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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
PHOENIX MEDICAL TECHNOLOGY, INC.
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(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
Pursuant to an Option Agreement between Phoenix Medical
Technology, Inc. (the "Company") and London International
Group, Inc. ("LIG"), LIG has an option to acquire
substantially all of the assets of the Company in exchange for
a cash purchase price of $6,821,708, subject to certain
adjustments, and the assumption of certain liabilities, which
as of the Company's most recent Form 10-QSB were valued at
$7,143,369. Pursuant to Exchange Act Rule 0-11(c)(2), the
filing fee is based on the sum of the cash purchase price and
the amount of the assumed liabilities.
(4) Proposed maximum aggregate value of transaction:
$13,965,077
(5) Total fee paid:
$2,794
[x] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PHOENIX MEDICAL TECHNOLOGY, INC.
U.S. Highway 521 West
Andrews, South Carolina 29510
March 23, 1998
Dear Phoenix Medical Technology, Inc. Stockholders:
On behalf of the Board of Directors of Phoenix Medical Technology, Inc.
(the "Company"), it is my pleasure to invite you to attend a special meeting
(the "Meeting") of stockholders of the Company to be held on April 28, 1998 at
10:00 a.m., local time, at the Company's executive offices on U.S. Highway 521
West, Andrews, South Carolina.
At the Meeting, you will be asked to consider and vote upon:
(1) a proposal to approve an Option Agreement, dated as of
December 22, 1997 and as amended by a First Amendment to Option
Agreement dated as of March 9, 1998 (the "Option Agreement"), and the
transactions contemplated thereby between the Company and London
International Group, Inc. ("LIG"), pursuant to which LIG will purchase
from the Company, at an option purchase price of $500,000, an option,
exercisable for a period of one year, to purchase substantially all of
the assets of the Company (the "Option"). In the event that LIG
exercises the Option and the Company sells substantially all of its
assets to LIG (the "Sale of Assets"), LIG will assume substantially all
of the Company's liabilities and will pay to the Company $6,821,708,
subject to certain adjustments and escrows described in the Proxy
Statement. Copies of the Option Agreement and related agreements are
attached to the Proxy Statement as Annexes A-D;
(2) a proposal to amend the Certificate of Incorporation of
the Company to change the Company's name to PMT Inc., to become
effective only if and when the Sale of Assets is consummated; and
(3) a proposal to approve a Plan of Dissolution and
Liquidation (the "Plan of Dissolution"), to become effective only if
the Sale of Assets is consummated. A copy of the Plan of Dissolution is
attached to the Proxy Statement as Annex F.
Interstate/Johnson Lane Corporation, the Company's financial advisor in
connection with the Option, has rendered its opinion to the Board of Directors
of the Company that the Option and the Sale of Assets are fair, from a financial
point of view, to the Company and its stockholders, and the Board of Directors
believes that the Option Agreement and the transactions contemplated thereby are
in the best interests of the Company and its stockholders. On behalf of the
Board of Directors, I urge you to vote FOR approval of the Option Agreement, FOR
approval of the new corporate name, and FOR approval of the Plan of Dissolution.
The enclosed Proxy Statement explains the proposed transactions and
provides specific information concerning the Meeting. Also enclosed is a copy of
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
I encourage you to read and consider carefully the information contained in the
enclosed documents.
Whether or not you plan to attend the Meeting, you are urged to
complete, sign and promptly return the enclosed proxy card to assure that your
shares will be voted at the Meeting.
Sincerely,
Edward W. Gallaher, Sr.
President
<PAGE> 3
PHOENIX MEDICAL TECHNOLOGY, INC.
U.S. Highway 521 West
Andrews, South Carolina 29510
--------------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On April 28, 1998
--------------------------------------------------
To the Stockholders of Phoenix Medical Technology, Inc.:
A special meeting (the "Meeting") of stockholders of Phoenix Medical
Technology, Inc. (the "Company") will be held on April 28, 1998 at 10:00 a.m.,
local time, at the Company's executive offices on U.S. Highway 521 West,
Andrews, South Carolina for the following purposes:
1. To consider and vote upon a proposal to approve an Option
Agreement, dated as of December 22, 1997 and as amended by a
First Amendment to Option Agreement dated as of March 9, 1998
(the "Option Agreement"), and the transactions contemplated
thereby between the Company and London International Group,
Inc. ("LIG"), pursuant to which LIG will purchase from the
Company, at an option purchase price of $500,000, an option,
exercisable for a period of one year, to purchase
substantially all of the assets of the Company (the "Option").
In the event that LIG exercises the Option and the Company
sells substantially all of its assets to LIG (the "Sale of
Assets"), LIG will assume substantially all of the Company's
liabilities and will pay to the Company $6,821,708, subject to
certain adjustments and escrows described in the Proxy
Statement. Copies of the Option Agreement and related
agreements are attached to the Proxy Statement as Annexes A-D.
2. To consider and vote upon a proposal to amend the Certificate
of Incorporation of the Company to change the Company's name
to PMT Inc., to become effective only if and when the Sale of
Assets is consummated.
3. To consider and vote upon a proposal to approve a Plan of
Dissolution and Liquidation (the "Plan of Dissolution"), to
become effective only if the Sale of Assets is consummated. A
copy of the Plan of Dissolution is attached to the Proxy
Statement as Annex F.
4. To transact such other business as may be properly brought
before the Meeting or at any and all adjournments or
postponements thereof.
Stockholders of record at the close of business on March 11, 1998 are
entitled to notice of and to vote at the Meeting. We urge you to vote on the
business to be considered at the Meeting by attending the Meeting and casting
your vote in person. However, whether or not you plan to attend, we urge you to
complete, date and sign the accompanying proxy card and to return it promptly to
the Company in the enclosed envelope, to which no postage need be affixed if
mailed in the United States.
Edward W. Gallaher, Sr.
President
Andrews, South Carolina
March 23, 1998
--------------------------------------------------
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING.
<PAGE> 4
PHOENIX MEDICAL TECHNOLOGY, INC.
U.S. Highway 521 West
Andrews, South Carolina 29510
--------------------------------------------------
PROXY STATEMENT
Relating to Special Meeting of Stockholders
To Be Held April 28, 1998
--------------------------------------------------
This Proxy Statement is being furnished to the stockholders of Phoenix
Medical Technology, Inc., a Delaware corporation (the "Company"), in connection
with the solicitation of proxies by the Board of Directors of the Company (the
"Board of Directors" or the "Board") for use at the special meeting of
stockholders of the Company, or any adjournment or postponement thereof (the
"Meeting"), to be held on April 28, 1998, at 10:00 a.m., local time, at the
Company's executive offices on U.S. Highway 521 West, Andrews, South Carolina.
At the Meeting, stockholders of the Company will be asked to consider
and vote upon the following three proposals.
The first proposal is to approve an Option Agreement, dated as of
December 22, 1997 and as amended by a First Amendment to Option Agreement dated
as of March 9, 1998 (the "Option Agreement"), and the transactions contemplated
thereby (collectively, the "Transactions") between the Company and London
International Group, Inc., a New Jersey corporation ("LIG"), pursuant to which
LIG will purchase from the Company, at an option purchase price of $500,000 (the
"Option Payment"), an option, exercisable for a period of one year, to purchase
substantially all of the assets of the Company (the "Option"). If LIG exercises
the Option, the Company will sell substantially all of its assets to LIG (the
"Sale of Assets") in exchange for LIG's assumption of substantially all of the
Company's liabilities and payment to the Company of $6,821,708, subject to
certain adjustments and escrows as described in the Option Agreement
(collectively the "Purchase Price").
The second proposal is to amend the Company's certificate of
incorporation, as amended (the "Certificate of Incorporation") to change the
Company's name from Phoenix Medical Technology, Inc. to PMT Inc., to become
effective only if and when the Sale of Assets is consummated.
The third proposal is to approve a Plan of Dissolution and Liquidation
to dissolve the Company and distribute its assets to the Company's stockholders
(the "Plan of Dissolution"), to become effective only if the Sale of Assets is
consummated.
This Proxy Statement, the Notice of Special Meeting of Stockholders and
the enclosed proxy card, together with the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997 filed with the Securities and
Exchange Commission (the "Commission") are first being mailed to stockholders of
the Company on or about March 23, 1998.
The date of this Proxy Statement is March 23, 1998.
<PAGE> 5
TABLE OF CONTENTS
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................................4
CAUTIONARY STATEMENT AS TO FORWARD-LOOKING INFORMATION........................................4
SUMMARY.......................................................................................5
The Meeting..........................................................................5
The Option...........................................................................5
The Option Agreement.................................................................7
Amendment of the Certificate of Incorporation to Change the Name of the Company......9
Dissolution and Liquidation of the Company Following the Sale of Assets.............10
Certain Federal Income Tax Consequences.............................................10
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.............................................11
THE MEETING..................................................................................13
General.............................................................................13
Voting Rights.......................................................................13
Quorum..............................................................................13
Votes Required for Approval.........................................................13
Proxies.............................................................................13
THE OPTION...................................................................................14
Parties to the Option...............................................................14
Background of the Option............................................................14
Recommendation of the Board of Directors and Reasons for the Option.................16
Opinion of Interstate/Johnson Lane Corporation......................................17
Accounting Treatment................................................................19
Regulatory Requirements.............................................................19
No Appraisal Rights.................................................................20
Interests of Certain Persons in the Transactions....................................20
THE OPTION AGREEMENT.........................................................................21
The Option..........................................................................21
Option Payment......................................................................21
Purchase Price for Sale of Assets...................................................21
Transfer of Assets and Assumption of Liabilities....................................21
Escrow and Purchase Price Adjustment................................................22
Representations and Warranties......................................................22
Indemnification.....................................................................23
Other Covenants and Agreements......................................................23
Conditions to the Sale of Assets....................................................24
Termination of the Option Agreement.................................................25
Amendment...........................................................................25
Ancillary Agreements................................................................25
AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY..............26
</TABLE>
2
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DISSOLUTION AND LIQUIDATION OF THE COMPANY FOLLOWING THE SALE OF ASSETS......................27
Post-Closing Operations.............................................................27
Dissolution.........................................................................27
Liquidation and Payment of Claims...................................................28
Distributions to Stockholders.......................................................28
Stockholders' Continuing Liability..................................................28
Voting..............................................................................28
CERTAIN FEDERAL INCOME TAX CONSEQUENCES......................................................29
Option Payment......................................................................29
Payment of Purchase Price...........................................................29
Liquidation of the Company..........................................................29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............................30
MARKET PRICE OF THE COMPANY'S COMMON STOCK...................................................31
EXPERTS......................................................................................31
SHAREHOLDER PROPOSALS........................................................................31
Annex A -- Option Agreement
Annex B -- R&D Agreement
Annex C -- Loan Agreement
Annex D -- Supply Agreement
Annex E -- Opinion of Interstate/Johnson Lane Corporation
Annex F -- Plan of Dissolution and Liquidation
Annex G -- Unaudited Pro Forma Financial Statements
</TABLE>
3
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-KSB for the year ended December
31, 1997, as filed by the Company with the Commission on March 11, 1998, is
being provided to each stockholder of the Company as an enclosure with this
Proxy Statement and is hereby incorporated by reference in this Proxy Statement.
CAUTIONARY STATEMENT AS TO FORWARD-LOOKING INFORMATION
Statements contained in this Proxy Statement, the Annexes hereto and
the documents incorporated by reference herein as to the Company's financial
situation upon consummation of the Sale of Assets, other pro forma financial
information, budgeted amounts and other projections of future financial or
economic performance of the Company, and statements of the Company's plans and
objectives for the future are "forward-looking" statements, and are being
provided in reliance upon the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Important factors that could cause actual results
or events to differ materially from those projected, estimated, assumed or
anticipated in any such forward-looking statements include without limitation:
any failure by LIG to exercise the Option or to otherwise consummate the Sale of
Assets; any deterioration in the business relationship between the Company and
LIG; any difficulties the Company may have in developing technology to
manufacture nitrile gloves; general economic conditions in the Company's
markets, including inflation, recession, interest rates and other economic
factors, especially in the United States and other areas of the world where the
Company markets its products; any loss of the services of the Company's key
management personnel; increased competition in the United States and abroad,
both from existing competitors and from any new interests in the business;
changes in the cost or availability of raw materials; changes in governmental
regulations applicable to the Company's business; the failure to obtain any
required governmental approvals; casualty to or disruption of the Company's
production facilities or equipment; delays or disruptions in the shipment of the
Company's products or raw materials; disruption of operations due to strikes or
other unrests; and other factors that generally affect the business of
manufacturing companies with international operations. Many of such factors are
beyond the Company's ability to control or predict. Readers are cautioned not to
put undue reliance on forward-looking statements. The Company disclaims any
intent or obligation to update publicly these forward-looking statements,
whether as a result of new information, future events or otherwise.
4
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SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Proxy Statement. This summary is not intended to be
complete and is qualified in its entirety by the more detailed information
contained elsewhere in this Proxy Statement, the Annexes hereto, and the
documents incorporated by reference or otherwise referred to herein.
Stockholders are urged to review this entire Proxy Statement carefully,
including the Annexes hereto.
The Meeting
The Meeting will be held on April 28, 1998, at 10:00 a.m., local time,
at the Company's executive offices on U.S. Highway 521 West, Andrews, South
Carolina. At the Meeting, stockholders of the Company will be asked to consider
and vote upon three proposals unanimously recommended by the Board of Directors
of the Company. The first proposal is to approve the Option Agreement and the
Transactions, as summarized below and described in more detail in this Proxy
Statement. See "The Option Agreement." The second proposal is to amend the
Certificate of Incorporation to change the Company's name from Phoenix Medical
Technology, Inc. to PMT Inc., to become effective only if and when the Sale of
Assets is consummated, as summarized below and described in more detail in this
Proxy Statement. See "Amendment of the Certificate of Incorporation to Change
the Name of the Company." The third proposal is to adopt the Plan of
Dissolution, to become effective only if the Sale of Assets is consummated, as
summarized below and described in more detail in this Proxy Statement. See
"Dissolution and Liquidation of the Company Following the Sale of Assets" in the
main body of this Proxy Statement. The Option Agreement and Plan of Dissolution
are attached hereto as Annex A and Annex F, respectively.
Holders of record of the Company's common stock, no par value (the
"Common Stock") at the close of business on March 11, 1998 (the "Record Date")
have the right to receive notice of and to vote at the Meeting. Each share of
Common Stock is entitled to one vote on each matter that is properly presented
to stockholders for a vote at the Meeting. Under the Delaware General
Corporation Law (the "DGCL"), the affirmative vote of the holders of a majority
of the outstanding shares of Common Stock entitled to vote is required to
approve each of the Option Agreement, the amendment to the Certificate of
Incorporation and the Plan of Dissolution. The Company has engaged a proxy
solicitation firm to solicit proxies for the Meeting. For information with
respect to the treatment of abstentions, shares that are not properly
represented or voted at the Meeting, shares held of record by a broker, as
nominee, that are not voted, and properly executed but unmarked proxy cards, see
"The Meeting --Voting Rights," "-- Quorum," "-- Votes Required for Approval" and
"-- Proxies" in the main body of this Proxy Statement.
As of the Record Date, directors and executive officers of the Company
beneficially owned 243,979 shares of Common Stock, representing approximately
9.8% of the shares of Common Stock outstanding on such date.
The Option
Parties to the Option
The Company. The Company is engaged principally in the business of
manufacturing and marketing single-use hand gloves for the medical and
non-medical markets. See "The Option -- Parties to the Option -- The Company" in
the main body of this Proxy Statement.
LIG. LIG is engaged principally in the business of manufacturing and
marketing products which use thin-film barrier technology, such as condoms,
medical gloves and industrial gloves. LIG is an indirect wholly-owned subsidiary
of London International Group plc, a company registered in England. London
International Group plc is an international leader in the thin-film barrier
technology industry, had sales of more than 339 million British pounds in its
fiscal year ended March 31, 1997, and is publicly traded on the London Stock
Exchange and the Nasdaq National Market System (for American Depository
Receipts). See "The Option -- Parties to the Option -- LIG" in the main body of
this Proxy Statement.
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Background of the Option
LIG first expressed an interest in acquiring the Company in 1996, but
these discussions were terminated by LIG. In February 1997, LIG re-initiated
contact with the Company. Discussions between the Company and LIG continued
throughout the spring and early summer of 1997, during which period LIG
expressed an interest in acquiring all or substantially all of the assets of the
Company. LIG informed the Company in late July 1997 that it was unwilling to
purchase the Company's assets at that time, but that it would be willing to go
forward with an option to purchase structure that would enable LIG to
participate in and evaluate the Company's development of technology and related
operations in connection with the production of certain products prior to
purchasing the Company's assets.
On September 4, 1997, LIG indicated its willingness to pursue an option
at an option purchase price of $500,000. If LIG exercised the option, LIG would
pay to the Company an amount equal to $2.75 per outstanding share of Common
Stock. In conjunction with entering into an option agreement, LIG would agree to
provide up to $750,000 to the Company to finance the acquisition of certain
assets and other expenditures related to the development of nitrile gloves and
autostripping technology, would enter into a research and development agreement
pursuant to which LIG and the Company would jointly develop certain nitrile
glove and autostripping technology, and would enter into an agreement pursuant
to which LIG would agree to purchase from the Company a minimum quantity of
nitrile gloves during the term of the Option.
On September 12, 1997, the Board of Directors of the Company met to
consider a proposed letter of intent with LIG. Following a detailed discussion
thereof, the Board of Directors unanimously approved certain resolutions
determining that it was desirable and in the best interests of the Company and
its stockholders that the Company sell to LIG an option to purchase either all
of the stock or substantially all of the assets of the Company on substantially
the terms set forth in the letter of intent and that the management of the
Company pursue further negotiations with LIG to procure a definitive option
agreement and related agreements.
From September 12 through December 1997, the Company and LIG engaged in
extensive negotiations regarding the specific terms of a definitive option
agreement and ancillary agreements. On November 24, 1997, the Company's Board of
Directors unanimously approved the Option Agreement and recommended its approval
to the Company's stockholders. On December 22, 1997, the parties executed the
final Option Agreement and ancillary agreements. On March 9, 1998, the parties
executed a First Amendment to Option Agreement which extended the deadline for
the fulfillment of certain conditions, including obtaining approval of the
Company's stockholders, from March 31, 1998 to May 15, 1998. The Option
Agreement is attached hereto as Annex A. See "The Option --Background of the
Option" in the main body of this Proxy Statement.
Recommendation of the Board of Directors and Reasons for the Option
The Board of Directors has unanimously approved the Option Agreement
and the Transactions and recommends that the stockholders of the Company vote
FOR approval of the Option Agreement and the Transactions.
The recommendation of the Board of Directors is based on numerous
factors, including the Board's evaluation of issues relating to the financial
condition of the Company, the impact of the limited trading market for the
Common Stock on the ability of stockholders to liquidate their holdings of
Common Stock and the opinion of the Company's financial advisor. See "The Option
- -- Recommendation of the Board of Directors and Reasons for the Option" in the
main body of this Proxy Statement.
Opinion of Interstate/Johnson Lane Corporation
Interstate/Johnson Lane Corporation ("IJL") has delivered its written
opinion to the Board of Directors of the Company that, as of the date hereof,
the Purchase Price to be received by the Company pursuant to the Option
Agreement upon LIG's exercise, if any, of the Option is fair, from a financial
point of view, to the Company and its stockholders.
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6
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The full text of the written opinion of IJL, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached hereto as Annex E and is incorporated
herein by reference. Holders of shares of Common Stock are urged to, and should,
read such opinion in its entirety. See "The Option -- Opinion of
Interstate/Johnson Lane Corporation" in the main body of this Proxy Statement.
Accounting Treatment
The Sale of Assets, if consummated, will be accounted for by the
Company as a sale of assets. See "The Option -- Accounting Treatment" in the
main body of this Proxy Statement.
Regulatory Requirements
To the knowledge of the Company, there are no federal or state
regulatory requirements which must be complied with, nor are there any federal
or state governmental consents or approvals that must be obtained in connection
with the Transactions. See "The Option -- Regulatory Requirements" in the main
body of this Proxy Statement.
No Appraisal Rights
Under the DGCL, holders of shares of Common Stock will not be entitled
to appraisal rights in connection with the Sale of Assets, if any. See "The
Option -- No Appraisal Rights" in the main body of this Proxy Statement.
Interests of Certain Persons in the Transactions
In connection with the Option Agreement, Mr. Edward W. Gallaher, Sr.,
the Company's President, and Mr. Grover C. Mixon, the Company's Executive Vice
President, have agreed to enter into certain consulting and employment
agreements, respectively, with LIG upon the consummation of the Sale of Assets.
Pursuant to such agreements, Messrs. Gallaher and Mixon would receive certain
compensation. See "The Option -- Interests of Certain Persons in the
Transactions" in the main body of this Proxy Statement.
The Option Agreement
The Option
Pursuant to the Option Agreement, the Company will grant to LIG an
option to purchase substantially all of the assets of the Company exercisable
for a period of one year after the Effective Date, as defined in the Option
Agreement. The Option is subject to certain conditions, including approval of
the Option Agreement by the stockholders of the Company and the consent to the
Option of the Company's lenders. See "The Option Agreement --The Option" in the
main body of this Proxy Statement.
Option Payment
Under the terms of the Option Agreement, LIG has paid to the Escrow
Agent the Option Payment of $500,000 for the Option. The Option Payment will be
released to the Company shortly after the stockholders of the Company approve
the Option Agreement and the Company's lenders have consented to the Option
Agreement, provided that such conditions are fully satisfied by May 15, 1998.
See "The Option Agreement -- Option Payment" in the main body of this Proxy
Statement.
Purchase Price for Sale of Assets
The Option allows LIG to purchase substantially all the assets of the
Company for the Purchase Price, which consists of a cash payment of $6,821,708,
subject to certain adjustments and escrows as described in the Option Agreement,
and the assumption of substantially all of the liabilities of the Company,
resulting in an estimated aggregate Purchase Price of approximately $13,965,077,
based upon the Company's total liabilities of
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$7,143,369 as of September 28, 1997. See "The Option Agreement -- Purchase Price
for Sale of Assets" in the main body of this Proxy Statement.
LIG is under no obligation to exercise the Option or to pay the
Purchase Price to the Company. The Company can give no assurance that LIG will
exercise the Option.
Transfer of Assets and Assumption of Liabilities
Upon LIG's exercise of the Option, in exchange for LIG's payment of the
cash portion of the Purchase Price and assumption of substantially all of the
Company's liabilities, the Company will transfer to LIG substantially all of its
assets. The assets of the Company to be transferred to LIG include certain fixed
assets, real property, contracts, inventory, contingent payments, accounts
receivable, customer lists, intellectual property and other assets more
particularly described in the Option Agreement.
In connection with the Sale of Assets, LIG will assume all of the
Assumed Liabilities, as that term is defined in the Option Agreement. In general
terms, the Assumed Liabilities include all liabilities of the Company with the
exception of: (a) certain liabilities listed in the Phoenix Disclosure
Memorandum which the Company has provided to LIG pursuant to the Option
Agreement (the "Phoenix Disclosure Memorandum"), including any liability of the
Company arising under an Asset Purchase Agreement with Microtek Medical, Inc.
and any liability relating to certain insurance policies; (b) certain
liabilities connected with any pending or threatened litigation, charges of
discrimination, citations, or allegations based on actions of the Company, or on
conduct of officers, agents, employees, or representatives of the Company,
occurring or accruing up to the closing of the Sale of Assets (the "Closing");
(c) certain liabilities associated with material contracts of the Company that
can neither be assigned nor subcontracted to LIG; and (d) certain liabilities of
the Company to any stockholders of the Company as stockholders, other than
business liabilities incurred in the ordinary course, or pursuant to any option
to acquire stock of the Company. See "The Option Agreement -- Transfer of Assets
and Assumption of Liabilities" in the main body of this Proxy Statement.
Escrow and Purchase Price Adjustment
If the Company and LIG consummate the Sale of Assets, LIG will deposit
at Closing a portion of the Purchase Price with an escrow agent. Such amount
includes (a) $500,000, representing the Purchase Price adjustment account and
(b) $1,100,000, representing the Company's maximum aggregate liability for
indemnification claims under the Option Agreement; provided, however, such
$1,100,000 amount will be reduced to $1,000,000 in the event that, at the
Closing, in LIG's reasonable judgment, no capital expenditures are required to
be made to the Company's wastewater treatment system to comply with certain zinc
discharge standards. If, as of the date of the Closing (the "Closing Date"), the
Shareholders' Equity of the Company equals or is greater than $1,500,000, there
will be no adjustment to the cash portion of the Purchase Price and the entire
$500,000 will be paid to the Company. However, for each dollar that the
Shareholders' Equity of the Company at such date is less than $1,500,000, the
cash portion of the Purchase Price will be reduced by one dollar, and LIG will
be entitled to receive the amount of such adjustment pursuant to the terms of
the escrow agreement. If the amount of such adjustment exceeds $500,000, the
Company must promptly pay the difference to LIG. The total amount escrowed may
be used to pay indemnification claims and adjust the Purchase Price, and
therefore may not be available for distribution to stockholders. See "The Option
Agreement -- Escrow and Purchase Price Adjustment" in the main body of this
Proxy Statement.
Representations and Warranties
The Option Agreement contains certain representations and warranties of
both the Company and LIG. See "The Option Agreement -- Representations and
Warranties" in the main body of this Proxy Statement.
Indemnification
The Option Agreement provides that the Company will indemnify and hold
harmless LIG and certain related parties from any loss arising out of certain
acts, omissions or liabilities of the Company. The Company's obligation to
indemnify LIG is limited in certain respects, including a maximum cap of
$1,000,000 on the
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8
<PAGE> 12
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Company's potential indemnification liabilities subject to certain exceptions.
Pursuant to the terms of the Escrow Agreement, LIG will deposit $1,100,000 (or
$1,000,000, in the event, in LIG's reasonable judgment, no capital expenditures
are required to be made to the Company's wastewater treatment system) with the
Escrow Agent to provide a source of funds to pay any indemnification obligations
of the Company to LIG. In addition, LIG will indemnify and hold harmless the
Company and certain related parties from any loss arising out of certain acts,
omissions or liabilities of LIG. See "The Option Agreement -- Indemnification"
in the main body of this Proxy Statement.
Other Covenants and Agreements
The Option Agreement subjects the Company and LIG to certain negative
and affirmative covenants and agreements. See "The Option Agreement -- Other
Covenants and Agreements" in the main body of this Proxy Statement.
Conditions to the Sale of Assets
Consummation of the Sale of Assets is subject to certain conditions,
including LIG's exercise of the Option. See "The Option Agreement -- Conditions
to the Sale of Assets" in the main body of this Proxy Statement.
Termination of the Option Agreement
The Option Agreement is subject to termination, among other instances,
(a) by mutual consent of the parties, (b) upon material breach by the other
party of any representation, warranty, covenant or agreement or (c) in the event
any required regulatory consent is denied. See "The Option Agreement --
Termination of the Option Agreement" in the main body of this Proxy Statement.
Amendment
The Option Agreement may be amended only by a subsequent writing signed
by both the Company and LIG. See "The Option Agreement -- Amendment" in the main
body of this Proxy Statement.
Ancillary Agreements
In connection with the Option Agreement and subject to stockholder
approval thereof, the Company and LIG have entered into the following related
agreements: an Option Escrow Agreement, a Research and Development Agreement
(the "R&D Agreement") attached hereto as Annex B, a Loan and Security Agreement
(the "Loan Agreement") attached hereto as Annex C, and an Agreement for the
Purchase and Sale of Goods (the "Supply Agreement") attached hereto as Annex D.
For a summary of the terms of these ancillary agreements, see "The Option
Agreement -- Option Payment" and "-- Ancillary Agreements" in the main body of
this Proxy Statement.
Amendment of the Certificate of Incorporation to Change the Name of the Company
In connection with the Option Agreement and as a condition to the Sale
of Assets, the Company is required to change its corporate name to a name that
is not likely to be confused with "Phoenix." Therefore, the Company intends,
subject to stockholder approval, to amend its Certificate of Incorporation to
change the Company's corporate name from "Phoenix Medical Technology, Inc." to
"PMT Inc.," to become effective only if and when the Sale of Assets is
consummated. Failure to approve this proposal to change the name of the Company
may render it impossible to complete the Sale of Assets. If the stockholders of
the Company approve the Sale of Assets and the Sale of Assets is consummated,
the Board of Directors believes that it is in the best interests of the Company
and its stockholders to change the name of the Company to PMT Inc. Accordingly,
the Board of Directors has approved, and recommends that the stockholders of the
Company approve, an amendment to the Certificate of Incorporation to change the
name of the Company from Phoenix Medical Technology, Inc. to PMT Inc., subject
to consummation of the Sale of Assets as set forth herein. The name of the
Company will not be changed if the Sale of Assets is not consummated. For more
information regarding the amendment of the Certificate of Incorporation, see
"Amendment of the Certificate of Incorporation to Change the Name of the
Company" in the main body of this Proxy Statement.
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9
<PAGE> 13
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Dissolution and Liquidation of the Company Following the Sale of Assets
If the Company and LIG consummate the Sale of Assets, the Company's
assets thereafter will consist principally of cash from the proceeds of the Sale
of Assets. Since the Company will no longer have any operating assets, the Board
of Directors has determined it advisable and in the best interests of the
Company and its stockholders that the Company be dissolved and liquidated as
soon as practicable following the Sale of Assets. It is currently anticipated
that the Company will be dissolved and liquidated as soon as practicable
following the termination of the Company's 18-month indemnification obligation
under the Option Agreement. See "The Option Agreement -- Indemnification" in the
main body of this Proxy Statement. Accordingly, the Board of Directors has
approved the Plan of Dissolution and Liquidation, attached hereto as Annex F,
providing for the dissolution and liquidation of the Company, with such proposal
being contingent on (i) the proposals for the Option Agreement and amendment of
the Certificate of Incorporation being approved by the stockholders of the
Company at the Meeting, (ii) LIG's exercise of the Option, and (iii) the Closing
of the Sale of Assets. For more information regarding the Plan of Dissolution,
see "Dissolution and Liquidation of the Company Following the Sale of Assets" in
the main body of this Proxy Statement.
Certain Federal Income Tax Consequences
If the Company and LIG consummate the Sale of Assets, the Sale of
Assets will be a taxable transaction for federal income tax purposes. The
Company will have a gain or loss with respect to the assets sold to LIG equal to
the difference between (1) the sum of the cash portion of the Purchase Price and
the amount of the Assumed Liabilities and (2) the adjusted basis of such assets.
The Company anticipates that a significant portion of any gain resulting from
the Sale of Assets will be offset by the carry-forward of the Company's prior
net operating losses.
If the Sale of Assets is consummated, the Company will dissolve and
liquidate pursuant to the Plan of Dissolution, subject to approval of the Plan
of Dissolution by the stockholders of the Company. The Company anticipates that,
as part of such liquidation, the Company will distribute to the stockholders of
the Company certain cash proceeds from the Sale of Assets.
The receipt by a stockholder of the Company of cash for shares of
Common Stock in the liquidation will be a taxable transaction for federal income
tax purposes. Each stockholder of the Company will have a gain or loss with
respect to each share of Common Stock owned by such stockholder equal to the
difference between the total amount received as a liquidating distribution from
the Company and such stockholder's tax basis for such shares. Any such gain or
loss will be a capital gain or loss if such shares are held as a capital asset,
and a long-term capital gain or loss if the stockholder's holding period is more
than 18 months as of the date of such liquidating distributions. There are
limitations on the deductibility of capital losses. See "Certain Federal Income
Tax Consequences" in the main body of this Proxy Statement.
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10
<PAGE> 14
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected historical financial data set forth below was derived from the
historical audited financial statements of the Company included in the Company's
Annual Report on Form 10-KSB for each of the five years ended December 31 and
should be read in conjunction with such financial statements. The unaudited pro
forma data was derived from the Unaudited Pro Forma Financial Statements of the
Company, attached hereto as Annex G. The unaudited pro forma balance sheet data
gives effect to the Transactions as if they had occurred on December 31, 1997.
The unaudited pro forma income statement data gives effect to the Transactions
as if they had occurred on January 1, 1997. In the opinion of management, such
audited and unaudited financial data includes all adjustments necessary to
present fairly the information presented.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
Pro Forma
1993 (4), (5) 1994 (4) 1995(4) 1996 1997 1997 (1)
------------- -------- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales $ 12,692,073 $ 12,705,820 $ 13,644,441 $ 13,987,555 $ 13,836,522 $ 0
Cost of goods sold (11,373,822) (11,130,467) (12,219,671) (12,561,495) (12,743,556) 0
Selling and administrative
expenses (1,568,226) (1,678,014) (1,643,702) (1,705,152) (1,782,803) (120,000)
------------ ------------ ------------ ------------ ------------ -----------
Loss from operations (249,975) (102,661) (218,932) (279,092) (689,837) (120,000)
Interest expense, net (1,110,617) (700,215) (607,834) (429,777) (527,608) 0
Other, net 312,137 0 0 0 0 0
Gain on sale of assets 0 0 0 760,731 0 0
Reorganization items (2) (206,150) (5,550) 0 0 0 0
------------ ------------ ------------ ------------ ------------ -----------
Income (loss) before
extraordinary items (1,254,605) (808,426) (826,766) 51,862 (1,217,445) $ (120,000)
===========
Extraordinary items, net (3) 0 1,131,726 4,618,842 272,096 0
------------ ------------ ------------ ------------ ------------
Net income $ (1,254,605) $ 323,300 $ 3,792,076 $ 323,958 $ (1,217,445)
============ ============ ============ ============ ============
Basic income (loss) per share (7) $ (0.64) $ 0.16 $ 1.93 $ 0.17 $ (0.62) $ (0.06)
Diluted income (loss) per
share (7) $ (0.64) $ 0.16 $ 1.93 $ 0.13 $ (0.62) $ (0.06)
Cash Dividends Declared $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Weighted Shares
Outstanding - Basic (7) 1,963,563 1,963,563 1,963,563 1,963,563 1,963,563 1,963,563
Weighted Shares
Outstanding - Diluted (7) 1,963,563 1,963,563 1,963,563 2,480,621 1,963,563 1,963,563
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------
Pro Forma
1993 (4), (5) 1994 (4) 1995(4) 1996 1997 1997 (1) (6)
------------- -------- ------- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Date:
Working Capital $ (806,639) $ 1,858,615 $ (250,580) $ 240,644 $ (970,390) $5,822,144
Total assets 8,067,207 7,993,125 8,379,919 8,333,905 8,050,036 7,105,696
Long-term debt 0 8,871,095 1,922,338 2,299,277 1,933,886 0
Shareholders' investment (3,673,085) (3,349,785) 1,677,475 2,001,433 783,988 6,922,144
Per Share Data:
Book Value (1.87) (1.71) 0.85 0.81 0.40 3.53
Weighted Average Shares
Outstanding 1,963,563 1,963,563 1,963,563 2,480,621 1,963,563 1,963,563
</TABLE>
(1) The unaudited pro forma income statement data gives effect to the
Transactions as if they had occurred on January 1, 1997. The unaudited
pro forma balance sheet data gives effect to the Transactions as if
they had occurred on December 31, 1997. The pro forma information is
based on available information and certain assumptions and adjustments.
See the Notes to the Unaudited Pro Forma Financial Statements.
(2) Reorganization items include amounts related primarily to professional
fees resulting from the reorganization proceedings.
(3) In 1994, the extraordinary item related to debt forgiven for unsecured
claims. In 1995, the extraordinary item related to the gain on
discharge of the NationsBank indebtedness. In 1996, the extraordinary
item related to gain on debt discharge resulting from the release of
certain unsecured creditors of their unsecured bankruptcy claims
against the Company.
(4) The amounts in these columns reflect retroactive restatement of the
Company's change in the fourth quarter of 1996 in its method of
determining cost of inventory from the last-in, first-out (LIFO) method
to the first-in, first-out (FIFO) method.
(5) During this fiscal year, the Company was considered a
debtor-in-possession. On February 7, 1994, the Bankruptcy Court
confirmed the Company's Plan of Reorganization.
(6) As described in this Proxy Statement and in accordance with the
dissolution and liquidation of the Company, all funds remaining after
the satisfaction of the claims and obligations of the Company will be
distributed to the stockholders of the Company.
(7) Basic income (loss) per share is equal to diluted income (loss) per
share for 1993, 1994, 1995 and 1997 since the Company incurred a loss
from continuing operations.
12
<PAGE> 16
THE MEETING
General
This Proxy Statement is being furnished to stockholders of the Company
in connection with the solicitation on behalf of the Board of Directors of the
Company of proxies for use at the Meeting. The Meeting will be held on April 28,
1998 at 10:00 a.m., local time, at the Company's executive offices on U.S.
Highway 521 West, Andrews, South Carolina. At the Meeting, stockholders of the
Company will be asked to consider and vote upon proposals to approve the Option
Agreement, the amendment to the Certificate of Incorporation, and the Plan of
Dissolution and such other matters as may properly came before the Meeting. The
Option Agreement and Plan of Dissolution are attached hereto as Annex A and
Annex F, respectively.
Voting Rights
The Board of Directors has fixed the close of business on March 11,
1998 as the Record Date for determining the holders of Common Stock entitled to
notice of and to vote at the Meeting. Only holders of record of shares of Common
Stock at the close of business on the Record Date are entitled to notice of and
to vote at the Meeting. Each holder of record of Common Stock as of the Record
Date is entitled to cast one vote per share of Common Stock, to be voted in
person or by proxy, on any proposal properly presented at the Meeting.
At the close of business on the Record Date, there were 1,963,563
shares of Common Stock outstanding and entitled to vote at the Meeting held by
760 stockholders of record. As of the Record Date, directors and executive
officers of the Company beneficially owned 243,979 shares of Common Stock,
representing approximately 9.8% of the shares of Common Stock outstanding on
such date.
Quorum
The holders of a majority of the shares of Common Stock entitled to
vote, present in person or represented by proxy, on the proposals to be
considered at the Meeting will constitute a quorum at the Meeting. If a share is
represented for any purpose at the Meeting, it is deemed to be present for
quorum purposes for all other matters as well. Abstentions and shares held of
record by a broker, as nominee ("Broker Shares") that are properly voted are
included in determining the number of votes present or represented at the
Meeting. Broker Shares that are not voted will not be included in determining
whether a quorum is present at the Meeting.
Votes Required for Approval
Pursuant to Sections 242, 271 and 275 of the DGCL, the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock entitled
to vote is required to approve the Option Agreement, the amendment of the
Certificate of Incorporation and the Plan of Dissolution. Abstentions and shares
of Common Stock that are not represented, in person or by proxy, at the Meeting
or that are not properly voted in favor of any proposal (including Broker Shares
that are not voted) will have the same effect as negative votes with respect to
each proposal.
Proxies
All shares of Common Stock represented by properly executed proxy cards
received prior to or at the Meeting, and not revoked, will be voted in
accordance with the instructions indicated in such proxy cards. If no
instructions are indicated, such proxies will be voted FOR approval of the
Option Agreement, FOR amendment of the Certificate of Incorporation and FOR
approval of the Plan of Dissolution. A properly executed proxy card marked
"ABSTAIN," although counted for purposes of determining whether there is a
quorum for purposes of determining the aggregate number of shares represented
and entitled to vote at the Meeting, will not be voted. If any other matters
properly are presented for consideration at the Meeting, the persons named in
the proxy card will have discretionary authority to vote on such matter. If
necessary, and unless the share represented by the proxy were voted against the
proposal therein, the holders of the proxies granted by stockholders of the
Company also may vote
13
<PAGE> 17
in favor of a proposal to adjourn the Meeting to permit further solicitation of
proxies in order to obtain sufficient votes to approve any of the matters being
considered at the Meeting. The Company is not aware of any matters to be
presented at the Meeting other than the three proposals described in this Proxy
Statement. A stockholder may revoke its proxy at any time prior to its use by
delivering to the Secretary of the Company a signed notice of revocation or a
later dated signed proxy or by attending the Meeting and voting in person.
Attendance at the Meeting will not in itself constitute the revocation of a
proxy.
All expenses of this solicitation of proxies from stockholders will be
borne by the Company. The Company has engaged the proxy solicitation firm of
Regan & Associates, Inc. for a fee of $3,500 (with such fee to be waived if the
Company's stockholders do not approve all of the proposals at the Meeting), plus
reimbursement of expenses up to $1,750. In addition to solicitation by mail,
directors, officers and employees of the Company may solicit proxies by
telephone, other customary means of communication or personal interviews. Such
persons will receive no additional compensation for such services. Brokerage
houses, nominees, fiduciaries and other custodians will be requested to forward
proxy soliciting material to the beneficial owners of shares held of record by
them and may be reimbursed for their reasonable expenses.
THE OPTION
Parties to the Option
The Company
The Company is principally engaged in the business of manufacturing and
marketing single-use hand gloves for the medical and non-medical markets. The
Company's principal executive offices are located at U.S. Highway 521 West,
P.O. Box 346, Andrews, South Carolina 29510, and its telephone number is
(803) 221-5100.
LIG
LIG is principally engaged in the business of manufacturing and
marketing products which use thin-film barrier technology, such as condoms,
medical gloves and industrial gloves. LIG's principal executive offices are
located at 3585 Engineering Drive, Second Floor, Norcross, Georgia 30092, and
its telephone number is (770) 582-2222.
LIG is an indirect wholly-owned subsidiary of London International
Group plc, a company registered in England. London International Group plc is an
international leader in the thin-film barrier technology industry, had sales of
more than 339 million British pounds in its fiscal year ended March 31, 1997,
and is publicly traded on the London Stock Exchange and the Nasdaq National
Market System (for American Depository Receipts). Marigold Industrial, a
division of LRC Products Limited, a wholly-owned subsidiary of London
International Group plc, has been a customer of the Company since late 1995 and
accounted for approximately 2.5% of the Company's sales for 1997 as of October
31, 1997.
Background of the Option
LIG first expressed an interest in acquiring the Company in 1996, but
these discussions were terminated by LIG. In February 1997, LIG re-initiated
contact with the Company, expressed renewed interest in acquiring the Company
and indicated that LIG would like to arrange a visit to the Company in April.
On April 4, 1997, LIG entered into a confidentiality agreement,
pursuant to which LIG agreed to maintain the confidentiality of Company
information which would be obtained by LIG in its due diligence review relating
to its potential acquisition of the Company. In April 1997, a group from LIG
visited the Company's facilities and began informal discussions with Company
management. During the remainder of April through early June, LIG analyzed
certain information relating to the Company and considered the potential
acquisition of the Company.
In early June 1997, additional representatives from LIG visited the
Company, and the basic terms of an acquisition of the Company by LIG were
discussed, including a proposed purchase price. On June 4, 1997, the
14
<PAGE> 18
Company and LIG entered into a letter agreement which outlined the due diligence
process, required LIG to reimburse the Company for certain expenses, and
prohibited the Company from soliciting other offers to purchase the Company,
until after September 1, 1997. At that time, LIG increased the depth of its due
diligence investigation of the Company. In mid-July 1997, the board of directors
of LIG met to consider, among other things, the proposed acquisition of the
Company. On July 22, 1997, the Company and LIG amended the June 4 letter
agreement and extended the non-solicitation period until September 30, 1997. LIG
informed the Company in late July 1997 that it was unwilling to purchase the
Company's assets at that time, but that it would be willing to go forward with
an option to purchase structure that would enable LIG to participate in and
evaluate the Company's development of technology and related operations in
connection with the production of certain products prior to purchasing the
Company's assets.
On August 1, 1997, Mr. Edward W. Gallaher, Sr., the President of the
Company, sent a letter to LIG outlining the terms under which an option to
purchase might be acceptable to the Company. The Company's proposal called for
an option price of $1,000,000 together with $1,000,000 in financing from LIG to
the Company for certain capital expenditures. The option would be exercisable
for a period of one year. Upon exercise, LIG could either purchase all of the
Company's outstanding capital stock or purchase substantially all of its assets
and assume all stated liabilities. The option exercise price would be $2.75 per
outstanding share of Common Stock, on a semi-diluted basis.
On September 4, 1997, LIG responded in writing to the Company's August
1, 1997 proposal, indicating LIG's willingness to pursue such an option, but
with an option purchase price of $500,000. In conjunction, LIG would agree to
provide up to $750,000 to the Company to finance the acquisition of certain
assets and other expenditures related to the development of nitrile gloves and
autostripping technology, would enter into a research and development agreement
pursuant to which LIG and the Company would jointly develop certain nitrile
glove and autostripping technology, and would enter into an agreement pursuant
to which LIG would agree to purchase from the Company a minimum quantity of
nitrile gloves during the term of the Option.
Mr. Gallaher discussed the LIG proposal with other members of the
Company's management and with counsel to the Company. These discussions
concerned not only the terms of the LIG offer, but also prior offers that had
been made for the Company, the current state of the market and synergies with
LIG. Management concluded that the LIG offer was fair and reasonable and in the
best interests of the Company and its stockholders. On September 5, 1997, Mr.
Gallaher sent a letter to LIG stating that he would recommend the general terms
of LIG's proposal to the Company's Board of Directors.
In early September 1997, Mr. Gallaher received an unsolicited telephone
call from a representative of another entity regarding a potential acquisition
of the Company. Upon the legal advice of Company counsel, Mr. Gallaher informed
the representative that the Company was bound by a non-solicitation agreement
and therefore was not able to enter into acquisition discussions with them at
that time. On September 10, 1997, the Company received an unsolicited offer from
that entity to purchase all of the Company's assets and assume its liabilities.
The proposal consisted of an offer to purchase the assets of the Company and to
assume the Company's debt for the lesser of the net worth of the Company or
$8,000,000. At August 31, 1997, the Company's net worth was equal to $1,431,611.
The Company and Company counsel determined that the LIG proposal was more
favorable to the Company and its stockholders than the new proposal, since the
purchase price of the new proposal would correspond to the Company's net worth
and therefore would be significantly lower than the purchase price included in
the LIG proposal. After such discussions with Company counsel, Mr. Gallaher
informed the offering entity that its offer was insufficient and continued
negotiations with LIG.
On September 11, 1997, the Company and LIG negotiated a proposed letter
of intent which provided for the purchase by LIG of an option to purchase either
all of the outstanding capital stock or substantially all of the Company's
assets at an option purchase price of $500,000. The option purchase price would
be paid into escrow upon execution of the option agreement, to be released upon
approval of such agreement by the Company's stockholders. The option would be
exercisable for a period of one year from the date of approval of the terms of a
definitive option agreement by the Company's stockholders at an exercise price
equal to $2.75 per outstanding share of Common Stock (together with shares
subject to warrants and in-the-money options). In addition, LIG would provide
financing to the Company in the amount of up to $750,000 to finance the
acquisition of capital equipment for the Company and other expenditures related
to the development of nitrile gloves and autostripping technology.
15
<PAGE> 19
The letter of intent also provided that the Company and LIG would enter into a
research and development agreement, pursuant to which the Company and LIG would
jointly work to develop nitrile gloves and autostripping technology. LIG also
agreed to enter into a supply agreement with the Company pursuant to which LIG
would purchase a quantity of nitrile gloves manufactured by the Company, but
only in excess of the Company's quantity requirements for sales under the
Company's brand name, at a price equal to cost plus 10%. The letter of intent
further provided that upon exercise of the option, LIG would enter into
employment agreements with Messrs. Gallaher and Mixon on terms to be mutually
agreed.
On September 12, 1997, the Board of Directors of the Company, together
with Company counsel, met to consider the proposed letter of intent with LIG.
Mr. Gallaher updated the Board on the Company's financial condition and
prospects. Mr. Gallaher described the nature of the Company's ongoing cash flow
problems and the limitations on the Company's ability to increase revenues
without the infusion of substantial new capital for equipment, marketing and
other necessary expenditures. The directors discussed potential sources of
future funds and the Company's prospects and operations. Mr. Gallaher responded
to questions concerning these matters.
The Board then discussed the proposed letter of intent with LIG. Mr.
Gallaher began the discussion by providing a history of the discussions with
LIG. The Board then engaged in a detailed discussion of the terms of the letter
of intent. Following further discussion, the Board unanimously approved certain
resolutions determining that it was desirable and in the best interests of the
Company and its stockholders that the Company sell to LIG an option to purchase
either all of the stock or substantially all of the assets of the Company on
substantially the terms set forth in the letter of intent and that the
management of the Company pursue further negotiations with LIG to procure a
definitive option agreement and related agreements. Following the Board meeting,
the Company and LIG executed the letter of intent.
From September 12 through December 1997, the Company and LIG engaged in
extensive negotiations regarding the specific terms of a definitive option
agreement and ancillary agreements. On November 24, 1997, the Company's Board of
Directors unanimously approved the Option Agreement, subject to such changes as
Mr. Gallaher should approve, and recommended its approval to the Company's
stockholders. On December 22, 1997, the parties executed the final Option
Agreement and ancillary agreements.
On March 9, 1998, the parties executed a First Amendment to Option
Agreement which extended the deadline for the fulfillment of certain conditions,
including obtaining approval of the Company's stockholders, from March 31, 1998
to May 15, 1998.
Recommendation of the Board of Directors and Reasons for the Option
The Board of Directors of the Company believes that the Option
Agreement and the Transactions are in the best interests of the Company and its
stockholders. Accordingly, the Board of Directors has unanimously recommended
that the stockholders of the Company vote FOR approval of the Option Agreement
and the Transactions.
In reaching its determination, the Board of Directors consulted with
the Company's management as well as its financial and legal advisors and
considered, among other things, the following factors:
(1) Current industry, economic and financial market
conditions relating to the Company and its business, as well
as the financial condition, assets, liabilities, businesses
and operations of the Company, both on a historical and
prospective basis.
(2) The absence of an established trading market for
the Common Stock and the impact of the limited trading market
on the ability of the stockholders of the Company to liquidate
their holdings of Common Stock.
(3) The belief of the Board of Directors that the
industry in which the Company operates is highly competitive
and capital-intensive and that the
16
<PAGE> 20
Company's prospects of obtaining additional capital on
favorable terms are not good.
(4) The results of the Company's consideration of
other alternatives to the Option, including the Board of
Directors' judgment that a disposition of the Company or its
assets on terms more favorable to the Company and its
stockholders than the Option Agreement and the contemplated
Sale of Assets would not likely be available.
(5) IJL's presentations to the Board of Directors and
its opinion. See "-- Opinion of Interstate/Johnson Lane
Corporation."
(6) The proposed terms and structure of the Option
and the Sale of Assets, including the terms of the Option
Agreement, LIG's desire to acquire the Company's assets and
the fact that the Company has certain limitations on its
indemnification obligations under the Option Agreement.
See "The Option Agreement -- Indemnification."
The Company provided financial projections to LIG and IJL for 1998 and
1999. One set of projections assumes that the Company received the option
payment of $500,000 from LIG in 1998 and experienced new sales to LIG of
$1,000,000 in 1998 and $2,100,000 in 1999 (the "LIG Scenario"). Under the LIG
Scenario, pre-tax income is projected to be $554,000 ($.28 per share) for 1998
and $112,000 ($.06 per share) for 1999. In addition, under the LIG Scenario,
sales are projected to increase by 18% in 1998 and by 15% in 1999. The Company
also provided a pro forma balance sheet to LIG and IJL.
The Company also provided financial projections to LIG and IJL based on
the assumption that the Company did not receive the $500,000 option payment from
LIG or experience any new sales to LIG (the "Non-LIG Scenario"). Under the
Non-LIG Scenario, net losses of $105,000 ($.05 per share) and $223,000 ($.11 per
share) are projected for 1998 and 1999, respectively. In addition, under the
Non-LIG Scenario, sales are projected to increase by 12% in 1998 and by 4% in
1999.
In view of the wide variety of factors considered in connection with
its evaluation of the Option Agreement and the Transactions, the Board of
Directors did not find it practicable, and did not attempt, to quantify or
otherwise attempt to assign relative weights to the specific factors considered
in reaching its determination.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED, AND
RECOMMENDED THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR APPROVAL OF, THE
OPTION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Opinion of Interstate/Johnson Lane Corporation
IJL was engaged by the Company to render an opinion with respect to the
fairness, from a financial point of view, to the Company and its stockholders of
the consideration proposed to be paid by LIG pursuant to the Option Agreement
and the Transactions. IJL is a recognized investment banking firm and, as part
of its investment banking activities, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. The Company selected IJL to render its opinion on
the basis of its experience and expertise in mergers and acquisitions, and its
reputation in the banking and investment communities. In the ordinary course of
its business, IJL may trade the equity securities of the Company and LIG for its
own account and for the accounts of its customers, and, accordingly, may at any
time hold a long or short position in such securities.
In connection with its engagement, a written opinion dated
November 24, 1997 was delivered by IJL to the Company's Board of Directors to
the effect that, as of such date and based upon and subject to certain matters,
the consideration to be paid by LIG to the Company in the Transactions was fair
to the Company and its stockholders from a financial point of view. If the Sale
of Assets is consummated, IJL will confirm its written opinion dated November
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<PAGE> 21
24, 1997 by delivery of a written opinion dated the date the Sale of Assets is
consummated. IJL updated certain of its analyses, as necessary, and reviewed the
assumptions on which such analyses were based and the factors considered in
connection therewith.
THE FULL TEXT OF IJL'S WRITTEN OPINION TO THE BOARD DATED NOVEMBER 24,
1997 AND THE DATE OF THIS PROXY STATEMENT, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS OF REVIEW BY IJL, IS ATTACHED HERETO AS
ANNEX E AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND
IN ITS ENTIRETY. THE FOLLOWING SUMMARY OF IJL'S OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. IJL'S OPINION, WHICH IS
ADDRESSED TO THE BOARD, IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT
OF VIEW, TO THE COMPANY AND ITS STOCKHOLDERS OF THE CONSIDERATION TO BE PAID BY
LIG IN THE TRANSACTIONS, DOES NOT ADDRESS ANY OTHER ASPECT OF THE TRANSACTIONS
OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE MEETING.
In connection with its opinion, IJL, among other things: (i) reviewed
certain publicly available financial and other data with respect to the Company
and LIG, including the consolidated financial statements of the Company and LIG
for recent fiscal years and interim periods to September 30, 1997, and certain
other relevant financial and operating data relating to the Company made
available to IJL from published sources and from the internal records of the
Company; (ii) reviewed the Option Agreement and certain related documents
provided to IJL by the Company; (iii) compared the Company from a financial
point of view with certain other public companies which IJL deemed to be
relevant; (iv) reviewed and discussed with representatives of management of the
Company certain information regarding the business and financial issues of the
Transactions, including certain financial forecasts; (v) made inquiries
regarding and discussed the Option Agreement, the Transactions and other matters
related thereto with the Company's management; and (vi) performed such other
analyses and examinations as IJL deemed appropriate.
In connection with its review, IJL did not assume any obligation to
verify the foregoing information and relied on such information being complete
and accurate in all material respects. IJL assumed, with the Company's consent,
that there were no material changes in the Company's assets, financial
condition, results of operations, business or prospects since the date of its
last financial statements reviewed by IJL and that off-balance sheet activities
of the Company will not materially and adversely affect the future financial
position or results of operations of the Company. IJL further assumed, with the
Company's consent, that in the course of obtaining the necessary third-party
consents for the Transactions, no restriction will be imposed that will have a
material adverse effect on the contemplated benefits of the Transactions. IJL
further assumed, with the Company's consent, that the Transactions will be
consummated in accordance with the terms and provisions of the Option Agreement,
without any material amendments to, and without any waiver by the Company of,
any of the material conditions to its obligations thereunder. IJL did not assume
responsibility for reviewing any individual credit files or making an
independent evaluation, appraisal or physical inspection of the assets or
individual properties of the Company, nor was IJL furnished with any such
evaluations or appraisals. Finally, IJL's opinion was based on economic,
monetary and market and other conditions as in effect on, and the information
made available to IJL as of, the date thereof. Although IJL evaluated the
consideration to be paid by LIG in the Transactions to the Company from a
financial point of view, IJL was not requested to, and did not, recommend the
specific consideration payable in the Transactions. No other limitations were
imposed by the Company on IJL with respect to the investigations made or
procedures followed by IJL in rendering its opinion.
Set forth below is a summary of the material analyses performed by IJL
in connection with its opinion delivered to the Board of Directors on November
24, 1997.
Comparable Company Analysis
Based on publicly available information and earnings estimates, IJL
reviewed and compared actual and estimated selected financial, operating and
stock market information and financial ratios of the Company, and a group of
twelve companies consisting of: Allegiance Corporation, Arrow International
Inc., Bioject Medical Technologies, ICU Medical Inc., Isolyser Company, Inc.,
Maxxim Medical, Inc., Merit Medical Systems Inc., Oxboro Medical International,
Inc., Rochester Medical Corporation, Tecnol Medical Products, Inc., Wyant
Corporation and Utah Medical Products, Inc. (collectively the "Comparable
Companies").
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<PAGE> 22
IJL noted for the Board of Directors that the Comparable Companies
trade at a median price to book of 1.99x, while the consideration proposed to be
paid by LIG is assumed to be substantially in excess of the net assets of the
Company.
No company or transaction used in the above analysis as a comparison is
identical to the Company or the Transactions. Accordingly, an analysis of the
results of the foregoing is not strictly mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the acquisition or public-trading multiples of the companies to which the
Company and the Transactions are being compared.
Other Analyses
In addition, IJL prepared an overview of the historical financial
performance of the Company and analyzed its continued losses, recovery from
bankruptcy and the impact on the Company if the Transactions are not
consummated.
The foregoing is a summary of the material analyses performed by IJL in
connection with its opinion delivered to the Board of Directors on November 24,
1997. The summary set forth above does not purport to be a complete description
of the analyses performed by IJL. The preparation of a fairness opinion is not
necessarily susceptible to partial analysis or summary description. IJL believes
that its analyses and the summary set forth above must be considered as a whole
and that selecting portions of its analyses and of the factors considered,
without considering all analyses and factors, would create an incomplete view of
the process underlying the analyses. In addition, IJL may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to be IJL's view of the actual value of the Company. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analysis.
In performing its analyses, IJL made numerous assumptions with respect
to industry performance, regulatory, general business and economic conditions
and other matters, many of which are beyond the control of the Company. The
analyses performed by IJL are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
those suggested by such analyses. Such analyses were prepared solely as part of
IJL's analysis of the fairness of the consideration to be paid by LIG from a
financial point of view in connection with the delivery of IJL's opinion. The
analyses do not purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any securities may trade
at the present time or at any time in the future.
Any projections and estimates are based on numerous variables and
assumptions which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in such projections.
Pursuant to the terms of IJL's engagement, the Company has agreed to
pay IJL a fee of $50,000. If the Transactions are not consummated, such fee may
be paid in five equal annual installments. The Company also has agreed to
reimburse IJL for its reasonable out-of-pocket expenses, including the fees and
expenses of IJL's legal counsel. The Company has agreed to indemnify IJL, its
affiliates, and their respective partners, directors, officers, agents,
consultants, employees and controlling persons against certain liabilities,
including liabilities under the federal securities laws.
IJL has performed various financial advisory and investment banking
services for the Company in the past, for which IJL has received compensation,
and may provide such services to the Company in the future.
Accounting Treatment
The Sale of Assets, if consummated, will be accounted for by the
Company as a sale of assets.
Regulatory Requirements
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<PAGE> 23
To the knowledge of the Company, there are no federal or state
regulatory requirements which must be complied with, nor are there any federal
or state governmental consents or approvals that must be obtained in connection
with the Transactions.
No Appraisal Rights
Holders of shares of Common Stock will not be entitled to appraisal
rights in connection with the Sale of Assets, if any. Under the DGCL,
stockholders of a corporation are entitled to appraisal rights only with respect
to certain statutory mergers or consolidations. Unless otherwise provided in a
corporation's certificate of incorporation, the DGCL does not grant appraisal
rights to stockholders of the corporation upon the disposition of all or
substantially all of the corporation's assets. With respect to the contemplated
transactions between the Company and LIG, the Option Agreement provides for a
sale of substantially all of the Company's assets upon LIG's exercise of the
Option. The Company's Certificate of Incorporation does not provide for any
appraisal rights. Accordingly, no appraisal rights are available in connection
with the potential Sale of Assets.
Interests of Certain Persons in the Transactions
In connection with the Option Agreement, LIG and Mr. Edward W.
Gallaher, Sr., the Company's President, have agreed to enter into an Amendment
to Consulting and Non-Competition Agreement (the "Amended Consulting Agreement")
which would amend the existing Consulting and Non-Competition Agreement, dated
March 23, 1984, between Mr. Gallaher and the Company (the "Consulting
Agreement"). The Amended Consulting Agreement will be entered into as of the
Closing Date, will be assumed by LIG, and contains the following modifications
to the Consulting Agreement. First, the term of the Amended Consulting Agreement
will be for a period of six months following the Closing Date and such term will
not be renewed thereafter. Second, LIG will pay to Mr. Gallaher, in equal
monthly installments over a ten-year period, an aggregate sum equal to two years
of his annual salary, less the amount per year of any retirement benefits
received by Mr. Gallaher relating to any pension plan or other arrangement which
LIG may enter into. Also, during the term of the Amended Consulting Agreement,
LIG will reimburse Mr. Gallaher for expenses incidental to performance of his
services. Third, Mr. Gallaher will not be entitled to any benefit plans offered
by LIG during the term of the Amended Consulting Agreement, but will be
reimbursed by LIG for health insurance premiums of up to $5,000 per year for a
period of ten years following the Closing Date. Fourth, as of the Closing Date,
the consulting services described in the Consulting Agreement will control the
relationship between the parties and Mr. Gallaher will not be an employee of
LIG. Finally, Mr. Gallaher will be bound by the non-competition restraints in
the Consulting Agreement during the term of the Amended Consulting Agreement and
for a period of three years after termination thereof.
In addition, LIG and Mr. Grover C. Mixon, the Company's Executive Vice
President, have agreed to enter into an Employment Agreement (the "Employment
Agreement") as of the Closing Date. Pursuant to the Employment Agreement, Mr.
Mixon will terminate his existing consulting agreement with the Company and
become an LIG employee terminable at will. Mr. Mixon's initial annual salary
with LIG will be $133,000. Upon termination of Mr. Mixon's employment with LIG,
he will receive severance pay equal to his salary for two years, except in the
case of a material breach of the Employment Agreement by Mr. Mixon. Mr. Mixon
will be entitled to the standard LIG benefits package, provided that it will be
determined in the future what, if any, bonuses Mr. Mixon may be eligible to
receive. The Employment Agreement contains other standard provisions regarding,
among other things: nondisclosure of trade secrets and confidential information;
noncompete, nonrecruitment and nonsolicitation covenants; and inventions,
discoveries and improvements.
In the Option Agreement and this Proxy Statement, the Amended
Consulting Agreement with Mr. Gallaher and the Employment Agreement with Mr.
Mixon are collectively referred to as the "Employment Agreements."
LIG has also expressly agreed to assume the Company's existing
obligation to pay $100,589 to Mr. Gallaher and $69,411 to Mr. Mixon, in each
case in payment of previously deferred compensation.
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<PAGE> 24
THE OPTION AGREEMENT
The following description of the Option Agreement is intended only to
highlight certain provisions of such document. This description is not intended
to be complete and is qualified in its entirety by the full text of the Option
Agreement, a copy of which is attached to this Proxy Statement as Annex A.
Stockholders of the Company are urged to review Annex A carefully. Capitalized
terms appearing in this section or elsewhere in this Proxy Statement that are
not otherwise defined shall have the meanings given them in the Option
Agreement.
The Option
The Option Agreement provides for the grant to LIG of the Option to
purchase substantially all of the assets of the Company and assume substantially
all of the liabilities of the Company. LIG may exercise the Option for a period
of one year following the date the last of the following conditions has been
fulfilled (the "Effective Date"): (a) LIG has been notified in writing that the
Option Agreement has been approved by the stockholders of the Company and (b)
the Company and LIG have received written consents to the Option Agreement from
the Company's lenders, NationsBank N.A. (Carolinas), The CIT Group/Credit
Finance, Inc. and Carolina First Bank. However, if the Company has not satisfied
the two conditions in the preceding sentence by May 15, 1998, the Option
Agreement terminates. LIG may exercise the Option at any time prior to the
expiration of one year following the Effective Date by delivering to the Company
a notice of exercise. LIG's decision to exercise or not exercise the Option is
entirely at LIG's discretion.
Option Payment
As consideration for the Company's grant to LIG of the Option, LIG will
pay to the Company the Option Payment of $500,000 in cash. Pursuant to an Option
Escrow Agreement between the Company, LIG and an escrow agent, LIG deposited the
Option Payment into escrow upon the Company and LIG entering into the Option
Agreement. The Option Payment will be released to the Company promptly following
the Effective Date. If the Company's stockholders either do not approve the
Option Agreement or if the Company's lenders do not consent to the Option
Agreement by May 15, 1998, the Option Payment must be returned to LIG.
Purchase Price for Sale of Assets
If LIG exercises the Option, it will pay to the Company the cash
portion of the Purchase Price of $6,821,708, subject to certain adjustments and
escrows as described in the Option Agreement, and assume substantially all of
the liabilities of the Company, resulting in an estimated aggregate Purchase
Price of approximately $13,965,077, based upon the Company's total liabilities
of $7,143,369 as of September 28, 1997. The Company has agreed to return the
Option Payment to LIG if the Company sells or agrees to sell substantially all
of its assets to any person other than LIG or merges or agrees to merge with any
person.
EVEN IF THE CONDITIONS TO RELEASE THE OPTION PAYMENT TO THE COMPANY ARE
SATISFIED, LIG IS UNDER NO OBLIGATION TO EXERCISE THE OPTION OR TO PAY THE
PURCHASE PRICE TO THE COMPANY. THE COMPANY CAN GIVE NO ASSURANCE THAT LIG WILL
EXERCISE THE OPTION.
Transfer of Assets and Assumption of Liabilities
Upon LIG's exercise, if any, of the Option, in exchange for LIG's
payment of the cash portion of the Purchase Price and assumption of
substantially all of the Company's liabilities, the Company will transfer to LIG
substantially all of its assets. The assets of the Company to be transferred to
LIG include certain fixed assets, real property, contracts, inventory,
contingent payments, accounts receivable, customer lists, intellectual property
and other assets more particularly described in the Option Agreement.
In connection with the Sale of Assets, LIG will assume all of the
Assumed Liabilities, as that term is defined in the Option Agreement. In general
terms, the Assumed Liabilities include all liabilities of the Company with the
exception of: (a) certain liabilities listed in the Phoenix Disclosure
Memorandum, including any liability of the Company arising under an Asset
Purchase Agreement with Microtek Medical, Inc. and any liability relating to
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<PAGE> 25
certain insurance policies; (b) certain liabilities connected with any pending
or threatened litigation, charges of discrimination, citations, or allegations
based on actions of the Company, or on conduct of officers, agents, employees,
or representatives of the Company, occurring or accruing up to Closing; (c)
certain liabilities associated with material contracts of the Company that can
neither be assigned nor subcontracted to LIG; and (d) certain liabilities of the
Company to any shareholders of the Company as shareholders, other than business
liabilities incurred in the ordinary course, or pursuant to any option to
acquire stock of the Company. The Assumed Liabilities specifically include: (i)
all liabilities pursuant to certain material contracts listed in the Phoenix
Disclosure Memorandum; (ii) certain tax liabilities reflected on the balance
sheet of the Company; and (iii) the liability of the Company to pay $100,589 to
Mr. Edward W. Gallaher, Sr. and $69,411 to Mr. Grover C. Mixon, in each case in
payment of previously deferred compensation.
Escrow and Purchase Price Adjustment
If LIG exercises the Option and the Company and LIG consummate the Sale
of Assets, the Company and LIG will execute an escrow agreement (the "Escrow
Agreement"), pursuant to which LIG will deposit at Closing a portion of the cash
part of the Purchase Price with SunTrust Bank, as escrow agent (the "Escrow
Agent"). Such amount includes (a) $500,000, representing the "Purchase Price
Adjustment Escrow Account" and (b) $1,100,000, representing the Company's
maximum aggregate liability for indemnification claims under the Option
Agreement (the "Indemnification Escrow Account"); provided, however, such
$1,100,000 amount will be reduced to $1,000,000 in the event that, at the
Closing, in LIG's reasonable judgment, no capital expenditures are required to
be made to the Company's wastewater treatment system to comply with certain zinc
discharge standards.
With respect to the Purchase Price Adjustment Escrow Account, if, as of
the Closing Date, the Shareholders' Equity of the Company equals or is greater
than $1,500,000, there will be no adjustment to the cash portion of the Purchase
Price and the entire $500,000 will be paid to the Company. However, for each
dollar that the Shareholders' Equity of the Company at such date is less than
$1,500,000, the cash portion of the Purchase Price will be reduced by one
dollar, and LIG will be entitled to receive the amount of such adjustment
pursuant to the terms of the Escrow Agreement. Any balance remaining in the
Purchase Price Adjustment Escrow Account following such distribution to LIG will
be paid to the Company. If the amount of such adjustment exceeds $500,000, the
Company must promptly pay to LIG the difference by wire transfer or in
immediately available funds.
Operation of the Indemnification Escrow Account is explained below
under "-- Indemnification."
Representations and Warranties
The Option Agreement contains certain representations and warranties of
each of the Company and LIG, including representations and warranties concerning
their respective existence and corporate power and authority and the absence of
conflict between the Option Agreement and certain corporate documents, contracts
and agreements and law. Further, the Company has made certain additional
representations and warranties with respect to, among other things, its
capitalization, financial statements, title to assets, inventory, accounts
receivable, absence of undisclosed liabilities, absence of certain changes or
events, tax returns, environmental matters, compliance with laws, remuneration,
labor relations, employee benefit plans, material contracts, real property,
fixed asset leases, legal proceedings, suppliers and customers, products
liability and warranties, intellectual property, insurance, computer software
and data bases, compliance with the Immigration Reform and Control Act,
compliance with OSHA and interested transactions. The Option Agreement provides
that the representations, warranties, agreements and covenants of the Company
and LIG set forth in the Option Agreement will survive the Closing.
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Indemnification
The Option Agreement provides that the Company will indemnify LIG and
its officers, directors, employees, counsel, agents, affiliates and assigns
against, and hold each of them harmless from, any loss, liability, damage, cost,
deficiency, or other expense, including reasonable attorneys' fees, arising out
of certain matters, including (a) any inaccuracy in any representation or
warranty made by the Company or any breach of any covenant or agreement made or
to be performed by the Company pursuant to the Option Agreement or certain
ancillary agreements, (b) certain product liability, (c) certain infringement of
intellectual property, (d) certain environmental matters, (e) certain
liabilities relating to the Company's wastewater treatment system and (f)
certain liabilities retained by the Company, including any pending or threatened
litigation.
The Company's obligation to indemnify LIG is limited as follows: The
Company will not be required to indemnify LIG unless the aggregate amount of all
losses incurred by LIG exceeds $50,000, at which time LIG may assert
indemnification claims for such $50,000 in losses and the amounts of any losses
in excess thereof. In addition, the Company will not be obligated to indemnify
LIG for any liabilities in excess of $1,000,000, on a cumulative aggregate
basis. The minimum and maximum liability amounts of $50,000 and $1,000,000,
respectively, will not apply to any loss resulting from fraud or intentional
misrepresentation or an intentional breach of warranty on the part of the
Company.
Pursuant to the terms of the Escrow Agreement, LIG will deposit the
Indemnification Escrow Account of $1,100,000 (or $1,000,000, in the event, in
LIG's reasonable judgment, no capital expenditures are required to be made to
the Company's wastewater treatment system, as described above) with the Escrow
Agent to provide a source of funds to pay any indemnification obligations of the
Company to LIG. At the end of the 18-month notice period, any balance remaining
in the Indemnification Escrow Account, less the amount of any pending
indemnification claims, will be paid to the Company. The Company is unable to
predict the amount, if any, of the balance that will remain in the
Indemnification Escrow Account at the end of the 18-month notice period. The
total amount may be used to pay indemnification claims and therefore may not be
available for distribution to stockholders.
LIG must indemnify the Company and its officers, directors, employees,
counsel, agents, affiliates and assigns against, and hold each of them harmless
from, any loss, liability, damage, cost, deficiency, or other expense, including
reasonable attorneys' fees, arising out of certain matters, including (a) any
inaccuracy in any representation or warranty made by LIG or any breach of any
covenant or agreement made or to be performed by LIG pursuant to the Option
Agreement, (b) any liability incurred by the Company as a consequence of LIG's
operation of the business post-Closing, and (c) any assumed liability.
A party seeking indemnification pursuant to the Option Agreement must
provide notice of its claim within 18 months following the Closing Date, or such
claim is deemed to be waived. The Company must, however, secure tail coverage
insurance for the three-year period following the Closing Date.
Other Covenants and Agreements
Under the terms of the Option Agreement, the Company has covenanted and
agreed with LIG that, from the date of execution of the Option Agreement until
the earlier of the Closing Date or the expiration or termination of the Option
Agreement, the Company will: (a) operate its business only in the usual,
regular, and ordinary course, except for activities conducted pursuant to the
R&D Agreement; (b) maintain its assets in accordance with normal practices; (c)
use its reasonable best efforts to keep its business and assets intact and
maintain all relationships with its suppliers, customers and contractors; (d)
maintain inventory at levels consistent with the Company's current requirements
and strategic plan and sufficient to support sales growth; (e) use its
reasonable best efforts to maintain the services of its employees; (f) keep in
force at their existing levels all insurance policies applicable to its assets
or business; and (g) promptly advise LIG in writing of any matter arising or
discovered after the date of the Option Agreement that has or is reasonably
expected to have a material adverse effect on the assets or the business of the
Company.
In addition, the Company covenanted and agreed with LIG that, from the
date of execution of this Agreement until the earlier of the Closing Date or the
expiration or termination of this Agreement, the Company will
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not, without the prior written consent of LIG which consent shall not be
unreasonably withheld, do or agree to commit to do, any of the following: (a)
voluntarily permit or allow any of the assets of the Company to be subjected to
any additional liens; (b) incur any additional debt in excess of $100,000, other
than trade debt incurred in the ordinary course of business; (c) make any
capital expenditure or commitment or enter into any lease in excess of $50,000
per expenditure or commitment, or $100,000 in the aggregate, excluding capital
expenditures made pursuant to the Loan Agreement; (d) cancel or waive any debt
for borrowed money owed to the Company; (e) dispose of or voluntarily permit to
lapse certain intellectual property rights; (f) grant any increase in
compensation or benefits to the employees or officers of the Company, except as
provided in the Option Agreement; (g) subsequent to receipt of the notice of
exercise and prior to the Closing, terminate the employment of any individual
employed by the Company, except for cause; (h) adopt any new employee benefit
plan or materially change any existing plan, except as provided in the Option
Agreement; (i) commence any litigation relating to the Company's assets or
business other than in accordance with past practice or settle any litigation
relating to the Company's assets or business; (j) except in the ordinary course
of business, modify, amend or terminate any material contract or Assumed
Liability, or waive, release, compromise or assign any material rights or
claims; (k) issue new shares of capital stock of the Company, except for such
shares as are subject, as of the date of the Option Agreement, to the exercise
of a warrant or option at an option price of $2.75 or less; or (l) declare or
pay any distribution to its stockholders.
In the Option Agreement, the Company has further covenanted and agreed
with LIG as to certain additional matters, including continuation of the
Company, continuation of insurance, exclusive dealing, consents and approvals,
due diligence, withdrawal liability, supplemental disclosures and compliance
with federal pension laws.
LIG has covenanted and agreed with the Company under the Option
Agreement that LIG will take no action that would (a) materially adversely
affect the ability of any party to obtain any required consents or (b)
materially adversely affect the ability of any party to perform its covenants
and agreements under the Option Agreement.
The Company and LIG have also entered into covenants and agreements
with respect to the following: (a) using reasonable best efforts to consummate
the Transactions; (b) confidentiality; (c) notification of certain events; (d)
public releases; (e) forwarding of amounts after the Closing; (f) compliance
with federal plant closing law; (g) assumption of employee benefit plan
obligations; (h) the change of the Company's name following the Sale of Assets;
and (i) tax matters.
In addition, each of the Company and LIG have agreed to have its own
environmental advisers conduct additional tests of the Company's wastewater
treatment system to determine whether that system is capable of complying with
local zinc discharge standards. If, as of the Closing, the Company has
demonstrated to LIG that the Company's wastewater treatment system will be able
to comply (without additional capital expenditures) with such discharge
standards, the amount of the Indemnification Escrow Account will be reduced from
$1,100,000 to $1,000,000.
Conditions to the Sale of Assets
The respective obligations of each party to effect the Sale of Assets
are subject to a number of conditions, including the following: (a) LIG has
exercised the Option; (b) all consents of, filings and registrations with, and
notifications to, all applicable regulatory authorities have been obtained or
made; (c) all other consents required for the consummation of the Transactions
have been obtained; and (d) no court or governmental or regulatory authority has
enacted, issued, promulgated, enforced or entered any law or order or taken any
other action which prohibits, restricts or makes illegal the consummation of the
Transactions.
The obligations of LIG to consummate the Sale of Assets are subject to
the satisfaction of certain other conditions, including the following: (a) the
representations and warranties of the Company must be true and correct in all
material respects as of the date of the Option Agreement and as of the Closing
Date; (b) each of the agreements and covenants of the Company to be performed
and complied with prior to Closing must have been duly performed and complied
with in all material respects; (c) a title insurer selected by LIG must be
prepared to issue, at the Closing, its standard policy of title insurance
insuring LIG's interest in the real property to be transferred; and (d) the
Company must have delivered to LIG certain documents, including without
limitation bills of sale,
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assignments, and deeds, an assignment of trademark registration, the Escrow
Agreement, the Employment Agreements, a legal opinion, a certificate attesting
that the representations and warranties of the Company are accurate, resolutions
adopted by the Company's Board of Directors and stockholders evidencing the
taking of all necessary corporate action, the Non-Competition Agreement, copies
of all necessary consents of third parties, good, marketable and insurable fee
simple title to the Company's real property, all personnel and medical files of
Company employees, tail coverage insurance documents, and such other documents
or certificates as may be reasonably requested by LIG.
The obligations of the Company to consummate the Sale of Assets are
subject to the satisfaction of certain other conditions, including the
following: (a) the stockholders of the Company must have properly adopted a
resolution authorizing the execution, delivery and performance of the
Transactions; (b) LIG must have paid the Purchase Price; (c) the representations
and warranties of LIG must be true and correct in all material respects as of
the date of the Option Agreement and as of the Closing Date; (d) each of the
agreements and covenants of LIG to be performed and complied with as of the
Closing must have been duly performed and complied with in all material
respects; and (e) LIG must have delivered to the Company certain documents,
including without limitation resolutions duly adopted by LIG's board of
directors evidencing the taking of all necessary corporate action, the Escrow
Agreement, the Employment Agreements, a legal opinion, the Non-Competition
Agreement, a certificate attesting that the representations and warranties of
LIG are accurate, documents relating to the Assumed Liabilities, and such other
documents or certificates as may be reasonably requested by the Company.
Termination of the Option Agreement
If, by May 15, 1998, the Company has not (i) obtained approval by the
Company's stockholders of the Option Agreement and notified LIG in writing
thereof and (ii) obtained written consents from certain lenders, the Option
Agreement will automatically terminate. Furthermore, if LIG does not exercise
the Option during the one-year option period, the Option Agreement will
automatically terminate.
In addition to the foregoing methods of termination, the Option
Agreement may be terminated at any time prior to Closing: (a) by mutual consent
of the parties; (b) by the board of directors of either party in the event of a
material breach by the other party of any representation, warranty, covenant or
agreement contained in the Option Agreement which cannot be or has not been
cured within 30 days after the giving of written notice of such breach to the
other party; or (c) by the board of directors of either party in the event that
any consent of any regulatory authority required for consummation of the
Transactions has been denied by final, nonappealable action of such authority.
In the event of the termination or expiration of the Option Agreement,
each party will pay the costs and expenses incurred by it in connection with the
Option Agreement, provided that, if termination is the direct or indirect result
of an uncured willful breach of a representation, warranty, covenant or
agreement, the breaching party will be fully liable to the non-breaching party
for such default.
Amendment
The Option Agreement may be amended only by a subsequent writing signed
by both the Company and LIG.
Ancillary Agreements
In connection with the Option Agreement and subject to stockholder
approval thereof, the Company and LIG have entered into certain related
ancillary agreements, including without limitation the R&D Agreement, the Loan
Agreement and the Supply Agreement.
R & D Agreement
Pursuant to the R&D Agreement, LIG will engage the Company to perform
certain research and development for a period of one year commencing on the
Effective Date of the Option Agreement. Such research and development focuses on
the development of commercially viable technology for the manufacture of nitrile
25
<PAGE> 29
gloves for industrial and medical uses. LIG must provide funding for the
research and development on the terms set forth in the Loan Agreement and may
provide technical assistance to the Company for the research and development. In
the R&D Agreement, the Company agrees: to support and assist LIG with respect to
the protection of certain intellectual property rights; to furnish LIG with
technical information and instruction regarding the results of the research and
development and the development of related products; to maintain written work
records and inform LIG of certain research milestones; and to provide LIG with
progress reports and ultimately a final report detailing the findings,
developments and results of the research and development. All information,
inventions, technology and know-how developed pursuant to the R&D Agreement and
all intellectual property rights resulting therefrom will be jointly owned by
the Company and LIG. In the event that the Option Agreement expires or
terminates without LIG's exercise of the Option, LIG agrees that, for a period
of two years from the expiration of the Option Agreement, it will not exercise
its intellectual property rights arising from the research and development
conducted pursuant to the R&D Agreement to manufacture, use or sell clean room
or clean room-related gloves anywhere in the world. A copy of the R&D Agreement
is attached hereto as Annex B.
Loan Agreement
In order to implement the R&D Agreement, LIG has agreed to make
available to the Company pursuant to the Loan Agreement a $750,000 term loan
facility to be used for the acquisition of certain capital equipment for the
manufacture of nitrile gloves and glove autostripping equipment and related
capital expenditures. If the Company desires to make a borrowing under the Loan
Agreement, it must provide to LIG a written notice describing the equipment to
be financed and the amount requested. Upon receipt of such notice, LIG has the
right to approve or deny the request, provided that LIG may not unreasonably
withhold its consent. To secure payment of the loans under the Loan Agreement,
the Company has granted to LIG a security interest in certain equipment
purchased by the Company with proceeds from such loans, certain tangible and
intangible property relating to such equipment, and products and proceeds of the
foregoing. If the Sale of Assets is consummated, the Company's obligation to
repay the loans will be assumed by LIG. Otherwise, commencing one year after the
Effective Date of the Option Agreement (the "Conversion Date"), the principal
balance of the loans made under the Loan Agreement must be repaid in 24
consecutive monthly installments. Interest will start to accrue on the unpaid
principal amount of loans made pursuant to the Loan Agreement at a rate per
annum equal to the prime rate plus 2% from the Conversion Date. If the Company
fails to pay when due any portion of the principal of, or interest on, any loan,
each such unpaid amount will bear interest from such due date at a rate equal to
prime rate plus 5%. A copy of the Loan Agreement is attached hereto as Annex C.
Supply Agreement
Upon the development of a commercially marketable nitrile glove
pursuant to the R&D Agreement, LIG will purchase from the Company nitrile gloves
in accordance with the Supply Agreement. After the Company begins production of
nitrile gloves in conformance with LIG's specifications, LIG agrees to purchase
from the Company at least three days' production of nitrile gloves each month
for a period of one year following the Effective Date of the Option Agreement,
unless the Option Agreement is terminated prior to the end of such period.
All purchases will be at the Company's cost, plus 10%. A copy of the Supply
Agreement is attached hereto as Annex D.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
In connection with the Option Agreement and as a condition to the Sale
of Assets, the Company is required to change its corporate name to a name that
is not likely to be confused with "Phoenix." Therefore, the Company intends,
subject to stockholder approval, to amend its Certificate of Incorporation to
change the Company's corporate name from "Phoenix Medical Technology, Inc." to
"PMT Inc.," to become effective only if and when the Sale of Assets is
consummated. Failure to approve this proposal to change the name of the Company
may render it impossible to complete the Sale of Assets. If the stockholders of
the Company approve the Sale of Assets and the Sale of Assets is consummated,
the Board of Directors believes that it is in the best interests of the Company
and its stockholders to change the name of the Company to PMT Inc. In order to
effect the change of the Company's corporate name, the First Article of the
Company's Certificate of Incorporation will, subject to stockholder approval,
26
<PAGE> 30
be deleted in its entirety and will be replaced by the following language:
"FIRST: The name of the Corporation is PMT Inc."
Accordingly, the Board of Directors has approved, and recommends that
the stockholders of the Company approve, an amendment to the Certificate of
Incorporation to change the name of the Company from Phoenix Medical Technology,
Inc. to PMT Inc., subject to consummation of the Sale of Assets as set forth
herein. The name of the Company will not be changed if the Sale of Assets is not
consummated.
Approval of the proposed amendment to the Certificate of Incorporation
to change the name of the Company requires the affirmative vote of the holders
of a majority of the outstanding shares of Common Stock entitled to vote
thereon. This proposal is subject to stockholder approval of the Sale of Assets
as described in this Proxy Statement. If the Sale of Assets is not approved,
this proposal to change the name of the Company will be withdrawn. There are no
appraisal rights with respect to the proposal to amend the Certificate of
Incorporation.
The Board of Directors of the Company recommends a vote FOR the
proposal to amend the Certificate of Incorporation to change the name of the
Company to PMT Inc. and proxies solicited by the Board of Directors will be so
voted unless a stockholder specifies a different choice.
DISSOLUTION AND LIQUIDATION OF THE COMPANY FOLLOWING THE SALE OF ASSETS
If LIG exercises the Option and the Company and LIG consummate the Sale
of Assets, the Company's assets thereafter will consist principally of cash from
the proceeds of the Sale of Assets. Since the Company will no longer have any
operating assets, the Board of Directors has determined it advisable and in the
best interests of the Company and its stockholders that the Company be dissolved
and liquidated as soon as practicable following the Sale of Assets. It is
currently anticipated that the Company will be dissolved and liquidated as soon
as practicable following the termination of the Company's 18-month
indemnification obligation under the Option Agreement. See "The Option Agreement
- --Indemnification." Accordingly, the Board of Directors has approved the Plan of
Dissolution and Liquidation, attached hereto as Annex F, providing for the
dissolution and liquidation of the Company, with such proposal being contingent
on (i) the proposals for the Option Agreement and amendment of the Certificate
of Incorporation being approved by the stockholders of the Company at the
Meeting, (ii) LIG's exercise of the Option, and (iii) the Closing of the Sale of
Assets (with such three contingencies referred to as the "Dissolution
Conditions").
Post-Closing Operations
If the Sale of Assets is consummated, the cash portion of the Purchase
Price will be used by the Company to pay obligations not being assumed by LIG.
These liabilities will be paid contemporaneously with or as soon as practicable
following the Closing. In addition, the Company is a party to certain
litigation, liability for which is not being assumed by LIG, and the Company may
be required to make certain payments in connection with any judgment or
settlement thereof. The Company will continue to defend vigorously any such
litigation following the Closing. As soon as practicable following the
termination of the Company's 18-month indemnification obligation under the
Option Agreement, the Company will begin its dissolution and liquidation.
The directors and officers of the Company immediately prior to the
Closing Date will be the directors of and officers of the Company following the
Closing, and will hold office until their respective successors are duly elected
and qualified, or until their earlier resignation or removal, or as otherwise
provided by law. The Certificate of Incorporation and Bylaws of the Company in
effect immediately prior to the Closing Date will continue to be the Certificate
of Incorporation and Bylaws of the Company following the Closing, until they may
be thereafter duly amended in accordance with applicable law, subject, however,
to the filing of the proposed amendment changing the name of the Company.
Dissolution
Upon satisfaction of the Dissolution Conditions, the Board of Directors
and officers of the Company will file a Certificate of Dissolution with the
Secretary of State of Delaware as soon as practicable following the
27
<PAGE> 31
termination of the Company's 18-month indemnification obligation under the
Option Agreement. The dissolution will become effective no later than 90 days
following such filing.
The Company will continue in existence for three years following the
effective date of dissolution or for such longer period as the Delaware Court of
Chancery may direct for the sole purpose of liquidating and winding up its
affairs. The Company will continue to exist during such period regardless of
whether the Company has made any liquidating distributions to its stockholders
and regardless of the timing of any such distributions. With respect to any
action, suit or proceeding begun by or against the Company either prior to or
within three years after the date of its dissolution, such action will not abate
by reason of the dissolution of the Company.
Liquidation and Payment of Claims
Pursuant to the Plan of Dissolution, the Board of Directors and
officers of the Company will be authorized and directed to carry out the
complete liquidation and winding up of the affairs of the Company. Under the
Plan of Dissolution, the Board of Directors and officers of the Company will
publish and send notice to all known creditors of the Company, including persons
with contingent, conditional or unmatured claims against the Company.
Pursuant to the DGCL, upon filing of the Certificate of Dissolution,
the Company will make payments to claimants in the following order of priority:
(a) payment of known claims made and not rejected; (b) posting any security
offered and not rejected by the claimant; (c) posting any security required by
the Delaware Court of Chancery for contingent or unknown claims; and (d) payment
of any obligations and expenses incurred by the Company during the course of
liquidating and winding up its affairs.
Distributions to Stockholders
All assets remaining after the satisfaction of the claims and
obligations of the Company will be distributed to the stockholders of the
Company. In light of the extended length of time between the date of this Proxy
Statement and the dates of potential dissolution and liquidation of the Company,
as well as the pendency of certain litigation, management of the Company is
currently unable to estimate the proceeds, on an aggregate or per share basis,
which may be distributed to stockholders of the Company upon the liquidation of
the Company. No amounts will be paid to any stockholders of the Company prior to
the payment of such liquidating distributions, provided that the Company in its
sole discretion may elect to distribute to the stockholders certain cash
proceeds from the Sale of Assets as soon as practicable after the Closing. All
holders of Common Stock will share ratably in any liquidating distributions.
Following any liquidating distributions, the Company will continue to exist for
three years following the effective date of dissolution or for such longer
period as may be judicially mandated and the Company's stockholders may be
subject to continuing liability for any liabilities of the Company which may
accrue prior to the end of such period. See "-- Dissolution" and "--
Stockholders' Continuing Liability."
Stockholders' Continuing Liability
If a court were to hold that the Company failed to pay or to make
adequate provision for its liabilities, a creditor of the Company might obtain
an injunction delaying or diminishing the distributions to the stockholders
anticipated pursuant to the Plan of Dissolution. Further, pursuant to Section
282 of the DGCL, the stockholders of the Company may be held personally liable
for the payment of any claim against the Company, but such personal liability
would not exceed the lesser of the stockholder's pro rata share of the claim or
the amount distributed to such stockholder pursuant to the Plan of Dissolution.
Voting
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote on this matter is required to approve
the proposed dissolution and liquidation of the Company. There are no appraisal
rights with respect to the proposed dissolution and liquidation.
The Board of Directors of the Company recommends a vote FOR the
proposal to approve the Plan of Dissolution and proxies solicited by the Board
of Directors will be so voted unless a stockholder specifies a different choice.
28
<PAGE> 32
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Option Payment
If the Company receives from LIG the Option Payment of $500,000, such
amount would be ordinary income to the Company and would be subject to standard
corporate taxation. At that point in time, there would be no separate taxable
event for stockholders of the Company.
Payment of Purchase Price
If LIG exercises the Option and the Company and LIG consummate the Sale
of Assets, the Sale of Assets will be a taxable transaction for federal income
tax purposes. The Company will have a gain or loss with respect to the assets
sold to LIG equal to the difference between (1) the sum of the cash portion of
the Purchase Price and the amount of the Assumed Liabilities and (2) the
adjusted basis of such assets. The Company anticipates that a significant
portion of any gain resulting from the Sale of Assets will be offset by the
carry-forward of the Company's prior net operating losses. Prior to the
liquidation of the Company, there would be no separate taxable event for
stockholders of the Company related to the payment of the cash portion of the
Purchase Price to the Company.
Liquidation of the Company
If the Sale of Assets is consummated, the Company will dissolve and
liquidate pursuant to the Plan of Dissolution, subject to approval of the Plan
of Dissolution by the stockholders of the Company. The Company anticipates that,
as part of such liquidation, the Company will distribute to the stockholders of
the Company certain cash proceeds from the Sale of Assets.
The receipt by a stockholder of the Company of cash for shares of
Common Stock in the liquidation will be a taxable transaction for federal income
tax purposes. Each stockholder of the Company will have a gain or loss with
respect to each share of Common Stock owned by such stockholder equal to the
difference between the total amount received as a liquidating distribution from
the Company and such stockholder's tax basis for such shares. Any such gain or
loss will be a capital gain or loss if such shares are held as a capital asset,
and a long-term capital gain or loss if the stockholder's holding period is more
than 18 months as of the date of such liquidating distributions. There are
limitations on the deductibility of capital losses.
Each stockholder of the Company will, in general, be required to
provide such stockholder's Social Security or other taxpayer identification
number, confirmation that such stockholder is not a foreign person for purposes
of the Foreign Investment in Real Property Tax Act or, in certain instances,
other information, in order to avoid "back-up withholding" requirements which
might apply under the Code or, in the case of stockholders that are foreign
persons, withholding under Section 1445 of the Code. Any such person who does
not furnish such information or furnishes inaccurate or incomplete information
will be subject to having amounts withheld to pay certain taxes and may be
subject to certain penalties imposed by the Internal Revenue Service.
The foregoing tax discussion does not address the federal income tax
consequences to special classes of taxpayers, including, without limitation,
nonresident alien individuals, foreign corporations and tax exempt entities.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. THE COMPANY HAS NOT RECEIVED AN
OPINION OF COUNSEL REGARDING FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED
TRANSACTIONS AND MAKES NO REPRESENTATIONS OR ASSURANCES REGARDING THE TAX
CONSEQUENCES OF THE SALE OF ASSETS OR LIQUIDATION TO ANY PARTICULAR STOCKHOLDER.
EACH STOCKHOLDER SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE POTENTIAL LIQUIDATION
OF THE
29
<PAGE> 33
COMPANY, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OR CHANGES IN SUCH LAWS.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of the Record Date,
regarding the beneficial ownership of Common Stock by: (a) each director of the
Company; (b) each executive officer of the Company; (c) all directors and
executive officers of the Company as a group; and (d) all other persons known by
the Company to be beneficial owners of more than five percent of the outstanding
shares of Common Stock. Unless otherwise indicated, the type of ownership of the
shares set forth below is direct.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Class
of Beneficial Owner Beneficially Owned Beneficially Owned
------------------- ------------------ ------------------
<S> <C> <C>
NationsBank, N.A. (Carolinas) 496,058(1) 20.0%
901 W. Trade St., 4th Fl.
Charlotte, NC 28255
Edward W. Gallaher, Sr. 108,495(2) 4.4%
Grover C. Mixon 69,584(3) 2.8%
Byron M. Layman 26,000(4) 1.0%
William T. Sena 21,400(5) *
Harold H. Heath 18,500(6) *
All directors and executive 243,979(7) 9.8%
officers as a group (5 persons)
</TABLE>
- --------
* Percentage is less than 1% of the total number of outstanding shares of
Common Stock.
1 Represents shares subject to a warrant which is currently exercisable
at an exercise price of $0.03125 per share.
2 Includes 7,250 shares subject to options which are currently
exercisable or exercisable within 60 days and 15,550 shares held by
Mr. Gallaher's wife.
3 Includes 6,950 shares subject to options which are currently
exercisable within 60 days and 500 shares owned by Mr. Mixon's wife.
4 Includes 4,000 shares subject to options which are currently
exercisable or exercisable within 60 days and 2,805 shares owned by
Mr. Layman's wife.
5 Includes 4,000 shares subject to options which are currently
exercisable or exercisable within 60 days.
6 Includes 4,000 shares subject to options which are currently
exercisable or exercisable within 60 days.
7 Includes 26,200 shares subject to options which are currently
exercisable or exercisable within 60 days.
30
<PAGE> 34
MARKET PRICE OF THE COMPANY'S COMMON STOCK
Since April 1991, there has not been an active trading market for the
Common Stock. The Common Stock has been quoted sporadically in the National
Quotation Bureau "pink sheets." On December 23, 1997, the last trading day
before the Company and LIG announced that they had signed the Option Agreement,
the bid and asked prices for the Common Stock were $0.50 per share and $1.50 per
share, respectively. Such bid and asked prices do not necessarily represent
actual transactions in the Common Stock and should not be taken to indicate the
existence of any established trading market.
EXPERTS
The Company's balance sheets as of December 31, 1996 and 1995, and
related statements of income, changes in retained earnings and cash flows for
each of the three years in the period ended December 31, 1996, appearing in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996,
have been audited by Arthur Andersen LLP, independent public accountants, as set
forth in their report thereon included therein and incorporated herein by
reference. A representative of Arthur Andersen LLP is expected to be present at
the Meeting and will have the opportunity to make a statement if he or she
desires to do so and is expected to be available to respond to appropriate
questions.
SHAREHOLDER PROPOSALS
The Company did not hold an Annual Meeting of Shareholders during the
fiscal year ended December 31, 1997. At this time, the Company does not
anticipate holding an Annual Meeting of Shareholders during the fiscal year
ending December 31, 1998, particularly if the Option is exercised and the Sale
of Assets is consummated during such fiscal year. However, pursuant to Rule
14a-8(a) under the Exchange Act, if the Company does hold an Annual Meeting of
Shareholders during the fiscal year ending December 31, 1998, any proposal that
a shareholder intends to present for action at such meeting must be received by
the Company a reasonable time before the Company makes a solicitation of proxies
in connection with such meeting. Shareholder proposals should be mailed to
Phoenix Medical Technology, Inc., U.S. Highway 521 West, Andrews, South Carolina
29510.
31
<PAGE> 35
Appendix A
PROXY CARD
PHOENIX MEDICAL TECHNOLOGY, INC.
U.S. HIGHWAY 521 WEST
ANDREWS, SOUTH CAROLINA 29510
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints Messrs. Edward W. Gallaher, Sr. and
Grover C. Mixon, and each or either of them proxies, each with the power to
appoint his substitute, and hereby authorizes any and all of them to represent
and to vote, as designated below, all the shares of common stock of Phoenix
Medical Technology, Inc. (the "Company") held of record by the undersigned on
March 11, 1998, at the Special Meeting of Stockholders to be held on April 28,
1998 at 10:00 a.m. at the Company's executive offices on U.S. Highway 521 West,
Andrews, South Carolina, and at any adjournment thereof:
1. A proposal to approve the Option Agreement, dated as of December 22,
1997 and as amended by a First Amendment to Option Agreement dated as
of March 9, 1998, and the transactions contemplated thereby among the
Company and LIG.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. A proposal to amend the Certificate of Incorporation of the Company to
change the Company's name to PMT Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. A proposal to approve the Company's Plan of Dissolution and
Liquidation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
This Proxy, when properly dated and executed, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
Proxy will be voted FOR Proposals 1, 2 and 3.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign full corporate name by the president or other authorized officer. If a
partnership, please sign in partnership name by an authorized person.
--------------------------------------
Signature
--------------------------------------
Signature if held jointly
DATED:
------------------------------
<PAGE> 36
ANNEX A
OPTION AGREEMENT
BY AND BETWEEN
LONDON INTERNATIONAL GROUP, INC.
AND
PHOENIX MEDICAL TECHNOLOGY, INC.
DATED AS OF DECEMBER 22, 1997
<PAGE> 37
TABLE OF CONTENTS
PAGE
PREMISES ................................................................ 1
ARTICLE 1 -- OPTION...................................................... 1
1.1 Grant of Option........................................ 1
1.2 Option Payment......................................... 2
1.3 Exercise of Option..................................... 2
1.4 Shareholder Approval................................... 2
1.5 Conditions to Option; Term of Option................... 2
(a) Conditions.................................... 2
(b) Notice to Option Escrow Agent................. 3
(c) Term.......................................... 3
(d) Expiration If Conditions Not Satisfied........ 3
1.6 Refund of Option Payment............................... 3
ARTICLE 2 -- PURCHASE AND SALE OF ASSETS................................. 3
2.1 Purchase and Sale of Assets............................ 3
2.2 Purchase Price......................................... 4
2.3 Purchase Price Adjustment.............................. 4
(a) LIG Closing Date Balance Sheet................ 4
(b) Objections to LIG Closing Date Balance Sheet.. 4
(c) Adjustment to Purchase Price.................. 5
2.4 Escrow................................................. 5
2.5 Assumption of Liabilities.............................. 5
2.6 Assignment of Contracts................................ 6
2.7 General Limitations on Assumption of Liabilities....... 6
ARTICLE 3 -- CLOSING..................................................... 6
3.1 Time and Place of Closing.............................. 6
3.2 Closing Date........................................... 6
3.3 Documents Delivered by Phoenix at Closing.............. 7
3.4 Documents Delivered by LIG at Closing.................. 8
<PAGE> 38
PAGE
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PHOENIX.................... 9
4.1 Organization, Standing, and Capital Structure.......... 9
4.2 Authority; No Breach By Agreement...................... 9
4.3 Financial Statements................................... 10
4.4 Title to Assets........................................ 10
4.5 Inventory.............................................. 10
4.6 Accounts Receivable.................................... 11
4.7 Absence of Undisclosed Liabilities..................... 11
4.8 Absence of Certain Changes or Events................... 11
4.9 Tax Returns............................................ 11
4.10 Environmental Matters.................................. 12
4.11 Compliance with Laws................................... 13
4.12 Remuneration........................................... 13
4.13 Labor Relations........................................ 14
4.14 Employee Benefit Plans................................. 14
4.15 Material Contracts..................................... 16
4.16 Real Property.......................................... 16
4.17 Fixed Asset Leases..................................... 18
4.18 Legal Proceedings...................................... 18
4.19 Suppliers and Customers................................ 18
4.20 Products Liability; Warranties......................... 19
4.21 Intellectual Property.................................. 19
4.22 Insurance.............................................. 19
4.23 Computer Software and Databases........................ 19
4.24 Compliance with the Immigration Reform and Control Act. 20
4.25 Compliance with OSHA................................... 20
4.26 Interested Transactions................................ 20
ARTICLE 5 -- REPRESENTATIONS AND WARRANTIES OF LIG....................... 21
5.1 Organization, Standing, and Power...................... 21
5.2 Authority; No Breach By Agreement...................... 21
ii
<PAGE> 39
PAGE
ARTICLE 6 -- COVENANTS................................................... 22
6.1 Conduct of Phoenix's Business Pending Consummation..... 22
6.2 Additional Covenants of Phoenix........................ 24
(a) Continuation of Corporation................... 24
(b) Continuation of Insurance..................... 24
(c) Exclusive Dealing............................. 24
(d) Consents and Approvals........................ 24
(e) Due Diligence................................. 24
6.3 Covenants of LIG....................................... 25
ARTICLE 7 -- ADDITIONAL AGREEMENTS....................................... 25
7.1 Agreement as to Efforts to Consummate.................. 25
7.2 Confidentiality........................................ 26
7.3 Notification of Certain Events......................... 26
7.4 Public Releases........................................ 26
7.5 Forwarding of Amounts.................................. 26
7.6 Plant Closing Law...................................... 26
7.7 Assumption of Employee Benefit Plan Obligations;
Transfer of Assets..................................... 27
7.8 Change of Name......................................... 27
7.9 Tax Matters............................................ 27
(a) Sales Taxes, Etc.............................. 27
(b) Section 1060 Statement and Forms.............. 28
(c) Control of Tax Proceedings.................... 28
(d) Cooperation on Tax Matters.................... 28
(e) Bulk Sales Laws............................... 28
7.9 Wastewater Treatment System............................ 29
ARTICLE 8 -- INDEMNIFICATION............................................. 29
8.1 Survival of Representations and Warranties............. 29
8.2 Obligation of Phoenix to Indemnify..................... 30
8.3 Obligation of LIG to Indemnify......................... 30
8.4 Limitations on Indemnification......................... 31
iii
<PAGE> 40
PAGE
8.5 Notice of Loss or Asserted Liability; Expiration of
Indemnification........................................ 32
8.6 Opportunity to Contest................................. 32
8.7 Disputes with Customers or Suppliers................... 33
8.8 Subrogation Rights..................................... 33
8.9 Exclusive Remedies..................................... 33
ARTICLE 9 -- CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
THE PURCHASE AND SALE OF THE ASSETS......................... 34
9.1 Conditions to Obligations of Each Party................ 34
(a) Exercise of Option............................ 34
(b) Regulatory Approvals.......................... 34
(c) Consents and Approvals........................ 34
(d) Legal Proceedings............................. 34
9.2 Conditions to Obligations of LIG....................... 35
(a) Representations and Warranties................ 35
(b) Performance of Agreements and Covenants....... 35
(c) Delivery of Documents......................... 35
(d) Real Property................................. 35
9.3 Conditions to Obligations of Phoenix................... 35
(a) Shareholder Approval.......................... 35
(b) Payment of Purchase Price..................... 36
(c) Representations and Warranties................ 36
(d) Performance of Agreements and Covenants....... 36
(e) Delivery of Documents......................... 36
ARTICLE 10 -- TERMINATION................................................ 36
10.1 Termination............................................ 36
10.2 Effect of Termination.................................. 36
10.3 Risk of Loss........................................... 37
ARTICLE 11 -- GOVERNING LAW; DISPUTE RESOLUTION.......................... 37
11.1 Governing Law.......................................... 37
11.2 Arbitration............................................ 37
iv
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PAGE
(a) American Arbitration Association Rules........ 37
(b) Composition of Arbitral Tribunal.............. 37
(c) Situs; Language............................... 38
(d) Judicial Assistance........................... 38
ARTICLE 12 -- MISCELLANEOUS.............................................. 38
12.1 Entire Agreement....................................... 38
12.2 Amendments............................................. 38
12.3 Expenses............................................... 38
12.4 Brokers and Finders.................................... 38
12.5 Waivers................................................ 39
12.6 Assignment............................................. 39
12.7 Notices................................................ 39
12.8 Counterparts........................................... 40
12.9 Captions............................................... 40
12.10 Interpretations........................................ 40
12.11 Severability........................................... 41
ARTICLE 13 -- DEFINITIONS................................................ 41
13.1 Definitions............................................ 41
13.2 Definitions Elsewhere in Agreement..................... 48
v
<PAGE> 42
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement") is made and entered
into as of December 22, 1997, by and between LONDON INTERNATIONAL GROUP, INC.
("LIG"), a New Jersey corporation having its principal place of business at 3585
Engineering Drive, Norcross, Georgia 30092, and PHOENIX MEDICAL TECHNOLOGY, INC.
("Phoenix"), a Delaware corporation having its principal place of business at
Route 521 West, Andrews, South Carolina 29510.
PREMISES
A. LIG wishes to acquire, and Phoenix wishes to sell to LIG, an Option
to purchase substantially all of the Assets and Business of Phoenix and to
assume substantially all of the Liabilities of Phoenix on the terms and
conditions mutually agreed by the Parties and set out in this Agreement.
B. Contemporaneously with, and as part of the consideration for, this
Agreement, the Parties are also entering into: (1) a Loan and Security
Agreement, pursuant to which LIG is loaning Phoenix certain funds to purchase
capital equipment and make certain related capital expenditures (the "Loan
Agreement"); (2) a Research and Development Agreement, pursuant to which the
Parties are agreeing to develop jointly certain technology to be used in the
manufacture of nitrile gloves (the "R&D Agreement"); and (3) an Agreement for
the Purchase and Sale of Goods, pursuant to which Phoenix is agreeing to sell
LIG, and LIG is agreeing to purchase from Phoenix, nitrile gloves (the "Supply
Agreement").
C. The Boards of Directors of LIG and Phoenix are each of the opinion
that the transactions described in this Agreement are in the best interests of
their respective shareholders.
D. The transactions described in this Agreement are subject to the
approval of the shareholders of Phoenix and to the satisfaction of certain other
conditions described in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
warranties, representations, covenants and agreements set forth in this
Agreement, the Parties agree as follows:
ARTICLE 1
OPTION
1.1 GRANT OF OPTION.
For and in consideration of LIG's payment of the Option
Payment pursuant to Article 1.2 and LIG's execution of the Loan Agreement, the
R&D Agreement, and the Supply
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Agreement, Phoenix grants LIG an option to purchase substantially all of the
Assets and Business of Phoenix, and to assume substantially all of the
Liabilities of Phoenix, upon the terms and conditions set out in this Agreement
(the "Option").
1.2 OPTION PAYMENT.
For and in consideration of Phoenix's grant of the Option
pursuant to Article 1.1, LIG agrees to pay Phoenix $500,000.00 (Five Hundred
Thousand United States Dollars) (the "Option Payment"). LIG shall deliver the
amount of the Option Payment to the Option Escrow Agent pursuant to the terms of
the Option Escrow Agreement upon the execution by both Parties of: (a) this
Agreement; (b) the Loan Agreement; (c) the R&D Agreement; and (d) the Supply
Agreement.
1.3 EXERCISE OF OPTION.
LIG shall be entitled to exercise the Option at any time
during the Option Period by delivering to Phoenix a notice of exercise in
substantially the form of Exhibit 1.3 (the "Notice of Exercise"). LIG's decision
to exercise or not exercise the Option shall be entirely at LIG's discretion.
1.4 SHAREHOLDER APPROVAL.
Phoenix covenants and agrees with LIG to call a meeting of the
shareholders of Phoenix (the "Shareholders' Meeting") as soon as reasonably
practicable after the execution of this Agreement for the purpose of voting upon
approval of this Agreement and such related matters as Phoenix deems
appropriate. In connection with the Shareholders' Meeting: (i) Phoenix shall
prepare and mail a proxy statement (the "Proxy Statement") to its shareholders;
(ii) each Party shall furnish to the other all information reasonably requested
by the other Party in connection with the Proxy Statement; (iii) the Board of
Directors of Phoenix shall recommend (subject to compliance with their fiduciary
duties as advised by counsel) to the shareholders of Phoenix the approval of
this Agreement; and (iv) the Board of Directors and officers of Phoenix shall
(subject to compliance with their fiduciary duties as advised by counsel) use
their reasonable best efforts to obtain such shareholders' approval.
1.5 CONDITIONS TO OPTION; TERM OF OPTION.
(a) CONDITIONS.
The Option shall come into effect on the date the last of the
following conditions has been fulfilled (the "Effective Date"):
(i) LIG has been notified in writing that this
Agreement has been approved by the shareholders of Phoenix;
and
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(ii) The Parties have received written Consents to
this Agreement from each of the following: (x) NationsBank
N.A. (Carolinas); (y) the CIT Group/Credit Finance, Inc., and
(z) Carolina First Bank.
(b) NOTICE TO OPTION ESCROW AGENT.
LIG agrees to forward to the Option Escrow Agent the notice of
Phoenix shareholder approval pursuant to Article 1.5(a)(i) promptly upon LIG's
receipt of said notice from Phoenix.
(c) TERM.
LIG shall be entitled to exercise the Option for a period
expiring at midnight one year from the Effective Date (the "Option Period"),
unless this Agreement is earlier terminated pursuant to the terms of Article 10.
If LIG does not exercise the Option during the Option Period, this Agreement
shall terminate and be of no further force or effect except as provided in
Article 10.2. Time is of the essence in calculating the Option Period.
(d) EXPIRATION IF CONDITIONS NOT SATISFIED.
If the conditions set forth in Article 1.5(a) have not been
fully satisfied on or before March 31, 1998, this Agreement shall be of no
further force or effect, except as provided in Article 10.2, and LIG shall be
entitled to restitution of the Option Payment.
1.6 REFUND OF OPTION PAYMENT.
Phoenix agrees to immediately return to LIG the full amount of
the Option Payment if at any time after Phoenix's receipt of the Option Payment
and during the term of this Agreement: (a) Phoenix sells, or agrees to sell, to
any Person other than LIG substantially all of the Assets and Business, or (b)
Phoenix merges, or agrees to merge, with any Person.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 PURCHASE AND SALE OF ASSETS.
Upon LIG's exercise of the Option, and subject to the terms
and conditions of this Agreement, at the Closing Phoenix, in exchange for LIG's
payment of the Purchase Price and assumption of the Assumed Liabilities, shall
sell, assign, transfer, convey, and deliver to LIG all of Phoenix's right,
title, and interest in and to the Assets, free and clear of any and all Liens,
other than Permitted Liens. Phoenix shall not be obligated by this Agreement to
sell, assign, transfer, convey, or deliver to LIG, and LIG shall not be
obligated to purchase from Phoenix, the Retained Assets.
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<PAGE> 45
2.2 PURCHASE PRICE.
In consideration for the sale, transfer, conveyance,
assignment and delivery of the Assets by Phoenix to LIG, and in reliance upon
the representations, warranties, covenants, and agreements made in this
Agreement by Phoenix, at the Closing LIG shall pay Phoenix $6,821,708 (Six
Million Eight Hundred Twenty-One Thousand Seven Hundred Eight United States
Dollars) (the "Purchase Price") as follows:
(a) LIG shall deliver to Phoenix $5,221,708 (Five Million, Two
Hundred Twenty-One Thousand Seven Hundred Eight United States Dollars) in cash
by wire transfer or in immediately available funds; and
(b) LIG shall deliver $1,600,000.00 (One Million Six Hundred
Thousand United States Dollars) in cash to the Escrow Agent in accordance with
the Escrow Agreement and Article 2.4 of this Agreement.
2.3 PURCHASE PRICE ADJUSTMENT.
(a) LIG CLOSING DATE BALANCE SHEET.
Following the Closing, LIG shall cause its accountants to
prepare a balance sheet for Phoenix as of the Closing Date in accordance with
GAAP and, to the extent consistent with GAAP, Phoenix's past accounting
practices, exclusive of the Retained Assets and the Retained Liabilities (the
"LIG Closing Date Balance Sheet"). Phoenix's accountants shall be entitled to
observe all stages of the preparation of the LIG Closing Date Balance Sheet. As
promptly as possible, and in any event no later than sixty (60) days after
Closing, LIG shall provide to Phoenix the LIG Closing Date Balance Sheet and the
work papers on which its calculation was based. Unless Phoenix notifies LIG in
writing, within thirty (30) days of Phoenix's receipt of the LIG Closing Date
Balance Sheet, that Phoenix objects to the LIG Closing Date Balance Sheet and
specifies the nature of and basis for that objection, the shareholders' equity
set forth in the LIG Closing Date Balance Sheet shall be the "Shareholders'
Equity" used for the calculation of the Adjusted Purchase Price pursuant to
Article 2.3(c).
(b) OBJECTIONS TO LIG CLOSING DATE BALANCE SHEET.
If Phoenix notifies LIG of an objection to the LIG Closing
Date Balance Sheet within the thirty (30) days provided in Article 2.3(a), and
LIG and Phoenix are unable to resolve that objection within thirty (30) days of
LIG's receipt of Phoenix's objection, the disagreement shall be submitted to a
nationally recognized independent certified public accounting firm in the United
States satisfactory to both parties (the "Independent CPA"). Each Party shall
provide the Independent CPA with such information and documents as the
Independent CPA may reasonably request. The Independent CPA shall prepare its
own Closing Date balance sheet for Phoenix in accordance with GAAP and, to the
extent consistent with GAAP, Phoenix's past accounting practices, exclusive of
the Retained Assets and the Retained Liabilities (the "Independent CPA Closing
Date Balance Sheet"). The Independent CPA's determination shall be binding on
all parties, and the shareholders' equity as set out in the Independent CPA
Closing Date Balance
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<PAGE> 46
Sheet shall be the "Shareholders' Equity" used to calculate the Adjusted
Purchase Price pursuant to Article 2.3(c). The fees of the Independent CPA shall
be divided equally between LIG and Phoenix.
(c) ADJUSTMENT TO PURCHASE PRICE.
(i) If the Shareholders' Equity equals or is greater
than $1,500,000 (One Million Five Hundred Thousand United States
Dollars), there shall be no adjustment to the Purchase Price.
(ii) For each dollar that the Shareholders' Equity is
less than $1,500,000 (One Million, Five Hundred Thousand United States
Dollars), the Purchase Price shall be reduced by one dollar, and the
result shall be deemed the "Adjusted Purchase Price." LIG shall be
entitled to receive the difference between the Purchase Price and the
Adjusted Purchase Price from the Purchase Price Adjustment Escrow
Account pursuant to the terms of the Escrow Agreement. If the Purchase
Price Adjustment Escrow Account is insufficient to satisfy the amount
of any adjustment to which LIG is entitled, Phoenix shall promptly pay
LIG the difference by wire transfer or in immediately available funds.
2.4 ESCROW.
At Closing, the Parties shall execute the Escrow Agreement
substantially in the form of Exhibit 2.4 (the "Escrow Agreement"), setting forth
the terms and conditions governing the accounts used for the escrow (the "Escrow
Accounts"). The Escrow Accounts shall serve as security for (a) the payment of a
Purchase Price adjustment to LIG pursuant to Article 2.3(c)(ii) (the "Purchase
Price Adjustment Escrow Account"); and (b) payment of indemnification claims of
LIG pursuant to Article 8 (the "Indemnification Escrow Account").
2.5 ASSUMPTION OF LIABILITIES.
(a) Upon Closing, LIG shall assume and thereafter shall pay,
perform, satisfy, be responsible for and discharge the Assumed Liabilities.
(b) Notwithstanding Article 2.5(a):
(i) LIG shall not be obligated to assume
responsibility for (x) any Liabilities arising out of the Retained
Assets or (y) the Retained Liabilities;
(ii) LIG shall not be required to pay, perform,
satisfy, be responsible for, or discharge any Assumed Liability so long
as LIG shall in good faith contest the amount or validity thereof or
shall in good faith assert any defense or offset thereto; and
(iii) LIG shall not assume, pay, satisfy, or
discharge any Assumed Liability to the extent that such Assumed
Liability is covered by valid insurance carried by Phoenix.
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(c) LIG covenants that it will do, execute, and deliver all
such further acts and instruments which Phoenix may reasonably request in order
to evidence more fully the assumption of the Assumed Liabilities.
2.6 ASSIGNMENT OF CONTRACTS.
(a) Phoenix agrees to use its best endeavors to assign to LIG,
and LIG agrees to assume from Phoenix, all of Phoenix's rights and obligations
under each of Phoenix's Material Contracts, a list of which appears in Article
2.6(a) to the Phoenix Disclosure Memorandum (the "Material Contracts").
(b) In the event that Phoenix, despite its best endeavors, is
unable to obtain the consent of the other party or parties to any Material
Contract to the assignment of that Material Contract to LIG as contemplated by
Article 2.6(a): (i) Phoenix agrees to sub-contract the performance of each such
Material Contract to LIG and to act as LIG's agent in the collection of any
payments due under each such sub-contract; and (ii) LIG agrees to perform each
such sub-contract and to hold Phoenix harmless from any loss or liability
arising out of LIG's performance of it.
(c) Any Material Contract that can neither be assigned to LIG
pursuant to Article 2.6(a) nor sub-contracted to LIG pursuant to Article 2.6(b)
shall be deemed a Retained Asset, and any Liabilities associated with any such
Material Contract shall be deemed Retained Liabilities.
2.7 GENERAL LIMITATIONS ON ASSUMPTION OF LIABILITIES.
Nothing in this Article 2 shall be deemed to release Phoenix
from its representations, warranties, covenants, and agreements contained in
this Agreement. Phoenix shall pay, satisfy, and perform all of the Retained
Liabilities.
ARTICLE 3
CLOSING
3.1 TIME AND PLACE OF CLOSING.
The Closing will take place at 10:00 A.M. on the Closing Date
at the offices of Alston & Bird, One Atlantic Center, 1201 West Peachtree
Street, Atlanta, Georgia, or such other place as may be mutually agreed upon by
the Parties.
3.2 CLOSING DATE.
The Closing Date shall occur as soon as possible following
LIG's exercise of the Option pursuant to Article 1.3 but no later than five (5)
business days following the date on which
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the last of the conditions set forth in Article 9 (except for any condition
involving the delivery of certificates, agreements, opinions, or documents on
the Closing Date) is satisfied or waived.
3.3 DOCUMENTS DELIVERED BY PHOENIX AT CLOSING.
At Closing, Phoenix shall deliver or cause to be delivered to
LIG the following documents:
(a) Good and sufficient bills of sale, assignments, general
warranty deeds, and any other instruments of sale, conveyance, transfer, or
assignment, with general warranties, dated as of the Closing Date, required or
deemed necessary by LIG in order to vest fully and effectively in LIG good and
marketable title to the Assets free of all Material Liens, other than Permitted
Liens;
(b) The Assignment of Trademark Registration, dated as of the
Closing Date, duly executed by Phoenix, substantially in the form of Exhibit
3.3(b);
(c) The Escrow Agreement, dated as of the Closing Date, duly
executed by Phoenix, substantially in the form of Exhibit 2.4;
(d) The Amendment to Consulting and Non-Competition Agreement,
duly executed by Edward W. Gallaher, Sr., and the Employment Agreement, duly
executed by Grover Mixon, each dated as of the Closing Date, substantially in
the form of the agreements at Exhibit 3.3(d) (collectively, the "Employment
Agreements");
(e) An Opinion of Kennedy Covington Lobdell & Hickman, L.L.P.,
counsel to Phoenix, in substantially the form of Exhibit 3.3(e);
(f) A certificate from the Chief Executive Officer of Phoenix
attesting that each of the representations and warranties of Phoenix set out in
Article 4 of this Agreement is accurate in all Material respects as of the date
of this Agreement and, as qualified by the Supplemental Disclosure Memorandum,
as of the date of both the Supplemental Disclosure Memorandum and the Closing
Date;
(g) Certified copies of resolutions duly adopted by Phoenix's
Board of Directors and shareholders evidencing the taking of all corporate
action necessary to authorize the execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement;
(h) The Non-Competition Agreement, dated as of the Closing
Date, duly executed by Phoenix and by Edward W. Gallaher, Sr. and Grover Mixon,
substantially in the form of Exhibit 3.3(h);
(i) Copies of all Consents, approvals, authorizations, or
Orders of third parties necessary for the authorization, execution, and delivery
of this Agreement and the consummation
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of the transactions contemplated by it, and such other Consents of third parties
as are needed, in the reasonable judgment of LIG, for LIG to conduct the
Business in substantially the same manner as it is now conducted;
(j) Good, marketable, and insurable fee simple title to the
Real Property, free of all Material Liens (except any Permitted Liens) and such
documents as LIG's title insurer may reasonably request to issue a title
insurance policy insuring LIG's ownership of the Real Property free of all
Material Liens other than Permitted Liens;
(k) All personnel, medical, and similar files concerning any
employee who will be hired by LIG following the Closing, and all forms and
materials required to be maintained by virtue of OSHA or any similar state
program;
(l) Documents evidencing the Tail Coverage Insurance, as
provided in Article 8.4(d); and
(m) Such other documents or certificates as shall be
reasonably requested by LIG.
3.4 DOCUMENTS DELIVERED BY LIG AT CLOSING.
At Closing, LIG shall deliver or cause to be delivered to
Phoenix the following documents:
(a) Certified copies of resolutions duly adopted by LIG's
board of directors evidencing the taking of all corporate action necessary to
authorize the execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement;
(b) The Escrow Agreement, dated as of the Closing Date, duly
executed by LIG, in substantially the form of Exhibit 2.4;
(c) The Employment Agreements, dated as of the Closing Date,
duly executed by LIG, in substantially the form of Exhibit 3.3(d);
(d) An Opinion of Alston & Bird LLP, counsel to LIG, in
substantially the form of Exhibit 3.4(d);
(e) The Non-Competition Agreement, dated as of the Closing
Date, duly executed by LIG, and in substantially the form of Exhibit 3.3(h);
(f) A certificate of a duly authorized officer of LIG
attesting that each of the representations and warranties of LIG set forth in
Article 5 of this Agreement is accurate in all Material respects as of the date
of this Agreement and as of the Closing Date;
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(g) Documents demonstrating that each of the Assumed
Liabilities has either been (i) fully satisfied and discharged or (ii) assumed
by LIG and released as to Phoenix with the written agreement of the creditor in
question; and
(h) Such other documents or certificates as shall be
reasonably requested by Phoenix.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PHOENIX
Phoenix represents and warrants to LIG as follows:
4.1 ORGANIZATION, STANDING, AND CAPITAL STRUCTURE.
(a) Phoenix is a corporation duly organized, validly existing,
and in good standing under the Laws of the State of Delaware, and has the
corporate power and authority to carry on its business as now conducted and to
own, lease and operate the Assets. Phoenix is duly qualified or licensed to
transact business as a foreign corporation in good standing in the States of the
United States and foreign jurisdictions where the character of its Assets or the
nature or conduct of the Business requires it to be so qualified or licensed,
except for such jurisdictions in which the failure to be so qualified or
licensed is not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Phoenix.
(b) The authorized capital stock of Phoenix consists of five
million (5,000,000) authorized shares of Phoenix Common Stock, of which (i)
1,963,563 shares are issued and outstanding as of the date of this Agreement,
(ii) 496,058 shares are subject to a warrant exercisable as a condition to
Closing, and (iii) 21,000 shares are subject to option at an option price of
less than $2.75. All of the issued and outstanding shares of capital stock of
Phoenix are duly and validly issued and outstanding and are fully paid and
non-assessable under the Delaware Business Corporation Act. None of the
outstanding shares of capital stock of Phoenix has been issued in violation of
any preemptive rights of the current or past shareholders of Phoenix.
4.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Phoenix has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and to
consummate the transactions contemplated by it. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated herein, have been, or at the Effective Date will have been, duly
and validly authorized by all necessary corporate action on the part of Phoenix,
and this Agreement will at the Effective Date represent a legal, valid, and
binding obligation of Phoenix, enforceable against Phoenix in accordance with
its terms.
(b) Except as set forth in Article 4.2(b) of the Phoenix
Disclosure Memorandum, neither the execution and delivery of this Agreement by
Phoenix, nor the consummation by Phoenix
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of the transactions contemplated hereby, nor compliance by Phoenix with any of
the provisions hereof, will: (i) conflict with or result in a breach of any
provision of Phoenix's Certificate of Incorporation or Bylaws; (ii) constitute
or result in a Default under, or require any Consent pursuant to, or result in
the creation of any Lien on any Asset under, any Contract or Permit of Phoenix;
or (iii) violate any Law or Order applicable to Phoenix or any Asset.
(c) No notice to, filing with, or Consent of, any public body
or authority is necessary for the consummation by Phoenix of the transactions
contemplated in this Agreement other than: (i) in connection or compliance with
the provisions of U.S. securities Laws and applicable state corporate and
securities Laws; (ii) Consents required from Regulatory Authorities; and (iii)
notices to or filings with the Internal Revenue Service or the Pension Benefit
Guaranty Corporation with respect to any employee benefit plans.
4.3 FINANCIAL STATEMENTS.
The Phoenix Financial Statements: (a) have been prepared from
the books and records of Phoenix, which are complete and correct in all Material
respects, (b) have been prepared in accordance with GAAP, and (c) fairly present
the financial position of Phoenix as of their respective dates and the results
of operations of Phoenix for the periods then ended.
4.4 TITLE TO ASSETS.
Phoenix has, or will have on the Closing Date, and as a result
of the transactions contemplated by this Agreement LIG will receive, good and
marketable title to all of the Assets free and clear of any Liens, except
Permitted Liens. Phoenix is not a party to any Contract under which any right to
purchase, obtain, or acquire any rights in any of the Assets or the Business has
been granted to anyone, except Contracts providing for the sale of inventory in
the ordinary course of business.
4.5 INVENTORY.
(a) All Transferred Inventory shall consist of items of a
quality, quantity and condition usable and saleable in the ordinary course of
the Business without discount or reduction (other than trade discounts or
reductions granted in the ordinary course of business) and conform to generally
accepted standards in the industry of which Phoenix is a part. The value of each
item of Transferred Inventory reflected on the 1996 Phoenix Balance Sheet was,
in each instance, valued at a reasonable amount in accordance with GAAP and
based on the ordinary course of the Business consistent with the historical
valuation policy of Phoenix and is not subject to any write-down or write-off in
excess of the inventory reserves stated in that balance sheet.
(b) To Phoenix's Knowledge, Contracts for the purchase of raw
materials, parts and services were not in excess of the prevailing market prices
at the time the Contracts were entered into. Contracts for the sale of finished
goods are at prices in excess of the prices used in valuing Transferred
Inventory, after allowing for reasonable selling expenses and production
overhead. At December 31, 1996, there were no pending or, to Phoenix's
Knowledge, threatened
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claims against Phoenix seeking return of, credit for, or reimbursement for
merchandise by reason of alleged overshipments, defective merchandise, or
otherwise, including merchandise held by customers of Phoenix pursuant to a
Contract providing that such merchandise is or would be returnable, except to
the extent reserved against on the 1996 Phoenix Balance Sheet.
4.6 ACCOUNTS RECEIVABLE.
Phoenix's accounts receivable reflected on the 1996 Phoenix
Balance Sheet (a) represent monies legally owed to Phoenix for goods sold or
delivered or for services provided, and (b) have been properly reserved against
on the 1996 Phoenix Balance Sheet in accordance with GAAP.
4.7 ABSENCE OF UNDISCLOSED LIABILITIES.
Phoenix has no Liabilities that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Assets,
except Liabilities which are accrued or reserved against in the 1996 Phoenix
Balance Sheet. Phoenix has incurred or paid no Liability since December 31,
1996, except for such Liabilities incurred or paid in the ordinary course of
business consistent with past business practice and which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
the Assets.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since December 31, 1996, except as disclosed in the Phoenix
Financial Statements, (a) the Business has been carried on only in the ordinary
course consistent with past practice, (b) Phoenix has not made any change in any
method of accounting or accounting practice, (c) there have been no events,
changes, or occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Phoenix, and (d)
Phoenix has taken no action, or failed to take any action, which action or
failure, if taken after the date of this Agreement, would represent or result in
a material breach or violation of any of the covenants and agreements of Phoenix
provided in Article 6.1 of this Agreement.
4.9 TAX RETURNS.
All Tax Returns applicable to the Assets or the Business
required by Law to be filed by Phoenix on or before the date of this Agreement
have been or will be filed, and Phoenix has neither requested nor been granted
any extension that would extend the time for filing any Tax Return applicable to
the Assets or the Business to a date after the date of this Agreement. All such
Tax Returns were correct and complete in all Material respects. Phoenix has not
agreed to any waiver of any statute of limitations or extension of time within
which to make an assessment or assert a deficiency in respect of Taxes. Except
as disclosed in Article 4.9 of the Phoenix Disclosure Memorandum, all Taxes upon
the Business or the Assets which were required to be paid by Phoenix on or
before this date (whether or not shown on any Tax Return) have been duly paid
and satisfied. Phoenix has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor,
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stockholder, or other third party. Insofar as any such matter would have a
Material Adverse Effect on the Business or the Assets: no claim of Taxes due is
being contested by Phoenix; no request by Phoenix has been granted or is pending
for extensions of the time for payment of any Tax; no notice has been received
by Phoenix of any additional assessments; and no additional assessment or Tax
against the Assets or the Business is pending or, to Phoenix's Knowledge,
threatened. Adequate provision has been made in the 1996 Phoenix Balance Sheet
for all accrued Tax Liabilities not required to be paid by Phoenix prior to the
dates thereof. Except as provided in this Agreement, there is no Contract,
agreement, election, or intercompany account under which LIG as owner of the
Business will have an obligation to contribute to the payment of any Tax payable
by Phoenix or an Affiliate of Phoenix.
4.10 ENVIRONMENTAL MATTERS.
Except as set forth in Article 4.10 of the Phoenix Disclosure
Memorandum, to Phoenix's Knowledge:
(a) There are no Environmental Claims or Litigation pending or
threatened against Phoenix with respect to (i) the ownership, use, condition or
operation of the Business, the Assets or any other asset of Phoenix or any asset
formerly held for use or sale by Phoenix, or (ii) any violation or alleged
violation by Phoenix of any Environmental Law or any Order related to
Environmental Matters.
(b) There are no existing Material violations of (i) any
Environmental Law, or (ii) any Order related to Environmental Matters, with
respect to the ownership, use, condition or operation of the Business, the
Assets or any other asset of Phoenix.
(c) There are no past or present circumstances, conditions, or
events that could form the basis of (i) any Environmental Claim against Phoenix,
or (ii) any Litigation against any Person whose Liability (or any portion
thereof) for Environmental Matters or violation of Environmental Laws Phoenix
has or may have retained or assumed contractually or by operation of law.
(d) Phoenix has not used any assets or premises of Phoenix or
any part thereof for the handling, treatment, storage, or disposal of any
Hazardous Material in Material violation of any Environmental Law.
(e) No release, discharge, spillage or disposal of any
Hazardous Material has occurred or is occurring at any assets of Phoenix or any
part thereof while or before such assets or premises were owned, leased,
operated, or managed, directly or indirectly, by Phoenix except in Material
compliance with all applicable Environmental Laws.
(f) No soil or water in, under or adjacent to any assets or
premises of Phoenix or assets formerly held for use or sale by Phoenix has been
contaminated by any Hazardous Material while or before such assets or premises
were owned, leased, operated or managed, directly or indirectly, by Phoenix.
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(g) All waste containing any Hazardous Material generated,
used, handled, stored, treated or disposed of, directly or indirectly, by
Phoenix has been released or disposed of in compliance with all applicable
reporting requirements under all Environmental Laws; Phoenix is not aware of any
Environmental Claim with respect to any such release or disposal; all on-site
and off-site locations where Phoenix has stored, disposed or arranged for the
disposal of Hazardous Materials are identified in Article 4.10(g) to the Phoenix
Disclosure Memorandum; Phoenix has complied with all applicable reporting
requirements under all Environmental Laws concerning the disposal or release of
Hazardous Materials; and Phoenix has made no such reports concerning the Real
Property of Phoenix or concerning the operations or activities of Phoenix.
(h) All underground tanks and other underground storage
facilities presently or previously located at any real property owned, leased,
operated or managed by Phoenix or any such tanks or facilities located at any
real property while such real property was owned, leased, operated, or managed
by Phoenix are listed together with the capacity and contents (former and
current) of each such tank or facility in Article 4.10(h) to the Phoenix
Disclosure Memorandum. No such underground tank or facility is leaking or has
ever leaked.
(i) No building or other real property currently owned,
leased, operated or managed by Phoenix contains any asbestos-containing
materials.
(j) No polychlorinated biphenyls (PCB's) are used or stored on
or in any real property currently owned, leased, operated or managed by Phoenix.
4.11 COMPLIANCE WITH LAWS.
Phoenix has in effect all Permits, including Permits
pertaining to Environmental Matters, necessary for it to own, lease, or operate
the Assets and to carry on the Business as now conducted, and there has occurred
no Default under any such Permit. Except as disclosed in Article 4.11 of the
Phoenix Disclosure Memorandum, Phoenix:
(a) To Phoenix's Knowledge, is not in violation of any Law,
Order, or Permit applicable to any Asset or to the Business; and
(b) Has not received any notification or communication from
any agency or department of federal, state, or local government or any
Regulatory Authority (i) asserting that Phoenix is not in compliance with any
Law or Order; (ii) threatening to revoke any Permit; or (iii) requiring Phoenix
to enter into or consent to the issuance of a cease and desist order, formal
agreement, directive, commitment, or memorandum of understanding, or to adopt
any Board resolution or similar undertaking, which restricts the conduct of the
Business.
4.12 REMUNERATION.
Article 4.12 to the Phoenix Disclosure Memorandum contains a
complete and accurate list of the compensation (including bonuses and vacation
benefits) paid in the calendar
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years 1995 and 1996 to salaried employees of Phoenix (taken from W-2 forms) who
remain currently employed by Phoenix and whose compensation during either year
exceeded $50,000 (Fifty Thousand United States Dollars).
4.13 LABOR RELATIONS.
Except as set forth in Article 4.13 of the Phoenix Disclosure
Memorandum: Phoenix is not a party to any Contract with a labor organization;
Phoenix is not the subject of any Litigation asserting that it has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it to bargain with any labor
organization as to wages or conditions of employment; there is no strike or
other labor dispute involving Phoenix, pending or, to Phoenix's Knowledge,
threatened; to the Knowledge of Phoenix, there is no activity involving
Phoenix's employees seeking to certify a collective bargaining unit or engaging
in any other organization activity.
4.14 EMPLOYEE BENEFIT PLANS.
(a) Phoenix has disclosed in Article 4.14 of the Phoenix
Disclosure Memorandum, and has delivered or made available to LIG prior to the
execution of this Agreement:
(i) Copies or, in the case of an unwritten plan, fund
or arrangement, a brief description, of all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus, or other incentive plan, all
other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance
plans, and all other employee benefit plans or fringe benefit plans,
including "employee benefit plans" as that term is defined in Section
3(3) of ERISA, which are currently or have, within the six (6) years
preceding the Closing Date, been (in the case of a Phoenix ERISA Plan
(as defined below)) adopted, maintained by, sponsored in whole or in
part by, or contributed to by Phoenix for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which employees, retirees, dependents,
spouses, directors, independent contractors, or other beneficiaries are
eligible to participate (collectively, the "Phoenix Benefit Plans");
(ii) All determination letters, rulings, opinion
letters, information letters, or advisory opinions issued by the United
States Internal Revenue Service, the United States Department of Labor,
or the Pension Benefit Guaranty Corporation after December 31, 1988;
(iii) Annual reports or returns or, in the case of a
Form 5500, a statement as to the reason no such report or return was
required, audited or unaudited Phoenix Financial Statements, actuarial
valuations and reports, summary annual reports prepared for any Phoenix
Benefit Plan with respect to the most recent three plan years and each
trust agreement and group annuity or insurance contract relating to any
such Phoenix Benefit Plan; and
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(iv) the most recent summary plan descriptions and
any material modifications thereto. Any of the Phoenix Benefit Plans
which is an "employee pension benefit plan," as that term is defined in
Section 3(2) of ERISA, is referred to herein as a "Phoenix ERISA Plan."
Each Phoenix ERISA Plan which is also a "defined benefit plan" (as
defined in Section 414(j) of the Internal Revenue Code) is referred to
herein as an "Phoenix Pension Plan." As used herein, the term Phoenix
Benefit Plan shall include any Phoenix ERISA Plan and Phoenix Pension
Plans.
(b) Except as disclosed in Article 4.14(b) of the Phoenix
Disclosure Memorandum: All Phoenix Benefit Plans have been maintained,
administered and funded in compliance with the applicable terms of ERISA, the
Internal Revenue Code, and any other applicable Law. All Phoenix Benefit Plans
have been administered in accordance with their written terms except to the
extent inconsistent with applicable Law. No oral or written representation or
communication with respect to any aspect of the Phoenix Benefit Plans has been
made to employees of Phoenix prior to the Closing which is not in accordance
with the written or otherwise preexisting terms and provisions of such plans.
There are no unresolved claims or disputes under the terms of, or in connection
with, the Phoenix Benefit Plans other than claims for benefits which are payable
in the ordinary course of business, and no action, proceeding, prosecution,
inquiry, hearing or investigation has been commenced with respect to any Phoenix
Benefit Plan. Each Phoenix ERISA Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code has received a favorable
determination letter from the Internal Revenue Service with respect to currently
applicable tax laws, and Phoenix is not aware of any circumstances which could
result in revocation of any such favorable determination letter. All filings and
reports as to each Phoenix Benefit Plan which are required to have been made on
or before the Closing Date have been made. No Phoenix Benefit Plan is a Phoenix
Pension Plan and neither the Company nor any ERISA Affiliate of the Company has
ever incurred or expects to incur any liability under Title IV of ERISA that has
not already been satisfied or any liability or penalty under Section 4975 or
4980B of the Code or Section 502(i) of ERISA that has not already been
satisfied.
(c) Within the six-year period preceding the Closing, neither
Phoenix nor any ERISA Affiliate has incurred any withdrawal Liability with
respect to a multi-employer plan under Subtitle B of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate), nor has
Phoenix engaged in any transaction with a principal purpose of evading or
avoiding withdrawal liability. If, as of a date which is ninety (90) days after
the Closing Date, Phoenix and its ERISA Affiliates were to withdraw from all
multiemployer plans to which it (or any of them) has contributed or been
obligated to contribute, it (or they) would incur no liabilities to such plans
under Title IV of ERISA. With respect to each multiemployer plan, (A) no such
plan has been terminated or has been in reorganization under ERISA so as to
result, directly or indirectly, in any liability, contingent or otherwise, of
the Company or its ERISA Affiliates under Title IV of ERISA; (B) no proceeding
has been initiated by any person or entity (including the PBGC) to terminate any
such multiemployer plan; (C) the Company has no reason to believe that any such
plan will be terminated or reorganized under ERISA; and (D) neither the Company
nor its ERISA Affiliates intend to withdraw from any multiemployer plan. No
notice of a "reportable event," within the meaning of Section 4043 of ERISA for
which the thirty (30)-day reporting requirement has not been waived, has been
required to be
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filed for any Phoenix Pension Plan or by any ERISA Affiliate, whether before or
after the date such affiliation commenced.
(e) Except as disclosed in Article 4.14(e) of the Phoenix
Disclosure Memorandum, Phoenix has no current or contingent Liability under any
of the Phoenix Benefit Plans which would be required to be disclosed under SFAS
106 or 116 (assuming such standards applied), and there are no restrictions on
the rights of Phoenix to amend or terminate any such Benefit Plan without
incurring any Liability thereunder.
(f) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated by it will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of Phoenix under any
Phoenix Benefit Plan or otherwise, (ii) increase any benefits otherwise payable
under any Phoenix Benefit Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of Phoenix and their respective beneficiaries, other than
entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the Phoenix Financial Statements to the extent
required by and in accordance with GAAP.
(h) All contributions or premium payments due or accrued with
respect to any Phoenix Benefit Plan through the Closing have been paid by
Phoenix to or on behalf of such Plan, or are disclosed in the Phoenix Financial
Statements.
4.15 MATERIAL CONTRACTS.
With respect to each Material Phoenix Contract and except as
disclosed in Article 4.15 of the Phoenix Disclosure Memorandum: (i) such
Material Contract is in full force and effect; (ii) Phoenix has the legal
authority to assign such Material Contract to LIG; (iii) Phoenix is not in
Default thereunder; (iv) Phoenix has not repudiated or waived any Material
provision of such Material Contract; and (v) to the Knowledge of Phoenix, no
other party to such Material Contract is in Default in any respect, or has
repudiated or waived any Material provision thereunder.
4.16 REAL PROPERTY.
Article 4.16 to the Phoenix Disclosure Memorandum contains a
complete and correct description of all Real Property used in the Business.
Except as disclosed in Article 4.16 of the Phoenix Disclosure Memorandum:
(a) There are no written or oral promises, understandings or
commitments with any Person concerning the purchase, sale, or lease of the Real
Property.
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(b) All rights and easements for public vehicular access to
the Real Property and necessary for the Business are available to the Real
Property, and to Phoenix's Knowledge no facts or circumstances exist that do, or
may, adversely effect such rights and easements.
(c) All public and private utilities required for the
operation of the Real Property and the Business are installed and operating, and
to Phoenix's Knowledge all such public and private utilities enter through
public land or in accordance with valid recorded public easements or private
easements that will inure to the benefit of LIG.
(d) All of the Real Property is in compliance with all
applicable zoning or similar land use restrictions and with all recorded
restrictions, covenants, and conditions; Phoenix has performed all affirmative
covenants relating to the Real Property; and to Phoenix's Knowledge, no zoning
or similar land use restrictions are presently proposed by any governmental
authority that would impair the operation of the Business or that would impair
the use, occupancy, or enjoyment of any of the Real Property.
(e) No third party has made or, to Phoenix's Knowledge,
threatened to make a claim of adverse possession with respect to any of the Real
Property.
(f) None of the Real Property is subject to any Order for its
sale, condemnation, expropriation, or taking by any governmental authority, nor,
to Phoenix's Knowledge, has any such sale, condemnation, expropriation, or
taking been proposed or threatened.
(g) There is no pending litigation, and Phoenix has received
no notice of any dispute, concerning the location of the lines and corners of
the Real Property of the Plant, and Phoenix has not been served with any legal
action concerning the location of the lines and corners of said Real Property.
(h) To Phoenix's Knowledge, there are no Material defects in
or damage to the improvements and Real Property comprising the Plant, including,
without limitation, the roof, the elevators, the structure, or the heating, air
conditioning, plumbing, electrical, drainage, fire alarm and exhaust systems and
their component parts. Phoenix has received no notice from a governmental
authority that the operation of the Plant does not comply with any applicable
fire, electrical, or building codes, rules, or regulations. There is no license,
approval or permit, necessary for either the lawful operation of the Plant or
the lawful occupancy thereof, including utility, building occupancy or
construction, subdivision control, land or water use, or flood hazard permits,
which has not been obtained, and all required permits and licenses, including
occupancy and building permits, have been paid for, are in full force and
effect.
(i) There is no Default by Phoenix nor, to the best of
Phoenix's Knowledge, any other party thereto, under any covenants, conditions,
restrictions or easements which may affect the Plant or any portion or portions
thereof which are to be performed or complied with by the owner of the Plant.
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4.17 FIXED ASSET LEASES.
Article 4.17 to the Phoenix Disclosure Memorandum contains a
list of the leases or other agreements under which Phoenix leases, licenses,
holds, or operates any Material Fixed Asset in connection with the Business, and
each such lease requiring the consent or authorization of the lessor in order to
effect the assignment or transfer of such lease to LIG is so identified. All
such leases and agreements are in full force and effect, and there have not been
and there are currently not any Material Defaults thereunder by Phoenix or any
other party thereto.
4.18 LEGAL PROCEEDINGS.
Article 4.18 of the Phoenix Disclosure Memorandum includes a
summary report of all Litigation to which Phoenix is a party, or which is
threatened against Phoenix, as of the date of this Agreement. Except as
disclosed in Article 4.18 of the Phoenix Disclosure Memorandum, to the Knowledge
of Phoenix there is no Litigation instituted, pending, or threatened against
Phoenix, any officer or director of Phoenix, or any Asset, that is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
the Assets or the Business, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding against
Phoenix, that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on the Assets or the Business.
4.19 SUPPLIERS AND CUSTOMERS.
(a) Article 4.19(a) of the Phoenix Disclosure Memorandum sets
forth each supplier of Phoenix to whom payments were made which equaled or
exceeded five percent (5%) of Phoenix's cost of goods sold for the fiscal years
ended December 31, 1995, and 1996 or to whom payments are projected to equal or
exceed such percentage for the current fiscal year ("Large Suppliers") and the
percentage of Phoenix's cost of goods sold allocable to each Large Supplier for
each such fiscal year. Except as reflected in Article 4.19(a) of the Phoenix
Disclosure Memorandum, no supplier is a sole source of supply of any good or
service to Phoenix.
(b) Article 4.19(b) of the Phoenix Disclosure Memorandum
identifies each customer or group of related customers from whom payments were
received which equaled or exceeded five percent (5%) of Phoenix's gross sales
for the fiscal years ended December 31, 1995, and 1996 or from whom payments are
projected to equal or exceed such percentage for the current fiscal year ("Large
Customers") and the percentage of Phoenix's gross sales allocable to each of
such Large Customer for each such fiscal year.
(c) To the Knowledge of Phoenix: the relationships of Phoenix
with its Large Suppliers and Large Customers are good commercial working
relationships; no Large Supplier nor any Large Customer has terminated, or
threatened to terminate, its relationship with Phoenix or has during the last
twelve (12) months decreased or limited, or threatened to decrease or limit, its
services, supplies or materials to Phoenix or its usage or purchase of the goods
or services of Phoenix; Phoenix has no Knowledge that any Large Supplier or any
Large Customer intends to terminate or otherwise Materially and adversely modify
its relationship with Phoenix or decrease
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or limit its services, supplies or materials to Phoenix or its usage or purchase
of the goods or services of Phoenix; and the acquisition of the Assets by LIG
will not, to the Knowledge of Phoenix, Materially and adversely affect the
relationship of the Business or of LIG as successor to Phoenix with any Large
Supplier or any Large Customer.
4.20 PRODUCTS LIABILITY; WARRANTIES.
Except as set forth in Article 4.20 of the Phoenix Disclosure
Memorandum, to the Knowledge of Phoenix no Material product liability or
warranty claims arising out of the Business, no Material claim arising out of an
implied or expressed warranty, and no Material claims in whole or in part
premised from product liability which relates to the Business, is pending or
threatened against Phoenix.
4.21 INTELLECTUAL PROPERTY.
Article 4.21 of the Phoenix Disclosure Memorandum contains a
true and complete list of Phoenix's patents, trademarks, service marks, trade
names, copyrights, and applications or registrations therefor. All licenses of
Intellectual Property are in full force and effect and constitute legal, valid,
and binding obligations of their respective parties; there have not been and
there currently are not any Material Defaults under those licenses by any party;
and no event has occurred which would constitute a Material Default thereunder.
Except as disclosed in Article 4.21 of the Phoenix Disclosure Memorandum,
Phoenix has all title, rights, and interest in the Intellectual Property free
and clear of all assignments, licenses, restrictions, encumbrances, charges, or
claims of infringement, and Phoenix has received no written claim or notice from
any third party, including any employee of Phoenix, that such third party has
any interest in such rights. To the Knowledge of Phoenix, none of the
Intellectual Property applications, trademark or service mark registrations,
trade names, or copyrights and related rights as used by Phoenix infringes upon
or otherwise violates the rights of any other Person nor has any Person asserted
to Phoenix a written claim of such infringement or other violation except as
disclosed in Article 4.21 of the Phoenix Disclosure Memorandum. Except as
disclosed in Article 4.21 of the Phoenix Disclosure Memorandum, Phoenix is not
obligated to pay any royalties for the Intellectual Property to any Person.
4.22 INSURANCE.
Article 4.22 of the Phoenix Disclosure Memorandum contains a
complete and accurate list of all insurance policies held by Phoenix insuring
the Assets or the Business and indicates the nature of each policy, the risks
covered thereby, and the amount of coverage in each case. All such policies are
in full force and effect, and all premiums have been timely paid.
4.23 COMPUTER SOFTWARE AND DATABASES.
Article 4.23 of the Phoenix Disclosure Memorandum accurately
identifies all computer software and databases owned, licensed, leased,
internally developed or otherwise used in connection with the Business. Phoenix
has, and upon consummation of the transactions contemplated by this Agreement
LIG will have, all computer software and databases and all rights to use all
computer
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software and databases that are necessary to conduct the Business as presently
conducted by Phoenix and all documentation relating to all such computer
software and databases. All such computer software and databases perform
substantially in accordance with the documentation related thereto or used in
connection therewith. Except as disclosed in Article 4.23 of the Phoenix
Disclosure Memorandum, all software developed internally, or externally, for use
with the Business was developed initially by Phoenix employees or has been
assigned, including all copyrights therein, to Phoenix. Article 4.23 of the
Phoenix Disclosure Memorandum identifies each Person to whom Phoenix, in the
last two (2) years, has sold, licensed, leased or otherwise transferred or
granted any interest or rights to any of such computer software and databases
and the date of each such sale, license, lease or other transfer or grant.
Phoenix has previously delivered to LIG complete and accurate copies of all
documents relating to each such sale, license, lease or other transfer or grant.
4.24 COMPLIANCE WITH THE IMMIGRATION REFORM AND CONTROL ACT.
Phoenix is in Material compliance with and has not Materially
violated the terms and provisions of the Immigration Reform and Control Act of
1986, and all related regulations promulgated thereunder (the "Immigration
Laws"). Phoenix has supplied, or shall supply prior to the Closing Date, to LIG
the Form I-9, and all other records, documents or other papers retained with the
Form I-9 by the employer pursuant to the Immigration Laws, for each employee of
Phoenix for whom compliance with the Immigration Laws by an employer is
required. Phoenix has never been the subject of any inspection or, to Phoenix's
Knowledge, investigation relating to its compliance with or violation of the
Immigration Laws, nor has it been warned, fined or otherwise penalized by reason
of any failure to comply with the Immigration Laws, nor is any such proceeding
pending or threatened.
4.25 COMPLIANCE WITH OSHA.
To the Knowledge of Phoenix, the Assets and Business (a) are
and have been operated in substantial compliance with all applicable
Occupational Safety and Health Laws, (b) are not the subject of any pending
written notice from any governmental entity alleging the violation of any
Occupational Safety and Health Law, and (c) are not currently subject to any
court order, administrative order, decree, notice or citation arising under any
Occupational Safety and Health Law.
4.26 INTERESTED TRANSACTIONS.
Except as disclosed in Article 4.26 of the Phoenix Disclosure
Memorandum, Phoenix is not a party to any Contract or other transaction with any
Affiliate of Phoenix, any Related Party of any Affiliate of Phoenix (other than
as a shareholder or employee of Phoenix), or any Person in which any of the
foregoing (individually or in the aggregate) beneficially or legally owns,
directly or indirectly, five percent (5%) or more of the equity or voting
interests. Each of such Contracts and other transactions described in the
preceding sentence was negotiated on an arm's length basis, contains pricing
terms that reflected fair market value at the time entered into
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and otherwise contains terms and conditions comparable to those customarily
contained in similar transactions between unrelated parties. Except as described
in Article 4.26 of the Phoenix Disclosure Memorandum, none of the Persons
described in the first sentence of this Article 4.26 owns, or during the last
three (3) years has owned, directly or indirectly, beneficially or legally,
(individually or in the aggregate) five percent (5%) or more of the equity or
voting interests of any Person that competes with Phoenix or the Business.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LIG
LIG represents and warrants to Phoenix as follows:
5.1 ORGANIZATION, STANDING, AND POWER.
LIG is a corporation duly organized, validly existing, and in
good standing under the Laws of New Jersey, and has the power and authority to
carry on its business as now conducted. LIG is duly qualified or licensed to
transact business in the States of the United States and foreign jurisdictions
where the character of its assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on LIG.
5.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) LIG has the power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated by it. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated in it have been,
and the exercise of the Option by LIG will be, duly and validly authorized by
all necessary action in respect thereof on the part of LIG. This Agreement
represents a legal, valid, and binding obligation of LIG, enforceable against
LIG in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by
LIG, nor the consummation by LIG of the transactions contemplated by it, nor
compliance by LIG with any of the provisions of this Agreement will: (i)
conflict with or result in a breach of any provision of LIG's Certificate of
Incorporation or Bylaws; (ii) constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien, on any
asset of LIG under any Contract or Permit of LIG; or (iii) violate any Law or
Order applicable to LIG or its assets.
(c) Other than in connection or compliance with the provisions
of U.S. securities Laws, applicable state corporate and securities Laws, and
other than Consents required from Regulatory Authorities, and other than notices
to or filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, no notice to, filing
with, or Consent of, any public body or authority is necessary for the
consummation by LIG of the transactions contemplated in this Agreement.
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ARTICLE 6
COVENANTS
6.1 CONDUCT OF PHOENIX'S BUSINESS PENDING CONSUMMATION.
(a) AFFIRMATIVE COVENANTS. Phoenix covenants and agrees with
LIG that, from the date of execution of this Agreement until the earlier of the
Closing Date or the expiration or termination of this Agreement, Phoenix shall:
(i) Operate the Business only in the usual, regular,
and ordinary course (activities pursuant to the R&D Agreement
excepted);
(ii) Maintain the Assets in accordance with normal
practices in the same working order as the Assets are in as of the date
of this Agreement, ordinary wear and tear excepted;
(iii) Use its reasonable best efforts to keep the
Business and the Assets intact and maintain all relationships with
suppliers, customers, and contractors of the Business;
(iv) Maintain inventory at levels consistent with
Phoenix's current requirements and strategic plans and sufficient to
support sales growth;
(v) Use its reasonable best efforts to maintain the
services of employees of Phoenix;
(vi) Keep in force at their existing levels all
insurance policies applicable to the Assets or the Business; and
(vii) Promptly advise LIG in writing of any matter
arising or discovered after the date of this Agreement that has or is
reasonably expected to have a Material Adverse Effect on the Assets or
the Business.
(b) NEGATIVE COVENANTS. Phoenix covenants and agrees with LIG
that, from the date of execution of this Agreement until the earlier of the
Closing Date or the expiration or termination of this Agreement, Phoenix will
not do or agree or commit to do, any of the following without the prior written
consent of the chief executive officer or chief financial officer of LIG, which
consent shall not be unreasonably withheld:
(i) Voluntarily permit or allow any of the Assets to
be subjected to any Lien other than Liens disclosed in the Phoenix
Financial Statements;
(ii) Incur any additional debt obligation or other
obligation for borrowed money in excess of an aggregate of $100,000
(One Hundred Thousand United States Dollars) which relates to the
Assets or the Business other than trade debt incurred in the ordinary
course of business;
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(iii) Make any capital expenditure or capital
commitment relating to the Business or enter into any agreement for the
lease, as lessee or lessor, of any real estate, machinery or equipment
relating to the Business in excess of $50,000 (Fifty Thousand United
States Dollars) per expenditure, commitment or agreement or $100,000
(One Hundred Thousand United States Dollars) in the aggregate for all
capital expenditures, commitments, or agreements, exclusive of capital
expenditures made pursuant to the Loan Agreement;
(iv) Cancel or waive any debt of the Business for
borrowed money owed to Phoenix with respect to the Business or any
claims, rights or leases of the Business;
(v) Dispose of or voluntarily permit to lapse any
previously unexpired right to the use of the Intellectual Property or
dispose of or disclose to any person any of the Intellectual Property
that is used exclusively or primarily in connection with the operation
of the Business and that is not theretofore in public knowledge;
(vi) Grant any increase in compensation or benefits
to the employees or officers of Phoenix, except as required by Law; pay
any severance or termination pay or any bonus; enter into or amend any
severance agreements with officers of Phoenix; or grant any material
increase in fees or other increases in compensation or other benefits
to directors of Phoenix;
(vii) Subsequent to receipt of the Notice of Exercise
and prior to Closing, terminate the employment of any individual
employed by Phoenix except for cause or when the employee voluntarily
terminates his or her own employment;
(viii) Adopt any new employee benefit plan of Phoenix
or make any Material change in or to any existing Phoenix Benefit Plan
other than any such change that is required by Law or that, in the
opinion of counsel, is necessary or advisable to maintain the tax
qualified status of any such plan in which case Phoenix shall notify
LIG in advance and in writing;
(ix) Commence any Litigation relating to the Assets
or the Business other than in accordance with past practice, or settle
any Litigation involving the Assets or the Business;
(x) Except in the ordinary course of business,
modify, amend or terminate any Material Contract or any Assumed
Liability listed in Article 13.1.1 of the Phoenix Disclosure
Memorandum, or waive, release, compromise or assign any Material rights
or claims;
(xi) Take any action that would (1) prevent either
Party from obtaining any Consent required for the transactions
contemplated hereby, or (2) prevent either Party from performing its
covenants and agreements under this Agreement;
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(xii) Issue new shares of Phoenix capital stock,
except such shares as are subject, as of the date of this Agreement, to
the exercise of a warrant or an option at an option price of $2.75 or
less; or
(xiii) Declare or pay any distribution to Phoenix
shareholders.
6.2 ADDITIONAL COVENANTS OF PHOENIX.
Phoenix further covenants and agrees with LIG as follows:
(a) CONTINUATION OF CORPORATION.
Except as required by law or with the written consent of LIG,
which shall not be unreasonably withheld, Phoenix shall continue its corporate
existence and shall not liquidate, merge, or otherwise terminate its corporate
existence so long as this Agreement is in force and effect and so long as any
indemnification claim by LIG pursuant to Article 8 may be outstanding.
(b) CONTINUATION OF INSURANCE.
Phoenix shall continue in force after Closing all necessary
and appropriate insurance coverage for the Retained Liabilities, consistent with
Phoenix's past and current practice.
(c) EXCLUSIVE DEALING.
Unless and until this Agreement expires or is terminated
pursuant to Article 10, Phoenix will not, directly or through any officer,
director, agent or other Person, solicit or initiate any proposal or offer from
any Person relating to: (i) any purchase of the Assets or any Material portion
thereof; (ii) any merger of Phoenix with any third Person; (iii) a sale of the
stock of Phoenix; or (iv) any similar transaction involving Phoenix.
(d) CONSENTS AND APPROVALS.
Phoenix will use its reasonable best efforts to obtain all
waivers, Consents, and approvals of, and provide all notices to, all Persons
whose waiver, Consent, or approval is required by any Contract, Order, Law or
License relating to Phoenix in order to consummate the transactions contemplated
by this Agreement. All written waivers, Consents, and approvals obtained by, and
all notices provided by, Phoenix shall be delivered to LIG at or before the
Closing in form and content reasonably satisfactory to LIG.
(e) DUE DILIGENCE.
Prior to the Closing Date, Phoenix shall keep LIG advised of
all Material developments relevant to the Business and to consummation of the
transactions contemplated by this Agreement and shall permit LIG to make or
cause to be made such investigation of the Business and Assets and of its
financial and legal conditions as LIG reasonably requests. No investigation by
LIG shall affect the representations and warranties of Phoenix.
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(f) WITHDRAWAL LIABILITY.
Phoenix expressly assumes liability for (and covenants that it
will pay in full) any "withdrawal liability" arising under Title IV Subtitle E
of ERISA which is imposed on Phoenix or LIG as a result of any transaction
contemplated herein but only to the extent said liability applies to the period
prior to Closing.
(g) SUPPLEMENTAL DISCLOSURE MEMORANDUM.
At LIG's request and at any time prior to LIG's exercise of
the Option pursuant to Article 1.3, Phoenix agrees to prepare a Supplemental
Disclosure Memorandum that will, as of the date of said Supplemental Disclosure
Memorandum : (i) make current the information disclosed by Phoenix in the
Phoenix Disclosure Memorandum; and (ii) restate and affirm to LIG Phoenix's
representations and warranties in Article 4 of this Agreement, as qualified by
the Supplemental Disclosure Memorandum. In the event that the Supplemental
Disclosure Memorandum is executed on or after March 31, 1998, all
representations and warranties thereby restated and affirmed by Phoenix shall be
amended so that: (i) all references to the "1996 Phoenix Balance Sheet" shall be
changed to the "1997 Phoenix Balance Sheet," and all references to "December 31,
1996" shall be changed to "December 31, 1997."
(h) COMPLIANCE WITH FEDERAL PENSION LAWS.
Phoenix agrees that, if and to the extent any Phoenix Benefit
Plan is not in Material compliance with section 401(a) of the Internal Revenue
Code or ERISA, including any non-compliance disclosed in Article 4.14(b) of the
Phoenix Disclosure Memorandum, Phoenix will use its reasonable best efforts to
remedy any such non-compliance as soon as practicable after execution of this
Agreement.
6.3 COVENANTS OF LIG.
LIG covenants and agrees with Phoenix that, except as required
by Law, from the date of this Agreement until the earlier of the Closing Date or
the expiration or termination of this Agreement, LIG shall take no action that
would (a) Materially adversely affect the ability of any Party to obtain any
Consent required for the transactions contemplated hereby, or (b) Materially
adversely affect the ability of any Party to perform its covenants and
agreements under this Agreement.
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 AGREEMENT AS TO EFFORTS TO CONSUMMATE.
Subject to the terms and conditions of this Agreement, each
Party agrees to use its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all
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things necessary, proper, or advisable under applicable Laws to consummate and
make effective, as soon as practicable after the date of this Agreement, the
transactions contemplated by this Agreement, including using its reasonable best
efforts to lift or rescind any Order adversely affecting its ability to
consummate the transactions contemplated herein and to cause to be satisfied the
conditions referred to in Article 9 of this Agreement. Each Party shall use its
reasonable efforts to obtain all Consents necessary or desirable for the
consummation of the transactions contemplated by this Agreement. This Article
7.1 shall not, however, be construed to require LIG to exercise the Option.
7.2 CONFIDENTIALITY.
Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to it by
the other Party concerning its businesses, operations, and financial positions
and shall not use such information for any purpose except in furtherance of the
transactions contemplated by this Agreement. If this Agreement is terminated
prior to Closing, each Party shall promptly return or certify the destruction of
all documents and copies thereof, and all work papers containing confidential
information received from the other Party.
7.3 NOTIFICATION OF CERTAIN EVENTS.
Each Party shall promptly notify the other Party as soon as
practicable after it has Knowledge of (a) the occurrence, or failure to occur,
of any event that would, or would be likely to cause, either Party's
representations or warranties in this Agreement to be untrue or incorrect in any
Material respect, or (b) any failure on its part or the part of any of its
officers, directors, employees, Representatives, or agents to comply with or
satisfy in any Material respect any covenant, condition, or agreement in this
Agreement.
7.4 PUBLIC RELEASES.
Phoenix and LIG shall consult with each other as to the form
and substance of any press release or other public disclosure Materially related
to this Agreement or any other transaction contemplated hereby, including the
Proxy Statement; provided, that nothing in this Article 7.4 shall be deemed to
prohibit any Party from making any disclosure which its counsel deems necessary
or advisable in order to satisfy that Party's disclosure obligations imposed by
Law.
7.5 FORWARDING OF AMOUNTS.
Phoenix shall promptly forward to LIG any amounts received by
Phoenix after the Closing which pertain to the operation of the Business or the
use of the Assets.
7.6 PLANT CLOSING LAW.
Set forth in Article 7.6 of the Phoenix Disclosure Memorandum
is a list of all employees of Phoenix whose employment has been terminated
during the six-month period prior
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to the date of this Agreement, the dates of such terminations, and the location
of their employment. LIG shall bear all responsibility for any liability or
obligation under the Workers' Assistance and Retraining Notification Act in
connection with the Business arising from any action by LIG (whether or not
considered in conjunction with the activity specified in said Article 7.6 of the
Phoenix Disclosure Memorandum) after the Closing.
7.7 ASSUMPTION OF EMPLOYEE BENEFIT PLAN OBLIGATIONS;
TRANSFER OF ASSETS.
(a) As of the Closing, LIG shall assume sponsorship of the
Benefit Plans listed in Article 4.14 of the Phoenix Disclosure Memorandum.
Phoenix agrees to take whatever action is necessary to transfer sponsorship of
such Benefit Plans to LIG, including any reasonable action requested by LIG.
(b) Phoenix further agrees as follows:
(i) To maintain all records associated with such
Benefit Plans between the date of execution of this Agreement and the
earlier of the termination of this Agreement and the Closing and to
deliver or make available to LIG such records at Closing;
(ii) To maintain all such Benefit Plans without
modification or amendment thereto between the date of execution of this
Agreement and the earlier of the termination of this Agreement and the
Closing, except to the extent the amendment or modification is required
to maintain the Benefit Plans' tax qualified status or is otherwise
required to comply with applicable law; and
(iii) To maintain all insurance contracts,
administrative contracts, trust agreements, and other agreements, or
arrangements pertaining to such Benefit Plans between the date of
execution of this Agreement and the earlier of the termination of this
Agreement and the Closing except as otherwise agreed between Phoenix
and LIG, and to take any and all action requested by LIG to assign such
contracts or agreements to LIG or its designee at the Closing.
7.8 CHANGE OF NAME.
On the Closing Date, or as soon thereafter as practicable,
Phoenix shall take all actions necessary to change its corporate name to a name
that is not likely to be confused with "Phoenix."
7.9 TAX MATTERS.
(a) SALES TAXES, ETC.
Phoenix and LIG shall each pay one-half of all applicable
sales, transfer, documentary, use and filing taxes and fees that are, or become,
due or payable as a result of the sale,
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conveyance, assignment, transfer or delivery of the Assets, whether levied on
Phoenix or LIG. Except for Taxes that constitute Assumed Liabilities and except
to the extent such proration occurs automatically as a result of the Purchase
Price adjustment procedure in Article 2.3, all real estate, personal property,
ad valorem and any other local or state Taxes relating to the Assets which shall
be accrued but unpaid as of the Closing Date, or which shall be paid as of the
Closing Date but related in whole or part to periods after the Closing Date,
shall be prorated to the Closing Date.
(b) SECTION 1060 STATEMENT AND FORMS.
LIG and Phoenix shall each be responsible for the preparation
of its own Section 1060 Statements and Section 1060 Forms in accordance with
applicable Tax Laws. LIG and Phoenix agree, however, to provide to each other
such information as is reasonably necessary to prepare such Section 1060
Statements and Section 1060 Forms and to execute and deliver to each other such
Section 1060 Statements and Section 1060 Forms as are reasonably requested.
(c) CONTROL OF TAX PROCEEDINGS.
If any claim, suit, or proceeding shall be made by any Tax
authority that could give rise to an additional payment of Tax, interest or
penalty related to the Business or the Assets, the Party under this Agreement
responsible for payment of that Tax, interest or penalty shall control all
proceedings arising in connection with the claim, suit or proceeding.
(d) COOPERATION ON TAX MATTERS.
LIG and Phoenix, upon request, shall use their respective
reasonable best efforts to obtain any certificate or other document from any Tax
authority, customer or other person that may be necessary to mitigate, reduce or
eliminate any Tax (including interest and penalties) that would otherwise be
imposed with respect to the Business, the Assets, or the transfer thereof
contemplated in this Agreement. The Party requesting such information and
assistance pursuant to this Article shall reimburse the other Party for all
reasonable out-of-pocket costs and other third-party costs incurred by that
Party in providing such information and in rendering such assistance.
Notwithstanding the foregoing, neither Party shall be entitled to reimbursements
for costs incurred in connection with securing either (i) any certificate or
other document in connection with the transactions contemplated by this
Agreement, or (ii) Tax clearance or similar certificates necessary in order to
avoid or limit LIG's exposure for successor liability.
(e) BULK SALES LAWS.
LIG waives compliance with the bulk sales Law of any state or
other jurisdiction that may be applicable to the transactions contemplated in
this Agreement. LIG retains the right to assert as a bar or defense to any
action or proceeding brought under such Law that it is not applicable to the
sale contemplated under this Agreement.
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7.9 WASTEWATER TREATMENT SYSTEM.
(a) Each Party agrees to cause its own environmental advisers
to conduct, at such Party's own expense, additional tests of Phoenix's
wastewater treatment system to determine whether that system is capable of
meeting zinc discharge standards currently proposed or actually implemented by
the Town of Andrews for Phoenix's facilities, and, if not, what additional
capital expenditures or other measures may be necessary to permit the system to
meet those standards. The Parties further agree to cause their environmental
advisers to consult and cooperate with one another with a view toward minimizing
testing expenses for each Party.
(b) If, as of Closing, Phoenix has presented documentation to
LIG sufficient, in LIG's sole and reasonable judgment, to demonstrate that
Phoenix's existing wastewater treatment system will be able, without additional
capital expenditures, to comply with the Town of Andrews' zinc discharge
standards in effect or officially proposed as of the Closing Date: (i) Article
2.2(a) shall be amended to provide for a payment to Phoenix at Closing of
$5,321,708.00 (Five Million, Three Hundred Twenty-One Thousand, Seven Hundred
Eight United States Dollars); (ii) Article 2.2(b) shall be amended to provide
for the delivery to the Escrow Agent at Closing of $1,500,000.00 (One Million
Five Hundred Thousand United States Dollars); (iii) Article 8.2(e) shall be
deleted from this Agreement; and (iv) the phrase ", other than the matters
governed by paragraph 8.2(e)" in Article 8.2(d) shall be deleted from this
Agreement.
ARTICLE 8
INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) All representations, warranties, agreements and covenants
made or undertaken by the Parties in this Agreement are Material, have been
relied upon by the other Party, shall survive the Closing, and shall not merge
in the performance of any obligation by any Party.
(b) The representations and warranties made by Phoenix and
contained in Article 4 of this Agreement are deemed by the Parties to have been
made by Phoenix on and as of the date of this Agreement, the date of the
Supplemental Disclosure Memorandum, and the Closing Date with the same force and
effect as if this Agreement were executed by Phoenix and LIG on each such date.
(c) The representations and warranties made by LIG and
contained in Article 5 of this Agreement are deemed by the Parties to have been
made by LIG on and as of both the date of this Agreement and the Closing Date
with the same force and effect as if this Agreement were executed by Phoenix and
LIG on each such date.
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8.2 OBLIGATION OF PHOENIX TO INDEMNIFY.
Subject to the limitations contained in Articles 8.4 and 8.5,
Phoenix agrees to indemnify LIG and its officers, directors, employees, counsel,
agents, Affiliates and assigns against, and hold each of them harmless from, all
Losses asserted against, imposed upon or incurred by any of the foregoing
resulting from, arising out of, or based upon the following:
(a) Any inaccuracy in any representation or warranty made by
Phoenix, or any breach of any covenant or agreement made or to be performed by
Phoenix pursuant to this Agreement or any of the documents to be executed and
delivered by Phoenix in connection with the transactions contemplated by this
Agreement;
(b) Any liability for personal injury or related property
damage to any third party arising out of and attributable to the manufacture,
sale, or distribution of any product by Phoenix prior to Closing;
(c) Any liability for infringement or other violation of any
Intellectual Property right of any third party arising out of and attributable
to the manufacture, sale, or distribution of any Phoenix product or the conduct
of the Business prior to Closing;
(d) Any cleanup, correction, removal, or remedial action
related to the Assets, the Real Property, or the Business attributable to
conditions existing at or prior to the Closing and necessary to comply with any
Environmental Law, other than the matters governed by paragraph 8.2(e);
(e) Any capital expenditure or related correction to the
wastewater treatment system at Phoenix's facilities in Andrews, South Carolina
reasonably necessary to permit that system to comply with zinc discharge
standards of the Town of Andrews in effect as of Closing or coming into effect
within eighteen months of Closing, provided, that Phoenix shall not be liable to
indemnify LIG to the extent that the wastewater treatment system is unable to
satisfy said discharge standards because LIG has changed the products
manufactured by, or the processes used in manufacturing at, the facilities; or
(f) Any Retained Liability, including any pending or
threatened litigation, charges of discrimination, citation, or the like based on
conduct occurring or accruing up to Closing.
8.3 OBLIGATION OF LIG TO INDEMNIFY.
Subject to the limitations in Articles 8.4 and 8.5, LIG agrees
to indemnify Phoenix and each of its respective officers, directors, employees,
counsel, agents, Affiliates and assigns against, and hold each of them harmless
from, all Losses asserted against, imposed upon or incurred by any of the
foregoing resulting from, arising out of, or based upon the following,
notwithstanding any actual or alleged negligence of any Person indemnified
hereunder:
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(a) Any inaccuracy in any representation or warranty made by
LIG pursuant to this Agreement;
(b) Any breach of any covenant or agreement made or to be
performed by LIG pursuant this Agreement or any of the documents to be executed
and delivered by LIG in connection with the transactions contemplated by this
Agreement;
(c) Any Liability incurred by Phoenix as a consequence of
LIG's operation of the Business post-Closing; or
(d) Any Assumed Liability.
8.4 LIMITATIONS ON INDEMNIFICATION.
(a) Phoenix shall not be required to indemnify LIG with
respect to a claim for indemnification pursuant to Article 8.2 (an
"Indemnification Claim") unless the amount of the Loss on which the
Indemnification Claim is based, when aggregated with all other such Losses,
exceeds $50,000.00 (Fifty Thousand United States Dollars) (the "Minimum
Aggregate Liability Amount"), at which time Losses may be asserted for the
Minimum Aggregate Liability Amount and any amounts in excess of the Minimum
Aggregate Liability Amount.
(b) Phoenix's maximum aggregate liability for Indemnification
Claims shall be $1,000,000.00 (One Million United States Dollars)(the "Maximum
Aggregate Liability Amount").
(c) The Minimum and Maximum Aggregate Liability Amounts shall
not apply to any Loss which results from or arises out of fraud or intentional
misrepresentation or an intentional breach of warranty on the part of Phoenix.
(d) Phoenix agrees to continue in force until the third
anniversary of the Closing Date, at Phoenix's expense, insurance against any
Loss that would give rise to an Indemnification Claim pursuant to Article 8.2(b)
(subject to usual policy exclusions) in a maximum aggregate amount of
$5,000,000.00 (Five Million United States Dollars) (the "Tail Coverage
Insurance") and to name LIG and its Affiliates as additional insureds under that
insurance. Phoenix shall be responsible for satisfying any such Indemnification
Claim only to the extent that such claim is not covered by the Tail Coverage
Insurance.
(e) Each Party shall act reasonably and in good faith to
mitigate any Loss arising out of or related to an indemnifiable claim pursuant
to this Article 8. No Party otherwise entitled to indemnification under this
Agreement shall be indemnified pursuant to this Agreement to the extent that
such Party's Losses are increased or extended by the willful misconduct,
violation of Law or bad faith of such Party.
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8.5 NOTICE OF LOSS OR ASSERTED LIABILITY; EXPIRATION OF
INDEMNIFICATION.
(a) Promptly after (i) becoming aware of circumstances that
have resulted in a Loss for which any Person or Persons entitled to
indemnification pursuant to Articles 8.2 or 8.3 intends to seek indemnification
under such Article (the "Indemnified Party") or (ii) receipt by the Indemnified
Party of written notice of any demand, claim or circumstances which, with the
lapse of time, the giving of notice or both, would give rise to a claim or the
commencement (or threatened commencement) of any Litigation that may result in a
Loss (an "Asserted Liability"), the Indemnified Party shall give notice (the
"Claims Notice") to the Party obligated to provide indemnification pursuant to
Articles 8.2 or 8.3 (the "Indemnifying Party"). The Claims Notice shall describe
the Loss or the Asserted Liability in reasonable detail, and shall indicate the
amount (estimated, if necessary) of the Loss that has been or may be suffered by
the Indemnified Party. The Claims Notice may be amended on one or more occasions
with respect to the amount of the Asserted Liability or the Loss at any time
prior to final resolution of the obligation to indemnify relating to the
Asserted Liability or the Loss. If a Claims Notice is not provided promptly as
required by this Article 8.5(a), the Indemnified Party nonetheless shall be
entitled to indemnification by the Indemnifying Party to the extent that the
Indemnifying Party has not established that it has been prejudiced by late
receipt of the Claims Notice. If, however, the Claims Notice is not provided
prior to compromise or payment of any Asserted Liability by the Indemnified
Party, the Indemnified Party shall only be entitled to indemnification by the
Indemnifying Party to the extent that the Indemnified Party has established that
the Indemnifying Party has not been prejudiced by such late receipt of the
Claims Notice.
(b) Claims Notices shall be made within eighteen (18) months
of the Closing Date. Failure by an Indemnified Party to provide a Claims Notice
within such notice period shall constitute a waiver of the claim in question,
and the Indemnified Party's right to make an indemnification claim for the
Losses in question shall expire.
8.6 OPPORTUNITY TO CONTEST.
Subject to the provisions of Article 8.7, the Indemnifying
Party may elect to compromise or contest, at its own expense and with counsel
reasonably acceptable to the Indemnified Party, any Asserted Liability. If the
Indemnifying Party elects to compromise or contest such Asserted Liability, it
shall within thirty (30) days (or sooner, if the nature of the Asserted
Liability so requires) notify the Indemnified Party of its intent to do so by
sending a notice to the Indemnified Party (the "Contest Notice"), and the
Indemnified Party shall cooperate, at the expense of the Indemnifying Party, in
the compromise or contest of such Asserted Liability. If the Indemnifying Party
elects not to compromise or contest the Asserted Liability, fails to notify the
Indemnified Party of its election as herein provided or contests its obligation
to indemnify under this Agreement, the Indemnified Party (upon further notice to
the Indemnifying Party) shall have the right to pay, compromise or contest such
Asserted Liability on behalf of and for the account and risk of the Indemnifying
Party. Anything in this Article 8.6 to the contrary notwithstanding, (i) the
Indemnified Party shall have the right, at its own cost and for its own account
(except as provided in Article 8.7), to compromise or contest any Asserted
Liability, and (ii) the Indemnifying Party shall not, without
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the Indemnified Party's written consent, settle or compromise any Asserted
Liability or consent to entry of any judgment which does not include an
unconditional term releasing the Indemnified Party from all Liability in respect
of such Asserted Liability. In any event, the Indemnified Party and the
Indemnifying Party may participate, each at its own expense, in the contest of
such Asserted Liability. Phoenix and LIG shall cooperate fully with one another
as to all Asserted Liabilities, shall make available to one another as
reasonably requested all information, records, and documents relating to all
Asserted Liabilities and shall preserve all such information, records, and
documents until the termination of any Asserted Liability. Phoenix and LIG also
shall make available to one another, as reasonably requested, their personnel,
agents, and other Representatives who are responsible for preparing or
maintaining information, records, or other documents, or who may have particular
knowledge with respect to any Asserted Liability.
8.7 DISPUTES WITH CUSTOMERS OR SUPPLIERS.
Article 8.6 notwithstanding, in the case of any Asserted
Liability by any present or former supplier or customer of either LIG or Phoenix
in connection with which LIG may make a claim against Phoenix for
indemnification pursuant to Article 8.2, LIG shall give a Claims Notice with
respect thereto but, unless LIG and Phoenix otherwise agree, LIG shall have the
exclusive right at its option to defend, at its own expense, any such matter,
subject to the duty of LIG to consult with Phoenix and its attorneys in
connection with such defense and provided that no such matter shall be
compromised or settled by LIG (other than compromises or settlements at LIG's
expense and for its account) without the prior consent of Phoenix, which consent
shall not be unreasonably withheld.
8.8 SUBROGATION RIGHTS.
In the event that the Indemnifying Party shall be obligated to
indemnify the Indemnified Party pursuant to this Article 8, the Indemnifying
Party shall, upon payment of such indemnity in full, be subrogated to all rights
of the Indemnified Party with respect to the Loss to which such indemnification
relates; provided, that the Indemnifying Party shall only be subrogated to the
extent of any amount paid by it or its insurance carriers pursuant to this
Article 8 in connection with such Loss.
8.9 EXCLUSIVE REMEDIES.
The remedies provided in Article 1.5 and 1.6 and in this
Article 8 shall be exclusive and no Indemnified Party shall be entitled to any
other remedy at law or in equity.
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ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO
CONSUMMATE THE PURCHASE AND SALE OF THE ASSETS
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY.
The respective obligations of each Party to consummate the
purchase and sale of the Assets pursuant to Article 2 are subject to the
satisfaction of the following conditions, unless waived by both Parties pursuant
to Article 12.5 of this Agreement:
(a) EXERCISE OF OPTION.
LIG shall have exercised the Option pursuant to Article 1.3
during the Option Period.
(b) REGULATORY APPROVALS.
All Consents of, filings and registrations with, and
notifications to, all Regulatory Authorities required for consummation of the
transactions contemplated by this Agreement shall have been obtained or made and
shall be in full force and effect and all waiting periods required by Law shall
have expired. No Consent obtained from any Regulatory Authority which is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner, which, in the reasonable judgment of the
Board of Directors of LIG or Phoenix, would have such a Material Adverse Effect
on the economic or business assumptions of the transactions contemplated by this
Agreement that, had such condition or requirement been known, LIG or Phoenix, as
the case may be, would not, in its reasonable judgment, have entered into this
Agreement.
(c) CONSENTS AND APPROVALS.
Each Party shall have obtained any and all Consents required
for consummation of the transactions contemplated by this Agreement or for the
preventing of any Default under any Contract or Permit of such Party which, if
not obtained or made, is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on such Party. No Consent so obtained which
is necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which, in the reasonable judgment of the
Board of Directors of either LIG or Phoenix, would have such a Material Adverse
Effect on the economic or business assumptions of the transactions contemplated
by this Agreement that, had such condition or requirement been known, LIG or
Phoenix, as the case may be, would not, in its reasonable judgment, have entered
into this Agreement.
(d) LEGAL PROCEEDINGS.
No court or governmental or regulatory authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law or Order (whether temporary, preliminary or permanent) or taken any other
action which prohibits, restricts or makes illegal consummation of the
transactions contemplated by this Agreement.
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9.2 CONDITIONS TO OBLIGATIONS OF LIG.
The obligations of LIG to consummate the purchase and sale of
the Assets pursuant to Article 2 are subject to the satisfaction of the
following conditions, unless waived by LIG pursuant to Article 12.5(a) of this
Agreement:
(a) REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Phoenix set forth or
referred to in this Agreement shall be true and correct in all Material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made on and as of the
Closing Date; and, in the event Phoenix prepares a Supplemental Disclosure
Memorandum pursuant to Article 6.2(g), the representations and warranties of
Phoenix as restated and affirmed therein shall be true and correct in all
Material respects as of the date of said Supplemental Disclosure Memorandum and
as of the Closing Date with the same effect as though all such representations
and warranties had been made on and as of the Closing Date.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS.
Each and all of the agreements and covenants of Phoenix to be
performed and complied with pursuant to this Agreement and the other agreements
contemplated hereby prior to Closing shall have been duly performed and complied
with in all Material respects.
(c) DELIVERY OF DOCUMENTS.
Phoenix shall have delivered to LIG each of the documents
specified in Article 3.3.
(d) REAL PROPERTY.
A title insurer selected by LIG shall be prepared to issue, at
the Closing, upon the sole condition of the payment of an amount no greater than
its regularly scheduled premium, its standard ALTA Form policy of title
insurance insuring LIG's interest in the Real Property, in a form reasonably
acceptable to LIG, assuming LIG has used its reasonable best efforts to obtain
such policy.
9.3 CONDITIONS TO OBLIGATIONS OF PHOENIX.
The obligations of Phoenix to consummate the purchase and sale
of the Assets pursuant to Article 2 are subject to the satisfaction of the
following conditions, unless waived by Phoenix, pursuant to Article 12.5(b) of
this Agreement:
(a) SHAREHOLDER APPROVAL.
The resolution adopted by the shareholders of Phoenix pursuant
to Article 1.4 shall authorize the execution, delivery, and performance of the
transactions contemplated by this Agreement in accordance with all requirements
of Delaware Law and of Phoenix's Certificate of Incorporation and Bylaws.
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(b) PAYMENT OF PURCHASE PRICE.
LIG shall have paid the Purchase Price in accordance with the
terms of Article 2.2.
(c) REPRESENTATIONS AND WARRANTIES.
The representations and warranties of LIG set forth in this
Agreement shall be true and correct in all Material respects as of the date of
this Agreement and as of Closing with the same effect as though all such
representations and warranties had been made on and as of Closing.
(d) PERFORMANCE OF AGREEMENTS AND COVENANTS.
Each and all of the agreements and covenants of LIG to be
performed and complied with pursuant to this Agreement prior to Closing shall
have been duly performed and complied with in all Material respects.
(e) DELIVERY OF DOCUMENTS.
LIG shall have delivered to Phoenix each of the documents
specified in Article 3.4.
ARTICLE 10
TERMINATION
10.1 TERMINATION.
This Agreement may be terminated as provided in Article 1.5 or
at any time prior to the Closing:
(a) By mutual consent of the Parties;
(b) By the Board of Directors of either Party in the event of
a Material breach by the other Party of any representation, warranty, covenant,
or agreement contained in this Agreement which cannot be or has not been cured
within thirty (30) days after the giving of written notice to the other Party of
such breach; or
(c) By the Board of Directors of either Party in the event
that any Consent of any Regulatory Authority required for consummation of the
transactions contemplated hereby shall have been denied by final nonappealable
action of such authority or if any action taken by such authority is not
appealed within the time limit for appeal.
10.2 EFFECT OF TERMINATION.
In the event of the termination or expiration of this
Agreement pursuant to Articles 1.5 or 10.1:
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(a) This Agreement shall become void and have no effect,
except that: (i) the provisions of Articles 1.5, 7.2 and 10 of this Agreement
shall survive any such termination or expiration, and (ii) a termination
pursuant to Article 10.1(b) shall not relieve the breaching Party from Liability
for an uncured willful breach of a representation, warranty, covenant, or
agreement giving rise to such termination; and
(b) Each Party shall pay the costs and expenses incurred by it
in connection with this Agreement, provided that, if termination is the direct
or indirect result of an uncured willful breach of a representation, warranty,
covenant or agreement, the breaching Party shall be fully liable to the
non-breaching Party for such Default.
10.3 RISK OF LOSS.
Phoenix assumes all risk of condemnation, destruction, or Loss
due to fire or other casualty from the date of this Agreement until the Closing.
If the condemnation, destruction, or Loss is such that the Business is
interrupted or curtailed for at least sixty (60) days or the Assets are
Materially affected, LIG shall have the right to terminate this Agreement. If
the condemnation, destruction, or Loss is such that the Business is neither
interrupted nor curtailed nor the Assets Materially affected, or if the Business
is interrupted or curtailed or the Assets are Materially affected and LIG
nevertheless foregoes the right to terminate this Agreement, the Purchase Price
shall be equitably adjusted at Closing to reflect such condemnation,
destruction, or Loss, to the extent that insurance or condemnation proceeds paid
or to be paid to LIG are not sufficient to cover such destruction or Loss.
ARTICLE 11
GOVERNING LAW; DISPUTE RESOLUTION
11.1 GOVERNING LAW.
This Agreement shall be governed by and construed in
accordance with the Laws of the State of Georgia applicable to contracts
executed and wholly performed within that State.
11.2 ARBITRATION.
(a) AMERICAN ARBITRATION ASSOCIATION RULES.
Any controversy or claim arising out of or relating to this
Agreement shall be determined by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "Rules").
(b) COMPOSITION OF ARBITRAL TRIBUNAL.
The arbitration shall be held before a panel of three
arbitrators, one of whom, who shall serve as chairman, shall be nominated by the
American Arbitration Association in accordance
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with the Rules, one of whom shall be nominated by LIG, and one of whom shall be
nominated by Phoenix.
(c) SITUS; LANGUAGE.
The arbitration shall be conducted in Atlanta, Georgia. All
arbitral proceedings shall be in English.
(d) JUDICIAL ASSISTANCE.
The award of the arbitrators shall be final and binding. The
Parties waive any right to appeal the award, to the extent a right to appeal may
be lawfully waived. Each Party retains the right to seek judicial assistance:
(i) to compel arbitration; (ii) to obtain interim measures of protection pending
arbitration; and (iii) to enforce any decision of the arbitrators, including the
final award.
ARTICLE 12
MISCELLANEOUS
12.1 ENTIRE AGREEMENT.
This Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement between the Parties with
respect to the transactions contemplated under this Agreement and supersedes all
prior arrangements or understandings with respect thereto, written or oral.
12.2 AMENDMENTS.
This Agreement may be amended only by a subsequent writing
signed by each of the Parties.
12.3 EXPENSES.
Except as provided in Article 10.2, each of the Parties shall
bear and pay all direct costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated under this Agreement, including
filing, registration and application fees, printing fees, and fees and expenses
of its own financial or other consultants, investment bankers, accountants, and
counsel.
12.4 BROKERS AND FINDERS.
Each of the Parties represents and warrants that neither it
nor any of its officers, directors, employees, or Affiliates has employed any
broker or finder or incurred any Liability for any financial advisory fees,
investment bankers' fees, brokerage fees, commissions, or finders' fees in
connection with this Agreement or the transactions contemplated by it.
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12.5 WAIVERS.
(a) Prior to or at Closing, LIG, acting through its Board of
Directors, chief executive officer or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
Phoenix, to waive or extend the time for the compliance or fulfillment by
Phoenix of any and all of its obligations under this Agreement, and to waive any
or all of the conditions precedent to the obligations of LIG under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing signed
by a duly authorized officer of LIG.
(b) Prior to or at Closing, Phoenix, acting through its Board
of Directors, chief executive officer or other authorized officer, shall have
the right to waive any Default in the performance of any term of this Agreement
by LIG, to waive or extend the time for the compliance or fulfillment by LIG of
any and all of its obligations under this Agreement, and to waive any or all of
the conditions precedent to the obligations of Phoenix under this Agreement,
except any condition which, if not satisfied, would result in the violation of
any Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of Phoenix.
(c) The failure of any Party to require performance of any
provision of this Agreement shall in no manner affect the right of such Party at
a later time to enforce the same or any other provision of this Agreement. No
waiver of any condition or of the breach of any term contained in this Agreement
in one or more instances shall be deemed to be or construed as a further or
continuing waiver of such condition or breach or a waiver of any other condition
or of the breach of any other term of this Agreement.
12.6 ASSIGNMENT.
This Agreement and the rights, interests or obligations under
this Agreement may be assigned (whether by operation of Law or otherwise) by a
Party only to an Affiliate of that Party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by the Parties and their respective successors and assigns.
12.7 NOTICES.
All notices or other communications which are required or
permitted under this Agreement shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, or by courier or overnight carrier, to the persons at the addresses
set forth below (or at such other address as may be provided under this
Agreement), and shall be deemed to have been delivered as of the date so
delivered:
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Phoenix: PHOENIX MEDICAL TECHNOLOGY, INC.
Route 521 West
Andrews, South Carolina 29510
Telecopy Number: (803) 221-5201
Attention: Edward W. Gallaher, Sr.
Copy to Counsel: Barbara R. Frith
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
Suite 4200
Nationsbank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28202-4006
Telecopy Number: (704) 331-7598
LIG: LONDON INTERNATIONAL GROUP, INC.
3585 Engineering Drive, Suite 200
Post Office Box 926090
Norcross, Georgia 30092-9204
Telecopy Number: (770) 582-2226
Attention: Robert Kaiser
Copy to Counsel: Patrick M. Norton
ALSTON & BIRD LLP
North Building
601 Pennsylvania Avenue, NW
Washington, DC 20004
Telecopy Number: (202) 508-3333
12.8 COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
12.9 CAPTIONS.
The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
12.10 INTERPRETATIONS.
Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against either Party, whether under any rule of
construction or otherwise. Neither Party shall be considered the draftsman of
this Agreement. The Parties acknowledge and agree that this Agreement has been
reviewed, negotiated and accepted by both Parties and their
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attorneys and shall be construed and interpreted according to the ordinary
meaning of the words used so as fairly to accomplish the purposes and intentions
of both Parties.
12.11 SEVERABILITY.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
ARTICLE 13
DEFINITIONS
13.1 DEFINITIONS.
The following terms shall, whenever capitalized in this
Agreement, have the meanings ascribed below:
"AFFILIATE" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person; (ii) any officer,
director, partner, employer, or direct or indirect beneficial owner of any ten
percent (10%) or greater equity or voting interest of such Person; or (iii) any
other Person for which a Person described in clause (ii) acts in any such
capacity.
"AGREEMENT" shall mean this Agreement, including the Exhibits
and Schedules delivered pursuant to this Agreement and incorporated in it by
reference.
"ASSETS" shall mean the following as they exist immediately
prior to Closing:
(a) All Fixed Assets;
(b) The Real Property;
(c) All Contracts;
(d) All Transferred Inventory;
(e) All Contingent Payments pursuant to Section 1.3
of the Asset Purchase Agreement dated March 18, 1996 by and between
Phoenix and Microtek Medical, Inc. (as the term "Contingent Payments"
is defined therein);
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(f) All prepaid items and accounts receivable of the
Business and rights to invoice customers of the Business for goods and
services, regardless of when provided, existing on the Closing Date;
(g) Copies of all Customer Lists, files, advertising
and promotional literature, price lists, records, correspondence,
plats, architectural plans, manufacturing and engineering drawings and
specifications, patterns, sales information, and other technical and
business records relating to the Business and existing on the Closing
Date;
(h) The Intellectual Property; and
(i) To the extent not covered by subparagraphs (a)
through (h), all other assets of the Business that are reflected on the
most current balance sheet in the Phoenix Financial Statements, except
for assets disposed of in the ordinary course of business since the
date of that balance sheet, as permitted or contemplated by this
Agreement.
"Assets" shall not include the Retained Assets.
"ASSUMED LIABILITIES" shall mean all liabilities of the
Business other than the Retained Liabilities. "Assumed Liabilities" shall
specifically include: (i) all Liabilities pursuant to the Contracts listed at
Article 13.1.1 of the Phoenix Disclosure Memorandum; (ii) all Tax Liabilities
reflected on the balance sheet of Phoenix, consistent with the accounting
methodology used in preparation of the 1996 Phoenix Balance Sheet; and (iii) the
liability of Phoenix to pay $100,589 (One Hundred Thousand, Five Hundred
Eighty-Nine United States Dollars) to Edward W. Gallaher, Sr. and $69,411
(Sixty-Nine Thousand, Four Hundred Eleven United States Dollars) to Grover
Mixon, in each case as reimbursement for previously deferred compensation.
"BUSINESS" shall mean the business of manufacturing and
selling latex, vinyl, and nitrile gloves as that business is currently being
conducted by Phoenix.
"CERCLA" shall mean the Comprehensive Environmental Response
Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
"CONSENT" shall mean any consent, approval, estoppel,
authorization, clearance, exemption, waiver, or similar affirmation by any
Person pursuant to any Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement, license,
arrangement, authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding or undertaking of any
kind or character, or other document to which any Person is a party or that is
binding on any Person or its capital stock, Assets or business.
"CUSTOMER LISTS" shall mean a list of all customers of Phoenix
invoiced at any time during the twenty-four month period preceding the date of
this Agreement and a list of any
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prospective customers of Phoenix to which Phoenix has submitted quotations on
products at any time during the twenty-four month period preceding the date of
this Agreement.
"DEFAULT" with respect to a Contract, Order, or Permit shall
mean (i) any breach or violation of or default under such Contract, Order or
Permit, (ii) any occurrence of any event that with the passage of time or the
giving of notice or both would constitute a breach or violation of or default
under such Contract, Order or Permit, or (iii) any occurrence of any event that
with or without the passage of time or the giving of notice would give rise to a
right to terminate or revoke, change the current terms of, or renegotiate, or to
accelerate, increase, or impose any Liability under, such Contract, Order or
Permit, where, in any such event, such Default is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on a Party.
"ENVIRONMENTAL CLAIM" means any Litigation in any court or
before or by any Regulatory Authority or private arbitrator, mediator, or
tribunal against the Business, Phoenix or its assets (including notice or other
communication (written or oral) by any Person alleging potential liability for
investigatory costs, cleanup costs, private or governmental response or remedial
costs, natural resources damages, property damages, personal injuries, or
penalties) arising out of, based upon, or resulting from (i) any Environmental
Matter or (ii) any circumstances or state of facts forming the basis of any
Liability or alleged Liability under, or any violation or alleged violation of,
any Environmental Law.
"ENVIRONMENTAL LAWS" shall mean all Laws relating to pollution
or protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata) and which are
administered, interpreted or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over, and
including common law in respect of, pollution or protection of the environment,
including CERCLA and RCRA, and similar Laws relating to emissions, discharges,
releases or threatened releases of any Hazardous Material, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of any Hazardous Material. "Environmental Laws" shall not
include Laws relating to occupational health and safety.
"ENVIRONMENTAL MATTER" shall mean any matter or circumstance
related to the following, if before Closing: (a) the disposal or release of any
Hazardous Material into the environment, (b) the treatment, storage, or other
handling of any Hazardous Material, (c) the placement of structures or discharge
of pollutants into waters of the United States, or (d) the presence of any
Hazardous Material in, on, or emanating from any building, structure, or
workplace.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ESCROW AGENT" shall mean a bank mutually agreed by the
Parties to serve as the escrow agent pursuant to the Escrow Agreement.
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"FIXED ASSETS" shall mean all fixed assets of Phoenix on the
Closing Date used exclusively or primarily in the Business, including all
property, plant, and equipment and all the motor vehicles listed in Article
13.1.2 to the Phoenix Disclosure Memorandum.
"GAAP" shall mean generally accepted accounting principles in
the United States, consistently applied during the periods involved.
"HAZARDOUS MATERIAL" shall mean any hazardous substance,
hazardous material, hazardous waste, or regulated substance (as those terms are
defined by any applicable Environmental Law), including petroleum products, oil,
asbestos requiring abatement, removal or encapsulation pursuant to the
requirements of governmental authorities, and any polychlorinated biphenyls.
"INTELLECTUAL PROPERTY" shall mean all patents, trade secrets,
inventions, formulae, know-how, and processes, whether trade secrets or not,
trade names, trademarks, service marks, brand names, design rights, and
copyrights, and the registrations and applications thereof, which are used
exclusively or primarily in connection with the operation of the Business,
together with the goodwill of the Business symbolized thereby.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated thereunder.
"KNOWLEDGE" as used with respect to Phoenix shall mean the
personal knowledge after reasonable due inquiry of Edward W. Gallaher, Sr. and
Grover Mixon.
"LAW" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a Person or
its Assets, Liabilities or business, including those promulgated, interpreted or
enforced by any Regulatory Authority.
"LIABILITY" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or expense
(including costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of notes,
bills, checks, and drafts presented for collection or deposit in the ordinary
course of business) of any type, whether accrued, absolute or contingent,
liquidated or unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest.
"LITIGATION" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, demand letter, governmental or
other examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging
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potential Liability relating to or affecting a Party, its business, its Assets
(including Contracts related to it), or the transactions contemplated by this
Agreement.
"LOAN AGREEMENT" shall mean that Loan and Security Agreement
by and between the Parties, of even date herewith, whereby LIG agrees to loan
Phoenix $750,000 (Seven Hundred and Fifty Thousand United States Dollars) on the
terms and for the purposes set out therein.
"LOSS" shall mean any loss, liability, damage, cost,
deficiency, or other expense, including reasonable attorneys' fees.
"MATERIAL" shall be determined in light of the facts and
circumstances of the matter in question; provided that any specific monetary
amount stated in this Agreement shall determine materiality in that instance.
"MATERIAL ADVERSE EFFECT" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a Material adverse impact on (i) the financial position,
business, or results of operations of a Party, or on (ii) the ability of such
Party to perform its obligations under this Agreement or to consummate the
transactions contemplated by this Agreement
"OPTION ESCROW AGENT" shall mean SunTrust Bank, Atlanta, a
Georgia banking corporation, or its successors, as provided in the Option Escrow
Agreement.
"OPTION ESCROW AGREEMENT" shall mean an agreement in
substantially the form of Exhibit 1.2 by and among LIG, Phoenix, and the Option
Escrow Agent.
"ORDER" shall mean any administrative decision or award,
decree, injunction, judgment, order, quasi-judicial decision or award, ruling,
or writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency or Regulatory Authority.
"OSHA" shall mean the Occupational Safety and Health Act, 29
U.S.C. ss.ss. 651, et seq.
"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing, franchise,
license, notice, permit, or right to which any Person is a party or that is or
may be binding upon or inure to the benefit of any Person or its securities,
assets or business.
"PERMITTED LIENS" shall mean: (i) Liens arising out of any
Assumed Liability; (ii) Liens for current property Taxes not yet due and
payable, and (iii) Liens which are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on a Party
"PERSON" shall mean a natural person or any legal, commercial
or governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited
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partnership, limited liability company, trust, business association, group
acting in concert, or any person acting in a representative capacity.
"PHOENIX DISCLOSURE MEMORANDUM" shall mean the written
information entitled "Phoenix Disclosure Memorandum" delivered prior to the date
of this Agreement describing in reasonable detail the matters contained therein
and, with respect to each disclosure made therein, specifically referencing each
Article of this Agreement under which such disclosure is being made. Information
disclosed with respect to one Article shall not be deemed to be disclosed for
purposes of any other Article unless otherwise specifically stated therein.
"PHOENIX FINANCIAL STATEMENTS" shall mean the audited
financial statements (including related notes and schedules) of Phoenix as of
December 31, 1994, December 31, 1995, and December 31, 1996, and, if the Closing
Date is after January 1, 1998, the audited financial statement of Phoenix as of
December 31, 1997.
"PLANT" shall mean the approximately 150,000 square foot
building located on the Real Property, which is used by Phoenix to carry out the
manufacturing aspect of its Business.
"R&D AGREEMENT" shall mean that Research and Development
Agreement by and between the Parties and of even date herewith, pursuant to
which the Parties agree to cooperate in the development of a marketable nitrile
glove on the terms and conditions set out therein.
"RCRA" shall mean the Resource Conservation and Recovery Act,
as amended, 42 U.S.C. 6901 et seq.
"REAL PROPERTY" shall mean all interests in Real Property
owned, leased, or used by Phoenix in the Business, a complete list of which
appears as Article 4.16 of the Phoenix Disclosure Memorandum.
"REGULATORY AUTHORITY" shall mean any federal, state, local,
or foreign governmental regulatory agencies having jurisdiction over the
Parties, including the Federal Trade Commission and the United States Department
of Justice.
"RELATED PARTY" means, with regard to any natural Person, his
spouse, parent, sibling, child, aunt, uncle, niece, nephew, in-law, grandparent
and grandchild (including by adoption) and any trustees or other fiduciaries for
the benefit of such relatives.
"REPRESENTATIVE" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative of a Person.
"RETAINED ASSETS" shall mean (a) those Assets listed in
Article 13.1.3 to the Phoenix Disclosure Memorandum; (b) all net loss
carryforwards of Phoenix for tax purposes;and (c) any Contract deemed a
"Retained Asset" pursuant to Article 2.6(c).
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"RETAINED LIABILITIES" shall mean (a) those Liabilities listed
in Article 13.1.4 of the Phoenix Disclosure Memorandum; (b) all Liability
connected with any pending or threatened litigation, charges of discrimination,
citations, or allegations based on actions of Phoenix, or on conduct of
officers, agents, employees, or Representative of Phoenix, occurring or accruing
up to Closing; (c) any Liability deemed a "Retained Liability" pursuant to
Article 2.6(c); and (d) any Liability of Phoenix to any shareholders of Phoenix
as shareholders, other than business liabilities incurred in the ordinary
course, or pursuant to any option to acquire Phoenix stock.
"SECTION 1060 FORMS" shall mean all returns, documents,
statements and other forms that are required to be submitted to any federal,
state, county or other local Taxing authority in connection with a Section 1060
Statement, and shall include any "asset acquisition statement" and United States
Internal Revenue Service Form 8594 (together with any schedules or attachments)
that are required pursuant to United States Treasury Department Regulations.
"SECTION 1060 STATEMENT" shall mean a statement described in
United States Treasury Regulations Section 1.1060-1T(h) with respect to LIG's
purchase of the Assets, and shall include any corresponding statement under any
other applicable Tax law that requires a separate statement with respect to
LIG's purchase of the Assets.
"SHAREHOLDERS' EQUITY" shall mean, for purposes of Article
2.3, the shareholder's equity of Phoenix as of the Closing Date calculated in
accordance with GAAP and consistent with past accounting practices of Phoenix,
without giving effect to either the Retained Assets or the Retained Liabilities.
"SUPPLY AGREEMENT" shall mean the Agreement for the Purchase
and Sale of Goods by and between the Parties of even date herewith whereby
Phoenix agrees to supply LIG, and LIG agrees to purchase from Phoenix, nitrile
gloves on terms and conditions set out therein.
"TAX" or "TAXES" shall mean any federal, state, county, local,
or foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy, and other taxes,
assessments, charges, fares, or impositions, including interest, penalties, and
additions imposed thereon or with respect thereto.
"TAX RETURNS" means all returns, reports, filings,
declarations and statements relating to Taxes that are required to be filed,
recorded, or deposited with any Regulatory Authority, including any attachment
thereto or amendment thereof.
"TRANSFERRED INVENTORY" shall mean all of the inventory and
supplies relating exclusively or primarily to the Business and existing on the
Closing Date, including raw materials, work in process, and finished goods.
"1996 PHOENIX BALANCE SHEET" shall mean the balance sheet at
December 31, 1996 and accompanying notes thereto included in the Phoenix
Financial Statements.
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"1997 PHOENIX BALANCE SHEET" shall mean the balance sheet at
December 31, 1997 and accompanying notes thereto included in the Phoenix
Financial Statements.
13.2 DEFINITIONS ELSEWHERE IN AGREEMENT.
The following terms shall, whenever capitalized in this
Agreement, have the meanings ascribed to them in the referenced sections:
Adjusted Purchase Price Article 2.3(c)
Asserted Liability Article 8.5
Claims Notice Article 8.5
Closing Article 3.1
Closing Date Article 3.2
Contest Notice Article 8.6
Employment Agreements Article 3.3(d)
Effective Date Article 1.5(a)
Escrow Accounts Article 2.4
Escrow Agreement Article 2.4
ERISA Affiliate Article 4.14(c)
Immigration Laws Article 4.24
Indemnification Claim Article 8.4(a)
Indemnification Escrow Account Article 2.4
Indemnified Party Article 8.5
Indemnifying Party Article 8.5
Independent CPA Article 2.3(b)
Independent CPA Closing Date Balance Sheet Article 2.3(b)
Large Customer Article 4.19(b)
Large Supplier Article 4.19(a)
LIG Preamble
LIG Closing Date Balance Sheet Article 2.3(a)
Material Contracts Article 2.6(a)
Maximum Aggregate Liability Amount Article 8.4(b)
Minimum Aggregate Liability Amount Article 8.4(a)
Non-Competition Agreements Article 3.3(h)
Notice of Exercise Article 1.3
Option Article 1.1
Option Payment Article 1.2
Option Period Article 1.5(b)
Phoenix Preamble
Phoenix Benefit Plans Article 4.14(a)
Phoenix ERISA Plan Article 4.14(a)
Phoenix Pension Plan Article 4.14(a)
Proxy Statement Article 1.4(a)
Purchase Price Article 2.2
Purchase Price Adjustment Escrow Account Article 2.4
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Rules Article 11.2(a)
Shareholders' Meeting Article 1.4(a)
Supplemental Disclosure Memorandum Article 6.2(g)
Tail Coverage Insurance Article 8.4(c)
U.S. Trademark Assignment Article 3.3(b)
IN WITNESS WHEREOF, each of the Parties has caused this
Agreement to be executed on its behalf and its corporate seal to be hereunto
affixed and attested by officers thereunto as of the day and year first above
written.
ATTEST: PHOENIX MEDICAL TECHNOLOGY, INC.
/s/ Jacqueline L. Gallaher By: /s/ Edward W. Gallaher, Sr.
- -------------------------- ------------------------------
Secretary (Assistant) Name: Edward W. Gallaher, Sr.
Title: President
[CORPORATE SEAL]
ATTEST: LONDON INTERNATIONAL GROUP, INC.
/s/ William L. Gunn, Jr. By: /s/ Robert Kaiser
- -------------------------- ------------------------------
Secretary Name: Robert Kaiser
Title: Vice President and
General Counsel
[CORPORATE SEAL]
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FIRST AMENDMENT TO OPTION AGREEMENT
The London International Group, Inc. ("LIG") and Phoenix Medical
Technology, Inc. ("Phoenix") hereby amend the Option Agreement dated December
22, 1997 by and between LIG and Phoenix (the "Option Agreement") as follows:
Article 1.5(d) of the Option Agreement is amended to substitute "May
15, 1998" for "March 31, 1998" so that Article 1.5(d) now reads as follows:
"(d) If the conditions set forth in Article 1.5(a) have not been fully
satisfied on or before May 15, 1998, this Agreement shall be of no
further force or effect, except as provided in Article 10.2, and LIG
shall be entitled to restitution of the Option Payment."
IN WITNESS WHEREOF, LIG and Phoenix have each caused this First
Amendment to Option Agreement to be executed on their behalf as of the 9th day
of March 1998.
PHOENIX MEDICAL TECHNOLOGY, INC. LONDON INTERNATIONAL GROUP, INC.
By: /s/ Edward W. Gallaher, Sr. By: /s/ Robert Kaiser
------------------------------- -------------------------------
Name: Edward W. Gallaher, Sr. Name: Robert Kaiser
Title: President Title: Vice President and
General Counsel
<PAGE> 92
ANNEX B
RESEARCH AND DEVELOPMENT AGREEMENT
BY AND BETWEEN
LONDON INTERNATIONAL GROUP, INC.
AND
PHOENIX MEDICAL TECHNOLOGY, INC.
Dated as of December 22, 1997
<PAGE> 93
TABLE OF CONTENTS
PAGE
ARTICLE 1 -- DEFINITIONS.................................................. 1
1.1 Definitions............................................. 1
ARTICLE 2 -- ENGAGEMENT................................................... 2
ARTICLE 3 -- PHOENIX'S OBLIGATIONS........................................ 2
3.1 Project Undertaking..................................... 2
3.2 Facilities and Personnel................................ 2
3.3 Utilization of Funding.................................. 3
3.4 Responsibilities Appurtenant to the Research and
Development............................................. 3
3.5 Selection and Retention of Independent Contractors
and Consultants......................................... 4
3.6 Access to Facilities and Books and Records.............. 4
ARTICLE 4 -- LIG'S OBLIGATIONS............................................ 4
4.1 Funding................................................. 4
4.2 Technical Assistance.................................... 4
4.3 Responsibilities Appurtenant to the Research and
Development............................................. 4
ARTICLE 5 -- PHOENIX REPRESENTATIONS AND WARRANTIES....................... 5
5.1 Organization, Standing, and Power....................... 5
5.2 Right to Contract....................................... 5
5.3 No Infringement......................................... 5
5.4 No Inconsistent Agreements.............................. 5
ARTICLE 6 -- LIG REPRESENTATIONS AND WARRANTIES........................... 5
6.1 Organization, Standing, and Power....................... 5
6.2 Right to Contract....................................... 6
6.3 No Infringement......................................... 6
6.4 No Inconsistent Agreements.............................. 6
ARTICLE 7 -- PROGRESS REPORTS AND FINAL REPORT............................ 6
7.1 Progress Reports........................................ 6
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7.2 Final Report............................................ 6
ARTICLE 8 -- CONFIDENTIALITY.............................................. 7
8.1 Proprietary Information................................. 7
8.2 Treatment of Proprietary Information.................... 7
8.3 Existence and Contents of the Agreements................ 7
8.4 Employees and Representatives........................... 7
8.5 Exclusions from Confidentiality......................... 7
ARTICLE 9 -- RIGHTS IN DEVELOPMENTS AND INVENTIONS........................ 8
9.1 Results of the Research and Development................. 8
9.2 Assignment of Rights by Phoenix......................... 8
9.3 Employee Assignment of Rights........................... 8
ARTICLE 10 -- INDEPENDENT CONTRACTOR...................................... 9
ARTICLE 11 -- TERM AND TERMINATION........................................ 9
11.1 Term.................................................... 9
11.2 Termination Prior to the Conclusion of the Term......... 9
11.3 Effect of Termination................................... 9
ARTICLE 12 -- INDEMNIFICATION.............................................10
ARTICLE 13 -- GOVERNING LAW; DISPUTE RESOLUTION...........................10
13.1 Governing Law...........................................10
13.2 Arbitration.............................................10
(a) American Arbitration Rules.....................10
(b) Composition of Arbitral Tribunal...............10
(c) Situs; Language................................11
(d) Judicial Assistance............................11
ARTICLE 14 -- MISCELLANEOUS PROVISIONS....................................11
14.1 Entire Agreement........................................11
14.2 Amendments..............................................11
14.3 No Waiver...............................................11
14.4 Assignment..............................................11
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14.5 Notices.................................................11
14.6 Counterparts............................................12
14.7 Captions................................................12
14.8 Interpretations.........................................12
14.9 Severability............................................13
14.10 Further Assurances......................................13
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<PAGE> 96
RESEARCH AND DEVELOPMENT AGREEMENT
THIS RESEARCH AND DEVELOPMENT AGREEMENT (this "Agreement") is
made and entered into as of December 22, 1997, by and between LONDON
INTERNATIONAL GROUP, INC. ("LIG"), a New Jersey corporation having its principal
place of business at 3585 Engineering Drive, Norcross, Georgia 30093, and
PHOENIX MEDICAL TECHNOLOGY, INC. ("Phoenix"), a Delaware corporation having its
principal place of business at Route 521 West, Andrews, South Carolina 28510.
W I T N E S S E T H:
WHEREAS, Phoenix is in the business of manufacturing latex and
vinyl gloves and has certain know-how related to the manufacture of such gloves
and Phoenix desires to develop a glove containing nitrile and desires additional
resources to do so; and
WHEREAS, LIG is also in the business of manufacturing, inter
alia, medical and industrial gloves and is willing to provide resources in order
to assist Phoenix in developing technology to manufacture a marketable nitrile
glove; and
WHEREAS, pursuant to an Option Agreement of even date herewith
(the "Option Agreement"), LIG is acquiring from Phoenix an option to purchase
substantially all of the assets of Phoenix on the terms and conditions set out
therein; and
WHEREAS, pursuant to a Loan Agreement of even date herewith
(the "Loan Agreement"), LIG is agreeing to loan Phoenix funds with which to
conduct the technology development activities set out in this Agreement;
NOW, THEREFORE, in consideration of the agreements set forth
in this Agreement, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS
The following terms shall, whenever capitalized in this
Agreement, have the meanings ascribed below:
"AFFILIATE" of a person shall mean: (i) any other person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such person; (ii) any officer,
director, partner, employer, or direct or indirect beneficial owner of any ten
percent (10%) or greater equity or voting interest of such person; or (iii) any
other person for a person described in clause (ii) acts in any such capacity.
<PAGE> 97
"AGREEMENT" shall mean this Agreement, including the Exhibits
attached hereto.
"EFFECTIVE DATE" shall have the meaning ascribed to that term
in the Option Agreement.
"FINAL REPORT" shall have the meaning ascribed to that term in
Article 7.2.
"LOAN AGREEMENT" shall mean the Loan Agreement between the
Parties of even date herewith.
"OPTION AGREEMENT" shall mean the Option Agreement between the
Parties of even date herewith.
"PRODUCTS" shall mean all nitrile gloves made pursuant to the
Research Plan.
"PROPERTY RIGHTS" shall have the meaning ascribed to that term
in Article 9.1.
"PROPRIETARY INFORMATION" shall have the meaning ascribed to
that term in Article 8.1.
"RESEARCH AND DEVELOPMENT" shall mean the research and
development to be performed by Phoenix on behalf of LIG, including the
development of new products and processes for making nitrile containing gloves
and glove stripping technology.
ARTICLE 2
ENGAGEMENT
LIG hereby engages Phoenix to perform the Research and
Development and Phoenix hereby agrees to perform the Research and Development
commencing as of the Effective Date.
ARTICLE 3
PHOENIX'S OBLIGATIONS
3.1 PROJECT UNDERTAKING
Phoenix shall perform the Research and Development to the best
of its ability during the term of this Agreement and subject to the availability
of funding from LIG pursuant to the Loan Agreement.
3.2 FACILITIES AND PERSONNEL
Phoenix agrees to maintain such facilities, equipment, and
personnel as may be reasonably necessary in order to enable it to carry out its
obligations hereunder.
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3.3 UTILIZATION OF FUNDING
Funding for the Research and Development shall be provided in
part by LIG to Phoenix pursuant to the Loan Agreement on the terms and
conditions set out therein. Phoenix agrees that such funds designated for the
Research and Development shall only be used by Phoenix in furtherance and
support of the Research and Development.
3.4 RESPONSIBILITIES APPURTENANT TO THE RESEARCH AND DEVELOPMENT
Phoenix, in connection with the Research and Development to be
performed by it hereunder, agrees to do the following:
(a) Provide technical support with respect to the
prosecution of any patent application relating to any inventions developed as a
result of the Research and Development and execute all documents including
patent, copyright or other applications and assignments in a prompt and diligent
manner as may be necessary for LIG to preserve its rights with respect to the
Research and Development;
(b) Assist LIG in perfecting any other intellectual property
rights relating to the Research and Development including copyrights and
trademarks;
(c) Provide support and assistance in the event that LIG
asserts the intellectual property rights relating to the Research and
Development against any third party for infringement thereof;
(d) Furnish LIG with technical information and instruction
regarding the results of the Research and Development, including methods of
manufacture of Products, methods of use of Products, testing or clinical data in
connection with the Research and Development, alternate embodiments of the
Products and recommended applications of the Products;
(e) Maintain, and require its researchers to maintain,
accurate and complete written work records and inform LIG promptly and in
writing of all Research Milestones and the date such Research Milestones were
achieved;
(f) Provide LIG the Progress Reports as required by Article
7.1; and
(g) Upon the earlier of (i) the conclusion of the Research and
Development or (ii) the termination of this Agreement, provide LIG with a Final
Report as required by Article 7.2 and detailing the findings, developments and
results of the Research and Development.
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3.5 SELECTION AND RETENTION OF INDEPENDENT CONTRACTORS AND
CONSULTANTS
Prior to retaining or employing any independent contractor to
perform services under this Agreement, Phoenix shall obtain from LIG, and LIG
shall not unreasonably withhold, approval for such retention or employment.
3.6 ACCESS TO FACILITIES AND BOOKS AND RECORDS
At the request of LIG, Phoenix shall permit LIG or its
designees to visit Phoenix facilities during normal business hours on such
number of occasions as are reasonably necessary for any reasonable purpose
consistent with this Agreement, including to observe, become familiar with, or
evaluate the Research and Development and, in connection therewith, to speak to
Phoenix personnel concerning the Research and Development and to review and copy
documents pertaining to the Research and Development. LIG and its designees
shall further be entitled to review and copy, at LIG's expense, any documents in
the control of Phoenix and relating to disbursements, purchase orders,
allocations and other accounting information in connection with Phoenix's
obligations under this Agreement.
ARTICLE 4
LIG'S OBLIGATIONS
4.1 FUNDING
LIG shall provide funding for the Research and Development on
the terms and conditions set out in the Loan Agreement.
4.2 TECHNICAL ASSISTANCE
LIG shall, at its cost, send LIG technical personnel, selected
by LIG in its sole discretion, to Phoenix's facilities to participate in and
assist with the Research and Development.
4.3 RESPONSIBILITIES APPURTENANT TO THE RESEARCH AND DEVELOPMENT
LIG, in connection with the Research and Development to be
performed hereunder, agrees to do the following:
(a) Provide technical support with respect to the
prosecution of any patent application relating to any inventions developed as a
result of the Research and Development and execute all documents including
patent, copyright or other applications and assignments in a prompt and diligent
manner as may be necessary for Phoenix to preserve its rights with respect to
the Research and Development;
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<PAGE> 100
(b) Assist Phoenix in perfecting any other intellectual
property rights relating to the Research and Development including copyrights
and trademarks; and
(c) Provide support and assistance in the event that
Phoenix asserts the intellectual property rights relating to the Research and
Development against any third party for infringement.
ARTICLE 5
PHOENIX REPRESENTATIONS AND WARRANTIES
5.1 ORGANIZATION, STANDING, AND POWER
Phoenix is a corporation duly organized, validly existing, and
in good standing under the Laws of the State of Delaware, and has the power and
authority to carry on its business as now conducted.
5.2 RIGHT TO CONTRACT
Phoenix represents and warrants that it has full power and
authority to enter into this Agreement and to fulfill its obligations hereunder.
5.3 NO INFRINGEMENT
Phoenix represents and warrants that to the best of its
information, knowledge, and belief, the technology and know-how of Phoenix to be
used in the Research and Development will not involve the use of or infringe any
intellectual property of any third party.
5.4 NO INCONSISTENT AGREEMENTS
Phoenix represents, warrants, and agrees that it has not
entered into, and during the term of this Agreement will not enter into, any
agreement with any third party relating to the Research and Development or any
potential application thereof. Phoenix further represents that its obligations
under this Agreement are not subject to any prior commitment or obligation to
any third party.
ARTICLE 6
LIG REPRESENTATIONS AND WARRANTIES
6.1 ORGANIZATION, STANDING, AND POWER
LIG is a corporation duly organized, validly existing, and in
good standing under the Laws of the State of New Jersey, and has the power and
authority to carry on its business as now conducted.
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<PAGE> 101
6.2 RIGHT TO CONTRACT
LIG represents and warrants that it has full power and
authority to enter into this Agreement and to fulfill its obligations hereunder.
6.3 NO INFRINGEMENT
LIG represents and warrants that to the best of its
information, knowledge, and belief, the LIG technology and know-how to be used
in the Research and Development will not involve the use of or infringe any
intellectual property of any third party.
6.4 NO INCONSISTENT AGREEMENTS
LIG represents, warrants, and agrees that it has not entered
into, and during the term of this Agreement will not enter into, any agreement
with any third party relating to the Research and Development or any potential
application thereof. LIG further represents that its obligations under this
Agreement are not subject to any prior commitment or obligation to any third
party.
ARTICLE 7
PROGRESS REPORTS AND FINAL REPORT
7.1 PROGRESS REPORTS
Commencing thirty (30) days after the Effective Date, Phoenix
will furnish to LIG on or before the fifteenth day of each calendar month during
the term hereof, a written monthly progress report describing, with reasonable
particularity and detail, the status of the Research and Development, including
results obtained during the preceding month. The progress reports shall further
indicate any Research Milestones achieved and the date of such achievement.
7.2 FINAL REPORT
No later than sixty (60) days following the expiration or
earlier termination of this Agreement or the completion of the Research and
Development (whichever is earlier), Phoenix shall furnish to LIG a written final
report describing, with reasonable particularity and detail, the results of the
Research and Development, including all findings, data, know-how, processes and
procedures resulting from the Research and Development. The final report shall
further detail all Research Milestones achieved and the date of such
achievement.
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ARTICLE 8
CONFIDENTIALITY
8.1 PROPRIETARY INFORMATION
LIG and Phoenix each recognize the proprietary interests and
rights of the other Party in the Research and Development, including any
technical information which may be disclosed from time to time pursuant to this
Agreement (the "Proprietary Information").
8.2 TREATMENT OF PROPRIETARY INFORMATION
The Parties shall not, either during the term of this
Agreement or for three (3) years thereafter, directly or indirectly disclose any
Proprietary Information to any person, other than to its employees who
participate directly in the performance of the activities of the Research and
Development, and the Parties shall not copy or use any of the Proprietary
Information except for the purpose of fulfilling its obligations hereunder or to
the extent consistent with their ownership interest in the Property Rights.
Furthermore, the Parties shall not, either during or subsequent to the term of
this Agreement, publish any of the Proprietary Information unless the prior
written consent of the other Party shall first have been obtained.
Notwithstanding the foregoing, in the event the Option is exercised by LIG and
LIG purchases the Assets of Phoenix in accordance with the terms of the Option
Agreement, the foregoing restrictions shall not apply to LIG but shall apply to
Phoenix in perpetuity.
8.3 EXISTENCE AND CONTENTS OF THE AGREEMENTS
Each of the Parties agrees that it will not discuss the
existence or subject matter of this Agreement with any third party except as
reasonably necessary for the performance of the Research and Development under
this Agreement or with the prior written consent of the other party, which
consent will not be unreasonably withheld.
8.4 EMPLOYEES AND REPRESENTATIVES
Each employee, agent, representative, contractor, vendor and
consultant of Phoenix performing services under this Agreement and having access
to Proprietary Information shall execute a non-disclosure agreement indicating
such employee's, agent's, representative's, contractor's, vendor's or
consultant's willingness to be bound by the terms of this Article.
8.5 EXCLUSIONS FROM CONFIDENTIALITY
The obligations set forth in this Article 8 shall not be
applicable to any information: (i) which is or becomes generally known or part
of the public domain through no fault of either Party or its employees, agents,
representatives, contractors, vendors, or consultants; (ii) is known to one
Party prior to the disclosure thereof by the other Party, its consultants or one
of their respective representatives or agents, as clearly and expressly
established by documentary evidence; or (iii) is required to be disclosed in the
context of any administrative or judicial proceeding, but only the
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extent required by such action and only after giving the other Party not less
than ten (10) working days' prior written notice of any such required
disclosure.
ARTICLE 9
RIGHTS IN DEVELOPMENTS AND INVENTIONS
9.1 RESULTS OF THE RESEARCH AND DEVELOPMENT
Phoenix and LIG acknowledge and agree that all information,
inventions, technology and know-how developed pursuant to the Research and
Development and any and all intellectual property rights resulting therefrom
(the "Property Rights") shall be jointly owned by Phoenix and LIG.
9.2 ASSIGNMENT OF RIGHTS
(a) Phoenix agrees to promptly grant and assign, and does
hereby grant and assign, to LIG an undivided interest in and to any and all of
the Property Rights for the life of such Property Rights. Such grant and
assignment shall be at no additional cost or expense to LIG.
(b) LIG agrees to promptly grant and assign, and does
hereby grant and assign, to Phoenix an undivided interest in and to any and all
of the Property Rights for the life of such Property Rights. Such grant and
assignment shall be at no additional cost or expense to Phoenix.
9.3 EMPLOYEE ASSIGNMENT OF RIGHTS
(a) In order that Phoenix and its employees can
effectively grant and assign to LIG the Property Rights described in Article
9.1, Phoenix shall, as a condition and in consideration of their employment or
continued employment with Phoenix, and for other good and valuable consideration
furnished to its employees, require its employees who shall in any way be
connected with the Research and Development, to acknowledge such consideration
and to grant and assign to Phoenix, for Phoenix's conveying, or granting and
assigning to LIG, to the extent consistent with this Agreement, any and all
right, title, or interest such Phoenix employees may have or acquire with
respect to the Research and Development.
(b) In order that LIG and its employees can effectively
grant and assign to Phoenix the Property Rights described in Article 9.1, LIG
shall, as a condition and in consideration of their employment or continued
employment with LIG, and for other good and valuable consideration furnished to
its employees, require its employees who shall in any way be connected with the
Research and Development, to acknowledge such consideration and to grant and
assign to LIG, for LIG's conveying, or granting and assigning to Phoenix, to the
extent consistent with this Agreement, any and all right, title, or interest
such LIG employees may have or acquire with respect to the Research and
Development.
(c) The provisions of this Article 9.3 shall further
apply to any independent contractors or consultants retained by either Party
to perform the Research and Development. In such
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case, all such independent contractors and consultants shall be required to
execute a document assigning all rights with respect to the Research and
Development to, as the case may be, Phoenix, for Phoenix's conveying to LIG, or
LIG, for LIG's conveying to Phoenix.
ARTICLE 10
INDEPENDENT CONTRACTOR
Phoenix acknowledges and agrees that it is operating as an
independent contractor of LIG and not as an agent thereof. Nothing in this
Agreement shall be deemed to create an employment relationship between Phoenix
employees, consultants or independent contractors and LIG. Phoenix agrees that
it shall not hold itself out as an agent of LIG. This Agreement shall not
constitute a partnership or joint venture, and neither party may be bound by the
other to any contract, arrangement or understanding except as specifically
stated herein.
ARTICLE 11
TERM AND TERMINATION
11.1 TERM
The term of this Agreement shall commence upon the Effective
Date and, unless terminated in accordance with the provisions of Article 11.2,
below, shall continue for a period of one year therefrom.
11.2 TERMINATION PRIOR TO THE CONCLUSION OF THE TERM
(a) This Agreement may be terminated (without any further
action required of the Parties) at any time prior to the term specified in
Article 11.1 by mutual consent of the Parties on such terms and conditions as
they may agree.
(b) This Agreement shall terminate with immediate effect
upon the expiration or termination of the Option Agreement in accordance with
the terms of that agreement.
(c) This Agreement may be terminated, upon sixty (60)
days' notice, by providing written notice of the election of such termination,
by either Party in the event of default by the other Party of any material
covenant, duty or obligation provided for by this Agreement. In such case, the
non-defaulting Party shall provide notice of such default and the
particularities thereof as well as stating an intent to terminate and the
defaulting party shall have the aforesaid sixty (60) days from receipt of such
notice to cure such default. If such default is not cured at the end of said
sixty (60) day period, the non-defaulting party may terminate this Agreement
immediately.
11.3 EFFECT OF TERMINATION
In the event that the Option Agreement expires or terminates
without LIG's exercise of the Option (as that term is defined in the Option
Agreement), LIG agrees that, for a period of two (2)
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years from the expiration of the Option Agreement and in consideration of the
rights and interests it is acquiring hereunder, LIG will not exercise its
Property Rights to manufacture, use, or sell clean room or clean room-related
gloves anywhere in the world. Phoenix understands and agrees that any rights,
technology, or know-how (a) in the possession or knowledge of LIG prior to the
commencement of the Research or Development or (b) developed or coming into
LIG's possession or knowledge independent from (i) the Research and Development
and (ii) the due diligence process leading up to this Agreement (collectively,
"Independent Rights") do not constitute Property Rights, and that the foregoing
agreement of LIG does not therefore apply to such Independent Rights.
ARTICLE 12
INDEMNIFICATION
Each Party agrees to comply in all material respects with all
applicable laws and regulations with respect to the Research and Development and
other obligations and duties under this Agreement. In the event of claims or
suits by third parties, including government agencies, against one or both of
the Parties,each Party agrees that it will: (i) maintain its own defense; (ii)
assume all costs and attorney's fees associated with its defense; and (iii)
assume all liability adjudicated against it; provided that the foregoing shall
not apply in the event of claims or suits involving a breach of Section 5.3 or
6.3 of this Agreement.
ARTICLE 13
GOVERNING LAW; DISPUTE RESOLUTION
13.1 GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the Laws of the State of Georgia applicable to contracts
executed and wholly performed within that State.
13.2 ARBITRATION
(a) AMERICAN ARBITRATION RULES
Any controversy or claim arising out of or relating to this
Agreement shall be determined by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "Rules").
(b) COMPOSITION OF ARBITRAL TRIBUNAL
The arbitration shall be held before a panel of three
arbiters, one of whom, who shall serve as chairman, shall be nominated by the
American Arbitration Association in accordance with the Rules, one of whom shall
be nominated by LIG, and one of whom shall be nominated by Phoenix.
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(c) SITUS; LANGUAGE
The arbitration shall be conducted in Atlanta, Georgia. All
arbitral proceedings shall be in English.
(d) JUDICIAL ASSISTANCE
The award of the arbiters shall be final and binding. The
parties waive any right to appeal the award, to the extent a right to appeal may
be lawfully waived. Each party retains the right to seek judicial assistance:
(i) to compel arbitration; (ii) to obtain interim measures of protection pending
arbitration; and (iii) to enforce any decision of the arbiters, including the
final award.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the
Parties with respect to the Research and Development contemplated under this
Agreement and supersedes all prior arrangements or understandings with respect
thereto, written or oral.
14.2 AMENDMENTS
This Agreement may be amended only by a subsequent writing
signed by each of the Parties.
14.3 NO WAIVER
No provision hereof may be waived except with the written
approval of the Party against whom waiver is sought. No failure by any Party to
insist upon the strict performance of any covenant, duty, agreement or condition
of this Agreement or to exercise any right or remedy consequent upon a breach
thereof shall constitute a waiver of any such breach or any other covenant,
duty, agreement or condition.
14.4 ASSIGNMENT
This Agreement and the rights, interests or obligations under
this Agreement may be assigned (whether by operation of Law or otherwise) by a
Party only to an Affiliate of that party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by the Parties and their respective successors and assigns.
14.5 NOTICES
All notices or other communications which are required or
permitted under this Agreement shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by
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registered or certified mail, postage pre-paid, or by courier or overnight
carrier, to the persons at the addresses set forth below (or at such other
address as may be provided under this Agreement), and shall be deemed to have
been delivered as of the date so delivered:
Phoenix: PHOENIX MEDICAL TECHNOLOGY, INC.
Route 521 West
Andrews, South Carolina 29510
Telecopy Number: (803)221-5201
Attention: Edward W. Gallaher, Sr.
Copy to: Barbara R. Frith
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
Suite 4200
Nationsbank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28202-4006
Telecopy Number: (704) 331-7598
LIG LONDON INTERNATIONAL GROUP, INC.
3585 Engineering Drive
Second Floor
Norcross, Georgia 30092
Telecopy Number: (770) 582-2226
Attention: Robert Kaiser
Copy to: Patrick M. Norton
ALSTON&BIRD LLP
North Building
601 Pennsylvania Avenue, NW
Washington, DC 20004
Telecopy Number: (202) 508-3333
14.6 COUNTERPARTS
This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which together
constitute one and the same instrument.
14.7 CAPTIONS
The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
14.8 INTERPRETATIONS
Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against either Party, whether under any rule of
construction or otherwise. Neither Party shall be considered the draftsman of
this Agreement. The Parties acknowledge and agree that this Agreement has been
reviewed, negotiated and accepted by both Parties and their attorneys
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and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of both
Parties.
14.9 SEVERABILITY
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
14.10 FURTHER ASSURANCES
Each of the Parties agrees to execute, deliver and acknowledge
all such other agreements, instruments and documents and to take all such other
actions as either party may reasonably deem necessary or desirable to give
effect to this Agreement and to consummate the transactions contemplated hereby.
IN WITNESS WHEREOF, each of the Parties has caused this
Agreement to be executed on its behalf and its corporate seal to be hereunto
affixed and attested by officers thereunto as of the day and year first above
written.
ATTEST: PHOENIX MEDICAL TECHNOLOGY, INC.
/s/ Jacqueline L. Gallaher By: /s/ Edward W. Gallaher, Sr.
- -------------------------- --------------------------------
Secretary (Assistant) Name: Edward W. Gallaher, Sr.
Title: President
[CORPORATE SEAL]
ATTEST: LONDON INTERNATIONAL GROUP, INC.
/s/ William L. Gunn, Jr. By: /s/ Robert Kaiser
- -------------------------- --------------------------------
Secretary Name: Robert Kaiser
Title: Vice President and
General Counsel
[CORPORATE SEAL]
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ANNEX C
LOAN AND SECURITY AGREEMENT
By and Between
PHOENIX MEDICAL TECHNOLOGY, INC.,
AS BORROWER
and
LONDON INTERNATIONAL GROUP, INC.,
AS LENDER
Dated as of December 22, 1997
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..............................................1
Section 1.1 Definitions........................................1
ARTICLE II CREDIT FACILITY..........................................4
Section 2.1 Loans..............................................4
Section 2.2 Repayment of Loans.................................4
Section 2.3 Borrowings Under Credit Facility...................4
Section 2.4 Disbursements......................................4
Section 2.5 Note...............................................5
ARTICLE III INTEREST, FEES AND OTHER PROVISIONS......................5
Section 3.1 Interest...........................................5
Section 3.2 Payments...........................................5
ARTICLE IV CONDITIONS PRECEDENT.....................................6
Section 4.1 Conditions Precedent to the Loans..................6
Section 4.2 Additional Conditions Precedent for Each Loan......6
ARTICLE V REPRESENTATIONS AND WARRANTIES...........................7
Section 5.1 Representations and Warranties.....................7
Section 5.2 Survival of Representations and Warranties, Etc....8
ARTICLE VI SECURITY INTEREST........................................8
Section 6.1 Security Interest..................................8
Section 6.2 Continued Priority of Security Interest/Further
Assurances.........................................8
Section 6.3 Disposal of Collateral.............................8
ARTICLE VII COVENANTS................................................8
Section 7.1 Preservation of Corporate Existence and Similar
Matters............................................9
Section 7.2 Compliance with Applicable Law.....................9
Section 7.3 Maintenance of Collateral; No Liens................9
Section 7.4 Insurance..........................................9
Section 7.5 Location of Offices and Collateral/Change of Name..9
Section 7.6 Power of Attorney..................................9
Section 7.7 Use of Proceeds...................................10
Section 7.8 Inspection of Books, Records, Properties..........10
Section 7.9 Merger, Consolidation and Sale of Assets..........10
Section 7.10 Reporting Requirements............................10
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ARTICLE VIII DEFAULTS................................................10
Section 8.1 Events of Default.................................10
Section 8.2 Remedies..........................................12
Section 8.3 Rights Cumulative.................................13
ARTICLE IX MISCELLANEOUS..............................................13
Section 9.1 Notices...........................................14
Section 9.2 Expenses..........................................15
Section 9.3 Amendments........................................15
Section 9.4 Governing Law.....................................15
Section 9.5 Integration.......................................15
Section 9.6 Indemnification...................................15
Section 9.7 Counterparts......................................16
Section 9.8 Descriptive Headings..............................16
Section 9.9 Time Is of the Essence............................16
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (as the same may be amended, modified
or supplemented from time to time, this "Agreement"), dated as of December 22,
1997 by and between PHOENIX MEDICAL TECHNOLOGY, INC., a Delaware corporation
("Phoenix"), as Borrower, and LONDON INTERNATIONAL GROUP, INC., a New Jersey
corporation ("LIG"), as Lender.
PREMISES
A. Pursuant to an Option Agreement of even date herewith (the "Option
Agreement"), LIG is acquiring from Phoenix an Option to purchase substantially
all the Assets and Business of Phoenix and to assume substantially all the
Liabilities of Phoenix on terms and conditions set forth in the Option
Agreement;
B. Under the terms of the Option Agreement, LIG and Phoenix are also
entering into an R&D Agreement of even date herewith for the development of
commercially viable technology for the manufacture of nitrile gloves for
industrial and medical uses (the "R&D Agreement");
C. In order to implement the R&D Agreement, LIG has agreed to make
available to Phoenix a $750,000 term loan facility to be used for the
acquisition of certain capital equipment for the manufacture of nitrile gloves
and glove autostripping equipment and related capital expenditures, and Phoenix
is willing to enter into such term loan facility upon the terms hereof and
subject to the conditions contained herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1. DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to them in the Option Agreement, which
meanings shall survive the termination of the Option Agreement. For the purposes
of this Agreement:
"Business Day" means any day other than a Saturday, Sunday or other day
on which banks in South Carolina are authorized to close.
"Change in Control" shall mean, as applied to Phoenix, that, during any
period of twelve (12) consecutive calendar months (i) more than fifty percent
(50%) of the members of the Board of Directors of Phoenix who were members on
the first day of such period
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shall have resigned or been removed or replaced, other than as a result of
death, disability, change in personal circumstances, or as approved by the Board
of Directors of Phoenix who were members on the first day of such period in
accordance with Phoenix's bylaws and other applicable corporate law, or (ii) any
Person or "Group" (as defined in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended, shall have acquired more than twenty percent (20%) of the
combined voting power of all classes of common stock of Phoenix.
"Collateral" means and includes all of Phoenix's right, title and
interest in and to each of the following, wherever located and whether now or
hereafter existing or now owned or hereafter acquired or arising: (a) all
Equipment; (b) all books, records and files of Phoenix and correspondence in any
way related to the foregoing; (c) all patents, franchises and other general
intangibles of Phoenix necessary for the operation of the Equipment; and (d) any
and all products and proceeds of any of the foregoing (including, but not
limited to, any claims to any items referred to in this definition, and any
claims of Phoenix against third parties for loss of, damage to or destruction of
any or all of the Collateral or for proceeds payable under policies of
insurance) in whatever form.
"Commitment" means $750,000 as such amount may be reduced from time to
time pursuant to the terms hereof.
"Conversion Date" means a date one year from the Effective Date of the
Option as defined in Section 1.5(a) of the Option Agreement.
"Default" shall mean any event or condition the occurrence of which
constitutes or would, with the lapse of time or the giving of notice, or both,
constitute an Event of Default.
"Equipment" means and includes, all equipment, machinery, apparatus,
fittings, fixtures and other tangible personal property (other than inventory)
as set forth in any Notice of Borrowing.
"Intercreditor Agreements" means as set forth in Section 4.1(c) hereof.
"Event of Default" means any of the events specified in Section 8.1
hereof.
"Loan Documents" means this Agreement, the Note, the Intercreditor
Agreements and any other document or instrument executed and delivered by
Phoenix in connection herewith or therewith.
"Loans" shall have the meaning set forth in Section 2.1.
"Material Adverse Effect" means a material, adverse effect on the
business operations and/or financial condition of Phoenix and/or which would
materially impair the ability of Phoenix to perform its obligations hereunder.
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"Note" means a promissory note of Phoenix in favor of LIG in
substantially the form of Exhibit A attached hereto.
"Notice of Borrowing" means a notice given by Phoenix to LIG in
accordance with Section 2.3 hereof that it intends to borrow a Loan hereunder,
such notice to be in substantially the form of Exhibit B attached hereto.
"Other Debt Agreements" mean each of the following, as amended,
modified or supplemented: (i) that certain Loan and Security Agreement, dated
March 28, 1995, by and between Phoenix and the CIT Group/Credit Finance, Inc.;
(ii) that certain Loan Agreement, dated March 27, 1995 by and between Phoenix
and Carolina First Bank; (iii) that certain Mortgage and Security Agreement,
dated March 27, 1995, between Phoenix and Carolina First Bank, (iv) that certain
Promissory Note, dated March 27, 1995, between Phoenix and NationsBank N.A.
(Carolinas) ; and (v) any refinancing of the foregoing provided that the lenders
providing such refinancing execute a Subordination Agreement in favor of LIG.
"Permitted Liens" means: (a) Liens securing taxes, assessments and
other governmental charges or levies not yet due and payable or the claims of
materialmen, mechanics, carriers, warehousemen or landlords for labor,
materials, supplies or rentals incurred in the ordinary course of business but
not yet due and payable; (b) Liens in favor of LIG and (c) Liens securing the
Other Debt Agreements provided such Liens are subordinated to LIG's Security
Interest in accordance with a Subordination Agreement.
"Secured Obligations" means, individually and collectively:
(a) the aggregate principal amount of all Loans and all
accrued interest thereon; and
(b) all obligations of Phoenix to LIG of every kind, nature
and description, under or in respect of this Agreement or any other Loan
Document, whether direct or indirect, absolute or contingent, due or not due,
contractual or tortious, liquidated or unliquidated, and whether or not
evidenced by any note; and
"Security Interest" means the Lien of LIG in the Collateral effected
hereby or by any of the Loan Documents.
"Termination Date" shall mean the earlier of (i) twenty-four (24)
months after the Conversion Date, and (ii) the date on which all amounts
outstanding under this Agreement have been declared or have automatically become
due and payable pursuant to the provisions of Article VIII hereof.
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ARTICLE II
CREDIT FACILITY
SECTION 2.1 LOANS. Subject to the terms and conditions of this
Agreement, (including the right of LIG to approve such Loan as set forth in
Section 2.4) LIG shall make loans (each a "Loan" and collectively, the "Loans")
to Phoenix from time to time during the period from the date hereof through the
Conversion Date; provided, however, that the aggregate principal amount of Loans
shall not exceed the Commitment. The Commitment shall be reduced by the
principal amount of each Loan.
SECTION 2.2 REPAYMENT OF LOANS. After the Conversion Date, the
principal balance of the Loans shall be repaid in twenty-four (24) consecutive
monthly installments due and payable on the last day of each calendar month
commencing with the first such day following the Conversion Date. The first
twenty-three (23) such installments shall each be in an amount equal to 1/24th
of the principal balance of the Loans as of the Conversion Date and the final
installment shall be equal to the remaining principal balance of the Loans.
Notwithstanding the foregoing, on the Termination Date, the principal amount of
the Loans then outstanding shall be due and payable in full. Once repaid, the
Loans may not be reborrowed.
SECTION 2.3 APPLICATION OF INSURANCE PROCEEDS. The amount of any
insurance proceeds distributed to LIG pursuant to Section 7.4 or otherwise shall
be applied to reduce the aggregate principal amount of the Loans outstanding.
Such insurance proceeds shall be applied to reduce scheduled principal payments
in inverse order of maturity.
SECTION 2.4 BORROWINGS UNDER REVOLVING CREDIT FACILITY.
(a) If Phoenix desires to make a borrowing it shall give LIG written
notice thereof pursuant to a Notice of Borrowing. The Notice of Borrowing shall
(i) describe the Equipment in detail that is being financed by such Loan, or if
none, specify the purpose for the Loan, (ii) specify the principal amount of the
Loan to be borrowed from LIG, (iii) specify the date such Loan is to be borrowed
and (iv) set forth disbursement instructions relating to such Loan. Each Notice
of Borrowing shall be delivered to LIG before 10:00 a.m. on the date five
Business Days prior to the date of any borrowing hereunder.
(b) Upon receipt of a Notice of Borrowing, LIG shall have the right to
approve or deny the request, in part or in whole, provided that LIG shall not
unreasonably withhold its consent. LIG shall communicate its decision orally or
in writing to Phoenix prior to the borrowing date, stating the basis for its
decision if a denial. Notwithstanding anything to the contrary in this Agreement
or the Loan Documents, Phoenix agrees and acknowledges that LIG has no
obligation to make a Loan under this Agreement unless LIG approves the Loan
request as provided in this Section 2.3.
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SECTION 2.5 DISBURSEMENTS. Not later than 12:00 noon on the date
specified in the Notice of Borrowing, and provided that (i) LIG has approved the
Loan in accordance with Section 2.4 and (ii) the applicable conditions precedent
set forth in Article IV hereof have been satisfied or waived by LIG, LIG shall
make available the amount of the Loan in immediately available funds, in the
manner specified in the Notice of Borrowing to which such Loan relates.
SECTION 2.6 NOTE. The obligation of Phoenix to repay the Loans shall
also be evidenced by the Note executed by Phoenix in favor of LIG.
ARTICLE III
INTEREST, FEES AND OTHER PROVISIONS
SECTION 3.1 INTEREST.
(a) Phoenix shall pay interest (calculated on the basis of a
year of three hundred sixty days (360) days and the actual number of days
elapsed) on the unpaid principal amount of each Loan for each day, such interest
to start to accrue from the ConversionDate until such Loan is paid (whether upon
demand, at maturity, by reason of acceleration or otherwise) at a rate per annum
equal to the prime rate as reported in the Eastern Edition of the Wall Street
Journal plus two percent (2%) calculated as of the first day of each month.
Unless otherwise provided herein, such interest shall be payable monthly in
arrears on the last Business Day of each calendar month, commencing on the first
such date after the ConversionDate, as applicable.
(b) If Phoenix shall fail to pay when due (whether upon
demand, at maturity, by reason of acceleration or otherwise) all or any portion
of the principal of, or interest on, any Loan, each such unpaid amount shall
bear interest (calculated as described in Section 3.1(a)) for each day from the
date it was so due until paid in full at a rate per annum equal to three percent
(3%) per annum above the rate per annum set forth in Section 3.1(a).
SECTION 3.2 PAYMENTS. All payments of principal, interest and other
amounts owing under this Agreement and the other Loan Documents shall be made in
immediately available funds to LIG at its address set forth in Section 9.1
below. All such payments shall be made by Phoenix in full in accordance with the
terms of this Agreement and the other Loan Documents without any reduction or
offset.
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ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1 CONDITIONS PRECEDENT TO THE LOANS. The obligation of LIG to
make the initial Loan is subject to the condition that LIG shall have received
each of the following documents, each of which shall be reasonably satisfactory
in form and substance to LIG:
(a) this Agreement and the Note executed and delivered by
Phoenix;
(b) the Option Agreement executed and delivered by Phoenix,
and satisfaction by Phoenix of all of the conditions precedent to the
effectiveness of the Option as set forth in Section 1.5(a) of the Option
Agreement;
(c) An intercreditor agreement, in form and substance
satisfactory to LIG, executed by each of the lenders under the Other Debt
Agreements, pursuant to which each such lender (i) consents to Phoenix's
entering into this Agreement and Phoenix's granting to LIG of a first priority
perfected Security Interest in the Collateral, and (ii) subordinates each
lender's Lien in the Collateral to LIG's Security Interest (collectively, the
"Intercreditor Agreements" );
(d) a signed opinion of counsel for Phoenix dated the date
hereof, opining as to the perfection of the Lien of LIG, the corporate authority
of Phoenix to execute and perform this Agreement, and other matters reasonably
customary in opinions of borrower's counsel as reasonably requested by LIG; and
(e) such other documents and instruments as LIG may reasonably
request.
SECTION 4.2 ADDITIONAL CONDITIONS PRECEDENT FOR EACH LOAN. The
obligation of LIG to make Loans is subject to the further conditions precedent
that:
(a) as of the date of each such Loan and after giving effect
thereto: (i) no Default or Event of Default shall have occurred and be
continuing; (ii) the representations and warranties made by Phoenix in Article V
hereof and in Article 4 of the Option Agreement, shall be true on and as of the
date of the making of such Loan with the same force and effect as if made on and
as of such date except for such changes expressly permitted under this
Agreement; and (iii) no change has occurred in the operations or condition,
financial or otherwise, of Phoenix since the date of the most recent Loan which
has had a Material Adverse Effect. Each Notice of Borrowing delivered by Phoenix
to LIG hereunder and/or each borrowing of a Loan hereunder shall constitute a
certification by Phoenix to the effect set forth in the preceding sentence (both
as of the date of such instrument and as of the date of such borrowing); and
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(b) Phoenix delivers executed Uniform Commercial Code
financing statements for each jurisdiction where the filing of such financing
statements may be necessary or appropriate to perfect the Security Interest in
the Equipment described in the Notice of Borrowing, as reasonably determined by
LIG.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 REPRESENTATIONS AND WARRANTIES. Phoenix represents and
warrants to LIG as follows:
(a) Authorization of Loan Documents and Borrowings/Compliance
with Laws/Contravention with Other Documents. Phoenix has the right and power,
and has taken all necessary corporate action to authorize it, to borrow
hereunder and to execute, deliver and perform the Loan Documents in accordance
with their respective terms. The Loan Documents have been duly executed and
delivered by Phoenix and each is a legal, valid and binding obligation of
Phoenix enforceable in accordance with its terms. Phoenix is in compliance with
all Laws binding upon it and its properties where the non-compliance with which
would have a Material Adverse Effect. The execution and delivery by Phoenix of
the Loan Documents do not require any consent except such as have been
previously obtained and do not conflict with, and will not result in a breach
of, any contract, agreement or other document or instrument to which Phoenix is
a party, the breach of which would have a Material Adverse Effect.
(b) Name, Taxpayer ID Number. The correct corporate name of
Phoenix is set forth in the first paragraph of this Agreement, and Phoenix does
not conduct and, since its formation has not conducted, business under any trade
name or other fictitious name other than Phoenix Glove Company. The Internal
Revenue Service taxpayer identification number of Phoenix is 31-092-9195.
(c) Liens. None of the Collateral or equipment of Phoenix is
subject to any Lien, except Permitted Liens.
(d) Chief Executive Office. The chief executive office and
principal place of business of Phoenix and the books and records relating to
equipment such as the Collateral are located at Phoenix's address set forth on
Schedule 5.1(e), and the chief executive office and principal place of business
have been located there for the five-year period ending on the date hereof.
Phoenix has not changed its name, identity or corporate structure in any way
since Phoenix's formation, except that it changed its name from Phoenix Glove
Company in 1983.
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(e) Equipment. All Equipment of Phoenix is in good order and
repair, is located on or at the address provided for Phoenix in Section 9.1
hereof, provided that this representation shall not apply at the time of the
initial Loan.
SECTION 5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
statements contained in any certificate or other instrument delivered by or on
behalf of Phoenix to LIG pursuant to or in connection with this Agreement or any
of the other Loan Documents shall constitute representations and warranties made
under this Agreement. All representations and warranties made under this
Agreement shall be deemed to be made at and as of the date hereof and at and as
of the date of each Notice of Borrowing.
ARTICLE VI
SECURITY INTEREST
SECTION 6.1 SECURITY INTEREST. To secure the payment, observance and
performance of the Secured Obligations, Phoenix hereby assigns and grants to LIG
a security interest in, and Lien upon, all of the Collateral.
SECTION 6.2 CONTINUED PRIORITY OF SECURITY INTEREST/FURTHER ASSURANCES.
Phoenix shall cause the Security Interest granted by Phoenix to be at all times
a valid and perfected first priority Lien and enforceable against Phoenix, the
Collateral and all third parties, in accordance with the terms of this Agreement
and the Collateral shall not at any time be subject to any Liens other than
Permitted Liens. In this connection, Phoenix shall, at its sole cost and
expense, take all action that may be necessary, as reasonably determined and
requested by LIG, so as at all times to maintain the validity, perfection and
enforceability of the Security Interest or to enable LIG to exercise or enforce
its rights hereunder, including paying applicable Taxes, using reasonable
efforts to obtain third party releases, subordinations or waivers (including
Subordination Agreements from lenders under Other Debt Agreements upon any
refinancings of those agreements), and executing and delivering financing
statements, assignments or notices.
SECTION 6.3 DISPOSAL OF COLLATERAL. Phoenix shall not sell, lease or
transfer or otherwise dispose of any of the Collateral, without the written
consent of LIG, such consent not to be unreasonably withheld. The inclusion of
"proceeds" of the Collateral under the definition thereof shall not be deemed a
consent by LIG to any other sale or other disposition of any part or all of the
Collateral.
ARTICLE VII
COVENANTS
So long as any of the Secured Obligations remain unpaid or
unperformed, or this Agreement is in effect:
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SECTION 7.1 PRESERVATION OF CORPORATE EXISTENCE AND SIMILAR MATTERS.
Phoenix shall preserve and maintain its corporate existence, rights, franchises,
licenses and privileges in the jurisdiction of its incorporation and qualify and
remain qualified and authorized to do business in South Carolina.
SECTION 7.2 COMPLIANCE WITH LAW. Phoenix shall comply with all Law,
including the obtaining of all consents, where the failure to comply with which
would have a Material Adverse Effect.
SECTION 7.3 MAINTENANCE OF COLLATERAL; NO LIENS. Phoenix shall protect
and preserve and maintain in good repair, working order and condition all of the
Collateral. Phoenix shall not, directly or indirectly, create, assume, incur or
suffer to exist any Lien upon any of the Collateral other than Permitted Liens.
SECTION 7.4 INSURANCE. Phoenix shall at all times maintain insurance on
the Collateral against loss or damage in such amounts as are reasonably
customary for a business of Phoenix's type. All insurance policies required
under this Section 7.4 shall contain loss payable clauses that are in form and
substance reasonably satisfactory to LIG which, among other things, provide that
all insurance proceeds attributable to loss or damage of the Collateral be
distributed to LIG.
SECTION 7.5 LOCATION OF OFFICES AND COLLATERAL/CHANGE OF NAME. Phoenix
shall keep all Equipment at the location(s) set forth in Schedule 5.1(e) hereof.
Phoenix shall give LIG thirty days' prior written notice before: (i) removing
such Equipment to another location, (ii) changing its principal place of
business, chief executive office or name, (iii) using any new tradename or
trademark in connection with its business operations.
SECTION 7.6 POWER OF ATTORNEY. Phoenix hereby irrevocably designates,
makes, constitutes and appoints LIG (and all Persons designated by LIG from time
to time) as Phoenix's true and lawful attorney and agent in fact, and LIG, or
any agent of LIG, may, without notice to Phoenix, and at such time or times
after the occurrence of an Event of Default and the expiration of the applicable
grace period as LIG or any such agent in its reasonable discretion may
determine, in the name of Phoenix or LIG, carry out any of the following: (a) to
endorse the name of Phoenix on any document or instrument relating to the
Collateral and; (b) to sign the name of Phoenix on any invoice or bill of lading
relating to the Collateral, on notices of assignment, financing statements and
other public records relating to the perfection or priority of the Security
Interest, on verifications of account and on notices to or from customers; and
(c) to use all computer programs, tapes, disks, other computer software and the
information recorded on or contained in any data processing equipment and
computer hardware relating to the Collateral to which Phoenix has access. This
power-of-attorney shall be irrevocable and shall be coupled with an interest and
all acts taken by LIG pursuant to this power-of-attorney are hereby ratified and
approved by Phoenix.
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SECTION 7.7 USE OF PROCEEDS. Phoenix shall use the proceeds of the
Loans solely to purchase the Equipment in accordance with a Notice of Borrowing,
except as may otherwise be authorized by LIG.
SECTION 7.8 INSPECTION OF BOOKS, RECORDS, PROPERTIES. Allow LIG, during
normal business hours of Phoenix, a reasonable inspection of the books, records
and properties of Phoenix and to discuss the business and financial affairs of
Phoenix with representatives of Phoenix.
SECTION 7.9 MERGER, CONSOLIDATION AND SALE OF ASSETS. Phoenix shall not
(a) merge or consolidate with or into any other Person or (b) sell, lease or
transfer or otherwise dispose of (including in any sale-leaseback transaction)
(each, a "Disposition") in any fiscal year of Phoenix an amount of assets with a
fair market value in excess of ten percent (10%) of the total fair market value
of all assets of Phoenix immediately prior to such Disposition.
SECTION 7.10 REPORTING REQUIREMENTS. Upon becoming aware thereof,
Phoenix shall notify LIG of the occurrence of (i) any Default or Event of
Default, (ii) any event that could reasonably be expected to have a Material
Adverse Effect, (iii) any Litigation claiming money damages in excess of
$50,000.00 (Fifty Thousand United States Dollars) or (iv) any Environmental
Claim that could reasonably be expected to have a Material Adverse Effect.
ARTICLE VIII
DEFAULT
SECTION 8.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default hereunder:
(a) Default in Payment. Phoenix shall fail to pay the
principal of, or interest on, any of the Loans or any of the other Secured
Obligations, within three days of when due (whether upon demand, at maturity, by
reason of acceleration or otherwise).
(b) Misrepresentations. Any representation or warranty made by
Phoenix under or pursuant to any Loan Document, the R&D Agreement or the Option
Agreement or in any other writing or statement at any time furnished or made by
Phoenix to LIG shall at any time prove to have been materially incorrect or
misleading in any material respect when furnished or made.
(c) Default in Performance. (i) Phoenix shall fail to perform
or observe any other term, covenant, condition or agreement contained in Article
II, VI and VII hereof or (ii) Phoenix shall fail to perform or observe any other
term, covenant, condition or agreement in this Agreement or in any other Loan
Document, including, but not limited to, the Option Agreement, and such failure
shall continue for a period of thirty days.
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(d) Cross-Default. Any event shall have occurred and be
continuing which, with or without the passage of time or the giving of notice or
both, would, under the terms of the Other Debt Agreements, the R&D Agreement and
the Option Agreement, permit (i) any holder (or trustee or agent of such holder)
of such document or instrument to accelerate the stated maturity of such
obligations or permit such Person to require Phoenix to repay such obligations
prior to their stated maturity or (ii) a party (other than Phoenix) to terminate
such agreement.
(e) Other Cross-Default. Any event shall have occurred and be
continuing which, with or without the passage of time or the giving of notice or
both, would, under the terms of any agreement or instrument evidencing an
obligation for indebtedness for money borrowed or the deferred purchase or lease
of property to which Phoenix is a party having a principal amount of $50,000
(Fifty Thousand United States Dollars) or more, permit any holder (or trustee or
agent of such holder) of such document or instrument to accelerate the stated
maturity of such obligations or permit such Person to require Phoenix to repay
such obligations prior to their stated maturity.
(f) Insolvency/Bankruptcy Proceedings. (a) Phoenix shall (i)
become insolvent, (ii) become generally unable to pay its debts as they become
due, (iii) make an assignment for the benefit of creditors, (iv) call a meeting
of creditors for the compensation of debts, or (v) fail to make payments due to
LIG or any Affiliate or LIG with respect to any indebtedness or obligations
owing by such Person; or (b) there shall be filed by or against Phoenix a
petition for bankruptcy or for reorganization (whether under the Bankruptcy Code
of 1978 or other federal or state bankruptcy or insolvency law), or a custodian,
receiver or agent is appointed or authorized to take charge of any of its
properties, or Phoenix shall take any corporate action to authorize any of the
foregoing (and, in the case of any involuntary petition for bankruptcy or
reorganization or for the appointment of a receiver or similar proceeding filed
against Phoenix if such petition, appointment or proceeding is not dismissed or
stayed within sixty days after the filing thereof).
(g) Change in Control. A Change in Control shall occur.
(h) Judgment. A judgment or order for the payment of money
shall be entered against Phoenix by any court or tribunal which exceeds $50,000
(Fifty Thousand United States dollars) in amount.
(i) Loss or Action Against Collateral. There shall occur any
uninsured loss or reduction in value of the Collateral in excess of $50,000
(Fifty Thousand United States dollars), or any Person shall seek to levy upon,
foreclose upon or otherwise take possession of any of the Collateral.
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(j) Challenge of Other Documents. If Phoenix or any other
Person shall challenge or threaten to challenge the validity or enforceability
of any Loan Document, the Option Agreement or the R&D Agreement.
SECTION 8.2 REMEDIES. Upon the occurrence and continuation of an Event
of Default and expiration of all applicable grace periods, LIG may exercise any
or all of the following rights and remedies:
(a) Acceleration. If any Event of Default shall have occurred
and be continuing and all applicable grace periods have expired, LIG may: (i)
declare the principal of, and accrued but unpaid interest on, the Loans and the
Note at the time outstanding, and all of the other Secured Obligations, to be
forthwith immediately due and payable, whereupon the same shall immediately
become due and payable without presentment, demand, protest or other notice of
any kind, all of which are expressly waived, anything in any Loan Document or
any other agreement evidencing any Secured Obligations to the contrary
notwithstanding and (ii) terminate this Agreement and the making of Loans
hereunder; provided, however, that if the Event of Default set forth in Section
8.1(f) hereof with respect to Phoenix shall have occurred, all of the principal
of, and accrued but unpaid interest on, the Loans and all other Secured
Obligations shall become automatically due and payable and this Agreement and
the making of Loans shall automatically terminate.
(b) Collateral.
(i) Entry. LIG may enter upon any premises in which
Equipment may be located and, without resistance or interference by
Phoenix, take physical possession of any or all thereof and maintain
such possession on such premises or move the same or any part thereof
to such other place or places as LIG shall choose, without being liable
to Phoenix on account of any loss, damage or depreciation that may
occur as a result thereof, other than for actions that were not taken
in good faith.
(ii) Assembly. Phoenix shall, upon the reasonable
request of and without charge to LIG, assemble the Equipment and
maintain or deliver it into the possession of LIG or any agent or
representative of LIG at such place or places as LIG may designate and
as are reasonably convenient to both LIG and Phoenix.
(iii) Warehousing. LIG may, at the reasonable expense
of Phoenix, cause any of the Equipment to be placed in a public or
field warehouse, and LIG shall not be liable to Phoenix on account of
any loss, damage or depreciation that may occur as a result thereof,
other than for actions that were not reasonable or not taken in good
faith.
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(c) Rights as a Secured Creditor. LIG may exercise all of the
rights and remedies of a secured party under the Uniform Commercial Code in
effect from time to time in South Carolina or other applicable jurisdictions and
under any other Law with respect to all or any portion of the Collateral,
including the right, without notice except as specified below and with or
without taking possession thereof, to sell the Collateral or any part thereof in
one or more parcels at public or private sale at any location chosen by LIG, for
cash, on credit or for future delivery, and at such price or prices and upon
such other terms as LIG may deem commercially reasonable. Phoenix agrees that,
to the extent notice of sale shall be required by law, at least ten days' notice
to Phoenix of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification, but notice
given in any other reasonable manner or at any other reasonable time shall
constitute reasonable notification. LIG shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. LIG may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.
(d) Appointment of Receiver. LIG may appoint a custodian or
receiver for the Collateral.
(e) Other Rights. LIG may exercise all rights and remedies it
may have under any other Loan Document, under Article VI hereof which are
exercisable upon the occurrence and continuation of an Event of Default and
expiration of all applicable grace periods, and under all Law relating to
creditors' rights generally.
(f) Licenses. In the exercise of the rights of LIG under this
Agreement, without payment or compensation of any kind, use any and all
trademarks, trade styles, trade names, patents, patent applications, licenses,
franchises (excluding designations to the extent prohibited by Law) and the like
to the extent of the rights of Phoenix therein, and Phoenix grants a license to
LIG for this purpose.
SECTION 8.3 RIGHTS CUMULATIVE. The rights and remedies of LIG under the
Loan Documents shall be cumulative and not exclusive of any rights or remedies
which it would otherwise have. In exercising its rights and remedies LIG may be
selective and no failure or delay by LIG in exercising any right shall operate
as a waiver of it, nor shall any single or partial exercise of any power or
right preclude its other or further exercise or the exercise of any other power
or right.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 NOTICES. Unless otherwise provided herein, communications
provided for hereunder shall be in writing and shall be mailed, telecopied or
delivered, to
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the following addresses at such other address as shall be designated by such
party in a written notice to the other parties:
Phoenix:
PHOENIX MEDICAL TECHNOLOGY, INC.
Route 521 West
Andrews, South Carolina 29510
Telecopy Number: (803) 221-5201
Attn: Edward W. Gallaher, Sr.
With a copy to:
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
Suite 4200
Nationsbank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28202-4006
Telecopy Number: (704) 331-7598
Attn: Barbara R. Frith
LIG:
LONDON INTERNATIONAL GROUP, INC.
3585 Engineering Drive, Suite 200
Norcross, Georgia 30092
Telecopy Number: (770) 582-2226
Attn: Robert Kaiser, Esq.
With a copy to:
ALSTON & BIRD LLP
North Building
601 Pennsylvania Avenue, NW
Washington, D.C. 20004
Telecopy Number: (202) 508-3333
Attn: Patrick M. Norton, Esq.
All such notices and other communications shall be effective (i) if mailed, when
received or three days after mailing, whichever is earlier; (ii) if telecopied,
when transmitted; or (iii) if hand delivered, when delivered.
SECTION 9.2 EXPENSES. Each of LIG and Phoenix shall bear and pay all
direct costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated under this Agreement, including the fees and expenses
of its own counsel,
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provided that Phoenix shall pay all out-of-pocket expenses incurred by LIG in
connection with: (i) all recording and filing fees or taxes; (ii) the collection
or enforcement of the Loan Documents or the Secured Obligations including the
reasonable fees and reasonable disbursements of counsel to LIG if such
collection or enforcement is done through or by an attorney; and (iii) the
exercise by LIG of any right or remedy granted to it under any Loan Document
whether or not an Event of Default has occurred.
SECTION 9.3 AMENDMENTS. Any term, covenant, agreement or condition of
any Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by LIG and, in the case of an amendment, by
Phoenix.
SECTION 9.4 GOVERNING LAW. This Agreement and the Loan Documents shall
be construed in accordance with, and governed by, the Laws of the State of South
Carolina.
SECTION 9.5 INTEGRATION. Except as set forth in Section 1, this
Agreement and the other Loan Documents constitute the entire agreement between
the parties with respect to the transactions set forth herein and the credit
facility described hereby.
SECTION 9.6 INDEMNIFICATION.
(a) Phoenix agrees to indemnify and hold LIG harmless from and
against any claim (including any Environmental Claim), loss, damage, action,
cause of action, liability, cost and expense or suit of any kind or nature
whatsoever, brought against or incurred by LIG, in any manner arising out of or,
directly or indirectly, related to or connected with the operation of any of
Phoenix's business, any action taken by LIG with respect to any Collateral
pursuant to this Agreement, or any other action taken by LIG pursuant to the
terms of this Agreement other than for the gross negligence or willful
misconduct of LIG.
(b) Notwithstanding Section 9.6(a):
(i) Phoenix shall not be required to indemnify LIG with
respect to a claim for indemnification unless the amount of the claim,
when aggregated with all other such claims, exceeds $50,000.00 (Fifty
Thousand United States Dollars)(the "Minimum Aggregate Liability
Amount");
(ii) Phoenix's maximum aggregate liability for indemnification
claims under this Agreement shall be $1,000,000.00 (One Million United
States Dollars)(the "Maximum Aggregate Liability Amount"); and
(iii) The Minimum and Maximum Aggregate Liability Amounts
shall not apply to any claim which results from or arises out of fraud
or intentional misrepresentation or an intentional breach of warranty
on the part of Phoenix.
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<PAGE> 127
SECTION 9.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which, taken
together, shall constitute but one and the same instrument.
SECTION 9.8 DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections and subsections of this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.
SECTION 9.9 TIME IS OF THE ESSENCE. Time is of the essence in
interpreting and performing this Agreement and all other Loan Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Loan and
Security Agreement to be executed by their authorized officers all as of the day
and year first above written.
PHOENIX MEDICAL TECHNOLOGY, INC.
By: /s/ Edward W. Gallaher, Sr.
----------------------------------
Name: Edward W. Gallaher, Sr.
Title: President
Attest: /s/ Jacqueline L. Gallaher
------------------------------
Name: Jacqueline L. Gallaher
Title: Assistant Secretary
[CORPORATE SEAL]
LONDON INTERNATIONAL
GROUP, INC.
By: /s/ Robert Kaiser
----------------------------------
Name: Robert Kaiser
Title: Vice President and General
Counsel
Attest: /s/ William L. Gunn, Jr.
-----------------------------
Name: William L. Gunn, Jr.
Title: Secretary
[CORPORATE SEAL]
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ANNEX D
AGREEMENT FOR THE
PURCHASE AND SALE OF GOODS
DATED AS OF DECEMBER 22, 1997
<PAGE> 129
AGREEMENT FOR THE
PURCHASE AND SALE OF GOODS
THIS AGREEMENT FOR THE PURCHASE AND SALE OF GOODS (this
"Agreement") is made and entered into as of December 22, 1997, by and between
LONDON INTERNATIONAL GROUP, INC. ("LIG"), a New Jersey corporation having its
principal place of business at 3585 Engineering Drive, Suite 200, P.O. Box
926090, Norcross, Georgia 30092-9204, and PHOENIX MEDICAL TECHNOLOGY, INC.
("Phoenix"), a Delaware corporation having its principal place of business at
Route 521 West, Andrews, South Carolina 29510.
PREMISES
A. Pursuant to an Option Agreement of even date herewith (the "Option
Agreement"), LIG is acquiring from Phoenix an Option to purchase substantially
all of the Assets and Business of Phoenix and to assume substantially all of the
Liabilities of Phoenix on terms and conditions mutually agreed by the Parties
and set out in the Option Agreement.
B. Pursuant to a Research & Development Agreement of even date herewith
(the "R&D Agreement"), the Parties are agreeing to develop jointly certain
technology to be used in the manufacture of nitrile gloves.
C. Upon the development of a commercially marketable nitrile glove
pursuant to the R&D Agreement, LIG wishes to purchase from Phoenix, and Phoenix
wishes to sell to LIG, nitrile gloves in such quantities and on such terms as
are set out in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
warranties, representations, covenants and agreements set forth in this
Agreement, the Parties agree as follows:
ARTICLE 1
AGREEMENT TO PURCHASE
1.1 AGREEMENT TO SELL AND PURCHASE
Phoenix agrees to sell to LIG and LIG agrees to buy from
Phoenix nitrile gloves (the "Products") on the terms and conditions set out in
this Agreement.
1.2 SPECIFICATIONS
All Products sold by Phoenix to LIG pursuant to the terms of
this Agreement shall satisfy the specifications set out in Exhibit 1.2 to this
Agreement (the "Specifications").
<PAGE> 130
1.3 PURCHASE ORDERS
(a) LIG shall submit to Phoenix, by telecopy or otherwise,
purchase orders indicating: the specific types, sizes, and quantities of
Products that LIG wishes to purchase; the destination to which LIG wishes the
Products shipped; and the date on which LIG wishes the Products shipped.
(b) Phoenix shall promptly notify LIG by telecopy whether it
accepts the conditions in LIG's purchase order. If Phoenix is unable to accept
LIG's conditions, the parties shall consult to determine mutually acceptable
conditions on which a sale may be concluded.
(c) LIG may modify or terminate an order for Products at any
time up to shipment; provided, that LIG shall be responsible for any costs of
Phoenix reasonably incurred up to the time of modification or termination that
Phoenix is unable to mitigate by reasonable commercial efforts to sell the
Products to third parties.
1.4 MINIMUM PURCHASES; PRIORITY OF PHOENIX CUSTOMERS
(a) Commencing with the first month after Phoenix manufactures
at least three (3) days' production of Products satisfying the Specifications,
Phoenix agrees to supply to LIG, and LIG agrees to purchase from Phoenix, at
least three (3) days' production of Products each month during the remaining
term of this Agreement. Specific orders for such Products shall be filled in
accordance with the procedures set out in Section 1.3.
(b) After Phoenix has satisfied the minimum supply required by
Section 1.4 (a), Phoenix shall not be obligated to fill any LIG purchase order
to the extent that Phoenix requires its own manufacturing output of Products for
sales by Phoenix under the Phoenix brand (including Phoenix's current private
label business).
(c) In the event that, during the term of this Agreement,
Phoenix manufactures Products in excess of both the minimum supply required by
Section 1.4(a) and Phoenix's own sales under the Phoenix brand as provided in
Section 1.4(b), Phoenix agrees that it will not sell such excess Products to any
third party without first offering to sell such excess Products to LIG on the
same terms and conditions as Phoenix intends to offer those Products to third
parties.
1.5 DELIVERY TERMS
All deliveries of Products pursuant to this Agreement shall be
FOB (INCOTERMS) Phoenix's facilities in Andrews, South Carolina. Upon delivery,
title to the Products and risk of loss or damage to or delay of the Products
shall pass to LIG.
1.6 PURCHASE PRICE
All purchases shall be at Phoenix's Cost, plus ten percent
(10%). For these purposes, "Cost" shall mean: Phoenix's actual costs of
materials, labor, and budgeted allocated overhead.
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1.7 FORECASTS
Commencing with the first month after Phoenix succeeds in
manufacturing at least three (3) days' production of Products, Phoenix shall, as
of the first of each month for the remaining term of this Agreement, provide LIG
with a forecast of Phoenix's anticipated production of Products for the
following six months. Each such forecast shall include Phoenix's reasonable best
estimate of the quantities of Products that Phoenix anticipates will be required
to fill sales by Phoenix under the Phoenix brand (including private label
business).
ARTICLE 2
PAYMENT
2.1 TIME
Phoenix shall invoice LIG for all Products sold pursuant to
this Agreement, and LIG shall pay all such invoices within thirty (30) days of
LIG's receipt of such invoices.
2.2 TAXES AND DUTIES
LIG shall be solely responsible for and shall pay, or
reimburse Phoenix for, all taxes, duties, import deposits, assessments and other
governmental charges, however designated, which are imposed under or by any
governmental authority or agency, and are: associated with the performance by
Phoenix of its obligations hereunder; based on the Products or their uses; or
related to the import of the Products into any jurisdiction outside the United
States in accordance with then prevailing law or regulations.
ARTICLE 3
INSPECTION AND REJECTION
3.1 RIGHT TO INSPECT
Regardless of whether an inspection has taken place prior to
shipment, LIG has the right to inspect Products upon their delivery to LIG's
warehouse and, in addition to any other rights which it may have, the right to
reject any Products that fail to conform to the Specifications. Non-conforming
Products will be held for Phoenix's instructions and, if Phoenix so directs,
will be returned to Phoenix at Phoenix's expense. Products damaged during
shipment shall not be deemed non-conforming for these purposes. The failure to
inspect, either prior to shipment or upon delivery to LIG's warehouse, shall not
be deemed a waiver of any rights of LIG under any provision of this Agreement.
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<PAGE> 132
3.2 INSPECTION OF PRODUCTION FACILITIES
LIG shall have the right to inspect at any time during normal
business hours the production facilities where the Products are being produced
and to inspect the Products during production. Phoenix shall cooperate with such
inspections.
ARTICLE 4
WARRANTY AND INDEMNIFICATION
4.1 WARRANTY
Phoenix warrants that all of the Products delivered hereunder
will conform strictly to the Specifications. This warranty shall survive any
inspection, delivery or acceptance of any Products, and payment therefor by LIG.
Phoenix's obligation, shall apply only to failure to meet the foregoing warranty
(except as to title). If any of the Products fails to meet the foregoing
warranty (except as to title), Phoenix shall, at its option, replace that
Product or refund the purchase price and any related costs (freight, insurance,
etc.) incurred by LIG. Any such failure shall not be cause for extension of the
duration of the warranty specified in this Article 4.1. Phoenix's obligations
under this Article 4.1 shall not apply to any Product, or part thereof, which:
(a) Is not properly stored, shipped, handled, installed, used,
maintained or repaired, or is modified other than pursuant to Phoenix's
instructions or approval; or
(b) Has been subjected to any other kind of misuse or
detrimental exposure, or has been involved in an accident.
4.2 PRODUCT LIABILITY
(a) Except for claims, losses or damages directly and solely
resulting from or arising out of LIG's active negligence, Phoenix specifically
agrees to defend, indemnify and hold LIG harmless from and against any and all
product liability claims, losses or damages, whether brought as express or
implied warranty, negligence, or strict liability actions, including the costs
of defending any proceedings, resulting in whole or in part from the failure of
any Product to conform to the Specifications.
(b) Phoenix covenants and agrees with LIG to maintain in force
during the term of this Agreement product liability insurance with aggregate
coverage limits of at least $2 million (Two Million United States Dollars).
4.3 PATENT INDEMNIFICATION
Phoenix shall defend any suit or proceeding brought against
LIG and shall pay any adverse judgment entered therein, together with LIG's
costs, attorneys' fees, and expert witness fees, insofar as such suit or
proceeding is based upon a claim that the use or sale of the Products
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<PAGE> 133
or any part thereof manufactured by Phoenix and furnished under this Agreement
constitutes infringement of any patent right of any third party, provided that
Phoenix is promptly notified in writing and given authority, information, and
assistance for defense of same. Phoenix shall not indemnify LIG if, or to the
extent that, an infringement claim is based upon the Specifications.
4.4 LIMITATION ON DAMAGES
Notwithstanding any other provision of this Agreement: Claims
by either Party shall be limited to direct damages and in no event shall Phoenix
be liable for any special, consequential, incidental, indirect, punitive, or
exemplary damages, including loss of profit or revenues, loss of use of or
increased expense of operation of the Products or any associated equipment,
impairment of other goods, cost of capital or modifications to or substitutions
for the Products, facilities or services, downtime costs or other increased
expense of operation, or claims of LIG's customers due to added costs or losses,
service interruption or failure of supply.
ARTICLE 5
FORCE MAJEURE
5.1 DEFINITION
"Force Majeure" shall mean any event or condition, not
existing as of the date of this Agreement, not reasonably foreseeable as of such
date and not reasonably within the control of either Party, which prevents in
whole or in material part the performance by a Party of its obligations
hereunder or which renders the performance of such obligations so difficult or
costly as to make such performance commercially unreasonable. Force Majeure
shall include: acts of State, governmental action(including governmental orders,
legislation, regulations, restrictions, priorities and rationing), riots,
disturbance, war (declared or undeclared), strikes, lockouts, slowdowns,
prolonged shortage of energy supplies, interruption of transportation, embargo,
prohibition of import or export of goods covered by this Agreement, epidemics,
fire, flood, hurricane, typhoon, earthquake, lightning and explosion.
5.2 NOTICE
Upon giving written notice to the other Party, a Party
affected by an event of Force Majeure shall be released without any liability on
its part from the performance of its obligations under this Agreement, except
for the obligation to pay any amounts due and owing hereunder, but only to the
extent and only for the period that its performance of such obligations is
prevented by the event of Force Majeure. Such notice shall include a description
of the nature of the event of Force Majeure, and its cause and possible
consequences. The Party claiming Force Majeure shall promptly notify the other
Party of the termination of such event.
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<PAGE> 134
5.3 CONFIRMATION
The Party invoking Force Majeure shall provide to the other
Party confirmation of the existence of the circumstances constituting Force
Majeure. Such evidence may consist of a statement or certificate of an
appropriate governmental department or agency where available, or a statement
describing in detail the facts claimed to constitute Force Majeure.
5.4 SUSPENSION OF PERFORMANCE
During the period that the performance by one of the Parties
of its obligations under this Agreement has been suspended by reason of an event
of Force Majeure, the other Party may likewise suspend the performance of all or
part of its obligations hereunder to the extent that such suspension is
commercially reasonable.
5.5 TERMINATION
Should the period of Force Majeure continue for more than six
(6) consecutive months, either Party may terminate this Agreement without
liability to the other Party, except for payments due to such date, upon giving
written notice to the other Party.
ARTICLE 6
TERM; TERMINATION
6.1 TERM
This Agreement shall take effect as of the Effective Date of
the Option Agreement (as the term "Effective Date" is defined therein) and shall
continue for a term of one year unless sooner terminated in accordance with
Article 6.2.
6.2 TERMINATION
Prior to the expiration of the term of this Agreement pursuant
to Article 6.1, this Agreement may be terminated as follows:
(a) This Agreement shall terminate with immediate effect upon
the termination of the Option Agreement.
(b) Either Party may terminate this Agreement at any time by
giving notice in writing to the other Party, which notice shall be effective
upon dispatch, should the other Party file a petition of any type as to its
bankruptcy, be declared bankrupt, become insolvent, make an assignment for the
benefit of creditors, go into liquidation or receivership, or otherwise lose
legal control of its business, or should the other party or a substantial part
of its business come under the control of a third party.
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<PAGE> 135
(c) Either Party may terminate this Agreement by giving notice
in writing to the other Party in the event the other Party is in material breach
of this Agreement and shall have failed to cure such breach within thirty (30)
days of receipt of written notice thereof from the first Party.
6.3 CONSEQUENCES OF TERMINATION
Upon the termination of this Agreement pursuant to Articles
6.1 or 6.2, this Agreement shall be of no further force or effect, provided:
(a) Phoenix shall fill any purchase order of LIG that Phoenix
has accepted prior to the date of termination;
(b) LIG shall remain liable to pay Phoenix for any Product
delivered prior to the date of termination or ordered prior to the date of
termination and delivered thereafter; and
(c) Phoenix's warranties and indemnification of LIG pursuant
to Article 4 shall continue in full force and effect.
ARTICLE 7
GOVERNING LAW; DISPUTE RESOLUTION
7.1 GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the Laws of the State of Georgia applicable to contracts
executed and wholly performed within that State.
7.2 ARBITRATION
(a) AMERICAN ARBITRATION ASSOCIATION RULES.
Any controversy or claim arising out of or relating to this
Agreement shall be determined by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "Rules").
(b) COMPOSITION OF ARBITRAL TRIBUNAL.
The arbitration shall be held before a panel of three
arbitrators, one of whom, who shall serve as chairman, shall be nominated by the
American Arbitration Association in accordance with the Rules, one of whom shall
be nominated by LIG, and one of whom shall be nominated by Phoenix.
(c) SITUS; LANGUAGE.
The arbitration shall be conducted in Atlanta, Georgia. All
arbitral proceedings shall be in English.
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<PAGE> 136
(d) JUDICIAL ASSISTANCE.
The award of the arbitrators shall be final and binding. The
Parties waive any right to appeal the award, to the extent a right to appeal may
be lawfully waived. Each Party retains the right to seek judicial assistance:
(i) to compel arbitration; (ii) to obtain interim measures of protection pending
arbitration; and (iii) to enforce any decision of the arbitrators, including the
final award.
ARTICLE 8
MISCELLANEOUS
8.1 ENTIRE AGREEMENT
This Agreement (including the documents and instruments
referred to herein) and the Option Agreement constitute the entire agreement
between the Parties with respect to the transactions contemplated under this
Agreement and supersede all prior arrangements or understandings with respect
thereto, written or oral.
8.2 AMENDMENTS
This Agreement may be amended only by a subsequent writing
signed by each of the Parties.
8.3 ASSIGNMENT
This Agreement and the rights, interests or obligations under
this Agreement may be assigned (whether by operation of Law or otherwise) by a
Party only to an Affiliate of that Party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by the Parties and their respective successors and assigns.
8.4 NOTICES
All notices or other communications which are required or
permitted under this Agreement shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, or by courier or overnight carrier, to the persons at the addresses
set forth below (or at such other address as may be provided under this
Agreement), and shall be deemed to have been delivered as of the date so
delivered:
Phoenix: PHOENIX MEDICAL TECHNOLOGY, INC.
Route 521 West
Andrews, South Carolina 29510
Telecopy Number: (803) 221-5201
Attention: Edward W. Gallaher, Sr.
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<PAGE> 137
Copy to Counsel: Barbara R. Frith
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
Suite 4200
Nationsbank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28202-4006
Telecopy Number: (704) 331-7598
LIG: LONDON INTERNATIONAL GROUP, INC.
3585 Engineering Drive, Suite 200
P.O. Box 926090
Norcross, Georgia 30092-9204
Telecopy Number: (770) 582-2226
Attention: Robert Kaiser
Copy to Counsel: Patrick M. Norton
ALSTON & BIRD LLP
North Building
601 Pennsylvania Avenue, NW
Washington, DC 20004
Telecopy Number: (202) 508-3333
8.5 COUNTERPARTS
This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
8.6 INTERPRETATIONS
Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against either Party, whether under any rule of
construction or otherwise. Neither Party shall be considered the draftsman of
this Agreement. The Parties acknowledge and agree that this Agreement has been
reviewed, negotiated and accepted by both Parties and their attorneys and shall
be construed and interpreted according to the ordinary meaning of the words used
so as fairly to accomplish the purposes and intentions of both Parties.
8.7 SEVERABILITY
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
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<PAGE> 138
ARTICLE 9
DEFINITIONS
9.1 DEFINITIONS
The following terms shall, whenever capitalized in this
Agreement, have the meanings ascribed below:
"AFFILIATE" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person; (ii) any officer,
director, partner, employer, or direct or indirect beneficial owner of any ten
percent (10%) or greater equity or voting interest of such Person; or (iii) any
other Person for which a Person described in clause(ii) acts in any such
capacity.
"AGREEMENT" shall mean this Agreement, including the Exhibits
and Schedules delivered pursuant to this Agreement and incorporated in it by
reference.
IN WITNESS WHEREOF, each of the Parties has caused this
Agreement to be executed on its behalf and its corporate seal to be hereunto
affixed and attested by officers thereunto as of the day and year first above
written.
ATTEST: PHOENIX MEDICAL TECHNOLOGY, INC.
/s/ Jacqueline L. Gallaher By: /s/ Edward W. Gallaher, Sr.
- -------------------------- ---------------------------------
Secretary (Assistant) Name: Edward W. Gallaher, Sr.
Title: President
[CORPORATE SEAL]
ATTEST: LONDON INTERNATIONAL GROUP, INC.
/s/ William L. Gunn, Jr. By: /s/ Robert Kaiser
- ------------------------ ---------------------------------
Secretary Name: Robert Kaiser
Title: Vice President and General
Counsel
[CORPORATE SEAL]
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<PAGE> 139
[INTERSTATE/JOHNSON LANE LETTERHEAD]
November 24, 1997
Board of Directors
Phoenix Medical Technology, Inc.
P.O. Box 386
Andrews, SC 29510
Members of the Board:
You have requested our opinion (the "Opinion") expressed below, on
behalf of the shareholders of Phoenix Medical Technology, Inc. ("the Company")
of the option to purchase the assets of the Company by London International
Group, Inc. ("LIG"), pursuant to the terms of an Option Agreement (the
"Agreement"). Pursuant to the Agreement, the Company and LIG will enter into
four related transactions including the Option Agreement, a Loan and Security
Agreement, a Research and Development Agreement, and an Agreement for the
Purchase and Sale of Goods, collectively (the "Transaction").
Interstate/Johnson Lane Corporation is one of the largest independent
investment banking firms headquartered in the Southeast. As part of its regular
investment banking business, Interstate/Johnson Lane Corporation evaluates
securities in connection with negotiated underwritings, leveraged buyouts,
secondary distributions, private placements, estate and gift valuations, mergers
and acquisitions, employee stock ownership plan purchases and other activities.
In arriving at our Opinion, with respect to the Company, we have taken
such actions and considered such matters and documents as we have deemed
appropriate under the circumstances including, without limitation:
1) reviewed the terms and conditions of the draft Agreement as of
November 24, 1997;
2) analyzed and reviewed annual audited financial statements and
interim unaudited financial statements through September 28,
1997;
3) conducted discussions with members of the senior management of
the Company with respect to the business and prospects of the
Company and the strategic objectives of the Transaction;
<PAGE> 140
Board of Directors
Phoenix Medical Technology, Inc.
November 24, 1997
Page 2
4) reviewed financial and market information as to certain other
publicly traded companies believed by us to be reasonably
similar to the Company; and
5) conducted such other financial studies, analyses and
investigations as appropriate and relevant as the basis for
the conclusions set forth in this Opinion.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information furnished to us by the Company. Accordingly, we do not make
any warranties, nor do we express any opinion regarding the accuracy of such
information. We have also relied upon the assurances of management of the
Company that they are unaware of any facts that would make the information
provided to us incomplete or misleading.
Our opinion herein is based on the circumstances existing and known to
us as of the date hereof. We have not made or obtained any independent
evaluations or appraisals of the assets or liabilities (contingent or otherwise)
of the Company, nor were we furnished with any such evaluations or appraisals.
Consequently, we do not express an opinion regarding the value of any of the
Company's specific individual assets. We were not requested to, and therefore
did not, participate in the structuring or negotiating of the Transaction.
Based upon and subject to the foregoing and such other matters as we
considered relevant, it is our opinion that as of the date hereof, the
Transaction is fair, from a financial point of view, to the shareholders of the
Company.
Our fees for rendering our Opinion are not contingent upon the Opinion
expressed herein, and neither Interstate/Johnson Lane Corporation nor any of its
affiliates or employees has a present or intended material financial interest in
the Company. Further, Interstate/Johnson Lane Corporation is independent of all
parties participating in the proposed Transaction.
<PAGE> 141
Board of Directors
Phoenix Medical Technology, Inc.
November 24, 1997
Page 3
This Opinion is furnished pursuant to our engagement letter dated
November 4, 1997. Our Opinion is directed to the Board of Directors of Phoenix
Medical Technology, Inc. and does not constitute a recommendation to any
shareholder of the Company as to how such shareholder should vote in connection
with the Transaction. This Opinion is a summary discussion of our underlying
analyses and may be included in communications to the shareholders of the
Company provided that Interstate/Johnson Lane Corporation approves of
disclosures prior to publication.
Very truly yours,
/s/ Interstate/Johnson Lane Corporation
INTERSTATE/JOHNSON LANE
CORPORATION
<PAGE> 142
ANNEX F
PHOENIX MEDICAL TECHNOLOGY, INC.
PLAN OF DISSOLUTION AND LIQUIDATION
1. Following the adoption of this Plan of Dissolution and Liquidation
(the "Plan") by the stockholders and Board of Directors of Phoenix Medical
Technology, Inc. (the "Corporation"), and following the sale of substantially
all of the Corporation's assets to London International Group, Inc. ("LIG") and
the termination of any indemnification obligations relating to such sale, the
proper officers of the Corporation shall execute and cause a Certificate of
Dissolution to be filed with the Secretary of State of the State of Delaware,
and at such other places as may be required by law or may be advisable.
2. The Certificate of Dissolution shall state that the dissolution of
the Corporation shall become effective as of a specific date not later than 90
days after the filing of the Certificate of Dissolution.
3. Promptly after the effective date of dissolution, the proper
officers of the Corporation shall cause a notice of dissolution to be published
at least once a week for two consecutive weeks in a newspaper of general
circulation (a) in the county in which the office of the Corporation's last
registered agent in the State of Delaware in located and (b) in the area of the
Corporation's principal place of business.
4. On or before the date of the first publication of such notice of
dissolution, the proper officers of the Corporation shall cause such notice to
be mailed, by certified or registered mail, return receipt requested, to all
known creditors of the Corporation, including persons with contingent,
conditional or unmatured claims.
5. Such notice of dissolution shall state: (a) that all such claims
must be presented in writing with sufficient information to enable the
Corporation to identify the claimant and the substance of the claim; (b) the
mailing address of the Corporation for the receipt of claims; (c) a cut-off date
at least 60 days after the date of notice by which claims must be presented to
the Corporation; (d) that the claim will be barred if not received by the
cut-off date; (e) the aggregate amount, on annual basis, of all distributions
made by the Corporation to its stockholders for each of the last three years
prior to dissolution; and (f) that the Corporation may make distributions to
claimants, stockholders or other persons without further notice to the claimant.
6. Upon receipt of a claim, the Corporation will either pay or reject
such claim in whole or in part within 90 days. Pursuant to Section 280 of the
Delaware General Corporation Law (the "DGCL"), any notice of rejection sent by
the Corporation will state that the rejected claim will be barred if an action,
suit or proceeding with respect to the claim is not commenced within 120 days of
the date thereof and will enclose a copy of Sections 278-283 of the DGCL so that
a claimant will understand the available options.
7. With regard to contingent, conditional and unmatured claims, the
Corporation will, within 90 days of receipt of the claim, offer security for
such claims which in the
<PAGE> 143
Corporation's judgment is sufficient to satisfy the claim if it were to mature.
In the event a claimant who has rejected the offered security does not commence
an action in a court of competent jurisdiction for a determination of the
appropriate security, the Corporation will petition the Delaware Court of
Chancery to determine the amount and form of security that is sufficient to
compensate the claimant. With regard to any claims which are the subject of
pending actions to which the Corporation is a party, the Corporation must
petition the Delaware Court of Chancery to determine the amount and form of
security that will be reasonably likely to be sufficient to provide compensation
for such claims.
8. Pursuant to Section 280(c)(3) of the DGCL, the Corporation will file
an action in the Delaware Court of Chancery for a determination of the form and
amount of security to be set aside by the Corporation to provide compensation
for claims that are unknown to the Corporation but are likely to arise or become
known to the Corporation within five years after the date of dissolution or such
longer period of time as the Delaware Court of Chancery may determine, not
exceeding 10 years.
9. Pursuant to Section 281(a) of the DGCL, the Corporation will make
payments to the claimants in the following order of priority: (a) payment of
known claims made and not rejected in accordance with Section 280(a) of the
DGCL; (b) posting any security offered and not rejected by the claimant; (c)
posting any security required by the Delaware Court of Chancery pursuant to
Section 280(c) of the DGCL for contingent or unknown claims; and (d) payment of
any obligations and expenses incurred by the Corporation during the course of
liquidating and winding up its affairs.
10. If any assets remain following the satisfaction of the claims and
obligations of the Corporation, the proper officers of the Corporation will,
after the expiration of 150 days after the giving of the last rejection notice
pursuant to Section 280(a)(2) of the DGCL, distribute such assets to the
stockholders of the Corporation, to be shared ratably by them. Such
distribution(s) of the assets of the Corporation shall be in exchange for, and
in redemption, cancellation and retirement of, all the outstanding capital stock
of the Corporation.
11. The stockholders of the Corporation shall surrender their
certificates representing Common Stock of the Corporation owned by them so that
the liquidating distribution(s), if any, may be noted thereon and such stock
certificates canceled at the appropriate time.
12. The proper officers of the Corporation shall cause to be prepared
and filed within the time prescribed by law all federal and state income tax
returns and all other reports and returns required by law including, without
limitation, Internal Revenue Service Form 966.
13. The proper officers of the Corporation shall pay all such fees and
taxes, sign all papers and documents and do or cause to be done all such other
acts that they may deem necessary or desirable in order to carry out and fully
effectuate the purposes of this Plan pursuant to the DGCL and applicable
sections of the Internal Revenue Code of 1986, as amended.
2
<PAGE> 144
14. This Plan shall be effective upon the approval of the Board of
Directors and stockholders of the Corporation and following the sale of assets
to LIG and the termination of related indemnification obligations, at which time
the proper officers of the Corporation shall begin the actions directed under
this Plan.
3
<PAGE> 145
ANNEX G
Phoenix Medical Technology, Inc.
Unaudited Pro Forma Financial Statements
Index
Page
----
Unaudited Pro Forma Balance Sheet ............................................3
Unaudited Pro Forma Income Statement .........................................4
Notes to Unaudited Pro Forma Financial Statements ..........................5-8
<PAGE> 146
The following unaudited pro forma financial statements (the Unaudited Pro Forma
Financial Statements) include the Unaudited Pro Forma Balance Sheet of Phoenix
Medical Technology, Inc. (the Company) as of December 31, 1997, and the
Unaudited Pro Forma Income Statement for the year ended December 31, 1997. The
Unaudited Pro Forma Financial Statements have been prepared by the Company and
derived by the application of pro forma adjustments of certain proposed
transactions (the Transactions) to the audited historical financial statements
of the Company, incorporated by reference in this Proxy, and assumptions deemed
appropriate by the Company.
In the Transactions, the Company issues a $500,000 Option (the Option),
exercisable for one year, to London International Group (LIG), to purchase
substantially all of the assets of the Company (the Sale of Assets) in exchange
for a cash purchase price of $6,821,708 (the Purchase Price) and the assumption
of certain liabilities. If LIG exercises the Option and the Company and LIG
consummate the Sale of Assets, the Company and LIG will execute an escrow
agreement (the Escrow Agreement), pursuant to which LIG will deposit at closing
a portion of the $6,821,708 cash Purchase Price with an escrow agent (the Escrow
Agent). Such amount will include (a) $500,000, representing the "Purchase Price
Adjustment Escrow Account" and (b) $1,100,000, representing the Company's
maximum aggregate liability for indemnification claims under the Option
Agreement (the Indemnification Escrow Account).
With respect to the Purchase Price Adjustment Escrow Account, if, as of the
closing date, shareholders' investment of the Company equals or is greater than
$1,500,000, there will be no adjustment to the cash portion of the Purchase
Price and the entire $500,000 Purchase Price Escrow Account balance will be paid
to the Company. However, for each dollar that shareholders' investment of the
Company as of the closing date is less than $1,500,000, the cash portion of the
Purchase Price will be reduced by one dollar, and LIG will be entitled to
receive the amount of such adjustment pursuant to the terms of the Escrow
Agreement. Any balance remaining in the Purchase Price Adjustment Escrow Account
following such distribution to LIG will be paid to the Company. If the amount of
such adjustment exceeds $500,000, the Company must promptly pay to LIG the
difference.
The $1,100,000 Indemnification Escrow Account with the Escrow Agent will be
established to provide a source of funds to pay any indemnification obligations
of the Company to LIG arising out of certain matters; including inaccurate
representations or warranties pursuant to the Option Agreement, certain product
liability, certain infringement of intellectual property, certain environmental
matters, certain liabilities relating to the Company's wastewater treatment
system and certain liabilities retained by the Company, including any pending or
threatened litigation, for an 18-month notice period following the closing date.
At the end of the 18-month notice period, any balance remaining in the
Indemnification Escrow Account, less the amount of any pending indemnification
claims, will be paid to the Company.
For purposes of the Unaudited Pro Forma Balance Sheet, it is assumed that: (1)
the Transactions occur on December 31, 1997; (2) the $500,000 Option is issued
and immediately exercised; (3) the Purchase Price Escrow Account is reduced to
$283,988, representing a $216,012 adjustment to the Purchase Price, based on pro
forma shareholders' investment of $1,283,988, at December 31, 1997, (which will
be $216,012 less than the $1,500,000 shareholders' investment required by the
Escrow Agreement, after including the $500,000 Option payment); and (4) that no
claims are made against the $1,100,000 Indemnification Escrow Account and the
entire balance is paid to the Company.
1
<PAGE> 147
For purposes of the Unaudited Pro Forma Income Statement, it is assumed that :
1) the Transactions occur on January 1, 1997; 2) the $500,000 Option is issued
and immediately exercised; 3) the Purchase Price Escrow Account is not reduced
based on pro forma Shareholders' Investment of $2,501,433 at January 1, 1997,
(after including the $500,000 Option payment) and 4) that no claims are made
against the $1,100,000 Indemnification Escrow Account and the entire balance is
paid to the Company.
The Transactions will be accounted for as a sale of assets, and; accordingly,
the pro forma income tax effect of the Transactions, net of the utilization of
net operating loss carryforwards, is reflected in the accompanying Unaudited Pro
Forma Financial Statements.
The Unaudited Pro Forma Balance Sheet gives effect to the Transactions as if
they had occurred on December 31, 1997. The accompanying Unaudited Pro Forma
Income Statement gives effect to the Transactions as if they had occurred on
January 1, 1997, and do not include adjustments for expenses related to the
Transactions.
The Unaudited Pro Forma Financial Statements do not purport to represent what
the Company's financial position or results of operations would actually have
been if the Transactions had occurred on the dates indicated or to project the
Company's actual results, which may be realized in the future.
2
<PAGE> 148
Phoenix Medical Technology, Inc.
Unaudited Pro Forma Balance Sheet
As of December 31, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------
Issuance Sale
of of
Assets Historical Option Assets Pro Forma
------ ---------- ------ ------ ---------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 38,236 $500,000 (1) $ 5,183,472 (1) $ 5,721,708 (3)
Restricted cash 0 0 283,988 (4) 283,988 (3),(6)
Accounts receivable, net 1,822,522 0 (1,822,522)(1) 0
Inventories 1,779,505 0 (1,779,505)(1) 0
Prepayments and other 37,723 0 (37,723)(1) 0
----------- -------- ----------- -----------
Total current assets 3,677,986 500,000 1,827,710 6,005,696
Restricted cash 0 0 1,100,000 (5) 1,100,000 (3),(6)
Net operating property,
plant and equipment 3,483,057 0 (3,483,057)(1) 0
Nonoperating equipment, net 499,765 0 (499,765)(1) 0
Other assets 389,228 0 (389,228)(1) 0
----------- -------- ----------- -----------
Total assets $ 8,050,036 $500,000 $(1,444,340) $ 7,105,696
=========== ======== =========== ===========
<CAPTION>
Pro Forma Adjustments
-------------------------
Issuance Sale
Liabilities and of of
Shareholders' Investment Historical Option Assets Pro Forma
------------------------ ---------- ------ ------ ---------
<S> <C> <C> <C> <C>
Current liabilities:
Revolving line of credit $ 2,771,769 $ 0 $(2,771,769)(1) $ 0
Accounts payable and accrued expenses 1,521,891 0 (1,521,891)(1) 0
Income taxes payable 0 0 183,552 (2) 183,552 (2)
Current portion of long-term debt 354,716 0 (354,716)(1) 0
----------- -------- ----------- -----------
Total current liabilities 4,648,376 0 (4,464,824) 183,552
Long-term debt 1,933,886 0 (1,933,886)(1) 0
Other liabilities 683,786 0 (683,786)(1) 0
----------- -------- ----------- -----------
Total liabilities 7,266,048 0 (7,082,496) 183,552
----------- -------- ----------- -----------
Shareholders' investment:
Common stock - shares issued and
outstanding 196,356 0 0 196,356
Paid-in capital 7,224,503 0 0 7,224,503
Warrant 1,235,184 0 0 1,235,184
Retained earnings (accumulated deficit) (7,872,055) 500,000 (1) 5,821,708 (1) (1,733,899)
(183,552)(2)
----------- -------- ----------- -----------
Total shareholders'
investment 783,988 500,000 5,638,156 (6) 6,922,144 (6)
----------- -------- ----------- -----------
Total liabilities and
shareholders' investment $ 8,050,036 $500,000 $(1,444,340) $ 7,105,696
=========== ======== =========== ===========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are
an integral part of this pro forma balance sheet.
3
<PAGE> 149
Phoenix Medical Technology, Inc.
Unaudited Pro Forma Income Statement
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Pro Forma
Adjustments -
Historical Sale of Assets Pro Forma
---------- -------------- ---------
<S> <C> <C> <C>
Net sales $ 13,836,522 $(13,836,522)(1) $ 0
------------ ------------ -----------
Operating expenses:
Cost of good sold (12,743,556) 12,743,556 (1) 0
Selling and administrative expenses (1,782,803) 1,662,803 (1),(2) (120,000)
------------ ------------ -----------
Total operating expenses (14,526,359) 14,406,359 (120,000)
------------ ------------ -----------
Loss from operations (689,837) 569,837 (120,000)
Other income (expense) - Interest expense, net (527,608) 527,608 (1) 0
------------ ------------ -----------
Loss from continuing operations $ (1,217,445) $ 1,097,445 $ (120,000)
============ ============ ===========
Per share information:
Historical basic loss per share data from
continuing operations (.62) N/A
Pro forma basic loss per share data from
continuing operations N/A (.06)
Weighted average shares outstanding 1,963,563 1,963,563
============ ===========
</TABLE>
The accompanying notes to unaudited pro forma financial
statements are an integral part of this pro forma statement.
4
<PAGE> 150
Phoenix Medical Technology, Inc.
Notes to Unaudited Pro Forma Financial Statements
December 31, 1997
The Unaudited Pro Forma Financial Statements have been derived by the
application of pro forma adjustments to the audited and unaudited historical
financial statements of the Company, incorporated by reference in this Proxy,
for the periods noted.
Unaudited Pro Forma Balance Sheet Adjustments
The accompanying Unaudited Pro Forma Balance Sheet gives effect to the
Transactions as if they occurred as of December 31, 1997.
(1) Reflects the issuance and exercise of the $500,000 Option, to purchase
substantially all of the assets of the Company in exchange for an
adjusted cash purchase price of $6,605,696 (representing the initial
cash purchase price of $6,821,708 adjusted by the $216,012 reduction in
the Purchase Price Adjustment Escrow Account as described in item (4)
below) and the assumption of certain liabilities, resulting in a pro
forma gain on the issuance and exercise of the Option in the amount of
$500,000 and a pro forma book gain on sale of assets in the amount of
$5,821,708 (calculated as the difference between the adjusted purchase
price of $6,605,696 and Shareholders' Investment of $783,988 as of
December 31, 1997).
(2) Reflects the pro forma income tax effect of the gain on the issuance
and exercise of the $500,000 Option, the tax gain on the sale of the
Company's assets, and the utilization of $5,737,948 of net operating
loss carryforwards resulting in a pro forma income tax payable of
$183,552.
(3) As described in the Proxy and in accordance with the dissolution and
liquidation of the Company, all funds remaining after the satisfaction
of the claims and obligations of the Company will be distributed to the
stockholders of the Company.
(4) Reflects the portion of the $6,821,708 cash Purchase Price which will
be held in the Purchase Price Agreement Escrow Account until the
closing date. If, as of the closing date, the shareholders' investment
of the Company equals or is greater than $1,500,000, there will be no
adjustment to the cash portion of the Purchase Price and the entire
$500,000 will be paid to the Company. However, for each dollar that the
shareholders' investment of the Company at such date is less than
$1,500,000, the cash portion of the Purchase Price will be reduced by
one dollar, and LIG will be entitled to receive the amount of such
adjustment pursuant to the terms of the Escrow Agreement. Any balance
remaining in the Purchase Price Adjustment Escrow Account following
such distribution to LIG will be paid to the Company. If the amount of
such adjustment exceeds $500,000, the Company must promptly pay to LIG
the difference by wire transfer or in immediately available funds. For
purposes of this Unaudited Pro Forma Balance Sheet, it is assumed that
the Purchase Price Escrow Account is reduced to $283,988, representing
a $216,012 adjustment to the Purchase Price based on pro forma
5
<PAGE> 151
shareholders' investment of $1,283,988, at December 31, 1997, (which
will be $216,012 less than the $1,500,000 shareholders' investment
required by the Escrow Agreement, after including the $500,000 Option
payment).
(5) Reflects $1,100,000 of the unadjusted $6,821,708 cash Purchase Price
which will be held in the Indemnification Escrow Account for a period
of 18 months following the closing date to provide a source of funds to
pay any indemnification obligations of the Company to LIG arising out
of certain matters; including inaccurate representations or warranties
pursuant to the Option Agreement, certain product liability, certain
infringement of intellectual property, certain environmental matters,
certain liabilities relating to the Company's wastewater treatment
system and certain liabilities retained by the Company, including any
pending or threatened litigation. At the end of the 18-month notice
period, any balance remaining in the Indemnification Escrow Account,
less the amount of any pending indemnification claims, will be paid to
the Company. For purposes of this Unaudited Pro Forma Balance Sheet, it
is assumed that no claims will be made against the Indemnification
Escrow Account and that the entire $1,100,000 Indemnification Escrow
Account will be paid to the Company at the end of the 18-month notice
period.
(6) In the event the entire $500,000 Purchase Price Adjustment Escrow
Account and the entire Indemnification Escrow Account are not retained
by the Company, unaudited pro forma shareholders' investment and
restricted cash at December 31, 1997, will be adjusted as follows:
<TABLE>
<CAPTION>
Restricted Restricted
Shareholders' Cash - Cash -
Investment Current NonCurrent
---------- ------- ----------
<S> <C> <C> <C>
Unaudited pro forma balances at December 31, 1997 $ 6,922,144 $ 283,988 $ 1,100,000
Less - Purchase Price Adjustment Escrow
Account, as adjusted (283,988) (283,988) 0
Less - Indemnification Escrow Account (1,100,000) 0 (1,100,000)
----------- --------- -----------
Unaudited pro forma balances at December 31,
1997, as adjusted $ 5,538,156 $ 0 $ 0
=========== ========= ===========
</TABLE>
6
<PAGE> 152
Unaudited Pro Forma Income Statement Adjustments
The accompanying Unaudited Pro Forma Income Statement gives effect to the
Transactions as if they had occurred as of January 1, 1997:
(1) Reflects the issuance and exercise of the $500,000 Option to purchase
substantially all of the assets of the Company for a cash purchase
price of $6,821,708 (which assumes no reduction in the Purchase Price
Adjustment Escrow Account as shareholders' investment at January 1,
1997, (which would amount to $2,501,433 on a pro forma basis, after
considering the $500,000 cash Option payment), exceeds the $1,500,000
balance required in the Escrow Agreement) and the assumption of certain
liabilities, resulting in a pro forma gain on the issuance and exercise
of the Option in the amount of $500,000 and a pro forma book gain on
the sale of assets in the amount of $4,820,275, (calculated as the
difference between the $6,821,708 and shareholders' investment of
$2,001,433 at January 1, 1997), which are not reflected in continuing
operations in the accompanying Unaudited Pro Forma Income Statement.
The pro forma income tax effect on the gain on the issuance and
exercise of the $500,000 Option and the pro forma tax gain on the sale
of the Company's assets, net of the utilization of $5,586,251 of net
operating loss carryforwards, would result in a pro forma income tax
payable of $247,983, which is not reflected in continuing operations in
the accompanying Unaudited Pro Forma Income Statement.
(2) Reflects estimated remaining general and administrative expenses of
$10,000 per month following completion of the Transactions. For
purposes of this Unaudited Pro Forma Income Statement, it is assumed
that immediately following the closing, in which all operating assets
will be sold, the Company will eliminate substantially all of its
remaining corporate function with the exception of the president and
corporate secretary. Remaining expenses will consist of management
salaries and benefits (president and corporate secretary) of $5,000 per
month, and legal and accounting fees of $4,000 per month and other
corporate general and administrative expenses of $1,000 per month.
7
<PAGE> 153
[ARTHUR ANDERSEN LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders of Phoenix Medical Technology, Inc.:
We have audited the accompanying balance sheets of Phoenix Medical Technology,
Inc., (a Delaware corporation) as of December 31, 1997 and 1996, and the related
statements of operations, shareholders' investment and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Phoenix Medical Technology,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, the Company has given
retroactive effect to the change in accounting for inventory from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 5 to the
financial statements, the Company has experienced significant losses from
operations in the prior three fiscal years and those losses have continued
subsequent to the year ended December 31, 1997. These matters, among others,
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 5. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset carrying
amounts or the amounts and classification of liabilities that might result
should the Company be unable to continue as a going concern.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying Schedule II is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
Columbia, South Carolina
February 27, 1998
