Exhibit 2.1
Execution Version
STOCK PURCHASE AGREEMENT
BY AND AMONG
INVERNESS MEDICAL INNOVATIONS, INC.,
XXXXX X. XXXXXX,
XXXXXX X. XXXXXX,
XXXX XXXXXX,
XXXXXX XXXXXXX
AND
INSTANT TECHNOLOGIES, INC.
March 12, 2007
Table of Contents
ARTICLE 1. DEFINITIONS.................................................... 1
1.1 Certain Definitions............................................ 1
1.2 Cross References............................................... 3
ARTICLE 2. PURCHASE AND SALE OF THE SHARES................................ 5
2.1 Agreement to Sell and to Purchase.............................. 5
2.2 Sale and Purchase of the Acquired Shares....................... 6
2.3 Consideration for the Acquired Shares.......................... 6
2.4 Closing........................................................ 6
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF EACH SELLER.................. 6
3.1 Ownership of Company Common Stock.............................. 6
3.2 Authority; Non-Contravention................................... 6
3.3 Certain Agreements............................................. 7
3.4 Brokers' and Finders' Fees..................................... 7
3.5 Private Placement.............................................. 7
3.6 Limitations on Transfer........................................ 8
3.7 Restrictive Legends............................................ 8
3.8 Accredited Investor............................................ 8
3.9 Investment Intent.............................................. 8
3.10 Investment Experience and Status............................... 9
3.11 Documents Delivered; Information............................... 9
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY
REGARDING THE COMPANY.................................................. 9
4.1 Organization; No Subsidiaries.................................. 9
4.2 Capitalization................................................. 10
4.3 Authority for Agreement........................................ 10
4.4 Noncontravention............................................... 11
4.5 Financial Statements........................................... 12
4.6 Absence of Certain Changes..................................... 12
4.7 Tax Matters.................................................... 14
4.8 Assets and Properties.......................................... 16
4.9 Intellectual Property.......................................... 17
4.10 Compliance with Laws; Permits.................................. 19
4.11 Regulatory Matters............................................. 20
4.12 Litigation..................................................... 21
4.13 Employee Benefit Plans......................................... 21
4.14 Other Employment Matters....................................... 24
4.15 Environmental Matters.......................................... 25
4.16 Certain Agreements............................................. 26
4.17 Brokers' and Finders' Fees..................................... 28
4.18 Insurance...................................................... 28
4.19 Customers and Suppliers........................................ 28
4.20 Accounts Receivable............................................ 29
(i)
4.21 Accounting System.............................................. 29
4.22 Inventory...................................................... 29
4.23 Banking Relationships.......................................... 30
4.24 Warranty Matters; Product Liability............................ 30
4.25 Disclosure..................................................... 31
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE BUYER.................... 31
5.1 Organization................................................... 31
5.2 Authority for Agreement........................................ 31
5.3 Noncontravention............................................... 32
5.4 Capitalization................................................. 32
5.5 Buyer SEC Filings and Financial Statements..................... 33
5.6 Absence of Certain Changes..................................... 34
5.7 Litigation..................................................... 34
5.8 No Broker's or Finder's Fees................................... 34
ARTICLE 6. ADDITIONAL AGREEMENTS.......................................... 34
6.1 Registration for Resale........................................ 34
6.2 Stockholders Agreement......................................... 36
6.3 Non-competition................................................ 36
6.4 Certain Tax Matters............................................ 37
6.5 Working Capital................................................ 39
6.6 Pro Forma Financial Information................................ 40
ARTICLE 7. CONDITIONS PRECEDENT........................................... 41
7.1 Conditions Precedent to the Obligations of Each Party.......... 41
7.2 Conditions Precedent to Obligation of the Buyer................ 41
7.3 Conditions to Obligations of the Sellers....................... 43
ARTICLE 8. INDEMNIFICATION................................................ 44
8.1 Sellers' Agreement to Indemnify................................ 44
8.2 Buyer's Agreement to Indemnify................................. 44
8.3 Claims for Indemnification..................................... 45
8.4 Third Party Claims Procedures.................................. 45
8.5 Limitations on Indemnification................................. 46
8.6 Set-Off........................................................ 47
8.7 Exclusive Remedy............................................... 47
8.8 Release of Claims.............................................. 48
ARTICLE 9. DISPUTE RESOLUTION............................................. 48
9.1 Legal Proceedings............................................. 48
ARTICLE 10. MISCELLANEOUS................................................. 49
10.1 Entire Agreement............................................... 49
10.2 Amendments and Supplements..................................... 49
10.3 Waiver......................................................... 49
10.4 Covenants of Sellers........................................... 49
(ii)
10.5 Further Assurances............................................. 49
10.6 Governing Law.................................................. 49
10.7 Interpretation; Certain Defined Terms.......................... 50
10.8 Expenses....................................................... 50
10.9 Notice......................................................... 50
10.10 Binding Effect................................................. 51
10.11 Assignment..................................................... 51
10.12 Public Announcements........................................... 51
10.13 Rules of Construction.......................................... 52
10.14 Validity....................................................... 52
10.15 Counterparts; Facsimile........................................ 52
(iii)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of March 12, 2007, by and among Inverness Medical Innovations, Inc., a Delaware
corporation (the "Buyer"), Xxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx, Xxxx Xxxxxx and
Xxxxxx Xxxxxxx (collectively, the "Sellers"), and Instant Technologies, Inc., a
Virginia corporation (the "Company"). The Buyer, the Sellers and the Company are
sometimes collectively referred to herein as the "Parties" and each as a
"Party."
WITNESSETH
WHEREAS, the Sellers in the aggregate own 1,250 shares of common stock,
without par value, of the Company (the "Company Common Stock"), constituting all
of the issued and outstanding capital stock of the Company; and
WHEREAS, on the terms and subject to the conditions of this Agreement, the
Sellers wish to sell to the Buyer, and the Buyer wishes to purchase from the
Sellers, an aggregate of 937.5 shares of Company Common Stock, constituting 75%
of the issued and outstanding capital stock of the Company;
NOW THEREFORE, in consideration of the mutual agreements and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
1.1 CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:
1.1.1 "Affiliate" shall mean, with respect to any Person, any Person
which, directly or indirectly, controls, is controlled by, or is under common
control with, such Person.
1.1.2 "Code" shall mean the United States Internal Revenue Code of
1986, as amended from time to time, and any successor law.
1.1.3 "Control", including with correlative meaning, controlled by and
under common control with, shall mean, with respect to any Person, the
ownership, directly or indirectly, of 50% or more of the voting securities of
such Person.
1.1.4 "Encumbrances" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, restrictive covenant, claim,
infringement, interference, option, right of first refusal, preemptive right,
community property interest or any significant restriction (including
restriction on the voting of any security, restriction on the transfer of any
security or other asset, restriction on the receipt of any income derived from
any asset, restriction on the use of any asset and restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset, in each case except as arising under applicable federal or
state securities laws) and, in the case of leasehold real property, rent and
service charges, except for liens for Taxes not yet due and payable.
1.1.5 "Environmental Claim" shall mean any notice alleging potential
liability (including potential liability for investigatory costs, cleanup costs,
response or remediation costs, natural resources damages, property damages,
personal injuries, fines or penalties) arising out of, based on or resulting
from (a) the presence, or release of any Environmental Material at any location,
whether or not owned by the Company, or (b) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Law.
1.1.6 "Environmental Laws" shall mean any and all Legal Requirements
relating to the protection of public health, safety or the environment.
1.1.7 "Environmental Material" shall mean PCBs, asbestos, petroleum
and its by-products, any substance that has been designated by any Governmental
Entity or by applicable law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, and all other substances or constituents
that are regulated by, or form the basis of liability under, any Environmental
Law.
1.1.8 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.1.9 "GAAP" shall mean the United States generally accepted
accounting principles.
1.1.10 "Governmental Entity" shall mean any court, administrative
agency or commission or other governmental or regulatory authority or
instrumentality, foreign or domestic.
1.1.11 "Legal Requirement" shall mean any federal, state, local,
municipal, provincial, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Entity.
1.1.12 "Liability" shall mean any liability or obligation of whatever
kind or nature (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due), including any liability for
Taxes.
1.1.13 "Material Adverse Effect" when used in connection with any
Party shall mean any change, event, circumstance or effect (whether or not such
change, event, circumstance or effect constitutes a breach of a representation,
warranty or covenant made by such Party in this Agreement) that is or is
reasonably likely to be materially adverse to the business, assets, financial
condition, operations, results of operations or prospects of such Party taken as
a whole with its subsidiaries, if any, except to the extent that any such
change, event, circumstance or effect directly and primarily results from (i)
changes in general economic conditions or changes generally affecting the
industry in which such entity operates (provided
2
that such changes do not affect such entity in a disproportionate manner) or
(ii) changes, effects or events resulting from the announcement or pendency of
the transactions contemplated by this Agreement or from the taking of any action
required by this Agreement. Any change in the price at which the shares of a
Party are traded, or failure of a Party to meet any particular revenue or
earnings forecast or estimate, shall not, in and of itself, constitute a
Material Adverse Effect.
1.1.14 "Person" shall mean any individual, corporation (including any
non-profit corporation), general partnership, limited partnership, limited
liability partnership, joint venture, estate, trust, company (including any
limited liability company or joint stock company), firm or other enterprise,
association, organization, entity or Governmental Entity.
1.1.15 "SEC" shall mean the United States Securities and Exchange
Commission.
1.1.16 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.1.17 "Xxxxxx" shall mean Xxxxx X. Xxxxxx, a Party to this Agreement.
1.1.18 "Tax" or "Taxes" shall mean any federal, state, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not
and including any obligations to indemnify or otherwise assume or succeed to the
Tax liability of any other Person.
1.1.19 "Tax Return" shall mean any return (including any land
transaction return), declaration, report, claim for refund, notice, accounting
computations, assessment, election or information return or statement relating
to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
1.1.20 "Working Capital" shall mean the amount of the Company's (i)
current assets, including cash, cash equivalents, trade accounts receivable, and
inventory (net of reserves); minus (ii) the Company's current liabilities,
including trade accounts payable, in each case as determined in accordance with
GAAP consistently applied; plus (iii) $1,773,802.99 in respect of product
rebates from Innovacon (earned by the Company in 2006). If the dollar value of
any such products purchased from Innovacon using product rebates is included in
the inventory value used to calculate Working Capital, the product rebate amount
will be reduced by an equal dollar value.
1.2 CROSS REFERENCES. The following terms defined elsewhere in this
Agreement in the Sections set forth below shall have the respective meanings
therein defined:
Term Definition
---- ----------
Acquired Shares.................................................... 2.1
Agreement.......................................................... Preamble
Base Working Capital Amount........................................ 6.5.1
3
Term Definition
---- ----------
Buyer.............................................................. Preamble
Buyer Claims....................................................... 8.1.1
Buyer Common Stock................................................. 2.3
Buyer Indemnified Persons.......................................... 8.1.1
Buyer Preferred Stock.............................................. 5.4
Buyer SEC Filings.................................................. 5.5.1
Buyer Series A Preferred Stock..................................... 5.4
Buyer Stock Option Plan............................................ 5.4
Cap Amount......................................................... 8.5.4
Cash Consideration................................................. 2.3
Claim Notice....................................................... 8.3.1
Closing............................................................ 2.4
Closing Date....................................................... 2.4
Closing Working Capital Amount..................................... 6.5.1
COBRA.............................................................. 4.13.1(b)
Company............................................................ Preamble
Company Balance Sheet.............................................. 4.5.1
Company Charter Documents.......................................... 4.1.2
Company Common Stock............................................... Preamble
Company Contract................................................... 4.16.2
Company Copyrights................................................. 4.9.1
Company Employee Plan.............................................. 4.13.1(a)
Company Financial Statements....................................... 4.5.1
Company Intellectual Property Rights............................... 4.9.1
Company Marks...................................................... 4.9.1
Company Patents.................................................... 4.9.1
Company Permits.................................................... 4.10.2
Company Real Property.............................................. 4.8.1
Company Secret Information......................................... 4.9.1
Consideration Shares............................................... 2.3
Employee........................................................... 4.13.1(c)
Employee Agreement................................................. 4.13.1(d)
ERISA.............................................................. 4.13.1(e)
ERISA Affiliate.................................................... 4.13.1(f)
FDA................................................................ 4.11.1
Final Working Capital Amount....................................... 6.5.5
Foreign Authorities................................................ 4.11.1
4
Term Definition
---- ----------
Indemnified Person................................................. 8.3.1
Indemnifying Person................................................ 8.3.1
IRS................................................................ 4.13.1(g)
Knowledge.......................................................... 10.7.2
Long Term Warranties............................................... 8.5.1
Major Customer..................................................... 4.19
Major Supplier..................................................... 4.19
Multiemployer Plan................................................. 4.13.1(h)
Neutral Auditors................................................... 6.5.4
Objection Notice................................................... 6.5.3
Party and Parties.................................................. Preamble
Pay-Off Amount..................................................... 7.2.10
Pension Plan....................................................... 4.13.1(i)
Pre-Closing Tax Period............................................. 6.4.1
Pro Forma Financial Statements..................................... 6.6.1
Pro Forma Information.............................................. 6.6.1
Proposed Statement of Working Capital.............................. 6.5.1
Purchase Price..................................................... 2.3
Registrable Securities............................................. 6.1.1
Registration Statement............................................. 6.1.2
Released Claims.................................................... 8.8
Released Parties................................................... 8.8
Required Information............................................... 6.6.1
Restriction Period................................................. 6.3.1
Seller Claims...................................................... 8.2.1
Sellers............................................................ Preamble
Stockholders Agreement............................................. 6.2
Straddle Period.................................................... 6.4.2
Threshold Amount................................................... 8.5.2
Virginia Courts.................................................... 9.1
ARTICLE 2.
PURCHASE AND SALE OF THE SHARES
2.1 AGREEMENT TO SELL AND TO PURCHASE. On the terms and subject to the
conditions of this Agreement, at the Closing, each Seller will sell, transfer,
assign and deliver, and the Buyer will purchase from each Seller, free and clear
of any Encumbrances, all right, title and interest in and to the number of
shares of Company Common Stock set forth next to the name of such Seller on
Exhibit A under the title "Shares Sold," which together constitute 75% of the
5
shares of Company Common Stock issued and outstanding as of the Closing
(collectively, the "Acquired Shares").
2.2 SALE AND PURCHASE OF THE ACQUIRED SHARES. On the terms and subject to
the conditions of this Agreement, at the Closing, each Seller will deliver to
the Buyer or its designee one or more stock certificates representing the
Acquired Shares being sold by such Seller hereunder, duly endorsed in blank and
accompanied by an appropriate stock power duly executed in blank, with all stock
transfer taxes paid for, if applicable.
2.3 CONSIDERATION FOR THE ACQUIRED SHARES. As consideration for the
Acquired Shares, at the Closing, the Buyer shall issue and deliver to each
Seller (a) cash in the amount set forth opposite the name of such Seller on
Exhibit A under the title "Cash Consideration" (collectively, the "Cash
Consideration") and (b) a certificate representing the number of shares of
common stock, $0.001 par value per share, of the Buyer ("Buyer Common Stock"),
set forth opposite the name of such Seller on Exhibit A under the title
"Consideration Shares" (collectively, the "Consideration Shares"). Together, the
Cash Consideration and the Consideration Shares are sometimes referred to as the
"Purchase Price."
2.4 CLOSING. The closing of the purchase and sale of the Acquired Shares
hereunder and the consummation of the other transactions contemplated hereby
(the "Closing"), shall take place simultaneously with the execution of this
Agreement, at the offices of Xxxxx Xxxx LLP, 155 Seaport Boulevard, Boston,
Massachusetts, or at such other date and time to which the Parties may agree.
The date on which the Closing shall take place is hereinafter referred to as the
"Closing Date."
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
Each Seller, severally and not jointly, represents and warrants to the
Buyer as set forth in this Article 3.
3.1 OWNERSHIP OF COMPANY COMMON STOCK. Such Seller holds of record and owns
beneficially the number of shares of Company Common Stock set forth next to the
name of such Seller on Exhibit A under the title "Company Common Stock Owned,"
free and clear of any Encumbrances. Such Seller owns no other shares of capital
stock or other securities of the Company and has no right or obligation to
acquire any shares of capital stock or other securities of the Company.
3.2 AUTHORITY; NON-CONTRAVENTION.
3.2.1 Such Seller has all requisite power and authority to enter into
this Agreement and the other agreements, instruments and documents contemplated
to be executed or delivered by such Seller in connection herewith (including, in
the case of Xxxxxx, the Stockholders Agreement), and to consummate the
transactions contemplated hereby and thereby. This Agreement and such other
agreements, instruments and documents (including, in the case of Xxxxxx, the
Stockholders Agreement) have been duly executed and delivered by such Seller
and, assuming the due authorization, execution and delivery by the Buyer,
constitutes the valid and binding obligations of such Seller, enforceable
against such Seller in accordance with their
6
respective terms, except as enforceability may be limited by bankruptcy and
other similar laws affecting the rights of creditors generally and general
principles of equity.
3.2.2 The execution and delivery of this Agreement and the other
agreements, instruments and documents contemplated to be executed or delivered
by such Seller in connection herewith (including, in the case of Xxxxxx, the
Stockholders Agreement) do not, and the performance of this Agreement and such
other agreements, instruments and documents by such Seller (including, in the
case of Xxxxxx, the Stockholders Agreement) will not, (i) conflict with or
violate any Legal Requirement applicable to such Seller or by which such Seller
or any of such Seller's properties or assets is bound or affected, or (ii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or result in the creation
of an Encumbrance on any shares of Company Common Stock owned by such Seller
pursuant to, any contract, agreement, instrument or other obligation to which
such Seller is a party or by which such Seller any of his properties or assets
is bound or affected. No consent, waiver or approval of any Person, nor any
notice to any Person, is required to be obtained or made by such Seller in
connection with the execution, delivery or performance by such Seller of this
Agreement or such other agreements, instruments and documents contemplated to be
executed or delivered by such Seller in connection herewith (including, in the
case of Xxxxxx, the Stockholders Agreement). No consent, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Entity is required to be obtained or made by such Seller in connection with the
execution, delivery or performance by such Seller of this Agreement or such
other agreements, instruments and documents (including, in the case of Xxxxxx,
the Stockholders Agreement).
3.3 CERTAIN AGREEMENTS. Except to the extent this Agreement or any Schedule
hereto specifically names such Seller as a party thereto, such Seller is not a
party or otherwise subject to, nor any of his properties or assets is bound or
affected by, any contract, agreement, instrument or other obligation to which
the Company is a party or by which the Company or any of its properties or
assets is bound or affected. Except for the Stockholders Agreement, such Seller
is not a party to any voting trusts or other agreements or understandings with
respect to the Company or the shares of Company Common Stock owned by such
Seller. Such Seller is not a party to, and neither such Seller nor any of the
shares of the Company Common Stock owned by such Seller is bound by, any
restrictions, options or other obligations, agreements or commitments to sell,
purchase, redeem or perform or refrain from performing any other actions with
respect to, such shares of Company Common Stock.
3.4 BROKERS' AND FINDERS' FEES. Except as set forth on Schedule 3.4, such
Seller has not incurred, nor will he incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.5 PRIVATE PLACEMENT. Such Seller understands and acknowledges that the
issuance of the Consideration Shares will not be registered under the Securities
Act, and that any Consideration Shares will be issued to such Seller in a
private placement transaction effected in reliance on an exemption from the
registration requirements of the Securities Act and in reliance on exemptions
from the registration or qualification requirements of applicable state
securities or "blue sky" laws. Such Seller acknowledges that any Consideration
Shares so issued to such
7
Seller will be "restricted securities" within the meaning of Rule 144(a)(3)
under the Securities Act and must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available.
3.6 LIMITATIONS ON TRANSFER. Such Seller understands and agrees that any
Consideration Shares issued to such Seller hereunder cannot be offered, resold
or otherwise transferred except pursuant to (a) an effective registration
statement under the Securities Act covering such offer, sale or transfer and
such offer, sale or transfer is made in accordance with such registration
statement, or (b) an available exemption from registration, in which case such
Seller shall furnish the Buyer with (i) a written statement of the circumstances
surrounding the proposed sale or transfer and (ii) an opinion of counsel
reasonably satisfactory to the Buyer, in form and substance reasonably
satisfactory to the Buyer, that such sale or transfer will not require
registration under the Securities Act. Such Seller covenants and agrees that
such Seller will not offer, sell or otherwise transfer any such Consideration
Shares except in compliance with the terms of this Agreement and with applicable
federal and state securities and "blue sky" laws.
3.7 RESTRICTIVE LEGENDS.
3.7.1 The certificates representing any Consideration Shares issued to
such Seller hereunder shall bear, in addition to any other legends required
under applicable state securities or "blue sky" laws, a legend in substantially
the following form:
"These securities have not been registered under the Securities Act of
1933, as amended (the 'Securities Act'), or under any applicable state
securities or 'blue sky' laws. These securities may not be sold,
offered, pledged, hypothecated or otherwise transferred except
pursuant to registration under the Securities Act or pursuant to an
available exemption from registration. The issuer of these securities
may require an opinion of counsel reasonably satisfactory to the
issuer, in form and substance reasonably satisfactory to the issuer,
to the effect that any sale or transfer of these securities will be in
compliance with the Securities Act and any applicable state securities
or 'blue sky' laws."
3.7.2 In order to prevent any transfer of Consideration Shares from
taking place in violation of applicable Legal Requirement or the terms of this
Agreement, the Buyer may cause a stop transfer order to be placed with its
transfer agent with respect to any Consideration Shares. The Buyer will not be
required to transfer on its books any shares of Buyer Common Stock that have
been sold or transferred in violation of any provision of applicable Legal
Requirement or the terms of this Agreement.
3.8 ACCREDITED INVESTOR. Such Seller is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D under the Securities Act.
3.9 INVESTMENT INTENT. Such Seller is acquiring the Consideration Shares
for his own account for investment and not with a view to, or for resale in
connection with, the distribution
8
thereof. Such Seller has no present intention of selling or otherwise
distributing any portion of any such Consideration Shares (or any interest
therein).
3.10 INVESTMENT EXPERIENCE AND STATUS. Such Seller has such knowledge and
experience in financial and business matters that such Seller is capable of
evaluating the merits and risks of an investment in Buyer Common Stock and
protecting such Seller's own interests in connection with such investment.
3.11 DOCUMENTS DELIVERED; INFORMATION. Such Seller has received or has had
access to all the information relating to the Buyer that such Seller has
requested and considers necessary and relevant to making an informed investment
decision with respect to the shares of Buyer Common Stock, including the annual
reports, quarterly reports, current reports, proxy statements and other
information filed by the Buyer with the SEC. Such Seller has been given the
opportunity to make a thorough investigation of the activities of the Buyer and
has been furnished with access to materials relating to the Buyer and its
activities. Such Seller has been afforded the opportunity to obtain any
additional information deemed necessary by such Seller to verify the accuracy of
any representations made or information conveyed by the Buyer to such Seller.
Such Seller has had an opportunity to ask questions of and receive answers from
the Buyer, or from a person or persons acting on the Buyer's behalf, concerning
the terms and conditions of this investment.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY
REGARDING THE COMPANY
The Sellers and the Company, jointly and severally, represent and warrant
to the Buyer as set forth in this Article 4. For purposes of this Article 4 and
Article 6, unless the context requires otherwise, the term "Company" shall mean
Instant Technologies, Inc. and each of its subsidiaries.
4.1 ORGANIZATION; NO SUBSIDIARIES.
4.1.1 The Company is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Virginia, has the
corporate power and authority to own, lease and operate its assets and property
and to carry on its business as now being conducted. The Company has not
qualified to do business in any state other than Virginia, but it does have
sales employees in several states who process orders through the Company's
facility in Virginia. The Company has not been advised by any Governmental
Entity that the Company's activities outside Virginia require the Company to
qualify or be licensed to do business in any such jurisdiction. Each
jurisdiction where the Company has employees is listed on Schedule 4.1.1.
4.1.2 The Company has delivered to the Buyer true and correct copies
of the articles of incorporation and by-laws of the Company, each as amended to
date (collectively, the "Company Charter Documents"), and each such instrument
is in full force and effect. The Company is not in violation of any of the
material provisions of the Company Charter Documents.
9
4.1.3 The minute books of the Company contain records of all meetings
and written consents in lieu of meetings of the Company's board of directors
(and any committees thereof, whether permanent or temporary) and stockholders at
which material business was conducted or votes were taken since the date of its
incorporation and are accurate in all material respects, and such records
accurately reflect all transactions referred to in such minutes and consents.
The stock book of the Company accurately reflects record ownership of the
Company's capital stock. The Company has delivered to the Buyer true and correct
copies of such minutes or consents and stock books. Schedule 4.1.3 sets forth a
list of the directors and officers of the Company.
4.1.4 Except as set forth on Schedule 4.1.4, the Company does not own,
and since inception the Company has never owned, any capital stock of, or any
equity ownership interest of any nature in, any corporation, partnership
(general or limited), joint venture arrangement or other business entity or
Person. The Company has not agreed nor is it obligated to make, nor is it bound
by any written or oral agreement, contract, lease, instrument, note, option,
warranty, purchase order, license, insurance policy, benefit plan or legally
binding commitment or undertaking of any nature, as in effect as of the date
hereof or as hereinafter may be in effect, under which it is or may become
obligated to make any future investment (whether in the form of equity, debt or
otherwise) in any other Person.
4.2 CAPITALIZATION.
4.2.1 The authorized capital stock of Instant Technologies, Inc.
consists of 2,000 shares of Company Common Stock, of which 1,250 shares are
issued and outstanding. Except as aforesaid, there are no other authorized,
issued or outstanding shares of capital stock or other securities of the
Company. The outstanding shares of Company Common Stock are held of record and
beneficially by the Sellers in the respective amounts set forth on Exhibit A.
All outstanding shares of Company Common Stock are duly authorized and validly
issued, were not issued in violation of any Person's preemptive rights (however
created), are fully paid and nonassessable, and were issued in full compliance
with all applicable Legal Requirements, including any federal and state
securities laws.
4.2.2 There are no outstanding subscriptions, options, warrants,
conversion rights or other rights, securities, agreements or commitments
obligating the Company to issue, sell or otherwise dispose of shares of its
capital stock, or any securities or obligations convertible into, or exercisable
or exchangeable for, any shares of its capital stock. Except for the
Stockholders Agreement and the voting trust agreement between Xxxxxx and Xxxxxx
X. Xxxxxx listed on Schedule 4.2.2, there are no voting trusts or other
agreements or understandings to which the Company or any Seller is a party with
respect to the shares of Company Common Stock or other securities of the
Company, and the Company is not a party to or bound by any restrictions, options
or other obligations, agreements or commitments to sell, repurchase, redeem or
acquire any shares of capital stock or any other securities of the Company.
4.3 AUTHORITY FOR AGREEMENT. The Company has all requisite corporate power
and authority to enter into this Agreement, the Stockholders Agreement and the
other agreements, instruments and documents contemplated to be executed or
delivered by the Company in connection herewith, and to perform its obligations
hereunder and thereunder. The execution
10
and delivery of this Agreement, the Stockholders Agreement and the other
agreements, instruments and documents contemplated to be executed or delivered
by the Company in connection herewith, and the performance by the Company of its
obligations hereunder and thereunder have been duly and validly authorized by
the board of directors of the Company and no other corporate action or
proceedings on the part of the Company are necessary to authorize the execution
and delivery of this Agreement, the Stockholders Agreement and the other
agreements, instruments and documents contemplated to be executed or delivered
by the Company in connection herewith and the performance of its obligations
hereunder and thereunder. This Agreement, the Stockholders Agreement and the
other agreements, instruments and documents contemplated to be executed or
delivered by the Company in connection herewith have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company, enforceable against it in accordance with their respective terms,
except as enforceability may be limited by bankruptcy and other laws affecting
the rights of creditors generally and general principles of equity.
4.4 NONCONTRAVENTION.
4.4.1 Except as set forth on Schedule 4.4.1, neither the execution and
delivery of this Agreement, the Stockholders Agreement or the other agreements,
instruments and documents contemplated to be executed or delivered by the
Company hereunder, nor the performance by the Company of its obligations
hereunder and thereunder will (a) conflict with or violate any provision of the
Company Charter Documents, (b) conflict with or violate any Legal Requirement
applicable to the Company or by which the Company or any of its properties or
assets is bound or affected, (c) with or without the giving of notice or the
lapse of time or both, conflict with, or result in any violation or breach of,
or constitute a default under, or alter the rights or obligations of the Company
or any third party under, or give to any third party any rights of termination
or cancellation of or rights of amendment or acceleration of, or result in the
creation of any Encumbrance pursuant to, any note, mortgage, indenture,
contract, agreement, lease, license permit, concession, grant, franchise or
other agreement, instrument or obligation to which the Company is a party or by
which the Company or any of its properties or assets is bound or affected or
which is applicable to the Company or any of its properties or assets; provided,
however, that for purposes of this Section 4.4.1 only, the term Legal
Requirement shall exclude any Legal Requirements promulgated by, or that are
subject to the jurisdiction of, the FDA, and any Legal Requirements with respect
to antitrust, including the Xxxx-Xxxxx-Xxxxxx Antitrust Improvement Act of 1976.
4.4.2 Except as set forth on Schedule 4.4.2, no consent, waiver or
approval of any Person, nor any notice to any Person, is required to be obtained
or made by the Company in connection with the execution, delivery or performance
by the Company of this Agreement, the Stockholders Agreement or the other
agreements, instruments and documents contemplated to be executed or delivered
by the Company in connection herewith. No consent, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Entity is required to be obtained or made by the Company in connection with the
execution, delivery or performance by the Company of this Agreement, the
Stockholders Agreement or the other agreements, instruments and documents
contemplated to be executed or delivered by the Company in connection herewith.
11
4.5 FINANCIAL STATEMENTS.
4.5.1 The Company has delivered to the Buyer complete and accurate
copies of (a) the audited consolidated balance sheet and statements of
operations, changes in stockholders' equity and cash flows of the Company as of
and for the year ended December 31, 2005, (b) the reviewed consolidated balance
sheet and statements of operations, changes in stockholders' equity and cash
flows of the Company as of and for each of the years ended December 31, 2004 and
2003, and (c) the unaudited consolidated balance sheet and statements of
operations, changes in stockholders' equity and cash flows of the Company as of
and for the year ended December 31, 2006. Collectively, the financial statements
referred to in the immediately preceding sentence are sometimes referred to
herein as the "Company Financial Statements," and the unaudited balance sheet of
the Company as of December 31, 2006 is sometimes referred to herein as the
"Company Balance Sheet." The Company Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto), fairly present in
all material respects the financial condition, results of operations and cash
flows of the Company as of the respective dates thereof and for the respective
periods indicated, provided, however, that the unaudited Company Financial
Statements referred to in clause (c) above are subject to normal and recurring
year-end adjustments (which will not be material, individually or in the
aggregate). The Company Financial Statements have been prepared from and are
consistent with the books and records of the Company, and the books and records
of the Company have been, and are being, maintained in all material respects in
accordance with applicable legal and accounting requirements.
4.5.2 The Company has no Liabilities that are, individually or in the
aggregate, material to the business, results of operations or financial
condition of the Company, except for (a) Liabilities reflected on the Company
Balance Sheet, (b) Liabilities incurred in the ordinary course of business since
the date of the Company Balance Sheet, which, individually or in the aggregate,
has not had and could not reasonably be expected to have, a Company Material
Adverse Effect, and (c) Liabilities expressly disclosed on the Schedules
delivered by the Company hereunder, including Schedule 4.5.2.
4.5.3 The Company has not been notified by Colby & Company or any
other independent auditor that such auditor is of the view that any of the
Company Financial Statements should be restated, or that the Company should
modify its accounting for any period.
4.6 ABSENCE OF CERTAIN CHANGES.
4.6.1 Since the date of the Company Balance Sheet, the Company has not
suffered any Company Material Adverse Effect, nor has there occurred or arisen
any event, condition or state of facts of any character (other than general
economic, industry, political and similar conditions) that could reasonably be
expected to result in a Company Material Adverse Effect. Without limiting the
generality of the foregoing, except as set forth on Schedule 4.6.1, since the
date of the Company Balance Sheet, the Company has not:
(a) sold or issued any shares of capital stock or other
securities of the Company, or granted any right or option to purchase or
otherwise acquire any shares of capital stock or other securities of the
Company;
12
(b) sold, leased, transferred or assigned any of its assets,
tangible or intangible, other than in the ordinary course of business;
(c) accelerated, terminated, modified, or canceled any contract,
lease, sublease, license, or sublicense (or series of related contracts, leases,
subleases, licenses, and sublicenses) involving more than $10,000 to which the
Company is a party;
(d) canceled, compromised, waived, or released any right or claim
(or series of rights or claims) either involving more than $10,000 or outside
the ordinary course of business;
(e) granted any license or sublicense of any rights under or with
respect to any Company Intellectual Property Rights other than to the Company's
distributors, resellers and other licensees under agreements listed on Schedule
4.16.1(i);
(f) experienced material damage, destruction, or loss (whether or
not covered by insurance) to its property (other than ordinary wear and tear not
caused by neglect);
(g) created or suffered to exist any Encumbrance (other than
Permitted Encumbrances) upon any of its assets, tangible or intangible;
(h) created any Indebtedness in excess of $20,000;
(i) declared, set aside, or paid any dividend or distribution
with respect to its capital stock (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its capital stock;
(j) made or committed to make any capital expenditures or entered
into any other material transaction outside the ordinary course of business or
involving an expenditure in excess of $20,000;
(k) increased the compensation or fringe benefits to any officers
or employees;
(l) amended or modified in any respect any employment contract or
arrangement or any profit sharing, bonus, incentive compensation, severance,
employee benefit or multiemployer plans;
(m) entered into any employment agreement or collective
bargaining agreement or increased the compensation of any of its employees;
(n) granted any increase in severance or termination pay; or
(o) committed (orally or in writing) to any of the foregoing.
13
4.7 TAX MATTERS.
4.7.1 The Company has filed all Tax Returns that it was required to
file, and has complied with all Legal Requirements in respect of all Taxes. All
such Tax Returns were correct and complete in all material respects, and were
prepared in compliance with all applicable Legal Requirements. All Taxes due and
owing by the Company (whether or not shown on any Tax Return) have been paid.
The Company currently is not the beneficiary of any extension of time within
which to file any Tax Return. No claim has ever been made by a Governmental
Entity in a jurisdiction where the Company does not file Tax Returns that the
Company is or may be subject to taxation by that jurisdiction. There are no
liens for Taxes (other than Taxes not yet due and payable) upon any of the
properties or assets of the Company.
4.7.2 The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with any amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
4.7.3 No Governmental Entity is reasonably likely to assess any
additional Taxes for any period for which Tax Returns have been filed. No
foreign, federal, state, or local tax audits or administrative or judicial Tax
proceedings are pending or being conducted with respect to the Company. The
Company has not received from any foreign, federal, state, or local Governmental
Entity (including jurisdictions where the Company has not filed Tax Returns) any
(i) notice indicating an intent to open an audit or other review, (ii) request
for information related to Tax matters, or (iii) notice of deficiency or
proposed adjustment for any amount of Tax proposed, asserted, or assessed by any
Governmental Entity against the Company.
4.7.4 Schedule 4.7.4 lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Company for taxable periods ended
on or after December 31, 2002, indicates those Tax Returns that have been
audited, if any, and indicates those Tax Returns that are currently the subject
of audit, if any. The Company has delivered to the Buyer correct and complete
copies of all Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Company, if any, filed or received since
December 31, 2002.
4.7.5 The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
4.7.6 The Company has been a validly-electing S corporation within the
meaning of Code Sections 1361 and 1362 at all times during its existence and
will be an S corporation up to and including the Closing Date.
4.7.7 The Company has no potential liability for any Tax under Code
Section 1374. The Company has not, in the past 10 years, (A) acquired assets
from any Person in a transaction in which the Company's Tax basis for the
acquired assets was determined, in whole or in part, by reference to the Tax
basis of the acquired assets (or any other property) in the hands of the
transferor, or (B) acquired the stock of any corporation that is a qualified
subchapter S subsidiary.
4.7.8 The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of (i) any
14
"excess parachute payment" within the meaning of Code Section 280G (or any
corresponding provision of state, local or foreign Tax law) and (ii) any amount
that will not be fully deductible as a result of Code Section 162(m) (or any
corresponding provision of state, local or foreign Tax law). The Company has not
been a United States real property holding corporation within the meaning of
Code Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). The Company has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Code Section 6662. The Company is
not a party to or bound by any Tax allocation or sharing agreement. The Company
neither (A) has been a member of an affiliated group filing a consolidated
federal income Tax Return (other than a group the common parent of which was the
Company) nor (B) has any Liability for the Taxes of any Person under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
4.7.9 The unpaid Taxes of the Company (a) did not, as of the date of
the Company Balance Sheet, exceed the reserve for Tax liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the Company Balance Sheet (rather
than in any notes thereto), and (b) do not exceed that reserve as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of the Company in filing its Tax Returns. Since the date of the
Company Balance Sheet, the Company has not incurred any liability for Taxes
arising from extraordinary gains or losses, as that term is used in GAAP,
outside the ordinary course of business consistent with past custom and
practice.
4.7.10 The Company will not be required to include any item of income
in, or exclude any item of deduction from, taxable income for any taxable period
(or portion thereof) ending after the Closing Date as a result of any:
(a) change in method of accounting for a taxable period ending on
or prior to the Closing Date;
(b) "closing agreement" as described in Code Section 7121 (or any
corresponding or similar provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date;
(c) inter-company transaction or excess loss account described in
Treasury Regulations under Code Section 1502 (or any corresponding or similar
provision of state, local or foreign income Tax law);
(d) except as set forth on Schedule 4.7.10(d), installment sale
or open transaction disposition made on or prior to the Closing Date; or
(e) prepaid amount received on or prior to the Closing Date.
4.7.11 The Company has not distributed stock of another Person, nor
had its stock distributed by another Person, in a transaction that was purported
or intended to be governed in whole or in part by Code Section 355 or 361.
15
4.7.12 The Company has not participated in or cooperated with, nor
will it, prior to the Closing Date, participate in or cooperate with, and
international boycott within the meaning of Code Section 999.
4.8 ASSETS AND PROPERTIES.
4.8.1 The Company does not own any interest in real property, other
than as described on Schedule 4.8.1 (such property being the "Company Real
Property"). Schedule 4.8.1 lists all real property leases to which the Company
is a party and each amendment thereto, and the Company has delivered to the
Buyer a complete and accurate copies of all such real property leases and all
amendments thereto. All such leases are in full force and effect, are valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default) by the Company or,
to the Knowledge of the Company and the Sellers, any other party. Such leases
permit the current occupation and use of such real property by the Company. The
Company Real Property comprises all the real property occupied or otherwise used
by the Company.
4.8.2 To the Knowledge of the Company and the Sellers, the Company
owns or leases all tangible assets necessary for the conduct of its businesses
as presently conducted. To the Knowledge of the Company and the Sellers, the
assets owned or leased by the Company include all of the properties, assets and
rights necessary for, and all of the properties, assets and rights used or held
for use by the Company or any other Person in, the marketing and sale of any of
the Company's products under an FDA-compliant quality system, as the Company has
conducted its business prior to and as of the Closing Date. To the Knowledge of
the Company and the Sellers, each such tangible asset is free from material
defects, has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear) and is
suitable for the purposes for which it presently is used. The Company is not,
and after the Closing will not be, restricted from carrying out its business as
currently conducted or any part thereof by any agreement, instrument, indenture
or Legal Requirement to which the Company is a party or to which the Company or
any of its properties or assets are subject.
4.8.3 Except as set forth in Schedule 4.8.3, the Company has good and
marketable title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its properties and assets, real, personal and
mixed, used or held for use in its business, free and clear of any Encumbrances,
except for liens for Taxes not yet due and payable. None of such properties and
assets is in the possession, custody or control of any Person or entity other
than the Company. Except as set forth in Schedule 4.8.3, the Company Real
Property is free of any tenancy, sub-tenancy, license or other arrangement
entitling a person other than the Company to occupy the whole or any part
thereof. There are no outstanding actions, disputes, claims or demands between
the Company and any third party affecting the Company Real Property or any
neighboring property or any boundary walls and fences, or with respect to any
easement, right or means of access to the Company Real Property. To the
Knowledge of the Company and the Sellers, there is no resolution, proposal,
scheme or order, whether or not formally adopted, that would materially
interfere with the use or occupation of, or access to, the Company Real Property
by the Company.
16
4.9 INTELLECTUAL PROPERTY.
4.9.1 For purposes of this Agreement, "Company Intellectual Property
Rights" shall mean all intellectual property rights of any kind and nature
anywhere in the world used (whether or not owned) by the Company in the conduct
of its business, including: (i) all patents, patent applications and
continuations, industrial design registrations and applications therefor
(collectively, the "Company Patents"), (ii) all trademarks, service marks, trade
names, Internet domain names, trade dress, and the goodwill associated
therewith, and all registrations or applications for registration thereof
(collectively, the "Company Marks"); (iii) all copyrights, database rights and
moral rights in both published works and unpublished works, including all such
rights in software, user and training manuals, marketing and promotional
materials, websites, internal reports, business plans and any other expressions,
mask works, firmware and videos, whether registered or unregistered, and all
registrations or applications for registration thereof (collectively, the
"Company Copyrights"); and (iv) all trade secret and confidential information,
including such rights in inventions (whether or not reduced to practice),
know-how, customer lists, technical information, proprietary information,
technologies, processes and formulae, software, data, plans, drawings and blue
prints, whether tangible or intangible and whether stored, compiled, or
memorialized physically, electronically, photographically, or otherwise
(collectively, the "Company Secret Information").
4.9.2 Schedule 4.9.2 sets forth a complete and correct list of each of
the following which is owned by the Company: (i) each Company Patent, (ii) each
Company Xxxx (whether registered or not), and (iii) each registered Company
Copyright. The Company (y) owns all right, title and interest in and to the
Company Intellectual Property Rights, free and clear of all Encumbrances, or (z)
is licensed to use, or otherwise possesses legally valid and enforceable rights
to use, the Company Intellectual Property Rights that it does not so own. The
Company has made all necessary filings, recordations and payments to protect and
maintain its interests in the Company Intellectual Property Rights owned by or
licensed to the Company.
4.9.3 Except as set forth on Schedule 4.9.3, all of the rights of the
Company with respect to the Company Intellectual Property Rights are freely
assignable in its own name, including the right to create derivative works, and
the Company is under no obligation to obtain any approval or consent in addition
to those previously obtained by the Company for use of any of the Company
Intellectual Property Rights.
4.9.4 To the Knowledge of the Company and the Sellers, the Company
Intellectual Property Rights constitute all intellectual property rights that
are or have been useful or necessary for the design, development, manufacture,
operation, sale or use of the Company's products or for the conduct of the
Company's business, as conducted by the Company prior to the date hereof and as
proposed to be conducted hereafter.
4.9.5 To the Knowledge of the Company and the Sellers, neither the
business of the Company nor any of the products, services or technology used,
sold, offered for sale or licensed or proposed for use, sale, offer for sale or
license by the Company infringes any intellectual property rights of any Person.
Except as set forth on Schedule 4.9.5, the Company is not obligated to pay any
royalties or other compensation to any person in respect of its ownership, use
or license of any of the Company Intellectual Property Rights.
17
4.9.6 No (i) funding from any Person, including, any funding from
or through any Governmental Entity, and (ii) facilities of a university,
college, other educational institution or research center, was used in the
development of any Company Intellectual Property Rights owned by the Company or,
to the Knowledge of the Sellers, any other Person. To the Knowledge of the
Company and the Sellers, no current or former employee, consultant or
independent contractor of the Company who was in any way involved in, or who in
any way contributed to, the creation or development of any Company Intellectual
Property Rights, has performed services for any Governmental Entity, university,
college or other educational institution or research center during a period of
time during which such employee, consultant or independent contractor was also
performing services for the Company.
4.9.7 To the Knowledge of the Company and the Sellers, all the Company
Patents are valid and subsisting. To the Knowledge of the Company and the
Sellers, none of the Company Patents is being infringed. To the Knowledge of the
Company and the Sellers, neither the validity nor the enforceability of any of
the Company Patents has been challenged by any Person.
4.9.8 All Company Marks, whether or not registered, are valid and
subsisting. To the Knowledge of the Company and the Sellers, none of the Company
Marks is being infringed or diluted, and to the Knowledge of the Company and the
Sellers, none of the Company Marks has been opposed or challenged and no
proceeding has been commenced or threatened that would seek to prevent the use
by the Company of any Company Xxxx.
4.9.9 All the Company Copyrights, whether or not registered, are valid
and enforceable. To the Knowledge of the Company and the Sellers, none of the
Company Copyrights is being infringed, or its validity challenged or threatened
in any way, and no proceeding has been commenced or threatened that would seek
to prevent the use by the Company of the Company Copyrights.
4.9.10 To the Knowledge of the Company and the Sellers, the Company
has taken reasonable measures to protect the secrecy and confidentiality of the
Company Secret Information. To the Knowledge of the Company and the Sellers, no
Company Secret Information has been used, divulged or appropriated for the
benefit of any Person other than the Company, or otherwise misappropriated.
4.9.11 No Company Intellectual Property Right is subject to any
outstanding order, proceeding (other than pending proceedings pertaining to
applications for patent or trademark or copyright registration) or stipulation
that restricts in any manner the licensing thereof by the Company.
4.9.12 To the Knowledge of the Company and the Sellers, none of the
former or present employees and consultants engaged in the development of
Company Intellectual Property Rights or in performing sales and marketing
functions on behalf of the Company, is or was obligated under any contract with
any third party which conflicts or did conflict with such employee's or
consultant's rights to develop Company Intellectual Property Rights or engage in
such sales and marketing functions on behalf of the Company.
18
4.9.13 Other than the Sellers, the only former or present employee,
contractor, agent or consultant who was involved in the creation of any Company
Intellectual Property on behalf of the Company, was Xxxxx Xxxxxxxxx. Each of the
Sellers has, or will prior to the Closing, execute and deliver an assignment of
inventions agreement as to all Company Intellectual Property Rights. The Sellers
and all current employees of the Company have executed nondisclosure agreements
to protect the confidentiality of Company Secret Information.
4.9.14 Without limiting the generality of the foregoing, except as set
forth on Schedule 4.9.14, all the products that the Company sells, licenses or
otherwise makes available to customers, and all Company Intellectual Property
Rights therein, were: (i) developed by employees of the Company within the scope
of their employment and subject to their obligation to assign to the Company all
intellectual property rights therein, or (ii) developed by independent
contractors or consultants who assigned to the Company all of their right, title
and interest therein, or (iii) otherwise acquired or licensed by the Company
from a third party by an agreement or contract that is disclosed on Schedule
4.9.14.
4.9.15 All contracts, licenses and agreements relating to the Company
Intellectual Property Rights are in full force and effect, and the Company has
provided to the Buyer true and complete copies of all such contracts, licenses
and agreements. The consummation of the transactions contemplated by this
Agreement will neither violate nor result in the breach, modification,
cancellation, termination, or suspension of such contracts, licenses and
agreements, nor entitle any other party to cancel, terminate, suspend or modify
any such contract, license or agreement. The Company is and has been in
compliance with, and has not breached any term of any of such contracts,
licenses and agreements and, to the Knowledge of the Company and the Sellers,
all other parties to such contracts, licenses and agreements are and have been
in compliance in all material respects with, and have not materially breached
any term of, such contracts, licenses and agreements.
4.10 COMPLIANCE WITH LAWS; PERMITS.
4.10.1 The Company has been in compliance in all material respects
with all Legal Requirements applicable to the Company, its properties, assets,
business or operations, except for instances of noncompliance that individually
or in the aggregate have not had and would not have a Company Material Adverse
Effect; provided, however, that for purposes of this sentence only, the term
Legal Requirements shall exclude any Legal Requirements promulgated by, or that
are subject to the jurisdiction of, the FDA. To the Knowledge of the Company and
the Sellers, no investigation or review by any Governmental Entity is pending
or, to the Knowledge of the Company and the Sellers, has been threatened or is
reasonably anticipated against the Company, nor, to the Knowledge of the Company
and the Sellers, has any Governmental Entity indicated an intention to conduct
an investigation of the Company. There is no agreement, judgment, injunction,
order or decree binding upon the Company which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any material
business practice of the Company, any acquisition of property by the Company or
the conduct of business by the Company as currently conducted.
4.10.2 The Company has in effect all approvals, authorizations,
certificates, filings, franchises, licenses, notices, permits and rights of or
with all Governmental Entities
19
(collectively, "Company Permits"), necessary for it to own, lease or operate its
properties and assets and to carry on its business and operations as presently
conducted. There has occurred no default under, or violation of, any such
Company Permit, except, individually or in the aggregate, as has not had and
would not have a Company Material Adverse Effect. The transactions contemplated
by this Agreement will not cause the revocation, cancellation or alteration of
any Company Permit.
4.11 REGULATORY MATTERS.
4.11.1 Except as set forth on Schedule 4.11.1, the Company is in
compliance in all material respects with all applicable Legal Requirements of
the U.S. Food and Drug Administration (the "FDA") with respect to the
collection, sale, labeling, storing, testing, distribution, or marketing of the
products being distributed or developed by or on behalf of the Company. The
Company has previously delivered or made available to the Buyer true and
complete copies of all applications, approvals, registrations or licenses
obtained by the Company from the FDA, or required in connection with the conduct
of the business of the Company as it is currently conducted and as proposed to
be conducted.
4.11.2 To the Knowledge of the Company and the Sellers, except as set
forth on Schedule 4.11.2, all test methods and devices that have been or that
are being developed or distributed by the Company that are subject to the
jurisdiction of the FDA have been and are being developed, tested, labeled,
distributed and marketed in compliance in all material respects with all
applicable statutory or regulatory requirements under the Clinical Laboratory
Improvement Act of 1988 and its implementing regulations.
4.11.3 The Company has made available to the Buyer all written
communications, and oral communications to the extent reduced to written form,
between the Company, on the one hand, and the FDA, on the other hand, with
respect to the Company's products, business or operations, in each case since
January 1, 2002. The Company is not in receipt of any notice of, and, to the
Knowledge of the Company and the Sellers, subject to, any adverse inspection,
finding of deficiency, finding of non-compliance, compelled or voluntary recall,
investigation, penalty for corrective or remedial action or other compliance or
enforcement action, in each case relating to any of its products or to the
facilities in which its products are manufactured, collected or handled, by the
FDA.
4.11.4 Except as set forth on Schedule 4.11.4, there are no pending
or, to the Knowledge of the Company and the Sellers, threatened actions,
proceedings or complaints by the FDA, which would prohibit or impede the conduct
of the business of the Company as it is currently conducted or as proposed to be
conducted.
4.11.5 The Company has not made any material false statements on, or
omissions from, the applications, approvals, reports and other submissions to
the FDA, prepared or maintained to comply with the requirements of the FDA
relating to the Company, its products, business or operations.
4.11.6 Except as set forth on Schedule 4.11.6, the Company has not
received any notification from the FDA indicating that any of the Company's
products is misbranded or
20
adulterated as defined in the U.S. Food, Drug & Cosmetic Act, 21 U.S.C. 321, et
seq., as amended, and the rules and regulations promulgated thereunder.
4.11.7 No product of the Company has been recalled, suspended or
discontinued as a result of any action by the FDA against the Company or, to the
Knowledge of the Company and the Sellers, any licensee, distributor or marketer
of any product of the Company in the United States or outside of the United
States.
4.11.8 The Company has not committed any act, made any statement or
failed to make any statement that would reasonably be expected to provide a
basis for the FDA to invoke its policy with respect to "Fraud, Untrue Statements
of Material Facts, Bribery, and Illegal Gratuities" set forth in 56 Fed. Reg.
46191 (September 10, 1991) and any amendments thereto. Neither the Company, nor
to the Knowledge of the Company and the Sellers, any officer, key employee or
agent of the Company has been convicted of any crime or engaged in any conduct
that would reasonably be expected to result in (i) debarment under 21 U.S.C.
Section 335a or any similar state law or regulation or (ii) exclusion under 42
U.S.C. Section 1320a-7 or any similar state law or regulation.
4.11.9 The Company's FDA complaint handling system has been made
available for review by the Buyer and contains complete and correct information
about all products returned to the Company because of warranty or other
problems. The Company has made no modifications to any of its products because
of warranty or other claims concerning defects in such product. The Company
maintains no other records of warranty or other product defect claims other than
its FDA complaint handling system.
4.12 LITIGATION. Except as set forth on Schedule 4.12, there are no claims,
suits, actions or proceedings pending or, to the Knowledge of the Company or the
Sellers, threatened or reasonably anticipated against, relating to or affecting
the Company, before any Governmental Entity or any arbitrator. No Governmental
Entity has at any time initiated an action to challenge the legal right of the
Company to design, offer or sell any of its products or services in the present
manner or style thereof or otherwise to conduct its business as currently
conducted. No event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that would reasonably be expected to, cause
or provide a basis for any director, officer or employee of the Company to seek
indemnification from the Company.
4.13 EMPLOYEE BENEFIT PLANS.
4.13.1 For purposes of this Agreement, the following terms shall have
the meanings set forth below:
(a) "Company Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for deferred
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits of any kind,
whether written or unwritten or otherwise, funded or unfunded, including each
"employee benefit plan" within the meaning of Section 3(3) of ERISA which is or
has been maintained, contributed to, or required to be contributed to, by the
Company or any ERISA Affiliate for the benefit of any Employee.
21
(b) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(c) "Employee" shall mean any current, former or retired
employee, officer or director of the Company or any ERISA Affiliate.
(d) "Employee Agreement" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or similar agreement or contract between the Company or any ERISA
Affiliate and any Employee or consultant.
(e) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
(f) "ERISA Affiliate" shall mean any other person or entity under
common control with the Company within the meaning of Code Sections 414(b),
414(c), 414(m) or 414(o) and the regulations issued thereunder.
(g) "IRS" shall mean the Internal Revenue Service.
(h) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA.
(i) "Pension Plan" shall mean each Company Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
4.13.2 Schedule 4.13.2 contains an accurate and complete list of each
Company Employee Plan and each Employee Agreement. The Company does not have any
plan or commitment to establish any new Company Employee Plan, to modify any
Company Employee Plan or Employee Agreement, or to enter into any Company
Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
4.13.3 The Company has provided to the Buyer:
(a) accurate and complete copies of all documents embodying each
Company Employee Plan and each Employee Agreement, including all amendments
thereto and written interpretations thereof;
(b) the three most recent annual reports (Form Series 5500 and
all schedules and financial statements attached thereto), if any, required under
ERISA or the Code in connection with each Company Employee Plan or related
trust;
(c) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets
(d) the most recent summary plan description together with the
summary of material modifications thereto, if any, required under ERISA with
respect to each Company Employee Plan;
22
(e) to the extent available to the Company, all IRS
determination, opinion, notification and advisory letters, and rulings relating
to Company Employee Plans and copies of all applications and correspondence to
or from the IRS with respect to any Company Employee Plan;
(f) to the extent available to the Company, all material written
agreements and contracts relating to each Company Employee Plan, including, but
not limited to, administrative service agreements, group annuity contracts and
group insurance contracts;
(g) all written communications material to any Employee or
Employees relating to any Company Employee Plan and any proposed Company
Employee Plans, in each case, relating to any material amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company; and
(h) all COBRA forms and related notices.
4.13.4 Each of the Company and its ERISA Affiliates has performed in
all material respects all obligations required to be performed by it under, is
not in default or violation of, and the Company and the Sellers have no
Knowledge of any default or violation by any other party to, each Company
Employee Plan or Employee Agreement, and each Company Employee Plan has been
established and maintained in all material respects in accordance with its terms
and in compliance with all applicable Legal Requirements, including but not
limited to ERISA or the Code. Each Company Employee Plan intended to qualify
under Code Section 401(a) and each trust intended to qualify under Code Section
501(a) has either received (A) a favorable determination letter from the IRS
with respect to each such Company Employee Plan as to its qualified status under
the Code, or (B) if such Company Employee Plan is on a prototype or volume
submitter plan document, such prototype or volume submitter document has
received a favorable opinion letter, and no event has occurred which would
adversely affect the status of such determination letter or opinion letter or
the qualified status of such Company Employee Plan. No "prohibited transaction,"
within the meaning of Code Section 4975 or Sections 406 and 407 of ERISA, and
not otherwise exempt under Section 408 of ERISA, has occurred with respect to
any Company Employee Plan. There are no actions, suits or claims pending, or, to
the Knowledge of the Company and the Sellers, threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan. Each Company
Employee Plan can be amended, terminated or otherwise discontinued after the
date hereof in accordance with its terms, without liability to the Company or
any of its ERISA Affiliates (other than ordinary administration expenses
typically incurred in a termination event). There are no audits, inquiries or
proceedings pending or, to the Knowledge of the Company and the Sellers,
threatened by the IRS with respect to any Company Employee Plan. Neither the
Company nor any ERISA Affiliate is subject to any penalty or tax with respect to
any Company Employee Plan under Section 402(i) of ERISA or Code Sections 4975
through 4980. All contributions due from the Company or any ERISA Affiliate with
respect to any of the Company Employee Plans have been made as required under
ERISA or have been accrued on the Company Balance Sheet. The requirements of
COBRA have been met in all material respects with respect to each Company
Employee Plan subject to COBRA.
23
4.13.5 Neither the Company nor any of its ERISA Affiliates has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Code Section 412.
4.13.6 Neither the Company nor any of its ERISA Affiliates has ever
contributed to or been required to contribute to any Multiemployer Plan.
4.13.7 No Company Employee Plan provides, or has any liability to
provide, retiree life insurance, retiree health or other retiree employee
welfare benefits to any person for any reason, except as may be required by
COBRA or other applicable statute, and neither the Company nor any of its ERISA
Affiliates has ever represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
or any other person that such Employee(s) or other Person would be provided with
retiree life insurance, retiree health or other retiree employee welfare
benefit, except to the extent required by statute.
4.13.8 The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
4.13.9 Each Company Employee Plan required to be listed on Schedule
4.13.2 that is a "nonqualified deferred compensation plan" (as defined in
Section 409A(d)(1) of the Code) has been operated since January 1, 2005 in good
faith compliance with the provisions of Code Section 409A, Notice 2005-1 and the
proposed regulations issued under Code Section 409A.
4.14 OTHER EMPLOYMENT MATTERS.
4.14.1 Schedule 4.14.1 contains the name of each employee of the
Company, and each such employee's title and/or job description, status, starting
employment date and salary compensation and benefits. No third party has
asserted any claim, or, to the Knowledge of the Company and the Sellers, has any
basis to assert any valid claim, against the Company that either the continued
employment by, or association with, the Company of any of the present officers
or employees of, or consultants to, the Company contravenes any agreements or
laws applicable to unfair competition, trade secrets or proprietary information.
Except as set forth on Schedule 4.14.1, no current employee of the Company has
announced an intention to discontinue employment with the Company after the
Closing.
4.14.2 The Company: (a) is in compliance in all material respects with
all applicable Legal Requirements respecting employment, employment practices,
immigration, terms and conditions of employment and wages and hours; (b) is
withholding all amounts required by any Legal Requirement or by agreement to be
withheld from the wages, salaries and other payments to its employees; (c) has
currently properly classifying independent contractors for purposes of federal
and applicable Legal Requirements; (d) is not liable for any arrears of
24
wages or any Taxes or any penalty for failure to comply with any of the
foregoing; and (e) is not liable for any payment to any trust or other fund or
to any Governmental Entity, with respect to unemployment compensation benefits,
social security or other benefits or obligations for its employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending, or, to the Knowledge of the Company and
the Sellers, threatened or reasonably anticipated actions, suits, claims or
proceedings against the Company under any workers compensation policy or
long-term disability policy. To the Knowledge of the Company and the Sellers, no
Employee is in violation of any employment contract, nondisclosure agreement or
noncompetition agreement by which such Employee is bound due to such Employee's
employment by the Company and disclosing to the Company or using trade secrets
or proprietary information of any other person or entity. All employees of the
Company are legally permitted to be employed by the Company in their current
positions.
4.14.3 No work stoppage, labor strike, slowdown, lockout or other
labor dispute against the Company is pending or, to the Knowledge of the Company
and the Sellers, threatened or reasonably anticipated. No employee of the
Company is represented by any union or other labor organization. The Company and
the Sellers have no Knowledge of any activities or proceedings of any labor
union to organize any employees of the Company. There are no actions, suits,
claims, labor disputes or grievances pending, or, to the Knowledge of the
Company and the Sellers, threatened or reasonably anticipated relating to any
labor, safety or discrimination matters involving any Employee, including
charges of unfair labor practices or discrimination complaints. The Company has
not engaged in any unfair labor practices within the meaning of the National
Labor Relations Act. The Company is not nor has it been a party to, or bound by,
any collective bargaining agreement or union contract with respect to Employees
and no collective bargaining agreement is being negotiated by the Company.
4.14.4 The Company has not taken any action that could constitute a
"mass layoff," "group termination," "mass termination" or "plant closing" which
may trigger notice requirements or liability under any Legal Requirement,
including collective dismissal laws.
4.15 ENVIRONMENTAL MATTERS.
4.15.1 To the Knowledge of the Company and the Sellers, the Company is
and has been in compliance in all material respects with all applicable
Environmental Laws. Neither the Company nor the Sellers have received any
communication that alleges that the Company is not in compliance in all respects
with all applicable Environmental Laws. To the Knowledge of the Company and the
Sellers, there are no circumstances that may prevent or interfere with
compliance by the Company with all applicable Environmental Laws. All Company
Permits and other governmental authorizations currently held by the Company
pursuant or in connection with to any Environmental Law are in full force and
effect, the Company is in compliance in all material respects with all of the
terms of such Company Permits and authorizations, and no other Company Permits
or authorizations material to the conduct of the business of the Company are
required by the Company. The management, handling, storage, transportation,
treatment and disposal by the Company of all Environmental Materials have been
in compliance in all material respects with all applicable Environmental Laws.
25
4.15.2 There is no Environmental Claim pending or, to the Knowledge of
the Company and the Sellers, threatened or reasonably anticipated against or
involving the Company or, to the Knowledge of the Company and the Sellers,
against any Person whose liability for any Environmental Claim the Company has
or may have retained or assumed either contractually or by operation of law,
nor, to the Knowledge of the Company and the Sellers, is there any circumstance
that might form the basis for any Environmental Claim.
4.16 CERTAIN AGREEMENTS.
4.16.1 Except as set forth in the applicable numbered subsection of
Schedule 4.16, the Company is not a party to or bound by:
(a) any employment or consulting agreement or commitment with any
employee, officer or member its Board of Directors, providing any term of
employment or compensation guarantee or any consulting agreement or any
employment agreement that provides severance benefits or other benefits after
the termination of employment of such employee regardless of the reason for such
termination of employment, except as required by applicable law;
(b) any agreement or plan, including any stock option plan, stock
appreciation right plan or stock purchase plan;
(c) except as set forth on Schedule 4.16.1(c), any agreement,
obligation or commitment providing for annual payments by the Company of $10,000
or more;
(d) any agreement, obligation or commitment providing for annual
payments to the Company of $10,000 or more;
(e) any plan, contract or arrangement, any of the benefits of
which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(f) any agreement of indemnification, any guaranty by the Company
or any instrument evidencing Indebtedness by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, or otherwise;
(g) except as set forth on Schedule 4.16.1(g), any agreement,
obligation or commitment containing covenants purporting to limit or which
effectively limit the Company's freedom to engage or compete in any line of
business or in any geographic area or which would so limit the Buyer or the
Company or any of their respective Subsidiaries after the Closing or granting
any exclusive distribution or other exclusive rights;
(h) any agreement, obligation or commitment relating to the
disposition or acquisition by the Company of assets not in the ordinary course
of business;
(i) any development, licensing, distribution, resale or other
agreement, contract or commitment with regard to the development, acquisition,
licensing, distribution or
26
resale of any Intellectual Property Rights, other than agreements required to be
disclosed pursuant to Section 4.9;
(j) any agreement to forgive any indebtedness in excess of
$10,000 of any Person to the Company;
(k) except as set forth on Schedule 4.16.1(k), any loan
agreement, promissory note or other evidence of Indebtedness;
(l) any agreement (other than agreements required to be disclosed
pursuant to Section 4.9) pursuant to which the Company (A) uses any intellectual
property of any third party that is material to the operation of its business,
(B) incorporates any third-party intellectual property in any of its products;
or (C) has granted to any third party an exclusive license of any Intellectual
Property Rights owned by the Company or any license of source code (including
customary source code escrow arrangements entered into in the ordinary course of
business);
(m) any agreement (other than agreements required to be disclosed
pursuant to Section 4.9) which may obligate the Company to make aggregate annual
payments in excess of $10,000 to any third party except as set forth on Schedule
4.16.1(m);
(n) any agreement (other than agreements required to be disclosed
pursuant to Section 4.9) pursuant to which the Company (A) reasonably expects to
receive aggregate payments in excess of $10,000 or (B) reasonably expects to
recognize revenue in such aggregate amount;
(o) any agreement or commitment with any affiliate of the Company
(including any director, officer or stockholder of the Company);
(p) any agreement or commitment currently in force providing for
capital expenditures by the Company in excess of $25,000;
(q) any power of attorney or agency agreement or arrangement;
(r) any other agreement or commitment that cannot be terminated
by the Company thereto within 30 days without any liability or obligation in
excess of $10,000;
(s) except as set forth on Schedule 4.16.1(s), any other
agreement or commitment entered into outside the ordinary course of business or
at other than arm's length;
(t) any other agreement or commitment currently in effect that is
material to the Company's business as presently conducted or proposed to be
conducted; or
(u) any agreement, obligation or commitment not described above
that was not made in the ordinary course of business and that is material to the
financial condition, business, operations, assets, results of operations or
prospects of the Company.
27
4.16.2 Each plan, contract, agreement, arrangement or other commitment
that is required to be disclosed on Schedule 4.9 or Schedule 4.16 shall be
referred to herein as a "Company Contract". The Company has delivered to the
Buyer true and complete copies of all Company Contracts, and all amendments
thereto. Each Company Contract is valid and in full force and effect. Neither
the Company nor, to the Knowledge of the Company and the Sellers, any other
party thereto, is in material breach, violation or default under, and the
Company has not received written notice alleging that it has materially
breached, violated or defaulted under, any of the terms or conditions of any
Company Contract in such a manner as would permit any other party thereto to
cancel or terminate any such Company Contract, or would permit any other party
to seek material damages or other remedies for any or all such alleged breaches,
violations, or defaults.
4.17 BROKERS' AND FINDERS' FEES. The Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
4.18 INSURANCE. Schedule 4.18 sets forth a description of each insurance
policy or bond which provides coverage to the Company. The Company has provided
notice to its insurers in accordance with the applicable insurance policies or
bonds of all potential claims of which the Company or the Sellers have
Knowledge, and there is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, disputed or denied by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies have been paid, the Company has no reason to believe that it will
be liable for retroactive premiums or similar payments, and the Company is
otherwise in compliance in all material respects with the terms of such policies
and bonds. To the Knowledge of the Company and the Sellers, there has been no
threatened termination of, or material premium increase with respect to, any of
such policies. The Company has not incurred any material uninsured loss or
casualty, and the Company and the Sellers have no Knowledge of any circumstance
or occurrence that could result in a material uninsured loss or casualty for the
Company. The Company has not made any misrepresentation of, or failed to
disclose, any material fact to any of its insurers that might justify denial by
such insurer of any coverage under any such policy or bond.
4.19 CUSTOMERS AND SUPPLIERS. Schedule 4.19 lists (a) the 10 largest
customers (each, a "Major Customer") of the Company (measured by the respective
aggregate amounts of accounts receivable attributed to the Company's customers),
(i) in respect of the year ended December 31, 2005 or (ii) in respect of the
year ended December 31, 2006, and the aggregate amount of accounts receivable
attributed to each such Major Customer during each such period, and (b) the 10
largest suppliers (each, a "Major Supplier") of the Company (measured by the
respective aggregate amounts of accounts payable attributed to the Company's
suppliers), (i) in respect of the year ended December 31, 2005 or (ii) in
respect of the year ended December 31, 2006, and the aggregate amount of
accounts payable attributed to each such Major Supplier during each such period.
Since January 1, 2005, (x) there has not been any change in the business
relationship with any Major Customer or Major Supplier that would or could
reasonably result in a Company Material Adverse Effect, (y) there has been no
material dispute between the Company and any Major Customer or Major Supplier,
and (z) the Company has received no indication that any Major Customer intends
to reduce its purchases from the Company in any
28
material respect or that any Major Supplier intends to reduce its sale of goods
or services to the Company in any material respect, and the Company and the
Sellers have no reason to believe that any such event will occur.
4.20 ACCOUNTS RECEIVABLE. The receivables shown on the Company Balance
Sheet arose in the ordinary course of business, consistent with past practice,
and have been collected or are collectible in the book amounts thereof, less the
allowance for doubtful accounts provided for on the Company Balance Sheet.
Allowances for doubtful accounts and warranty returns are adequate in all
material respects and have been prepared in accordance with GAAP consistently
applied and in accordance with the Company's past practices. The Company's
receivables arising after the date of the Company Balance Sheet and prior to the
date hereof arose in the ordinary course of business, consistent with past
practice, and have been collected or are collectible in the book amounts
thereof, less a reasonable allowance for doubtful accounts determined in
accordance with the Company's past practices. None of the Company's receivables
is subject to any claim of setoff, recoupment or counter claim, and the Company
and the Sellers have no Knowledge of any facts or circumstances (whether
asserted or unasserted) that could give rise to any such claim. No receivables
are contingent upon the performance by the Company of any obligation or contract
other than normal warranty repair and replacement or in the ordinary course of
business under support and maintenance agreements required to be disclosed (or
specifically exempted from disclosure) pursuant to Section 4.16.1. Except as set
forth on Schedule 4.20, no Person has any Encumbrance on any of such receivables
and no agreement for deduction or discount has been made with respect to any of
such receivables.
4.21 ACCOUNTING SYSTEM. The Company maintains a system of internal
accounting controls for the Company at a comparable level to that of other
similarly situated private companies and sufficient to provide reasonable
assurance that (a) transactions are executed in accordance with management's
general or specific authorizations; (b) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability; (c) access to assets is permitted only in
accordance with management's general or specific authorization; and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. There is no significant deficiency or material weakness in the
Company's internal control over financial reporting. The Company has delivered
to the Buyer complete and accurate copies of any management letter or similar
correspondence from any independent auditor of the Company.
4.22 INVENTORY. Schedule 4.22 provides an accurate and complete breakdown
of all inventory (including raw materials, work in process and finished goods)
of the Company as of March 9, 2007. All of the Company's existing inventory (as
reflected on the Company Balance Sheet, net of any reserve, and that has not
been disposed of by the Company since the date of the Company Balance Sheet) is,
in all material respects, merchantable, usable and saleable in the ordinary
course of business and consistent with the past practices of the Company;
provided, however, that the representations is this sentence shall not apply to
(i) non-merchantable, non-usable or non-saleable inventory supplied to the
Company by the Buyer or its Affiliate, to the extent the Company is entitled to
return such non-merchantable, non-usable or non-saleable inventory to the Buyer
or its Affiliate under a valid product warranty claim; (ii) items of inventory
that have an expiration date that is less than 180 days from the Closing Date,
provided
29
that such inventory is not in excess of $100,000; and (iii) non-drug of abuse
product inventory that becomes unsaleable because the supply of such non-drugs
of abuse product or products is eliminated or cut by the Buyer or an Affiliate
of the Buyer. The inventory levels, net of reserves as reflected on the Company
Balance Sheet, maintained by the Company are adequate for the conduct of the
Company's operations in the ordinary course of business and consistent with past
practices.
4.23 BANKING RELATIONSHIPS. Schedule 4.23 shows the names and locations of
all banks and trust companies in which the Company has accounts, lines of credit
or safety deposit boxes and, with respect to each account, line of credit or
safety deposit box, the names of all persons authorized to draw thereon or to
have access thereto.
4.24 WARRANTY MATTERS; PRODUCT LIABILITY.
4.24.1 To the Knowledge of the Company and the Sellers, and except as
set forth in this Section 4.24, each product sold, leased, licensed or delivered
by the Company has been in material conformity with all applicable product
specifications and contractual commitments and all express warranties.
4.24.2 To the Knowledge of the Company and the Sellers, the Company
has no replacement or repair Liability, individually or in the aggregate (and to
the Knowledge of the Company and the Sellers, there is no reasonable basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand giving rise to any replacement or repair Liability)
to end users for replacement or repair or other damages in connection with the
replacement or repair of any product supplied to the Company by the Buyer, and
which has not in any way been altered or modified by the Company or its
Affiliates after receipt from the Buyer.
4.24.3 To the Knowledge of the Company and the Sellers, the Company
has no Liability, individually or in the aggregate (and to the Knowledge of the
Company and the Sellers, there is no reasonable basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand giving rise to any Liability) to end users for replacement or repair or
other damages in connection with any product supplied to the Company by any
supplier other than the Buyer, and with respect to any product supplied to the
Company by the Buyer but which has in any way been altered or modified by the
Company or its Affiliates after receipt from the Buyer (including by relabeling,
repacking or adding any items or components to a product or a package), to the
extent the Liability relates to any such alteration or modification by the
Company or its Affiliate.
4.24.4 Schedule 4.24 contains copies of the standard terms and
conditions of sale for the Company (containing applicable warranty and indemnity
provisions, if any). No product sold, leased, licensed or delivered by the
Company is subject to any guaranty, warranty or indemnity beyond the applicable
standard terms and conditions of sale and such other indemnities and warranties
disclosed on Schedule 4.24. There are no existing or, to the Knowledge of the
Company and the Sellers, threatened product liability, warranty, failure to
adequately warn or other similar claims against the Company relating to or
involving the products of the Company except as disclosed on Schedule 4.24.
There are no statements,
30
citations, correspondence or decisions by any Governmental Entity stating that
any such product is defective or unsafe or fails to meet any product warranty or
any standards promulgated by any such Governmental Entity. There have been no
notices of recall served on the Company by any such Governmental Entity with
respect to any such product. To the Knowledge of the Company and the Sellers,
there is no (i) fact relating to any product of the Company that would impose
upon the Company a duty to recall any such product or a duty to warn customers
of a defect in any such product or (ii) latent or overt design, manufacturing or
other defect in any such product; provided, however, that this representation
shall not apply to any product supplied to the Company by the Buyer or its
Affiliate, to the extent the Company is entitled to return such product to the
Buyer or its Affiliate under a valid product warranty claim or the Company
receives payment pursuant to insurance proceeds for any damage related thereto.
Except for normal annual price negotiations conducted in the ordinary course of
the Company's business, no notice of claim has been served against the Company
for material renegotiation or price redetermination of any business transaction
relating to the business of the Company, and, to the Knowledge of the Company
and the Sellers, there are no facts or circumstances upon which any such claim
could reasonably be based. Neither the Company nor the Sellers extends the
representations and warranties under this Section 4.24 to any product supplied
to the Company by the Buyer, Annovacon or any Affiliate of the Buyer, which does
not have an FDA 510(k) clearance/approval.
4.25 DISCLOSURE. None of this Agreement, the Schedules hereto, or any
certificate executed or delivered in connection herewith by the Company or the
Sellers, is false or misleading or contains any misstatement of a material fact,
or omits to state any material fact required to be stated in order to make the
statements herein or therein not misleading in light of the circumstances under
which they were made. There is no fact known to the Company or the Sellers and
not disclosed to the Buyer in writing that is reasonably likely to give rise to
a Company Material Adverse Effect or to have the effect of preventing,
materially delaying, making illegal or otherwise interfering with the sale and
purchase of the Acquired Shares or the other transactions contemplated by this
Agreement.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers as set forth in this
Article 5:
5.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, has the
corporate power and authority to own, lease and operate its assets and property
and to carry on its business as now being conducted, and except as would not
have a Buyer Material Adverse Effect, is duly qualified or licensed to do
business in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary.
5.2 AUTHORITY FOR AGREEMENT. The Buyer has all requisite corporate power
and authority to enter into this Agreement, the Stockholders Agreement and the
other agreements, instruments and documents contemplated to be executed or
delivered by the Buyer in connection herewith, to consummate the transactions
contemplated hereby and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Stockholders
31
Agreement and the other agreements, instruments and documents contemplated to be
executed or delivered by the Buyer in connection herewith, and the consummation
of the transactions and the performance of the Buyer's obligations contemplated
hereby and thereby have been duly and validly authorized by the board of
directors of the Buyer and no other corporate actions or proceedings on the part
of the Buyer are necessary to authorize the execution and delivery of this
Agreement, the Stockholders Agreement and the other agreements, instruments and
documents contemplated to be executed or delivered by the Buyer in connection
herewith. This Agreement, the Stockholders Agreement and the other agreements,
instruments and documents contemplated to be executed by the Buyer in connection
herewith have been duly executed and delivered by the Buyer and constitute valid
and binding obligations of the Buyer, enforceable against it in accordance with
their respective terms, except as enforceability may be limited by bankruptcy
and other laws affecting the rights of creditors generally and general
principles of equity.
5.3 NONCONTRAVENTION.
5.3.1 Neither the execution and delivery by the Buyer of this
Agreement, the Stockholders Agreement and the other agreements, instruments and
documents contemplated to be executed by the Buyer in connection herewith, nor
the performance by the Buyer of its obligations hereunder and thereunder, nor
the consummation by the Buyer of the transactions contemplated hereby and
thereby will (a) conflict with or violate any provision of the certificate of
incorporation and by-laws of the Buyer, (b) conflict with or violate any Legal
Requirement applicable to the Buyer or by which the Buyer or any of its
properties or assets is bound or affected, (c) with or without the giving of
notice or the lapse of time or both, conflict with, or result in any violation
or breach of, or constitute a default under, or alter the rights or obligations
of the Buyer or any third party under, or give to any third party any rights of
termination or cancellation of or rights of amendment or acceleration of, or
result in the creation of any Encumbrance pursuant to, any note, mortgage,
indenture, contract, agreement, lease, license permit, concession, grant,
franchise or other agreement, instrument or obligation to which the Buyer is a
party or by which the Buyer or any of its assets or properties is bound or
affected or which is applicable to the Buyer or any of its assets or properties.
5.3.2 Except for notices required to be given to, and consents
required to be obtained from, the Buyer's lenders, no consent, waiver or
approval of any Person, nor any notice to any Person, is required to be obtained
or made in connection with the execution, delivery or performance by the Buyer
of this Agreement, the Stockholders Agreement or the other agreements,
instruments and documents contemplated to be executed or delivered by the Buyer
in connection herewith. Except as set forth in this Agreement, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required to be obtained or made in connection
with the execution, delivery and performance by the Buyer of this Agreement, the
Stockholders Agreement or the other agreements, instruments and documents
contemplated to be executed or delivered by the Buyer in connection herewith.
5.4 CAPITALIZATION. The authorized capital stock of the Buyer consists of
100,000,000 shares of Buyer Common Stock, 2,666,667 shares of Series A
Convertible Preferred Stock, par value $0.001 per share ("Buyer Series A
Preferred Stock"), and 2,333,333 shares of undesignated Preferred Stock, par
value $0.001 per share (together with the Buyer Series A Preferred Stock, the
"Buyer Preferred Stock"). As of February 26, 2007, (a) 46,239,163 shares
32
of Buyer Common Stock were issued and outstanding, and (b) 53,760,837 shares of
Buyer Common Stock have been authorized and remain available for issuance, of
which (i) 5,347,319 shares remain reserved for issuance pursuant to Buyer 2001
Stock Option and Incentive Plan (the "Buyer Stock Option Plan") subject to
adjustment on the terms set forth in the Buyer Stock Option Plan, (ii) 336,962
shares remain reserved for issuance upon the exercise of outstanding stock
options to purchase Buyer Common Stock that were not granted under the Buyer
Stock Option Plan, (iii) 206,157 shares remain reserved for issuance pursuant to
the Buyer's 2001 Employee Stock Purchase Plan, as amended, and (iv) 305,927
shares were authorized and remain reserved for issuance upon the exercise of
outstanding warrants to purchase shares of Buyer Common Stock. No shares of
Buyer Preferred Stock are issued and outstanding as of the date of this
Agreement. There are outstanding options to purchase 3,776,397 shares of Buyer
Common Stock under the Buyer Stock Option Plan, and options to purchase
1,907,884 shares of Buyer Common Stock remain available for grant thereunder.
Any shares of Buyer Common Stock issued as consideration for the Acquired Shares
hereunder will be, when issued, duly authorized, validly issued, fully paid and
nonassessable.
5.5 BUYER SEC FILINGS AND FINANCIAL STATEMENTS.
5.5.1 The Buyer has filed all required forms, reports and documents
with the SEC since December 1, 2005 (the "Buyer SEC Filings"), each of which has
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, each as in effect on the dates such forms, reports and documents
were filed. None of such Buyer SEC Filings, including any financial statements
or schedules included or incorporated by reference therein, contained, when
filed, any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, provided that the foregoing representation does
not apply to any misstatement or omission in any Buyer SEC Filing filed prior to
the date of this Agreement that was superseded by and corrected in a subsequent
Buyer SEC Filing filed prior to the date of this Agreement. The consolidated
financial statements of the Buyer included in the Buyer SEC Filings, as
superseded by or corrected in a subsequent Buyer SEC Filing filed prior to the
date of this Agreement, complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC in respect thereof and fairly present, in accordance with GAAP applied
on a consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of the Buyer and its consolidated subsidiaries
as of the dates thereof and their consolidated results of operations and changes
in financial position for the periods then ended (subject, in the case of any
unaudited interim financial statements, to normal year-end adjustments). Except
as and to the extent disclosed in the Buyer SEC Filings, since December 31,
2005, there has not been any event, occurrence or development which has had,
individually, or in the aggregate, a Buyer Material Adverse Effect.
5.5.2 Except as and to the extent set forth on the balance sheet of
the Buyer as of December 31, 2005 included in Buyer's Form 10-K for the year
then ended or otherwise disclosed in the Buyer SEC Filings filed and publicly
available prior to the date of this Agreement, the Buyer, as of the date of this
Agreement, does not have any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) except for (a)
33
liabilities or obligations incurred in the ordinary course of business
consistent with past practice since December 31, 2005; (b) liabilities and
obligations incurred in connection with this Agreement and the transactions
contemplated hereby; or (c) liabilities and obligations that individually or in
the aggregate have not had or would not have a Buyer Material Adverse Effect.
5.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Buyer SEC
Filings filed and publicly available prior to the date of this Agreement, there
has not been, since December 31, 2005: (a) any declaration, setting aside or
payment of any dividend or other distribution with respect to the Buyer's
capital stock or securities; (b) any material change in the Buyer's accounting
principles, practices or methods, except as required by GAAP; (c) to the
Knowledge of the Buyer, any event or development that individually or together
with any one or more other events or developments has had or would reasonably be
expected to have a Buyer Material Adverse Effect; or (d) to the Knowledge of the
Buyer any event or development that would individually or together with any one
or more other events or developments reasonably be expected to prevent or
materially delay the Closing or the performance of this Agreement by the Buyer.
5.7 LITIGATION. Except as set forth in the Buyer SEC Filings, there is no
claim, litigation, suit, action and proceeding pending or, to the Knowledge of
the Buyer, threatened against the Buyer, before any Governmental Entity or any
arbitrator that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Buyer Material Adverse Effect or have a material adverse effect on the
ability of the Parties to consummate the transactions contemplated hereby nor,
to the Knowledge of the Buyer, is there any reasonable basis therefor.
5.8 NO BROKER'S OR FINDER'S FEES. The Buyer has not paid or become
obligated to pay any fee or commission to any broker, finder, financial advisor
or intermediary in connection with the transactions contemplated by this
Agreement, except for Xxxxxxxxx Associates, LLC.
ARTICLE 6.
ADDITIONAL AGREEMENTS
6.1 REGISTRATION FOR RESALE.
6.1.1 For purposes of this Agreement, the term "Registrable
Securities" shall mean (i) the shares of Buyer Common Stock acquired by the
Sellers hereunder, (ii) any shares of Buyer Common Stock issued or issuable by
the Buyer in respect of the shares of Buyer Common Stock acquired by the Sellers
hereunder, whether by means of a stock split, stock dividend or otherwise, and
(iii) any other securities issued or issuable by the Buyer in respect of the
shares of Buyer Common Stock referred to in clauses (i) and (ii) above, whether
by means of a merger, consolidation, recapitalization, reorganization or similar
event, but only if at the time of registration the Buyer shall have listed such
other securities for trading on a national securities exchange. Any of the
foregoing securities will cease to be Registrable Securities if and when they
(i) have been registered by the Buyer under the Securities Act and either (A)
disposed of pursuant to such registration statement, or (B) such registration
continues to be effective at the time of inquiry, (ii) have been sold,
transferred, distributed or otherwise disposed of by a Seller
34
(other than upon death by will or in accordance with the laws of descent and
distribution), or (iii) first become eligible for sale pursuant to Rule 144
under the Securities Act.
6.1.2 The Buyer hereby agrees to prepare and file with the SEC a
registration statement (the "Registration Statement") on Form S-3 (or any
successor form), in compliance with the Securities Act, with respect to the
resale of the Registrable Securities, provided that at the time of the filing of
the Registration Statement the Buyer shall be eligible to use Form S-3 (or any
successor short-form registration statement available for such resale that
permits incorporation by reference at least to the same extent as such form)
with respect to the disposition of the Registrable Securities.
6.1.3 The Buyer shall (i) use commercially reasonable efforts to cause
the Registration Statement to become effective no later than 9:00 a.m. on the
date that is the six month anniversary of the Closing Date, and (ii) maintain
the effectiveness of the Registration Statement until the close of business on
the date that is one year after the date the Registration Statement becomes
effective; provided, however, that the Buyer's obligations under this Section
6.1 shall be suspended during any period (A) when the Buyer shall in good faith
conclude in its sole discretion, after consultation with its legal counsel, that
it is advisable to suspend use of any prospectus as a result of pending
corporate developments, the disclosure requirements of the securities laws or
other events deemed material by the Buyer or (B) when the filing or
effectiveness of the Registration Statement could, in the opinion of the Buyer,
after consultation with its financial advisors, impair the Buyer's ability to
pursue a financing, acquisition or other transaction; and provided further, that
no period during which the use of any prospectus shall be suspended pursuant to
clause (A) or clause (B) above shall continue for more than 120 days. The Buyer
shall prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith as may be
necessary in its opinion to comply with its obligations under this Section 6.1.
6.1.4 If the Buyer's obligations under this Section 6.1 are suspended
for any reason, the Buyer shall promptly provide the Sellers with written or
oral notice of both the commencement and termination of the period of
suspension. After receipt of such notice, each Seller hereby agrees that he
shall not offer, sell, pledge, hypothecate, transfer, distribute or otherwise
dispose of, in reliance on the Registration Statement, any of such Seller's
Registrable Securities during any period in which the Buyer's obligations under
this Section 6.1 are suspended. In addition, each Seller hereby acknowledges
that, in order to ensure compliance with xxxxxxx xxxxxxx and other securities
laws, the Buyer from time to time imposes restrictions on the trading of its
securities by its directors, officers, employees and others, and each Seller
hereby agrees to comply with those restrictions as long as they apply to such
Seller.
6.1.5 It shall be a condition to the Buyer's obligations under this
Section 6.1 that each Seller (i) shall have promptly taken all such actions as
the Buyer shall reasonably request in connection with the Registration Statement
and (ii) shall have provided promptly (and in any event within seven business
days) such information and other materials as the Buyer or its counsel shall
request in connection with the Registration Statement. Each Seller hereby
represents, warrants and agrees that all such information provided by such
Seller or on his behalf shall be true, complete and correct. Each Seller shall
comply with the Securities Act and any
35
other Legal Requirements applicable to any disposition of any Registrable
Securities pursuant to the Registration Statement.
6.1.6 The Buyer shall pay all expenses incurred by it in complying
with its obligations under this Section 6.1, including registration and filing
fees, listing fees, printing expenses, messenger and delivery expenses, fees and
expenses of the Buyer's counsel, fees and expenses of the Buyer's accountants,
and the Buyer's internal expenses. Each Seller shall pay all expenses incurred
by such Seller in connection with the disposition of his Registrable Securities,
including any broker's fees or commissions, selling expenses, messenger and
delivery expenses, and fees and expenses of any counsel retained by such Seller.
6.1.7 The Buyer's obligations under this Section 6.1 shall terminate,
with respect to each Seller, on the date on which all of such Seller's
Registrable Securities may be sold within a 90-day period pursuant to Rule 144
under the Securities Act. Each Seller's rights under this Section 6.1 are
personal to such Seller and non-transferable except by will or in accordance
with the laws of descent and distribution.
6.2 STOCKHOLDERS AGREEMENT. At the Closing, Xxxxxx, the Buyer and the
Company shall enter into a Stockholders Agreement substantially in the form of
Exhibit B (the "Stockholders Agreement").
6.3 NON-COMPETITION.
6.3.1 Each of the Sellers hereby agrees that, in consideration of the
Purchase Price paid to such Seller under this Agreement and, in the case of
Xxxxxx, any additional amounts paid or payable under the Stockholders Agreement,
during the Restriction Period (as defined below), such Seller shall not, without
the prior written consent of the Buyer, directly or indirectly, run, own,
manage, operate, control, be employed by, provide consulting services to, be an
officer or director of, participate in, lend his name to, invest in, or
otherwise be connected or affiliated in any manner with the management,
ownership, operation or control of, any business, venture or activity that
engages in selling, marketing, producing, manufacturing, packaging,
distributing, designing or developing any product, product line, or service that
in any way or manner competes with or is similar to any currently existing
product, product line or service of the Company, the Buyer or any of their
Affiliates, or with any product, product line or service of the Company, the
Buyer or any of their Affiliates, which may be in existence or in development at
any time during the Restriction Period; provided, however, that no Seller shall
be considered to be in default of this Section 6.3.1 solely by virtue of holding
for portfolio purposes as a passive investor not more than one percent of the
issued and outstanding equity securities of a corporation, the equity securities
of which are listed or quoted on a stock exchange or an over-the-counter market.
For these purposes, the "Restriction Period" shall mean (a) in the case of
Xxxxxx, the period commencing on the Closing Date and ending on the later of (i)
the fourth anniversary of the Closing Date, and (ii) the third anniversary of
the purchase by the Buyer of the "Remaining Shares" from Xxxxxx as such term is
defined in the Stockholders Agreement, and (b) in the case of each Seller other
than Xxxxxx, the period commencing on the Closing Date and ending on the later
of (i) the fourth anniversary of the Closing Date and (ii) one year after such
Seller ceases to be an employee of the Company.
36
6.3.2 Each of the Sellers hereby agrees that, in consideration of the
Purchase Price paid to such Seller under this Agreement and, in the case of
Xxxxxx, any additional amounts paid or payable under the Stockholders Agreement,
during the Restriction Period, such Seller shall not, without the prior written
consent of the Buyer, directly or indirectly, (a) solicit, persuade, encourage,
hire or take any other action which is intended to induce any other employee of
the Company, the Buyer or any of their Affiliates to terminate his or her
employment with the Company, the Buyer or such Affiliate, (b) interfere in any
manner with the employment relationship between the Company, the Buyer or any of
their Affiliates and any employee of the Company, the Buyer or such Affiliate,
or (c) solicit, persuade, encourage or take any other action which is intended
to induce (i) any manufacturer, supplier or other business partner of the
Company, the Buyer or any of their Affiliates to adversely alter, to modify or
to discontinue its relationship with the Company, the Buyer or such Affiliate,
or (ii) any customer of the Company, the Buyer or any of their Affiliates to
discontinue, or not to commence, purchasing from the Company, the Buyer or such
Affiliate.
6.3.3 If a final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 6.3 is invalid or
unenforceable, the Parties agree that the court making such determination of
invalidity or unenforceability shall be required to reduce the scope, duration,
or geographic area of such term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified.
6.4 CERTAIN TAX MATTERS. The following provisions shall govern the
allocation of responsibility as between the Buyer and the Sellers for certain
tax matters following the Closing Date:
6.4.1 Each Seller shall jointly and severally indemnify the Company,
the Buyer, and each Affiliate of the Buyer and hold them harmless from and
against, without duplication, any loss, claim, liability, expense, or other
damage attributable to (i) all Taxes (or the non-payment thereof) of the Company
for all taxable periods ending on or before the Closing Date and the portion
through the end of the Closing Date for any taxable period that includes (but
does not end on) the Closing Date ("Pre-Closing Tax Period"), (ii) all Taxes of
any member of an affiliated, consolidated, combined or unitary group of which
the Company (or any predecessor of the Company) is or was a member on or prior
to the Closing Date, including pursuant to Treasury Regulation section 1.1502-6
or any analogous or similar Legal Requirement, (iii) any and all Taxes of any
Person (other than the Company) imposed on the Company as a transferee or
successor, by contract or pursuant to any Legal Requirement, which Taxes relate
to an event or transaction occurring before the Closing; and (iv) any other
breach of the representations and warranties contained in Section 4.7.
6.4.2 The Company shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company for all periods ending on or
prior to the Closing Date that are filed after the Closing Date. The Company
shall permit the Buyer to review and comment on each such Tax Return described
in the preceding sentence prior to filing. To the extent permitted by applicable
law, the Company shall include any income, gain, loss, deduction or other tax
items for such periods on its Tax Returns in a manner consistent with the
Schedule K-1s
37
furnished by the Company to the Sellers for such periods. Except as otherwise
required under the Code, in the case of any taxable period that includes (but
does not end on) the Closing Date (a "Straddle Period"), the amount of any Taxes
based on or measured by income or receipts of the Company for any Pre-Closing
Tax Period shall be determined based on an interim closing of the books as of
the close of business on the Closing Date (and for such purpose, the taxable
period of any partnership or other pass-through entity in which the Company
holds a beneficial interest shall be deemed to terminate at such time) and the
amount of other Taxes of the Company for a Straddle Period that relates to the
Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the
entire taxable period multiplied by a fraction the numerator of which is the
number of days in the taxable period ending on the Closing Date and the
denominator of which is the number of days in such Straddle Period. The Company
and the Sellers hereby agree to make an election under Section 1362(e)(3) of the
Code with respect to the procedure set forth in the preceding sentence.
6.4.3 The Company shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company for all periods ending after
the Closing Date. The Company shall permit the Buyer to review, comment on and
approve each such Tax Return described in the preceding sentence prior to
filing. The Buyer and the Company shall cooperate fully, as and to the extent
reasonably requested by the other Party, in connection with the filing of Tax
Returns and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon a Party's request) the
provision of records and information reasonably relevant to any such audit,
litigation, or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company agrees (A) to retain all books and
records with respect to Tax matters pertinent to the Company until expiration of
the statute of limitations (and, to the extent applicable, any extensions
thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) to give the Buyer
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the Buyer so requests, the Company shall allow
the Buyer to take possession of such books and records.
6.4.4 All tax-sharing agreements or similar agreements with respect to
or involving the Company shall be terminated as of the Closing Date and, after
the Closing Date, the Company shall not be bound thereby or have any liability
thereunder.
6.4.5 All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement shall be paid by the Sellers when due, and the
Sellers shall, at their own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable law, the
Buyer shall, and shall cause its affiliates to, join in the execution of any
such Tax Returns and other documentation.
6.4.6 The provisions of this Section 6.4 shall survive the Closing
until the last to expire of the statute of limitations with respect to any
relevant Tax or Taxable periods to which this Section 6.4 relates.
38
6.5 WORKING CAPITAL.
6.5.1 The Parties acknowledge and agree that the Purchase Price has
been agreed upon by the Buyer and the Sellers based on the assumption that the
Working Capital of the Company as of the Closing and prior to the Buyer paying
the Pay-Off Amount to Wachovia Bank (the "Closing Working Capital Amount") shall
be equal to or greater than $4,000,000 (the "Base Working Capital Amount").
Within 10 days after the Closing Date, the Company shall, and the Sellers shall
cause the Company to, prepare and deliver to the Buyer a proposed statement of
the Closing Working Capital Amount, prepared in accordance with GAAP, and the
definition of Working Capital, consistently applied (the "Proposed Statement of
Working Capital"), along with reasonably detailed supporting work papers.
6.5.2 The Buyer shall have a period of 30 days after receiving the
Proposed Statement of Working Capital and work papers in accordance with Section
6.5.1 to review the Proposed Statement of Working Capital and raise any
objections therefore. During such period, the Sellers and the Company shall
fully cooperate with the Buyer (at no cost to the Buyer), and provide the Buyer
and its representatives with full access to the books and records (including
accounting system) and personnel of the Company, as may be reasonably required
by the Buyer to enable it to verify and confirm the information set forth on the
Proposed Statement of Working Capital and accompanying work papers.
6.5.3 The Buyer shall deliver to the Company and the Sellers within 30
days after receiving the Proposed Statement of Working Capital and work papers,
a reasonably detailed statement describing all of the Buyer's objections (if
any) thereto and reasonably detailed explanation of the basis for such objection
(the "Objection Notice"). Absent a manifest error, failure of the Buyer to
timely deliver the Objection Notice shall constitute acceptance by the Buyer of
the Proposed Statement of Working Capital, whereupon the Proposed Statement of
Working Capital shall be final, conclusive and binding on the Parties.
6.5.4 If the Buyer delivers an Objection Notice in accordance with
Section 6.5.3, the Buyer and Sellers shall use reasonable efforts to resolve any
disagreements as to the Closing Working Capital Amount. If the Buyer and the
Sellers are unable to reach agreement with respect to the Closing Working
Capital Amount within 15 days after delivery of the Objection Notice, the Buyer
and Sellers shall select an independent accounting firm, other than their
respective regular independent accounting firms, mutually acceptable to them
(the "Neutral Auditors") to resolve any remaining disagreements. If the Buyer
and the Sellers are unable to agree on the choice of Neutral Auditors, they
shall select as Neutral Auditors an independent accounting firm by lot (after
excluding their respective regular independent accounting firms). The Neutral
Auditors shall determine, within 45 days after their appointment, whether any of
the objections raised by the Buyer are valid and shall deliver to the Buyer and
the Sellers a schedule setting forth in reasonable detail the Neutral Auditors'
determination as to such objections and the Closing Working Capital Amount. The
Company shall, and the Sellers shall cause the Company to, cooperate with and
assist the Neutral Auditors and provide them with full access to all books and
records (including accounting system) and personnel of the Company. In their
determination, the Neutral Auditors shall allocate their fees and expenses
between the Buyer, on one hand, and the Sellers, on the other, on a "loser pays"
basis, so that each such Party's
39
proportionate share of the Neutral Auditors' fees and expenses shall be based on
the degree to which the Neutral Auditors chose the position of the other Party.
6.5.5 The Closing Working Capital Amount (i) set forth on the Proposed
Working Capital Statement, if not objected to by the Buyer in accordance with
Section 6.5.3, (ii) agreed to by the Buyer and the Seller in accordance with
Section 6.5.4, or (iii) as determined by the Neutral Auditor in accordance with
Section 6.5.4, whichever is the case, shall for all purposes of this Agreement
be the "Final Working Capital Amount."
6.5.6 If the Final Working Capital Amount is less than the Base
Working Capital Amount, the Sellers shall, jointly and severally, be obligated
to pay to the Company, and shall pay to the Company, within 10 days after the
date on which the Final Closing Statement Amount is finally determined pursuant
to this Section 6.5, an amount equal to the excess of the Base Working Capital
Amount over the Final Working Capital Amount (plus interest thereon from the
Closing Date at the interest rate equal to the six-month LIBOR rate as published
from time to time in the Wall Street Journal).
6.5.7 The Buyer acknowledges that prior to the Closing, there may be
distributions of cash from the Company to the Sellers. So long as the Base
Working Capital Amount at Closing is equal to or greater than $4,000,000, such
cash distributions will deemed to be made in the ordinary course of the
Company's business and not to be in breach of any representation or warranty
made by the Sellers.
6.6 PRO FORMA FINANCIAL INFORMATION.
6.6.1 The Company and the Sellers will cooperate in all reasonable
respects with the Buyer in Buyer's preparation of the pro forma financial
information relating to the acquisition of a 75% ownership interest in the
Company by the Buyer (the "Pro Forma Financial Statements") required pursuant to
Item 9 of the Current Report on Form 8-K as contemplated by the Exchange Act and
the rules and regulations promulgated thereunder (the "Pro Forma Information"
and together with the Pro Forma Financial Statements, the "Required
Information"), including providing such financial and other information, records
and documents as may be required to prepare such Pro Forma Information,
providing and facilitating access to the Company's and each Seller's advisors
and accountants as may be required to prepare such Pro Forma Information, and
generally cooperating with the Buyer's reasonable requests in order to
facilitate and assist in such preparation.
6.6.2 The Company and the Sellers further acknowledge that the
foregoing financial information, including audited financial statements of the
Company for 2005 and 2006, must be filed by the Buyer with the SEC under cover
of an amendment to a Current Report on Form 8-K not more than 71 calendar days
after the initial filing of such Current Report on Form 8-K, which initial
filing must be filed by the Buyer with the SEC not later than four days (as
calculated under the SEC's rules and regulations) after the Closing Date.
Accordingly, the Company and the Sellers acknowledge and agree that time is of
the essence with respect to the observance of the provisions of this Section
6.6. The Company and the Sellers also acknowledge and agree that any Buyer
filings under the Securities Act, including any filings required pursuant to
Section 6.1, that require the Required Information also necessitate timely
cooperation
40
(including cooperation in the performance of incremental audit procedures
necessary) by the Company and the Sellers to facilitate the execution of an
accountant's consent. The Company and the Sellers covenant and agree to promptly
cooperate to facilitate such actions and will use commercially reasonable
efforts to cause Colby & Company to perform such procedures and deliver any such
consent from time to time at the request of the Buyer.
ARTICLE 7.
CONDITIONS PRECEDENT
7.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH PARTY. The obligations
of the Parties to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment at or prior to the Closing of each of the
following conditions:
7.1.1 NO ADVERSE PROCEEDINGS. No injunction or restraining or other
order issued by a court of competent jurisdiction that prohibits or materially
restricts the consummation of the transactions contemplated hereby shall be in
effect (each Party agreeing to use all reasonable efforts to have any injunction
or other order immediately lifted), and no action or proceeding shall have been
commenced or threatened in writing seeking any injunction or restraining or
other order that seeks to prohibit, restrain, invalidate or set aside
consummation of the transactions contemplated hereby.
7.1.2 ILLEGALITY. There shall not have been any action taken, and no
statute, rule or regulation shall have been enacted, by any Government Entity
that would prohibit or materially restrict the consummation of the transactions
contemplated hereby.
7.2 CONDITIONS PRECEDENT TO OBLIGATION OF THE BUYER. The obligation of the
Buyer to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment (unless waived in writing by the Buyer) at or prior
to the Closing of each of the following additional conditions:
7.2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Seller contained in this Agreement shall be true and correct
in all material respects on and as of the Closing, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing; and the Sellers shall have delivered to the Buyer
a certificate to that effect, dated the Closing Date and signed by each Seller.
7.2.2 AGREEMENTS AND COVENANTS. The Company and the Sellers shall have
performed in all material respects all of their respective agreements and
covenants set forth herein that are required to be performed at or prior to the
Closing; and the Company and the Sellers shall have delivered to the Buyer a
certificate to that effect, dated the Closing Date and signed by the Company and
by each Seller.
7.2.3 CLOSING DOCUMENTS. The Company and the Sellers shall have
delivered to the Buyer such closing documents as are required hereby, including
the stock certificates and other instruments described in Section 2.2.
41
7.2.4 STOCKHOLDERS AGREEMENT. The Company and Xxxxx X. Xxxxxx shall
have executed the Stockholders Agreement and delivered it to the Buyer.
7.2.5 LENDERS' CONSENT. The Buyer shall have received all necessary
consents with respect to its purchase of the Acquired Shares and the
consummation of the transactions contemplated by this Agreement then required
under any loan agreement with the Buyer or any of its subsidiaries.
7.2.6 DIVIDEND RECAPITALIZATION LOAN. The amount outstanding
immediately prior to Closing under the Company's $5,000,000 Promissory Note
dated as of October 6, 2006 in favor of Wachovia Bank shall not exceed
$3,000,000.
7.2.7 GUARANTEES AND CO-BORROWING ARRANGEMENTS. The Company and its
subsidiaries shall have no obligations guaranteeing any monetary obligation of
any Person other than the Company and its subsidiaries, and the Company and its
subsidiaries shall have been removed as co-borrowers or guarantors from any loan
relating to, and shall have no obligations to Wachovia Bank with respect to, the
real property owned by Xxxxxx, LLC.
7.2.8 LEASES. The Company shall have entered into written lease
agreements with Xxxxxx, LLC for spaces at 000 Xxxxxxx Xxxxxx and 000 Xxxxxxx
Xxxxxx on terms acceptable to the Buyer.
7.2.9 REGULATORY. The Company shall have prepared, adopted and begun
implementation of the Corrective and Preventative Action program described on
Schedule 7.2.9.
7.2.10 WACHOVIA PAY OFF. The Company shall have received a pay-off
letter from Wachovia Bank setting forth the amount necessary to pay in full any
indebtedness owed at Closing by the Company or any of its subsidiaries to
Wachovia Bank (the "Pay-Off Amount"), and the Pay-Off Amount shall not exceed
$6,601,773.22. The pay-off letter shall indicate that upon receipt of the
Pay-Off Amount, Wachovia Bank will release all liens and security interests on
the assets of the Company and any of its subsidiaries.
7.2.11 PAYMENT TO EMPLOYEE. The Sellers shall have paid in full any
and all amounts due Xxxx Xxxxxxx pursuant to the Offer Letter dated November 14,
2005 between the Company and Xx. Xxxxxxx, the Buyer shall have been provided
satisfactory evidence of such payment, and Xx. Xxxxxxx shall have executed and
delivered to the Company a termination agreement and release substantially in
the form of Exhibit C.
7.2.12 OPINION OF COMPANY COUNSEL. The Buyer shall have received from
Xxxx, Xxxxx & Xxxxxxx, P.C., counsel to the Company, an opinion in the form of
Exhibit D.
7.2.13 FIRPTA AFFIDAVITS AND STATEMENT. Buyer shall have received (A)
from each Seller, a non-foreign affidavit dated as of the Closing Date, sworn
under penalty of perjury and in form and substance required under the Treasury
Regulations issued pursuant to Code section 1445 stating that such Seller is not
a "foreign person" as defined in Code section 1445; and (B) from the Company, a
statement pursuant to Treas. Reg. section 1.897-2(h), dated no more than 30 days
prior to the Closing Date, certifying that the Acquired Shares do not constitute
a U.S. real property interest described in Code section 897.
42
7.2.14 RESIGNATIONS OF DIRECTORS AND OFFICERS. Each of Xxxxx X.
Xxxxxx, Xxxxxx X. Xxxxxx and Xxxxxx Xxxxxxx shall have executed and delivered to
the Company a resignation as director and officer of the Company, in each case
in form and substance reasonably acceptable to the Buyer.
7.2.15 QUALIFICATION IN OTHER JURISDICTIONS. The Company shall have
filed applications to qualify to do business in each jurisdiction identified on
Schedule 4.1.1 and designated by the Buyer prior to the Closing Date.
7.3 CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligation of the Company
and the Sellers to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment (unless waived by the Sellers) at or prior
to the Closing of the following additional conditions:
7.3.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Buyer contained in this Agreement shall be true and correct in
all material respects on and as of the Closing, except for changes contemplated
by this Agreement and except for those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct as of such date), with the same force and effect as if made on and as of
the Closing; and the Buyer shall have delivered to the Sellers a certificate to
that effect, dated the Closing Date and signed by the Buyer.
7.3.2 AGREEMENTS AND COVENANTS. The Buyer shall have performed in all
material respects all of its agreements and covenants set forth herein that are
required to be performed at or prior to the Closing; and the Buyer shall have
delivered to the Sellers a certificate to that effect, dated the Closing Date
and signed by the Buyer.
7.3.3 CASH CONSIDERATION. The Buyer shall have delivered to each
Seller by check or wire transfer the Cash Consideration due such Seller pursuant
to this Agreement as set forth on Exhibit A.
7.3.4 CONSIDERATION SHARES. The Buyer shall have delivered to each
Seller written confirmation of the Buyer's transfer agent that such transfer
agent has been instructed by the Buyer to issue and deliver to each Seller, as
soon as practicable after the Closing Date, stock certificates representing the
Consideration Shares issued to such Seller pursuant to this Agreement as set
forth on Exhibit A.
7.3.5 STOCKHOLDERS AGREEMENT. The Buyer shall have executed the
Stockholders Agreement and delivered it to the Company and Xxxxxx.
7.3.6 WACHOVIA PAYMENT. The Buyer shall have paid Wachovia Bank the
Pay-Off Amount.
43
ARTICLE 8.
INDEMNIFICATION
8.1 SELLERS' AGREEMENT TO INDEMNIFY.
8.1.1 The Sellers, jointly and severally, hereby agree (without any
right of indemnification, contribution or subrogation from or against the
Company), to indemnify, defend and hold harmless the Buyer and each of the
Buyer's directors, officers, employees, agents and Affiliates (collectively, the
"Buyer Indemnified Persons") from and against any claim, demand, suit,
proceedings, loss, deficiency, obligation, liability, damage, cost or expense
(including reasonable attorneys' fees and disbursements and other reasonable
litigation costs and expenses) suffered, incurred or paid by any Buyer
Indemnified Person (collectively referred to as "Buyer Claims") for any of the
following: (a) as a result of any breach of any representation or warranty of
the Company or any Seller in this Agreement, or in any certificate, instrument
or document delivered in connection with this Agreement, and (b) as a result of
any breach of any covenant or agreement of the Company or any Seller in this
Agreement.
8.1.2 With respect to any Buyer Indemnified Person other than the
Buyer, the Sellers acknowledge and agree that the Buyer is contracting on its
own behalf and for such Indemnified Person, and the Buyer shall obtain and hold
the rights and benefits provided for in this Section 8.1 in trust for and on
behalf of such Buyer Indemnified Person.
8.1.3 Solely for purposes of determining the amount of any Buyer Claim
resulting from any breach of any representation, warranty, covenant or agreement
(but not for purposes of determining whether or not any such breach has
occurred), such amount shall be determined as if each such representation,
warranty, covenant or agreement contained no qualification as to materiality or
Company Material Adverse Effect.
8.2 BUYER'S AGREEMENT TO INDEMNIFY.
8.2.1 The Buyer hereby agrees to indemnify, defend and hold harmless
each of the Sellers from and against any claim, demand, suit, proceedings, loss,
deficiency, obligation, liability, damage, cost or expense (including reasonable
attorneys' fees and disbursements and other reasonable litigation costs and
expenses) suffered, incurred or paid by any Seller (collectively referred to as
"Seller Claims") for any of the following: (a) as a result of any breach of any
representation or warranty of the Buyer in this Agreement, or in any
certificate, instrument or document delivered in connection with this Agreement,
and (b) as a result of any breach of any covenant or agreement of the Buyer in
this Agreement.
8.2.2 Solely for purposes of determining the amount of any Seller
Claim resulting from any breach of any representation, warranty, covenant or
agreement (but not for purposes of determining whether or not any such breach
has occurred), such amount shall be determined as if each such representation,
warranty, covenant or agreement contained no qualification as to materiality or
Buyer Material Adverse Effect.
44
8.3 CLAIMS FOR INDEMNIFICATION.
8.3.1 Whenever any claim shall arise for indemnification hereunder the
Person seeking indemnification (the "Indemnified Person"), shall promptly notify
in writing the party from whom indemnification is sought (the "Indemnifying
Person") of the claim ("Claim Notice") and, when known, the facts constituting
the basis for such claim and the amount or an estimate of the amount of the
liability arising therefrom.
8.3.2 If the Claim Notice does not involve a third party claim, and if
the Indemnifying Person objects in writing within 20 business days of its
receipt of the Claim Notice to any indemnity in respect of any such Claim
Notice, then the Indemnifying Person and the Indemnified Person sending such
Claim Notice shall attempt in good faith to agree upon the rights of the
respective parties with respect to each claim. If the Indemnifying Person and
the Indemnified Person so agree, the Indemnifying Person shall promptly make the
agreed-upon payment. If no such agreement can be reached after good faith
negotiation, then such dispute shall be resolved in accordance with the terms of
Article 9.
8.4 THIRD PARTY CLAIMS PROCEDURES. If a claim or demand by a third party is
made against an Indemnified Person, and if such Indemnified Person intends to
seek indemnity with respect thereto under this Article 8 or under any other
provision of this Agreement providing for indemnification, such Indemnified
Person shall promptly notify the Indemnifying Person in writing of such claims
or demands setting forth such claims in reasonable detail. The failure of the
Indemnified Person to give the Indemnifying Person prompt notice as provided
herein shall not relieve the Indemnifying Person of any of its obligations under
this Article 8, except to the extent that the Indemnifying Person is materially
prejudiced by such failure. The Indemnifying Person shall have 30 days after
receipt of such notice to undertake, conduct and control, through counsel of its
own choosing (but reasonably satisfactory to the Indemnified Person) and at its
own expense, the settlement or defense thereof, and the Indemnified Person shall
cooperate with it in connection therewith; provided, however, that the
Indemnified Person may participate in such settlement or defense through counsel
chosen by such Indemnified Person and the fees and expenses of such counsel
shall be borne by such Indemnified Person unless (i) the employment thereof has
been specifically authorized by the Indemnifying Person in writing, (ii) the
Indemnifying Person is also a Person against whom the claim or demand is made
and the Indemnified Person determines in good faith that joint representation
would be inappropriate, or (iii) the Indemnifying Person has after a reasonable
time failed to employ counsel and assume or to diligently continue to maintain
such defense, in each of which events the Indemnified Person may retain counsel
which shall be reasonably satisfactory to the Indemnifying Person, and the
Indemnifying Person shall pay the reasonable fees and expenses of such counsel
for the Indemnified Person (but in no event shall the Indemnifying Person be
obligated to pay the fees and expenses of more than one firm for all Indemnified
Parties). So long as the Indemnifying Person is reasonably contesting any such
claim in good faith, the Indemnified Person shall not pay or settle any such
claim without the prior written consent of the Indemnifying Person. If the
Indemnifying Person does not notify the Indemnified Person within 30 days after
the receipt of the Indemnified Person's notice of a claim of indemnity hereunder
that it elects to undertake the defense thereof (or does not fulfill its
commitment to undertake such defense), the Indemnified Person shall have the
right to contest, settle or compromise the claim but shall not thereby waive any
right to indemnity therefor pursuant to this Agreement. The Indemnifying Person
shall not,
45
except with the prior written consent of the Indemnified Person, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the Person asserting such claim to all
Indemnified Parties (i.e., Seller Indemnified Persons or Buyer Indemnified
Persons, as the case may be) an unconditional release from all liability with
respect to such claim.
8.5 LIMITATIONS ON INDEMNIFICATION.
8.5.1 Subject to the provisions of Section 8.5.6, no indemnification
shall be payable pursuant to this Article 8 with respect to any claim for breach
of a representation or warranty unless (a) the Claim Notice with respect to such
claim is made within 12 months of the Closing and (b) the Indemnified Person
files a law suit with respect to such claim within 120 days of the later of (i)
the date such Claim Notice is made and (ii) the expiration of such 12-month
period; except that in the case of a breach of a representation or warranty
contained in Section 3.1 (Ownership of Company Common Stock), Section 3.2.1
(Authority), Section 3.3 (Certain Agreements), Section 4.2 (Capitalization),
Section 4.3 (Authority), Section 4.7 (Tax Matters), Section 4.13 (Employee
Benefit Plans) or Section 5.2 (Authority) (all such representation and
warranties collectively, "Long Term Warranties"), a claim may be made up until
expiration of the applicable statute of limitations period, and such law suit
shall have to be filed within 120 days after the date the Claim Notice is made.
The covenants and agreements of the Sellers, the Company and the Buyer in this
Agreement shall survive in accordance with their respective terms.
8.5.2 Subject to the provisions of Section 8.5.6, the Sellers shall
not have any obligation to indemnify the Buyer Indemnified Persons under this
Article 8 from and against any Buyer Claims unless and until the aggregate
amount of all such Buyer Claims to all Buyer Indemnified Persons (exclusive, but
only for purposes of determining whether the Threshold Amount has been exceeded,
expenses of investigation, including attorneys' and experts' fees and costs
relating to investigation) exceeds $350,000 (the "Threshold Amount"). Once the
aggregate Buyer Claims to all Buyer Indemnified Persons do exceed the Threshold
Amount, the Sellers shall, jointly and severally, indemnify the Buyer
Indemnified Persons from and against the total amount of such Buyer Claims,
including the Threshold Amount (including any and all expenses of investigation,
including attorneys' and experts' fees and costs relating to investigation). The
provisions of this Section 8.5.2 shall not apply to any Seller's or the
Company's breach of his, her or its respective covenants and agreements in this
Agreement.
8.5.3 Subject to the provisions of Section 8.5.6, the Buyer shall not
have any obligation to indemnify the Sellers under this Article 8 from and
against any Seller Claims unless and until the aggregate amount of all such
Seller Claims to all Sellers (exclusive, but only for purposes of determining
whether the Threshold Amount has been exceeded, expenses of investigation,
including attorneys' and experts' fees and costs relating to investigation)
exceeds the Threshold Amount. Once the aggregate Seller Claims to all Sellers do
exceed the Threshold Amount, the Buyer shall indemnify the Sellers from and
against the total amount of such Seller Claims, including the Threshold Amount
(including any and all expenses of investigation, including attorneys' and
experts' fees and costs relating to investigation). The provisions of this
Section 8.5.3 shall not apply to the Buyer's breach of its covenants and
agreements in this Agreement.
46
8.5.4 Subject to the provisions of Section 8.5.6, the total liability
of the Sellers to indemnify the Buyer Indemnified Persons under this Article 8
from and against any Buyer Claims relating to breaches of representations and
warranties (other than Long Term Warranties), shall be limited to $10,931,250;
provided, however, that without limiting the foregoing the total liability of
the Sellers to indemnify the Buyer Indemnified Persons under this Article 8
relating to breaches of representations and warranties contained in Section 4.11
(Regulatory Matters) shall be limited to $4,372,500. Subject to the provisions
of Section 8.5.6, the total liability of the Sellers to indemnify the Buyer
Indemnified Persons under this Article 8 from and against any Buyer Claims
relating to breaches of Long Term Warranties, shall be limited to an amount
equal to the Purchase Price. Subject to the provisions of Section 8.5.6, the
total liability of the Buyer to indemnify the Seller Indemnified Persons under
this Article 8 from and against any Seller Claims relating to breaches of
representations and warranties (other than Long Term Warranties), shall be
limited to $10,931,250. Subject to the provisions of Section 8.5.6, the total
liability of the Buyer to indemnify the Seller Indemnified Persons under this
Article 8 from and against any Seller Claims relating to breaches of Long Term
Warranties, shall be limited to an amount equal to the Purchase Price. The
provisions of this Section 8.5.4 shall not apply to the Sellers', the Company's
or the Buyer's breach of their respective covenants and agreements pursuant to
this Agreement.
8.5.5 Notwithstanding anything to the contrary herein contained, with
respect to (i) a breach by a particular Seller of any representation or warranty
set forth in Article 3 or (ii) a breach by a particular Seller of any of the
provisions of Section 6.3, only the Seller that commits such breach, and no
other Seller, shall be liable and responsible for such breach pursuant to the
provisions hereof.
8.5.6 The limitations on indemnification set forth in this Section 8.5
shall not apply to any fraud or intentional misrepresentation by any Party.
8.5.7 The amount of any claim for indemnification under this Article 8
shall be net of any insurance proceeds received or receivable by the Indemnified
Person on account of such claim (after deduction for any cost of collection,
deductible, retroactive premium adjustment, reimbursement obligation or other
cost directly related to such insurance claim).
8.6 SET-OFF. A Buyer Indemnified Person shall be entitled to satisfy
indemnification claims under this Article 8 by setting off such indemnification
claims against any payments due Xxxxxx for his Remaining Shares under the
Stockholders Agreement. The Buyer shall provide Xxxxxx with at least seven days
prior notice before setting off an indemnification claim against any such
payment. In the event a Buyer Indemnified Person has made a claim for
indemnification under this Article 8, and such claim for indemnification has not
yet been resolved as of the date a payment is due Xxxxxx under the Stockholders
Agreement, the Buyer may withhold an amount equal to the amount claimed in good
faith by the Buyer Indemnified Person until such claim for indemnification is
resolved in accordance with the terms of this Agreement.
8.7 EXCLUSIVE REMEDY. Except in case of fraud or intentional
misrepresentation by any Party, the rights and remedies of the Parties to assert
indemnification claims and receive indemnification payments pursuant to this
Article 8 shall be the Parties' exclusive right and
47
remedy for monetary damages with respect to any breach by any Party of any
representation, warranty, covenant or agreement set forth in this Agreement.
Notwithstanding the foregoing, each Party shall be entitled to seek equitable
relief, including specific performance, with respect to any breach by any Party
of any covenants set forth in this Agreement.
8.8 RELEASE OF CLAIMS. Each Seller, on such Seller's own behalf and, to the
extent of such Seller's legal authority, on behalf of such Seller's successors,
assigns, heirs, next-of-kin, representatives, administrators, executors, agents
and Affiliates, and any other Person claiming by, through, or under any of the
foregoing, does hereby unconditionally and irrevocably release, waive and
forever discharge, effective as of the Closing, the Company, and each of its
past and present directors, officers, employees, agents, predecessors,
successors, assigns, stockholders, insurers, subsidiaries and Affiliates
(collectively, the "Released Parties"), from any and all claims, demands,
damages, judgments, causes of action and liabilities of any nature whatsoever,
whether or not known, suspected or claimed, arising directly or indirectly from
any act, omission, event or transaction occurring (or any circumstances
existing) on or prior to the Closing (the "Released Claims"), including any and
all of the foregoing arising out of or relating to (i) such Seller's capacity as
a current or former stockholder, option holder or other security holder,
director, officer, employee or agent of the Company or any of its predecessors,
subsidiaries or Affiliates (or such Seller's capacity as a current or former
trustee, director, officer, employee, member, manager, partner or agent where
such Seller is or was serving at the request of the Company), (ii) any rights of
indemnification or contribution existing as of the Closing, whether pursuant to
the Released Parties' certificate of incorporation, by-laws, other
organizational document, applicable law, contract or otherwise (other than such
rights arising from such Seller's services as a director or officer of the
Company or any subsidiary or Affiliate thereof), or (iii) any contract,
agreement or other arrangement (whether verbal or written, but excluding this
Agreement and the Stockholders Agreement) entered into or established prior to
the Closing, including any contracts, agreements or other arrangements required
to be disclosed on the Schedules hereto and any stockholder agreements, investor
agreements, employment agreements or non-competition agreements, in all cases
whether or not known, suspected or claimed, arising directly or indirectly from
any act, omission, event or transaction occurring (or any circumstances
existing) on or prior to the Closing. Each Seller understands that this is a
full and final general release of all claims, demands, damages, judgments,
causes of action and liabilities of any nature whatsoever, whether or not known,
suspected or claimed, that could have been asserted in any legal or equitable
proceeding against the Released Parties. Notwithstanding the foregoing
provisions of this Section 8.8, nothing contained in this Agreement shall be
construed as an admission by any Party of any liability of any kind to any other
Party.
ARTICLE 9.
DISPUTE RESOLUTION
9.1 LEGAL PROCEEDINGS. Each of the Parties hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of The Commonwealth of Virginia located in Norfolk, Virginia and of the United
States of America located in Norfolk, Virginia (the "Virginia Courts") for any
litigation arising out of or relating to this Agreement, the negotiation,
validity or performance of this Agreement, or the transactions
48
contemplated by this Agreement. Each of the Parties (i) agrees not to commence
any litigation relating to this Agreement, the negotiation, validity or
performance of this Agreement, or the transactions contemplated by this
Agreement, except in the Virginia Courts, (ii) waives any objection to the
laying of venue of any such litigation in the Virginia Courts, and (iii) agrees
not to plead or claim in any Virginia Court that such litigation brought therein
has been brought in any inconvenient forum. Each of the Parties agrees, to the
extent such Party is not otherwise subject to service of process in The
Commonwealth of Virginia that service of process may also be made on such Party
by prepaid certified mail with a proof of mailing receipt validated by the
United States Postal Service constituting evidence of valid service. Service
made pursuant to the immediately preceding sentence shall have the same legal
force and effect as if served upon such Party personally within The Commonwealth
of Virginia.
ARTICLE 10.
MISCELLANEOUS
10.1 ENTIRE AGREEMENT. This Agreement and the other agreements, instruments
and documents among the Parties as contemplated by or referred to herein
constitute the entire agreement among the Parties with respect to the subject
matter hereof, and supersede all other prior agreements and understandings, both
written and oral, among the Parties with respect to the subject matter hereof.
10.2 AMENDMENTS AND SUPPLEMENTS. This Agreement may not be amended,
modified or supplemented by the Parties in any manner, except by an instrument
in writing signed by all Parties to this Agreement.
10.3 WAIVER. The terms and conditions of this Agreement may be waived only
by a written instrument signed by the Party waiving compliance. The failure of
any Party to enforce at any time any of the provisions of this Agreement shall
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 or non-compliance with this Agreement shall be held to be a waiver of
any other or subsequent breach or non-compliance. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
Party may otherwise have at law or in equity.
10.4 COVENANTS OF SELLERS. The Sellers shall cause the Company to perform
all of the Company' obligations pursuant to this Agreement.
10.5 FURTHER ASSURANCES. At any time and from time to time after the
Closing, the Parties agree to cooperate with each other to execute and deliver
such other documents, instruments or transfer or assignment, files, books and
records, and to do all such further acts and things, as may be reasonably
required to carry out the transactions contemplated hereby.
10.6 GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the substantive laws of The Commonwealth of
Virginia, without regard to principles of conflicts of laws of The Commonwealth
of Virginia or any other jurisdiction.
49
10.7 INTERPRETATION; CERTAIN DEFINED TERMS.
10.7.1 A reference to an Article, Section, Exhibit or Schedule shall
mean an Article of, a Section in, or Exhibit or Schedule to, this Agreement
unless otherwise expressly stated. The titles and headings contained in this
Agreement are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation." Reference to a statute
herein is to such statute, as amended.
10.7.2 For purposes of this Agreement, "Knowledge" means, with respect
to any fact, circumstance, event or other matter in question, the admission or
actual Knowledge of such fact, circumstance, event or other matter of (a) an
individual, if used in reference to an individual, or (b) any corporate officer
of such Party if used in reference to a Person that is not an individual.
Without limiting the foregoing, any such individual (including such officer)
will be deemed to have actual knowledge of a particular fact, circumstance,
event or other matter if such fact, circumstance, event or other matter is
reflected in one or more documents (whether written or electronic, including
e-mails) sent to or by such individual or which came to the attention of such
individual, in each case whether or not actually read.
10.8 EXPENSES. Each Party shall bear the expenses, costs and fees
(including all expenses, costs, fees and disbursements of attorneys,
consultants, investment bankers and other financing advisors, brokers and
finders, and accountants) incurred by such Party in connection with the
negotiation, preparation or performance of this Agreement and the consummation
by such Party of the transactions contemplated hereby whether or not the
transactions contemplated by this Agreement are consummated.
10.9 NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered by hand, sent by facsimile
transmission with confirmation of receipt, sent via a reputable courier service
with confirmation of receipt requested, or mailed by registered or certified
mail (postage prepaid and return receipt requested) to the Parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice), and shall be deemed given on the date on which delivered by
hand or on the date of receipt as confirmed:
To the Buyer:
Inverness Medical Innovations, Inc.
00 Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxxxxx 00000
Attention: Legal Department
Facsimile: (000) 000-0000
With a copy to:
Xxxxxxx X. Xxxx, Esq.
Xxxxx Xxxx LLP
50
000 Xxxxxxx Xxxxxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile: (000) 000-0000
To the Company or to any Seller:
Instant Technologies, Inc.
000 Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
With a copy to:
Xxxxxxx X. Xxxxxxxxxx, Esq.
Xxxx, Xxxxx & Xxxxxxx, P.C.
0000 Xxxxxxxx Xxxxxx
Xxxxxxxx Xxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
10.10 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and assigns. This
Agreement is not intended to confer upon any person other than the Parties and
the Indemnified Persons (and such Parties' and Indemnified Persons' respective
successors and assigns) any rights or remedies hereunder, except as otherwise
expressly provided herein.
10.11 ASSIGNMENT. Neither this Agreement nor any of the rights and
obligations of the Parties hereunder shall be assigned or delegated, whether by
operation of law or otherwise, without the written consent of all Parties;
provided, however, that the consent of the Company and the Sellers shall not be
required for: (a) an assignment by the Buyer of any or all of its rights (but
not obligations) hereunder to any one or more of its lenders, including a pledge
by the Buyer of the Acquired Shares to one or more of its lenders; (b) an
assignment by the Buyer of this Agreement and its rights and obligations
hereunder to any one or more of its Affiliates, provided that the Buyer remains
liable and responsible for such fulfillment by such Affiliate or Affiliates; (c)
an assignment by the Buyer of this Agreement and its rights and obligations
hereunder in connection with the sale, however effected of its ownership
interest in the Company, provided that (i) the acquirer agrees in writing to
assume and fulfill all of the Buyer's obligations under this Agreement, and (ii)
the Buyer shall remain liable and responsible for such fulfillment by the
acquirer; and (d) an assignment by the Buyer of this Agreement and its rights
and obligations hereunder in connection with the sale, however effected (whether
through a merger, sale of stock, sale of all or substantially all of the assets,
or a similar business combination) of all or substantially all of the stock or
assets of the Buyer, provided that the acquirer agrees in writing to assume and
fulfill the obligations of the Buyer under this Agreement.
10.12 PUBLIC ANNOUNCEMENTS. No Party to this Agreement shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement and the transactions contemplated hereby without the prior
written approval of the other Parties,
51
except that the Buyer may make any disclosure required by law or any listing
agreement with the American Stock Exchange LLC.
10.13 RULES OF CONSTRUCTION. The Parties agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the Party drafting such agreement or document.
10.14 VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
10.15 COUNTERPARTS; FACSIMILE. This Agreement may be executed in one or
more counterparts, all of which together shall constitute one and the same
agreement. This Agreement may be executed and delivered by facsimile.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
52
IN WITNESS WHEREOF, the Parties have caused this Stock Purchase Agreement
to be executed as an agreement under seal as of the date first above written.
INVERNESS MEDICAL INNOVATIONS, INC.
By: /s/ Xxxxx Xxxxxx
------------------------------------
Name: Xxxxx Xxxxxx
----------------------------------
Title: Chief Financial Officer
---------------------------------
/s/ Xxxxx X. Xxxxxx
----------------------------------------
XXXXX X. XXXXXX
/s/ Xxxxxx X. Xxxxxx
----------------------------------------
XXXXXX X. XXXXXX
/s/ Xxxx Xxxxxx
----------------------------------------
XXXX XXXXXX
/s/ Xxxxxx Xxxxxxx
----------------------------------------
XXXXXX XXXXXXX
INSTANT TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
----------------------------------
Title: President
---------------------------------
53
Exhibit A
COMPANY COMMON CONSIDERATION
NAME OF SELLER STOCK OWNED SHARES SOLD CASH CONSIDERATION SHARES
-------------- -------------- ------------ ------------------ -------------
Xxxxx X. Xxxxxx 750 shares 437.5 shares $13,434,789.44 174,838
Xxxxxx X. Xxxxxx 250 shares 250 shares $ 7,448,042.65 69,753
Xxxx Xxxxxx 125 shares 125 shares $ 3,974,021.32 34,876
Xxxxxx Xxxxxxx 125 shares 125 shares $ 4,074,021.32 34,876
------------ ------------ -------------- -------
TOTALS 1,250 SHARES 937.5 SHARES $30,607,500.00 313,888
============ ============ ============== =======
54
EXHIBITS AND SCHEDULES
Exhibits
--------
Exhibit B Stockholders Agreement
Exhibit C Xxxxxxx Agreement and Release
Exhibit D Opinion of Xxxx, Xxxxx & Xxxxxxx, P.C.
Schedules
---------
Schedule 3.4 Broker's and Finder's Fees
Schedule 4.1.1 Jurisdictions Outside of Virginia
Schedule 4.1.3 Directors and Officers
Schedule 4.1.4 Capital Stock Owned
Schedule 4.2.2 Outstanding Agreements with Respect to Shares in Company
Schedule 4.4.1 No Violation of Company Documents or any Agreement
Schedule 4.4.2 Consents, Waivers or Approvals Required
Schedule 4.5.2 Material Liabilities
Schedule 4.6.1 Company Material Adverse Effect
Schedule 4.7.4 Tax Returns
Schedule 4.7.10 Taxable Income Included/Deduction Excluded
Schedule 4.8.1 Company Real Property
Schedule 4.8.3 Title to Assets/Leasehold Interests
Schedule 4.9.2 Company Patents/Marks/Copyrights
Schedule 4.9.3 Company Patents/Marks/Copyrights Assignable
Schedule 4.9.5 Obligations to Pay Royalties
Schedule 4.9.14 Products Sold, Licensed or Made Available by the Company
Schedule 4.11.1 Compliance with U.S. Food and Drug Administration Requirements
Schedule 4.11.2 Compliance with Clinical Laboratory Improvement Act of 1988
Schedule 4.11.4 Pending/Threatened Actions by FDA
Schedule 4.11.6 FDA Notifications
Schedule 4.12 Litigation
Schedule 4.13.2 Employee Plans/Agreements
Schedule 4.14.1 Employees
Schedule 4.16.1 Certain Agreements
Schedule 4.18 Insurance Policies
Schedule 4.19 Customers and Suppliers
Schedule 4.20 Encumbrance on Receivables
Schedule 4.22 Inventory
Schedule 4.23 Banking Relationships
Schedule 4.24 Warranty Matters/Product Liability
Schedule 7.2.9 Regulatory
55
