SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
[x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the Period ended March 31, 1996.
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
Commission File Number: 0-13143
INNOVEX, INC.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
41-1223933
(IRS Employer
Identification No.)
1313 South Fifth Street, Hopkins, Minnesota 55343-9904
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 938-4155
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes - X No
As of April 12, 1996, 7,076,727 shares of the registrant's common stock, $.04
par value per share, were outstanding.
Exhibit Index, page 10
PART 1: ITEM 1 FINANCIAL INFORMATION
<TABLE>
<CAPTION>
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1996 1995
ASSETS (Unaudited) (Audited)
- ------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,348,762 $ 7,384,298
Short-term investments 17,765,000 15,130,000
Accounts receivable, less allowance for
doubtful accounts of $280,000 (1995 - $265,000) 7,360,005 5,787,282
Inventories 3,193,453 2,191,345
Other current assets 2,240,384 1,738,438
----------- -----------
Total current assets 37,907,604 32,231,363
Property, plant and equipment, net of accumulated depreciation
of $7,525,000 and $6,357,000 7,339,644 7,067,876
Intangible and other assets, net of amortization of $1,302,000
and $1,008,000 1,827,290 1,984,244
----------- -----------
$47,074,538 $41,283,483
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 108,000 $ 358,000
Accounts payable 1,741,108 1,486,154
Accrued compensation 1,028,065 1,570,983
Income taxes payable 1,221,874 60,360
Other accrued liabilities 263,431 393,870
----------- -----------
Total current liabilities 4,362,478 3,869,367
Long-term debt 1,119,021 1,172,798
Other long-term liabilities 370,559 212,145
Stockholders' equity:
Common stock, $.04 par value; 15,000,000 shares authorized,
7,074,727 and 7,062,127 shares issued and outstanding 282,989 282,485
Capital in excess of par value 9,016,951 8,930,301
Retained earnings 31,922,540 26,816,387
----------- -----------
Total stockholders' equity 41,222,480 36,029,173
----------- -----------
$47,074,538 $41,283,483
=========== ===========
</TABLE>
See accompanying notes.
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
1996 1995
------------ ------------
Net sales $ 14,674,457 $ 11,692,830
Costs and expenses:
Cost of sales 8,660,391 6,789,487
Selling, general and administrative 1,352,365 1,121,464
Engineering 628,932 621,177
Net interest (income) expense (191,489) (159,110)
Other (income) expense (6) 108,986
------------ ------------
Income before taxes 4,224,264 3,210,826
Provision for income taxes 1,268,000 1,028,000
------------ ------------
Net income $ 2,956,264 $ 2,182,826
============ ============
Primary and fully dilutive net income per share: $ 0.41 $ 0.31
============ ============
Common and common equivalent shares outstanding:
Primary 7,207,035 7,102,310
============ ============
Assuming full dilution 7,207,035 7,102,310
============ ============
Six Months Ended March 31,
1996 1995
------------ ------------
Net sales $ 27,786,164 $ 21,668,689
Costs and expenses:
Cost of sales 16,255,866 12,878,528
Selling, general and administrative 2,556,160 2,244,947
Engineering 1,215,723 1,054,267
Net interest (income) expense (396,547) (290,173)
Other (income) expense 507 212,781
------------ ------------
Income before taxes 8,154,455 5,568,339
Provision for income taxes 2,447,000 1,829,000
------------ ------------
Net income $ 5,707,455 $ 3,739,339
============ ============
Primary and fully dilutive net income per share: $ 0.79 $ 0.53
============ ============
Common and common equivalent shares outstanding:
Primary 7,228,865 7,069,139
============ ============
Assuming full dilution 7,228,865 7,069,139
============ ============
See accompanying notes
<TABLE>
<CAPTION>
INNOVEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,707,455 $ 3,739,339
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,630,843 1,266,352
Other non-cash charges (credits) 4,900 (34,573)
Changes in operating assets and liabilities:
Accounts receivables (1,572,723) (1,278,650)
Inventories (1,002,108) (61,078)
Other current assets (501,946) (305,396)
Accounts payables 254,954 602,951
Other liabilities (514,943) (76,770)
Income taxes payable 1,161,514 423,102
----------- -----------
Net cash provided by (used in) operating activities 5,167,946 4,275,277
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,763,695) (1,225,032)
Product line acquisitions -- (241,763)
Proceeds from sale of assets 13,137 75
Purchase of held-to-maturity securities (6,875,000) (9,610,000)
Maturities of held-to-maturity securities 4,240,000 3,720,000
Sale of available-for-sale securities -- 3,215,915
----------- -----------
Net cash provided by (used in) investing activities (4,385,558) (4,140,805)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (303,777) (299,778)
Proceeds from exercise of stock options 87,154 179,011
Dividends paid (601,301) (521,839)
----------- -----------
Net cash provided by (used in) financing activities (817,924) (642,606)
Increase (decrease) in cash and cash equivalents (35,536) (508,134)
Cash and cash equivalents at beginning of year 7,384,298 1,719,587
----------- -----------
Cash and cash equivalents at end of period $ 7,348,762 $ 1,211,453
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES:
The Company considers all highly liquid investments with a maturity date of
three months or less when purchased to be "cash equivalents."
Cash paid for interest was $44,000 and $74,000 in 1996 and 1995, respectively.
Income tax payments were $1,285,000 and $1,403,000 in 1996 and 1995,
respectively.
See accompanying notes.
INNOVEX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions on Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The unaudited condensed
consolidated financial statements include the accounts of Innovex, Inc. and its
subsidiaries (the "Company") after elimination of all significant intercompany
transactions and accounts. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of operating results have been made. Operating results for interim periods are
not necessarily indicative of results which may be expected for the year as a
whole. For further information, refer to the consolidated financial statements
and footnotes included in the registrant's annual report on Form 10-K for the
year ended September 30, 1995.
NOTE 2 - THREE FOR TWO STOCK SPLIT
Net income per share calculations for prior periods have been adjusted
to reflect a three for two stock split effective on May 31, 1995.
PART I: ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
Innovex, Inc. (the Company), through its largest division, Precision
Products, develops, engineers and manufactures specialty precision
electromagnetic products for original equipment manufacturers ("OEM's"). Lead
wire assemblies for the thin film disk drive market are the Division's primary
product.
The Company also operates two other divisions, Iconovex and InnoMedica.
These divisions currently only produce a small portion of the Company's revenue.
Iconovex is responsible for the further development and marketing of a document
handling software product which was purchased in November 1993. The purchased
software prepares indexes and abstracts of documents stored on electronic media.
The initial application derived from the purchased software, Indexicon, was
designed for use on personal computers and began shipping in fiscal 1994.
Another product, AnchorPage, was released in the fiscal 1995 third quarter.
AnchorPage enables Internet World Wide Web sites to provide their users access
to web site information automatically using conceptual navigational techniques.
The alternative method involves the manual insertion of tags to create hypertext
links used for accessing the information. AnchorPage provides faster and more
reliable access to that information. The Division intends to focus future
attention on licensing the technology to OEM software developers.
InnoMedica was formed late in fiscal 1993 to further develop the
Company's medical business. In line with this strategy, the Company acquired
Daig Corporation's pacemaker lead wire and adapter product line in September
1993 and Possis Medical, Inc's pacemaker lead wire product line in March 1994.
Revenue generated by this division should continue to increase throughout fiscal
1996 as its customer base expands.
On April 5, 1996, the Company signed a Purchase Agreement to buy
substantially all of the assets of Litchfield Precision Components, Inc. for
$3,500,000 in cash and the assumption of specified liabilities amounting to
approximately $5,000,000. The purchase is expected to be finalized in May 1996.
Litchfield Precision Components, Inc. is a designer and manufacturer of highly
complex flexible circuitry and chemically machined parts.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales from operations totaled $14,674,000 for the
quarter, up 25% from $11,693,000 reported in fiscal 1995. Sales of $27,786,000
for the six months ended March 31, 1996 increased 28% from the prior year
period. The increases were due to the continued strong demand for lead wire
assemblies caused by increased demand for disk drives. The increase in lead wire
assembly unit sales volume was partially offset by decreases in selling price
which resulted from volume discounts. The lead wire assembly demand is expected
to remain strong throughout the remainder of the fiscal year.
GROSS MARGINS
The Company's consolidated gross profit as a percent of sales for the
second quarter decreased to 41% from the 42% reported for the same period last
year while the gross margin percent for the first six months remained unchanged
from the 41% reported for the same period last year. This is primarily due to
price decreases which offset the increased unit sales volume in the current
year. The high level of sales continues to result in efficient utilization of
the Company's automation-related fixed costs while improvements in the
manufacturing process have also reduced product costs. The gross margin should
remain relatively stable for the remainder of the fiscal year as improved
manufacturing efficiencies should offset any price concessions which may occur.
OPERATING EXPENSES
Operating expenses were 13.5% of sales for the current quarter, down
from 14.9% in the prior year's second quarter. Operating expenses for the first
six months of fiscal 1995 were 13.6% of sales, down from 15.2% for the prior
year's first six months. The decrease in operating expenses as a percent of
sales for the current year is primarily due to the increase in sales more than
offsetting the increase in total operating expenses. Total operating expenses
increased due to the higher level of costs being incurred by the two start-up
divisions as compared to the prior year. The level of operating expenses is not
expected to change significantly as a percent of sales for the remainder of the
fiscal year.
OPERATING PROFIT
Consolidated operating profit of $4,033,000 in the current quarter was
up from the $3,161,000 profit for the prior year second quarter. Consolidated
operating profit for the first six months was $7,758,000 versus $5,491,000 for
the same period last year. This is primarily the result of the increased sales
volume. Operating profit for the remainder of the fiscal year is expected to
remain strong due to the continued high demand for thin-film lead wire
assemblies. Although revenues from the Company's Iconovex and InnoMedica
Divisions are expected to continue to increase they will remain a small portion
of the Company's total sales and may not be operating at a profitable level
until the next fiscal year.
NET INCOME
Consolidated net income for the 1996 second quarter was $2,956,000 or
$0.41 per share as compared to $2,183,000 or $0.31 per share for the prior year
second quarter. Consolidated net income for the first six months of fiscal 1996
was $5,707,000 or $0.79 per share versus $3,739,000 or $0.53 per share for the
same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased to $25.1 million at March 31,
1996 from $22.5 million at September 30, 1995. This increase was primarily due
to income generated by the Company's operating activities.
Accounts receivable at March 31, 1996 increased by $1,573,000 from
September 30, 1995 due to the increased level of sales at the end of the second
quarter. Inventory increased by $1,002,000 from September 30, 1995 to support
the increased level of activity.
Working capital totaled $33,500,000 and $28,400,000 at March 31, 1996
and September 30, 1995, respectively.
Since September 30, 1995, the Company has invested $1,800,000 in fixed
assets. These additions include approximately $1,400,000 for equipment and
remodeling to expand and further automate the lead wire assembly production and
packaging process.
Management believes that internally generated funds will provide
adequate sources of capital for supporting projected growth in fiscal 1996.
PART II - OTHER INFORMATION
Responses to Items 1 through 3 and 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting of the shareholders of Innovex, Inc. was held on
January 23, 1996. There were 7,074,127 shares of common stock entitled
to vote at the meeting and a total of 6,138,510 shares were represented
at the meeting.
b) Seven directors were elected at the meeting to serve for one year or
until their successors are elected and qualified. Shares were voted as
follows:
For Against
--------- ------
Gerald M. Bestler 6,097,790 40,720
Mary E. Curtin 6,091,453 47,057
Willis K. Drake 6,097,720 40,790
Thomas W. Haley 6,101,265 37,245
William J. Miller 6,095,050 43,460
Michael C. Slagle 6,092,753 45,757
Bernt M. Tessem 6,100,590 37,920
c) Other matters voted on at the meeting:
Proposal #2. A proposal was made to ratify and approve an amendment to
the Company's 1994 Stock Option Plan to increase the total number of
shares of common stock available for issuance under the plan from
300,000 to 600,000 shares. Shares were voted as follows:
For Against Abstain Broker Non-Vote
---- ------- --------- ---------------
5,853,979 232,577 48,504 3,450
Proposal #3. A proposal was made to ratify and approve the appointment
of Grant Thornton L.L.P. as the Company's independent auditors for the
fiscal year ending September 30, 1996. Shares were voted as follows:
For Against Abstain
--- ------- -------
6,100,657 20,547 17,306
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.1 Asset Purchase Agreement by and between Innovex, Inc. and
Litchfield Precision Components, Inc. April 5, 1996
11 Statement regarding Computation of Per Share Earnings
27 Financial Data Schedule
b) Reports on Form 8-K
None.
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.
INNOVEX, INC.
Registrant
Date: May 13, 1996
By \s\ Thomas W. Haley
Thomas W. Haley
Chief Executive Officer
By \s\ Douglas W. Keller
Douglas W. Keller
Corporate Controller
INDEX TO EXHIBITS
Exhibits Page
10.1 Asset Purchase Agreement by and between Innovex, Inc.
and Litchfield Precision Components, Inc. April 5, 1996 11-38
11 Computation of Per Share Net Income 39
27 Financial Data Schedule 40
Exhibit 10.1
ASSET PURCHASE AGREEMENT
by and between
INNOVEX, INC.
and
LITCHFIELD PRECISION COMPONENTS, INC.
April 5, 1996
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of this 5th
day of April 1996, by and between Litchfield Precision Components, Inc., a
Minnesota corporation ("Seller" or "LPC"), and Innovex, Inc., a Minnesota
corporation ("Innovex" or "Buyer").
RECITALS
LPC is a Minnesota corporation engaged in the business of manufacturing
flexible circuits and other etched products (the "Business"). LPC desires to
sell, and Innovex desires to buy substantially all of the assets and assume
substantially all of the liabilities of LPC, on the terms and conditions herein
set forth.
NOW, THEREFORE, in consideration of the mutual covenants, conditions
and provisions hereinafter contained, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Agreement to Sell and Buy. On the Closing Date (as hereinafter
defined), Innovex shall purchase from LPC and LPC shall sell, assign, transfer,
convey and deliver to Innovex, on the terms and subject to the conditions set
forth in this Agreement, all of the assets, properties, contracts, operations
and business of LPC of every kind, nature and description whatsoever which are
related to, arise from or are used or useful in connection with the operation of
its Business and wherever the same may be located (but excluding the assets
specifically identified as "Excluded Assets" in Section 1.2 hereof). The assets,
properties, contracts, operations and business to be purchased and sold pursuant
to this Agreement (collectively, the "Assets") include, without limitation:
(a) All of Seller's right, title and interest in and to the
real property legally described on Schedule 2.8 hereto, together with
the improvements, fixtures, hereditaments and appurtenances thereto;
(b) All of Seller's right, title and interest in and to any
and all federal, state, foreign and common law trademarks, trademark
registrations and applications therefor, service marks, service mark
registrations and applications therefor, copyrights, copyright
registrations and applications therefor, trade names, assumed names,
logos, patents, patent applications, technology, know-how, trade
secrets, processes, formulas, drawings, designs and similar
intellectual property and proprietary rights of any kind, as well as
Seller's transferable interests in any and all federal, state and
foreign common laws rights protecting the same;
(c) All of Seller's equipment, machinery, furniture, fixtures,
furnishings, tooling, personal property, shelving, patterns, molds,
office equipment, computer hardware, trade fixtures, leasehold
improvements, tools and other tangible personal property owned or
leased by Seller and used or useful in the operation of the Business,
together with any manufacturer, vendor or installer warranties thereon;
(d) All of Seller's vehicles used in the operation of the
Business;
(e) All of the telephone numbers and telephone directory
advertisements used by Seller in the operation of the Business;
(f) All of Seller's business records relating to the Business,
including, but not limited to, customer lists, lists of suppliers,
accounting records (including work papers related thereto),
correspondence, files, research data, advertising data, contracts and
other records and information necessary or desirable for Buyer to carry
on the Business in the ordinary course on and after the Closing Date;
(g) All of Seller's contract rights and benefits in and to the
contracts, contracts in progress, commitments, leases, licenses,
purchase orders and other agreements which relate to or arise from or
are used or are necessary for the Business and any amendments thereto;
(h) To the extent transferable, all of Seller's governmental
licenses, certificates, franchises, permits, consents and approvals
related to the Business;
(i) All of Seller's prepaid expenses which relate to the
Business;
(j) All of Seller's office, shop and other supplies used in
the operation of the Business and which are on hand as of the Closing
Date;
(k) All of Seller's accounts receivable, notes receivable and
other rights to the payment of money arising out of the operation of
the Business and which remain uncollected on the Closing Date, whether
or not evidenced by a writing or reflected on the Closing Balance
Sheets (as hereinafter defined);
(l) All of Seller's inventory which is on hand as of the
Closing Date, including raw materials, work in process and finished
goods;
(m) All of the plans, specifications, blueprints, surveys,
repair and operating manuals, warranties guaranties, maintenance
records, information regarding real estate taxes and/or assessments and
other written information in the possession of Seller relating to any
of the Assets or to the improvements on any parcel of real property
owned by the Seller;
(n) All of Seller's rights, if any and to the extent
transferable, in any computer software and software program
documentation;
(o) All of Seller's rights and claims against third parties
relating to or arising from or out of the operation of the Business or
any of the Assets;
(p) All of Seller's supply of brochures, displays, models and
other marketing materials on hand as of the Closing Date, as well as
the camera ready art, negatives, proofs and other reproduction
materials for the same;
(q) All salable goodwill as a going concern and other
intangible personal property of Seller which comprise a part of the
Business; and
(r) All accretions and additions to the Assets that occur
prior to the Closing Date.
1.2 Excluded Assets. Notwithstanding anything contained in this
Agreement to the contrary, Buyer will not purchase, and Seller will not sell,
any of the following assets (the "Excluded Assets"):
(a) The corporate minute book, stock book and other corporate
records of Seller having exclusively to do with the corporate
organization and capitalization of Seller as well as Seller's tax
records;
(b) Any and all policies of insurance now or heretofore
maintained by Seller;
(c) Any and all shares of capital stock in Minnesota Micro
Metal, Inc., a Minnesota corporation ("MMM"), and all properties and
assets owned by MMM;
(d) Any cash on hand or on deposit as of the Closing Date
other than the cash of the Seller on hand as of the Closing Date which
is on deposit to satisfy the Seller's obligations with respect to the
Loan Agreement dated as of May 1, 1986, by and between the Seller and
the Minnesota Energy and Economic Development Authority;
(e) The Funding Agreement dated March 2, 1994, by and between
the Seller and Jacqueline J. Airhart, as Trustee of the Durwood L.
Airhart Irrevocable Trust No. 1 dated March 2, 1994; and
(f) All assets listed on Schedule 1.2 hereof.
1.3 Purchase Price Terms of Payment for LPC Assets. The consideration
to be received by LPC in exchange for its company assets shall be as follows.
(a) The assumption by Innovex on the Closing Date of all of
the debts, liabilities and obligations of LPC described on Schedule
1.3(a) hereto (the "Assumed Liabilities"). Buyer and Seller covenant
and agree that on the Closing Date, they shall each execute and deliver
a Bill of Sale, Assignment and Assumption Agreement in the form of
Exhibit A hereto (the "Assumption Agreement") pursuant to which Seller
will assign and convey the Assets and the Assumed Liabilities to the
Buyer and the Buyer will assume and agree to perform and discharge all
of the Assumed Liabilities.
(b) On the Closing Date, the Buyer shall assume all of the
debts, liabilities and obligations of the Seller arising under and with
respect to the Loan Agreement dated as of May 1, 1986, by and between
the Seller and the Minnesota Energy and Economic Development Authority
(the "Authority"), the Seller's Promissory Note No. 1 in the original
principal amount of $3,000,000 payable to the order of the Authority,
the Combination Mortgage and Fixture Financing Statement, dated May 1,
1986, from the Seller to the Authority, and all related document
(collectively the "Bond Liability"). In addition, on the Closing Date,
the Buyer shall pay any and all principal, accrued interest, prepayment
penalties and other costs and expenses arising out of the prepayment in
full of all of the Seller's debts, liabilities and obligations (i)
under the Seller's revolving line of credit and term loans with Norwest
Bank Minnesota Central, National Association (the "Bank"), governed by
the 1994 Loan Agreement dated September 28, 1994, by and among the
Bank, the Seller and Durwood L. and Jacqueline J. Airhart, as amended,
(ii) under the Seller's Promissory Note dated December 31, 1994 in the
original principal amount of Twenty-two Thousand, Five Hundred and
no/100 Dollars ($22,500.00) payable to the order of Dominic M. Alfonso
II; and (iii) under the Loan Contract between Minnesota Agricultural
and Economic Development Board (the "Board") and the Seller signed by
the parties on December 23, 1993, the Security Agreement between the
Board and the Seller dated December 22, 1993, and the Seller's
Promissory Note dated December 22, 1993, in the original principal
amount of One Hundred Thousand and no/100 Dollars ($100,000.00) payable
to the order of the Board.
(c) On the Closing Date, the Buyer shall pay the Seller the
amount calculated by subtracting the amount of cash on hand and on
deposit retained by Seller pursuant to Section 1.2(d) hereof from Three
Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00) by
certified or bank cashier's check or by wire transfer of immediately
available funds to Seller's designated account as the consideration for
the Assets purchased and sold hereunder. As soon as practical after the
Closing Date (and in any event within sixty (60) days of the Closing
Date), the Seller shall cause a balance sheet to be prepared for the
Seller as of the open of business on the Closing Date (the "Closing
Balance Sheet"). Such Closing Balance Sheet shall be prepared by
Seller's regular accountants, McGladrey & Pullen, LLP (the "Auditor"),
in accordance with generally accepted accounting principles ("GAAP")
consistently applied; provided, however, that the Closing Balance Sheet
shall (i) be prepared without giving effect to the consummation of the
transaction contemplated hereby, (ii) not contain accruals for the
expenses associated with the preparation of such Closing Balance Sheet,
and (iii) shall contain an accrual for product return and warranty
claims in the amount of Thirty Thousand and no/100 Dollars ($30,000.00)
regardless of the amount of the accrual otherwise required by GAAP. All
costs and expenses incurred in connection with the preparation of the
Closing Balance Sheet shall be split equally between and shall be paid
by the Buyer and Seller. The Closing Balance Sheet shall contain a
calculation of the "Book Value Net Worth of the Seller" as of the
Closing Date, which shall be equal to the excess of the Seller's total
consolidated assets as reflected on the Closing Balance Sheet (reduced
by the net book value of any of the Excluded Assets reflected on the
Closing Balance Sheet) over the Seller's total consolidated liabilities
as reflected in the Closing Balance Sheet (reduced by the net book
value of any of the Excluded Liabilities (as hereinafter defined)
reflected on the Closing Balance Sheet). Within five (5) business days
of the preparation thereof, the Auditor shall deliver the Closing
Balance Sheet to the Buyer and Seller. The Buyer shall have the right
to review the Closing Balance Sheet and perform other audit and review
procedures, including a review of the working papers of the Auditor
relative to the preparation of the Closing Balance Sheet. The parties
shall be deemed to have accepted the Closing Balance Sheet and the Book
Value Net Worth of the Seller reflected therein unless within twenty
(20) days after the date of the Auditor's transmittal of the Closing
Balance Sheet to the parties (the "Delivery Date"), they give written
notice to the other parties and to the Auditor of their good faith
objection to any item therein, setting forth the amount they have
determined in good faith as the Book Value Net Worth of the Seller as
of the open of business on the Closing Date, as well as a detailed
description of the nature of their objection(s). In the event that any
party delivers such written notice of objection and the parties are
unable to mutually agree upon the Book Value Net Worth of the Seller as
of the open of business on the Closing Date within ten (10) days of
delivery of any such written notice of objection, Innovex and LPC shall
mutually select a third independent accounting firm which does not have
current or preexisting ties to either of the parties or any of their
subsidiaries, affiliates or principals within twenty (20) days after
the delivery of any such written notice of objection (the "Third
Firm"). The Third Firm shall consider each such objection and shall
render a decision (the "Final Decision") regarding the Book Value Net
Worth of the Seller as of the open of business on the Closing Date
within thirty (30) days of its selection, and such decision shall be
final and binding. Each party shall bear its own expenses incurred in
connection with the review of the Closing Balance Sheet; provided,
however, that all costs and expenses associated with the Third Firm
shall be split equally between the Buyer and the Seller. In the event
the Book Value Net Worth of the Seller as reflected on the Closing
Balance Sheet is greater than $1,661,000.00, the amount of the excess
shall be paid by the Buyer to the Seller by certified or bank cashier's
check or by wire transfer of immediately available funds to Seller's
designated account on the Settlement Date (as hereinafter defined). In
the event the Book Value Net Worth of the Seller as reflected on the
Closing Balance Sheet is less than $1,661,000.00, the amount of the
shortfall shall be refunded by the Seller to the Buyer on the
Settlement Date by certified or bank cashier's check or by wire
transfer of immediately available funds to Buyer's designated account.
As used herein, the term "Settlement Date" shall be such date as is
mutually agreed to by the Buyer and Seller not later than five (5) days
after the acceptance by all of the parties of the Closing Balance
Sheet, or if a party timely objects to the Book Value Net Worth of the
Seller as provided therein, within five (5) days after the delivery of
the Final Decision.
(d) On the Closing Date, the Buyer shall enter into three-year
employment contracts, in the form attached as Exhibit B hereto (the
"Other Employment Agreements"), with the following individuals:
NAME OF EMPLOYEE
Joel Yocom
Dan McClure
Bev Johnson
Marcia Cole-Yocum
Kenneth R. Ludvigson
(e) On the Closing Date, the Buyer shall enter into three-year
Employment Agreements with Durwood Airhart and Jacqueline Airhart in
the forms of Exhibit C and Exhibit D hereto, respectively (the
"Employment Agreements").
(f) Buyer agrees that, for purposes of the Worker Adjustment
and Retraining Notification Act ("WARN") and applicable state law, (i)
all employees of the Seller employed by Seller on the Closing Date and
which are not on a leave of absence under applicable worker's
compensation or disability laws (collectively, the "Eligible
Employees") shall be offered employment by Buyer immediately following
the Closing (as hereinafter defined) on substantially the same terms
and conditions as their prior employment by LPC, and (ii) the Buyer
assumes all responsibility for the sixty-day advance WARN notice and
all similar notices required under applicable state law with regard to
any plant closing and/or layoffs by the Buyer following the Closing.
Nothing herein shall be deemed an offer of continued employment as to
any such Eligible Employees.
(g) After the Closing, all Eligible Employees shall receive
the same employment benefits customarily offered to Innovex employees
or officers, as applicable. Those benefits include dependent medical
and dental coverage and participation in Innovex's 401(k) plan. Innovex
may, however, terminate any or all such plans at any time and with
respect to all Innovex employees and/or may choose not to adopt any
additional plans. Employees rights under any benefit plans now in force
or later adopted by Innovex shall be governed solely by their terms;
provided, however, that all such Eligible Employees shall be given
credit for their prior years of service with LPC for eligibility,
vesting and other purposes under the group dental insurance, group
health insurance, group life insurance, group long-term disability
insurance, vacation policies and the 401(k) plan currently maintained
by Innovex as well as any additional employee benefits hereafter
provided by Innovex.
(h) After the Closing, all Eligible Employees shall have the
opportunity to participate in Innovex incentive bonus and stock option
plans in the same manner, and under the same conditions, that Innovex
employees now participate. Stock options and bonuses are based upon
performance and granted at the sole discretion of Innovex's Board of
Directors and Innovex employees do not earn or accrue any right to this
additional compensation solely by reason of their employment.
1.4 Allocation of Purchase Price. The purchase price shall be allocated
among the Assets and the Non-Competition Agreements in the manner described on
Exhibit E hereto. The parties hereto acknowledge and agree that on the
Settlement Date, the parties shall execute a statement allocating the purchase
price among the Assets and the Non-Competition Agreements in the manner provided
for in such Exhibit. The Buyer and Seller shall each file, in accordance with
Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"), an
Asset Allocation Statement on Form 8594 (which conforms with such allocation)
with its federal income tax return for the tax year in which the Closing Date
occurs and shall contemporaneously provide the other party with a copy of the
Form 8594 being filed. Each party agrees not to assert, in connection with any
tax return, audit or other similar proceeding, any allocation of the purchase
price which differs from the allocation to which the parties have agreed to
herein.
1.5 Excluded Liabilities. Innovex shall have no responsibility for and
LPC shall pay and perform the debts, liabilities and obligations of LPC
described on Schedule 1.5 hereto ("Excluded Liabilities").
1.6 Closing. Subject to the provisions of Article 6 hereof, the closing
of the transactions contemplated by this Agreement (the "Closing") shall take
place as soon as practicable after satisfaction of all of the conditions to
Closing. The date and time of the Closing shall be as mutually agreed upon by
Buyer and Seller and shall take place not less than ten (10) nor more than
twenty (20) days following the date of the satisfaction of all of the conditions
to Closing. The Closing shall be at the offices of Innovex, Inc., 1313 Fifth
Street South, Hopkins, Minnesota. The date on which the Closing actually occurs
is herein referred to as the "Closing Date".
ARTICLE 2
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS
LPC represents, warrants and covenants to Innovex that as of the date
hereof and as of the Closing Date, the following are and shall be true and
correct in all material respects:
2.1 Title. LPC has good and merchantable title to all of the Assets to
be conveyed by it and will, at Closing, have the full right to convey those
Assets to Innovex free and clear of any Liens (as hereinafter defined) of any
kind whatsoever, except (i) those Liens to be disclosed on the Closing Balance
Sheet, (ii) those Liens described in Schedule 2.1 hereto; and (iii) the
Permitted Encumbrances (as hereinafter defined).
2.2 Organization and Authority. LPC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
is duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and the failure to be so qualified could
reasonably be expected to have a material adverse effect on the condition of
LPC, taken as a whole. LPC has the corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted.
The Articles of Incorporation and Bylaws of LPC, in effect on the date of this
Agreement, are unchanged from the form in which they were delivered to Innovex
on or before the date of this Agreement.
2.3 Subsidiaries. Set forth in Schedule 2.3 hereto is a complete and
correct list of all direct and indirect Subsidiaries of LPC. The term
"Subsidiary" when used with respect to any party means any entity (including
without limitation any corporation, partnership, joint venture or other
organization, whether incorporated or unincorporated) which is consolidated with
such party for financial reporting purposes. There are no entities in which LPC
has a five percent or greater direct or indirect equity or ownership interest.
Except as set forth on Schedule 2.3, all of the outstanding shares of capital
stock of LPC are validly issued, fully paid and nonassessable and are free and
clear of any lien, claim, charge, option, encumbrance, agreement, mortgage,
pledge, security interest or restriction (each a "Lien") with respect thereto.
Except as set forth on Schedule 2.3, LPC does not own beneficially, directly or
indirectly, any shares of any class of Equity Securities (as hereinafter
defined) or similar interests of any corporation, bank, business trust,
association or similar organization. Except as set forth on Schedule 2.3, LPC
does not hold any interest in a partnership or joint venture of any kind.
2.4 Capitalization. The authorized capital stock of LPC consists of
100,000 shares of authorized Class A Voting Common Stock, of which, as of the
date hereof, 8,851 shares are issued and outstanding and 9,900,000 shares of
authorized Class B Non-voting Common Stock, of which, as of the date hereof,
876,249 shares are issued and outstanding. Since December 31, 1995, no Equity
Securities of LPC have been issued. Except as set forth above, there are no
other Equity Securities of LPC outstanding. "Equity Securities" of an issuer
means capital stock or other equity securities of such issuer, options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into shares of any
capital stock or other equity securities of such issuer, or contracts,
commitments, understandings or arrangements by which such issuer is or may
become bound to issue additional shares of its capital stock or other equity
securities of such issuer, or options, warrants, scrip or rights to purchase,
acquire, subscribe to, calls on or commitments for any shares of its capital
stock or other equity securities. All of the issued and outstanding shares of
LPC Common Stock are validly issued, fully paid, and nonassessable, and have not
been issued in violation of any preemptive right of any stockholder of LPC.
2.5 Authorization.
(a) LPC has full power, capacity and authority to enter into,
execute and deliver this Agreement and to consummate the transactions
contemplated hereby and any instruments or agreements required herein.
This Agreement is a valid and binding obligation of LPC enforceable
against it in accordance with its terms, its enforceability subject
only to bankruptcy, insolvency, receivership, moratorium, or other laws
relating to or affecting creditors rights generally and to general
equity principles.
(b) The execution, delivery, and performance of this Agreement
by LPC has been duly and validly authorized, adopted and approved by
all necessary corporate action and, when executed and delivered, this
Agreement shall be legally binding on and enforceable against LPC in
accordance with its terms. The execution and delivery of this Agreement
does not, and the consummation of the transaction contemplated hereby
will not, violate LPC's Articles of Incorporation or Bylaws, nor,
except as described in Schedule 2.5 hereto, will the consummation of
the transaction contemplated hereby result in any breach, violation or
default, or result in the acceleration of the performance of any
obligations to LPC, under any judgment, decree, mortgage, agreement,
indenture, or other instrument applicable to LPC. Except as described
in Schedule 2.5 hereto, no consent, approval or authorization of any
third party is required for the consummation of the transactions
contemplated by this Agreement.
2.6 Closing Balance Sheet. Except as qualified by this Section 2.6, the
Closing Balance Sheet, (i) will present fairly the financial position of LPC on
the Closing Date, (ii) will be prepared in accordance with GAAP consistently
applied, and (iii) are derived from the books and records of LPC, which are
complete and accurate in all material respects and have been maintained in
accordance with good business practices.
2.7 Company Reports. Since December 31, 1995, LPC has filed all
material reports, registrations and statements, together with any required
material amendments thereto that it was required to file with (i) the state of
Minnesota, (ii) any other federal, state, municipal, local or foreign
government, securities, and governmental or regulatory authority and the
agencies and staffs thereof (the entities in the foregoing clauses (i) and (ii)
being referred to herein collectively as the "Regulatory Authorities" and
individually as a "Regulatory Authority"). All such reports and statements
filled with any such Regulatory Authority are collectively referred to herein as
the "Company Reports." As of its respective date, each Company Report complied
in all material respects with all of the rules and regulations promulgated by
the applicable Regulatory Authority and did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.8 Title to and Condition of Properties.
a) Schedule 2.8 sets forth a complete and correct list of all
real property owned or leased by LPC. LPC has good and marketable title
to all real property listed as owned by them in Schedule 2.8, and valid
leasehold interests in all real property leased by them in Schedule
2.8, free and clear of any Liens except (i) taxes and assessments not
delinquent, (ii) utility and other easements, (iii) non-monetary
encumbrances that do not interfere with the use of the property for the
business being conducted thereon or decrease the value of the property
in any material respect, (iv) landlords' liens, and (v) the Liens
described in Schedule 2.1 (collectively the "Permitted Encumbrances").
The present use of the real property owned or leased by LPC does not in
any material respect violate any local zoning or similar land use laws,
any governmental regulations, or any restrictive covenants of record,
nor does such real property, or improvements located thereon, or the
use thereof by LPC or others encroach upon any property owned by any
other person, nor does any property owned by any other person encroach
upon any such real property owned or leased by LPC.
(b) Except as set forth in Schedule 2.8, the personal property
owned or leased by LPC, including without limitation, the personal
property reflected as owned in the LPC's unaudited internally generated
balance sheet as of December 31, 1995, a copy of which is attached
hereto as Exhibit F (the "Opening Balance Sheet") (except for personal
property sold or otherwise disposed of in the ordinary course of
business since the date of the Opening Balance Sheet) is owned or
leased by LPC, free and clear of any Lien.
(c) All material real and personal property owned by LPC or
presently used by it is in good condition and repair in all material
respects, ordinary wear and tear excepted, and is sufficient to carry
on the business of LPC in the manner conducted currently. Except as set
forth in Schedule 2.8, none of the properties, buildings, fixtures or
equipment owned by LPC violate or fail to comply in any material
respect with any applicable health, fire, environmental, safety,
zoning, or building laws or ordinances or any restrictive covenant
pertaining thereto, such that such violation or failure to comply has
or could reasonably be expected to have a material adverse effect on
the condition of LPC, taken as a whole.
(d) To the best knowledge of LPC, LPC holds a valid license to
use all computer software which is currently being used by LPC in the
operation of its Business.
2.9 Taxes.
(a) Except as set forth on Schedule 2.9A, LPC has timely filed
or will timely file all tax returns and reports (including extensions)
required to be filed at or prior to the Closing Date ("Company
Returns"). LPC has paid, or set up adequate reserves on its financial
statements for the payment of, all taxes required to be paid by LPC in
respect to the periods covered by such returns. LPC will not have any
material liability for any such taxes in excess of the amounts so paid
or reserves so established and no deficiencies for any tax, assessment
or governmental charge have been proposed, asserted or assessed
(tentatively or definitely) against LPC which would not be covered by
existing reserves. At LPC's expense (to be fully provided for in the
Closing Balance Sheet), LPC shall file or cause to be filed any
required federal or state income tax returns on behalf of LPC for the
stub period ending the Closing Date.
(b) Except as set forth on Schedule 2.9B, LPC is not
delinquent in the payment of any tax, assessment or governmental
charge, nor has it requested any extension of time within which to file
any tax returns in respect of any fiscal year which have not since been
filed and no requests for waivers of the time to assess any tax are
pending. The federal and state income tax returns of LPC have not been
audited by the Internal Revenue Service (the "IRS') or state tax
authorities except as identified on Schedule 2.9B. There is no
deficiency proposed by the IRS or refund litigation or matter in
controversy with respect to LPC returns.
(c) Except as set forth on Schedule 2.9C, LPC has not (i)
extended or waived any statute of limitations on the assessment of any
tax due; (ii) become a party to any agreement providing for the
allocation or sharing of taxes; (iii) been required to include in
income any adjustment pursuant to Section 481(a) of the Code, by reason
of a voluntary change in accounting method (nor to the best knowledge
of LPC has the IRS proposed any such adjustment or change of accounting
method) or (iv) filed a consent pursuant to Section 341(f) of the Code
or agreed to have Section 341(f)(2) of the Code apply.
2.10 Absence of Undisclosed Liabilities. Except (i) to the extent to be
reflected, disclosed or reserved against on the Closing Balance Sheet, or (ii)
as may be set forth in Schedule 2.10, as of the Closing Date LPC will have no
liabilities, whether absolute, accrued, contingent, or otherwise, or due or to
become due, including without limitation any liabilities as guarantor under any
guaranty or liabilities for taxes, material to the business, financial
condition, or results of operations of LPC, taken as a whole.
2.11 Material Contracts.
(a) Schedule 2.11 contains a complete and correct list as of
the date of the execution of this Agreement of all written or oral
agreements and other obligations and commitments of the following
types, to which LPC is a party, by which LPC or any of its properties
is bound, or which has been authorized by LPC:
(i) Promissory note, guaranty,
mortgage, security agreement or other
evidence of indebtedness of LPC;
(ii) Partnership or joint venture agreement;
(iii) Employment or consulting agreement;
(iv) Collective bargaining agreement;
(v) Employee benefit plan
as defined in ERISA and any other employee
plans, benefits, programs of benefits, or
deferred compensation arrangements for the
benefit of directors, employees, or former
employees;
(vi) Agreement or commitment for
the sale of any asset (other than inventory
or worn or obsolete equipment in the
ordinary course of business);
(vii) Agreement or commitment for
any single capital expenditure in excess of
Five Thousand Dollars ($5,000) or capital
expenditures in excess of Ten Thousand
Dollars ($10,000) in the aggregate;
(viii) Agreement or other document
creating a monetary lien or security
interest or other encumbrance relating to
any real or personal property owned, rented,
or leased by LPC;
(ix) Any direct or indirect loan or
guaranty of a loan in an amount in excess of
Five Thousand Dollars ($5,000) to any
director, officer, or Principal Shareholder
(as defined as any shareholder owing 5% or
more of LPC Common Stock) of LPC or their
spouses or children or any partnership,
corporation, or other entity in which any
such director, officer, or Principal
Shareholder or their spouses or children,
have a significant (ten percent (10%) or
more) interest;
(x) Any agreement or series of
agreements with the same third party
relating to the same subject matter or
service which calls for aggregate payment by
LPC in any one year in excess of Five
Thousand Dollars ($5,000) except routine
purchase orders or to the extent otherwise
disclosed in Schedule 2.11;
(xi) All material
confidentiality/nondisclosure agreements;
(xii) All material technology
agreements;
(xiii) All material supply
agreements;
(xiv) All material license
agreements; and
(xv) All other material contracts
and commitments (other than loans) not made
in the ordinary course of business which by
their terms require aggregate payments by
any party thereto in excess of Five Thousand
and No/100 Dollars ($5,000.00) or which do
not expire automatically or with notice less
than one (1) year after the date hereof.
(b) Except as set forth in Schedule 2.11: (i) each agreement,
lease, and commitment of LPC identified in Schedule 2.11 is valid and
in full force and effect; (ii) LPC has in all material respects
performed all obligations required to be performed by it to date under
such agreements, leases, and commitments; and (iii) no event or
condition exists which constitutes a material default on the part of
LPC under any such agreement, lease, or commitment.
2.12 Litigation and Other Proceedings. Other than as set forth on
Schedule 2.12, LPC is not a party to any pending or, to the best knowledge of
LPC, threatened claim, action, suit, investigation or proceeding, or subject to
any order, judgment or decree, except for matters which, in the aggregate, will
not have, or reasonably could not be expected to have, a material adverse effect
on the condition of LPC, taken as a whole, but not excepting any actions, suits
or proceedings which purport to seek to enjoin or restrain the transactions
contemplated by this Agreement.
2.13 Insurance. LPC will make available to Innovex true, accurate and
complete copies of all insurance policies of LPC currently in effect. Each such
policy is in full force and effect, with all premiums due thereon on or prior to
the Closing Date having been paid as and when due. All of these policies shall
be included in the Excluded Assets.
2.14 Compliance with Laws.
(a) LPC has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Regulatory Authorities that are required in order to permit
it to own or lease its properties and assets and to carry on its
businesses as presently conducted and that are material to the
businesses of LPC, taken as a whole; all such permits, licenses,
authorizations, orders and approvals are in full force and effect and,
to the best knowledge of LPC, no suspension or cancellation of any of
them is threatened; and all such filings, applications and
registrations are current.
(b) (i) LPC has complied in all material respects with all
laws, regulations and orders (including without limitation zoning
ordinances, building codes, the ERISA, and securities, tax,
environmental, civil rights, and occupational health and safety laws
and regulations, and governing instruments) applicable to it and to the
conduct of its business, and (ii) LPC is not in default under, and no
event has occurred which, with the lapse of time or notice of both,
could result in a default under, the terms of any judgment, order,
writ, decree, permit, or license of any Regulatory Authority or court,
whether federal, state, municipal, or local and whether at law or in
equity, such that (1) non-compliance or default has or could reasonably
be expected to have a material adverse effect on the condition of LPC,
taken as a whole, or (2) non-compliance or default could be used as a
basis by any person, corporation, partnership, governmental entity or
other entity to prevent consummation of this transaction.
(c) Since December 31, 1995, LPC has not received any
notification or communication from any Regulatory Authority, except
with respect to matters which are set forth on Schedule 2.14C, (i)
asserting that LPC is not in substantial compliance with any of the
statutes, regulations or ordinances that such Regulatory Authority
enforces (where non-compliance could reasonably be expected to have a
material adverse effect on the condition of LPC, taken as a whole),
(ii) threatening to revoke any license, franchise, permit or
governmental authorization that is material to LPC, (iii) requiring or
threatening to require LPC, or indicating that LPC may be required, to
enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or limiting or
purporting to direct, restrict or limit in any manner the operations of
LPC. No such cease and desist order, agreement or memorandum of
understanding or other agreement is currently in effect.
2.15 Labor. No labor union contract, labor union organization or work
stoppage involving LPC is pending or threatened. LPC is not involved in,
threatened with or affected by, any labor dispute, arbitration, lawsuit or
administrative proceeding of a material nature. LPC's wage records fully and
accurately list all employees, together with their respective compensation and
classifications.
2.16 Employee Benefit Plans.
(a) Schedule 2.16A lists all pension, retirement supplemental
retirement, stock option, stock purchase, stock ownership, savings,
stock appreciation right, profit sharing, deferred compensation,
consulting, bonus, medical, disability, workers' compensation,
vacation, group insurance, severance and other material employee
benefit, incentive and welfare policies, contracts, plans and
arrangements, and all trust or loan agreements or arrangements related
thereto, currently maintained or sponsored by LPC, or pursuant to which
LPC has any continuing or contingent obligation to contribute, in
respect of any of the present or former directors, officers, or other
employees of and/or consultants to LPC (collectively, "Company Employee
Plans") . None of the Company Employee Plans is a pension plan subject
to Title IV of ERISA, a multi-employer plan as defined in Section 3(37)
of ERISA, or a plan providing for payment of post-retirement medical
benefits. Except as set forth in Schedule 2.16A, LPC has not
maintained, sponsored or contributed to any pension plan subject to
Title IV of ERISA during the past ten (10) years.
The following documents with respect to each Company Employee
Plan have been provided to Innovex: (i) a true and complete copy of all
written documents comprising such Company Employee Plan (including
amendments and individual agreements relating thereto), or, if there is
no such written document, an accurate and complete description of the
Company Employee Plan; (ii) the most recent Form 5500 or Form 5500-C
(including all schedules thereto, if applicable); (iii) the most recent
financial statements and actuarial reports, if any; (iv) the summary
plan description currently in effect and all material modifications
thereof, if any; and (v) the most recent IRS determination letter, if
any.
(b) All Company Employee Plans have been maintained and
operated in all material respects in accordance with their terms and
with the material requirements of all applicable statutes, orders,
rules and final regulations, including without limitation ERISA, the
Code and the continuation of health care provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 and any comparable state law.
All contributions required to be made to Company Employee Plans have
been made.
(c) With respect to each of the Company Employee Plans which
is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension
Plans"), to the best knowledge of LPC; (i) each Pension Plan which is
intended to be "qualified" within the meaning of Section 401(a) of the
Code is so qualified and, to the extent a determination letter has been
received from the IRS with respect to any such Pension Plan, such
determination letter may still be relied upon, and each related trust
is exempt from taxation under section 501(a) of the Code; and (ii)
there has been no "prohibited transaction", as such term is defined in
Section 4975 of the Code or Section 406 of ERISA, which could subject
any Pension Plan, associated trust, or LPC to any material tax or
penalty. Each Pension Plan covers the eligible employees of LPC.
(d) Except as set forth on Schedule 2.16D, neither the
execution nor delivery of this Agreement, nor the consummation of any
of the transactions contemplated hereby, will (i) result in any payment
(including without limitation severance, unemployment compensation
(other than as may be generally required by law upon a termination of
an employee) or golden parachute payment) becoming due to any director
or employee of LPC from LPC other than payments for accrued vacation
and sick leave, (ii) increase any benefit otherwise payable under any
of the Company Employee Plans or (iii) result in the acceleration of
the time of payment of any such benefit.
(e) Except for the assumption by Innovex pursuant to the
Assumption Agreement of the obligations of LPC with respect to accrued
vacation and accrued sick leave, none of the Company Employee Plans
will be assumed or administered by Innovex. LPC is responsible for the
termination of any Company Employee Plans, including, without
limitation, obtaining any final determination letters or any other
documents which LPC, in its sole discretion, shall deem necessary or
advisable in connection with the termination of any Company Employee
Plans.
2.17 Professional Fees. Neither LPC nor any of its respective officers,
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder's fees in connection with this Agreement or the transactions contemplated
hereby which will not be paid in full by Seller. No broker or finder has acted
directly or indirectly for LPC or its shareholders in connection with this
Agreement or the transactions contemplated hereby. On or before the Closing
Date, LPC shall satisfy in full or provide for an appropriate accrual on the
Closing Balance Sheet for any and all obligations for professional fees related
to this transaction which have been incurred by LPC before the Closing Date.
2.18 Accuracy of Information. The statements of LPC contained in this
Agreement, the Schedules hereto and any other written document executed and
delivered by or on behalf of LPC pursuant to the terms of this Agreement do not
omit any fact necessary to make the statements contained therein not misleading,
where such omission is material to the condition of LPC, taken as a whole.
2.19 Environmental Matters.
(a) Except as set forth on Schedule 2.19, LPC is, and has been
at all times, in substantial compliance with all applicable
Environmental Laws (as defined below), and has not engaged in any
activity resulting in a violation of any applicable Environmental Law.
No investigations, inquiries, orders, hearings, actions or proceedings
by or before any court or governmental agency are pending against LPC
or, to the best knowledge of LPC, threatened against LPC, in connection
with any activities of LPC, including but limited to activities of LPC
with respect to any real properties or improvements thereon now or
previously owned by LPC or now or previously leased by LPC ("Real
Properties"). No claims have been made by any third party or
governmental authority against LPC relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from any
Hazardous Substance (as defined below). LPC has not caused any
Hazardous Substances to be integrated into the Real Properties owned or
leased by LPC or any component thereof in such manner or quantity as
may reasonably be expected to or in fact would pose a threat to human
health or materially and adversely affect the value of any such Real
Properties. None of the Real Properties has been used by LPC for the
storage or disposal of Hazardous Substances in violation of any
Environmental Law. LPC has no interest, direct or indirect, in property
owned by a third party which is known by LPC to be contaminated by
Hazardous Substances. Except as set forth in Schedule 2.19, none of the
Real Properties currently owned or used by LPC presently contain
underground storage tanks.
(b) For purposes of this Agreement, "Environmental Law" means
the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), 42 U.S.C. Section 9601 et seq., the Resources
conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the
Hazardous Materials Transportation Act, 49 U. S. C. Section 1800 et
seq. , the Toxic Substances Control Act, 15 U.S.C. Section 2601, et
seq., the Federal Water Pollution Control Act, 33 U.S.C. Section 1251,
et seq., the Clean Water Act, 33 U.S.C. Section 1321 et seq., the
Clean Air Act, 42 U.S.C. Section 7401 et seq., regulations promulgated
thereunder, and any other federal, state, county, municipal, local,
foreign, provincial or other statute, law, ordinance, or regulation
which may relate to or deal with human health or the environment, in
each case as the same may exist and be interpreted on the date hereof.
For purposes of this Agreement, "Hazardous Substances" means (i) any
"hazardous substance" as defined in Section 101(14) of CERCLA or
regulations promulgated thereunder as the same may exist and be
interpreted on the date hereof; (ii) any "solid waste", "hazardous
waste", or "infectious waste", as such terms are defined in any other
Environmental Law; (iii) asbestos, urea-formaldehyde, polychlorinated
biphenyls ("PBCs"), nuclear fuel or material, chemical waste,
radioactive material, explosives, known carcinogens, petroleum
products and by-products, and other dangerous, toxic or hazardous
pollutants, contaminants, chemicals, materials or substances listed or
identified in, or regulated by, any Environmental Law; and (iv) any
additional substances or materials which are classified or considered
to be hazardous or toxic under any Environmental Law.
(c) Innovex shall engage (at Innovex's expense) a qualified
independent environmental engineering firm, acceptable to LPC, for the
purpose of conducting a Phase I Hazardous Waste Assessment (the "Phase
I Assessment") of the Real Properties. The Phase I Assessment shall
satisfy ASTM's E 1527 Standard Practice and shall include a record
review of publicly available federal, state and local sources of
environmental records. The Assessment shall be completed within
forty-five (45) days after the date hereof. Innovex shall have a period
of ten (10) days from the date of receipt of such Phase I Assessment to
review such Phase I Assessment and give written notice to LPC stating
either that (i) such Phase I Assessment is approved by Innovex, (ii)
such Phase I Assessment is not approved by Innovex, and the good faith
reasons therefor, or (iii) Innovex has elected to conduct a Phase II
Hazardous Waste Assessment (the "Phase II Assessment") of the Real
Properties at its expense. If Innovex gives a notice to LPC which
states that it has elected to obtain a Phase II Assessment, such
Assessment shall be completed within twenty (20) days after the date of
Innovex's notice. Innovex will have a period of ten (10) days from the
date of receipt of the Phase II Assessment to review such Phase II
Assessment and give written notice to LPC stating either that (i) such
Phase II Assessment is approved by Innovex, or (ii) such Phase II
Assessment is not approved by Innovex, and the good faith reasons
therefor. If Innovex gives a notice to LPC which sets forth specific
objections to the Phase I Assessment or Phase II Assessment, then
either Innovex or LPC may, at its option, terminate this Agreement as
of the date which is thirty (30) days after the date of such notice
unless during such thirty (30) day period LPC corrects or satisfies
such objections, or indemnifies Innovex against loss, liability or
expense, to the reasonable satisfaction of Innovex. Notwithstanding any
provision of this Agreement to the contrary, LPC shall not have any
liability to Innovex with respect to any matter identified in such
Phase I Assessment or Phase II Assessment even if such matter
constitute a breach of the representations and warranties of LPC
contained herein.
2.20 Intellectual Property. Schedule 2.20 sets forth a complete list of
all patents, trademarks (whether registered or unregistered), trade names,
service marks, copyrights and applications therefor (collectively "Intellectual
Property") owned, used by, accruing to the benefit of or necessary in the
operation of the business of LPC. Schedule 2.20 includes the following
information pertaining to each item of Intellectual Property: (i) a designation
of whether the property is owned, licensed or used by LPC under an agreement
other than a license, (ii) if licensed subject to an agreement other than a
license, identification of the parties thereto and the terms thereof; (iii)
identifying registration numbers assigned to any property or application
therefor, filing or issue dates, descriptions or titles, as applicable, to the
particular type of item and (iv) a list of all indebtedness secured by a Lien on
such property. LPC has good title to the Intellectual Property required to be
designated as owned by it on Schedule 2.20, free and clear of all Liens,
licenses, sub-licenses or encumbrances except as specifically set forth on
Schedules 2.1 or 2.20. True, complete and correct copies of the documents
underlying each item of Intellectual Property including, without limitation,
licenses, patents and patent applications, registrations and computer software
programs have been delivered or made available to Innovex. All licenses and
other agreements pursuant to which any item of Intellectual Property is licensed
or used by LPC are valid, binding and enforceable, and there does not exist
thereunder any default or event or condition which, after notice or lapse of
time or both, would constitute a default by LPC. LPC has not received notice or
claim that its title to or use of the Intellectual Property is impaired,
encumbered or invalid or is unenforceable by LPC, except as set forth on
Schedule 2.20. LPC's use of any item of the Intellectual Property licensed by
LPC does not, to the best knowledge of LPC, infringe upon any intellectual
property owned by any other entity or person, and there is no claim or action
pending or, to the best knowledge of LPC, threatened with respect thereto. LPC's
use of any item of the Intellectual Property which is owned by LPC does not
infringe upon any intellectual property owned by any other entity or person, and
there is no claim or action pending or, to the best knowledge of LPC, threatened
with respect thereto. Except as set forth on Schedule 2.20, there has been no
infringement or improper use of any item of the Intellectual Property by any
third party within the past ten years and there is no legal action instituted by
LPC in which an act allegedly constituting an infringement of any of the rights
to any item of the Intellectual Property was alleged to have been committed by a
third party.
2.21 Customer Contracts and Orders. Except as set forth in Schedule
2.21, all customer contracts, orders or other agreements for the purchase by
third parties of any product produced for sale by LPC are fully assignable and
transferable to Innovex without the consent of such third parties; provided,
however, that Seller makes no representations or warranties to Buyer that any or
all of the customers, vendors and/or suppliers of Seller will continue to
transact business with the Buyer after the Closing. Except as set forth in
Schedule 2.21, no customer of LPC has informed LPC that it intends to cease
doing business with the Business following the consummation of the transactions
contemplated hereby.
2.22 Conduct of Business. Except as set forth on Schedule 4.1 hereto,
during the period from December 31, 1995, to the date of this Agreement, LPC has
not committed any act or omission which, if occurring after the date hereof,
would constitute a violation of the covenants contained in Article 4 hereof.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF INNOVEX
Innovex represents, warrants and covenants to LPC that as of the date
hereof and that as of the Closing Date, the following are and shall be true and
correct in all material respects:
3.1 Organization and Authority. Innovex is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and has the corporate power and
authority to own its properties and assets and to carry on its business as it is
now being conducted, except where the failure to be so qualified would not have
a material adverse effect on the condition of Innovex and its subsidiaries ("the
Innovex Subsidiaries"), taken as a whole.
3.2 Authorization.
(a) Innovex has the corporate power and authority to enter
into this Agreement, and the documents and agreements to be executed
and delivered by Innovex pursuant hereto, and to carry out is
obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement by Innovex, including the documents and
agreements to be executed and delivered by Innovex pursuant hereto, and
the consummation by Innovex of the transactions contemplated hereby and
thereby have been duly authorized by all requisite corporate action of
Innovex. This Agreement, including the documents and agreements to be
executed and delivered by Innovex pursuant hereto, is a valid and
binding obligation of Innovex and enforceable against Innovex in
accordance with its terms, its enforceability subject only to
bankruptcy, insolvency, receivership, moratorium, or other laws
relating to or affecting creditors rights generally and to general
equity principles.
(b) Neither the execution, delivery or performance by Innovex
of this Agreement, including the documents and agreements to be
executed and delivered by Innovex pursuant hereto, nor the consummation
by Innovex of the transactions contemplated hereby or thereby, nor
compliance by Innovex with any of the provisions hereof or thereof,
will (i) violate, conflict with or result in a breach of any provisions
of, or constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration of, or result in the creation off any Lien
upon any of the properties or assets of Innovex under any of the terms,
conditions or provisions of (i) its articles or certificate of
incorporation, charter or bylaws, or (ii) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument
or obligation to which Innovex is a party or by which it may be bound,
or to which Innovex or any of its property or assets may be subject, or
to the best knowledge of Innovex, violate any judgment, ruling, order,
writ, injunction, decree, statute, rule or regulation applicable to
Innovex or any of its properties or assets.
(c) No notice to, filing with, exemption or review by, or
authorization, consent of approval of, any public body or authority or
any third party is necessary for the consummation by Innovex of the
transactions contemplated by this Agreement.
3.3 Brokers and Finders. Neither Innovex nor any of its respective
officers, directors or employees has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
Innovex in connection with this Agreement or the transactions contemplated
hereby.
3.4 Accuracy of Information. The statements of Innovex contained in
this Agreement, the Schedules hereto and in any other written document executed
and delivered by or on behalf of Innovex pursuant to the terms of this Agreement
are true and correct in all material respects, and such statements and documents
do not omit any material fact necessary to make the statements contained herein
or therein not misleading.
ARTICLE 4
CONDUCT OF BUSINESS PRIOR TO THE CLOSING DATE
4.1 Conduct of Business Prior to the Closing Date. Except as set forth
on Schedule 4.1, during the period from December 31, 1995 to the Closing Date,
LPC shall conduct business only in the ordinary and usual course consistent with
past practices and shall use its best efforts to maintain and preserve its
business organization, employees and advantageous business relationships and
retain the services of its officers and key employees.
4.2 Affirmative Obligations. Notwithstanding the foregoing Section 4.1,
LPC shall take the following actions, on or before the Closing Date:
(a) Fully accrue its obligations under any salary continuation
agreements.
4.3 Forbearance. Except as expressly set forth in this Agreement or
Schedule 4.3, during the period from the date of this Agreement to the Closing
Date, LPC shall not, without the prior written consent of Innovex, which consent
shall not be unreasonably withheld or delayed:
(a) declare, set aside or pay any dividends or other
distributions, directly or indirectly, in respect of its capital stock;
provided, however, that since LPC is an "S corporation" as defined in
Section 1361 of the Code, LPC may make prorated distributions of money,
to its shareholders with respect to the LPC Common Stock sufficient to
pay the federal and state income taxes on the income that passes
through from LPC under Section 1366 of the Code net of any tax benefit
produced by losses, deductions and credits that pass through under
Section 1366 of the Code; or
(b) enter into or amend any employment, severance or similar
agreement or arrangement with any director or officer or employee, or
modify any of the Company Employee Plans or grant any salary or wage
increase or increase any employee benefit (including incentive or bonus
payments); or
(c) propose or adopt any amendments to its Articles of
Incorporation or bylaws; or
(d) issue, sell, grant, confer or award any of its Equity
Securities or effect any stock split or adjust, combine, reclassify or
otherwise change its capitalization as it existed on the date of this
Agreement; or
(e) purchase, redeem, retire, repurchase, or exchange, or
otherwise acquire or dispose of, directly or indirectly, any Equity
Securities issued by LPC, whether pursuant to the terms of such Equity
Securities or otherwise; or
(f) directly or indirectly (including through its officers,
directors, employees or other representatives) initiate, solicit or
encourage any discussions, inquiries or proposals with any third party
relating to the disposition of any significant portion of the business
or assets of LPC or the acquisition of Equity Securities of LPC or the
merger of LPC with any person or any similar transaction (each such
transaction being referred to herein as an "Acquisition Transaction") ,
or provide any such person with information or assistance or negotiate
with any such person with respect to an Acquisition Transaction, and
LPC shall immediately notify Innovex orally of all the relevant details
relating to all inquiries, indications of interest and proposals which
it may receive with respect to any Acquisition Transaction and promptly
confirm the same to Innovex in writing; or
(g) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise as an accommodation become responsible
or liable for the obligations of any other individual, corporation or
other entity; in any event, any such additional indebtedness must be
capable of prepayment in whole at any time without penalty or premium
and not exceed $10,000 per transaction or $50,000 in the aggregate; or
(h) purchase or enter into any agreement or option to purchase
(i) any municipal or tax exempt securities, or (ii) any investment
securities having a maturity of greater than six (6) months, or (iii)
any mortgage backed securities, mortgage derivative products, other
asset products, or zero coupon bonds; or sell or trade, or enter into
any agreement to sell or trade, any of LPC's investment securities
prior to their maturity; or
(i) change any accounting methods, practices or procedures
with respect to the accumulation and presentation of financial
information except as directed by applicable law or regulation or as
required by this Agreement; or
(j) fail to disclose in writing to Innovex any facts or
circumstances which cause or could cause a material adverse change in
the financial condition or prospects of LPC. For purposes of this
provision only, a "material adverse change" shall be defined as
$100,000 or more; or
(k) sublease or assign any property or assets leased by LPC;
or
(l) enter into any material contracts or agreements; or
(m) agree in writing or otherwise to take any of the foregoing
actions or engage in any activity, enter into any transaction or take
or omit to take any other act which would make any of the
representations and warranties in Article 2 of this Agreement untrue or
incorrect in any material respect if made anew after engaging in such
activity, entering into such transaction, or taking or omitting such
other act.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Access and Information. LPC shall afford to Innovex, its
accountants, counsel and other representatives, full access during normal
business hours, during the period prior to the Closing Date, to all of LPC's
respective properties, books, contracts, commitments and records during such
period, and shall furnish promptly to Innovex all information concerning its
business, properties, customers and personnel as Innovex may reasonably request.
Representatives of Innovex may meet and speak with LPC customers on any matters
which Innovex reasonably believes are necessary to perform Innovex's due
diligence requirements pursuant to this Agreement or otherwise if Innovex gives
LPC notice of its intent to meet or speak with such customers a reasonable
period of time prior thereto. Except as may be required by law, Innovex shall,
and shall cause its advisors, accountants and other representatives to, (i) hold
confidential all information obtained in connection with the transaction
contemplated hereby with respect to LPC, its business, customers and operations
which is not otherwise public knowledge, (ii) return all documents (including
copies thereof) obtained hereunder from LPC to LPC and (iii) to cause all
information obtained pursuant to this Agreement or in connection with the
negotiation of this Agreement to be treated as confidential and not use, or
permit others to use, any such information unless such information becomes
generally available to the public other than through the breach of this
Agreement.
5.2 Current Information. During the period from the date of this
Agreement to the Closing Date, LPC shall promptly furnish Innovex with copies of
all monthly and quarterly financial statements of LPC as the same become
available and shall cause one or more of its designated representatives to
confer on a regular and frequent basis with representatives of Innovex. LPC
shall promptly notify the Innovex of any material change in its business or
operations and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated) , or the
institution or the threat of material litigation involving LPC, and shall keep
Innovex fully informed of such events. Contemporaneously with the filing of a
Form 10-K, Form 10-Q or Form 8-K with the United States Securities & Exchange
Commission, Innovex shall provide a copy thereof to LPC.
5.3 Expenses. Except as otherwise expressly provided herein, each party
shall bear its own expenses incident to preparing, entering into and carrying
out this Agreement and to consummating the transaction contemplated hereby.
5.4 Miscellaneous Agreements and Consents. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its
respective best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as possible. Each party shall,
and shall cause each of its respective Subsidiaries to, use its best efforts to
obtain consents of any third parties necessary for the consummation of the
transactions contemplated by this Agreement or which otherwise may be reasonably
requested by the other party.
5.5 Press Releases. The content of all public announcements relating to
the execution of this Agreement and the consummation of the transactions
contemplated hereby shall be approved by both LPC and Innovex prior to the
release of such public announcement, and each party agrees to cooperate with the
other party as appropriate to comply with all applicable laws, statutes, rules
and regulations. Subsequent to the Closing Date, Innovex may make such
announcements and/or advertisements as Innovex, in its sole discretion, deems
necessary to all customers and/or potential customers and suppliers of the
former business of LPC.
5.6 Year-End Audit. The Seller shall cause its financial statements at
December 31, 1995, and for its fiscal year then ended to be audited at its
expense by the Auditor in accordance with GAAP consistently applied.
ARTICLE 6
CONDITIONS
6.1 Conditions of Each Party's Obligation to Effect the Transaction.
The respective obligations of each party to effect the transaction contemplated
hereby shall be subject to the fulfillment or waiver at or prior to the Closing
Date of the following conditions:
(a) Neither Innovex, or LPC shall be subject to any order,
decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the transaction.
(b) As soon as practicable following the execution hereof,
Seller shall provide to Buyer title insurance commitments for each
parcel of real estate owned by LPC by a title insurance company
reasonably acceptable to Buyer agreeing to insure title in the amount
of the purchase price allocated to each parcel with standard exceptions
waived. Buyer shall be allowed seven (7) days after receipt of said
commitments for the examination thereof and the making and delivering
of any written objections to the marketability of title. If no title
objections are made within such seven (7) days period, such objections
shall be deemed to have been waived by Buyer. Buyer shall not have the
right, however, to object to Seller's title to any parcel of real
estate by reason of any of the Permitted Encumbrances. Seller agrees to
furnish the Buyer copies of all documents mentioned in said title
insurance commitments as creating exceptions to title not insured
against at the time such title insurance commitments are delivered to
Buyer. If any written objections to the marketability of title to any
parcel of real estate are made by Buyer within said seven (7) day
period, Seller shall use its best efforts to cure said marketable title
objections within thirty (30) days after said objections have been
raised. If title to the real estate is not made marketable within such
thirty (30) day period, Buyer shall have the right to terminate this
Agreement and neither party shall be further obligated to one another.
If title to the real estate is found to be marketable or is made so
within the time set forth herein and if Buyer is in default under this
Agreement and continues to be in default for a period of ten (10) days,
Seller may terminate this Agreement. All costs and expenses incurred in
obtaining such title insurance commitments and owner's policies of
title insurance together with the closing fee shall be split equally
between the Buyer and the Seller.
6.2 Conditions to Obligations of LPC to Effect the Transaction. The
obligations of LPC to effect the transaction shall be subject to the fulfillment
or waiver at or prior to the Closing Date of the following additional
conditions:
(a) Representations and Warranties. The representations and
warranties of Innovex set forth in Article 3 of this Agreement shall be
true and correct in all material respects as of the date of this
Agreement and as of the Closing Date (as though made on and as of the
Closing Date) except (i) to the extent such representations and
warranties are by their express provisions made as of a specified date
and (ii) LPC shall have received a certificate of the Chairman and
Chief Executive Officer of Innovex substantially in the form attached
hereto as Exhibit G to that effect.
(b) Performance of Obligations. Innovex shall have performed
in all material respects all obligations required to be performed by it
under this Agreement prior to the Closing Date, and LPC shall have
received a certificate of the Chairman and Chief Executive Officer of
Innovex in substantially in the form attached hereto as Exhibit G to
that effect.
(c) Employment Agreements. Durwood Airhart and Jacqueline
Airhart shall have entered into the Employment Agreements with Innovex.
(d) Approval by Counsel. All actions, proceedings, instruments
and documents required of Innovex to carry out the transactions
contemplated by this Agreement or incidental thereto and all of the
related legal matters shall have been reasonably satisfactory to and
approved by counsel for Seller, and such counsel shall have been
furnished with such certified copies of actions and proceedings and
such other instruments and documents as they shall have reasonably
requested.
(e) Consents and Approvals. Seller shall have obtained all
consents, waivers, releases, authorizations and approvals of all
persons and entities, including each and every governmental authority,
as may be necessary to consummate the transactions contemplated by this
Agreement.
(f) Personal Guaranties. Except for their obligations under
Section 8.2 hereof, Durwood Airhart and Jacqueline Airhart shall have
been released from any and all personal guaranties which they may have
given with respect to any of the debts, liabilities and obligations of
the Seller or shall have received reasonably acceptable indemnification
against any and all liability or potential liability thereunder from
Innovex.
(g) Prepayment and/or Assumption of Debt. On the Closing Date,
the Buyer shall cause all of Seller's indebtedness for borrowed money
other than the Bond Liability to be paid in full. In addition, on the
Closing Date, the Buyer shall assume the Bond Liability.
(h) Other Employment Agreements. Innovex shall have entered
into the Other Employment Agreements with the individuals identified in
Section 1.3(d) hereof.
(i) Collateral Assignments. Any collateral assignments of any
policies of life insurance on the lives of Durwood Airhart and/or
Jacqueline Airhart which are not owned by LPC to secure the payment
and/or performance of any debts, liabilities or obligations of LPC
shall have been terminated and released.
6.3 Conditions to Obligations of Innovex to Effect the Transaction. The
obligations of Innovex to effect the transaction shall be subject to the
fulfillment or waiver at or prior to the Closing Date of the following
additional conditions:
(a) Representations and Warranties. The representations and
warranties of LPC set forth in Article 2 of this Agreement shall be
true and correct in all material respects as of the date of this
Agreement and as of the Closing Date (as though made on and as of the
Closing Date) except (i) to the extent such representations and
warranties are by their express provisions made as of a specific date
and (ii) Innovex shall have received a certificate of the chief
executive officer of LPC substantially in the form attached here-to as
Exhibit H to that effect.
(b) Performs of Obligations. LPC shall have performed in all
material respects all obligations required to be performed by them
under this Agreement prior to the Closing Date, and Innovex shall have
received a certificate of the Chief Executive Officer of LPC
substantially in the form attached hereto as Exhibit H to that effect.
(c) Approval by Counsel. All actions, proceedings, instruments
and documents required of LPC to carry out the transactions
contemplated by this Agreement are incidental thereto and all of the
related legal matters shall have been reasonably satisfactory to and
approved by counsel for Innovex, and such counsel shall have been
furnished with such certified copies of actions and proceedings and
such other instruments and documents as they shall have reasonably
requested.
(d) Employment Agreements. Durwood Airhart and Jacqueline
Airhart shall have entered into the Employment Agreements with Innovex.
(e) Consents and Approvals. Seller shall have obtained all
consents, waivers, releases, authorizations and approvals of all
persons and entities, including each and every governmental authority,
as may be necessary to consummate the transactions contemplated by this
Agreement.
(f) Access to any lock box or other off-site facility for the
collection of LPC receivables shall have been delivered to Innovex.
(g) Title to all real property owned by LPC shall have been
legally transferred to Innovex.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date, whether before or after any requisite stockholder approval:
(a) by mutual consent by LPC and the Board of Directors of
Innovex;
(b) by LPC or by the Board of Directors of Innovex if the
purchase and sale contemplated hereby shall not have been consummated
prior to July 15, 1996 (provided that the terminating party is not then
in material breach of any agreement contained herein);
(c) by the Board of Directors of Innovex in the event of a
material breach by LPC of any representations, warranty, covenant or
other agreement contained in this Agreement;
(d) by LPC in the event of a material breach by Innovex of any
representation, warranty, covenant or other agreement contained in this
Agreement;
(e) by Buyer pursuant to Section 2.19(c) hereof; and
(f) by Buyer or Seller pursuant to Section 6.1(b) hereof.
In the event of termination by any party as provided in this Section, written
notice shall forthwith be given to the other party and each party shall pay its
own expenses incident to the preparation for consummation of this Agreement and
the transactions contemplated hereunder and neither party shall have any
obligation or liability to the other hereunder, except such liability as may
arise as a result of a breach hereof.
7.2 Return of Documents and Nondisclosure. If this Agreement is
terminated for any reason pursuant to Section 7.1 hereto, each party shall
return all documents and materials which shall have been furnished by or on
behalf of the other party, and each party hereby covenants that it will not
disclose to any person or entity any confidential or proprietary information
about the other party or any information about the transactions contemplated
hereby, except insofar as may be necessary to assert its rights hereunder.
7.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of Innovex and LPC.
7.4 Severability. Any term, provision, covenant or restriction
contained in this Agreement held by a court or a Regulatory Authority of
competent jurisdiction to be invalid, void or unenforceable, shall be
ineffective to the extent of such invalidity, voidness or unenforceability, but
neither the remaining terms, provisions, covenants or restrictions contained in
this Agreement nor the validity or enforceability thereof in any other
jurisdictions shall be affected or impaired thereby. Any term, provision,
covenant or restriction contained in this Agreement that is found to be so broad
as to be unenforceable shall be interpreted to be as broad as is enforceable.
7.5 Waiver. Any term, condition or provision of this Agreement may be
waived in writing at any time by the party which is, or whose stockholders are,
entitled to the benefits thereof.
ARTICLE 8
INDEMNIFICATION; MISCELLANEOUS
8.1 Survival of Representations and Warranties. No investigation by the
parties hereto made heretofore or hereafter shall affect the representations and
warranties of the parties which are contained herein and each such
representation and warranty shall survive such investigation. The
representations and warranties of LPC contained in this Agreement and LPC's
indemnities contained in Section 8.2 below shall survive the Closing of the
transactions contemplated hereby and shall expire on the second anniversary of
the Closing Date, except that the representations and warranties of LPC under
Section 2.9 hereof (Taxes) and the related indemnities set forth in Section 8.2
shall expire on the first day following the expiration of the applicable statute
of limitations for assessment of taxes, after which periods no claim for
indemnification under this Agreement which is based upon the breach of any
representation or warranty under this Agreement may be brought, and no
litigation with respect thereto may be commenced, and no party shall have any
liability or obligation with respect thereto, unless the indemnified party gave
written notice and the indemnifying party specifying with particularity the
breach of representation or warranty claimed on or before the expiration of such
periods. Notwithstanding the foregoing, the representations and warranties of
LPC contained in Section 2.1 hereof (Title), 2.19 hereof (Environmental) and
Section 2.6 hereof (Closing Balance Sheet) and the Covenants of LPC contained in
Section 1.5 hereof (Excluded Liabilities) and the related indemnities set forth
in Section 8.2 shall continue indefinitely after the Closing Date.
8.2 LPC's Indemnification. LPC shall jointly and severally indemnify
and hold Innovex harmless against and in respect of all actions, suits, demands,
judgments, costs and expenses (including Innovex's reasonable attorneys' fees)
relating to any damage or deficiency resulting from any misrepresentation,
breach of warranty, or nonfulfillment of any agreement on the part of LPC under
this Agreement; provided, however, that for purposes of this Section 8.2 and of
computing the purchase price payable pursuant to the provisions of Section
1.3(c) of this Agreement, any inaccuracy in the Closing Balance Sheet shall be a
basis of indemnification, without regard to materiality under GAAP.
Except for the Excluded Liabilities, to which the Indemnification Cap
shall not apply, the obligation to indemnify Innovex pursuant to Section 8.2
shall only become operative after the total amount of all claims for
indemnification pursuant to Section 8.2 exceeds One Hundred Thousand Dollars
($100,000), after taking into account any allowable tax benefits, insurance,
including title insurance, or other collected third party reimbursements
attributable to the losses which gave rise to the indemnification claim. The
aggregate amount payable to Innovex by LPC shall be the full amount of all
claims in excess of One Hundred Thousand Dollars ($100,000), after taking into
account any allowable tax benefits, insurance, including title insurance, or
other collected third party reimbursements attributable to the losses which gave
rise to the indemnification claim. Notwithstanding anything in this Agreement to
the contrary, the aggregate liability of LPC for all claims for indemnification
shall not exceed Five Hundred Thousand Dollars ($500,000) (the "Indemnification
Cap").
Notwithstanding any provision of this Agreement to the contrary,
Innovex shall not have a claim against LPC for indemnification or otherwise with
respect to any products sold by LPC prior to the Closing Date and returned for
any reason at any time on or after the Closing Date or with respect to any
warranty claims asserted against Innovex with respect to any such products.
Notwithstanding any provision of this Agreement to the contrary,
Innovex agrees that unless LPC otherwise agrees in writing, it shall not
voluntarily pay any of the Excluded Liabilities unless it is legally obligated
to pay any of such Excluded Liabilities by a final non-appealable order of a
court of competent jurisdiction. If a third-party claim is asserted against
Innovex with respect to any of the Excluded Liabilities, Innovex shall tender
the defense of such claim to LPC in accordance with the procedure set forth in
Section 8.4. In the event Innovex is required by a final non-appealable order of
a court of competent jurisdiction to pay any of the Excluded Liabilities, LPC's
indemnification obligations with respect thereto shall not be subject to the
Indemnification Cap. All amounts expended by Innovex with respect to any
Excluded Liability, including legal fees, incurred pursuant to the procedures
contained in Section 8.4 or with the permission of LPC, shall be subject to
indemnification by LPC without regard to the Indemnification Cap.
Should LPC cease to exist as a corporate entity or otherwise be unable
to perform its obligations under Section 8.2 during the period of time that LPC
has continuing obligations to Innovex pursuant to this Section 8.2, all of LPC's
indemnity obligations to Innovex shall be assumed by the individuals who were
shareholders of LPC on the Closing Date. All notices or demands required to be
made by Innovex pursuant to this Section 8.2 shall then be made to those
shareholders.
8.3 Innovex's Indemnification. Innovex shall indemnify and hold LPC and
its officers, directors, employees and shareholders harmless against and in
respect of all actions, suits, demands, judgments, costs and expenses (including
their respective reasonable attorneys' fees) relating to any damage or
deficiency resulting from (i) any misrepresentation, breach of warranty, or
nonfulfillment of any agreement on the part of Innovex under this Agreement or
any of the documents or agreements to be executed and/or delivered by Innovex
pursuant to this Agreement, (ii) the use or ownership of the Assets or the
operation of the Business by the Buyer after the Closing, (iii) the failure of
Buyer to pay or perform the Assumed Liabilities it agreed to assume pursuant to
this Agreement, (iv) the Phase I Assessment or the Phase II Assessment (except
to the extent caused by the negligent acts or omissions of LPC), and (v) the
failure of Innovex to pay and perform all of the debts, liabilities and
obligations of LPC arising under or with respect to the Bond Liability.
Innovex's representations and warranties and this indemnification shall survive
the Closing of the transactions contemplated hereby.
8.4 Procedure for Indemnification. In the event a party intends to seek
indemnification pursuant to the provisions of Sections 8.1 or 8.2 hereof (the
"Indemnified Party"), the Indemnified Party shall promptly give notice hereunder
to the other party (the "Indemnifying Party") after obtaining written notice of
any claim or the service of a summons or other initial legal process in any
action instituted against the Indemnified Party as to which recovery may be
sought against the Indemnifying Party because of the indemnification provided
for in Section 8.2 or 8.3 hereof, and, if such indemnity shall arise from the
claim of a third party, the Indemnified Party shall permit the Indemnifying
Party to assume the defense of any such claim and any litigation resulting from
such claim; provided, however, that the Indemnified Party shall not be required
to permit such an assumption of the defense of any claim or litigation which, if
not first paid, discharged or otherwise complied with, would result in an
interruption or disruption of the business of the Indemnified Party or any
material part thereof. Notwithstanding the foregoing, the right to
indemnification hereunder shall not be affected by any failure of the
Indemnified Party to give such notice (or by delay by the Indemnified Party in
giving such notice) unless, and then only to the extent that, the rights and
remedies of the Indemnifying Party shall have been prejudiced as a result of the
failure to give, or delay in giving, such notice. Failure by the Indemnifying
Party to notify the Indemnified Party of its election to defend any such claim
or action by a third party within ten (10) days after notice thereof shall have
been given to the Indemnifying Party shall be deemed a waiver by the
Indemnifying Party of its right to defend such claim or action.
If the Indemnifying Party assumes the defense of such claim or
litigation resulting therefrom, the obligations of the Indemnifying Party
hereunder as to such claim or litigation shall include taking all steps
necessary in the defense or settlement of such claim or litigation and holding
the Indemnified Party harmless from and against any and all damages caused by or
arising out of any settlement approved by the Indemnifying Party or any judgment
entered in connection with such claim or litigation. The Indemnifying Party
shall not, in the defense of such claim or any litigation resulting therefrom,
consent to entry of any judgment (other than a judgment of dismissal on the
merits without costs) except with the written consent of the Indemnified Party
or enter into any settlement (except with the written consent of the Indemnified
Party) which does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party a release from all liability
in respect to such claim or litigation.
If the Indemnifying Party assumes the defense of such claim or
litigation resulting therefrom, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it to conduct its defense.
If the Indemnifying Party does not assume the defense of any such claim
by a third party or litigation resulting therefrom after receipt of notice from
the Indemnified Party, the Indemnified Party may defend against such claim or
litigation in such manner as it deems appropriate, and unless the Indemnifying
Party shall deposit with the Indemnified Party a sum equivalent to the total
amount demanded in such claim or litigation plus the Indemnified Party's
estimate of the cost (including attorneys' fees) of defending the same, the
Indemnified Party may settle such claim or litigation on such terms as it may
deem appropriate and the Indemnifying Party shall promptly reimburse the
Indemnified Party for the amount of such settlement and for all costs (including
attorneys' fees), expenses and damages incurred by the Indemnified Party in
connection with the defense against or settlement of such claim or litigation,
or if any such claim or litigation is not so settled, the Indemnifying Party
shall promptly reimburse the Indemnified Party for the amount of any judgment
rendered with respect to any claim by a third party in such litigation and for
all costs (including attorneys' fees), expenses and damage incurred by the
Indemnified Party in connection with the defense against such claim or
litigation, whether or not resulting from, arising out of, or incurred with
respect to, the act of a third party.
8.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to be duly received (i) on the date given if
delivered personally or (ii) upon confirmation of receipt, if by facsimile
transmission or (iii) on the date received if mailed by registered or certified
mail (return receipt requested), to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
(i) If to Innovex: Thomas Haley
Innovex, Inc.
1313 Fifth Street South
Hopkins, MN 55343
Copies to: Mary E. Curtin, Esq.
Innovex, Inc.
1313 Fifth Street South
Hopkins, MN 55343
(i) If to LPC: Durwood and Jacqueline Airhart
17288 Red Cedar Road
Cold Spring, MN 56230
Copies to: David F. Senger
c/o Moss & Barnett
A Professional Association
4800 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-4129
8.6 Further Acts and Assurances. The parties agree that they will, at
any time and from time to time, on and after the Closing Date, upon the
reasonable request of the other party, do all such further acts and things and
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered any and all papers, documents, instruments, agreements, and assurances
as may be necessary or desirable to carry out and give effect to the provisions
and intent of this Agreement.
8.7 Preservation of and Access to Records. All books and records of
Seller conveyed to Buyer hereunder shall be preserved by Buyer for a period ten
(10) years after the Closing Date; provided, however, Buyer may destroy any part
or parts of such records upon obtaining written consent of Seller for such
destruction, which consent shall not be unreasonably withheld. Such records
shall be made available at the Seller and its shareholders and their
representatives at all reasonable times during normal business hours of Buyer
during said ten (10) year period, with the right, at their expense, to make
abstracts from and copies thereof.
8.8 Disclaimer of Warranties. EXCEPT FOR THE EXPRESS WARRANTIES GIVEN
BY SELLER IN THIS AGREEMENT, SELLER HEREBY DISCLAIMS ANY AND ALL EXPRESS AND
IMPLIED REPRESENTATIONS AND WARRANTIES WITH RESPECT TO ITS PROPERTY AND ASSETS,
INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
8.9 Transfer Taxes. Buyer agrees to pay in full any and all federal
,state, local and foreign sales taxes, use taxes, deed taxes, real estate
transfer taxes and other similar taxes as and when the same may be due, which
may be imposed upon or arise out of the sale of the LPC assets by the Seller to
the Buyer or the consummation of the transactions contemplated hereby.
8.10 Knowledge. In basing the representations and warranties and other
matters set forth herein on the phrase "to the best knowledge of LPC" or other
similar words or phrases, such words or phrases refer to the actual knowledge of
Durwood Airhart, Jacqueline Airhart, Bev Johnson, Ken Ludvigson, Dan McClure,
Joel Yocom, Marcia Yocom, Bob Savard, Rick Gish, Steve Baker, Mike Wick, Gary
Shaffer, Tim Klimstra, Avis Hammer, Rich Allen and Carl Minton.
8.11 Remedies. The parties hereto acknowledge that monetary damages
would not be a sufficient remedy for breach of this Agreement. Therefore, upon
breach of this Agreement by any party, the aggrieved party may proceed to
protect its rights and enforce this Agreement by suit in equity, action at law
or other appropriate proceeding, including an action for the specific
performance of any provision herein or any other remedy granted by law, equity
or otherwise. Any action for specific performance hereunder shall not be deemed
exclusive and may also include claims for monetary damages as may be warranted
under the circumstances. The prevailing party in any such suit, action or other
proceeding arising out of or related to this Agreement shall be entitled to
recover its costs, including attorneys' fees, incurred in such suit, action or
other proceeding.
8.12 Miscellaneous. This Agreement (including the Exhibits and
Schedules referred to herein) (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof,
excluding any confidentiality agreement between the parties hereto, (ii) is not
intended to confer upon any person not a party hereto any rights or remedies
hereunder, (iii) shall not be assigned by operation of law or otherwise, (iv)
shall be governed in all respects by the laws of the State of Minnesota, except
as otherwise specifically provided herein or required by federal law or
regulation, and (v) shall be binding upon and inure to the benefit of the
parties and their heirs, representatives, successors and permitted assigns. Any
provision of this Agreement prohibited or invalidated by law shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of the Agreement. This Agreement may be executed in
two or more counterparts which together shall constitute a single agreement.
8.13 Updating Schedules; No Sandbagging. The parties hereto acknowledge
and agree that the Seller may update and revise all or any part of the Schedules
prior to the Closing. Notwithstanding any provision of this Agreement to the
contrary, Seller shall not have any liability to Buyer if any of the
representations and warranties are not true and correct on the date hereof and
such representation and warranty is made true and correct in all material
respects as of the Closing Date through written updating or revising one or more
of the Schedules prior to the Closing. Notwithstanding any provision of this
Agreement to the contrary, the Seller shall not have any liability to the Buyer
for the breach of any of the representations, warranties, covenants or
agreements contained in this Agreement as of the date hereof or as of the
Closing Date if Buyer closes the transaction contemplated hereby with knowledge
of such breach which is evidenced by a writing delivered to Buyer.
LPC and Innovex have caused this Agreement to be duly executed by its
authorized representatives, on the date first above written.
INNOVEX, INC.
By \s\ Thomas W. Haley
Thomas W. Haley
Chairman and
Chief Executive Officer
Attested by: \s\ Mary E. Curtin
Name: Mary E. Curtin
Title: Corporate Secretary
LITCHFIELD PRECISION COMPONENTS, INC.
By \s\ Durwood Airhart
Durwood Airhart
Chief Executive Officer
Attested by: \s\ Mary E. Curtin
Name: Mary E. Curtin
Title: Innovex Corporate Secretary
WITH RESPECT TO SECTION 8.2 ONLY
\s\ Durwood Airhart
Durwood Airhart, Shareholder
\s\ Jacqueline Airhart
Jacqueline Airhart, Shareholder
EXHIBIT 11 - COMPUTATION OF PER SHARE NET INCOME
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1996 1995
---- ----
<S> <C> <C>
Net income for the period used in
determining net income per share $2,956,264 $2,182,826
Weighted average common and common equivalent shares
used in determining net income per share:
Primary 7,207,035 7,102,310
Assuming full dilution 7,207,035 7,102,310
Primary and fully dilutive net income per share $ 0.41 $ 0.31
For the Six Months Ended March 31,
1996 1995
---- ----
Net income for the period used in
determining net income per share $5,707,455 $3,739,339
Weighted average common and common equivalent shares
used in determining net income per share:
Primary 7,228,865 7,069,139
Assuming full dilution 7,228,865 7,069,139
Primary and fully dilutive net income per share $ 0.79 $ 0.53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED IN THE 10-Q FOR THE QUARTER ENDED MARCH
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1995
<CASH> 7,349
<SECURITIES> 17,765
<RECEIVABLES> 7,640
<ALLOWANCES> 280
<INVENTORY> 3,193
<CURRENT-ASSETS> 37,908
<PP&E> 14,865
<DEPRECIATION> 7,525
<TOTAL-ASSETS> 47,075
<CURRENT-LIABILITIES> 4,362
<BONDS> 1,119
0
0
<COMMON> 283
<OTHER-SE> 40,939
<TOTAL-LIABILITY-AND-EQUITY> 47,075
<SALES> 27,786
<TOTAL-REVENUES> 27,786
<CGS> 16,256
<TOTAL-COSTS> 16,256
<OTHER-EXPENSES> 3,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 8,154
<INCOME-TAX> 2,447
<INCOME-CONTINUING> 5,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,707
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
</TABLE>
