EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made and entered into
as of October 23, 2002 by and among Vital Living, Inc., ("PURCHASER"), MAF
Bionutritionals, LLC, a New Jersey limited liability company, (the "COMPANY"),
and Xxxxxxx X. Xxxxxx ("Xxxxxx") personally and as representative (the
"REPRESENTATIVE") of Xxxxxxx Xxxxxx ("Xxxxxx"), Xxxxxxx X. Xxxxxxxxx
("Xxxxxxxxx") Xxxxxx X. Quick, III ("L. Quick"), Xxxxxx X. Quick ("T. Quick")
and Xxxxxxx Xxxx ("Xxxx"). Coppel, Maffetone, and Xxxxxx are referred to as the
"INDEMNIFYING SHAREHOLDERS" and Coppel, Maffetone, Martin, L.Quick, T. Quick and
Glah are referred to as the "SELLING SHAREHOLDERS.
RECITALS
A. The Selling Shareholders own, or will own as of the Closing (as
defined below) an aggregate of 100% Membership Interests of the of the Company
(the "INTERESTS"), such Interests representing all of the outstanding equity of
the Company.
B. The Selling Shareholders wish to sell, and Purchaser wishes to
purchase, the Interests for the consideration set forth in Article II hereof
(the "PURCHASE PRICE").
C. The Company, the Indemnifying Shareholders and Purchaser desire to
make certain representations and warranties and other agreements in connection
with the transactions contemplated hereby.
D. At the Closing, the appropriate parties hereto shall execute (i)
employment agreements, restated employment agreements or amendments to
employment agreements, as the case may be, with each of Coppel, Maffetone, Xxxx
Xxxxx, and Xxxxxx Xxxxxx, containing the terms and conditions substantially set
forth on Exhibit B (collectively, the "Employment Agreements") ; (ii) that
certain Shareholders Agreement by and among Coppel, Maffetone, Martin, L. Quick,
T. Quick and Glah on the one hand and Edson, Benson, Hannah and Xxxxx, on the
other hand (the "Shareholders Agreement") substantially in the form attached
hereto as Exhibit C; and ( iii) the Securities Escrow Agreement, substantially
in the form attached hereto as Exhibit C, relating to the escrow of a portion of
the Purchaser Securities (as defined below) which shall serve as collateral in
respect of the indemnification obligations set forth herein and therein ( the
Employment Agreements, the Shareholders' Agreement, and the Securities Escrow
Agreement, are collectively, the "RELATED AGREEMENTS").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE SALE OF THE INTEREST
1.1 The Sale of the Interests. (a) At the Closing (as defined in Section
1.2) and subject to and upon the terms and conditions of this Agreement, the
Selling Shareholders agree to sell to the Purchaser, and the Purchaser agrees to
purchase from the Selling Shareholder, such number of the Interests as set forth
on Schedule 1.1 hereto, which in the aggregate constitute all of the outstanding
capital stock of the Company for the consideration (the "PURCHASE PRICE") set
forth in Article II hereof, subject to the provisions contained herein.
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1.2 Closing; Closing Date. Unless this Agreement is earlier terminated
pursuant to Section 9.1, the closing of the transactions contemplated hereby
(the "CLOSING") will take place as promptly as practicable, but no later than
five (5) business days following satisfaction or waiver of the conditions set
forth in Article VII, at the offices of Purchaser unless another place or time
is agreed to in writing by Purchaser and the Selling Shareholders. The date upon
which the Closing actually occurs is herein referred to as the "CLOSING DATE."
1.3 Delivery. At the Closing, the Selling Shareholders will deliver to
the Purchaser a certificate or certificates, registered in the Selling
Shareholder's name, representing all of the Interests owned by the Selling
Shareholder, duly endorsed for transfer, against delivery of the Purchase Price
in accordance with Article II hereof.
1.4 Related Agreements. At the Closing, the applicable parties shall
execute the Related Agreements.
1.5 Tax Consequences. The Company is a limited liability company that
has elected to be taxed as an association taxable as a corporation. The parties
intend the sale of the Interests to qualify as a tax free reorganization under
Internal Revenue Code Section 368(a)(1)(B).
ARTICLE II
CONSIDERATION TO BE PAID AND RELATED MATTERS
2.1 Closing Purchase Price. Subject to the terms and conditions set
forth herein, including but not limited to Section 2.2, in consideration for the
sale of the Interests, Purchaser will deliver at the Closing the following
consideration (collectively, the "CLOSING PURCHASE PRICE"): a certificate or
certificates representing in the aggregate 2,500,000 shares of Common Stock of
the Purchaser (the "Purchaser Securities") registered in the names indicated on
Schedule 2.1.
2.2 Escrowed Shares. It shall be a condition precedent to the issuance
of the Purchaser Securities as provided in Sections 2.1 that the Selling
Shareholders shall have executed a Securities Escrow Agreement, substantially in
the form attached hereto as Exhibit D. On the Closing Date, 50% of the Purchaser
Securities (or 1,250,000 shares of the Purchaser's Common Stock) shall be
delivered to Mercantile National Bank (or such other transfer agent as may be
mutually acceptable (the "ESCROW AGENT")] for the purposes of securing Selling
Shareholders' indemnity obligations under Article VIII hereof and effecting the
adjustments set forth in Sections 2.3.
2.3 Initial Release From Escrow; Adjustment for Change in Shareholder's
Equity or Diminution of Current Assets. Upon the Company providing to the
Purchaser the audited financial statements (balance sheets, income statements,
statements of stockholders' equity and cash flows) for the two years ended
December 31, 2001 and unaudited financial statements for the nine months ended
September 30, 2002, in a form acceptable for filing on an A/8-k or Form 10-Q, as
applicable, then, as more fully provided in the Securities Escrow Agreement, the
Escrow Agent shall release up to 1,000,000 shares of the Purchaser Securities;
provided however, the Escrow Agent shall retain, as more fully provided in the
Securities Escrow Agreement, one share of Common Stock for each dollar in the
unaudited shareholders' equity deficit for the Company as of October 15, 2002 is
greater than a deficit of $650,000 (the "Retained Shares"). The Retained Shares
shall be returned to the Purchaser concurrently with the release to the Selling
Shareholders of the 1,000,000 shares of the Purchaser Securities as set forth
herein. For the avoidance of doubt, after the disbursement of the 1,000,000
shares of Purchaser Securities (or such lesser number as may be disbursed as
herein and therein provided), at least 250,000 shares of Purchaser Securities
shall remain in the Escrow Account.
2.4 Restrictions on Transferability. Other than intra family transfers,
the Purchaser Securities shall not be sold, assigned, transferred or pledged
except upon the conditions specified in this Agreement, which conditions are
intended to ensure compliance with the provisions of the Securities Act of 1933,
as amended (the "SECURITIES ACT").
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2.5 Restrictive Legend. Each certificate representing the Purchaser
Securities shall (unless otherwise permitted by the provisions of the
Shareholders Agreement and Section 2.6 below) be stamped or otherwise imprinted
with a legend in substantially the following form (in addition to any legend
required under applicable state securities laws):
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS COMPLIANCE WITH THE
REGISTRATION PROVISIONS OF SUCH ACT HAS BEEN MADE OR UNLESS
AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION PROVISIONS
HAS BEEN ESTABLISHED OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
THE SECURITIES ACT OF 1933.
Each Holder consents to the Purchaser's making a notation on its
records and giving instructions to any transfer agent for the Purchaser
Securities in order to implement the restrictions on transfer established in
this Agreement.
2.6 Notice of Proposed Transfers. The holder of each certificate
representing Purchaser Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 2.6. After release of Purchaser
Securities from the Securities Escrow Agreement, Selling Shareholders may freely
transfer such Purchaser Securities in the United States. Prior to any proposed
sale, assignment, transfer or pledge of any Purchaser Securities (other than (i)
a transfer not involving a change in beneficial ownership, or (ii) in
transactions involving the distribution without consideration of Purchaser
Securities by a shareholder to any of its partners or members, or retired
partners or members, or to the estate of any of its partners or members or
retired partners or members), unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice to the Purchaser of such holder's intention to effect
such transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such holder's expense by either
an unqualified written opinion of legal counsel who shall be, and whose legal
opinion shall be, reasonably satisfactory to the Purchaser addressed to the
Purchaser, to the effect that the proposed transfer of the Purchaser Securities
may be effected without registration under the Securities Act, whereupon the
holder of such Purchaser Securities shall be entitled to transfer such Purchaser
Securities in accordance with the terms of the notice delivered by the holder to
the Purchaser. It is agreed that the Purchaser will not request an opinion of
counsel for the holder for transactions made in reliance on Rule 144 under the
Securities Act except in unusual circumstances, the existence of which shall be
determined in good faith by the Board of Directors of the Purchaser. Each
certificate evidencing the Purchaser Securities transferred as above provided
shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legend set forth in Section 2.5 above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for such holder and the Purchaser such legend is not required in order to
establish compliance with any provision of the Securities Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE INDEMNIFYING SHAREHOLDERS
The Indemnifying Shareholders represent and warrant to Purchaser,
subject to the exceptions specifically disclosed in the disclosure schedule, set
forth as Exhibit I hereto, (referencing the appropriate section number) supplied
by the Company (the "COMPANY DISCLOSURE SCHEDULE"), as set forth below.
3.1 Organization of the Company. The Company is a limited liability
company duly organized, validly existing and in good standing under the laws of
State of New Jersey. The Company has the corporate power to own its properties
and to carry on its business as now being conducted. The Company is not, and is
not required to be, duly qualified to do business as a foreign corporation in
any other jurisdiction. The Company has delivered a true and correct
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copy of its Certificate of Formation and Operating Agreement as amended to date,
to Purchaser or its counsel.
3.2 Company Capital Structure.
(a) The authorized equity of the Company consists of those
Interests which are referenced in the Company Disclosure Schedule, of which
Interests are all issued and outstanding. All of the Company's outstanding
Interests are held by the Selling Shareholders.
(b) All outstanding Interests of the Company are duly authorized,
validly issued, fully paid and non-assessable, were issued in compliance with
all applicable federal and state securities laws, and are not subject to
preemptive rights created by statute, the Certificate of Formation and Operating
Agreement as amended to date of the Company or any agreement to which the
Company is a party or by which it is bound.
(c) Other than as disclosed on Schedule 3.2(c), there are no
options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which the Company is a party or by which it is bound
obligating the Company to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any Interests of the
capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement regarding its
capital stock.
3.3 Subsidiaries. The Company's has no subsidiaries, partnerships, joint
ventures and other entities which the Company has an equity interest
(individually, a "SUBSIDIARY", and collectively, the "SUBSIDIARIES"). The
Company does not own and has not owned any interest, beneficially or of record,
any corporation, partnership, joint venture or organization, whether
incorporated or unincorporated.
3.4 Authority. The Company and the Indemnifying Shareholders have all
requisite power and authority to enter into this Agreement and the Related
Agreements (collectively, the "TRANSACTION AGREEMENTS"), as applicable, and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of the Transaction Agreements and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of the Company. The Company's Managing Members and the Indemnifying
Shareholders, as the case may be, have duly approved the Transaction Agreements,
as applicable. This Agreement has been duly executed and delivered, and the
other Transaction Agreements, when delivered, will have been duly executed and
delivered by the Company and the Indemnifying Shareholders, as applicable, and
constitute the valid and binding obligation of the Company and the Indemnifying
Shareholders, as applicable, enforceable in accordance with their terms except
as such enforceability may be limited by principles of public policy and subject
to the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies. The execution and delivery of this Agreement
by the Company does not, and, as of the Closing Date will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation,
modification or acceleration of any obligation or loss of any benefit under (any
such event, a "CONFLICT") (i) any provision of the Articles of Incorporation of
the Company, as amended, or (ii) any material mortgage, indenture, lease,
contract or other material agreement or instrument applicable to the Company or
its properties or assets. No consent, waiver, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other federal, state, county, local or foreign
governmental authority, instrumentality, agency or Commission ("GOVERNMENTAL
ENTITY") or any third party, including a party to any agreement with the Company
(so as not to create or cause any Conflict), is required by or with respect to
the Company in connection with the execution and delivery of the Transaction
Agreements or the consummation of the transactions contemplated hereby, except
for the requirements of (i) notification pursuant to the Xxxx-Xxxxx-Xxxxxx
Improvements Act of 1976, (ii) the expiration of the applicable waiting period
and (iii) such other filings as have been made as of the Closing Date.
3.5 Financial Statements.
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(a) Schedule 3.5 of the Company Disclosure Schedule
includes the Company's unaudited consolidated financial statements (balance
sheets, income statements and statements of cash flows) as of and for the fiscal
year ending December 31, 2001 (the "12/31 STATEMENTS") and the Company's
unaudited consolidated financial statements (balance sheets, income statement
and statement of cash flow) as of and for the nine months ended September 30,
2002 (the "9/30 STATEMENTS") (collectively, the "FINANCIAL STATEMENTS"). With
respect to the 12/31 Statements, except for customary year end adjustments
(which, to the Indemnifying Shareholders' knowledge, were not material in amount
when taken as a whole) the Statements are complete and correct and have been
prepared in accordance with GAAP applied on a basis consistent throughout the
periods indicated and consistent with each other. With respect to the 9/30
Statements, they do not contain the notes necessary to be in accordance with
GAAP and are subject to certain material adjustments. The 9/30 Statements are
true, complete and correct in all material respects. The 12/31 Statements
present fairly the financial condition and operating results of the Company as
of the dates and during the periods indicated therein except for year end
adjustments which will be accrued and prorated. The unaudited balance sheet of
the Company as of December 31, 2001 is hereinafter referred to as the "YEAR END
BALANCE SHEET." The unaudited balance sheet of the Company as of September 30,
2002 is hereinafter referred to as the "INTERIM UNAUDITED BALANCE SHEET."
(b) To the best knowledge of the Indemnifying
Shareholders, except for obligations incurred in the ordinary course of business
which are not material and not required under GAAP to be set forth or reflected
on a balance sheet or the notes thereto, the Company does not have any
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with generally accepted accounting principles), which
individually or in the aggregate, (i) has not been reflected in the Unaudited
Balance Sheet (as defined below), or (ii) have not been specifically described
in this Agreement or in the Company Disclosure Schedule and specifically
identified herein or therein as not being included in the Unaudited Balance
Sheet, or (iii) has not arisen in the ordinary course of the Company's business
since the date of the Unaudited Balance Sheet.
3.6 Deferred Compensation. Schedule 3.6 of the Company Disclosure
Schedule lists the names of Company employees, directors and consultants and the
amount of money each is entitled to receive from the Company as a result of
deferred compensation, bonuses, profit participation by employees of the Company
or Company expenses payable to the employee, director or consultant. Other than
the names and amounts listed in Schedule 3.6 of the Company Disclosure Schedule,
no other compensation is owed by the Company to the employees, directors or
consultants of the Company other than ordinary payroll payable by the Company at
the end of each pay period.
3.7 No Changes. Except as disclosed on Schedule 3.7 of the Company
Disclosure Schedule, since September 30, 2002, there has not been, occurred or
arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date;
(b) individual capital expenditure or commitment by the Company
exceeding $25,000;
(c) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance) which
individually exceeds $25,000;
(d) labor trouble or claim of wrongful discharge of which the
Company has received written notice or of which the Company's senior management
is aware or other unlawful labor practice or action;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
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(f) revaluation by the Company of any of its assets other than
depreciation as required by GAAP and reflected on the Unaudited Balance Sheet;
(g) declaration, setting aside or payment of any dividends on or
any other distribution (whether in cash, stock or property) in respect of any of
the Company's capital stock, or any split, combination or reclassification of
any of the Company's capital stock or the issuance or authorization of the
issuance of any of the securities in respect of, in lieu of or in substitution
for Interests of the capital stock of the Company, or the repurchase, redemption
or other acquisition, directly or indirectly, of any Interests of the Company's
capital stock (or options, warrants, or other rights exercisable therefor);
(h) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement;
(i) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of business
as conducted on that date;
(j) material amendment, termination or violation, or any threat
thereof, of any distribution agreement, sales agency agreement or any material
contract, agreement or license to which the Company is a party or by which it is
bound other than amendment or termination by the Company pursuant to the terms
thereof in the ordinary course of business;
(k) loan by the Company to any person or entity, other than
advances to employees for travel and business expenses in the ordinary course of
business and consistent with past practices, or incurring by the Company of any
indebtedness other than trade debt in the ordinary course of business consistent
with past practices, guaranty of the Company of any indebtedness, issuance or
sale of any debt securities of the Company or guaranteeing of any debt
securities of others;
(l) waiver or release of any material right or claim of the
Company, including any write-off or other compromise of any account receivable
of the Company;
(m) issuance, exemption or sale by the Company of any its
Interests, or securities exchangeable, convertible or exercisable therefor, or
of any other securities except for issuances or sales as a result of rights
previously granted to purchase Interests in the Company;
(n) transactions by the Company with any of its officers,
directors or employees (other than payment of compensation paid in the ordinary
course) or with any persons or entities affiliated with any of its officers,
directors or employees paid in the ordinary course;
(o) any notice of the occurrence of any of the things described
in the preceding clauses (a) through (n);
(p) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (n) (other than by negotiations with Purchaser and its representatives
regarding the transactions contemplated by this Agreement).
3.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"TAX" or, collectively, "TAXES," means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
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and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Matters.
(i) The Company, as of the Closing Date, will have
prepared and timely filed or made a timely request for extension for all
required federal, state, local and foreign returns, estimates, information
statements, elections, declarations and reports (collectively the "RETURNS")
relating to any and all Taxes concerning or attributable to the Company or its
operations and such Returns are true and correct and have been completed in
accordance with applicable law.
(ii) The Company as of the Closing Date will have paid or
accrued all Taxes it is required to pay or accrue and (B) the Company will have
withheld and timely remitted with respect to its employees all federal and state
income taxes, FICA, FUTA and other Taxes required to be withheld and remitted.
(iii) The Company has not been delinquent in the payment
of any Tax nor is there any Tax deficiency outstanding, assessed or to the
Indemnifying Shareholders' knowledge proposed against the Company, nor has the
Company executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against in accordance with GAAP on the Company's Interim Unaudited Balance
Sheet, whether asserted or unasserted, contingent or otherwise, it being
acknowledged that the Purchaser is assuming such liability.
(vi) The Company has made available to Purchaser or its
representatives copies of all foreign, federal and state income and all state
sales and use Returns filed since inception.
(vii) There are no liens, pledges, charges, claims,
security interests or other encumbrances of any sort ("LIENS") on the assets of
the Company relating to or attributable to Taxes other than Liens for taxes not
yet due and payable.
(viii) The Indemnifying Shareholders have no knowledge of
any reasonable basis for the assertion of any claim relating or attributable to
Taxes which, if adversely determined, would result in any Lien on the assets of
the Company.
(ix) None of the Company's assets are treated as
"TAX-EXEMPT USE PROPERTY" within the meaning of Section 168(h) of the Code.
(x) As of the Closing Date, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 404 of the
Code.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code
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or agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the
Company.
(xii) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiii) The Company is not, and has not been within the
time period set forth in Section 897(c)(i)(A)(ii), a "UNITED STATES REAL
PROPERTY HOLDING CORPORATION" within the meaning of Section 897(c)(2) of the
Code.
3.9 Restrictions on Business Activities. Except as disclosed on Schedule
3.9, there is no agreement (non-compete or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company.
3.10 Title of Properties; Absence of Liens and Encumbrances; Condition
of Equipment and Inventory.
(a) Schedule 3.10(a) of the Company Disclosure Schedule sets
forth a list of all real property currently leased by the Company (collectively,
the "REAL PROPERTY"), the name of the lessor, the date of the lease and each
amendment thereto and the aggregate annual rental and/or other fees payable
under any such lease. 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). The Company
does not own any real property.
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, free and clear of any Liens (as defined in Section
3.8(b)(vii)), except (i) as reflected in the Company' Interim Unaudited Balance
Sheet, (ii) for liens for taxes not yet due and payable and such imperfections
of title, (iii) for encumbrances, if any, which are not material in character,
amount or extent, and which do not materially detract from the value, or
materially interfere with the present use, of the property subject thereto or
affected thereby, and (iv) all Liens on any asset of the Company, as set forth
on Schedule 3.10(b) of the Company Disclosure Schedule.
3.11 Intellectual Property. Schedule 3.11 of the Company Disclosure
Schedule sets forth a complete list of all patents or patents pending or any
trademark, tradenames, service xxxx (the "Company Intellectual Property
Rights"), and any applications therefor in respect of any of the foregoing,
included in the Company Intellectual Property Rights, and specifies, where
applicable, the jurisdictions in which each such Company Intellectual Property
Right has been issued or registered or in which an application for such issuance
and registration has been filed, including the respective registration or
application numbers and the names of all registered owners. No claims with
respect to the Company Intellectual Property Rights have been asserted against
the Company, nor to the knowledge of the Indemnifying Shareholders are
threatened against the Company or have been asserted or threatened against a
third party, nor is the Company aware, except as disclosed on Schedule 3.11, of
any reasonable basis for any claims (i) against the use by the Company of any
trademarks, service marks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in the
Company's business as currently conducted or (ii) challenging the validity,
effectiveness, or ownership by the Company of any of the Company Intellectual
Property Rights. All registered patents, trademarks, service marks and
copyrights held by the Company are valid and subsisting. To the knowledge of
Indemnifying Shareholders, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property Rights owned by the
Company by any third party, including any employee or former employee of the
Company. No Company Intellectual Property Right or product of the Company is
subject to any outstanding decree, order, judgment, or stipulation restricting
in any manner the licensing thereof by the Company. The Company has not entered
into any agreement under which the Company is restricted from selling, licensing
or otherwise
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distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market other than as
set forth in Schedule 3.9.
3.12 Agreements, Contracts and Commitments. Except as set forth in
Section 3.12 of the Company Disclosure Schedule, the Company does not have
continuing obligations under, is not a party to nor is it bound by:
(a) any collective bargaining agreements;
(b) any agreements or arrangements that contain any severance pay
or post-employment liabilities or obligations, other than as contemplated herein
or in the Employment Agreements (as defined below);
(c) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements;
(d) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization;
(e) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, 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, except as provided herein;
(f) any fidelity or surety bond;
(g) any lease of personal property having annual lease payments
individually in excess of $25,000;
(h) any agreement of indemnification or guaranty other than in
the ordinary course of business;
(i) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or to
compete with any person;
(j) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000;
(k) any agreement, contract or commitment relating to the
disposition or acquisition of material assets or any interest in any business
enterprise outside the ordinary course of the Company's business;
(l) any purchase order or contract for the purchase of raw
materials involving $25,000 or more;
(m) any construction contracts;
(n) any agreement, contract or commitment, including distribution
or agency or sales representative agreements, with any party which, during the
last two fiscal years of the Company, accounted for, or is expected to account
during the Company's current fiscal year, for more than 5% of the Company's
revenue or trade payables;
(o) any agreement for the granting of any distribution right by
the Company to any other party; or
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(p) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof in an individual amount in excess of $25,000.
The Company has not breached, violated or defaulted under, or received
notice that it has breached, violated or defaulted under, any of the material
terms or conditions of (i) any agreement, contract or commitment set forth in
Schedule 3.12 of the Company Disclosure Schedule, or (ii) any other material
agreement, contract or commitment to which it is a party or by which it is bound
(any such agreement, contract or commitment, a "CONTRACT"). Each Contract is in
full force and effect and, except as otherwise disclosed in Schedule 3.12 of the
Company Disclosure Schedule, is not subject to any default thereunder of which
the Company is aware by any party obligated to the Company pursuant thereto,
other than late payments, nonpayment. The Company has obtained, or will obtain
prior to the Closing Date, all necessary consents, waivers and approvals of
parties to any Contract as are required in connection with the transactions
contemplated by this Agreement, other than any consent required by Section 3.24,
or as are required or advisable in order to remain in effect without
modification after the transactions contemplated by this Agreement. Each
Contract requiring any consent, waiver or third-party approval as a result of
the transaction contemplated by this Agreement is disclosed in Schedule 3.12 of
the Company Disclosure Schedule. Neither the execution of this Agreement nor
consummation of the transactions contemplated hereby will cause any default or
breach under any Contract, including without limitation any key man clause in
any Contract, or the acceleration of any payment obligation of the Company.
3.13 Interested Party Transactions. Except as set forth in Schedule
3.13, no officer, director or, the Indemnifying Shareholders' knowledge,
employee or stockholder (nor, to the Indemnifying Shareholders' knowledge, any
ancestor, sibling, descendant or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an interest in any entity
which furnished or sold, or furnishes or sells, services or products that the
Company furnishes or sells, or proposes to furnish or sell, or (ii) any interest
in any entity that purchases from or sells or furnishes to, the Company, any
goods or services or (iii) a beneficial interest in any contract or agreement
set forth in Schedule 3.13 of the Company Disclosure Schedule.
3.14 Governmental Authorization. Schedule 3.14 of the Company Disclosure
Schedule accurately lists each material consent, license, grant or other
authorization issued to the Company by a governmental entity (i) pursuant to
which the Company currently operates or holds any interest in any of its
properties or (ii) which is required for the operation of its business or the
holding of any such interest (herein collectively called "COMPANY
AUTHORIZATIONS"), which Company Authorizations are in full force and effect and
constitute all Company Authorizations required to permit the Company to operate
or conduct its business or hold any interest in its properties or assets.
3.15 Litigation. Other than as set forth in the Financial Statements or
on Schedule 3.15, there is no action, suit, claim or proceeding of any nature
pending, or to Indemnifying Shareholders' knowledge, threatened against the
Company, its properties or any of its officers or directors, in their capacities
as agents of the Company. There is no investigation pending or, to the
Indemnifying Shareholders' knowledge, threatened against the Company, its
properties or any of its officers or directors, in their capacities as agents of
the Company by or before any governmental entity. No governmental entity has at
any time challenged or questioned the legal right of the Company to manufacture,
offer or sell any of its products in the present manner or style thereof.
3.16 Accounts Receivable; Inventory.
(a) Set forth in Schedule 3.16 of the Company Disclosure Schedule
is a list of all accounts receivable of the Company reflected on the Interim
Unaudited Balance Sheet ("ACCOUNTS RECEIVABLE").
(b) All Accounts Receivable of the Company arose in the ordinary
course of business, are carried at values determined in accordance with GAAP
consistently applied and are collectible except to the extent of reserves
therefor set forth in the Unaudited Balance Sheet. No person has any Lien on any
of such Accounts Receivable, and no
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request or agreement for deduction or discount has been made with respect to any
of such Accounts Receivable.
3.17 Minute Books. The minute books of the Company and the Subsidiaries,
made available to counsel for Purchaser, are the only minute books of the
Company and contain an accurate summary of all meetings of directors (or
committees thereof) and shareholders or actions by written consent since the
time of incorporation of the Company.
3.18 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 other than as set forth in Schedule 3.18.
3.19 Employee Benefit Plans and Compensation.
(a) Definitions. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity
under common control with the Company within the meaning of Section 414(b), (c)
or (m) of the Code and the regulations thereunder;
(ii) "EMPLOYEE PLAN" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
bonuses, severance, termination pay, performance awards, stock or stock-related
awards, fringe benefits or other employee benefits of any kind, whether formal
or informal, funded or unfunded and whether or not legally binding, including
without limitation, 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 Affiliate for the benefit of any
"EMPLOYEE" (as defined below), and pursuant to which the Company or any
Affiliate has or may have any material liability contingent or otherwise;
(iii) "EMPLOYEE" shall mean any current, former, or
retired employee, officer, or director of the Company or any Affiliate;
(iv) "EMPLOYEE AGREEMENT" shall refer to each employment,
severance, consulting or similar agreement or contract between the Company or
any Affiliate and any Employee;
(v) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "PENSION PLAN"
(as defined below) which is a "MULTIEMPLOYER PLAN," as defined in Section 3(37)
of ERISA; and
(viii) "PENSION PLAN" shall refer to each Company Employee
Plan which is an "EMPLOYEE PENSION BENEFIT PLAN," within the meaning of Section
3(2) of ERISA.
(b) Except as disclosed on Schedule 3.9(b) of the Company
Disclosure Schedule, the Company does not maintain an Employee Plan or
participate in an Multiemployer Plan.
(c) Pension Plans. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(d) Employment Matters. The Company (i) is in compliance in all
material respects with all
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applicable foreign, federal and state laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages, salaries
and other payments to Employees; (iii) is not liable for any arrears of wages or
any taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice).
(g) Labor. No work stoppage or labor strike against the Company
is pending or, to the best knowledge of the Indemnifying Shareholders,
threatened. The Company is not involved in or, to the knowledge of the
Indemnifying Shareholders, threatened with, any labor dispute, grievance, or
litigation relating to labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in liability to the Company. Neither the Company nor
any of its Subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly result in a liability to the Company. The
Company is not presently, nor has it been in the past, 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.
3.20 Insurance. Schedule 3.20 of the Company Disclosure Schedule lists
all insurance policies and fidelity bonds, if any, covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company. There is no claim by the Company pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid and the Company is otherwise in
material compliance with the terms of such policies and bonds. The Indemnifying
Shareholders have no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
3.21 Permits. Schedule 3.21 of the Company Disclosure Schedule sets
forth a list of all material permits (including without limitation those
relating to the occupancy or use of real property) issued to or held by the
Company. Such listed permits are the only permits that are required for the
Company to conduct its business as presently conducted and as currently proposed
to be conducted, except for those the absence of which would not have a material
adverse effect on the business of the Company as currently conducted. Each such
permit is in full force and effect and, to the best knowledge of the
Indemnifying Shareholders, no suspension or cancellation of such permit is
threatened, and the Indemnifying Shareholders are not aware of any basis for
believing that such permit will not be renewable upon expiration.
3.22 Compliance with Laws. The Company has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation.
3.23 Complete Copies of Materials. Each document (or summary of same)
that has been provided by the Company in response to a request by Purchaser or
its counsel is true and complete in all material respects (except as
specifically noted thereon or as superceded by later documents).
3.24 Consents. There are no consents, waivers, approvals, orders or
authorizations of, or registrations, declarations or filings with, any court,
administrative agency or commission or other federal, state, county, local or
other foreign governmental authority, instrumentability, agency or commission
("GOVERNMENTAL ENTITY") (so as not to trigger any Conflict), required by or with
respect to the Company in connection with the execution and delivery of this
Agreement and Related Agreements or the consummation of the transactions
contemplated hereby and thereby, except for such consents, waivers, approvals,
orders, authorizations, registrations, declarations, and filings as may be
required under applicable securities laws thereby.
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3.25 Representations Complete. None of the representations or warranties
made by the Company or the Indemnifying Shareholders (as modified by the Company
Disclosure Schedule), nor any statement made in any Schedule or certificate
furnished by the Company or of the Indemnifying Shareholders pursuant to this
Agreement, contains or will contain at the Closing Date, any untrue statement of
a material fact, or omits or will omit at the Closing Date to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company and the Selling
Shareholders, subject to the exceptions specifically disclosed in the disclosure
schedule, set forth as Exhibit J hereto, (referencing the appropriate section
number) supplied by the Purchaser (the "PURCHASER DISCLOSURE SCHEDULE"), as set
forth below.
as follows:
4.1 Organization, Standing and Power. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of Nevada.
Purchaser has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in Arizona and each other jurisdiction in which the failure to be
so qualified would have a material adverse effect on the ability of Purchaser to
consummate the transactions contemplated hereby.
4.2 Authority. Purchaser has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly executed
and delivered by Purchaser and constitutes the valid and binding obligations of
Purchaser, enforceable in accordance with its terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies.
4.3 Capital Structure.
(a) As of September 30, 2002, the capital stock of Purchaser consisted of
16,184,116 shares of Common Stock issued and outstanding, including 2,500,000
shares to be issued in connection with the closing of this Transaction, and of
3,712,000 shares of Series A Preferred Stock. The Series A Stock is convertible
into shares of Common Stock as follows: each share of Series A Stock shall be
convertible, at the option of the holder thereof, at any time following the
first anniversary of the date of issuance of such share and on or prior to the
fifth (5th) day prior to the Redemption Date (as defined in the Series A
Certificate at a Conversion Price determined as follows:
(i) If the Series A is converted between the first
anniversary and prior to the fifteenth (15th) month
from the date of issuance, the Conversion Price per
share shall be equal to the Original Series A Issue
Price; or
(ii) If following the fifteenth (15th) month from the
date of issuance the Common Stock is publicly
traded on NASDAQ, the Over-the-Counter Bulletin
Board or other national stock exchange, the
Conversion Price shall be 60% of the average
closing price of the Common Stock for the 30 days
prior to the date of conversion ("Trading
Conversion Price"), however, in no event shall the
Conversion Price be less than the
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Original Series A Issue Price.
Each share of Series A Stock shall automatically be converted into shares of the
Purchaser's Common Stock on the first day of the eighteenth (18th) month
following the original issue date of the Preferred Stock, at a Conversion Price
equal to the greater of the Trading Conversion Price or the Original Series A
Issue Price.
In addition, for every five shares of Preferred Stock converted to
Common Stock, we granted the shareholder one warrant (the "Series A Warrants").
All Series A Warrants are exercisable after 1 year from grant at a price of
$2.00 per share.
The Purchaser has also authorized the issuance of (i) 4,500,000 shares
of Common Stock under the Purchaser's two stock option plans, (ii) 5,012,400
shares of Common Stock under previously issued warrants and options.
(b) The Purchaser Securities to be issued pursuant to this
Agreement will be duly authorized, validly issued, fully paid, non-assessable.
All shares of the Purchaser's Common Stock and Preferred Stock previously issued
have been duly authorized, validly issued, fully paid, non-assessable.
(c) The Purchaser's has no subsidiaries, partnerships, joint
ventures and other entities which the Purchaser has an equity interest
(individually, a "SUBSIDIARY", and collectively, the "SUBSIDIARIES"). The
Purchaser does not own and has not owned any interest, beneficially or of
record, any corporation, partnership, joint venture or organization, whether
incorporated or unincorporated.
4.4 Authority. The Purchaser has all requisite power and authority to
enter into this Agreement and the Related Agreements (collectively, the
"TRANSACTION AGREEMENTS"), as applicable, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of the Transaction
Agreements and the consummation of the transactions contemplated thereby have
been duly authorized by all necessary corporate action on the part of the
Purchaser. The Purchaser's Board of Directors has duly approved the Transaction
Agreements, as applicable. This Agreement has been duly executed and delivered,
and the other Transaction Agreements, when delivered, will have been duly
executed and delivered by the Purchaser and constitute the valid and binding
obligation of the Purchaser, enforceable in accordance with their terms except
as such enforceability may be limited by principles of public policy and subject
to the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies. The execution and delivery of this Agreement
by the Purchaser does not, and, as of the Closing Date will not, conflict with,
or result in any violation of, or default under (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation,
modification or acceleration of any obligation or loss of any benefit under (any
such event, a "CONFLICT") (i) any provision of the Articles of Incorporation of
the Purchaser, as amended, or (ii) any material mortgage, indenture, lease,
contract or other material agreement or instrument applicable to the Purchaser
or its properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, county, local or
foreign governmental authority, instrumentality, agency or Commission
("GOVERNMENTAL ENTITY") or any third party, including a party to any agreement
with the Purchaser (so as not to create or cause any Conflict), is required by
or with respect to the Purchaser in connection with the execution and delivery
of the Transaction Agreements or the consummation of the transactions
contemplated hereby, except for the requirements of (i) notification pursuant to
the Xxxx-Xxxxx-Xxxxxx Improvements Act of 1976, (ii) the expiration of the
applicable waiting period and (iii) such other filings as have been made as of
the Closing Date.
4.5 No Undisclosed Liabilities.
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To the best knowledge of the Purchaser, except for obligations
incurred in the ordinary course of business which are not material and not
required under GAAP to be set forth or reflected on a balance sheet or the notes
thereto, the Purchaser does not have any liability, indebtedness, obligation,
expense, claim, deficiency, guaranty or endorsement of any type, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles), which individually or in the aggregate, (i) has
not been reflected in the Purchaser's financial statements as filed in the
Purchaser's Annual Report on Form 10-K for the fiscal year ended December 31,
2001 and the Purchaser's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002), or (ii) have not been specifically described in this Agreement
or in the Purchaser Disclosure Schedule and specifically identified herein or
therein as not being included in the Unaudited Balance Sheet, or (iii) has not
arisen in the ordinary course of the Purchaser's business since the date of the
Unaudited Balance Sheet.
4.6 Deferred Compensation. Schedule 4.6 of the Purchaser Disclosure
Schedule lists the names of Purchaser employees, directors and consultants and
the amount of money each is entitled to receive from the Purchaser as a result
of deferred compensation, bonuses, profit participation by employees of the
Purchaser or Purchaser expenses payable to the employee, director or consultant.
Other than the names and amounts listed in Schedule 4.6 of the Purchaser
Disclosure Schedule, no other compensation is owed by the Purchaser to the
employees, directors or consultants of the Purchaser other than ordinary payroll
payable by the Purchaser at the end of each pay period.
4.7 No Changes. Except as disclosed on Schedule 4.7 of the Purchaser
Disclosure Schedule, since June 30, 2002, there has not been, occurred or arisen
any:
(a) transaction by the Purchaser except in the ordinary course of
business as conducted on that date;
(b) individual capital expenditure or commitment by the Purchaser
exceeding $25,000;
(c) destruction of, damage to or loss of any material assets,
business or customer of the Purchaser (whether or not covered by insurance)
which individually exceeds $25,000;
(d) labor trouble or claim of wrongful discharge of which the
Purchaser has received written notice or of which the Purchaser's senior
management is aware or other unlawful labor practice or action;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Purchaser;
(f) revaluation by the Purchaser of any of its assets other than
depreciation as required by GAAP and reflected on the Unaudited Balance Sheet;
(g) declaration, setting aside or payment of any dividends on or
any other distribution (whether in cash, stock or property) in respect of any of
the Purchaser's capital stock, or any split, combination or reclassification of
any of the Purchaser's capital stock or the issuance or authorization of the
issuance of any of the securities in respect of, in lieu of or in substitution
for Interests of the capital stock of the Purchaser, or the repurchase,
redemption or other acquisition, directly or indirectly, of any Interests of the
Purchaser's capital stock (or options, warrants, or other rights exercisable
therefor);
(h) increase in the salary or other compensation payable or to
become payable by the Purchaser to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Purchaser, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement;
(i) sale, lease, license or other disposition of any of the
assets or properties of the Purchaser,
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except in the ordinary course of business as conducted on that date;
(j) material amendment, termination or violation, or any threat
thereof, of any distribution agreement, sales agency agreement or any material
contract, agreement or license to which the Purchaser is a party or by which it
is bound other than amendment or termination by the Purchaser pursuant to the
terms thereof in the ordinary course of business;
(k) loan by the Purchaser to any person or entity, other than
advances to employees for travel and business expenses in the ordinary course of
business and consistent with past practices, or incurring by the Purchaser of
any indebtedness other than trade debt in the ordinary course of business
consistent with past practices, guaranty of the Purchaser of any indebtedness,
issuance or sale of any debt securities of the Purchaser or guaranteeing of any
debt securities of others;
(l) waiver or release of any material right or claim of the
Purchaser, including any write-off or other compromise of any account receivable
of the Purchaser;
(m) issuance, sale or exemption by the Purchaser of any of its
Interests of capital stock, or securities exchangeable, convertible or
exercisable therefor, or of any other securities except for issuances or sales
as a result of rights previously granted to purchase Interests of the
Purchaser's capital Stock;
(n) transactions by the Purchaser with any of its officers,
directors or employees (other than payment of compensation paid in the ordinary
course) or with any persons or entities affiliated with any of its officers,
directors or employees paid in the ordinary course;
(o) any notice of the occurrence of any of the things described
in the preceding clauses (a) through (n);
(p) negotiation or agreement by the Purchaser or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (n) (other than by negotiations with Purchaser and its representatives
regarding the transactions contemplated by this Agreement).
4.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"TAX" or, collectively, "TAXES," means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Matters.
(i) The Purchaser, as of the Closing Date, will have
prepared and timely filed or made a timely request for extension for all
required federal, state, local and foreign returns, estimates, information
statements, elections, declarations and reports (collectively the "RETURNS")
relating to any and all Taxes concerning or attributable to the Purchaser or its
operations and such Returns are true and correct and have been completed in
accordance with applicable law.
(ii) The Purchaser as of the Closing Date will have paid
or accrued all Taxes it is required to pay or accrue and (B) the Purchaser will
have withheld and timely remitted with respect to its employees all
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federal and state income taxes, FICA, FUTA and other Taxes required to be
withheld and remitted.
(iii) The Purchaser has not been delinquent in the payment
of any Tax nor is there any Tax deficiency outstanding, assessed against the
Purchaser, nor has the Purchaser executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Purchaser is presently in progress, nor has the Purchaser been notified of any
request for such an audit or other examination.
(v) The Purchaser does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against in accordance with GAAP on the Purchaser Balance Sheet, whether asserted
or unasserted, contingent or otherwise.
(vi) The Purchaser has made available to the Company or
its representatives copies of all foreign, federal and state income and all
state sales and use Returns filed since January 1, 2001.
(vii) There are no liens, pledges, charges, claims,
security interests or other encumbrances of any sort ("LIENS") on the assets of
the Purchaser relating to or attributable to Taxes other than Liens for taxes
not yet due and payable.
(viii) The Purchaser has no knowledge of any reasonable
basis for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Purchaser.
(ix) None of the Purchaser's assets are treated as
"TAX-EXEMPT USE PROPERTY" within the meaning of Section 168(h) of the Code.
(x) As of the Closing Date, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Purchaser that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 404 of the
Code.
(xi) The Purchaser has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Purchaser.
(xii) The Purchaser is not a party to a tax sharing or
allocation agreement nor does the Purchaser owe any amount under any such
agreement.
(xiii) The Purchaser is not, and has not been within the
time period set forth in Section 897(c)(i)(A)(ii), a "UNITED STATES REAL
PROPERTY HOLDING CORPORATION" within the meaning of Section 897(c)(2) of the
Code.
4.9 Restrictions on Business Activities. Other than agreements entered
into in the ordinary course of business and except as provided in Schedule 4.9
of the Purchaser Disclosure Schedule, there is no agreement (non-compete or
otherwise), commitment, judgment, injunction, order or decree to which the
Purchaser is a party or otherwise binding upon the Purchaser which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of the Purchaser, any acquisition of property (tangible or
intangible) by the Purchaser or the conduct of business by the Purchaser.
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4.10 Title of Properties; Absence of Liens and Encumbrances; Condition
of Equipment and Inventory.
(a) Schedule 4.10(a) of the Purchaser Disclosure Schedule sets
forth a list of all real property currently leased by the Purchaser
(collectively, the "REAL PROPERTY"), the name of the lessor, the date of the
lease and each amendment thereto and the aggregate annual rental and/or other
fees payable under any such lease. 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).
The Purchaser does not own any real property.
(b) The Purchaser has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets as defined below free and clear of any Liens (as defined
in Section 4.8 (b)(vii)), except (i) as reflected in the Purchaser Financial
Statements, (ii) for liens for taxes not yet due and payable and such
imperfections of title, (iii) for encumbrances, if any, which are not material
in character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use, of the property subject
thereto or affected thereby, and (iv) all Liens on any asset of the Purchaser,
as set forth on Schedule 4.10(b) of the Purchaser Disclosure Schedule.
4.11 Intellectual Property. Schedule 4.11 of the Purchaser Disclosure
Schedule sets forth a complete list of all patents or patents pending or any
trademark, tradenames, service marks and copyrights (the "Purchaser Intellectual
Property Rights"), and any applications therefor in respect of any of the
foregoing, included in the Purchaser Intellectual Property Rights, and
specifies, where applicable, the jurisdictions in which each such Purchaser
Intellectual Property Right has been issued or registered or in which an
application for such issuance and registration has been filed, including the
respective registration or application numbers and the names of all registered
owners. No claims with respect to the Purchaser Intellectual Property Rights
have been asserted against the Purchaser, nor are threatened against the
Purchaser or have been asserted or threatened against a third party, nor is the
Purchaser aware, except as disclosed on Schedule 4.11, of any reasonable basis
for any claims (i) against the use by the Purchaser of any distribution rights,
trademarks, service marks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in the
Purchaser's business as currently conducted or (ii) challenging the validity,
effectiveness, or ownership by the Purchaser of any of the Purchaser
Intellectual Property Rights. All registered patents, trademarks, service marks
and copyrights held by the Purchaser are valid and subsisting. To the knowledge
of Purchaser, there is no unauthorized use, infringement or misappropriation of
any of the Purchaser Intellectual Property Rights owned by the Purchaser by any
third party, including any employee or former employee of the Purchaser. No
Purchaser Intellectual Property Right or product of the Purchaser is subject to
any outstanding decree, order, judgment, or stipulation restricting in any
manner the licensing thereof by the Purchaser. The Purchaser has not entered
into any agreement under which the Purchaser is restricted from selling,
licensing or otherwise distributing any of its products to any class of
customers, in any geographic area, during any period of time or in any segment
of the market other than the Purchaser's distribution agreements, as set forth
on Schedule 4.9.
4.12 Agreements, Contracts and Commitments. Except as set forth in
Section 4.12 of the Purchaser Disclosure Schedule, the Purchaser does not have
continuing obligations under, is not a party to nor is it bound by:
(a) any collective bargaining agreements;
(b) any agreements or arrangements that contain any severance pay
or post-employment liabilities or obligations, other than as contemplated herein
or in the Employment Agreements (as defined below);
(c) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements;
(d) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
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organization;
(e) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, 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, except as provided herein;
(f) any fidelity or surety bond;
(g) any lease of personal property having annual lease payments
individually in excess of $25,000;
(h) any agreement of indemnification or guaranty other than in
the ordinary course of business;
(i) any agreement, contract or commitment containing any covenant
limiting the freedom of the Purchaser to engage in any line of business or to
compete with any person;
(j) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000;
(k) any agreement, contract or commitment relating to the
disposition or acquisition of material assets or any interest in any business
enterprise outside the ordinary course of the Purchaser's business;
(l) any purchase order or contract for the purchase of raw
materials involving $25,000 or more;
(m) any construction contracts;
(n) any agreement, contract or commitment, including distribution
or agency or sales representative agreements, with any party which, during the
last two fiscal years of the Purchaser, accounted for, or is expected to account
during the Purchaser's current fiscal year, for more than 5% of the Purchaser's
revenue or trade payables;
(o) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof.
The Purchaser has not breached, violated or defaulted under, or received
notice that it has breached, violated or defaulted under, any of the material
terms or conditions of (i) any agreement, contract or commitment set forth in
Schedule 4.12 of the Purchaser Disclosure Schedule, or (ii) any other material
agreement, contract or commitment to which it is a party or by which it is bound
(any such agreement, contract or commitment, a "CONTRACT"). Each Contract is in
full force and effect and, except as otherwise disclosed in Schedule 4.12 of the
Purchaser Disclosure Schedule, is not subject to any default thereunder of which
the Purchaser is aware by any party obligated to the Purchaser pursuant thereto,
other than late payments, nonpayment. The Purchaser has obtained, or will obtain
prior to the Closing Date, all necessary consents, waivers and approvals of
parties to any Contract as are required in connection with the transactions
contemplated by this Agreement, other than any consent required by Section 4.24,
or as are required or advisable in order to remain in effect without
modification after the transactions contemplated by this Agreement. Each
Contract requiring any consent, waiver or third-party approval as a result of
the transaction contemplated by this Agreement is disclosed in Schedule 4.24 of
the Purchaser Disclosure Schedule. Neither the execution of this Agreement nor
consummation of the transactions contemplated hereby will cause any default or
breach under any Contract, including without limitation any key man clause in
any Contract, or the acceleration of any payment obligation of the Purchaser.
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4.13 Interested Party Transactions. Except as set forth in Schedule
4.13, no officer, director or employee or stockholder (nor any spouse of any of
such persons, or any trust, partnership or corporation in which any of such
persons has or has had an interest), has or has had, directly or indirectly, (i)
an interest in any entity which furnished or sold, or furnishes or sells,
services or products that the Purchaser furnishes or sells, or proposes to
furnish or sell, or (ii) any interest in any entity that purchases from or sells
or furnishes to, the Purchaser, any goods or services or (iii) a beneficial
interest in any contract or agreement set forth in Schedule 4.13 of the
Purchaser Disclosure Schedule.
4.14 Governmental Authorization. Schedule 4.14 of the Purchaser
Disclosure Schedule accurately lists each material consent, license, grant or
other authorization issued to the Purchaser by a governmental entity (i)
pursuant to which the Purchaser currently operates or holds any interest in any
of its properties or (ii) which is required for the operation of its business or
the holding of any such interest (herein collectively called "PURCHASER
AUTHORIZATIONS"), which Purchaser Authorizations are in full force and effect
and constitute all Purchaser Authorizations required to permit the Purchaser to
operate or conduct its business or hold any interest in its properties or
assets.
4.15 Litigation. Other than as set forth in the Financial Statements or
on Schedule 4.15, there is no action, suit, claim or proceeding of any nature
pending, or threatened against the Purchaser, its properties or any of its
officers or directors, in their capacities as agents of the Purchaser. To the
best knowledge of the Company, there is no investigation pending or, threatened
against the Purchaser, its properties or any of its officers or directors, in
their capacities as agents of the Purchaser by or before any governmental
entity. No governmental entity has at any time challenged or questioned the
legal right of the Purchaser to manufacture, offer or sell any of its products
in the present manner or style thereof.
4.16 Accounts Receivable; Inventory.
(a) Set forth in Schedule 4.16 of the Purchaser Disclosure
Schedule is a list of all accounts receivable of the Purchaser reflected on the
Unaudited Balance Sheet ("ACCOUNTS RECEIVABLE").
(b) All Accounts Receivable of the Purchaser arose in the
ordinary course of business, are carried at values determined in accordance with
GAAP consistently applied and are collectible except to the extent of reserves
therefor set forth in the Unaudited Balance Sheet. No person has any Lien on any
of such Accounts Receivable, and no request or agreement for deduction or
discount has been made with respect to any of such Accounts Receivable.
4.17 Minute Books. The minute books of the Purchaser and the
Subsidiaries, made available to counsel for Purchaser, are the only minute books
of the Purchaser and contain an accurate summary of all meetings of directors
(or committees thereof) and shareholders or actions by written consent since the
time of incorporation of the Purchaser.
4.18 Brokers' and Finders' Fees. The Purchaser 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 other than as set forth in
Schedule 4.18. Purchaser acknowledges the obligations to Xxxx Xxxxxx set forth
on Schedule 3.18.
4.19 Employee Benefit Plans and Compensation.
(a) Schedule. Schedule 4.19(b) of the Purchaser Disclosure
Schedule contains an accurate and complete list of (i) each Employee of the
Purchaser and each Employee's salary as of September __, 2002, and (ii) each
Purchaser Employee Plan and each Employee Agreement. The Purchaser does not have
any plan or commitment, whether legally binding or not, to establish any new
Purchaser Employee Plan or Employee Agreement, to modify any Purchaser Employee
Plan or Employee Agreement (except to the extent required by law or to conform
any such Purchaser Employee Plan or Employee Agreement to the requirements of
any applicable law, in each case as previously disclosed to Purchaser in
writing, or as required by this Agreement), or to enter into any Purchaser
Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
-24-
(b) Maintenance Purchaser does not maintain any Employee Plan.
The Purchaser does not now, nor has it ever, maintained, established, sponsored,
participated in, or contributed to, any Pension Plan which is subject to Part 3
of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
At no time has the Purchaser contributed to or been requested to contribute to
any Multiemployer Plan.
(c) No Post-Employment Obligations. No Purchaser Employee Plan
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any Employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute, and the
Purchaser has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
that such Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of employment,
except to the extent required by statute.
(d) Effect of Transaction. 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 Purchaser 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.
(e) Employment Matters. The Purchaser (i) is in compliance in all
material respects with all applicable foreign, federal and state laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice).
(f) Labor. No work stoppage or labor strike against the Purchaser
is pending or, to the best knowledge of the Purchaser threatened. The Purchaser
is not involved in or, to the knowledge of the Purchaser threatened with, any
labor dispute, grievance, or litigation relating to labor, safety or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in
liability to the Purchaser. Neither the Purchaser nor any of its Subsidiaries
has engaged in any unfair labor practices within the meaning of the National
Labor Relations Act which would, individually or in the aggregate, directly or
indirectly result in a liability to the Purchaser. The Purchaser is not
presently, nor has it been in the past, 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 Purchaser.
4.20 Insurance. Schedule 4.20 of the Purchaser Disclosure Schedule lists
all insurance policies and fidelity bonds, if any, covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Purchaser. There is no claim by the Purchaser pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid and the Purchaser is otherwise
in material compliance with the terms of such policies and bonds. Purchaser has
no knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
4.21 Permits. Schedule 4.21 of the Purchaser Disclosure Schedule sets
forth a list of all material permits (including without limitation those
relating to the occupancy or use of real property) issued to or held by the
Purchaser. Such listed permits are the only permits that are required for the
Purchaser to conduct its business as presently conducted and as currently
proposed to be conducted, except for those the absence of which would not have a
material adverse effect on the business of Purchaser as presently conducted.
Each such permit is in full force and effect and, to the best
-25-
knowledge of the Purchaser, no suspension or cancellation of such permit is
threatened, and the Purchaser is not aware of any basis for believing that such
permit will not be renewable upon expiration.
4.22 Compliance with Laws. The Purchaser has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation.
4.23 Complete Copies of Materials. Each document (or summary of same)
that has been provided by the Purchaser in response to a request by the Company
or its counsel is true and complete (except as specifically noted thereon).
4.24 Consents. There are no consents, waivers, approvals, orders or
authorizations of, or registrations, declarations or filings with, any court,
administrative agency or commission or other federal, state, county, local or
other foreign governmental authority, instrumentability, agency or commission
("GOVERNMENTAL ENTITY") (so as not to trigger any Conflict), required by or with
respect to the Purchaser in connection with the execution and delivery of this
Agreement and Related Agreements or the consummation of the transactions
contemplated hereby and thereby, except for such consents, waivers, approvals,
orders, authorizations, registrations, declarations, and filings as may be
required under applicable securities laws thereby.
4.25 Representations Complete. None of the representations or warranties
made by the Purchaser (as modified by the Purchaser Disclosure Schedule), nor
any statement made in any Schedule or certificate furnished by the Purchaser or
any officer pursuant to this Agreement, contains or will contain at the Closing
Date, any untrue statement of a material fact, or omits or will omit at the
Closing Date to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
4.26 No Conflict. The execution and delivery of this Agreement and any
Related Agreements by Purchaser do not, and, the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"CONFLICT") (i) any provision of the Articles of Amendment and Bylaws of the
Purchaser, (ii) any material mortgage, indenture, or lease, to which Purchaser
or any of their respective properties or assets are subject, (iii) any material
permit, concession, franchise, or license to which Purchaser or any of their
respective properties or assets are subject, or (v) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Purchaser or their
respective properties or assets.
4.27 Stock Exchange Documents; Purchaser Financial Statements; Other
Representations. Purchaser has furnished, made available to the Company, or will
make available when filed true and complete copies of Purchaser's (i) Annual
Report for the year ended December 31, 2001, and (ii) Quarterly Report for the
six month period ended June 30, 2002 as filed by it with the Securities and
Exchange Commission (the "EXCHANGE DOCUMENTS"). As of their respective filing
dates, the Exchange Documents complied in all material respects with the
requirements of the Securities and Exchange Act of 1934, as applicable (the
"EXCHANGE Act") and none of the Exchange Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed document with the Exchanges. The financial
statements of Purchaser, including the notes thereto, included in the Exchange
Documents (the "PURCHASER FINANCIAL STATEMENTS") comply as to form in all
material respects with applicable accounting requirements in effect at the time
of filing of such Exchange Documents and with the published rules and
regulations of the Securities and Exchange Commission with respect thereto in
effect at the time of filing of such Exchange Document have been prepared in
accordance with GAAP consistently applied (except as may be indicated in the
notes thereto) and present fairly the consolidated financial position of
Purchaser at the dates thereof and of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
audit adjustments). There have been no material adverse changes in the business,
operations, or financial condition of the Purchaser that are not reflected in
such Exchange Documents or that have occurred since the period covered by the
most recent of such Exchange Documents. At all times until all Purchaser
Securities have been released
-26-
from escrow, the Purchasers Exchange Documents, as of their respective filing
dates, shall comply in all material respects with the requirements of the
applicable regulations of the Exchange Act, as applicable and none of the
Exchange Documents shall contain any untrue statement of a material fact or
shall omit to state a material fact required to be stated therein necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed document with the Exchanges.
4.28 Ongoing Filing Requirements. Purchasers shall file any Exchange
Documents required to be filed when and as required by the Securities and
Exchange Commission.
ARTICLE V
CONDUCT PRIOR TO THE CLOSING DATE
5.1 Conduct of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Closing Date, each of the Company, on the one hand, and the Purchaser on
the other hand, agree (except to the extent that the other shall otherwise
consent in writing), to carry on their respective business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted, to
pay their respective debts and Taxes when due, to pay or perform other
obligations when due, and, to the extent consistent with such business, use all
reasonable efforts consistent with past practice and policies to preserve intact
their respective present business organizations, keep available the services of
their respective present officers and key employees and preserve their
respective relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, all with the goal of
preserving unimpaired their respective goodwill and ongoing businesses at the
Closing Date. The Purchaser and the Company shall promptly notify each other of
any event or occurrence or emergency not in the ordinary course of their
respective business, and any material event involving either of them. Except as
expressly contemplated by this Agreement, neither the Company nor the Purchaser
shall, without the prior written consent of the other:
(a) Enter into any commitment or transaction not in the ordinary
course of business or any commitment or transaction of the type described in
Section 3.8 hereof;
(b) Transfer to any person or entity any rights to their
respective Intellectual Property;
(c) Except in the ordinary course of business, enter into or
amend any agreements pursuant to which any other party is granted marketing,
distribution or similar rights of any type or scope with respect to any products
of the Company or the Purchaser, as the case may be;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Disclosure Schedule or the Purchaser's
Disclosure Schedule;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for Interests of capital stock of the Company, or shares of
Common Stock of the Purchaser, or repurchase, redeem or otherwise acquire,
directly or indirectly, any Interests of its capital stock (or options, warrants
or other rights exercisable therefor);
(g) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any Interests of its capital stock or securities convertible into, or
subscriptions,
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rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue any such Interests or other convertible
securities;
(h) Cause or permit any amendments to its Operating Agreement or
Articles of Incorporation or Bylaws, as the case may be;
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to its business;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practices;
(k) Except for borrowings consistent with past practices, incur
any indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or guarantee any debt securities of others;
(l) Grant any loans to others or purchase debt securities of
others or amend the terms of any outstanding loan agreement, except in the
ordinary course of business and consistent with past practices.
(m) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof;
(n) Except as disclosed on Schedule 3.19 of the Company
Disclosure Schedule, adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees, except in connection with annual pay adjustment consistent
with past practices which increases in the aggregate have been approved by
Purchaser in writing and which for the Principal Shareholders have been approved
by Purchaser;
(o) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(p) Pay, discharge or satisfy, in an amount in excess of $25,000
(in any one case) or $100,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business;
(q) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(r) Enter into any strategic alliance or joint marketing
arrangement or agreement; or
(s) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (r) above, or any other action that
would prevent the Company or the Purchaser, as the case may be, from performing
or cause the Company or the Purchaser not to perform its covenants hereunder.
5.2 No Solicitation. Until the earlier of the Closing Date or the date
of termination of this Agreement pursuant to the provisions of Section 9.1
hereof, neither the Company nor the Selling Shareholder will (nor will the
Company or the Indemnifying Shareholders permit any of the Company's officers,
directors, agents, representatives or affiliates to) directly or indirectly,
take any of the following actions with any party other than Purchaser and its
designees: (a) solicit, conduct discussions with or engage in negotiations with
any person, relating to the possible
-28-
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its or their capital
stock or assets, (b) provide information with respect to it to any person, other
than Purchaser, relating to the possible acquisition of the Company (whether by
way of merger, purchase of capital stock, purchase of assets or otherwise) or
any material portion of its or their capital stock or assets, (c) enter into an
agreement with any person, other than Purchaser, providing for the acquisition
of the Company (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its or their capital stock or
assets (d) or make or authorize any statement, recommendation or solicitation in
support of any possible acquisition of the Company or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets by
any person, other than by Purchaser.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Legal Requirements. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable best efforts
to take promptly, or cause to be taken, all reasonable actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings and to remove
any injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by the Transaction
Agreements for the purpose of securing to the parties hereto the benefits
contemplated by the Transaction Agreements.
6.2 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts as may be necessary or desirable
for effecting completely the consummation of this Agreement and the transactions
contemplated hereby, including effecting the appointments and designations in
Section 6.3 and 6.4 below.
6.3 Board of Directors and Officers of the Company. Effective as of the
Closing Date:
(a) The Purchaser's Board of Directors shall consist of Xxxx
Xxxxx, Xxxxxxx Xxxxxx, Xxxxxx Xxxxxx, Xxx Xxxxxx, Xxxxxx X. Quick III, Xxxxxx
Xxxx, and Xxxxxx Xxxxxx.
(b) The Purchaser's officers shall consist of Xxxx Xxxxx, as
Chairman and CEO, Xxxxxxx Xxxxxx as President and COO and Xxxxxx Xxxxxx as
Vice-Chairman and Executive Vice President, Secretary and Treasurer. The
employment agreement with Coppel shall provide Coppel shall have the authority
to review all employment arrangements of subordinates for purposes of
determining their retention after the consummation of the transaction
contemplated hereby,.
6.4 Expenses. All fees and expenses incurred in connection with the
transaction contemplated in any of the Transaction Agreements including, without
limitation, all legal, accounting, financial advisory, consulting and all other
transaction fees and expenses ("TRANSACTION EXPENSES") incurred by the
Indemnifying Shareholders on behalf of the Company or Purchaser in connection
with the negotiation and closing of the Transaction Agreements, shall be the
obligation of the party incurring such Transaction Expenses, but shall
ultimately be borne by the Purchaser.
6.5 Release of Claims. Each of Coppel and the Indemnifying Shareholders
agree that the consideration to be received by Selling Shareholder pursuant to
this Agreement represents settlement in full of all outstanding obligations owed
to Selling Shareholders by the Company or Purchaser, except those obligations to
release the Interests pursuant to the terms as set forth in Article VIII hereof
and the Securities Escrow Agreements including without limitation any
obligations to Selling Shareholder pursuant to Selling Shareholders'(or any
officer, agent or trustee of the Selling Shareholder) role as an officer or
director of the Company, as applicable. The Selling Shareholder, the Company and
Purchaser on behalf of themselves, and their respective heirs, executors,
officers, directors, employees, investors, shareholders, administrators,
predecessor and successor corporations and assigns, hereby fully and forever
release each other and their respective heirs, executors, officers, directors,
employees, investors, shareholders, administrators, predecessor and successor
corporations and assigns from any claim duty, obligation or cause of action
relating to any matters of any kind, whether known or unknown, suspected or
unsuspected, that either of them may possess arising from any omissions, acts or
facts that have occurred up until and including the date of this Agreement
including, without limitation:
(a) any and all claims relating to or arising from any of
Coppel's or any of the other Selling Shareholders' employment or directorial
relationship with the Company and termination of that relationship;
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(b) any and all claims relating to, or arising from, the
Indemnifying Shareholders' right to purchase, or actual purchase of Interests of
stock of the Company;
(c) any and all claims of wrongful discharge of employment;
breach of contract, both express and implied; breach of a covenant of good faith
and fair dealing, both express and implied; negligent or intentional infliction
of emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage; and
defamation;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act of 1967, and the
California Fair Employment and Housing Act;
(e) any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination; and
(f) any and all claims for attorney's fees and costs.
The Company, Purchaser and the Indemnifying Shareholders agree
that the release set forth in this Section 6.5 shall be and remain in effect in
all respects as a complete and general release as to the matters released.
6.6 Integration of Business. The Company hereby acknowledges that the
Purchaser is subject to public reporting requirements in United States and
therefore the Company will be subject to internal control, audit and corporate
governance procedures generally required by publicly-traded corporations, as
reasonably determined by Purchaser in its sole discretion.
ARTICLE VII
CONDITIONS TO THE SALE OF THE INTEREST
7.1 Conditions to Obligations of Each Party. The respective obligations
of each party to this Agreement shall be subject to the satisfaction at or prior
to the Closing Date of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transaction contemplated by the Transaction
Agreements shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
nor shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the transaction contemplated
hereby, which makes the consummation of such sales illegal.
(b) Litigation. There shall be no action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the Selling
Shareholder, Purchaser or the Company, their respective properties or any of
their officers or directors, arising out of, or in any way connected with, the
transactions contemplated by the terms of this Agreement.
(c) Government Approvals. Company and the Selling Shareholder
shall have obtained all other consents and approvals required from governmental
authorities for the consummation of the transactions contemplated by this
Agreement.
(d) Related Agreements. Each of the appropriate parties shall
have executed the Related
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Agreements, including the Employment Agreements, as well as all agreements
effectuating the conditions set forth in Section 6.3 above.
(e) Disclosure Schedules; Due Diligence . Each of Purchaser and
the Company acknowledge and agree that the Company Disclosure Schedule, and any
related due diligence material furnished to Purchaser, and the Purchaser
Disclosure Schedule, and any related due diligence material furnished to
Company, are preliminary in nature. Not more than seven days from the execution
of this Agreement, Company shall furnish to Purchaser, and Purchaser shall
furnish to the Company, final copies of such Disclosure Schedules and due
diligence material. Not later than six business days from the receipt of such
materials, Purchaser and Company shall notify each other whether there is a
material adverse deviation from the information furnished concurrently with the
execution of this Agreement, in which event this Agreement shall be deemed
terminated. During such period, Purchaser shall have completed its due diligence
investigation of the Company to Purchaser's satisfaction, including, but not
limited to, a review and evaluation of the businesses and finances of the
Company to determine the accuracy of the Financial Statements.
(f) The Company shall have raised, in a private placement of its
securities, no less than $700,000 on terms acceptable to the Company.
7.2 Additional Conditions to the Obligations of Purchaser. The
obligations of Purchaser to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, exclusively by Purchaser:
(a) Representations, Warranties, and Covenants. The
representations and warranties of the Company and the Indemnifying Shareholders
in this Agreement shall be true and correct in all material respects on and as
of the Closing Date as though such representations and warranties were made on
and as of the Closing Date and the Company and the Indemnifying Shareholders
shall have performed and complied in all material respects with all covenants
and obligations of this Agreement required to be performed and complied with by
them as of the Closing Date.
(b) Third Party Consents. Any and all material consents, waivers,
and approvals listed in the Company Disclosure Schedule shall have been
obtained.
(c) Legal Opinion. Purchaser shall have received a legal opinion
from Xxxx Xxxxx LLP, legal counsel to the Company and Indemnifying Shareholders,
in form and substance reasonably satisfactory to Purchaser and its counsel.
(d) No Material Adverse Changes. There shall not have occurred
any material adverse change in the business, assets (including intangible
assets), results of operations, liabilities (contingent or accrued), financial
condition or prospects of the Company since September 30, 2002, it being
specifically agreed by the Purchaser that operating losses sustained by the
Company shall not be deemed a material adverse change.
(e) Certificate of the Company and the Indemnifying Shareholders.
Purchaser shall have been provided with a certificate executed by the
Indemnifying Shareholders and executed on behalf of the Company by its Chief
Executive Officer to the effect that, as of the Closing Date:
(i) all representations and warranties made by the Company
and the Indemnifying Shareholders in this Agreement are true and correct in all
material respects; and
(ii) all covenants and obligations of this Agreement to be
performed by the Company on or before such date have been so performed in all
material respects.
(iii) the provisions set forth in Section 7.2 (a), (b),
and (e) have been satisfied.
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(f) Debt Conversions Other than the indebtedness related to the
SBA loan from Commerce Bank, and the acquisition indebtedness related to the
Company's purchase of Boulder Endurance Co. Inc., all indebtedness of the
Company shall have been converted into equity in a manner acceptable to
Purchaser and consistent with the terms of this Agreement.
(g) No Adverse Business Trends. Purchaser shall have confirmed
that the anticipated loss between the date hereof and the Closing Date has not
materially increased (i.e., the actual loss is within 20% of the projected
loss).
(h) Necessary Approvals. Purchaser shall have received all
requisite board, shareholder and creditor approval.
7.3 Additional Conditions to Obligations of Company and the Indemnifying
Shareholders. The obligations of the Company and the Selling Shareholder to
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, by all of the
Company and the Selling Shareholder:
(a) Representations, Warranties and Covenants. The
representations and warranties of Purchaser in this Agreement shall be true and
correct in all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of such time and Purchaser
shall have performed and complied in all material respects with all covenants
and obligations of this Agreement required to be performed and complied with by
it as of the Closing Date.
(b) Legal Opinion. The Indemnifying Shareholders shall have
received legal opinions from Xxxxx Xxxxxx & Xxxx LLP, legal counsel to
Purchaser, in form and substance reasonably satisfactory to the Company and its
counsel.
(c) Certificate of the Purchaser. Company and the Selling
Shareholder shall have been provided with a certificate executed on behalf of
the Purchaser by an authorized officer to the effect that, as of the Closing
Date:
(i) all representations and warranties made by the
Purchaser in this Agreement are true and correct in all material respects;
(ii) all covenants and obligations of this Agreement to be
performed by the Purchaser on or before such date have been so performed in all
material respects.
(iii) the conditions set forth in Section 7.2 (a) and (b)
have been satisfied.
(d) No Material Adverse Changes. There shall not have occurred
any material adverse change in the business, assets (including intangible
assets), results of operations, liabilities (contingent or accrued), financial
condition or prospects of the Purchaser since June 30, 2002
(e) Release of Guarantees. Purchaser shall enter into
indemnification agreements in favor of Coppel and Xxxxxxxxx, in form and
substance satisfactory to Coppel and Xxxxxxxxx, with respect to Coppel's
guarantees on the SBA loan with Commerce Bank and Coppel's obligation in respect
of the Company's acquisition of Boulder Endurance Co., Inc. Purchaser agrees to
enter into agreements with each of those obligees to directly obligate the
Purchaser in respect of such indebtedness, provided that nothing herein shall be
deemed to obligate the payment of any additional consideration.
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ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
8.1 Indemnification.
(a) If the Closing has occurred, subject to the terms and
conditions of this Article VIII, but notwithstanding anything to the contrary
contained herein, the Indemnifying Shareholders, [jointly and severally] shall
indemnify the Purchaser, and its respective officers, directors, agents and
representatives (collectively, the "INDEMNITEES"), from and in respect of, and
hold the Indemnitees harmless against, any and all damages, fines, penalties,
losses, liabilities, judgments, deficiencies and expenses (including without
limitation amounts paid in settlement, interest, court costs, costs of
investigators, reasonable fees and expense of attorneys and accountants and
other expenses of litigation), offset or reduced by the amount of any insurance
proceeds received by Purchaser in respect of any of the foregoing, incurred or
suffered by any of the Indemnitees ("DAMAGES") resulting from, relating to or in
connection with any misrepresentation, breach of warranty or failure to perform
any covenant or agreement of the Company or the Indemnifying Shareholder
contained in this Agreement.
(b) To secure the indemnification obligations of the Indemnifying
Shareholder to the Indemnitees, the Purchaser Securities remaining in the Escrow
Account provided for by the Securities Escrow Agreement after the disbursement
contemplated by Section 2.3 shall be disbursed only in accordance with the
provisions hereof and in such Securities Escrow Agreement. Indemnitee's Damages
shall be limited as set forth in Section 8.5.
(c) The Indemnifying Shareholders acknowledge that its
indemnification obligations hereunder are solely in its capacity as a former
shareholder of the Company, and, accordingly, the indemnification obligations in
this Article VIII shall not entitle any current or former officer, director or
employee of the Company to any indemnification from the Company pursuant to the
Articles of Incorporation, or any agreement with the Company.
8.2 Method of Asserting Claims.
(a) Each Indemnitee shall give prompt written notice (the "CLAIM
NOTICE") to the Representative as agent for the Indemnifying Shareholders, and
the Escrow Agent of any claim or event known to it which gives rise or may give
rise to a claim for indemnification hereunder by the Indemnitee against the
Indemnifying Shareholders (an "INDEMNIFIABLE CLAIM"). The Claim Notice shall
specify the nature and estimated amount of such Damages (the "CLAIMED AMOUNT").
The failure of any Indemnitee to give notice as provided in this Section 8.2
shall not relieve the Indemnifying Shareholders of their obligations under this
Article VIII, except to the extent that such failure has materially and
adversely affected the rights of the Indemnifying Shareholders. In the case of
any claim for indemnification hereunder arising out of a claim, action, suit or
proceeding brought by any person who is not a party to this Agreement (a
"THIRD-PARTY CLAIM"), the Indemnitee also shall give the Representative, as
agent for the Indemnifying Shareholders, copies of any written claims, process
or legal pleadings with respect to such Third-Party Claim promptly after such
documents are received by the Indemnitee.
(b) Within 10 days after delivery of a Claim Notice, the
Representative shall provide written notice (the "CERTIFICATE OF OBJECTION") to
the Purchaser and the Escrow Agent of his objections, if any, to the Claim
Notice.
(i) If the Representative fails to deliver the Certificate
of Objection to Purchaser and the Escrow Agent within such time period, the
Indemnitee shall be entitled to receive the Claimed Amount from the Escrow
Account by cancellation of one share of the Purchaser Securities for each $1.00
of Claimed Amount.
(ii) If the Representative delivers a Certificate of
Objection to the Escrow Agent, (it
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being understood that Escrow Agent may rely on such Certificate of Objection for
the purposes of refusing to make any disbursement) then Purchaser Securities
representing 150% of the Claimed Amount shall not be released from the Escrow
Account until such time as (A) joint written instructions (the "JOINT
INSTRUCTIONS"), executed by the Representative and Purchaser, are delivered to
the Escrow Agent directing the Escrow Agent to the manner and amount of any
disbursement to be made or (B) a certified copy of a judgment of a court of
competent jurisdiction determining that an amount is due to Purchaser is
delivered to the Escrow Agent.
(c) Resolution of Conflicts.
(i) The Purchaser and the Representative shall attempt to
resolve any dispute as to Joint Instructions in good faith in a person to person
meeting. Each party agrees that it will not initiate any litigation against any
other party regarding the subject matter of this Article VIII for at least sixty
(60) days following such person to person meeting except for (i) motions for a
temporary restraining order or the other preliminary equitable relief and (ii)
circumstances in which a delay for such period would result in such action being
barred as a result of the relevant statute of limitations expiring. In the event
any litigation is initiated in compliance with this Section 8.2(c)(i), the
parties agree jointly to stipulate to the court that all proceedings in such
action to be kept confidential. The Escrow Agent shall be entitled to act in
accordance with any decision of the court and make or withhold payments out of
the Escrow Account in accordance therewith.
(ii) If no agreement shall have been reached within 15
days after the person to person meeting, the parties shall seek mediation by a
person mutually acceptable to the parties. The parties will use their best
efforts to resolve conflicts in good faith by mediation.
(iii) Any litigation initiated pursuant to Section
8.2(c)(i) shall be brought in the federal court encompassing Newark, New Jersey.
The non-prevailing party to any litigation shall pay its own expenses and the
expenses, including without limitation, attorneys' fees and costs, incurred by
the other party to the litigation.
8.3 Third Party Claims.
(a) Except as otherwise provided in paragraph (c) below, the
Representative, as agent for the Indemnifying Shareholders, may elect to
compromise or defend, at the Indemnifying Shareholders' own expense and by the
Indemnifying Shareholders' own counsel reasonably satisfactory to the
Indemnitees, any Third-Party Claim; provided that (i) the Representative
provides the Indemnitee with reasonable evidence that the Indemnifying
Shareholders will have the financial resources to defend against such claim and
fulfill its indemnification obligations hereunder; and (ii) the giving of a
Defense Notice (as defined below) by the Representative shall constitute an
acknowledgment by the Indemnifying Shareholders of its obligation to indemnify
the Indemnitee with respect to such Third-Party Claim in accordance with the
terms of this Article VIII. If the Representative, as agent for the Indemnifying
Shareholders, elects to compromise or defend a Third-Party Claim, the
Representative shall, within thirty (30) days of its receipt of the notice
provided pursuant to Section 8.2(a) hereof (or sooner, if the nature of such
Third-Party Claim so requires), provide written notice to the related Indemnitee
of its intent to do so (a "DEFENSE NOTICE"), and such Indemnitee shall
reasonably cooperate in the compromise of, or defense against, such Third-Party
Claim. The Indemnifying Shareholders shall be responsible for the payment of
such Indemnitee's reasonable, actual out-of-pocket expenses incurred in
connection with such cooperation, and such expenses shall constitute Damages
incurred or suffered by Purchaser within the meaning of Section 8.1(a) hereof.
After notice from the Representative, as agent for the Indemnifying
Shareholders, to an Indemnitee of its election to assume the defense of a
Third-Party Claim, the Indemnifying Shareholders shall not be liable to such
Indemnitee under this Article VIII for any legal expenses subsequently incurred
by such Indemnitee in connection with the defense thereof; provided that such
Indemnitee shall have the right to employ one counsel of its choice to represent
such Indemnitee if, in such Indemnitee's reasonable judgment, a conflict of
interest between such Indemnitee and the Indemnifying Shareholders exists in
respect of such claim, and in that event the reasonable fees and expenses of
such separate counsel shall be the responsibility of the Indemnifying
Shareholders (and shall constitute Damages incurred or suffered by Purchaser
within the meaning of
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Section 8.1(a) hereof). If the Representative, as agent for the Indemnifying
Shareholders, elects not to compromise or defend against a Third-Party Claim, or
fails to notify an Indemnitee of its election as provided in this Section 8.3,
such Indemnitee may pay, compromise or defend such Third-Party Claim on behalf
of and for the account and risk of the Indemnifying Shareholders (and any amount
paid or expenses incurred in connection therewith shall constitute Damages
incurred or suffered by Purchaser within the meaning of Section 8.1(a) hereof).
The Representative may not consent to entry of any judgment or enter into any
settlement without the written consent of each related Indemnitee (which consent
shall not be unreasonably withheld), unless such judgment or settlement provides
solely for money damages or other money payments for which such Indemnitee is
entitled to indemnification hereunder and includes as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnitee of a release
from all liability in respect of such Third-Party Claim.
(b) In respect of any claim, action, suit or proceeding brought
by a taxing authority in respect of Taxes (a "TAX CLAIM"), the Representative,
as agent for the Indemnifying Shareholders, shall have the sole right to control
any Tax Claim, provided, however, that the Representative shall provide the
Indemnitee with copies of all correspondence with any taxing authority in
connection with any such Tax Claim and shall keep the Indemnitee reasonably
informed of all progress with such taxing authority, and provided further that
the Representative shall consult with the Indemnitee in good faith in contesting
any proposed adjustment and shall consider any reasonable advice from the
Indemnitee concerning such Tax Claim so long as the Representative, as agent for
the Indemnifying Shareholders, shall ultimately be entitled to control any such
Tax Claim concerning any indemnity obligation of the Selling Shareholder. The
Representative shall not be entitled to compromise or settle any Tax liability
of the Company for any Pre-Closing Date period that would have the effect of
materially decreasing the Company's deductions for credits or materially
increasing the Company's taxable income for any taxable year or period
subsequent to the Pre-Closing Date period without the prior written consent of
Purchaser, which consent shall not be unreasonably withheld.
(c) If there is a reasonable likelihood that a Third-Party Claim
may have a material adverse effect on an Indemnitee, other than as a result of
money damages or other money payments for which such Indemnitee is entitled to
indemnification hereunder, such Indemnitee will have the right, after
consultation with the Representative, and at the cost and expense of the
Indemnifying Shareholders (which costs and expenses shall constitute Damages
within the meaning of Section 8.1(a) hereof), to defend such Third-Party Claim.
If the Third-Party Claim involves a third party with whom Purchaser has a
significant on-going or prospective relationship, the Indemnitee will have the
right, after consultation with the Representative, and at the cost and expense
of the Indemnifying Shareholders (which costs and expenses shall constitute
Damages within the meaning of Section 8.1(a) hereof), to defend such Third-Party
Claim; provided that the Indemnifying Shareholders shall not be obligated to pay
Damages to the extent it is determined (by agreement between the Representative
and Indemnitees or by arbitration or court judgment) that the Third-Party Claim
was settled on terms that were not fair and reasonable to the Indemnitees.
(d) Any release of Purchaser Securities in the Escrow Account of
any Third Party Claim shall be made upon Joint Instructions to the Escrow Agent.
8.4 Survival.
(a) The representations and warranties of the Indemnifying
Shareholders set forth in this Agreement shall survive the Closing and shall
continue until eighteen months after the Closing Date; provided however, that
the representations and warranties in Section 3.5(b) and 3.19 hereof shall
survive for a period of 24 months after the Closing Date; and the
representations and warranties in Section 3.8 hereof shall survive until ten
(10) days after the expiration of the relevant statutes of limitations. This
Section 8.4 (a) shall not limit any covenant or agreement of the parties which
by its terms contemplates performance after the Closing. Notwithstanding
anything to the contrary herein, if a claim for indemnification is made before
the expiration of the periods of survival set forth above in this Section 8.4
(a), then (notwithstanding the expiration of such time period) the
representation or warranty applicable to such claim shall survive until, but
only for purposes of, the resolution of such claim.
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(b) The representations and warranties of the Purchaser set
forth in this Agreement shall survive the Closing and shall continue until
eighteen months after the Closing Date; provided however, that the
representations and warranties in Section 4.5 and 4.19 hereof shall survive for
a period of 24 months after the Closing Date; and the representations and
warranties in Section 4.8 hereof shall survive until ten (10) days after the
expiration of the relevant statutes of limitations. This Section 8.4(b) shall
not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Closing. Notwithstanding anything to the
contrary herein, if a claim for indemnification is made before the expiration of
the periods of survival set forth above in this Section 8.4 (b), then
(notwithstanding the expiration of such time period) the representation or
warranty applicable to such claim shall survive until, but only for purposes of,
the resolution of such claim.
8.5 Limitations.
(a) Except as set forth below, no claim for indemnification
pursuant to Section 8.1 shall be made unless asserted by a written notice given
to the Representative on or before eighteen (18) months from the Closing Date
or, in the case of breaches of the representations and warranties in (i) Section
3.5(b) (No Undisclosed Liabilities) or Section 3.19 (Employee Benefit Plans and
Compensation), on or before 24 months from the Closing Date, or (ii) Section 3.8
(Tax and Other Returns and Reported), within ten (10) days after the expiration
of the relevant statutes of limitation.
(b) Except as otherwise expressly provided herein, the
Indemnnifying Shareholders shall not be liable under this Article VIII unless
and until the aggregate amount of Damages incurred or suffered by Indemnitees
exceeds $5,000 individually or $50,000 in the aggregate.
(c) Nothing in this Article VIII shall limit, in any manner
(whether by time, amount, procedure or otherwise), any remedy at law or in
equity to which Purchaser may be entitled as a result of actual fraud or willful
misconduct by the Selling Shareholders; provided however, in no event shall the
Indemnifying Shareholder be liable for an amount in excess of $250,000 plus any
amount over $85,000 in respect of the settlement of the existing litigation
involving the Company (the "MAF Litigation") (plus any amounts that may have
been withheld pursuant to the provisions of Section 2.3 hereof and the related
provisions of the Securities Escrow Agreement).
8.6 Release of Escrow.
(a) If, after 18 months after the Closing Date (the "RELEASE
DATE"), shares of the Purchaser's common stock representing the Purchaser
Securities still remain in the Escrow Account and (i) the Existing MAF
Litigation shall have been settled at a cost no greater than $85,000 and (ii) no
other claims for Damages are then pending, then (i) any such securities
remaining in the Escrow Account shall be disbursed to the Selling Shareholders
in the same ratio as set forth on Schedule 1.1.
(b) In the event that, at the Release Date, unresolved claims for
indemnification shall have been made by Indemnitee, then Purchaser may in good
faith, at any time prior to the Release Date, notify the Escrow Agent to such
effect in writing, which notice shall describe briefly the nature of each such
claim, and the estimated amount, based on the good faith judgment of Purchaser
and as determined solely by Purchaser, of the potential liability with respect
to each such claim. Purchaser shall promptly deliver to the Representative a
copy of such written notice. The Escrow Agent shall have no obligation to verify
that delivery of such notice has been made by Purchaser to the Representative,
but agrees to forward to Representative, promptly, by overnight mail, a copy of
the notice received by it. As more fully provided in the Securities Escrow
Agreement, the Escrow Agent shall set aside and retain (to the extent available
in the then-remaining Escrow Account) as a reserve to cover such claim or claims
(such amount so set aside and reserved, as reduced from time to time pursuant to
the provisions of this Agreement, being herein called the "ESCROW ACCOUNT
RESERVED AMOUNT") the following such number of shares of Common Stock comprising
the Purchaser Securities equal to the dollar amount of the Escrow Account
Reserved Amount.
8.7 The Representative.
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(a) The Company and the Indemnifying Shareholders hereby
authorize, direct and appoint Coppel to act as sole and exclusive agent,
attorney-in-fact and the Representative of the Selling Shareholders, and
authorizes and directs the Representative to (i) take any and all actions
(including without limitation executing and delivering any documents, incurring
any costs and expenses for the account of the Selling Shareholder (which will
constitute Damages incurred or suffered by Purchaser within the meaning of
Section 8.1(a) hereof) and making any and all determinations) which may be
required or permitted by this Agreement or any Related Agreement to be taken by
the Indemnifying Shareholders or the Representative, (ii) exercise such other
rights, power and authority as are authorized, delegated and granted to the
Representative hereunder and under the Escrow Agreement in connection with the
transactions contemplated hereby and thereby and (iii) exercise such rights,
power and authority as are incidental to the foregoing. Any such actions taken,
exercises of rights, power or authority, and any decision or determination made
by the Representative consistent therewith, shall be absolutely and irrevocably
binding on the Indemnifying Shareholders as if the Indemnifying Shareholders
personally had taken such action, exercised such rights, power or authority or
made such decision or determination in the Indemnifying Shareholders' individual
capacity. Notwithstanding any other provision of this Agreement, with respect to
the matters covered by Article VIII, (i) the Selling Shareholder irrevocably
relinquishes the Indemnifying Shareholders' right to act independently and other
than through the Representative, except with respect to the removal of the
Representative or appointment of a successor Representative as provided in
Section 8.8(b) below, and (ii) the Indemnifying Shareholders shall not have any
right under this Agreement or otherwise to institute any suit, action or
proceeding against the Company, Purchaser or the Escrow Agent with respect to
any such matter, any such right being irrevocably and exclusively delegated to
the Representative. The Representative hereby acknowledges and accepts the
foregoing authorization and appointment and agrees to serve as the
Representative in accordance with this Agreement and the Securities Escrow
Agreement.
(b) The Representative shall serve as Representative until his
resignation, removal from office, incapacity or death; provided, however, that
the Representative shall not have the right to resign without (A) prior written
notice to the Selling Shareholder and (B) picking a successor reasonably
satisfactory to Purchaser to serve until a successor thereto is elected by the
Selling Shareholder. The parties hereby agree that, if Coppel shall cease to be
Representative for any reason, Xxxxxxx Xxxxxxxxx shall be his successor. The
Representative may be removed at any time, and a successor representative,
reasonably satisfactory to Purchaser, may be appointed, pursuant to written
action by Indemnifying Shareholders. Any successor to the Representative shall,
for purposes of this Agreement and the Escrow Agreement, be deemed to be, from
the time of the appointment thereof in accordance with the terms hereof, the
Representative, and from and after such time, the term "REPRESENTATIVE" as used
herein and therein shall be deemed to refer to such successor. No appointment of
a successor shall be effective unless such successor agrees in writing to be
bound by the terms of this Agreement and the Escrow Agreement.
(c) The Representative shall be permitted to retain counsel,
consultants and other advisors and shall promptly notify Purchaser after
retaining any such person.
(d) The provisions of this Section 8.8 shall in no way impose any
obligations on Purchaser (other than those set forth in paragraph (c) above). In
particular, notwithstanding any notice received by Purchaser to the contrary
(except any notice of the appointment of a successor Representative approved by
Purchaser in accordance with paragraph (b) of this Section 8.8), Purchaser (i)
shall be fully protected in relying upon and shall be entitled to rely upon,
shall have no liability to the Indemnifying Shareholders with respect to, and
shall be indemnified by the Selling Shareholders from and against all liability
arising out of (any such Indemnifiable amounts constituting Damages within the
meaning of Section 8.1(a) hereof) actions, decisions and determinations of the
Representative and (ii) shall be entitled to assume that all actions, decisions
and determinations of the Representative are fully authorized by the
Indemnifying Shareholders.
(e) The Representative shall not be liable to the Indemnifying
Shareholders for the performance of any act or the failure to act so long as he
acted or failed to act in good faith in what he reasonably believed to be the
scope of his authority and for a purpose which he reasonably believed to be in
the best interests of the Selling
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Shareholder.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this Agreement
may be terminated at any time prior to the Closing Date:
(a) by mutual consent of the Company, the Representative and
Purchaser;
(b) by either the Purchaser, the Representative or the Company
if: (i) the Closing Date has not occurred by November 30, 2002 ; (ii) there
shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the transactions contemplated in this Agreement; or
(iii) there shall be any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the transactions contemplated in this
Agreement by any governmental entity that would make consummation of the
transactions contemplated in this Agreement illegal;
(c) by Purchaser or if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the transactions contemplated in this Agreement by any
Governmental Entity, which would: (i) prohibit Purchaser's ownership or
operation of any material portion of the business of the Company or (ii) compel
Purchaser or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or Purchaser as a result of the
transactions contemplated in this Agreement;
(d) by Purchaser if it is not in material breach of its
obligations under this Agreement, and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company or the Indemnifying Shareholders and such breach has not
been cured within five (5) calendar days after written notice to the Company
(provided that no cure period shall be required for a breach which by its nature
cannot be cured);
(e) by the Company if neither it nor the Indemnifying
Shareholders is in material breach of their respective obligations under this
Agreement and there has been a material breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Purchaser and
such breach has not been cured within five (5) calendar days after written
notice to Purchaser (provided that no cure period shall be required for a breach
which by its nature cannot be cured);
(f) by Purchaser if an event having a material adverse effect on
the Company shall have occurred after the date of this Agreement; or
(g) by the Company if an event having a material adverse effect
on the Purchaser shall have occurred after the date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this
Section 9.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
9.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 9.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Purchaser, the Indemnifying
Shareholders or the Company, or their respective officers, directors or
shareholders.
9.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an
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instrument in writing signed on behalf of each of the parties hereto.
9.4 Extension; Waiver. At any time prior to the Closing Date, Purchaser,
on the one hand, and the Company and the Selling Shareholder, on the other, may,
to the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given and received if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Purchaser, to: VITAL LIVING, INC.
0000 Xxxxx 00xx Xxxxxx
Xxxxx 000
Xxxxxxx, XX 00000-0000
Attn: Xx. Xxxx Xxxxx
Telephone 000-000-0000
Facsimile: 000-000-0000
with a copy to: Xxxxx Xxxxxx & Xxxx LLP
0000 Xxxxxx xx xxx Xxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attention: Xxxxx Xxxx Esq.
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
if to the Company,
to: MAF BioNutritionals LLC
000 Xxxx Xxxxxx
Xxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxx Xxxxxx
Telephone No.: 000 000 0000
Facsimile No.: 000-000-0000
with a copy to: Xxxx Xxxxx LLP
The Legal Center
Xxx Xxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attention: Xxxxxx X. XxXxxxx.
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Telephone No. 000-000-0000
Facsimile No.: 000-000-0000
(c) if to the Representative, to:
10.2 Interpretation. The words "INCLUDE," "INCLUDES" and "INCLUDING"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.4 Entire Agreement; Assignment. This Agreement, the Company
Disclosure Schedule, the schedules and Exhibits hereto, and the documents and
instruments and other agreements among the parties hereto referenced herein: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof;
(b) are not intended to confer upon any other person any rights or remedies
hereunder except that the Representative and the Escrow Agent shall have the
express rights articulated in Articles VII hereof and in the Escrow Agreement
hereto; and (c) shall not be assigned by operation of law or otherwise except as
otherwise specifically provided, except that Purchaser may assign its rights and
delegate its obligations hereunder to any of its affiliates.
10.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
10.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of the federal court encompassing the city of Newark, New Jersey, in
the case where the Purchaser is the initial Plaintiff, and Phoenix Arizona in
the case where the Selling Shareholders are the Plaintiff, in connection with
any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction, venue and such process.
10.8 Amendment. Except as is otherwise required by applicable law, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
10.9 Extension; Waiver. At any time, Purchaser, the Selling Shareholder
and the Company may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii)
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waive any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, Purchaser, the Company, the Selling Shareholder, the
Shareholders' Representative and the Escrow Agent have caused this Agreement to
be signed by their duly authorized respective officers, all as of the date first
written above.
PURCHASER
Vital Living, Inc.
Name:
Title:
COMPANY
MFA Bionutritionals, LLC,
Name:
Title:
SELLING SHAREHOLDERS
----------------------------------
Xxxx Xxxxxxxxx, Individually
----------------------------------
Xxxxxx X. Quick, III, Individually
----------------------------------
Xxxxxx X. Quick, Individually
----------------------------------
Xxxxxxx Xxxxxx, Individually
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----------------------------------
Xxxxxxx Xxxxxx, Individually
----------------------------------
Xxxxxxx Xxxx, Individually
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EXHIBIT A
SCHEDULE OF SELLING SHAREHOLDER
--------------------------------------------------------------------------------
SHARES OF
INTERESTS COMMON STOCK
NAME AND ADDRESS BEING SOLD INTERESTS ESCROWED SHARES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EXHIBIT C
SECURITIES ESCROW AGREEMENT
EXHIBIT [ ]
COMPANY DISCLOSURE SCHEDULE
EXHIBIT J
OPINION OF XXXXX XXXXXX & XXXX LLP
EXHIBIT K
OPINION OF XXXX XXXXX
