SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
December 31, 1998
Date of report
(Date of earliest event reported)
ZEVEX INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 33-19583 87-0462807
(State of Incorporation) (Commission File Number) (I.R.S.Employer
Identification No.)
4314 Zevex Park Lane,
Salt Lake City, Utah 84123
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (801) 264-1001
None
(Former Name of Former Address, if Changed Since Last Report)
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Item 2. Acquisition of Disposition of Assets
On December 31, 1998, ZEVEX International, Inc. (ZVXI) acquired from Len Smith,
Tracy Livingston and David Bernardi all of the issued and outstanding capital
stock of JTech Medical Industries, Inc. Consideration for the transaction, which
could total a maximum of $7.25 million, consists of $3.1 million of Company
cash, $3 million in convertible debentures and a two-year earn-out amount of up
to $575,000 in cash and $575,000 in convertible debentures based on certain
sales and pre-tax earning targets. Multi-year employment agreement has been
signed with three JTech executives.
JTech will be consolidated into the ZEVX facility in Salt Lake City and will
operate as a wholly-owned subsidiary of ZEVEX International, Inc. under its
current name.
JTech Medical is a manufacturer and marketer of both stand-alone and
computerized musculoskeletal evaluation products that measure isolated muscle
strength, joint ranges of motion and sensation to document the effectiveness of
treatment or extent of injury.
JTech Medical Industries is an internationally recognized leader in physical
medicine measurement products, providing both hardware and Windows95-compatible
software. JTech provides equipment for musculoskeletal evaluation, functional
capacity evaluation, upper extremity and hand testing and pain evaluation. These
products are used by chiropractors, physical therapists, and occupational
therapists for outcome assessment during rehabilitation, medical-legal
evaluations for personal injury and workers compensation, and clinical
documentation.
Also, on December 31, 1998, ZEVEX acquired from Vijay Lumba all of the issued
and outstanding capital stock of Aborn Electronics, Inc. Consideration for the
transaction, which could total a maximum of $5.1 million, consists of $1.85
million in Company cash, $1.35 million in a convertible debenture and a one-year
earn-out amount of up to $950,000 in cash and $950,000 in a convertible
debenture based on certain sales and pre-tax earning targets. A multi-year
employment agreement has been signed with Aborn's president.
Aborn will maintain operations in San Jose, California and will operate as a
wholly-owned subsidiary of ZEVEX International, Inc. under its current name.
Aborn is a manufacturer and developer of optical sensors and custom computer
chips used in both medical and industrial devices. Aborn's products include
fiber optic links, integrated optoisolators, high-speed sensor integrated
circuits, custom chips application specific integrated circuits (ASIC) chips and
solid state relays. Medical applications for these technology products include
diagnostic and therapeutic equipment, such as blood analyzers and dialysis
machines.
Item 7. Financial Statements and Exhibits
The audited financial statements of JTech Medical Industries, Inc. and Aborn
Electronics, Inc. will be filed not later than 60 days after the date of the
filing of this report. The following exhibits are included for the transactions
described in Item 2, above.
Index To Exhibits
Number Exhibits
10.1 Stock Purchase Agreement - JTech Medical Industries, Inc., dated
December 31, 1998, with certain material exhibits.
10.2 Stock Purchase Agreement - Aborn Electronics, Inc., dated
December 31, 1998, with certain material exhibits.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the Undersigned, thereunto duly authorized.
ZEVEX International, Inc.
By /s/ Dean G. Constantine
Dean G. Constantine, President
Principal Executive Officer
Dated: January 14, 1999
STOCK PURCHASE AGREEMENT
AMONG
ZEVEX INTERNATIONAL, INC.
AND
LEONARD C. SMITH, J. TRACY LIVINGSTON, DAVE W. BERNARDI
AND
CORPORATION OF THE PRESIDENT OF THE CHURCH
OF JESUS CHRIST OF LATTER-DAY SAINTS
December 31, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. Definitions...........................................................1
2. Purchase and Sale of Company Shares...................................5
(a) Basic Transaction. .. ...............................5
(b) Purchase Price...............................................5
(c) Terms of Debentures..........................................6
(d) The Hold-Back................................................6
(e) The Closing..................................................7
(f) Deliveries at the Closing....................................7
3. Representations and Warranties Concerning the Transaction.............7
(a) Representations and Warranties of the Sellers................7
(b) Representations and Warranties of the Buyer..................9
(c) Representations and Warranties of the Church................11
4. Representations and Warranties Concerning the Company................12
(a) Organization, Qualification, and Corporate Power............12
(b) Capitalization..............................................13
(c) Noncontravention............................................13
(d) Brokers' Fees...............................................13
(e) Title to Assets.............................................14
(f) Financial Statements........................................14
(g) Events Subsequent to Most Recent Fiscal Year End............14
(h) Undisclosed Liabilities.....................................15
(i) Legal Compliance............................................16
(j) Tax Matters.................................................16
(k) Intellectual Property.......................................17
(l) Tangible Assets.............................................19
(m) Inventory...................................................19
(n) Contracts...................................................19
(o) Notes and Accounts Receivable...............................20
(p) Powers of Attorney..........................................20
(q) Insurance...................................................20
(r) Litigation..................................................20
(s) Product Warranty............................................20
(t) Product Liability...........................................21
(u) Employees...................................................21
(v) Employee Benefits...........................................21
(w) Guaranties..................................................23
(x) Environmental, Health, and Safety Matters...................23
(y) Certain Business Relationships with the Company.............24
(z) Year 2000 Items.............................................24
(aa) Disclosure..................................................24
5. Pre-Closing Covenants................................................24
(a) General.....................................................24
(b) Notices and Consents........................................24
(c) Operation of Business.......................................25
(d) Preservation of Business....................................25
(e) Full Access.................................................25
(f) Notice of Developments......................................25
(g) Exclusivity.................................................25
6. Post-Closing Covenants...............................................26
(a) General.....................................................26
(b) Litigation Support..........................................26
(c) Transition..................................................26
(d) Confidentiality.............................................26
(e) Covenant Not to Compete.....................................27
7. Conditions to Obligation to Close....................................28
(a) Conditions to Obligation of the Buyer.......................28
(b) Conditions to Obligation of the Sellers.....................29
8. Remedies for Breaches of This Agreement..............................30
(a) Survival of Representations and Warranties..................30
(b) Indemnification Provisions for Benefit of the Buyer.........30
(c) Indemnification Provisions for Benefit of the Sellers.......31
(d) Matters Involving Third Parties.............................32
(e) Determination of Adverse Consequences.......................33
(f) Recoupment Under the Hold-back and Debentures...............33
(g) Other Indemnification Provisions............................33
9. Tax Matters..........................................................33
(a) Tax Periods Ending on or Before the Closing Date............33
(b) Tax Periods Beginning Before and Ending After the Closing
Date........................................................34
(c) Cooperation on Tax Matters..................................34
(d) Certain Taxes...............................................34
10. Termination..........................................................35
(a) Termination of Agreement....................................35
(b) Effect of Termination.......................................35
11. Miscellaneous........................................................36
(a) Nature of Certain Obligations...............................36
(b) Termination of Shareholders Agreement.......................36
(c) Press Releases and Public Announcements.....................36
(d) No Third-Party Beneficiaries................................36
(e) Entire Agreement............................................36
(f) Succession and Assignment...................................36
(g) Counterparts................................................37
(h) Headings....................................................37
(i) Notices.....................................................37
(j) Governing Law...............................................38
(k) Amendments and Waivers......................................38
(l) Severability................................................38
(m) Expenses....................................................38
(n) Construction................................................38
(o) Incorporation of Exhibits, Annexes, and Schedules...........39
(p) Specific Performance........................................39
(q) Submission to Jurisdiction..................................39
(r) Limitation on Obligations of the Church.....................39
Exhibit A--Form of Convertible Debenture
Exhibit B--Pledge Agreement
Exhibit C--Formula for Calculating Earn-Out Payments
Exhibit D--Historical Financial Statements
Exhibit E--Forms of Employment Agreements
Exhibit F--Allocation of Purchase Price Among Sellers
Exhibit G--Amendment to Lease
Exhibit H--Voice Technology Project Agreement
Annex I--Exceptions to the Sellers' Representations and Warranties Concerning
the Transaction
Annex II--Exceptions to the Buyer's Representations and Warranties Concerning
the Transaction
Annex III--Exceptions to Representations and Warranties Concerning the Company
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is entered into as of
December 31, 1998, by and among ZEVEX International, Inc., a Delaware
corporation ("Buyer"), and Len Smith, James T. Livingston and Dave Bernardi,
(collectively the "Sellers"), and Corporation of the President of The Church of
Jesus Christ of Latter-day Saints, a Utah non-profit corporation (the "Church").
The Buyer and the Sellers are referred to collectively herein as the "Parties."
The Sellers and the Church in the aggregate own all of the outstanding
capital stock of JTech Medical Industries, Inc., a Utah corporation (the
"Company").
This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers and the Church, and the Sellers and the Church will
sell to the Buyer, all of the outstanding capital stock of the Company in return
for cash and certain other consideration.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
<PAGE>
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Applicable Rate" means the prime rate as published in the Money Rate
Section of the Wall Street Journal, plus two percent (2%) per annum.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Buyer Confidential Information" has the meaning set forth in '6(d)(i)
below.
"Buyer Shares" has the meaning set forth in '2(c) below.
"Closing" has the meaning set forth in '2(e) below.
"Closing Date" has the meaning set forth in '2(e) below.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code '4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Confidential Information" has the meaning set forth in '6(d)
(ii) below.
"Company Share" means any share of the Common Stock, par value $.001 of
the Company.
"Debenture" has the meaning set forth in '2(b)(i) below.
"Deferred Intercompany Transaction" has the meaning set forth in
Reg. ' 1.1502-13.
"Earn-Out Payment" means either the First Earn-Out Payment or the
Second Earn-Out Payment, as the case may be.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA '3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA '3(1).
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as
now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means each entity which is treated as a single
employer with Seller for purposes of Code '414.
"Fiduciary" has the meaning set forth in ERISA '3(21).
"Financial Statements" has the meaning set forth in '4(f) below.
"First Earn-Out Payment" has the meaning set forth in '2(b)(ii) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hold-Back" has the meaning set forth in '2(d) below.
"Indemnified Party" has the meaning set forth in '8(d) below.
"Indemnifying Party" has the meaning set forth in '8(d) below.
"Information Technology" means computer software, computer firmware,
computer hardware (whether general or specific purpose) and other
similar or related items of automated, computerized or software
systems.
"Initial Payment" has the meaning set forth in '2(b)(ii) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and
whether due or to become due), including any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in '4(f)
below.
"Most Recent Fiscal Month End" has the meaning set forth in '4(f)
below.
"Most Recent Fiscal Year End" has the meaning set forth in '4(f) below.
"Multiemployer Plan" has the meaning set forth in ERISA '3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to
quantity and frequency).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity.
"Prohibited Transaction" has the meaning set forth in ERISA '406 and
Code '4975.
"Purchase Price" has the meaning set forth in '2(b) below.
"Reportable Event" has the meaning set forth in ERISA '4043.
"Second Earn-Out Payment" has the meaning set forth in '2(b)(iii)
below.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code '59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in '8(d) below.
"Year 2000 Compliant" means, with respect to Information Technology,
the Information Technology is fully functional and compatible with use during
and after the calendar year 2000 A.D., and the Information Technology used
during each such time period will accurately receive, provide and process
date/time data, (including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries, including the
years 1999 and 2000, and leap year calculations and will not malfunction, cease
to function, or provide invalid or incorrect results as a result of date/time
data.
2. Purchase and Sale of Company Shares.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from each of the Sellers and the
Church, and each of the Sellers and the Church agrees to sell to the Buyer, all
of such Seller's and the Church's Company Shares for the consideration specified
below in this '2.
(b) Purchase Price. The Buyer agrees to pay to the Sellers and the
Church a purchase price of up to, but not exceeding, Seven Million Two Hundred
Fifty Thousand Dollars ($7,250,000) (the "Purchase Price"), described below in
this '2(b). The Purchase Price shall be allocated among the Sellers and the
Church as set forth in Exhibit F attached hereto. The Purchase Price will be
paid in the following manner:
(i) Payment at Closing. At Closing, the Buyer will pay to the
Sellers Three Thousand Dollars in cash by bank check.
(ii) Payment by January 6, 1999. On January 6, 1999, the Buyer
will pay to Sellers and the Church Six Million Ninety Seven Thousand
Dollars ($6,097,000) comprised of: (A) Three Million Ninety Seven
Thousand Dollars ($3,097,000) in cash payable by wire transfer or other
immediately available funds; and (B) convertible debentures of the
Buyer in the form attached hereto as Exhibit A ("Debenture") in the
aggregate principal amount of Three Million Dollars ($3,000,000). The
cash portion of the foregoing payment (the "Initial Payment") shall be
subject to the hold-back provisions of '2(d). The Debenture is secured
by the pledge of stock pursuant to the Pledge Agreement attached hereto
as Exhibit B.
(iii) First Earn-Out Payment. Within ninety (90) days
following December 31, 1999, the Buyer will pay to the Sellers an
additional amount of cash and Debentures in an amount to be calculated
in accordance with the formula and example described in Exhibit C (the
"First Earn-Out Payment"). The First Earn-Out Payment shall not exceed
(A) Three Hundred Seventy Five Thousand Dollars ($375,000) in cash, and
(B) a Debenture in the aggregate principal amount of Three Hundred
Seventy Five Thousand Dollars ($375,000). The First Earn-Out Payment is
subject to adjustment upon certain terminations of the Employment
Agreement attached hereto as Exhibit E and as described in Section 10
therein.
(iv) Second Earn-Out Payment. Within ninety (90) days
following December 31, 2000, the Buyer will pay to the Sellers an
additional amount of cash and Debentures in an amount to be calculated
in accordance with the formula and example described in Exhibit C (the
"Second Earn-Out Payment"). The Second Earn-Out Payment shall not
exceed (A) Two Hundred Thousand Dollars ($200,000) in cash, and (B) a
Debenture in the aggregate principal amount of Two Hundred Thousand
Dollars ($200,000). The Second Earn-Out Payment is subject to
adjustment upon certain terminations of the Employment Agreement
attached hereto as Exhibit E and as described in Section 10 therein.
(c) Terms of Debentures. In addition to the terms and conditions
contained in the form of Debenture in Exhibit A, each Debenture may be converted
by its holder, in whole or in part, into the common stock of the Buyer ("Buyer
Shares") at a rate of Eleven Dollars ($11.00) per share as follows: (i) at any
time after one (1) year and before three (3) years, measured from the date of
issuance, for Debentures issued as part of the Initial Purchase Price; and (ii)
at any time after one (1) year and before two (2) years, measured from the date
of issuance, for Debentures issued as part of an Earn-Out Payment.
(d) The Hold-Back. The Buyer will hold and not deliver at Closing (four
hundred sixty five thousand dollars ($465,000) from the Initial Payment (the
"Hold-Back"). The Parties agree that two-thirds of the Hold-Back ($310,000)
shall be held by the Buyer and paid to the Sellers (in proportion to the
allocation set forth on Exhibit F) on a deferred basis promptly following the
post-Closing completion of the audit requirements of the Buyer, less amounts
applied by the Buyer to cover unknown audit contingencies which occurred prior
to the Closing Date. The Parties agree that the remaining one-third of the
Hold-Back ($155,000) shall be held by the Buyer and paid to the Sellers (in
proportion to the allocation set forth on Exhibit F) on a deferred basis one
hundred eighty (180) days after Closing, less amounts applied by the Buyer to
cover unknown contingencies that occur prior to Closing, including amounts due
to Buyer under '8(b). Buyer agrees to add to the amount of the Hold-Back
actually paid to the Sellers an additional amount equal to eight (8%) per annum
simple interest on such amount paid, accruing from the Closing Date until the
date of payment.
(e) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Buyer in Salt Lake
City, Utah, commencing at 9:00 a.m. local time on the second business day
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Buyer and the Sellers may mutually
determine (the "Closing Date").
(f) Deliveries at the Closing. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in '7(a) below, (ii) the Buyer will deliver to the Sellers the
various certificates, instruments, and documents referred to in '7(b) below,
(iii) each of the Sellers and the Church will deliver to the Buyer stock
certificates representing all of his or its Company Shares, endorsed in blank or
accompanied by duly executed blank stock powers, and (iv) the Buyer will deliver
to each of the Sellers the consideration specified in '2(b) above.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Sellers. Each of the Sellers
represents and warrants to the Buyer that the statements contained in this '3(a)
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
'3(a)) with respect to himself, except as set forth in Annex I attached hereto.
(i) Authorization of Transaction. The Seller has full power
and authority to execute and deliver this Agreement and to perform
Seller's obligations hereunder. This Agreement constitutes the valid
and legally binding obligation of the Seller, enforceable in accordance
with its terms and conditions. The Seller need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency or any third party in order to
consummate the transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Seller is subject.
(iii) Brokers' Fees. The Seller has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
the Buyer could become liable or obligated.
(iv) Absence of Indebtedness and Claims. Except as set forth
on Annex I, Seller is not indebted to Company, and the Company is not
indebted to Seller and the Seller has no claims against the Company.
(v) Company Shares. The Seller holds of record and owns
beneficially the number of Company Shares set forth next to his name in
'4(b) of Annex III, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, and demands.
The Seller is not a party to any option, warrant, purchase right, or
other contract or commitment that could require the Seller to sell,
transfer, or otherwise dispose of any capital stock of the Company
(other than this Agreement). The Seller is not a party to any voting
trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of the Company.
(vi) Investment. The Seller (A) understands that the
Debentures and Buyer Shares have not been, and will not be, registered
under the Securities Act, or under any state securities laws, and are
being offered and sold in reliance upon federal and state exemptions
for transactions not involving any public offering, (B) is acquiring
the Debentures solely for Seller's own account for investment purposes,
and not with a view to the distribution thereof, (C) has received
copies of all of Buyer's filings with the SEC during 1998 and has had
the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Debentures
and/or Buyer Shares, (D) is able to bear the economic risk and lack of
liquidity inherent in holding the Debentures and/or Buyer Shares, and
(E) understands that Buyer has not agreed to, and has no obligation to,
file a registration statement to permit sale of the Debentures or Buyer
Shares received under or in connection with this Agreement.
(vii) Restrictions on Shares. The Seller understands that the
Debentures and Buyer Shares may not be transferred or resold without
(A) registration under the Securities Act or any applicable state
securities law, or (B) an exemption from the registration requirements
of the Securities Act and applicable state securities laws. Seller
understands that the certificates evidencing the Debentures and Buyer
Shares may bear the following (or similar) legend and any other legend
required by applicable state law:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED WITHIN IN THE
UNITED STATES UNLESS THE SAME ARE REGISTERED UNDER THE SECURITIES ACT
OF 1933, OR THE COMPANY RECEIVES AN OPINION FROM COUNSEL SATISFACTORY
TO IT THAT SUCH REGISTRATION IS NOT REQUIRED.
(b) Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Sellers (and the Church, solely with respect to clauses
(i)-(iii) of this '3(b)) that the statements contained in this '3(b) are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this '3(b)), except as set
forth in Annex II attached hereto.
(i) Organization, Qualification and Corporate Power. The Buyer
is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation. The Buyer is
duly qualified to conduct business and is in good standing under the
laws of each jurisdiction where such qualification is required, except
where the lack of such qualification would not have a material adverse
effect on the business, financial condition, operations or future
prospects of the Buyer. The Buyer has full corporate power and
authority and all licenses, permits and authorizations necessary to
carry on the business in which it is engaged and in which it presently
proposes to engage and to own and use the properties owned and used by
it. The Buyer has delivered to the Sellers correct and complete copies
of the charter and bylaws of the Buyer (as amended to date). The minute
books (containing the records of meetings of the stockholders and the
board of directors), the stock certificate books, and the stock record
books of the Buyer are correct and complete. The Buyer is not in
default under or in violation of any provision of its charter or
bylaws.
(ii) Authorization of Transaction. The Buyer has full power
and authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Buyer.
This Agreement constitutes the valid and legally binding obligation of
the Buyer, enforceable in accordance with its terms and conditions. The
Buyer need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency or any third party in order to consummate the transactions
contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Buyer is subject or any provision of its charter or bylaws
or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer is a party or by which it is bound or to
which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
any Seller could become liable or obligated.
(v) Validity of Buyer Shares. The Buyer Shares, when issued
and delivered by the Company in accordance with the terms of this
Agreement and the terms of the Debentures, shall be duly and validly
issued, fully paid, and non-assessable and will be free of any liens or
encumbrances.
(vi) Financial Statements. Buyer has provided to Sellers: (1)
the Company's Form 10-K for the fiscal year ended December 31, 1997
(the "Most Recent Audited Balance Sheet"); and (2) the Company's Form
10-Q for the fiscal quarters ended March 31, 1998, June 30, 1998, and
September 30, 1998. The foregoing financial statements are true,
correct, and complete in all material respects, and have been prepared
in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved, and
fairly present the financial condition of the Company as of the dates
set forth in such financial statements and the results of operations of
the Buyer for the period covered thereby. The Buyer's most recent
balance sheet, included in the foregoing financial statements are
hereinafter referred to as "Buyer Balance Sheet."
(vii) Investment. The Buyer is not acquiring the Company
Shares with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act.
(viii) SEC Filings. Buyer has filed all forms, reports and
documents, together with all exhibits, required to be filed with the
U.S. Securities and Exchange Commission ("SEC") since December 31,
1993. All such required forms, reports and documents (including those
that Buyer may file subsequent to the date hereof) are referred to
herein as the "SEC Reports." The SEC Reports (i) as of their respective
dates were prepared in accordance with the requirements of the
Securities Act or the Securities and Exchange Act of 1934, as amended
(the "Exchange Act") as the case may be, and the rules and regulations
of the SEC thereunder applicable to such SEC Reports, and (ii) did not
at the time they were filed (or if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing)
or, in the case of the SEC Reports filed under the Securities Act, when
such filing became effective, contain any untrue statement of a
material fact or omit a statement of material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(ix) Capitalization. The entire authorized capital stock of
the Buyer consists of 10,000,000 shares of common stock, of which
3,419,126 shares are issued and outstanding as of the date hereof and
2,000,000 shares of preferred stock, no shares of which are issued and
outstanding as of the date hereof. All of the issues and outstanding
shares of common stock of Buyer have been duly authorized, are validly
issued, fully paid, and nonassessable.
(x) Undisclosed Liabilities. To the Knowledge of the Buyer,
the Buyer has no material Liability (and there is no Basis for any
present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against it giving rise to any
Liability), except for (i) Liabilities set forth on the face of the
Buyers Balance Sheet (rather than in any notes thereto) and (ii)
Liabilities which have arisen after September 30, 1998 in the Ordinary
Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law).
(xi) Legal Compliance. To the Knowledge of the Buyer, each of
the Buyer and its respective predecessors and Affiliates has complied
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all
agencies thereof), and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to
comply, except where the failure to comply would not have a material
adverse effect on the business, financial condition, operations, or
future prospects of the Buyer.
(xii) Disclosure. The representations and warranties contained
in this '3(b) do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements and information contained in this '3(b) not misleading.
(c) Representations and Warranties of the Church. The Church represents
and warrants to the Buyer that the statements contained in this '3(c) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this '3(c)) with
respect to itself.
(i) Authorization of Transaction. The Church has full power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Church enforceable in accordance with its
terms and conditions. The Church need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency or any third party in order to
consummate the transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Church is subject.
(iii) Company Shares. The Church holds of record and owns
beneficially the number of Company Shares set forth next to its name in
'4(b) of Annex III, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, and demands.
The Church is not a party to any option, warrant, purchase right, or
other contract or commitment that could require the Church to sell,
transfer, or otherwise dispose of any capital stock of the Company
(other than this Agreement). The Church is not a party to any voting
trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of the Company.
4. Representations and Warranties Concerning the Company. The Sellers represent
and warrant to the Buyer that the statements contained in this '4 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this '4), except as set
forth in Annex III delivered by the Sellers to the Buyer on the date hereof and
initialed by the Parties. Nothing in any Annex shall be deemed adequate to
disclose an exception to a representation or warranty made herein, unless the
Annex discloses the exception in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). Annex III
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this '4.
(a) Organization, Qualification, and Corporate Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not have a material adverse effect on the business,
financial condition, operations or future prospects of the Company. The Company
has full corporate power and authority and all licenses, permits, and
authorizations necessary to carry on the businesses in which it is engaged and
in which it presently proposes to engage and to own and use the properties owned
and used by it. '4(a) of Annex III lists the directors and officers of the
Company. The Sellers have delivered to the Buyer correct and complete copies of
the charter and bylaws of the Company (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors), the stock certificate books, and
the stock record books of the Company are correct and complete. The Company is
not in default under or in violation of any provision of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the Company
consists of 1,000,000 Company Shares, of which 1,000 Company Shares are issued
and outstanding. All of the issued and outstanding Company Shares have been duly
authorized, are validly issued, fully paid, and nonassessable, and are held of
record by the respective Sellers as set forth in '4(b) of Annex III. There are
no outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Company. There are no voting trusts, proxies, or other agreements
or understandings with respect to the voting of the capital stock of the
Company.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of the charter or bylaws of the Company or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Securities Interest would not have a material adverse effect on the
business, financial condition, operations of future prospects of the Company or
the Parties' ability to consummate the transactions contemplated by this
Agreement. The Company does not need to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement except where the failure to take such actions
would not have a material adverse effect on the business, financial condition
except where the lack of such qualification would not have a material adverse
effect on the business, financial condition, operations of future prospects of
the Company or the Parties' ability to consummate the transactions contemplated
by this Agreement.
(d) Brokers' Fees. The Company has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Company or the Buyer
could become liable or obligated.
(e) Title to Assets. The Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of the
Most Recent Balance Sheet.
(f) Financial Statements. Attached hereto as Exhibit D are the
following financial statements (collectively the "Financial Statements"): (i)
balance sheets and statements of income, changes in stockholders' equity, and
cash flow as of and for the fiscal years ended December 31, 1995, December 31,
1996, and December 31, 1997 (the "Most Recent Fiscal Year End") for the Company;
and (ii) unaudited consolidated and consolidating balance sheets and statements
of income, changes in stockholders' equity, and cash flow (the "Most Recent
Financial Statements") as of and for the 8 months ended August 31, 1998 (the
"Most Recent Fiscal Month End") for the Company. The Financial Statements
present fairly the financial condition of the Company as of such dates and the
results of operations of the Company for such periods, are correct and complete,
and are consistent with the books and records of the Company (which books and
records are correct and complete); provided, however, that the Most Recent
Financial Statements are subject to normal year-end adjustments (which will not
be material individually or in the aggregate) and lack footnotes and other
presentation items.
(g) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Company.
Without limiting the generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred, or assigned
any of its material assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) the Company has not entered into any material agreement,
contract, lease, or license outside the Ordinary Course of Business;
(iii) no party (including the Company) has accelerated,
terminated, modified, or canceled any material agreement, contract,
lease, or license to which the Company is a party or by which it is
bound;
(iv) the Company has not made any material capital expenditure
outside the Ordinary Course of Business;
(v) the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other
Person;
(vi) the Company has not created, incurred, assumed, or
guaranteed more that $10,000 in the aggregate any indebtedness for
borrowed money and capitalized lease obligation;
(vii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of
Business;
(viii) the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims)
either involving more than $10,000 or outside the Ordinary Course of
Business;
(ix) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(x) the Company has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to its property;
(xi) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xii) the Company has not granted any increase in the
compensation of any of its directors, officers, and employees outside
the Ordinary Course of Business;
(xiii) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xiv) the Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business; and
(xv) the Company has not committed to any of the foregoing.
(h) Undisclosed Liabilities. The Company has no Liability (and to the
Knowledge of the Sellers, there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against it giving rise to any Liability), except for (i) Liabilities set forth
on the face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (ii) Liabilities which have arisen after the Most Recent Fiscal Month End in
the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract, breach
of warranty, tort, infringement, or violation of law).
(i) Legal Compliance. To the Knowledge of the Sellers, each of the
Company and its respective predecessors and Affiliates has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against any of them alleging any failure so to
comply, except where the failure to comply would not have a material adverse
effect on the business, financial condition, operations, or future prospects of
the Company.
(j) Tax Matters.
(i) The Company has filed all Tax Returns that it was required
to file on or before the Closing Date. All such Tax Returns were
correct and complete in all material respects. All Taxes owed by the
Company (whether or not shown on any Tax Return) have been paid. The
Company currently is not the beneficiary of any extension of time
within which to file any Tax Return. There is no material dispute or
claim concerning any Tax Return either (A) claimed or raised by any
authority in writing or (b) as to which any of the Sellers has
Knowledge.
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid on or before the Closing Date in connection
with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(iii) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(iv) The Company has not filed a consent under Code '341(f)
concerning collapsible corporations. The Company has not made any
material payments, is not obligated to make any material payments, nor
is it a party to any agreement that under certain circumstances could
obligate it to make any material payments that will not be deductible
under Code '280G. The Company has not been a United States real
property holding corporation within the meaning of Code '897(c)(2)
during the applicable period specified in Code '897(c)(1)(A)(ii). The
Company is not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an affiliated group (within the
meaning of Code '1504(a)) filing a consolidated federal income Tax
Return and (B) has no Liability for the Taxes of any Person (other than
the Company) under Reg. '1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(v) The unpaid Taxes of the Company (A) did not, as of the
Most Recent Fiscal Month End, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto) and
(B) do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and
practice of the Company in filing its Tax Returns.
(k) Intellectual Property.
(i) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Company as
presently conducted and as presently proposed to be conducted. Each
item of Intellectual Property owned or used by the Company immediately
prior to the Closing hereunder will be owned or available for use by
the Company on identical terms and conditions immediately subsequent to
the Closing hereunder. To the Knowledge of any of the Sellers, the
Company has taken all necessary action to maintain and protect each
material item of Intellectual Property that it owns or uses.
(ii) To the Knowledge of any of the Sellers, the Company has
not interfered with, infringed upon, misappropriated, or otherwise
violated any material Intellectual Property rights of third parties,
and no such person has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company
must license or refrain from using any Intellectual Property rights of
any third party). To the Knowledge of any of the Sellers, no third
party has interfered with, infringed upon, misappropriated, or
otherwise violated any material Intellectual Property rights of the
Company.
(iii) '4(k)(iii) of Annex III identifies each patent or
registration which has been issued to the Company with respect to any
of its Intellectual Property, identifies each pending patent
application or application for registration which the Company has made
with respect to any of its Intellectual Property, and identifies each
material license, agreement, or other permission which the Company has
granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Sellers have delivered to
the Buyer correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as
amended to date). '4(k)(iii) of Annex III also identifies each material
trade name or unregistered trademark used by the Company in connection
with any of its businesses. With respect to each item of Intellectual
Property required to be identified in '4(k)(iii) of Annex III:
(A) the Company possess all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or, to the Knowledge of any of the Sellers, is threatened
which challenges the legality, validity, enforceability, use,
or ownership of the item; and
(D) The Company has not ever agreed to indemnify any
Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) '4(k)(iv) of Annex III identifies each material item of
Intellectual Property that any third party owns and that the Company
uses pursuant to license, sublicense, agreement, or permission. The
Sellers have delivered to the Buyer correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Intellectual Property required to
be identified in '4(k)(iv) of Annex III:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and
in full force and effect in all material respects;
(B) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(C) no party to the license, sublicense, agreement,
or permission is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or
acceleration thereunder;
(D) no party to the license, sublicense, agreement,
or permission has repudiated any material provision thereof;
(E) with respect to each sublicense, to the Knowledge
of any of the Sellers, the representations and warranties set
forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or, to the Knowledge of any of the Sellers, is threatened
which challenges the legality, validity, or enforceability of
the underlying item of Intellectual Property; and
(H) The Company has not granted any sublicense or
similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of any of the Sellers, the Company will
not interfere with, infringe upon, misappropriate, or otherwise come
into conflict with, any Intellectual Property rights of third parties
as a result of the continued operation of its businesses as presently
conducted and as presently proposed to be conducted.
(vi) None of the Sellers has any Knowledge of any new
products, inventions, procedures, or methods of manufacturing or
processing that any competitors or other third parties have developed
which reasonably could be expected to supersede or make obsolete any
product or process of the Company.
(l) Tangible Assets. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
businesses as presently conducted and as presently proposed to be conducted.
Each such tangible asset is free from material defects (patent and latent), has
been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used and presently is
proposed to be used.
(m) Inventory. The inventory of the Company consists of raw materials
and supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is obsolete, damaged, or defective,
subject only to the reserve for inventory writedown set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
(n) Contracts. '4(n) of Annex III is a true, correct and complete list
of all the material contracts of the Company (including insurance policies to
which the Company has been a party, a named insured, or the beneficiary at any
time within the past five years), and all amendments and modifications thereto,
and there are no oral or other amendment or modifications thereto. The Sellers
have delivered to the Buyer a correct and complete copy of each written
agreement listed in '4(n) of Annex III (as amended to date) and a written
summary setting forth the terms and conditions of each oral agreement referred
to in '4(n) of Annex III. With respect to each such agreement: (A) the agreement
is legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; and (C) to the Knowledge of any of the
Sellers, no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement and no party has
repudiated any provision of the agreement.
(o) Notes and Accounts Receivable. All notes and accounts receivable of
the Company are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims, are current and, to the
Knowledge of each Seller, collectible, and will be collected in accordance with
their terms at their recorded amounts, subject only to the reserve for bad debts
set forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company.
(p) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
(q) Insurance. The Company has been covered during the past 10 years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period.
(r) Litigation. '4(r) of Annex III sets forth each instance in which
the Company (i) is subject to any outstanding injunction, judgment, order,
decree, ruling, or charge or (ii) is a party or, to the Knowledge of any of the
Sellers, is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in '4(r) of Annex III could reasonably be expected to
result in any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of the Company. None of
the Sellers and the directors and officers of the Company has any reason to
believe that any such action, suit, proceeding, hearing, or investigation may be
brought or threatened against the Company.
(s) Product Warranty. Each product manufactured, sold, leased, or
delivered by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
material Liability (and, to the Knowledge of the Sellers, there is no Basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against it giving rise to any Liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company. No product manufactured, sold, leased, or delivered by
the Company is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease. '4(s) of Annex III
includes copies of the standard terms and conditions of sale or lease for the
Company (containing applicable guaranty, warranty, and indemnity provisions).
(t) Product Liability. The Company has no material Liability (and, to
the Knowledge of the Sellers, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against it giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, sold, leased, or delivered by the Company.
(u) Employees. To the Knowledge of any of the Sellers, no executive,
key employee, or group of employees has any plans to terminate employment with
the Company. The Company is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of unfair
labor practices, or other collective bargaining disputes. To the Knowledge of
Sellers, the Company has not committed any unfair labor practice. None of the
Sellers has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of any
of the Company.
(v) Employee Benefits.
(i) '4(v) of Annex III lists each Employee Benefit Plan that
the Company maintains or to which the Company contributes or has any
obligation to contribute.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation with the applicable requirements of ERISA, the Code,
and other applicable laws.
(B) All required reports and descriptions have been
timely filed and distributed appropriately with respect to
each such Employee Benefit Plan. The requirements of COBRA
have been met with respect to each such Employee Benefit Plan
which is subject to COBRA.
(C) All premiums and contributions (including all
employer contributions and employee salary reduction
contributions) which are due have been paid to each such
Employee Benefit Plan, and all premiums and contributions for
any period ending on or before the Closing Date which are not
yet due have been paid to each such Employee Benefit Plan or
accrued in accordance with the past custom and practice of the
Company.
(D) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan meets the requirements of a
"qualified plan" under Code '401(a), has received, within the
last four years, a favorable determination letter from the
Internal Revenue Service that it is a "qualified plan," and
none of the Sellers is aware of any facts or circumstances
that could result in the revocation of such determination
letter.
(E) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multiemployer Plan) equals or exceeds the
present value of all vested and nonvested Liabilities
thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination.
(F) The Sellers have delivered to the Buyer correct
and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received
from the Internal Revenue Service, the most recent Form 5500
Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each
such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the
Company and any ERISA Affiliate maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has been
required to contribute:
(A) No such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer
Plan) has been completely or partially terminated or been the
subject of a Reportable Event as to which notices would be
required to be filed with the PBGC. No proceeding by the PBGC
to terminate any such Employee Pension Benefit Plan (other
than any Multiemployer Plan) has been instituted or, to the
Knowledge of any of the Sellers and the directors and officers
of the Company, threatened.
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration
or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims
for benefits) is pending or, to the Knowledge of any of the
Sellers, threatened. None of the Sellers has any Knowledge of
any Basis for any such action, suit, proceeding, hearing, or
investigation.
(C) The Company has not incurred, and none of the
Sellers has any reason to expect that the Company will incur
any Liability to the PBGC (other than PBGC premium payments)
or otherwise under Title IV of ERISA (including any withdrawal
liability as defined in ERISA '4201) or under the Code with
respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(iii) The Company does not contribute to, never has
contributed to, and never has been required to contribute to any
Multiemployer Plan or has any material Liability (including withdrawal
liability as defined in ERISA '4201) under any Multiemployer Plan.
(iv) The Company does not maintain and never has maintained or
contributed, and never has been required to contribute, to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current retirees, future retirees,
retired or terminated employees, their spouses, or their dependents
(other than in accordance with COBRA).
(w) Guaranties. The Company is not a guarantor or otherwise is liable
for any Liability or obligation (including indebtedness) of any other Person.
(x) Environmental, Health, and Safety Matters.
(i) each of the Company and its predecessors has complied and
is in compliance with all Environmental, Health, and Safety
Requirements;
(ii) without limiting the generality of the foregoing, the
Company has obtained and complied with, and is in compliance with, all
permits, licenses and other authorizations that are required pursuant
to Environmental, Health, and Safety Requirements for the occupation of
its facilities and the operation of its business; a list of all such
permits, licenses and other authorizations is set forth on '4(x) of
Annex III;
(iii) neither the Company nor its predecessors has received
any written or oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including
any investigatory, remedial or corrective obligations, relating to any
of them or its facilities arising under Environmental, Health, and
Safety Requirements;
(iv) none of the following exists at any property or facility
owned or operated by the Company: (1) underground storage tanks, (2)
asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills,
surface impoundments, or disposal areas;
(v) none of the Company or its predecessors has treated,
stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property
or facility (and no such property or facility is contaminated by any
such substance) in a manner that has given or would give rise to
liabilities, including any liability for response costs, corrective
action costs, personal injury, property damage, natural resources
damages or attorney fees, pursuant to any Environmental, Health, and
Safety Requirements; and
(vi) to the Knowledge of Sellers, no facts, events or
conditions relating to the past or present facilities, properties or
operations of the Company or any of its predecessors will give rise to
any investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements, or give rise to any
other liabilities including without limitation any relating to onsite
or offsite releases or threatened releases of hazardous materials,
substances or wastes, personal injury, property damage or natural
resources damage.
(y) Certain Business Relationships with the Company. None of the
Sellers and their Affiliates has been involved in any material business
arrangement or relationship with the Company within the past 12 months, and none
of the Sellers and their Affiliates owns any material asset, tangible or
intangible, which is used in the business of the Company.
(z) Year 2000 Items. All Information Technology that is relied upon by
the Company in its internal operations or is included as part of the any
products produced by the Company, currently and during the past two years, is
Year 2000 Compliant. Additionally, to the Knowledge of each Seller, the Company
has received no notice of any material vendor or customer of the Company
indicating that such vendor or customer may be unable to continue to conduct
business in the ordinary course due to difficulties with its own business being
Year 2000 Compliant.
(aa) Disclosure. The representations and warranties contained in this
'4 do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this '4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his reasonable best efforts
to take all action and to do all things necessary or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
'7 below).
(b) Notices and Consents. The Sellers will cause the Company to give
any notices to third parties, and will cause the Company to use its best efforts
to obtain any third party consents, that the Buyer may request in connection
with the matters referred to in '4(c) above. Each of the Parties will (and the
Sellers will cause the Company to) give any notices to, make any filings with,
and use its best efforts to obtain any authorizations, consents, and approvals
of governments and governmental agencies in connection with the matters referred
to in '3(a)(ii), '3(b)(ii), and '4(c) above.
(c) Operation of Business. The Sellers will not cause or permit the
Company to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Sellers will not cause or permit the Company to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock, (ii) materially increase or modify the compensation or
benefits to any of its employees; (iii) issue any equity securities or rights to
acquire such securities; (iv) dispose of any assets, except in the Ordinary
Course of Business; (v) take any other action or fail to take any action that
would result in a material decline in the value of the Company's business as of
the date of this Agreement; or (vi) otherwise engage in any practice, take any
action, or enter into any transaction of the sort described in '4(g) above.
(d) Preservation of Business. The Sellers will cause the Company to
keep its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
(e) Full Access. Each of the Sellers will permit, and the Sellers will
cause the Company to permit, representatives of the Buyer to have full access at
all reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Company.
(f) Notice of Developments. The Sellers will give prompt written notice
to the Buyer of any material adverse development causing a breach of any of the
representations and warranties in '4 above. Each Party will give prompt written
notice to the others of any material adverse development causing a breach of any
of his or its own representations and warranties in '3 above. No disclosure by
any Party pursuant to this '5(f), however, shall be deemed to amend or
supplement Annex I, Annex II, or Annex III or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) Exclusivity. None of the Sellers will (and the Sellers will not
cause or permit the Company to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of the Company (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. None of the Sellers will vote their
Company Shares in favor of any such acquisition structured as a merger,
consolidation, or share exchange. The Sellers will notify the Buyer immediately
if any Person makes any proposal, offer, inquiry, or contact with respect to any
of the foregoing.
6. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(a) General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under '8 below). The
Sellers acknowledge and agree that from and after the Closing the Buyer will be
entitled to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company.
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under '8
below).
(c) Transition. None of the Sellers will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Company on the date
hereof from maintaining the same business relationships with the Company after
the Closing as it maintained with the Company prior to the Closing. Each of the
Sellers will refer all customer inquiries relating to the businesses of the
Company to the Buyer from and after the Closing until the expiration or
termination of any employment agreement between such Seller and the Company.
(d) Confidentiality.
(i) Confidential Information of the Buyer. Each of the Sellers
acknowledges that in the course of performing this Agreement, Buyer may
provide to a Seller or the Company confidential and proprietary
information about its business which is not generally available to the
public ("Buyer Confidential Information"), the disclosure of which to
third parties without the express authorization of the Buyer would
result in economic losses to the Buyer. Accordingly, regardless of the
means of communication of the Buyer Confidential Information, each
Seller receiving Buyer Confidential Information (the "Receiving Party")
agrees to (and will cause the Company to) hold the Buyer Confidential
Information in strict confidence and, without the prior written
permission from the Buyer, or as set forth in '6(d)(iii) below, not to
disclose the Buyer Confidential Information to any third parties, or
use it for any commercial purposes except in performance of this
Agreement.
(ii) Confidential Information of the Company. Each of the
Sellers will treat and hold as such all of the confidential information
of the Company ("Company Confidential Information"), and refrain from
using Company Confidential Information except in connection with this
Agreement or in the course of their continued employment with the
Company.
(iii) General. Each Seller shall promptly notify the Buyer of
any breach of the foregoing obligations of confidentiality. In the
event that any of the Sellers or the Company is requested or required
(by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, that Seller
or the Company will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order
or waive compliance with the provisions of this '6(d). If, in the
absence of a protective order or the receipt of a waiver hereunder, any
of the Sellers or the Company is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or else stand
liable for contempt, that Seller or the Company may disclose the
Confidential Information to the tribunal; provided, however, that the
disclosing Seller shall use (and cause the Company to use) reasonable
efforts to obtain, at the request and expense of the Buyer, an order or
other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the
Buyer shall designate. The foregoing provisions shall not apply to any
Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
(e) Covenant Not to Compete. For a period of three years from and after
the Closing Date, none of the Sellers will engage directly or indirectly in any
business that the Company conducts as of the Closing Date in any geographic area
in which the Company now or hereafter conducts that business if such conduct on
the part of such Seller would have a negative economic impact on the Company;
provided, however, that any Seller may own less than 3% of any outstanding class
of securities registered pursuant to the Exchange Act of an issuer that competes
with the Buyer or the Company. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this '6(e) is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in '3(a) and
'4 above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) the Sellers shall have performed and complied with all of
their covenants hereunder in all material respects through the Closing;
(iii) the Company shall have procured all of the third party
consents specified in '5(b) above;
(iv) no action, suit, or proceeding shall be pending or, to
the Knowledge of the Sellers, threatened before any court or
quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, (C) affect adversely
the right of the Buyer to own the Company Shares and to control the
Company, or (D) affect adversely the right of the Company to own its
assets and to operate its businesses (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(v) the Sellers shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified above
in '7(a)(i)-(iv) is satisfied in all respects;
(vi) Buyer and each of the Sellers shall enter into employment
agreements in form and substance as set forth in Exhibit E attached
hereto and the same shall be in full force and effect;
(vii) the Company and Pine Mountain Properties, L.L.C. shall
have entered into an Amendment to Lease in the form attached hereto as
Exhibit G;
(viii) Buyer and J. Tracy Livingston shall have entered into a
Voice Technology Project Agreement in form and substance as set forth
in Exhibit H attached hereto and the same shall be in full force and
effect;
(ix) the Buyer shall have received the resignations, effective
as of the Closing, of each director and officer of the Company other
than those whom the Buyer shall have specified in writing at least five
business days prior to the Closing;
(x) no material adverse change in the financial condition or
results of operation of the Company, or in the condition or value of
its material assets, taken as a whole, shall have occurred between the
date of this Agreement and the Closing Date;
(xi) Buyer shall be satisfied with its continuing business,
legal, environmental, and accounting due diligence investigation of the
Company in all respects; and
(xii) all actions to be taken by the Sellers in connection
with consummation of the transactions contemplated hereby and all
certificates, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in
form and substance to the Buyer.
The Buyer may waive any condition specified in this '7(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Sellers. The obligation of the
Sellers and the Church to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions; provided that clause (v) below shall not apply to the Church:
(i) the representations and warranties set forth in '3(b)
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or, to
the Knowledge of Buyer, threatened before any court or quasi-judicial
or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) the Buyer shall have delivered to the Sellers a
certificate to the effect that each of the conditions specified above
in '7(b)(i)-(iii) is satisfied in all respects;
(v) Buyer and each of the Sellers shall enter into employment
agreements in form and substance as set forth in Exhibit E attached
hereto and the same shall be in full force and effect;
(vi) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Sellers.
The Sellers may waive any condition specified in this '7(b) if they execute a
writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing hereunder (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty or covenant at the time of
Closing) and continue in full force and effect forever thereafter for a period
of 4 years (subject to any applicable statutes of limitations); provided,
however, the representations and warranties contained in "4(j) and (x) shall
survive Closing subject only to applicable statutes of limitations.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event any of the Sellers breaches (or in the event
any third party alleges facts that, if true, would mean any of the
Sellers has breached) any of their representations, warranties, and
covenants contained herein (other than the covenants in '2(a) above and
the representations and warranties in '3(a) above), then each of the
Sellers agrees to indemnify the Buyer from and against the entirety of
any Adverse Consequences the Buyer may suffer through and after the
date of the claim for indemnification resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged
breach); provided, that any such claim for indemnification must be made
by the Buyer against the Sellers before the expiration of the four year
period beginning on the Closing Date; provided, further, that the
aggregate amount of all indemnification obligations of the Sellers
hereunder shall not exceed $3,575,000.00 minus the total amount of all
indemnification obligations borne by the Sellers pursuant to '8(b)(ii);
and provided, further, that in the event the aggregate amount of all
indemnification obligations of the Sellers hereunder is less than
$25,000.00, the Buyer shall not make any claim for indemnification
against the Sellers hereunder.
(ii) In the event any of the Sellers breaches (or in the event
any third party alleges facts that, if true, would mean any of the
Sellers has breached) any of his covenants in '2(a) above or any of his
representations and warranties in '3(a) above, then the Seller agrees
to indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the
claim for indemnification resulting from, arising out of, relating to,
in the nature of, or caused by the breach (or the alleged breach);
provided, that any such claim for indemnification must be made by the
Buyer against the Sellers before the expiration of the four year period
beginning on the Closing Date; provided, further, that the aggregate
amount of all indemnification obligations of the Sellers hereunder
shall not exceed $3,575,000.00 minus the total amount of all
indemnification obligations borne by the Sellers pursuant to '8(b)(i);
and provided, further, that in the event the aggregate amount of all
indemnification obligations of the Sellers hereunder is less than
$25,000.00, the Buyer shall not make any claim for indemnification
against the Sellers hereunder.
(iii) Each of the Sellers agrees to indemnify the Buyer from
and against the entirety of any Adverse Consequences the Buyer may
suffer resulting from, arising out of, relating to, in the nature of,
or caused by any Liability of the Company (x) for any Taxes of the
Company with respect to any Tax year or portion thereof ending on or
before the Closing Date (or for any Tax year beginning before and
ending after the Closing Date to the extent allocable (determined in a
manner consistent with '9(c)) to the portion of such period beginning
before and ending on the Closing Date), to the extent such Taxes are
not reflected in the reserve for Tax Liability (rather than any reserve
for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Closing Balance Sheet,
and (y) for the unpaid Taxes of any Person (other than the Company)
under Reg. '1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
(c) Indemnification Provisions for Benefit of the Sellers. In the event
the Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, then the Buyer agrees to indemnify each of the
Sellers from and against the entirety of any Adverse Consequences the Seller may
suffer through and after the date of the claim for indemnification resulting
from, arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach); provided, that any such claim for indemnification must be
made by the Seller against the Buyer before the expiration of the four year
period beginning on the Closing Date; provided, further, that the aggregate
amount of any indemnification obligation of the Buyer hereunder shall not exceed
$3,575,000.00; provided, further, that in the event the aggregate amount of all
indemnification obligations of the Buyer hereunder is less than $25,000.00, the
Sellers shall not make any claim for indemnification against the Buyer
hereunder.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this '8, then the Indemnified
Party shall promptly notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A)
the Indemnifying Party notifies the Indemnified Party in writing within
20 days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party
from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, subject to
the terms of this '8, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the financial
resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with
respect to, the Third Party Claim is not, in the good faith judgment of
the Indemnified Party, likely to establish a precedential custom or
practice materially adverse to the continuing business interests of the
Indemnified Party, and (E) the Indemnifying Party conducts the defense
of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with '8(d)(ii) above,
(A) the Indemnified Party may retain separate co-counsel at its sole
cost and expense and participate in the defense of the Third Party
Claim, (B) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnifying Party (not
to be withheld unreasonably), and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of
the Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in '8(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the reasonable costs of
defending against the Third Party Claim (including reasonable
attorneys' fees and expenses), and (C) the Indemnifying Parties will
remain responsible for any Adverse Consequences the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature
of, or caused by the Third Party Claim to the fullest extent provided
in this '8.
(e) Determination of Adverse Consequences. All indemnification payments
under this '8 shall be deemed adjustments to the Purchase Price.
(f) Recoupment Under the Hold-back and Debentures. The Buyer shall have
the option of recouping all or any part of any Adverse Consequences it may
suffer (in addition to seeking any indemnification to which it is entitled under
this '8) by notifying any Seller that the Buyer is reducing the Hold-back and/or
the principal amount outstanding under Debentures. This shall affect the timing
and amount of payments required under the Debentures in the same manner as if
the Buyer had made a permitted prepayment (without premium or penalty)
thereunder.
(g) Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy (including without limitation any such remedy
arising under Environmental, Health, and Safety Requirements) any Party may have
with respect to the Company or the transactions contemplated by this Agreement.
Each of the Sellers hereby agrees that he will not make any claim for
indemnification against the Company by reason of the fact that Seller was a
director, officer, employee, or agent of any such entity or was serving at the
request of any such entity as a partner, trustee, director, officer, employee,
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim, or demand brought by the Buyer against such Seller (whether
such action, suit, proceeding, complaint, claim, or demand is pursuant to this
Agreement, applicable law, or otherwise) which in the aggregate (under any and
all such claims made at any time by any of the Sellers) exceeds fifty thousand
dollars ($50,000).
9. Tax Matters. The following provisions shall govern the allocation of
responsibility as between Buyer and Sellers for certain tax matters following
the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. Buyer shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Company for all periods ending on or prior to the Closing Date which are
filed after the Closing Date. Buyer shall permit Sellers to review and comment
on each such Tax Return described in the preceding sentence prior to filing.
Subject to the provisions of '8(b)(ii) hereof, Sellers shall reimburse Buyer for
Taxes of the Company with respect to such periods within fifteen (15) days after
payment by Buyer or the Company of such Taxes (whether in connection with the
filing of such Tax Return or as the result of an audit) to the extent such Taxes
are not reflected in the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) shown on the face of the Closing Balance Sheet.
(b) Tax Periods Beginning Before and Ending After the Closing Date.
Buyer shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of the Company for Tax periods which begin before the Closing Date
and end after the Closing Date. Sellers shall pay to Buyer within fifteen (15)
days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of such
Taxable period ending on the Closing Date to the extent such Taxes are not
reflected in the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
shown on the face of the Closing Balance Sheet. For purposes of this Section, in
the case of any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the Closing Date, the portion
of such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall (x) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax for the
entire Taxable period multiplied by a fraction the numerator of which is the
number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period, and (y)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company. This '9(b) shall be construed so as to be
consistent with the provisions of '8(b)(ii).
(c) Cooperation on Tax Matters. Buyer, the Company and Sellers shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. The Company and
Sellers agree to retain all books and records with respect to Tax matters
pertinent to the Company relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or Sellers, any extensions thereof) of the respective
taxable periods.
(d) Certain Taxes. Subject to the provisions of '8(b)(ii) hereof, all
transfer, documentary, sales, use, stamp, registration and other such Taxes and
fees (including any penalties and interest) incurred in connection with this
Agreement shall be paid by Sellers when due, and Sellers will, at their own
expense, file all necessary Tax Returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by applicable law, Buyer will, and will cause its
affiliates to, join in the execution of any such Tax Returns and other
documentation.
(e) Code ' 338 Election. Notwithstanding any other provision of this
Agreement, if Buyer elects to make a Code ' 338 election in connection with this
transaction, Sellers each agree to pay up to $5,000 to the extent that such
election results in Tax Liability to the Company in excess of such Liability
without such election. If the Tax Liability for any Seller resulting from such
election exceeds $5,000, then Buyer shall pay the amount of such Tax Liability
for such Seller in excess of $5,000 per Seller.
10. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Sellers may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Sellers at any time prior to the Closing (A) in the event
any of the Sellers has breached any material representation, warranty,
or covenant contained in this Agreement in any material respect, the
Buyer has notified the Sellers of the breach, and the breach has
continued without cure for a period of 15 days after the notice of
breach or (B) if the Closing shall not have occurred on or before
December 31, 1998, by reason of the failure of any condition precedent
under '7(a) hereof (unless the failure results primarily from the Buyer
itself breaching any representation, warranty, or covenant contained in
this Agreement); and
(iii) the Sellers may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A) in the
event the Buyer has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, any of
the Sellers has notified the Buyer of the breach, and the breach has
continued without cure for a period of 15 days after the notice of
breach or (B) if the Closing shall not have occurred on or before
December 31, 1998, by reason of the failure of any condition precedent
under '7(b) hereof (unless the failure results primarily from any of
the Sellers themselves breaching any representation, warranty, or
covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to '10(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach).
11. Miscellaneous.
(a) Nature of Certain Obligations.
(i) The covenants of each of the Sellers in '2(a) above
concerning the sale of his Company Shares to the Buyer and the
representations and warranties of each of the Sellers in '3(a) above
concerning the transaction are several obligations. This means that the
particular Seller making the representation, warranty, or covenant will
be solely responsible to the extent provided in '8 above for any
Adverse Consequences the Buyer may suffer as a result of any breach
thereof.
(ii) The remainder of the representations, warranties, and
covenants in this Agreement are joint and several obligations. This
means that each Seller will be responsible to the extent provided in '8
above for the entirety of any Adverse Consequences the Buyer may suffer
as a result of any breach thereof.
(b) Termination of Shareholders Agreement. Effective upon Closing, the
Shareholders agree to terminate that certain Shareholders Agreement Pursuant to
Section 732 of the Utah Revised Business Corporation Act, dated October 30,
1995, among the Sellers and the Company. The Company shall acknowledge the
agreement contained in this subsection by acknowledging such termination at the
end of this Agreement.
(c) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the Buyer and the Sellers;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its reasonable best efforts to advise the other Parties prior to making
the disclosure).
(d) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(e) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof, including that certain Letter of Intent between the Parties, dated
November 4, 1998.
(f) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Sellers; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(h) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(i) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Sellers: ......... Copy to:
ZEVEX International, Inc. .........Stoel Rives LLP
4314 ZEVEX Park Lane .........201 S. Main Street, Suite 1100
Salt Lake City, UT 84123 .........Salt Lake City, UT 84111-4904
Attn: Len Smith .........Attn: Clint M. Hanni
ZEVEX International, Inc.
4314 ZEVEX Park Lane
Salt Lake City, UT 84123
Attn: J. Tracy Livingston
ZEVEX International, Inc.
4314 ZEVEX Park Lane
Salt Lake City, UT 84123
Attn: Dave Bernardi
If to the Buyer: .........Copy to:
- ---------------- --------
ZEVEX International, Inc. .........Jones, Waldo, Holbrook & McDonough
4314 ZEVEX Park Lane .........170 S. Main Street, Suite 1500
Salt Lake City, UT 84123 .........Salt Lake City, UT 84101
Attn: Phillip McStotts .........Attn: Ronald Poelman
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(j) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Utah without giving effect to
any choice or conflict of law provision or rule (whether of the State of Utah or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Utah.
(k) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Sellers. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(l) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(m) Expenses. The Buyer agrees that the Company will bear all of the
Sellers' costs and expenses (including any of their legal fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
(n) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
(o) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(p) Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in '10(p) below), in
addition to any other remedy to which they may be entitled, at law or in equity.
(q) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Salt Lake County, Utah, in
any action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Each
Party agrees that a final judgment in any action or proceeding so brought shall
be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity.
(r) Limitation on Obligations of the Church. Except as expressly
provided in this Agreement, the Church shall have no obligation, duty,
liability, or responsibility under this Agreement or under any instruments or
agreements delivered pursuant to this Agreement, except to transfer and convey
to the Buyer the Company Shares identified in Section 4(b) of Annex III hereto
as being owned by the Church, free and clear of all liens, security interest,
encumbrances, pledges and claims arising by, through, or under the Church.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
ZEVEX INTERNATIONAL, INC.
By: /s/Phillip L. McStotts.....
Philip L. McStotts
Chief Financial Officer
/s/ Leonard C. Smith .........
LEONARD C. SMITH
/s/ James T. Livingston .........
JAMES T. LIVINGSTON
/s/ David W. Bernardi .........
DAVID W. BERNARDI
THE CORPORATION OF THE PRESIDENT
OF THE CHURCH OF JESUS CHRIST OF
LATTER-DAY SAINTS
By: /s/ Ray Anderson .........
Its: Authorize Agent .........
Acknowledgement and Agreement of JTech Medical Industries, Inc. for purposes of
Section 10(b).
JTECH MEDICAL INDUSTRIES, INC.
By: /s/ Leonard C. Smith.......
Leonard C. Smith,
President
<PAGE>
EXHIBIT A
FORM OF DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE LAW AND MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR STATE LAW OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE, OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
CONVERTIBLE DEBENTURE
(Due _________________)
______________, 199___
(the "Issuance Date")
The undersigned, ZEVEX INTERNATIONAL, INC., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to the order of
_____________________________________ (the "Holder") the principal amount of
_________________________________________ ($________________) together with
interest on such principal amount and any other amounts due under this
Debenture.
This Debenture (the "Debenture") is issued pursuant to that certain
Stock Purchase Agreement, dated December __, 1998, entered into between the
Company and the Holder of this Debenture (the "Agreement"). This Debenture is
also subject to the following additional terms and conditions:
<PAGE>
1. Interest. Commencing on the date of this Debenture and continuing until all
principal and interest due under this Debenture are paid in full, the
outstanding principal balance of this Debenture shall bear interest at the rate
of eight percent (8%) per annum, compounded annually. Interest shall accrue
daily and be calculated on the basis of a three hundred sixty (360) day year and
the actual number of days elapsed in any partial calendar month.
2. Payment. Accrued interest shall be due and payable beginning April, 1, 1999,
and on each July 1, October 1, January 1, and April 1 thereafter until this
Debenture is paid in full. The unpaid principal balance of this Debenture,
together with any and all accrued but unpaid interest, shall be due and payable
in full three (3) years from the Issuance Date. All payments of principal and
interest shall be made in lawful money of the United States of America at the
address of the holder set forth in Section 8.1 below. Unless the Holder shall
elect otherwise, each payment made under this Debenture shall be applied first
to interest due under this Debenture and any balance shall be applied to reduce
the principal balance of this Debenture.
3. Right of Conversion
3.1 Conversion Into Company Securities. At any time after a date one
(1) year from the Issuance Date until a date three (3) years after the Issuance
Date, and from time to time during such period, the Holder may elect to convert
all or a portion of the unpaid principal amount and all accrued but unpaid
interest of this Debenture into fully paid and nonassessable shares of Company
Common Stock, $0.001 par value (the "Conversion Shares") at the conversion price
of eleven dollars ($11.00) per share (the "Conversion Price"); provided that any
partial conversion of less than the entire remaining principal balance of this
Debenture may not be less than $25,000 in principal and accrued and unpaid
interest.
3.2 Mechanics of Conversion. Upon the Holder's election to convert
pursuant to Section 3.1 above, the Holder shall send written notice of its
election to the Company and shall surrender this Debenture to the Company at its
principal office. The written election shall specify the amount of principal and
accrued and unpaid interest that is to be converted. Each conversion shall be
deemed to have been effected as of the close of the business on the date on
which the notice is delivered to the Company and the outstanding principal
balance and accrued and unpaid interest shall be reduced by the amount converted
as set forth in the notice. Within a reasonable time thereafter, the Company
shall cancel the designated portion of the unpaid principal amount of this
Debenture converted by the Holder and issue a certificate or certificates (the
"Conversion Certificates"), registered in the name of such Holder, for the
number of full shares of the Conversion Shares issuable at the Conversion Price,
bearing such restrictive legends as may be required by federal and state
securities laws. In the event of a Partial Conversion, the Company shall return
with the Conversion Certificates this Debenture, bearing a proper notation of
the principal amount that remains due and payable after Holder's partial
conversion, but otherwise unaltered. Conversion Certificates will be delivered
promptly to the Holder after issuance by the Company; provided, however, the
Company may, in its discretion, hold in its possession Conversion Certificates
for that number of Conversion Shares which are subject to forfeiture as
described in Section 7 below. Each Conversion Certificate shall bear a legend to
the extent it is subject to forfeiture.
3.3 Effects of Conversion. Upon conversion of the entire amount of
principal and unpaid interest of this Debenture, the rights of the Holder of the
Debenture as such shall cease. The person or persons in whose name or names the
Conversion Certificates are issued shall be deemed to have become the holder or
holders of record of the Conversion Shares represented thereby.
3.4 No Fractional Shares. No fractional share of the Conversion Shares
will be issued in connection with any conversion hereunder. Instead of any
fractional share the Company shall pay a cash adjustment in respect of such
fractional interest as determined by reference to the Conversion Price.
3.5 No Rights as Stockholders. Prior to the conversion of all or any
portion of this Debenture, the Holder shall not be entitled to any right as a
stockholder, including without limitation the right to vote or to receive
dividends or other distribution, and shall not be entitled to receive any notice
of any proceeding of the Company, except as provided herein.
3.6 Taxes on Conversion. Any taxes required upon the issuance of
Conversion Certificates on conversion of this Debenture shall be paid by the
Holder.
3.7 Adjustments. In the event of any Company stock split, stock
combination, merger, consolidation or recapitalization affecting the Common
Stock of the Company prior to repayment or conversion under this Debenture, the
Company shall make appropriate, proportionate adjustments to the Conversion
Shares issued to Holder under Holder's conversion right.
3.8 Notices of Record Date. In the event of (i) any taking by the
Company of a record of the holders of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution or (ii) any reclassification or recapitalization of the capital
stock of the Company, any merger or consolidation of the Company, or any
transfer of all or substantially all of the assets of the Company to any other
corporation, entity, or person, or any voluntary or involuntary dissolution,
liquidation, or a winding-up of the Company, which occurs during the conversion
period, the Company shall mail to the Holder of the Debenture, at least fifteen
(15) days prior to the record date specified therein, a notice specifying (A)
the date on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution, (B)
the date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation, or winding-up is expected to
become effective, and (C) the time, if any is to be set, as to when the holders
of record of such security shall be entitled to exchange their shares for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation, or
winding-up.
4. Events of Default; Acceleration
4.1 Events, Remedy. If any of the following conditions or events
("Events of Default") shall occur:
(a) if the Company shall default in the payment of the
principal or interest on the Debenture when due and such default continues for a
period of 30 days after written notice thereof to the Company from Holder; or
(b) if the Company shall default in the performance of or
compliance with any term or covenant contained in this Debenture, the Agreement,
or the Pledge Agreement and such default shall not have been remedied within 30
days after written notice thereof shall have been given to the Company by Holder
(provided, however, if such default is not cured within such 30-day period and
the Company is diligently pursuing such cure, the Company shall have an
additional period of time not to exceed ninety (90) days in which to cure such
default); or
(c) if the Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future statute,
law or regulation, or shall file any answer admitting or not contesting the
material allegations of a petition filed against the Company in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of the Company or of all or any substantial part
of the properties of the Company, or if the Company or its directors or majority
stockholders shall take any action looking to the dissolution or liquidation of
the Company; or
(d) if, within 60 days after the service of process on Company
following commencement of an action against the Company seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, such
action shall not have been dismissed or if, alternatively, all orders or
proceedings thereunder affecting the operations or the business of the Company
stayed, or if the stay of any such order or proceeding shall thereafter be set
aside, or if, within 60 days after the appointment without the consent or
acquiescence of the Company of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company, such
appointment shall not have been vacated;
then and in any such event Holder may at any time (unless all defaults shall
theretofore have been remedied) at his option, by written notice to the Company,
declare the entire principal and interest of the Debenture then remaining unpaid
to be due and payable immediately. Notwithstanding the foregoing, this Debenture
shall not be in default to the extent that the Company has exercised its rights
of recoupment under Section 8(f) of the Agreement.
4.2 Other Remedies on Default, Etc. In case any one or more Events of
Default shall occur, be continuing, and not have been waived, Holder may proceed
to protect and enforce the rights of such Holder by an action at law, suit in
equity, or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or under terms of the Agreement or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law. In case of a
default in the payment of principal or interest on the Debenture, the Company
will pay to the Holder thereof such further amount as shall be sufficient to
cover the costs and expenses of collection, including, without limitation,
reasonable attorneys' fees. No course of dealing and no delay on the part of any
Holder in exercising any right shall operate as a waiver thereof or otherwise
prejudice such Holder's rights. No right conferred hereby or by the Agreement
upon any Holder shall be exclusive of any other right referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise.
5. Prepayment
This Debenture may be prepaid (including a deemed prepayment under
Section 8(f) of the Purchase Agreement) without penalty upon thirty (30) days
prior written notice by the Company to Holder. Except in the event of a deemed
prepayment in accordance with Section 8(f) of the Purchase Agreement, Holder
shall have the right within such thirty day period to convert all or part of
this Debenture at Holder's election pursuant to Section 3 above.
6. Security for Debenture
This Debenture is secured by a Stock Pledge Agreement of even date
herewith by and between the Company and Holder.
7. Forfeiture of Debenture/Conversion Shares
Holder acknowledges and agrees that this Debenture and any Conversion
Shares issued upon conversion of this Debenture are subject to the forfeiture
provisions of Section 10.1(iii) of that certain Employment Agreement between
Holder and JTech Medical Industries, Inc., dated as of the date hereof. In the
event of a forfeiture of this Debenture in accordance with the terms of such
Section 10.1(iii), Holder shall promptly surrender this Debenture to the Company
at its principal office. The Company shall promptly thereafter return this
Debenture to Holder, bearing a proper notation of the principal amount that
remains due and payable after such forfeiture, but otherwise unaltered. In the
event of a forfeiture of Conversion Shares in accordance with the terms of
Section 10.1(iii) of the Employment Agreement, the Company shall promptly cancel
the Conversion Certificates applicable to the forfeited Conversion Shares and
issue and deliver to Holder new certificates for any Conversion Shares that were
not forfeited by Holder.
8. Miscellaneous Provisions
8.1 Notices. Any notice herein required or payment required hereunder
shall be made or given to the address of the parties as specified in the
Agreement.
8.2 Amendments or Waivers. Any provision of this Debenture may be
amended, waived, or modified, but only upon the written consent of the Company
and the Holder.
8.3 Governing Law. This Debenture has been executed in and shall be
governed by the laws of the State of Utah excluding that body of law pertaining
to conflicts of law.
8.4 Miscellaneous. The unenforceability or invalidity of any provision
of this Debenture shall not affect the enforceability or validity of any other
provision of this Debenture. The terms of this Debenture shall bind the
undersigned and inure to the benefit of Holder and their respective heirs,
successors, assigns and legal representatives. The Holder may, in accordance
with the terms of the Agreement, assign all or part of Holder's interest under
this Debenture upon prior written notice to the Company.
IN WITNESS WHEREOF, the Company has caused this Debenture to be issued
this ____ day of _________________, 1998.
ZEVEX INTERNATIONAL, INC.
Phillip L. McStotts,
Chief Financial Officer
<PAGE>
EXHIBIT C
CALCULATION OF POSSIBLE EARN OUT PAYMENT
The formula for calculating the possible First Earn Out Payment will be:
A + B x ($375,000.00) = Cash portion of possible First Earn Out Payment
A + B x ($375,000.00) = Debenture portion of possible First Earn Out
Payment
Where:
A = 1999 Actual Revenue - 1998 Projected Revenue x 0.50 1999
Projected Revenue - 1998 Projected Revenue
B = 1999 Actual Pre Tax Income - 1998 Projected Pre Tax Income x
0.50 1999 Projected Pre Tax Income - 1998 Projected Pre Tax
Income
And:
"1998 Projected Revenue" is $4,000,000.
"1999 Actual Revenue" is the total gross revenue for J-Tech for the
period from January 1, 1999 to December 31, 1999.
"1999 Projected Revenue" is $6,200,000.00
"1998 Projected Pre Tax Income" is $600,000
"1999 Actual Pre Tax Income" is the pre tax income for J-Tech for the
period from January 1, 1999 to December 31, 1999
"1999 Projected Pre Tax Income" is $930,000
The formula for calculating the possible Second Earn Out Payment will be:
A + B x ($200,000.00) = Cash portion of possible Second Earn Out
Payment
A + B x ($200,000.00) = Debenture portion of possible Second Earn Out
Payment
<PAGE>
Where:
A = 2000 Actual Revenue - 1999 Projected Revenue x 0.50 2000
Projected Revenue - 1999 Projected Revenue
B = 2000 Actual Pre Tax Income - 1999 Projected Pre Tax Income x
0.50 2000 Projected Pre Tax Income - 1999 Projected Pre Tax
Income
And:
"1999 Projected Revenue" is $6,200,000.00
"2000 Actual Revenue" is the total gross revenue for J-Tech for the
period from January 1, 2000 to December 31, 2000.
"2000 Projected Revenue" is $9,500,000.
"1999 Projected Pre Tax Income" is $930,000
"2000 Actual Pre Tax Income" is the pre tax income for J-Tech for the
period from January 1, 2000 to December 31, 2000.
"2000 Projected Pre Tax Income" is $1,577,000.
Example
Assuming that "1999 Actual Revenue" is $5,000,000 and "1999 Actual Pre
Tax Income" is $800,000, the possible First Earn Out Payment is calculated as
follows:
5,000,000 - 4,000,000 x .50 = 0.2273
6,200,000 - 4,000,000
800,000 - 600,000 x .50 = 0.3030
930,000 - 600,000
0.2273 + 0.3030 = 0.5303
0.5303 x $375,000 = $198,863 cash portion of First Earn Out Payment
0.5303 x $375,000 = $198,863 Debenture portion of First Earn Out
Payment
<PAGE>
EXHIBIT E
FORMS OF EMPLOYMENT AGREEMENTS
EXHIBIT F
ALLOCATION OF PURCHASE PRICE
Cash portion of the Purchase Price paid at Closing:
Leonard C. Smith .........$ 1,000.00
J. Tracy Livingston .........$ 1,000.00
David W. Bernardi .........$ 1,000.00
----------------
TOTAL .........$ 3,000.00
Cash portion of the Purchase Price paid on January 6, 1999:
.........Price Before Holdback Payment After Holdback
Leonard C. Smith .........$1,256,900.55 $1,056,950.55
J. Tracy Livingston .........$1,288,550.44 $1,088,600.44
David W. Bernardi .........$ 408,549.01 $ 343,449.01
Corporation of the President
of The Church of Jesus Christ
of Latter-day Saints .........$ 143,000.00 $ 143,000.00
------------- -------------
TOTAL .........$3,097,000.00 $2,632,000.00
Debenture portion of the Purchase Price paid on January 6, 1999:
Leonard C. Smith .........$1,290,000.00
J. Tracy Livingston .........$1,290,000.00
David W. Bernardi .........$ 420,000.00
Holdback Amounts Paid Following Closing are allocated in accordance with the
following percentages:
Leonard C. Smith .........43%
J. Tracy Livingston .........43%
David W. Bernardi .........14%
The First and Second Earn-Out Payments are allocated in accordance with the
following percentages:
Leonard C. Smith .........50%
J. Tracy Livingston .........25%
David W. Bernardi .........25%
<PAGE>
STOCK PURCHASE AGREEMENT
BETWEEN
ZEVEX INTERNATIONAL, INC.
AND
VIJAY LUMBA
December 31, 1998
TABLE OF CONTENTS
PAGE
1. Definitions...........................................................1
2. Purchase and Sale of Company Shares...................................5
(a) Basic Transaction............................................5
(b) Purchase Price...............................................5
(c) Terms of Debentures..........................................6
(d) The Hold-Back................................................6
(e) Purchase Price Adjustment....................................6
(g) The Closing..................................................7
(h) Deliveries at the Closing....................................7
3. Representations and Warranties Concerning the Transaction.............7
(a) Representations and Warranties of the Seller.................7
(b) Representations and Warranties of the Buyer..................9
4. Representations and Warranties Concerning the Company................10
(a) Organization, Qualification, and Corporate Power............10
(b) Capitalization..............................................11
(c) Noncontravention............................................11
(d) Brokers' Fees...............................................11
(e) Title to Assets.............................................11
(f) Financial Statements........................................12
(g) Events Subsequent to Most Recent Fiscal Year End............12
(h) Undisclosed Liabilities.....................................13
(i) Legal Compliance............................................13
(j) Tax Matters.................................................14
(k) Intellectual Property.......................................15
(l) Tangible Assets.............................................17
(m) Inventory...................................................17
(n) Contracts...................................................17
(o) Notes and Accounts Receivable...............................18
(p) Powers of Attorney..........................................18
(q) Insurance...................................................18
(r) Litigation..................................................18
(s) Product Warranty............................................18
(t) Product Liability...........................................19
(u) Employees...................................................19
(v) Employee Benefits...........................................19
(w) Guaranties..................................................21
(x) Environmental, Health, and Safety Matters...................21
(y) Certain Business Relationships with the Company.............22
(z) Year 2000 Items.............................................22
(aa) Disclosure..................................................22
5. Pre-Closing Covenants................................................22
(a) General.....................................................23
(b) Notices and Consents........................................23
(c) Operation of Business.......................................23
(d) Preservation of Business....................................23
(e) Full Access.................................................23
(f) Notice of Developments......................................23
(g) Exclusivity.................................................24
6. Post-Closing Covenants...............................................24
(a) General.....................................................24
(b) Litigation Support..........................................24
(c) Transition..................................................24
(d) Confidentiality.............................................25
(e) Covenant Not to Compete.....................................25
7. Conditions to Obligation to Close....................................26
(a) Conditions to Obligation of the Buyer.......................26
(b) Conditions to Obligation of the Seller......................27
8. Remedies for Breaches of This Agreement..............................28
(a) Survival of Representations and Warranties..................28
(b) Indemnification Provisions for Benefit of the Buyer.........28
(c) Indemnification Provisions for Benefit of the Seller........29
(d) Matters Involving Third Parties.............................29
(e) Determination of Adverse Consequences.......................30
(f) Recoupment Under the Hold-Back and Debentures...............30
(g) Limitation On Amount........................................31
(h) Other Indemnification Provisions............................31
9. Tax Matters..........................................................31
(a) Tax Periods Ending on or Before the Closing Date............31
(b) Tax Periods Beginning Before and Ending After the Closing
Date........................................................31
(c) Cooperation on Tax Matters..................................32
(d) Certain Taxes...............................................32
10. Termination..........................................................32
(a) Termination of Agreement....................................32
(b) Effect of Termination.......................................33
11. Miscellaneous........................................................33
(a) Press Releases and Public Announcements.....................33
(b) No Third-Party Beneficiaries................................33
(c) Entire Agreement............................................33
(d) Succession and Assignment...................................33
(e) Counterparts................................................34
(f) Headings....................................................34
(g) Notices.....................................................34
(h) Governing Law...............................................34
(i) Dispute Resolution..........................................35
(j) Amendments and Waivers......................................36
(k) Severability................................................36
(l) Expenses....................................................36
(m) Construction................................................36
(n) Incorporation of Exhibits, Annexes, and Schedules...........37
(o) Specific Performance........................................37
(p) Submission to Jurisdiction..................................37
Exhibit A--Form of Convertible Debenture
Exhibit B--Formula for Calculating Earn-Out Payment
Exhibit C--Historical Financial Statements
Annex I--Exceptions to the Seller's Representations and Warranties Concerning
the Transaction
Annex II--Exceptions to the Buyer's Representations and Warranties Concerning
the Transaction
Disclosure Schedule--Exceptions to Representations and Warranties Concerning the
Company
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is entered into as of
December 31, 1998, by and among ZEVEX International, Inc., a Delaware
corporation ("Buyer") and Vijay Lumba ("Seller"). The Buyer and the Seller are
referred to collectively herein as the "Parties."
The Seller owns all of the outstanding capital stock of Aborn
Electronics, Inc, a California corporation (the "Company").
This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, all of the
outstanding capital stock of the Company in return for cash and certain other
consideration.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
<PAGE>
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Buyer Confidential Information" has the meaning set forth in '6(d)(i)
below.
"Buyer Shares" has the meaning set forth in '2(c) below.
"Closing" has the meaning set forth in '2(g) below.
"Closing Date" has the meaning set forth in '2(g) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code '4980B.
"Company Confidential Information" has the meaning set forth in '6(d)
(ii) below.
"Company Share" means any share of the Common Stock, par value $.01 per
share, of the Company.
"Debenture" has the meaning set forth in '2(b)(i) below.
"Disclosure Schedule" has the meaning set forth in '4 below.
"Earn-Out Payment" has the meaning set forth in '2(b)(ii) below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA '3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA '3(1).
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as
now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single
employer with Seller for purposes of Code '414.
"Estimated Net Asset Amount" has the meaning set forth in '2(b)(i)
below.
"Fiduciary" has the meaning set forth in ERISA '3(21).
"Final Net Asset Amount" has the meaning set forth in '2(e) below.
"Financial Statement" has the meaning set forth in '4(f) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hold-Back" has the meaning set forth in '2(d) below.
"Indemnified Party" has the meaning set forth in '8(d) below.
"Indemnifying Party" has the meaning set forth in '8(d) below.
"Information Technology" means computer software, computer firmware,
computer hardware (whether general or specific purpose) and other similar or
related items of automated, computerized or software systems.
"Initial Payment" has the meaning set forth in '2(b)(i) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within
the Financial Statements for the Most Recent Fiscal Year End.
"Most Recent Fiscal Year End" has the meaning set forth in '4(f) below.
"Multiemployer Plan" has the meaning set forth in ERISA '3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity.
"Prohibited Transaction" has the meaning set forth in ERISA '406 and
Code '4975.
"Purchase Price" has the meaning set forth in '2(b) below.
"Reportable Event" has the meaning set forth in ERISA '4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code '59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in '8(d) below.
"Year 2000 Compliant" means, with respect to Information Technology,
the Information Technology is fully functional and compatible with use during
and after the calendar year 2000 A.D., and the Information Technology used
during each such time period will accurately receive, provide and process
date/time data, (including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries, including the
years 1999 and 2000, and leap year calculations and will not malfunction, cease
to function, or provide invalid or incorrect results as a result of date/time
data.
2. Purchase and Sale of Company Shares.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell to the Buyer, all of Seller's Company Shares for the
consideration specified below in this '2.
(b) Purchase Price. The Buyer agrees to pay to the Seller a purchase
price of up to, but not exceeding, Five Million One Hundred Thousand Dollars
($5,100,000) (the "Purchase Price"), subject to the reductions described below
in this '2(b). The Purchase Price will be paid in the following manner:
(i) Payment at Closing. At Closing, the Buyer will pay to
Seller Five Thousand Dollars in cash by bank check.
(ii) Payment by January 6, 1998. On January 6, 1998, the Buyer
will pay to Seller: (A) One Million Three Hundred Forty Five Thousand
Dollars ($1,345,000) in cash payable by wire transfer or other
immediately available funds; (B) an estimated amount in cash equal to
the difference between the current assets of cash and accounts
receivables less current liabilities ("Estimated Net Asset Amount"),
which amount will not exceed Five Hundred Thousand Dollars ($500,000),
and (C) a convertible debenture in the form attached hereto as Exhibit
A ("Debenture") in the aggregate principal amount of One Million Three
Hundred Fifty Thousand Dollars ($1,350,000). The cash portion of the
foregoing payment (the "Initial Payment") shall be subject to the
hold-back provisions of '2(d) and the adjustment provisions of '2(e)
(iii) Earn-Out Payment. Within sixty (60) days following
receipt of acceptable financial statements for the fiscal year ended
December 31, 1999, the Buyer will pay to the Seller an additional
amount of cash and Debentures in an amount to be calculated in
accordance with the formula and example described in Exhibit B (the
"Earn-Out Payment"). The Earn-Out Payment shall not exceed (A) Nine
Hundred Fifty Thousand Dollars ($950,000) in cash, and (B) a Debenture
in the aggregate principal amount of Nine Hundred Fifty Thousand
Dollars ($950,000). As provided in Exhibit B, in the event that the
1999 Actual Pretax Income of the Company (as defined in Exhibit B)
equals or exceeds $1,176,500, Seller shall receive one hundred percent
of foregoing maximum the Earn-Out Payment.
<PAGE>
(c) Terms of Debentures. In addition to the terms and conditions
contained in the form of Debenture in Exhibit A, each Debenture may be converted
by its holder, in whole or in part, into the common stock of the Buyer ("Buyer
Shares") at a rate of Eleven Dollars ($11.00) per share at any time after one
(1) year and before three (3) years, measured from the date of issuance.
(d) The Hold-Back. The Buyer will hold and not deliver at Closing Two
Hundred Seventy Seven Thousand Five Hundred Dollars ($277,500) of the cash
portion of the Purchase Price (the "Hold-Back"). The Parties agree that
two-thirds of the Hold-Back ($185,000) shall be held by the Buyer and paid to
the Seller on a deferred basis promptly following the post-Closing completion of
the audit requirements of the Buyer, less amounts applied by the Buyer to cover
unknown audit contingencies which occur following the Closing Date. The Parties
agree that the remaining one-third of the Hold-Back ($92,500) shall be held by
the Buyer and paid to the Seller on a deferred basis one hundred eighty (180)
days after Closing, less amounts applied by the Buyer to cover unknown
contingencies that occur following Closing, including amounts due to Buyer under
'8(b). Buyer shall also pay to Seller the interest actually earned by Buyer on
Hold-Back amounts paid to Seller during the time such amounts are held by Buyer.
(e) Purchase Price Adjustment. Within thirty (30) days following
Closing, the Company shall produce a definitive balance sheet as of the Closing
Date (the "Closing Balance Sheet") and accounting for the Company's current
assets of cash and accounts receivables less current liabilities (the "Final Net
Asset Amount"). The Final Net Asset Amount shall not exceed Five Hundred
Thousand Dollars ($500,000). Upon notice from the Buyer that the Buyer, in its
discretion, accepts such accounting, the Purchase Price shall be increased by
the amount, if any, by which the Final Net Asset Amount exceeds the Estimated
Net Asset Amount, or conversely, the Purchase Price shall be decreased by the
amount, if any, by which the Final Net Asset Amount is less than the Estimated
Net Asset Amount. The Buyer shall pay to the Seller any such increase in the
Purchase Price and the Seller shall repay to the Buyer any such decrease in the
Purchase Price within ten (10) days following the notice of acceptance of the
Buyer.
(f) Partial Assignment of Debentures. The Parties acknowledge that
Seller has agreed to compensate Harry Parmar as a finder for the Company and
Seller with regard to this transaction. As compensation in full for the services
of Mr. Parmar, Seller is making, upon Closing and at the time of the Earn-Out
Payment, a partial assignment of the Debentures as follows: (i) an assignment of
Seller's rights and interests under the Initial Payment Debenture in the amount
of eight percent (8%) of the total Initial Payment debenture value ($216,000)
and (ii) an assignment of Seller's rights and interests under the
<PAGE>
Earn-Out Payment Debenture in the amount of eight percent (8%) of the total
Earn-Out Payment Debenture value (up to a maximum of $152,000, if any).
(g) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Buyer in Salt Lake
City, Utah, commencing at 9:00 a.m. local time on the second business day
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Buyer and Seller may mutually
determine (the "Closing Date").
(h) Deliveries at the Closing. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in '7(a) below, (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in '7(b) below,
(iii) the Seller will deliver to the Buyer stock certificates representing all
of his Company Shares, endorsed in blank or accompanied by duly executed
assignment documents, and (iv) the Buyer will deliver to the Seller the
consideration specified in '2(b) above.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Seller. The Seller represents
and warrants to the Buyer that the statements contained in this '3(a) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this '3(a)) with
respect to himself, except as set forth in Annex I attached hereto.
(i) Authorization of Transaction. The Seller has full power
and authority to execute and deliver this Agreement and to perform
Seller's obligations hereunder. This Agreement constitutes the valid
and legally binding obligation of the Seller, enforceable in accordance
with its terms and conditions. The Seller need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Seller is subject.
(iii) Brokers' Fees. Except at provided in Section 2(f), the
Seller has no Liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the Buyer could become liable
or obligated.
(iv) Absence of Indebtedness and Claims. Except as set forth
on Annex I, Seller is not indebted to Company, and the Company is not
indebted to Seller and the Seller has no claims against the Company.
(v) Company Shares. The Seller holds of record and owns
beneficially all of the Company Shares, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities,
claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the
Seller to sell, transfer, or otherwise dispose of any capital stock of
the Company (other than this Agreement). The Seller is not a party to
any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of the Company.
(vi) Investment. The Seller (A) understands that the
Debentures and Buyer Shares have not been, and will not be, registered
under the Securities Act, or under any state securities laws, and are
being offered and sold in reliance upon federal and state exemptions
for transactions not involving any public offering, (B) is acquiring
the Debentures solely for Seller's own account for investment purposes,
and not with a view to the distribution thereof, (C) has received
copies of all of Buyer's filings with the SEC during 1998 and has had
the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Debentures
and/or Buyer Shares, (D) is able to bear the economic risk and lack of
liquidity inherent in holding the Debentures and/or Buyer Shares, (E)
understands that Buyer has not agreed to, and has no obligation to,
file a registration statement to permit sale of the Debentures or Buyer
Shares received under or in connection with this Agreement, and (F)
represents that Seller is an Accredited Investor.
(vii) Restrictions on Shares. The Seller understands that the
Debentures and Buyer Shares may not be transferred or resold without
(A) registration under the Securities Act or any applicable state
securities law, or (B) an exemption from the registration requirements
of the Securities Act and applicable state securities laws. Seller
understands that the certificates evidencing the Debentures and Buyer
Shares may bear the following (or similar) legend and any other legend
required by applicable state law:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED WITHIN IN THE
UNITED STATES UNLESS THE SAME ARE REGISTERED UNDER THE SECURITIES ACT
OF 1933, OR THE COMPANY RECEIVES AN OPINION FROM COUNSEL SATISFACTORY
TO IT THAT SUCH REGISTRATION IS NOT REQUIRED.
(b) Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Seller that the statements contained in this '3(b) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this '3(b)),
except as set forth in Annex II attached hereto.
(i) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Buyer has full power
and authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of
the Buyer, enforceable in accordance with its terms and conditions. The
Buyer need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Buyer is subject or any provision of its charter or bylaws
or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer is a party or by which it is bound or to
which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
Seller could become liable or obligated.
(v) Validity of Buyer Shares. The Buyer Shares, when issued
and delivered by the Company in accordance with the terms of this
Agreement and the terms of the Debentures, shall be duly and validly
issued, fully paid, and non-assessable and will be free of any liens or
encumbrances.
(vi) Financial Statements. Buyer has provided to Seller: (1)
the Company's Form 10-K for the fiscal year ended December 31, 1997;
and (2) the Company's Form 10-Q for the fiscal quarters ended March 31,
1998, June 30, 1998 and September 30, 1998. The foregoing financial
statements are true, correct, and complete in all material respects,
and has been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the
periods involved, and fairly present the financial condition of the
Company as of the dates set forth in such financial statements and the
results of operations of the Buyer for the period covered thereby.
(vii) Investment. The Buyer is not acquiring the Company
Shares with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act.
(viii) Disclosure. The representations and warranties
contained in this '3(b) do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements and information contained in this '3(b) not
misleading.
4. Representations and Warranties Concerning the Company. The Seller represents
and warrants to the Buyer that the statements contained in this '4 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this '4), except as set
forth in the disclosure schedule delivered by the Seller to the Buyer on the
date hereof and initialed by the Parties (the "Disclosure Schedule"). Nothing in
the Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein, however, unless the Disclosure Schedule
identifies the exception with particularity and describes the relevant facts in
reasonable detail. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this '4.
(a) Organization, Qualification, and Corporate Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not have a material adverse effect on the business,
financial condition, operations or future prospects of the Company. The Company
has full corporate power and authority and all licenses, permits, and
authorizations necessary to carry on the businesses in which it is engaged and
in which it presently proposes to engage and to own and use the properties owned
and used by it. '4(a) of the Disclosure Schedule lists the directors and
officers of the Company. The Seller has delivered to the Buyer correct and
complete copies of the charter and bylaws of the Company (as amended to date).
The minute books (containing the records of meetings of the stockholders, the
board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of the Company are correct and
complete. The Company is not in default under or in violation of any provision
of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the Company
consists of 6,400,000 Company Shares, of which 285,000 Company Shares are issued
and outstanding. All of the issued and outstanding Company Shares have been duly
authorized, are validly issued, fully paid, and nonassessable, and are held of
record by the Seller. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Company to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of the Company.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of the charter or bylaws of the Company or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Securities Interest would not have a material adverse effect on the
business, financial condition, operations of future prospects of the Company or
the Parties' ability to consummate the transactions contemplated by this
Agreement. The Company does not need to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement except where the failure to take such actions
would not have a material adverse effect on the business, financial condition
except where the lack of such qualification would not have a material adverse
effect on the business, financial condition, operations of future prospects of
the Company or the Parties' ability to consummate the transactions contemplated
by this Agreement.
(d) Brokers' Fees. Except as provided in Section 2(f), the Company has
no Liability or obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement for
which the Company or the Buyer could become liable or obligated.
(e) Title to Assets. The Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of the
Most Recent Balance Sheet.
(f) Financial Statements. Attached hereto as Exhibit C are the balance
sheets and statements of income, changes in stockholders' equity, and cash flow
as of and for the fiscal years ended June 30, 1997 and 1998 (the "Most Recent
Fiscal Year End") for the Company (collectively the "Financial Statements"). The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of the Company as of
such dates and the results of operations of the Company for such periods, are
correct and complete, and are consistent with the books and records of the
Company (which books and records are correct and complete).
(g) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Company.
Without limiting the generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred, or assigned
any of its material assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) the Company has not entered into any material agreement,
contract, lease, or license outside the Ordinary Course of Business;
(iii) no party (including the Company) has accelerated,
terminated, modified, or cancelled any material agreement, contract,
lease, or license to which the Company is a party or by which it is
bound;
(iv) the Company has not made any material capital expenditure
outside the Ordinary Course of Business;
(v) the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other
Person;
(vi) the Company has not created, incurred, assumed, or
guaranteed more that $10,000 in the aggregate any indebtedness for
borrowed money and capitalized lease obligation;
(vii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of
Business;
(viii) the Company has not cancelled, compromised, waived, or
released any right or claim (or series of related rights and claims)
either involving more than $10,000 or outside the Ordinary Course of
Business;
(ix) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(x) the Company has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to its property;
(xi) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xii) the Company has not granted any increase in the
compensation of any of its directors, officers, and employees outside
the Ordinary Course of Business;
(xiii) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xiv) the Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business; and
(xv) the Company has not committed to any of the foregoing.
(h) Undisclosed Liabilities. The Company has no Liability (and there is
no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against it giving rise to any
Liability), except for (i) Liabilities set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (ii) Liabilities which have
arisen after the Most Recent Fiscal Year End in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(i) Legal Compliance. The Company and each of its respective
predecessors and Affiliates has complied with all applicable laws (including
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply, except
where the failure to comply would not have a material adverse effect on the
business, financial condition, operations, or future prospects of the Company.
(j) Tax Matters.
(i) The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by the Company (whether or not shown on any
Tax Return) have been paid. The Company currently is not the
beneficiary of any extension of time within which to file any Tax
Return. There is no material dispute or claim concerning any Tax Return
either (A) claimed or raised by any authority in writing or (b) as to
which the Seller or the directors and officers of the Company has
Knowledge.
(ii) The Company 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, stockholder, or other
third party.
(iii) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(iv) The Company has not filed a consent under Code '341(f)
concerning collapsible corporations. The Company has not made any
material payments, is not obligated to make any material payments, nor
is it a party to any agreement that under certain circumstances could
obligate it to make any material payments that will not be deductible
under Code '280G. The Company has not been a United States real
property holding corporation within the meaning of Code '897(c)(2)
during the applicable period specified in Code '897(c)(1)(A)(ii). The
Company is not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an affiliated group (within the
meaning of Code '1504(a)) filing a consolidated federal income Tax
Return and (B) has no Liability for the Taxes of any Person (other than
the Company) under Reg. '1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(v) The unpaid Taxes of the Company (A) did not, as of the
Most Recent Fiscal Year End, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto) and
(B) do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and
practice of the Company in filing its Tax Returns.
(k) Intellectual Property.
(i) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Company as
presently conducted and as presently proposed to be conducted. Each
item of Intellectual Property owned or used by the Company immediately
prior to the Closing hereunder will be owned or available for use by
the Company on identical terms and conditions immediately subsequent to
the Closing hereunder. To the Knowledge of any of the Seller and the
directors and officers of the Company (and employees with
responsibility for Intellectual Property matters), the Company has
taken all necessary action to maintain and protect each item of
Intellectual Property that it owns or uses.
(ii) To the Knowledge of any of the Seller and the directors
and officers of the Company (and employees with responsibility for
Intellectual Property matters), the Company has not interfered with,
infringed upon, misappropriated, or otherwise violated any material
Intellectual Property rights of third parties, and no such person has
ever received any charge, complaint, claim, demand, or notice alleging
any such interference, infringement, misappropriation, or violation
(including any claim that the Company must license or refrain from
using any Intellectual Property rights of any third party). To the
Knowledge of any of the Seller and the directors and officers of the
Company (and employees with responsibility for Intellectual Property
matters), no third party has interfered with, infringed upon,
misappropriated, or otherwise violated any material Intellectual
Property rights of the Company.
(iii) '4(k)(iii) of the Disclosure Schedule identifies each
patent or registration which has been issued to the Company with
respect to any of its Intellectual Property, identifies each pending
patent application or application for registration which the Company
has made with respect to any of its Intellectual Property, and
identifies each material license, agreement, or other permission which
the Company has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). The Seller has
delivered to the Buyer correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as
amended to date). '4(k)(iii) of the Disclosure Schedule also identifies
each material trade name or unregistered trademark used by the Company
in connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in '4(k)(iii) of the
Disclosure Schedule:
(A) the Company possess all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or, to the Knowledge of any of the Seller and the directors
and officers (and employees with responsibility for
Intellectual Property matters) of the Company, is threatened
which challenges the legality, validity, enforceability, use,
or ownership of the item; and
(D) The Company has not ever agreed to indemnify any
Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) '4(k)(iv) of the Disclosure Schedule identifies each item
of Intellectual Property that any third party owns and that the Company
uses pursuant to license, sublicense, agreement, or permission. The
Seller has delivered to the Buyer correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Intellectual Property required to
be identified in '4(k)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and
in full force and effect in all material respects;
(B) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(C) no party to the license, sublicense, agreement,
or permission is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or
acceleration thereunder;
(D) no party to the license, sublicense, agreement,
or permission has repudiated any material provision thereof;
(E) with respect to each sublicense, to the Knowledge
of any of the Seller and the directors and officers (and
employees with responsibility for Intellectual Property
matters) of the Company the representations and warranties set
forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or, to the Knowledge of any of the Seller and the directors
and officers (and employees with responsibility for
Intellectual Property matters) of the Company, is threatened
which challenges the legality, validity, or enforceability of
the underlying item of Intellectual Property; and
(H) The Company has not granted any sublicense or
similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of any of the Seller and the directors
and officers (and employees with responsibility for Intellectual
Property matters) of the Company, the Company will not interfere with,
infringe upon, misappropriate, or otherwise come into conflict with,
any Intellectual Property rights of third parties as a result of the
continued operation of its businesses as presently conducted and as
presently proposed to be conducted.
(vi) Neither the Seller nor the directors and officers (and
employees with responsibility for Intellectual Property matters) of the
Company has any Knowledge of any new products, inventions, procedures,
or methods of manufacturing or processing that any competitors or other
third parties have developed which reasonably could be expected to
supersede or make obsolete any product or process of the Company.
(l) Tangible Assets. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
businesses as presently conducted and as presently proposed to be conducted.
Each such tangible asset is free from material defects (patent and latent), has
been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used and presently is
proposed to be used.
(m) Inventory. The inventory of the Company consists of raw materials
and supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory writedown set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company.
(n) Contracts. '4(n) of the Disclosure Schedule is a true, correct and
complete list of all the material contracts of the Company (including insurance
policies to which the Company has been a party, a named insured, or the
beneficiary at any time within the past five years), and all amendments and
modifications thereto, and there are no oral or other amendment or modifications
thereto. The Seller has delivered to the Buyer a correct and complete copy of
each written agreement listed in '4(n) of the Disclosure Schedule (as amended to
date) and a written summary setting forth the terms and conditions of each oral
agreement referred to in '4(n) of the Disclosure Schedule. With respect to each
such agreement: (A) the agreement is legal, valid, binding, enforceable, and in
full force and effect; (B) the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; and (C) to the
Knowledge of any of the Seller and the officers and directors of the Company no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement and no party has repudiated
any provision of the agreement.
(o) Notes and Accounts Receivable. All notes and accounts receivable of
the Company are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
(p) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
(q) Insurance. the Company has been covered during the past 10 years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. '4(q) of the Disclosure
Schedule describes any self-insurance arrangements affecting the Company.
(r) Litigation. '4(r) of the Disclosure Schedule sets forth each
instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to the
Knowledge of any of the Seller and the directors and officers of the Company, is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in '4(r) of the Disclosure Schedule could result in any
material adverse change in the business, financial condition, operations,
results of operations, or future prospects of the Company. Neither the Seller
nor the directors and officers of the Company has any reason to believe that any
such action, suit, proceeding, hearing, or investigation may be brought or
threatened against the Company.
(s) Product Warranty. Each product manufactured, sold, leased, or
delivered by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
material Liability (and there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against it giving rise to any Liability) for replacement or repair thereof or
other damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company. No
product manufactured, sold, leased, or delivered by the Company is subject to
any guaranty, warranty, or other indemnity beyond the applicable standard terms
and conditions of sale or lease. '4(s) of the Disclosure Schedule includes
copies of the standard terms and conditions of sale or lease for the Company
(containing applicable guaranty, warranty, and indemnity provisions).
(t) Product Liability. The Company has no Liability (and there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against it giving rise to any
Liability) arising out of any injury to individuals or property as a result of
the ownership, possession, or use of any product manufactured, sold, leased, or
delivered by the Company.
(u) Employees. To the Knowledge of any of the Seller and the directors
and officers of the Company, no executive, key employee, or group of employees
has any plans to terminate employment with the Company. The Company is not a
party to or bound by any collective bargaining agreement, nor has it experienced
any strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. The Company has not committed any unfair labor practice.
Neither the Seller nor the directors and officers of the Company has any
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of the Company.
(v) Employee Benefits.
(i) '4(v) of the Disclosure Schedule lists each Employee
Benefit Plan that the Company maintains or to which the Company
contributes or has any obligation to contribute.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements of
ERISA, the Code, and other applicable laws.
(B) All required reports and descriptions have been
timely filed and distributed appropriately with respect to
each such Employee Benefit Plan. The requirements of COBRA
have been met with respect to each such Employee Benefit Plan
which is subject to COBRA.
(C) All premiums and contributions (including all
employer contributions and employee salary reduction
contributions) which are due have been paid to each such
Employee Benefit Plan and all premiums and contributions for
any period ending on or before the Closing Date which are not
yet due have been paid to each such Employee Benefit Plan or
accrued in accordance with the past custom and practice of the
Company.
(D) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan meets the requirements of a
"qualified plan" under Code '401(a), has received, within the
last four years, a favorable determination letter from the
Internal Revenue Service that it is a "qualified plan," and
Seller is not aware of any facts or circumstances that could
result in the revocation of such determination letter.
(E) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multiemployer Plan) equals or exceeds the
present value of all vested and nonvested Liabilities
thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination.
(F) The Seller has delivered to the Buyer correct and
complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received
from the Internal Revenue Service, the most recent Form 5500
Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each
such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the
Company and any ERISA Affiliate maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has been
required to contribute:
(A) No such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer
Plan) has been completely or partially terminated or been the
subject of a Reportable Event as to which notices would be
required to be filed with the PBGC. No proceeding by the PBGC
to terminate any such Employee Pension Benefit Plan (other
than any Multiemployer Plan) has been instituted or, to the
Knowledge of the Seller and the directors and officers of the
Company, threatened.
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration
or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims
for benefits) is pending or, to the Knowledge of the Seller
and the directors and officers of the Company, threatened.
Neither the Seller nor the directors and officers of the
Company has any Knowledge of any Basis for any such action,
suit, proceeding, hearing, or investigation.
(C) The Company has not incurred, and neither the
Seller nor the directors and officers of the Company has any
reason to expect that the Company will incur any Liability to
the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal liability as
defined in ERISA '4201) or under the Code with respect to any
such Employee Benefit Plan which is an Employee Pension
Benefit Plan.
(iii) The Company does not contribute to, never has
contributed to, and never has been required to contribute to any
Multiemployer Plan or has any Liability (including withdrawal liability
as defined in ERISA '4201) under any Multiemployer Plan.
(iv) The Company does not maintain and never has maintained or
contributed, and never has been required to contribute, to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current retirees, future retirees or
terminated employees, their spouses, or their dependents (other than in
accordance with COBRA).
(w) Guaranties. The Company is not a guarantor or otherwise is liable
for any Liability or obligation (including indebtedness) of any other Person.
(x) Environmental, Health, and Safety Matters.
(i) Each of the Company and its predecessors has complied and
is in compliance with all Environmental, Health, and Safety
Requirements.
(ii) Without limiting the generality of the foregoing, the
Company has obtained and complied with, and is in compliance with, all
permits, licenses and other authorizations that are required pursuant
to Environmental, Health, and Safety Requirements for the occupation of
its facilities and the operation of its business; a list of all such
permits, licenses and other authorizations is set forth on the attached
"Environmental and Safety Permits Schedule."
(iii) Neither the Company nor its predecessors has received
any written or oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including
any investigatory, remedial or corrective obligations, relating to any
of them or its facilities arising under Environmental, Health, and
Safety Requirements.
(iv) None of the following exists at any property or facility
owned or operated by the Company: (1) underground storage tanks, (2)
asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills,
surface impoundments, or disposal areas.
(v) Neither the Company nor its predecessors has treated,
stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property
or facility (and no such property or facility is contaminated by any
such substance) in a manner that has given or would give rise to
liabilities, including any liability for response costs, corrective
action costs, personal injury, property damage, natural resources
damages or attorney fees, pursuant to any Environmental, Health, and
Safety Requirements.
(vi) To the Knowledge of any of the Seller and the officers
and directors of the Company, no facts, events or conditions relating
to the past or present facilities, properties or operations of the
Company or any of its predecessors will give rise to any investigatory,
remedial or corrective obligations pursuant to Environmental, Health,
and Safety Requirements, or give rise to any other liabilities
including without limitation any relating to onsite or offsite releases
or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
(y) Certain Business Relationships with the Company. Other than in his
capacity as an shareholder, officer, and director, the Seller has not been
involved in any material business arrangement or relationship with the Company
within the past 12 months, and does not own any material asset, tangible or
intangible, which is used in the business of the Company.
(z) Year 2000 Items. All Information Technology that is relied upon by
the Company in its internal operations or is included as part of the products
produced by the Company, currently and during the past two years, is Year 2000
Compliant. Additionally, to the Knowledge of the Seller, the Company has
received no notice of any material vendor or customer of the Company indicating
that such vendor or customer may be unable to continue to conduct business in
the ordinary course due to difficulties with its own business being Year 2000
Compliant.
(aa) Disclosure. The representations and warranties contained in this
'4 do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this '4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
'7 below).
(b) Notices and Consents. The Seller will cause the Company to give any
notices to third parties, and will cause the Company to use its best efforts to
obtain any third party consents, that the Buyer may request in connection with
the matters referred to in '4(c) above. Each of the Parties will (and the Seller
will cause the Company to) give any notices to, make any filings with, and use
its best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters referred to
in '3(a)(ii), '3(b)(ii), and '4(c) above.
(c) Operation of Business. The Seller will not cause or permit the
Company to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Seller will not cause or permit the Company to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock, (ii) materially increase or modify the compensation or
benefits to any of its employees; (iii) issue any equity securities or rights to
acquire such securities; (iv) dispose of any assets, except in the Ordinary
Course of Business; (v) take any other action or fail to take any action that
would result in a material change in the value of the Company's business as of
the date of this Agreement; or (vi) otherwise engage in any practice, take any
action, or enter into any transaction of the sort described in '4(g) above.
(d) Preservation of Business. The Seller will cause the Company to keep
its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
(e) Full Access. The Seller will permit, and the Seller will cause the
Company to permit, representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Company.
(f) Notice of Developments. The Seller will give prompt written notice
to the Buyer of any material adverse development causing a breach of any of the
representations and warranties in '4 above. Each Party will give prompt written
notice to the others of any material adverse development causing a breach of any
of his or its own representations and warranties in '3 above. No disclosure by
any Party pursuant to this '5(f), however, shall be deemed to amend or
supplement Annex I, Annex II, or the Disclosure Schedule or to prevent or cure
any misrepresentation, breach of warranty, or breach of covenant.
(g) Exclusivity. The Seller will not (and will not cause or permit the
Company to) (i) solicit, initiate, or encourage the submission of any proposal
or offer from any Person relating to the acquisition of any capital stock or
other voting securities, or any substantial portion of the assets, of the
Company (including any acquisition structured as a merger, consolidation, or
share exchange) or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. The Seller will not vote his Company Shares in favor of
any such acquisition structured as a merger, consolidation, or share exchange.
The Seller will notify the Buyer immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
6. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(a) General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under '8 below). The
Seller acknowledges and agrees that from and after the Closing the Buyer will be
entitled to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company.
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under '8
below).
(c) Transition. The Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing. The Seller will refer all customer inquiries
relating to the businesses of the Company to the Buyer from and after the
Closing.
(d) Confidentiality.
(i) Confidential Information of the Buyer. The Seller
acknowledges that in the course of performing this Agreement, Buyer may
provide to the Seller or the Company confidential and proprietary
information about its business which is not generally available to the
public ("Buyer Confidential Information"), the disclosure of which to
third parties without the express authorization of the Buyer would
result in economic losses to the Buyer. Accordingly, regardless of the
means of communication of the Buyer Confidential Information, the
Seller agrees to (and cause the Company to agree to) hold the Buyer
Confidential Information in strict confidence and, without the prior
written permission from the Buyer, not to disclose the Buyer
Confidential Information to any third parties, or use it for any
commercial purposes except in performance of this Agreement.
(ii) Confidential Information of the Company. The Seller will
treat and hold as such all of the confidential information of the
Company ("Company Confidential Information"), and refrain from using
any of Company Confidential Information except in connection with this
Agreement or in the course of his continued employment with the
Company.
(iii) General. The Seller shall promptly notify the Buyer of
any breach of the foregoing obligations of confidentiality. In the
event that the Seller or the Company is requested or required (by oral
question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, the Seller
will (or will cause the Company to) notify the Buyer promptly of the
request or requirement so that the Buyer may seek an appropriate
protective order or waive compliance with the provisions of this '6(d).
If, in the absence of a protective order or the receipt of a waiver
hereunder, the Seller or Company is, on the advice of counsel,
compelled to disclose any Confidential Information to any tribunal or
else stand liable for contempt, the Seller (or Company) may disclose
the Confidential Information to the tribunal; provided, however, that
the Seller shall use (and shall cause the Company to use) reasonable
efforts to obtain, at the request of the Buyer, an order or other
assurance that confidential treatment will be accorded to such portion
of the Confidential Information required to be disclosed as the Buyer
shall designate. The foregoing provisions shall not apply to any
Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
(e) Covenant Not to Compete. For a period of three years from and after
the Closing Date, the Seller will not engage directly or indirectly in any
business that the Company conducts as of the Closing Date in any geographic area
in which the Company now or hereafter conducts that business; provided, however,
that no owner of less than 1% of the outstanding stock of any publicly-traded
corporation shall be deemed to engage solely by reason thereof in any of its
businesses. If the final judgment of a court of competent jurisdiction declares
that any term or provision of this '6(e) is invalid or unenforceable, the
Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area of
the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in '3(a) and
'4 above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) the Seller shall have performed and complied with all of
his covenants hereunder in all material respects through the Closing;
(iii) the Company shall have procured all of the third party
consents specified in '5(b) above;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Buyer to own the
Company Shares and to control the Company, or (D) affect adversely the
right of the Company to own its assets and to operate its businesses
(and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(v) the Seller shall have delivered to the Buyer a certificate
to the effect that each of the conditions specified above in
'7(a)(i)-(iv) is satisfied in all respects;
(vi) Buyer and Seller shall enter into an employment agreement
in a form mutually agreeable to Buyer and Seller and the same shall be
in full force and effect;
(vii) Buyer and Seller shall enter into a mutually agreeable
form of Pledge Agreement to secure the Debentures and the same shall be
in full force and effect;
(viii) the Buyer shall have received the resignations,
effective as of the Closing, of each director and officer of the
Company other than those whom the Buyer shall have specified in writing
at least five business days prior to the Closing;
(ix) no material adverse change in the financial condition or
results of operation of the Company, or in the condition or value of
its material assets, taken as a whole, shall have occurred between the
date of this Agreement and the Closing Date;
(x) Buyer shall be satisfied with its continuing business,
legal, environmental, and accounting due diligence investigation of the
Company in all respects; and
(xi) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this '7(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the
Seller to consummate the transactions to be performed by him in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in '3(b)
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a
certificate to the effect that each of the conditions specified above
in '7(b)(i)-(iii) is satisfied in all respects;
(v) Buyer and Seller shall enter into employment agreements in
form and substance as set forth in Exhibit D attached hereto and the
same shall be in full force and effect;
(vi) Buyer and Seller shall enter into a mutually agreeable
form of Pledge Agreement to secure the Debentures and the same shall be
in full force and effect; and
(vii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Seller.
The Seller may waive any condition specified in this '7(b) if he executes a
writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. Except for '3(a)(v) and
'4(b), (j) and (x), all of the representations and warranties of Seller and the
Company contained in this Agreement shall survive the Closing (even if Buyer had
reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for a period of four (4) years
thereafter. The representations and warranties in '3(a)(v) and '4(b), (j) and
(x) shall survive Closing (even if Buyer had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect thereafter subject only to applicable statutes of
limitation.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches (or in the event any
third party alleges facts that, if true, would mean the Seller has
breached) any of his representations, warranties, and covenants
contained herein (other than the covenants in '2(a) above and the
representations and warranties in '3(a) above), then the Seller agrees
to indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the
claim for indemnification resulting from, arising out of, relating to,
in the nature of, or caused by the breach (or the alleged breach).
(ii) In the event the Seller breaches (or in the event any
third party alleges facts that, if true, would mean the Seller has
breached) any of his covenants in '2(a) above or any of his
representations and warranties in '3(a) above, then the Seller agrees
to indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Buyer
may suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach).
(iii) The Seller agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by any Liability of the Company (x) for any Taxes of the Company
with respect to any Tax year or portion thereof ending on or before the
Closing Date (or for any Tax year beginning before and ending after the
Closing Date to the extent allocable (determined in a manner consistent
with '9(c)) to the portion of such period beginning before and ending
on the Closing Date), to the extent such Taxes are not reflected in the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
shown on the face of the Closing Balance Sheet, and (y) for the unpaid
Taxes of any Person (other than the Company) under Reg. '1.1502-6 (or
any similar provision of state, local, or foreign law), as a transferee
or successor, by contract, or otherwise.
(c) Indemnification Provisions for Benefit of the Seller. In the event
the Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, then the Buyer agrees to indemnify the Seller from
and against the entirety of any Adverse Consequences the Seller may suffer
through and after the date of the claim for indemnification resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or the
alleged breach).
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this '8, then the Indemnified
Party shall promptly notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A)
the Indemnifying Party notifies the Indemnified Party in writing within
20 days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party
from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (B) the
Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third
Party Claim and fulfill its indemnification obligations hereunder, (C)
the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing
business interests of the Indemnified Party, and (E) the Indemnifying
Party conducts the defense of the Third Party Claim actively and
diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with '8(d)(ii) above,
(A) the Indemnified Party may retain separate co-counsel at its sole
cost and expense and participate in the defense of the Third Party
Claim, (B) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnifying Party (not
to be withheld unreasonably), and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of
the Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in '8(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this '8.
(e) Determination of Adverse Consequences. All indemnification payments
under this '8 shall be deemed adjustments to the Purchase Price.
(f) Recoupment Under the Hold-Back and Debentures. The Buyer shall have
the option of recouping all or any part of any Adverse Consequences it may
suffer (in addition to seeking any indemnification to which it is entitled under
this '8) by notifying Seller that the Buyer is reducing the Hold-Back and/or the
principal amount outstanding under the Debentures; provided, however that Seller
shall have the option of making a cash payment of the recoupment amount in lieu
any reduction in the Debentures, if such cash payment is made in fully to Buyer
within thirty (30) days of notice of such recoupment from Buyer. Recoupment by
reduction of the principal amount of the debenture shall affect the timing and
amount of payments required under the Debentures in the same manner as if the
Buyer had made a permitted prepayment (without premium or penalty) thereunder.
(g) Limitation On Amount. In no event shall Seller be liable to Buyer
for amounts owed under Seller's indemnification obligation under this Section 8
in excess of the Purchase Price.
(h) Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy (including without limitation any such remedy
arising under Environmental, Health, and Safety Requirements) any Party may have
with respect to the Company or the transactions contemplated by this Agreement.
The Seller hereby agrees that he will not make any claim for indemnification
against the Company by reason of the fact that Seller was a director, officer,
employee, or agent of any such entity or was serving at the request of any such
entity as a partner, trustee, director, officer, employee, or agent of another
entity (whether such claim is for judgments, damages, penalties, fines, costs,
amounts paid in settlement, losses, expenses, or otherwise and whether such
claim is pursuant to any statute, charter document, bylaw, agreement, or
otherwise) with respect to any action, suit, proceeding, complaint, claim, or
demand brought by the Buyer against such Seller (whether such action, suit,
proceeding, complaint, claim, or demand is pursuant to this Agreement,
applicable law, or otherwise).
9. Tax Matters. The following provisions shall govern the allocation of
responsibility as between Buyer and Seller for certain tax matters following the
Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. Buyer shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Company for all periods ending on or prior to the Closing Date which are
filed after the Closing Date. Buyer shall permit Seller to review and comment on
each such Tax Return described in the preceding sentence prior to filing. Seller
shall reimburse Buyer for Taxes of the Company with respect to such periods
within fifteen (15) days after payment by Buyer or the Company of such Taxes
(whether in connection with the filing of such Tax Return or as the result of an
audit) to the extent such Taxes are not reflected in the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) shown on the face of the Closing
Balance Sheet.
(b) Tax Periods Beginning Before and Ending After the Closing Date.
Buyer shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of the Company for Tax periods which begin before the Closing Date
and end after the Closing Date. Seller shall pay to Buyer within fifteen (15)
days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of such
Taxable period ending on the Closing Date to the extent such Taxes are not
reflected in the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
shown on the face of the Closing Balance Sheet. For purposes of this Section, in
the case of any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the Closing Date, the portion
of such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall (x) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax for the
entire Taxable period multiplied by a fraction the numerator of which is the
number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period, and (y)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company.
(c) Cooperation on Tax Matters. The Buyer, the Company and the Seller
shall cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns pursuant to this Section and
any audit, litigation or other proceeding with respect to Taxes. The Company and
the Seller agree to retain all books and records with respect to Tax matters
pertinent to the Company relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or Seller, any extensions thereof) of the respective
taxable periods.
(d) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by Seller
when due, and Seller will, at his own expense, file all necessary Tax Returns
and other documentation with respect to all such transfer, documentary, sales,
use, stamp, registration and other Taxes and fees, and, if required by
applicable law, Buyer will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation.
10. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing (A) in the event
the Seller has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Buyer
has notified the Seller of the breach, and the breach has continued
without cure for a period of 15 days after the notice of breach or (B)
if the Closing shall not have occurred on or before December 31, 1998,
by reason of the failure of any condition precedent under '7(a) hereof
(unless the failure results primarily from the Buyer itself breaching
any representation, warranty, or covenant contained in this Agreement);
and
(iii) the Seller may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A) in the
event the Buyer has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the
Seller has notified the Buyer of the breach, and the breach has
continued without cure for a period of 15 days after the notice of
breach or (B) if the Closing shall not have occurred on or before
December 31, 1998, by reason of the failure of any condition precedent
under '7(b) hereof (unless the failure results primarily from the
Seller himself breaching any representation, warranty, or covenant
contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to '10(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach).
11. Miscellaneous.
(a) Press Releases and Public Announcements. Neither Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other Party;
provided, however, that either Party may make any public disclosure he or it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other Party
prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof, including that certain Letter of Intent between the Parties, dated
November 4, 1998.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of other Party; provided, however, that the Buyer may (i) assign any or
all of its rights and interests hereunder to one or more of its Affiliates and
(ii) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases the Buyer nonetheless shall remain
responsible for the performance of all of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller:
Aborn Electronics, Inc.
2108 D Bering Drive
San Jose, CA 95131
Atten: Vijay Lumba .........
If to the Buyer: .........Copy to:
- ---------------- --------
ZEVEX International, Inc. .........Jones, Waldo, Holbrook & McDonough
4314 ZEVEX Park Lane .........170 S. Main Street, Suite 1500
Salt Lake City, UT 84123 .........Salt Lake City, UT 84101
Atten: Phillip McStotts .........Atten: Ronald Poelman
A Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. A
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Utah without giving effect to
any choice or conflict of law provision or rule (whether of the State of Utah or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Utah.
(i) Dispute Resolution.
(i) The Parties desire to resolve disputes arising out of this
Agreement without litigation. Accordingly, except for actions to seek temporary
restraining orders or injunctions related to the purposes of this Agreement, a
dispute involving the adjudication of the rights of a third party that does not
agree to arbitration, or a suit to compel compliance with the dispute resolution
provision, the Parties agree to use the following alternative dispute procedure
as their sole remedy with respect to any controversy or claim arising out of or
relating to this Agreement or its breach.
(ii) At the written request of a Party, each Party will
appoint a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any dispute arising under this Agreement. The Parties
intend that these negotiations be conducted by non-lawyer, business
representatives. The location, format, frequency, duration and conclusion of
these discussions shall be left to the discretion of the representatives. Upon
agreement between the Parties, the representatives may utilize other alternative
dispute resolution procedures such as mediation to assist in the negotiations.
Discussions and correspondence among the representatives for the purposes of
these negotiations shall be treated as confidential information developed for
the purposes of settlement, exempt from discovery and production, which shall
not be admissible in the arbitration described below or in any lawsuit without
the concurrence of both Parties. Documents identified in or provided with such
communications, which are not prepared for purposes of the negotiations, are not
so exempted and may, if otherwise admissible, be admitted in evidence in the
arbitration or lawsuit.
(iii) If the negotiations do not resolve the dispute within
thirty (30) days after the initial written request, the disputes shall be
submitted to binding arbitration by a panel of three arbitrators pursuant to the
Commercial Arbitration Rules of the American Arbitration Association in Salt
Lake City, Utah. A Party may demand such arbitration in accordance with
procedures set out in those rules. Each party shall designate, as its appointed
arbitrator, an impartial individual who is experienced in the business of
manufacturing products similar to the products of the Company. Within 20 days of
appointment, the two designated arbitrators shall then designate by mutual
agreement an impartial attorney licensed in the state of the arbitration, which
attorney shall serve as the panel's administrative head. The majority decision
of the panel shall final and conclusive upon both Parties. Discovery shall be
controlled by the arbitrators and shall be permitted to the extent set out in
this paragraph. Each Party may submit in writing to a Party, and that Party
shall respond, to a maximum of any combination of thirty-five (35) (none of
which may have subplots) of the following: interrogatories, demands to produce
documents, and requests for admission. The Parties shall contract with the
arbitrators to commence the arbitration hearing within sixty (60) days of the
demand for arbitration. The arbitrators shall control the scheduling so as to
process the matter expeditiously. The Parties may submit written briefs. The
Parties shall require the arbitrators to rule on the dispute by issuing a
written opinion within thirty (30) days after the close of the hearings. The
times specified in this paragraph may be extended upon a showing of good cause.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction.
(iv) Each Party shall bear its own cost of these procedures. A
Party seeking discovery shall reimburse to the responding Party the costs of
production of documents (to including search time and reproduction costs). The
Parties shall equally split the fees of any mediation, but in any arbitration or
permissible legal proceedings, the prevailing Party shall be entitled to
reasonable attorneys' fees, costs and other disbursements in addition to any
other relief to which such Party may be entitled.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by a Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties and the Company will bear his or its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby. The
Seller agrees that the Company has not borne or will bear any of the Seller's
costs and expenses (including any of his legal fees and expenses) in connection
with this Agreement or any of the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
a Party has breached any representation, warranty, or covenant contained herein
in any respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(o) Specific Performance. Each Party acknowledges and agrees that the
other Party would be damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each Party agrees that the other Party
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the Parties and the matter
(subject to the provisions set forth in '10(p) below), in addition to any other
remedy to which they may be entitled, at law or in equity.
(p) Submission to Jurisdiction. Each Party submits to the jurisdiction
of any state or federal court sitting in Salt Lake County, Utah, in any action
or proceeding arising out of or relating to this Agreement that is allowed under
'10(i) and agrees that all claims in respect of the action or proceeding may be
heard and determined in any such court. Each Party also agrees not to bring any
such action or proceeding arising out of or relating to this Agreement in any
other court. Each Party waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect
thereto. Each Party agrees that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law or at equity.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
ZEVEX INTERNATIONAL, INC.
By:/s/Phillip L. McStotts
Title:Chief Financial Officer
/s/Vijay Lumba
VIJAY LUMBA
<PAGE>
EXHIBIT A
FORM OF CONVERTIBLE DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE LAW AND MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR STATE LAW OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE, OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
CONVERTIBLE DEBENTURE
(Due _________________)
______________, 199___
(the "Issuance Date")
The undersigned, ZEVEX INTERNATIONAL, INC., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to the order of VIJAY
LUMBA (the "Holder") the principal amount
of______________________________________________ ($________________) together
with interest on such principal amount and any other amounts due under this
Debenture.
This Debenture (the "Debenture") is issued pursuant to that certain
Stock Purchase Agreement, dated December 31, 1998, entered into between the
Company and the Holder of this Debenture (the "Agreement"). This Debenture is
also subject to the following additional terms and conditions:
<PAGE>
1. Interest. Commencing on the date of this Debenture and continuing until all
principal and interest due under this Debenture are paid in full, the
outstanding principal balance of this Debenture shall bear interest at the rate
of seven percent (7%) per annum, compounded annually. Interest shall accrue
daily and be calculated on the basis of a three hundred sixty (360) day year and
the actual number of days elapsed in any partial calendar month.
2. Payment. Accrued interest shall be due and payable beginning April 1, 1999
and on each July 1, October 1, January 1, and April 1 thereafter until this
Debenture is paid in full. The unpaid principal balance of this Debenture,
together with any and all accrued but unpaid interest, shall be due and payable
in full three (3) years from the Issuance Date. All payments of principal and
interest shall be made in lawful money of the United States of America at the
address of the holder set forth in Section 7.1 below. Unless the Holder shall
elect otherwise, each payment made under this Debenture shall be applied first
to interest due under this Debenture and any balance shall be applied to reduce
the principal balance of this Debenture.
3. Right of Conversion
3.1 Conversion Into Company Securities. At any time after a date one
(1) year from the Issuance Date until a date three (3) years after the Issuance
Date, and from time to time during such period, the Holder may elect to convert
all or a portion of the unpaid principal amount and all accrued but unpaid
interest of this Debenture into fully paid and nonassessable shares of Company
Common Stock, $0.001 par value (the "Conversion Shares") at the conversion price
of eleven dollars ($11.00) per share (the "Conversion Price"); provided that any
partial conversion of less than the entire remaining principal balance of this
Debenture may not be less than $25,000 in principal and accrued and unpaid
interest.
3.2 Mechanics of Conversion. Upon the Holder's election to convert
pursuant to Section 3.1 above, the Holder shall send written notice of its
election to the Company and shall surrender this Debenture to the Company at its
principal office. The written election shall specify the amount of principal and
accrued and unpaid interest that is to be converted. Each conversion shall be
deemed to have been effected as of the close of the business on the date on
which the notice is delivered to the Company and the outstanding principal
balance and accrued and unpaid interest shall be reduced by the amount converted
as set forth in the notice. Within a reasonable time thereafter, the Company
shall cancel the designated portion of the unpaid principal amount of this
Debenture converted by the Holder and issue and deliver to the Holder a
certificate or certificates (the "Conversion Certificates"), registered in the
name of such Holder, for the number of full shares of the Conversion Shares
issuable at the Conversion Price, bearing such restrictive legends as may be
required by federal and state securities laws. In the event of a Partial
Conversion, the Company shall return with the Conversion Certificates this
Debenture, bearing a proper notation of the principal amount that remains due
and payable after Holder's partial conversion, but otherwise unaltered.
3.3 Effects of Conversion. Upon conversion of the entire amount of
principal and unpaid interest of this Debenture, the rights of the Holder of the
Debenture as such shall cease. The person or persons in whose name or names the
Conversion Certificates are issued shall be deemed to have become the holder or
holders of record of the Conversion Shares represented thereby.
3.4 No Fractional Shares. No fractional share of the Conversion Shares
will be issued in connection with any conversion hereunder. Instead of any
fractional share the Company shall pay a cash adjustment in respect of such
fractional interest as determined by reference to the Conversion Price.
3.5 No Rights as Stockholders. Prior to the conversion of all or any
portion of this Debenture, the Holder shall not be entitled to any right as a
stockholder, including without limitation the right to vote or to receive
dividends or other distribution, and shall not be entitled to receive any notice
of any proceeding of the Company, except as provided herein.
3.6 Taxes on Conversion. Any taxes required upon the issuance of
Conversion Certificates on conversion of this Debenture shall be paid by the
Holder.
3.7 Adjustments. In the event of any Company stock split, stock
combination, merger, consolidation or recapitalization affecting the Common
Stock of the Company prior to repayment or conversion under this Debenture, the
Company shall make appropriate, proportionate adjustments to the Conversion
Shares issued to Holder under Holder's conversion right.
3.8 Notices of Record Date. In the event of (i) any taking by the
Company of a record of the holders of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution or (ii) any reclassification or recapitalization of the capital
stock of the Company, any merger or consolidation of the Company, or any
transfer of all or substantially all of the assets of the Company to any other
corporation, entity, or person, or any voluntary or involuntary dissolution,
liquidation, or a winding-up of the Company, which occurs during the conversion
period, the Company shall mail to the Holder of the Debenture, at least fifteen
(15) days prior to the record date specified therein, a notice specifying (A)
the date on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution, (B)
the date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation, or winding-up is expected to
become effective, and (C) the time, if any is to be set, as to when the holders
of record of such security shall be entitled to exchange their shares for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation, or
winding-up.
4. Events of Default; Acceleration
4.1 Events, Remedy. If any of the following conditions or events
("Events of Default") shall occur:
(a) if the Company shall default in the payment of the
principal or interest on the Debenture when due and such default continues for a
period of 30 days after written notice thereof to the Company from Holder; or
(b) if the Company shall default in the performance of or
compliance with any term or covenant contained in this Debenture, the Agreement,
or the Pledge Agreement and such default shall not have been remedied within 30
days after written notice thereof shall have been given to the Company by Holder
(provided, however, if such default is not cured within such 30-day period and
the Company is diligently pursuing such cure, the Company shall have an
additional period of time not to exceed ninety (90) days in which to cure such
default); or
(c) if the Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future statute,
law or regulation, or shall file any answer admitting or not contesting the
material allegations of a petition filed against the Company in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of the Company or of all or any substantial part
of the properties of the Company, or if the Company or its directors or majority
stockholders shall take any action looking to the dissolution or liquidation of
the Company; or
(d) if, within 60 days after the service of process on Company
following commencement of an action against the Company seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, such
action shall not have been dismissed or if, alternatively, all orders or
proceedings thereunder affecting the operations or the business of the Company
stayed, or if the stay of any such order or proceeding shall thereafter be set
aside, or if, within 60 days after the appointment without the consent or
acquiescence of the Company of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company, such
appointment shall not have been vacated;
then and in any such event Holder may at any time (unless all defaults shall
theretofore have been remedied) at his option, by written notice to the Company,
declare the entire principal and interest of the Debenture then remaining unpaid
to be due and payable immediately. Notwithstanding the foregoing, this Debenture
shall not be in default to the extent that the Company has exercised its rights
of recoupment under Section 8(f) of the Agreement.
4.2 Other Remedies on Default, Etc. In case any one or more Events of
Default shall occur, be continuing, and not have been waived, Holder may proceed
to protect and enforce the rights of such Holder by an action at law, suit in
equity, or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or under terms of the Agreement or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law. In case of a
default in the payment of principal or interest on the Debenture, the Company
will pay to the Holder thereof such further amount as shall be sufficient to
cover the costs and expenses of collection, including, without limitation,
reasonable attorneys' fees. No course of dealing and no delay on the part of any
Holder in exercising any right shall operate as a waiver thereof or otherwise
prejudice such Holder's rights. No right conferred hereby or by the Agreement
upon any Holder shall be exclusive of any other right referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise.
5. Prepayment
This Debenture may be prepaid at any time without prior notice and
without penalty, including any recoupment deemed a prepayment hereof under
Section 8(f) of the Agreement.
6. Security for Debenture
This Debenture is secured by a Stock Pledge Agreement of even date
herewith by and between the Company and Holder.
7. Miscellaneous Provisions
7.1 Notices. Any notice herein required or payment required hereunder
shall be made or given to the address of the parties as specified in the
Agreement.
7.2 Amendments or Waivers. Any provision of this Debenture may be
amended, waived, or modified, but only upon the written consent of the Company
and the Holder.
7.3 Governing Law. This Debenture has been executed in and shall be
governed by the laws of the State of Utah excluding that body of law pertaining
to conflicts of law.
7.4 Miscellaneous. The unenforceability or invalidity of any provision
of this Debenture shall not affect the enforceability or validity of any other
provision of this Debenture. The terms of this Debenture shall bind the
undersigned and inure to the benefit of Holder and their respective heirs,
successors, assigns and legal representatives. The Holder may, in accordance
with the terms of the Agreement, assign all or part of Holder's interest under
this Debenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to be issued
this ____ day of _________________, 1998.
ZEVEX INTERNATIONAL, INC.
By:
Its:
<PAGE>
EXHIBIT B
FORMULA FOR CALCULATING POSSIBLE EARN-OUT PAYMENT
The formula for calculating the possible Earn-Out Payment will be:
A + B x ($950,000.00) = Cash portion of possible Earn-Out Payment
A + B x ($950,000.00) = Debenture portion of possible Earn-Out Payment
Where:
A = 1999 Actual Revenue - 1998 Actual Revenue x 0.30 1999
Projected Revenue - 1998 Actual Revenue
B = 1999 Actual Pre Tax Income - 1998 Actual Pre Tax Income x
0.70 1999 Projected Pre Tax Income - 1998 Actual Pre Tax
Income
And:
"1998 Projected Revenue" is $1,310,098 (taken from projection).
"1999 Actual Revenue" is the total gross revenue for Aborn for the
period from January 1, 1999 to December 31, 1999.
"1999 Projected Revenue" is $2,721,500.00.
"1998 Projected Pre Tax Income" is $337,078 (taken from projection).
"1999 Actual Pre Tax Income" is the pre tax income for Aborn for the
period from January 1, 1999 to December 31, 1999.
"1999 Projected Pre Tax Income" is $1,176,500
Notwithstanding the foregoing, in the event that the 1999 Actual Pretax Income
equals or exceeds $1,176,500, Seller shall receive one hundred percent
($950,000) of the Earn-Out Payment.
Example
Assuming that "1999 Actual Revenue" is $2,000,000 and "1999 Actual Pre
Tax Income" is $800,000, the possible Earn-Out Payment is calculated as follows:
2,000,000 - 1,310,098 x .30 = 0.1846
2,721,500 - 1,310,098
800,000 - 337,078 x .70 = 0.3862
1,176,000 - 337,078
0.1466 + 0.3862 = 0.5384
0.5384 x $950,000 = $508,060 cash portion of Earn-Out Payment 0.5384 x
$950,000 = $508,060 Debenture portion of Earn-Out Payment
