Exhibit 10.1
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PURCHASE AGREEMENT
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BY AND AMONG
ZENGEN, INC.
ZENSANO, INC.
AND
GUM TECH INTERNATIONAL, INC.
DATED AS OF DECEMBER 5, 2001
TABLE OF CONTENTS
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Article 1 DEFINITIONS AND INTERPRETATION..................................1
1.1 Definitions.....................................................1
1.2 Interpretation and Usage........................................6
1.3 Schedules and Exhibits..........................................8
Article 2 PURCHASE AND SALE...............................................8
2.1 Purchase and Sale of Zensano Interest...........................8
2.2 Purchase Price..................................................8
2.3 Payment of Purchase Price.......................................8
2.4 Acceleration of Deferred Payments...............................9
2.5 Conditional Supplement to Purchase Price on Gel Tech Sale.......9
2.6 Limitation on Acceleration of Payments and Supplement to
Purchase Price..................................................9
2.7 Conditional Supplement to Purchase Price on Acquisition
of Buyer.......................................................10
2.8 Security Agreement.............................................10
2.9 Closing........................................................11
2.10 Determination of Net Sales Surplus Share and Net Sales
Royalty........................................................11
Article 3 REPRESENTATIONS AND WARRANTIES OF SELLERS......................12
3.1 Incorporation and Authority of Sellers.........................12
3.2 Organization and Authority of the Company......................12
3.3 No Conflict....................................................13
3.4 Consents and Approvals.........................................13
3.5 Solvency.......................................................13
3.6 Title to Zensano Interest......................................13
3.7 Absence of Certain Changes and Events..........................13
3.8 Compliance with Laws; Certain Regulatory Matters...............14
3.9 Permits........................................................14
3.10 Intellectual Property Rights...................................14
3.11 Title to Company Assets........................................16
3.12 Non-Competition................................................16
3.13 Contracts......................................................16
3.14 Status of Contracts............................................17
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TABLE OF CONTENTS
(CONTINUED)
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3.15 The Facility...................................................17
3.16 Legal Actions..................................................18
3.17 Environmental Compliance.......................................18
3.18 Taxes..........................................................19
3.19 Employees......................................................19
3.20 Labor Matters..................................................20
3.21 Employee Benefit Matters.......................................20
3.22 Compliance With Foreign Corrupt Practices Act and Export
Control and Anti-Boycott Laws..................................21
3.23 No Material Adverse Change.....................................22
3.24 Ability to Complete............................................22
3.25 Brokers........................................................22
3.26 Disclosure.....................................................22
Article 4 REPRESENTATIONS AND WARRANTIES OF BUYER........................22
4.1 Incorporation and Authority of Buyer...........................22
4.2 No Conflict....................................................23
4.3 Consents and Approvals.........................................23
4.4 Brokers........................................................23
4.5 Investment Purpose in Acquiring Zensano Interest...............23
4.6 Ability to Complete............................................23
4.7 No Knowledge of Breach by Sellers of Representation
or Warranty....................................................23
4.8 No Agreement for Sale..........................................23
Article 5 COVENANTS......................................................24
5.1 Public Announcements...........................................24
5.2 Treatment of Confidential Information..........................24
5.3 Cooperation and Exchange of Information........................24
5.4 Conveyance Taxes...............................................25
5.5 Further Action.................................................25
5.6 Termination of International Distribution Agreement............25
5.7 Change of Gel Tech Entity Names................................25
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TABLE OF CONTENTS
(CONTINUED)
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Article 6 INDEMNIFICATION................................................25
6.1 Survival of Representations and Warranties.....................25
6.2 Indemnification by Sellers.....................................25
6.3 Supplemental Indemnification by Sellers........................26
6.4 Indemnification by Buyer.......................................26
6.5 Notice of, Defense and Settlement of Actions...................27
6.6 Claims Threshold...............................................28
6.7 Limit on Liability of Indemnifying Party(ies)..................28
6.8 Claim Period; Survival.........................................28
6.9 Limitation on Indemnity Award..................................28
6.10 Buyer Set-Off Against Future Payment Obligations...............29
Article 7 MISCELLANEOUS..................................................30
7.1 Entire Agreement...............................................30
7.2 No Waiver, Discharge...........................................30
7.3 Joint Preparation; Interpretation..............................30
7.4 Modification and Amendment.....................................31
7.5 Notices........................................................31
7.6 Expenses.......................................................32
7.7 Dates and Times................................................32
7.8 Governing Law..................................................32
7.9 Forum for Disputes.............................................32
7.10 Specific Performance...........................................32
7.11 Successors and Assigns.........................................33
7.12 Third Party Benefit............................................33
7.13 Severability...................................................33
7.14 Counterparts...................................................33
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PURCHASE AGREEMENT
This PURCHASE AGREEMENT is dated as of December 5, 2001, by and among
Zengen, Inc., a California corporation ("ZENGEN") and Zensano, Inc., a
California corporation ("ZENSANO" and, together with Zengen, "Sellers") and Gum
Tech International, Inc., a Utah corporation ("BUYER").
BACKGROUND
Buyer holds a sixty percent (60%) ownership interest in Gel Tech, L.L.C.,
an Arizona limited liability company (the "COMPANY") and Zengen holds an
indirect forty percent (40%) ownership interest in the Company (the "ZENSANO
INTEREST") through its wholly-owned subsidiary, Zensano.
Sellers wish to sell to Buyer, and Buyer wishes to purchase from Sellers,
the Zensano Interest upon the terms and subject to the conditions set forth in
this Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual
representations, warranties, covenants and agreements contained herein, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. As used in this Agreement, except as otherwise expressly
set forth herein or unless the context otherwise requires, the following terms
will have the meanings set forth below:
"ACTION" means any claim, action, suit, litigation, arbitration or
mediation, or any judicial or quasi-judicial inquiry, proceeding or
investigation by or before any Governmental Authority.
"AFFILIATE" means, with respect to any specified Person, any other Person
that directly, or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"ANNUAL FINANCIAL STATEMENTS" means the audited consolidated financial
statements of Buyer for the fiscal year ended December 31, 2001.
"BUSINESS" means the business conducted by the Company of researching,
developing, producing, manufacturing, marketing and selling, or causing the
research, development, production, manufacture, marketing and sale, of
innovative non-prescription nasal gel technologies, delivery systems for
bioactive compounds and homeopathic products, including, without limitation,
Zicam(TM) Cold Remedy, Zicam(TM) Allergy Relief and related products, all as
detailed in the IP Development and License Agreement.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or other day on
which banks are required or authorized by law to be closed in Phoenix, Arizona
or Woodland Hills, California.
"BUYER INDEMNIFIED PARTY" has the meaning set forth in SECTION 6.2.
"BUYER LOSSES" has the meaning set forth in SECTION 6.2.
"CLOSING" has the meaning set forth in SECTION 2.9.
"CLOSING DATE" has the meaning set forth in SECTION 2.9.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the "Background" section of this
Agreement.
"CONFIDENTIALITY AND NON-COMPETITION AGREEMENT" means the Confidentiality
and Non-Competition Agreement in the form of EXHIBIT C hereto.
"CONTRACTS" has the meaning set forth in SECTION 3.13.
"DEED OF ASSIGNMENT AND TRANSFER" means the Deed of Assignment and Transfer
in the form of EXHIBIT D hereto for the assignment and transfer by Zensano to
Buyer of the Zensano Interest.
"ENCUMBRANCE" means any security interest, pledge, mortgage, lien, charge,
community property interest, voting trust, assessment, condition, equitable
interest, option, right of first refusal, restriction on title or adverse claim
of any kind.
"ENVIRONMENTAL HEALTH AND SAFETY LIABILITIES" means any and all costs,
damages, expenses, penalties, fines, assessments, liabilities, obligations and
other responsibilities arising from or under any Environmental Law or
Occupational Safety and Health Law, including, without limitation, those
consisting of or relating to:
(a) any environmental, health or safety matter or condition (including
on-site or off-site contamination, occupational safety and health and
regulation of any chemical substance or product);
(b) financial responsibility under any Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective action,
including, without limitation, any investigation, assessment, review or
analysis and any cleanup, removal, containment or other remedial or
response action ("CLEANUP") required by any Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Authority or any other Person)
and for any natural resource damages; and
(c) any other compliance, corrective or remedial measure required
under any Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial" and "response action" include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (codified in scattered sections of 26
U.S.C., 33 U.S.C., 42 U.S.C. and 42 U.S.C.ss.9601 ET SEQ.).
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"ENVIRONMENTAL LAW" means any Law (including, without limitation, any
lawful requirement of any competent Governmental Authority) governing or
relating to (i) the protection of the environment, public health, occupational
health and safety, (ii) regulation of Hazardous Materials and environmental
contamination, or (iii) the storage, manufacture, disposal, treatment,
generation, use, transport, remediation, Release into the environment of, or the
exposure to, Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(codified in scattered sections of 26 U.S.C., 33 U.S.C., 42 U.S.C. and 42
U.S.C.ss.9601 ET SEQ.), the Resource Conservation and Recovery Act of 1976 (42
U.S.C. ss.6901 ET. SEQ.), the Hazardous Materials Transportation Act (49
U.S.C.ss.5191 ET. SEQ.), the Toxic Substances Control Act (15 U.S.C.ss.2601 ET.
SEQ.), the Clean Air Act (33 U.S.C.ss.1251 ET. SEQ.), the Clean Air Act (42
U.S.C.ss.7401 ET. SEQ.), the Safe Drinking Water Act (21 U.S.C.ss.349; 42
U.S.C.ss.300f ET. SEQ.), the National Environmental Policy act of 1969 (42
U.S.C.ss.3421), the Superfund Amendment and Reauthorization Act of 1986
(codified in scattered sections of 10 U.S.C., 29 U.S.C., 33 U.S.C. and 42
U.S.C.), and Title III of the Superfund Amendment and Reauthorization Act (40
U.S.C.ss.1101 ET. SEQ.) all as the same may be subsequently amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and rules promulgated pursuant to such statute.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"FACILITY" means the real property and all improvements thereon currently
leased by the Company pursuant to that certain Lease dated for reference October
26, 1998 between Xxxxxx X. Xxxxxxx and the Company, as amended and extended.
"GAAP" means United States generally accepted accounting principles and
practices as in effect from time to time and applied consistently throughout the
periods involved.
"GOVERNMENTAL AUTHORITY" means any federal, state, regional, district or
local government (domestic or foreign) and each department, commission, board,
bureau, or other agency or political subdivision thereof, any Person exercising
executive, legislative, regulatory or administrative functions of, or pertaining
to, any such government and any court, tribunal, judicial, quasi-judicial or
arbitration body.
"GOVERNMENTAL ORDER" means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.
"HAZARDOUS MATERIAL" means any flammable, explosive, radioactive, toxic,
poisonous, corrosive or carcinogenic substance, material or waste or any
substance or material defined as or included in the definition of "hazardous
substance," "hazardous waste," "hazardous material," "toxic substance,"
"extremely hazardous substance," "restricted hazardous waste" or words of
similar import, now or subsequently regulated in any way under any applicable
Law (including, without limitation, any Environmental Law), including without
limitation, petroleum-based products, paints, solvents, lead, cyanide, DDT,
printing inks, acids, pesticides, ammonia compounds and other chemical products,
asbestos, polychlorinated biphenyls, and urea formaldehyde foam insulation.
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"INDEMNIFIED PARTY" has the meaning set forth in SECTION 6.5(A).
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 6.5(A).
"INDEPENDENT ACCOUNTANTS" has the meaning set forth in SECTION 2.10(D).
"INTELLECTUAL PROPERTY" means any and all United States and foreign patents
and patent applications, trade names, trademarks, service marks and
registrations thereof and applications therefor, copyrights and copyright
registrations and applications therefor, discoveries, inventions, ideas,
concepts, technology, know-how, trade secrets, processes, formulas, drawings,
designs, Software and internet web sites and domain names.
"INTELLECTUAL PROPERTY ASSETS" means all Intellectual Property owned or
licensed (as licensee) by the Company or in which the Company otherwise has a
proprietary interest, including, without limitation:
(a) the Company's name, all assumed fictional business names, trade
names, registered and unregistered trademarks (including, without
limitation, "Zicam"(TM)), service marks and applications;
(b) all Intellectual Property and appurtenant rights described in the
IP Development and License Agreement that are referred to therein as being
owned by, assigned to or licensed to the Company; and
(c) all rights in internet web sites and internet domain names
presently used by the Company.
"INTERNATIONAL DISTRIBUTION AGREEMENT" means the International Distribution
Agreement dated effective June 14, 2000 between Buyer and Zengen.
"IP DEVELOPMENT AND LICENSE AGREEMENT" means that certain Intellectual
Property Development and License Agreement dated effective May 21, 1999 among
Buyer, Zensano (then named Bio-Delivery Technologies, Inc.) and the Company, a
copy of which is attached hereto as EXHIBIT E.
"LAW" means any federal, state, local, municipal or international statute,
law, ordinance, regulation, rule, code, Governmental Order, or other requirement
or rule of law, including common law.
"MATERIAL ADVERSE EFFECT" means, with regard to the Company or the
Business, any event, occurrence, fact, condition, change or effect that
individually or in the aggregate with similar events, occurrences, facts,
conditions, changes or effects will or can be reasonably expected to result in a
cost, expense, charge, liability, loss of revenue or diminution in value to or
of the Company or the Business equal to or greater than One Thousand Dollars
($1,000).
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"NET SALES" means, for any given fiscal period of the Company, sales
reported by the Company in accordance with GAAP, which are calculated as gross
sales revenue less (i) returns and allowances, (ii) early pay discounts, (iii)
slotting allowances, (iv) promotional allowances, (v) sales discounts, and (vi)
freight billed.
"NET SALES ROYALTY" has the meaning set forth in SECTION 2.2(C).
"NET SALES SURPLUS SHARE" has the meaning set forth in SECTION 2.2(B).
"OCCUPATIONAL SAFETY AND HEALTH LAW" means any Law designed to provide safe
and healthful working conditions and to reduce occupational safety and health
hazards, including, without limitation, the Occupational Safety and Health Act
(29 U.S.C. ss. 651 ET. SEQ.), and any program, whether governmental or private
(such as those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"PARTY" means each party to this Agreement, and "PARTIES" means two or more
of such parties, as the context of such reference requires.
"PERMITTED ENCUMBRANCES" means (i) liens for Taxes not yet payable, (ii)
liens for Taxes, the validity of which is being contested in good faith and by
appropriate Action if adequate reserves with respect thereto are maintained on
the books of the Company in accordance with GAAP, and (iii) liens for Taxes
reserved against in the Company's balance sheet prepared for the period ended
September 30, 2001, to the extent so reserved.
"PERSON" means any individual, partnership, firm, corporation, limited
liability company, association, trust, unincorporated organization or other
entity, Governmental Authority, any syndicate or group that would be deemed to
be a person under Section 13(d)(3) of the Exchange Act and any trustee,
executor, administrator or other legal representative of any of the foregoing.
"PROMISSORY NOTE" means the promissory note in the form of EXHIBIT A hereto to
be delivered by Buyer to Zensano pursuant to SECTION 2.3(C).
"PURCHASE PRICE" has the meaning set forth in SECTION 2.2.
"Q1 FINANCIAL STATEMENTS" means the unaudited consolidated financial
statements of Buyer for the period ended March 31, 2002 prepared by Buyer in
accordance with GAAP in a manner consistent with practices for the corresponding
period of the previous calendar year.
"RELEASE" means any release, spill, emission, leaking, pumping, pouring,
dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching
or migration on or into the environment or into or out of any property.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"SECURITY AGREEMENT" means the Security Agreement in the form of EXHIBIT B.
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"SELLER INDEMNIFIED PARTY" has the meaning set forth in SECTION 6.4.
"SELLER LOSSES" has the meaning set forth in SECTION 6.4.
"SET-OFF AMOUNT" has the meaning set forth in SECTION 6.10(A).
"SET-OFF NOTICE" has the meaning set forth in SECTION 6.9.
"SOFTWARE" means computer software (present and subsequent versions
thereof), including source code, object, executable or binary code, objects,
comments, screens, user interfaces, report formats, templates, menus, buttons
and icons and all files, data, materials, manuals, design notes and other items
and documentation related thereto or associated therewith.
"TAX" or "TAXES" means (i) all taxes, charges, fees, levies, duties,
imposts, or other similar assessments, including income, gross receipts, ad
valorem, excise, real property, personal property, windfall profits, sales, use,
transfer, stamp, licensing, withholding, employment, payroll, minimum, estimated
and franchise taxes imposed by any Governmental Authority, and (ii) any
interest, fines, penalties, assessments or additions to tax resulting from
attributable to or incurred in connection with such taxes, charges, fees,
levies, duties, interests or other assessments.
"TAX RETURN" means any form, return, report, claim for refund, or
informational return or statement relating to a Tax or Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THIRD PARTY PURCHASE PRICE" has the meaning set forth in SECTION 2.5.
"THIRD PARTY PURCHASER" means any Person other than Buyer, the Company or
any Affiliate thereof.
"WAIVER AND ESTOPPEL CERTIFICATE" means the Waiver and Estoppel Certificate
in the form of EXHIBIT D hereto to be executed by Botanical Laboratories, Inc.
in favor of the Company.
"ZENSANO INTEREST" has the meaning set forth in the "Background" section of
this Agreement.
1.2 INTERPRETATION AND USAGE. In this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the term "this Agreement" means this Purchase Agreement and all
Schedules and Exhibits hereto, as any or all of which may be amended or
supplemented from time to time by the mutual agreement of the Parties or
otherwise pursuant to the terms hereof;
(b) the terms "hereof," "herein," "hereunder" and comparable terms
refer, unless otherwise expressly indicated, to this Agreement as a whole
and not to any particular Article, Section or other subdivision hereof or
attachment hereto;
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(c) a reference to any "Article", "Section" or another subdivision
hereof or to any Schedule, Exhibit or other attachment hereto is a
reference to an Article, Section or other subdivision of, or to a Schedule,
Exhibit or other attachment to, this Agreement;
(d) the headings of Articles, Sections, Schedules and Exhibits and the
Table of Contents are inserted for convenience of reference only and will
have no bearing on the interpretation of the provisions of this Agreement;
(e) the terms "include," "includes" and "including" will be deemed to
be followed by "without limitation" whether or not they are in fact
followed by such words or words of like import;
(f) any agreement, document or instrument defined or to which
reference is made means such agreement or instrument as from time to time
amended, modified or supplemented, including by waiver or consent;
(g) a reference to any Law includes all regulations and rules
thereunder, all amendments thereto in force from time to time (including
amendments to section or subsection references) and every Law in effect
that supplements, replaces or supercedes such Law;
(h) any term defined by way of reference to any agreement, document,
instrument or Law has such meaning whether or not such agreement, document,
instrument or Law is in effect;
(i) the phrase, "to the knowledge of" or any similar phrase qualifying
a representation, warranty or other statement as being knowledge-based
means:
(i) with respect to any representation, warranty or statement of
Sellers containing such qualification, the actual knowledge (and not
deemed or expected) knowledge of any of Xxxxx (Xxxx) Xxxxxx, Xxxxxx
Xxxxxxxx, Xxxxxxx Xxxxxxx, Xxxxxxx X. Xxxxxx or Xxxxx Xxxx; and
(ii) with respect to any representation, warranty or statement of
Buyer containing such qualification, the actual (and not deemed or
expected) knowledge of any of Xxxx X. Xxxxxxx, Xxx Xxxxxx, Xxxxxxx
Xxxxxx, Xxx Xxxxxx or Xxx Xxxxxx;
(j) the phrase "in the ordinary course of the Business" or any similar
phrase refers to action taken by a Person on behalf of or in connection
with the Business that is consistent in nature, scope and magnitude with
the past practices of the Business and is taken in the ordinary course of
the normal, day-to-day operation of the Business;
(k) references to "$" or to "dollars" means lawful currency of the
United States of America; and
(l) all accounting terms will be interpreted and all accounting
determinations will be made in accordance with GAAP.
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1.3 SCHEDULES AND EXHIBITS. The various Schedules which referred to in
ARTICLE 3 and attached hereto and the following Exhibits which are attached
hereto are specifically made a part of and incorporated into this Agreement by
reference:
Exhibit A Form of Promissory Note
Exhibit B Form of Security Agreement
Exhibit C Form of Confidentiality and Non-Competition Agreement
Exhibit D Form of Waiver and Estoppel Certificate
Exhibit E IP Development and License Agreement
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE OF ZENSANO INTEREST. Upon the terms and subject to
the conditions of this Agreement, at the Closing, Zensano will, and Zengen will
cause Zensano to, sell, assign, transfer, convey and deliver to Buyer all legal
and beneficial right, title and interest in and to the Zensano Interest free and
clear of all Encumbrances, and Buyer will purchase the Zensano Interest.
2.2 PURCHASE PRICE. In consideration for the Zensano Interest, Buyer will
pay to Zensano an aggregate purchase price comprised of the following
(collectively, the "PURCHASE PRICE"):
(a) Seventeen Million Dollars ($17,000,000);
(b) an amount (the "NET SALES SURPLUS SHARE") equal to forty percent
(40%) of the product obtained by multiplying (i) the amount by which the
Company's Net Sales for the calendar year ended December 31, 2001 exceeds
Seventeen Million Dollars ($17,000,000), by (ii) two point five (2.5); and
(c) an amount (the "NET SALES ROYALTY") equal to two percent (2%) of
the Company's Net Sales for the period from January 1, 2002 through and
including March 31, 2002.
2.3 PAYMENT OF PURCHASE PRICE. Buyer will pay the Purchase Price to Zensano
by wire transfer of immediately available funds to an account or accounts
specified in writing by Zensano in the following increments and at the following
times:
(a) Six Million Dollars ($6,000,000) on the Closing Date;
(b) One Hundred and Twenty Thousand Dollars ($120,000) on the Closing
Date, which amount will represent an advance on the Net Sales Royalty;
(c) Two Million Seven Hundred and Fifty Thousand Dollars ($2,750,000)
on each of June 30, 2002, November 30, 2002, June 30, 2003 and November 30,
2003, as evidenced by the Promissory Note;
(d) the Net Sales Surplus Share on June 30, 2002; and
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(e) the Net Sales Royalty on June 30, 2002.
2.4 ACCELERATION OF DEFERRED PAYMENTS. Notwithstanding the timings set
forth in SECTION 2.3(C), if before the second (2nd) anniversary of the Closing
Date, (i) Buyer (or any Affiliate thereof) sells, conveys or transfers all or
substantially all of its ownership interest in the Company to a Third Party
Purchaser, or (ii) Buyer causes or permits the Company to sell, convey or
transfer all or substantially all of the Company's assets (excluding in all
events sales of inventory in the conduct of the Business) to a Third Party
Purchaser, then the aggregate amounts payable under SECTION 2.3(C), to the
extent not already paid as of such time, will become due and payable by Buyer to
Sellers no later than fifteen (15) days after the closing of such sale,
conveyance or transfer by Buyer, the Company or an Affiliate thereof.
2.5 CONDITIONAL SUPPLEMENT TO PURCHASE PRICE ON GEL TECH SALE. If, before
the first (1st) anniversary of the Closing Date, (i) Buyer sells, conveys or
transfers any ownership interest in the Company to a Third Party Purchaser, or
(ii) causes or permits the Company to sell, convey or transfer all or
substantially all of the Company's assets (whether indirectly through a sale of
substantially all of Buyer's assets or a direct sale of substantially all of the
Company's assets, excluding in all events sales of inventory in the conduct of
the Business) to a Third Party Purchaser, then Buyer will pay to Sellers as a
supplement to the Purchase Price, within fifteen (15) days following receipt by
Buyer or the Company, as the case may be, of any consideration payable to Buyer
or the Company (as applicable) in connection with such transaction (the "THIRD
PARTY PURCHASE PRICE"), the positive amount, if any, determined by the following
formula:
40% x (TPPP - (RP x PIPV))
Where:
TPPP = the Third Party Purchase Price;
RP = the Reference Price, calculated as the product obtained by multiplying
(i) the aggregate amounts payable by Buyer under SECTIONS 2.2(A) and 2.2(B)
plus the greater of (A) the amount payable by Buyer under SECTION 2.2(C)
and (B) One Hundred and Twenty Thousand Dollars ($120,000), by (ii) two
point five (2.5); and
PIPV = the Percentage Interest in the Company sold, conveyed or transferred
to the Third Party Purchaser, expressed as a decimal, or in the case of a
sale of all or substantially all of the assets and liabilities of the
Company, the Percentage Value of the Company that such assets and
liabilities comprise (assuming that one hundred percent (100%) of such
assets and liabilities represent one hundred percent (100%) of the value of
the Company), expressed as a decimal.
2.6 LIMITATION ON ACCELERATION OF PAYMENTS AND SUPPLEMENT TO PURCHASE
PRICE. Notwithstanding any express or implied statement to the contrary in
SECTION 2.4 or SECTION 2.5, the provisions of SECTION 2.4 and SECTION 2.5 will
not apply to any actual or direct sale, transfer or conveyance by Buyer of any
interest in the Company or any actual or direct sale, transfer or conveyance by
the Company of all or substantially all of its assets, in either case as a
result of (i) any capital reorganization, reclassification or recapitalization
of Buyer, or (ii) any other transaction resulting in the acquisition by a Person
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of more than fifty percent (50%) of Buyer's issued and outstanding common stock,
it being understood that any such transaction contemplated by (i) or (ii) is
covered by SECTION 2.7.
2.7 CONDITIONAL SUPPLEMENT TO PURCHASE PRICE ON ACQUISITION OF BUYER. If,
before the first (1st) anniversary of the Closing Date, Buyer is the subject of
any completed reorganization, tender offer, merger (other than a merger
transaction undertaken solely for the purpose of changing the corporate domicile
and/or name of Buyer) or other transaction that results in the acquisition by
any Person (other than either Seller, any Affiliate of either Seller, or any
director, officer or shareholder of either Seller or any Affiliate of any of the
foregoing) (an "ACQUIRING PERSON") of more than fifty percent (50%) of the
issued and outstanding common stock of Buyer (the "CONTROLLING INTEREST"), and
such transaction was approved by Buyer's board of directors or Buyer's board of
directors recommended the approval of such transaction to Buyer's common
stockholders, then Buyer will pay to Sellers as a supplement to the Purchase
Price, within fifteen (15) days following the closing of such transaction, the
positive amount, if any, determined by the following formula:
40% x ((AAC x PVC) - (RP x PIB))
Where:
AAC = the Aggregate Acquisition Consideration paid by the Acquiring Person
for the amount of the Controlling Interest not owned by the Acquiring
Person before the completion of such transaction;
PVC = the Percentage Value of the Company, expressed as a decimal and
determined by an independent investment banking firm mutually acceptable to
the Parties (acting reasonably), the fees and expenses of which will be the
sole responsibility of Sellers, to be the proportionate amount of the
Aggregate Acquisition Consideration paid by the Acquiring Person that is
attributable to the value of the Company, vis-a-vis the remaining value of
Buyer;
RP = the Reference Price, calculated as the product obtained by multiplying
(i) the aggregate amounts payable by Buyer under SECTIONS 2.2(A) and 2.2(B)
plus the greater of (A) the amount payable by Buyer under SECTION 2.2(C)
and (B) One Hundred and Twenty Thousand Dollars ($120,000), by (ii) two
point five (2.5); and
PIB = the Percentage Interest of Buyer's outstanding common stock acquired
by the Acquiring Person in such transaction (excluding any common stock of
Buyer owned by the Acquiring Person before the completion of such
transaction), expressed as a decimal.
2.8 SECURITY AGREEMENT. In order to secure Buyer's payment obligations
under SECTION 2.3, SECTION 2.4, SECTION 2.5 and SECTION 2.7, Buyer will execute
and deliver to Sellers at the Closing a security agreement in the form of
EXHIBIT B hereto (the "SECURITY AGREEMENT"). Promptly following the satisfaction
and performance of Buyer's obligations under SECTION 2.3, SECTION 2.4, SECTION
2.5 and SECTION 2.7, and/or the expiration of the effectiveness of SECTION 2.4,
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SECTION 2.5 and SECTION 2.7, Sellers will cancel and terminate (or cause to be
cancelled and terminated) any registration of the Security Agreement or other
documentation made by or on their behalf with any Governmental Authority or
other agency or office.
2.9 CLOSING. The consummation of the transactions contemplated by this
Agreement for the sale by Sellers to Buyer of the Zensano Interest (the
"CLOSING") will take place at the offices of Xxxxx & Xxxxxx L.L.P., One Arizona
Center, 000 Xxxx Xxx Xxxxx, Xxxxxxx, Xxxxxxx 00000, at 9:00 A.M. (Arizona time)
on December 5, 2001, or at such other time, place or date as Sellers and Buyer
may agree upon in writing (the day on which the Closing takes place being the
"CLOSING DATE").
2.10 DETERMINATION OF NET SALES SURPLUS SHARE AND NET SALES ROYALTY. The
Parties will determine the Net Sales Surplus Share and the Net Sales Royalty in
the manner provided in this SECTION 2.10:
(a) On or before May 15, 2002, Buyer will deliver to Sellers the
Annual Financial Statements and the Q1 Financial Statements together with a
detailed statement that sets out (i) the Company's Net Sales for the
calendar year ended December 31, 2001, (ii) the Company's Net Sales for the
period from January 1, 2002 through and including Xxxxx 00, 0000, (xxx) the
Net Sales Surplus Share, and (iv) the Net Sales Royalty.
(b) On or before June 15, 2002, Sellers will notify Buyer in writing
of Sellers acceptance or rejection of Buyer's calculation of the Net Sales
Surplus Share and the Net Sales Royalty; PROVIDED, however, that Sellers
may, by written notice to Buyer before June 15, 2002, extend such period
for up to thirty (30) days. If any such extension is made by Sellers,
Buyer's obligation to make any payments under SECTIONS 2.3(D) and 2.3(e)
will be extended by an amount of time equivalent to the duration of
Sellers' extension. If (i) by written notice to Buyer, Sellers accept
Buyer's calculations of the Net Sales Surplus Share and the Net Sales
Royalty, or (ii) Sellers fail to deliver any notice of acceptance or
rejection of Buyer's calculation of the Net Sales Surplus Share and the Net
Sales Royalty as provided in this SECTION 2.10(B) by June 15, 2002, or by
the expiration of the extended period, if any, requested by Sellers
pursuant to this SECTION (B) (which failure will result in Sellers being
deemed to have irrevocably accepted such calculations), Buyer's
calculations of the Net Sales Surplus Share and the Net Sales Royalty will
be final and binding on the Parties.
(c) If Sellers deliver written notice to Buyer under SECTION 2.10(B)
of a rejection of Buyer's calculation of the Net Sales Surplus Share or the
Net Sales Royalty, such notice must include the reasons for such rejection,
including a good faith estimate of the amount disputed by Sellers.
(d) If Sellers give proper notice of their rejection of Buyer's
calculation of the Net Sales Surplus Share or the Net Sales Royalty,
Sellers and Buyer will promptly (and in any event within ten (10) Business
Days) cause their respective representatives to confer with each other with
a view to resolving such matter. If the Parties' representatives are unable
to resolve the dispute within sixty (60) days after the date of delivery of
Sellers' notice under SECTION 2.10(B), the Parties will refer the dispute
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to a firm of independent certified public accountants mutually acceptable
to the Parties (acting reasonably) (the "INDEPENDENT ACCOUNTANTS") for
review and determination, with Sellers being solely responsible for the
costs of the Independent Accountants for such review and determination. The
determination by the Independent Accountants of the Net Sales Surplus Share
and the Net Sales Royalty will be final and binding on the Parties. If
Sellers deliver a notice of rejection of Buyer's calculation of the Net
Sales Surplus Share or the Net Sales Royalty, as contemplated by this
SECTION 2.10(D), Buyer will nonetheless pay any undisputed amounts
determined in good faith by Buyer in its calculation to be payable to
Zensano, such payment to be made in accordance with SECTION 2.10(E).
(e) Within five (5) Business Days after the Net Sales Surplus Share
and the Net Sales Royalty are finally determined by the Parties or by the
Independent Accountants, as the case may be, Buyer will pay to Zensano, by
wire transfer of immediately available funds to an account or accounts
specified in writing by Zensano, an amount equal to (i) the Net Sales
Surplus Share, if any, plus (ii) the amount, if any, by which the Net Sales
Royalty exceeds the Net Sales Royalty Advance. The Parties agree that if
the Net Sales Royalty Advance exceeds the Net Sales Royalty, Sellers will
retain such excess amount and will not be required to refund such excess
amount to Buyer.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
In order to induce Buyer to enter into and consummate the transactions
contemplated by this Agreement, Sellers hereby jointly and severally represent
and warrant to Buyer, as representations and warranties that are true, accurate
and complete as of the date hereof, the following:
3.1 INCORPORATION AND AUTHORITY OF SELLERS. Each Seller is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of California and has all necessary corporate power and authority to enter
into this Agreement, to satisfy and perform its covenants and obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery by Sellers of this Agreement, the satisfaction and performance by
Sellers of their respective covenants and obligations hereunder, and the
consummation by Sellers of the transactions contemplated hereby have been duly
authorized by all requisite corporate action on the part of Sellers. This
Agreement has been duly executed and delivered by Sellers, and (assuming due
authorization, execution and delivery by Buyer) constitutes the legal, valid and
binding obligation of Sellers, enforceable against them in accordance with its
terms, except to the extent that (i) the availability of equitable remedies is
subject to the discretion of applicable judicial authority, and (ii)
enforceability may be limited by bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws relating to the rights of
creditors generally.
3.2 ORGANIZATION AND AUTHORITY OF THE COMPANY. To the knowledge of Sellers,
the Company is a limited liability company duly organized, validly existing and
in good standing under the laws of the State of Arizona. To the knowledge of
Sellers, the Company has all necessary corporate power and authority to own its
properties and assets and conduct the Business. To the knowledge of Sellers,
Zensano and the Managers of the Company appointed by Zensano have complied in
all respects with the provisions of the Company's Operating Agreement since the
effective date of the Operating Agreement.
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3.3 NO CONFLICT. The execution, delivery and performance of this Agreement
by Sellers do not and will not (i) violate or conflict with the respective
Articles of Incorporation and Bylaws (or other similar organizational documents)
of Sellers or any resolutions adopted by the respective boards of directors or
shareholders of Sellers, (ii) conflict with or violate any Law or Governmental
Order applicable to Sellers or the Company, (iii) to the knowledge of Sellers,
result in any breach of, or constitute a default (or event which with the giving
of notice or lapse of time, or both, would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any Contract, or (iv) result in the creation of any Encumbrance on the Zensano
Interest or any of the assets of the Company.
3.4 CONSENTS AND APPROVALS. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by
Sellers do not and will not require any consent, approval or authorization of
any Person or the filing with or notification to any Governmental Authority.
3.5 SOLVENCY.
(a) Neither Seller is insolvent, nor has either Seller committed an
act of bankruptcy, proposed a compromise or arrangement to its creditors
generally, had any petition in bankruptcy filed against it, filed a
petition or undertaken any Action to be declared bankrupt, to liquidate its
assets or to be dissolved. The transactions contemplated by this Agreement
will not cause either Seller to become insolvent or to be unable to satisfy
and pay its debts and obligations generally as they come due.
(b) Immediately after giving effect to the consummation of the
transactions contemplated by this Agreement, (i) each Seller will be able
to pay its liabilities as they become due in the usual course of its
business, (ii) neither Seller will have unreasonably small capital with
which to conduct its present or proposed businesses, and (iii) Sellers will
have assets (calculated at fair market value) that exceed their respective
liabilities.
3.6 TITLE TO ZENSANO INTEREST. Zensano holds all legal and beneficial
right, title and interest in and to the Zensano Interest, free and clear of all
Encumbrances. Zengen is the sole legal and beneficial owner of all issued and
outstanding capital stock of Zensano. No Person has any right, agreement, or
option, present or future, contingent or absolute, for the purchase of the
Zensano Interest or any part thereof.
3.7 ABSENCE OF CERTAIN CHANGES AND EVENTS. To the knowledge of Sellers,
since January 1, 2001, the Company has conducted its business only in the
ordinary course of the Business and there has not been any event or circumstance
that could reasonably be expected to have a material adverse effect on the
assets, Business, prospects, financial condition or results of operations of the
Company after the date hereof (excluding general economic and political
conditions outside of Sellers' control and not unique to the Company). In
particular, to the knowledge of Sellers, there has not been any indication by
any customer of or supplier to the Company of an intention to discontinue or
change the terms of its relationship with the Company.
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3.8 COMPLIANCE WITH LAWS; CERTAIN REGULATORY MATTERS. To the knowledge of
Sellers, the Business has been and is being conducted in compliance with all
Laws and Governmental Orders applicable to the Business and the Company, except
where the failure to be in compliance would not have a Material Adverse Effect.
Sellers have not, and to the knowledge of Sellers, the Company has not, received
any written notice to the effect that the Business or the Company is not in
compliance with any applicable Law or Governmental Order.
3.9 PERMITS. To the knowledge of Sellers, except for standard
administrative business licenses and employer identification numbers, no permit,
license or other authorization of any Governmental Authority is required for the
Company to conduct the Business as it is presently conducted or to occupy the
Facility. Neither Seller or, to the knowledge of Sellers, the Company has
received from any Governmental Authority or any other Person any notice
requiring that any permit, license or other authorization of any Governmental
Authority be obtained for the conduct of the Business or occupation of the
Facility.
3.10 INTELLECTUAL PROPERTY RIGHTS.
(a) To the knowledge of Sellers, SCHEDULE 3.10(A) contains (i) a
complete and accurate list and summary description of all Intellectual
Property Assets, categorized by type of Intellectual Property (i.e.,
patents, patent applications, licenses, trademarks, trade names,
copyrights, software, internet domain names, etc.), other than
mass-marketed retail "shrink-wrap" Software products purchased and lawfully
used by the Company, and (ii) a summary of the material terms of each
Contract under which the Company licenses any Intellectual Property Asset
(either as licensor or licensee), including royalties or other similar
payments receivable or payable by the Company in connection with such
licenses. To the knowledge of Sellers, except as described in SCHEDULE
3.10(A), the Company owns all legal and beneficial right, title and
interest in and to the Intellectual Property Assets free and clear of all
Encumbrances, and no Person has any right to use or exploit any
Intellectual Property Asset. To the knowledge of Sellers, the Company is
not in default under the terms of use of, and has not received any written
notice of any claim of infringement or any other claim or proceeding based
on any act or omission of the Company with respect to, any Intellectual
Property Asset.
(b) To the knowledge of Sellers, no director, officer, Manager,
employee, consultant or agent of the Company, Sellers or any other Person
owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, in any Intellectual Property Asset.
(c) Except as disclosed in SCHEDULE 3.10(C), to the knowledge of
Sellers, the Company has not manufactured, used or sold and does not
manufacture, use or sell any goods, services or information which have
violated or do violate the Intellectual Property rights of any Person. None
of Zengen, Zensano or, to the knowledge of Sellers, the Company has
received any notification, warning, threat of Action, or other written
notice that the Company (or Zengen or Zensano acting on behalf of the
Company) has violated or is violating the Intellectual Property rights of
any Person.
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(d) To the knowledge of Sellers, all patents, trademarks and
copyrights (registered and unregistered) included in the Intellectual
Property Assets are currently in compliance with formal legal requirements
(including, in respect of patents, payment of filing, examination and
maintenance fees and proofs of working or use, and, in respect of
trademarks, the timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due
within ninety (90) days after the Closing Date. To the knowledge of
Sellers, (i) no patent included in the Intellectual Property Assets has
been or is now involved in or has been or is the subject of any
interference, reissue, reexamination, or opposition proceeding, (ii) no
such proceeding is pending or threatened, and (iii) there is no potentially
interfering patent or patent application of any Person. To the knowledge of
Sellers, (i) no trademark included in the Intellectual Property Assets has
been or is now involved in, or has been or is the subject of, any
opposition, invalidation or cancellation proceeding, (ii) no such
proceeding is pending or threatened, and (iii) there is no potentially
interfering trademark or trademark application of any Person.
(e) To the knowledge of Sellers, (i) all products made, used or sold
under any patent included in the Intellectual Property Assets have been
marked with the proper patent notice, (ii) all products made, used or sold
that contain a trademark included in the Intellectual Property Assets bear
the proper federal registration notice with respect to such trademark where
permitted by law, and (iii) all products or other works encompassed by any
copyright included in the Intellectual Property Assets have been marked
with the proper copyright notice.
(f) To the knowledge of Sellers, with respect to each trade secret
included in the Intellectual Property Assets, all documentation maintained
by the Company relating to such trade secret is current, accurate and
sufficient in detail and content to identify and explain such trade secret
and to allow its full and proper use without reliance on the knowledge or
memory of any Person. To the knowledge of Sellers, the Company has taken
all reasonable precautions to protect the secrecy, confidentiality and
value of all trade secrets included in the Intellectual Property Assets,
except where the failure to take such reasonable precautions would not have
a Material Adverse Effect.
(g) With respect to internet web sites and domain names used by the
Company, to the knowledge of Sellers, (i) all such sites and domain names
have been registered in the name of the Company and are in compliance with
all formal legal requirements, (ii) no such site or domain name has been or
is now involved in, or has been or is the subject of, any dispute,
opposition, invalidation or cancellation proceeding, and no such proceeding
is pending or threatened, (iii) there is no domain name application pending
of any Person which would or could potentially interfere with or infringe
any Company domain name, and (iv) no Company web site or domain name has
been challenged, interfered with or threatened in any way or infringes,
interferes with or is alleged to interfere with or infringe the trademark,
copyright or domain name of any other Person.
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3.11 TITLE TO COMPANY ASSETS. To the knowledge of Sellers, the Company owns
all legal and beneficial right, title and interest in and to all assets used in
the conduct of the Business, free and clear of any Encumbrances, other than
Permitted Encumbrances, and all such assets are, and on the Closing Date will
be, in the Company's possession, except where the failure to have clear title
would not have a Material Adverse Effect.
3.12 NON-COMPETITION. To the knowledge of Sellers, except to the extent
expressly set forth in the IP Development and License Agreement, neither the
Company nor the Business is bound by or subject to any contract or agreement,
written or oral, that in any way restricts the competitive conduct of the
Company or the Business or limits the Company or the Business from competing in
any line of business or with any Person, or operating in any jurisdiction.
3.13 CONTRACTS. To the knowledge of Sellers, SCHEDULE 3.13 lists all
contracts relating to the Business (the "CONTRACTS") in effect as of the date of
this Agreement to which the Company is a Party or is subject or by which the
Company is bound, including, without limitation:
(a) each contract or agreement under which the Company has created,
incurred, assumed or guaranteed (or may create, incur, assume or guarantee)
indebtedness for borrowed money or under which the Company has granted any
Encumbrance on any assets of the Company, whether tangible or intangible,
to secure such indebtedness;
(b) each outstanding contract or agreement for the purchase of capital
property or the making of capital improvements;
(c) each installment and conditional sales agreement in effect and
outstanding;
(d) each outstanding contract or agreement for the purchase or sale by
the Company of products or services (including raw materials and inventory)
in the ordinary course of the Business.
(e) each lease of personal property;
(f) the lease of the Facility;
(g) each contract or agreement containing covenants that in any way
restrict or limit the freedom of the Company to conduct the Business or to
engage in any other line of business;
(h) each contract or agreement pursuant to which the Company is a
licensor, sublicensor, licensee or sublicensee of any Intellectual Property
Asset;
(i) each contract or agreement granting to any Person any option or
right to market, distribute or sell any product of the Business, or to
represent the Business with respect to any such product, or to act as agent
for the Company in connection with the marketing, distribution and/or sale
of any product of the Business;
16
(j) each contract or agreement (other than the Operating Agreement)
between or among the Company and either Seller or any Affiliate thereof;
(k) each power of attorney of the Company that is currently effective
and outstanding;
(l) each contract or agreement (other than the Operating Agreement)
establishing or governing any joint venture, strategic alliance or other
collaboration between or among the Company and other Persons;
(m) each written warranty, guaranty and/or other similar undertaking
with respect to contractual performance extended by the Company, whether or
not in the ordinary course of the Business; and
(n) any other contract or agreement that was not entered into in the
ordinary course of the Business and that involves actual or potential
expenditures by or receipts of the Company in excess of Ten Thousand
Dollars ($10,000).
3.14 STATUS OF CONTRACTS. To Sellers' knowledge, each Contract is a valid
agreement, arrangement or commitment of the Company, enforceable against the
Company and each other Party thereto in accordance with such Contract's terms,
except where the failure of such Contract to be enforceable would not have a
Material Adverse Effect. To the knowledge of Sellers, neither the Company nor
any other party thereto is in breach or default of any of its obligations under
any Contract. Except to the extent disclosed in SCHEDULE 3.13, to the knowledge
of Sellers, (i) no Contract has been modified, amended or supplemented in any
respect, orally or in writing, by or on behalf of the Company, and (ii) no event
has occurred or circumstance exists that (with or without notice or lapse of
time) may contravene, conflict with or result in a breach or default of, or give
the Company or any other Person the right to declare a breach or default or to
exercise any remedy under, or to accelerate the maturity or performance of or
payment under, or to cancel, terminate or modify, any Contract.
3.15 THE FACILITY. Notwithstanding any representation or warranty given by
Sellers in SECTION 3.17:
(a) the Company does not now own and has never owned any real
property;
(b) the Company does not now lease and has never leased (as tenant)
any real property other than the Facility;
(c) except as disclosed in SCHEDULE 3.15, the Facility is the only
real property that the Company has ever occupied and the only real property
on or within which the Company, either Seller or any predecessor entity out
of which either Seller was formed has ever conducted the Business or any
related business;
17
(d) the Company is the exclusive occupier, possessor and user of the
Facility, and the Facility is not subject to any sublease, license or other
third party right of access or entry (except for landlord's rights of
access and entry as expressly set forth in the terms of the Company's lease
of the Facility);
(e) none of the Company, either Seller or any predecessor entity out
of which either Seller was formed is or at any time has been in breach or
default of any of its obligations under its lease of the Facility or any
other real property lease, and to the knowledge of Sellers, the landlord
Party to the Facility lease is not in breach or default of any of its
obligations thereunder;
(f) except as disclosed in SCHEDULE 3.15, the Company does not
research, develop, design, manufacture, store, market or sell any product
or service or administer any of such actions in any location other than the
Facility; and
(g) the Company's lease of the Facility may be terminated without
penalty upon thirty (30) days' prior written notice to the landlord party
to such lease.
3.16 LEGAL ACTIONS. Except as described in SCHEDULE 3.16, to Sellers'
knowledge:
(a) there is no civil, criminal or administrative (i) Action or
Governmental Order in effect, pending or threatened against, relating to,
involving or affecting the Company or the Business (including, without
limitation, Actions related to or based on actual or alleged product
liability, product defects or other customer dissatisfaction with any
product or service of the Company or the Business), or (ii) facts or
circumstances in existence that could reasonably be expected to give rise
to any such Action or Governmental Order; and
(b) neither the Company nor either Seller on Company's behalf has
commenced or has pending any Action against any Person, nor has the
Company, or either Seller on the Company's behalf, within the past 12
months threatened to initiate any such Action.
3.17 ENVIRONMENTAL COMPLIANCE. Sellers, each predecessor entity out of
which either Seller was formed, and, to Sellers' knowledge, the Company are, and
at all time have been, in full compliance with, and have not been and are not in
violation of or liable under, any Environmental Law with respect to the
Facility. Neither Seller or any predecessor entity out of which either Seller
was formed nor, to Sellers' knowledge, the Company or any other Person for whose
conduct they or the Company are or may be held to be responsible received, any
actual or threatened order, notice or other communication relating to the
Facility from (i) any Governmental Authority or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of the Facility,
of any actual or potential violation of, or failure to comply with, any
Environmental Law, or of any actual or threatened obligation to undertake or
bear the cost of any Environmental Health and Safety Liabilities with respect to
the Facility or other property or asset (whether real, personal or mixed) in
which the Company, either Seller or any predecessor entity out of which either
Seller was formed has or had an interest, or with respect to the Facility at or
to which Hazardous Materials were generated, manufactured, refined, transferred,
18
imported, used or processed by the Company or any other Person for whose conduct
the Company is or may be held responsible, or from which Hazardous Materials
have been transported, treated, stored, handled, transferred, disposed of,
recycled or received.
3.18 TAXES.
(a) To the knowledge of Sellers, SCHEDULE 3.18(A) lists each
jurisdiction (federal, state and local) with respect to which the Company
is required to file any Tax Return. To the knowledge of Sellers, the
Company has properly filed or caused to be filed all Tax Returns with, and
paid and discharged any liabilities for Taxes in, all federal, state and
local jurisdictions in which it is subject to Tax. To the knowledge of
Sellers, no claim has ever been made or is expected by Sellers to be made
by any Governmental Authority in a jurisdiction where the Company does not
file Tax Returns that the Company is or may be subject to taxation by that
jurisdiction. To the knowledge of Sellers, there are no Encumbrances on any
of the Company's assets that arose in connection with any failure (or
alleged failure) to pay any Tax, and there is no basis for assertion of any
claims attributable to Taxes which, if adversely determined, would result
in any such Encumbrance.
(b) Except as provided in SCHEDULE 3.18(B), Sellers have no knowledge
that the IRS or any other Governmental Authority is likely to assess any
additional Taxes for any period for which Tax Returns have been filed by or
on behalf of the Company. To Sellers' knowledge, there is no dispute or
claim concerning any Taxes of the Company claimed or raised by any
Governmental Authority.
(c) To the knowledge of Sellers, all Taxes that the Company is or was
required by Law to withhold, deduct or collect have been duly withheld,
deducted and collected and, to the extent required, have been paid to the
proper Governmental Authority or other Person.
3.19 EMPLOYEES.
(a) SCHEDULE 3.19(A) contains a complete and accurate list of the
following information for each employee of the Company (including officers
and managers) as of the date of this Agreement: (i) full name, (iii) date
of commencement of employment, (iii) job title or description, (iv) current
salary, wages and bonus paid or payable, (v) accrued and unused vacation
pay/time, (vi) accrued and unused sick pay/time, (vii) details of
participation in each employee benefit plan, and (viii) status of any leave
of absence (including, without limitation, maternity, medical, short or
long term disability or military leave) in effect or anticipated to take
effect within sixty (60) days after the Closing Date. Except as disclosed
in SCHEDULE 3.19(A), each employee of the Company is employed on a
full-time basis.
(b) No employee of the Company (including officers and Managers) is
employed under a written contract of employment, and any employee of the
Company can have his or her employment terminated without cause on
provision of not more than thirty (30) days' written notice or payment of
severance in lieu thereof.
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(c) To the knowledge of Sellers, (i) no officer, director, agent,
employee, consultant, or contractor of the Company is bound by any
contract, agreement or arrangement that purports to limit the ability of
such officer, director, agent, employee, consultant, or contractor to
assign to the Company or to any other Person any rights to any invention,
improvement, or discovery, and (ii) no former or current employee of the
Company is a Party to, or is otherwise bound by, any contract, agreement or
arrangement that in any way adversely affected, affects, or will affect the
ability of the Company or Buyer to conduct the Business as heretofore
carried on by the Company.
(d) To Sellers' knowledge, the Company has complied in all respects
with all Laws relating to employment practices, terms and conditions of
employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, payment of social security and similar Taxes and
occupational health and safety. To Sellers' knowledge, the Company is not
liable for the payment of any employee-related Taxes, fines, penalties, or
other amounts, however designated, for failure to comply with any of the
foregoing Laws.
(e) To Sellers' knowledge, no employee (including officers and
Managers) currently employed by the Company or by Sellers in connection
with the Business has made any claim against the Company, either Seller or
any officer or director thereof, including any claim for wrongful or
constructive dismissal, violation of civil rights, harassment, or failure
to comply with occupational health or safety requirements or standards or
other employment related laws or standards.
3.20 LABOR MATTERS. To the knowledge of Sellers', (i) the Company is not
bound by any collective agreement or other contract or arrangement with any
labor union or employee association or any letter of understanding in respect
thereof in connection with the Business or otherwise, (ii) neither the Company
nor either Seller (or any Affiliate thereof) on behalf of the Company has
conducted or made any commitment or given any undertaking to conduct
negotiations with any labor union or employee association with respect to any
future agreement relating to the Company or the Business, and (iii) there is no
current attempt underway or pending to organize or establish any labor union or
employee association in connection with the Company or the Business.
3.21 EMPLOYEE BENEFIT MATTERS. To Sellers' knowledge, the only employee
benefit plans that the Company has had or presently has in effect for its
employees, officers and Managers are medical and dental plans for which the
Company pays all premiums and related administrative costs. Neither Seller nor
any Affiliate thereof has had or presently maintains any employee benefit plan
for employees, officers or Managers of the Company. Neither the Company nor
either Seller have provided or presently provide to employees, officers or
Managers of the Company any bonus, incentive, deferred compensation, stock
purchase, stock option, severance, pension, 401(k), change in control or other
fringe benefit plan. Sellers and, to Sellers' knowledge, the Company have not
announced any plan or legally binding commitment to provide or create any
additional employee benefit plan or to amend or modify any existing employee
benefit plan. To Sellers' knowledge, the Company's medical and dental plans have
been operated in material compliance with the health care continuation
provisions of Part 6 of Title I of Subtitle I of ERISA and Section 4980B of the
Code at all times. The consummation of the transactions contemplated by this
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Agreement will not accelerate the time of vesting or the time of payment, or
increase the amount, of compensation due to any present or former officer,
Manager or employee of the Company.
3.22 COMPLIANCE WITH FOREIGN CORRUPT PRACTICES ACT AND EXPORT CONTROL AND
ANTI-BOYCOTT LAWS.
(a) Sellers have not on the Company's behalf, and, to Sellers'
knowledge, the Company has not, to obtain or retain business, directly or
indirectly offered, paid or promised to pay, or authorized the payment of,
any money or other thing of value (including any fee, gift, sample, travel
expense or entertainment with a value in excess of one hundred dollars
($100.00) in the aggregate to any one Person in any year) or any commission
payment in excess of ten percent (10%) of any amount payable, to (i) any
Person who is an official, officer, agent, employee or representative of
any Governmental Authority or of any existing or prospective customer
(whether government or non-government owned), (ii) any political party or
official thereof, (iii) any candidate for political or political party
office, or (iv) any other Person, while knowing or having reason to believe
that all or any portion of such money or thing of value would be offered,
given, or promised, directly or indirectly, to any such official, officer,
agent, employee, representative, political party, political party official,
candidate, individual, or any entity affiliated with such customer,
political party or official or political office.
(b) Except as disclosed in SCHEDULE 3.22(B), to Sellers' knowledge,
the Company has made all payments to Persons by check mailed or delivered
to such Person's principal place of business or by wire transfer to a bank
located in the same jurisdiction as such Person's principal place of
business.
(c) To Sellers' knowledge, each transaction entered into by the
Company has been properly and accurately recorded on the books and records
of the Company, and each document upon which entries in the Company's books
and records are based is complete and accurate in all respects. To Sellers'
knowledge, the Company maintains a system of internal accounting controls
adequate to insure that the Company maintains no off-the-books accounts and
that Company assets are used only in accordance with the Company's
management directives.
(d) The Company has at all times been and acted in compliance with all
Laws relating to export control and trade embargoes. No product or service
sold or provided by the Company since January 1, 1996 has been, directly or
indirectly, sold to or performed on behalf of any country identified by the
Office of Foreign Assets Control of the United States Department of the
Treasury during such period as being subject to trade sanctions or
embargoes, including, without limitation, Cuba, Iraq, Iran, Libya or North
Korea.
(e) The Company has not violated the anti-boycott prohibitions
contained in 50 U.S.C. sect. 2401 et seq. or taken any action that can be
penalized under Section 999 of the Code. Since January 1, 1996, Seller has
not been a Party to, is not a beneficiary under and has not performed any
service or sold any product to customers in Bahrain, Iraq, Jordan, Kuwait,
Lebanon, Libya, Oman, Quatar, Saudi Arabia, Sudan, Syria, United Arab
Emirates or the Republic of Yemen.
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(f) Zengen has complied in all respects with its obligations under
Section 10 of the International Distribution Agreement.
3.23 NO MATERIAL ADVERSE CHANGE. Since September 30, 2001, to the knowledge
of Sellers, there has not been any material adverse change in the Business,
operations, prospects, assets, results of operations or condition (financial or
other) of the Company, and no event has occurred or circumstance exists that may
result in a Material Adverse Effect.
3.24 ABILITY TO COMPLETE. To the best of the knowledge of Sellers, there is
no fact or circumstance which does or may adversely affect Sellers' ability to
complete the transactions contemplated by this Agreement.
3.25 BROKERS. No agent, broker or other Person acting on behalf of either
Seller or any Affiliate thereof, is or will be entitled to any commission,
finder's fee, broker's fee or similar compensation in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Sellers or the Company.
3.26 DISCLOSURE. To Sellers' knowledge, and taking into account the
qualifications of certain of Sellers' representations and warranties in this
Agreement as being based on Sellers' knowledge, no representation or warranty of
Sellers in this Agreement omits to state a material fact necessary to make the
statements herein, in light of the circumstances in which they were made, not
misleading. There is no fact (other than matters of a general economic or
political nature which do not affect the Company or the Business uniquely) known
to Sellers that could have a material adverse effect on the assets, Business,
prospects, condition (financial or other) or results of operations of the
Company that has not been expressly disclosed in this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
In order to induce Sellers to enter into and consummate the transactions
contemplated by this Agreement, Buyer hereby represents and warrants to Sellers,
as representations and warranties that are true, accurate and complete as of the
date hereof, the following:
4.1 INCORPORATION AND AUTHORITY OF BUYER. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Utah and has all necessary corporate power and authority to enter into this
Agreement, to satisfy and perform its covenants and obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery by
Buyer of this Agreement, the satisfaction and performance by Buyer of its
covenants and obligations hereunder, and the consummation by Buyer of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer, and (assuming due authorization, execution and delivery by
Sellers) constitutes the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except to the extent
that (i) the availability of equitable remedies is subject to the discretion of
applicable judicial authority, and (ii) enforceability may be limited by
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws relating to the rights of creditors generally.
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4.2 NO CONFLICT. The execution, delivery and performance of this Agreement
by Buyer do not and will not (i) violate or conflict with the Articles of
Incorporation and Bylaws of Buyer or any resolutions adopted by the board of
directors of Buyer, or (ii) conflict with or violate any Law or Governmental
Order applicable to Buyer.
4.3 CONSENTS AND APPROVALS. Except for applicable disclosure requirements
under the Exchange Act, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by Buyer
do not and will not require any consent, approval or authorization of any Person
or the filing with or notification to any Governmental Authority.
4.4 BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Buyer.
4.5 INVESTMENT PURPOSE IN ACQUIRING ZENSANO INTEREST. Buyer is acquiring
the Zensano Interest for its own account for investment purposes only and not
with a view to resale or distribution in violation of the Securities Act. Buyer
has the requisite investment intent to satisfy Section 4(2) of the Securities
Act. Buyer is an "accredited investor" as such term is used in Rule 501 under
the Securities Act.
4.6 ABILITY TO COMPLETE. To the best of the knowledge of Buyer, there is no
fact or circumstance which does or may adversely affect Buyer's ability to
complete the transactions contemplated by this Agreement, and neither this
Agreement nor any other document or certificate delivered by Buyer to Sellers in
connection with such transactions contains any untrue, misleading or incomplete
statement of fact.
4.7 NO KNOWLEDGE OF BREACH BY SELLERS OF REPRESENTATION OR WARRANTY. To the
knowledge of Buyer, no representation or warranty of Sellers in this Agreement
with respect to the Company or the Business is untrue, inaccurate or incomplete.
4.8 NO AGREEMENT FOR SALE. As of the date hereof, Buyer does not have any
agreement, letter of intent or memorandum of understanding with any Person
evidencing an agreement for the sale, conveyance, transfer or other disposition
of any interest in the Company, its assets or its Intellectual Property Rights,
including any license agreement, co-marketing agreement or similar arrangement.
Buyer is a party to an engagement letter agreement with Credit Suisse First
Boston dated by Buyer September 6, 2001 for the provision by Credit Suisse First
Boston to Buyer of, among other things, strategic transaction consulting
services, and Buyer, Zengen and the Company are parties to an engagement letter
agreement with UBS Warburg, LLC dated by Buyer September 4, 2001 for the
provision of agency services in the sale of the Company (of which latter
agreement Sellers are aware). However, the Parties agree that neither such
letter agreement represents an agreement for any actual sale of any interest in
the Company or any other transaction referred to in the first sentence of this
SECTION 4.8.
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ARTICLE 5
COVENANTS
5.1 PUBLIC ANNOUNCEMENTS. The Parties acknowledge that Buyer, as a public
company, is subject to various public disclosure obligations and restrictions,
including, without limitation, obligations and restrictions under the Exchange
Act and the rules and regulations of Nasdaq. Accordingly, no Party (other than
Buyer) will make, release, distribute or disseminate in any manner, any public
statement (including, without limitation, any statement to the news media or any
news wire service) with respect to this Agreement or the transactions
contemplated hereunder without the other Party's prior review and approval of
the content of such statement, which approval will not be unreasonably withheld.
5.2 TREATMENT OF CONFIDENTIAL INFORMATION. Following the Closing, Sellers
will, and will cause their respective agents, representatives, employees,
officers and directors to treat and hold as confidential (and not disclose or
provide access to any Person), in a manner consistent with its practices before
the date hereof, all information related to the Company and the Business. If
either Seller or any agent, representative, employee, officer or director
thereof becomes compelled by Law to disclose any such information, Sellers will
provide Buyer with prompt written notice of such requirement so that Buyer may
seek a protective order or other remedy or waive compliance with this SECTION
5.2. If such a protective order or other remedy is not obtained by or is not
available to Buyer, or Buyer waives compliance with this SECTION 5.2, Sellers
will ensure that only the minimum portion of such confidential information that
is legally required to be disclosed is so disclosed and will use all reasonable
efforts to obtain assurances that confidential treatment will be given to such
information. Nothing in this SECTION 5.2 will apply to any information that, at
the time of disclosure, is in the public domain other than as a result of a
breach of any confidentiality covenant or obligation of which the Company or
Buyer is the beneficiary.
5.3 COOPERATION AND EXCHANGE OF INFORMATION. After the Closing, for the
applicable statutorily determined periods during which any of Sellers, Buyer or
the Company may be subject to review or audit by the Internal Revenue Service or
any other taxing Authority, Sellers and Buyer will provide each other with such
cooperation and information as any of them may reasonably request of the
other(s) in preparing and filing any Tax Return, amended Tax Return or claim for
refund, determining a liability for Taxes or a right to a refund of Taxes,
participating in or conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information will include providing copies of
relevant Tax Returns or portions thereof, together with accompanying schedules,
related work papers and documents relating to rulings or other determinations by
Governmental Authorities. Sellers and Buyer will make their respective
directors, officers, employees and representatives available on a basis mutually
convenient to the Parties to provide explanations of any documents or
information provided pursuant to this SECTION 5.3. Each of Sellers and Buyer
will retain all Tax Returns, schedules and work papers, records and other
documents in its possession relating to Tax matters of the Company for each tax
year first ending after the Closing Date and for all prior tax years until the
later of (i) the expiration of the period of limitations for the assessment of
Taxes applicable to the relevant taxable years to which such Tax Returns and
other documents relate, without regard to extensions (except to the extent
notified by the other Party in writing of such extensions for the respective tax
years), or (ii) six (6) years following the due date (without extension) for
such Tax Returns. Any information obtained under this SECTION 5.3 will be kept
24
confidential in accordance with SECTION 5.2 except as may be otherwise necessary
in connection with the filing of Tax Returns or claims for refunds or in
conducting an audit or other proceeding.
5.4 CONVEYANCE TAXES. Sellers will be liable for, and will hold Buyer
harmless against, any transfer, stamp, income or capital gains Taxes or other
transfer-related fees, charges or assessments of any Governmental Authority
which become payable in connection with the transactions contemplated by this
Agreement.
5.5 FURTHER ACTION. Each Party will execute and deliver such documents and
instruments and take such further actions and do such further things as any
other Party may reasonably request to further and give effect to the
transactions contemplated by this Agreement.
5.6 TERMINATION OF INTERNATIONAL DISTRIBUTION AGREEMENT. Effective as of
the time of the Closing, and without further notice by or to any party thereto,
the International Distribution Agreement is hereby terminated and of no further
force or effect, without payment of any penalty or other amount or the incurring
of any other liability or obligation by either party thereto; PROVIDED, however,
that such termination will not cancel or limit the respective obligations and
liabilities of Buyer and Zengen as they existed before such effective date of
termination.
5.7 CHANGE OF GEL TECH ENTITY NAMES. Before the Closing Date, Sellers will
change or cause to be changed the name (including any informal or "doing
business as" name) of each entity owned or controlled by either of them or any
Affiliate thereof (including, without limitation, Gel-Tech Industries, Inc.) to
a name that does not include the words "Gel Tech", "Gel-Tech", "GelTech" or any
similar formulation or spelling of such name. After the Closing Date, Sellers
will cease, and will cause their respective directors, officers, employees and
agents to cease, conducting any business or other activities under any variation
of the "Gel Tech" name.
ARTICLE 6
INDEMNIFICATION
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Subject to the limitations
and other provisions of this Agreement, the representations and warranties
contained in this Agreement will survive the Closing for the duration of the
applicable claim periods described in SECTION 6.6. Buyer's right to rely on
Sellers' representations and warranties contained herein and to seek
indemnification from Sellers under this ARTICLE 6 for any breach thereof will
not in any way be affected by Buyer's ownership interest in the Company before
the Closing.
6.2 INDEMNIFICATION BY SELLERS. Sellers hereby jointly and severally agree,
subject to the other terms and conditions of this ARTICLE 6, to defend,
indemnify and hold harmless Buyer and its Affiliates, and its and their
officers, directors, managers, employees, agents, successors and assigns (each a
"BUYER INDEMNIFIED PARTY") from and against all liabilities, losses, damages,
claims, penalties, fines, costs, interest and expenses (including reasonable
attorney's fees and expenses) (collectively, "BUYER LOSSES") actually incurred
by any Buyer Indemnified Party arising out of, based on or in connection with
(i) the breach of any representation or warranty of Sellers in this Agreement or
in any agreement, document, instrument or certificate executed and delivered by
Sellers (or either of them) pursuant hereto; PROVIDED, however, that Sellers'
25
aggregate indemnification liability under this SECTION 6.2 for any and all Buyer
Losses arising out of, based on or in connection with any such breach of
representation or warranty will not exceed Three Million Dollars ($3,000,000),
or (ii) the breach of any covenant or agreement of Sellers in this Agreement or
any other agreement, document, instrument or certificate executed and delivered
by Sellers (or either of them) pursuant hereto.
6.3 SUPPLEMENTAL INDEMNIFICATION BY SELLERS. Sellers hereby jointly and
severally agree, subject to the other terms and conditions of this ARTICLE 6, to
indemnify and reimburse the Buyer Indemnified Parties for forty percent (40%)
(but not more than forty percent (40%)) of the aggregate amount of:
(a) all Buyer Losses that are actually incurred by the Company or any
Buyer Indemnified Party in respect of or in connection with any matter (i)
for which Sellers have given a representation and warranty in this
Agreement that is qualified by knowledge, (ii) where Sellers had no actual
knowledge of the matter giving rise to such Buyer Losses, and (iii) where
there was no breach by Buyer of its representation and warranty in SECTION
4.7; and
(b) all other Buyer Losses that are incurred by the Company or any
Buyer Indemnified Party relating to or in connection with (i) any action,
event or circumstance arising, occurring or accruing before the Closing
Date of which neither Sellers nor Buyer had actual knowledge as of the date
of this Agreement, or (ii) any action, event or circumstance arising,
occurring or accruing before the Closing Date of which Sellers or Buyer did
have actual knowledge as of the date of this Agreement but in respect of
which neither Sellers nor Buyer had actual knowledge as of the date of this
Agreement of the liabilities, losses, damages, claims, penalties, fines,
costs, interest and expenses that ultimately arise therefrom;
PROVIDED, however, that Sellers will have no obligation to indemnify and
reimburse the Buyer Indemnified Parties (or any of them) for any Buyer Losses
arising from or related to product liability claims in respect of the Company's
Zicam(TM) products that arise or are threatened after November 26, 2001 if
neither Seller had actual knowledge of such claims on or before such date.
6.4 INDEMNIFICATION BY BUYER. Buyer hereby agrees, subject to the other
terms and conditions of this ARTICLE 6, to indemnify and hold harmless Sellers
and their Affiliates, and their officers, directors, managers, employees,
agents, successors and assigns (each a "SELLER INDEMNIFIED PARTY") from and
against all liabilities, losses, damages, claims, penalties, fines, costs,
interest and expenses (including reasonable attorney's fees and expenses)
(collectively, "SELLER LOSSES") actually incurred by any Seller Indemnified
Party arising out of, based on or in connection with (i) the breach of any
representation or warranty of Buyer in this Agreement or in any agreement,
document, instrument or certificate executed and delivered by Buyer pursuant
hereto, or (ii) the breach of any covenant or agreement of Buyer in this
Agreement or any other agreement, document, instrument or certificate executed
and delivered by Buyer pursuant hereto.
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6.5 NOTICE OF, DEFENSE AND SETTLEMENT OF ACTIONS.
(a) Promptly after receipt by a Buyer Indemnified Party or a Seller
Indemnified Party, as the case may be (hereinafter collectively referred to
as an "INDEMNIFIED PARTY"), of notice by a third party of any complaint or
the commencement of any Action with respect to which such Indemnified Party
may be entitled to receive payment under this ARTICLE 6 from the other
Party(ies) (each such Party being an "INDEMNIFYING PARTY") for any Buyer
Losses or Seller Losses (as the case may be), such Indemnified Party will
notify the Indemnifying Party within fifteen (15) days after the
Indemnified Party's receipt of such complaint or notice of the commencement
of such Action; PROVIDED, however, that the failure to so notify the
Indemnifying Party will not relieve the Indemnifying Party from any
liability under this ARTICLE 6, unless and except to the extent that, the
Indemnifying Party can demonstrate that such failure to so notify the
Indemnifying Party has resulted in prejudice to the Indemnifying Party's
rights and/or defenses otherwise available to the Indemnifying Party with
respect to such claim. The Indemnifying Party will have the right, upon
written notice delivered to the Indemnified Party within twenty (20) days
after the Indemnifying Party's receipt of the Indemnified Party's notice,
to assume the defense of such complaint or Action, including the employment
of counsel reasonably satisfactory to the Indemnified Party and the payment
of the fees and disbursements of such counsel. If, however, the
Indemnifying Party declines or fails to assume the defense of the Action or
to employ counsel reasonably satisfactory to the Indemnified Party, in
either case within such twenty (20) day period, then such Indemnified Party
may employ counsel to represent or defend it in any such Action and the
Indemnifying Party will pay the reasonable fees and disbursements of such
counsel as incurred; PROVIDED, however, that the Indemnifying Party will
not be required to pay the fees and disbursements of more than one counsel
for all Indemnified Parties in any jurisdiction in any single Action. In
any Action with respect to which indemnification is being sought hereunder,
the Indemnified Party or the Indemnifying Party, whichever is not assuming
the defense of such Action, will have the right to participate in such
Action and to retain its own counsel at such Party's own expense. The
Indemnifying Party or the Indemnified Party (whichever assumes the defense
of such Action) will at all times use reasonable efforts to keep the
Indemnifying Party or the Indemnified Party, as the case may be, reasonably
apprised of the status of the defense of such Action, and the Indemnified
Party and the Indemnifying Party will cooperate with each other in good
faith with respect to the defense of any such Action.
(b) No Indemnified Party may settle or compromise any claim or consent
to the entry of any judgment with respect to which indemnification is being
sought hereunder without the prior written consent of the Indemnifying
Party(ies), unless (i) the Indemnifying Party(ies) fail to assume and
maintain the defense of such claim pursuant to SECTION 6.5(B), or (ii) such
settlement, compromise or consent expressly includes an unconditional
release by all claimants and the Indemnified Party of the Indemnifying
Party(ies) from all liability arising out of such claim. An Indemnifying
Party may not, without the prior written consent of the Indemnified
Party(ies), settle or compromise any claim or consent to the entry of any
judgment with respect to which indemnification is being sought hereunder
unless such settlement, compromise or consent expressly includes an
unconditional release by all claimants and the Indemnifying Party of the
27
Indemnified Party(ies) from all liability arising out of such claim and
does not contain any equitable order, judgment or term which in any manner
affects, restrains or interferes with the business, affairs or assets of
the Indemnified Party or any Affiliate of the Indemnified Party(ies).
(c) If an Indemnified Party claims a right to payment from an
Indemnifying Party pursuant to this ARTICLE 6, such Indemnified Party will
send written notice of such claim to that Indemnifying Party. Such notice
will specify in reasonable detail the basis for such claim and make
appropriate references to the applicable provisions of this Agreement. As
promptly as possible after the Indemnified Party has given such notice, the
Indemnified Party and the Indemnifying Party to which such notice was
delivered will establish the merits and amount of such claim (by mutual
agreement, litigation, arbitration or otherwise) and, within five (5)
Business Days after the final determination of the merits and amount of
such claim, the Indemnifying Party(ies) will pay to the Indemnified Party,
in immediately available funds, an amount equal to such claim as determined
hereunder.
6.6 CLAIMS THRESHOLD. An Indemnified Party may not assert any claim for
Indemnification against the Indemnifying Party(ies) under this ARTICLE 6 until
the value of the Indemnified Party's claim, alone or coupled with the past or
present claims of such Indemnified Party or other Indemnified Parties, exceeds
Twenty-Five Thousand Dollars ($25,000) in the aggregate; PROVIDED, however, that
once such threshold amount is exceeded, such threshold amount will be included
in the Indemnified Party's(ies') claims, and will not represent a deductible
from such claims.
6.7 LIMIT ON LIABILITY OF INDEMNIFYING PARTY(IES). The Indemnifying
Party's(ies') aggregate liability for indemnification claims under this ARTICLE
6 will be limited to the aggregate amount outstanding and unpaid by Buyer under
the Promissory Note as of the date on which any such claim is first made by an
Indemnified Party against the Indemnifying Party(ies); PROVIDED, however, no
such limit on the Indemnifying Party's(ies') liability will apply to any claim
based on fraud or willful misconduct.
6.8 CLAIM PERIOD; SURVIVAL. No claim for indemnification under this ARTICLE
6 may be asserted by any Indemnified Party after November 30, 2003, being the
date on which Buyer's final payment obligations under the Promissory Note are
due and payable. Notwithstanding the foregoing sentence, all claims for
indemnification made under this ARTICLE 6 which satisfy the threshold
requirements provided in SECTION 6.6 and for which proper notification of the
Indemnifying Party(ies) has been made by an Indemnified Party before the close
of business on November 30, 2003 will survive the expiration of such claim
period and will remain a basis for indemnification hereunder until such claim is
finally resolved or disposed of in accordance with the terms of this Agreement.
6.9 LIMITATION ON INDEMNITY AWARD. In no event will an Indemnifying Party
be liable hereunder to indemnify an Indemnified Party for any indirect,
incidental, special, consequential or punitive damages claimed against an
Indemnifying Party, including, without limitation, damages in respect of loss of
profits or business opportunity, suffered or incurred by the Indemnified Party,
whether such claim is made in contract or tort; PROVIDED, however, that (i) the
28
limitation set forth in this SECTION 6.9 will not apply to any claim based on
fraud or willful misconduct, and (ii) any indirect, incidental, special,
consequential or punitive damages paid or required to be paid by an Indemnified
Party to a third party may be included in any Indemnification claim by that
Indemnified Party as a claim for direct damages and such claim will be payable
by the Indemnifying Party(ies), subject to the other provisions of this ARTICLE
6.
6.10 BUYER SET-OFF AGAINST FUTURE PAYMENT OBLIGATIONS.
(a) Notwithstanding any other provision of this Agreement, Buyer may
withhold and set-off any amount payable by it to Sellers under any of
SECTIONS 2.2(B), 2.2(C), 2.3 through 2.5, inclusive or SECTION 2.7 against
any amounts payable by Sellers (or either of them) to any Buyer Indemnified
Party pursuant to a valid indemnity claim made under this ARTICLE 6 or any
other claim for damages validly made by Buyer against Sellers (or either of
them), which set-off amount (a "SET-OFF AMOUNT") will be determined in
accordance with this SECTION 6.10. Buyer may not withhold and set-off from
amounts payable by it under this Agreement and the Promissory Note any
amount greater than the Set-Off Amount, and Buyer will pay all amounts
payable by it under this Agreement and the Promissory Note, in accordance
with the terms hereof and thereof, that exceed any Set-Off Amount.
(b) In order to exercise its rights under this SECTION 6.10, Buyer
must deliver written notice of such exercise (a "SET-OFF NOTICE") to
Sellers setting out in reasonable detail the grounds on which Buyer is
claiming such set-off, including (i) the factual basis of Buyer's claim
against Sellers, (ii) the provisions of this Agreement, if any, to which
such claim applies or in respect of which such claim is made, and (iii)
Buyer's reasonable estimate of the dollar value of such claim, if such an
estimate is determinable. The Set-Off Notice may be combined with any
notice given by Buyer under SECTION 6.5(C). Buyer and Sellers will meet or
correspond as soon as reasonably practicable after delivery by Buyer of a
Set-Off Notice and will use reasonable efforts to negotiate a settlement or
other resolution of Buyer's claim. If Buyer and Sellers are unable to
resolve Buyer's claim, the Parties will use reasonable efforts to negotiate
an agreed-upon Set-Off Amount. If Buyer and Sellers are unable to determine
the Set-Off Amount within thirty (30) days after delivery to Sellers of the
applicable Set-Off Notice and Buyer's claim for set-off exceeds Seven
Hundred and Fifty Thousand Dollars ($750,000), any Party may seek to have
such matter resolved by arbitration or other legal proceeding, in the
manner provided by SECTION 6.10(C). Buyer and Sellers acknowledge and agree
that while the validity of Buyer's claim against Sellers (or either of
them), including any corresponding set-off claim, may be determined
judicially in accordance with SECTION 7.9, Buyer need not wait for such
judicial determination before invoking its set-off rights under this
SECTION 6.10.
(c) Any dispute relating to the determination of any Set-Off Amount as
described in SECTION 6.10(B) shall be settled and determined as follows:
(i) If the Set-Off Amount claimed by Buyer is less than Seven
Hundred and Fifty Thousand Dollars ($750,000), the dispute as to the
Set-Off Amount will be determined through the state or federal Courts
of Maricopa County in the State of Arizona.
29
(ii) If the Set-Off Amount claimed by Buyer is equal to or
greater than Seven Hundred and Fifty Thousand Dollars ($750,000), the
dispute as to the Set-Off Amount will be determined by arbitration in
Phoenix Arizona before a single arbitrator appointed jointly by Buyer
and Zengen (acting reasonably) pursuant to the commercial arbitration
rules of the American Arbitration Association in effect at the time.
The Parties agree that any Person who has a financial interest in the
dispute or who is an officer, agent, attorney or employee of any such
Person or is "related to or affiliated with" any such Person may be
appointed as an arbitrator in the dispute. Any such arbitration will
be limited to the determination of such Set-Off Amount and will not
adjudicate the validity of the actual claim(s) of Buyer on which such
Set-Off Amount is based or any other matter.
(iii) The determination by an arbitrator or Maricopa County
federal or state court of the Set-Off Amount will be final and binding
on the Parties. Each Party agrees to pay its own costs and expenses of
arbitration or other court proceedings, including the fees and
expenses of its own legal counsel, experts and evidence. However, the
Parties will share equally the administrative and hearing costs and
arbitrator's fees of any arbitration proceeding.
ARTICLE 7
MISCELLANEOUS
7.1 ENTIRE AGREEMENT. This Agreement constitutes the entire, final and
complete agreement among the Parties with respect to the subject matter hereof
and supersedes all prior agreements, representations, negotiations,
communications and understandings, whether written or oral, between or among any
of the Parties with respect to the subject matter hereof, including, without
limitation, the Memorandum of Understanding dated October 26, 2001 among the
Parties. No Party will be bound by or liable for any statement, representation,
promise, inducement, or understanding of any kind whatsoever not expressly set
forth in this Agreement or in an agreement entered into pursuant hereto.
7.2 NO WAIVER, DISCHARGE. The failure of any Party to enforce at any time
any provision of this Agreement, including the election of such Party to proceed
with the Closing despite a failure of any condition to such Party's closing
obligations to occur, will in no way be construed to be a waiver of any such
provision, nor in any way to affect the validity of this Agreement or any part
hereof or the right of such Party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement will be held to be a waiver
of any other or subsequent breach.
7.3 JOINT PREPARATION; INTERPRETATION. This Agreement will be considered
for all purposes as having been prepared through the joint efforts of the
Parties. No presumption will apply in favor of any Party in the interpretation
of this Agreement or in the resolution of any ambiguity of any provision hereof
based on the preparation, substitution, submission or other event of
negotiation, drafting or execution hereof. The Parties acknowledge that the
Schedules to this Agreement were prepared jointly by Buyer and Sellers.
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7.4 MODIFICATION AND AMENDMENT. This Agreement may not be modified or
amended except by an instrument in writing executed by authorized representative
of each Party.
7.5 NOTICES. Except as otherwise provided in this Agreement, any notice,
communication or other document required or permitted to be given or delivered
hereunder must be in writing and delivered by hand (including delivery by
commercial courier service), by registered or certified U.S. mail (postage
prepaid, return receipt requested) or electronic facsimile transmission to the
applicable address(es) specified below:
if to Zengen or Zensano, to:
Zengen, Inc.
00000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx
Fax: (000) 000-0000
with a copy to:
Xxxxxx, Xxxxx & Bockius LLP
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx
00000-00000
Attention: Xxxxxxx Xxxxx
Fax: (000) 000-0000
if to Buyer, to:
Gum Tech International, Inc.
0000 Xxxx Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: President
Fax: (000) 000-0000
with a copy to:
Xxxxx & Xxxxxx L.L.P.
One Arizona Center
000 X. Xxx Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Fax: (000) 000-0000
Any notice which requires action or response by the receiving Party within
a contractually or statutorily defined time must reference the contract or
statutory provision relied upon and must identify the date on or before which
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such action or response is required. Any notice which requires action or
response in less than thirty (30) days must be served both by same-day or
overnight courier and electronic facsimile transmission: Any Party may change
its mailing address by notice to all other Parties given in the manner herein
prescribed. Any notice, communication or document delivered pursuant to the
provisions hereof will be deemed to have been delivered, if mailed, upon the
earlier of (i) actual receipt by the addressee, (ii) the date shown on the
return receipt of such mailing, or (iii) three (3) Business Days after deposit
in the mail. Any notice, communication or document delivered by hand (including
commercial courier service) will be deemed to have been delivered upon the
earlier of (i) actual receipt by the addressee, and (ii) the first Business Day
after deposit of such notice, communication or document with such courier
service. Any notice, communication or document delivered by electronic facsimile
will be deemed to have been delivered when sent (provided that a transmission
record is maintained by the sending Party), so long as it was received during
the receiving Party's normal working hours (8:00 a.m. to 5:00 p.m. local time)
on a Business Day, and otherwise such delivery will be deemed to be made as of
the next succeeding Business Day.
7.6 EXPENSES. Each Party will be responsible for and will pay its own
legal, accounting and other professional fees, and other costs and expenses
incurred by such Party in connection with the negotiation and preparation of
this Agreement and the consummation of the transactions contemplated hereby.
7.7 DATES AND TIMES. Dates and times set forth in this Agreement for the
performance of the Parties' respective obligations will be strictly construed,
time being of the essence of this Agreement. All provisions in this Agreement
which specify or provide a method to compute a number of days for the
performance, delivery, completion or observance by a Party of any action,
covenant, agreement, obligation or notice hereunder will mean and refer to
calendar days, unless otherwise expressly provided. If the date specified or
computed under this Agreement for the performance, delivery, completion or
observance of a covenant, agreement, obligation or notice by any Party, or for
the occurrence of any event provided for herein, is a day other than a Business
Day, then the date for such performance, delivery, completion, observance or
occurrence will automatically be extended to the next Business Day following
such date.
7.8 GOVERNING LAW. This Agreement will be governed by and interpreted in
accordance with the laws of the State of Arizona, including all matters of
construction, validity, performance and enforcement, without giving effect to
principles of conflict of laws.
7.9 FORUM FOR DISPUTES. All disputes arising out of, with respect to or in
connection with this Agreement or any of the agreements, instruments and other
documents entered into or delivered in connection herewith or any of the
transactions contemplated hereby will be instituted and maintained only in the
state or federal courts of Maricopa County in the State of Arizona.
7.10 SPECIFIC PERFORMANCE. The Parties acknowledge that the rights of each
Party to consummate the transactions contemplated by this Agreement are special,
unique and of extraordinary character, and that if any Party violates or fails
or refuses to perform any covenant or agreement made by it herein, a
non-breaching Party may be without an adequate remedy at law. Accordingly, each
Party agrees that if any Party violates or fails or refuses to perform any
32
covenant or agreement made by such Party herein, any non-breaching Party may, in
addition to any remedies it may have at law or in equity for damages or other
relief, institute and prosecute an action to enforce specific performance of
such covenant or agreement or seek any other equitable relief.
7.11 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure
to the benefit of the Parties and their successors and permitted assigns;
PROVIDED, however, that no Party may assign its rights or delegate its
obligations under this Agreement, in whole or in part, without the prior written
consent of each other Party, which consent will not be unreasonably withheld.
Notwithstanding any of the foregoing, Buyer may assign its rights and delegate
its obligations hereunder to a wholly-owned subsidiary without Sellers' consent,
provided that such assignment and delegation will not relieve Buyer of its
obligations hereunder.
7.12 THIRD PARTY BENEFIT. Nothing in this Agreement, express or implied,
will confer on any Person other than the Parties or their respective successors
and permitted assigns, any right, remedy, obligation or liability under or by
reason of this Agreement.
7.13 SEVERABILITY. If any provision of this Agreement, or the application
of any such provision to any Person or circumstance, is held to be unenforceable
or invalid under any applicable Law or pursuant to any Governmental Order, the
Parties will negotiate an equitable adjustment to the provisions of this
Agreement with the view to effecting, to the greatest extent possible, the
original purpose and intent of this Agreement, and in any event, the validity
and enforceability of the remaining provisions of this Agreement will not be
affected thereby.
7.14 COUNTERPARTS. This Agreement may be executed, in original form or by
electronic facsimile signature, and delivered in any number of counterparts,
each of which will be deemed as original and all of which together will
constitute one and the same instrument.
(REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed as of the date first above written.
ZENGEN, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
ZENSANO, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
GUM TECH INTERNATIONAL, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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