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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 24, 1997
AFP Imaging Corporation
(Exact Name of Registrant as Specified in its Charter)
New York 0-10832 13-2956272
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or File Number) Identification No.)
organization)
250 Clearbrook Road, Elmsford, New York 10523
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 592-6100
(Former Name or Former Address, if Changed Since Last Report)
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Item 2. Acquisition or Disposition of Assets.
On December 24, 1997, Dent-X International, Inc. ("Dent-X"), a
New York Corporation and wholly owned subsidiary of AFP
Imaging Corporation (the "Registrant"), purchased from ProDen
SYSTEMS, INC., a Washington corporation (the "Seller"), all of
the assets, properties and rights (the "Assets") of Seller's
business, which is the developing, manufacturing and
distribution of dental imaging equipment and the software used
in connection therewith (the "Business").
The Registrant intends to continue to use the Assets in the
Business.
The purchase price consisted of cash, notes payable and
assumed liabilities totaling $3,950,083. The Registrant
used internally generated equity funds, and did not incur
additional bank debt.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(c) Exhibits.
2.1 Asset Purchase Agreement dated December 24, 1997
among Dent-X, the Registrant, ProDen SYSTEMS, INC.
and Cade Adams, sole shareholder of Seller (the
"Asset Purchase Agreement").
2.2 Schedules and Exhibits have been omitted from the
Asset Purchase Agreement but will be furnished
supplementally by the Registrant to the Commission
upon request.
99.1 Non-Negotiable $500,000 Promissory Note of the
Registrant dated December 24, 1997.
99.2 Non-Negotiable Subordinated $2,500,000 Promissory
Note of the Registrant dated December 24, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
AFP Imaging Corporation
Dated: January 8, 1998 By:/s/ David Vozick
----------------
David Vozick
Chairman of the Board
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Exhibit Index
Exhibit No. Description
2.1 Asset Purchase Agreement dated December 24, 1997 among Dent-
X International, Inc., AFP Imaging Corporation, ProDen
SYSTEMS, INC. and Cade Adams (the "Asset Purchase
Agreement").
2.2 Schedules and Exhibits have been omitted from the Asset Purchase
Agreement but will be furnished supplementally by the Registrant
to the Commission upon request.
99.1 Non-Negotiable $500,000 Promissory Note of the Registrant dated
December 24, 1997.
99.2 Non-Negotiable Subordinated $2,500,000
Promissory Note of the Registrant dated
December 24, 1997.
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
AMONG
DENT-X INTERNATIONAL, INC.
("BUYER"),
AFP IMAGING CORPORATION,
Parent of Buyer
("PARENT")
ProDen SYSTEMS, INC.
("SELLER")
AND
CADE ADAMS, SOLE SHAREHOLDER OF SELLER
("ADAMS")
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ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
1. Sale of Assets...............................................1
2. Assumption of Specific Liabilities...........................7
3. Purchase Price..............................................10
4. Closing.....................................................10
5. Representations and Warranties of the Seller and the
Shareholder.................................................12
6. Representations and Warranties of the Shareholder...........27
7. Representations and Warranties of Buyer and................ 27
8. Covenants of the Seller.....................................30
9. Covenants of Buyer and .....................................34
10. Conditions Precedent to Obligations of Buyer................36
11. Conditions Precedent to Obligations of Seller...............38
12. Indemnities.................................................39
13. Use Best Efforts to Satisfy Condition Precedents............43
14. Determination of Forum in the Event of Litigation...........43
15. Notices.....................................................45
16. Binding Effect; Benefits....................................46
17. Assignment..................................................46
18. Confidentiality.............................................46
19. Brokerage...................................................47
20. Governing Law...............................................48
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21. Expenses; Transfer Taxes....................................48
22 Severability................................................48
23. Survival....................................................49
24. Waiver......................................................49
25. Headings....................................................49
26. Entire Agreement; Modifications.............................49
27. Counterparts................................................49
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT ("Agreement"), dated as of December 24, 1997, by
and among AFP IMAGING CORPORATION, a New York corporation ("Parent"), ProDen
SYSTEMS, INC., a Washington corporation ("Seller"), and DENT-X INTERNATIONAL,
INC., a New York corporation and a wholly-owned subsidiary of Parent ("Buyer")
and CADE ADAMS, the sole shareholder of the Seller ("Adams" or the
"Shareholder").
Preliminary Statement
Seller develops, designs, manufactures and distributes dental imaging
equipment and the software used in connection therewith (the "Business").
Buyer desires to acquire from Seller, and Seller desires to sell to
Buyer, all of the assets, properties and rights of the Business (except as
specifically retained by Seller hereunder, subject to certain liabilities and
obligations of Seller specifically assumed by Buyer in this Agreement.
The Shareholder, who beneficially owns all of the outstanding capital
shares of the Seller, desires to facilitate such transaction.
In consideration of the premises and in reliance upon the representations,
warranties, covenants and agreements contained in this Agreement, and upon the
terms and subject to the conditions set forth in this Agreement, the parties
agree as follows:
1. Sale of Assets.
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1.1 Assets to be Sold. On the terms and subject to the
conditions set forth in this Agreement, Seller agrees to sell, assign, transfer
and convey to Buyer, and Buyer agrees to purchase from Seller, at the closing
referred to in Section 4 below (the "Closing"), all of Seller's assets not
listed on Schedule 1.2 hereof (the assets to be purchased hereunder collectively
referred to as the "Assets"), by delivery at Closing of such duly executed
instruments, in form satisfactory to Buyer's attorneys, sufficient to convey to
Buyer good and marketable title, free and clear of all claims, liabilities,
obligations, mortgages, liens, security interests, charges or other encumbrances
(hereinafter referred to collectively as "Liens"), except as otherwise
specifically provided herein. The Assets include, but are not limited to the
following assets, properties and rights used by Seller in the operation of the
Business:
(a) Equipment and Other Personal Property. All of (i)
Seller's tangible personal property, including all machinery, plant, equipment,
computer hardware, test and inspection instruments, quality control and
calibration equipment, tooling and molds at Seller and vendor sites, vehicles,
furnishings, furniture, equipment, fixed assets, office or operating supplies,
parts, whether located at or used in the Seller's facilities or used by
employees located at the Seller's facilities, or at any other plants, offices,
warehouses, storage facilities, vendor sites property or other facilities
leased, owned or used by Seller (collectively, the "Personal Property") and (ii)
Seller's right, title and interest in and to the leases of Personal Property
(collectively the "Leased Personal Property"). Schedule 1.1(a)
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comprises, to the extent not listed on Schedule 1.2, all of the
Seller's Personal Property and Leased Personal Property;
(b) Inventories. All inventories of Seller
("Inventory"), wherever located, including without limitation, raw materials,
work-in-process, stock-in-trade, finished goods, semi-finished goods, goods of
Seller consigned to others and other inventories and operating supplies and
records relating thereto and all samples thereof. Schedule 1.1(b) comprises, to
the extent not listed on Schedule 1.2, all of Seller's Inventory;
(c) Cash. Cash and checks on hand, on deposit or in
transit to bank accounts maintained by Seller (collectively, "Cash Balances").
Schedule 1.1(c) comprises all of Seller's Cash Balances. As at the date of
execution of this Agreement, there are Cash Balances on deposit of $17,059 and a
cash balance reflected on the Seller's books and records of $17,059.
(d) Real Property Leases. All of the leases of real property
where the Seller conducts business ("Real Property Leases"), together with all
of Seller's rights in and to the security deposits with respect to these leases,
as well as all rights of Seller to utilities and related services at the
premises covered by the Real Property Leases (the "Premises"). Schedule 1.1(d)
comprises all of Seller's Real Property Leases and sets forth thereon any
required consents needed in connection with the assignment thereof. Seller and
Buyer shall use their best efforts to procure any required consents of the
respective landlords/lessors or sublessors (collectively the "Landlords") as
soon as practicable after the date hereof.
(e) Intellectual Property. All United States and foreign
patents, patent applications, patent licenses, trade names,
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trademarks, trade name and trademark registrations (and applications therefor),
copyrights and copyright registrations (and applications therefor), trade
secrets, inventions, processes, designs, know-how, formulae, and mask works, all
computer software (including object and source codes in machine readable and
listing form, derivative work, development documentation, documentation,
enhancement, maintenance modification, and user documentation, which are in any
way connected to the Business or operation of the Business, (whether or not
subject to statutory representation or protection) and all revisions,
improvements and versions thereof, documentation (including internal
documentation, documentation made available to customers, manuals, flowcharts,
training materials, source code notes and all other supporting materials), all
data bases, files, bills of materials and all revisions, improvements and
versions thereof, software tools, compilers, test routines, passwords and
information, in whatever form, all revisions, improvements and versions of the
foregoing and all patents, patent applications, copyrights, trade secrets,
trademarks, trade names, logos, service marks, program names and other
proprietary rights and license rights relating thereto held by Seller (all of
the foregoing, collectively, the "Intellectual Property"). Schedule 1.1(e)
comprises all of Seller's Intellectual Property;
(f) Other Intangibles. All of the business of Seller, as a
going concern, including without limitation, all corporate names used in the
Business, including without limitation, the names "ProDen Systems, Inc.",
"ProDen Systems" and all variations thereof, and all other trade or business
names, logos, trade dress and service marks, registered or unregistered owned by
Seller, all registrations and applications for registration thereof, all
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goodwill and business associated with or relating to such names, logos, trade
dress or marks and any combination, part or permutation of any of the foregoing,
all as set forth on Schedule 1.1(f) to the extent not listed on Schedule 1.1(e)
above.
(g) Accounts and Notes Receivable. Any and all accounts
receivable, trade receivables, notes receivable described in Schedule 1.1(g),
other receivables, claims and causes of action of Seller arising out of the
operation of the Business to the extent not listed on Schedule 1.2 (for purposes
of this Agreement, accounts receivable and trade receivables are hereinafter
referred to as "Accounts Receivable");
(h) Customer Purchase Orders. All of the Seller's open customer
purchase orders, sales contracts and agreements for the sale of goods and
services to customers or distributors for future delivery of Seller's products
in all configurations, styles or trade dress ("Customer Orders") listed on
Schedule 1.1(h), which Schedule 1.1(h) comprises, to the extent not listed on
Schedule 1.2, all of Seller's Customer Orders and such other purchase orders,
sales contracts and agreements with customers as shall be entered into between
the date hereof and the Closing Date, as defined below, in the ordinary course
of business and which are, to the extent required hereunder, approved by Buyer;
(i) Seller Purchase Orders. Only the purchase orders,
purchase contracts and purchase agreements for the purchase of goods, materials
and services (collectively "Purchase Orders") described in Schedule 1.1(i),
which Schedule 1.1(i) comprises, to the extent not listed on Schedule 1.2, all
of Seller's Purchase Orders; and, such other purchase orders or contracts as
shall be entered into between the date hereof and the Closing Date in the
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ordinary course of business and which are, to the extent required
hereunder, approved by Buyer;
(j) Other Contracts. All of the other agreements,
contracts, licenses, instruments and commitments of Seller arising out of the
operation of, or related to the Business (collectively, the "Contracts") listed
on Schedule 1.1(j) and all other agreements, contracts, licenses, instruments
and commitments of Seller arising out of the operation of, or related to the
Business entered into after the date hereof and through the Closing Date which
shall have been expressly accepted and approved in writing by Buyer prior to the
Closing, and all rights of Seller under the Contracts, which Schedule 1.1(j)
comprises (w) all contracts for assets not otherwise listed on a Schedule
hereto, (x) contracts for the purchase, rental or other use of assets to be
acquired or performed by Seller in connection with the Business, (w) contracts
with respect to supply, distribution, agency or other such arrangements and (z)
to the extent not otherwise included in (x) or (w) above, all contracts relating
to the Business entered into with consultants and all marketing, distribution
and service agreements. Schedule 1.1(j) also sets forth the third party consents
required to transfer the Contracts;
(k) Permits. All municipal, state, federal
and other governmental or quasi-governmental franchises, permits, business
licenses, variances, interim permits, permit applications, registrations,
approvals and other governmental authorizations related to the Business,
wherever located, including, but not limited to FDA registrations, (collectively
the "Permits") listed on Schedule 1.1(k) hereto, to the extent Seller is allowed
to
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transfer such permits, business licenses and approvals to Buyer.
Schedule 1.1(k) comprises all of Seller's permits;
(l) Prepaid Expenses. The prepaid expenses of Seller,
and all prepayments, advances or other deposits, if any, made by customers of
the Business arising out of the operation of the Business for products or
services to be provided subsequent to the Closing, as set forth on Schedule
1.1(l);
(m) Information and Records. Subject to Seller's right
to access to the following set forth in Section 9.1 hereof, available books of
account, and accounting, financial and other records of the Seller relating to
the Business, including without limitation, any list(s) of the customers
(including a separate listing of customers who are extended credit), a list of
vendors of the Business, all production records, product files, technical
information, laboratory notebooks, confidential information, price lists,
marketing and advertising information, sales and credit records, all information
regarding products purchased from and prices paid to vendors, specifications for
all products purchased or sold by Seller, tax, historical and financial records,
all personnel and labor relations records, and all files and other proprietary
information which are related to, or used by Seller in connection with, the
Business and the operation of the Business.
(n) Insurance Policies. All insurance policies of Seller
relating to the Assets or the Business, as set forth on Schedule 1.1(n), all
proceeds thereof, and all claims and rights thereunder, other than those
specified in Schedule l.2 of this Agreement.
(o) Claims. All choses-in-action and claims and all warranty or
indemnification rights, other than those specified in Schedule l.2 of this
Agreement.
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(p) Miscellaneous Assets. The miscellaneous assets listed on
Schedule 1.1(o) hereof.
1.2 Excluded Assets. Anything to the contrary notwithstanding,
any assets and properties listed below (the "Excluded Assets Schedule") are
excluded from the Assets:
(a) Any minute books, stock ownership record books, and tax
records relating to Seller.
(b) Any claims, suits, choses-in-action and actions, if any,
that are specifically identified to be excluded on Schedule l.2(b) annexed
hereto.
(c) Any other excluded asset, if any, as specified on Schedule
1.2 (b).
1.3 Effect of Failure to Obtain Third Party Consents. To
the extent that the assignment of any Contract, Real Property
Lease, Personal Property lease or license to be assigned to Buyer
under this Agreement shall require the consent of a party other
than Seller which has not been obtained by the Closing Date and if
Buyer shall nevertheless elect to consummate the transactions
contemplated by this Agreement, this Agreement shall not constitute
an agreement to assign the same if an attempted assignment without
that consent would constitute a breach thereof; it being understood
by the parties that the election of Buyer to consummate the
transactions contemplated by this Agreement without a particular
consent(s) shall not relieve Seller of the obligation to obtain
such consent(s).
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2. Assumption of Specific Liabilities.
2.1 Liabilities Assumed. The Buyer assumes no obligations of
Seller except as specifically set forth herein. Buyer agrees to assume and
agrees to discharge and perform when due, the following liabilities and
obligations of Seller (the "Assumed Liabilities"):
(a) The accounts payable of Seller listed on Schedule 2.1(a)
hereof (the "Liabilities Schedule");
(b) The Real Property Leases;
(c) The Personal Property leases;
(d) The Customer Orders acquired pursuant to Section
1.1(h) hereof;
(e) The Purchase Orders acquired pursuant to Section
1.1(i) hereof;
(f) Liabilities and obligations of Seller under the
Contracts;
(g) Seller liabilities reasonably accrued in the
ordinary course of business after the date first written above and prior to
Closing, but in no event to exceed the amount of Seller's Account Receivables
(after allowing for Seller's customary allowance for bad debts) accrued after
the date first written above;
(h) The notes evidencing Seller's obligation to William
F. Thom and Darlene Thom ("Original Holder") or Original Holder's assigns
("Seller Note"), provided, however that the aggregate balance remaining,
including interest, at Closing shall not be more than $97,825 and the Seller
Notes in the aggregate shall be repayable at the rate of $7,525. To the extent
the Seller Note is not in accordance with the above terms, Buyer assumes no
obligation with respect thereto. In the event Seller has satisfied the Seller
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Note, Buyer shall pay to Seller the amount which would have been paid to the
Original Holder upon the terms set forth above if the Seller Note was
outstanding at Closing.
(i) Any other liabilities or obligations of Seller listed on
Schedule 2.1(a) hereof.
2.2 Seller Responsible for Liabilities Not Assumed by Buyer.
Seller shall remain responsible for all claims, liabilities and obligations of
Seller with respect to the Assets or arising out of or relating to the operation
of the Business:
(a) which are not expressly assumed by Buyer in
Section 2.1;
(b) under any Real Property Lease, Contract, lease
or license which is assigned by Seller to Buyer if failure to obtain a required
consent to the assignment by Seller to Buyer deprives Buyer of the enjoyment of
any of Seller's rights thereunder;
(c) all liabilities with respect to personal injury
or property damage occurring prior to the Closing Date, regardless of when a
claim is filed, resulting from products sold or services furnished by Seller in
respect of the Business;
(d) all obligations and liabilities arising under
environmental statutes;
(e) without in any manner limiting Section 2.4
hereof, all claims arising under any labor or employment statutes by or on
behalf of any employees of the Seller accruing prior to Closing except accrued
salary for the salary period including the Closing; or
(f) all obligations or liabilities for any legal,
accounting, investment banking, brokerage or similar fees or
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expenses incurred by Seller in connection with, resulting from or attributable
to the transactions contemplated by this Agreement.
2.3 Seller Responsible for Tax Liabilities. Buyer is not hereby
assuming any liability, now or in the future, for any Federal, state or local
taxes (including, but not limited to income, sales and use taxes) arising out of
the operation of Seller's business prior to the Closing Date or incurred by
Seller as a result of the Closing or for wages, salaries, accrued vacation and
other employee benefits of Seller's present and former employees. Seller shall
be responsible for reporting and payment of all said taxes, including the
preparation of Forms W-2 and 1099 in respect of payments to Seller's employees.
2.4 Seller Responsible for Employee-Related Liabilities. Seller
shall remain responsible for all liabilities and obligations to present and
former employees of Seller, arising out of or in connection with any pension,
retirement or other employee benefit plan (collectively, "Employee Benefit
Plans") covering employees of Seller. Seller shall continue to fund the accrued
benefits (as of the Closing Date) of all then and former employees of Seller.
Buyer assumes no obligation to provide for, maintain or fund benefits or
liabilities for benefits accrued under such Employee Benefit Plans covering
employees of Seller. Notwithstanding anything contained herein to the contrary,
nothing herein restricts the right of Buyer to hire any employee of Seller on
such terms and conditions as Buyer and employee shall mutually agree, in which
case Buyer shall be responsible for the amount of compensation Buyer agrees to
pay thereafter.
3. Purchase Price.
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3.1 Purchase Price. In consideration for the sale of the Assets
by Seller to Buyer, Buyer shall assume the liabilities referred to in Section
2.1 above and Buyer shall deliver to the Seller at the Closing, (i) cash in the
amount of five hundred thousand dollars ($500,000), (ii) an unsecured
non-negotiable promissory note, guaranteed by PARENT, in the form of Exhibit 3.1
hereto, in the principal amount of $500,000 bearing interest at the simple rate
of 5.2% per annum, maturing on January 5, 1998, and (iii) a subordinated
non-interest bearing non-negotiable promissory note, guaranteed by PARENT, in
the form of Exhibit 3.2 hereto (the "Promissory Note") in the initial principal
amount equal to $2,500,000, payable in five (5) equal semi-annual payments
commencing January 1, 1999 of $500,000. The Promissory Note shall be
subordinated to the extent set forth in Exhibit 3.2 hereof. The parties
acknowledge that a portion of the payments made under the Promissory Note shall
be characterized as payments of interest for income tax purposes.
3.2 Reduction of Purchase Price. Notwithstanding anything
contained herein which may be to the contrary, the Purchase Price shall be
reduced on a dollar for dollar basis by the greater of the amount, if any, which
the Seller's (i) net worth as reflected on Seller's unaudited balance sheet as
at September 30, 1997 exceeds the amount thereof as at the Closing and (ii)
working capital (the excess of current assets over current liabilities) as
reflected on Seller's unaudited balance sheet as at September 30, 1997 exceeds
the amount thereof as at the Closing. Any such reduction shall, to the extent
not paid, reduce the amount of cash payable at Closing, and if such cash amount
has been paid, offset the next installment
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payment due under the Promissory Note.
4. Closing.
4.1 Time and Place of Closing; Deliveries. The Closing of the
transactions contemplated by this Agreement shall take place on December 21,
1997 or at such other date mutually acceptable to Buyer and Seller. To the
extent possible, the Closing shall occur by the exchange of documents by the
parties hereto or their respective counsel by express courier or other means
acceptable to the parties. To the extent it is not reasonably possible to so
close as provided above, the Closing shall be at 11:00 A.M. at the offices of
Snow Becker Krauss P.C., 605 Third Avenue, New York, New York 10158 or such
other place and time mutually acceptable to Buyer and Seller. The Closing and
all schedules set forth herein, except for tax purposes, shall be deemed as at
the end of business on December 20, 1997. At Closing:
(a) Seller will deliver to Buyer:
(i) duly executed instruments in form satisfactory
to Buyer's attorneys, conveying or transferring to Buyer good and marketable
title to the Assets, free and clear of all Liens, other than the Assumed
Liabilities;
(ii) all documents and instruments required to be
delivered hereunder which have not been previously furnished; and
(iii) all lists and schedules to be delivered at
Closing as herein provided.
(b) Buyer will pay to Seller the Purchase Price as provided in
Section 3.1 and deliver to Seller a duly executed instrument in form
satisfactory to Seller's counsel effecting its assumption of the Assumed
Liabilities.
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4.2 Assets Not Capable of Physical Delivery. With respect to
the Assets set forth on Schedule 4.2 that cannot be physically delivered to
Buyer because they are in the possession of third parties, or otherwise, Seller
shall give irrevocable instructions to the party in possession of such Assets,
with copies to Buyer, that all right, title and interest in such Assets have
been vested in Buyer, and that the same are to be held for Buyer's exclusive use
and benefit.
4.3 Title. Title and risk of loss with respect to the
Assets and Buyer's right to operate and control the Business will pass from
Seller to Buyer as of the Closing.
5. Representations and Warranties of Seller and the Shareholder. Seller
and the Shareholder, jointly and severally, represent and warrant to Buyer as
follows:
5.1 Organization and Qualification. Seller is a corporation, duly
organized, validly existing and in good standing under the laws of its state of
Washington; is only conducting business in Washington; has full corporate power
and authority to carry on its business, and to own or lease its properties as
and in the places where such business is now conducted and such properties are
now owned, leased or operated, and to enter into this Agreement, consummate the
transactions contemplated by this Agreement and perform its obligations under
this Agreement. No proceedings for the bankruptcy or insolvency of Seller are
pending or, to the best of their knowledge, are contemplated.
5.2 Ownership. The authorized, issued and outstanding capital
stock of Seller is set forth on Schedule 5.2. Except as set forth in Schedule
5.2, all of the issued and outstanding shares of Seller are owned by the
Shareholder, free and clear of all
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liens, security interest, pledge, charge, claim, option, right to acquire,
restriction on transfer, voting restriction or agreement, or any other
restriction or encumbrance of any nature whatsoever, and no third person holds
any proxy or similar right with respect thereto. Except as set forth on Schedule
5.2, Seller has no subsidiaries and does not own, directly or indirectly, shares
or other securities in any other corporation, or any interest in any
partnership, joint venture or other business entity.
5.3 Authorization and Binding Effect; No Governmental Consents
Required. The execution and delivery by Seller of this Agreement and the
consummation of the transactions contemplated by this Agreement, as well as the
performance of its obligations under this Agreement, have been duly and validly
authorized by all necessary corporate action on the part of Seller, including,
but not limited to approval of Seller's Board of Directors and shareholders.
This Agreement has been duly executed and delivered by Seller and constitutes
the legal, valid and binding obligation of Seller, enforceable in accordance
with its terms. No consent, approval, or authorization of, notice to, or
declaration, filing or registration with, any governmental body is required in
connection with the execution, delivery and performance of this Agreement, or
the consummation of the transactions contemplated by this Agreement.
5.4 Financial Statements; No Undisclosed Liabilities; and
Absence of Changes. (a) The unaudited balance sheets of Seller as at December
31, 1995, December 31, 1996 and September 30, 1997 and the applicable unaudited
statements of income and retained earnings, and statements of cash flows of
Seller for the periods then ended, and any adjusted statements of operations for
such
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periods and the related notes thereto annexed hereto as Schedule 5.4
(collectively, the "Financial Statements"), present fairly the financial
position, results of operations and retained earnings, adjusted results of
operations and cash flows of Seller, as at such dates and for such periods.
(b) Except as set forth on the Financial Statements as of and
as at September 30, 1997 (the "Cut-Off Date"), (A) Seller did not have any
claims, liabilities or obligations of any material nature, known or unknown,
fixed or contingent, matured or unmatured, liquidated or unliquidated, which
were not shown or otherwise provided for in the Financial Statements as of and
as at September 30, 1997 and (B) all reserves (if any) established by Seller and
set forth in the Financial Statements are adequate, appropriate and reasonable
and there are no loss contingencies (as such term is used in Statement of
Financial Accounting Standard No. 5, of the Financial Accounting Standards
Board) which are not adequately provided for in the Financial Statements.
(c) Except as described in Schedule 5.4, since the Cut-Off Date
there has been no:
(i) Material and adverse change in the business, properties,
assets or liabilities, operations or condition (financial or otherwise) of
Seller, nor has any event occurred or been threatened, which may reasonably be
expected to have a material and adverse effect on the Assets or the Business;
(ii) Sale, transfer or other disposition of any
assets owned or used by Seller in the operation of the Business (whether or not
capitalized or expensed for tax or financial statement purposes), except of
inventory in the ordinary course of business;
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(iii) Cancellation or notice of cancellation, or
surrender of any policy of insurance (which has not been cured by payment of
premium, procurement of an equivalent policy, or otherwise) relating to or
affecting the Assets or the Business;
(iv) Waiver of any right of material value or any
cancellation of any indebtedness due to Seller which may have an
adverse effect on its Assets or the Business;
(v) Claim, obligation or liability (whether absolute,
accrued, contingent or otherwise and whether due or to become due, matured or
unmatured, liquidated or unliquidated) incurred by Seller other than claims,
obligations or liabilities (X) incurred in the ordinary course of business and
consistent with past practice or (Y) not in excess of $7,500 in the aggregate;
(vi) Payment, discharge or satisfaction of any claim,
lien, obligation, encumbrance or liability by Seller (whether absolute, accrued,
contingent or otherwise and whether due or to become due, matured or unmatured,
liquidated or unliquidated), other than claims, liens, encumbrances or
liabilities (A) which are reflected or reserved against in the Financial
Statements or (B) which were incurred and paid, discharged or satisfied since
such date, in the ordinary course of business and consistent with past practice;
(vii) Material default by Seller on any claim,
liability or obligation;
(viii) Write-down of the value of any inventory of
Seller, or write-off as uncollectible of any notes or Accounts Receivable or any
portion thereof of Seller in excess of the amount reserved therefor on the
Seller's books and records;
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(ix) Prepayments, advances or other deposits, made
by customers of the business with respect to products or services
contracted for but not provided as of the Closing Date or any other
unearned income;
(x) Damage, destruction or loss of physical property
(whether or not covered by insurance) which may have a material and
adverse effect on Seller's Assets or Business;
(xi) Dividend declared, paid or set aside for payment
or other distribution on Seller's capital stock;
(xii) Increase in the compensation of any of Seller's
officers or employees, or loans made by Seller to any of its
shareholders, directors, officers or employees;
(xiii) Transaction not in the ordinary course of
business; or
(xiv) Agreement or commitment, whether or not in
writing, to do any of the aforementioned.
(d) Schedule 5.4 set forth a complete schedule of all amounts
Seller owes its shareholders in connection with loans made by such persons to
Seller.
(e) At Closing, Seller's Net Worth, as determined in
accordance with generally accepted accounting principles and any Shareholder
loans deemed debt and not equity, shall not be less than as shown on the
Financial Statements dated September 30, 1997.
5.5 No Violation or Breach. The execution and delivery of this
Agreement, and the fulfillment of the terms and conditions herein set forth and
the consummation of the transactions herein contemplated, will not (i) violate
or conflict with any provision of the Certificate of Incorporation or By-laws of
Seller, as in effect on the date hereof; or (ii) violate, result in a breach of,
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conflict with, or (with or without notice or the lapse of time or both) entitle
any party to terminate, cancel, accelerate or call a default under the terms,
conditions or provisions of any agreement, contract, instrument, lease, license,
note, bond, mortgage, indenture or other obligation to which Seller is a party
or by which it or any of its Assets may be bound, or (iii) violate, result in a
breach of, or conflict with any statute, rule, regulation, order, judgment or
decree applicable to Seller or any of the Assets. Except as set forth on
Schedule 5.5, no consent of any party to any agreement, contract, instrument,
lease, license, note, bond, mortgage, indenture or other obligation to which
Seller is a party, or by which it or any of the Assets is subject, is required
for the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby and the continuation
thereof after Closing without Buyer becoming obligated to make payments greater
than would have been required in the event this transaction was not consummated.
5.6 Inventories. Schedule 1.1(b) contains a true and complete
list of all the Inventories owned by Seller as at December 10, 1997 showing the
location of and Seller's carrying value of each item on its books. The
Inventories set forth in said Schedule consists of items of a quality and
quantity which are usable or saleable, for the purpose acquired, in the ordinary
course of Seller's business as of the date hereof. To the extent any Inventory
not listed on Schedule 5.6(a) (which list comprises the Seller's key repair
parts and certain cameras referred to therein) is not so used within one year
from Closing, such Inventory shall conclusively be deemed not to constitute
items of a quality and quantity which are usable or saleable, for the purpose
acquired, in
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the ordinary course of Seller's business. The value of the Inventory listed on
Schedule 1.1(b) is as set forth thereon based upon the cost thereof. To Seller's
best knowledge, such items have a current value at least equal to its cost. In
the event the Inventory not listed on Schedule 5.6(a) is not sold or otherwise
used by Buyer within the respective periods, the Seller shall purchase said
Inventory from Buyer at the respective time deemed not to meet the above
standards at the book value thereof at the Closing. Since the date first written
above, the Inventories of Seller have been maintained at a level consistent with
the operation of the business of Seller in its normal course, and no change has
occurred in such Inventories which materially and adversely affects or will
materially and adversely affect their usability or saleability. Orders for
Inventory items have not been given for amounts materially in excess of the
amounts necessary to maintain the Inventories of Seller at normal levels based
upon past practice.
5.7 Accounts Receivable. The Accounts Receivable of
Seller reflected in the Financial Statements as at September 30, 1997, and the
Accounts Receivable created by Seller since such date are valid, bona-fide
subsisting claims for the aggregate amounts thereof, net of the reserves or
allowances for doubtful receivables reflected in the Financial Statement as at
September 30, 1997 as reduced to reflect items written off between September 30,
1997 and Closing. Schedule 5.7 sets forth an itemization of the Seller's
Accounts Receivable as at September 30, 1997 on an aging basis, which Schedule,
notwithstanding any other provision herein requiring same, shall be updated as
at the Closing to reflect additional Accounts Receivables, satisfaction of
existing Account
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Receivables as at September 30, 1997 and the write-off of uncollectible Accounts
Receivables. Accounts Receivables are reflected on Seller's books and records
uniformly maintained in accordance with the financial statements, accounted for
in accordance with generally accepted accounting principles ("GAAP"). Accounts
Receivable as at Closing, without reserve or allowance for doubtful receivables)
shall be collectable in full within 90 days from Closing. To the extent such
Accounts Receivable are not collected, Seller shall be deemed in breach of this
representation and Buyer shall, as provided in Section 12 hereof, offset the
amount uncollected on a dollar for dollar basis against the first next
installment payment(s) due Seller under the Promissory Note. Seller's rights
with respect to such uncollected Accounts Receivable shall be as provided in
Section 12.1 hereof.
5.8 Leases. Schedules 1.1(c) and (d) sets forth a true and
complete list of all Real Property Leases and Personal Property leases
(collectively the "Leases") to which Seller is a party. Seller enjoys peaceful
and undisturbed possession under all such Leases. True and correct copies of the
Leases have heretofore been furnished to PARENT. No notice of default or claim
under any Lease, or to the best of Seller's and Shareholder's knowledge, no
indication of any default or claim has occurred or desire not to renew any
Lease, has been received by Seller, and Seller has performed in all material
respects, all obligations required to be performed by it to date under the
Leases.
5.9 Contracts. Schedule 5.9 contains a true and complete list
and description of all contracts, agreements, instruments, commitments,
understandings and arrangements to which Seller is a party or by which it or its
properties or Assets were bound, as at
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the date hereof (other than contracts, agreements, instruments and commitments
set forth on any other Schedule to this Agreement) and the terms thereof,
including without limitation, contracts, agreements, instruments, commitments,
understandings and arrangements relating to:
(i) the acquisition of services, materials, equipment,
inventory, supplies or other personal property involving more than $2,500 over
the remaining term, not terminable within thirty days or less without obligation
on the part of Seller;
(ii) the sale of products or services;
(iii) the lease of real or personal property as lessor or
lessee or sublessor or sublessee;
(iv) distribution, dealer, agency, or financing agreements or
arrangements (including without limitation, letters of credit) not terminable
within thirty days or less without obligation on the part of Seller;
(v) employment agreements not terminable within thirty days or
less;
(vi) the sale of personal property (other than in the ordinary
course of business);
(vii) purchase of inventory on consignment;
(viii) non-competition, confidential information or
similar agreements; or
(ix) other contracts, agreements, commitments or understandings
which materially affect the business, properties or assets of Seller or which
were entered into other than in the ordinary and usual course of business.
5.10 Tangible Property. Schedule 1.1(a) sets forth a true
and complete list of all the tangible property of Seller, including
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a description of each item, whether it is owned or leased, the location and
serial number, if any, the gross book value of each item, and to the extent
available, accumulated depreciation, if any, with respect thereto (except to the
extent such information is provided on other Schedules to this Agreement). Each
item of Personal Property is in good working condition and repair, ordinary wear
and tear excepted, none of such items has any material defects or is in need of
maintenance or repairs, except for ordinary, routine maintenance and repairs
which are not material in nature or cost, and all of the items listed are
adequate for the uses to which they are being put.
5.11 Intellectual Property.
(a) Schedule 1.1(e) to this Agreement sets forth a true,
correct and complete list of the Seller's Intellectual Property Rights.
(b) To the knowledge of the Seller, the existing
Intellectual Property Rights are sufficient for Seller to conduct its business
as currently conducted.
(c) Either Seller or one of its subsidiaries is the
owner of, or the licensee of, with all right, title and interest in and to (free
and clear of any material Liens), the Intellectual Property Rights, and, in the
case of Intellectual Property Rights owned by Seller or any of its subsidiaries,
has the right to the use thereof or the material covered thereby in connection
with the services or products in respect of which the Intellectual Property
Rights are being used. Except as set forth in Schedule 5.11, no claims with
respect to the Intellectual Property Rights have been asserted or, to the
knowledge of Seller, are threatened by any person (i) to the effect that the
manufacture, sale, license, or
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use of any product of Seller or any of its subsidiaries as now manufactured,
sold or licensed or used or proposed for manufacture, use, sale or license by
Seller or any of its subsidiaries infringes on any copyright, patent, trademark,
service mark or trade secret, (ii) against the use by Seller or any of its
subsidiaries of any trademarks, service marks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer software programs and
applications used in the business of Seller and its subsidiaries as currently
conducted or as proposed to be conducted, or (iii) challenging the ownership by
Seller or any of its subsidiaries or the validity of any of the Intellectual
Property Rights. All registered trademarks, service marks and copyrights held by
Seller or any of its subsidiaries are valid and subsisting, except to the extent
any failure to be so valid and subsisting does not materially adversely effect
the business to be conducted after the Merger by the Surviving Corporation.
Except as set forth in Schedule 5.11, to the knowledge of Seller, there is no
currently unauthorized use, infringement or misappropriation of any of the
Intellectual Property Rights by any third party, including any employee or
former employee of Seller or any of its subsidiaries. No Intellectual Property
Right or product of Seller or any of its subsidiaries is subject to any
outstanding decree, order, judgment, or stipulation restricting in any manner
the licensing thereof by Seller or any of its subsidiaries.
(d) Certain of the technology included within the definition of
Intellectual Property can be used in and incorporated in the development by the
Buyer of the projects (the "Projects") referred to in Schedule 5.11(d) hereof.
Failure to complete, as defined in Section 12.1(c) hereof, by the times set
forth after
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each Project and within the aggregate budgeted cost thereof set forth in
Schedule 9.3 hereof shall be deemed a breach of this Section 5.11(d). Such
development and completion is not contingent upon Shareholder being an employee
or independent contractor of Buyer.
5.12 Accounts Payable. Schedule 2.1(a) to this Agreement sets
forth a true, correct and complete list of all accounts payable of Seller at the
date first written above, including amounts payable to trade creditors (the
"Trade Creditors") and other short-term liabilities commonly identified as
accounts payable, which are, to the best of their knowledge, bona fide, valid
and binding obligations of Seller incurred in the ordinary course of business on
an arms-length basis. Schedule 2.1(a) indicates the dates upon which payment to
each of the items listed therein is due.
5.13 Binding Nature of Contracts; No Breach. Each of the
agreements, contracts, instruments, leases and licenses listed on any Schedule
hereto is in full force and effect and is the legal, valid and binding
obligation of the parties thereto and is enforceable as to them in accordance
with its terms. Seller has not given or received notice of, and they do not know
that there exists, any material default or event of default under any such
agreement, contract, instrument, lease or license, or any event or condition
which with or without notice or lapse of time or both would constitute an event
of default under any such agreement, contract, instrument, lease or license by
Seller or by any other party thereto. Each supply, distribution, agency or other
arrangement or understanding of Seller, all of which are listed on Schedule
1.1(j) is a valid and continuing arrangement or
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understanding and will inure to the benefit of Buyer after the Closing. Neither
Seller nor any other party to any such arrangement or understanding has given
notice of termination or taken any action inconsistent with the continuance of
such arrangement or understanding.
5.14 Title to Assets; Liens. Seller has good and marketable
title to all of its Assets (except real and other properties and assets held
pursuant to leases or licenses described in the Schedules to this Agreement),
free and clear of all Liens, except the Assumed Liabilities and such other Liens
as are specified in Schedule 5.14. Following the Closing, Buyer will have good
and marketable title to all the Assets (except real and other properties and
assets held pursuant to leases or licenses described in the Schedules to this
Agreement), free and clear of all Liens, except the Assumed Liabilities and as
provided in Schedule 5.14.
5.15 Litigation. Except as set forth in Schedule 5.15 to this
Agreement, there are no actions, suits, claims or legal, administrative or
arbitration proceedings or investigations pending, or to their knowledge
threatened, against, involving or affecting Seller, the Assets or the Business,
or which relates to any product alleged to have been assembled, produced,
distributed or sold by Seller and alleged to have been defective or improperly
designed, assembled or produced, and they do not have knowledge of any state of
facts or of the occurrence of any event which is likely to form the basis of any
thereof. There are no outstanding orders, writs, injunctions or decrees of any
court, governmental agency or arbitration tribunal against, involving or
affecting Seller, the Assets or Business.
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5.16 Taxes. Except as set forth on Schedule 5.16, to the knowledge
of Seller (i) there has been duly filed by or on behalf of Seller and each of
its subsidiaries (and each of their respective predecessors, if any), or filing
extensions from the appropriate Federal, state, foreign and local Governmental
Entities have been obtained with respect to, all material Federal, state,
foreign and local tax returns and reports required to be filed on or prior to
the date hereof, (ii) payment in full or adequate provision for the payment of
all taxes required to be paid in respect of the periods covered by such tax
returns and reports has been made (except in respect of state, local and foreign
taxes which are in the aggregate immaterial in amount, immateriality being
defined as less than $2,500 in the aggregate) and (iii) a reserve which Seller
reasonably believes to be adequate has been set up for the payment of all such
taxes anticipated to be payable in respect of periods through the date hereof.
None of the Federal income tax returns required to be filed by or on behalf of
Seller are currently under examination by the Internal Revenue Service ("IRS").
There have not been any deficiencies or assessments asserted in writing by the
IRS with respect to any such returns. Except as set forth on Schedule 5.16,
Seller has, with regard to any assets or property held, acquired or to be
acquired by Seller filed a consent pursuant to Section 341 (f) of the Code or
any predecessor statute. For the purpose of this Agreement, the term "tax"
(including, with correlative meaning, the terms "taxes" and "taxable") shall
include all Federal, state, local and foreign income, profits, franchise, gross
receipts, payroll, sales, employment, use, property, withholding, excise and
other taxes, duties or assessments of any nature whatsoever, together with all
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interest, penalties and additions imposed with respect to such amounts. Without
limiting the above portion of this representation, Seller has not made any
payments and is not required to pay sales and use taxes in any other
jurisdiction and it has not received any claim or notice, and neither Seller nor
the Shareholder have any knowledge that Seller has not paid all required sales
and use taxes.
5.17 Permits. All of the governmental permits, business
licenses and approvals held by Seller are listed on Schedule 1.1(k) and are in
full force and effect as of the date hereof, except to the extent the failure to
so maintain such Permits would not have a material adverse affect on the
Business, and constitute all of the governmental permits, business licenses and
approvals required for the conduct of its business in the manner currently
conducted. No violations are or have been recorded in respect of any such
existing permits, business licenses or approvals and remain uncorrected as of
the date hereof, no proceeding is pending or threatened looking toward the
revocation or limitation of any such existing permits, business licenses or
approvals, and there are no violations of any laws, rules, regulations, orders
or ordinances applicable to the business conducted by Seller with respect to the
Assets or the assets and properties used in the operation of that business
(including reporting requirement of any Federal or state agency) which would
materially and adversely affect the Assets or the Business.
5.18 Compliance with Law. Seller has conducted its business in
compliance with all applicable Federal, state and local laws, ordinances,
statutes, rules, regulations, permits, judgments, orders, writs, awards, decrees
or injunctions, as in effect on or
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before the date of this Agreement as applicable to its business and assets and
orders (collectively, "Laws"), including without limitation, all Laws relating
to (i) the generation, use, collection, treatment, storage, transportation,
recovery, removal, discharge or disposal of toxic or hazardous substances and
all laws and regulations with regard to record keeping, notification and
reporting requirements with respect thereto, and (ii) occupational health and
safety standards ("OSHA").
5.19 Employees. Schedule 5.19 sets forth the names of all
employees of Seller, their titles, responsibilities, date of hire, current
compensation, amount and date of last increase, the amount and date of bonuses
paid within the last twelve months and other benefits to which they are
entitled. Except as set forth on Schedule 5.19, since the Cut-Off Date, Seller
has not granted nor has it become obligated to grant any increases in the wages
or salary or paid or become obligated to pay any bonus or made or become
obligated to make any similar payment to, or granted any benefit, promotion or
change in working conditions to or on behalf of, any employee listed on Schedule
5.18 (each, an "Employee"). Seller has not directly or indirectly paid or become
obligated to pay any severance or termination pay to any Employee or any other
person. Except as set forth on Schedule 5.19, Seller does not have in effect
with any Employee or other person an employment contract or other arrangement
relating to the length or terms and conditions of such Employee's or other
person's employment, and other commitments imposed by applicable law. Further,
except as set forth on Schedule 5.19, Seller does not have in effect any
agreements, commitments, arrangements, policies or practices relating to
bonuses, vacations, vacation pay, pensions, profit sharing,
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retirement, stock options, stock purchases, employee expense reimbursements,
employee discounts or other benefits affecting any of its employees. Except as
set forth on Schedule 5.19, Seller does not maintain any "employee pension
benefit plan" as that term is defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); and none of Seller's
employees are participants in a "multi-employer plan" as defined in Sections
3(37) or 4001(a)(3) of ERISA. Seller is not a party to any collective bargaining
agreement with any union representing its employees, and there are no strikes,
union representation contests, National Labor Relations Board proceedings or any
labor disputes, litigation or proceedings of any kind pending, or to their
knowledge, threatened against Seller.
5.20 Customers and Suppliers. Attached hereto as Schedule 5.20
is a list of Seller's top 10 suppliers and customers and the percentage of gross
revenues attributable to each with respect to customers and percentage of goods
supplied by vendors with respect to suppliers. To the best of Shareholder's
knowledge, the consummation of this Agreement would not have an adverse effect
on Buyer's continuing to do business with such customers and suppliers.
5.21 Backlog. Schedule 5.21 sets forth the
Seller's backlog of orders ("Backlog"). As at the date hereof, the Backlog,
based on the amount of the Customer Orders with respect thereto, total
approximately $42,556. As at the Closing, the amount of the Backlog shall not be
substantially below that set forth above.
5.22 All Assets Used In Business. The Seller owns, leases
or licenses all assets used in connection with its business and
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none of its employees or affiliates of employees has any proprietary right in
connection therewith.
5.23 Knowledge. To the best of Shareholder's knowledge,
no employee, agent or representative of the Seller, other than Shareholder, has
in his/its possession confidential information of a nature which would allow
such person or persons to duplicate Seller's products and/or technology. For
purposes of this Agreement,"confidential information" shall mean information
generally unavailable to the public that has been created, discovered, developed
or otherwise become known to the Seller or in which property rights have been
assigned or otherwise conveyed to the Seller, which information has economic
value or potential economic value to the business in which the Seller is or will
be engaged.
5.24 Warranties. The list of warranties granted by Seller
in connection with the sale of inventory or the providing of services and
material warranties granted by vendors to Seller with respect to its Assets is
attached hereto as Schedule 5.24.
5.25 All Documentation has Been Furnished or Made Available to
Buyer. Seller has previously furnished to, or made available for inspection by,
PARENT and its representatives, true and complete copies of all contracts,
agreements, instruments, commitments, licenses and leases referred to in this
Agreement or the Schedules hereto. No material documents relating to the
business of Seller have been removed, destroyed or withheld from inspection by
PARENT.
5.26 Full Disclosure. No representation or warranty made
by Seller in this Agreement or in writing pursuant to this
Agreement, including without limitation, the Schedules or any other
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documents, certificates or written statements, delivered or to be delivered to
Seller in connection herewith, contains, or will contain, any untrue statement
of a material fact or omits or will omit to state any material fact necessary to
make the statements contained herein and therein not misleading, and all copies
of the documents delivered hereunder are true and complete copies. There is no
fact known to Seller which materially and adversely affects or may (so far as
Seller can now foresee) materially and adversely affect the business, operations
or condition (financial or otherwise) of Seller, which has not been set forth in
this Agreement or in the Schedules, or the other documents, certificates and
statements furnished to PARENT by or on behalf of Seller prior to or on the date
hereof in connection with the transactions contemplated hereby.
6. Representations and Warranties of the Shareholder. The Shareholder
represents and warrants to Buyer as follows:
6.1 Binding Obligation. This Agreement constitutes his legal,
valid and binding obligation, enforceable against him in accordance with its
terms.
6.2 No Violation. The execution and delivery of this Agreement,
the performance of his obligations hereunder, and the consummation of the
transactions contemplated by this Agreement will not (a) violate, be in conflict
with, or constitute a default (or an event which, with notice or lapse of time
or both, would constitute a default) under any agreement or commitment to which
he is a party or by which his property is bound or (b) violate any statute or
law or any judgment, decree, order, regulation or rule of any court or
governmental body applicable to him.
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7. Representations and Warranties of Buyer and PARENT. Buyer and PARENT
jointly and severally represents and warrants to Seller as follows:
7.1 Organization and Standing. PARENT and Buyer are
corporations duly organized, validly existing and in good standing under the
laws of the State of New York.
7.2 Corporate Power. PARENT and Buyer have full corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement and to perform their respective obligations under
this Agreement.
7.3 Authorization; Binding Effect. The execution and delivery
by PARENT and Buyer of this Agreement, and the consummation by PARENT and Buyer
of the transactions contemplated by this Agreement with respect to each and the
performance by PARENT and Buyer of their respective obligations under this
Agreement have been duly and validly authorized by all necessary corporate
action on the part of PARENT and Buyer. This Agreement has been duly executed
and delivered by PARENT and Buyer and constitutes a legal, valid and binding
obligation of PARENT and Buyer, as they relate to each, enforceable against it
in accordance with its terms.
7.4 Authority to Conduct Business. PARENT and the
Subsidiaries have all requisite corporate power and authority necessary or
advisable to own or hold their respective properties and conduct their
respective businesses and hold all material licenses, permits and other required
authorizations and approvals from governmental authorities and have made all
material registrations and given all notifications required under federal,
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state or local law that are necessary or advisable for the conduct
of their respective businesses.
7.5 No Violation. The execution, delivery and performance of
this Agreement will not (i) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default or give rise to
any right of termination, cancellation or acceleration under, or result in the
creation of any lien or encumbrance on or against any of the properties of
PARENT or any of its Subsidiaries pursuant to any of the terms or conditions of
any note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which PARENT or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound, (ii) violate any
statute, law, rule, regulation, writ, injunction, judgement, order or decree of
any governmental authority, binding on PARENT or any of its Subsidiaries or any
of their properties or assets, or (iii) result in or give rise (whether upon
demand by the holder of any such securities or by the terms of any such
security) to the issuance of any additional capital stock of PARENT or
accelerate or alter the conversion rights of any holder of any securities
exercisable into or convertible for shares of capital stock of PARENT.
7.6 Litigation. Other than as set forth in the Company's
Form 10-K dated June 30,1996, the 8-K's or 10-Q's filed subsequent thereto and
as set forth in Schedule 7.6, there is no pending or threatened legal or
governmental claim, action or proceedings against or relating to PARENT which
could, individually or in the aggregate, have a material adverse effect on
PARENT.
7.7 Full Disclosure. With respect to PARENT or any
Subsidiary, this Agreement (including the schedules hereto and all
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materials incorporated by reference herein), are true and correct and do not
contain an untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
they were made, not misleading.
7.8 SEC Filings. (a) PARENT has made available to the
Seller for inspection a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by PARENT with the
SEC since July 1, 1996 and prior to the date of this Agreement (the "SEC
Documents"), which are all the documents (other than preliminary material) that
PARENT was required to file with the SEC since such date. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act or the Securities Exchange Act of 1934, as amended, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents contained as of
the date of its filing any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statement therein, in light of the circumstances under which they were made, not
misleading.
(b) The financial statements of PARENT included in the SEC
Documents (including the information contained in the notes to the financial
statements) comply as to form in all material respects with the published rules
and regulations of the SEC with respect thereto and were prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated on the notes
thereto or, in the case of the unaudited statements, as permitted
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by Rule 10-01 of Regulation S-X of the SEC). The consolidated financial
statements fairly present, in accordance with applicable requirements of GAAP
(subject, in the case of the unaudited statements, to normal, recurring
adjustments, none of which will be material), the consolidated financial
position of PARENT and its consolidated Subsidiaries as of their respective
dates and the consolidated results of operations and the consolidated cash flows
of PARENT and its consolidated Subsidiaries for the periods presented therein.
7.9 Conduct of Business. Since October 1, 1997, (i)
except as set forth on Schedule 7.9 hereof, PARENT and its Subsidiaries have
conducted their respective businesses, operations and affairs in the ordinary
course of business consistent with past practice; and (ii) there have not been
changes, conditions or events that, in the aggregate, have had or could
reasonably be expected to have a material adverse effect.
7.10 Interim Operations of Buyer. Prior to the Closing, Buyer
will engage in no business activities and will conduct its operations only as
contemplated by this Agreement.
8. Covenants of Seller and Shareholder.
8.1 Third Party Consents. Seller will obtain and deliver to
Buyer all written consents of third parties as specified on the Schedules in
connection with the transfer or conveyance of the Assets and to enable Buyer to
obtain the benefits intended to be conferred by this Agreement.
8.2 Interview and Hire Employees. Buyer shall have the right to
interview and hire the employees of Seller listed on Schedule 8.2.
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8.3 Access. Seller will allow Buyer and its representatives
full access to the books, records and properties of Seller and furnish such
information concerning Seller as Buyer may request from time to time.
8.4 Notice of Events or Changes. Seller shall promptly notify
PARENT and Buyer of any event, occurrence or transaction which would have been
required to have been disclosed on any Schedule to this Agreement, had such
event, occurrence or transaction existed on the Effective Date, including,
without limitation, any actions, claims, or legal, administrative or arbitration
proceedings, or investigations, threatened or commenced, which, if pending on
the Effective Date, would have been required to be described in any Schedule
hereto, or which otherwise relate to or affect its business or assets in any
material respect. Seller shall use its best efforts to defend against any such
actions, claims, proceedings or investigations.
8.5 Compliance with Bulk Sales and Sales and Use Tax Laws.
Seller shall use its best efforts to comply with Washington State Bulk Sales
law, and the rules and regulations promulgated thereunder. In any event, Seller
has complied with the provisions of the sales and use tax law in each state
where it is required to collect such taxes. Seller hereby agree to indemnify and
hold PARENT and Buyer harmless from and against any and all costs, losses,
damages, liabilities, claims and expenses which may be asserted by third parties
against Buyer arising out of or resulting from the failure of Seller to comply
with any such law or laws, in the manner described in Section 12.1.
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8.6 Conduct of Business Until Closing. Seller agrees that until
the Closing Date, unless it has received the prior written consent of PARENT, it
will:
(a) Operate its business only in the usual, regular
and ordinary course consistent with reasonable business practice;
(b) Use all reasonable efforts as to events within
Seller's control to prevent the occurrence of any change or event which would
prevent any of the representations and warranties of Seller contained herein
from being true at and as of the Closing Date with the same effect as though
such representations and warranties had been made at and as of the Closing Date;
(c) Use its best efforts to preserve its present
relationship with suppliers, customers and others having business
dealings with it;
(d) Pay and discharge all costs and expenses of
carrying on its business consistent with past business practices;
(e) Neither enter into any Customer Order or Purchase
Order in excess of $50,000 nor enter or make any contract or commitment and
render no bid or quotation, written or oral, except in the ordinary course of
business consistent with past practice;
(f) Not create or suffer any Liens upon any of its
assets (other than Liens set forth in the Schedules);
(g) Not to remove, sell, transfer or otherwise
dispose of any of the Personal Property or any other Assets or remove any such
Personal Property or other Assets from the premises where such Personal Property
or other Assets are located on the date of execution of this Agreement and not
enter into any other transaction, except in the ordinary course of business
consistent with past practice;
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(h) Not declare, pay or set aside for payment any
dividend or other distribution on Seller's capital stock;
(i) Maintain books, accounts and records in the
usual, regular, true and ordinary manner;
(j) Incur any obligation or liability (fixed or
contingent), except in the ordinary course of business consistent
with past practice;
(k) Not cancel or compromise any material debt or
claim, other than in the ordinary course of business consistent with past
practice;
(l) Not waive or release any rights of material value
with respect to its assets, except in the ordinary course of business
consistent with past practice;
(m) Not modify or change in any material respect or
terminate any existing license, lease, contract or other document required to be
listed on the Schedules to this Agreement other than in the ordinary course of
business consistent with past practice, except that Seller shall be permitted to
modify or change existing licenses, leases, Contracts and other documents to
obtain the consents referred in any Schedule hereto if PARENT or Buyer consents
to such modification or change;
(n) Make any loans or extensions of credit, except
to trade purchasers in the ordinary course of business consistent
with past practice;
(o) Not increase the compensation (including wages
and benefits described in Schedule 4.19) of any Employee or make
any representation or commitment to do so;
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(p) Maintain its properties, machinery and equipment
in their present condition and repair, normal wear and tear excepted; and
(q) Continue all policies of insurance in full force
and effect up to and including the Closing Date.
8.7 Update Schedules. From the date of this Agreement to the
Closing Date, Seller will update by amendments or supplements each of the
Schedules and any other written disclosure in writing from Seller to reflect any
change in the information set forth in said Schedules or other disclosure.
Seller hereby represents and warrants that such Schedules and such written
disclosures, as so amended or supplemented, shall be true, correct and complete
in all material respects as of the date or dates thereof.
8.8 No Solicitation of Competing Offers. Prior to the Closing
Date, Seller will not, directly or indirectly, seek, solicit, initiate or
encourage (including by way of furnishing any non-public information concerning
the business, properties or assets of Seller) or enter into any discussions or
negotiations with any person or group regarding any Acquisition Proposal (as
defined below). Seller will notify Buyer promptly by telephone, and thereafter
confirm in writing, if any Acquisition Proposal is received by Seller. As used
in this Agreement, "Acquisition Proposal" shall mean any proposal received by
Seller prior to the Closing Date for a sale of stock of Seller or merger or
other business combination involving Seller or relating to the disposition of
any of its assets except for dispositions of assets for not less than fair
market value which are made in the ordinary course of business and are
consistent with past practice and with this Agreement.
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8.9. Stock Plans. Prior to the Closing Date, Seller shall (i)
fully fund all of its employee stock plans listed on Schedule 5.18, (ii)
terminate such plans and (iii) distribute all proceeds of the plans to plan
participants entitled to same.
8.10. Non-Compete. The Seller shall not compete with the Buyer
for a five (5) year term commencing with the earlier of the last payment due
date under the Promissory Note or the prepayment thereof. In the event a third
party acquires control of Seller and shall at anytime after the end of such
non-compete term, the Seller shall not make reference that it was formerly known
as Pro Den Systems, Inc. or conducted business under any of the names which
Seller has conducted business. The Seller's non-compete is independent of the
Shareholder's non-compete under his Employment Agreement, as defined in Section
9.2 below.
8.11. Confidentiality. Seller covenants and agrees to keep all
of its Confidential Information as at Closing confidential and not to use such
information in any other aspect of its business or disseminate same to third
parties without the prior written consent of the President or Chairman of
PARENT.
8.12. Change of Name. Simultaneously with the Closing, Seller
shall change its name to a name reasonably agreeable to Buyer.
8.13. Execution of Form 8594. The Seller shall execute IRS Form
8594 allocating the Purchase Price as reflected on Schedule 8.13 hereof.
8.14. Delivery of Passwords. The Seller covenants to deliver at
Closing a list of all passwords usable in connection with any of the
Intellectual Property, which list shall be delivered by Seller to Buyer at the
Closing.
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9. Covenants of Buyer, and with respect to 9.1 and 9.2, PARENT
and Buyer.
9.1 Access. PARENT will allow Seller and its
representatives full access to the books, records and properties of PARENT to
verify PARENT's representations hereunder. Buyer will allow Seller and its
representatives full access to the books, records and properties of Seller
acquired pursuant to Section 1.1(m) hereunder in connection with any legal
proceeding brought against Seller or Shareholder with respect to the Business
and Seller's future operations to the extent not inconsistent with the terms of
this Agreement. Notwithstanding the foregoing sentence, Seller shall not be
entitled to any such access for the purpose of competing with Buyer and/or
PARENT, regardless of whether or not Buyer, PARENT and/or Seller is currently in
such business.
9.2 Employment Arrangements. Buyer will retain the
services of Shareholder pursuant to an Employment Agreement in the form set
forth herein as Exhibit 9.2 ("Employment Agreement"), which agreement will
become effective on the Closing. Benefits will be similar to those provided to
other PARENT comparable employees (other than the President and Chief Executive
Officer of PARENT) as outlined in the PARENT Employee Handbook.
9.3 Funding of Seller's Business after the Closing.
Except as otherwise specifically provided in this Section 9.3,
Buyer will use its best efforts to fund the operations, research
and development activities and expansion activities referred to in
Schedule 9.3 ("Inherited Business"), subject however, in all
events, to the caveat that the amount of financial and personnel
commitment which Buyer shall make to such activities is completely
subject to the discretion of Buyer's Board of Directors. Buyer
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covenants that it will fund the Inherited Business in such manner as it believes
in good faith will maximize the value of Buyer and PARENT without giving any
effect to whether its action may contribute to a breach by Seller and
Shareholder of Section 5.11(d). Notwithstanding the foregoing, Buyer and PARENT
agree after the Closing to fund the Inherited Business by an amount at least
equal to the amount set forth in Schedule 9.3 hereof for the respective time
periods set forth therein. Furthermore, Buyer will have the right to reasonably
substitute a new Project for an existing Project if the Buyer determines in good
faith that a Project cannot be completed, or if completed, would not be
economically viable, or alternatively, that it can only be completed by the
expenditure of substantial amounts which would reasonably cause the Buyer's
Board of Directors to believe that substantially all the Projects would not be
completed within the budgeted amount, provided, however, Buyer agrees to
reasonably budget any additional funding required in connection with such
substituted Project.
9.4. Insurance. After the Closing, Buyer shall maintain
policies of insurance in full force and effect in such amounts necessary to
insure against any all liabilities with respect to personal injury or property
damage occurring after the Closing Date resulting from products sold or services
furnished by Seller in respect of the Business prior to the Closing Date in an
amount not less than the coverage held by Seller as at the date hereof. Buyer
shall use its best efforts to coordinate with Seller's insurer so that Buyer's
policies cover all items with respect to personal injury or property damage with
respect to the Business for which Seller is not obligated under Section 2.2(c).
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9.5. Execution of Form 8594. Buyer shall execute IRS Form 8594
allocating the Purchase Price as reflected on Schedule 8.13 hereof.
9.6. Accounts Receivable. Buyer agrees to use its best
efforts to collect the Accounts Receivable. No Account Receivable shall be
written-off, settled or compromised without the written consent of Shareholder
and Buyer, which consents will not be unreasonably withheld.
10. Conditions Precedent to Obligations of Buyer and PARENT. The
obligations of Parent and Buyer under this Agreement are subject to the
satisfaction at or prior to Closing of each of the following conditions (one or
more of which may be waived by Buyer):
10.1 Representations and Warranties Correct. The
representations and warranties made by Seller in this Agreement or in any
writing pursuant to this Agreement, including without limitation, the Schedules
or any other documents, certificates or written statements delivered or to be
delivered to PARENT or Buyer in connection with the transactions contemplated by
this Agreement, shall be true and correct in all material respects as of the
Closing Date as though such representations and warranties were restated and
made at and as of the Closing Date, and Seller and the Shareholder shall have
furnished Buyer with a certificate to that effect, which in the case of Seller
shall be executed by Shareholder.
10.2 Compliance with Obligations. All of the terms, covenants
and conditions of this Agreement required to be complied with by Seller at or
prior to the Closing, including the obtaining of any required consents to the
transfer or assignment of the Assets, shall have been duly complied with and
Seller shall have
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furnished Buyer with a certificate executed by its chief executive officer to
that effect and such other evidence of compliance as Buyer may reasonably
request.
10.3 Furnishing of Documents. Seller shall have furnished Buyer with
(i) certificate of the Secretary of State of Washington dated not more than ten
business days prior to the Closing Date of all documents on file in the office
of the Department of State relating to Seller, including its Certificate of
Incorporation and all amendments thereto, together with good standing
certificate and tax clearance; (ii) copies, certified by the Secretary of Seller
as of the Closing Date, of the By-laws of Seller at the Closing Date, and of
resolutions duly adopted by the Board of Directors of Seller and all of its
shareholders, approving and authorizing the Agreement on the terms hereof; and
(iii) counterpart originals or certified or other copies of all of the
documents, certificates, schedules and other instruments required to be
furnished to PARENT or Buyer by Seller or requested by Buyer or its counsel,
pursuant to or consistent with the terms of this Agreement.
10.4 No Action or Litigation. There shall be no order of any
court or governmental body restraining or prohibiting the transactions
contemplated by this Agreement, nor shall any litigation or other proceeding be
pending or threatened against Seller, PARENT or Buyer seeking to prohibit or
otherwise challenge the consummation of the transactions contemplated by this
Agreement or to obtain substantial damages in respect thereof.
10.5 Third Party Consents. Except as otherwise indicated
on any Schedule to this Agreement, Seller shall have obtained, at
or prior to the Closing Date, all consents required for the
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consummation of the transactions contemplated by this Agreement without the
imposition of conditions unacceptable to PARENT.
10.6 Change of Corporate Name. Seller shall have amended its
Certificate of Incorporation so as to change its corporate name to a name
reasonably acceptable to Buyer.
10.7 Net Worth; Working Capital. Seller shall have a net worth
at the Closing Date of not less than the net worth set forth in its Financial
Statement as at September 30, 1997 and working capital at the Closing Date of
not less than the working capital set forth in its Financial Statement as at
September 30, 1997.
10.8 Employees. The employees of Seller designated as key
personnel on Schedule 10.8 hereof shall have demonstrated to the satisfaction of
PARENT their intention to become employees or independent contractors of Buyer
on terms set forth in their respective employment letters.
10.9 Opinion of Counsel. PARENT shall have received an opinion
from Seller's counsel substantially in the form attached hereto as Exhibit 10.9.
10.10 Delivery of Passwords. Delivery of a list of all
passwords usable in connection with any of the Intellectual Property.
10.11 Physical Inventory. A physical inventory of the Inventory
shall have been undertaken and completed within fourteen (14) days prior to the
Closing. Such physical inventory shall encompass the pricing of such Inventory.
11. Conditions Precedent to Obligations of Seller. The obligations of
Seller under this Agreement are subject to the satisfaction at or prior to
Closing of each of the following conditions (one or more of which may be waived
by Seller):
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11.1 Representations and Warranties Correct. The warranties and
representations made by PARENT and Buyer in this Agreement shall be true and
correct in all material respects as of the Closing Date, as though such
warranties and representations were restated and made as and at the Closing
Date, and Buyer shall have furnished Seller with a certificate executed by its
president or chief executive officer to that effect.
11.2 No Action or Litigation. There shall be no order of any
court or governmental body restraining or prohibiting the transactions
contemplated by this Agreement, nor shall any litigation or other proceeding be
pending or threatened against Seller, PARENT or Buyer seeking to prohibit or
otherwise challenge the consummation of the transactions contemplated by this
Agreement, or to obtain substantial damages in respect thereof.
11.3 Letter Agreement. The Letter Agreement shall be
executed by the respective parties, subject to the consummation of
this Agreement.
11.4 Opinion of Counsel. Seller shall have received an
opinion from PARENT and Buyer's counsel substantially in the form attached
hereto as Exhibit 11.4.
12. Indemnities.
12.1 In Favor of Buyer and PARENT. (a) Seller and Shareholder,
agree jointly and severally, to indemnify, defend and hold PARENT and Buyer, its
successors and permitted assigns, free and harmless from and against all claims,
actions, liabilities as and when incurred to the extent that the cost to the
PARENT or Buyer with respect to the above exceed in the aggregate $25,000 and
are sustained or incurred by reason of (i) the operation of the Business prior
to the Closing Date, other than the payment of the
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Assumed Liabilities set forth on Schedule 2.3 (the parties hereto agreeing that
the indemnification provided by this clause (i) does apply to any action,
conduct or omission of Seller or the Shareholder with regard to the performance
of any other obligation of Seller under the terms and conditions or other
provisions of the agreements, instruments or other documentation relating to the
Assumed Liabilities other than the non payment thereof and damages (including
reasonable attorneys' fees and expenses); (ii) any obligations or liabilities of
Seller, fixed or contingent, matured or unmatured, liquidated or unliquidated,
or otherwise, other than the Assumed Liabilities; (iii) the failure of Seller or
the Shareholder to file timely any Federal, state, county, local or other
excise, franchise, property, payroll, income, capital stock, sales and use, or
other tax returns which are required to be filed by it or them relating to the
Business, whether before or subsequent to the Closing Date, or the failure of
Seller or the Shareholder to pay any such taxes when due; (iv) any claims,
obligations, liabilities or commitments made by Seller to present and former
employees of Seller, or otherwise, arising out of or in connection with their
employment or pursuant to any pension, retirement or other employee benefit plan
covering employees of Seller, or the failure to fund properly and adequately the
benefits provided under any such plans; (v) the non-compliance with any
applicable bulk sales provisions in connection with the sale of the Assets to
Buyer under this Agreement (regardless of whether or not Seller used its best
efforts to obtain same or Buyer may have waived as a condition of Closing,
compliance with Washington State Bulk Sales Law); (vi) the breach by Seller or
Shareholder of any of their representations, warranties or covenants contained
in this
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Agreement (other than a breach of Section 5.11(d) hereof, the breach of which is
treated in Section 12.1(b) below), or the failure of Seller to obtain the
consent of any person whose consent is required to effectuate the assignment to
Buyer of any Asset or the assumption by Buyer of any of the Assumed Liabilities.
The aggregate amount of indemnification for which Seller and the Shareholder are
liable in the aggregate shall not exceed the Purchase Price. PARENT shall be
entitled to offset against the Promissory Notes and the first remaining payments
due thereunder, any amounts to which it is entitled to indemnification
hereunder. With respect to any breach of Section 5.7 hereof (Accounts
Receivable), upon any breach thereof by Seller or shareholder, Buyer shall have
the sole right to seek collection of such Accounts Receivable provided Buyer
makes good faith efforts to collect same. In the event Buyer does collect same
after a breach of section 5.7 hereof, to the extent the Promissory Note is
offset as a result thereof, Buyer shall pay Seller the net amount collected with
the next installment payment under the Promissory Note.
(b) Seller and Shareholder, agree jointly and severally, to
indemnify, defend and hold PARENT and Buyer, its successors and permitted
assigns, free and harmless from and against all claims, actions, liabilities as
and when incurred which are sustained or incurred by reason of the breach by
Seller or Shareholder of their representation contained in Section 5.11(d) of
this Agreement. In the event Buyer and PARENT are entitled to Indemnification
under this Section 12.1(b), the Purchase Price shall be reduced by reducing the
principal amount of the Promissory Note by an amount equal to the sum of (i)
$150,000 multiplied by the number of Projects not completed within the period
set forth above appearing
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after each such Project and (ii) the excess of the actual cost expended from the
Closing to complete all the Projects (the "Project Costs") over the sum of the
aggregate projected costs set forth in Schedule 5.11(d) to complete the
Projects. Any such reduction shall be applied by reducing the payments required
to be made under the Promissory Note commencing July 1, 1999.
(c) For purposes of Section 12.1(b), completion is
defined as at the time as the product production design and prototype with
respect to such Project is ready for production rollout, as determined by the
Buyer. In no event shall the PARENT's failure to complete one or more Projects
for any reason other than its willful misconduct or gross negligence negate
Seller's and Shareholder's obligation to indemnify Buyer and PARENT under
Section 12.1(b) above or entitle Seller and Shareholder the right to claim
indemnification under Section 12.2 below. If the Seller or Shareholder disagrees
with Buyer's determination that completion has not occurred or as to the amount
of the Project Costs, the parties hereto designate Nicholas Bua, and if he is
unwilling or unable to serve, the parties hereto designate Edwin Peterson or any
other person reasonably acceptable to the parties hereto (the "Arbiter") as sole
arbiter for purposes of resolving any such issues. All costs and expenses with
respect to the above shall be borne by the party against whom the Arbiter rules.
To the extent the Arbiter rules on Projected Costs, a reduction of more than 10%
from the amount determined by the Buyer shall be deemed that the Arbiter had
ruled in favor of the Seller and Shareholder, and in all other cases, it shall
be deemed that the Arbiter ruled in favor of Buyer and PARENT.
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12.2 In Favor of Seller and Shareholder. PARENT and Buyer agree
to indemnify, defend and hold Seller and Shareholder free and harmless from and
against all claims, actions, liabilities and damages (including reasonable
attorneys' fees and expenses) as and when incurred arising out of or based upon
the breach by PARENT or Buyer of any of its representations, warranties or
covenants contained in this Agreement. The aggregate amount of indemnification
for which PARENT and Buyer are liable in the aggregate shall not exceed the
Purchase Price.
12.3 Procedure for Indemnification. If any party seeks
indemnification pursuant to Sections 12.1 or 12.2 it shall notify the party
required to provide indemnification hereunder of any claim made or action
commenced against the party to be indemnified, within a reasonable time after
such party shall have been notified of the claim or shall have been served with
the summons or other first legal process giving information as to the nature and
basis of the claim. The indemnifying party shall assume the defense of such
claim or action, employ counsel of its choice and bear all expenses relating to
such defense. The indemnified party shall have the right to participate in the
defense of such claim or action and to employ separate counsel, but the fees and
expenses of such counsel shall be at the expense of the indemnified party unless
(a) the employment thereof shall have been specifically authorized by the
indemnifying party or (b) the indemnifying party shall fail to assume the
defense and employ counsel. Notwithstanding anything to the contrary in the
foregoing, the indemnified party, upon written notice to the indemnifying party,
may at its expense assume the defense of such claim or action, and employ
counsel of its choice. The parties shall each cooperate in
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the defense of any such claim and shall make available to each other records and
other materials required for use in such defense. In no event shall the
indemnifying party be liable for any settlement of any action or claim made
without its written consent. Shareholder shall act on behalf of Seller if
indemnification is sought pursuant to Section 12.1 above.
13. Use Best Efforts to Satisfy Conditions Precedent. Each of Seller
and Shareholder agree to use its or his best efforts to bring about the
satisfaction of the conditions specified in Section 10 hereof, and Buyer agrees
to use its best efforts to bring about the satisfaction of the conditions
specified in Section 11 hereof. If any condition specified in any of said
Sections shall not be satisfied by such best efforts and such condition shall
not be waived by the party or parties for the benefit of which such condition is
stated, such party after giving notice of such non-satisfaction and giving the
other parties a reasonable opportunity to satisfy such condition, may terminate
this Agreement by notice in writing to the other parties. In the event this
Agreement is not consummated by December 31, 1997, provided, however that the
party electing to terminate is not otherwise in default hereunder and the party
not electing to terminate is ready, willing and able to close hereunder, either
party can elect to terminate this Agreement. Upon such termination, this
Agreement shall cease, other than with respect to Sections 18, 19 and 20 and no
party hereto shall have any liability hereunder of any nature whatsoever,
including liability for damages, except as they relate to the above referenced
sections.
14. Resolution of Controversies Between the Parties.
(a) Except as otherwise provided in Section 12.1 hereof,
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controversies between the parties shall be resolved, to the extent possible, by
informal meetings and discussions in good faith between the parties.
(b) If a dispute between the parties cannot be resolved by informal
meetings and discussions within seven days after commencement thereof, unless
extended by both Buyer and seller, either party to this Agreement may elect to
exercise its right to require mediation of the dispute. During mediation, the
parties agree to negotiate in good faith as to the matter submitted to
mediation. In such event, the parties shall either: (i) appoint a single
mediator if they can agree on one mediator; or (ii) if the parties cannot agree
on a single mediator, each appoint one mediator, and the two mediators shall
appoint a third mediator. No mediator shall be an employee, officer, Board
member, consultant, supplier or customer, or otherwise affiliated with a party
to this Agreement and shall be reasonably qualified to act as a mediator with
respect to the negotiation of agreements similar to this Agreement. Each party
shall share equally in the out-of-pocket costs for mediation; provided that the
mediators shall be empowered to require one party to pay more than one-half of
the expenses if the mediators determine that such party is not negotiating in
good faith in the mediation process. The location of the mediation and specific
procedures relating to the mediation shall be determined by the mediator(s), and
each party agrees to comply with all decisions, directions, instructions and
procedures made or established in good faith by the mediator(s). Any mediated
resolution between the parties shall be as consistent as is practical with the
existing agreements between the parties and
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shall not serve to modify, amend or otherwise change their respective rights and
obligations under such existing agreements.
(c) If the parties are unable to resolve a controversy pursuant to (b)
above within fifteen (15) days after commencement thereof, the dispute shall be
settled by binding arbitration, and a corresponding judgment may be entered in a
court of competent jurisdiction. Arbitration of any dispute may be initiated by
one party by sending a written demand for arbitration to the other party. This
demand will specify the matter in dispute and request the appointment of an
arbitration panel. The mailing of process to the parties shall be sent to the
addresses set forth in Section 15 will be deemed personal service and accepted
by the parties for the arbitration or proceeding with respect to this Agreement.
The arbitration panel will consist of one arbitrator agreed upon by the parties.
If the parties cannot agree upon a single arbitrator, then the arbitration panel
will consist of one arbitrator named by each party and a third arbitrator named
by the two arbitrators so chosen. The arbitration hearing will be conducted in
accordance with the procedural rules set forth in the commercial arbitration
rules of the American Arbitration Association. The situs of the arbitration will
be in the City of Chicago, State of Illinois, unless the parties hereto agree to
the contrary. The arbitrators may elect, but are not required, to request
discussions with the parties, individually or jointly.
(d) The prevailing party in arbitration shall be entitled to costs,
expenses and reasonable attorney's fees.
15. Notices. All notices, requests, demands and other communications
which are required or permitted under this Agreement shall be in writing and
shall be deemed sufficiently given upon
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receipt if personally delivered, faxed or mailed by certified mail, return
receipt requested, addressed to the party to be notified at the address
hereafter set forth for such party or to such other address as such party may
hereafter designate in writing:
(a) If to Seller or Shareholder:
ProDen SYSTEMS, INC.
13915 N.W. 3rd Court
Vancouver, Washington 98685
Attention: Mr. Cade Adams
Fax: (360) 576-5929
and
Mr. Cade Adams
12205 N.W. 10th Avenue
Vancover, Washington 98685
with a copy to:
Davis Wright Tremaine LLP
1300 S.W. Fifth Avenue
Portland, Oregon 97201
Att: Milton Stewart
Fax: (503) 778-5299
(b) If to PARENT or Buyer:
DENT-X INTERNATIONAL, INC.
250 Clearbrook Road
Elmsford, New York 10523
Attention: Mr. David Vozick
Fax: (914) 492-6148
with a copy to:
Snow Becker Krauss P.C.
New York, New York 10158-0125
Att: Jack Becker, Esq.
Fax: (212) 949-7052
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16. Binding Effect; Benefits. This Agreement shall inure to the benefit
of, and be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns, and no other person shall
acquire or have and other rights under this Agreement or by virtue of this
Agreement.
17. Assignment. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by Seller or Buyer without the prior written consent of the other.
18. Confidentiality. Seller and the Shareholder, on the one hand, and
Buyer on the other hand, shall maintain the confidentiality of all confidential
information furnished to it or him by the other concerning the other's business,
assets and financial condition, and shall not disclose such information to
others, or use any such information for any purpose, except in furtherance of
the transactions contemplated by this Agreement (and except as such information
may be required to be disclosed under applicable law or in connection with
litigation arising out of this Agreement), unless and until such information is
or becomes in the public domain by reason other than disclosure by it or him. In
the event the transactions contemplated herein are not consummated, (i) PARENT
and its principals, shareholders, officers, employees, agents or representatives
shall not disclose to any third party or use in any manner whatsoever any of the
confidential information disclosed to them by Seller, its shareholders,
officers, employees, agents or representatives in connection with the
negotiations for this transaction, and (ii) Seller and its principals,
shareholders, officers, employees, agents or representatives shall not disclose
56
<PAGE>
to any third party or use in any manner whatsoever any of the confidential
information disclosed to them by PARENT, its shareholders, officers, employees,
agents or representatives in connection with the negotiations for this
transaction. This confidential information shall extend, but not be necessarily
limited, to the sales techniques, vendors, independent contractors, employees,
and customer lists disclosed by one party to the other. Confidential information
as used herein shall not include that which (i) was in the public domain prior
to receipt thereof in the same context as the disclosure so made; (ii) the
receiving party can show it was in possession thereof in the same context prior
to receipt; (iii) subsequently becomes known to the receiving party by third
parties as a matter of right and without restriction on disclosure; or (iv)
subsequently comes into the public domain in the same context as the disclosure
by the disclosing party through no fault of the receiving party. In the event
this Agreement is terminated, upon the written request, the shareholders,
officers, employees, agents or representatives of the respective parties hereto
shall return or destroy the confidential information previously disclosed to
them by the disclosing party. This provision shall survive the termination of
this Agreement.
19. Brokerage. Each of the parties hereto represents and warrants to
the other that it has not dealt with any broker or finder in connection with the
transactions contemplated by this Agreement.
20. Governing Law. This Agreement shall in all respects be governed by,
construed under and enforced in accordance with the laws of the State of New
York.
21. Expenses; Transfer Taxes.
57
<PAGE>
21.1 Expenses. Each of the parties shall pay its or his own
legal, accounting and other expenses in connection with the negotiation and
preparation of this Agreement and the consummation of the transactions
contemplated hereby, provided, however, that the amount of legal fees payable on
behalf of Seller shall be payable out of the proceeds payable to Seller.
21.2 Transfer Taxes. Seller shall pay any and all transfer
taxes or charges that become due on account of the transfers of Assets
contemplated under this Agreement (including use, documentary, stamp, deed,
sale, ad valorem, bulk transfer, tangible personal property, real estate and
other taxes and charges), including without limitation any such transfer charges
payable to any governmental authority, entity or subdivision in Washington in
connection with any of the transactions contemplated hereunder (collectively,
the "Transfer Taxes"). In determining the amount of Transfer Taxes that shall be
payable in any jurisdiction, Seller and Buyer shall consider the availability of
any exemptions from Transfer Taxes under the law of such jurisdiction. Seller
shall indemnify the Buyer from and against any losses, expenses, judgments,
claims, awards, penalties and other costs or liabilities which may be imposed
upon, incurred, asserted or awarded against the Buyer arising from or related to
any failure to timely pay any and all Transfer Taxes that shall become due on
account of the transfer of Assets contemplated under this Agreement, as set
forth in Section 12.1 hereof.
22. Severability. If any section, term or provision of this Agreement
shall to any extent be held or determined to be invalid
58
<PAGE>
or unenforceable, the remaining sections, terms and provisions shall
nevertheless remain in full force and effect.
23. Survival. The representations, warranties, covenants and agreements
of the parties set forth in this Agreement (including the Schedules) and in any
other documents, certificates or written statements delivered by or on behalf of
any a party to this Agreement shall survive the Closing for a period of three
(3) years, provided, however, that all representations and warranties made by
the Seller and the Shareholder in Section 5.16 hereof shall survive the Closing
until and through the expiration of the applicable statute of limitations.
24. Waiver. Any waiver by any party of a breach of any of the
provisions of this Agreement shall not operate as or be construed to be a waiver
of any other breach of that provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions will not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
25. Headings. The headings in this Agreement are for convenience only
and shall not affect the construction of this Agreement.
26. Entire Agreement; Modification. This Agreement constitutes the
entire understanding between the parties with respect to its subject matter. It
supersedes and cancels all prior agreements and understandings among the parties
relating to its subject matter. This Agreement may not be amended or
supplemented, except by subsequent written agreement of the parties which
specifically states that it is intended to be an amendment or supplement to this
59
<PAGE>
Agreement, signed by the parties hereto. No course of dealing or custom shall be
referred to as modifying any of the terms and conditions of this Agreement.
27. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and Plan
of Merger as of the date first above written.
Attest: AFP IMAGING CORPORATION
- ---------------------- By:
----------------------
President
Attest: ProDen SYSTEMS, INC.
- ---------------------- By:
----------------------
Chairman
Attest: DENT-X INTERNATIONAL, INC.
- ---------------------- By:
----------------------
60
President
----------------------
CADE ADAMS, Individually
62
<PAGE>
EXHIBIT 99.1
NON-NEGOTIABLE PROMISSORY NOTE
$500,000 New York, New York
December 24, 1997
FOR VALUE RECEIVED, the undersigned, DENT-X INTERNATIONAL, INC., a New
York corporation with an address at 250 Clearbrook Road, Elmsford, NY 10523 (the
"Maker" ), promises to pay ProDen SYSTEMS, INC., a Washington corporation with
an address at 13915 Northwest 3rd Court, Vancouver, Washington 98685 (the
"Payee") the principal amount of Five Hundred Thousand Dollars ($500,000) on or
before January 5, 1998, with interest on the unpaid principal amount of this
Note at a rate equal to 5.2 percent per annum from and including the date hereof
to but excluding the date the principal amount hereof is paid or made available
for payment. All interest on this Note shall be computed on the basis of the
actual number of days elapsed and a year of 365 days.
In the event of default hereunder, the Maker agrees to pay to the Payee
all expenses incurred by the Payee, including, without limitation, reasonable
fees and disbursements of counsel, incurred by the Payee in the enforcement and
collection of this Note.
The Maker, for itself and its legal representatives, successors and
assigns, expressly waives presentment, demand, protest, notice of dishonor,
notice of nonpayment, notice of maturity and notice of protest.
THE COMPANY AND ANY HOLDER OF THIS NOTE HEREBY WAIVES TRIAL BY JURY IN
ANY COURT IN ANY SUIT, ACTION, OR PROCEEDING IN ANY MATTER ARISING IN CONNECTION
WITH OR IN ANY WAY RELATED TO THIS NOTE OR THE ENFORCEMENT OF ANY OF THE
HOLDER'S RIGHTS AND REMEDIES. THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, EACH
HOLDER OF THIS NOTE, ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY,
VOLUNTARILY AND ONLY AFTER THOROUGH CONSIDERATION OF THE RAMIFICATIONS OF THIS
WAIVER WITH ITS ATTORNEY. NEITHER THE COMPANY NOR ANY HOLDER OF THIS NOTE HAS
AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH
WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
THE COMPANY AND ANY HOLDER OF THIS NOTE HEREBY AGREE THAT ANY LEGAL
ACTION OR PROCEEDING ARISING OUT OF MAKER'S FAILURE TO MAKE PAYMENT UNDER THIS
NOTE MUST BE RESOLVED, TO THE EXTENT POSSIBLE, BY INFORMAL MEETINGS AND
DISCUSSIONS IN GOOD FAITH
<PAGE>
BETWEEN THE PARTIES.
IF A DISPUTE BETWEEN THE PARTIES CANNOT BE RESOLVED BY INFORMAL
MEETINGS AND DISCUSSIONS WITHIN SEVEN DAYS AFTER COMMENCEMENT THEREOF, UNLESS
EXTENDED BY BOTH MAKER AND PAYEE, EITHER PARTY TO THIS NOTE MAY ELECT TO
EXERCISE ITS RIGHT TO REQUIRE MEDIATION OF THE DISPUTE. DURING MEDIATION, THE
PARTIES AGREE TO NEGOTIATE IN GOOD FAITH AS TO THE MATTER SUBMITTED TO
MEDIATION. IN SUCH EVENT, THE PARTIES SHALL EITHER: (I) APPOINT A SINGLE
MEDIATOR IF THEY CAN AGREE ON ONE MEDIATOR; OR (II) IF THE PARTIES CANNOT AGREE
ON A SINGLE MEDIATOR, EACH APPOINT ONE MEDIATOR, AND THE TWO MEDIATORS SHALL
APPOINT A THIRD MEDIATOR. NO MEDIATOR SHALL BE AN EMPLOYEE, OFFICER, BOARD
MEMBER, CONSULTANT, SUPPLIER OR CUSTOMER, OR OTHERWISE AFFILIATED WITH A PARTY
TO THIS NOTE AND SHALL BE REASONABLY QUALIFIED TO ACT AS A MEDIATOR WITH RESPECT
TO THE NEGOTIATION OF NOTES SIMILAR TO THIS NOTE. EACH PARTY SHALL SHARE EQUALLY
IN THE OUT-OF-POCKET COSTS FOR MEDIATION; PROVIDED THAT THE MEDIATORS SHALL BE
EMPOWERED TO REQUIRE ONE PARTY TO PAY MORE THAN ONE-HALF OF THE EXPENSES IF THE
MEDIATORS DETERMINE THAT SUCH PARTY IS NOT NEGOTIATING IN GOOD FAITH IN THE
MEDIATION PROCESS. THE LOCATION OF THE MEDIATION AND SPECIFIC PROCEDURES
RELATING TO THE MEDIATION SHALL BE DETERMINED BY THE MEDIATOR(S), AND EACH PARTY
AGREES TO COMPLY WITH ALL DECISIONS, DIRECTIONS, INSTRUCTIONS AND PROCEDURES
MADE OR ESTABLISHED IN GOOD FAITH BY THE MEDIATOR(S). ANY MEDIATED RESOLUTION
BETWEEN THE PARTIES SHALL BE AS CONSISTENT AS IS PRACTICAL WITH THE EXISTING
AGREEMENTS BETWEEN THE PARTIES AND SHALL NOT SERVE TO MODIFY, AMEND OR OTHERWISE
CHANGE THEIR RESPECTIVE RIGHTS AND OBLIGATIONS UNDER SUCH EXISTING AGREEMENTS.
IF THE PARTIES ARE UNABLE TO RESOLVE A CONTROVERSY BY MEDIATION WITHIN
FIFTEEN (15) DAYS AFTER COMMENCEMENT THEREOF, THE DISPUTE SHALL BE SETTLED BY
BINDING ARBITRATION, AND A CORRESPONDING JUDGMENT MAY BE ENTERED IN A COURT OF
COMPETENT JURISDICTION. ARBITRATION OF ANY DISPUTE MAY BE INITIATED BY ONE PARTY
BY SENDING A WRITTEN DEMAND FOR ARBITRATION TO THE OTHER PARTY. THIS DEMAND WILL
SPECIFY THE MATTER IN DISPUTE AND REQUEST THE APPOINTMENT OF AN ARBITRATION
PANEL. THE MAILING OF PROCESS TO THE PAYEE'S OFFICE AT 13915 N.W. 3RD COURT,
VANCOUVER, WASHINGTON 98685 AND TO THE MAKER AT MAKER'S OFFICE AT 250 CLEARBROOK
ROAD, ELMSFORD, NEW YORK 10523, WILL BE DEEMED PERSONAL SERVICE AND ACCEPTED BY
THE PARTIES FOR THE ARBITRATION OR PROCEEDING WITH RESPECT TO THIS NOTE. THE
ARBITRATION PANEL WILL CONSIST OF ONE
-2-
<PAGE>
ARBITRATOR AGREED UPON BY THE PARTIES. IF THE PARTIES CANNOT AGREE UPON A SINGLE
ARBITRATOR, THEN THE ARBITRATION PANEL WILL CONSIST OF ONE ARBITRATOR NAMED BY
EACH PARTY AND A THIRD ARBITRATOR NAMED BY THE TWO ARBITRATORS SO CHOSEN. THE
ARBITRATION HEARING WILL BE CONDUCTED IN ACCORDANCE WITH THE PROCEDURAL RULES
SET FORTH IN THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION
ASSOCIATION. THE SITUS OF THE ARBITRATION WILL BE IN THE CITY OF CHICAGO, STATE
OF ILLINOIS, UNLESS THE PARTIES HERETO AGREE TO THE CONTRARY. THE ARBITRATORS
MAY ELECT, BUT ARE NOT REQUIRED, TO REQUEST DISCUSSIONS WITH THE PARTIES,
INDIVIDUALLY OR JOINTLY.
THE PREVAILING PARTY IN ARBITRATION SHALL BE ENTITLED TO COSTS,
EXPENSES AND REASONABLE ATTORNEY'S FEES.
All demands and notices to be given hereunder in the case of the
Company, addressed to its corporate office at 250 Clearbrook Road, Elmsford, New
York 10523 with a copy to Snow Becker Krauss PC, 605 Third Avenue, New York, New
York 10158, Attn: Jack Becker, and in the case of Payee, addressed to the
address written above with a copy to Davis Wright Tremaine LLP, 1300 S.W. Fifth
Avenue, Portland, Oregon 97201, Attn: Mitton Stewart, in either case, until a
new address shall have been substituted by like notice.
This Note may not be changed, modified or terminated orally, nor may
any of its provisions be waived, except by an agreement in writing signed by the
party against whom enforcement of such change, modification or termination is
sought.
This Note shall be governed by and construed in accordance with the
laws of the State of New York and shall be binding upon the successors and
assigns of the Maker and inure to the benefit of the Payee, its successors,
endorsees and assigns. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
IN WITNESS WHEREOF, the Company has caused this Note to be executed on
its behalf by its duly authorized officer on the day and year first above
written.
DENT-X INTERNATIONAL, INC.
Date: December 24, 1997 By: /s/ Donald Rabinovitch
-------------------------
Name: Donald Rabinovitch
Title: President
-3-
<PAGE>
GUARANTY
The undersigned guaranties the full payment of all amounts due and
owing by the Company under this Note, subject to whatever rights of offset the
undersigned may have against Payee under the Asset Purchase Agreement. Payee may
pursue its remedies under this Guaranty concurrently with or independently of
any action or proceeding against the Company. THE GUARANTOR AGREES TO THE VENUE
AND WAIVER OF JURY TRIAL PROVISIONS CONTAINED IN THE NOTE AS IF INCORPORATED
HEREIN IN ITS ENTIRETY.
AFP IMAGING CORPORATION
By: /s/ Donald Rabinovitch
----------------------
Name: Donald Rabinovitch
Title: President
-4-
<PAGE>
EXHIBIT 99.2
NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE
$2,500,000 New York, New York
December 24, 1997
FOR VALUE RECEIVED, the undersigned, DENT-X INTERNATIONAL, INC. (the
"Company" or "Maker"), promises to pay ProDen SYSTEMS, INC. ("Payee"), its
successors and assigns, at Payee's office at 13915 N.W. 3rd Court, Vancouver,
Washington 98685, or such other place as the holder may designate in writing
from time to time, the principal sum of Two Million Five Hundred Thousand
Dollars ($2,500,000), in lawful money of the United States. No interest shall be
payable upon this Note. The principal amount of this Note shall be payable in
five (5) equal semi-annual installments of Five Hundred Thousand Dollars
($500,000), with the first payment due on January 1, 1999 and succeeding
payments payable each July 1st and January 1st thereafter, with the final
payment due on January 1, 2001.
This Note may not be sold, pledged, assigned or otherwise disposed of
(whether voluntarily or involuntarily), provided, however, that the Payee may
distribute same to its sole shareholder upon the liquidation of the Payee.
The Maker hereby agrees, and the holder of this Note by the holder's
acceptance hereof agrees, that the payment of the principal on this Note is
hereby expressly made subordinate and junior in right of payment to the prior
payment in full of all Institutional Debt, Capitalized Leases or Permitted
Liens, (each as hereinafter defined) of the Maker. The holder of this Note
agrees, as part of such subordination, as follows:
(a) In the event of insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Maker or to any of the
property of the Maker, or in the event of any proceedings for voluntary
liquidation, dissolution or other winding-up of the Maker, whether or not
involving insolvency or bankruptcy, then the holders of Institutional Debt,
Capitalized Leases and Permitted Liens shall be entitled to receive payment in
full of all principal of and premium, if any, and interest on all Institutional
Debt, Capitalized Leases and Permitted Liens before the holder of this Note
shall be entitled to receive any payment on account of principal on this Note,
and to that end the holders of Institutional Debt shall be entitled to receive
for application in payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may be payable or
deliverable in any such proceedings in respect of this Note.
(b) In the event that the holder of this Note shall
have received written notice to the effect that an event of default shall have
occurred on any Institutional Debt, Capitalized Leases or Permitted Liens and be
continuing (under circumstances in which the provisions of the foregoing
paragraph (a) are not applicable), then, during the continuance of any such
event of
<PAGE>
default, all principal of and premium, if any, and interest on all Institutional
Debt Capitalized Leases or Permitted Liens outstanding at the time of such
notice shall first be paid in full, before any payment on account of principal
or interest is made upon this Note.
The provisions of this paragraph are for the purpose of defining the
relative rights of the holders of Institutional Debt, Capitalized Leases or
Permitted Liens on the one hand, and the holder of this Note on the other hand,
against the Maker and its property; and nothing herein shall impair, as between
the Maker and the holder of this Note, the obligation of the Maker, which is
unconditional and absolute, to pay to the holder hereof the principal hereof in
accordance with the terms and provisions hereof; nor shall anything herein
prevent the holder of this Note from exercising all remedies otherwise permitted
by applicable law upon default under this Note, subject to the rights, if any,
under this paragraph of holders of Institutional Debt, Capitalized Leases or
Permitted Liens to receive cash, property, stock or obligations otherwise
payable or deliverable to the holder of this Note.
For the purpose of this Note:
(a) "Debt" shall mean all indebtedness of the Maker and
any affiliate thereof, including, but not limited to, AFP IMAGING CORPORATION
("PARENT"), at any date, which would, in accordance with generally accepted
accounting principles, be classified as indebtedness, whether funded or current,
but in any event including:
(i) all indebtedness guaranteed, directly or
indirectly, in any manner by such corporation(s) or in effect guaranteed
directly or indirectly by such corporation(s) through an agreement, contingent
or otherwise, to supply funds to or in any other manner invest in the debtor, to
purchase indebtedness or to purchase goods, supplies or services for the purpose
of enabling the debtor to make payment of the indebtedness or to assure the
owner of the indebtedness against loss, or otherwise;
(ii) all indebtedness for the payment of purchase of
which such corporation(s) has agreed, contingently or otherwise, to advance or
supply funds;
(ii) all indebtedness secured by any mortgage, lien,
pledge, charge or encumbrance of any kind upon property owned by such
corporation(s), even though such corporation(s) has not assumed or become
liable for the payment of such indebtedness; and
(iv) all indebtedness of such corporation(s) created
or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such corporation(s), even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession of such property; and
(b) "Institutional Debt" shall mean the principal of
and interest on Debt outstanding for money borrowed by the Maker and/or PARENT,
from any bank, insurance
2
<PAGE>
company or other institutional lender before or after the date of this Note
created or evidenced by notes, bonds, debentures or similar instruments or by a
loan agreement or loan agreements under which the indebtedness is reflected in a
loan account, including, but not limited to unsecured cash-flow based loans; all
purchase money Debt incurred by the Maker before or after the date of this Note
created or evidenced by notes, bonds, mortgages, deeds of trust or similar
instruments (excluding any of such Debt which by the terms of the instrument
creating or evidencing the same is subordinated to or pari passu with this
Note); and any future private financings.
(c) "Capitalized Lease" shall mean items of equipment
or machinery acquired by the Maker and/or PARENT so long as the lender's
security is limited to such equipment or machinery, and any proceeds from the
sale thereof.
(d) "Permitted Liens" shall mean (i) any lien securing
a tax, assessment or other governmental charge or levy or the claim of a
materialman, mechanic, carrier, warehouseman or landlord for labor, materials,
supplies or rentals incurred in the ordinary course of business; and (ii) any
lien constituting an encumbrance in the nature of zoning restrictions, easements
and rights or restrictions of record on the use of real property that does not
materially detract from the value of such property or impair the use thereof in
the business of the Maker and/or PARENT.
Subject to the rights of the holders of the Institutional Debt,
Capitalized Leases and Permitted Liens, the Payee shall have the right, without
demand or notice, to accelerate this Note and to declare the entire unpaid
balance hereof and the obligations evidenced hereby immediately due and payable
and to seek and obtain payment of this Note upon the occurrence of any of the
following events of default: (a) the Maker fails to pay any principal
installment due under this Note within ten (10) days after such payment becomes
due, or (b) the Maker or PARENT admits in writing its inability to pay its
respective debts generally as they become due, files a petition in bankruptcy,
reorganization or insolvency act, makes an assignment for the benefit of
creditors, consents to the appointment of a receiver for itself or for all or
substantially all of its property or, on a petition in bankruptcy filed against
it, is adjudicated a bankrupt, which judgment, order or decree shall not be
appealed within the permitted time period from the date of entry thereof and
subsequently vacated. Upon such declaration, the obligations evidenced by this
Note shall be immediately due and payable.
In the event of any event of default hereunder, the Maker agrees to pay
to the Payee all expenses incurred by the Payee, including, without limitation,
reasonable fees and disbursements of counsel, incurred by the Payee in the
enforcement and collection of this Note.
Subject to the rights of the holder of the Institutional Debt and as
otherwise expressly provided herein, Maker hereby waives demand, protest,
presentment for payment, notice of dishonor , notice of protest, diligence in
bringing suit against any party, and hereby consents that the time for payment
of all or any part of the principal amount may be extended from time to time by
Payee without notice, and that any such extension shall not discharge or
otherwise impair the
3
<PAGE>
obligations represented by this Note. The foregoing waivers shall not be deemed
to waive the requirement of any notice, demand or cure periods expressly
provided for in this Note.
Notwithstanding anything contained herein to the contrary, Maker may
offset from the first principal payments due hereunder any amounts for which
Payee and its sole shareholder, Cade Adams ("Shareholder"), are required to
indemnify Maker and PARENT under Section 12.1 of the Asset Purchase Agreement
("Asset Purchase Agreement") dated as of December 23, 1997, by and among PARENT,
Payee, Maker and Shareholder.
THE COMPANY AND ANY HOLDER OF THIS NOTE HEREBY WAIVES TRIAL BY JURY IN
ANY COURT IN ANY SUIT, ACTION, OR PROCEEDING IN ANY MATTER ARISING IN CONNECTION
WITH OR IN ANY WAY RELATED TO THIS NOTE OR THE ENFORCEMENT OF ANY OF THE
HOLDER'S RIGHTS AND REMEDIES. THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, EACH
HOLDER OF THIS NOTE, ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY,
VOLUNTARILY AND ONLY AFTER THOROUGH CONSIDERATION OF THE RAMIFICATIONS OF THIS
WAIVER WITH ITS ATTORNEY. NEITHER THE COMPANY NOR ANY HOLDER OF THIS NOTE HAS
AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH
WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
SUBJECT TO SECTION 12.1(c) OF THE ASSET PURCHASE AGREEMENT, THE COMPANY
AND ANY HOLDER OF THIS NOTE HEREBY AGREE THAT ANY LEGAL ACTION OR PROCEEDING
ARISING OUT OF MAKER'S FAILURE TO MAKE PAYMENT UNDER THIS NOTE MUST BE RESOLVED,
TO THE EXTENT POSSIBLE, BY INFORMAL MEETINGS AND DISCUSSIONS IN GOOD FAITH
BETWEEN THE PARTIES.
SUBJECT TO SECTION 12.1(c) OF THE ASSET PURCHASE AGREEMENT, IF A
DISPUTE BETWEEN THE PARTIES CANNOT BE RESOLVED BY INFORMAL MEETINGS AND
DISCUSSIONS WITHIN SEVEN DAYS AFTER COMMENCEMENT THEREOF, UNLESS EXTENDED BY
BOTH MAKER AND PAYEE, EITHER PARTY TO THIS NOTE MAY ELECT TO EXERCISE ITS RIGHT
TO REQUIRE MEDIATION OF THE DISPUTE. DURING MEDIATION, THE PARTIES AGREE TO
NEGOTIATE IN GOOD FAITH AS TO THE MATTER SUBMITTED TO MEDIATION. IN SUCH EVENT,
THE PARTIES SHALL EITHER: (I) APPOINT A SINGLE MEDIATOR IF THEY CAN AGREE ON ONE
MEDIATOR; OR (II) IF THE PARTIES CANNOT AGREE ON A SINGLE MEDIATOR, EACH APPOINT
ONE MEDIATOR, AND THE TWO MEDIATORS SHALL APPOINT A THIRD MEDIATOR. NO MEDIATOR
SHALL BE AN EMPLOYEE, OFFICER, BOARD MEMBER, CONSULTANT, SUPPLIER OR CUSTOMER,
OR OTHERWISE AFFILIATED WITH A PARTY TO THIS NOTE AND SHALL BE REASONABLY
QUALIFIED TO ACT AS A MEDIATOR WITH RESPECT TO THE NEGOTIATION OF NOTES SIMILAR
TO THIS NOTE. EACH PARTY SHALL
4
<PAGE>
SHARE EQUALLY IN THE OUT-OF-POCKET COSTS FOR MEDIATION; PROVIDED THAT THE
MEDIATORS SHALL BE EMPOWERED TO REQUIRE ONE PARTY TO PAY MORE THAN ONE-HALF OF
THE EXPENSES IF THE MEDIATORS DETERMINE THAT SUCH PARTY IS NOT NEGOTIATING IN
GOOD FAITH IN THE MEDIATION PROCESS. THE LOCATION OF THE MEDIATION AND SPECIFIC
PROCEDURES RELATING TO THE MEDIATION SHALL BE DETERMINED BY THE MEDIATOR(S), AND
EACH PARTY AGREES TO COMPLY WITH ALL DECISIONS, DIRECTIONS, INSTRUCTIONS AND
PROCEDURES MADE OR ESTABLISHED IN GOOD FAITH BY THE MEDIATOR(S). ANY MEDIATED
RESOLUTION BETWEEN THE PARTIES SHALL BE AS CONSISTENT AS IS PRACTICAL WITH THE
EXISTING AGREEMENTS BETWEEN THE PARTIES AND SHALL NOT SERVE TO MODIFY, AMEND OR
OTHERWISE CHANGE THEIR RESPECTIVE RIGHTS AND OBLIGATIONS UNDER SUCH EXISTING
AGREEMENTS.
SUBJECT TO SECTION 12.1(c) OF THE ASSET PURCHASE AGREEMENT, IF THE
PARTIES ARE UNABLE TO RESOLVE A CONTROVERSY BY MEDIATION WITHIN FIFTEEN (15)
DAYS AFTER COMMENCEMENT THEREOF, THE DISPUTE SHALL BE SETTLED BY BINDING
ARBITRATION, AND A CORRESPONDING JUDGMENT MAY BE ENTERED IN A COURT OF COMPETENT
JURISDICTION. ARBITRATION OF ANY DISPUTE MAY BE INITIATED BY ONE PARTY BY
SENDING A WRITTEN DEMAND FOR ARBITRATION TO THE OTHER PARTY. THIS DEMAND WILL
SPECIFY THE MATTER IN DISPUTE AND REQUEST THE APPOINTMENT OF AN ARBITRATION
PANEL. THE MAILING OF PROCESS TO THE PAYEE AT PAYEE'S OFFICE AT 13915 N.W. 3RD
COURT, VANCOUVER, WASHINGTON 98685 AND TO THE MAKER AT MAKER'S OFFICE AT 250
CLEARBROOK ROAD, ELMSFORD, NEW YORK 10523, WILL BE DEEMED PERSONAL SERVICE AND
ACCEPTED BY THE PARTIES FOR THE ARBITRATION OR PROCEEDING WITH RESPECT TO THIS
NOTE. THE ARBITRATION PANEL WILL CONSIST OF ONE ARBITRATOR AGREED UPON BY THE
PARTIES. IF THE PARTIES CANNOT AGREE UPON A SINGLE ARBITRATOR, THEN THE
ARBITRATION PANEL WILL CONSIST OF ONE ARBITRATOR NAMED BY EACH PARTY AND A THIRD
ARBITRATOR NAMED BY THE TWO ARBITRATORS SO CHOSEN. THE ARBITRATION HEARING WILL
BE CONDUCTED IN ACCORDANCE WITH THE PROCEDURAL RULES SET FORTH IN THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. THE SITUS OF THE
ARBITRATION WILL BE IN THE CITY OF CHICAGO, STATE OF ILLINOIS, UNLESS THE
PARTIES HERETO AGREE TO THE CONTRARY. THE ARBITRATORS MAY ELECT, BUT ARE NOT
REQUIRED, TO REQUEST DISCUSSIONS WITH THE PARTIES, INDIVIDUALLY OR JOINTLY.
SUBJECT TO SECTION 12.1(c) OF THE ASSET PURCHASE AGREEMENT, THE
PREVAILING PARTY IN ARBITRATION SHALL BE ENTITLED TO COSTS,
EXPENSES AND REASONABLE ATTORNEY'S FEES.
5
<PAGE>
All demands and notices to be given hereunder in the case of the
Company, addressed to its corporate office at 250 Clearbrook Road, Elmsford, New
York 10523 with a copy to Snow Becker Krauss PC, New York, New York 10158, Attn:
Jack Becker, and in the case of Payee, addressed to the address written above
with a copy to Davis Wright Tremaine LLP, 1300 S.W. Fifth Avenue, Portland,
Oregon 97201, Attn: Mitton Stewart, in either case, until a new address shall
have been substituted by like notice.
This Note may not be changed, modified or terminated orally, nor may
any of its provisions be waived, except by an agreement in writing signed by the
party against whom enforcement of such change, modification or termination is
sought.
This Note shall be governed by and construed in accordance with the
laws of the State of New York and shall be binding upon the successors and
assigns of the Maker and inure to the benefit of the Payee, its successors,
endorsees and assigns. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
IN WITNESS WHEREOF, the Company has caused this Note to be executed on
its behalf by its duly authorized officer on the day and year first above
written.
DENT-X INTERNATIONAL, INC.
By: /s/ Donald Rabinovitch
---------------------
Name: Donald Rabinovitch
Title: President
GUARANTY
The undersigned guaranties the full payment of all amounts due and
owing by the Company under this Note, subject to whatever rights of offset the
undersigned may have against Payee under the Asset Purchase Agreement. Payee may
pursue its remedies under this Guaranty concurrently with or independently of
any action or proceeding against the Company. THE GUARANTOR AGREES TO THE VENUE
AND WAIVER OF JURY TRIAL PROVISIONS CONTAINED IN THE NOTE AS IF INCORPORATED
HEREIN IN ITS ENTIRETY.
6
<PAGE>
AFP IMAGING CORPORATION
By: /s/ Donald Rabinovitch
-----------------------
Name: Donald Rabinovitch
Title: President
7
