UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18160
Surgical Technologies, Inc.
(Exact name of registrant as specified in charter)
Utah 87-0468225
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2801 South Decker Lake Lane, Salt Lake City, Utah 84119
(Address of principal executive offices) (Zip Code)
(801) 974-5555
(Registrant's telephone number, including area code)
None
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of January 19, 1996, the registrant had 4,218,687 shares of its common
stock issued and outstanding.
Page 1 of 13 pages
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements presented herein
have been prepared by the Company in accordance with the instructions to Form
10-Q and do not include all of the information and note disclosures required
by generally accepted accounting principles. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-K
for the year ended March 31, 1995. The accompanying financial statements have
not been examined by independent accountants in accordance with generally
accepted auditing standards, but in the opinion of management such financial
statements include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's financial position and
results of operations. The results of operations for the three and nine
months ended December 31, 1995, may not be indicative of the results that may
be expected for the year ending March 31, 1996.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, March 31,
1995 1995
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 655,355 $ 2
Accounts Receivable 214,615 350,143
Other Current Assets 1,199,804 1,680,197
Inventories 966,097 1,164,029
Marketable Securitie 507,918 474,536
Net Assets of Discontinued
Operations 2,465,629 1,843,783
Total Current Assets 6,009,418 5,512,690
PROPERTY AND EQUIPMENT 1,834,297 2,251,854
Less: Accumulated
Depreciation (538,143) (445,213)
1,296,154 1,806,641
INTANGIBLE AND OTHER ASSETS 1,471,292 2,668,566
Total Assets $ 8,776,864 $ 9,987,897
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 12,690 $ 268,352
Revolving Bank Loan - 545,505
Current Portion of
Long-Term Obligations 977,493 1,040,918
Accrued Liabilities 46,823 284,512
Total Current Liabilities 1,037,006 2,139,287
LONG-TERM OBLIGATIONS, net of
current portion - 1,760
STOCKHOLDERS' EQUITY
Common Stock (Par Value
$0.01, Authorized
20,000,000 Shares,
Issued and outstanding
4,328,741 Shares) 43,287 43,287
Additional Paid-in Capital 10,670,034 10,670,034
Retained Earnings (Deficit) (2,474,495) (2,367,503)
Less Common Stock in
Treasury, at cost,
110,054 shares (498,968) (498,968)
Total Stockholders'
Equity 7,739,858 7,846,850
Total Liabilities and
Stockholders' Equity $ 8,776,864 $ 9,987,897
The accompanying notes are an integral part of the condensed consolidated
financial statements.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Nine Months
Ended December 31, Ended December 31,
1995 1994 1995 1994
REVENUES $ 341,743 $ 528,936 $ 1,239,527 $1,451,487
COST OF REVENUES 357,365 528,885 1,152,797 1,479,929
Gross Margin (15,622) 51 86,730 (28,442)
SELLING, GENERAL
AND ADMINISTRATIVE
EXPENSES 300,984 447,880 965,774 1,469,816
Loss From Operations (316,606) (447,829) (879,044) (1,498,258)
OTHER INCOME
(EXPENSE), NET 136,595 (176,602) 226,337 (444,123)
Loss From Continuing
Operations Before
Income Taxes (180,011) (624,431) (652,707) (1,942,381)
INCOME TAX BENEFIT 53,938 147,535 205,950 567,669
Net Loss From
Continuing
Operations (126,073) (476,896) (446,757) (1,374,712)
INCOME FROM DISCONTINUED
OPERATIONS, net of
income taxes 118,350 85,207 339,766 356,172
NET LOSS $ (7,723) $ (391,689) $ (106,991) $(1,018,540)
LOSS PER COMMON SHARE
Continuing Operations $ (.03) $ (.12) $ (.11) $ (.35)
Net Loss $ - $ (.10) $ (.03) $ (.26)
Weighted Average Shares
Outstanding 4,218,687 4,063,687 4,218,687 3,875,241
The accompanying notes are an integral part of the condensed consolidated
financial statements.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
For the Nine Months
Ended December 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (106,991) $(1,018,540)
Adjustments to Reconcile Net Loss to Net
Cash Provided by (Used in) Operating Activities
Depreciation and Amortization 173,261 300,361
Provision for Losses on Accounts
Receivable (57,023) 9,865
(Gain) Loss on Sale of Assets (182,211) 344,035
Increase (Decrease) in Deferred
Income Tax Liability - (205,514)
(Increase) Decrease in Receivables 135,528 9,972
(Increase) Decrease in Inventories 197,932 28,293
(Increase) Decrease in Other Current
Assets 305,919 52,889
(Increase) Decrease in Intangible
and Other Assets (122,233) (24,100)
Increase (Decrease) in Accounts
Payable (255,662) (467,161)
Increase (Decrease) in Accrued
Expenses (237,689) 98,627
Total Adjustments (42,178) 147,267
Net Cash Provided by (Used in) Operating
Activities (149,169) (871,273)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (14,925) (13,902)
Maturities of Marketable Securities 474,536 475,000
Purchase of Marketable Securities (507,918) (474,536)
Proceeds from Sale of Property and
Equipment 725,645 1,014,120
Payments Received on Notes Receivable 1,359,720 171,718
Change in Net Assets of Discontinued
Operations (621,846) (612,057)
Net Cash Provided by Investing Activities1,415,212 560,343
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term
Obligations (65,185) (159,578)
Proceeds From Issuance of Long-Term
Obligations - 1,074,458
Principal Payments on Notes Payable to
Related Party - (2,342,563)
Proceeds From Note Payable to Related
Party - 771,963
Proceeds From Sale of Common Stock - 1,642,301
Net Change in Revolving Bank Loan (545,505) (533,504)
Net Cash Provided by (Used in) Financing
Activities (610,690) 453,077
Net Increase (Decrease) in Cash and
Cash Equivalents 655,353 142,147
Cash and Cash Equivalents at Beginning
of Period 2 -
Cash and Cash Equivalents at End
of Period $ 655,355 $ 142,147
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period For:
Interest $ 63,315 $ 140,287
Income Taxes $ - $ -
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: On
November 30, 1995 the Drape Division was sold for $325,000 in cash and a note
receivable of $50,000. On June 22, 1994 the two small buildings located in
North Salt Lake were sold for $50,000 in cash and notes receivable of
$210,000. 4,200 shares of common stock were issued on August 31, 1994 in
exchange for professional fees valued at $20,000.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1
The unaudited condensed consolidated financial statements presented
herein have been prepared by the Company in accordance with the instructions
to Form 10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended March 31, 1995. The accompanying
financial statements have not been examined by independent accountants in
accordance with generally accepted auditing standards, but in the opinion of
management such financial statements include all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly the Company's
financial position and results of operations. The results of operations for the
three and nine months ended December 31, 1995, may not be indicative of the
results that may be expected for the year ending March 31, 1996.
NOTE 2
On September 1, 1995 the revolving bank loan was renewed for a
maximum of $500,000 at an interest rate of 8.25% and expires on September 1,
1996. The revolving bank loan is secured by a money market account in the
amount of $500,000. At December 31, 1995 the Company had not yet drawn upon the
revolving bank loan.
NOTE 3
On September 15, 1995 the Board of Directors made the determination
that it is in the best interest of the Company to discontinue the medical and
specialty metal fabrication divisions. As part of this decision, the Board
approved the sale of the drape division and Rex Industries, Inc., is pursuing
the disposal of the remaining portion of the medical division and has begun
the analysis of other business opportunities for the Company to pursue.
On November 30, 1995 the Company entered into an Asset Purchase
Agreement with Microtek Medical, Inc. (MMI), an unrelated party whereby the
Company sold substantially all of its assets related to the disposable patient
surgical drape business for a cash payment of $325,000 resulting in a realized
gain on the disposal of the drape business of approximately $126,000. At
closing, MMI placed in escrow $50,000 cash as security for the guaranty of
annualized sales volumes of at least $250,000.
On January 5, 1996, effective January 1, 1996 the Company entered
into an agreement between Rex Industries Acquisition Corporation (RIAC)(owned
by Todd B. Crosland, an officer and director of the Company) whereby the
Company sold essentially all of the assets used by Rex Industries, Inc. (RII) in
in the specialty metal fabrication business for $3,600,000, consisting of a cash
payment of $2,775,543 the assumption of $224,457 in specified liabilities, and
the balance in other consideration convertible into cash by January 1997. At
the closing, RIAC withheld $100,000 in cash from the purchase price as security
for RII's guaranty of payment on its accounts receivable and indemnification
against certain liabilities. As a result of this sale, the Company's specialty
metal fabrication segment, has been discontinued.
Where appropriate, the financial statements reflect the operating
results and balance sheet items of the discontinued specialty metal fabrication
segment operations separately from continuing operations. Financial results
for periods prior to the date of discontinuance have been restated to reflect
continuing operations. Revenues of the disposed segment operations were
approximately $687,000 for the three months and $2,021,000 for the nine months
ended December 31, 1995. RII revenues were approximately $711,000 for the
three months and $2,271,000 for the nine months ended December 31, 1994.
Management currently anticipates that the changes in the focus of the
Company's business will not result in a loss to the Company.
CONDENSED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed pro forma financial statements are
based on the historical consolidated financial statements of Surgical
Technologies, Inc. and its subsidiaries and reflect the total proceeds from the
disposal of Rex Industries, Inc. of $3,375,543. The unaudited pro forma balance
sheet presents the financial position of the Company assuming the disposal,
which occurred on January 5, 1996, as if it had been completed on December 31,
1995. The unaudited condensed pro forma statement of operations presents the
results of operations of the Company, assuming the disposal was completed on the
first day of the 1996 fiscal year and the first day of the nine months ended
December 31, 1995.
The unaudited condensed pro forma financial statements should be read
in conjunction with the consolidated financial statements of the Company and the
related notes thereto included in the annual report on form 10-K for the year
ended March 31, 1995. The pro forma adjustments include certain assumptions
and preliminary estimates as discussed in the accompanying notes and are subject
to change. Further, the pro forma results of operations are not necessarily
indicative of actual results which might have occurred nor of future results
of the Company subsequent to the disposal.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA BALANCE SHEET
UNAUDITED
December 31, 1995
Pro Forma Pro Forma
Historical Adjustments Balance
ASSETS:
Cash and Cash
Equivalents $ 655,355 $ 2,775,543 (A) $ 3,430,898
Accounts
Receivable, net 214,615 - 214,615
Other Current
Assets 1,199,804 600,000 (B) 1,799,804
Inventories 966,097 - 966,097
Marketable
Securities 507,918 - 507,918
Net Assets of
Discontinued
Operations 2,465,629 (2,465,629) (C) -
Total Current
Assets 6,009,418 6,919,332
Net Fixed Assets 1,296,154 (735,958) (C) 560,196
Intangible and
Other Assets 1,471,292 (23,000) (D) 1,448,292
Total Assets $ 8,776,864 $ 150,956 $ 8,927,820
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts Payable $ 12,690 $ - $ 12,690
Notes and
Contracts Payable 977,493 - 977,493
Accrued Expenses 46,823 - 46,823
Total Current
Liabilities 1,037,006 1,037,006
Common Stock 43,287 - 43,287
Capital in Excess
of Par Value 10,670,034 - 10,670,034
Retained Earnings (2,474,495) 150,956 (E) (2,323,539)
Less Common Stock
in Treasury (498,968) - (498,968)
Total Stockholders'
Equity 7,739,858 - 7,890,814
Total Liabilities
and Stockholders'
Equity $ 8,776,864 $ 150,956 $ 8,927,820
See accompanying notes to condensed pro forma financial statements.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF OPERATIONS
Year Ended March 31, 1995
Disposed Pro Forma Pro Forma
Historical Company Adjustments Balance
Revenues $ 5,014,084 $ 3,034,428 $ - $ 1,979,656
Cost of Revenues 4,541,373 2,125,247 - 2,416,126
Gross Margin 472,711 909,181 - (436,470)
Selling, General and
Administrative 3,582,872 209,902 (188,400)(A) 3,184,570
Other Income (Expense), net (665,764) 7,173 185,000 (B) (487,937)
Earnings (Loss) Before
Income Taxes (3,775,925) 706,452 373,400 (4,108,977)
Provision for Income Taxes 873,344 (263,500) 139,000 (C) 997,844
Net Earnings (Loss) From
Continuing Operations (2,902,581) 442,952 234,400 (3,111,133)
Gain (Loss) on Disposal of
Discontinued Operations, net - - 150,956 (D) 150,956
Net Income (Loss) $(2,902,581)$ 442,952 $ 385,356 $(2,960,177)
Earnings (Loss) Per Share:
Continuing Operations $ (.73) $ (.79)
Net Income (Loss) $ (.73) $ (.75)
Weighted Average Shares
Outstanding 3,960,344 3,960,344
Nine Months Ended December 31, 1995
Revenues $ 1,239,527 $ - $ - $ 1,239,527
Cost of Revenues 1,152,797 - - 1,152,797
Gross Margin 86,730 - - 86,730
Selling, General and
Administrative 965,774 - (141,300) 824,474
Other Income (Expense), net 226,337 - 138,750 (B) 365,087
Earnings (Loss) Before
Income Taxes (652,707) - 280,050 (372,657)
Provision for Income Taxes 205,950 - (104,000)(E) 101,950
Net Earnings (Loss)
From Continuing
Operations (446,757) - 176,050 (270,707)
Income (Loss) From Discontinued
Operations, net 339,766 - - 339,766
Gain on Disposal of
Discontinued
Operations, net - - 150,956 (D 150,956
Net Income (Loss) $ (106,991)$ - $ 327,006 $ 220,015
Earnings (Loss) Per Share:
Continuing Operations $ (.11) $ (.06)
Net Income (Loss) $ (.03) $ .05
Weighted Average Shares
Outstanding 4,218,687 4,218,687
See accompanying notes to condensed pro forma financial statements.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
(1) General
On January 5, 1996 the Company executed an Asset Purchase Agreement
with Rex Industries Acquisition Corporation (RIAC). Todd B. Crosland,a director
of both the Company and Rex Industries Inc. (RII), is also an executive officer,
director, and principal owner of RIAC. RII sold substantially all of its assets
for a cash payment of $2,775,543 and the assumption of $224,457 in liabilities,
and the balance of $600,000 in other consideration convertible into cash by
January 1997. As a result of this sale, the Company's specialty metal
fabrication segment has been discontinued. The Company has not yet performed a
detailed evaluation and appraisal of the fair market value of the net assets
sold in order to allocate the purchase price among the assets sold. For
purposes of preparing these pro forma financial statements, certain assumptions
have been made in allocating the sales price to the net assets sold. As such,
the pro forma adjustments discussed below are subject to change based on final
appraisals and determination of the fair market value of the assets and
liabilities sold.
(2) Pro Forma Adjustments
The adjustments to the accompanying unaudited condensed pro forma
balance sheet as of December 31, 1995, are described below:
(A) Total cash proceeds were $2,775,543.
(B) $100,000 receivable from RIAC held in escrow. $250,000 note
receivable due July 1, 1996. $250,000 subordinated note receivable due January
31, 1997.
(C) Net book value of assets sold less liabilities assumed by RIAC.
(D) Accrued income taxes and estimated expenses of sale.
(E) Estimated gain on disposal of RII net of income taxes.
The adjustments to the accompanying unaudited condensed pro forma
statements of operations are described below:
(A) Surgical Technologies, Inc. administrative overhead allocated by
parent to RII.
(B) Interest expense savings from payoff of obligations.
(C) Tax cost of additional operating income.
(D) Estimated gain on disposal of RII net of income taxes.
(E) Income tax expense from loss of interest expense deduction and
reduced overhead.
(3) Fiscal Year Ends
The condensed pro forma statements of operations for the nine months
ended December 31, 1995, and for the year ended March 31, 1995, include all
businesses on a common fiscal year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This discussion should be read in conjunction with Management's
Discussion and analysis of Financial
Condition and Results of Operations in the Company's annual report on Form
10-K for the year ended March 31, 1995.
Results of Operations
During the quarter and nine months ended December 31, 1995, revenues
decreased approximately 35% and 15%, respectively, from the corresponding
periods during the preceding year. The decrease is primarily the result of the
Company concentrating efforts to dispose of the medical and specialty metal
fabrication divisions.
Cost of revenues for the nine month period decreased to 93% of sales
versus 102% in the corresponding period of fiscal 1995. The decrease in cost of
revenues as a percent of revenues is primarily attributable to the write off of
obsolete inventory from the Enviropak division in the prior year. The Company
is in the process of exploring other marketing arrangements for the transflator
technology including the possibility of selling a portion of the remaining
medical segment. During the nine month period ending December 31, 1995 the
Company has attempted to eliminate some fixed costs in an effort to increase
efficiency based on the current level of sales.
Selling, general and administrative expenses decreased $147,000
during the third quarter of fiscal year 1996 compared to the third quarter of
the prior fiscal year. Recognizing that the gross revenues are significantly
less than in prior years the Company has begun to eliminate some overhead costs.
The net loss from continuing operations during the nine month period
ended December 31, 1995 included gain from the sale of property and equipment of
approximately $182,000 decreased interest and other expenses resulting from
the use of the proceeds from the sale of assets to reduce outstanding
obligations.
Liquidity and Capital Resources
During the first nine months of the fiscal year 1996 the Company's
liquidity and capital increased primarily due to the sale of equipment,
buildings and land. Current assets increased $497,000 while current liabilities
decreased $1,102,000 for a net increase in working capital of $1,599,000.
Operating activities used $149,000 in cash during the nine month
period ended December 31, 1995, compared to such activities using $871,000 in
the prior year.
Investing activities provided net cash of $1,415,000 primarily from
the sale of property and equipment and the collection of notes receivable.
Financing activities used net cash of $611,000 primarily from the payment of
obligations.
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
DISPOSITION OF ASSETS
Surgical Technologies, Inc. (the "Company"), sold substantially all
of the assets and operations comprising its specialty metals fabrication
division operated through its subsidiary, Rex Industries, Inc. ("Rex"), pursuant
to an Acquisition Agreement closed January 5, 1996, effective January 1, 1996,
between Rex and Rex Industries Acquisition Corporation (the "Acquiring
Company"). Under the terms of the Acquisition Agreement, the Acquiring Company
acquired substantially all of the assets and operations of Rex for consideration
of $3.6 million, consisting of a cash payment of $2,775,543.39, the assumption
of $224,456.61 in liabilities, and the balance in other consideration
convertible into cash by January 1997. At the closing, the Acquiring Company
withheld $100,000 in cash from the purchase price as security for Rex's guaranty
of payment on its accounts receivable and indemnification against certain
liabilities. Upon the expiration of twelve months after the effective date, the
Acquiring Company will pay to Rex the amount withheld, less any uncollected
accounts receivable and liabilities or expenses indemnified for by Rex under the
agreement. In addition, in connection with the sale of its assets, Rex
transferred to the Acquiring Company the right to the use of the name "Rex
Industries, Inc."
The assets sold include all tangible personal property; and
buildings; all inventory; accounts receivable and cash and cash equivalents
received therefor; contract rights; cash, bank deposits, and cash equivalents;
customer and supplier lists; warranties; insurance contracts; and other tangible
and intangible assets, but specifically excluding the note payable by the
Company to Rex with an outstanding principal balance of $158,439.91 as of the
date of the Acquisition Agreement; certain of Rex's rights, claims, or causes of
action relating to the assets sold, all corporate books and records not relating
to the assets sold; and Rex's employee benefit agreements, plans, or similar
arrangements. The principle followed in determining the amount of consideration
to be paid for the acquired assets is discussed in the accompanying pro forma
financial information. (See "PART 1 ITEM 1 CONDENSED PRO FORMA FINANCIAL
STATEMENTS.")
Todd B. Crosland, a director of both the Company and Rex, is also an
executive officer, director, and principal owner of the Acquiring Company.
The sale of the assets and operations of Rex is in accordance with
the previous consensus and determination of the board of directors of the
Company that such sale would assist the Company in attaining its goal of
maximizing its current cash, assets, and other resources to seek and pursue
another business opportunity. After discussing the possible sale of Rex with
a number of potentially interested parties for approximately eighteen months,
on September 15, 1995, the Company received a written offer to purchase
essentially all of the assets of Rex from TBC, Ltd., a limited partnership of
which Todd B. Crosland serves as general partner. Because of the relationship
of Mr. Crosland with both the offeror and the Company, the board of directors
of the Company appointed Donald A. Spring and Reed Fogg, two disinterested
members of the Company's board of directors, to serve as a special committee
with the purpose of evaluation the proposed transaction (the "Asset Disposition
Committee"). The remaining directors agreed to concur in the decision of the
disinterested Asset Disposition Committee. The Asset Disposition Committee,
after reviewing the terms of the offer and a valuation of Rex, determined that
it was in the best interest of the Company to accept the terms of the offer and
dispose of the assets and operations of Rex for $3.6 million. For income tax
and other purposes, Mr. Crosland determined to pursue the transaction through
the Acquiring Company, as a corporation, rather than through TBC, Ltd., a
limited partnership. The officers of the Company negotiated the definitive
terms of and executed the Acquisition Agreement between the Company and the
Acquiring Company, as discussed above.
As a result of this sale, the Company's specialty metals fabrication
division has been terminated.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) During the quarter for which this report is filed, no
reports have been filed on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be a signed on its
behalf by the undersigned, thereunto duly authorized.
SURGICAL TECHNOLOGIES, INC.
Dated: January 19, 1996 By /s/ Todd B. Crosland
Todd B. Crosland,
Vice-President-Finance
(Principal Financial and
Accounting Officer)
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF SURGICAL TECHNOLOGIES, INC. AS OF DECEMBER 31, 1995 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE NINE MONTHS THEN ENDED AND IS
QUAILFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is made as of November 30.
1995, by and between Microtek Medical, Inc., a Delaware corporation
("Purchaser"), and Surgical Technologies, Inc. ("Seller").
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the business of manufacturing and
marketing disposal patient surgical drapes and related products (the
"Business"); and
WHEREAS, Purchaser desires to purchase from the Seller, and the Seller
desires to sell to Purchaser, substantial assets relating to the Business;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1. Purchase and Sale. At the Closing (as hereinafter defined) and
subject to the terms and conditions of this Agreement, Purchaser shall purchase
from the Seller, and the Seller shall sell to Purchaser, all right, title and
interest in and to the following assets that are owned by or under the control
of the Seller, wherever located, whether known or unknown, and whether or not on
the books and records of the Seller (collectively the "Purchased Assets"), free
and clear of all liens, security interests, claims and encumbrances:
(a) All equipment, machinery, spare parts, tools, instruments,
vehicles, furniture, fixtures and other similar items of tangible personal
property relating to the Business;
(b) All finished goods inventory of the Seller relating to the
Business, whether on location, in transit or on consignment on the Closing
Date;
(c) All raw materials inventory and work-in-process relating to the
Business;
(d) All purchase orders, contracts and commitments of the Seller
relating to the Business;
(e) All of the Seller's (A) proprietary information, trade secrets,
customer lists and similar confidential information, technical information
and data, trademarks, trade names and service marks; (B) machinery and
equipment warranties and service contracts; and (C) documentation, in each
case to the extent relating to the Purchased Assets; and
(f) All other assets of the Seller, both tangible and intangible,
used or useful in the operation of the Business and which are not Excluded
Assets (as defined below), including, but not limited to, all insurance
recoveries or rights to the same relating to damages to or loss of the
Purchased Assets.
Notwithstanding the foregoing, Purchaser shall not acquire any of the following
assets of the Seller (collectively the "Excluded Assets"): (i) all cash, cash
equivalents, marketable securities and bank accounts, (ii) all accounts and
notes receivable, (iii) all counterclaims and items of offset relating to the
liabilities of Seller, and (iv) all corporate minute books, tax returns and
similar corporate records not directly related to the ownership of the Purchased
Assets.
<PAGE>
1.2 Assumption of Liabilities. At the Closing, the Purchaser shall assume,
but only to the extent relating to periods on and after the Closing, those
specified contractual obligations listed as "Assumed Contracts" on Schedule I
hereto. Except as specifically set forth above, Purchaser does not assume and
shall in no event be liable for any debt, obligation, responsibility or
liability of the Seller, any subsidiary or any affiliate or successor of the
Seller, or any claim against any of the foregoing, whether known or unknown,
contingent or absolute, or otherwise.
1 . 3. Purchase Price.
(a) The consideration to be received by the Seller hereunder for the
Purchased Assets ("Purchase Price") shall be the sum of $375,000 in cash
payable at the Closing.
(b) The Purchase Price shall be allocated among the Purchased Assets
in accordance with Section 1060 of the Internal Revenue Code of 1986, as
amended; such allocation shall be based upon the recommendations of KPMG
Peat Marwick and shall be subject to the reasonable approval of the Seller.
2. CLOSING.
A closing (the "Closing") to effect the purchase and sale of the Purchased
Assets shall be held at the offices of the Seller in Salt Lake City, Utah, on
November 30, 1995, or at such other place or places and/or on such other date as
may be agreed upon by the parties (the "Closing Date"). At the Closing, the
Seller shall sell execute such bills of sale and instruments of assignment as
are necessary to convey title to the Purchased Assets, and Purchaser shall pay
(i) to the Seller the sum of $325,000 and (ii) to the Escrow Agent (as defined
on Exhibit A hereto) the sum of $50,000. All actions taken at the Closing shall
be deemed to have been taken simultaneously at the time the last of any such
actions is taken or completed.
3. `REPRESENTATIONS AND WARRANTIES OF THE SELLER.
Except as set forth on the Seller Disclosure Schedule attached hereto as
Schedule II, the Seller hereby represents and warrants to Purchaser as follows:
3.1. Organization and Good Standing of the Seller. The Seller is a
corporation duly formed and validly existing and in good standing under the laws
of the State of Utah .
3.2. Binding Effect. This Agreement and the other documents
contemplated hereunder (collectively the "Transaction Documents") has been or
will have been duly authorized, executed and delivered by the Seller and is the
legal, valid and binding obligation of the Seller enforceable in accordance with
its terms except that (i) enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
3.3. Compliance with Other Instruments: Consents and Approvals.
Neither the execution and delivery by the Seller of the Transaction Documents
nor the consummation by it of the transactions contemplated thereby will
violate, breach, be in conflict with, or constitute a default under, or permit
the termination or the acceleration of maturity of, or result in the imposition
of any lien, claim or encumbrance upon any Purchased Asset pursuant to the
Seller's articles of organization or bylaws or (ii) any note, bond, indenture,
mortgage, deed of trust, evidence of indebtedness, loan or lease agreement,
other agreement or instrument, judgment, order, injunction, or decree by which
the Seller is bound, to which it is a party, or to which the Purchased Assets
are subject. No authorization, permit, consent or approval is required to be
obtained by the Seller to execute, deliver or perform any of the Transaction
Documents.
<PAGE>
3.4. Financial Statements and Records of the Seller.
(a) The Seller has delivered to Purchaser true, correct and complete
copies of the unaudited statement of operations of the Business for the six
months ended September 30, 1995 (the "Seller Financial Statements").
(b) The results of operations of the Seller set forth in the Seller
Financial Statements are fairly presented in accordance with the generally
accepted accounting principles applied on a consistent basis for the
periods presented.
(c) As of the Closing, the Purchased Assets will reflect book values
of at least $95,000 of finished goods and raw materials inventory, at least
$85,000 of fixed assets and at least $5,000 of patents and licenses.
.
3.7. Condition of Tangible Assets. The Purchased Assets are in good
condition and repair, subject only to ordinary wear and tear, and are adequate
for the uses to which they are being put in the ordinary course of business.
3.8. FDA Matters. No product of the Seller relating to the Business
requires any approval, which has not previously been obtained, of the U.S. Food
and Drug Administration ("FDA") for the purpose for which it is being
manufactured, assembled or sold. The Seller has not, with respect to the
Business, received any notice of any action or proceeding in the FDA including,
but not limited to, recall procedures, pending or, to the knowledge of the
Seller, threatened against Seller relating to the safety or efficacy of any of
the Seller's products. To the knowledge of the Seller, the manufacture of the
Seller's products in the conduct of the Business conforms in all respects to
current FDA "good manufacturing practices."
3.9. Litigation and Government Claims. There is no pending suit,
action or litigation, or administrative, arbitration or other proceeding or
governmental investigation or inquiry, to which the Seller is a party or to
which its assets are subject which would, if decided against the Seller,
individually or in the aggregate, have a material adverse effect on the Business
or the Purchased Assets. To the knowledge of the Seller, there are no such
proceedings threatened, contemplated, or any basis for any unasserted claims
(whether or not the potential claimant may be aware of the claim) which would,
if decided against the Seller, individually or in the aggregate, have a material
adverse effect on the results of operations of the Business or the Purchased
Assets .
3. 10. Brokers and Finders. Except for Waldon & Associates (whose fees
shall be paid by Seller), neither the Seller nor its shareholders has engaged
any person to act or render services as a broker, finder or similar capacity in
connection with the transactions contemplated herein and no person has, as a
result of any agreement or action by them, any right or valid claim against the
Seller, Purchaser or any of Purchaser's affiliates for any commission, fee or
other compensation as a broker or finder, or in any similar capacity in
connection with the transactions contemplated herein .
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser hereby represents and warrants to the Seller as follows:
4.1. Organization and Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.>~
<PAGE>
4.2. Corporate Power and Authority. Purchaser has the corporate power
and authority and all licenses and permits required by governmental authorities
to execute, deliver and perform this Agreement.
4.3. Binding Effect. Each of the Transaction Documents has been or
will have been duly authorized, executed and delivered by Purchaser and is or
will be the legal, valid and binding obligation of it, enforceable in accordance
with its terms except that (i) enforceability may be limited by bankruptcy,
insolvency, or other similar laws affecting creditors' rights and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
4.4. Compliance with Other Instruments: Consents and Approvals.
Neither the execution and delivery by Purchaser of the Transaction Documents nor
the consummation by it of the transactions contemplated thereby will violate,
breach, be in conflict with, or constitute a default under, or permit the
termination or the acceleration of maturity of, or result in the imposition of
any lien, claim or encumbrance upon any property or asset of Purchaser pursuant
to, its certificate of incorporation or bylaws, or any note, bond, indenture,
mortgage, deed of trust, evidence of indebtedness, loan or lease agreement,
other agreement or instrument, judgment, order, injunction or decree by which
Purchaser is bound, to which it is a party, or to which its assets are subject.
Except for the consent of its principal bank lender, no authorization, permit,
consent or approval is required to be obtained by Purchaser to execute, deliver
or perform any of the Transaction Documents.
4.5. Brokers and Finders. The Purchaser has not engaged any person to
act or render services as a broker, finder or similar capacity in connection
with the transactions contemplated herein and no person has, as a result of any
agreement or action by Purchaser any right or valid claim against the Seller,
Purchaser or any of the Seller's affiliates for any commission, fee or other
compensation as a broker or finder, or in any similar capacity in connection
with the transactions contemplated herein.
5. CERTAIN COVENANTS.
5.1. Cooperation. Each of the parties hereto shall, and shall cause
each of its affiliates to, use its best efforts to (i) obtain at the earliest
practicable date and, in any event, before the Closing Date, any approvals,
authorizations and consents necessary to consummate the transactions
contemplated by this Agreement; (ii) as reasonably requested by the other,
cooperate with and keep the other informed in connection with this Agreement;
and (iii) take such actions as the other parties may reasonably request to
consummate the transactions contemplated by this Agreement and diligently
attempt to satisfy, to the extent within its control, all conditions precedent
to its obligations to close the transactions contemplated by this Agreement;
provided, however, that nothing in this Section 5.1 shall require a party to
expend any monies except as otherwise specifically required under this
Agreement.
5.2. Maintenance of Business and Purchased Assets. The Seller
covenants that between the date hereof and the Closing, except as contemplated
hereby or with the prior consent of Purchaser, it will refrain from doing any of
the following: (i) entering into any transaction with respect to the Business
other than in the ordinary course of business or (ii) permitting any
encumbrance, mortgage or pledge on any Purchase Asset.
5.3. Access to Books and Records. Prior to the Closing Date and upon
reasonable notice, the Seller will give to the Purchaser and its counsel,
accountants and other authorized representatives, full access during reasonable
business hours to all of its properties, books, contracts, documents and records
and shall furnish to such persons all such information concerning the affairs of
the Business, including financial statements, as the Purchaser may reasonably
request in order that it may have full opportunity to make such reasonable
investigations as it shall desire for the purpose of verifying the performance
of and compliance with the representations, warranties, covenants and the
conditions contained herein or for other purposes reasonably related to the
transactions contemplated hereby. In the event that the Closing does not occur
and this Agreement is terminated, the Purchaser shall keep in confidence, and
shall cause its counsel, accountants and other representatives to keep in
confidence, and shall not use or disclose to others, all information provided
hereunder to it, except such information as is in the public domain.
<PAGE>
5.4. Transitional Assistance. As promptly as practicable after the
Closing, the Seller will assist the Purchaser in connection with the relocation
of the Purchased Assets to Purchaser's facilities in Columbus, Mississippi.
During this relocation period, Seller will also provide to the Purchaser (at
Purchaser's facilities in Columbus, Mississippi) up to 120 man-hours of on-site
training and calibration services in respect of the equipment included in the
Purchased Assets. The out-of-pocket expenses (such as travel and lodging)
incurred by Seller as a result of these services will be borne by Purchaser.
5.5. Product Sales to Seller. For a period of at least one year after
the Closing, the Purchaser will sell to Seller, at Purchaser's standard OEM kit
pricing and in the ordinary course of business, surgical drapes manufactured by
Purchaser utilizing the Purchased Assets (subject to normal availability).
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER.
The obligations of the Seller to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction on or before the Closing
Date of each of the following conditions:
6.1. Compliance. Purchaser shall have, or shall have caused to be,
satisfied or complied with and performed in all material respects, all terms,
covenants and conditions of this Agreement to be complied with or performed by
it on or before the Closing Date.
6.2. Representations and Warranties. All of the representations and
warranties made by Purchaser in this Agreement and in all certificates and other
documents delivered by Purchaser to the Seller pursuant hereto, shall have been
true and correct in all material respects as of the date hereof, and shall be
true and correct in all material respects at the Closing Date with the same
force and effect as if such representations and warranties had been made at and
as of the Closing Date, except for changes permitted or contemplated by this
Agreement.
6.3. Consents and Approvals. All third party consents and approvals
required to consummate the transactions contemplated by this Agreement shall
have been obtained without material cost or other materially adverse consequence
to Seller and shall be in full force and effect.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.
Except as may be waived by Purchaser, the obligations of Purchaser to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction, on or before the Closing Date, of each of the following
conditions:
7.1. Compliance. The Seller shall have, or shall have caused to be,
satisfied or complied with and performed in all material respects all terms,
covenants, and conditions of this Agreement to be complied with or performed by
the Seller on or before the Closing Date.
7.2. Representations and Warranties. All of the representations and
warranties made by the Seller in this Agreement, the exhibits attached hereto
and in all certificates and other documents delivered by the Seller pursuant
hereto, shall have been true and correct in all material respects as of the date
hereof, and shall be true and correct in all material respects at the Closing
Date with the same force and effect as if such representations and warranties
had been made at and as of the Closing Date, except for changes permitted or
contemplated by this Agreement.
<PAGE>
7.3. Consents and Approvals. All third party consents and approvals
required to consummate the transactions contemplated by this Agreement shall
have been obtained without material cost or other materially adverse consequence
to Purchaser and shall be in full force and effect.
8. INDEMNIFICATION.
8.1. Indemnification of Purchaser. The Seller shall indemnify and hold
Purchaser harmless from, against, for and in respect of (i) any and all damages,
losses, settlement payments, obligations, liabilities, claims, actions or causes
of action and encumbrances suffered, sustained, incurred or required to be paid
by Purchaser, net of any resulting income tax benefits to Purchaser, because of
the breach of any written representation, warranty, agreement or covenant of the
Seller contained in this Agreement; (ii) any and liabilities of the Business in
respect of periods prior to the Closing Date which are not assumed liabilities
in accordance with the provisions of this Agreement; and (iii) all reasonable
costs and expenses (including, without limitation, attorneys' fees, interest and
penalties) incurred by Purchaser in connection with any action, suit,
proceeding, demand, assessment or judgment incident to any of the matters
indemnified against in this Section 8.1.
8.2. Indemnification of Seller. The Purchaser shall indemnify and hold
the Seller harmless from, against, for and in respect of: (i) any and all
damages, losses, settlement payments, obligations, liabilities, claims, actions
or causes of action and encumbrances suffered, sustained, incurred or required
to be paid by the Seller, net of any resulting income tax benefits to the
Seller, because of the breach of any written representation, warranty, agreement
or covenant of Purchaser contained in this Agreement; (ii) any and liabilities
of the Business in respect of periods on and after the Closing Date or which are
assumed liabilities in accordance with the provisions of this Agreement; and
(iii) all reasonable costs and expenses (including, without limitation,
attorneys' fees, interest and penalties) incurred by the Seller in connection
with any action, suit, proceeding, demand, assessment or judgment incident to
any of the matters indemnified against in this Section 8.2.
8.3. Survival of Representations. Warranties and Covenants.
Notwithstanding the provisions of Sections 8.1 and 8.2, the representations,
warranties, covenants and agreements made by any party to this Agreement or
pursuant hereto shall be deemed to be material and to have been relied upon by
the parties hereto, and shall survive for one year following the Closing Date.
Notice of any claim, whether made under the indemnification provisions hereof or
otherwise, based on a breach of a representation, warranty, covenant or
agreement must be given prior to the expiration of such representation,
warranty, covenant or agreement; and any claim not made within such period shall
be of no force or effect. The representations and warranties hereunder shall not
be affected or diminished by any investigation at any time by or on behalf of
the party for whose benefit such representations and warranties were made. All
statements contained herein or in any certificate, exhibit, list or other
document delivered pursuant hereto shall be deemed to be representations and
warranties .
9. MISCELLANEOUS.
9.1. Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time on or before the Closing Date:
(i) by mutual consent of the Seller and Purchaser;
(ii) by Purchaser if there has been a material misrepresentation or
breach of warranty in the representations and warranties of the Seller set
forth herein or if there has been any material failure on the part of the
Seller to comply with its obligations hereunder;
<PAGE>
(iii) by the Seller if there has been a material misrepresentation
or breach of warranty in the representations and warranties of Purchaser
set forth herein or d there has been any material failure on the part of
Purchaser to comply with its obligations hereunder: and
(iv) by either of Purchaser or the Seller if the transactions
contemplated by this Agreement have not been consummated by December 15,
1995, unless the parties otherwise agree or unless such failure of
consummation i due to the failure of the terminating party to perform or
observe the covenants and agreements hereof to be performed or observed by
it at or before the Closing Date .
In the event of the termination of this Agreement pursuant to this Section 9.1,
this Agreement shall forthwith become null and void and of no further force or
effect; provided, however, that the parties hereto shall remain liable for any
breach of this Agreement prior to its termination.
9.2. Expenses. Each of Purchaser and the Seller shall pay its own
expenses incurred in connection with this Agreement and the transactions
contemplated hereby. Any sales, use or transfer taxes imposed by the State of
Utah, or jurisdictions therein, shall be borne by the Seller, and any sales, use
or transfer taxes imposed by the State of Mississippi, or jurisdictions therein,
Shall be borne by the Purchaser.
9.3. Entire Agreement. This Agreement and the exhibits hereto contain
the complete agreement among the parties with respect to the transactions
contemplated hereby and supersede all prior agreements and understandings. oral
or written, among the parties with respect to such transactions. Section and
other headings are for reference purposes only and Shall not affect the
interpretation or construction of this Agreement. The parties hereto have not
made any representation or warranty except as expressly set forth in this
Agreement or in any certificate or schedule delivered pursuant hereto.
9.4. Public Announcements. No party to this Agreement shall issue any
press release relating to, or otherwise publicly disclose, the transactions
contemplated by this Agreement without the prior approval of the other parties.
Notwithstanding the foregoing, any party may make such disclosure as may be
required by law, provided the disclosing party obtains from the other party
prior approval of the substance of the proposed disclosure (such as the content
of a proposed press release), which approval may not be unreasonably withheld or
delayed.
9.5. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
9.6. Notices. All notices, demands, requests or other communications
that may be or are required to be given, served or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be mailed
by first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by a reputable overnight courier service or by hand
delivery, addressed as follows:
(i) If to the Seller:
Surgical Technologies, Inc.
2801 S. Decker Lake Lane
Salt Lake City, Utah 8411 9
(ii) If to the Purchaser:
Microtek Medical, Inc.
P.O. Box 2487
Columbus, Mississippi 39704
Attention: President and Chief Executive
Officer
<PAGE>
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served, or sent.
Each notice, demand, request or communication that is mailed, delivered or
transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt or the affidavit of
courier or messenger being deemed conclusive evidence of such delivery) or at
such time as delivery is refused by the addressee upon presentation.
9.7. Assignment: Successors and Assigns. This Agreement may not be
assigned by either of the parties hereto without the written consent of all the
other parties; provided, however, that the Purchaser shall be entitled to assign
this Agreement to any subsidiary corporation so long as the Purchaser remains
liable for the obligations of Purchaser hereunder. Subject to the preceding
sentence. this Agreement and the rights, interests and obligations hereunder
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns.
9.8. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Mississippi.
9.9. Waiver and Other Action. This Agreement may be amended, modified,
or supplemented only by a written instrument executed by the parties against
which enforcement of the amendment, modification or supplement is sought.
9.10. Third-Party Beneficiaries. This Agreement and the rights,
obligations, duties and benefits hereunder are intended for the parties hereto,
and no other person or entity shall have any rights, obligations, duties and
benefits pursuant hereto .
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MICROTEK MEDICAL, INC.
By /S/
SURGICAL TECHNOLOGIES. INC.
By: /S/
<PAGE>
Omitted Exhibits/Schedules to the Asset Purchase Agreement
Exhibit/Schedule Description
- ---------------- -------------------------------------
Exhibit "A" ESCROW AGREEMENT
Schedule 1 ASSUMED CONTRACTS
Schedule 2 SELLER DISCLOSURE SCHEDULE
Upon request, the Company will supplementally furnish the Commission with a copy
of any omitted Exhibit/Schedule.
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (hereinafter referred to as this "Agreement") is
entered into effective as of the 1st day of January, 1996, by and between REX
INDUSTRIES ACQUISITION CORPORATION, a Utah corporation (hereinafter
"Purchaser"), and REX INDUSTRIES, INC., a Utah corporation (hereinafter
"Seller"), based on the following
Premises
A. Seller is a corporation engaged in the business of specialty metal
fabrication and desires to sell substantially all of its assets and operations
as a going concern.
B. Purchaser desires to acquire substantially all of the assets of Seller
for a cash payment, promissory notes, and the assumption of specific
indebtedness and to continue to operate the business acquired.
Agreement
NOW, THEREFORE, based on the stated premises, which are incorporated herein
by reference, and for and in consideration of the mutual covenants and
agreements hereinafter set forth and the mutual benefit to the parties to be
derived herefrom, it is hereby agreed as follows:
ARTICLE I.
ACQUISITION OF ASSETS
Section 1.01 The Acquisition. Except as set forth in section 1.02 of
this Agreement, and on the terms and conditions contained in this Agreement,
Seller shall sell, assign, transfer, convey, set over, and deliver to Purchaser,
and Purchaser shall purchase from Seller, all of Seller's business, operations,
and assets (the "Acquired Assets"), including the following:
(a) all tangible personal property owned by Seller including, without
limitation, the furniture and fixtures, equipment, tools, vehicles, and
supplies described in Exhibit "A" (the "Tangible Personal Property");
(b) that certain real property and all buildings and improvements
thereon at Seller's regular place of business at 630 North 430 West, Salt
Lake City, Utah, as more particularly described in Exhibit "B" (the "Real
Property");
(c) all inventory of Seller existing as of the Effective Date, as
described in Exhibit "C" (the "Inventory");
(d) all of Seller's notes and trade and other accounts receivable
existing as of the Effective Date, and all cash and cash equivalents
received in payment thereof received after the Effective Date, as described
in Exhibit "D" (the "Accounts Receivable");
(e) all of Seller's rights under those contracts and agreements
described on Exhibit "E," including, without limitation, purchase orders
which have been accepted by Seller in the ordinary course of business as of
the Effective Date and which have not yet been shipped from Seller's
location as of the Effective Date (the "Contract Rights");
(f) all cash, bank deposits, and cash equivalents as described in
Exhibit "F";
<PAGE>
(g) lists of current and past customers and lists of prospective
customers compiled by Seller including, to the extent the same is in the
possession of Seller, the name, address, contact person, and telephone
number of each such customer or prospective customer (the "Customer
Lists");
(h) all lists of current and past suppliers and favorable
relationships and all files, records, and data used in connection with
Seller's business;
(i) those prepaid expenses, rebates, or accumulated discounts now
available to Seller relating to the conduct of its business including,
without limitation, those set forth on Exhibit "G," except to the extent
expressly limited on such Exhibit "G" (the "Prepaid Expenses");
(j) all of Seller's rights under warranties covering the Tangible
Personal Property being transferred hereunder to the fullest extent
permitted by such warranties;
(k) all intellectual property of Seller related to the operation of
its business, including, without limitation, the right to use any trade
secrets, confidential or proprietary information, or general process used
by Seller in the conduct of its business, together with all rights of
Seller to apply for, maintain, and use any tradename, trademark, service
mark, copyright or patent issued by any governmental agency which relates
to any of the assets or the conduct of Seller's business, as described in
Exhibit "H" (the "Intellectual Property");
(l) all rights to conduct business and sell goods and services under
the name of "Rex Industries" or any other related or similar tradenames,
trademarks, service marks, or logos, to the extent the same incorporate the
name of "Rex Industries" or any variation thereof and the goodwill
attendant thereto, together with any right of Seller to prevent any third
party from conducting business under such name or any similar names based
upon Seller's previous use of the name Rex Industries in commerce;
(m) the current telephone number (801) 328-3174, and telephone and
other directory listings used by Seller in the operation of its business;
(n) all contracts of insurance relating to assets, claims,
casualties, or other occurrences prior to the Closing Date and prepaid
premiums or deposits related thereto as described in Exhibit "I" (the
"Insurance Policies"); and
(o) all other assets of Seller not included in any specific provision
of the foregoing subsections existing as of the Effective Date which are
used in or relate to the operation of Seller's business exclusively and
which are not excluded in section 1.02 including, without limitation, the
goodwill of Seller associated with its business.
Section 1.02 Excluded Assets. Notwithstanding the provisions of section
1.01, the assets conveyed hereunder shall not include the following:
(a) that certain note receivable from Surgical Technologies, Inc.,
with an outstanding principal balance of $179,268.80 as of the date hereof
and included in Seller's balance sheet under "Other Acquired Assets";
(b) Seller's rights, claims or causes of action against third parties
relating to the Acquired Assets (i) which may arise in connection with the
discharge by Seller of liabilities not assumed by Purchaser, or (ii) for
which damages in respect thereof relate to the period prior to the
Effective Date;
(c) all corporate books and records not relating to the assets
purchased hereunder, including the minute books and stock transfer books
and the corporate seal of Seller; and
(d) Seller's employee benefit agreements, plans, or similar
arrangements.
<PAGE>
Section 1.03 Assumed Liabilities. On the Closing Date, Purchaser shall
assume and agree to discharge the following obligations and liabilities of
Seller with respect to the Acquired Assets, in accordance with their respective
terms and subject to the respective conditions thereof:
(a) all trade accounts payable as of the Effective Date, less any
trade accounts payable of Seller to any affiliate, all as set forth in
Exhibit "J" (the "Assumed Obligations").
(b) all obligations for accrued 1995 year-end annual bonuses,
vacation, personal leave, or other amounts to or for the benefit of
Seller's employees, as set forth in Exhibit "K" (the "Employee Benefits");
(c) all liabilities and obligations of Seller to be paid or performed
after the Effective Date under the contracts and other agreements relating
to the assets being conveyed hereunder ; and
(d) all liabilities of Seller in respect of any taxes for which
Purchaser is liable pursuant to section 4.05 with respect to the assets
being conveyed hereunder.
Section 1.04 Excluded Liabilities. Purchaser shall not assume or be
obligated to pay, perform or otherwise discharge any liability or obligation of
Seller, direct or indirect, known or unknown, absolute or contingent, not
expressly assumed by Purchaser pursuant to section 1.03.
Section 1.05 Purchase Price. The purchase price of the Acquired Assets
shall be an aggregate of Three Million Six Hundred Thousand and No/100 Dollars
($3,600,000.00) (the "Purchase Price"). The Purchase Price shall be paid by the
Purchaser's assumption of the Assumed Obligations and $3,500,000 in cash, such
cash amount to be:
(a) increased in the amount, if any, by which the amount of Assumed
Obligations reported on Seller's balance sheet as of the Effective Date is
less than $100,000; or
(b) decreased in the amount, if any, by which the amount of Assumed
Obligations reported on Seller's balance sheet as of the Effective Date is
greater than $100,000.
Section 1.06 Payment of Purchase Price. In consideration of the rights,
interests, assets, and properties transferred to Purchaser as set forth in
section 1.01, Purchaser shall pay to Seller the Purchase Price as follows:
(a) at the Closing, the amount of the Assumed Obligations set forth
on Exhibit "J" by the execution and delivery to Seller of the Assumption
Agreement in the form attached hereto as Exhibit "L" and incorporated
herein by reference, appropriately completed to reflect the amount of the
liabilities assumed;
(b) at the Closing, the amount of $215,000 by the conveyance of that
certain real property, as more particularly described in Exhibit "M", which
such property is subject to a purchase agreement pursuant to which the
property will be sold on or before July 1, 1996, and the obligation for
which purchase is secured by a performance bond and guarantied by Todd B.
Crosland, the principal officer and director and a controlling owner of
Purchaser, on the terms of that certain Guaranty by and between Seller and
Todd B. Crosland (the "Guaranty")
(c) at the Closing, the amount of $35,000.00 by the execution and
delivery to Seller of a promissory note, with Todd B. Crosland as maker,
bearing interest at 8% per annum, with the entire principal and interest
due and payable on or before July 1, 1996, in the form separately reviewed
and initialed as mutually acceptable to the parties hereto;
<PAGE>
(d) at the Closing, the amount of $250,000.00 by the execution and
delivery to Seller of a promissory note, with Purchaser as maker, bearing
interest at 8% per annum, with the entire principal and interest due and
payable on or before January 31, 1997, in the form separately reviewed and
initialed as mutually acceptable to the parties hereto;
(e) at the Closing, the balance, less the amount of the Holdback as
provided in section 1.07, in cash or immediately available funds by wire
transfer, certified or official bank check, or other means of payment
acceptable to Seller; and
(f) within 10 business days after the termination of Seller's
obligation to reimburse Purchaser for uncollectible Accounts Receivable
pursuant to section 1.07 hereof, Purchaser shall deliver to Seller the
balance of the Purchase Price in an amount equal to the Net Holdback as
provided in subsection 1.07(e), together with interest as provided in
subsection 1.07(g), by wire transfer or certified or official bank check,
or other mean of payment acceptable to Seller.
The guarantee of the obligation to purchase the property described in
subparagraph (b) above, as evidenced by the Guaranty, and the payment of the
obligation evidenced by the promissory note referred to in subparagraph (c)
above shall be secured by a security interest in and to shares of Surgical
Technologies, Inc., owned by Todd B. Crosland, all as more particularly set
forth in that certain Pledge and Security Agreement dated as of the Closing Date
in the form separately reviewed and initialed as mutually acceptable to the
parties hereto.
The obligation evidenced by the promissory note referred to in subparagraph
(d) above shall be secured by a deed of trust and security interest in and to
the Acquired Assets in the forms separately reviewed and initialed as mutually
acceptable to the parties hereto, the payment of which is subordinate to the
purchase money deed of trust and security interest granted to West One Bank,
Utah, to secure repayment of a loan in the amount of $250,000 to fund the cash
portion of the Purchase Price due and payable at Closing and other financial
accommodations given or to be given by such bank to Purchaser, all as more
particularly set forth in that certain Subordination Agreement dated as of the
Closing Date between such bank, which appears therein as "Lender," Purchaser,
which appears therein as "Borrower," and Seller and its parent, Surgical
Technologies, Inc., which appear therein as "Creditor," a copy of which has
heretofore been delivered to Seller.
Section 1.07 Accounts Receivable and Indemnification Holdback.
(a) Commencing on and as of the Effective Date and continuing for a
period of 12 months thereafter, Seller shall guarantee payment of all of
its Accounts Receivable which remain unpaid on and as of the Effective Date
which existed at and as of the Effective Date but which have not thereafter
been paid (collectively, the "Accounts Receivable" and, with respect to any
individual account, an "Account Receivable"). After the Closing, Purchaser
shall undertake reasonable steps to collect such Accounts Receivable in the
ordinary course of business without any obligation to resort to legal
action or third party collection services. All payments received by
Purchaser in collection of each Account Receivable shall be applied first
against the oldest Account Receivable.
(b) At the Closing, Purchaser shall withhold the sum of $100,000.00
from the total Purchase Price as additional security for Seller's guarantee
of payment of the Accounts Receivable, which such amount shall be held by
Purchaser and separately accounted for on Purchaser's financial reports
(the "Holdback").
(c) During the four months immediately following the Effective Date,
Purchaser shall provide Seller with month-end reports as to the payment
status of the Accounts Receivable, which such report shall be submitted to
Seller not later than the 15th day of the following month. At the
conclusion of such four-month reporting period, Purchaser shall provide
Seller with such month-end reports as may be reasonably requested in
writing from time to time by Seller. Seller hereby agrees to keep all
information contained in such month-end reports strictly confidential and
shall not disclose such information to any third party. In the event that
any Account Receivable remains unpaid as of the date that is 12 months
after the Effective Date (an "Overdue Receivable"), Purchaser shall be
entitled to deduct the amount of the Overdue Receivable from the Holdback,
provided that within 10 business days prior to the occurrence of the 12-
month anniversary of the Effective Date, Purchaser provides Seller with
written notice of each such Overdue Receivable and further provides Seller
with a duly executed assignment of each such Overdue Receivable.
<PAGE>
(d) In addition to Purchaser's right to offset the amount of any
Overdue Receivable against the Holdback, Purchaser shall also be entitled,
upon the occurrence and during the continuation of any event giving rise to
indemnification pursuant to Article VII hereof, at any time upon 30 days'
prior written notice to Seller, to set off and apply any funds constituting
the Holdback against the indemnification obligations of Seller arising
under this Agreement.
(e) Upon termination of Seller's obligation to guarantee the Accounts
Receivable pursuant to this section 1.07 and its concurrent obligation to
indemnify Purchaser pursuant to Article VII hereof, Purchaser, in
accordance with section 1.06, shall pay to Seller that portion of the
Holdback which is net of that amount which has been used to satisfy Overdue
Receivables pursuant to subparagraph (c) above plus that amount which has
been applied to satisfy any indemnification obligation pursuant to
subparagraph (d) above, which such adjusted amount shall be referred to
herein as the "Net Holdback."
(f) In the event that the Holdback is exhausted as a result of
offsets for Overdue Accounts Receivable or Seller's indemnification
obligation arising under Article VII hereof, Seller shall pay any such
shortage to Purchaser within 10 business days after Purchaser's
notification to Seller of such fact, notwithstanding the application of any
other notice period required under this Agreement.
(f) All portions of the Holdback that are paid to Seller pursuant to
the terms of this Agreement shall include interest accrued on such amounts
from the Closing to the date such funds are returned to Seller at the rate
of seven percent (7%) per annum.
(g) Purchaser and Seller agree that the cumulative amount of all
offsets against the Holdback arising as a result of Overdue Receivables and
Seller's indemnification obligations arising under Article VII hereof shall
constitute an adjustment to the Purchase Price.
Section 1.08 Closing; Closing Date. The closing (the "Closing") of the
transactions contemplated by this Agreement shall be held on such a date and at
such time prior to December 31, 1995, as the parties may agree (the "Closing
Date"). Such Closing shall take place at such time and location as may be
mutually acceptable to the parties hereto and their respective legal counsel.
Section 1.09 Effective Date. The transactions contemplated by this
Agreement shall be consummated on the Closing Date effective January 1, 1996
(the "Effective Date"), the date on which Purchaser took possession of the
tangible Acquired Assets and premises in which the business is being conducted
and began to conduct business. It is the intent of the parties that Purchaser
is entitled to the results of all operations arising from the conduct of such
business after the Effective Date and is responsible for all liabilities
incurred by Purchaser in connection therewith after such Effective Date.
<PAGE>
Section 1.10 Closing Events. At the Closing, each of the respective
parties hereto shall execute, acknowledge, and deliver (or shall cause to be
executed, acknowledged, and delivered) (i) the deeds, bills of sale,
assignments, and other documents and instruments of conveyance and transfer, all
in form and substance satisfactory to Purchaser and its counsel, necessary to
vest marketable title in Purchaser to all the rights, interests, assets, and
properties acquired by Purchaser pursuant to this Agreement; (ii) originals or
copies of all of Seller's agreements, contracts, and commitments assumed by
Purchaser hereunder; (iii) originals of all business logos, copyrights, patents,
patent applications, trademarks, or registrations; (iv) a list of all of the
customers and suppliers of Seller, including addresses and telephone numbers;
(v) all certificates, opinions, schedules, agreements, resolutions, or other
instruments required by this Agreement to be so delivered at or prior to the
Closing; and (vi) such other items as may be reasonably requested by the parties
hereto and their respective legal counsel in order to effectuate or evidence the
transactions contemplated hereby. In addition, at the Closing, Purchaser shall
deliver to Seller payment of the Purchase Price in accordance with section 1.06.
In order to provide for the simultaneous completion of all closing steps of the
parties hereunder, all payments, deliveries, and recordations contemplated
hereby shall be accomplished by delivery and recordation of the necessary
documents and the payment of amounts to be paid through escrow with a mutually
acceptable agent.
Section 1.11 Consent to Use of Name. At the Closing, Seller shall
deliver to Purchaser a form of consent to Purchaser's use of the name "Rex
Industries" as necessary to obtain approval from the Utah Division of
Corporations and Commercial Code and the appropriate authorities of each state
in which Seller is qualified to conduct business as a foreign corporation
whereby Seller shall consent to Purchaser's adoption of the name "Rex
Industries" as its official name or as an assumed name in Utah and each other
such jurisdiction.
Section 1.12 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Acquired Assets according to the Schedule to this section
1.12. Seller and Purchaser agree to prepare all financial reports of the
transactions contemplated herein, including, without limitation, all federal and
state tax returns, in accordance with the allocation of the Purchase Price set
forth in such Schedule and hereby indemnify each other against any loss which
such other party may incur by reason of the Indemnifying Party's failure to
comply with this section. Upon request, each party agrees to provide to the
other photocopies of any forms filed with any taxing authority in which the
results of this transaction are reported.
Section 1.13 Further Assurances. At the Closing or at any time
thereafter, each party shall execute and deliver to the other such opinions,
certificates, consents, and other documents required herein and execute and
deliver such other documents, and take such other actions, as may be reasonably
requested to carry out the terms of this Agreement, all as the other party
hereto may reasonably require.
ARTICLE II.
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF SELLER
The Seller hereby represents, covenants, and warrants to Purchaser, such
representations, covenants, and warranties to be made as of the date hereof and
at and as of the Closing Date and to survive the Closing and continue in
accordance with the terms hereof (except as otherwise expressly set forth in
Article VII hereof), as follows:
Section 2.01 Organization. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the state of Utah and
has the corporate power and is duly authorized, qualified, franchised, and
licensed under all applicable laws, regulations, ordinances, and orders of
public authorities to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted. There is no
jurisdiction in which Seller is not so qualified in which the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification, except where failure to do so would not have a
material adverse effect on the business or properties of Seller. The execution
and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement in accordance with the terms hereof
will not, violate any provision of Seller's articles of incorporation or bylaws.
Seller has taken all action required by law, its articles of incorporation, its
bylaws, or otherwise to authorize the execution and delivery of this Agreement
and the consummation of the transactions herein contemplated.
Section 2.02 Approval of Agreement. The board of directors and
shareholders of Seller have authorized the execution and delivery of this
Agreement by Seller and have approved the consummation of the transactions
contemplated hereby. This Agreement is the legal, valid, and binding agreement
of Seller enforceable between the parties in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, or other laws
affecting enforcement of creditors' rights generally and by general principles
of equity.
<PAGE>
Section 2.03 Financial Statements. Included in Schedule 2.03 to this
Agreement are the unaudited balance sheets of Seller as of March 31, 1995 and
1994, and the related statements of operations, stockholders' equity, and cash
flows for the years ended March 31, 1995 and 1994, including the notes thereto.
Such exhibit also includes the unaudited balance sheet of Seller as of September
30, 1995 ("Seller's Current Balance Sheet"), and the related statements of
operations, cash flows, and stockholders' equity for the six months ended
September 30, 1995, together with the notes thereto and representations by a
duly authorized officer of Seller to the effect that such financial statements
contain all adjustments (all of which are normal recurring adjustments)
necessary to present fairly the results of operations and financial position of
Seller for the periods and as of the dates indicated. All such audited and
unaudited financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved as explained in the notes to such financial statements.
Section 2.04 Absence of Certain Changes or Events. Except as set forth
in Schedule 2.04 to in this Agreement, since the date of Seller's Current
Balance Sheet described in Section 2.03 and included in Schedule 2.03, there has
not been (i) any material adverse change in the business, operations,
properties, level of inventory, assets, or condition of Seller or (ii) any
damage, destruction, or loss to Seller (whether or not covered by insurance)
materially and adversely affecting the business, operations, properties, assets,
or conditions of Seller, including any:
(a) material adverse change in the liabilities or assets of Seller
relating to its business;
(b) change in the manner in which Seller carries on its business or
preserves its business organization and existing business relations;
(c) transaction by Seller relating to its business, except in the
ordinary course of business as conducted on the date of Seller's Current
Balance Sheet;
(d) failure to maintain in full force and effect substantially the
same level and types of insurance coverage as in effect on the date of
Seller's Current Balance Sheet or any destruction, damage to, or loss of
any of the Acquired Assets (whether or not covered by insurance) materially
and adversely affecting the business or prospects of Seller relating to its
business;
(e) sale, assignment, transfer of any tangible or intangible assets
of Seller, including, without limitation, any rights to industrial or
intellectual property, except in the ordinary course of business;
(f) mortgage, pledge, or other encumbrance of any tangible or
intangible assets of Seller relating to its business; or
(g) written or oral agreement by Seller to take any of the actions
described above.
Section 2.05 Governmental Authorizations. Seller has all licenses,
franchises, permits, and other governmental authorizations that are legally
required to enable it to conduct its businesses in all material respects as
conducted on the date of this Agreement. No authorization, approval, consent,
or order of, or registration, declaration, or filing with, any court or other
governmental body is required in connection with the execution and delivery by
Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby.
Section 2.06 Accounts Receivable; Inventories. All of the Accounts
Receivable of Seller included in the Acquired Assets have arisen from bona fide
transactions by Seller in the ordinary course of its business and are good and
collectible in the ordinary course of business at the aggregate recorded amounts
thereof. The Inventory of Seller (including raw materials, supplies, work-in-
process, finished goods and other materials), a description of which is included
in an exhibit to this Agreement as provided above, is in good, merchantable and
usable condition.
<PAGE>
Section 2.07 Real Property.
(a) Seller will obtain, pay for, and deliver to Purchaser, within 10
days after execution of this Agreement, a commitment for a policy of title
insurance respecting the Real Property in the depreciated net value of Real
Property on Seller's Current Balance Sheet issued by a title insurance
company reasonable acceptable to Purchaser, accompanied by a copy of all
documents listed as exceptions to good and clear marketable title in such
commitment (the "Title Report"). Seller shall pay any title commitment
cancellation charge incurred in connection with the Title Report. Seller
shall also deliver to Purchaser (i) a copy of all leases affecting such
Real Property not expiring before the Closing Date, (ii) a copy of a survey
of the Real Property, if Seller has one, and (iii) a copy of each
environmental assessment or survey of the Real Property, if Seller has any.
The Title Report and the other documents and information described above,
which shall be included in Schedule 2.07 to this Agreement, are hereinafter
referred to as the "Real Property Disclosures."
(b) Seller warrants marketable title to the Real Property, save and
except for only the exceptions to title set forth in the Title Report that
are acceptable to Purchaser as not impairing good and clear marketable
title together with the printed exceptions and exclusions referred to in
such Title Report; private, public, and utility easements; roads and
highways, if any; party wall rights and agreements; the special taxes or
assessments for improvements not yet completed; installments not yet due at
the date hereof or at the Closing Date or any special tax or assessment for
improvements heretofore completed; rights-of-way for drainage ditches,
feeders and laterals; zoning laws and ordinances; all matters, including
but not limited to encroachments which would be disclosed by an accurate
survey and/or inspection of the Real Property; and all acts or omissions of
the Purchaser and all governmental authority and those acting by, through,
or under such parties.
(c) Purchaser hereby affirms that Seller, its officers, directors,
agents, employees and/or attorneys have not made, nor has Purchaser relied
upon, any representation, warranty, or promise with respect to the Real
Property except as expressly set forth in this Agreement, including without
limitation any warranties or representations, express or implied, as to the
general plan designation, zoning, value, use, tax status, or physical
condition of the Real Property or improvements thereon, or any part
thereof, including but not limited to, the flood elevations, drainage
patterns, soil and subsoils composition and compaction level, and other
conditions at the Real Property, or the existence or non-existence of toxic
or hazardous materials on or under the Real Property, or as to the accuracy
of any boundary survey or other survey or any soils reports or other plans
or reports therefor. Purchaser has had and will have an opportunity to
investigate the Real Property pursuant to the terms of this Agreement.
Without limiting the generality of the foregoing, EXCEPT AS EXPRESSLY SET
FORTH IN THIS AGREEMENT, PURCHASER IS PURCHASING THE REAL PROPERTY IN AN
"AS IS, WHERE IS" CONDITION, SUBJECT TO ALL FAULTS, INCLUDING BUT NOT
LIMITED TO BOTH LATENT AND PATENT DEFECTS. EXCEPT AS EXPRESSLY SET FORTH
IN THIS AGREEMENT, PURCHASER HEREBY WAIVES ALL WARRANTIES, EXPRESS OR
IMPLIED, REGARDING THE CONDITION AND USE OF THE REAL PROPERTY, INCLUDING
BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. Purchaser acknowledges that it will inspect the Real
Property and otherwise undertake to perform its own investigations in
connection therewith within the time periods set forth herein.
(d) Purchaser shall have until 30 calendar days after the date of
delivery of the Real Property Disclosures (the "Due Diligence Period") in
which to inspect the Real Property and the Real Property Disclosures. If,
within the Due Diligence Period, Purchaser advises Seller in writing of
objections to the status of title to or the condition of the Real Property,
Seller shall have the right to attempt to cure such objections within seven
calendar days after the expiration of such Due Diligence Period; Purchaser
shall have no obligation to cure such objections. If Seller does undertake
to cure such objections of Purchaser, such curative measures shall be set
forth in writing and shall be specifically enforceable by Purchaser. If
Purchaser's objections are not resolved to its satisfaction within such
seven calendar day cure period, Purchaser may void this Agreement by
written notice thereof to Seller within seven calendar days after
expiration of such seven day cure period. During the Due Diligence Period,
Purchaser shall have the right to terminate this Agreement for any reason.
If, at the end of the Due Diligence Period, this Agreement is not
terminated by Purchaser in the manner provided above, or Purchaser has not
delivered written objection to the Seller pursuant to this subsection, at
the Closing the Purchaser will be deemed to have accepted the Real Property
in "as is, where is" condition in accordance with the provisions set forth
herein.
<PAGE>
(e) For the purposes set forth in this section, Seller hereby grants
Purchaser a limited license to inspect the Real Property at reasonable
times agreeable to Seller, so long as such inspection does not damage the
improvements and other property located on the Real Property or interfere
with the ordinary conduct of Seller's business. Purchaser agrees to
indemnify, defend, and hold Seller harmless from any cost, expense, damage,
liability, or claim arising out of or in connection with the exercise by
the Purchaser of the rights conferred under or a violation of the
provisions of this section. Notwithstanding the above or anything else
herein, if Purchaser desires to have the Real Property inspected for the
presence of hazardous materials beyond a standard Phase I Environmental
Assessment or have the surface penetrated in any manner for any purpose
(such as soils tests), it shall first inform Seller in writing of such
desires. Thereafter, Seller and Purchaser shall meet to discuss how and
when such inspection(s) shall be undertaken, it being understood and agreed
that Seller is concerned about the confidentiality of any such inspection
and resulting reports, if any, and potential damage to or interference with
the Real Property.
(f) Seller does not guaranty, warrant, or represent that Purchaser's
inspection can or will be satisfactory to Purchaser. Furthermore, Seller
shall incur no liability or expense in connection with Purchaser's ability
or inability to satisfy any such inspection, nor shall Seller be obligated
to take any action, including but not limited to the elimination of any
defect of title or the remedying of any condition of the Real Property or
improvements thereon except for the payment of past due taxes and the
release of monetary liens and encumbrances. Any expenditure, commitment,
or other action taken by Purchaser pursuant to this section or otherwise
in contemplation of the Closing is taken at its own risk, and no such
expenditure, commitment, or action shall obligate the Seller to incur any
liability to Purchaser or any third party.
(g) The Real Property, a description of which is included in an
exhibit to this Agreement as provided above, constitutes all interests in
any real property, options to acquire any such interest, or easements,
rights of way, or similar rights with respect to real property owned by
Seller and used in or relating to the operation of its business. There are
no leases, subleases, tenancies or other rights of occupancy affecting such
Real Property. There is no lease or similar agreement under which Seller
is lessee of, or holds or operates, any real property owned by any third
person and used in or relating to Seller's business. The Real Property and
improvements owned by Seller and used in or relating to its business are in
good operating condition and repair, are suitable for the purposes for
which they are being used, and no such improvement, or any appurtenance
thereto or equipment therein, violates any restrictive covenant or any
provisions of any federal, state or local law, ordinance or zoning
regulation, or encroaches on any property owned by others. Seller has the
right, power, and authority to transfer good and clear marketable title in
real property comprising the Real Property to Purchaser, without the
consent of any other person or entity, as contemplated by this Agreement.
(h) At the Closing, Seller shall deliver possession of the Real
Property broom clean and free of debris and personal property not to be
conveyed pursuant hereto,
Section 2.08 Tangible Personal Property. The list of Tangible Personal
Property, a description of which is included in an exhibit to this Agreement as
provided above, is a complete and accurate list of all machinery, equipment,
vehicles, furniture and other tangible property owned or leased by Seller and
used in or relating to the operation of the business of Seller. The Tangible
Personal Property is in good operating condition and repair and is suitable for
the purposes for which it is being used. Unless otherwise stated in such
exhibit, all of such Tangible Personal Property is located on the Real Property
of Seller. All leases for tangible property are in full force and effect, have
an unexpired term as set forth in the lease agreements, and there is no
outstanding default or event that with the passage of time or notice would
constitute a default, on behalf of Seller or any other party to the lease
agreements. Seller has the right, power, and authority to transfer all of the
tangible and intangible property comprising the Acquired Assets to Purchaser,
without the consent of any other person or entity, as contemplated by this
Agreement. At the Closing, Seller will deliver possession of the Tangible
Personal Property to Purchaser with all equipment and vehicles in working order.
<PAGE>
Section 2.09 Intellectual Property. The list of Intellectual Property, a
description of which is included in an exhibit to this Agreement as provided
above, is a complete and accurate list of all of the trade secrets, technology,
know-how, tradenames, trademarks, servicemarks, and other proprietary
information owned by or used in connection with the business of Seller,
including all copyrights, patents, patent applications, registrations, and
applications with respect. Except as set forth in the above referenced exhibit,
Seller owns the entire right, title, and interest in and to such Intellectual
Property, and such Intellectual Property is not subject to the payment of
royalties or any other obligation to any other person or entity. Except as set
forth in the above referenced exhibit, none of the employees of Seller owns,
directly or indirectly, any right, title, or interest in or to the Intellectual
Property. To the best knowledge of Seller, none of the Intellectual Property is
subject to any order, decree, judgment, stipulation, settlement, encumbrance, or
attachment. There are no pending or threatened proceedings, litigation, or
other adverse claims of which Seller is aware affecting or with respect to the
Intellectual Property. The Intellectual Property does not infringe on the
copyright, patent, trade secret, know-how, or other proprietary right of any
other person or entity and comprises all such rights necessary to permit the
operation of the business of Seller as now being conducted.
Section 2.10 Employees and Related Agreements; ERISA.
(a) Schedule 2.10 contains a description of each "employee pension
benefit plan" (as such term is defined in Section 3(2) of Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) or "welfare
benefit plan" (as such term is defined in Section 3(1) of ERISA),
maintained by Seller, or with respect to which Seller is required to
contribute, on behalf of any employees of Seller. Each of the plans
described in such schedule which is intended to qualify under Section
401(a) of the Internal Revenue Code (the "Code"), other than any
"multiemployer plan" (as such term is defined in Section 3(37) of ERISA)
has received a favorable determination letter from the IRS, and no event
has occurred which would cause any such plan to cease being so qualified.
Each of the plans described on such schedule (other than any multiemployer
plans) complies in form in all material respects in accordance with the
requirements of ERISA and, where applicable, the Code. To the best
knowledge of Seller, each multiemployer plan is qualified under Section
401(a) of the Code and complies in form in all material respects and has
been administered in all material respects in accordance with the
requirements of ERISA and, where applicable, the Code.
(b) None of Seller's employee plans subject to Title IV of ERISA has
terminated since September 2, 1974; no proceeding has been initiated to
terminate any such plan; and there has been no "reportable event" (within
the meaning of Section 4043(b) of ERISA) since September 2, 1974. Seller
has not incurred any liability on account of a "partial withdrawal" or a
"complete withdrawal" (within the meaning of Sections 4203 and 4205,
respectively, of ERISA) from any multiemployer plan, and Seller is not
aware of any events which could result in any such partial or complete
withdrawal. None of Seller's employee plans which is a defined benefit
plan has incurred any "accumulated funding deficiency" (within the meaning
of Section 412 of the Code), whether or not waived. Assuming that each of
Seller's employee plans which is subject to Title IV of ERISA (other than
multiemployer plans) were terminated as of the Closing Date, Seller would
not have any liability under Title IV of ERISA as a result of such
termination. The Seller has no obligations under any of Seller's employee
plans or otherwise to provide health benefits to former employees of
Seller, except as specifically required by law.
<PAGE>
(c) Except as to multiemployer plans (as to which this representation
and warranty is made to the best knowledge of Seller), neither Seller nor,
to the best knowledge of Seller, any other "disqualified person" (within
the meaning of Section 4975 of the Code) or "party in interest" (within the
meaning of Section 3(14) of ERISA) has engaged in any "prohibited
transaction" (within the meaning of Section 4975 of the Code or Section 406
of ERISA) with respect to any of Seller's employee plans which could
subject any such plan (or its related trust) or Seller, or any officer,
director or employee of Seller to the penalty or tax under Section 402(i)
of ERISA or Section 4975 of the Code.
(d) There is no pending or, to the best knowledge of Seller,
threatened claim which alleges any violation of ERISA or any other law (i)
by or on behalf of any of Seller's plans or (ii) by any employee of Seller
or any plan participant or beneficiary against any such plan.
Section 2.11. Employee Relations. The Seller has complied in respect of
the business of the Seller in all material respects with all applicable laws,
rules and regulations that relate to prices, wages, hours, harassment, disabled
access, and discrimination in employment and collective bargaining and to the
operation of its business and is not liable for any arrears of wages or any
taxes or penalties for failure to comply with any of the foregoing. Seller
believes that its relations with the employees of Seller are satisfactory.
Section 2.12 Litigation and Proceedings. There are no actions, suits, or
proceedings pending or, to the knowledge of Seller, threatened by or against, or
affecting Seller or the properties of Seller, at law or in equity, before any
court or other governmental agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind; Seller does not have any knowledge of any
default on its part with respect to any judgment, order, writ, injunction,
decree, award, rule, or regulation of any court, arbitrator, or governmental
agency or instrumentality.
Section 2.13 Material Contract Defaults. Seller is not in default in any
respect under the terms of any outstanding contract, agreement, lease, or other
commitment which is material to the business, operations, properties, assets, or
condition of Seller, and there is no event of default or other event which, with
notice or lapse of time or both, would constitute a default in any material
respect under any such contract, agreement, lease, or other commitment in
respect of which Seller has not taken adequate steps to prevent such a default
from occurring.
Section 2.14 Taxes. All federal, state, local, and foreign tax returns
and tax reports required to be filed by or on behalf of Seller have been filed
with the appropriate governmental agency and all jurisdictions in which such
reports are required to be filed and all taxes which have become due pursuant to
such tax returns or to any assessment which has become payable have been paid.
Proper and accurate amounts of taxes have been withheld by or on behalf of
Seller with respect to all compensation paid to employees of Seller for all
periods ending on or before the date hereof, and all deposits required with
respect to compensation paid to such employees have been made, in complete
compliance with the provisions of all applicable federal, state, and local tax
and other laws.
Section 2.15 Third-Party Consents. No contract, agreement, lease, or
other commitment, written or oral, to which Seller is a party or to which any of
its properties or assets are subject require the consent of the other party in
order to consummate the transactions herein contemplated, except where the
failure to obtain such consent would not have a material adverse effect on the
Acquired Assets.
Section 2.16 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed of
trust, or other material contract, agreement, or instrument to which Seller is a
party or to which any of its properties or operations are subject, except where
such breach or default would not have a material adverse effect on the assets
transferred pursuant hereto.
Section 2.17 Compliance With Laws and Regulations. Seller has complied
with all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations, properties,
assets, or condition of Seller or except to the extent that noncompliance would
not result in the incurrence of any material liability for Seller.
<PAGE>
Section 2.18 Hazardous Substances.
(a) The following words and phrases shall have the meanings
indicated:
(i) "Current Actual Knowledge" shall mean that no information
that would give Seller current actual knowledge of the inaccuracy of
any statements has come to the attention of Seller and/or its officers
and directors; however, no special or independent investigation has
been undertaken to determine the accuracy of such statements.
(ii) "Environment" shall mean soil, surface waters, groundwaters,
land, stream sediments, surface or subsurface strata, ambient air, and
any environmental medium.
(iii) "Environmental Law" shall mean any environmental
related law, regulation, rule, ordinance, or bylaw at the federal,
state, or local level, existing as of the date hereof.
(iv) "Hazardous Material" shall mean any pollutant, toxic
substance, hazardous waste, hazardous material, hazardous substance,
or oil as currently defined in the Resource Conservation and Recovery
Act, as amended; the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended; the Federal Clean Water
Act, as amended; or any other federal, state, or local environmental
law, regulation, ordinance, rule, or bylaw, existing as of the date
hereof.
(v) "Permit" shall mean environmental permit, license, approval,
consent, or authorization issued by a federal, state, or local
governmental entity.
(vi) "Premises" shall mean the real property owned or leased by
Seller on which it currently conducts the business of Seller.
(vii) "Release" shall mean any releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing, or dumping into the Environment.
(viii) "Threat of Release" shall mean a substantial likelihood
of a Release which requires action to prevent or mitigate damage to
the Environment which may result from such Release.
(b) To Seller's Current Actual Knowledge, Seller has no liability
under any Environmental Law applicable to the Premises and the facilities
and operations thereon. To Seller's Current Actual Knowledge, there are
not currently any violations of Environmental Laws existing on the Premises
or with respect to any facilities or operations thereon.
(c) To Seller's Current Actual Knowledge, Seller has not violated and
is in compliance with all Environmental Laws applicable to the Premises and
the facilities and operations thereon and has not generated, manufactured,
refined, transported, treated, stored, handled, disposed, transferred,
produced, processed, or Released any Hazardous Material on the Premises,
except in compliance with such Environmental Laws, and has no Current
Actual Knowledge of the Release or Threat of Release of any Hazardous
Material on the Premises in violations of such Environmental Laws.
(d) Seller has not:
(i) Entered into or been subject to any consent decree,
compliance, order, or administrative order with respect to the
Premises or any facilities or operations thereon;
<PAGE>
(ii) Received notice under the citizen suit provision of any
violation of any Environmental Law in connection with the Premises or
any facilities or operations thereon;
(iii) Received any request for information, notice, demand
letter, administrative inquiry, or claim with respect to a violation
of any Environmental Law relating to the Premises or any facilities or
operations thereon;
(iv) Been subject to or threatened with any governmental or
citizen enforcement action with respect to a violation of any
Environmental Law on the Premises or at any facilities or operations
thereon; or
(v) Received notice of any civil action with respect to any
damages claimed to result from a Release of any Hazardous Material on
the Premises.
Section 2.19 Insurance. The list of Insurance Policies, a description of
which is included as an exhibit to this Agreement as provided above, is a
complete and accurate description (including nature of coverage, limits,
deductibles, premiums and the loss experience for the most recent five years
with respect to each type of coverage) of all policies of insurance maintained,
owned or held by Seller on the date hereof with respect to the Acquired Assets
or the business of Seller. All of the insurable properties of Seller are
insured for the benefit of Seller in the amount of their full replacement value
(subject to reasonable deductibles) against losses due to fire and other
casualty, with extended coverage, and other risks customarily insured against by
persons operating similar properties in the localities where such properties are
located and under valid and enforceable policies issued by insurers of
recognized responsibility. Such policy or policies containing substantially
equivalent coverage will be outstanding and in full force at the Closing Date,
as hereinafter defined. Seller makes no representation, warranty, or covenant
as to whether any of the Insurance Policies or the benefits thereof may be
conveyed to Purchaser. In the event any such insurance policy cannot be
assigned, either by the express terms of such policy or the governing practices
or policies of the issuer thereof, Seller shall convey to Purchaser any premium
or deposit refund received as a result of the termination or cancellation of
such policy.
Section 2.20 Customers and Suppliers. There exists no actual or
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship of Seller with any customer or group of
customers of Seller, or whose purchases individually or in the aggregate are
material to the operations of the business of Seller, or with any supplier or
group of suppliers of Seller, or whose sales individually or in the aggregate
are material to the operations of the business of Seller, and there exists no
present or future condition or state of facts or circumstances involving
customers, suppliers or sales representatives which Seller can now reasonably
foresee would materially adversely affect the business of Seller or prevent the
conduct of such business after the consummation of the transactions contemplated
by this Agreement in essentially the same manner in which it has heretofore been
conducted.
Section 2.21 Information. The information concerning Seller set forth in
this Agreement and in the exhibits hereto is complete and accurate in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact required to make the statements made, in light
of the circumstances under which they were made, not misleading.
Section 2.22 Broker's Fees. The Seller has not engaged or entered into
any agreement with any broker or finder in connection with any of the
transactions contemplated by this Agreement requiring the payment of any fee or
compensation.
Section 2.23 Seller Schedules. Seller has delivered to Purchaser the
following disclosure schedules, which are collectively referred to as the
"Seller Schedules" and which consist of separate schedules dated as of the date
of execution of this Agreement and documents, instruments and data as of such
date, all certified by a duly authorized officer of Seller as complete, true,
and correct:
<PAGE>
(a) A schedule in accordance with section 2.03 containing Seller's
financial statements and Seller's Current Balance Sheet;
(b) A schedule in accordance with section 2.04 describing the
material changes to Seller since the date of Seller's most recent balance
sheet;
(c) A schedule setting forth the Real Property Disclosures and
information referred to in section 2.07 with respect to the real property
interests of Seller;
(d) A schedule containing a summary of each employee benefit plan of
Seller as required by section 2.10; and
(e) A schedule setting forth any other information required to be
disclosed in Seller Schedules by sections 2.01 through 2.22 of this
Agreement.
Seller shall cause the exhibits to this Agreement, the Seller's Schedules, and
the other documents, instruments, and data delivered to Purchaser hereunder to
be updated after the date hereof and prior to the Closing Date.
ARTICLE III.
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF PURCHASER
The Purchaser hereby represents, warrants, and covenants to Seller, such
representations, warranties, and covenants to be made as of the date hereof and
at and as of the Closing Date and to survive the Closing and continue in
accordance with the terms hereof (except as otherwise expressly set forth in
article VII hereof), as follows:
Section 3.01 Organization, Standing and Power of Purchaser. Purchaser is
a corporation duly organized, validly existing, and in good standing under the
laws of the state of Utah and has the power and is duly authorized, qualified,
franchised, and licensed under all applicable laws, regulations, ordinances, and
orders of public authorities to own all of its properties and assets and to
carry on its business in all material respects as it is now being conducted and
is proposed to be conducted immediately following the Closing.
Section 3.02 Authority. The execution, delivery, and performance of this
Agreement has been duly and validly authorized and approved by Purchaser's board
of directors and shareholder(s). The execution of and delivery of this
Agreement do not, and the consummation of the transactions described herein will
not, result in or constitute a default, breach or violation of Purchaser's
articles of incorporation or bylaws or any other agreement to which Purchaser is
a party.
Section 3.03 Broker's Fees. Purchaser has not engaged or entered into
any agreement with any broker or finder in connection with any of the
transactions contemplated by this Agreement requiring the payment of any fee or
compensation.
Section 3.04 Material Misstatements or Omissions. To the best of
Purchaser's knowledge and belief, no representation, warranty, or statement of
Purchaser in this Agreement or in any document, certificate, or exhibit
furnished under this Agreement or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or omits
to state a material fact necessary to make the statements or facts contained
therein not misleading.
ARTICLE IV.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to purchase the Acquired Assets and assume the
Obligations is subject to the satisfaction, at or before Closing, of each of the
conditions set out below except for any condition which has been waived in a
writing signed by Purchaser at or prior to the Closing.
<PAGE>
Section 4.01 Performance by Seller. Seller shall have substantially
performed all conditions of this Agreement unless the requirement has been
waived in writing by Purchaser.
Section 4.02 Corporate Approval. The board of directors and shareholders
of Seller shall have approved the transactions described in this Agreement and
resolutions setting forth those approvals shall have been certified to Purchaser
by an officer of Seller.
Section 4.03 Satisfaction of Condition of Title to Real Property.
Purchaser shall not have timely terminated this Agreement pursuant to the
provisions of section 2.07.
Section 4.04 No Material Adverse Change Through the Closing Date. There
shall not have been any material adverse change in the financial condition or in
the results of operations of Seller's business, and it shall not have sustained
any material loss or damage to the Acquired Assets, whether or not insured,
materially affecting Seller's ability to conduct a material part of its
business.
Section 4.05 Absence of Litigation. No action, suit, or proceeding
before any court or any governmental body or authority pertaining to the
acquisition of the Acquired Assets by Purchaser or materially affecting the
Acquired Assets shall have been instituted or threatened on or before the
Closing.
Section 4.06 Closing Date Review and Deliveries. On and as of the
Closing Date, Seller shall, together with one or more representatives of
Purchaser, undertake a Closing Date review of Seller's books, records, and
physical inventory. The Seller shall have provided Purchaser with a true,
correct, and complete list and amount, as of Closing Date, of:
(a) the Inventory;
(b) the Tangible Personal Property;
(c) Seller's Accounts Receivable with respect to its business and a
list of all shipped but unbilled shipments as of the Closing Date,
including an aging thereof;
(d) Seller's trade accounts payable and accrued liabilities that
constitute the Assumed Obligations with respect to its business;
(e) all unfilled customer orders with respect to Seller's business;
and
(f) all shipments made with respect to Seller's business during the
period from the date of this Agreement to the Closing Date,
none of which information shall, in Purchaser's sole reasonable discretion, be
materially different from the information supplied by Seller as of the date of
Seller's Current Balance Sheet.
Section 4.07 Third Party Consents. The Seller shall have obtained
consents of all third parties whose consent is required to the transfer of any
Acquired Assets described herein, including, without limitation, any consents
reasonably requested by Purchaser.
ARTICLE V.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligation of Seller to sell the Acquired Assets is subject to
Purchaser's satisfaction, at the time of Closing, of the conditions set out
below, except for any condition which has been waived in writing by Seller at or
prior to the Closing.
<PAGE>
Section 5.01 Performance by Purchaser. Purchaser shall have
substantially performed all the conditions of this Agreement, unless the
requirement has been waived in writing by Seller.
Section 5.02 Corporate Approval. The board of directors and
shareholder(s) of Purchaser shall have approved the transactions described in
this Agreement and resolutions setting forth those approvals shall have been
certified to Seller by an officer of Purchaser.
ARTICLE VI.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made in Articles II and III shall be
continuing and shall survive the Closing, but shall expire 12 months after the
Closing Date; provided, however, that if a claim for indemnification has been
asserted pursuant to Article VII prior to or as of the expiration date of such
12-month period, such representations and warranties shall remain in full force
and effect until full and complete resolution of such claim pursuant to Article
VII hereof. Notwithstanding the foregoing, however, the time for making a
claim based upon such representation or warranty shall expire 12 months after
the Closing Date.
ARTICLE VII.
INDEMNIFICATION
Section 7.01 By Purchaser and Seller. Purchaser, on the one hand, and
Seller on the other hand, each hereby agrees to indemnify and hold harmless the
other party against all claims, damages, losses, liabilities, costs, and
expenses (including, without limitation, settlement costs and any legal,
accounting, or other expenses for investigating or defending any actions or
threatened actions) reasonably incurred by the indemnified party in connection
with each and all of the following:
(a) any breach by the indemnifying party of any representation or
warranty in this Agreement;
(b) any breach of any covenant, agreement, or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument, or document contemplated by this Agreement; and
(c) any misrepresentation contained in any statement, exhibit,
certificate, or schedule furnished by the indemnifying party pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement.
Section 7.02 By Seller. The Seller agrees to indemnify and hold harmless
Purchaser from any and all claims, damages, liabilities, costs, and expenses
(including, without limitation, settlement costs and any legal, accounting, or
other expenses for investigating or defending any actions or threatened actions)
reasonably incurred by the indemnified party in connection with each and all of
the following:
(a) any claims against, or liabilities or obligations of, Seller or
against the Acquired Assets not specifically assumed by Purchaser pursuant
to this Agreement;
(b) the failure of Purchaser to obtain the protections afforded by
compliance with the notification and other requirements of the bulk sales
laws in force in the jurisdictions in which such laws may be applicable to
either Seller or the transactions contemplated by this Agreement; and
<PAGE>
(c) any and all claims, damages, losses, liabilities, costs, and
expenses including, without limitation, settlement costs and any legal,
accounting, or other expenses for investigating or defending any actions or
threatened actions) reasonably incurred by Purchaser in connection with any
warranty claim or product liability claim relating to (i) products
manufactured or sold by Seller prior to the Closing Date, or (ii) Seller's
business or operations prior to the Closing Date.
Section 7.03 Claims for Indemnification. Whenever any claim shall arise
for indemnification hereunder, the party seeking indemnification (the
"Indemnified Party"), shall promptly notify, in writing, the party from whom
indemnification is sought (the "Indemnifying Party") of the claim and, when
known, the facts constituting the basis for such claim. In the event of any
such claim for indemnification hereunder resulting from or in connection with
any claim or legal proceedings by any party, the notice to the Indemnifying
Party shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. The Indemnified Party shall not settle or
compromise any claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent of the Indemnifying
Party, when shall not be unreasonably withheld, unless suit shall have been
instituted against it and the Indemnifying Party shall not have taken control of
such suit after notification thereof as provided in section 7.04 hereof.
Section 7.04 Defense by Indemnifying Party. In connection with any claim
giving rise to indemnity hereunder resulting from or arising out any claim or
legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party, at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate (but not control) the defense
of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within 30 days after the date such claim is made:
(a) the Indemnified Party may defend against such claim or litigation
in such manner as it may deem appropriate, including, but not limited to,
settling such claim or litigation, after giving notice of the same to the
Indemnifying Party, on such terms as the Indemnified Party may deem
appropriate; and
(b) the Indemnifying Party shall be entitled to participate in (but
not control) the defense of such action, with its counsel and at its own
expense. If the Indemnifying Party thereafter seeks to question the manner
in which the Indemnified Party defended such third party claim or the
amount or nature of any such settlement, the Indemnifying Party shall have
the burden to prove by a preponderance of the evidence that the
Indemnified Party did not defend or settle such third party claim in a
reasonably prudent manner.
ARTICLE VIII.
SPECIAL COVENANTS
Section 8.01 Obligations After Closing. For a period of 18 months
following the Closing Date, Seller and Purchaser shall have access to and the
right to copy all of the records of each other relative to Seller's business as
maybe necessary for preparation of employee or corporate tax returns, employee
tax reports, and customary accounting functions. Additionally, Seller and
Purchaser shall agree to make available to the other, at reasonable times and
upon reasonable advance notice, relevant records and personnel in connection
with the preparation of a defense or the participation in a defense,
participation in the prosecution of claim or litigation, and negotiation of a
settlement relating to any pending, future, or threatened litigation, or
government agency proceeding (including a tax audit) involving the conduct of
Seller's business before or after the Closing, as the case may be, or in the
perfection, registration, or transferring of any copyright, trademark right, or
other proprietary information or right acquired by Purchaser hereunder.
Section 8.02 Waiver of Bulk Sale. Purchaser hereby waives compliance by
Seller with the provisions of the Utah Commercial Code applicable to bulk
transfers, section 70A-6-101, et seq., UTAH CODE ANNOTATED.
ARTICLE IX.
SPECIFIC PERFORMANCE
The parties hereto agree the failure of any party to perform any obligation
or duty which each has agreed to perform shall cause irreparable harm to the
parties willing to perform the obligations and duties herein, which harm cannot
be adequately compensated for by money damages. It is further agreed by the
parties hereto an order of specific performance against a party in default under
the terms of this Agreement would be equitable and would not work a hardship on
the defaulting party. Accordingly, in the event of default by any party hereto,
the non-defaulting party, in addition to whatever other remedies are available
at law or in equity, shall have the right to compel specific performance by the
defaulting party of any obligation or duty herein.
<PAGE>
ARTICLE X.
ARBITRATION
If at any time during the term of this Agreement any question,
disagreement, difference, or controversy shall arise among the parties hereto
regarding the meaning or interpretation of this Agreement or any
representations, warranties, covenants, rights, duties, or obligations of the
parties hereunder whether factual, technical, legal, equitable, or otherwise,
such question, disagreement, difference, or controversy shall be submitted to
and determined by arbitration in accordance with this Article X as follows:
Section 10.01 Appointment of Arbitrator. If either Seller or Purchaser
wish to submit a matter to arbitration, they shall give to the other party a
notice of arbitration (the "Notice of Arbitration") setting forth in reasonable
detail the issue or issues to be submitted to arbitration. Within 20 days after
such Notice of Arbitration, both Seller and Purchaser shall appoint one
arbitrator each. If either party does not so appoint timely its separate
arbitrator, the arbitrator representing the party not so appointing an
arbitrator shall be appointed by a Utah court having jurisdiction over such
issues, upon the application of the other party hereto. The arbitrators
appointed or designated as set forth above shall meet within 10 days after the
last of such arbitrator to be appointed is named and attempt to agree on a
resolution of the issues. If, within 30 days thereafter, the arbitrators do not
agree upon a resolution of the issues, such arbitrators shall themselves appoint
a third arbitrator, who shall be a competent and impartial person, and in the
event of their being unable to agree upon such appointment within 10 days after
the time set forth above, the third arbitrator shall be selected by the parties
themselves if they can agree thereon within a further period of 15 days. If the
parties do not so agree, then either party, on behalf of both, may request such
appointment by a Utah court having jurisdiction over such issues. In the event
of the failure, refusal, or inability of any arbitrator to act, a new arbitrator
shall be appointed in his stead, which appointment shall be made in the same
manner as hereinbefore provided for the appointment of such arbitrator so
failing, refusing, or being unable to act.
Section 10.02 Payment of Expenses; Qualification of Arbitrator. Each
party shall pay the fees and expenses of the arbitrator appointed by such party
or in whose stead, as provided above, such arbitrator was appointed, and the
fees and expenses of the third arbitrator, and all other expenses, if any, of
the arbitration shall be borne equally by the parties, except as provided below.
Notwithstanding the foregoing, the legal, expert witness, and other
representation costs of a party shall be borne by the party to whom such
expenses related. Any arbitrator designated to serve in accordance with the
provisions of this Agreement shall be disinterested and shall, by reason of
education, experience, or both, be capable of evaluating financial statements
and the presentation of information therein, but shall not be required to be a
certified public accountant.
Section 10.03 Rules of Arbitration. It shall be the duties of the
arbitrators to resolve the issues in dispute as promptly as practicable after
their appointment. If there are three arbitrators, as majority of the
arbitrators may act if one of the arbitrators shall neglect or refuse to take
part in the deliberations of the arbitrators. The arbitration provided herein
shall be conducted in Utah pursuant to the Utah Arbitration Act, Utah Code,
Title 38, Chapter 31a. The arbitrators shall follow such rules in reaching
their decision as they and the parties involved in this dispute shall agree upon
and otherwise, to the extent applicable, shall follow the rules of the American
Association Utah Real Estate Buyer/Seller Mediation Rules of the American
Arbitration Association. The arbitrators shall set forth their decision in
writing, and the determination of the issues by the above arbitrators shall be
binding upon the parties for the purposes set forth in this Agreement.
Section 10.04 Submittal of Arbitration Evidence. The parties involved in
the dispute shall be permitted to submit to the arbitrators written positions,
testimonial, documentary, and other evidence, and arguments concerning the
matters in issue.
ARTICLE XI.
MISCELLANEOUS PROVISIONS
Section 11.01 Costs. Purchaser and Seller shall each pay all of their own
costs and expenses incurred or to be incurred by each in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
<PAGE>
Section 11.02 Notices. Any notice, demand, request, or other
communication under this Agreement shall be in writing and shall be deemed to
have been given on the date of service if personally served or on the third day
after mailing if m ailed by certified mail, return receipt requested, addressed
as follows:
If to Seller, to: Rex Industries, Inc.
Attn: Rex Crosland
2801 Decker Lake Lane
Salt Lake City, Utah 84119
Telecopy: (801) 974-5511
With copies to: James R. Kruse
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101
Telecopy: (801) 359-3954
If to Purchaser, to: Rex Industries Acquisition Corporation
Attn: Todd B. Crosland
630 North 400 West
Salt Lake City, Utah 84103
Telecopy: (801) 974-5511
With copies to: Gregory L. Seal
Seal & Kennedy
1366 East Murray-Holladay Road, Suite 200
Salt Lake City, Utah 84117
Telecopy: (801) 272-4512
or such other addresses and facsimile numbers as shall be furnished in writing
by any party in the manner for giving notices hereunder, and any such notice,
demand, request, or other communication shall be deemed to have been given as of
the date so delivered or sent by facsimile transmission, three days after the
date so mailed, or one day after the date so sent by overnight delivery.
Section 11.03 Attorneys' Fees. In the event that any party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the breaching party or parties shall reimburse the
nonbreaching party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
Section 11.04 Schedules and Exhibits; Knowledge. Whenever in any section
of this Agreement reference is made to information set forth in the exhibits or
the Seller Schedules, such reference is to information specifically set forth in
such exhibits or schedules and clearly marked to identify the section of this
Agreement to which the information relates. Whenever any representation is made
to the "knowledge" of any party, it shall be deemed to be a representation that
no officer or director of such party, after reasonable investigation, has any
knowledge of such matters.
Section 11.05 Entire Agreement. This Agreement, together with the
documents to be delivered pursuant hereto, represent the entire agreement
between the parties relating to the subject matter hereof. There are no other
courses of dealing, understanding, agreements, representations, or warranties,
written or oral, except as set forth herein.
<PAGE>
Section 11.06 Survival; Termination. The representations, warranties, and
covenants of the respective parties shall survive the Closing.
Section 11.07 Form of Execution; Counterparts. A valid and binding
signature hereto or any notice or demand hereunder may be in the form of a
manual execution or a true copy made by photographic, xerographic, or other
electronic process that provides similar copy accuracy of a document that has
been executed. This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which taken together shall be but a
single instrument.
Section 11.08 Amendment or Waiver. Every right and remedy provided herein
shall be cumulative with every other right and remedy, whether conferred herein,
at law, or in equity, and may be enforced concurrently herewith, and no waiver
by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Closing Date, this
Agreement may be amended by a writing signed by all parties hereto, with respect
to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance thereof may be extended by a
writing signed by the party or parties for whose benefit the provision is
intended.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
REX INDUSTRIES, INC.
By /s/
Rex Crosland, President
REX INDUSTRIES ACQUISITION CORPORATION
By /s/
Todd B. Crosland, President
<PAGE>
Omitted Exhibits/Schedules to the Acquisition Agreement
Exhibit/Schedule Description
- ---------------- ------------------------------------
Exhibit "A" TANGIBLE PERSONAL PROPERTY
Exhibit "B" REAL PROPERTY
Exhibit "C" INVENTORY
Exhibit "D" ACCOUNTS RECEIVABLE
Exhibit "E" CONTRACT RIGHTS
Exhibit "F" CASH, BANK DEPOSITS AND CASH
EQUIVALENTS
Exhibit "G" PREPAID EXPENSES
Exhibit "H" INTELLECTUAL PROPERTY
Exhibit "I" INSURANCE POLICIES
Exhibit "J" ASSUMED OBLIGATIONS
Exhibit "K" EMPLOYEE BENEFITS
Exhibit "L" ASSUMPTION AGREEMENT
Exhibit "M" PROPERTY DESCRIPTION
Schedule 1.12 PURCHASE PRICE ALLOCATION
Schedule 2.03 SELLER'S FINANCIAL STATEMENTS
Schedule 2.04 CHANGES OR EVENTS AFFECTING
SELLER'S BUSINESS
Schedule 2.07 REAL PROPERTY DISCLOSURES
Schedule 2.10 EMPLOYEE PENSION BENEFIT PLAN
Upon request, the Company will supplementally furnish the Commission with a copy
of any omitted Exhibit/Schedule.
