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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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Commission File Number: 000-19788
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MENLEY & JAMES, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2621602
(State of incorporation) (I.R.S. Employer Identification No.)
100 Tournament Drive
Horsham, Pennsylvania 19044
(Address of principal executive office)
(215) 441-6500
Registrant's telephone number
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
--- ---
The number of shares of the registrant's common stock, par value $.01
per share, outstanding as of November 10, 1998, was 6,163,520.
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MENLEY & JAMES, INC.
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited). Page No.
Condensed Consolidated Balance Sheets - September 30, 1997, December 31, 1997
and September 30, 1998............................................................................. 3
Condensed Consolidated Statements of Operations - Three and Nine Months
Ended September 30, 1997 and 1998................................................................... 4
Condensed Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1997 and 1998.................................................................. 5
Notes to Condensed Consolidated Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................ 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk ................................. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 9
Item 2. Changes in Securities........................................................................ 9
Item 3. Defaults Upon Senior Securities.............................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 9
Item 5. Other Information............................................................................ 9
Item 6. Exhibits and Reports on Form 8-K............................................................. 9
Signature............................................................................................. 9
</TABLE>
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MENLEY & JAMES, INC.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1997 1998
-------- -------- --------
(Unaudited) (Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 1,646 $ 2,879 $ 3,376
Accounts receivable, net of allowances of $464 and
$524 in 1997 and $477 in 1998 ........................ 3,116 2,474 2,748
Inventory .............................................. 3,218 2,844 3,059
Other current assets ................................... 1,998 1,698 328
-------- -------- --------
Total current assets ................................... 9,978 9,895 9,511
Other long-term assets ..................................... 1,412 1,435 1,392
Product lines, trade names and packaging designs, net ...... 11,387 11,123 5,709
Long-term deferred tax asset ............................... 62 -- --
-------- -------- --------
Total assets ........................................... $ 22,839 $ 22,453 $ 16,612
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................... $ 1,248 $ 840 $ 762
Accrued expenses ....................................... 540 647 2,408
Current portion of capital lease obligation ............ 40 36 --
-------- -------- --------
Total current liabilities .............................. 1,828 1,523 3,170
Preferred stock, $1 par value, authorized 5,000,000 shares,
none issued and outstanding ............................ -- -- --
Stockholders' equity:
Common stock, $.01 par value, authorized 15,000,000
shares, issued and outstanding 6,148,518 and 6,163,518
shares in 1997 and 6,163,520 in 1998 ................. 61 62 62
Additional paid-in capital ............................. 45,454 45,463 45,463
Accumulated deficit .................................... (24,504) (24,595) (32,083)
-------- -------- --------
Total stockholders' equity ................................. 21,011 20,930 13,442
-------- -------- --------
Total liabilities and stockholders' equity ............. $ 22,839 $ 22,453 $ 16,612
======== ======== ========
</TABLE>
See accompanying notes.
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MENLEY & JAMES, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .................................. $ 3,546 $ 3,557 $ 10,397 $ 10,479
Cost of goods sold ......................... 1,714 1,734 5,050 4,952
-------- -------- -------- --------
Gross profit ............................... 1,832 1,823 5,347 5,527
Selling, general and administrative expenses 1,244 1,292 4,013 4,812
Depreciation and amortization .............. 342 328 1,034 995
-------- -------- -------- --------
Income (loss) from operations .............. 246 203 300 (280)
Interest income ............................ 25 42 48 122
Loss on Sale - Note A ...................... -- 6,632 -- 6,632
-------- -------- -------- --------
Income (loss) before income taxes .......... 271 (6,387) 348 (6,790)
Provision for income taxes ................. 350 1,283 504 698
-------- -------- -------- --------
Net loss ................................... $ (79) $ (7,670) $ (156) $ (7,488)
======== ======== ======== ========
Basic loss per share ....................... $ (0.01) $ (1.24) $ (0.03) $ (1.21)
======== ======== ======== ========
Diluted loss per share ..................... $ (0.01) $ (1.24) $ (0.03) $ (1.21)
======== ======== ======== ========
Weighted average number of common
shares outstanding - basic ............... 6,148 6,163 6,148 6,163
======== ======== ======== ========
Weighted average number of common
shares outstanding - diluted ............. 6,185 6,242 6,172 6,208
======== ======== ======== ========
</TABLE>
See accompanying notes.
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MENLEY & JAMES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
---------------------
1997 1998
------- -------
Cash flows from operating activities:
Net loss ...................................... $ (156) $(7,488)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization .............. 1,034 995
Allowance for accounts receivable .......... (60) 13
Amortization of deferred financing costs ... 28 --
Deferred income taxes ...................... 474 692
Loss on Sale ............................... -- 6,632
Changes in operating assets and liabilities:
Accounts receivable ...................... (335) (287)
Inventory ................................ 184 (215)
Prepaid expenses ......................... (891) 678
Accounts payable ......................... 139 (78)
Accrued expenses ......................... (1) (239)
------- -------
Net cash provided by operating activities ......... 416 703
Cash flows used in investing activities:
Other, principally property purchases, net .... (305) (170)
Cash flows used in financing activities:
Repayment of borrowings ....................... (670) (36)
------- -------
Net increase (decrease) in cash ................... (559) 497
Cash and cash equivalents, beginning of period .... 2,205 2,879
------- -------
Cash and cash equivalents, end of period .......... $ 1,646 $ 3,376
======= =======
See accompanying notes.
5
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MENLEY & JAMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included, as well as an adjustment to record the loss associated with the
sale of substantially all of the assets and assignment of substantially all of
the liabilities of the Company, as described in Note A. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1997.
Operating results for the nine-month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
NOTE A - SALE OF ASSETS
The Company has entered into an agreement dated August 21, 1998, as amended
October 13, 1998 and November 11, 1998, (the "Sale Agreement"), pursuant to
which the Company will sell substantially all of its assets and assign
substantially all of its liabilities to Numark Laboratories, Inc., for a
purchase price of $13,430,000 (the "Sale"). Approval and adoption of the Sale
Agreement require the affirmative vote of holders of a majority of the
outstanding common shares of the Company. Concurrent with the execution of the
Sale Agreement, stockholders who beneficially own, in the aggregate,
approximately 53.5% of the outstanding shares of the Company's common stock
agreed to vote their shares in favor of approval and adoption of the Sale
Agreement. The Company expects the Sale to be completed as soon as practicable
after the Company's November 23, 1998 Special Meeting of Stockholders to approve
and adopt the Sale Agreement.
The Sale results in a loss to the Company totaling approximately $7.9 million,
which is comprised of pretax charges of $2.0 million for severance and
transaction-related costs and a $4.6 million write-down to their net realizable
value of all assets to be sold and a reversal of the tax benefit recorded during
1998 and a valuation allowance for previously recorded deferred tax assets
totaling $1.3 million.
NOTE B - INVENTORIES
Inventories consist of the following (in thousands):
September 30, December 31, September 30,
1997 1997 1998
------ ------ ------
Raw materials ............... $1,131 $1,095 $1,302
Work in process ............. 596 280 240
Finished goods .............. 1,491 1,469 1,517
------ ------ ------
$3,218 $2,844 $3,059
====== ====== ======
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Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Sale of Assets
Menley & James, Inc., (the "Company") has entered into an Asset Purchase
Agreement dated August 21, 1998, and as amended by Amendment No. 1 dated as of
October 13, 1998 and Amendment No. 2 dated November 11, 1998, (as amended, the
"Sale Agreement"), by and among the Company, Menley & James Laboratories, Inc.
(the "Subsidiary"), and Numark Laboratories, Inc., (the "Purchaser"), concerning
the proposed sale of substantially all of the assets, and the assignment of
substantially all of the liabilities, of the Subsidiary, for a purchase price of
$13,430,000 (the "Sale"). Approval and adoption of the Sale Agreement requires
the affirmative vote of holders of a majority of the outstanding Common Shares.
Concurrently with the execution of the Sale Agreement, stockholders who
beneficially own, in the aggregate, approximately 53.5% of the outstanding
shares of the Company's common stock, par value $0.01 per share (the "Common
Shares"), agreed to vote their Common Shares in favor of approval and adoption
of the Sale Agreement. The Company expects that the Sale will be completed as
soon as practicable after the Company's November 23, 1998 Special Meeting of
Stockholders to approve and adopt the Sale Agreement.
Results of Operations
Net sales for the third quarter and the nine months ended September 30, 1998
were relatively flat compared to the respective 1997 periods. However, the net
sales for the first nine months reflect the continued erosion of a specific
group of the Company's brands due to trade destocking and competitive pressure.
Sales from this group of brands have declined from $4.9 million in the first
nine months of 1995 to $3.6 million in the first nine months of 1998. Increased
sales from products the Company markets under agreements with three
pharmaceutical firms and sales from the Company's other brands have largely
offset this sales decline since 1995.
Cost of goods sold was $1.7 million in each of the third quarters ended
September 30, 1998 and 1997, representing 49% and 48% of net sales in their
respective periods. Year-to-date cost of goods sold was $5.0 million, or 47% of
net sales in 1998, compared to $5.1 million, or 49% of net sales in 1997. The
decrease in the cost of goods sold, as a percentage of sales, is a result of the
change in mix-of-products sold and lower product costs.
Selling, general and administrative expenses for the three- and nine-month
periods of 1998 were $1.3 and $4.8 million, an increase of $48 thousand and $799
thousand compared to the respective 1997 periods. Selling, general and
administrative expenses were impacted by an increase in Benzedrex and Albolene
advertising costs along with an increase in marketing costs associated with the
products under the Company's sales and marketing agreements. Selling, general
and administrative expenses, as a percentage of sales, may fluctuate quarter to
quarter based upon the timing of these expenditures and the level of sales
within a quarter.
An estimated pretax loss of $6.6 million on the sale of the Company's assets has
been recorded in the Company's financial statements for the quarter ended
September 30, 1998, which is comprised of pretax charges of $2.0 million for
severance and transaction-related costs and a $4.6 million write-down to their
net realizable value of all assets to be sold.
The net loss for the third quarter includes a $1.3 million tax provision, which
is comprised of a $ 698 thousand valuation allowance for previously recorded
deferred tax assets and a reversal of $585 thousand of tax benefits recorded in
1998. Upon completion of the Sale the Company expects to have an estimated
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net operating loss carryforward for federal income tax purposes of approximately
$6.1 million and an estimated capital loss carryforward of approximately $24.5
million.
Liquidity and Capital Resources
The Company has agreed to sell substantially all of its assets for $13.43
million in cash (excluding $2.0 million in cash (the "Retained Cash") and
certain other assets) and assign substantially all of its liabilities to the
Purchaser. Excluded from the liabilities that the Purchaser will assume are all
of the Company's costs and expenses associated with the Sale, including employee
severance obligations and certain other liabilities.
The Company plans to use the cash proceeds from the Sale (and the Retained Cash)
to pay certain retained liabilities and fund transaction expenses related to the
Sale. The Company will use the remainder of the net proceeds for general
corporate purposes, including to pay ongoing general and administrative costs,
and to seek candidates to effect a business combination.
Immediately prior to the closing of the Sale, the Company will terminate its
existing working capital facility, under which there are currently no amounts
outstanding.
After the Sale, the Company will be transformed to serve as a vehicle to effect
a business combination, whether by merger, exchange of capital stock,
acquisition of assets, strategic investment of a minority interest, or other
similar business combination. Any such business combination would depend on the
availability of attractive candidates and the Company's ability to finance any
such business combination. The Company intends to utilize its remaining cash,
together with potentially additional equity or debt, or a combination thereof,
in effecting a business combination. The Company has not identified any
acquisition candidates or the availability of financing arrangements and there
can be no assurance that any business combination will be accomplished.
Year 2000 Compliance
The Company has completed an assessment of its computer programs and is in the
process of modifying its software so that its computer system will comply with
the "Year 2000" requirements. This project is 90% complete, and the Company does
not believe that the costs associated with this project are material. After the
Sale is completed, the Company will not immediately be engaged in any
substantial business operations, and management, therefore, does not believe
that computer problems associated with the year 2000 will have any material
effect on its operations. The possibility exists that the Company may merge with
or acquire a business that will be negatively affected by the "Year 2000"
problem. The effect of such problem on the Company in the future can not be
predicted with any accuracy until such time as the Company identifies a merger
or acquisition target.
Special Note Regarding Forward-Looking Information
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain forward-looking information.
There are a number of risks and uncertainties that could cause actual results to
differ materially from those anticipated by the statements made above. These
include, but are not limited to, the Company's income and loss from operations
through the completion of the Sale, risks and uncertainties associated with
identifying an appropriate merger candidate, completing such a transaction
(including obtaining required financing on acceptable terms and conditions), and
the risks and
8
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uncertainties associated with operating the acquired business. In light of the
foregoing, readers are cautioned not to place undue reliance on the
forward-looking statements contained herein.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
See exhibit index following the signature page.
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K on August 31, 1998
(and amended the same report on September 8, 1998) with respect to
the signing of the Asset Purchase Agreement and announcing the sale
and assignment of substantially all of the Company's assets and
liabilities.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MENLEY & JAMES, INC.
Date: November 16, 1998 /s/ William W. Yeager
-----------------------
William W. Yeager
Chief Financial Officer
(and duly authorized
officer of the registrant)
9
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EXHIBIT INDEX
Exhibit
Number Description
------ -----------
2.1 Asset Purchase Agreement dated as of August 21, 1998 by and
among the Company, Menley & James Laboratories, Inc. and
Numark Laboratories, Inc.
2.2 Amendment No. 1 to Asset Purchase Agreement dated as of
October 13, 1998 by and among the Company, Menley & James
Laboratories, Inc. and Numark Laboratories, Inc.
2.3 Amendment No. 2 to Asset Purchase Agreement dated as of
November 11, 1998 by and among the Company, Menley & James
Laboratories, Inc. and Numark Laboratories, Inc.
10.2 Amended and Restated 1991 Stock Option Plan (as amended by
Amendment 1998-1 on September 9, 1998)
10.22A Severance Agreement dated as of September 24, 1998 between the
Company and Greg L. Kearl
10.29 Stockholders' Agreement dated as of August 21, 1998 by an
among Warburg, Pincus Investors, L.P., Lawrence D. White and
Numark Laboratories, Inc.
27.1 Financial Data Schedule as of, and for the nine months ended,
September 30, 1998 (submitted electronically only)
<PAGE>
Exhibit 2.1
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made this 21st day
of August, 1998, by and among Menley & James, Inc., a Delaware corporation (the
"Company"), Menley & James Laboratories, Inc., a Delaware corporation (the
"Subsidiary"), and Numark Laboratories, Inc., a Delaware corporation (the
"Purchaser").
W I T N E S S E T H
WHEREAS, the respective Boards of Directors of the Company,
the Subsidiary and the Purchaser have determined that it is in the best
interests of the Company, the Subsidiary and the Purchaser and their respective
stockholders for the Subsidiary to sell for cash substantially all of the
Subsidiary's assets and assign substantially all of the Subsidiary's liabilities
to the Purchaser upon the terms and subject to the conditions set forth herein;
and
WHEREAS, the Board of Directors of the Company has resolved to
recommend the transaction set forth herein (the "Transaction") to the holders of
its shares of Common Stock, par value $0.01 per share (the "Company Common
Stock"), and has determined (x) that the transaction is in the best interests of
the holders of Company Common Stock and (y) to recommend that the holders of
Company Common Stock adopt and approve this Agreement; and
WHEREAS, to induce the Purchaser to enter into this Agreement,
the Purchaser has entered into a Stockholders' Agreement dated the date hereof
(the "Stockholders' Agreement") with Warburg, Pincus Investors, L.P. and
Lawrence D. White (together, the "Stockholders"), pursuant to which the
Stockholders have agreed to, among other things, vote shares of Company Common
Stock beneficially owned by them in favor of the adoption and approval of the
Agreement, upon the terms and subject to the conditions set forth in the
Stockholders' Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, the Company, the Subsidiary and the Purchaser hereby agree as
follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
Section 1.1. Assets to be Acquired. Subject to the terms and
conditions contained herein, on the Closing Date (as defined in Section 8.4),
the Subsidiary shall sell, assign, transfer, convey and deliver to the
Purchaser, and the Purchaser shall purchase from the Subsidiary, all right,
title and interest of the Subsidiary in and to all of the properties, assets,
contracts, rights and choses in action of the Subsidiary, whether real,
personal, or mixed, and whether tangible or intangible, other than the Excluded
Assets, as defined herein (the "Purchased Assets"), including (without
limitation):
1.1.1. Tangible Personal Property. All furniture,
fixtures, inventory (including, work-in-progress, raw materials, boxes,
packaging and other supplies), machinery, and related equipment, spare parts,
office equipment and other tangible personal property located at, or used in,
intended for use in or required to be used in, connection with the operation of,
the Subsidiary's business, including any items purchased subject to any
conditional sales or title retention agreement in favor of any other Person (the
"Tangible Personal Property");
<PAGE>
1.1.2. Personal Property Leases. All leases, whether
capitalized or otherwise, of Tangible Personal Property, together with any
options to purchase the underlying property, used in, intended for use in or
required to be used in, connection with the operation of, the Subsidiary's
business;
1.1.3. Accounts Receivable, Cash and Cash
Equivalents. All accounts receivable and unbilled orders of the Subsidiary as of
the Closing Date, and all cash and cash equivalents, prepaid expenses, credits
and unused allowances of the Subsidiary as of the Closing Date, except to the
extent such assets are Excluded Assets;
1.1.4. Contracts. All contracts, agreements
arrangements, instruments and documents to which the Subsidiary is a party
relating to the Purchased Assets or otherwise appurtenant to the Subsidiary's
facilities or used in, intended for use in or required to be used in, connection
with the operation of the Subsidiary's business, except to the extent such
assets are Excluded Assets;
1.1.5. Intangible Property. All intellectual property
and other intangible property used in, intended for use in or required to be
used in connection with the operation of the Subsidiary's business, except to
the extent such assets are Excluded Assets;
1.1.6. Permits. All permits, approvals, regulatory
licenses and applications used in, intended for use in or required to be used
in, connection with the operation of the Subsidiary's business;
1.1.7. Bank, Investment and Other Accounts. All
property located in any bank, investment or other account maintained with a
third party which is used by, intended for use by or required to be used by, the
Subsidiary's business, except to the extent such assets are Excluded Assets;
1.1.8. Insurance Policies. All insurance policies
(including recall insurance policies) used in, intended for use in or required
to be used in, connection with the operation of the Subsidiary's business and
all rights under insurance policies previously maintained in connection with the
operation of the Subsidiary's business, except to the extent such assets are
Excluded Assets;
1.1.9. Licenses. All licenses used in, intended for
use in or required to be used in, connection with the operation of the
Subsidiary's business;
1.1.10. After Acquired Property. All of the assets,
whether real, personal, or mixed, and whether tangible or intangible, acquired
by the Subsidiary after the date hereof and prior to the Closing Date and which
are located at, or used or intended for use at, any of the Subsidiary's
facilities or in the Subsidiary's business and which are owned by the Subsidiary
on the Closing Date, except to the extent such assets are Excluded Assets;
1.1.11. Goodwill. All goodwill of the Subsidiary
generated by the business of the Subsidiary;
1.1.12. Software, etc.. To the extent transferable,
all computer software, computer databases, computer programs, application
software, source codes, and object codes owned by the Subsidiary and used, or
held for use, by the Subsidiary in connection with the operation of the
Subsidiary's business;
1.1.13. Books and Records. All data, books, records,
manuals, standard operating procedures, correspondence, production records,
employment records (but only with respect to employees of the Company or the
Subsidiary hired by the Purchaser immediately after the Closing), dealer and
distribution lists, credit information, customer relation information of the
2
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Subsidiary, in each case relating to the business of the Subsidiary and in the
possession of the Company or the Subsidiary, and any other confidential or
proprietary information of the Subsidiary and pertaining to its business (the
"Books and Records"); and
1.1.14. Regulatory Filings. All records relating to
regulatory filings, inspection reports and correspondence relating thereto (the
"Regulatory Filings"), including but not limited to food and drug administration
application(s), sales, distribution, advertising and marketing, including all
market research, artwork, advertising, marketing concepts, marketing materials
and market measurement data associated with the Subsidiary's products, and the
Company's and the Subsidiary's files, logs and other records, including
accounting records specifically relating to the operation of the Subsidiary's
business, but not including any corporate books or records of the Subsidiary.
Additionally, subject to the terms and conditions contained herein, on the
Closing Date, the Company shall sell, assign, transfer, convey and deliver to
the Purchaser, and the Purchaser shall purchase from the Company, all right,
title and interest of the Company in and to the trademark "AquaCare".
Section 1.2. Excluded Assets. Specifically excluded from the
assets sold and purchased pursuant hereto (the "Excluded Assets") are the
following assets and property of the Subsidiary:
(a) cash or cash equivalents on hand at the Closing
(as defined in Section 8.4 below) in the amount of $2.0 million (less the amount
actually paid between the date hereof and the Closing Date with respect to the
Excluded Liabilities referred to in Sections 3.1.2(a) and 3.1.2(c) below) (the
"Excluded Cash");
(b) the lease for the property known as Commonwealth
Corporate Center, 100 Tournament Drive, Horsham, Pennsylvania 19044 (the "Office
Lease");
(c) the officers and directors liability insurance
policies held for the benefit of the directors and certain officers of the
Company;
(d) the product liability insurance policies of the
Company and the Subsidiary (as to which the Purchaser shall be named as an
additional insured in accordance with and pursuant to Section 8.3.3 below);
(e) the automobile leases and that certain office
equipment lease (and the automobiles and equipment subject thereto) set forth on
Schedule 1.2(d); and
(f) the corporate names "Menley & James, Inc." and
"Menley & James Laboratories, Inc.," and all rights to sue for infringement or
other violations of the foregoing.
Section 1.3. Non-Transferable Assets.
1.3.1. Subject to the provisions of 1.3.3 below, to
the extent that any asset which would otherwise be a Purchased Asset is not
capable of being sold, assigned, transferred, conveyed or delivered without
obtaining a consent, or if such sale, assignment, transfer, conveyance or
delivery or attempted sale, assignment, transfer, conveyance or delivery would
result in a breach of or constitute a default under (or an event which, with
notice or lapse of time, or both, would constitute a default under, or give rise
in favor of any third party any right of cancellation or termination of, or
result in the creation of any lien or encumbrance on any of the properties or
assets of the Subsidiary) any contract or license relating specifically to such
Purchased Asset, or a violation of any law or permit, or would result in the
imposition of any additional material liability or obligation on the Company or
the Subsidiary on the one hand, or on the Purchaser or the Purchaser's
affiliates on the other hand, or a material diminution in the value or use of
3
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such Purchased Asset, this Agreement shall not constitute a sale, assignment,
transfer, conveyance or delivery of such Purchased Asset or an attempted sale,
assignment, transfer, conveyance or delivery thereof, nor shall it constitute an
assumption of any liability or obligation under any contract relating
specifically to such Purchased Asset. Any such Purchased Asset and any contract
or permit which relates exclusively to any such Purchased Asset or Assets shall
be a "Non-Transferable Asset."
1.3.2. To the extent any contract, license or permit
relates to both a Purchased Asset and a Non-Transferable Asset, the parties
shall reasonably cooperate to provide the Purchaser with the benefit of such
contract, license or permit with respect to such Purchased Asset or
Non-Transferable Asset, as appropriate.
1.3.3. Anything in this Agreement to the contrary
notwithstanding, the Subsidiary shall not be obligated to sell, assign,
transfer, convey or deliver, or cause to be sold, assigned, transferred,
conveyed or delivered to the Purchaser or the Purchaser's Affiliates, and the
Purchaser shall not be obligated to purchase, any Non-Transferable Asset without
first having obtained all required consents, removed or eliminated any such
potential default or prevented the imposition of significant liability or
obligation, or substantive diminution in value or use. Both before and after
Closing, the Subsidiary shall use reasonable efforts, and the Purchaser shall
cooperate with the Subsidiary, to obtain any required consents, to remove or
eliminate any such potential default or to prevent the imposition of any such
liability or obligation or any such diminution in value or use so as to transfer
each such Non-Transferable Asset to the Purchaser without adversely modifying,
amending or burdening such Non-Transferable Asset.
Section 1.4. Obligations for Non-Transferable Assets. To the
extent that at Closing there is any Non-Transferable Asset, the Subsidiary, from
and after Closing, at the cost and expense of the Purchaser, shall reasonably
cooperate with the Purchaser in any lawful arrangement designed to provide the
benefit of such Non-Transferable Asset to the Purchaser, and the Purchaser, so
long as such benefit is so provided, shall satisfy or perform any liabilities or
obligations under or in connection with such Non-Transferable Asset.
Section 1.5. Post Closing Transfers. At any time after
Closing, if any Non-Transferable Asset becomes capable of being sold, assigned,
transferred, conveyed or delivered to the Purchaser or, if the benefit can be
provided to the Purchaser without the required consent of any third party, and
if such sale, assignment, transfer, conveyance or delivery, or the provision of
such benefit would not result in any breach of or constitute a default under (or
an event which, with notice or lapse of time, or both, would constitute a
default under, or give rise in favor of any third party any right of
cancellation or termination of, or result in the creation of any lien or
encumbrance on any of the properties or assets of the Subsidiary) any contract
or license, or a default under any law or permit, or result in the imposition of
any material additional liability or obligation on the Company or the Subsidiary
on the one hand, or on the Purchaser or the Purchaser's affiliates on the other
hand, or a material diminution in the value or use of such asset, or if the
Purchaser shall so request and shall provide the Company with indemnities
reasonably satisfactory to the Company and the Subsidiary as to imposition of
liability or obligations on the Company and the Subsidiary by reason of such
transfer or the provision of such benefit, then, at such time, the Subsidiary
shall sell, assign, transfer, convey and deliver to the Purchaser, or cause to
be sold, assigned, transferred, conveyed and delivered to the Purchaser, or
provide to the Purchaser the benefit of, such asset and, if such asset is a
contract, license or permit, the Purchaser shall assume the liabilities and
obligations of the Subsidiary thereunder. The Purchaser and the Subsidiary shall
execute such further instruments, bills of sale or other documents or
conveyances necessary to effectuate the purpose of the immediately preceding
sentence.
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ARTICLE II
PURCHASE PRICE
The Purchase Price shall be determined and payable in accordance with
this Article II.
Section 2.1. Purchase Price. At the Closing, the Purchaser
shall pay a purchase price of $12,930,000, subject to adjustment as provided in
Section 2.2 hereof (the "Purchase Price"). The Purchase Price shall be paid in
the following manner: (a) $500,000 in cash deposited pursuant to the escrow
agreement in substantially the form of Exhibit A attached hereto (the "Escrow
Agreement") with an escrow agent mutually acceptable to the parties, to be
reserved for any Purchase Price Adjustment as provided in Section 2.2 hereof
(the "Escrow"); and (b) $12,430,000 by wire transfer of immediately available
funds to such accounts as shall be designated by the Subsidiary at least 3
business days prior to the Closing Date. The Company acknowledges that it will
receive substantial benefit from the Purchase Price being paid to the Subsidiary
and, accordingly, no additional consideration shall be paid to the Company for
the transfer of its right, title and interest in and to the trademark
"AquaCare".
Section 2.2. Adjustment of Purchase Price.
2.2.1. As soon as practicable following the Closing
Date, but not later than sixty (60) days after the Closing Date, the Company, at
its expense, shall cause to be delivered to the Purchaser an unaudited balance
sheet of the Subsidiary as of the Closing Date (the "Closing Date Balance
Sheet"). The Closing Date Balance Sheet shall be prepared in accordance with
U.S. generally accepted accounting principles, applied on a consistent basis
with the unaudited balance sheet of the Company as of May 31, 1998. In the event
that the Closing Date Net Assets (as defined below) as finally determined
pursuant to this Section 2.2 are less than $8,846,000, the Purchase Price will
be reduced, on a dollar for dollar basis, for the amount of such difference. In
the event that the Closing Date Net Assets as finally determined pursuant to
this Section 2.2 are more than $8,846,000, the Purchase Price will be increased,
on a dollar for dollar basis, for the amount of such excess. In no event,
however, shall any reduction or increase in the Purchase Price exceed $500,000.
Such reduction or increase in the Purchase Price shall be referred to herein as
the "Purchase Price Adjustment." The Closing Date Balance Sheet delivered to the
Purchaser shall be accompanied by the Company's calculation of the Purchase
Price Adjustment. For purposes hereof, "Closing Date Net Assets" means the
amount, calculated as of the Closing Date, equal to: (x) the sum of the
following assets: (1) cash and cash equivalents (including the Excluded Assets),
(2) accounts receivable, net, (3) inventory, net, (4) prepaid expenses, and (5)
property and equipment net; minus (y) the sum of the following liabilities
(without regard to the Excluded Liabilities): (1) accounts payable and (2)
accrued expenses.
2.2.2. Notice of Disagreement. The Closing Date
Balance Sheet and the Company's calculation of the Purchase Price Adjustment
shall become final and binding upon the Purchaser unless the Purchaser delivers
a written notice of disagreement in respect of the Closing Date Balance Sheet or
the Purchase Price Adjustment (a "Notice of Disagreement") to the Company prior
to the fifteenth Business Day following the receipt by Purchaser of the Closing
Date Balance Sheet and the Purchase Price Adjustment. A Notice of Disagreement
shall specify in reasonable detail the nature of any disagreement so asserted in
respect of the Closing Date Balance Sheet or the Purchase Price Adjustment.
During a period of ten (10) days following the receipt by the Company of a
Notice of Disagreement, if any, from the Purchaser, the parties in good faith
shall attempt to resolve any differences they may have with respect to the
matters specified in the Notice of Disagreement. If at the end of the aforesaid
10-day period, the parties have reached agreement with respect to all matters
covered by a Notice of Disagreement, the Closing Date Balance Sheet or the
Purchase Price Adjustment shall be adjusted to reflect such written agreement
and shall become final and binding upon the Company, the Subsidiary and the
Purchaser. If at the end of the aforesaid 10-day period, the parties shall have
failed to reach written agreement with respect to all matters covered by a
Notice of Disagreement, then all such matters as to which written agreement has
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`
not been reached (the "Disputed Matters") may be submitted, by either the
Purchaser, on the one hand, or the Company and the Subsidiary, on the other
hand, to and reviewed by an arbitrator (the "Arbitrator") which shall be a
national accounting firm jointly selected by the Purchaser and the Company and
not used by any party during the three-year period prior to the date of this
Agreement.
2.2.3. Arbitration of Disputed Matters. Each party
shall promptly submit to the Arbitrator a written statement summarizing each of
the Disputed Matters, such party's proposed resolution of each Disputed Matters,
and outlining the methodology utilized by such party in reaching the resolutions
reached by such party with respect to each Disputed Matter. Following the
Arbitrator's review of the written statements, each party shall have an
opportunity to make a brief oral presentation in support of that party's written
statement, and may respond to the Arbitrator's questions, if any. The Arbitrator
shall consider only the Disputed Matters and the Arbitrator shall act promptly
to resolve all Disputed Matters and, in any event, within forty-five (45) days
after its appointment as Arbitrator. Upon resolution by the Arbitrator of all
Disputed Matters, the Arbitrator shall prepare and deliver to the Purchaser and
the Company the final Closing Date Balance Sheet and the final Purchase Price
Adjustment (both of which shall be binding upon the Company, the Subsidiary and
the Purchaser). The expenses of the Arbitrator shall be borne equally by the
Company and the Purchaser unless the Arbitrator determines that one of the
parties has not proceeded in good faith with respect to the matter submitted for
arbitration, in which case such party shall fully bear the expenses of the
Arbitrator. Judgment upon the award of the Arbitrator may be entered by any
state or federal court of competent jurisdiction.
2.2.4. Payment of Purchase Price Adjustment. Any
Purchase Price Adjustment under this Section 2.2 shall be satisfied (x) within
three (3) business days following the delivery of the Closing Date Balance
Sheet, or (y) in the event a Notice of Disagreement is delivered, within three
(3) Business Days following the date on which (1) the parties execute a written
agreement adjusting the Closing Date Balance Sheet and the Purchase Price
Adjustment, or (2) with respect to any Disputed Matter, the Arbitrator delivers
to the parties a final determination of the Closing Date Balance Sheet and the
Purchase Price Adjustment. If the Purchase Price Adjustment is a reduction in
the Purchase Price, such Purchase Price Adjustment shall be satisfied with funds
from the Escrow. If the Purchase Price Adjustment is an increase in the Purchase
Price, such Purchase Price Adjustment shall be paid by the Purchaser by wire
transfer of immediately available funds to such accounts as shall be designated
by the Company; provided, however, that if the Purchaser fails to pay the
Purchase Price Adjustment within five (5) business days, such amounts shall
accrue interest at the "Prime Rate" of interest as published by The Wall Street
Journal on the Closing Date until paid in full.
2.2.5. Release of Escrow Funds. Any funds held by the
Escrow after payment of the Purchase Price Adjustment shall be disbursed
immediately to the Company.
Section 2.3. Allocation of Purchase Price. The Purchase Price
shall be allocated in the manner set forth on Schedule 2.3 attached hereto. The
Purchaser and the Company will file all tax returns and reports, including IRS
Form 8594, in accordance with this Section 2.3 and neither party will take a
contrary position for federal, state or local tax purposes that is not
consistent with this Section 2.3 and the specific allocations set forth in Form
8594 on any tax return or any documents filed by any of said parties with
federal, state or local authorities.
Section 2.4. Audited Balance Sheet. The Company shall cause to
be delivered, as soon as it is available, an audited consolidated balance sheet
of the Company as of September 30, 1998, accompanied by an opinion of Ernst &
Young LLP, which balance sheet shall be prepared from the books and records of
the Company and the Subsidiary in accordance with generally accepted accounting
principles consistently applied and maintained throughout the applicable period
since the last audited balance sheet of the Company as of December 31, 1997.
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ARTICLE III
LIABILITIES OF SELLERS
Section 3.1. Assignment and Assumption of Liabilities.
3.1.1. Liabilities. At the Closing, the Subsidiary
shall assign, and from and after the Closing, the Purchaser shall assume and be
obligated to pay and perform, all of the liabilities and obligations of the
Subsidiary (whether known or unknown, accrued, absolute, contingent or
otherwise), except Excluded Liabilities as defined in Section 3.1.2 (the
"Assumed Liabilities"), including, but not limited to the following:
(a) all liabilities and obligations set
forth on or reserved against the June 30, 1998 balance sheet of the Company
attached hereto as Schedule 3.1.1(a) (the "Balance Sheet");
(b) all liabilities and obligations of the
Subsidiary incurred since June 30, 1998 (the "Balance Sheet Date") and until and
including the Closing Date; and
(c) all liabilities of the Subsidiary under
any contract, agreement, license, permit, commitment or agreement entered into
on or before the Closing Date;
(d) all liabilities and obligations of the
Subsidiary arising from or out of any permit or similar governmental
authorizations in effect before, or in existence on, the Closing Date;
(e) all liabilities arising from or out of
any conduct by or on behalf of the Subsidiary on or prior to the Closing Date
which constitutes a default or violation of any term, condition or provision of
any Federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval applicable to the Subsidiary;
(f) all liabilities and obligations of the
Subsidiary for claims or litigation, which is pending or threatened against the
Subsidiary on or prior to the Closing Date, or which is brought or threatened to
be brought against the Subsidiary after the Closing Date, relating to facts and
circumstances occurring on or prior to the Closing Date;
(g) all liabilities and obligations of the
Subsidiary for any Taxes (as defined below) with respect to periods ending on or
prior to the Closing Date; and
(h) all liabilities arising from or based on
any tortious, unlawful or other conduct of the Subsidiary or any of its
officers, directors, shareholders, employees, contractors or agents (in their
respective capacities as such), including without limitation, liabilities based
upon theories of strict liability, product liability, breach of warranty,
negligence or misrepresentation (other than claims by employees for those items
which constitute an Excluded Liability under Section 3.1.2(a), (d) and (f)
below).
The Purchaser shall also be obligated to pay and perform, and shall be
responsible for, all liabilities and obligations incurred in connection with the
ownership and operation of the Purchased Assets from and after the Closing.
3.1.2. Excluded Liabilities. The Purchaser does not
and will not assume or become obligated to pay or perform the liabilities or
obligations of the Subsidiary set forth below (all such liabilities and
obligations being called collectively the "Excluded Liabilities"). The Excluded
Liabilities are limited to the following:
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(a) all amounts payable to the Subsidiary's
officers, directors and employees that become payable as a result of the
Transaction or a change of control of the Subsidiary, or that may become payable
as a result of termination of any such individual's status as an officer,
director or employee, including accrued vacation, sick pay and employee benefits
and perquisites;
(b) the Office Lease and the leases set
forth on Schedule 1.2(d);
(c) all costs and expenses incurred by the
Company or the Subsidiary in connection with the Transaction, including, without
limitation, accounting, legal, printing and investment banking fees (the
"Company Transaction Costs");
(d) all liabilities to employees, based on
actions or omissions of the Company, the Subsidiary or its employees occurring
on or prior to the Closing Date, including accrued vacation, sick pay and
employee benefits and perquisites;
(e) all costs associated with the
cancellation of any options, warrants, or convertible or exchangeable securities
issued by the Company;
(f) all liabilities to the stockholders of
the Company in connection with the costs of investigating, defending against and
settling claims and suits brought by its stockholders; and
(g) all liabilities under any Pennsylvania
bulk sales statutes.
3.1.3. Indemnification for Liabilities. From and
after the Closing Date, the Company and the Subsidiary, jointly and severally,
shall indemnify, defend and hold harmless the Purchaser, and its stockholders,
directors, officers and affiliates (collectively, the "Purchaser Indemnified
Parties"), and the Purchaser shall indemnify, defend and hold harmless the
Company and the Subsidiary, and their respective stockholders, directors,
officers and affiliates (collectively the "Seller Indemnified Parties"), from
and against any and all claims, suits, investigations, proceedings, judgments,
losses, damages (whether direct, consequential or special), diminution in value,
costs and expenses (including, without limitation, costs and expenses incurred
in investigating, defending or settling any claims, suits, investigations or
proceedings, such as the fees, expenses and disbursements of counsel,
accountants and other experts) which a Purchaser Indemnified Party or a Seller
Indemnified Party, respectively, may sustain, suffer or incur, resulting from,
related to, or arising out of the failure of the Subsidiary or the Purchaser,
respectively, to perform their obligations under Sections 3.2 and 3.1,
respectively. Any Person seeking indemnification hereunder shall promptly give
the other party written notice of the matter as to which indemnity is sought;
provided, however, the failure to provide such notice shall not relieve the
indemnifying party of its obligation to indemnify hereunder, except to the
extent it is finally determined that such indemnifying party was actually
prejudiced by any such failure. The indemnifying party shall have the right to
control the defense, at its own cost and expense, of any such matter as to which
indemnification by it is sought hereunder; provided, however, the indemnified
parties shall have the right to participate in such defense, with counsel of its
own choosing, and at its own cost and expense; provided, further, that if the
indemnifying party fails to notify the indemnified parties within 10 Business
Days after receipt of such notice of indemnification that it will defend such
matter, then the indemnified parties may control the defense thereof, with
counsel of its own choosing, but at the sole cost and expense of the
indemnifying party (it being understood that, with respect to each matter as to
which indemnity is sought, in no event shall an indemnifying party be
responsible for more than one counsel for all indemnified parties in such
matter, together with such local counsel as may be necessary or appropriate). In
the event that any party controlling the defense of a particular matter as to
which indemnification has been sought shall seek to compromise or settle such
matter, the indemnified parties shall have the right to approve any such
compromise or settlement unless such compromise or settlement involves solely
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the payment of damages which will be paid solely by the indemnifying party, and
includes a full and complete release of liability for the indemnified party, in
which case no approval of the indemnified party shall be required.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as
follows:
Section 4.1. Corporate Organization. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the requisite corporate power
and authority and any necessary governmental authority to own, operate or lease
the properties that it purports to own, operate or lease and to carry on its
business as it is now being conducted except for such failures which, when taken
together with all other such failures, would not have a Material Adverse Effect
(as defined below) on the Purchaser. When used in connection with the Purchaser,
the term "Material Adverse Effect" means any change in or effect on the business
of the Purchaser and its subsidiaries that is or is reasonably likely to be
materially adverse to (i) the business, properties, result of operations,
condition (financial or otherwise) or regulatory status of the Purchaser and its
subsidiaries taken as a whole, or (ii) the ability of the Purchaser to
consummate the Transactions contemplated hereby.
Section 4.2. Authority Relative to this Agreement. The
execution, delivery and performance by the Purchaser of this Agreement and the
documents, agreements, and instruments to be executed, delivered and performed
by the Purchaser in connection with this Agreement (the "Collateral Documents")
by the Purchaser and the consummation by the Purchaser, of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of the Purchaser, and no other corporate proceeding
is necessary for the execution and delivery by the Purchaser of this Agreement
or any of the Collateral Documents to which the Purchaser is a party, including
the approval of the stockholders of the Purchaser, the performance by the
Purchaser of its obligations hereunder and thereunder, and the consummation by
the Purchaser of the Transactions contemplated hereby and thereby. This
Agreement has been duly executed and delivered by the Purchaser and constitutes
a legal, valid and binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms.
Section 4.3. No Conflict; Required Filings and Consents. (a)
The execution and delivery by the Purchaser of this Agreement and the Collateral
Documents to which the Purchaser is a party do not, and the performance by the
Purchaser thereof (including the consummation of the Contemplated Transactions)
will not, (i) conflict with or violate any law, regulation, court order,
judgment or decree applicable to the Purchaser or by which any of their property
is bound or affected, (ii) violate or conflict with either the Certificate of
Incorporation or By-Laws of the Purchaser, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination or
cancellation of, or result in the creation of a lien or encumbrance on any of
the property or assets of the Purchaser pursuant to, any contract, instrument,
permit, license or franchise to which the Purchaser is a party or by which the
Purchaser or any of its property is bound or affected; except, in each case, for
conflicts, violations, breaches or defaults which, individually or in the
aggregate, would not have a Material Adverse Effect.
(b) The Purchaser is not required to submit or obtain
any notice, permit, consent, authorization, approval, report or other filing
with any governmental authority, domestic or foreign, in connection with the
execution, delivery or performance of this Agreement or any of the Collateral
Documents to which the Purchaser is a party, or the consummation of the
Transactions contemplated hereby and thereby. No waiver, consent, approval or
authorization of any governmental or regulatory authority, domestic or foreign,
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is required to be obtained or made by the Purchaser in connection with its
execution, delivery or performance of this Agreement or any of the Collateral
Documents to which the Purchaser is a party.
Section 4.4. Financing. The Purchaser has received and entered
into a commitment letter from Summit Bank, an accurate and complete copy of
which has been made available to the Company (the "Financing Commitment"). The
Purchaser will have, on the Closing Date, the funds available to it sufficient
to pay the Purchase Price (including any increases thereto pursuant to Section
2.2 hereof) in accordance with the terms of this Agreement.
Section 4.5. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by and on behalf of the Purchaser.
Section 4.6. Offer Documents; Proxy Statements. None of the
information to be supplied in writing by the Purchaser, its officers, directors,
representatives, agents or employees, specifically for inclusion in the Proxy
Statement (as defined in Section 5.13), or in any amendments thereof or
supplements thereto (the "Purchaser Information"), will, on the date the Proxy
Statement is first mailed to stockholders, at the time of the Company
Stockholders' Meeting (as defined in Section 5.13) or at the Closing, contain
any statement which, at such time and in light of the circumstances under which
it will be made, will be false or misleading with respect to any material fact,
or will omit to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Company Stockholders' Meeting which has become false or misleading.
Notwithstanding the foregoing, the Purchaser does not make any representation or
warranty with respect to any information, other than the Purchaser Information,
including, without limitation, information that has been supplied by the Company
or its accountants, counsel or other authorized representatives for use in any
of the foregoing document.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Company Disclosure Schedule
previously delivered by the Company to the Purchaser (the "Company Disclosure
Schedule"), the Company hereby represents and warrants to the Purchaser as
follows:
Section 5.1. Organization and Qualification; Subsidiaries.
Each of the Company and the Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power and authority and any necessary governmental
authority to own, operate or lease the properties that it purports to own,
operate or lease and to carry on its business as it is now being conducted. Each
of the Company and the Subsidiary is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned, operated or leased or the nature of its activities
makes such qualification necessary, except for such failure which, when taken
together with all other such failures, would not have a Material Adverse Effect
(as defined below). When used in connection with the Company or its Subsidiary,
the term "Material Adverse Effect" means any change in or effect on the business
of the Company and its Subsidiary that is or is reasonably likely to be
materially adverse to (i) the business, the Purchased Assets, results of
operations, condition (financial or otherwise) or regulatory status of the
Subsidiary taken as a whole, or (ii) the ability of the Company or the
Subsidiary to consummate the Transactions contemplated hereby. Other than the
Subsidiary, the Company does not own or control an equity interest in any other
entity.
Section 5.2. Certificate of Incorporation and By-Laws. Each of
the Company and the Subsidiary has made available to the Purchaser a complete
and correct copy of its Certificate of Incorporation
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and By-Laws, each as amended to the date hereof. Such Certificates of
Incorporation and By-Laws are in full force and effect. Neither the Company nor
its Subsidiary is in violation of any of the provisions of its Certificate of
Incorporation or By-Laws.
Section 5.3. Authority Relative to this Agreement. Each of the
Company and the Subsidiary has the necessary corporate power and authority to
enter into this Agreement and, subject to obtaining any necessary stockholder
approval of the Transaction, to carry out its obligations hereunder. The
execution, delivery and performance by each of the Company and the Subsidiary of
this Agreement and the Collateral Documents to which it is a party, and the
consummation by each of the Company and the Subsidiary of the Transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of each of the Company and the Subsidiary, subject
to the approval of the Transaction by the Company's stockholders in accordance
with Delaware Law. This Agreement has been duly executed and delivered by each
of the Company and the Subsidiary and constitutes a legal, valid and binding
obligation of each of the Company and the Subsidiary, enforceable against each
of the Company and the Subsidiary in accordance with its terms.
Section 5.4. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by each of the Company and the
Subsidiary do not, and the performance of this Agreement by each of the Company
and the Subsidiary will not, (i) conflict with or violate any law, regulation,
court order, judgment or decree applicable to the Company or its Subsidiary, as
applicable, or by which the Company's or the Subsidiary's respective properties
are bound or affected, (ii) violate or conflict with the Certificate of
Incorporation or By-Laws of the Company or the Subsidiary, as applicable, or
(iii) except as set forth on Schedule 5.4 of the Company Disclosure Schedule,
result in any breach of or constitute a default (or an event which with notice
or lapse of time of both would become a default) under, or give to others any
rights of termination or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Subsidiary pursuant to,
any contract, instrument, permit, license or franchise to which the Company or
the Subsidiary is a party or by which the Company or the Subsidiary, or the
Subsidiary's property, as applicable, is bound or affected; except in each of
clauses (i) and (iii), for conflicts, violations, breaches or defaults which, in
the aggregate, would not have a Material Adverse Effect.
(b) Except for applicable requirements, if any, of
the Exchange Act, neither the Company nor the Subsidiary is required to submit
or obtain any notice, permit, consent, authorization, approval, report or other
filing with any governmental authority, domestic or foreign, in connection with
the execution, delivery or performance of this Agreement. No waiver, consent,
approval or authorization of any governmental or regulatory authority, domestic
or foreign, is required to be obtained or made by the Company or the Subsidiary
in connection with its execution, delivery or performance of this Agreement.
Section 5.5. SEC Filings; Financial Statements. (a) The
Company has filed all forms, reports and documents required to be filed with the
SEC since January 1, 1997, and has heretofore made available to the Purchaser,
in the form filed with the SEC, its (i) Annual Reports on Form 10-K for the
fiscal years ended December 31, 1996 and December 31, 1997, respectively, (ii)
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June
30, 1998, (iii) all proxy statements relating to the Company's meetings of
stockholders (whether annual or special) held since January 1, 1997 and (iv) all
other reports or registration statements (other than Reports on Form 10-Q
referred to in clause (ii) above) filed by the Company with the SEC since
January 1, 1997 (collectively, the "SEC Reports"). The SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act of 1933, as
amended, or the Exchange Act, as the case may be, and (ii) did not at the time
they were filed contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Subsidiary is not required to file any statements or
reports with SEC pursuant to Sections 13(a) or 15(d) of the Exchange Act.
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(b) The consolidated financial statements contained
in the SEC Reports have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and fairly present,
in all material respects, the consolidated financial position of the Company and
the Subsidiary as at the respective dates thereof and the consolidated results
of operations and consolidated statements of cash flows of the Company and the
Subsidiary for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
(c) Except as reflected or reserved against in the
consolidated financial statements contained in the SEC Reports, and except as
described on Schedule 5.5 of the Company Disclosure Schedule, the Subsidiary has
no liabilities of any nature (whether accrued, absolute, contingent or
otherwise) which were not incurred in the ordinary course of business consistent
with past practice. As of the date hereof, neither the Company nor the
Subsidiary has any outstanding borrowings under the Credit Facility (as defined
in Section 5.7 below).
Section 5.6. Absence of Certain Changes or Events. Since
January 1, 1998, the Subsidiary has conducted its business only in the ordinary
course and in a manner consistent with past practice. Except as contemplated in
this Agreement, as previously disclosed in the SEC Reports or as otherwise
disclosed on a Schedule to this Agreement, since January 1, 1998, there has not
been:
5.6.1. any Material Adverse Effect on the Subsidiary;
5.6.2. any strike, picketing, work slowdown or other
labor disturbance involving employees of the Subsidiary;
5.6.3. any damage, destruction or loss (whether or
not covered by insurance) with respect to any material portion of the assets of
the Subsidiary;
5.6.4. any redemption or other acquisition of Company
Common Stock by the Company or any capital stock of the Subsidiary or any
declaration or payment of any dividend or other distribution in cash, stock or
property with respect to Company Common Stock or the capital stock of the
Subsidiary;
5.6.5. any mortgage, pledge, security interest or
imposition of lien or other encumbrance on any asset of the Subsidiary;
5.6.6. any change by the Company in accounting
principles or methods except insofar as may have been required by a change in
generally accepted accounting principles and disclosed in the SEC Reports;
5.6.7. any transaction not in the ordinary course of
business of the Subsidiary, including, without limitation, any sale of all or
substantially all of the assets of the Subsidiary or any merger of the
Subsidiary and any other entity;
5.6.8. any unfulfilled commitments requiring
expenditures by the Subsidiary exceeding $50,000 (excluding commitments
expressly described elsewhere in this Agreement, the Schedules hereto or the
Company Disclosure Schedule or which were undertaken in the ordinary course of
business consistent with past practice);
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5.6.9. any revaluation of any assets or material
write down of the value of any inventory;
5.6.10. any loan or payment to any stockholder of the
Subsidiary or the Company (other than loans or payments from the Subsidiary to
the Company in the ordinary course of business consistent with past practices);
5.6.11. any amendment to the Subsidiary's Certificate
of Incorporation or By-laws;
5.6.12. any (a) disposition of or lapse of any
material patent, trademark, trade name, service mark or copyright or any
application for the foregoing, (b) disposition of any material technology,
software or know-how, or (c) disposition of any license, permit or authorization
to use any of the foregoing or any other material right;
5.6.13. any discharge or satisfaction of any lien or
encumbrance or payment or cancellation of any liability, other than payment of
current liabilities in the ordinary course of business consistent with past
practice;
5.6.14. any cancellation of any debt owed to the
Subsidiary or waiver or release of any material contract, right or claim, except
for cancellations, waivers and releases in the ordinary course of business which
do not exceed $50,000 in the aggregate;
5.6.15. any incurrence of indebtedness for borrowed
money or any commitment to borrow money, any capital expenditure or capital
commitment requiring an expenditure of monies in the future, any incurrence of a
contingent liability or any guaranty or commitment to guaranty the indebtedness
of others entered into, by the Subsidiary, other than transactions in the
ordinary course of business and not in excess of $100,000; or
5.6.16. any agreement or understanding to take any of
the actions described above in this Section 5.6.
Section 5.7. Title to Property. The Subsidiary has good and
marketable title, or valid leasehold rights in the case of leased property, to
all real property and all personal property purported to be owned or leased by
it, free and clear of all liens, security interests, claims, encumbrances,
options, rights to purchase and charges, excluding (i) liens for fees, taxes,
levies, imposts, duties or governmental charges of any kind which are not yet
delinquent or are being contested in good faith by appropriate proceedings which
suspend the collection thereof, (ii) liens for mechanics, materialmen, laborers,
employees, suppliers or other liens arising by operation of law for sums which
are not yet delinquent or are being contested in good faith by appropriate
proceedings, (iii) liens created in the ordinary course of business in
connection with the leasing or financing of office, computer and related
equipment and supplies, (iv) easements and similar encumbrances ordinarily
created for fuller utilization and enjoyment of property, (v) a security
interest in favor of First Union National Bank (successor to CoreStates Bank,
N.A., successor to Meridian Bank) created in connection with a credit facility
(the "Credit Facility"), and (vi) liens or defects in title or leasehold rights
that, in the aggregate, do not and will not have a Material Adverse Effect. The
only assets which the Company owns are (A) the equity interests in the
Subsidiary and (B) certain trademarks involving the "AquaCare" brand.
Section 5.8. Brand Intellectual Property. The Subsidiary is
the beneficial owner of all right, title and interest in the Brand Intellectual
Property (as such term is defined below) and the registered owner of all right,
title and interest in the items listed on Schedule 5.8 of the Company Disclosure
Schedule, except as otherwise noted therein, and has the right to use, license,
sublicense or assign the Brand Intellectual Property without liability to, or
any requirement to obtain the consent of, any other Person. To the best of the
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Company's knowledge and except as otherwise noted in such Schedule 5.8, there
are no infringements, threats of infringements, or asserted or unasserted claims
by the Subsidiary of infringements or misappropriation of any of the Brand
Intellectual Property in the United States nor are there any asserted or
unasserted claims by the Subsidiary contesting or challenging the right, title
or interest of any other Person in any of the Brand Intellectual Property which
would have a Material Adverse Effect. There are no outstanding or, to the
knowledge of the Company, threatened claims asserted against the Subsidiary
alleging the infringement or misappropriation by the Subsidiary of any
intellectual property of any other party. For the purposes of this Agreement the
term "Brand Intellectual Property" means (a) all trademarks (whether registered
or unregistered), trade names and applications therefor, brand names, logotypes
and symbols which are used in the manufacture or sale of the Subsidiary's brands
listed on such Schedule 5.8, all renewals, modifications or extensions thereof,
together with the goodwill of the business symbolized by and associated
therewith, and all copyrights (whether registered or unregistered), patents,
patent applications or inventions for which patent applications have not been
filed, including such of the foregoing as are listed or described in such
Schedule 5.8; and (b) all trade secrets, confidential or proprietary information
and other know-how, information, documents or materials owned, developed or
possessed by the Subsidiary, whether tangible or intangible in form, which are
used by the Subsidiary and are unique to the manufacture or the sale of such
brands, including those that are listed on Schedule 5.8 of the Company
Disclosure Schedule. Except as set forth on Schedule 5.8 of the Company
Disclosure Schedule, there are no royalties or other consideration required to
be paid by the Subsidiary in connection with its use of the Brand Intellectual
Property.
Section 5.9. Litigation. Except as set forth in the SEC
Reports or on Schedule 5.9 of the Company Disclosure Schedule, as of the date
hereof, there are no claims, actions, suits, proceedings or investigations
pending or, to the best knowledge of the Company, threatened against the
Subsidiary, or any properties or rights of the Subsidiary, before any court,
administrative, governmental or regulatory authority or body, domestic or
foreign. As of the date hereof, neither the Subsidiary nor any of its property
is expressly subject to any order, judgment, injunction or decree.
Section 5.10. Labor Matters. (a) Except as set forth on
Schedule 5.10 of the Company Disclosure Schedule, the Subsidiary is not a party
or subject to (i) any outstanding employment agreements or contracts with
officers or employees that are not terminable at will, or that provide for the
payment of any bonus or commission, (ii) any agreement, policy or practice that
requires it to pay termination or severance pay to salaried, non-exempt or
hourly employees (other than as required by law), or (iii) any collective
bargaining agreement or other labor union contract applicable to Persons
employed by the Subsidiary, nor does the Subsidiary know of any activities or
proceedings of any labor union to organize any such employees, in each of
clauses (i), (ii) and (iii), which will become a liability or obligation of the
Purchaser from and after the Closing.
(b) (i) The Subsidiary is in compliance, in all
material respects, with all applicable laws relating to employment and
employment practices, wages, hours, and terms and conditions of employment, (ii)
there is no unfair labor practice charge or complaint pending before the
National Labor Relations Board ("NLRB") involving the Subsidiary, (iii) there is
no labor strike, material slowdown or material work stoppage or lockout actually
pending or, to the Company's knowledge, threatened involving employees of the
Subsidiary, (iv) there is no representation claim or petition pending before the
NLRB relating to the employees of the Subsidiary and, to the Company's
knowledge, no question concerning representation exists relating to the
employees of the Subsidiary, (v) there are no material charges with respect to
or relating to employees of the Subsidiary pending before the Equal Employment
Opportunity Commission or any state, local or foreign agency responsible for the
prevention of unlawful employment practices, and (vi) the Subsidiary has not
received any formal notice from any Federal, state, local or foreign agency
responsible for the enforcement of labor or employment laws of an intention to
conduct an investigation of the Subsidiary and no such investigation is in
progress.
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Section 5.11. Proxy Statement. The proxy statement (such proxy
statement, as amended or supplemented, is herein referred to as the "Proxy
Statement") to be sent to the stockholders of the Company in connection with the
meeting of the Company's stockholders to consider the Transaction (the "Company
Stockholders' Meeting") will comply in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation or warranty is being made by the Company with
respect to any information supplied to the Company by the Purchaser specifically
for inclusion in the Proxy Statement. The Proxy Statement will not, at the time
the Proxy Statement (or any amendment or supplement thereto) is filed with the
SEC or first sent to stockholders, at the time of the Company Stockholders'
Meeting or at the Closing, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that no representation or warranty is
being made by the Company with respect to any information supplied to the
Company by the Purchaser specifically for inclusion in the Proxy Statement.
Section 5.12. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by and on behalf of the Company except for the fees and expenses of Howard,
Lawson & Co. which will be deemed an Excluded Liability hereunder.
Section 5.13. Conduct of Business. (a) The conduct of the
business of the Subsidiary is in compliance, in all material respects, with all
federal, state, local or foreign laws, rules, regulations or ordinances, or
judgments, injunctions, writs, decrees or orders of any court or governmental
entity (collectively, the "Orders"), and the Subsidiary has not received any
notice of any violation, in any material respect, of any Order which remains
outstanding. The Subsidiary is not subject to any Order currently in effect
which could individually or in the aggregate have a Material Adverse Effect.
(b) The Subsidiary possesses all licenses, permits,
consents, authorizations, registrations and approvals of, with or from
governmental entities which have jurisdiction over it, and occupancy, fire,
business and other permits from local officials necessary for the operation of
the Subsidiary's business as currently conducted ("Material Permits"), and is in
compliance with the terms thereof, except where any violations, or the absence
of such Material Permit, would not singly, or in the aggregate, have a Material
Adverse Effect. All of the Material Permits are valid and in full force and
effect.
(c) In connection with the operation of all employee
benefit plans, all employee welfare benefit plans, all employee pension benefit
plans, all multi-employer plans and all multi-employer welfare arrangements (as
defined in Sections 3(3), (1), (2), (37) and (40), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), currently
maintained and/or sponsored by the Subsidiary, or to which the Subsidiary
currently contributes, or has an obligation to contribute in the future
(including, without limitation, benefit plans or arrangements that are not
subject to ERISA) (the "Plans"), the Subsidiary has operated such Plans in
compliance, in all material respects, with all applicable provisions of ERISA
and the regulations issued thereunder, as well as with all other applicable
laws, and, in all material respects, have been administered, operated and
managed by in substantial accordance with the governing documents. The
Subsidiary does not maintain or sponsor, nor is a contributing employer to, any
defined benefit plan or multi-employer plan.
Section 5.14. Taxes. (a) The Subsidiary and the Company have
timely filed with the appropriate governmental authorities all Tax Returns (as
defined below) required to be filed by or with respect to it or its operations
or assets, and such Tax Returns are true, correct and complete in all material
respects; (b) all Taxes (as defined below) due by Subsidiary and the Company
(whether or not shown to be due on such Tax Returns), all Taxes required to be
paid on an estimated or installment basis, and all Taxes required to be withheld
with respect to the Company or the Subsidiary or its operations or assets have
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been timely paid or, if applicable, withheld and paid to the appropriate taxing
authority in the manner provided by law, (iii) the reserve for Tax liability (as
opposed to any reserve for deferred Taxes established to reflect timing
differences between book and tax income) set forth on the Balance Sheet is
adequate in all material respects for the payment of Taxes through the date
thereof, (iv) there are no liens for Taxes upon the assets of the Subsidiary or
the Company, (v) no Federal, state, local or foreign audits, administrative
proceedings or court proceedings are pending or, to the Company's knowledge,
threatened with regard to any Taxes or Tax Returns of the Subsidiary or the
Company, and there are no outstanding deficiencies or assessments asserted,
proposed or, to the Company's knowledge, threatened against the Subsidiary or
the Company, and (vi) there are no outstanding agreements, consents or waivers
extending the statutory period of limitations applicable to the assessment of
any Taxes or deficiencies against the Subsidiary or the Company or with respect
to its operations or assets, no power of attorney granted by the Subsidiary or
the Company with respect to any matter relating to Taxes is currently in force,
and neither the Subsidiary nor the Company is a party to any agreement providing
for the allocation, sharing or payment of Taxes.
(b) No property of the Subsidiary or the Company is
"tax exempt use property" within the meaning of Section 168(h) of the Code or
property that the Purchaser, the Subsidiary or the Company will be required to
treat as being owned by another Person pursuant to Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended, in effect immediately before the
enactment of the Tax Reform Act of 1986.
(c) Neither the Subsidiary nor the Company is or has
been a United States real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(ii) of the Code, and neither the Subsidiary nor the Company is a
"foreign person" within the meaning of the Code.
(d) No claim has ever been made by an authority in a
jurisdiction where the Subsidiary or the Company does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction that has not been
satisfactorily resolved.
(e) No indebtedness of the Subsidiary or the Company
is "corporate acquisition indebtedness" within the meaning of Section 279(b) of
the Code.
(f) Neither the Subsidiary nor the Company (i) has
ever been a member of an affiliated group (within the meaning of Section 1504 of
the Code, or any similar group as defined for state, local or foreign tax
purposes) (except for the affiliated group of the Company including only the
Company and the Subsidiary) filing a consolidated federal (or combined or
unitary state, local or foreign) income Tax Return, and (ii) has liability for
the taxes of any Person (other than the Company or the Subsidiary) under
Treasury Regulation ss. 1.1502-6 (or any similar provision of state, local or
foreign Law), as a transferee or successor, by contract, or otherwise.
(g) For purposes of this Section 5.14, references to
the Company or the Subsidiary shall also refer to any predecessor companies.
(h) For purposes of this Agreement, "Taxes" means all
taxes, charges, fees, levies or other assessments imposed by any United States
Federal, state, or local taxing authority or by any foreign taxing authority,
including but not limited to, income, gross receipts, excise, property, sales,
use, transfer, payroll, license, ad valorem, value added, withholding, social
security, national insurance (or other similar contributions or payments),
franchise, estimated, severance, stamp, and other taxes (including any interest,
fines, penalties or additions attributable to or imposed on or with respect to
any such taxes, charges, fees, levies or other assessments).
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(i) For purposes of this Agreement, "Tax Return"
means any return, report, information return or other document (including any
related or supporting information and, where applicable, profit and loss
accounts and balance sheets) with respect to Taxes.
Section 5.15. Disclosure. No representation or warranty by the
Company contained in this Agreement, and no statement contained in any
certificate or other instrument furnished or to be furnished to the Purchaser
pursuant hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or omits to
state any material fact required to be stated herein or therein which is
necessary in order to make the statements contained herein or therein, in light
of the circumstances under which they were made, not misleading.
Section 5.16. Capitalization. The authorized and outstanding
capital stock of the Subsidiary as of the date hereof is as set forth on
Schedule 5.16 of the Company Disclosure Schedule. All of the outstanding shares
of the capital stock of the Subsidiary are validly issued, fully paid and
non-assessable, are owned by the Company, and on the Closing Date, will be owned
by the Company. There are no liens, claims, charges or encumbrances on or with
respect to any outstanding shares of capital stock of the Subsidiary. There are
no outstanding (i) securities convertible into or exchangeable for the
Subsidiary's capital stock; (ii) options, warrants or other rights to purchase
or subscribe for capital stock of the Subsidiary or (iii) contracts,
commitments, agreements, understandings or arrangements of any kind relating to
the issuance of any capital stock of the Subsidiary, any such convertible or
exchangeable securities or any such options, warrants or rights.
Section 5.17. Environmental Laws. The Subsidiary has complied
during the time the Subsidiary has operated its business and currently complies
with all Environmental Laws (as defined below) and the Subsidiary has not
received any communication (whether from a Governmental Entity, private party,
employee or otherwise) that alleges that the Subsidiary is not in such
compliance, except in each case where such noncompliance or violation would not
have a Material Adverse Effect. The Subsidiary has all permits and licenses
required under Environmental Laws in connection with the operations of the
Subsidiary's business including any permits or licenses relating to disposals or
emissions. The Subsidiary has not been named or threatened to be named a
"potentially responsible party" within the meaning of CERCLA or any similar
federal, state or local law. "Environmental Laws" means any applicable federal,
state, local or foreign laws, statutes, rules, regulations, orders, consent
decrees, judgments, permits or licenses, relating to prevention, remediation,
reduction or control of pollution, or protection of the environment, natural
resources and/or human health and safety, including, without limitation, such
applicable laws, statutes, rules, regulations, orders, consent decrees,
judgments, permits or licenses relating to (a) solid waste and/or Hazardous
Materials generation, handling, transportation, use, treatment, storage or
disposal, (b) air, water, and noise pollution, (c) soil, ground, water or
groundwater contamination, (d) the manufacture, generation, processing,
handling, distribution, use, treatment, storage, transportation or release,
emission or discharge into the environment of Hazardous Materials, (e)
regulation of underground and above ground storage tanks, (f) the obtaining,
sale, use, storage, disposal or testing of any human blood or blood product and
(g) the disposal of medical waste. "Hazardous Materials" means any flammable or
explosive materials, petroleum (including crude oil and its fractions),
radioactive materials, hazardous wastes, toxic substances or related hazardous
materials, chemicals, pollutants and contaminants, including, without
limitation, polychlorinated biphenyls, friable asbestos, and any substances
defined as, or included in the definition of toxic or hazardous substances,
wastes, or materials under any federal or applicable state, local or foreign
laws, ordinances, rules or regulations including Environmental Laws.
Section 5.18. Contracts.
5.18.1. Schedule 5.18 of the Company Disclosure
Schedule sets forth an accurate, correct and complete list of the following
binding contracts, agreements, arrangements or instruments (the "Contracts") in
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effect on the date hereof, to which the Subsidiary is a party, by which it is
bound or pursuant to which the Subsidiary is an obligor or a beneficiary:
(a) Any Contracts with affiliates, whether
or not material (other than employment
agreements providing for an annual
salary and bonus of less than
$100,000);
(b) Any Contract for capital expenditures
or services by the Subsidiary which
involves consideration payable by the
Subsidiary in excess of $50,000 in any
fiscal year;
(c) Any Contract evidencing any
indebtedness for borrowed money in
excess of $50,000 or obligation for the
deferred purchase price of assets in
excess of $50,000 (excluding normal
trade payables) or guaranteeing any
indebtedness, obligation or liability
in excess of $50,000;
(d) Any Contract wherein the Subsidiary has
agreed to a non-competition provision;
(e) Any joint venture, partnership,
cooperative arrangement or any other
Contract involving a sharing of
profits;
(f) Any Contract with any governmental
entity (other than for services in the
ordinary course of business);
(g) Manufacturers' representative, sales
agency, dealer or advertising Contract
which is not terminable on notice
without cost or other liability to the
Subsidiary;
(h) Settlement agreement of any material
administrative or judicial proceeding
within the past five years (other than
those the effect of which is reflected
in the financial statements included in
the SEC Reports);
(i) Any power of attorney, proxy or similar
instrument granted by or to the
Subsidiary (other than in the ordinary
course of business consistent with past
practice); and
(j) Any other material Contract related to
the business of the Subsidiary, as
currently conducted or any other
Contract not in the ordinary course of
business of the Subsidiary consistent
with past practice.
Accurate, correct and complete copies of each such Contract
have been made available by the Company to the Purchaser.
5.18.2. Each Contract listed or referred to on
Schedule 5.18 of the Company Disclosure Schedule is in full force and effect,
except where the failure to be in full force and effect will not have a Material
Adverse Effect. The Company and the Subsidiary has complied with all commitments
and obligations on its part to be performed or observed under each such
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Contract, except for such noncompliance which is not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect. To the
knowledge of the Company, each party to each such Contract other than the
Company or the Subsidiary has complied with all commitments and obligations on
its part to be performed or observed thereunder, except for such noncompliance
which is not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect. The Subsidiary has not received any notice of a default
by it under any such Contract and no event or condition has happened or
presently exists which constitutes a default by it or, after notice or lapse of
time or both, would constitute a default by it under any such Contract, except
for such notices and defaults which are not reasonably likely, individually or
in the aggregate to have a Material Adverse Effect.
Section 5.19. Major Customers/Suppliers. Schedule 5.19 of the
Company Disclosure Schedule lists the names of the ten largest customers (by
revenues generated) and suppliers (by expenditure) for the Subsidiary and the
amount of revenues generated by each of them and expenditures incurred to them,
as appropriate, during the twelve months ended December 31, 1997. To the best
knowledge of the Company, except as set forth in Schedule 5.19 of the Company
Disclosure Schedule, there have been no material adverse changes in the
relationships between the Subsidiary and the customers or suppliers listed on
Schedule 5.19 of the Company Disclosure Schedule, from December 31, 1997 until
the date hereof.
Section 5.20. Accounts Payable. All accounts payable and
accrued expenses reflected in the financial statements included in the SEC
Reports arose from bona fide transactions in the ordinary course of the
Subsidiary's business.
Section 5.21. Accounts Receivable. All accounts receivable
reflected in the financial statements included in the SEC Reports arose from
bona fide transactions in the ordinary course of the Subsidiary's business.
Neither the Company nor the Subsidiary has received written notice of any claim
of recourse, defense, deduction, counterclaim or offset on part of the obligor
with respect to such accounts receivable.
Section 5.22. Bulk Sales. The bulk sales laws of the
Commonwealth of Pennsylvania are not applicable to the transactions contemplated
hereby.
Section 5.23. Insurance Policies. The Subsidiary maintains
insurance covering all risks customarily insured against and in amounts
reasonable and customary in light of the Subsidiaries' assets, properties,
business, operations, products and services as the same are presently owned or
conducted. Each current policy is in full force and effect and all premiums are
currently paid and no notice of cancellation or termination has been received
with respect to any such policy. Such policies have been sufficient for
compliance with all material requirements of law. Except as set forth on
Schedule 5.23 of the Company Disclosure Schedule, there are no material claims,
actions, suits or proceedings arising out of or based upon any of such policies
of insurance. The Subsidiary has not been refused any insurance with respect to
its assets and operations, nor has its coverage been limited by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance during the last five years.
Section 5.24. Inventory. All inventory of the Subsidiary,
whether existing now or at the Closing, consists or will consist of a quality
and quantity usable in the ordinary course of business, except for items of
obsolete materials, prior season, slow moving, irregular or defective stock and
materials of below-standard quality, all of which have been written off or down
to fair market value as reflected in the financial statements included in the
SEC Reports. The inventory reflected in the financial statements included in the
SEC Reports were on the date thereof properly recorded thereon and reflected at
such date proper reserves as determined in accordance with generally accepted
accounting principles, consistently applied, and stated, on an aggregate basis,
at the lower of cost (based on the first-in, first-out method) or market value.
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Section 5.25. Promotional Programs. Since January 1, 1997, the
promotional programs of the Subsidiary have been and are being conducted in the
ordinary course of business consistent with past practice. Schedule 5.25 of the
Company Disclosure Schedule describes all material binding obligations,
commitments, agreements and understandings with any Person having relations with
the Subsidiary relating to or involving advertising and promotional programs or
plans whether directed to customers, trade parties or others.
Section 5.26. Warranty Claims. The schedule of warranty
expenses of the Subsidiary for the two fiscal years ended December 31, 1997 as
described on Schedule 5.26 of the Company Disclosure Schedule is true, complete
and correct.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE TRANSACTION
Section 6.1. Acquisition Proposals. The Company will notify
the Purchaser promptly if any inquiries or proposals are received by, any
information is requested from, or any negotiations or discussions are sought to
be initiated or continued with the Company, in each case in connection with any
acquisition, business combination or purchase of all or any significant portion
of the assets of, or any equity interest in, the Company or the Subsidiary.
Section 6.2. Conduct of Business Pending the Sale. Each of the
Company and the Subsidiary covenants and agrees that, between the date of this
Agreement and the Closing, unless the Purchaser shall otherwise consent in
writing, the businesses of the Subsidiary shall be conducted only in, and the
Company and the Subsidiary shall not take any action except in, the ordinary
course of business and in a manner consistent with past practice. By way of
amplification and not limitation, except as contemplated by this Agreement,
neither the Company nor the Subsidiary shall, between the date of this Agreement
and the Closing, directly or indirectly do any of the following without the
prior written consent of the Purchaser:
(a) (i) amend or propose to amend the Certificate of
Incorporation or By-Laws of the Company or the Subsidiary; (ii) split, combine
or reclassify any outstanding shares of Company Common Stock, or declare, set
aside or pay any dividend or distribution payable in cash, stock, property or
otherwise with respect to the shares of Company Common Stock or shares of
capital stock of the Subsidiary; (iii) redeem, purchase or otherwise acquire or
offer to redeem, purchase or otherwise acquire any shares of its capital stock,
except in the performance of its obligations under existing Employee Plans; or
(iv) authorize or propose or enter into any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this Section 6.2(a);
(b) (i) acquire (by merger, consolidation, or
acquisition of stock or assets) any significant corporation, partnership or
other business organization or division thereof; (ii) except in the ordinary
course of business, sell, pledge, dispose of, or encumber or authorize or
propose the sale, pledge, disposition or encumbrance of any assets of the
Company or its Subsidiary; (iii) incur any indebtedness for borrowed money, or
enter into any contract or agreement, except in the ordinary course of business;
(iv) authorize any capital expenditure which individually is in excess of
$25,000 or in the aggregate in excess of $100,000; or (v) enter into or amend
any contract, agreement, commitment or arrangement with respect to any of the
matters set forth in this Section 6.2(b);
(c) take any action except in the ordinary course of
business and in a manner consistent with past practice with respect to
accounting policies or procedures (including without limitation its procedures
with respect to the payment of accounts payable); or
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(d) take any action described in Sections 5.6.4,
5.6.5, 5.6.9, 5.6.10, 5.6.12, 5.6.13 and 5.6.14.
Section 6.3. No Shopping. The Company and its Subsidiary will
not, directly or indirectly, through any officer, director, agent, financial
adviser or otherwise, solicit, initiate or encourage submission of proposals or
offers from any Person relating to any acquisition or purchase of all or a
portion of the assets of (other than immaterial or insubstantial assets or
inventory in the ordinary course of business), or any equity interest in, the
Company or the Subsidiary or any business combination with the Company or the
Subsidiary, or participate in any negotiations regarding, or furnish to any
other Person any information (except for information which has been previously
publicly disseminated by the Company in the ordinary course of business) with
respect to, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other Person to do or seek
any of the foregoing. Notwithstanding the foregoing, the parties hereby agree
that the Board of Directors of the Company may review and act upon (which
actions may include, without limitation providing confidential information,
negotiating a transaction and entering into an agreement for a transaction) an
unsolicited proposal by any other Person relating to any of the transactions
referred to in the preceding sentence, if the Company's Board of Directors upon
the advice of counsel determines that failing to review and act would constitute
a breach of fiduciary duty. The Company shall use its best efforts to cause all
confidential materials previously furnished to any third parties to be promptly
returned to the Company and shall cease any negotiations conducted in connection
therewith or otherwise conducted with any such parties. In accordance with
Section 6.1 hereof, the Company shall promptly notify the Purchaser if any such
proposal or offer, or any inquiry or contact with any Person with respect
thereto, is made.
Section 6.4. Best Efforts. Each of the Company, the Subsidiary
and the Purchaser shall use all reasonable efforts to cause the conditions set
forth in Article VIII hereof to be satisfied, and shall cooperate with the other
parties hereto in obtaining third party consents required hereunder (including,
without limitation, providing to the third parties such information as they may
reasonably request).
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1. Proxy Statement. As promptly as practicable after
the date hereof, the Company shall prepare and file with the SEC, and shall use
all reasonable efforts to have cleared by the SEC, and promptly thereafter shall
mail to stockholders, the Proxy Statement. The Proxy Statement shall contain the
recommendation of the Company's Board of Directors in favor of the Transaction;
provided, however, that no director of the Company shall be required to take or
support any action that would violate its fiduciary duty to stockholders. The
Proxy Statement shall not be filed, and no amendment or supplement to the Proxy
Statement will be made by the Company, without consultation with Purchaser and
its counsel.
Section 7.2. Meeting of Stockholders of the Company. Following
the date hereof, the Company shall promptly take all action necessary in
accordance with Delaware Law and its Certificate of Incorporation and By-Laws to
convene the Company Stockholders' Meeting. The stockholder vote or consent
required for approval of the Transaction will be no greater than that set forth
in Delaware Law. The Company shall use its reasonable best efforts to solicit
from stockholders of the Company proxies in favor of the Transaction and shall
take all other action reasonably necessary to secure any vote or consent of
stockholders required by Delaware Law to effect the Transaction. The Purchaser
agrees that it shall vote, or cause to be voted, in favor of the Transaction all
shares of Company Common Stock directly or indirectly beneficially owned by it.
Notwithstanding anything to the foregoing, no director of either the Company or
the Subsidiary shall be required to take or support any action that would
violate its fiduciary duty to stockholders.
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Section 7.3. Additional Agreements. The Company and the
Purchaser will each comply in all material respects with all applicable laws and
with all applicable rules and regulations of any governmental authority in
connection with its execution, delivery and performance of this Agreement and
the transactions contemplated hereby. Each of the parties hereto agrees to use
all reasonable efforts to obtain in a timely manner all necessary waivers,
consents and approvals and to effect all necessary registrations and filings,
and to use all reasonable efforts to take, or cause to be taken, all other
actions and to do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement. The parties shall cooperate in
responding to inquiries from, and making presentations to, regulatory
authorities.
Section 7.4. Notification of Certain Matters. The Company
shall give prompt notice to the Purchaser, and the Purchaser shall give prompt
notice to the Company, of (i) the occurrence, or non-occurrence, of any event
whose occurrence, or non-occurrence, would be likely to cause either (A) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing or (B) any condition set forth in Article VIII to be unsatisfied in any
material respect at any time from the date hereof to the date of the Closing,
and (ii) any material failure of the Company or the Subsidiary on the one hand,
or the Purchaser on the other hand, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 7.4 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section 7.5. Access to Information. (a) From the date hereof
to the Closing, the Company shall, and shall cause its Subsidiary, officers,
directors, employees, auditors and agents to, afford the officers, employees and
agents of the Purchaser reasonable access, at reasonable times and on reasonable
notice, to its officers, employees, agents, properties, offices and other
facilities and to all books and records, and shall furnish the Purchaser with
all financial, operating and other data and information as the Purchaser,
through its officers, employees or agents, may reasonably request, except that,
with respect to the workpapers of its independent accountants, the Company and
the Subsidiary shall only be required to provide access thereto, it being
understood that they may not be copied or reproduced in any manner without the
express written consent of such independent accountants.
(b) Any information obtained after the date hereof
pursuant to Section 7.5 shall be subject to the Confidentiality Agreement dated
May 12, 1998 by and between Purchaser and the Company (the "Confidentiality
Agreement") which agreement is hereby confirmed in all respects and shall
survive, in accordance with its terms, any termination of this Agreement.
Section 7.6. Public Announcements. The Purchaser and the
Company shall consult with each other before issuing any press release or
otherwise making any public statements with respect to the Offer or the
Transaction and shall not issue any such press release or make any such public
statement before such consultation, except as may be required by law or the
rules and regulations of any stock exchange or trading medium on or through
which the shares of Company Common Stock are then traded.
Section 7.7. INTENTIONALLY OMITTED.
Section 7.8. Obligations Relating to Subsidiary Employees. The
Purchasers shall have no obligations to hire or continue the employment of any
of the Subsidiary's employees. The Subsidiary shall be solely responsible for
the satisfaction of all claims for benefits brought by or in respect of any
individual who was an employee of the Subsidiary at any time prior to the
Closing under any Plan or any government mandated benefits (worker's
compensation and unemployment compensation) or otherwise, which claims are based
on occurrences prior to the Closing, or as a result of the Closing, regardless
of when notices of such claims were filed. The Subsidiary shall retain
responsibility for all compensation payable, including with respect to the
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benefits or other liabilities payable with respect to all Plans, relating to
employees of the Subsidiary who retired or terminated employment prior to the
Closing.
Section 7.9. Further Assurances. (a) Subject to the terms and
conditions hereof, the Subsidiary and the Company each agrees that after the
Closing Date it will execute and deliver such documents to the Purchasers as the
Purchasers may reasonably request in order to more effectively vest in the
Purchasers good title to the Purchased Assets and to consummate the transactions
contemplated hereby in the manner contemplated hereby.
(b) On and after the Closing Date, the Purchasers shall have
the sole right and authority to collect, for its own account and sole benefit,
all monies payable in respect of the Purchased Assets, no matter how or when
earned. If the Company or the Subsidiary shall receive any such monies, it shall
hold all such monies in trust for the sole benefit of the Purchasers. No later
than the 15th day of the month after the month in which receipt thereof
occurred, the Company and the Subsidiary shall cause the transfer and delivery
to the Purchasers of any monies or other property which the Company or
Subsidiary may receive after the Closing Date in payment of monies payable in
respect of the Purchased Assets or the business of the Subsidiary. The
Subsidiary authorizes the Purchasers to endorse in the Subsidiary's name all
notes, checks, drafts, money orders or other instruments of payment in respect
of the foregoing which may come into the possession of the Purchasers, and the
Subsidiary hereby ratifies all that the Purchasers shall lawfully do or cause to
be done by virtue hereof. This right shall become irrevocable upon Closing.
Section 7.10. Post-Closing Access. The Purchaser hereby agrees
to maintain all Books and Records and Regulatory Filings forming a part of the
Purchased Assets for a period of at least six years from the Closing Date and,
during such time, to provide the Company and the Subsidiary with full and
complete access to all such Books and Records and Regulatory Filings for any
lawful purpose, including to defend or prosecute any legal actions or government
proceedings (including tax audits) brought by or against the Company or any
Subsidiary. The Company and the Subsidiary agree to provide commercially
reasonable notice when making requests, and agree not to materially interfere
with the operations of the Purchaser in exercising its rights, under this
Section 7.10. The Purchaser agrees to cause any subsequent transferee of any of
the Purchased Assets to be bound by the terms and provisions of this section to
the extent it has possession of any Books and Records or Regulatory Filings.
Notwithstanding anything to the contrary, the Purchaser agrees that the Company
and the Subsidiary will retain a copy of the Books and Records and Regulatory
Filings forming a part of the Purchased Assets.
Section 7.11. Liability Insuarnace. The Company and the
Subsidiary agree to maintain the Purchaser as an additional insured of the
Company's and the Subsidiary's product liability insurance policies in effect on
the Closing (as to which the Purchaser shall be named as an additional insured
in accordance with and pursuant to Section 8.3.3 below) for such time as such
policies shall be maintained for the Company and the Subsidiary's benefit.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE CLOSING; CLOSING
Section 8.1. Conditions to Obligation of Each Party to Effect
the Transaction. The respective obligations of each party to effect the
Transaction shall be subject to the following conditions:
8.1.1. Stockholder Approval. This Agreement shall
have been approved and adopted by the requisite vote of the stockholders of the
Company and the Subsidiary; and
8.1.2. No Challenge. There shall not be pending any
action, proceeding or investigation before any court or administrative agency by
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any governmental agency challenging, or seeking material damages in connection
with the Transaction or this Agreement, which (i) if adversely determined, would
have a Material Adverse Effect on the Purchaser, the Company or the Subsidiary,
or (ii) prohibits or makes illegal the Transaction.
8.1.3. No Statutes. There shall not be any statute,
rule, regulation, judgment, order or injunction enacted, enforced, promulgated,
issued or deemed expressly applicable to the Transaction or this Agreement which
would have a Material Adverse Effect on the Purchaser, the Company or the
Subsidiary.
8.1.4. Contractual Consents. The parties shall have
obtained all of the consents and approvals to the transfer of the Contracts
listed on Schedule 8.1.4.
Section 8.2. Additional Conditions to Obligations of the
Company and the Subsidiary. The obligation of the Company and the Subsidiary to
effect the Transaction is also subject to the satisfaction or the waiver by the
Company and the Subsidiary of the following conditions on the Closing Date:
8.2.1. (i) the representations and warranties of the
Purchaser set forth in this Agreement and the Collateral Documents shall be true
and correct as of the date of this Agreement and as of the Closing as though
made on and as of the Closing, except for such misstatements or omissions which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Purchaser, (ii) the Purchaser shall have performed or complied in all
material respects with all agreements, conditions and covenants required by this
Agreement to be performed or complied with by it on or before the Closing, (iii)
the Purchaser shall have delivered to the Company and the Subsidiary a
certificate to such effect dated the Closing Date signed on behalf of the
Purchaser by its Chairman or President, which certificate shall be in form and
substance reasonably satisfactory to the Company and the Subsidiary, and (iv)
Swidler Berlin Shereff Friedman, LLP shall have delivered its opinion in form
and substance reasonably satisfactory to the Company and the Subsidiary
confirming the accuracy of the matters set forth in Sections 4.1 (first sentence
only), 4.2 and 4.3(a)(i) and (ii) of this Agreement (it being understood that no
opinion shall be required with respect to regulations administered by any state
or federal food and drug administrative agency); and
8.2.2. the Company and the Subsidiary shall have been
provided with the originally-executed documents, agreements and instruments
required to be delivered by the Seller pursuant to this Agreement and
pursuant to each of the Collateral Documents, including, but not limited to, a
Secretary's and incumbency certificate, a bill of sale for the tangible portion
of the Purchased Assets, an assignment and assumption agreement, an omnibus
intellectual property assignment, a patent assignment and the Escrow Agreement.
Section 8.3. Additional Conditions to Obligations of the
Purchaser. The obligation of the Purchaser to effect the Transaction is also
subject to the satisfaction or the waiver by the Purchaser of the following
conditions on the Closing Date:
8.3.1. (i) the representations and warranties of the
Company and the Subsidiary set forth in this Agreement and the Collateral
Documents shall be true and correct as of the date of this Agreement and as of
the Closing as though made on and as of the Closing, except for such
misstatements or omissions which, individually or in the aggregate, would not
have a Material Adverse Effect on the Subsidiary, (ii) the Company and the
Subsidiary shall have performed or complied in all material respects with all
agreements, conditions and covenants required by this Agreement to be performed
or complied with by them on or before the Closing, (iii) the Company and the
Subsidiary shall have delivered to the Company and the Subsidiary a certificate
to such effect dated the Closing Date signed on behalf of each of the Company
and the Subsidiary by its President, which certificate shall be in form and
substance reasonably satisfactory to the Purchaser and (iv) Pepper Hamilton LLP
shall have delivered its opinion in form and substance reasonably satisfactory
to the Purchaser confirming the accuracy of the matters set forth in Sections
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5.1 (first sentence only), 5.3, 5.4(a)(i) and (ii) and 5.4(b) of this Agreement
(it being understood that no opinion shall be required with respect to
regulations administered by any state or federal food and drug administrative
agency);
8.3.2. the Purchaser shall have been provided with
the originally-executed documents, agreements and instruments required to be
delivered by the Company and the Subsidiary pursuant to this Agreement and
pursuant to each of the Collateral Documents, including, but not limited to, a
Secretary's and incumbency certificate, a bill of sale for the tangible portion
of the Purchased Assets, an assignment and assumption agreement, an omnibus
intellectual property assignment, a patent assignment, the Escrow Agreement and
a FIRPTA affidavit of the Subsidiary stating that the Subsidiary is not a
foreign person;
8.3.3. The Purchaser shall have been named as an
additional insured on the Company's and the Subsidiary's product liability
insurance policies in effect on the Closing Date; and
8.3.4. the Purchaser shall have received a wire
transfer of the cash and cash equivalents of the Subsidiary on hand as of the
Closing Date, less the Excluded Cash.
Section 8.4. Closing. The closing of the Transaction (the
"Closing") shall take place at the offices of Pepper Hamilton LLP, 3000 Two
Logan Square, Philadelphia, PA 19103-2799 (i) at 10:00 A.M. on the first
business day on which the last to be fulfilled or waived of the conditions set
forth in this Agreement shall be fulfilled or waived in accordance with this
Agreement or (ii) at such other place and time and/or on such other date as the
Company and the Purchaser may agree (the "Closing Date").
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1. Termination. This Agreement may be terminated at
any time before the Closing:
9.1.1. By mutual consent of the respective Boards of
Directors of the Purchaser and the Company; or
9.1.2. By either the Purchaser or the Company if the
Transaction shall not have been consummated by December 31, 1998, provided,
however, that the right to terminate this Agreement under this Section 9.1.2
will not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Transaction to occur on or before such date; or
9.1.3. By either the Purchaser or the Company if a
court of competent jurisdiction or governmental, regulatory or administrative
agency or commission shall have issued an order, decree or ruling or taken any
other action (which order, decree or ruling the parties hereto shall use their
best efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and nonappealable;
or
9.1.4. By the Purchaser if the Board of Directors of
the Company (i) withdraws, modifies or changes its recommendation to its
stockholders of the approval and adoption of this Agreement in a manner adverse
to the Purchaser, (ii) recommends to the holders of shares of Company Common
Stock any proposal with respect to a merger, consolidation, share exchange or
similar transaction involving the Company or its Subsidiary, other than the
transactions contemplated by this Agreement, or (iii) resolves to do any of the
foregoing; or
9.1.5. By the Company if prior to the Closing, a
Person or group shall have made a bona fide offer that the Board of Directors of
the Company determines in its good faith judgment, upon the advice of counsel,
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that it is necessary for it to accept such bona fide offer in the exercise of
its fiduciary duties because it is more favorable to the Company's stockholders
than the Transaction;
9.1.6. By either the Purchaser or the Company if the
other party (i) has breached its representations or warranties contained herein
or (ii) has failed to perform any of its covenants and agreements contained
herein, in each case, in any material respect, and such breach or failure
continues for a period of ten days after the receipt of notice of the breach
from the non-breaching party; or
9.1.7. By the Company if the Closing shall not have
occurred by November 30, 1998 and, prior to such date, either (i) the
termination date of the Financing Commitment shall not have been extended to
December 31, 1998 or (ii) a substitute financing commitment satisfactory to the
Company shall not have been obtained by the Purchaser.
Section 9.2. Effect of Termination. In the event of
termination of this Agreement as provided in Section 9.1 hereof, this Agreement
shall forthwith become void and there shall be no liability on the part of the
Purchaser, the Company or the Subsidiary, except nothing herein shall relieve
any party from liability for any breach of any of its representations,
warranties, covenants or agreements contained in this Agreement. Notwithstanding
the foregoing, if this Agreement is terminated by the Purchaser pursuant to
Section 9.1.4 or by the Company pursuant to Section 9.1.5 hereof, then, within
five (5) Business Days after such termination, the Company shall pay the
Purchaser the sum of $150,000 in immediately available funds, and, upon receipt
of a reasonably detailed invoice therefor, reimburse the Purchaser for its
reasonable out-of-pocket expenses incurred in connection with this Transaction.
Section 9.3. Amendment. This Agreement may be amended by the
parties hereto by action taken by the Purchaser and by action taken by or on
behalf of the Company's Board of Directors at any time before the Closing;
provided, however, that, after approval of the Transaction by the Stockholders
of the Company, no amendment may be made which would reduce the amount or change
the type of consideration into which each Share will be converted upon
consummation of the Transaction. This Agreement may not be amended except by
an instrument in writing signed by the parties hereto.
Section 9.4. Waiver. At any time before the Closing, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in any
document delivered pursuant hereto or (c) waive compliance by the other parties
with any of their agreements or conditions contained herein. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
as against such party and only if set forth in an instrument in writing signed
by such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Closing or the termination of this Agreement pursuant to
Section 9.1, as the case may be, except that the agreements set forth in
Articles II and III, and in Sections 7.8 through 7.11 (inclusive) shall survive
the Closing indefinitely.
Section 10.2. Notices. All notices and other communications
given or made pursuant hereto shall be in writing and shall be deemed to have
been duly given or made as of the date delivered or mailed if delivered
personally, mailed by overnight U.S. Express Mail (postage prepaid, return
receipt requested) or delivered by a nationally-recognized courier service
guaranteeing next Business Day delivery to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice, except that notices of changes of address shall be effective upon
receipt):
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10.2.1. if to the Purchaser:
Numark Laboratories, Inc.
75 Mayfield Avenue
Edison, New Jersey 08818
Attention: Patrick M. Lonergan, President
Fax: (732) 225-0066
with a copy to:
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, NY 10022-9998
Attention: Scott Zimmerman, Esq.
Fax: (212) 758-9526
10.2.2. if to the Company or the Subsidiary:
Menley & James, Inc.
Commonwealth Corporate Center, Suite 210
100 Tournament Drive
Horsham, PA 19044
Attention: Lawrence D. White, President
Fax: (215) 441-6579
with a copy to:
Pepper Hamilton LLP
3000 Two Logan Square
Philadelphia, PA 19103-2799
Attention: James D. Epstein, Esq.
Fax: (215) 981-4750
Section 10.3. Expenses. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses. All transfer and sales
taxes shall be the responsibility of the Purchaser
Section 10.4. Certain Definitions. For purposes of this
Agreement, the term:
10.4.1. "affiliate" of a Person means a Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first mentioned Person;
10.4.2. "Business Day" shall mean any day which is
not a Saturday, Sunday or other day during which banks in the State of New York
are authorized to close.
10.4.3. "control" (including the terms "controlled
by" and "under common control with") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise;
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10.4.4. "Person" means an individual, corporation,
partnership, association, trust or any unincorporated organization; and
10.4.5. "Knowledge" means, with respect to the
Company and its Subsidiary, the actual knowledge of the officers (as such term
is defined in Rule 16b-1(f) promulgated under the Exchange Act) of the Company
and the Subsidiary.
Section 10.5. Headings. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 10.6. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the maximum
extent possible.
Section 10.7. Entire Agreement; No Third-Party Beneficiaries.
This Agreement constitutes the entire agreement and supersedes any and all other
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, is not intended to confer upon any other Person any
rights or remedies hereunder.
Section 10.8. Assignment. This Agreement shall not be assigned
by operation of law or otherwise, except that the Purchaser may assign all or
any of their rights hereunder to any affiliate of the Purchaser provided that no
such assignment shall relieve the assigning party of its obligations hereunder.
Section 10.9. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York
applicable to contracts executed in and to be performed entirely within that
State.
Section 10.10. Counterparts. This Agreement may be executed in
one or more counterparts and by facsimile, and by the different parties hereto
in separate counterparts, each of which when executed shall be deemed to be an
original but all of which shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the Purchaser, the Subsidiary and the Company have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
MENLEY & JAMES, INC.
By: /s/ Lawrence D. White
---------------------------------------------
Name: Lawrence D. White
Title: President and Chief Financial Officer
MENLEY & JAMES LABORATORIES, INC.
By: /s/ Lawrence D. White
---------------------------------------------
Name: Lawrence D. White
Title: President and Chief Financial Officer
NUMARK LABORATORIES, INC.
By: /s/ Benjamin M. Deavenport
---------------------------------------------
Name: Benjamin M. Deavenport
Title: Vice President
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EXHIBIT 2.2
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
This Amendment No. 1 to the Asset Purchase Agreement (this "Amendment
No. 1") is made and entered into as of October 13, 1998, by and among Menley &
James, Inc., a Delaware corporation (the "Company"), Menley & James
Laboratories, Inc., a Delaware corporation (the "Subsidiary"), and Numark
Laboratories, Inc., a Delaware corporation (the "Purchaser"). The Company, the
Subsidiary and the Purchaser are referred to collectively herein as the
"Parties."
W I T N E S S E T H:
WHEREAS, the Company, the Subsidiary and the Purchaser previously
entered into an Asset Purchase Agreement dated as of August 21, 1998 (the
"Agreement");
WHEREAS, the Parties, based upon discussions subsequent to date of the
Agreement, have determined that the Purchaser will not be named or maintained as
an additional insured on the product liability insurance policies of the Company
and the Subsidiary;
WHEREAS, the Parties wish to amend and restate certain provisions of
the Agreement that appeared incorrectly in the Agreement due to scrivener's
errors; and
WHEREAS, it is now the intention of the Parties to amend the Agreement
as set forth below;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties agree as follows:
1. Section 1.2(d) of the Agreement is hereby amended and restated in its
entirety as follows:
"(d) the product liability insurance policies of the
Company and the Subsidiary;"
2. The phrase "obligations under Sections 3.2 and 3.1, respectively" at the
end of the first sentence of Section 3.1.3 of the Agreement is here by
amended to read as follows: "obligations under Sections 3.1.2 and 3.1.1,
respectively."
3. Section 5.4(b) of the Agreement is hereby amended and restated in its
entirety as follows:
"(b) Except for applicable requirements, if any,
of the Exchange Act, neither the Company nor the Subsidiary is
required to submit or obtain any notice, permit, consent,
authorization, approval, report or other filing with any
governmental authority, domestic or foreign, in connection
with the execution, delivery or performance of this Agreement.
Except for applicable requirements, if any, of the Exchange
Act, no waiver, consent, approval or authorization of any
governmental or regulatory authority, domestic or foreign, is
required to be obtained or made by the Company or the
Subsidiary in connection with its execution, delivery or
performance of this Agreement."
<PAGE>
4. Section 7.11 of the Agreement is hereby deleted in its entirety.
5. The reference to "Seller" in Section 8.2.2 is hereby changed to "the
Purchaser."
6. Section 8.3.1(iii) of the Agreement is hereby amended and restated in its
entirety as follows:
"(iii) the Company and the Subsidiary shall have delivered to
the Purchaser a certificate to such effect dated the Closing
Date signed on behalf of each of the Company and the
Subsidiary by its President, which certificate shall be in
form and substance reasonably satisfactory to the Purchaser"
7. Section 8.3.3 of the Agreement is hereby deleted in its entirety.
8. Section 9.3 of the Agreement is hereby amended and restated in its entirety
as follows:
"Section 9.3. Amendment. This Agreement may be
amended by the parties hereto by action taken by the Purchaser
and by the Company and the Subsidiary at any time before the
Closing. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto."
9. Section 10.1 of the Agreement is hereby amended and restated in its
entirety as follows:
"Section 10.1. Non-Survival of Representations,
Warranties and Agreements. The representations, warranties and
agreements in this Agreement shall terminate at the Closing or
the termination of this Agreement pursuant to Section 9.1, as
the case may be, except that the agreements set forth in
Articles II and III, and in Sections 7.8 through 7.10
(inclusive) shall survive the Closing indefinitely."
10. All capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Agreement.
11. In the case of any inconsistency or conflict between the provisions of this
Amendment No. 1 and the provisions of the Agreement, the provisions of this
Amendment No. 1 shall govern.
12. Except as expressly provided for in this Amendment No. 1, all terms,
conditions and obligations contained in the Agreement are hereby confirmed
and shall remain unchanged and in full force and effect.
13. Where provisions of the Agreement are deleted in their entirety, without
amendment, restatement or replacement as a result of this Amendment No. 1,
the words "INTENTIONALLY OMITTED" shall be inserted in their place.
14. The Company and the Subsidiary hereby confirm to the Purchaser, and the
Purchaser hereby confirms to the Company and the Subsidiary, that each of
them is not aware of any conditions to Closing contained in the Agreement
that it believes will not be satisfied on the Closing Date.
15. This Amendment No. 1 shall be governed by, and construed in accordance
with, the laws of the State of New York applicable to contracts executed in
and to be performed entirely within that State.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment No. 1
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
MENLEY & JAMES, INC.
By: /s/ LAWRENCE D. WHITE
--------------------------
Name: Lawrence D. White
Title: President and Chief Executive Officer
MENLEY & JAMES LABORATORIES, INC.
By: /s/ LAWRENCE D. WHITE
--------------------------
Name: Lawrence D. White
Title: President and Chief Executive Officer
NUMARK LABORATORIES, INC.
By: /s/ PATRICK M. LONERGAN
----------------------------
Name: Patrick M. Lonergan
Title: President
3
<PAGE>
EXHIBIT 2.3
AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT
-------------------------------------------
This Amendment No. 2 to the Asset Purchase Agreement (this "Amendment
No. 2") is made and entered into as of November 11, 1998, by and among Menley &
James, Inc., a Delaware corporation (the "Company"), Menley & James
Laboratories, Inc., a Delaware corporation (the "Subsidiary"), and Numark
Laboratories, Inc., a Delaware corporation (the "Purchaser"). The Company, the
Subsidiary and the Purchaser are referred to collectively herein as the
"Parties."
W I T N E S S E T H:
--------------------
WHEREAS, the Company, the Subsidiary and the Purchaser previously
entered into an Asset Purchase Agreement dated as of August 21, 1998 (the
"Original Agreement");
WHEREAS, the Company, the Subsidiary and the Purchaser previously
entered into Amendment No. 1 dated as of October 13, 1998 ("Amendment No. 1") to
the Original Agreement (as amended by Amendment No. 1, the "Agreement");
WHEREAS, the Parties, based upon discussions subsequent to date of the
Agreement, have determined to revise certain provisions relating to the Purchase
Price and to add provisions relating to the operation of the business during a
limited transition period; and
WHEREAS, it is now the intention of the Parties to amend the Agreement
as set forth below;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties agree as follows:
1. Section 2.1 of the Agreement is hereby amended and restated in its entirety
as follows:
"Section 2.1. Purchase Price. At the Closing, the
Purchaser shall pay a purchase price of $13,430,000 (the
"Purchase Price"). The Purchase Price shall be paid by wire
transfer of immediately available funds to such accounts as
shall be designated by the Subsidiary at least 3 business days
prior to the Closing Date. The Company acknowledges that it
will receive substantial benefit from the Purchase Price being
paid to the Subsidiary and, accordingly, no additional
consideration shall be paid to the Company for the transfer of
its right, title and interest in and to the trademark
"AquaCare"."
2. Section 2.2 of the Agreement is hereby deleted in its entirety.
3. Article 6 of the Agreement is hereby amended by adding a new Section 6.5
which shall read in its entirety as follows:
"Section 6.5. Transaction Notification; Transition
Operations.
6.5.1 The Purchaser shall provide to the
Subsidiary a written notice, in a form reasonably acceptable
to the Subsidiary, which notice the Subsidiary shall send to
each of its vendors and customers. The notice shall advise the
recipient of the pending Transaction, the anticipated date of
its completion, and certain matters relating to the operation
of the Subsidiary pending the completion of the Transaction.
<PAGE>
6.5.2 (a) For the period beginning on
November 16, 1998 and continuing until the earlier of the
Closing or the termination of this Agreement for any reason
(the "Transition Period"), (i) the Subsidiary shall deliver to
the Purchaser any and all customer orders received by the
Subsidiary, and (ii) the Purchaser shall have the right and
authority to collect, for the account of the Subsidiary, all
monies payable in respect of the Subsidiary's operations
during the Transition Period (the "Transition Operations"),
which monies it shall hold in trust for the sole benefit of
the Subsidiary (the "Trust Monies"); provided, however, the
Purchaser shall neither change any of the terms or conditions
of sales made by the Subsidiary to any customer nor, without
the prior written consent of the Subsidiary, institute any
legal proceeding or collection action, including, without
limitation, referring a particular customer's account for
collection by a third party.
(b) Effective as of the Closing, the
provisions of subsection (a) shall terminate and thereafter,
the Purchaser (i) shall have the sole right and authority to
collect, for its own account and sole benefit, all monies
payable in respect of the Transition Operations, no matter how
or when earned, and (ii) shall have the sole right to the
Trust Monies. If the Company or the Subsidiary shall receive
any such monies, it shall hold all such monies in trust for
the sole benefit of the Purchaser, and shall remit such monies
to the Purchaser in accordance with Section 7.9(b) hereof.
(c) Notwithstanding subsection (b)
above, in the event this Agreement is terminated for any
reason, the Purchaser shall, no later than the 5th Business
Day after such termination, cause the transfer and delivery to
the Subsidiary of any monies or other property which the
Purchaser may have received in respect of, or in connection
with, the Transition Operations. In the event this Agreement
is terminated for any reason, the Purchaser authorizes the
Subsidiary to endorse, in the Purchaser's name, all notes,
checks, drafts, money orders or other instruments of payment
in respect of the foregoing which may come into the possession
of the Subsidiary, and to notify each person or entity that
received the notice pursuant to Section 6.5.1 to deliver all
future payments directly to the Subsidiary, and the Purchaser
hereby ratifies all that the Subsidiary shall lawfully do or
cause to be done by virtue hereof."
4. All capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Agreement.
5. In the case of any inconsistency or conflict between the provisions of this
Amendment No. 2 and the provisions of the Agreement, the provisions of this
Amendment No. 2 shall govern.
6. Except as expressly provided for in this Amendment No. 2, all terms,
conditions and obligations contained in the Agreement are hereby confirmed
and shall remain unchanged and in full force and effect.
7. Where provisions of the Agreement are deleted in their entirety, without
amendment, restatement or replacement as a result of this Amendment No. 2,
the words "INTENTIONALLY OMITTED" shall be inserted in their place.
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<PAGE>
8. The Company and the Subsidiary hereby confirm to the Purchaser, and the
Purchaser hereby confirms to the Company and the Subsidiary, that each of
them is not aware of any conditions to Closing contained in the Agreement
that it believes will not be satisfied on the Closing Date.
9. This Amendment No. 2 shall be governed by, and construed in accordance with,
the laws of the State of New York applicable to contracts executed in and to
be performed entirely within that State.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment No. 1
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
MENLEY & JAMES, INC.
By: /s/ LAWRENCE D. WHITE
--------------------------------------------
Name: Lawrence D. White
Title: President and Chief Executive Officer
MENLEY & JAMES LABORATORIES, INC.
By: /s/ LAWRENCE D. WHITE
--------------------------------------------
Name: Lawrence D. White
Title: President and Chief Executive Officer
NUMARK LABORATORIES, INC.
By: /s/ PATRICK M. LONERGAN
--------------------------------------------
Name: Patrick M. Lonergan
Title: President
<PAGE>
EXHIBIT 10.2
MENLEY & JAMES, INC.
AMENDED AND RESTATED
1991 STOCK OPTION PLAN
-------------------------
(as amended September 9, 1998)
-------------------------
ARTICLE I.
Purpose
The Menley & James, Inc. Amended and Restated 1991 Stock Option Plan
(the"Plan") is intended as an incentive to improve the performance, encourage
the continued employment, and increase the proprietary interest of certain
directors, officers and employees of Menley & James, Inc. (the "Company") and
its Subsidiaries who shall participate in the Plan. The Plan is designed to
grant such directors, officers and employees the opportunity to share in the
Company's long-term success through stock ownership and to afford them the
opportunity for additional compensation related to the value of the Company's
stock.
The word "Company", when used in the Plan with reference to employment,
shall include Subsidiaries of the Company. The word "Subsidiary", when used in
the Plan, shall mean any subsidiary corporation of the Company within the
meaning of Section 424(f) of the Internal Revenue Code of 1986, as amended(the
"Code").
It is intended that certain options granted under the Plan and
designated as incentive stock options in the option agreements qualify as
"incentive stock options" under Section 422 of the Code.
For purposes of the Plan, the term "Effective Date" shall mean April
10, 1998.
ARTICLE II.
Administration
The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board") from among its
members and shall consist of not less than two members thereof.
Subject to the provisions of the Plan, the Committee shall have sole
authority, in its absolute discretion: (a) to determine, subject to approval of
the Board as provided in ARTICLE IV, which of the eligible Participants (as
hereinafter defined) shall be granted options; (b) to authorize the granting of
both incentive stock options and non-qualified stock options; (c) to determine
the times when options shall be granted and the number of shares to be subject
to options; (d) to determine the option price of the shares subject to each
option, which price shall be not less than the minimum specified in ARTICLE V;
(e) to determine the time or times when each option becomes exercisable, the
duration of the exercise period and any other restrictions on the exercise of
options issued hereunder; (f) to prescribe the form or forms of the option
agreements under the Plan (which forms shall be consistent with the terms of the
Plan but need not be identical and may contain such terms as the Committee may
deem appropriate to carry out the purposes of the Plan); (g) to determine the
nature of any rights and restrictions to be imposed on shares subject to options
issued hereunder; (h) to adopt, amend and rescind such rules and regulations as,
in its opinion, may be advisable in the administration of the Plan; (i) to
construe and interpret the Plan, the option agreements
<PAGE>
under the Plan and the rules and regulations adopted from time to time, if any;
and (j) to make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations and interpretations of
the Committee shall be final and binding on all optionees.
ARTICLE III.
Stock
The stock to be subject to options granted under the Plan shall be
shares of authorized but unissued common stock, par value $0.01 (the "Stock"),
of the company, or previously issued shares of such Stock reacquired by the
Company and held in its treasury, as determined by the Board. Under the Plan,
the total number of shares of Stock which may be purchased pursuant to options
granted hereunder shall not exceed, in the aggregate, 680,000 shares, excepts
such number of shares shall be adjusted in accordance with the provisions of
ARTICLE X hereof. In addition, the maximum number of shares of Stock as to which
options may be granted to any individual during any fiscal year of the company
shall not exceed 100,000.
Each option granted under the Plan shall be evidenced by an option
agreement between the Company and the optionee containing such provisions as may
be determined by the Committee, but shall be subject to the following terms and
conditions:
(a) Each share of Stock purchased through the exercise of an option
shall be paid for in full at the time of the exercise; and
(b) Each option shall become exercisable by the optionee in accordance
with any vesting schedule established by the Committee pursuant to ARTICLE VI of
the Plan.
The number of shares of Stock available for grant of options under the
Plan shall be decreased by the sum of the number of shares with respect to which
options have been issued and are then outstanding and the number of shares
issued upon exercise of options. In the event that any outstanding option for
any reason expires, lapses, or is canceled prior to the end of the period during
which options may be granted, the shares of Stock called for bathe unexercised
portion of such option may again be subject to an option undertoe Plan.
ARTICLE IV.
Eligibility of Participants
Subject to ARTICLE VII, directors, officers and employees of the
Company who have been selected by the Committee and approved by the Board as
participants (collectively referred to as "Participants" and individually as
a"Participant") shall be eligible to receive grants of options under the Plan;
provided, however, that notwithstanding any other provision of the Plan to the
contrary, no director of the Company other than directors who are employees of
the Company shall be eligible to receive incentive stock options. Participation
in the Plan shall be limited to eligible Participants who have entered into
option agreements with the Company. No Participant, however, shall at any time
have a right to be selected for participation in the Plan.
ARTICLE V.
Option Price
The option price of each option granted under the Plan shall be
determined by the Committee; provided, however, that in the case of each
incentive stock option granted under the Plan, the option price
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<PAGE>
shall not be less than the fair market value at the time the option is granted.
In no event shall the option price of any option be less than the par value per
share of Stock on the date an option is granted.
At any time when the Stock is quoted on the National Association of
securities Dealers Automated Quotation System ("NASDAQ"), the fair market value
shall be deemed to be the mean between the last quoted bid and asked prices on
NASDAQ on the date immediately preceding the date on which the option is
granted, or, if not quoted on that day, then on the last preceding date on which
such stock is quoted. If the Stock is listed on one or more national securities
exchanges, the fair market value shall be deemed to be the mean between the
highest and lowest sale prices reported on the principal national securities
exchange on which such stock is listed and traded on the date immediately
preceding the date on which the option is granted, or, if there is no such sale
on that date, then on the last preceding date on which such a sale was reported.
If the Stock is not quoted on NASDAQ or listed on an exchange, or representative
quotes are not otherwise available, the fair market value of the Stock shall
mean the amount determined by the Committee tone the fair market value based
upon a good faith attempt to value the Stock accurately and computed in
accordance with applicable regulations of the Internal Revenue Service.
ARTICLE VI.
Terms and Conditions of Options
Options granted under the Plan shall vest and become exercisable in
such installments as the Committee shall determine at the time of grant. Options
may be exercisable in whole or in part and if an option is exercisable in part,
the portion thereof which is exercisable and not exercised shall remain
exercisable.
Any other provision of the Plan notwithstanding and subject to ARTICLE
VII, no option shall be granted after the date which is ten years from the
Effective Date (the "Termination Date") nor shall any option, if granted, be
exercised after the date which is ten years after the option is granted.
Options granted hereunder may provide that, if an optionee ceases to be
employed by the Company for any reason other than for cause, the option will
remain exercisable by the optionee (or, in the case of the optionee's death, by
the person(s) to whom optionee's rights under the option pass by will or by
applicable laws of descent and distribution) for a period not extending beyond
one year after the date of cessation of employment, to the extent that such
option was exercisable at the time of cessation of employment; provided,
however, that the foregoing will not extend the period during which an option is
exercisable beyond the latest date that such option could otherwise have been
exercised had the optionee remained employed by the Company. Options granted
hereunder may provide that if prior to the Termination Date an optionee shall
cease to be employed by the Company by reason of termination of employment by
the Company for cause, or by voluntary termination at a time when the Company is
entitled to terminate such optionee's employment for cause, the option shall
terminate immediately. For purposes of the Plan, the Company shall have "cause"
to terminate an optionee's employment hereunder upon (i) the commission by the
optionee of a proven act of fraud or embezzlement against the Company,(ii) the
engaging by the optionee in willful misconduct or gross negligence which is
demonstrably and materially injurious to the Company, monetarily or otherwise,
(iii) failure of the optionee to render services to the Company in accordance
with such optionee's duties as an employee of the Company or (iv)the optionee
being convicted of a misdemeanor involving an act of moral turpitude or a
felony.
For purposes of the Plan, in the case of a Participant who is a
director, references to employment herein shall be deemed to refer to such
director's service to the Company in such capacity.
3
<PAGE>
Notwithstanding the foregoing, stock options granted hereunder shall
provide that no option shall be exercisable after the optionee's cessation of
employment with the Company if at the time of exercise the By-Laws of the
company limit the ownership of common stock of the Company to selected persons,
including employees of the Company.
4
<PAGE>
ARTICLE VII.
Special Provisions Applicable Only to Incentive Stock Options
To the extent the aggregate fair market value (determined at the time
the option is granted) of the Stock with respect to which incentive stock
Options may be exercisable for the first time by an optionee during any calendar
year (under this Plan and any other stock option plan of the Company and any
parent or subsidiary thereof) exceeds $100,000, such incentive stock options
shall be treated as options which are non-qualified stock options.
No incentive stock option may be granted to an individual who, at the
time the option is granted, owns directly, or indirectly within the meaning of
section 425(d) of the Code, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any parent or
subsidiary thereof, unless such option (i) has an option price of at least 110%
of the fair market value of the Stock on the date of the grant of such option;
and (ii) such option by its terms cannot be exercised more than five years after
the date it is granted.
Each optionee who receives an incentive stock option must agree to
notify the Company in writing immediately after the optionee makes a
disqualifying disposition of any Stock acquired pursuant to the exercise of an
incentive stock option. A disqualifying disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the optionee was granted the incentive stock option or (b) one year after
the date the optionee acquired Stock by exercising the incentive stock option.
ARTICLE VIII.
Payment for Shares
Payment for shares of Stock acquired pursuant to an option granted
hereunder shall be made in full, upon exercise of the option, in immediately
available funds in United States dollars, by certified or bank cashier's check.
Payment in full shall include payment of any amounts required under paragraph
(b) of Article XIX. Payment may also be made by such other lawful means as may
be prescribed by the Committee in its discretion.
ARTICLE IX.
Non-Transferability of Option Rights and Stock
During the lifetime of the optionee, the option shall be exercisable
only by the optionee. No option shall be transferable, except by will or the
laws of descent and distribution.
ARTICLE X.
Adjustment for Recapitalization, Merger, Etc.
The aggregate number of shares of Stock which may be purchased or
acquired pursuant to options granted hereunder, the aggregate number of shares
as to which options may be granted to any individual during any fiscal year, the
number of shares of Stock covered by each outstanding option and the price per
share thereof in each such option shall be appropriately adjusted for any
increase or decrease in the number of outstanding shares of Stock resulting from
a stock split or other subdivision or consolidation of shares of Stock or for
other capital adjustments or payments of stock dividends or distributions or
other increases or decreases in the outstanding shares of Stock effected without
receipt of consideration by the Company. Any adjustment shall be conclusively
determined by the Committee.
If the Company shall be the surviving corporation in any merger or
reorganization or other business combination, any option granted hereunder shall
cover the securities or other property to which a
5
<PAGE>
holder of the number of shares of Stock covered by the unexercised portion of
the option would have been entitled pursuant to the terms of the merger.
Stock option agreements under the Plan may, at the discretion of the
Committee, provide that upon stockholder approval of a merger, reorganization or
other business combination, whether or not the Company is the surviving
corporation, or a sale of all or substantially all of the Company's assets, all
unmatured installments of the options shall vest and become immediately
exercisable in full.
The foregoing adjustments and the manner of application of the
foregoing provisions, including the issuance of any substitute options, shall be
determined by the Committee in its sole discretion. Any such adjustment may
provide for the elimination of any fractional share which might otherwise become
subject to an option.
ARTICLE XI.
No Obligation to Exercise Option
Granting of an option shall impose no obligation on the recipient to
exercise such option.
ARTICLE XII.
Use of Proceeds
The proceeds received from the sale of Stock pursuant to the Plan shall
be used for general corporate purposes.
ARTICLE XIII.
Rights as a Stockholder
An optionee shall have no rights as a stockholder with respect to any
share covered by his option until such person shall have become the holder of
record of such share, and such person shall not be entitled to any dividends or
distributions or other rights in respect of such share for which the record date
is prior to the date on which such person shall have become the holder of record
thereof, except as otherwise provided in ARTICLE X.
ARTICLE XIV.
Employment Rights
No provision in the Plan or in any option granted hereunder shall
confer on any optionee any right to continue in the employ of the Company, or to
interfere in any way with the right of the Company to terminate the optionee's
employment at any time.
ARTICLE XV.
Compliance with Law
The Company is relieved from any liability for the non-issuance or
non-transfer or any delay in the issuance or transfer of any shares of Stock
subject to options under the Plan which results from the inability of the
Company to obtain, or from any delay in obtaining, from any regulatory body
having jurisdiction or authority, any requisite approval to issue or transfer
any such shares if counsel for the Company deems such approval necessary for
lawful issuance or transfer thereof.
6
<PAGE>
Each option granted under the Plan is subject to the requirement that
if at any time the Board determines, in its discretion, that the listing,
registration or qualification of shares of Stock issuable upon exercise of
options is required by any securities exchange or under any state or Federal
law, or that the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the grant of
options or the issuance of shares of Stock, no shares of Stock shall be issued,
in whole or in part, unless such listing, registration, qualification, consent
or approval has been effected or obtained free of any conditions or with such
conditions as are acceptable to the Board.
ARTICLE XVI.
Cancellation of Options
The Committee, in its discretion, may, with the consent of any
optionee, cancel any outstanding option hereunder.
ARTICLE XVII.
Effective Date; Expiration Date of Plan
The Plan (as amended and restated) shall become effective upon April
10, 1998, the date of adoption of the Plan by the Board, subject to approval by
the shareholders of the Company at its annual meeting to be held on May 21,
1998. The expiration date of the Plan, after which no option may be granted
hereunder, shall be April 10, 2008.
ARTICLE XVIII.
Amendment or Discontinuance of Plan
The Board may terminate, amend or modify the Plan in its sole
discretion at any time or from time to time after the Effective Date.
Notwithstanding the preceding provisions of this ARTICLE XVIII, no such action
shall, without shareholder approval, increase the number of shares as to which
options may be granted or change the class of employees eligible to receive
options under the new Plan.
ARTICLE XIX.
Miscellaneous
(a) Options shall be evidenced by option agreements (which need not be
identical) in such forms as the Committee may from time to time approve. Such
agreements shall conform to the terms and conditions of the Plan and may provide
that the grant of any option under the Plan and Stock acquired pursuant to the
Plan shall also be subject to such other conditions (whether or not applicable
to the option or Stock received by any other optionee) as the Committee
determines appropriate, including, without limitation, provisions to assist the
optionee in financing the purchase of Stock through the exercise of options,
provisions for the forfeiture of, or restrictions on, resale or other
disposition of shares under the Plan, provisions giving the Company the right to
repurchase shares acquired under the Plan in the event the participant elects to
dispose of such shares, and provisions to comply with Federal and state
securities laws and Federal and state income tax withholding requirements.
(b) The Company may, in its discretion, require that an optionee pay to
the Company, at the time of exercise, such amount as the Company deems necessary
to satisfy its obligations to withhold Federal, state, or local income or other
taxes incurred by reason of the exercise or the transfer of shares thereupon.
(c) Each optionee shall file with the Committee a written designation
of one or more persons as beneficiary, who shall be entitled to exercise options
which are exercisable, if any, or to receive shares of Stock distributable, if
any, under the Plan upon the optionee's death. An optionee may, from time to
time,
7
<PAGE>
revoke or change his beneficiary designation without the consent of any prior
beneficiary by filing a new designation with the Committee. The last such
designation received by the Committee shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Committee prior to the optionee's death, and in no event shall
it be effective as of a date prior to such receipt.
(d) If the Committee shall find that any person to whom any amount is
payable under the Plan is unable to care for his affairs because of illness or
accident, or is a minor, or has died, then any payment due to such person or his
estate (unless a prior claim therefor has been made by a duly appointed legal
representative), may, if the Committee so directs the company, be paid to his
spouse, child, relative, an institution maintaining or having custody of such
person, or any other person deemed by the Committee tone a proper recipient on
behalf of such person otherwise entitled to payment. Any such payment shall be a
complete discharge of the liability of the Committee and the Company therefor.
(e) No member of the Committee shall be personally liable by reason of
any contract or other instrument executed by such member or on his behalf in his
capacity as a member of the Committee nor for any mistake of judgment made in
good faith, and the Company shall indemnify and hold harmless each member of the
Committee and each other employee, officer or director of the Company to whom
any duty or power relating to the administration or interpretation of the Plan
may be allocated or delegated, against any cost or expense (including counsel
fees) or liability (including any sum paid in settlement of a claim) arising out
of any act or omission to act in connection with the Plan unless arising out of
such person's own fraud or bad faith; provided, however, that approval of the
Board shall be required for the payment of any amount in settlement of a claim
against any such person. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Certificate of Incorporation or By-Laws, as a
matter of law, or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.
(f) The Plan shall be governed by and construed in accordance with the
internal laws of the State of Delaware without reference to the principles of
conflicts of law thereof.
(g) No provision of the Plan shall require the Company, for the purpose
of satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made or otherwise
to segregate any assets, nor shall the Company maintain separate bank accounts,
books, records or other evidence of the existence of a segregated or separately
maintained or administered fund for such purposes. Optionees shall have no
rights under the Plan other than as unsecured general creditors of the company,
except that insofar as they may have become entitled to payment of additional
compensation by performance of services, they shall have the same rights as
other employees under general law.
(h) Each member of the Committee and each member of the Board shall be
fully justified in relying, acting or failing to act, and shall not be liable
for having so relied, acted or failed to act in good faith, upon any report made
by the independent public accountant of the Company and upon any other
information furnished in connection with the Plan by any person or persons other
than such member.
(i) Except as otherwise specifically provided in the relevant plan
document, no payment under the Plan shall be taken into account in determining
any benefits under any pension, retirement, profit-sharing, group insurance or
other benefit plan of the Company.
(j) The expenses of administering the Plan shall be borne by the
company.
(k) Masculine pronouns and other words of masculine gender shall refer
to both men and women.
8
<PAGE>
EXHIBIT 10.22A
MENLEY & JAMES, INC.
SEVERANCE AGREEMENT
THIS AGREEMENT is made as of the 24th day of September, 1998
and is entered into by and between GREG L. KEARL ("Executive") and MENLEY &
JAMES, INC. (the "Company").
WHEREAS, the parties hereto are also parties to an existing
agreement dated October 25, 1995 regarding Executive's employment and severance
rights (the "Original Agreement"); and
WHEREAS, the Company, Menley & James Laboratories, Inc. (the
"Subsidiary") and Numark Laboratories, Inc. have entered into an Asset Purchase
Agreement dated August 21, 1998, pursuant to which substantially all the assets
of the Subsidiary will be sold (the "Transaction"); and
WHEREAS, it is anticipated that Executive's employment by the
Company will terminate upon consummation of the Transaction; and
WHEREAS, the Company wishes to provide and Executive wishes to
accept certain severance benefits in lieu of any rights he may have under the
Original Agreement.
NOW THEREFORE, in consideration of the material promises
contained herein and intending to be legally bound hereby, the parties agree as
follows:
1. Replacement of Original Agreement. Effective as of the date
hereof, the Original Agreement is hereby terminated in all respects. From and
after the date hereof, this Agreement will govern the respective rights and
obligations of the parties regarding Executive's employment by the Company and
the termination thereof.
2. Termination of Employment. Executive's employment by the
Company will terminate upon execution of this Agreement. Within five (5)
business days of the date hereof, the Company will pay Executive an amount in
cash equal to $276,000 (net of legally required withholdings).
3. Transfer and Assignment. Neither Executive nor the Company
may assign or transfer this Agreement or any right or obligation hereunder
without the prior written consent of the other party.
4. Integration; Amendments. This Agreement contains the entire
agreement and understanding of the parties relating to the subject matter
hereof, and merges and supersedes all prior and contemporaneous discussions,
agreements and understandings of every nature between the parties hereto
relating to the termination of Executive's employment. This Agreement may not be
changed or modified, except by an Agreement in writing signed by each of the
parties hereto.
5. Governing Law. This Agreement will be construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to the application of the principals of conflicts or choice of
laws.
IN WITNESS WHEREOF, the parties have executed this Agreement,
effective as of the first date above-written.
MENLEY & JAMES, INC.
By: /s/ LAWRENCE D. WHITE
------------------------
Title: President
GREG L. KEARL
/s/ GREG L. KEARL
-------------------------
<PAGE>
EXHIBIT 10.29
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of August 21,
1998 by and among Warburg, Pincus Investors, L.P., a Delaware limited
partnership (the "Primary Stockholder"), Numark Laboratories, Inc., a Delaware
corporation (the "Purchaser"), and Lawrence D. White, a resident of the
Commonwealth of Pennsylvania (the "Executive Stockholder," and together with the
Primary Stockholder, the "Stockholders").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Purchaser, Menley & James Laboratories,
Inc., a Delaware corporation (the "Subsidiary"), and Menley & James, Inc., a
Delaware corporation (the "Company"), are entering into an Asset Purchase
Agreement of even date herewith (as it may be amended or modified from time to
time, the "Acquisition Agreement"), pursuant to which Purchaser will acquire
from the Company substantially all of the Company's assets and assume
substantially all of the Subsidiary's liabilities (as it may be amended or
modified from time to time the "Transaction");
WHEREAS, each Stockholder owns, as of the date hereof, that number of
shares of the Company's common stock (the "Common Stock"), par value $0.01 per
share (the "Existing Shares," together with any shares of Common Stock
beneficial ownership (as defined in Section 2.1 below) of which is acquired by
such Stockholder after the date hereof and prior to the earlier of (i) the date
of the Company's stockholders meeting contemplated by the Acquisition Agreement
(including as may be postponed or adjourned the "Meeting Date"), and (ii)
termination hereof, hereinafter collectively referred to as the "Shares") set
forth opposite his or its name on Annex I hereto; and
WHEREAS, as a condition to their willingness to enter into the
Acquisition Agreement, and in reliance upon each Stockholder's representations,
warranties, covenants and agreements hereunder, Purchaser has requested that
each Stockholder agree, and each Stockholder has agreed, to enter into this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for such other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, and intending to be legally
bound hereby, it is agreed as follows:
1. Agreement to Vote.
1.1. Each Stockholder hereby agrees that during the time this Agreement
is in effect, subject to Section 6.1(c) below, at any meeting of the
stockholders of Company, however called, and in any action by consent of the
stockholders of Company, the Stockholder shall: (a) vote his or its Shares in
favor of the approval and adoption of the Acquisition Agreement; (b) vote his or
its Shares against any action or agreement that would result in a breach of any
covenant, representation or warranty or any other obligation or agreement of
Company under the Acquisition Agreement; and (c) vote his or its Shares against
(i) any proposal from a Person, other than the Transaction, relating to a
merger, business combination, recapitalization, reorganization or liquidation
involving Company or the Subsidiary (as defined in the Acquisition Agreement),
or the sale or transfer of a material amount of assets of Company or the
Subsidiary (each an "Acquisition Proposal"), or (ii) any change in the
management or board of directors of Company, except as may otherwise be agreed
to in writing by Purchaser. Each Stockholder acknowledges receipt and review of
a copy of the Acquisition Agreement.
2. Representations and Warranties of Stockholders. Each Stockholder represents
and warrants to Purchaser as follows:
<PAGE>
2.1. Ownership of Shares. On the date hereof, the Existing Shares are
all of the Shares currently owned of record or beneficially owned (which, for
purposes of this Agreement, shall be determined in accordance with Rule
13d-3(a)(1) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) by such Stockholder or any Affiliates (as defined in the Acquisition
Agreement) of such Stockholder. Such Stockholder has, with respect to the
Existing Shares, and on the Meeting Date will have, with respect to the Shares,
good, valid and marketable title, and the right to vote such Common Stock in
accordance with the terms of this Agreement, in each case free and clear of all
liens, claims, encumbrances, voting agreements, voting trusts or proxies which
would interfere with such Stockholder's ability to vote the Shares in accordance
with the terms of this Agreement.
2.2. Power; Binding Agreement. Such Stockholder has the full legal
right, power and authority to enter into and perform all of such Stockholder's
obligations under this Agreement. The execution and delivery of this Agreement
by such Stockholder will not violate any other agreement to which such
Stockholder is a party including, without limitation, any voting agreement,
stockholder agreement or voting trust. This Agreement has been duly executed and
delivered by such Stockholder and constitutes a legal, valid and binding
agreement of such Stockholder, enforceable in accordance with its terms. Neither
the execution or delivery of this Agreement nor the consummation by such
Stockholder of the transactions contemplated hereby will (a) require any consent
or approval of or filing with any governmental or other regulatory body other
than filings required under the federal securities laws, or (b) constitute a
violation of, conflict with or constitute a default under, any material
contract, commitment, agreement, understanding, arrangement or other restriction
of any kind to which such Stockholder is a party or by which such Stockholder is
bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from either Stockholder in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Acquisition Agreement.
3. Representations and Warranties of Purchaser. Purchaser represents and
warrants to the Stockholders as follows:
3.1. Authority. Purchaser has full legal right, power and authority to
enter into and perform all of its obligations under this Agreement. The
execution and delivery of this Agreement by Purchaser will not violate any other
agreement to which Purchaser is a party. This Agreement has been duly executed
and delivered by Purchaser and constitutes a legal, valid and binding agreement
of Purchaser, enforceable in accordance with its terms. Neither the execution of
this Agreement nor the consummation by Purchaser of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body other than filings required under the
federal securities laws, or (b) constitute a violation of, conflict with or
constitute a default under, any material contract, commitment, agreement,
understanding, arrangement or other restriction of any kind to which Purchaser
is a party or by which it is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Purchaser in connection with this Agreement or
the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Acquisition Agreement.
4. Termination. This Agreement shall terminate on the earlier of (a) the Closing
(as defined in the Acquisition Agreement), and (b) the termination of the
Acquisition Agreement.
5. Expenses. Each party hereto will pay all of its expenses in connection with
the transactions contemplated by this Agreement, including, without limitation,
the fees and expenses of its counsel and other advisers.
- 2 -
<PAGE>
6. Covenants
6.1. Except in accordance with the provisions of this Agreement, each
Stockholder agrees, while this Agreement is in effect, not to, directly or
indirectly:
(a) sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a voting trust
or enter into a voting agreement with respect to any Shares;
(c) take any action to encourage, initiate or solicit any
inquiries or the making of any Acquisition Proposal or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal or
otherwise assist or facilitate any effort or attempt by any person or entity
(other than Purchaser, or its officers, directors, representatives, agents,
affiliates or associates) to make or implement an Acquisition Proposal. Such
Stockholder will immediately cease and cause to be terminated any existing
activities, discussions or negotiations on its part with any parties conducted
heretofore with respect to any of the foregoing, and will notify Purchaser
promptly if it becomes aware of any such inquiries or that any proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be instituted or continued with, the Company (or its
officers, directors, representatives, agents, affiliates or associates), such
notice to include the material terms communicated; provided, however, that the
foregoing shall not restrict the Stockholder (in his capacity as a director of
the Company) or any of its representatives on the Company's board of directors
from taking actions to the same extent and in the same circumstances permitted
for the Company and the Company's board of directors under Section 6.3 of the
Acquisition Agreement; or
(d) enter into any agreement which would interfere with its
obligations under this Agreement or the Transaction.
6.2. Such Stockholder agrees, while this Agreement is in effect, to
notify Purchaser promptly of the number of any shares of Common Stock acquired
by such Stockholder after the date hereof.
7. Survival of Representations and Warranties. All representations, warranties,
covenants and agreements made by each Stockholder or the Purchaser in this
Agreement shall survive the Closing and any investigation at any time made by or
on behalf of any party.
8. Notices. All notices or other communications required or permitted hereunder
shall be in writing (except as otherwise provided herein), given in the manner
provided in the Acquisition Agreement, and shall be deemed duly given when
received, addressed as follows:
(a) If to the Purchaser:
Numark Laboratories, Inc.
75 Mayfield Avenue
Edison, New Jersey 08837
Attention: Patrick M. Lonergan, President
Facsimile: (732) 225-0066
- 3 -
<PAGE>
With a required copy to:
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022-9998
Attention: Scott Zimmerman, Esq.
Facsimile: (212) 758-9526
(b) If to the Principal Stockholder:
Warburg, Pincus Investors, L.P.
c/o E.M. Warburg, Pincus & Co., LLC
466 Lexington Avenue
New York, New York 10017-3147
Attention: James E. Thomas, Managing Director
Facsimile: (212) 878-9361
If to Lawrence D. White:
26 Springton Pointe Drive
Newtown Square, PA 19073
In each case with a required copy to:
Pepper Hamilton LLP
3000 Two Logan Square
Philadelphia, PA 19103-2799
Attention: James D. Epstein, Esq.
Facsimile: (215) 981-4750
9. Entire Agreement; Amendment. This Agreement, together with the documents
expressly referred to herein, constitute the entire agreement among the parties
hereto with respect to the subject matter contained herein and supersede all
prior agreements and understandings among the parties with respect to such
subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by Purchaser and the
Stockholders.
10. Obligations of Stockholders. The representations, warranties, covenants,
agreements and obligations of the Stockholders contained in this Agreement shall
be deemed to be several, and not joint with any other Stockholder, and made with
respect to itself, himself, its Shares or his Shares only.
11. Assigns. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, assigns and personal
representatives, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties.
12. Governing Law. Except as expressly set forth below, this Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. In addition, each of the Stockholders and
Purchaser hereby agree that any dispute arising out of this Agreement shall be
heard in the Supreme Court of the State of New York or in the United States
District Court for the Southern District of New York and, in connection
therewith, each party to this Agreement hereby consents to the jurisdiction of
such courts and
- 4 -
<PAGE>
agrees that any service of process in connection with any dispute arising out of
this Agreement may be given to any other party hereto by certified mail, return
receipt requested, at the respective addresses set forth in Section 8 above.
13. Injunctive Relief. The parties agree that in the event of a breach of any
provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. The parties therefore agree that in the event of a breach of any
provision of this Agreement, the aggrieved party shall be entitled to obtain in
any court of competent jurisdiction a decree of specific performance or to
enjoin the continuing breach of such provision, in each case without the
requirement that a bond be posted, as well as to obtain damages for breach of
this Agreement. By seeking or obtaining such relief, the aggrieved party will
not be precluded from seeking or obtaining any other relief to which it may be
entitled.
14. Counterparts; Facsimile Signatures. This Agreement may be executed,
including execution by facsimile, in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same document.
15. Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, such provision shall be interpreted to be only
so broad as is enforceable.
16. Further Assurances. Each party hereto shall execute and deliver such
additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
17. Third Party Beneficiaries. Nothing in this Agreement, expressed or implied,
shall be construed to give any person other than the parties hereto any legal or
equitable right, remedy or claim under or by reason of this Agreement or any
provision contained herein.
[Execution Page Follows]
- 5 -
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Stockholders have caused this
Agreement to be executed by their duly authorized officers, each as of the date
and year first above written.
Numark Laboratories, Inc.
By: /s/ BENJAMIN M. DEAVENPORT
---------------------------
Name: Benjamin M. Deavenport
Title: Vice President
Warburg, Pincus Investors, L.P.
By: E.M. Warburg, Pincus & Co., LLC,
its general partner
By: /s/ RODMAN W. MOORHEAD, III
----------------------------
Name: Rodman W. Moorhead, III
Title: Partner
/s/ LAWRENCE D. WHITE
-----------------------------
Lawrence D. White
- 6 -
<PAGE>
ANNEX I
Name of Stockholder Number of Existing Shares
- ------------------- -------------------------
Warburg, Pincus Investors, L.P. 3,020,478
Lawrence D. White 295,121
- 7 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the Condensed
Consolidated Balance Sheet at September 30, 1998 (unaudited) and the Condensed
Consolidated Statement of Operations for the Nine Months Ended September 30,
1998(unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,376
<SECURITIES> 0
<RECEIVABLES> 3,225
<ALLOWANCES> 477
<INVENTORY> 3,059
<CURRENT-ASSETS> 9,511
<PP&E> 1,392
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,612
<CURRENT-LIABILITIES> 3,170
<BONDS> 0
0
0
<COMMON> 62
<OTHER-SE> 13,380
<TOTAL-LIABILITY-AND-EQUITY> 16,612
<SALES> 10,479
<TOTAL-REVENUES> 10,479
<CGS> 4,952
<TOTAL-COSTS> 4,952
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (122)
<INCOME-PRETAX> (6,790)
<INCOME-TAX> 698
<INCOME-CONTINUING> (7,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,488)
<EPS-PRIMARY> (1.21)
<EPS-DILUTED> (1.21)
</TABLE>
