental Law, as defined in Section 2.15 below) from all
Authorities necessary to permit the Custom Division to operate in the manner
in which it is presently conducted and no violations have been recorded in
respect thereof and no proceeding is pending or threatened to revoke or
limit any thereof. Seller is in compliance with the terms of the FDA and
Other Approvals and the Permits. Seller has delivered to Purchaser true and
complete copies of all FDA and Other Approvals and Permits, including any
and all amendments and modifications thereto. Each such FDA and Other
Approval and Permit was duly and validly issued and Seller is the authorized
legal holder thereof. None of such FDA and Other Approvals or Permits is
subject to any restriction or condition which would limit the full operation
of the Custom Division as presently operated. Each such FDA and Other
Approval and Permit is in full force and effect, and the conduct of the
business and operations of the Custom Division is in accordance with the
terms of such FDA and Other Approvals and Permits. Seller has no reason
to believe that any of the FDA and Other Approvals and Permits will not be
renewed by the FDA or other granting authority in the ordinary course.
2.14. Compliance with Law. Seller has not failed and is not
currently failing to comply in any respects with any applicable Laws
relating to the Custom Division or the Purchased Assets.
2.15. Environmental Matters. Both the Custom Division and the
Purchased Assets are and have been operated by Seller in compliance
with all applicable Environmental Laws. There is no civil, criminal or
administrative action, suit, demand, claim, cause of action, notice of
violation, investigation, hearing or proceeding relating to the Custom
Division or the Purchased Assets pending or threatened against Seller under
any Environmental Law. There are no past or present actions, activities,
circumstances, conditions, events or incidents, including the release,
discharge, emission, spill, disposal or presence of any toxic or hazardous
substance or any other pollutant, associated with the Custom Division or
the Purchased Assets that could form the basis of any claim under any
Environmental Law against Seller or against any person or entity whose
liability Seller has or may have retained or assumed by contract or by
operation of law. As used in this Agreement, the term "Environmental Law"
means any applicable federal, state and local law, statue, regulation, rule,
ordinance, permit, registration or approval, or any standard or rule of
common law, or any contract or agreement, imposing liability or establishing
standards of conduct for human health, employee safety, the use or
preservation of natural resources or the pollution, protection or
restoration of the environment.
2.16. Brokers. Neither Seller nor any of its directors, officers
or employees has employed any broker, finder, intermediary or financial
advisor or incurred any liability for any brokerage fee or commission,
finder's fee or financial advisory fee, in connection with this Agreement or
the Ancillary Documents and the transactions contemplated hereby or thereby,
nor is there any basis known to Seller for any such fee or commission to be
claimed by any person or entity.
2.17. No Adverse Change. Since January 1, 2002, there has not
been any adverse change in the financial condition, results of operations,
properties or business of the Custom Division or in the condition of the
Purchased Assets.
2.18. Absence of Certain Changes. Since September 30, 2002, Seller
has operated the Custom Division in the ordinary and customary course of
business in accordance with past practices and Seller's records and books
of account accurately and fairly reflect the transactions of Seller with
respect to the Custom Division in all respects. Except as set forth on
Schedule 2.18 hereto, since September 30, 2002, Seller has not, with respect
to the Custom Division or any of the Purchased Assets (a) incurred any
obligations or liabilities, whether absolute, accrued or contingent, other
than obligations and liabilities incurred in the ordinary and customary
course of business in accordance with past practices, (b) acquired, disposed
of or encumbered any assets or properties utilized in the Custom Division,
or entered into any agreement for any such acquisition, disposition or
encumbrance, except in the ordinary and customary course of business in
accordance with past practices, (c) forgiven or canceled any debts or claims
or waived any rights of value not previously accrued for, (d) granted any
increase in compensation in any form to any of the Designated Employees (as
defined in Section 4.2(a) below), or granted any severance or termination
pay or stay bonus, or entered into any employment agreement or collective
bargaining agreement, or any modification of a previously existing
employment agreement or collective bargaining agreement, with any of the
Designated Employees, other than increases in compensation granted in the
ordinary and customary course of business in accordance with past practices,
(e) adopted, amended, entered into or terminated any bonus, profit sharing,
incentive, severance, compensation, stock option, pension, retirement,
deferred compensation or other plan, agreement or arrangement of any
kind for the benefit of any of the Designated Employees, (f) granted or
terminated any right or license under any of the Intellectual Property, (g)
suffered any property damage, destruction or loss (whether or not covered by
insurance) with respect to the Custom Division or the Purchased Assets, (h)
terminated, breached, defaulted under, accelerated, modified, canceled or
engaged in any renegotiation of any contract, (i) settled any dispute
involving any payment by Seller on behalf of the Custom Division in excess
of $5,000 or canceled, forgave, compromised, waived, released or reduced any
obligation of any person or entity in an amount in excess of $5,000, (j)
entered into any transaction (or series of related transactions) in an
amount in excess of $5,000 other than in the ordinary and customary course
of business in accordance with past practices, (k) suffered any loss or
adverse change in the nature of the business and operations of the Custom
Division, the Purchased Assets, the financial condition of the Custom
Division or its relationship with any supplier or any of the 30 Customers,
(l) agreed to any capital expenditure, or any commitment for a capital
expenditure, entered into by Seller in connection with the Custom Division
involving an amount of more than $5,000 in any one instance or in aggregate,
or (m) agreed, whether in writing or otherwise, to take any action which
would cause the representations set forth in this Article II to be
incorrect.
2.19. Taxes.
(a) As used in this Agreement, the term "Tax" means any obligation
or liability (including, but not limited to, any tax, withholding, fee,
assessment or charge) imposed by any taxing authority, including, without
limitation, income, gross receipts, ad valorem, capital stock, value added,
license, franchise, employment, withholding, social security, workers
compensation, occupation, payroll, unemployment compensation, utility,
severance, environmental, windfall profits, production, stamp, customs
duties, real or personal property, transfer, intangibles, documentary,
gains, sales or use taxes or other levies, charges or assessments of any
kind, together with any and all interest, penalties and additions imposed
with respect thereto.
(b) Seller has timely filed or caused to be timely filed, all federal,
state and local Tax returns or certificates which are or were required to be
filed on or before the Closing Date, and each such return or certificate is
complete, correct and accurate in all respects and properly sets forth the
amount of Tax due.
(c) Seller has timely paid or caused to be paid all Taxes (whether or
not shown on any tax return or certificate), including income, sales, use,
withholding, social security, real estate, personal property and franchise
Taxes and Taxes which have been shown to be due on any tax return or
certificate or on any assessment received.
(d) Except as set forth on Schedule 2.19 hereto, no Tax authority has
notified Seller of any additional Taxes for any period for which tax returns
have been filed.
(e) Except as set forth on Schedule 2.19 hereto, there is no pending
or threatened action, proceeding, audit, examination, investigation, dispute
or claim concerning any Tax liability claimed or raised by any authority.
(f) Seller has not waived any restriction on assessment for collection
of Taxes or consented to the extension of or waived any statute of
limitations relating to federal, state or local taxation.
(g) No claims have ever been made by an authority in a jurisdiction
where Seller does not file Tax returns that it is or may be, or the Custom
Division is or may be, subject to taxation by that jurisdiction;
(h) Seller has withheld and timely paid to the appropriate
governmental entity or set aside in an account for such purposes the proper
and accurate amounts of all Taxes which are required to have been withheld
and paid in for all periods through the Closing Date in compliance with all
Tax withholding provisions of all applicable federal, state and local laws.
(i) No notice of any proposed adjustment or notice of underpayment has
been received by Seller from any taxing authority.
(j) There are no liens for any Taxes on any of the Purchased Assets
and no action, proceeding or examination or investigation with respect
thereto has been instituted against Seller.
(k) Seller is not a party to a Tax allocation or sharing or similar
agreement or any agreement pursuant to which it has indemnified any party
with respect to Taxes.
2.20. Undisclosed Liabilities. Seller has no other liabilities
or obligations (direct or indirect, contingent or absolute, matured or
unmatured) of whatever nature relating directly to the Custom Division or
the Purchased Assets for which Purchaser may be responsible, whether arising
out of contract, tort, statute or otherwise, except for contractual
liabilities or obligations under the Assumed Contracts.
2.21. Employees.
(a) Schedule 2.21 hereto sets forth the complete name, social security
number, date of birth, home address, job title, base salary, 2001 bonus or
other supplemental or additional cash compensation, 2002 bonus or other
supplemental or additional cash compensation opportunity, part-time or full-
time or other employment status, date of hire, and years of service with
respect to each Designated Employee (as defined in Section 4.2(a) below) and
sets forth whether any Designated Employee is absent from work due to short-
term or long-term disability or leave of absence of any kind. Schedule 2.21
hereto lists, as of the date of this Agreement, all employee benefit plans
(as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), programs and arrangements (including each
severance or other arrangement or policy and each plan, arrangement,
program, agreement or commitment providing for insurance coverage, including
any self-insured arrangements) providing disability benefits, supplemental
unemployment benefits, vacation benefits (including, any "voluntary
employees' beneficiary association" as defined in Section 501(c)(9) of the
Internal Revenue Code of 1986, as amended (the "Code"), providing for the
same or other benefits), and all plans, programs, and arrangements providing
for bonuses, profit-sharing bonuses, stock options, stock purchases,
restricted stock, stock appreciation rights or other forms of incentive
compensation, deferred compensation or post-retirement insurance,
compensation or benefits maintained or contributed to or sponsored by, or
with respect to which any liability may be imposed upon, Seller with respect
to any Designated Employee (or their spouses, dependents or beneficiaries),
whether or not such plans, programs and arrangements are written or oral
(each a "Plan;" collectively, the "Plans"). Seller has provided Purchaser
with a true, correct and complete copy of any plan, program, policy or
arrangement (including any employment, benefit continuation, or change in
control contract or agreement) pursuant to which Seller or any of its
Affiliates provides or would provide severance or other termination pay
benefits to or with respect to any Designated Employee. Seller shall
provide Purchaser, upon Purchaser's request, a schedule setting forth,
with respect to the Designated Employees, information regarding employee
contributions to medical premiums or costs, as well as any deductibles
incurred and co-payments made, as the case may be, as of the Closing Date,
under Seller's health and welfare plans.
(b) The Plans comply in all material respects with the applicable
requirements of ERISA, the Code and other applicable laws and have been
operated and administered in accordance with the terms of the governing
plan documents and with ERISA, the Code and other applicable laws.
(c) Neither Seller nor any entity that is or has been at any time
aggregated with Seller, within the meaning of Section 414(b) or 414(c)
of the Code or Section 4001(a)(14) or 4001(b)(1) of ERISA (an "ERISA
Affiliate"), maintains, sponsors or contributes to, or has any liability
with respect to, or has ever maintained, sponsored or contributed to, a
defined benefit plan (within the meaning of Section 3(35) of ERISA) or a
multiemployer plan (within the meaning of Section 3(37)(A) of ERISA).
(d) None of Seller, any trustee or administrator of any Plan, or any
other person has engaged in any transaction with respect to any Plan which
has or could result in the imposition of any tax or penalty imposed by ERISA
or the Code, including, without limitation, any tax or penalty imposed under
Section 4975 of the Code or Part 5 of Subtitle B of Title I of ERISA.
(e) Each Plan which is a group health plan (as such term is defined
in Section 607 of ERISA) complies and has complied in all material respects
with the applicable requirements of Part 6 of Subtitle B of Title I of ERISA
and all other applicable laws.
(f) No suit, action, litigation, claim, complaint, charge, proceeding,
hearing, investigation or demand (excluding claims for benefits incurred in
the ordinary course of plan activities) has been or is expected to be
brought against or with respect to any Plan, and to the best of Seller's
knowledge, no facts or circumstances exist which could give rise to or be
expected to give rise to any such suit, action, litigation, claim,
complaint, charge, proceeding, hearing, investigation or demand.
(g) With respect to each Plan, contributions, payments, premiums,
reimbursements or accruals for all periods ending prior to or as of the
Closing Date, whether or not yet due, shall have been timely made or
properly accrued as of the Closing Date.
(h) Each of the Plans which is intended to be "qualified" within the
meaning of Section 401 of the Code has received a favorable determination
letter from the IRS and has or will, within the applicable remedial
amendment period, be amended to comply with the applicable federal laws,
known by the acronyms GUST and EGTRRA, and submitted to the IRS for a
favorable determination letter with respect to such GUST changes, and no
events have occurred and no conditions exist which would reasonably be
expected to result in the revocation of any such determination letter or
could adversely affect the tax-qualified status of any such Plan.
(i) No Plan obligates Seller to pay separation, severance, termination
or other benefits or compensation to any Designated Employee as a result of,
or that are contingent upon, any transaction contemplated by this Agreement
or the occurrence of a "change in control," which payment would constitute a
"parachute payment," as such term is defined in Section 280G of the Code.
(j) No fiduciary or other administrator with respect to any Plan has
or can be reasonably expected to have any liability for breach of fiduciary
or other duty in connection with the administration or investment of the
assets of any such plan.
(k) Seller has no liability or potential liability with respect to any
welfare benefit plan providing medical, health or life insurance or other
welfare-type benefits for current or future retired or terminated employees
in or independent contractors with respect to the Custom Division (or their
spouses or dependents), other than in accordance with COBRA.
2.22. Insurance Policies and Reserves. Listed and described in
Schedule 2.22 hereto are all the material insurance policies and bonds of
Seller currently in force and, to the extent that they apply to the Custom
Division or the Purchased Assets, all such policies and bonds of Seller
which are currently in force. Summaries of all such policies and bonds have
been delivered to Purchaser. All such policies and bonds are in full force
and effect and Seller does not have knowledge of any fact or condition that
would cause the termination of any such policies or bonds prior to the
expiration date thereof. Seller has not received any notice or threat
of cancellation, change or modification of coverage with respect to such
policies or bonds. The policies and bonds listed in Schedule 2.22 hereto
are sufficient for compliance with all requirements imposed upon Seller
by law or material Contracts by which it is bound and provide coverage
of such types and in such amounts as are customary for entities engaged
in businesses similar to that of Seller. During the three (3) year period
ending on the date of this Agreement, there has been no casualty in excess
of $5,000 to any of the Purchased Assets, no claim has been made with
respect to any insurance policy in excess of $5,000 regarding the same
within the last three (3) years, and Seller has not been refused or had
revoked or rescinded any insurance or bond coverage.
2.23. Relationship with Customers and Suppliers. Except as set
forth on Schedule 2.23 hereto, Seller has not received notice that any of
the 30 Customers or any supplier of goods, products or services to Seller
has any complaint or objection with respect to the business or operations of
the Custom Division or the transactions contemplated hereby or will cease to
do business, or significantly reduce the business conducted, with Purchaser
with respect to the Custom Division after or as a result of the consummation
of any of the transactions contemplated hereby.
2.24. Disclosure. Neither this Agreement, the Schedules hereto,
the Ancillary Documents nor any other information furnished or to be
furnished to Purchaser in connection with this Agreement or any Ancillary
Document and the transactions contemplated hereby or thereby contain any
untrue statement of fact or omit to state any fact necessary to make the
statements contained herein or therein not false or misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
In order to induce Seller to sell the Purchased Assets, Purchaser
represents and warrants to Seller:
3.1. Corporate Organization. Purchaser is a corporation duly
organized, validly existing and in good standing under the law of the
State of Texas with requisite corporate power and authority to carry on
its business as it is now being conducted and to own, operate and lease
its properties and assets. There are no pending actions or proceedings
to dissolve Purchaser. True and complete copies of the Articles of
Incorporation and Bylaws of Purchaser, as amended to date, have been
furnished by Purchaser to Seller. Each of such documents is in full
force and effect in the form delivered to Seller.
3.2. Authorization. Purchaser has full corporate power and authority
to enter into this Agreement and the Ancillary Documents to which it is a
party and to carry out the transactions contemplated hereby and thereby.
The execution and delivery by Purchaser of this Agreement and the Ancillary
Documents to which it is a party, the consummation by Purchaser of the
transactions contemplated hereby and thereby, and the performance by
Purchaser of its obligations hereunder and thereunder have been, or will
have been by the Closing Date, duly authorized by all necessary corporate
action on the part of Purchaser. This Agreement has been duly and validly
executed and delivered by Purchaser and is the valid and binding legal
obligation of Purchaser enforceable against Purchaser in accordance with its
terms. Upon the execution and delivery thereof by Purchaser, the Ancillary
Documents to which it is a party will constitute valid and binding legal
obligations of Purchaser enforceable against Purchaser in accordance with
their respective terms.
3.3. Non-Contravention. Neither the execution, delivery and
performance of this Agreement or the Ancillary Documents, the consummation
of the transactions contemplated hereby or thereby nor the performance by
Purchaser of its obligations hereunder and thereunder will: (a) violate or
be in conflict with any provision of the Articles of Incorporation or Bylaws
of Purchaser, (b) violate any Law of any Authority, or (c) be in conflict
with, result in a breach of or constitute a default, however defined (or an
event which, with the giving of due notice or lapse of time, or both, would
constitute such a default) under, or cause or permit the acceleration of
the maturity of, or give rise to any right of termination, cancellation,
imposition of fees or penalties under, any debt, note, bond, lease,
mortgage, indenture, deed of trust, license, obligation, contract,
commitment, franchise, permit, authorization, instrument or other agreement
or obligation to which Purchaser is a party or by which Purchaser or any
of Purchaser's properties or assets is or may be bound or result in the
creation or imposition of any Encumbrance upon any property or assets of
Purchaser under any debt, note, bond, lease, mortgage, indenture, deed
of trust, license, obligation, contract, commitment, franchise, permit,
authorization, instrument or other agreement or obligation to which
Purchaser is a party or by which Purchaser or any of Purchaser's assets
or properties is or may be bound.
3.4. Consents and Approvals. No Consent is required from, with or by
any individual or entity, including any Authority, in connection with the
execution, delivery or performance of this Agreement or the Ancillary
Documents by Purchaser, the consummation by Purchaser of the transactions
contemplated hereby or thereby or the performance by Purchaser of its
obligations hereunder and thereunder, other than any Consent that may be
required solely by reason of Seller's participation in the transactions
contemplated hereby or thereby.
3.5. Brokers. Neither Purchaser nor any of its directors, officers or
employees has employed any broker, finder, intermediary or financial advisor
or incurred any liability for any brokerage fee or commission, finder's
fee or financial advisory fee, in connection with this Agreement or the
Ancillary Documents and the transactions contemplated hereby or thereby,
nor is there any basis known to Purchaser for any such fee or commission
to be claimed by any person or entity.
3.6. Actions and Proceedings. There are no outstanding judgments,
orders, writs, injunctions or decrees of any court, governmental agency or
arbitration tribunal against Purchaser which have or could have a material
adverse effect on the ability of Purchaser to consummate the transactions
contemplated hereby or by the Ancillary Documents or actions, suits, claims
or legal, administrative or arbitration proceedings or investigations
pending or, to the knowledge of Purchaser, threatened against Purchaser,
which have or could have a material adverse effect on the ability of
Purchaser to consummate the transactions contemplated hereby or by the
Ancillary Documents.
3.7. Disclosure. Neither this Agreement, the Ancillary Documents nor
any other information furnished or to be furnished to Seller in connection
with this Agreement or any Ancillary Document and the transactions
contemplated hereby or thereby contain any untrue statement of fact or
omit to state any fact necessary to make the statements contained herein
or therein not false or misleading.
ARTICLE IV
COVENANTS
4.1. Public Announcement. Except as may otherwise be mutually agreed
in writing by Purchaser and Seller, or required by any Law or Authority,
neither Purchaser nor Seller shall, at any time, disclose the terms or the
Purchase Price of the transactions contemplated hereby or by the Ancillary
Documents, except to advisors who have a need to know.
4.2. Employee Matters.
(a) Purchaser's Obligations. Subject to the last sentence of this
Section 4.2(a) and Section 4.2(c), Purchaser shall make offers of employment
to each of the Custom Division employees listed on Schedule 2.21 hereto (the
"Designated Employees"), effective as of the Closing Date. Such offers of
employment with Purchaser shall be at rates of regular base compensation
substantially similar to the rates of regular base compensation in effect
for the Designated Employees on the Closing Date, with employee benefits
substantially equivalent in the aggregate to those generally afforded
Purchaser's other employees holding similar positions. Each Designated
Employee who becomes employed by Purchaser is hereby referred to
individually as a "Retained Employee" and, collectively, as the "Retained
Employees." Purchaser will credit all Retained Employees, solely for
purposes of measuring vacation entitlement under Purchaser's vacation pay
plan (but not for any other purposes), with a duration of service that, on
the starting date of such Retained Employee's employment by Purchaser, is
equal to that which such employee had in the employ of Seller as of the
Closing Date. Purchaser shall not be deemed hereby or by any such actions
to have assumed or otherwise become responsible for any obligation of Seller
with respect to any Retained Employee or any of Seller's other employees
(or their spouses, dependents or beneficiaries), whether to pay salary or
otherwise or under any of Seller's employee benefit plans or arrangements
(including, for these purposes, any severance or vacation pay plans or
programs maintained by Seller), nor shall any such employment nor
termination of employment with Seller result in Purchaser assuming any
obligation of Seller to such employees or any other employees, former
employees, or any of their spouses or dependents, under Section 4980B(f) of
the Code or Section 601 et seq. of ERISA. Any such obligation to provide
continued health care coverage pursuant to such laws in connection with
their employment or termination of employment with Seller shall remain with
Seller and Seller shall be solely responsible for all liability, cost,
expenses, taxes, sanctions, interest and penalties that may be imposed,
incurred or assessed in connection with such continued health coverage.
Notwithstanding anything in this Agreement to the contrary, no provision of
this Agreement shall alter the status of the Retained Employees on and after
the Closing Date as "employees-at-will" and nothing shall obligate Purchaser
or any of its Affiliates to continue the employment of any Retained Employee
or impair, deny or limit the right of Purchaser or any of its Affiliates to
terminate the employment of any Retained Employee at any time.
(b) Seller's Obligations. Seller agrees that, with respect to those
employees of Seller who do not become Retained Employees, Seller shall
retain all liabilities and obligations for compensation and benefits payable
to or with respect to such employees, including liabilities and obligations
for wages, salary, termination pay, severance pay, sick or vacation pay, any
unemployment benefits, any pension plan or welfare plan benefits and any
other compensation or benefits to which such employees (or their spouses,
dependants and beneficiaries) are entitled. Seller further agrees that with
respect to any employees of Seller who become Retained Employees, Seller
shall retain all liabilities and obligations for compensation and benefits
payable to or with respect to such employees, including liabilities and
obligations for wages, salary, termination pay, severance pay, sick pay or
vacation pay, any unemployment benefits, any pension plan or welfare plan
benefits and any other compensation or benefits to which such employees are
entitled by virtue of their employment by, or termination of employment
with, Seller, and Purchaser's liability and obligations with respect to
such Retained Employees shall apply only with respect to any such amounts
that become payable with respect to, and which are directly attributable
to, such employees' employment with Purchaser after the Closing Date.
Notwithstanding anything herein to the contrary, Seller agrees that any
Designated Employee who does not become a Retained Employee because such
employee does not accept employment with Purchaser and any other employee
of the Custom Division, in either case who otherwise becomes entitled
to continued health coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), shall receive any required
COBRA notices, coverage and benefits from Seller under the terms of Seller's
medical and dental plan, and not from Purchaser or Purchaser's medical plan,
and Seller shall be solely responsible for all liabilities and costs
associated with such continued health coverage.
(c) Medical Plans. Provided that a Retained Employee elects to enroll
in Purchaser's medical and dental plans (hereinafter collectively referred
to as the "Purchaser Plans"), Purchaser shall be responsible for medical and
dental expenses incurred after the Closing Date by a Retained Employee or
his or her covered dependents, under the terms of the Purchaser Plans.
Seller shall be responsible for medical and dental expenses covered under
the terms of Seller's medical and dental plans (hereinafter collectively
referred to as the "Seller Plans") incurred on or prior to the Closing Date
by a Retained Employee or a covered dependent of such Retained Employee. If
a Designated Employee or a covered dependent of a Designated Employee is
hospitalized on the Closing Date, the Seller Plans shall pay the covered
hospital expenses of such person until he or she is discharged from the
hospital, to the extent coverage is provided under the terms of the Seller
Plans. If a Designated Employee is "disabled" (which for purposes of this
Section 4.2(c) shall mean an inability to perform with reasonable continuity
the material duties of such person's job and under the care of a licensed
physician as a result of sickness, injury or pregnancy) on the Closing Date,
such person's employment with Purchaser shall not commence, if Purchaser's
offer of employment is accepted by such Designated Employee, until such time
as the disabled employee is no longer disabled; provided, however, that,
notwithstanding anything in this Section 4.2 to the contrary, Purchaser
shall have no obligation to hire such person if such person remains disabled
more than six (6) months after the Closing Date.
(d) Withdrawal Liability. Purchaser shall not, pursuant to Section
4204 of ERISA, or otherwise, assume any "withdrawal liability" (as that term
is used in ERISA) of Seller, whether arising by reason of this Agreement or
otherwise, and Purchaser shall have no obligation to post any bond or take
any other action to avoid any such liability being imposed upon Seller.
(e) Liens. Seller represents that there is not now, nor do any
circumstances exist that could give rise to, any requirement, with respect
to any employee benefit plan or arrangement which Seller or any ERISA
Affiliate sponsors, maintains or contributes to, is obligated to or is a
party to, regarding the imposition of any lien on the assets of the Custom
Division or the Purchased Assets.
4.3. Tax Matters.
(a) Seller and Purchaser shall (i) each provide the other with such
assistance as may reasonably be requested by either of them in connection
with the preparation of any Tax return, audit or other examination by any
taxing authority or judicial or administrative proceedings relating to
liability for Taxes, (ii) each retain and provide the other with any records
or other information which may be relevant to any such Tax return, audit or
examination, proceeding or determination, and (iii) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return
of the other for any period.
Without limiting the generality of the foregoing, both Purchaser and
Seller shall retain, until the applicable statutes of limitations (including
any extensions) have expired, copies of all Tax returns, supporting work
schedules and other records or information which may be relevant to such
returns for all tax periods or portions thereof ending before or including
the date hereof.
(b) Seller will timely pay all Taxes required to be paid with respect
to any period preceding the Closing Date, will timely withhold or collect
all Taxes required to be withheld or collected subsequent to the Closing
Date that relate to any period preceding the Closing Date, will deposit all
Taxes required to be deposited with respect to any period preceding the
Closing Date and will timely file all Tax returns and information statements
required to be filed by Seller under applicable law with respect to Taxes
that are required to be paid with respect to any period preceding the
Closing Date, and all such Tax returns and information statements will
be correct and complete in all respects.
(c) Seller shall bear and shall be responsible for the timely filing
and paying or causing to be timely filed and paid any sales, use, transfer,
documentary or similar Taxes, recording and filing fees and Tax returns and
certificates required by reason of the transactions contemplated by this
Agreement.
4.4. Records Retention. For a period of not less than three years
after the Closing Date, Seller shall retain the original versions of all
books and records relating to the Custom Division and the Purchased Assets
in its possession with respect to periods prior to the Closing Date. Seller
shall have the right to destroy or dispose of all or part of such books and
records after the third anniversary of the Closing Date, if Seller gives
Purchaser sixty (60) days' prior written notice of its intended disposition
of such books and records and offers to deliver to Purchaser, at Purchaser's
expense, custody of such books and records as Seller intends to destroy.
Seller shall also retain for like periods all books and records relating to
the Custom Division not included in the Purchased Assets and shall grant
Purchaser access to and allow Purchaser to make copies of such books and
records upon reasonable notice for legitimate corporate purposes.
4.5. Further Assurances. After the Closing, Seller shall from time to
time, at the request of Purchaser and without further cost or expense to
Purchaser, execute and deliver such other instruments of conveyance and
transfer as Purchaser may reasonably request in order to more effectively
consummate the transactions contemplated hereby and to vest in Purchaser
good, valid and marketable title to the Purchased Assets. To the extent any
of the Purchased Assets are not assigned or assignable to Purchaser or if
any necessary Consent to such assignment shall not have been obtained by
Seller as of the Closing Date and Purchaser nevertheless agrees to close,
Seller shall hold in trust for the benefit of Purchaser all of Seller's
right, title and interest to such Purchased Assets and, insofar as
permissible, from time to time, assign such interest to Purchaser. If any
such assignment or Consent to such assignment is not obtained, or if an
attempted assignment of any Purchased Asset would be ineffective or would
affect the rights of Seller with respect to such Purchased Asset so that
Purchaser would not in fact receive all of Seller's rights with respect to
such Purchased Asset, then (a) Seller shall, to the extent not prohibited:
(i) cooperate with Purchaser in any reasonable arrangement designed to
provide to Purchaser after the Closing Date the benefits of any such
Purchased Asset, (ii) hold all monies received as a result of any Purchased
Asset in trust for the account of Purchaser, and (iii) remit such monies
to Purchaser as promptly as possible; (b) Seller shall indemnify and hold
Purchaser harmless against all liabilities incurred as a result of the
failure to obtain such assignment or Consent to such assignment on the
Closing Date; and (c) Seller shall indemnify and hold Purchaser harmless
against all liabilities incurred by Purchaser, including any out-of-pocket
costs, as a result of (i) the failure or refusal of any Authority to
recognize the transfer of any Purchased Asset, or (ii) the operation by
Purchaser of the business of the Custom Division without such transferred
Purchased Asset. Notwithstanding anything in this Agreement to the
contrary, neither this Agreement nor any document or instrument delivered
pursuant hereto shall constitute an assignment of any claim, contract,
license, permit, lease, commitment, sales order or purchase order or any
claim or right or any benefit arising thereunder or resulting therefrom, if
an attempted assignment thereof without the Consent or approval of any other
party thereto or issuer thereof would constitute a breach thereof or in any
way adversely affect the rights to be assigned.
4.6. Conduct of Business. Between the date hereof and the Closing
Date, Seller shall:
(a) operate the business of the Custom Division only in the ordinary
and customary course in accordance with past practices (except where such
practices would conflict with the covenants set forth herein and with other
obligations of Seller hereunder) and not enter into any transactions or
make any commitment which transactions or commitment is either inconsistent
with past practices of Seller with respect to the Custom Division or is
other than in the ordinary and customary course of business (including
acquisitions or dispositions of any property, rights or assets, other than
sales of Inventory in the ordinary and customary course in accordance with
past practices), without the prior written consent of Purchaser;
(b) not incur business expenses with respect to the Custom Division
other than business expenses in the ordinary and customary course and in
accordance with past practices, provided, however, that Seller will consult
with Purchaser in the event of any significant purchase or transaction;
(c) maintain and preserve the Custom Division's goodwill, business
relationships, licenses and franchises, including its relationships with
all lenders, suppliers, customers and other third parties having business
dealings with it, and maintain the Purchased Assets in good working order,
ordinary wear and tear excepted;
(d) refrain from:
(i) granting any increase, other than increases that are in the
ordinary and customary course of business and in accordance with past
practices, in the compensation payable to any Designated Employee or
granting or paying any bonus, pension or retirement benefits to any
Designated Employee,
(ii) entering into or amending any employment or severance
agreement with any Designated Employee, or
(iii) creating any new positions at the Custom Division or
hiring any person for employment with the Custom Division at an
annualized compensation of $50,000 or more;
(e) keep the Purchased Assets insured (including, without limitation,
workers' compensation, liability and hazard insurance) to the extent
currently maintained, without lapse;
(f) perform in all respects all of Seller's obligations under all
contracts, agreements and commitments included in the Purchased Assets;
(g) retain the Designated Employees;
(h) use its best effort to obtain the Consents;
(i) not incur any indebtedness with respect to the Custom Division or
the Purchased Assets to any person or entity other than in the ordinary and
customary course of business in accordance with past practices;
(j) not enter with respect to the Custom Division into (A) any
contract, accepted order or commitment for the purchase of any materials,
products, supplies or services other than such contracts incurred in the
ordinary and customary course of business in accordance with past practices,
(B) new contracts, agreements or commitments involving in the aggregate
either liabilities exceeding $50,000 or any material non-monetary
obligation, (C) any lease, license, royalty or loan agreement binding upon
the Custom Division or creating an Encumbrance upon any of the Purchased
Assets, or (D) any agreement not in the ordinary and customary course of
business in accordance with past practices;
(k) not modify or amend any of the contracts, agreements or
commitments included in the Purchased Assets, or waive any right relating
to the Custom Division or the Purchased Assets;
(l) not do any act or fail to do any act which might result in the
expiration, revocation, suspension or modification of any of the FDA and
Other Approvals or Permits, or fail to prosecute with due diligence any
application to any Authority in connection with the operation of the Custom
Division;
(m) not incur, create or suffer to exist any Encumbrances on the
Purchased Assets;
(n) not implement or adopt any change in Seller's accounting
principles, practices or methods with respect to the Custom Division,
other than as required by generally accepted accounting principles;
(o) deliver to Purchaser on or prior to the Closing Date a list of all
contracts, agreements or other documents (including amendments thereto) and
all unfilled purchase orders entered into between the date hereof and the
Closing Date, together with true and complete copies of such documents or,
in the case of oral contracts, agreements or arrangements, a written summary
of the terms thereof, provided that the foregoing shall not be construed to
permit Seller to enter into any contract, agreement or document (or
amendment thereto) not otherwise permitted hereby; or
(p) refrain from taking any action that would make any of the
representations or warranties of Seller contained herein untrue or
inaccurate as of the Closing Date or prevent Seller from performing any
of its covenants or obligations hereunder.
4.7. Notifications. Between the date hereof and the Closing Date:
(a) Seller shall promptly notify Purchaser in writing of:
(i) the occurrence or existence of any event, condition, fact or
circumstance (A) that is not in compliance with any of the covenants of
Seller, or (B) that would make any representation or warranty contained
in Article II hereof untrue or inaccurate as of the Closing Date, or
(ii) any commencement or threat against Seller of any litigation,
whether or not covered by insurance, arising out of, relating to or
otherwise affecting the Custom Division, the Purchased Assets, the
execution and delivery of this Agreement or any Ancillary Document or
the consummation of the transactions contemplated hereby or thereby.
(b) Purchaser shall promptly notify Seller in writing of:
(i) the occurrence or existence of any event, condition, fact or
circumstance (A) that is not in compliance with any of the covenants
of Purchaser, or (B) that would make any representation or warranty
contained in Article III hereof untrue or inaccurate as of the Closing
Date, or
(ii) any commencement or threat against Purchaser of any
litigation, whether or not covered by insurance, arising out of,
relating to or otherwise affecting the Custom Division, the Purchased
Assets, the execution and delivery of this Agreement or any Ancillary
Document or the consummation of the transactions contemplated hereby
or thereby.
4.8. Intellectual Property. As of the Closing Date, Seller shall
cease to use any and all of the Intellectual Property and shall deliver
to Purchaser all assignments and other documents as counsel for Purchaser
may require as necessary or desirable to complete the transfer of the
Intellectual Property to Purchaser.
4.9. Full Access. Prior to the Closing Date, Seller will afford
Purchaser and its representatives full and complete access to all premises,
properties, books, records, contracts, tax records, documents, facilities,
personnel, agents and management of Seller with regard to the Custom
Division and the Purchased Assets so that Purchaser may continue its
due diligence investigation with respect to Seller, including, without
limitation, its financial statements and projections, equipment and other
leases, licenses, Intellectual Property, assets, liabilities, litigation,
insurance agreements and other contractual arrangements, vendor and customer
lists, administrative procedures, operations and business plans and
prospects. Purchaser will conduct any such due diligence in a manner that
does not unreasonably interfere with the normal operation of the Custom
Division. Seller shall furnish to Purchaser all information with respect to
the business and affairs of the Custom Division and the Purchased Assets as
Purchaser may from time to time request. During such examination and
investigation, Purchaser may make copies of such records, files and other
materials as it may deem advisable. Such examination and investigation by
Purchaser shall not affect the representations and warranties of Seller
contained herein.
4.10. Risk of Loss. The risk of any loss, damage, impairment,
confiscation or condemnation of any of the Purchased Assets shall be borne
by Seller at all times prior to the Closing Date. In the event of any loss,
damage, impairment, confiscation or condemnation of any of the Purchased
Assets prior to the Closing Date, Seller, at its election, will either (a)
expend such funds and take such other actions as may be necessary to repair,
replace or restore, such Purchased Assets as soon as possible after such
loss, damage, impairment, confiscation or condemnation or (b) accept a
reduction of the Purchase Price equal to the value under the terms of this
Agreement of the Purchased Assets in question determined pursuant to Section
1.2(b) or (c). Nothing contained in this Section 4.10 shall constitute a
waiver of any closing condition set forth herein or be construed to limit
either party's right to terminate this Agreement pursuant to Article VIII
hereof.
4.11. Liability for Defective Products. Seller shall be responsible
for any claims of any type, including without limitation returns of
products, warranty claims and product liability claims (collectively,
"Product Claims"), related to products of the Custom Division manufactured
or sold by Seller. Purchaser shall be responsible for any Product Claims
related to any products formerly manufactured or sold by the Custom Division
and subsequently manufactured and sold by Purchaser.
4.12. Cooperation in Litigation. Each party hereto will fully
cooperate with the other in the defense or prosecution of any litigation or
proceeding already instituted or which may be instituted hereafter against
or by such party relating to or arising out of the conduct of the business
of the Custom Division prior to or after the Closing Date (other than
litigation arising out of the delivery and execution of this Agreement or
the consummation of the transactions contemplated hereby). The party
requesting such cooperation shall pay the out-of-pocket expenses (including
legal fees and disbursements) reasonably incurred by the party providing
such cooperation and its officers, directors, employees and agents in
connection with providing such cooperation, but shall not be responsible
to reimburse the party providing such cooperation for administrative or
overhead expenses, including for such party's time spent in such cooperation
or the salaries or costs of fringe benefits or similar expenses paid by the
party providing such cooperation to its officers, directors, employees and
agents while assisting in the defense or prosecution of any such litigation
or proceeding.
4.13. Insurance. Seller will, prior to the Closing Date, extend
its reporting periods on all of its insurance policies and bonds with
respect to product liability claims for at least two (2) years and add
Purchaser as a loss insured with respect to such claims.
4.14. Best Efforts. Purchaser and Seller will use their best efforts
to satisfy their respective obligations hereunder.
ARTICLE V
CONDITIONS TO CLOSING
5.1. Conditions to the Obligations of Seller. The obligations of
Seller to effect the transactions contemplated hereby are subject to the
fulfillment, prior to or at the Closing, of the following conditions:
(a) Representations and Warranties. The representations and
warranties made herein by Purchaser shall have been true and correct in all
respects when made and shall be true and correct in all respects at and as
of the Closing as though such representations and warranties were made at
and as of the Closing.
(b) Performance. Purchaser shall have performed and complied with
each covenant and condition required by this Agreement to be performed or
complied with by it before or at the Closing.
5.2. Conditions to the Obligations of Purchaser. The obligations of
Purchaser to effect the transactions contemplated hereby are subject to the
fulfillment, prior to or at the Closing, of the following conditions:
(a) Representations and Warranties. The representations and
warranties made herein by Seller shall have been true and correct in all
respects when made and shall be true and correct in all respects at and as
of the Closing as though such representations and warranties were made at
and as of the Closing.
(b) Performance. Seller shall have performed and complied with each
covenant and condition required by this Agreement to be performed or
complied with by it before or at the Closing.
ARTICLE VI
NON-COMPETITION
6.1. Terms. Each of Seller and the Principal Shareholders agrees that,
for the period during which Purchaser is required to make payments to Seller
pursuant to Section 1.2(a)(iv), neither Seller, a Principal Shareholder nor
any Affiliate (as such term is defined below) of Seller or any Principal
Shareholder will engage in Competition. For purposes of this Agreement,
"Competition" means: (a) the manufacture, production, development or sale
of or otherwise participating or assisting in, in any capacity, including
entering into or remaining in the employ of any person, partnership, firm,
corporation or other entity in any capacity, whether as an employee,
consultant or in any other capacity, or engaging in or having a financial
interest in excess of five (5) percent of the equity of, any business which
engages in, the manufacture, production, development or sale of any skin
care product custom formulated for a customer for sale by a customer to
consumers under a customer brand name, (b) making use of or authorizing
anyone else to make use of, for any purpose whatsoever, the Intellectual
Property, (c) doing any act or thing Seller, any Principal Shareholder or
any Affiliate of such Seller or Principal Shareholder knows will cause,
bring about or induce any interference with, disturbance to or interruption
of any relationships of Purchaser with any customer of, or any other person
or entity involved in the business of, the Custom Division, or (d) make any
use whatsoever of documents or information included in the Purchased Assets
except for the preparation of tax returns; provided, however, that nothing
in this Section 6.1 shall be interpreted to limit the right of (i) Seller,
the Principal Shareholders or any Affiliate to sell skin care products under
its own brand name, to sell skin care products which it has developed itself
(but not to meet specifications of particular customers) for private label
sale or to package "kits" of skin care and other products for any customer,
including customers of the Custom Division and of Purchaser, (ii) Seller,
the Principal Shareholders or any Affiliate to sell Products directly to
health and beauty salons or (iii) Seller to manufacture products for
Purchaser. For purposes of this Agreement, "Affiliate" shall mean a
corporation, association, limited liability company, partnership or other
business entity which directly or indirectly controls or is controlled by or
under common control with Seller or any Principal Shareholder and, for the
purpose of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control") shall mean ownership
of a majority of the equity securities or an equivalent interest in any
entity or the ability to name or direct the management or affairs of any
entity.
6.2. Remedies. Each of Seller and the Principal Shareholders
acknowledges and agrees that the restrictions set forth in this Article VI
are an important part of the consideration being received by Purchaser and
are reasonable in scope and duration. Each of Seller and the Principal
Shareholders acknowledges and agrees that in view of the nature of the
business of Seller to be sold to Purchaser hereunder, the business
objectives of Purchaser in acquiring such business, the consideration paid
to Seller therefor, and the fact that Seller is controlled by the Principal
Shareholders, the restrictions contained in this Article VI are necessary to
protect and preserve the legitimate business interests of Purchaser and to
ensure to Purchaser the full benefit of the transfer of the Purchased Assets
and the business of the Custom Division pursuant hereto, and that any
violation or threatened violation of such restrictions will result in
irreparable injury to Purchaser for which monetary damages will be an
inadequate remedy. Each of Seller and the Principal Shareholders therefore
acknowledges that if any of them, or any of their respective Affiliates,
violates or threatens to violate any such restrictions, Purchaser shall
be entitled, in addition to any other rights it may have, to have the
provisions of this Article VI specifically enforced by any court of
competent jurisdiction or to preliminary or permanent injunctive relief.
Nothing contained herein shall be construed as limiting in any way any other
remedies available to Purchaser at law or in equity. Any breach of this
Article VI by an Affiliate of Seller or any Principal Shareholder shall be
deemed to also be a breach by Seller or such Principal Shareholder, as the
case may be, to the same extent as if Seller or such Principal Shareholder,
as the case may be, had itself or himself committed the breach.
6.3. Reformation. In the event that this Article VI shall for any
reason be found unenforceable, whether because of geographical scope,
duration, activity, subject or otherwise, it is the intent of the parties
that it be reformed to the broadest geographical scope, duration or other
terms that are enforceable, rather than being invalidated in its entirety,
and if no validating reformation is possible, shall be severable from the
rest of this Agreement, and the validity, legality or enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby; provided, however, that under no circumstances shall any
reformation increase in any way any obligation of Seller or the Principal
Shareholders under Section 6.1.
ARTICLE VII
INDEMNIFICATION
7.1. Survival of Representations, Warranties and Covenants.
(a) The representations and warranties set forth in this Agreement
shall survive the Closing Date for a period ending on the third anniversary
of the Closing Date; provided, however, that the representations and
warranties set forth in Sections 2.1, 2.2, 2.3, 2.4, 2.12, 2.13, 2.15,
2.16, 2.19, 2.21, 3.1, 3.2, 3.3, 3.4 and 3.5 hereof shall survive without
limitation subject to the applicable statute of limitations.
(b) The covenants set forth in this Agreement shall survive the
Closing.
7.2. Indemnification.
(a) Seller's Indemnification. From and after the Closing, Seller
agrees to indemnify and hold harmless Purchaser, its subsidiaries and
Affiliates, its successors and permitted assigns, and their respective
officers, directors, employees and agents from, against and in respect of
any and all losses, claims, demands, liabilities, assessments, damages,
deficiencies, costs, expenses, actions or causes of action in respect
thereof (including reasonable attorneys' fees and related costs)
(collectively, "Losses") relating to or arising directly or indirectly out
of or in connection with:
(i) any breach by Seller of any of its representations or
warranties contained in this Agreement, including the Schedules hereto
or any certificate delivered in connection therewith;
(ii) any breach by Seller of any of its covenants or agreements
contained in this Agreement;
(iii) any products manufactured for or sold to the customers
of the Custom Division prior to the Closing Date; or
(iv) the Excluded Liabilities (together with (i), (ii) and (iii),
the "Seller Breaches");
provided, however, that, except with respect to Losses arising out of a
breach of the representations and warranties set forth in Sections 2.1, 2.2,
2.3, 2.4, 2.12, 2.13, 2.15, 2.16, 2.19 or 2.21 hereof, Seller shall not have
any liability pursuant to subclause (i) of this Section 7.2(a) unless the
aggregate amount of all Losses for which Seller would, but for this proviso,
be liable, exceeds on a cumulative basis, Fifty Thousand Dollars ($50,000),
in which case Seller shall be liable for the aggregate of all such Losses.
Notwithstanding anything in this Agreement to the contrary, the aggregate
liability of Seller under this Section 7.2(a) shall in no event exceed the
greater of (A) the Initial Cash Amount, and (B) the amounts due and becoming
due Seller pursuant to Section 1.2 hereof. This Section 7.2(a) shall
provide the sole and exclusive remedy for Purchaser with respect to all
Losses arising out of the Seller Breaches.
(b) Purchaser's Indemnification. From and after the Closing,
Purchaser agrees to indemnify and hold harmless Seller, its subsidiaries
and Affiliates, its successors and permitted assigns, and their respective
officers, directors, employees and agents from, against and in respect of
any and all Losses relating to or arising directly or indirectly out of or
in connection with:
(i) any breach by Purchaser of any of its representations or
warranties contained in this Agreement or any certificate delivered in
connection therewith;
(ii) any breach by Purchaser of any of its covenants or agreements
contained in this Agreement
(iii) any products manufactured for or sold to the customers
of the Custom Division subsequent to the Closing Date (together with
(i) and (ii), the "Purchaser Breaches");
provided, however, that, except with respect to Losses arising out of a
breach of the representations and warranties set forth in Sections 3.1, 3.2,
3.3, 3.4 or 3.5 hereof, Purchaser shall not have any liability pursuant to
subclause (i) of this Section 7.2(b) unless the aggregate amount of all
Losses for which Purchaser would, but for this proviso, be liable, exceeds
on a cumulative basis, Fifty Thousand Dollars ($50,000), in which case
Purchaser shall be liable for the aggregate of all Losses. Notwithstanding
anything in this Agreement to the contrary, the liability of Purchaser under
this Section 7.2(b) shall in no event exceed the aggregate of the Initial
Cash Amount and the amounts of the Escrow Amount released to Seller pursuant
to the Escrow Agreement. This Section 7.2(b) shall provide the sole and
exclusive remedy for Seller with respect to all Losses arising out of the
Purchaser Breaches.
7.3. Claims for Indemnification.
(a) An indemnified party under this Article VII (the "Indemnified
Party") shall give prompt written notice to an indemnifying party (the
"Indemnifying Party") of any liability or obligation in respect of which
such Indemnifying Party has a duty to provide indemnity to such Indemnified
Party under clause (a) or (b) of Section 7.2 hereof (each, an "Indemnified
Liability"), except that any delay or failure so to notify the Indemnifying
Party only shall relieve the Indemnifying Party of its obligations hereunder
to the extent, if at all, that it is prejudiced by reason of such delay or
failure.
(b) If a third party asserts a claim against any party for any
Indemnified Liability (a "Third Party Claim"), the Indemnifying Party shall
have the right to assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of
all expenses. In the event that the Indemnifying Party fails to assume the
defense thereof within a reasonable time after notice of any Third Party
Claim, the Indemnified Party shall have the right to undertake the defense,
compromise or settlement of such Third Party Claim for the account of the
Indemnifying Party. If the Indemnifying Party chooses to defend any claim,
the Indemnified Party shall make available to the Indemnifying Party any
books, records or other documents within its control that are necessary or
appropriate for such defense. In any case where the Indemnifying Party
shall have assumed the defense, the Indemnified Party shall have the right
to participate therein, and shall have the right to employ its own counsel
which shall be at its own expense unless (i) the Indemnifying Party and the
Indemnified Party mutually agree to the retention of the same counsel, in
which case such counsel shall be retained at the expense of the Indemnifying
Party, or (ii) the named parties to such Third Party Claim (including
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different
from or in addition to those available to the Indemnifying Party and that
the assertion of such defenses may create a conflict of interest such that
it would be inappropriate for counsel to the Indemnifying Party to represent
the Indemnified Party. In the case of the circumstances described in clause
(ii) above, such separate counsel may be retained by the Indemnified Party
at the expense of the Indemnifying Party, it being understood, however, that
the Indemnifying Party shall not, in connection with any one such Third
Party Claim or separate but substantially similar or related Third Party
Claim in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more
than one additional firm of attorneys at any time for all such Indemnified
Parties. Anything in this Section 7.3(b) to the contrary notwithstanding,
the Indemnifying Party shall not, without the Indemnified Party's prior
written consent, which consent shall not be unreasonably withheld, settle
or compromise any Third Party Claim or consent to the entry of any judgment
with respect to any Third Party Claim unless the settlement, compromise or
judgment is limited to payment of monetary damages which are payable in full
by the Indemnifying Party and includes as an unconditional term thereof the
release by the claimant or the plaintiff of the Indemnified Party from all
liability in respect of such Third Party Claim.
ARTICLE VIII
TERMINATION
8.1. Purchaser's Right. Purchaser shall have the right to terminate if
during the period from the date hereof to the Closing Date any of the
following shall occur:
(a) Seller shall suffer any loss from fire, flood, explosion or other
casualty which materially affects the conduct of the business of the Custom
Division or the value of the Purchased Assets;
(b) Purchaser shall learn of any fact or condition with respect to
the business, properties, assets, earnings, costs or expenses of the Custom
Division which materially is at variance with one or more of the warranties
or representations of, or covenants or conditions to be performed by, Seller
set forth herein; or
(c) There shall be any litigation challenging the validity or legality
of this Agreement or any Ancillary Document or the consummation thereof
or seeking to restrain or invalidate the consummation of any of the
transactions contemplated hereby or thereby, other than any litigation
instituted by Purchaser or Seller, which would, in the judgment of the Board
of Directors of Purchaser, involve expense or lapse of time which would be
adverse to the interests of Purchaser, and Seller shall be unable, within 30
days (during which period the Closing Date will be postponed) after receipt
of notice from Purchaser of its intent to terminate this Agreement, to
obtain an order from the court before which such litigation is pending
permitting the consummation of this Agreement or any Ancillary Document or
to provide indemnity satisfactory to Purchaser.
8.2. Additional Rights. This Agreement may be terminated by either
party if the Closing does not occur on or before December 31, 2002 or may
be terminated at any time by mutual written agreement.
8.3. Effect of Termination. In the event of termination, Seller shall
be relieved of its obligation to sell the Purchased Assets and Purchaser
shall be relieved of its obligation to purchase the Purchased Assets, and
no party hereto shall be liable to any other (a) except for its failure to
perform its covenants or conditions or its breach of its representations and
warranties hereunder, and (b) except as otherwise expressly provided in this
Agreement.
ARTICLE IX
MISCELLANEOUS
9.1. Expenses. Each of the parties hereto shall bear its own costs,
fees and expenses in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the Ancillary
Documents and the consummation of the transactions contemplated hereby
and thereby, including fees, commissions and expenses payable to brokers,
finders, investment bankers, consultants, exchange or transfer agents,
attorneys, accountants and other professionals, whether or not the
transactions contemplated hereby and thereby are consummated.
9.2. Amendment and Modification. Subject to applicable Law, this
Agreement may be amended or modified by the parties hereto at any time after
the Closing with respect to any of the terms contained herein; provided,
however, that all such amendments and modifications must be in writing duly
executed by all of the parties hereto.
9.3. Waiver of Compliance; Consents. Any failure of a party to comply
with any obligation, covenant, agreement or condition herein may be
expressly waived in the specific instance in writing by the party entitled
hereunder to such compliance, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure or delay. No single or partial exercise of
a right, power, privilege or remedy shall preclude any other or further
exercise thereof or of any other right, power, privilege or remedy herein.
Whenever this Agreement requires or permits the consent by or on behalf of
a party, such consent shall be given in writing in the same manner as for
waivers of compliance. The rights and remedies of the parties hereto
provided hereunder are cumulative and are not exclusive of any rights or
remedies that any party may otherwise have at law or equity.
9.4. No Third-Party Beneficiaries. Nothing in this Agreement shall
entitle any person or entity (other than a party hereto and its successors
and assigns permitted hereby) to any claim, cause of action, remedy or right
of any kind.
9.5. No Joint Venture, etc. Nothing in this Agreement shall be
construed to create a joint venture, partnership or relationship of
principal and agent of any kind.
9.6. Notices. All notices, requests, demands and other communications
required or permitted hereby shall be made in writing and delivered by hand
or sent by registered or certified mail (postage prepaid, return receipt
requested) or by nationally recognized overnight air courier service and
shall be deemed to have been duly given and effective: (a) on the date of
delivery, if delivered personally; (b) on the earlier of the fourth (4th)
day after mailing or the date of the return receipt acknowledgment, if sent
by registered or certified (postage prepaid, return receipt requested); or
(c) on the date of delivery if sent by a recognized overnight air service
courier:
If to Purchaser to:
Xxxxxxxxxx Laboratories, Inc.
0000 Xxxxxx Xxxx Xxxx
Xxxxxx, Xxxxx 00000
Attention: Xx. Xxxxxx X. Xxxxxxxxxx
Telephone: (000) 000-0000
with a copy to:
Patterson, Belknap, Xxxx & Tyler LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxxx, Esq.
Telephone: 000-000-0000
If to Seller or the Principal Shareholders, to:
Creative Beauty Innovations, Inc.
0000-X Xxxx Xxxx
Xxxxxxxxxx, Xxxxx 00000
Attention: Xx. Xxxxxxx Xxxx
Telephone: (000) 000-0000, x364
or to in each case to such other person or address as a party shall furnish
to the other parties hereto in writing in accordance with this subsection.
9.7. Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective, successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned or
delegated (whether voluntarily, involuntarily, by operation of law or
otherwise) by any of the parties hereto without the prior written consent
of the other parties, provided, however, that Purchaser may assign this
Agreement, in whole or in any part, and from time to time, to a wholly-
owned, direct or indirect, subsidiary of Purchaser, if Purchaser remains
bound hereby.
9.8. Governing Law. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the
laws of the State of Texas applicable to contracts made and to be wholly
performed within such state without regard to the laws of conflict that
might otherwise apply.
9.9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when executed shall be deemed an original,
but all of which together shall constitute one and the same agreement.
9.10. Headings. The table of contents and the headings of the
sections and subsections of this Agreement (including in the Schedules
hereto) are inserted for convenience of the parties only and shall not
constitute a part hereof.
9.11. Entire Agreement. This Agreement (including the Exhibits
and Schedules attached hereto), together with the Ancillary Documents,
constitute the entire agreement between the parties with respect to the
subject matter hereof and thereof and replace and supersede all prior
written and oral agreements or statements by and between the parties with
respect to the subject matter hereof and thereof, and no representation,
statement, condition or warranty not contained in this Agreement (including
the Exhibits and Schedules attached hereto) and the Ancillary Documents will
be binding on the parties thereto or have any force or effect whatsoever.
9.12. Schedules; Certain References. The Schedules attached hereto
are incorporated herein by reference and are a part of this Agreement as
if fully set forth herein. All references herein to Articles, Sections,
subsections, clauses, Exhibits and Schedules shall be deemed references to
such parts of this Agreement, unless the context shall otherwise require.
9.13. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement
will nevertheless remain in full force and effect. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto will negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely
as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible. Any term or
provision of this Agreement held invalid, illegal or unenforceable only in
part or degree will remain in full force and effect to the extent not held
invalid, illegal or unenforceable.
9.14. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure to the benefit of each party hereto and their
respective representatives, heirs, successors and permitted assigns.
Nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any right, benefit, claim or remedy of any
nature whatsoever under or by reason of this Agreement.
9.15. Interpretation.
(a) The parties hereto have participated jointly in the negotiation
and drafting of this Agreement. If any ambiguity or question of intent
or interpretation arises, this Agreement will be construed as if drafted
jointly by the parties and no presumptions or burden of proof will arise
favoring or disfavoring any party by virtue of authorship of any provisions
of this Agreement.
(b) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(c) The words "include," "includes" and "including" shall be deemed to
be followed by the phrase "without limitation."
9.16. Jurisdiction. Any actions and proceedings arising out of or
relating to this Agreement shall be brought in a state or federal court
sitting in the County of Dallas, State of Texas, and the parties hereto
irrevocably submit to the exclusive jurisdiction of such courts in any such
action or proceeding and irrevocably waive the defense of an inconvenient
forum to the maintenance of such action or proceeding.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PURCHASER
XXXXXXXXXX LABORATORIES, INC.
By: _____________________________
Name:
Title:
SELLER
CREATIVE BEAUTY INNOVATIONS, INC.
By: _____________________________
Name:
Title:
PRINCIPAL SHAREHOLDERS, joining this Agreement
for purposes of Article VI hereof only:
By: _____________________________
Xxxxxxx Xxxx
By: _____________________________
A. Xxx Xxxxxx
