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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 26, 1999
STRATEGIC DIAGNOSTICS INC.
--------------------------------------------------
(Exact name of Registrant as specified in charter)
Delaware 0-68440 56-1581761
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation or file Identification
Organization) number) Number)
111 Pencader Drive
Newark, Delaware 19702
(Address of principal executive offices)
(302) 456-6789
(Registrant's telephone number, including area code)
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Item 2. Acquisition or Disposition of Assets.
(a) On February 26, 1999, Strategic Diagnostics Inc. (the "Company")
acquired all of the outstanding capital stock of HTI Bio-Products, Inc. ("HTI")
pursuant to a Stock Purchase Agreement among the Company and Robert J. Harman,
Michael M. Dale, Eric S. Bean and Sean Boyd (collectively, the "Sellers"). The
aggregate consideration paid by the Company was determined pursuant to arms'
length negotiations and consisted of approximately $8.1 million in cash and
556,286 shares of the Company's Series B Convertible Preferred Stock, which
shares are convertible on a 1-for-1 basis into shares of the Company's Common
Stock at any time at the option of the holder, and at the option of the Company
when the closing price of the Company's Common Stock exceeds $3.50 per share
for a period of 10 days, and are entitled to a cumulative annual cash dividend
of $0.175 and a liquidation preference. The Company also assumed approximately
$100,000 in long term debt. In addition, the Company is obligated to pay to the
Sellers an earn-out based on a percentage of the net sales of certain products
over the next three years, not to exceed $3 million. The Company's primary
source for the funds used to consummate the transaction was a loan from First
Union National Bank in the amount of $6 million, with the balance coming from
the Company's cash reserves.
The Company is not aware of any material relationship that
existed prior to the transaction between the Company and its officers and
directors, on the one hand, and HTI and/or the Sellers, on the other hand.
(b) The assets of HTI acquired as a result of the transaction include
animal facilities, laboratories, customer lists, cash, accounts receivable,
inventories and other equipment used by HTI to manufacture custom and
proprietary antibodies and biochemicals. The Company intends to utilize these
assets to continue the business of HTI substantially as conducted prior to the
transaction except for certain activities already conducted by the Company and
its subsidiaries such as monoclonal processing, accounting, human resources,
selling and general administration, which will be integrated and which the
Company expects will result in efficiencies and cash savings.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
Financial information that is required to be filed pursuant to
instruction (a) of Item 7 shall be filed not later than 75
days after February 26, 1999.
(b) Pro Forma Financial Information.
Pro Forma financial information that is required to be filed
pursuant to instruction (b) of Item 7 shall be filed not later
than 75 days after February 26, 1999.
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(c) Exhibits.
2.1 Stock Purchase Agreement dated as of February 25, 1999 by and among
Strategic Diagnostics Inc. and Robert J. Harman, Michael M. Dale,
Eric S. Bean and Sean Boyd.
4.1 Certificate of the Powers, Designations, Preferences and Rights of
the Series B Convertible Preferred Stock of the Company filed with
the Secretary of State of the State of Delaware on February 26,
1999.
10.1 Loan and Security Agreement, dated February 26, 1999, among the
Company, TSD Bioservices, Inc. and First Union National Bank.
10.2 Promissory Note in the amount of $6 million, dated February 26,
1999, payable to First Union National Bank.
99 Press Release dated March 1, 1999.
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 hereunto duly authorized.
STRATEGIC DIAGNOSTICS INC.
Date: March 15, 1999 By: /s/ Arthur A. Koch, Jr.
------------------------------------
Name: Arthur A. Koch, Jr.
Title: Vice President - Finance and
Chief Operating Officer
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EXHIBIT INDEX
Exhibit
No. Description
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2.1 Stock Purchase Agreement dated as of February 25, 1999 by and among
Strategic Diagnostics Inc. and Robert J. Harman, Michael M. Dale,
Eric S. Bean and Sean Boyd.
4.1 Certificate of the Powers, Designations, Preferences and Rights of the
Series B Convertible Preferred Stock of the Company filed with the
Secretary of State of the State of Delaware on February 26, 1999.
10.1 Loan and Security Agreement, dated February 26, 1999, among the
Company, TSD Bioservices, Inc. and First Union National Bank.
10.2 Promissory Note in the amount of $6 million, dated February 26, 1999,
payable to First Union National Bank.
99 Press Release dated March 1, 1999.
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EXHIBIT 2.1
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STOCK PURCHASE AGREEMENT
among
STRATEGIC DIAGNOSTICS INC.
(a Delaware corporation),
and
ROBERT J. HARMAN,
MICHAEL M. DALE,
ERIC S. BEAN
and
SEAN BOYD
February 25, 1999
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TABLE OF CONTENTS
Page
----
1. Definitions.............................................................1
2. Sale and Purchase of Stock..............................................7
2.1 Sale and Purchase.................................................7
2.2 Purchase Price....................................................8
2.3 Additional Purchase Price.........................................8
2.4 Escrow Account....................................................8
2.5 Debt. ...........................................................8
2.6 Tax Loans. .......................................................9
2.7 Stock Options. ..................................................9
3. Closing................................................................10
3.1 Buyer's Deliveries...............................................10
3.2 Sellers' Deliveries..............................................10
4. Representations and Warranties of the Sellers..........................11
4.1 Corporate Status.................................................11
4.2 Capitalization; No Subsidiaries; No Other Securities.............12
4.3 Matters Affecting Shares; Title to Common Stock..................12
4.4 Enforceability...................................................12
4.5 Consents and Approvals...........................................12
4.6 Financial Statements.............................................13
4.7 Accounts Receivable..............................................13
4.8 Inventory........................................................13
4.9 Absence of Certain Changes or Events.............................13
4.10 Real Property....................................................15
4.11 Intellectual Property, Software and Confidential Information.....15
4.12 Contracts........................................................16
4.13 Governmental Permits.............................................17
4.14 Legal Proceedings and Compliance with Laws; Environmental Matters18
4.15 Absence of Undisclosed Liabilities...............................19
4.16 Taxes............................................................19
4.17 Books and Records................................................19
4.18 Employees and Employee Relations; Independent Contractors........19
4.19 Employee Benefit Plans...........................................20
4.20 Finder's Fee.....................................................22
4.21 Interest in Business.............................................22
4.22 Condition of Assets..............................................22
4.23 Affiliate Transactions...........................................22
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4.24 Insurance........................................................22
4.25 Previous Sales; Warranties.......................................23
4.26 Customers and Suppliers..........................................23
4.27 Completeness and Accuracy of Information.........................23
5. Representations and Warranties of the Buyer............................24
5.1 Corporate Status.................................................24
5.2 Authorization....................................................24
5.3 Consents and Approvals...........................................24
5.4 Finder's Fees....................................................24
5.5 Preferred Shares. ..............................................24
6. Competition and Confidentiality by the Sellers.........................24
6.1 Noncompetition...................................................24
6.2 Confidentiality..................................................25
6.3 Affiliates.......................................................25
6.4 Injunctive Relief................................................25
7. Tax Matters............................................................26
7.1 Section 338(h)(10) Election. ...................................26
7.2 Short Period Tax Returns and Final Tax Returns. .................27
7.3 Amended Returns. ................................................28
7.4 Audits. ........................................................28
8. Survival of Representations and Warranties; Indemnification............29
8.1 Survival of Representations and Warranties.......................29
8.2 Indemnification by the Sellers...................................29
8.3 Limitations on Obligation of Sellers to Indemnify................29
8.4 Indemnification by the Buyer.....................................30
8.5 Limitations on Obligation of the Buyer to Indemnify..............30
8.6 Environmental Losses.............................................31
8.7 Procedures for Indemnification...................................32
8.8 Payment of Indemnification Obligations...........................33
8.9 Interest on Unpaid Obligations...................................33
8.10 Other Remedies...................................................33
8.11 Inconsistencies..................................................33
9. Covenants Regarding Real Property......................................34
9.1 Possible Non-compliance..........................................34
9.2 Compliance Efforts...............................................34
9.3 Payment Obligations..............................................34
9.4 Relocation.......................................................34
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10. General................................................................34
10.1 Expenses.........................................................34
10.2 Publicity........................................................35
10.3 Amendment, Severability, Parties in Interest, Assignment, Etc....35
10.4 Waivers..........................................................35
10.5 Notices..........................................................35
10.6 Entire Agreement. ..............................................37
10.7 Interpretation. ................................................37
10.8 Governing Law....................................................37
10.9 Counterparts.....................................................37
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SCHEDULES
1 Stock Ownership Summary
2.2.2 Cash Payment
2.2.3 Preferred Shares
2.3 Products related to Additional Purchase Price
2.5 Promissory Notes
4.3 Matters affecting Common Stock
4.5 Consents and Approvals
4.6 Financial Statements
4.7 Accounts Receivable
4.8 Inventory
4.9 Changes
4.9.11 Payments to Sellers
4.10 Real Property
4.11 Intellectual Property, Software and Confidential Information
4.12 Contracts
4.13 Governmental Permits
4.14 Legal Proceedings and Compliance with Laws; Environmental Matters
4.15 Absence of Undisclosed Liabilities
4.16 Taxes
4.18 Employees and Employee Relations; Independent Contractors
4.19 Employee Benefit Plans
4.22 Condition of Assets
4.23 Affiliate Transactions
4.24 Insurance
4.26 Customers and Suppliers
8.1 Sellers' Indemnity Obligations
EXHIBITS
A Escrow Agreement
B Form of Employment Agreements
C Certificate of Designations of the Series B Convertible Preferred Stock
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of February 25, 1999
(the "Effective Date") by and among STRATEGIC DIAGNOSTICS INC., a Delaware
corporation (the "Buyer") and Robert J. Harman ("Harman"), Michael M. Dale
("Dale"), Eric S. Bean ("Bean") and Sean Boyd ("Boyd") (each of Harman, Dale,
Bean and Boyd are a "Seller" and together, are the "Sellers"). Certain other
terms are used herein as defined below in Section 1 or elsewhere in this
Agreement.
Background
Sellers own all of the issued and outstanding capital stock of
HTI Bio-Products, Inc., a California corporation (the "Company"), consisting of
1,061,371 shares of common stock, no par value per share (the "Common Stock"),
which shares of Common Stock are owned by the Sellers in the amounts indicated
on Schedule 1. This Agreement sets forth the terms and conditions under which
the Buyer is purchasing the Common Stock from the Sellers.
Witnesseth
NOW, THEREFORE, in consideration of the respective covenants
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Definitions. For convenience, certain terms used in more
than one part of this Agreement are listed in alphabetical order and defined or
referred to below (such terms as well as any other terms defined elsewhere in
this Agreement shall be equally applicable to both the singular and plural forms
of the terms defined).
"Accounts Payable" means as of any date any accounts payable
as would appear on a balance sheet of the Company as of such date prepared in
accordance with GAAP, other than any amounts payable to any Selling Party or an
Affiliate of a Selling Party.
"Accounts Receivable" means as of any date any trade accounts
receivable, notes receivable, bid or performance deposits, employee advances and
other miscellaneous receivables included in the assets of the Company or that
arose in connection with the Business.
"Accrued Expenses" means as of any date any accrued payroll
and vacation and other accrued expenses as would appear on a balance sheet of
the Company as of such date prepared in accordance with GAAP, other than any
amounts payable to a Selling Party or an Affiliate of a Selling Party and any
compensation payable to Employees or others contingent upon or as a result of
the Transactions.
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"Additional Purchase Price" is defined in Section 2.3.
"Affiliates" means, with respect to a particular Party,
Persons or entities controlling, controlled by or under common control with that
Party, as well as any officers and directors of that Party or any Affiliates of
any of the foregoing. For the purposes of the foregoing, ownership, directly or
indirectly, of 20% or more of the voting stock or other equity interest shall be
deemed to constitute control; provided however, HTI Bio-Services, a California
corporation, shall not be deemed to be an Affiliate of any Seller or the
Company.
"Agreement" means this Agreement and the Schedules hereto.
"Balance Sheet" is defined in Section 4.6.
"Balance Sheet Date" is defined in Section 4.6.
"Benefit Plan" means any (i) "employee benefit plan" as
defined in Section 3(3) of ERISA and any related or separate Contract, plan,
trust, program, policy and arrangement and (ii) supplemental retirement, bonus,
vacation, deferred compensation, severance, incentive or other employee benefit
plan, program, arrangement, practice, custom or understanding, in each case
whether formal or informal, that provides benefits of economic value to any
Employee or any former employee of the Company (including, without limitation,
any entity described in Section 4.19.1) or any present or former beneficiary,
dependent or assignee of any such Employee or former employee of the Company.
"Books and Records" is defined in Section 4.17.
"Borrower" is defined in Section 2.6.
"Business" means the business and operations of the Company as
conducted by the Company on the Effective Date.
"Buyer" is defined above in the preamble.
"Buyer's General Liabilities" is defined in Section 7.4.
"Buyer Indemnified Party" is defined in Section 7.2.
"Cash Payment" as defined in Section 2.2.2.
"Certificate of Designations" means the Certificate of the
Powers, Designations, Preferences and Rights of the Series B Convertible
Preferred Stock of the Buyer filed with the Secretary of State of the State of
Delaware on or before the Effective Date, in the form of Exhibit C attached
hereto.
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"Charter Documents" means an entity's certificate or articles
of incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, certificate of formation, operating agreement, joint
venture agreement or similar document governing the entity.
"Closing" means the consummation of the Transactions.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" is defined above in the Background.
"Common Stock" is defined above in the Background.
"Confidential Information" is defined in Section 6.2.
"Contract" means any written or oral contract, agreement,
lease, instrument or other commitment that is binding on any Person or its
property under applicable Law.
"Copyrights" means any registered copyrights, copyright
applications and unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or
ruling of any federal, state, local or foreign court or governmental or
regulatory body or authority that is binding on any Person or its property under
applicable Law.
"Default" means (i) a breach, default or violation, (ii) the
occurrence of an event that with or without the passage of time or the giving of
notice, or both, would constitute a breach, default or violation or (iii) with
respect to any Contract, the occurrence of an event that with or without the
passage of time or the giving of notice, or both, would give rise to a right of
termination, renegotiation or acceleration or a right to receive damages or a
payment of penalties.
"Effective Date" is defined above in the preamble.
"Employee" is defined in Section 4.18.
"Employment Agreements" means the employment agreements, in
the forms attached hereto as Exhibit B, between each of Dale and Bean and the
Buyer dated as of the Effective Date and entered into in connection with this
Agreement.
"Encumbrances" means any lien, mortgage, security interest,
license right, pledge, restriction on transferability, defect of title or other
claim, charge or encumbrance of any nature whatsoever on any property or
property interest.
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"Environmental Condition" is defined in Section 4.14.2.
"Environmental Law" means any Law (including, but not limited
to the Clean Water Act, 33 U.S.C. ss.ss. 1251 et seq., the Toxic Substances
Control Act, 15 U.S.C. ss.ss. 2601 et seq., the Clean Air Act, 42 U.S.C. ss.ss.
7401 et seq., the Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
ss.ss. 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
ss.ss. 6901 et seq., the River and Harbor Act, 33 U.S.C. ss. 407, and the
Occupational Safety and Health Act, 29 U.S.C. ss.ss. 651 et seq.), Court Order
(whether or not by consent), any duties imposed by common law and any provision
or condition of any Governmental Permit relating to (i) the protection of the
environment or the public welfare from actual or potential exposure (or the
effects of exposure) to any actual or potential release, discharge, disposal or
emission (whether past or present) of any Hazardous Substance or (ii) the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of any Hazardous Substance.
"Environmental Losses" is defined in Section 7.6.1.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" means First Union National Bank.
"Escrow Agreement" means the Escrow Agreement, attached hereto
as Exhibit A, dated as of the Effective Date among Sellers and the Buyer and the
Escrow Agent.
"Escrow Amount" is defined in Section 2.2.1.
"Financial Statements" is defined in Section 4.6.
"GAAP" means generally accepted accounting principles of the
United States of America consistently applied.
"Governmental Permits" means all governmental permits,
licenses, registrations, certificates of occupancy, orders, approvals and other
governmental authorizations.
"Hazardous Substances" means any toxic or hazardous gaseous,
liquid or solid material or waste that may or could pose a hazard to the
environment or human health or safety including (i) any "hazardous substances"
as defined by the federal Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.ss. 9601 et seq., (ii) any "extremely hazardous
substance," "hazardous chemical" or "toxic chemical" as those terms are defined
by the federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
ss.ss. 11001 et seq., (iii) any "hazardous waste," as defined under the federal
Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act, 42 U.S.C. ss.ss. 6901 et seq., (iv) any "pollutant," as defined under the
federal Water Pollution Control Act, 33 U.S.C. ss.ss. 1251 et seq., as any of
such laws in
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clauses (i) through (iv) may be amended from time to time, and (v) any regulated
substance or waste under any Laws or Court Orders that currently exist or that
may be enacted, promulgated or issued in the future by any federal, state or
local governmental authorities concerning protection of the environment or the
public welfare.
"Indemnified Party" means either a Seller Indemnified Party or
a Buyer Indemnified Party, as the context so requires.
"Intellectual Property" means any and all Copyrights, Patents,
Trademarks, technology rights and licenses, logos, trade names, Trade Secrets,
franchises, know-how, inventions, methods, techniques and other intellectual
property of the Company, including but without limitation any such property that
is used, in whole or in part, directly or indirectly, in the conduct of the
Business.
"Inventory" means the inventory included within the caption
"Inventory" on the Balance Sheet, as updated for operations conducted in the
ordinary course of business through the Effective Date, including but without
limitation all processed antibodies and antisera.
"Knowledge" and words of similar import means, with respect to
any Party, knowledge of a particular fact being known by any director, officer
or individual having responsibility for a business or administrative function of
such Party.
"Law" means any statute, law, ordinance, regulation, order or
rule of any federal, state, local, foreign or other governmental agency or body
or of any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, record keeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Liability" means any direct or indirect liability,
indebtedness, obligation, expense, claim, loss, damage, deficiency, guaranty or
endorsement of or by any Person, absolute or contingent, accrued or unaccrued,
due or to become due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration,
administrative or other proceeding, criminal prosecution or governmental
investigation or inquiry.
"Losses" means all losses, costs, claims, Liabilities,
demands, fines, judgments, penalties, damages and expenses of any nature
whatsoever, including interest which may be imposed in connection therewith and
court costs and reasonable fees and disbursements of counsel and consultants of
every kind, nature and description charged to or incurred by them in connection
therewith.
"Material Adverse Effect" means a material adverse effect on
the Business, including manufacturing capabilities, financial condition, results
of operations, sales volumes, liquidity, costs of operations, Products,
prospects, customers and customer relations thereof.
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"Net Sales" means gross sales less returns, allowances,
discounts or credits, commissions paid to independent third parties, and all
other adjustments in accordance with GAAP.
"Note Holders" means those note holders listed on
Schedule 2.5.
"Ordinary course" or "ordinary course of business" means the
ordinary course of business that is consistent with past practice.
"Party" means the Buyer and Harman, Dale and Bean,
individually, as the context so requires, and the term "Parties" means the Buyer
and Harman, Dale and Bean, collectively.
"Patents" means any patents, patent applications, reissue
patents, patents of addition, divisions, renewals, continuations,
continuations-in-part, substitutions, additions and extensions of any of the
foregoing.
"Person" means any natural person, corporation, company,
partnership, proprietorship, trust or estate, joint venture, association or
other legal entity.
"Preferred Shares" is defined in Section 2.2.3.
"Preferred Stock" means the Series B Convertible Preferred
Stock of the Buyer, par value $.01 per share, as specified in the Certificate of
Designations.
"Prime Rate" means the prime lending rate as published from
time to time in The Wall Street Journal.
"Products" means any of the products or product lines
manufactured and/or marketed by the Company in the conduct of the Business as of
the Effective Date.
"Purchase Price" is defined in Section 2.2.
"Real Property" means the real property owned or leased by the
Company as described on Schedule 4.10.
"Required Consents" is defined in Section 4.5.
"Secretary's Certificate" is defined in Section 3.1.4.
"Sellers" is defined above in the preamble.
"Seller Indemnified Party" is defined in Section 7.4.
"Sellers' General Liabilities" is defined in Section 7.2.
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"Software" means any computer software of any nature
whatsoever, including all systems software, all applications software, whether
for general business usage (e.g., accounting, finance, word processing,
graphics, spreadsheet analysis, etc.) or specific, unique-to-the-Business usage
(e.g., purchase or service order processing, etc.) and all computer operating,
security or programming software, that is owned by or licensed to the Company or
used, in whole or in part, directly or indirectly, or has been developed or
designed for or is in the process of being developed or designed for use, in
whole or in part, directly or indirectly, in the conduct of the Business, and
any and all documentation and object and source codes related thereto.
"Taxes" means all taxes, duties, charges, fees, levies or
other assessments imposed by any taxing authority, including, without
limitation, income, gross receipts, value-added, excise, withholding, personal
property, real estate, sale, use, ad valorem, license, lease, service,
severance, stamp, transfer, payroll, employment, customs, duties, alternative,
add-on minimum, estimated and franchise taxes, including any interest, penalties
or additions attributable to or imposed on or with respect to any such
assessment.
"Trademarks" means any registered trademarks, registered
service marks, trademark and service mark applications and unregistered
trademarks and service marks.
"Trade Secrets" means any trade secrets, methods, processes
and procedures, engineering, production, assembly, design, installation, other
technical drawings and specifications, working notes and memos, market studies,
consultants' reports, know-how, proprietary information, research, product
plans, products, services plans, services, customer lists, marketing,
distribution and sales methods and systems, formulae, technical and laboratory
data, competitive samples, engineering prototypes, and all similar property of
any nature, tangible or intangible, used, in whole or in part, or related to,
directly or indirectly, the Business.
"Transaction Documents" means, collectively, this Agreement,
the Certificate of Designations, the Employment Agreements and the Escrow
Agreement.
"Transactions" means the sale of the Common Stock and the
other transactions contemplated by the Transaction Documents.
2. Sale and Purchase of Stock.
2.1 Sale and Purchase. On the terms and subject
to the conditions set forth herein, at the Closing, Sellers hereby agree to sell
to the Buyer, and the Buyer hereby agrees to purchase from Sellers all of the
Common Stock. The signing and delivery of this Agreement, and the Closing for
the consummation of the Transactions, are occurring simultaneously on and as of
the Effective Date.
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2.2 Purchase Price. The Buyer shall purchase
all of the Common Stock for Nine Million Five Hundred Thousand Dollars
($9,500,000) (the "Purchase Price"), which shall be payable as follows:
2.2.1 Four Hundred Thousand Dollars
($400,000) (the "Escrow Amount"), payable to the Escrow Agent. The Escrow Amount
shall be paid and/or released to Buyer and/or Sellers, as the case may be, in
accordance with the terms of the Escrow Agreement;
2.2.2 Seven Million One Hundred Fifty-Three
Thousand Dollars ($7,153,000) (the "Cash Payment"), payable as set forth on
Schedule 2.2.2;
2.2.3 One Million Nine Hundred Forty Seven
Thousand Dollars ($1,947,000) face value of shares of Preferred Stock (the
"Preferred Shares"), consisting of 556,286 Preferred Shares, convertible to
Buyer's common stock at $3.50 per share, issuable as set forth on Schedule
2.2.3. The rights, preferences and privileges of the Preferred Shares are set
forth in the Certificate of Designations (attached hereto as Exhibit C). If and
when the Preferred Shares are converted into common shares, the Sellers shall
have onedemand registration right and unlimited piggyback registration rights,
subject to customary terms and conditions for such stock registration rights.
2.3 Additional Purchase Price. On each of the
first three annual anniversaries following the Effective Date, the Buyer shall
pay to Sellers, as additional purchase price for the Common Stock (the
"Additional Purchase Price"), in accordance with each Sellers percentage
ownership of the Common Stock as set forth on Schedule 1, an amount equal to
one-half (1/2) of the Net Sales of the products listed on Schedule 2.3 for the
preceding twelve (12) month period; provided, however, that the Buyer shall pay
to Sellers an amount equal to three-quarters of the Net Sales of Troponin for
each such period. Notwithstanding anything in the preceding sentence to the
contrary, the aggregate amount of the Additional Purchase Price shall not exceed
Three Million Dollars ($3,000,000), and the Buyer shall not be obligated to make
any payments pursuant to this Section 2.3 in excess of that amount.
2.4 Escrow Account. Simultaneous with the
execution of this Agreement, the Buyer and Sellers shall enter into the Escrow
Agreement with the Escrow Agent under which the Escrow Agent shall hold the
Escrow Amount to secure the indemnification obligations of the Sellers
hereunder.
2.5 Debt. The Company is obligated on the
Promissory Notes described on Schedule 2.5, as follows:
2.5.1 The note identified as No. 2 on
Schedule 2.5 is a real estate trust deed debt of $105,178, payable to Mr. Joseph
Swycaffer, secured by a 37-acre parcel of real property located at 26714 Old
Julian Highway, Ramona, California (the "Trust Deed Debt").
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2.5.2 The note identified as No. 1 on
Schedule 2.5 is for $539,513, and is payable to Grossmont Bank (the "Bank
Debt").
2.5.3 The Purchase Price for the Common
Stock has been calculated based upon the Buyer acquiring the Common Stock while
the Bank Debt and the Trust Deed Debt are outstanding.
2.5.4 At the Closing or promptly after the
Closing, the Buyer will cause the Company to pay off the Bank Debt.
2.5.5 Because the Trust Deed Debt does not
permit a prepayment, and because the holder of the Trust Deed Debt is not
willing to accept a prepayment due to the holder's installment sale tax
treatment and the 10% per annum interest specified in the Trust Deed Debt, the
Buyer will not be able to prepay the Trust Deed Debt. Rather, the Company will
be obligated to continue to make the monthly installment payments of
approximately $2,294.29 payable on the Trust Deed Debt through January 1, 2004,
and the Trust Deed Debt will continue to be secured by a first priority on the
37 acres located on the Old Julian Highway.
2.6 Tax Loans. At such time as the Borrower is
obligated to pay such taxes, Buyer shall loan to each of Dale and Bean (each, a
"Borrower") an amount equal to the actual federal and state income tax that the
Borrower is obligated to pay that he otherwise would not have had to pay if he
had not received the Preferred Shares, taking into account all other items of
income and deductions of the Borrower, and calculated as if the impact of the
Preferred Shares is accounted for last, provided, however, that in no event will
the tax liability as calculated without the Preferred Shares take into account
any tax losses that would have been created if the Preferred Shares had not
actually been received. As a condition to the receipt of such loan, a Borrower
shall make available to Buyer a copy of his completed form 1040 (and applicable
state equivalent) for 1999 no later than March 15, 2000 (or equivalent
documentation if the Borrower is required to pay estimated taxes no later than
twenty (20) days prior to the date such estimated taxes are required to be
paid), and a calculation of the increase in tax liability due to the receipt of
the Preferred Shares. Such loans shall bear interest at a rate of 6% per year,
and the Preferred Shares shall be pledged as collateral for such loan. Each
Borrower shall be required to pay the accrued interest annually. Each Borrower
shall be required to repay a portion of the outstanding principal amount at such
time as the Borrower sells any of his Preferred Shares (or any of the shares of
common stock received by such Borrower upon the conversion of any of the
Preferred Shares), with all of the proceeds of such sales, less any amount
needed to pay tax on such sale, being used to repay the Borrower's loan, until
such loan is repaid in full.
2.7 Stock Options. Prior to the Closing, all of
the previously outstanding stock options, stock option agreements or other
agreements related to the purchase of the Company's securities shall have been
canceled, with no adjustment to the Purchase Price.
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3. Closing. The Closing of the Transactions is occurring
simultaneously with the signing of this Agreement, on and as of the Effective
Date, by means of the Buyer and the Sellers making the deliveries as specified
below. The Buyer's legal counsel, Pepper Hamilton LLP, Berwyn, Pennsylvania
office, is serving as the office to receive the Parties' deliveries and to
coordinate the Closing. All of the required deliveries shall be deemed to have
been delivered simultaneously as of the Effective Date for the Closing.
3.1 Buyer's Deliveries. At the Closing, the
Buyer shall deliver:
3.1.1 to the Escrow Agent, the Escrow Amount
to be held in accordance with the Escrow Agreement;
3.1.2 to Sellers, the Cash Payment by wire
transfer of immediately available funds to the accounts designated by Sellers or
by cashier's check (in the specific amounts set forth on Schedule 2.2.2);
3.1.3 to Dale and Bean, the Preferred
Shares (in the specific amounts set forth in Schedule 2.2.3);
3.1.4 a certificate dated as of the
Effective Date, of the Buyer's Secretary or Assistant Secretary (the
"Secretary's Certificate") to the effect that: (i) attached to the Secretary's
Certificate is a true and complete copy of the (x) the Buyer's Certificate of
Incorporation, as amended, and in effect as of the Effective Date, (y) the
Buyer's bylaws, as amended and in effect on the Effective Date, and (z) the
Certificate of Designations; (ii) attached to the Secretary's Certificate is a
true and complete copy of resolutions adopted by the Buyer's Board of Directors
authorizing the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, adopting the Certificate
of Designations, and authorizing the issuance and delivery of the Preferred
Shares; and (iii) the signatures of the incumbent officers of the Buyer, as
identified on the Secretary's Certificate, are the genuine signatures of such
officers.
3.1.5 the Employment Agreements, duly
executed by the Buyer;
3.1.6 the Escrow Agreement, duly executed
by the Buyer; and
3.1.7 a legal opinion of Pepper Hamilton
LLP, counsel for the Buyer.
3.2 Sellers' Deliveries. At the Closing,
Sellers shall deliver to the Buyer:
3.2.1 the certificates evidencing the
Common Stock, duly endorsed for transfer to the Buyer and accompanied by
appropriate stock powers or assignments duly executed in favor of the Buyer;
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3.2.2 the Employment Agreements, duly
executed by the appropriate Seller;
3.2.3 the Escrow Agreement, duly executed
by Sellers;
3.2.4 true and complete copies of the
Company's Charter Documents and bylaws, as in full force and effect at the time
of the Effective Date;
3.2.5 a certificate issued by the Secretary
of State of the State of California as of a recent date before the Effective
Date showing the Company to be validly existing and in good standing and a
statement from the California Franchise Tax Board indicating that all franchise
taxes required to be paid and all reports required to be filed have been duly
paid and filed;
3.2.6 any Required Consents and other
third-party and governmental consents, approvals or authorizations necessary for
the conveyance of the Common Stock or the valid consummation of the
Transactions, together with a waiver of all shareholders of the Company to any
rights of first refusal to purchase the Company's securities;
3.2.7 a legal opinion of Gray Cary Ware &
Freidenrich, LLP, counsel for the Sellers; and
3.2.8 a letter from Nation Smith Hermes and
Diamond stating that they are not aware, after reasonable investigation, of any
facts causing them to believe that the Company's representation in Section
4.16.2 is not accurate and true up to the Closing.
4. Representations and Warranties of the Sellers. Except
as otherwise disclosed (i) in the Schedules delivered herewith or (ii) in the
due diligence materials delivered by the Company and/or the Sellers to the Buyer
(that are being delivered by the Buyer to Pepper Hamilton LLP in connection with
the Closing), the Sellers hereby severally (and not jointly) represent and
warrant to the Buyer as follows:
4.1 Corporate Status. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of California. The Company is not qualified to do business as a foreign
corporation in any other jurisdiction, and the Company is not required to be so
qualified except where the failure so to qualify would not have a Material
Adverse Effect. The Charter Documents and bylaws of the Company that have been
delivered to the Buyer as of the date hereof are effective under applicable Laws
and are current, correct and complete.
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4.2 Capitalization; No Subsidiaries; No Other
Securities.
4.2.1 Capitalization. The authorized capital
stock of the Company consists of Five Million (5,000,000) shares of a single
class of Common Stock, no par value, of which One Million Sixty Seven Thousand
Three Hundred Seventy One (1,067,371) shares are issued and outstanding, as set
forth on Schedule 1. The Company does not have any other authorized class or
classes of securities of any kind, whether debt or equity. All of the shares of
Common Stock are validly issued, fully paid and non-assessable and have not been
issued in violation of applicable securities laws or of any preemptive or
stockholder rights or other rights to subscribe for, purchase or otherwise
acquire securities. The Company does not hold any shares of its capital stock in
its treasury or otherwise, and no shares of the Company's capital stock are
reserved by the Company for issuance, other than pursuant to the Company's stock
option plan. All of the Company's previously granted stock options are canceled
effective as of the Effective Date.
4.2.2 Subsidiaries. The Company does not
own or control, directly or indirectly, any debt, equity or other financial or
ownership interest in any other person or entity.
4.2.3 No Other Securities. Except as set
forth on Schedule 1, there are (i) no outstanding subscriptions, warrants,
options, rights, agreements, convertible securities or other commitments or
instruments pursuant to which the Company is or may become obligated to issue,
sell, repurchase or redeem any shares of capital stock or other securities,
whether debt or equity, of the Company and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company pursuant to any requirement of law applicable to the Company, or any
Contract or agreement, whether written or oral, to which the Company is a party
or may otherwise be bound or subject.
4.3 Matters Affecting Shares; Title to Common
Stock. The Sellers have full legal and beneficial title to all of the issued and
outstanding shares of Common Stock and have full power, right and authority to
sell and deliver such shares of Common Stock in accordance with this Agreement,
free of any Encumbrances. There are no existing Contracts, agreements,
subscriptions, options, warrants, calls, commitments, conversion rights or other
rights of any character to purchase or otherwise acquire from any Seller at any
time, or upon the happening of any event, any of the shares of Common Stock,
other than as described on Schedule 4.3.
4.4 Enforceability. The Company has the
requisite power and authority to own its property and to carry on the Business
as now being conducted. Each Seller has the capacity to enter into the
Transactions. Each Transaction Document executed and delivered by the Sellers
has been duly executed and delivered by such Seller and constitutes a valid and
binding obligation of such Seller, enforceable against such Seller in accordance
with its terms.
4.5 Consents and Approvals. Except for any
consents or approvals specified in Schedule 4.5 (the "Required Consents")
neither the execution and delivery by each Seller of the Transaction Documents
to which it is a party, nor the performance of the Transactions
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performed or to be performed by the Sellers (i) require any filing, consent or
approval, conflict with, constitute a Default or cause any payment obligation to
arise under (a) any Law or Court Order to which the Company, Seller or any of
the Common Stock is subject, (b) the Charter Documents or bylaws of the Company,
or (c) any Contract, Governmental Permit or other document to which the Company
or the Sellers is a party or by which any of the Common Stock is bound, or (ii)
result in the creation or imposition of any Encumbrance upon the Common Stock or
the Company.
4.6 Financial Statements. Sellers have
delivered to the Buyer correct and complete copies of (i) unaudited financial
statements of the Company consisting of a balance sheet as of December 31, 1995,
1996, 1997 and 1998 and the related statements of income and cash flows for the
years then ended. All such financial statements are referred to herein
collectively as the "Financial Statements." A correct and complete copy of the
December 31, 1998 financial statement specified in this Section 4.6 is attached
hereto as Schedule 4.6. The Financial Statements are consistent in all material
respects with the Books and Records, and there have not been or will not be any
material transactions that have not been or will not be recorded in the
accounting records underlying such Financial Statements. While the Financial
Statements are unaudited, they have been prepared in accordance with GAAP in all
material respects, except for the omission of some related notes. The Financial
Statements present fairly the financial position and assets and Liabilities of
the Company as of the dates thereof, and the results of operations and cash
flows for the periods then ended in accordance with GAAP. The balance sheet of
the Company as of December 31, 1998 that is included in the Financial Statements
is referred to herein as the "Balance Sheet," and the date thereof is referred
to as the "Balance Sheet Date."
4.7 Accounts Receivable. Except as set forth in
Schedule 4.7, the Accounts Receivable as set forth on the Balance Sheet or
arising since the date thereof (i) are valid and genuine; (ii) have arisen only
in the ordinary course of business out of performance of services or bona fide
sales and deliveries of goods; (iii) are not subject to valid defenses, set-offs
or counterclaims; and (iv) are collectible in full at the recorded amounts
thereof (without resort to litigation or assignment to a collection agency),
less the allowance for doubtful accounts, within the ordinary course of
business. The allowance for doubtful accounts reflected on the Balance Sheet has
been determined in accordance with GAAP.
4.8 Inventory. The Inventory as set forth on
the Balance Sheet or acquired since the date thereof was acquired and has been
maintained in accordance with the regular business practices of the Company, is
of good, usable and merchantable quality. All of the Inventory is valued in
accordance with GAAP, is not subject to any write-down or write-off and, with
respect to Inventory intended for sale, is saleable as current inventory at
current prices thereof in the ordinary course of business. Schedule 4.8 lists
all items of the Inventory as of the dates specified therein.
4.9 Absence of Certain Changes or Events. Except
as set forth in Schedule 4.9, since the Balance Sheet Date, the Company has
conducted the Business in the ordinary course, and the Company, as the case may
be, has not:
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4.9.1 Amended in any material respect or
terminated any Contract to which the Company is a party or for the benefit of
the Company;
4.9.2 Closed any office or facility or made
plans to close any office or facility used, in whole or in part, by the Company
as of the Balance Sheet Date;
4.9.3 Suffered the occurrence of any events
that, individually or in the aggregate, have had, or could reasonably be
expected to have, a Material Adverse Effect;
4.9.4 Incurred any damage or destruction
having a Material Adverse Effect by fire, storm, or similar casualty, whether or
not covered by insurance;
4.9.5 Declared or made any distribution or
payment in respect of the Company's capital stock by way of dividend, purchase
or redemption of shares or otherwise, other than to cover reasonably estimated
income tax obligations of the Company's shareholders incurred with respect to
the taxable income of the Company;
4.9.6 Sold, transferred, replaced or leased
any material assets or sold any Inventory at a discount, except for transactions
in the ordinary course of the business;
4.9.7 Waived or released any material
rights with respect to the Business;
4.9.8 Transferred or granted any rights to
any Intellectual Property;
4.9.9 Entered into any transaction or made
any commitments (for capital expenditures or otherwise) other than in the
ordinary course of the business;
4.9.10 Changed its methods of accounting;
4.9.11 Made any payments to any Seller,
except as set forth on Schedule 4.9.11, or to any Affiliate of a Seller, other
than in the ordinary course of business;
4.9.12 Increased or made any commitments to
increase the compensation of Employees or other service providers, except
following normal review procedures or as reasonably deemed necessary in the
ordinary course of the business and as disclosed in writing to the Buyer prior
to the Effective Date; or
4.9.13 Materially altered the conduct of
its relations with customers or suppliers.
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4.10 Real Property.
4.10.1 The Real Property is the only real
property owned or leased by the Company. The Company owns good, marketable and
indefeasible title in fee simple absolute to the owned Real Property, insurable
as such by any reputable title insurance company licensed to do business in
California at regular standard rates, free and clear of all Encumbrances,
including, without limitation, all encroachments, boundary disputes, covenants,
restrictions, easements, rights of way, mortgages, security interests, leases,
encumbrances and title objections, other than as specified on Schedule 4.10.
4.10.2 The improvements located on the Real
Property are in good condition and are structurally sound, and all mechanical
and other systems located therein are in good operating condition, reasonable
wear and tear excepted, and no condition exists requiring material repairs,
alterations or corrections, other than as specified on Schedule 4.10. Schedule
4.10 describes any other real estate previously owned, leased or otherwise
operated by the Company or any predecessor thereof and the time periods of any
such ownership, lease or operation.
4.10.3 All of the Real Property is usable
in the ordinary course of business and conforms in all material respects with
any applicable Laws relating to its construction, ownership, use, occupancy and
operation and the Company has obtained all Governmental Permits required
thereunder. The Real Property complies with applicable zoning Laws, other than
as specified on Schedule 4.10. Neither the Company nor any Seller has received
any notice, oral or written, of any violation of Law with respect to the Real
Property or any notice, oral or written, or has any reason to believe, that any
governmental or regulatory body or authority having jurisdiction over the Real
Property intends to exercise the power of eminent domain, condemnation,
annexation or moratorium or similar power with respect to all or any part of the
Real Property. To the Knowledge of any Seller, the Real Property has been
assessed and real estate Taxes have been paid on the basis of the value of all
improvements as completed, and to the Knowledge of any Seller, there are no
proposed reassessments of any of the Real Property by any taxes authority and
there are no threatened or pending special assessments or other actions or
proceedings that could reasonably be expected to give rise to an increase in
real property taxes or assessments against any of the Real Property. No Seller
has received notice, oral or written, of and, to the Knowledge of any Seller,
there does not exist any violation or Default of a condition or agreement
contained in any easement, restrictive covenant or any similar instrument or
agreement affecting the Real Property or any portion thereof.
4.11 Intellectual Property, Software and
Confidential Information.
4.11.1 Schedule 4.11 sets forth a correct
and complete list and description of all Intellectual Property and all Software
owned by or licensed to the Company and indicates whether such Intellectual
Property and Software is owned or licensed by the Company.
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4.11.2 Except as disclosed in Schedule
4.11: (a) to the Knowledge of any Seller, the Company owns or possesses adequate
licenses or other valid rights to use (without the making of any payment to
others or the obligation to grant rights to others in exchange) all of the
Intellectual Property and Software; (b)the Company is not in Default under any
Contract with respect to any of the Intellectual Property or Software; (c) the
validity of the Intellectual Property and the rights of the Company therein and
to the Software have not been questioned in any Litigation to which the Company
is a party or in any other written notice to the Company or any Seller, nor, to
the Knowledge of any Seller, is any such Litigation threatened; and (e) to the
Knowledge of any Seller, the conduct of the Business does not materially
conflict with patent rights, licenses, trademark rights, trade name rights,
copyrights or other intellectual property rights of others.
4.11.3 Except as disclosed in Schedule
4.11, none of the Sellers has Knowledge that any material unauthorized use of
any Intellectual Property or Software owned or used by or licensed to the
Company has heretofore been, or is now being, made by any Person other than the
Company. The Sellers have no Knowledge of any infringement of any Intellectual
Property or Software owned or licensed by the Company or used in the Business.
No present or former director, officer, employee or consultant of the Company or
any Affiliate of the Company or any Seller has any interest, direct or indirect,
in any of the Intellectual Property or Software.
4.11.4 To the Knowledge of any Seller,
(a) none of the Company's Confidential Information has been used, divulged or
appropriated for the benefit of any Person other than the Sellers or otherwise
to the detriment of the Company and (b) no employee or consultant of the Company
is, or is currently expected to be, in Default under any term of any employment
Contract, agreement or arrangement relating to the Intellectual Property, or any
confidentiality agreement or any other Contract or any restrictive covenant
relating to the Intellectual Property, or the development or exploitation
thereof.
4.12 Contracts. Except as listed and described
in Schedule 4.12, the Company is not a party to any written or oral:
4.12.1 Contracts with any present or former
shareholder, director, officer, employee, partner or consultant of the Company,
or any Seller or Affiliate thereof;
4.12.2 Contracts for the future purchase
of, or payment for, supplies, inventory or products, or for the lease of any
asset from or the performance of services by a third party, in excess of $10,000
in any individual case, or any Contracts to perform services or to sell
Inventory or Products that involve any amount in excess of $25,000 in any
individual case;
4.12.3 Contracts continuing over a period
of more than six months from the date hereof and that involve an amount in
excess of $25,000 in any individual case;
4.12.4 Representative, sales agency, dealer
or distributor Contracts;
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4.12.5 Leases under which the Company is
either lessor or lessee;
4.12.6 Contracts made by or on behalf of
the Company, or by which the Company is bound, with respect to the limitation,
operation, management, maintenance, utility and construction of the Real
Property;
4.12.7 Any notes, debentures, bonds,
conditional sale agreements, equipment trust agreements, letter of credit
agreements, reimbursement agreements, loan agreements or other Contracts for the
borrowing or lending of money (including loans to or from officers, directors,
partners or shareholders of the Company, or any Seller or any Affiliates of a
Seller or any members of their immediate families), agreements or arrangements
for a line of credit or for a guarantee of, or other undertaking in connection
with, the indebtedness of any other Person, including indebtedness of the
Sellers;
4.12.8 Contracts limiting or restraining
the Company or any Seller or any Affiliate thereof from engaging or competing in
any lines of business with any Person;
4.12.9 Contracts under which any
Encumbrances exist with respect to any assets of the Company;
4.12.10 Contracts, licenses or
distributorship that relate in whole or in part to any Intellectual Property or
Software; or
4.12.11 Any other material Contracts not
made in the ordinary course of business.
Except as disclosed in Schedule 4.12, (i) each of the
Contracts of the Company is valid and enforceable in accordance with its terms,
the parties thereto are in compliance with the provisions thereof, no party is
in Default in the performance, observance or fulfillment of any material
obligation, covenant or condition contained therein, and no event has occurred
that would constitute a Default thereunder; (ii) no such Contract, in the
reasonable opinion of any Seller, contains any contractual requirement with
which there is a reasonable likelihood the Company or any other party thereto
will be unable to comply; and (iii) except as set forth in Schedule 4.5, no
consent or approval of any party to any Contract of the Company is required for
the execution and delivery of the Transaction Documents by any Seller or the
consummation of the Transactions.
4.13 Governmental Permits. The Company has all
Governmental Permits of federal, state or local government or regulatory bodies
that are required to operate the Business (including, without limitation, those
required under any Environmental Law) and the Company is in compliance with the
terms and conditions of the Governmental Permits, except where the failure so to
comply would not, individually or in the aggregate, have a Material Adverse
Effect. Schedule 4.13 sets forth a correct and complete list of all Governmental
Permits along with their expiration dates, each one of which is currently valid
and in full force. The Company has filed such
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timely and complete renewal applications as may be required with respect to its
Governmental Permits. To the Knowledge of any Seller, no suspension, revocation,
cancellation or withdrawal of any of the Governmental Permits is threatened and
no cause exists for such suspension, revocation, cancellation or withdrawal. Any
Governmental Permits that cannot be transferred in connection with the
Transactions are identified in Schedule 4.13.
4.14 Legal Proceedings and Compliance with Laws;
Environmental Matters.
4.14.1 Except as set forth in Schedule
4.14, there is no Litigation that is pending or, to the Knowledge of any Seller,
threatened against the Company, or relating to the Transactions, nor does any
Seller know or have reasonable grounds to know of any basis for any such
Litigation. There has been no Default under any Laws applicable to the conduct
or operation of the Business or the ownership or use of the assets of the
Company, including Environmental Laws, except for any Defaults that would not,
individually or in the aggregate, have a Material Adverse Effect, and neither
the Company nor any Seller has received any notices from any governmental entity
regarding any alleged Defaults under any Laws. Except as set forth in Schedule
4.14, neither the Company nor any Seller has received any notice relating to the
Business or the Real Property alleging any violation of any Environmental Law or
any written request for information from any governmental agency or other Person
pursuant to any Environmental Law. Except as set forth in Schedule 4.14, neither
the Company nor any Seller is a party to, and the Business and the assets of the
Company are not subject to the provisions of, any Court Order, nor is there any
Court Order that might affect the Transactions. There has been no Default with
respect to any Court Order applicable to the Business.
4.14.2 Without limiting the generality of
Section 4.14.1, there has not been any Environmental Condition (a) at any
property or premises at which the Business has been conducted, (b) at any
property owned, leased or operated at any time by the Company, any Person
controlled by the Company or any predecessor of any of them, or (c) at any
property at which Hazardous Substances have been deposited or disposed by or at
the behest or direction of any of the foregoing, nor has the Company or any of
the Sellers received written notice of any such Environmental Condition.
"Environmental Condition" means any condition or circumstance, including the
presence of Hazardous Substances, whether created by the Company or any other
Person, at or relating to any such property or premises that (i) requires
abatement or correction under an Environmental Law, (ii) gives rise to any civil
or criminal liability on the part of the Company under an Environmental Law, or
(iii) has created a public or private nuisance. To the Knowledge of any Seller,
the Real Property does not contain any: (A) underground storage tanks, (B)
underground injection wells; (C) septic tanks in which process wastewater or any
Hazardous Substances have been disposed; (D) asbestos; (E) equipment using
polychlorinated biphenyls; or (F) drums buried in the ground.
4.14.3 Schedule 4.14 identifies all
environmental reports, studies, assessments, analyses or any other related
documents in the possession or custody or under the
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control of the Company or any Seller relating to any Environmental Condition,
the Company, the Business or the Real Property, true and complete copies of
which have been delivered to the Buyer.
4.15 Absence of Undisclosed Liabilities. Except
as set forth in Schedule 4.15, the Company has no Liabilities except (i)
Liabilities set forth on the Balance Sheet and not heretofore paid or
discharged, (ii) Liabilities incurred in the ordinary course of business since
the Balance Sheet Date that, individually or in the aggregate, are not material
to the Business., and (iii) Liabilities to perform in the future the obligations
referenced on the Schedules delivered to Buyer.
4.16 Taxes.
4.16.1 The Company has duly filed all
returns for Taxes that are required to be filed on or prior to the Closing Date,
all such Tax returns are correct and complete in all respects and the Company
has paid all Taxes due for all periods ending before, on or including the
Closing Date, or if not paid, have been adequately reserved for on the books of
the Company. All Taxes that the Company has been required by Law to withhold or
to collect (including Taxes imposed on a person other than the Company) have
been duly withheld and collected and have been paid over to the proper
governmental authorities or are properly held by the Company for such payment.
There are no proceedings or other actions, nor is there any basis for any
proceedings or other actions, for the assessment and collection of additional
Taxes of any kind with respect to the Company or the Business for any period
ending before, on or including the Closing Date with respect to income earned or
property owned on or before the Closing Date.
4.16.2 The Company and its shareholders
made a valid election to be treated as an S corporation, as defined in Section
1361 of the Code (an "S Corporation), for federal income tax purposes (and made
a similar election for California), from the date of its incorporation (the
"Selection") and such election (and California election) have been valid and in
effect uninterrupted from that date. There are no basis for an election by any
taxing authority to claim that the S election has been revoked or terminated,
other than the termination that will occur by virtue of the holding of the
company stock by Buyer.
4.17 Books and Records. All material books of
account and other financial records of the Company (the "Books and Records") are
complete and correct in all material respects and have been made available to
the Buyer. All of the Books and Records have been prepared and maintained in
accordance with good business practices.
4.18 Employees and Employee Relations;
Independent Contractors. Schedule 4.18 sets forth a current, correct and
complete list of all individuals employed by the Company (each, an "Employee"),
their date of hire, their present position, rate of compensation (including cash
and non-cash compensation) and accrued vacation (such Schedule being subject to
change between the date hereof and the Closing as a result of changes in the
ordinary course of business). The Company is not a party to any collective
bargaining agreement or currently
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negotiating any collective bargaining agreement. Except as described in Schedule
4.18, there is no labor strike, slowdown or stoppage pending or, to the
Knowledge of any Seller, threatened against or affecting the Company, there are
no discrimination complaints nor any other kind of employment or labor related
disputes or unfair labor practice charges or complaints against the Company or
Seller in connection with the Business pending before or, to the Knowledge of
any Seller, threatened before any federal, state or local court or agency, and,
to the Knowledge of any Seller, no dispute respecting minimum wage or overtime
claims or other conditions or terms of employment in connection with the
Business exists. The Company (including, without limitation, any entity
described in Section 4.18.1) has no Liabilities with respect to any independent
contractors who perform or have performed services for the Company under any
Benefit Plans or other benefit arrangement of any kind whatsoever or under any
Laws applicable to the Company, including any Liabilities under any labor,
employment or tax Laws or imposed by common law.
4.19 Employee Benefit Plans.
4.19.1 Schedule 4.19 contains a current,
correct and complete list of each Benefit Plan maintained by or under which the
Company has any Liability, whether actual or contingent, to Employees or their
respective beneficiaries, former employees of the Company or their respective
beneficiaries, or otherwise in connection with the Business. For purposes of
this Section 4.19 and the definition of "Benefit Plan" as used in this
Agreement, the term "Company" shall include any corporation that is a member of
any controlled group of corporations (as defined in Section 414(b) of the Code)
that includes the Company, any trade or business (whether or not incorporated)
that is under common control (as defined in Section 414(c) of the Code) with the
Company, any organization (whether or not incorporated) that is a member of an
affiliated service group (as defined in Section 414(m) of the Code) that
includes the Company and any other entity required to be aggregated with the
Company pursuant to the regulations issued under Section 414(o) of the Code.
4.19.2 All such Benefit Plans conform (and
at all times have conformed) in all material respects to, and are being
administered and operated (and have at all time been administered and operated)
in material compliance with, the requirements of ERISA, the Code and all other
applicable Laws. All returns, reports and disclosure statements required to be
made under ERISA and the Code with respect to all such Benefit Plans have been
timely filed or delivered. There have not been any "prohibited transactions," as
such term is defined in Section 4975 of the Code or Section 406 of ERISA,
involving any of the Benefit Plans, that could subject the Company to any
material penalty or tax imposed under the Code or ERISA.
4.19.3 Except as set forth in Schedule
4.19, any such Benefit Plan that is intended to be qualified under Section
401(a) of the Code and exempt from tax under Section 501(a) of the Code has been
determined by the Internal Revenue Service to be so qualified or an application
for such determination is pending. Any such determination that has been obtained
remains in effect and has not been revoked, and with respect to any application
that is pending, the Sellers have no reason to suspect that such application for
determination will be denied. Nothing
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has occurred since the date of any such determination that is reasonably likely
to affect adversely such qualification or exemption, or result in the imposition
of excise taxes or income taxes on unrelated business income under the Code or
ERISA with respect to any such Benefit Plan.
4.19.4 The Company does not sponsor or
\contribute to, and has not in the past sponsored or contributed to, and has no
Liability with respect to, any defined benefit plan subject to Title IV of ERISA
or any multiemployer plan (as defined in Section 3(37) of ERISA), nor does the
Company have a current or contingent obligation to contribute to any
multiemployer plan (as defined in Section 3(37) of ERISA). The Company does not
have any Liability with respect to any employee benefit plan or arrangement
other than with respect to Benefit Plans listed in Schedule 4.19.
4.19.5 There are no pending or, to the
Knowledge of any Seller, threatened claims by or on behalf of any such Benefit
Plans, or by or on behalf of any individual participants or beneficiaries of any
such Benefit Plans, alleging any breach of fiduciary duty on the part of the
Company or any of its officers, directors or employees under ERISA or any other
applicable regulations, or claiming benefit payments (other than those made in
the ordinary operation of such plans), nor is there, to the Knowledge of any
Seller, any basis for such claim. Such Benefit Plans are not the subject of any
pending (or to the Knowledge of any Seller, any threatened) investigation or
audit by the Internal Revenue Service, the Department of Labor or the Pension
Benefit Guaranty Corporation ("PBGC").
4.19.6 The Company has timely made all
required contributions under such Benefit Plans including the payment of any
insurance premiums. There have been no accumulated funding deficiencies (as
defined in Section 412 of the Code or Section 302 of ERISA) with respect to any
Benefit Plan and no request for a waiver from the Internal Revenue Service with
respect to any minimum funding requirement under Section 412 of the Code. The
Company has not incurred any Liability for any Tax, excise Tax, penalty or fee
with respect to any Benefit Plan, and no event has occurred and no circumstance
exists or has existed that could give rise to any such Liability. The execution
of and performance of the Transactions contemplated by this Agreement will not
(either alone or upon the occurrence of any additional or subsequent events)
result in any payment, acceleration, vesting or increase in benefits with
respect to any Employee or former employee of the Company that would be an
"excess parachute payment" under Section 280G of the Code.
4.19.7 With respect to any such Benefit
Plan that is an employee welfare benefit plan (within the meaning of Section
3(1) of ERISA) (a "Welfare Plan"), (a) each Welfare Plan for which contributions
are claimed by the Company as deductions under any provision of the Code is in
material compliance with all applicable requirements pertaining to such
deduction, (b) with respect to any welfare benefit fund (within the meaning of
Section 419 of the Code) related to a Welfare Plan, there is no disqualified
benefit (within the meaning of Section 4976(b) of the Code) that would result in
the imposition of a tax under Section 4976(a) of the Code, and (c) any Benefit
Plan that is a group health plan (within the meaning of Section 4980B(g)(2) of
the Code)
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complies and has been administered in material respects in accordance with all
of the applicable requirements of Section 4980B of the Code, ERISA, Title XXII
of the Public Health Service Act, the Social Security Act and other applicable
Laws.
4.19.8 The Company has not taken any action
that may result in the Buyer being a party to, or bound by, any such Benefit
Plan following the consummation of the Transactions, other than as specified on
Schedule 4.19. No Benefit Plan has provided or provides for the payment of
health, life or other welfare coverage or retirement or severance benefits by
the Buyer (as distinguished from the Company). Except as set forth on Schedule
4.19, the Company has no severance policy.
4.20 Finder's Fee. No Person retained by the
Company or any Seller is or will be entitled to any commission or finder's or
similar fee in connection with the Transactions.
4.21 Interest in Business. The Sellers have not
granted, and there is not outstanding, any option, right, agreement or other
obligation pursuant to which any Person could claim a right to acquire in any
way all or any part of, or interest in, the Company or the Business.
4.22 Condition of Assets. To the knowledge of any
Seller and except as specified in Schedule 4.22, all animals owned by the
Company are in good health and all such animals and other assets of the Company
are fit for the purpose for which they are intended in connection with the
Business. All Real Property owned and tangible personal property (other than
Inventory) are suitable for the purposes for which they are used, are in good
operating condition and repair, reasonable wear and tear excepted, are usable in
the ordinary course of business, are free from any known defects, except such
minor defects that would not have a Material Adverse Effect, individually or in
the aggregate, and conform in all material respects to all applicable Laws
relating to their construction, use and operation. To the knowledge of any
Seller, all of the Company's Software, together with all necessary know-how and
processes used in connection therewith, functions as intended.
4.23 Affiliate Transactions. Schedule 4.23 sets
forth a summary of all purchases or sales of goods or services from or to the
Company by any Seller or any Affiliate thereof for the two years ended December
31, 1998 and by the Company or any such Seller or Affiliate thereof since
December 31, 1998. Except as set forth in Schedule 4.23, no Seller or Affiliate
of a Seller purchases or provides services or products from or to the Company.
4.24 Insurance. Schedule 4.24 lists all policies
or binders of insurance held by or on behalf of the Company specifying with
respect to each policy the insurer, the amount of the coverage, the type of
insurance, the risks insured, the expiration date, the policy number and any
pending claims thereunder, including all insurance policies known by the Company
or any Seller to have been maintained by any other Person that may provide any
coverage with respect to any Environmental Losses. To the Knowledge of the
Company or any Seller, there is no Default with respect to any such policy or
binder, nor has there been any failure to give any notice or present any
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claim under any such policy or binder in a timely fashion or in the manner or
detail required by the policy or binder, except for any of the foregoing that
would not, individually or in the aggregate, have a Material Adverse Effect.
There is no notice of non-renewal or cancellation with respect to, or
disallowance of any claim under, any such policy or binder that has been
received by the Company or any Seller, except for any of the foregoing that
would not, individually or in the aggregate, have a Material Adverse Effect.
4.25 Previous Sales; Warranties. All Products
previously sold or distributed by the Company were of merchantable quality, and
the Company has not breached any express or implied warranties in connection
with the sale or distribution of such Products or in connection with the
performance of any services, except for breaches that would not, individually or
in the aggregate, have a Material Adverse Effect. The Sellers have provided the
Buyer with true and correct copies of all warranties (i) made by all Persons
from whom the Company has obtained any goods that have been resold or
distributed by the Company, including any goods that constituted parts included
in Products sold or distributed by the Company, and (ii) made by the Company
with respect to any Products that have been sold or distributed by or services
performed by the Company.
4.26 Customers and Suppliers. The Company and the
Sellers have used their reasonable business efforts to maintain and currently
maintain, good working relationships with all of the Company's customers.
Schedule 4.26 contains a list of the names of each of the ten customers that, in
the aggregate, for the two years ended December 31, 1997 and 1998, were the
largest dollar volume customers of services or Products, or both, sold by the
Company. Except as specified in Schedule 4.26, none of such customers has given
the Company or the Sellers notice terminating, canceling or threatening to
terminate or cancel any Contract or relationship with the Company. Schedule 4.26
also contains a list of the names of each of the ten suppliers that, in the
aggregate, for the two years ended December 31, 1997 and 1998, were the largest
dollar volume suppliers of services or products, or both, purchased by the
Company. Except as specified in Schedule 4.26, none of such suppliers has given
the Company or the Sellers notice terminating, canceling or threatening to
terminate or cancel any Contract or relationship with the Company. No Seller is
aware that any major customer or supplier intends to cease doing business with
the Company or, after the Closing, with the Company or the Buyer, or to alter
materially the amount of business done with the Company or the Buyer due to the
consummation of the Transactions or any other reason. To the Knowledge of any
Seller, the Customer Records are accurate in all material respects.
4.27 Completeness and Accuracy of Information.
All information set forth on any Schedule referenced herein is true, correct and
complete. No representation or warranty by any of the Sellers in any Transaction
Document, and no information contained therein or otherwise delivered by or on
behalf of the Company or the Sellers to the Buyer in writing in connection with
the Transactions, including the Financial Statements, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not misleading. All
Contracts, permits and other documents and instruments furnished or made
available to the Buyer by the Company or any of the Sellers, when so furnished
or made
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<PAGE>
available are or will be true, complete and accurate originals or copies of
originals and include all amendments, supplements, waivers and modifications
thereto. There is no fact or development (excluding general economic factors
affecting business in general) to the knowledge of the Sellers that the Company
or any of the Sellers have not disclosed to the Buyer in writing that has or,
may have, a Material Adverse Effect.
5. Representations and Warranties of the Buyer.
The Buyer hereby represents and warrants to the
Sellers as follows:
5.1 Corporate Status. The Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
5.2 Authorization. The Buyer has the requisite
power and authority to execute and deliver the Transaction Documents to which it
is a party and to perform the Transactions performed or to be performed by it.
Such execution, delivery and performance by the Buyer has been duly authorized
by all necessary corporate action. Each Transaction Document executed and
delivered by the Buyer has been duly executed and delivered by such Party and
constitutes a valid and binding obligation of such Party, enforceable against
such Party in accordance with its terms.
5.3 Consents and Approvals. Neither the
execution and delivery by the Buyer of the Transaction Documents to which it is
a party, nor the performance of the Transactions performed or to be performed by
the Buyer, require any filing, consent or approval or constitute a Default under
(i) any Law or Court Order to which the Buyer is subject, (ii) the Charter
Documents or bylaws of the Buyer or (iii) any Contract, Governmental Permit or
other document to which the Buyer is a party.
5.4 Finder's Fees. No Person retained by the
Buyer is or will be entitled to any commission or finder's or similar fee in
connection with the Transactions.
5.5 Preferred Shares. The Preferred Shares to be
issued and delivered to the Sellers pursuant to Section 2.2.3 will, as of the
Closing, (i) be duly authorized, validly issued, fully paid and non-assessable,
and (ii) be issued in compliance with all applicable state and federal
securities laws, preemptive or stockholder rights, and contracts, court orders,
laws and governmental permits affecting the Buyer.
6. Competition and Confidentiality by the Sellers.
6.1 Noncompetition. From the Effective Date and
to the end of the third year following the Effective Date, each Seller will not,
directly or indirectly, unless acting in accordance with the written consent of
the Buyer, engage in, own, manage, operate, finance or participate in the
ownership, management, operation or financing of or permit its name to be used
by or in connection with any business or enterprise engaged in an antibody
service business that is
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competitive with the Business or with the Buyer. Notwithstanding the foregoing,
the Buyer acknowledges: (i) that Harman and Dale currently are minority owners
of Sierra Biomedicals, Inc. ("Sierra"), the parent company which owns HTI
Bio-Services, Inc., a California corporation ("HTI-Services"), which is in the
business of pre-clinical animal studies, and (ii) that Harman may continue to be
a consultant to HTI-Services or Sierra for one year, and (iii) that Harman and
Dale will have no control over Sierra as to its business focus; and therefore,
the Buyer hereby acknowledges and agrees that Harman and Dale will not be in
breach of this non-competition covenant by reason of their ownership of Sierra,
so long as they do not personally render any services on behalf of HTI-Services
or Sierra in the field of antibody products.
6.2 Confidentiality. From the Closing and
indefinitely thereafter, unless this Agreement is terminated, none of the
Sellers shall, except as may be required by Law or Court Order, at any time
reveal, divulge, communicate or make known to any Person (other than the Buyer
or their agents or Affiliates) or use in any way any confidential information
that relates to this Agreement, the Transactions, the Company or the Business
(whether now possessed by the Sellers or furnished by the Buyer after the
Effective Date), including, without limitation, all Trade Secrets, customer
lists or other customer information, supplier information, marketing plans or
proposals, financial information, personnel information or any data, written
material, records or documents used by the Company or relating to the Business
that are of a confidential nature (collectively, the "Confidential
Information"). Similarly, the Buyer shall not disclose or use any of the
Confidential Information, other than in connection with completing the
Transactions or after the Closing, unless required by law, or applicable rule or
regulation.
6.3 Affiliates. The terms of this Section 6
shall apply to each Seller and any of their Affiliates to the same extent as if
they were parties hereto, and each Seller shall take whatever actions may be
necessary to cause its Affiliates to adhere to the terms of this Section 6.
6.4 Injunctive Relief. Each Seller acknowledges
that the provisions of this Section 6 are reasonable and necessary to protect
the interests of the Buyer, that any violation of this Section 6 will result in
an irreparable injury to the Buyer and that damages at law would not be
reasonable or adequate compensation to the Buyer for violation of this Section
6. In the event of any breach or threatened breach by any Seller or any
Affiliate thereof of any provision of this Section 6, the Buyer shall be
entitled to injunctive or other equitable relief, restraining such party from
using or disclosing any Confidential Information in whole or in part, or from
engaging in conduct that would constitute a breach of the obligations of such
party under this Section 6. Such relief shall be in addition to and not in lieu
of any other remedies that may be available, including an action for the
recovery of damages. In addition to any other available remedies, the Buyer
shall be entitled to have the provisions of this Section 6 specifically enforced
by preliminary and permanent injunctive relief without the necessity of proving
actual damages and to an equitable accounting of all earnings, profits and other
benefits arising out of any violation of this Section 6. In the event that the
provisions of this Section 6 shall ever be deemed to exceed the time,
geographic, product or other limitations permitted by applicable Law, then the
provisions shall be deemed reformed to the maximum extent permitted by
applicable Law. Each Seller acknowledges, however, that this Section
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6 has been negotiated by the Parties and that the time, geographic and product
limitations, as well as the limitation on activities, are reasonable in light of
the circumstances pertaining to the Business.
7. Tax Matters.
7.1 Section 338(h)(10) Election.
7.1.1 Conditional upon the Buyer making the
initial indemnification payment as required by Section 7.1.2 hereof, the Buyer
may elect to make the election under Section 338(h)(10) of the Code and
regulations promulgated thereunder (and any comparable election under state or
local tax law) (the "338 Election") with respect to the acquisition of the stock
of the Company by Buyer, and Sellers shall each join Buyer in making a joint
election under Section 338(h)(10) of the Code (and any comparable election under
state and local law) with respect to the acquisition of the stock of the Company
and execute with Buyer Form 8023 for that purpose. Upon written request by the
Buyer and the Buyer's performance pursuant to Section 7.1.2, the Sellers shall
take any and all actions as specifically requested by the Buyer that are
necessary or appropriate to effect the timely filing of the 338 Elections,
including, without limitation, executing the form 8023 thirty days prior to the
date the election is to be made, filing all Tax returns consistent with the
election and not taking any positions with respect to Taxes that are
inconsistent with the election.
7.1.2 If Buyer and Sellers make the joint
338 Election, Buyer agrees to pay to the Sellers and to indemnify the Sellers,
on an individual basis, for Taxes imposed on such Seller resulting from the
Section 338 Election (including Taxes on the amount payable under this Section
7.1.2), to the extent that such Taxes exceed the Taxes that would have been
payable by such Seller solely as a result of the sale of the Common Stock to
Buyer if such election had not been made (the "Base Taxes"); provided however,
that in calculating the Base Taxes no adjustment will be made to the amount of
the Purchase Price or Additional Purchase Price. For the purposes of the
preceding sentence, the California 1.5% income tax imposed on the Company
because of its status as an S corporation shall be deemed to be imposed on the
Sellers, and, to the extent the Company has an actual California 1.5% income tax
liability that would not have existed but for the 338 Election, Buyer will pay
such tax with the Short Period Tax Return (or such subsequent California tax
return as may be required because of the release of the Escrow or the payment of
the Additional Purchase Price). At least 45 days prior to the time when the
first of Form 8023 or any comparable form under state and local law is required
to be filed, Sellers shall propose in writing the amount of the initial payment
and indemnification pursuant to this Section 7.1.2 to Buyer, for Buyer's
approval. Buyer shall be deemed to have approved the proposed amount unless
Buyer notifies Seller of the disagreement in writing within 10 days of the
delivery of the proposed amount. If Buyer provides timely notice of disagreement
to Seller, Buyer and Seller shall promptly negotiate in good faith to reconcile
the differences. If no agreement is reached within 10 days of Buyer's
transmittal of notice of disagreement, Buyer will within the next 15 days obtain
and deliver to Seller a calculation of the amount of payment and indemnification
pursuant to this Section 7.1.2 prepared by an independent (as to both Sellers
and Buyer) accounting firm of national scope for resolution (the "Independent
Accountant"), which calculation shall be binding on all parties.
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7.1.3 In making the 338 Election, Buyer and
Sellers agree that Buyer shall determine the Modified Aggregate Deemed Sale
price ("MADSP"), as defined in Treasury Regulation ss.1.338(h)(10)-(f)(1), and
prepare an allocation of the MADSP among the assets of the Company in accord
with such regulation (the "Allocation Notice"). It is specifically agreed that
MADSP shall be initially determined to be $9,000,000 plus the liabilities of the
Company on the date of Closing. Buyer shall provide the Allocation Notice, in
writing, to Sellers no later than 30 days after Closing. Unless Sellers provide
Buyer with written notice of a disagreement with respect to the Allocation
Notice within 15 days of receipt of the Allocation Notice (the "Disagreement
Notice"), it shall be deemed accepted by Sellers, and in connection with any tax
return, tax audit or similar proceeding, neither party shall allocate the MADSP
inconsistently from the Allocation Notice. If Sellers provide Buyer with a
timely Disagreement Notice, the parties shall endeavor to negotiate in good
faith to reach a resolution to the disagreement. If no resolution is reached
within 15 days of Buyer's receipt of the Disagreement Notice, Buyer shall submit
the issue to an Independent Accountant. The written report of the Independent
Accountant (the Accountant Report) shall be binding on all parties, and in
connection with any tax return, tax audit or similar proceeding, neither party
shall allocate the MADSP inconsistently from the Accountant Report. If the
Independent Accountant does not materially disagree with the Allocation Notice,
Sellers shall bear the cost of the Independent Accountant, otherwise, Buyer
shall bear the cost.
7.2 Short Period Tax Returns and Final Tax
Returns.
7.2.1 Buyer and Sellers acknowledge that the
acquisition of the Common Stock by Buyer will cause the Company's election to be
an S Corporation to terminate at the end of the day prior to Closing (assuming
no 338 Election is made), and that federal, state and local income tax returns
for the period beginning January 1, 1999 and ending on the day prior to closing
will be required to be filed (the "Short Period Tax Returns"). Buyer and Sellers
acknowledge that such Short Period Tax Returns will be filed on the basis of a
closing of the books of the Company at the end of the day prior to Closing,
(assuming no 338 Election is made). If Buyer elects to make the 338 Election in
accord with the requirements of Section 7.1, the closing of the books as
described in the prior sentence will occur as of the end of business on the date
of Closing. Buyer and Seller also acknowledge that the federal, state and local
income tax returns for the period ending December 31, 1998 (the "Final Tax
Returns") have not yet been filed.
7.2.2 Sellers shall cause their
representative to prepare the Final Tax Returns and Short Period Tax Returns and
Buyer shall cooperate with such Representative, with Sellers bearing the cost of
their representative. Twenty days prior to the filing of any such Final Tax
Return or Short Period Tax Return, and in any event not less than 20 days prior
to the last day on which such return may be timely filed, Seller shall provide
to Buyer for its review a draft of the Final Tax Return or Short Period Tax
Return; provided however, if the 338 Election is to be made with a Short Period
Tax Return, and if the Buyer has made the payments required by Section 7.1.2,
Seller shall provide Buyer with a draft of such return for its approval, which
shall not be unreasonably withheld, no later than 45 days prior to the filing of
such return, and such return shall be prepared in a manner consistent with
Section 7.1. Buyer shall be deemed to have approved such return unless
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Buyer notifies Sellers in writing of its disagreement within 15 days of the
receipt of the Short Period Tax Return. If Buyer provides such notice of
disagreement, the parties shall negotiate in good faith to resolve the issue. If
no resolution is reached within 15 days of the Seller's receipt of Buyer's
notice of disagreement, Buyer shall submit the issue to an Independent
Accountant, whose written report on the issue shall be shall be binding on all
parties, and in connection with any tax return, tax audit or similar proceeding,
neither party shall take a position contrary to such report. If the Independent
Accountant does not materially disagree with the Short Period Tax Return as
prepared by Sellers, Buyer shall bear the cost of the Independent Accountant,
otherwise, Sellers shall bear the cost.
7.3 Amended Returns. Subject to Buyer's rights
under Section 7.4, Sellers shall be responsible for the preparation (and
associated expenses) and filing of any amended Tax returns for taxable years
ending on or prior to the Closing Date (and, subject to Section 7.1.1, to pay
any amount of Tax due which is shown thereon) which are required as a result of
examination adjustments made by the Internal Revenue Service or by the
applicable state, local or other taxing authorities for such taxable years as
finally determined with respect to the Company. Any required amended returns
resulting from such examination adjustments, as finally determined, shall be
prepared by Seller and furnished to the Company for review, and filing at least
30 days prior to the due date for filing such returns, provided however, that if
the return is a Short Period Tax Return and a 338 Election has been made with
respect to such return, Sellers shall provide such return to Buyer for review
and approval. Sellers shall not file any amended returns for the Company other
than as provided in the preceding sentences of Section 7.3, without the express
written consent of Buyer.
7.4 Audits.
7.4.1 If Sellers receives notice, whether
written or oral, of the intention of a governmental agency to audit a Short
Period Tax Return in which a 338 Election is made, Sellers shall immediately
notify Buyer in writing. Buyer shall have the right to participate in and
control and direct such audit and any related tax contest (whether or not
Sellers provide the requisite notice), unless Sellers release Buyer in writing
from all obligations under Section 7.1.2, in which case Buyer shall have only
those rights as defined in Section 7.4.2. If Buyer does not exercise its option
to control and direct the audit and tax contests, it will nonetheless have the
right to participate in such events. The Buyer shall pay the professional fees
incurred for such an audit to the extent such fees are incurred with respect to
the 338 Election.
7.4.2 Buyer shall have the right to
participate in all audits and tax contests, whether administrative or judicial,
with respect to taxes of the Company (whether or not such audit would result in
a tax liability of the Company), and Sellers shall not settle, compromise or
close any such audits or tax contest without the written consent of Buyer, which
shall not be unreasonably withheld; provided however, that if an audit or tax
contest could give rise to an indemnification payment by Sellers to Buyer,
Sellers shall not compromise, settle or close any such audit or tax contest
unless provision has been made for the payment of such indemnification amounts,
and Buyer agrees in writing to the closure of the audit or tax contest.
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8. Survival of Representations and Warranties;
Indemnification.
8.1 Survival of Representations and Warranties.
Each of the representations and warranties of the Parties shall survive for the
respective time periods specified on Schedule 8.1; provided that there shall be
no termination of any such representation or warranty as to which a claim has
been asserted prior to the termination of such survival period. All
representations, warranties and covenants contained herein shall not be deemed
to be waived or otherwise affected by any investigation at any time made by or
on behalf of any Party hereto; provided however, if the Buyer has knowledge of
facts prior to the Closing that arise from an investigation of the due diligence
materials referred to in Section 4(ii) which are inconsistent with a particular
representation or warranty by the Sellers, then the Buyer shall so inform the
Sellers, and said particular representation or warranty shall be deemed to be
modified and corrected in conformity with said facts.
8.2 Indemnification by the Sellers. "Sellers'
General Liabilities" shall mean all Losses resulting from, arising out of, or
incurred by the Buyer or any of its Affiliates, or any of their respective
successors or assigns and their respective directors, officers and employees
(each a "Buyer Indemnified Party") after the Closing in connection with (i) any
breach of any of the representations or warranties made by the Sellers in this
Agreement, (ii) any default by any Seller in respect of any of the covenants or
agreements made by such Seller in this Agreement, or (iii) all deductible
amounts payable in connection with any insurance for products liability claims
for products sold by the Company prior to the Closing. Subject to the
limitations and provisions of Section 8.3 and to the further provisions of this
Section 8, the Sellers shall severally (and not jointly) indemnify all Buyer
Indemnified Parties, and hold them harmless from, against and in respect of, any
and all Sellers' General Liabilities.
8.3 Limitations on Obligation of Sellers to
Indemnify.
8.3.1 Except as otherwise provided in this
Agreement, the Sellers shall have no obligation to indemnify any Buyer
Indemnified Party based upon any breach by any Seller of any representation or
warranty as to which the Sellers have not received written notice of a claim for
indemnification within the applicable survival period described in Section 8.1.
8.3.2 Except as set forth on Schedule 8.1,
the Sellers shall have no obligation to indemnify any Buyer Indemnified Party
for any type of matter in a dollar amount in excess of the "Maximum Liability"
dollar amount specified for that type of matter shown on Schedule 8.1.
8.3.3 No claim for indemnification in any
particular category shall be made by any Buyer Indemnified Party unless and
until the aggregate amount of such claims by a Buyer Indemnified Party exceed
the "Minimum Amount" specified on Schedule 8.1 for the type of matter giving
rise to such claim; provided, however, that if the aggregate amount of such
claims
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exceeds the "Minimum Amount," then the Sellers shall be liable for the entire
amount of such claims from the first dollar.
8.3.4 In no event shall the Sellers be
liable for more than $1,000,000 in the aggregate for all of the indemnity items
set forth on Schedule 8.1, other than for indemnification obligations under
Sections 4.2, 4.3, 4.14.2, 4.16, 7 and 8.2(iii) which obligations shall not
count against the $1,000,000 amount, and shall not exceed the following amounts
for each of the Sellers:
Harman: $700,700 70.07%
Dale: $156,700 15.67%
Bean: $140,600 14.06%
Boyd: $ 2,000 0.20%
8.3.5 Notwithstanding the limitations on
the Sellers' liabilities set forth in Schedule 8.1 and in this Section 8, the
Parties acknowledge and agree that there are no limits on a Seller's liability
for the actual Losses which arise from a fact which was actually known by that
Seller at the Effective Date, but which fact that Seller withheld or failed to
disclose from the representations and disclosures required to be made pursuant
to this Agreement and that there are no limits on the Sellers' liability for
misrepresentations regarding title to and financial liens on the Real Property
owned by the Company.
8.3.6 Nothing herein shall be deemed to
limit or restrict in any manner any rights or remedies available at law, in
equity or otherwise against a Seller based on a willful misrepresentation or
willful breach of warranty by a Seller hereunder.
8.4 Indemnification by the Buyer. "Buyer's
General Liabilities" shall mean all Losses resulting from, arising out of, or
incurred by any Seller or any of his Affiliates, or any of their respective
successors or assigns and their respective directors, officers and employees
(each a "Seller Indemnified Party") after the Effective Date in connection with
(i) any breach of any of the representations or warranties made by the Buyer in
this Agreement, or (ii) any default by the Buyer in respect of any of the
covenants or agreements made by the Buyer in this Agreement. Subject to the
provisions of Section 8.5 and to the further provisions of this Section 8, the
Buyer shall indemnify all Seller Indemnified Parties, and hold them harmless
from, against and in respect of, any and all Buyers' General Liabilities.
8.5 Limitations on Obligation of the Buyer to
Indemnify. The Buyer shall have no obligation to indemnify any Seller
Indemnified Party based upon any breach by the Buyer of any representation or
warranty as to which the Buyer has not received notice of a claim for
indemnification within the one (1) year following the Closing.
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8.6 Environmental Losses.
8.6.1 The following (if and only if they
involve or result from breaches of any representation or warranty in this
Agreement) shall constitute "Environmental Losses": (a) all Losses imposed or
incurred under Environmental Law resulting from the storage or disposal or the
emission, discharge, release or threatened release into the environment, by any
Person of any Hazardous Substance at the Real Property or arising from or
related to any Default under any Environmental Law at any time prior to the
Effective Date, (b) all Losses resulting from the presence of any Hazardous
Substance at any location other than the Real Property disposed of (directly or
indirectly) from the Real Property at any time prior to the Effective Date, (c)
all Losses resulting from the migration, leaking, leaching, flowing, emitting or
other movement of Hazardous Substances from the Real Property or any such
location at any time prior to the Effective Date, in each case requiring
investigation, removal or remediation under Environmental Law, and (d) any and
all other Losses arising from or related to an Environmental Condition existing
on or before the Effective Date.
8.6.2 Subject to the other provisions of
this Section 8.6, and to the limitations and provision in Section 8.3 and
Schedule 8.1, the Sellers shall severally (and not jointly) indemnify all Buyer
Indemnified Parties, and hold them harmless from, against and in respect of, any
and all Environmental Losses; provided, however, that the Sellers' remediation
obligations shall not extend beyond those actions required by applicable
regulatory authorities under any Environmental Law.
8.6.3 For so long as the Sellers'
indemnification with respect to Environmental Losses shall be in effect, the
Buyer shall provide to the Sellers a copy of all information or reports that are
provided by the Buyer to any federal, state or local agency with regard to any
matter related to Hazardous Substances that may constitute or result in an
indemnification Liability for the Sellers. The Buyer shall promptly provide to
the Sellers copies of all reports or other information (including photographs),
prepared, produced or obtained by the Buyer relating to any such matter.
8.6.4 For so long as the Sellers'
indemnification with respect to Environmental Losses shall be in effect, the
Buyer shall afford the Sellers, reasonable access to and rights to investigate
the Real Property and inspect and copy all relevant documents and records
relating to any Environmental Losses for which the Sellers have, or are alleged
to have, responsibility. However, except to the extent prohibited by applicable
Law or Court Order, the following conditions and agreements shall apply with
respect to the foregoing: (a) no entry or investigation upon such Real Property
shall be made except during normal business hours and then only upon at least
five business days' notice to the Buyer; (b) the Buyer shall be entitled to
require that any persons entering upon such Real Property shall be accompanied
by a representative of the Buyer at all times; (c) intrusive investigations,
such as well-drilling or soil boring or testing of any substances, shall be
permitted only to the extent that they do not materially interfere with the
operations of the Business, upon demonstrated reasonable cause and to such
extent as is consented
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to by the Buyer, such consent not to be unreasonably withheld; (d) any samples
taken shall be split between the Buyer and the Sellers if so requested by the
Buyer; (e) the Sellers shall provide to the Buyer within five days after receipt
thereof a copy of any report or other written information delivered to a Seller
with regard to any investigations or other activities upon the property of the
Buyer; and (f) to the extent the condition of any property of the Buyer is
disturbed in any material respect as a result of any such activities, the
Sellers severally (and not jointly) shall be responsible for all costs and
expenses associated with restoring the property to substantially its condition
prior to the occurrence of such activities.
8.7 Procedures for Indemnification.
8.7.1 In the case of a claim against the
Sellers that may be covered at least in part by the Escrow Amount, a Buyer
Indemnified Party shall pursue such claim in accordance with the Escrow
Agreement. In the case of a claim against the Sellers that cannot be fully
satisfied by the Escrow Amount, and in the case of any claim against the Buyer,
the Indemnified Party may pursue whatever legal remedies may be available for
recovery of Losses claimed from any indemnifying Party; provided, however, that
the Buyer shall have the right to set off against the Additional Purchase Price
any losses covered by this Indemnity in this Section 8, subject to the
limitations and provision in Section 8.3 and Schedule 8.1. Each Indemnified
Party shall promptly give notice hereunder to the indemnifying Party and, to the
extent applicable, in accordance with the Escrow Agreement, after becoming aware
of any claim as to which recovery may be sought against the indemnifying Party
because of the indemnity provided in this Section 8 or otherwise in this
Agreement. After such notice, the Indemnified Party shall have the right to
assume at its own expense the defense of any such action, suit or other
proceeding, and any indemnifying Party, if so requested by the Indemnified
Party, shall participate in any such action, suit or other proceeding or assume
the defense thereof, with counsel satisfactory to the Indemnified Party;
provided, however, that the Indemnified Party shall have the right to
participate at its own expense in the defense of any such action, suit or other
proceeding. Notwithstanding the foregoing, the right to indemnification
hereunder shall not be affected by any failure of an Indemnified Party to give
such notice (or by delay by an Indemnified Party in giving such notice) unless,
and then only to the extent that, the rights and remedies of the indemnifying
Party shall have been prejudiced as a result of the failure to give, or delay in
giving, such notice. The notice required hereunder shall specify the basis for
the claim for indemnification to the extent ascertainable at the time of the
notice. Nothing herein shall be deemed to prevent an Indemnified Party from
making a contingent claim for indemnification hereunder, provided the
Indemnified Party has reasonable grounds to believe that the claim or demand for
indemnification will be made and sets forth the estimated amount of such claim
to the extent then ascertainable.
8.7.2 The indemnifying Party shall not, in
the defense of such claim or any Litigation resulting therefrom, consent to
entry of any judgment (other than a judgment of dismissal on the merits without
costs) or enter into any settlement, except with the written consent, which
consent shall not be unreasonably withheld, of the Indemnified Party, which does
not include
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as an unconditional term thereof the giving by the claimant or the plaintiff to
the Indemnified Party a release from all liability in respect of such claim or
Litigation.
8.7.3 If the indemnifying Party shall not
assume the defense of any such claim by a third party, or Litigation resulting
therefrom, after receipt of notice from the Indemnified Party, the Indemnified
Party may defend against such claim or Litigation in such manner as it deems
appropriate.
8.7.4 If an indemnifying Party shall not,
within 30 days after its receipt of the notice required by Section 8.7.1 hereof
or in accordance with the Escrow Agreement, advise the Indemnified Party that
the indemnifying Party denies the right of the Indemnified Party to indemnity in
respect of the claim, then the amount of such claim shall be deemed to be
finally determined between the Parties hereto. If the indemnifying Party shall
notify the Indemnified Party that it disputes any claim made by the Indemnified
Party, then the Parties hereto shall endeavor to settle and compromise such
claim, and if unable to agree on any settlement or compromise, such claim for
indemnification shall be settled by binding arbitration in Delaware in
accordance with the Rules of the American Arbitration Association. Any Liability
established by reason of such arbitration shall be deemed to be finally
determined. Any claim that is finally determined in the manner set forth above
shall be paid promptly by the indemnifying Party in cash.
8.8 Payment of Indemnification Obligations.
Each Party shall pay promptly to any Indemnified Party the amount of all Losses
to which the foregoing indemnity relates, subject to the limitations and
provisions of this Agreement.
8.9 Interest on Unpaid Obligations. If all or
part of any indemnification obligation under this Agreement is not paid when
due, the indemnifying Party shall pay the Indemnified Party interest on the
unpaid amount of such obligation for each day from the date the amount became
due until it is paid in full, payable on demand, at the rate equal to the lower
of (i) the maximum rate permitted by Law or (ii) two percent (2%) per annum plus
the Prime Rate.
8.10 Other Remedies. The indemnification rights
under this Section 8 are independent of and in addition to such rights and
remedies as the Parties may have at law or in equity or otherwise for any
misrepresentation, breach of warranty or failure to fulfill any agreement or
covenant hereunder on the part of any Party hereto, including the right to seek
specific performance, rescission or restitution, none of which rights or
remedies shall be affected or diminished by such Sections; provided, however,
any money damages claimed against the Sellers are subject to the limitations and
provisions of Section 8.3.
8.11 Inconsistencies. To the extent the rights
and obligations of a Party under Section 8 are inconsistent with Section 7,
Section 8 shall prevail, except to the extent that such inconsistency relates to
which Party controls any third party claims relating to audits or tax contests,
in which case Section 7 shall prevail.
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8.12 Insurance. The proceeds from environmental
insurance policies owned by either the Buyer, the Company or the Sellers shall
be applied to any claims made under Sections 4.14.2 that are covered by such
policies. The proceeds from any insurance policy purchased by the Sellers in
connection with their indemnity obligations contemplated by this Agreement shall
be applied to any other claims under this Section 8 to the extent permitted by
such coverage. The premiums for such insurance policy shall be paid by the
Sellers. Notwithstanding anything to the contrary contained herein, the Sellers
shall be obligated to pay any deductibles in connection with any insurance
converage applied hereunder.
9. Covenants Regarding Real Property.
9.1 Possible Non-compliance. Regarding the
approximately 45 acres in Santa Ysabel, it is acknowledged by the Sellers that:
9.1.1 Some of the administrative and
laboratory activities carried on by the Company at the property may not be in
full compliance with the applicable zoning regulations; and
9.1.2 Some of the modular buildings on the
property (which are leased buildings, except for one owned building) may not be
in compliance with applicable building code regulations.
9.2 Compliance Efforts. As a result of the
foregoing, Sellers agree that during 1999 and 2000, Mike Dale (and not other
representatives of the Buyer) (i) will contact the applicable governmental
agencies to determine if there is any non-compliance with applicable
governmental regulations, and (ii) if there is any non-compliance, will
coordinate efforts to achieve compliance.
9.3 Payment Obligations. If the costs to achieve
said compliance are less than $25,000, then the Buyer shall bear those costs,
but if the costs exceed $25,000, then the Sellers shall bear these costs up to
an aggregate of $400,000.
9.4 Relocation. If it is mutually determined by
the Buyer and the Sellers that it is not reasonably feasible to achieve said
compliance by December 31, 2000 for less than $400,000 of costs, and the Buyer
decides to relocate the administrative and/or laboratory activities to other
premises, then said relocation costs shall be treated as indemnity costs to be
borne by the Sellers, but still subject to the limitations and provisions set
forth in Schedule 8.1 and Section 8.
10. General.
10.1 Expenses. Except as otherwise provided in
this Agreement, the Buyer and each of the Sellers shall each pay their own fees,
expenses and disbursements, including the fees and expenses of their respective
counsel, accountants and other experts, in connection with the
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subject matter of this Agreement and all other costs and expenses incurred in
performing and complying with all conditions to be performed under this
Agreement. Sellers shall not charge or expense to the Company any of Sellers'
fees or expenses incurred in connection with the Transactions.
10.2 Publicity. The Parties hereto will consult
with each other before issuing any press release or making any public statement
with respect to the financial terms of this Agreement and the Transactions.
Except as may be required by applicable Law or any stock exchange regulations,
no Party shall issue any such press release or make any such public statement
regarding the financial terms of this Agreement without the consent of the other
Party hereto.
10.3 Amendment, Severability, Parties in
Interest, Assignment, Etc. This Agreement may be amended, modified or
supplemented only by a written instrument duly executed by each of the Parties
hereto. If any provision of this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective heirs, legal
representatives, successors and permitted assigns of the Parties hereto. Nothing
in this Agreement, express or implied, is intended to confer on any Person other
than the Parties hereto, or their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement. No
Party hereto shall assign or otherwise transfer this Agreement or any right,
benefit or obligation hereunder (whether by operation of Law or otherwise) to
any other Person without the prior written consent of the other Party, except in
the case of the Buyer, to a Person which is an Affiliate of the Buyer. The
parties hereto shall execute and deliver any and all documents and take any and
all other actions that may be deemed reasonably necessary by their respective
counsel to complete the Transactions.
10.4 Waivers. Any term or provision of this
Agreement may be waived at any time by the Party entitled to the benefit thereof
by a written instrument duly executed by such Party. The failure of any Party at
any time or times to require performance of any provision hereof shall in no
manner affect the right of such Party at a later time to enforce the same or any
other provision of this Agreement. No waiver of any condition or of the breach
of any provision of this Agreement in one or more instances shall operate or be
construed as a waiver of any other condition or subsequent breach.
10.5 Notices. All notices that are required or
permitted hereunder shall be in writing and shall be sufficient if personally
delivered or sent by mail, facsimile message or Federal Express or other
delivery service. Any notices shall be deemed given upon the earlier of the date
when received at, or the third day after the date when sent by registered or
certified mail or the day after the date when sent by Federal Express to, the
address or fax number set forth below, unless such address or fax number is
changed by notice to the other Party hereto:
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10.5.1 If to a Seller, to:
Robert J. Harman
HTI Bio-Products, Inc.
10326 Roselle Street
San Diego, CA 92121
FAX: (619) 410-1543
Michael M. Dale
HTI Bio-Products, Inc.
P.O. Box 1319
Ramona, CA 92065
FAX: (760) 788-9494
Eric S. Bean
HTI Bio-Products, Inc.
P.O. Box 1319
Ramona, CA 92065
FAX: (760) 788-9494
Sean Boyd
HTI Bio-Products, Inc.
P.O. Box 1319
Ramona, CA 92065
FAX: (760) 788-9494
With a copy to:
Gray Cary Ware & Freidenrich
4365 Executive Drive, Suite 1600
San Diego, California 92121
FAX: (619) 677-1477
Attention: T. Knox Bell, Esq.
10.5.2 If to the Buyer, to:
Strategic Diagnostics Inc.
111 Pencader Drive
Newark, Delaware 19702
FAX: (704) 948-9575
Attention: Mr. Richard C. Birkmeyer
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<PAGE>
With a copy to:
Pepper Hamilton LLP
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
FAX: (610) 640-7835
Attention: William A. Scari, Jr., Esquire
10.6 Entire Agreement. This Agreement (including
the Schedules referenced herein), together with the other Transaction Documents
and the documents delivered by the Parties at Closing, sets forth the entire
agreement and understanding of the Parties hereto with respect to the
Transactions and the other matters set forth herein and supersedes all prior
agreements or understandings, oral and written, among the Parties hereto or
otherwise with respect to the subject matter hereof.
10.7 Interpretation. Unless the context of this
Agreement clearly requires otherwise, (i) references to the plural include the
singular, the singular the plural, the part the whole, (ii) references to any
gender include all genders, (iii) "or" has the inclusive meaning frequently
identified with the phrase "and/or," (iv) "including" has the inclusive meaning
frequently identified with the phrase "but not limited to" and (v) references to
"hereunder" or "herein" relate to this Agreement. The section and other headings
contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection, and Schedule references are to this
Agreement unless otherwise specified. Each accounting term used herein that is
not specifically defined herein shall have the meaning given to it under GAAP.
10.8 Governing Law. This Agreement shall be
construed and interpreted in accordance with the Laws of the State of Delaware
without regard to its provisions concerning conflict of Laws.
10.9 Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be binding as of the date first
written above, and all of which shall constitute one and the same instrument.
Each such copy shall be deemed an original, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart. Signatures may be transmitted by facsimile for purposes of
delivering a signed document.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, this Agreement has been executed by the
Parties hereto as of the day and year first above written.
STRATEGIC DIAGNOSTICS INC.
By: /s/ Richard C. Birkmeyer
--------------------------
Name: Richard C. Birkmeyer
Title: President/CEO
SELLERS:
/s/ Robert J. Harman
-----------------------------------------
Robert J. Harman
/s/ Michael M. Dale
-----------------------------------------
Michael M. Dale
/s/ Eric S. Bean
-----------------------------------------
Eric S. Bean
/s/ Sean Boyd
-----------------------------------------
Sean Boyd
<PAGE>
EXHIBIT 4.1
STRATEGIC DIAGNOSTICS INC.
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES B CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.01 PER SHARE
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The following resolution was duly adopted by the Board of
Directors of Strategic Diagnostics Inc., a Delaware corporation (the
"Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, on February 19, 1999, at a meeting of
the Board of Directors:
WHEREAS, the Board of Directors is authorized, within the
limitations and restrictions stated in the Certificate of Incorporation of the
Corporation, to provide by resolution or resolutions for the issuance of shares
of Preferred Stock, par value $.01 per share, of the Corporation, in one or more
series with such voting powers, full or limited, or without voting powers, and
such designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions as shall be
stated and expressed in the resolution or resolutions providing for the issuance
thereof adopted by the Board of Directors, and as are not stated and expressed
in the Certificate of Incorporation, or any amendment thereto, including (but
without limiting the generality of the foregoing) such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets and such other subjects or matters as may be fixed by
resolution or resolutions of the Board of Directors under the General
Corporation Law of the State of Delaware; and
WHEREAS, it is the desire of the Board of Directors, pursuant
to its authority as aforesaid, to authorize and fix the terms of a series of
preferred stock and the number of shares constituting such series.
Unless otherwise defined in this Certificate of Designations,
capitalized terms used in this Certificate of Designations shall have the
respective meanings ascribed to them in the Certificate of Incorporation.
NOW, THEREFORE, BE IT RESOLVED:
1. Number of Shares. The series of Preferred Stock designated
and known as "Series B Convertible Preferred Stock" shall consist of 556,286
shares.
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<PAGE>
2. Rank. The Series B Convertible Preferred Stock shall, with
respect to distributions of assets and rights upon the liquidation, dissolution
or winding up of the Corporation (a "Liquidation"), rank (a) junior to the
Series A Convertible Preferred Stock and (b) senior to the Common Stock and to
all other series of Preferred Stock (other than the Series A Convertible
Preferred Stock).
3. Voting. Except as otherwise may be provided in these terms
of the Series B Convertible Preferred Stock or by law, the Series B Convertible
Preferred Stock and all other classes and series of stock of the Corporation
otherwise entitled to vote shall vote together as a single class on all actions
to be taken by the stockholders of the Corporation. Each share of Series B
Convertible Preferred Stock shall entitle the holder thereof to such number of
votes per share on each such action as shall equal the nearest whole number of
shares of Common Stock into which each share of Series B Convertible Preferred
Stock is then convertible.
4. Dividends. The holders of Series B Convertible Preferred
Stock shall be entitled to cumulative dividends of $0.175 per share per annum
(adjustable in accordance with subparagrahs 6D and 6E) and no more, payable out
of the earned surplus of the Corporation on the first days of February, April,
August and November in each year before any dividends shall paid or set apart
upon the Common Stock.
5. Liquidation. Upon any liquidation, dissolution or winding
up of the Corporation (other than in connection with a reorganization of the
Corporation in which the rights and preferences of the Series B Convertible
Preferred Stock are not adversely affected), whether voluntary or involuntary,
the holders of Series B Convertible Preferred Stock shall be entitled, before
any distribution or payment is made upon any stock ranking on liquidation junior
to the Series B Convertible Preferred Stock, to be paid an amount equal to $3.50
per share of Series B Convertible Preferred Stock (in the aggregate, the
"Liquidation Preference") (such amount payable with respect to one share of
Series B Convertible Preferred Stock sometimes shall be referred to as the
"Liquidation Payment"). Upon any such liquidation, dissolution or winding up of
the Corporation, after the holders of Series B Convertible Preferred Stock shall
have been paid the full Liquidation Preference, the remaining net assets of the
Corporation may be distributed to the holders of stock ranking on liquidation
junior to the Series B Convertible Preferred Stock. Written notice of such
liquidation, dissolution or winding up, stating a payment date, the amount of
the Liquidation Payment and the place where said Liquidation Payment shall be
payable, shall be given by mail, postage prepaid, or by telex to non-U.S.
residents, not less than 20 days prior to the payment date stated therein, to
the holders of record of Series B Convertible Preferred Stock, such notice to be
addressed to each such holder at its address as shown by the records of the
Corporation.
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<PAGE>
6. Conversions. The holders of shares of Series B Convertible
Preferred Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions
of this paragraph 6, the holder of any share or shares of Series B Convertible
Preferred Stock shall have the right, at its option at any time, to convert any
such shares of Series B Convertible Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the Liquidation
Payment) into an equal number of fully paid and nonassessable shares of Common
Stock, subject to adjustment as provided in subparagraphs 6D and 6E. Such rights
of conversion shall be exercised by the holder thereof by giving written notice
that the holder elects to convert a stated number of shares of Series B
Convertible Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series B
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Common
Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in subparagraph 6A
and surrender of the certificate or certificates for the share or shares of
Series B Convertible Preferred Stock to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such share or shares of Series B Convertible Preferred Stock. To
the extent permitted by law, such conversion shall be deemed to have been
effected as of the close of business on the date on which such written notice
shall have been received by the Corporation and the certificate or certificates
for such share or shares shall have been surrendered as aforesaid, and at such
time the rights of the holder of such share or shares of Series B Convertible
Preferred Stock shall cease, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Series B Convertible
Preferred Stock into Common Stock and no payment or adjustment shall be made
upon any conversion on account of any cash dividends on the Common Stock issued
upon such conversion. At the time of each conversion, the Corporation shall pay
in cash an amount equal to all dividends accrued and unpaid on the shares of
Series B Convertible Preferred Stock surrendered for conversion to the date upon
which such conversion is deemed to take
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<PAGE>
place as provided in subparagraph 6B. In case the number of shares of Series B
Convertible Preferred Stock represented by the certificate or certificates
surrendered pursuant to subparagraph 6A exceeds the number of shares converted,
the Corporation shall, upon such conversion, execute and deliver to the holder,
at the expense of the Corporation, a new certificate or certificates for the
number of shares of Series B Convertible Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted. If any
fractional share of Common Stock would, except for the provisions of the first
sentence of this subparagraph 6C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Series B Convertible Preferred Stock for conversion an
amount in cash equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the Corporation.
6D. Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the number of shares of Common Stock issuable upon conversion of each
share of Series B Convertible Preferred Stock shall be increased in proportion
to such increase in outstanding shares, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
number of shares of Common Stock issuable upon conversion of each share of
Series B Convertible Preferred Stock shall be decreased in proportion to such
decrease in outstanding shares.
6E. Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Series B Convertible Preferred Stock shall thereupon have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore receivable upon
the conversion of such share or shares of Series B Convertible Preferred Stock,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately theretofore
receivable upon such conversion had such reorganization or reclassification not
taken place, and in any such case appropriate provisions shall be made with
respect to the rights and interests of such holder to the end that the
provisions hereof shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights.
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6F. Certain Notices. In case at any time:
(i) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(ii) the Corporation shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex to non U.S. residents, addressed to
each holder of any shares of Series B Convertible Preferred Stock at the address
of such holder as shown on the books of the corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
6G. Stock to be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Series B Convertible Preferred Stock
as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series B Convertible
Preferred Stock. The Corporation covenants that, assuming the receipt by the
Corporation of the consideration therefor, all
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<PAGE>
shares of Common Stock which shall be so issued shall be duly and validly issued
and fully paid and nonassessable.
6H. No Reissuance of Series B Convertible Preferred Stock.
Shares of Series B Convertible Preferred Stock which are converted into shares
of Common Stock as provided herein shall be canceled and shall not be reissued.
6I. Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Series B Convertible Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion of
any shares of Series B Convertible Preferred Stock in any manner which
interferes with the timely conversion of such Series B Convertible Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws.
6J. Mandatory Conversion. If the closing share price of
Common Stock listed on the NASDAQ National Market System equals or exceeds $3.50
per share for a period of ten (10) consecutive business days (as determined by
the closing trading price for such ten (10) day period), all outstanding shares
of Series B Convertible Preferred Stock shall automatically convert to shares of
Common Stock.
7. Redemption. The shares of Series B Convertible Preferred
Stock shall be redeemed as follows:
7A. Redemption at Corporation's Option. Upon at least sixty
(60) days' prior written notice, the Corporation may redeem effective at any
time on or after June 23, 2001, from each holder of shares of Series B
Convertible Preferred Stock all of the shares of Series B Convertible Preferred
Stock held by such holder.
7B. Redemption Price and Payment. The Series B Convertible
Preferred Stock to be redeemed pursuant to Subparagraph 7B shall be redeemed by
paying for each share in cash an amount equal to the Liquidation Payment, such
amount also being referred to as the "Redemption Price". Such payment shall be
made in full to the holders entitled thereto.
7C. Redemption Mechanics. At least 20 but not more than 30
days prior to the date of any redemption (the "Redemption Date"), written notice
(the "Redemption Notice") shall be given by the Corporation by mail, postage
prepaid, or by telex to non-U.S. residents for which telex instructions shall
have been provided to the Corporation for such purpose, to each holder of record
(at the close of business on the business day next preceding the day on which
the Redemption Notice is given) of shares of Series B Convertible Preferred
Stock notifying such holder of the redemption and
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specifying the Redemption Price, the Redemption Date and the place where said
Redemption Price shall be payable. The Redemption Notice shall be addressed to
each holder at his address as shown by the records of the Corporation. The
holder shall continue to have the conversion rights set forth in paragraph 6A
prior to the Redemption Date. From and after the close of business on the
Redemption Date, unless there shall have been a default in the payment of the
Redemption Price, all rights of holders of shares of Series B Convertible
Preferred Stock (except the right to receive the Redemption Price) shall cease
with respect to such shares, and such shares shall not thereafter be transferred
on the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation legally available for redemption of
shares of Series B Convertible Preferred Stock on the Redemption Date are
insufficient to redeem the total number of outstanding shares of Series B
Convertible Preferred Stock, the holders of shares of Series B Convertible
Preferred Stock shall share ratably in any funds legally available for
redemption of such shares according to the respective amounts which would be
payable with respect to the full number of shares owned by them if all such
outstanding shares were redeemed in full. The shares of Series B Convertible
Preferred Stock not redeemed shall remain outstanding and entitled to all rights
and preferences provided herein for the Series B Convertible Preferred Stock,
including the right to receive cumulative dividends and the conversion right. At
any time thereafter when additional funds of the Corporation are legally
available for the redemption of such shares of Series B Convertible Preferred
Stock, such funds will be used, at the end of the next succeeding fiscal
quarter, to redeem the balance of such shares, or such portion thereof for which
funds are then legally available, on the basis set forth above.
7D. Redeemed or Otherwise Acquired Shares to be Retired.
Any shares of Series B Convertible Preferred Stock redeemed pursuant to this
paragraph 7 or otherwise acquired by the Corporation in any manner whatsoever
shall be canceled and shall not under any circumstances be reissued; and the
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce accordingly the number of authorized shares of Series B
Convertible Preferred Stock.
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IN WITNESS WHEREOF, Strategic Diagnostics Inc. has caused this
certificate to be duly executed this 25th day of February, 1999.
STRATEGIC DIAGNOSTICS INC.
By: /s/ Richard C. Birkmeyer
---------------------------------------
Print Name: Richard C. Birkmeyer
-------------------------------
Title: President/CEO
------------------------------------
<PAGE>
EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
AMONG
STRATEGIC DIAGNOSTICS, INC.,
TSD BIOSERVICES, INC,
AND
FIRST UNION NATIONAL BANK
Dated: February 26, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 1. CERTAIN DEFINITIONS.............................................................................1
1.1 "Accounts," "Chattel Paper," "Contracts," "Documents," "Equipment," "Fixtures,"
"General Intangibles," "Goods," "Instruments," "Inventory," "Investment Property"
and "Proceeds"..................................................................................1
1.2 "Acquired Assets"...............................................................................1
1.3 "Affiliate".....................................................................................1
1.4 "Asset Manager".................................................................................1
1.5 "Asset Purchase Agreement"......................................................................1
1.6 "Assets"........................................................................................1
1.7 "ATAB Loan".....................................................................................2
1.8 "Borrower"......................................................................................2
1.9 "Business Day"..................................................................................2
1.10 "CD Rate".......................................................................................2
1.11 "Closing".......................................................................................2
1.12 "Collateral"....................................................................................2
1.13 "Collateral Assignment of Patents, Trademarks and Copyrights"...................................2
1.14 "Collateral Documents"..........................................................................2
1.15 "Controlled Group"..............................................................................2
1.16 "Default Rate"..................................................................................2
1.17 "EBITDA"........................................................................................2
1.18 "Employee Benefit Plan".........................................................................2
1.19 "Environmental Laws"............................................................................3
1.20 "ERISA".........................................................................................3
1.21 "Event of Default"..............................................................................3
1.22 "Facility Fee"..................................................................................3
1.23 "Financial Statements"..........................................................................3
1.24 "Funded Debt"...................................................................................3
1.25 "Funds Flow Coverage Ratio".....................................................................3
1.26 "GAAP"..........................................................................................3
1.27 "HTI Capital Stock".............................................................................4
1.28 "HTI Loan"......................................................................................4
1.29 "Indebtedness"..................................................................................4
1.30 "Internal Revenue Code".........................................................................4
1.31 "IRS"...........................................................................................4
1.32 "Laws"..........................................................................................4
1.33 "Liabilities"...................................................................................4
1.34 "LIBOR".........................................................................................5
1.35 "LIBOR Interest Period".........................................................................5
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1.36 "Loans".........................................................................................5
1.37 "Material Adverse Effect".......................................................................5
1.38 "Mortgaged Properties"..........................................................................5
1.39 "Mortgages".....................................................................................5
1.40 "Notes".........................................................................................5
1.41 "Obligations"...................................................................................5
1.42 "Obligors"......................................................................................6
1.43 "PBGC"..........................................................................................6
1.44 "Permitted Liens"...............................................................................6
1.45 "Person"........................................................................................7
1.46 "Pledged Securities"............................................................................7
1.47 "Potential Default".............................................................................7
1.48 "Prime Rate"....................................................................................7
1.49 "Questionnaires"................................................................................7
1.50 "Rate"..........................................................................................7
1.51 "Records".......................................................................................7
1.52 "Rolling Period"................................................................................7
1.53 "Santa Ysabel Mortgage".........................................................................7
1.54 "Santa Ysabel Premises".........................................................................7
1.55 "Subsidiary"....................................................................................8
1.56 "Stock Purchase Agreement"......................................................................8
1.57 "Swap Agreement"................................................................................8
1.58 "Tangible Net Worth"............................................................................8
1.59 "Title Insurance Commitments"...................................................................8
1.60 "Variable Rate".................................................................................8
1.61 "Windham Mortgage"..............................................................................8
1.62 "Windham Premises"..............................................................................8
1.63 Accounting Terms................................................................................8
SECTION 2. THE LOANS.......................................................................................8
2.1 Disbursement and Use of the Loan Proceeds.......................................................8
2.2 The ATAB Note...................................................................................9
2.3 The HTI Note....................................................................................9
2.4 Prepayment of the Loans.........................................................................9
2.5 Interest Rates, Default Rate and Payment of Interest...........................................10
2.6 Payments to Bank; Application of Payments......................................................11
2.7 Late Charges...................................................................................12
SECTION 3. CONDITIONS PRECEDENT...........................................................................12
3.1 Conditions Precedent in respect of both Loans..................................................12
3.2 Conditions Precedent in respect of ATAB Loan...................................................14
3.3 Conditions Precedent in respect of HTI Loan....................................................15
3.4 Certain Events.................................................................................17
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3.5 Legal Matters..................................................................................17
SECTION 4. COLLATERAL SECURITY............................................................................18
4.1 Composition of the Collateral..................................................................18
4.2 Rights in Property Held by the Bank............................................................18
4.3 Rights in Property Held by the Borrower........................................................18
4.4 Mortgage.......................................................................................19
4.5 Priority of Liens..............................................................................19
4.6 Further Assurances.............................................................................19
4.7 Landlords' Waivers.............................................................................20
4.8 Searches.......................................................................................20
4.9 Collateral Security for other Credit Facilities................................................20
4.10 Collateral Assignment of Patents, Trademarks and Copyrights....................................20
SECTION 5. REPRESENTATIONS AND WARRANTIES.................................................................21
5.1 Inducement to Bank.............................................................................21
5.2 Survival.......................................................................................24
SECTION 6. BORROWER'S COVENANTS...........................................................................25
6.1 Affirmative Covenants..........................................................................25
6.2 Negative Covenants.............................................................................28
6.3 Financial Covenants............................................................................30
6.4 Special Covenants..............................................................................31
SECTION 7. DEFAULT........................................................................................32
7.1 Events of Default..............................................................................32
7.2 Remedies.......................................................................................33
SECTION 8. MISCELLANEOUS..................................................................................35
8.1 Construction...................................................................................35
8.2 Further Assurances.............................................................................35
8.3 Enforcement and Waiver by Bank.................................................................35
8.4 Expenses of Bank...............................................................................35
8.5 Notices........................................................................................35
8.6 Waiver and Release by Borrower.................................................................36
8.7 Indemnification................................................................................36
8.8 Warrant of Attorney............................................................................37
8.9 Arbitration....................................................................................38
8.11 Jurisdiction...................................................................................39
8.12 Applicable Law.................................................................................39
8.13 Binding Effect, Assignment and Entire Agreement................................................39
8.14 Severability...................................................................................39
8.15 Counterparts...................................................................................39
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8.16 Headings.......................................................................................39
8.17 Modification...................................................................................39
8.18 Third Parties..................................................................................39
8.19 Seal...........................................................................................39
</TABLE>
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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement") is made this 26th
day of February, 1999 by and among Strategic Diagnostics Inc. ("SDI"), a
Delaware corporation with its chief executive office at 128 Sandy Drive, Newark,
Delaware 19713, TSD BioServices, Inc. ("TSD"), a Delaware corporation with its
chief executive office at 111 Pencader Drive, Newark, Delaware 19702, and First
Union National Bank ("Bank"), a national bank with an office at 3 Beaver Valley
Road, Wilmington, Delaware 19803. SDI and TSD are sometimes hereinafter
severally and collectively referred to, and jointly and severally obligated as,
"Borrower."
B A C K G R O U N D
Borrower has applied to Bank for credit financing in an aggregate
amount not to exceed Nine Million ($9,000,000.00) Dollars to fund Borrower's
acquisition of specific assets of Atlantic Antibodies, Inc. ("ATAB") and all of
the capital stock of HTI Bio-Products, Inc. ("HTI").
NOW, THEREFORE, with the foregoing Background deemed incorporated
hereinafter by this reference and hereby made a part hereof, the parties hereto,
intending to be legally bound hereby, further covenant and agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
As used herein:
1.1 "Accounts," "Chattel Paper," "Contracts," "Documents," "Equipment,"
"Fixtures," "General Intangibles," "Goods," "Instruments," "Inventory,"
"Investment Property" and "Proceeds" shall have the same respective meanings as
are ascribed to such terms in the Uniform Commercial Code as enacted in the
State of Delaware.
1.2 "Acquired Assets" means the assets of ATAB being acquired by
Borrower pursuant to the Asset Purchase Agreement.
1.3 "Affiliate" shall have the meaning as defined in 11 U.S.C. ss. 101,
except the term "debtor" therein shall be substituted by the term "Borrower"
herein.
1.4 "Asset Manager" means Prudential Securities.
1.5 "Asset Purchase Agreement" means that certain Asset Purchase
Agreement between Borrower and ATAB.
1.6 "Assets" means, at any time, all assets of every kind of Borrower
as would be shown on a consolidating and consolidated balance sheet of Borrower
prepared in accordance with GAAP.
<PAGE>
1.7 "ATAB Loan" means that certain term loan being made available by
Bank to or for the benefit of Borrower in the principal sum of Three Million
($3,000,000.00) Dollars.
1.8 "Borrower" shall have the meaning given to such term in the
introductory paragraph hereof; provided, however, the term "Borrower shall also
include any and all Subsidiaries of Borrower who become parties to this
Agreement pursuant to a Joinder Agreement in the form of Exhibit A attached
hereto.
1.9 "Business Day" means any day other than a Saturday, Sunday or legal
holiday on which Bank is not open for business in Wilmington, Delaware.
1.10 "CD Rate" means the rate for one-month U.S. dollar certificates of
deposits of that many months maturity as published in the Federal Reserve's H.15
under the caption "CDS (Secondary Market)" for the first New York business day
of the relevant Interest Period (as defined in Subparagraph 2.5.1), or if not so
reported, then as determined by Bank from another recognized source or interbank
quotation.
1.11 "Closing" means the date of this Agreement.
1.12 "Collateral" means the property so designated in Section 4 of this
Agreement.
1.13 "Collateral Assignment of Patents, Trademarks and Copyrights" has
the meaning given to such term in Paragraph 4.10 hereof.
1.14 "Collateral Documents" means all of the instruments, agreements
and documents evidencing and/or securing the Loans including, without
limitation, the documents specified in Sections 3 and 4 of this Agreement.
1.15 "Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414 of the Internal
Revenue Code or Section 4001 of ERISA.
1.16 "Default Rate" has the meaning given to such term in Subparagraph
2.5.2 hereof.
1.17 "EBITDA" means the sum of Borrower's consolidated net profit,
interest expense, taxes, depreciation and amortization minus all dividends,
withdrawals and non-cash income.
1.18 "Employee Benefit Plan" means a "pension plan," as such term is
defined in Section 3(2) of ERISA or a "welfare plan," as such term is defined in
Section 3(1) of ERISA, for which Borrower or any member of the Controlled Group
may have liability.
2
<PAGE>
1.19 "Environmental Laws" means all Laws relating to or pertaining to
the environment, human health or safety or environmental public welfare,
including, without limitation, the Hazardous and Solid Waste Amendments of 1984
Pub. L98-616 (42 U.S.C. ss. 699 et seq., as amended); the Resource Conservation
and Recovery Act (42 U.S.C. ss. 6901 et seq., as amended), the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. ss. 9601 et
seq., as amended), and any other applicable Laws including those relating to the
use of recyclable materials.
1.20 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time;.
1.21 "Event of Default" mean an event specified in Section 7 hereof.
1.22 "Facility Fee" means a facility fee in the amount of Forty-Five
Thousand ($45,000.00) Dollars payable by Borrower to Bank in consideration of
Bank's undertakings described herein. The Facility Fee shall be deemed fully
earned and nonrefundable when paid.
1.23 "Financial Statements" means the annual audited consolidating and
consolidated balance sheet and cash flow and profit and loss statements for
Borrower and its Subsidiaries as of December 31, 1996 and 1997, the internally
prepared consolidating and consolidated balance sheet and income and cash flow
statements for Borrower and its Subsidiaries as of December 31, 1998, and the
pro forma balance sheet and income statement of Borrower dated immediately after
the consummation of the transactions contemplated in the Asset Purchase
Agreement and the Stock Purchase Agreement.
1.24 "Funded Debt" means, the sum of Borrower' consolidated
Indebtedness for borrowed money (including, without limitation, capital lease
obligations, subordinated indebtedness and unreimbursed drawings under letters
of credit) or evidenced by a note, bond, debenture or similar instrument.
1.25 "Funds Flow Coverage Ratio" means EBITDA as of the Rolling Period
most recently ended (as hereinafter defined) divided by the sum of Borrower's
consolidated annualized interest expense, plus current maturities of
consolidated long term Liabilities, capital lease obligations (without
duplication) and payments on account of the Additional Purchase Price (as such
term is defined in the Stock Purchase Agreement), each of which for the Rolling
Period most recently ended.
1.26 "GAAP" means generally accepted accounting principles as of the
date of this Agreement applied in a manner consistent with the Financial
Statements and/or the most recent accountant-prepared financial statements
furnished and acceptable to Bank pursuant to Section 6 of this Agreement.
3
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1.27 "HTI Capital Stock" has the meaning given to such term in
Paragraph 1.53 hereof.
1.28 "HTI Loan" means that certain term loan being made by Bank to or
for the benefit of Borrower in the principal amount of Six Million
($6,000,000.00) Dollars.
1.29 "Indebtedness" means, as to Borrower, all items of indebtedness,
obligation or liability, due or to become due, liquidated or unliquidated,
direct or contingent, joint or several, of any nature whatsoever and out of
whatever transaction arising including, without limitation:
1.29.1 All indebtedness guaranteed, directly or indirectly, in
any manner, or endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse;
1.29.2 All indebtedness in effect guaranteed, directly or
indirectly, through agreements, contingent or otherwise to (a) purchase such
indebtedness, (b) purchase, sell or lease (as lessee or lessor) property,
products, materials or supplies, or to purchase or sell services, primarily for
the purpose of enabling any debtor to make payment of such indebtedness or to
assure the holder of the indebtedness against loss, or (c) supply funds to or in
any other manner invest in any debtor;
1.29.3 All indebtedness of ATAB and HTI to be assumed by
Borrower pursuant to the Asset Purchase Agreement or the Stock Purchase
Agreement;
1.29.4 All indebtedness secured by (or for which the holder of
such indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, deed of trust, pledge, lien, security interest or other charge
or encumbrance upon property owned or acquired subject to such mortgage, deed of
trust, pledge, lien, security interest, charge or encumbrance, whether or not
the liabilities secured thereby have been assumed; and
1.29.5 All indebtedness incurred as the lessee of goods or
services under leases that, in accordance with GAAP, should be reflected on the
lessee's balance sheet.
1.30 "Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended.
1.31 "IRS" means the U.S. Internal Revenue Service.
1.32 "Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof or any court or similar entity established by any thereof.
1.33 "Liabilities" means, at any time, all liabilities of every kind of
Borrower and its Subsidiaries, as would be shown on a consolidating and
consolidated balance sheet of Borrower prepared in accordance with GAAP.
4
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1.34 "LIBOR" means, for any day, the rate for one (1) month U.S. dollar
deposits of that many months maturity as reported on Telerate page 3750 as of
11:00 a.m., London time, on the second London business day before the relevant
LIBOR Interest Period (as hereinafter defined) begins (or if not so reported,
then as determined by Bank from another recognized source or interbank
quotation).
1.35 "LIBOR Interest Period" means the one (1) month period during
which the Rate for a particular Loan is based on LIBOR.
1.36 "Loans" means, collectively, the ATAB Loan and the HTI Loan.
1.37 "Material Adverse Effect" means, at any time, a material adverse
effect on the business, properties, financial condition or results of operations
of Borrower or the ability of Borrower to perform under this Agreement, or the
Collateral Documents.
1.38 "Mortgaged Properties" means, collectively, the real property and
personal property described in and encumbered pursuant to the Mortgages.
1.39 "Mortgages" means, collectively, the Windham Mortgage and the
Santa Ysabel Mortgage.
1.40 "Notes" means, collectively, the ATAB Note and the HTI Note and
"Note" means each such Instrument, individually.
1.41 "Obligations" mean the obligations of the Borrower:
1.41.1 To pay the principal of and the interest on the Notes
in accordance with the terms hereof and thereof, and to satisfy all of
Borrower's other existing and future debts, liabilities and obligations to Bank
including, without limitation, the existing and future debts, liabilities and
obligations of Borrower to Bank in connection with certain lease financing
arrangements and any Indebtedness of Borrower to others which Bank may acquire
by assignment or otherwise, whether matured or unmatured, direct or contingent,
joint or several, including, without limitation, any extensions, modifications,
renewals thereof and substitutions therefor;
1.41.2 To repay to Bank all amounts advanced by Bank hereunder
or otherwise to or for the benefit of Borrower including, without limitation,
advances for principal and/or interest payments to prior secured parties,
mortgagees, beneficiaries or other lienors, or for taxes, levies, insurance,
rent, repairs to or maintenance, storage or other preservation of all or any
part of the Collateral;
1.41.3 To repay to Bank all sums due or that may become due
under the Swap Agreement and all obligations and Indebtedness of every kind and
description of Borrower to Bank or to any affiliate of Bank arising under any
other swap agreement (as defined in 11 U.S.C. ss. 101)
5
<PAGE>
(the Swap Agreement and such other like contracts collectively, the "Interest
Protection Agreements").
1.41.4 To pay all of the Bank's fees, expenses and costs
including, without limitation, the reasonable fees and expenses of Bank's
counsel, in connection with the preparation, negotiation, administration,
amendment, modification or enforcement of this Agreement, the Collateral
Documents and the Interest Protection Agreements, the collection or attempted
collection of the Notes and Bank's rights hereunder and under the documents
required hereunder, or any proceedings (including, without limitation,
bankruptcy or other insolvency proceedings) brought or threatened to enforce
payment of any of the Obligations.
1.42 "Obligors" means, severally and collectively, Borrower and any
guarantor for the Obligations.
1.43 "PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
1.44 "Permitted Liens" means:
1.44.1 Liens for taxes, assessments or similar charges
incurred in the ordinary course of business which are not yet due and payable;
1.44.2 Pledges or deposits made in the ordinary course of
business to secure payment of workers' compensation, or participation in any
fund in connection with compensation, unemployment insurance, old-age pensions
or other social security programs, as well as any underlying lien, if any, being
replaced by such pledge or deposit;
1.44.3 Liens of mechanics, materialmen, warehousemen,
carriers, or other like lienors, securing obligations incurred in the ordinary
course of business that are not yet due and payable;
1.44.4 Good faith pledges or deposits made in the ordinary
course of business to secure performance of bids, tenders, contracts (other than
for the repayment of borrowed money) or leases, not in excess of ten (10%)
percent of the aggregate amount due thereunder, or to secure statutory
obligations, or surety, appeal, indemnity, performance or other similar bonds
required in the ordinary course of business, as well as any underlying lien, if
any, being replaced by such pledge, deposit or bond;
1.44.5 Liens in favor of Bank;
1.44.6 Purchase money liens permitted pursuant to Paragraph
6.2.5 of this Agreement;
6
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1.44.7 Title exceptions acceptable to Bank in its reasonable
discretion set forth in the Title Insurance Commitments; and
1.44.8 Existing liens scheduled on the Questionnaire and
incorporated herein by this reference and hereby made a part hereof.
1.45 "Person" means any individual, corporation, partnership,
association, joint-stock company, limited liability company, trust,
unincorporated organization, joint venture, court or government or political
subdivision or agency thereof.
1.46 "Pledged Securities" means the Collateral constituting Investment
Property described in and encumbered pursuant to that certain Pledge and
Assignment Agreement of even date herewith executed and delivered by Borrower to
Bank.
1.47 "Potential Default" means the occurrence of any event which, with
the passage of time or the giving of notice, or both, could constitute an Event
of Default.
1.48 "Prime Rate" means that rate of interest announced by Bank from
time to time as its prime rate and is one of several interest rate bases used by
Bank. Bank lends at rates both above and below Bank's Prime Rate, and Borrower
acknowledges that Bank's Prime Rate is not represented or intended to be the
lowest or most favorable rate of interest offered by Bank.
1.49 "Questionnaires" means the Collateral Questionnaires on Bank's
form completed, executed and delivered by SDI, TSD and HTI.
1.50 "Rate" means any of the rates of interest specified in Paragraph
2.9 of this Agreement.
1.51 "Records" means, severally and collectively, Borrower's respective
correspondence, memoranda, tapes, discs, papers, books and other documents, or
transcribed information of any type, whether expressed in ordinary or machine
language, and whether on or off the premises of Borrower.
1.52 "Rolling Period" means any period of four (4) consecutive calendar
quarters.
1.53 "Santa Ysabel Mortgage" means that certain Deed of Trust being,
simultaneously herewith, executed and delivered by Borrower to Bank, which
encumbers certain real estate in Santa Ysabel, California being acquired by
Borrower in connection with Borrower's acquisition of HTI's capital stock and as
more fully described in said Deed of Trust.
1.54 "Santa Ysabel Premises" means the real estate and personal
property described in and encumbered pursuant to the Santa Ysabel Mortgage.
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1.55 "Subsidiary" of a Person means any corporation or other entity,
more than fifty (50%) percent of the voting capital stock or other voting
ownership interests of which is owned, directly or indirectly, by such Person.
1.56 "Stock Purchase Agreement" means that certain Stock Purchase
Agreement of even date herewith by and among SDI, Robert J. Harman, Michael M.
Dale, Eric S. Bean and Sean Boyd pursuant to which SDI acquired all of the
issued and outstanding capital stock of HTI (the "HTI Capital Stock").
1.57 "Swap Agreement" means that certain ISDA Master Agreement entered
into between Borrower and Bank of even date herewith including the Schedule and
all Confirmations (as such terms are defined in the ISDA Master Agreement).
1.58 "Tangible Net Worth" means total Assets minus total Liabilities,
minus the aggregate book value of Borrower's intangible assets (determined in
accordance with GAAP) including, without limitation, goodwill, franchises,
licenses, patents, trademarks, trade names, copyrights, service marks and brand
names.
1.59 "Title Insurance Commitments" means, collectively, the commitments
for title insurance issued by First American Title Insurance Company pursuant to
which said insurer shall insure the Windham Mortgage and the Santa Ysabel
Mortgage as first priority mortgage liens subject only to exceptions which are
acceptable to Bank in its sole discretion.
1.60 "Variable Rate" has the meaning given to such term in Subparagraph
2.5.1 hereof.
1.61 "Windham Mortgage" means that certain Open-End Mortgage and
Security Agreement to be executed and delivered by Borrower to Bank, which
encumbers certain real estate in Windham, Maine acquired by Borrower from ATAB
and as more fully described in said Open-End Mortgage and Security Agreement.
1.62 "Windham Premises" means the real estate and personal property
described in and encumbered pursuant to the Windham Mortgage.
1.63 Accounting Terms. Accounting terms used but not defined herein
shall be construed and all financial data submitted pursuant to this Agreement
shall be prepared, in accordance with GAAP.
SECTION 2. THE LOANS.
2.1 Disbursement and Use of the Loan Proceeds.
2.1.1 At Closing, subject to satisfaction of all conditions
precedent set forth herein with respect of each Loan, Bank will credit the
proceeds of such Loan to Borrower's deposit account(s) with Bank.
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2.1.2 Borrower shall use the proceeds of the ATAB Loan to
finance, the acquisition of the Acquired Assets pursuant to the Asset Purchase
Agreement.
2.1.3 Borrower shall use the proceeds of the HTI Loan to
acquire all of the capital stock of HTI pursuant to the Stock Purchase
Agreement.
2.2 The ATAB Note. Upon disbursement by Bank of the proceeds of the
ATAB Loan, Borrower shall simultaneously execute and deliver to Bank its
Promissory Note in the principal sum of Three Million ($3,000,000.00) Dollars to
evidence Borrower's Obligation to repay Bank, with interest at the applicable
Rate, the principal sum of the ATAB Loan in equal and consecutive monthly
installments of principal in the amount of Fifty Thousand ($50,000.00) Dollars,
plus interest as set forth herein and in the ATAB Note, payable monthly, in
arrears, commencing on the first day of the first full month after the proceeds
of the ATAB Loan are disbursed to Borrower and continuing on the first day of
each month thereafter until the fifth (5th) anniversary of the date hereof, at
which time all then outstanding principal, interest and other sums owing in
connection with the ATAB Loan shall be due and payable in full, unless the ATAB
Loan is sooner accelerated in accordance with the provisions of this Agreement,
all as more fully described in the ATAB Note, the terms, covenants and
conditions of which are hereby deemed incorporated herein by this reference and
made a part hereof.
2.3 The HTI Note. Upon disbursement by Bank of the proceeds of the HTI
Loan, Borrower shall simultaneously execute and deliver to Bank its Promissory
Note in the principal sum of Six Million ($6,000,000.00) Dollars to evidence
Borrower's obligation to repay Bank, with interest at the applicable Rate, the
principal sum of the HTI Loan in equal and consecutive monthly installments of
principal in the amount of One Hundred Thousand ($100,000.00) Dollars, plus
interest as set forth herein and in the HTI Note, payable monthly, in arrears,
commencing on the first day of the first full month after the proceeds of the
HTI Loan are disbursed to Borrower and continuing on the first day of each month
thereafter until the fifth (5th) anniversary of the date hereof, at which time
all then outstanding principal, interest and other sums owing in connection with
the HTI Loan shall be due and payable in full, unless the HTI Loan is sooner
accelerated in accordance with the provisions of this Agreement, all as more
fully described in the HTI Note, the terms, covenants and conditions of which
are hereby deemed incorporated herein by this reference and made a part hereof.
2.4 Prepayment of the Loans. Except as provided in Subparagraph 2.5.7
hereof, Borrower may prepay, in whole or in part, at any time or from time to
time, without penalty or premium the principal of the Loans provided, however,
that any partial prepayment of a Loan shall be accompanied by a payment of all
then accrued and unpaid interest thereon, and any partial prepayments of such
Loan shall be applied to installments thereunder in the inverse order of their
maturity (last installment(s) credited first).
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2.5 Interest Rates, Default Rate and Payment of Interest. Interest
shall accrue at the following rates (each, a "Rate") and be paid as follows:
2.5.1 So long as the Obligations are collateralized by cash,
cash equivalents or the Pledge Securities (collectively, the "Cash Collateral")
having an aggregate fair market value of not less than One Million
($1,000,000.00) Dollars, interest shall accrue on the first One Million
($1,000,000.00) Dollars of the outstanding principal of the HTI Loan at a rate
equal to one (1%) percent in excess of the CD Rate (the "CD-Based Rate"), as
determined by Bank prior to the commencement of each consecutive CD interest
period of one (1) month (each a "CD Interest Period"). The first CD Interest
Period shall commence on the date of the HTI Note and end on the first date
thereafter that interest is due. Each CD-Based Rate shall remain in effect,
subject to the provisions hereof, for the entire CD Interest Period until
redetermined for the next successive period.
2.5.2 Except as otherwise provided herein, interest on the
outstanding principal balance of each Loan shall accrue from the date that the
proceeds of such Loan are disbursed and be payable at a per annum rate equal to
one of the following Rates (either Rate, the "Variable Rate") as selected by
Borrower in writing at least one Business Day prior to Bank's advance of such
Loan:
(a) One-half (1/2%) percent in excess of the Prime Rate
in effect from time to time; or
(b) Three (3%) percent in excess of LIBOR, as determined
by Bank prior to the commencement of each consecutive LIBOR Interest Period
during the term of such Loan. Each LIBOR Interest Period will begin on and
include the date an interest payment is due as provided in Paragraphs 2.2 and
2.3 (whichever applies) and end on, but exclude, the date the next interest
payment is due, with the first LIBOR Interest Period commencing as of the date
such Loan is advanced to Borrower. Upon determination by Bank of the Rate for a
Loan for any LIBOR Interest Period, such Rate shall remain in effect for such
Loan for the entire Interest Period until redetermined for the next successive
LIBOR Interest Period.
2.5.3 After the occurrence and during the continuance of an
Event of Default, interest on the outstanding principal balance of the Loans
shall accrue and be payable, on demand, at a per annum rate (the "Default Rate")
equal to three (3%) percent in excess of any then-applicable Rate.
Notwithstanding the entry of judgment, demand by Bank or acceleration of the
Obligations, interest shall continue to accrue on the unpaid principal balance
of the Obligations at the Default Rate until the Obligations are paid in full.
2.5.4 As applicable, each time the Prime Rate or LIBOR shall
change, the Variable Rate (or the corresponding Default Rate if applicable)
shall change contemporaneously with such change in the Prime Rate or LIBOR.
Interest on all Loans shall be calculated on the basis of a year of three
hundred sixty (360) days for the actual number of days elapsed and payable in
accordance with the Notes.
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2.5.5 If, at any time, any of the Rates shall be finally
determined by any Court of competent jurisdiction, governmental agency or
tribunal to exceed the maximum rate of interest permitted by any applicable
Laws, then, for such time as such Rate(s) would be deemed excessive, application
thereof shall be suspended and there shall be charged in lieu thereof the
maximum rate of interest permissible under such Laws.
2.5.6 Borrower shall hedge a portion of the floating interest
expense of each Loan for the full term of such Loan by maintaining either: (a)
the Swap Agreement; or (b) a comparable Interest Protection Agreement with Bank
or other counter party acceptable to Bank in a notational amount of not less
than One Million ($1,000,000.00) in respect of the ATAB Loan and Two Million
($2,000,000.00) Dollars in respect of the HTI Loan and providing for a fixed
rate, and containing such other terms and conditions as shall be reasonably
acceptable to Bank.
2.5.7 Borrower indemnifies Bank against Bank's loss or expense
in employing deposits as a consequence (a) of Borrower's failure to make any
payment when due under the Notes, or (b) any payment or prepayment of any Loan
which accrues interest at a Rate based on LIBOR on a date other than the last
day of the LIBOR Interest Period (the "Indemnified Loss or Expense"). The amount
of the Indemnified Loss or Expense shall be determined by Bank based upon the
assumption that Bank funded one hundred (100%) percent of that portion of such
Loan in the London interbank market.
2.6 Payments to Bank; Application of Payments.
2.6.1 All payments of interest on and principal of the Loans,
all fees and all other sums payable to Bank hereunder shall be paid directly to
Bank in immediately available funds, in such currency of the United States of
America as is, at the time of payment, legal tender for the payment of public
and private debts. To the extent Bank sends Borrower statements of all amounts
due hereunder for interest, principal and fees, in the absence of manifest
error, such statements shall be considered correct and presumptively binding on
Borrower unless Borrower notifies Bank to the contrary within thirty (30) days
of Borrower's receipt of any statement which Borrower deems to be incorrect.
2.6.2 Monies received by Bank from any source for application
toward payment of the Obligations shall be applied to accrued interest and then
to principal. Upon the occurrence and during the continuance of an Event of
Default, monies may be applied to the Obligations in any manner or order deemed
appropriate by Bank.
2.6.3 Bank will (and Borrower hereby authorizes Bank to)
charge any deposit account of Borrower maintained at Bank for all or any part of
any amount due hereunder including, without limitation, principal, interest,
late charges and fees and expenses reimbursable to Bank in accordance with the
terms of this Agreement and the Collateral Documents.
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2.7 Late Charges. If any payment of principal and/or interest or fees
hereunder is not received in full by Bank within fifteen (15) days after the due
date thereof, there shall be added to the Obligations a late charge equal to
four (4%) percent of the amount past due. The late charge shall be immediately
due and payable. The acceptance by Bank of any late payment without an
accompanying late charge shall not be deemed a waiver of Bank's right to collect
such late charge or to collect a late charge for any subsequent late payment
received. Payments are deemed made the banking day on which they are received by
Bank, but any payments received after 3:00 p.m. will be deemed made the next
banking day.
SECTION 3. CONDITIONS PRECEDENT.
3.1 Conditions Precedent in respect of both Loans. Bank's obligation to
make the Loans are subject to Borrower duly executing and/or delivering (or
causing to be duly executed and/or delivered) to Bank the following (all
documents, instruments and agreements shall be in form and substance
satisfactory to Bank):
3.1.1 This Agreement;
3.1.2 A Pledge and Assignment Agreement, pursuant to which
Borrower pledges to Bank the Pledged Securities as collateral security for the
obligations;
3.1.3 An Account Control Agreement among Bank, Borrower and
the Asset Manager, pursuant to which the Asset Manager acknowledges Bank's
security interest in the Pledged Securities and agrees to, among other things,
comply with entitlement orders originated by Bank;
3.1.4 The Collateral Assignment of Patents, Trademarks and
Copyrights;
3.1.5 The Questionnaires of SDI and TSD;
3.1.6 The financing statements required by 4.6.1 hereof;
3.1.7 The landlord's waivers required by Paragraph 4.7 hereof;
3.1.8 The searches required by Paragraph 4.8 hereof.
3.1.9 Payment of the Facility Fee;
3.1.10 Certified copies of the resolutions (dated as of
Closing) of the board of directors of Borrower authorizing, the execution,
delivery and performance of this Agreement, the ATAB Note, the HTI Note, the
Collateral Documents, and each other document to be executed and/or delivered
pursuant hereto and any other instrument, agreement or document referred to
herein;
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3.1.11 Certified copies of the articles of incorporation,
certificate of incorporation, and by-laws of Borrower, in each case with all
amendments thereto;
3.1.12 Certificates (dated as of Closing) of the corporate
secretary of Borrower as to the incumbency and specimen signatures of the
officers of Borrower executing this Agreement, the ATAB Note, the HTI Note, the
Collateral Documents and each other document to be executed and/or delivered
pursuant hereto or thereto;
3.1.13 Certificates, as of the most recent dates practicable,
of the Secretary of State of the state of incorporation and of each other state
or jurisdiction in which Borrower is qualified as a foreign entity, and the
department of revenue or taxation of each of the foregoing states or
jurisdictions, as to the subsistence and/or good standing, as applicable;
3.1.14 A certificate (dated as of the Closing) signed by the
President of Borrower to the effect that:
(a) The representations and warranties set forth in
Section 5 of this Agreement are true and correct as of the Closing; and
(b) No Event of Default hereunder, and no event which,
with the giving of notice or the passage of time, or both, would constitute an
Event of Default, has occurred as of Closing;
3.1.15 The written opinion of Borrower's counsel, dated as of
Closing and addressed to Bank;
3.1.16 Proof satisfactory to Bank that Borrower has obtained
all required public liability, hazard, casualty, workers' compensation and
extended coverage insurance with respect to its properties and business. Bank
shall be named as lender loss payee, mortgagee and additional insured, as its
interest may appear, on all such policies of insurance and its interests shall
be insured notwithstanding acts or negligence on the part of Borrower;
3.1.17 Copies of the most recent account statements received
by Borrower from the Asset Manager in respect of the Pledged Securities;
3.1.18 Reimbursement of all costs paid or incurred by Bank in
connection with the preparation, negotiation and administration of this
Agreement, the Notes and the Collateral Documents including, without limitation,
search fees, title insurance fees, audits, appraisals and reasonable fees and
expenses of counsel representing Bank; and
3.1.19 Such other instruments, agreements and documents as may
be required by Bank and/or its counsel.
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3.2 Conditions Precedent in respect of ATAB Loan. In addition to the
conditions precedent set forth in Paragraph 3.1 hereof, Bank's obligation to
make the ATAB Loan available to Borrower is subject to the fulfillment of the
following conditions precedent (all documents, instruments and agreements shall
be in form and substance satisfactory to Bank):
3.2.1 Borrower shall have executed and/or delivered (or caused
to be executed and/or delivered) to Bank the following:
(a) the ATAB Note;
(b) the Windham Mortgage;
(c) review by Bank of the Asset Purchase Agreement, the
terms and conditions of which shall be satisfactory to Bank in its sole
discretion;
(d) a copy of the fully-executed Asset Purchase
Agreement;
(e) an appraisal report for the Windham Premises;
(f) marked-up Title Insurance Commitment in respect of
the Windham Premises;
(g) an ALTA Land Title Survey of the Windham Premises,
in recordable form, with a surveyor's certification addressed and acceptable to
Bank;
(h) Phase I environmental assessment of the Windham
Premises, the findings of which are acceptable to Bank;
(i) interim financial statements for ATAB as of December
31, 1998, which financial statements shall consist of a balance sheet and
statements of income and cash flow as of the quarterly period then ended;
(j) a pro forma balance sheet of Borrower as of a date
immediately following the consummation of the transactions contemplated by the
Asset Purchase Agreement, which balance sheet shall be certified by Borrower's
President or Chief Financial Officer as true and correct in all material
respects; and
(k) reimbursement of all previously unreimbursed costs
paid or incurred by Bank in connection with the preparation, negotiation and
administration of this Agreement, the Notes and Collateral Documents including,
without limitation, search fees, title insurance fees, audits, appraisals and
reasonable fees and expenses of counsel representing Bank.
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3.2.2 The transactions contemplated by the Asset Purchase
Agreement shall have been fully consummated.
3.2.3 No Material Adverse Effect shall have occurred since the
date of the most recent Financial Statements submitted to Bank; and
3.2.4 Such other instruments, agreements and documents as may
be required by Bank and/or its counsel.
3.3 Conditions Precedent in respect of HTI Loan. In addition to the
conditions precedent set forth in Paragraph 3.1 hereof, Bank's obligation to
make the HTI Loan available to Borrower is subject to the fulfillment of the
following conditions precedent (all documents, instruments and agreements shall
be in form and substance satisfactory to Bank);
3.3.1 Borrower shall have executed and/or delivered (or caused
to be executed and/or delivered) to Bank the following:
(a) the HTI Note;
(b) the HTI Mortgage;
(c) a Pledge and Assignment Agreement duly executed and
delivered to Bank by Borrower, pursuant to which Borrower pledges to Bank all of
the HTI Capital Stock, together with blank stock powers and certificates
representing the HTI Capital Stock;
(d) review by Bank of the Stock Purchase Agreement, the
terms and conditions of which shall be satisfactory to Bank in its sole
discretion;
(e) a copy of the fully-executed Stock Purchase
Agreement;
(f) an appraisal report for the Santa Ysabel Premises;
(g) interim financial statements for HTI as of December
31, 1998, which financial statements shall consist of a balance sheet and
statements of income and cash flows as of the quarterly period then ended.
(h) HTI's Accounts payable and Accounts receivable aging
reports dated as of January 31, 1999;
(i) marked-up Title Insurance Commitment in respect of
the Santa Ysabel Premises;
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(j) evidence that Borrower has obtained an environmental
hazard insurance policy with respect to the Santa Ysabel Premises naming Bank as
the beneficiary or loss payee and providing coverage acceptable to Bank in its
reasonable discretion;
(k) an as-built survey of the Santa Ysabel Premises, in
recordable form, with a surveyor's certification addressed and acceptable to
Bank;
(l) a pro forma balance sheet of Borrower as of a date
immediately following the consummation of the transactions contemplated by the
Stock Purchase Agreement, which balance sheet shall be certified by Borrower's
President or Chief Financial Officer as true and correct in all material
respects;
(m) Subordination, Nondisturbance and Attornment
Agreements, of the form and substance of Bank's form Subordination,
Nondisturbance and Attornment Agreement furnished to Borrower, from each of the
tenants of the Santa Ysabel Premises;
(n) a Joinder Agreement (as hereinafter defined) from
HTI;
(o) a Collateral Assignment of Patents, Trademarks and
Copyrights of HTI;
(p) the Questionnaire of HTI;
(q) the financing statements required by 4.6.1 hereof;
(r) the landlord's waivers required by Paragraph 4.7
hereof;
(s) certified copies of the resolutions (dated as of the
date of funding of the HTI Loan) of the board of directors of HTI authorizing,
the execution, delivery and performance of the Joinder Agreement, the Santa
Ysabel Mortgage and each other document to be executed and/or delivered by HTI
pursuant hereto and any other instrument, agreement or document referred to
herein;
(t) certified copies of the articles of incorporation,
certificate of incorporation, and by-laws of HTI, in each case with all
amendments thereto;
(u) certificates (dated as of the date of funding of the
HTI Loan) of the corporate secretary of HTI as to the incumbency and specimen
signatures of the officers of HTI executing the Joinder Agreement, the Santa
Ysabel Mortgage and each other document to be executed and/or delivered by HTI
pursuant hereto or thereto;
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(v) certificates, as of the most recent dates
practicable, of the Secretary of State of the state of incorporation and of each
other state or jurisdiction in which HTI is qualified as a foreign entity, and
the department of revenue or taxation of each of the foregoing states or
jurisdictions, as to the subsistence and/or good standing of HTI, as applicable;
(w) a certificate (dated as of the date of funding of
the HTI Loan) signed by the President of each of HTI and Borrower to the effect
that:
(x) the representations and warranties set forth in
Section 5 of this Agreement are true and correct as of the date of funding of
the HTI Loan; and
(y) no Event of Default hereunder, and no event which,
with the giving of notice or the passage of time, or both, would constitute an
Event of Default, has occurred as of the date of funding of the HTI Loan; and
(z) reimbursement of all previously unreimbursed costs
paid or incurred by Bank in connection with the preparation, negotiation and
administration of this Agreement, the Notes and the Collateral Documents
including, without limitation, search fees, title insurance fees, audits,
appraisals and reasonable fees and expenses of counsel representing Bank;.
3.3.2 The transactions contemplated by the Stock Purchase
Agreement shall have been fully consummated.
3.3.3 No Material Adverse Effect shall have occurred since the
date of the most recent Financial Statements submitted to Bank; and
3.3.4 Such other instruments, agreements and documents as may
be required by Bank and/or its counsel.
3.4 Certain Events. At the Closing and upon Borrower's request for an
advances of the ATAB Loan or the HTI Loan;
3.4.1 No Event of Default or Potential Default shall have
occurred;
3.4.2 No Material Adverse Effect shall have occurred since the
date of this Agreement; and
3.4.3 All of the Collateral Documents shall have remained and
be in full force and effect.
3.5 Legal Matters. At the time of Closing, and upon Borrower's request
for advances of the ATAB Loan or the HTI Loan, all legal matters incidental
hereto and thereto shall be reasonably satisfactory to Bank and its counsel.
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SECTION 4. COLLATERAL SECURITY.
4.1 Composition of the Collateral. The property in which a lien or
security interest is granted and/or reaffirmed pursuant to the provisions of
Paragraphs 4.2 and 4.3 of this Agreement, together with the Proceeds thereof, is
herein collectively called the "Collateral." The Collateral, together with all
of Borrower's other property of any kind held by Bank, shall stand as one
general, continuing collateral security for all Obligations and may be retained
by Bank until all Obligations have been paid and satisfied in full.
4.2 Rights in Property Held by the Bank. As security for the prompt
payment and satisfaction of all Obligations, Borrower hereby grants Bank a first
lien on and a security interest in and to, all amounts that may be owing from
time to time by Bank to Borrower in any capacity including, without limitation,
any balance or share belonging to Borrower of any deposit or other account with
Bank, which lien and security interest shall be independent of any right of
set-off which Bank has or may have, and all property of Borrower which at any
time Bank shall have in its possession, or which is in transit to Bank.
4.3 Rights in Property Held by the Borrower. As security for the prompt
payment and satisfaction of all Obligations, Borrower hereby grants Bank a
continuing lien on and security interest in and to, all of the following,
wherever located, whether now owned or hereafter acquired, together with all
replacements, additions and substitutions therefor and the Proceeds thereof:
4.3.1 Accounts;
4.3.2 Chattel Paper;
4.3.3 Contracts;
4.3.4 Documents;
4.3.5 Equipment (including, without limitation, rolling
stock);
4.3.6 Fixtures;
4.3.7 General Intangibles (including, without limitation, all
choices in action, tax refunds and obligations or other refunds now or hereafter
owing to Borrower, customer lists, rights and franchises, sales and consignment
Contracts, patent(s) and patent application(s), copyright(s) and copyright
application(s), trademarks, logos, and trade names);
4.3.8 Instruments including, without limitation, any and all
Instruments evidencing intercompany Indebtedness among SDI and TSD and/or their
Affiliates and security interests securing such Indebtedness
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4.3.9 Inventory;
4.3.10 Investment Property (including, without limitation, the
Pledged Securities and the HTI Capital Stock);
4.3.11 Leaseholds;
4.3.12 Rights as sellers of Goods and rights to returned or
repossessed Goods; and
4.3.13 The Records.
4.4 Mortgages. Simultaneously with the funding of the HTI Loan and the
ATAB Loan, pursuant to the Windham Mortgage and the Santa Ysabel Mortgage,
Borrower shall grant to Bank first mortgage liens on each of the Windham
Premises and the Santa Ysabel Premises and the improvements thereon,
respectively.
4.5 Priority of Liens. The foregoing liens shall be first and prior
liens subject only to Permitted Liens.
4.6 Further Assurances.
4.6.1 At Closing and thereafter as Bank reasonably deems
necessary, Borrower shall:
(a) Join with the Bank in executing financing statements
(including amendments thereto and continuation statements thereof) as Bank may
specify, which Bank may file or record in any jurisdiction where Collateral is
maintained and in any other jurisdiction that Bank deems appropriate;
(b) Pay or reimburse Bank for all costs and taxes of
filing or recording the same in such public offices as Bank may designate; and
(c) Take such other and further steps as Bank may direct
including, without limitation, noting of Bank's liens on the Collateral and on
any certificates of title evidencing Borrower's ownership of Collateral,
delivering to Bank all notes, documents of title, bills of lading, chattel
paper, instruments and any other similar Collateral, all to perfect the Bank's
interest in and to the Collateral, and to otherwise effectuate the intentions
and objects of this Agreement and all related instruments, agreements and
documents.
4.6.2 In addition to the foregoing, and not in limitation
thereof:
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(a) A carbon, photographic, or other reproduction of
this Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof; and
(b) To the extent lawful, Borrower hereby appoints Bank
as its attorney-in-fact (without requiring Bank to act as such) to do any of the
following: execute any financing statement or mortgage on properties owned in
fee simple by Borrower in the name of Borrower; and/or perform all other acts
that Bank deems appropriate to secure, perfect and continue its security
interest in, and to protect and preserve, the Collateral.
4.7 Landlords' Waivers. Borrower will cause the landlord of each
premises leased by Borrower in which Borrower stores Inventory and/or Equipment
(if any) to execute and deliver to Bank instruments, in form and substance
satisfactory to the Bank and its counsel, by which each such landlord waives its
rights, if any, to any and all of the Collateral. In the event Borrower is
unable to obtain any such instruments of waiver, Bank reserves the right to
establish appropriate reserves against sums otherwise available under the
Revolving Credit in respect of amounts for which any such landlords may be able
to realize from the Collateral.
4.8 Searches. Borrower shall, prior to or at Closing, and thereafter,
at its expense, obtain and deliver to Bank (or if obtained by Bank, reimburse
Bank for) Uniform Commercial Code, judgment and federal, state tax lien and
intellectual property searches against Borrower, ATAB and HTI, showing that
Bank's security interests in and liens on the Collateral (including the Acquired
Assets), shall be, upon perfection, security interests in and liens thereon with
the priority rights agreed to in this Agreement, and not subject to any liens,
claims and encumbrances, except for Permitted Liens. Borrower shall also deliver
Good Standing and Corporate Tax Lien Search Certificates showing no liens on the
Collateral and showing Borrower to be in good standing (or its equivalent under
applicable Law) in each jurisdiction in which the nature of its business or
Collateral makes such qualification necessary or desirable.
4.9 Collateral Security for other Credit Facilities. Borrower
acknowledges that Bank holds cash collateral (the "Other Cash Collateral") as
collateral security for two equipment financing facilities in the original
aggregate amount of Four Hundred Fifty Thousand ($450,000.00) Dollars (the
"Equipment Facilities") made available by Bank to Borrower and that the Other
Cash Collateral shall stand as and constitute Collateral hereunder and Bank
shall hold the Other Cash Collateral until (a) the Equipment Facilities are paid
in full or (b) Borrower hereafter purchases new Equipment in which Bank shall
have a perfected first priority security interest, and in the case of clause
(b), Bank shall release an amount of the Other Cash Collateral equal to
Borrower's cost of such new Equipment.
4.10 Collateral Assignment of Patents, Trademarks and Copyrights. To
evidence and perfect Bank's security interest in Borrower's now owned and
hereafter acquired patents, trademarks and copyrights (including patents,
trademarks and copyrights acquired from HTI and ATAB), Borrower shall execute
and deliver to Bank a Collateral Assignment of Patents, Trademarks and
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Copyrights (the "Collateral Assignment of Patents, Trademarks and Copyrights")
in a form recordable in the U.S. Office of Patents and Trademarks and the U.S.
Copyright Office and otherwise in form and substance satisfactory to Bank.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
5.1 Inducement to Bank. To induce Bank to enter into this Agreement,
Borrower represents and warrants to Bank that:
5.1.1 The representations and warranties of Borrower to Bank
set forth on the Questionnaires are true and correct as of the date hereof and
are incorporated herein by this reference as if set forth at length herein;
5.1.2 Borrower is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware and is
duly qualified and in good standing as a foreign corporation in each other
jurisdiction in which the nature of its business or, properties or Assets makes
such qualification necessary or desirable except where the failure to so qualify
would not result in a Material Adverse Effect; Borrower has the lawful power and
capacity to own its property and to engage in the business it conducts;
5.1.3 Borrower is not in default with respect to any of its
existing Indebtedness, and the making and performance of this Agreement, the
Notes and the Collateral Documents will not (immediately, with the passage of
time, or with the giving of notice and the passage of time):
(a) Violate the articles of incorporation, certificates
of incorporation or by-laws of Borrower or, in any material respect, violate any
Laws or result in a default under any material Contract, agreement or instrument
to which Borrower is a party or by which Borrower or its properties or assets
are or may be bound; or
(b) Result in the creation or imposition of any security
interest in, or lien or encumbrance upon, any of the Assets, except such as are
in favor of Bank;
5.1.4 Borrower has the power, authority and capacity to enter
into and perform this Agreement, the Notes and the Collateral Documents, and to
incur the Obligations herein and therein provided for, and Borrower has taken
all proper and necessary corporate action to authorize the execution, delivery
and performance of this Agreement, the Notes and the Collateral Documents;
5.1.5 This Agreement and the Collateral Documents are, and the
Notes when delivered will be, valid, binding and enforceable against Borrower in
accordance with their respective terms;
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5.1.6 Except as disclosed in Exhibit 5.1.6, attached hereto,
incorporated herein by this reference and hereby made a part hereof, there are
no judgments or judicial or administrative orders or proceedings pending, or to
the knowledge of Borrower threatened, against or affecting Borrower or the
property of Borrower in any court or before any governmental authority or
arbitration board or tribunal. Except as disclosed on Exhibit 5.1.6, Borrower is
not in default under any order of any court, governmental authority, arbitration
board or tribunal or administrative agency. Exhibit 5.1.6 further discloses, all
judgments, or judicial or administrative orders or proceedings pending or
threatened against or affecting Borrower or the Collateral as of the date
hereof;
5.1.7 Borrower has good and marketable title in fee simple (or
its equivalent under applicable law) to all of the properties and Assets it
purports to own including, without limitation, all property reflected in its
financial statements (including the Financial Statements), free from liens,
claims and encumbrances of any third party, except for Permitted Liens;
5.1.8 The Financial Statements are correct and complete in all
material respects and fully and fairly present the financial condition of
Borrower as of the date thereof and the results of the operations of Borrower
for the periods covered thereby. The Financial Statements submitted by Borrower
to Bank, the Collateral Documents and all related instruments, agreements and
documents, or any written statement furnished by Borrower to Bank in connection
with the negotiation of the Loans and/or this Agreement or any related
instrument, agreement or document, do not contain any untrue statement of a
material fact or omit a material fact necessary to make the statements contained
therein or herein not misleading. There is no fact known to Borrower, which
Borrower has not disclosed in writing to Bank, which materially affects
adversely or, so far as Borrower can now foresee, may materially affect
adversely the Collateral, business, prospects, profits or the condition
(financial or otherwise) of Borrower or the ability of Borrower to perform under
this Agreement, the Collateral Documents or the Notes;
5.1.9 Borrower has no material Indebtedness of any nature
including, without limitation, liabilities for taxes and any interest or
penalties relating thereto, except to the extent reflected (in a footnote or
otherwise) and reserved against in the Financial Statements or as disclosed in
or permitted by this Agreement. Borrower does not know, and has no reasonable
ground to know, of any basis for the assertion against it (individually or
jointly) of any material Indebtedness of any nature not fully reflected and
reserved against in the Financial Statements or as proposed in or permitted by
this Agreement;
5.1.10 Borrower has filed or caused to be filed all federal,
state and local tax returns and other reports it is required by Laws to file
prior to the date hereof, has paid or caused to be paid all taxes, assessments
and other governmental charges that are due and payable prior to the date
hereof, and has made adequate provision for the payment of such taxes,
assessments or other charges accruing but not yet payable. Borrower has no
knowledge of any deficiency or additional assessment against it in connection
with any taxes, assessments or charges not provided for on its Records;
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5.1.11 Borrower has complied in all material respects with all
applicable Laws (including, without limitation, all Laws relating to or
pertaining to the environment, human health or safety or public welfare
including, without limitation, the American with Disabilities Act and all
material agreements to which Borrower is subject) with respect to (a)
restrictions, specifications or other requirements pertaining to products that
it manufactures and sells or to the services it performs, (b) the conduct of its
business operations, and (c) the use, maintenance and operation of the real and
personal property owned or leased by it;
5.1.12 No representation or warranty by Borrower contained
herein, or in any certificate or other document furnished by Borrower pursuant
hereto, contains any untrue statements of material fact or omits to state a
material fact necessary to make any such representation or warranty not
misleading in light of the circumstances under which it was made;
5.1.13 No consent, approval or authorization of, or filing,
registration or qualification with, any Person is required to be obtained by
Borrower in connection with the execution and delivery of this Agreement, the
Notes and the Collateral Documents or the undertaking or performance of any
Obligation hereunder or thereunder;
5.1.14 Except as described on Exhibit 5.1.14 attached hereto,
incorporated herein by this reference and hereby made a part hereof, Borrower
has no material leases, Contracts or commitments of any kind (such as employment
agreements, collective bargaining agreements, powers of attorney, distribution
arrangements, patent license agreements, contracts for future purchase or
delivery of Goods or rendering of services, bonds, pension and retirement plans,
or accrued vacation pay, insurance and welfare agreements), including such
material leases, contracts or commitments to be assumed by Borrower in
connection with the Asset Purchase Agreement and the Stock Purchase Agreement
that would materially and adversely affect the condition (financial or
otherwise) of Borrower. All parties (including Borrower) to all such material
leases, contracts and other commitments to which Borrower is a party have, to
the best of Borrower's knowledge, materially complied with the provisions of
such leases, contracts and other commitments and no party is, to the best of
Borrower's knowledge, in default thereunder and no event has occurred which,
with the giving of notice or the passage of time, or both, could constitute a
default thereunder;
5.1.15 Borrower has not committed Bank to the payment of any
brokerage fee or commission in connection with this transaction and, if any such
claim is made against Bank by any broker, finder or agent or any other Person,
Borrower will indemnify, defend (at its expense, engage counsel reasonably
acceptable to Bank) and hold Bank harmless against any such claim, at its own
cost and expense, including Bank's reasonable counsel fees. Borrower further
agrees that until any such claim or demand is adjudicated in Bank's favor, the
amount claimed and/or demanded shall be deemed part of the Obligations secured
by the Collateral;
5.1.16 Each Employee Benefit Plan is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code. No steps have been taken to terminate any Employee
Benefit Plan, and no contribution failure has occurred with
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respect to any Employee Benefit Plan sufficient to give rise to a lien under
Section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Employee Benefit Plan which might result in the
incurrence by Borrower or any member of the Controlled Group of any material
liability, fine or penalty. Neither Borrower nor any member of the Controlled
Group has contingent liability with respect to any post-retirement benefit under
any Employee Benefit Plan, other than liability for continuation coverage
described in Part 6 of Title in of ERISA. Neither Borrower nor any member of the
Controlled Group currently or in the past has been a party to a "multiemployer
plan" within the meaning of Section 4001(1)(3) of ERISA;
5.1.17 Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of the Loans has been or will be used,
directly or indirectly, to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock;
5.1.18 Borrower has obtained all licenses, permits, franchises
or other governmental authorizations necessary to the ownership of its property
and assets and to the conduct of its business, except where the failure to
obtain would not result in a Material Adverse Effect, all of which are in good
standing and free from any claim of invalidity, defect or ineffectiveness;
5.1.19 Borrower has filed all reports required to be filed
with any federal or state Securities and Exchange Commission or similar agency
and is in full compliance with applicable rules and regulations thereof;
5.1.20 The transactions described in the Asset Purchase
Agreement and the Stock Purchase Agreement have been consummated in accordance
with their respective terms and all applicable Laws, and the Acquired Assets
have been transferred to and are held by Borrower, subject to no liens, claims
or encumbrances except in favor of Bank; and
5.1.21 Within the past three (3) years, neither the business,
properties or assets of Borrower have been materially and adversely affected in
any way by any casualty, strike, lockout, combination of workers, order of the
United States of America, or any state or local government, or any political
subdivision or agency thereof, directed against Borrower.
5.2 Survival. By completing a closing hereunder, Bank does not thereby
waive any breach of warranty or misrepresentation made by Borrower hereunder, or
under any other document or agreement delivered to Bank at Closing or otherwise
referred to herein, and all of Bank's claims and rights resulting from any
breach or misrepresentation by Borrower are expressly reserved by Bank. All of
the foregoing representations and warranties set forth in this Section 5 shall
survive until all Obligations are paid and satisfied in full.
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SECTION 6. BORROWER'S COVENANTS.
6.1 Affirmative Covenants. Borrower covenants and agrees with Bank
that, so long as any of the Obligations remain unsatisfied and outstanding,
Borrower will comply with the following covenants:
6.1.1 Borrower will use the proceeds of the Loans for the
purposes set forth in this Agreement only, and will furnish Bank with such
evidence as Bank may reasonably require with respect to such use;
6.1.2 Borrower will furnish (or cause to be furnished to) Bank
with such data and information (financial or otherwise) as Bank may request, all
in form and substance satisfactory to Bank in its sole and absolute discretion
including, without limitation:
(a) Within one hundred twenty (120) days after the end
of each fiscal year of Borrower annual, audited consolidating and consolidated
financial statements of Borrower, consisting of a balance sheet dated as of the
end of such fiscal year and statements of income and cash flows for such fiscal
year, prepared in accordance with GAAP certified by an independent certified
public accountant acceptable to Bank ("Borrower's Accountant");
(b) Within thirty (30) days after the end of each
calendar quarter, internally prepared quarterly consolidating and consolidated
financial statements of Borrower, consisting of a balance sheet dated as of the
end of such calendar quarter and statements of income and cash flows for such
period, prepared in accordance with GAAP, and aging reports of Borrower's
Accounts receivable and Accounts payable as of the end of such quarter, each of
which shall be certified by the President or Chief Financial Officer of Borrower
to be true and correct, and otherwise acceptable to Bank;
(c) Within ten (10) days after the end of each month, a
copy of the monthly statement issued by the Asset Manager as of the end of such
month;
(d) On or before November 30 of each year, a projected
consolidating and consolidated balance sheet and profit and loss statement of
Borrower for the subsequent fiscal year; and
(e) Within ten (10) days after their submission to the
applicable taxing authority, copies of Borrower's federal, state and local
income tax returns.
6.1.3 Borrower will maintain its Inventory, Equipment, real
estate and other Assets in good condition and repair (normal wear and tear
excepted), and will pay and discharge, or cause to be paid and discharged, when
due, the cost of repairs to or maintenance of the same, and will pay, or cause
to be paid, all rental or mortgage payments due on such real estate;
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6.1.4 Borrower will maintain, or cause to be maintained,
public liability insurance, hazard, casualty, workers' compensation and extended
coverage insurance with respect to its properties and business, all in such
amounts as is consistent with industry practices and with such insurers as may
be reasonably satisfactory to Bank, together with loss payable and mortgagee
endorsements in favor of Bank providing for not less than thirty (30) days
written notice to Bank of any alteration or cancellation of such coverage, and
insuring Bank notwithstanding an act or neglect to act on the part of Borrower
or Surety. Borrower will furnish to Bank such evidence of insurance as Bank may
reasonably require. Borrower hereby assigns to Bank any returned or unearned
premiums that may be due it upon cancellation of any such policies for any
reason whatsoever, and directs the insurers to pay Bank any amounts so due. Bank
is hereby appointed Borrower's attorney-in-fact (without requiring Bank to act
as such) to endorse, upon the occurrence and during the continuance of an Event
of Default or Potential Default, any check which may be payable to Borrower and
to collect such returned or unearned premiums or the proceeds of any such
insurance. Any amount so collected may be applied by Bank toward satisfaction of
any of the Obligations in such order as Bank may elect;
6.1.5 Borrower will pay or cause to be paid when due, all
taxes, assessments and charges or levies imposed upon Borrower or on any of its
properties or which it is required to withhold and pay over;
6.1.6 Borrower will, when requested to do so, make available
for inspection by duly authorized representatives of Bank any of the Records,
and furnish Bank any information regarding its business affairs and financial
condition;
6.1.7 Borrower will take all necessary steps to preserve its
corporate existence and franchises, and Borrower will comply with all present
and future Laws applicable to it in the operation of Borrower's business
including, without limitation, all Environmental Laws and the Americans with
Disabilities Act, and will comply with all material agreements to which Borrower
is subject;
6.1.8 Borrower will collect its Accounts and sell its
Inventory, and provide services, only in the ordinary course of its business;
6.1.9 Borrower will give prompt notice to Bank of (a) any
litigation to which Borrower is a party (whether or not the claim is considered
to be covered by insurance) in which the amount in controversy exceeds
Twenty-Five Thousand ($25,000.00) Dollars, and (b) the institution of any other
suit or any administrative proceeding involving Borrower that might materially
and adversely affect Borrower's operations, financial condition, prospects,
property or business;
6.1.10 Borrower will pay when due all Indebtedness due third
Persons (including, but not limited to, rent and other consideration payable for
occupancy of any of its leased locations), except when the amount thereof is
being contested in good faith, by appropriate proceedings and with adequate
reserves therefor being set aside on the Records. If any default is
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made by Borrower in the payment of any principal (or an installment thereof) of,
or interest on, any such Indebtedness (including rent, as aforesaid), Bank shall
have the right, in its discretion and without obligation, to pay interest or
principal for the account of Borrower and shall be immediately reimbursed
therefor on demand by Borrower;
6.1.11 Borrower will give written notice to Bank promptly upon
becoming aware of the occurrence of any Event of Default or of any Potential
Default, or of the failure of Borrower to observe any of its undertakings
hereunder, which notice shall specify the nature of such event or Event of
Default and the period of existence of the same;
6.1.12 Borrower will maintain its operating and deposit
accounts with Bank;
6.1.13 Borrower will notify Bank in writing ten (10) days in
advance of any change in the location of any of its places of business or
locations of Collateral or of the establishment of any new, or the
discontinuance of any existing, place(s) of business or locations of Collateral;
6.1.14 Borrower will, to the extent applicable: (a) make all
contributions to, and payments from, the Employee Benefit Plans when they are
required to be made in accordance with the Employee Benefit Plans and, when
applicable, Section 302 of ERISA; (b) furnish Bank, promptly after the filing of
the same, with copies of all reports or other statements filed with the United
States Department of Labor, the PBGC or the IRS with respect to all such Plans,
or which Borrower, or any member of a Controlled Group, may receive from the
United States Department of Labor, the IRS or the PBGC, with respect to all such
Employee Benefit Plans, and (c) promptly advise Bank of the occurrence of any
"reportable event" as defined in Section 4043 of ERISA or "prohibited
transaction" as defined in Section 406 of ERISA, with respect to any such
Employee Benefit Plan(s) and the action it proposes to take with respect
thereto.
6.1.15 Borrower will, on demand, make available to Bank
shipping and delivery receipts evidencing the shipment of the Goods that gave
rise to an Account and completion certificates or other proof of the
satisfactory performance of services that gave rise to an Account, and deliver
to Bank copies of the invoices for each Account and copies of any written
Contract(s) or order(s) from which an Account arose;
6.1.16 Borrower will promptly notify Bank if any Account
arises out of Contracts with the United States or any department, agency or
instrumentality thereof, and will execute any instruments and take any steps
required by the Bank so that all monies due and to become due under such
Contracts shall be assigned to Bank and notice thereof given to the government
under the Federal Assignment of Claims Act;
6.1.17 Borrower will, when requested by Bank from time to
time, give Bank specific assignments and schedules of Accounts after they come
into existence, the form and content of such assignments and schedules to be
reasonably satisfactory to Bank and its counsel;
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6.1.18 Borrower will, if requested by Bank, mark its Records
concerning Inventory and Accounts in a manner reasonably satisfactory to Bank to
evidence Bank's lien on and security interest therein;
6.1.19 Borrower will, upon receipt of any Instrument or
Chattel Paper delivered on account of any Account or otherwise, immediately
notify Bank and, if requested by Bank, endorse and/or assign and deliver the
same to Bank;
6.1.20 Borrower shall take all action necessary to assure that
Borrower's computer based systems are able to operate and effectively process
data including dates on and after January 1, 2000. At the request of Bank,
Borrower shall provide Bank assurance acceptable to Bank of Borrower's Year 2000
compatibility;
6.1.21 Borrower shall remedy, to Bank's satisfaction, all
environmental issues with respect to the Windham Premises which are identified
in that certain Phase I environmental assessment prepared by Criterium Mooney
Engineers; and
6.1.22 Borrower shall continue to maintain the conditions and
status of the warranties and representations set forth in Section 5 of this
Agreement, except for those warranties and representatives which speak as of a
particular date, as if each such warranty and representation were set forth at
length herein in the form of a continuing covenant which requires compliance.
6.2 Negative Covenants. Borrower hereby covenants and agrees that, so
long as any of the Obligations remain unsatisfied and outstanding, without the
prior written consent of the Bank:
6.2.1 Borrower will not change its name, enter into any
merger, consolidation or reorganization or reclassify its capital stock;
6.2.2 Borrower will not sell, transfer, assign, lease or
otherwise dispose of all or (except in the ordinary course of business) any
material part of its Assets;
6.2.3 Borrower will not mortgage, pledge, grant or permit to
exist a security interest in or lien on any of its Assets of any kind, real or
personal, tangible or intangible, now owned or hereafter acquired, except for
Permitted Liens;
6.2.4 Borrower will not hereafter become liable, directly or
indirectly, as surety, endorser or otherwise for any Indebtedness or obligation
of any other Person, except for endorsement of commercial paper for deposit or
collection in the ordinary course of business;
6.2.5 Borrower will not incur, create, assume or permit to
exist any Indebtedness except (a) the Loans, (b) existing Indebtedness as set
forth in the Financial Statements (except for Indebtedness to be repaid with
proceeds of the Loans), (c) trade Indebtedness incurred in the ordinary course
of business, (d) Indebtedness secured by Permitted Liens and (e) Indebtedness
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secured by purchase money liens, provided (i) Borrower may not incur such
Indebtedness in excess of Three Hundred Thousand ($300,000.00) Dollars per year,
and (ii) the lien to secure any such purchase money indebtedness shall be
limited to the Asset(s) acquired with the proceeds of such purchase money
Indebtedness and the amount of any such lien shall be equal to the lesser of the
cost or fair value of the Asset(s) so acquired. If any Assets are purchased and
then made an integral part of a unit of property on which Bank has a lien so
that removal of the purchase money lien Asset(s) will materially and adversely
affect the value of the property to which it is attached, Borrower agrees that
it will not acquire such Asset(s) on purchase money lien arrangements;
6.2.6 Borrower will not declare or pay any dividends, or make
any payments or distributions on account of its capital stock;
6.2.7 Borrower will not pay management fees to any Affiliate;
6.2.8 Borrower will not form any Subsidiary, and Borrower will
not make any investments in or make any loans or advances in the nature of any
investments to any Person; provided, however, Borrower may form or acquire
Subsidiaries if any such Subsidiary executes and delivers to Bank a joinder
agreement in the form of Exhibit 6.2.8 attached hereto ("Joinder Agreement") and
such other instruments, documents and agreements that Bank may require. Without
limiting the generality of Paragraph 8.4 hereof, any expenses incurred by Bank
in connection with the review, preparation and negotiation of such joinder
documents shall be reimbursable by Borrower on demand. HTI shall execute a
Joinder Agreement at Closing.
6.2.9 Borrower will not make or have outstanding any loans or
advances in the nature of loans to any Person including, without limitation, any
officer, shareholder, director, employee or Affiliate of Borrower;
6.2.10 Borrower will not purchase or otherwise invest in or
hold securities, non-operating real estate or other non-operating assets, except
(a) direct obligations of the United States of America, (b) the present
investment in any such assets and (c) operating assets that hereafter become
non-operating assets;
6.2.11 Borrower will not issue, redeem, purchase or retire any
of its capital stock or grant or issue any warrant, right or option pertaining
thereto or other security convertible into any of the foregoing;
6.2.12 Borrower will not prepay any Indebtedness for borrowed
money, or Indebtedness secured by any of Borrower's Assets (except the
Obligations), or enter into or modify any agreement as a result of which the
terms of payment of any of the foregoing Indebtedness are waived or modified;
6.2.13 Borrower will not enter into sale-leaseback
transactions;
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6.2.14 Borrower will not acquire any stock in, or all or
substantially all of the assets of, any Person;
6.2.15 Borrower will not furnish Bank any certificate or other
document that will contain any untrue statement of material fact or that will
omit to state a material fact necessary to make it not misleading in light of
the circumstances under which it was furnished;
6.2.16 Borrower will not directly or indirectly apply any part
of the proceeds of the Loans to the purchasing or carrying of any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, or any regulations, interpretations or rulings thereunder; and
6.2.17 Borrower shall not use Bank's name or the name of any
of Bank's Affiliates in connection with any of Borrower's businesses or
activities except in connection with routine credit references and as may be
required in its dealings with any governmental agency. Nothing herein contained
is intended to permit or authorize Borrower to make any contract on behalf of
Bank, nor shall this Agreement be construed as creating a partnership, joint
venture or making Bank an investor in Borrower;
6.3 Financial Covenants. Borrower covenants and agrees with Bank that,
so long as any of the Obligations remain unsatisfied and outstanding, it will
comply with the following financial covenants (all calculations to be made in
accordance with GAAP on a consolidated basis):
6.3.1 Borrower shall have Tangible Net Worth of at least Six
Million ($6,000,000.00) Dollars as of December 31, 1999 and thereafter, as of
the dates set forth below, Borrower shall have Tangible Net Worth of not less
than the amounts set opposite such dates:
Minimum Tangible
Measurement Date Net Worth
----------------- ----------------
December 31, 2000 $ 7,000,000.00
December 31, 2001 $ 8,000,000.00
December 31, 2002 $ 9,000,000.00
December 31, 2003
and thereafter $10,000,000.00
6.3.2 Commencing with the Rolling Period ending December 31,
1999, Borrower shall at all times maintain a Funds Flow Coverage Ratio of not
less than 1.40 to 1.00.
6.3.3 Commencing with the Rolling Period ending June 30, 1999,
Borrower shall at all times maintain a maximum ratio of Funded Debt to EBITDA as
set forth in the following table:
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For the Rolling The maximum ratio of Funded
Period ending . . . Debt to EBITDA shall be:
------------------- ----------------------------
June 30, 1999 6.50 to 1.00
September 30, 1999 4.25 to 1.00
December 31, 1999
and thereafter 3.00 to 1.00
The foregoing financial covenants set forth in Subparagraphs 6.3.2 and 6.3.3
shall be calculated and tested as of the end of each fiscal quarter of Borrower,
provided, however, Bank shall have the right to calculate and test such
financial covenants on an interim basis from time to time as of any date
selected by Bank.
6.4 Special Covenants.
6.4.1 Bank shall have the right at any time and from time to
time, after the occurrence and during the continuance of an Event of Default, to
notify any and all account debtors obligated on any Account to make payments
thereon directly to Bank and to take control of the cash and noncash Proceeds of
any such Account. The cost of all such collection and enforcement, including
reasonable attorneys' fees and out-of-pocket expenses, shall be deemed part of
the Obligations secured by the Collateral, irrespective of whether the same are
incurred by Bank or Borrower.
6.4.2 Each of the officers of Bank is hereby irrevocably made,
constituted and appointed the true and lawful attorney for Borrower (without
requiring any of them to act as such) with full power of substitution to do the
following: (a) after the occurrence and during the continuance of an Event of
Default, endorse the name of Borrower upon any and all checks, drafts, money
orders and other instruments for the payment of monies that are payable to
Borrower and constitute collections on Accounts; (b) after the occurrence and
during the continuance of an Event of Default, to sign and endorse the name of
Borrower upon any invoices and Documents including, without limitation, freight
or express bills, bills of lading and storage or warehouse receipts relating to
the Collateral; (c) to give written notices and request verifications and
execute assignments with respect to Accounts, Contracts and rights in General
Intangibles; (d) after the occurrence and during the continuance of an Event of
Default, to give written notice to such officers and officials of the United
States Post Office to effect such change or changes of address so that all mail
may be delivered directly to Bank (all mail not related to the Obligations or
the Collateral shall be returned to Borrower); (e) execute in the name of
Borrower on any schedules, assignments, instruments, documents and statements
that Borrower is obligated to give Bank hereunder; and (f) do such other and
further acts and deeds in the name of Borrower that Bank may reasonably deem
necessary or desirable to perfect Bank's security interest or lien on the
Collateral or enforce any Account or other Collateral.
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SECTION 7. DEFAULT.
7.1 Events of Default. Each of the following events shall constitute an
Event of Default and Bank shall thereupon have the option (which is not intended
to diminish, alter or limit Bank's rights described in this Agreement, the
Collateral Documents or any related instruments, agreements and documents) to
declare Borrower in default under this Agreement, the Collateral Documents, the
Notes, and all other agreements with Bank, and declare all existing and future
liabilities, indebtedness and Obligations accelerated and immediately due and
payable, including, without limitation, interest, principal, expenses, advances
to protect Bank's position and reasonable counsel fees to enforce this
Agreement, the Collateral Documents, and all related instruments, agreements and
documents, and all of Bank's rights hereunder and thereunder, all without
demand, notice, presentment or protest, or further action of any kind, except as
specified herein:
7.1.1 Borrower shall fail to pay, when due, any installment of
principal, interest, or fee or other charge payable hereunder or under any of
the Notes, the Collateral Documents to Bank or any other instrument, agreement
or document executed by Borrower in favor of Bank;
7.1.2 Borrower shall fail to observe or perform any other
obligation or covenant to be observed or performed by Borrower hereunder or
under any of the Collateral Documents, or under any other existing or future
agreement between Borrower and Bank (other than those covered by 7.1.1 above)
including, without limitation, the Swap Agreement or other Interest Protection
Agreement with Bank for thirty (30) days after the earlier of written notice
thereof has been given to Borrower by Bank or any officer of Borrower has
knowledge (actual or constructive) of the existence of such failure; provided
however, if such failure is incapable of remedy or consists of a default with
respect to any of the financial covenants, or was willfully caused or permitted
by Borrower, no notice or cure period shall be available to Borrower;
7.1.3 Borrower shall either (a) fail to pay when due, or
within applicable grace periods, any material Indebtedness due any third Person,
or (b) suffer to exist any other default or event of default of a material
nature under any agreement binding Borrower;
7.1.4 If any financial statement, representation, warranty,
statement or certificate made or furnished to Bank in connection with this
Agreement, or as inducement to Bank to enter into this Agreement, or in any
separate statement, or document, instrument or agreement to be delivered
hereunder to Bank, shall be materially false, incorrect, or incomplete when
made;
7.1.5 Any Obligor shall admit an inability to pay its debts as
they mature, or shall make a general assignment for the benefit of any of its
creditors;
7.1.6 Proceedings in bankruptcy, or for reorganization of any
Obligor or for the readjustment of any of its debts, under the United States
Bankruptcy Code, as amended, or any part thereof, or under any other Laws,
whether state or federal, for the relief of debtors, now or hereafter existing,
shall be commenced by any Obligor, or shall be commenced against any Obligor and
shall not be dismissed within thirty (30) days of its commencement;
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7.1.7 A receiver or trustee shall be appointed for any Obligor
or for any substantial part of the Assets of any Obligor, or any proceedings
shall be instituted for the dissolution or the full or partial liquidation of
any Obligor, and if such appointment or proceedings are involuntary, such
receiver or trustee shall not be discharged within thirty (30) days of
appointment, or such proceedings shall not be discharged within thirty (30) days
of its commencement, or any Obligor shall discontinue its business(es) or
materially change the nature of its business;
7.1.8 Borrower shall suffer final judgment(s) for the payment
of money in excess of Twenty-Five Thousand ($25,000.00) Dollars severally or
Fifty Thousand ($50,000.00) Dollars in the aggregate and the same or any one of
the same shall not be discharged or stayed within a period of thirty (30) days
from the date of entry thereof;
7.1.9 A judgment or attaching creditor of Borrower shall
obtain possession of any of the Collateral having a fair market value in excess
of Twenty-Five Thousand ($25,000.00) Dollars by any means including, without
limitation, levy, distraint, replevin or self-help or shall attach a bank
account of Borrower maintained with Bank;
7.1.10 The occurrence of one or more of the following: (a) the
institution of any steps by Borrower, any member of its Controlled Group, the
PBGC or any other Person to terminate an Employee Benefit Plan if, as a result
of such termination, such Borrower or any such member could be required to make
a contribution to an Employee Benefit Plan, or could reasonably expect to incur
a liability or obligation to such Employee Benefit Plan; or (b) a contribution
failure occurs with respect to an Employee Benefit Plan sufficient to give rise
to a lien under Section 302(f) of ERISA;
7.1.11 The occurrence of a Material Adverse Effect;
7.1.12 There shall have occurred any change in the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of Borrower, whether through the ownership of voting
securities, by contract or otherwise, without the prior written consent of Bank;
7.1.13 The validity or enforceability of this Agreement, the
Notes or the Collateral Documents shall be contested by any Obligor or any
Obligor shall deny that it has any or further liability or obligation hereunder
or thereunder; or
7.1.14 The indictment or threatened indictment of any Obligor
under any criminal statute, or commence or threatened commencement of criminal
or civil proceedings against any Obligor, pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of
any material portion of the property of such Obligor.
7.2 Remedies. After any acceleration of the Obligations, Bank shall
have in addition to the rights and remedies given it by this Agreement and the
Collateral Documents, all those allowed by all applicable Laws including,
without limitation, the Uniform Commercial Code as enacted in any jurisdiction
in which any Collateral may be located. Without limiting the generality of the
foregoing, Bank may immediately, without demand of performance and without other
notice (except
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as specifically required by this Agreement or the Collateral Documents) or
demand whatsoever to Borrower, all of which are hereby expressly waived, and
without advertisement, sell at public or private sale or otherwise realize upon,
in Newark, Delaware, or elsewhere, the whole or, from time to time, any part of
the Collateral, or any interest which Borrower may have therein. After deducting
from the proceeds of sale or other disposition of the Collateral all expenses
(including all reasonable expenses for legal services), Bank shall apply such
proceeds toward the satisfaction of the Obligations. Any remainder of the
proceeds after satisfaction in full of the Obligations shall be distributed as
required by applicable Laws. Notice of any sale or other disposition shall be
given to Borrower at least ten (10) days before the time of any intended public
sale or of the time after which any intended private sale or other disposition
of the Collateral is to be made, which Borrower hereby agrees shall be
reasonable notice of such sale or other disposition. Borrower agrees to
assemble, or to cause to be assembled at its expense, the Collateral at such
place or places as Bank shall designate. At any such sale or other disposition,
Bank may, to the extent permissible under applicable Laws, purchase the whole or
any part of the Collateral, free from any right of redemption on the part of
Borrower, which right is hereby waived and released. Without limiting the
generality of any of the rights and remedies conferred upon Bank under this
paragraph, Bank may, to the full extent permitted by applicable Laws:
7.2.1 Enter upon the premises of Borrower, exclude therefrom
Borrower, and take immediate possession of the Collateral, either personally or
by means of a receiver appointed by a court of competent jurisdiction, using all
necessary force to do so;
7.2.2 At Bank's option, use, operate, manage and control the
Collateral in any lawful manner;
7.2.3 Collect and receive all rents, income, revenue,
earnings, issues and profits therefrom;
7.2.4 Give written notice to officers and/or officials of the
United States Post Office to effect such change or changes of Borrower's
address(es) so that all mail may be delivered directly to Bank (all mail not
related to the Obligations or the Collateral shall be returned to Borrower);
7.2.5 Maintain, repair, renovate, alter, remove, abandon or
relinquish rights in and to the Collateral as Bank may determine in its
discretion;
7.2.6 Exercise rights of set-off against accounts maintained
by Borrower with Bank; and
7.2.7 Increase the Rate to the Default Rate, which increase
shall be retroactive to the date of the first occurrence of an event giving rise
to the earlier to occur of an Event of Default or Potential Default.
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SECTION 8. MISCELLANEOUS.
8.1 Construction. The provisions of this Agreement shall be in addition
to those of any guaranty, pledge or security agreement, note or other evidence
of liability held by Bank, all of which shall be construed as integrated and
complementary of each other. Nothing herein contained shall prevent Bank from
enforcing any or all other note, guaranty, pledge or security agreements in
accordance with its respective terms.
8.2 Further Assurances. From time to time, Borrower will execute and
deliver to Bank such additional documents, and will provide such additional
information as Bank may reasonably require, to carry out the terms of this
Agreement and the Collateral Documents, and be informed of Borrower' s status
and affairs.
8.3 Enforcement and Waiver by Bank. Bank shall have the right at all
times to enforce the provisions of this Agreement and the Collateral Documents
in strict accordance with the terms hereof and thereof, notwithstanding any
conduct or custom on the part of Bank in refraining from so doing at any time or
times. The failure of Bank at any time or times to enforce its rights under such
provisions, strictly in accordance with the same, shall not be construed as
having created a custom in any way or manner contrary to specific provisions of
this Agreement or as having in any way or manner modified or waived the same.
All rights and remedies of Bank are cumulative and concurrent and the exercise
of one right or remedy shall not be deemed a waiver or release of any other
right or remedy.
8.4 Expenses of Bank. Borrower will pay all expenses, including the
reasonable fees and expenses of legal counsel for Bank, incurred in connection
with the preparation, negotiation, administration, amendment, modification or
enforcement of this Agreement, the Collateral Documents and the other documents,
instruments and agreements required hereunder, the collection or attempted
collection of the Notes and Bank's rights hereunder and under the documents
required hereunder, or any proceedings (including, without limitation,
bankruptcy or other insolvency proceedings) brought or threatened to enforce
payment of any of the Obligations.
8.5 Notices. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person, or by commercial courier against receipt or if sent by certified mail,
postage prepaid, return receipt requested, or if by telecopier, when received,
addressed as follows, unless such address is changed by written notice
hereunder:
(a) If to the Borrower:
Strategic Diagnostics Inc.
TSD BioServices, Inc.
111 Pencader Drive
Newark, DE 19702
Attention: Arthur A. Koch, Jr., Vice President
Telecopier No. (302) 456-6798
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With copies to:
Pepper Hamilton, LLP
1235 Westlakes Drive
Suite 400
Berwyn, PA 19312-2041
Attention: William A. Scari, Esquire
Telecopier No. (610) 640-7835
(B) If to the Bank:
First Union National Bank
3 Beaver Valley Road
Wilmington, DE 19803
Attention: James Gise, Vice President
Telecopier No. (302) 477-5450
With copies to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
919 Market Street, Suite 1000
Wilmington, DE 19801-3062
Attention: Benjamin J. Berger, Esquire
Telecopier No. (302) 426-1189
8.6 Waiver and Release by Borrower. To the maximum extent permitted by
applicable Laws, Borrower hereby:
8.6.1 Waives: (a) protest of all commercial paper at any time
held by Bank on which Borrower is in any way liable; and (b) except as otherwise
set forth herein or in the Collateral Documents, notice and opportunity to be
heard, after acceleration in the manner provided in Paragraph 7.1 before
exercise by Bank of the remedies of self-help, set-off, or of other summary
procedures permitted by any applicable Laws or by any agreement with Borrower
and, except where required hereby or by any applicable Laws, notice of any other
action taken by Bank; and
8.6.2 Releases Bank and its officers, attorneys, agents and
employees from all claims for loss or damage caused by any act or omission on
the part of any of them.
8.7 Indemnification.
8.7.1 Borrower hereby indemnifies and agrees to protect,
defend and hold harmless Bank, Bank's affiliates and any member, officer,
director, official, agent, employee or attorney of Bank or Bank's affiliates and
their respective heirs, administrators, executors, successors and assigns
(collectively, the "Indemnified Parties"), from and against any and all losses,
damages, expenses or liabilities of any kind or nature and from any suits,
claims or demands, including reasonable attorneys' fees incurred in
investigating or defending such claim, suffered by any of them
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and caused by, relating to, arising out of, resulting from, or in any way
connected with this Agreement, the Notes or the Collateral Documents or the
transactions contemplated therein (unless determined by a final judgment of a
court of competent jurisdiction to have been caused by the gross negligence or
willful misconduct of the Indemnified Parties) including, without limitation:
(i) losses, damages (including consequential damages), expenses or liabilities
sustained by Bank or Bank's affiliates in connection with any environmental
inspection, monitoring, sampling or cleanup of the Mortgaged Property required
or mandated by any applicable Environmental Law; (ii) any untrue statement of a
material fact contained in information submitted to Bank by Borrower or the
omission of any material fact necessary to be stated therein in order to make
such statement not misleading or incomplete; (iii) the failure of Borrower to
perform any Obligations herein required to be performed by Borrower; and (iv)
the ownership, construction, occupancy, operation, use or maintenance of the
Mortgaged Property.
8.7.2 In case any action shall be brought against Bank or any
other Indemnified Party in respect to which indemnity may be sought against
Borrower, Bank or such other Indemnified Party shall promptly notify Borrower
and Borrower shall assume the defense thereof, including the employment of
counsel selected by Borrower and satisfactory to Bank, the payment of all costs
and expenses and the right to negotiate and consent to settlement. The failure
of Bank to so notify Borrower shall not relieve Borrower of any liability it may
have under the foregoing indemnification provisions or from any liability which
it may otherwise have to Bank or any of the other Indemnified Parties. Bank
shall have the right, at its sole option, to employ separate counsel in any such
action and to participate in the defense thereof, all at Borrower's joint and
several cost and expense. Borrower shall not be liable for any settlement of any
such action effected without its consent (unless Borrower fails to defend such
claim), but if settled with Borrower's consent, or if there be a final judgment
for the claimant in any such action, Borrower agrees to indemnify and save
harmless Bank from and against any loss or liability by reason of such
settlement or judgment.
8.7.3 The provisions of this Paragraph 8.7 shall survive the
repayment or other satisfaction of the Obligations.
8.8 Warrant of Attorney. BORROWER HEREBY IRREVOCABLY AUTHORIZES AND
EMPOWERS ANY ATTORNEY OR ANY CLERK OF ANY COURT OF RECORD UPON OR AFTER THE
OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT TO APPEAR FOR AND
CONFESS JUDGMENT AGAINST BORROWER, (A) FOR SUCH SUMS AS ARE DUE AND/OR MAY
BECOME DUE ON THE BORROWER'S OBLIGATIONS, AND/OR (B) IN ANY ACTION OF REPLEVIN
INSTITUTED BY BANK TO OBTAIN POSSESSION OF ANY COLLATERAL OR OTHER COLLATERAL
SECURITY FOR THE OBLIGATIONS OF BORROWER TO BANK, IN EITHER CASE WITH OR WITHOUT
DECLARATION, WITH COSTS OF SUIT, WITHOUT STAY OF EXECUTION AND WITH FIVE (5%)
PERCENT OF THE PRINCIPAL AMOUNT THEREOF, BUT NOT LESS THAN TEN THOUSAND
($10,000.00) DOLLARS, ADDED FOR LIEN PRIORITY PURPOSES WITH ACTUAL ATTORNEY'S
FEES GOVERNED BY PARAGRAPH 8.4 HEREOF. BORROWER UNCONDITIONALLY AND IRREVOCABLY:
(A) WAIVES THE RIGHT OF INQUISITION ON ANY REAL ESTATE LEVIED ON, VOLUNTARILY
CONDEMNS THE SAME, AUTHORIZES THE PROTHONOTARY OR CLERK TO ENTER UPON THE
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WRIT OF EXECUTION SAID VOLUNTARY CONDEMNATION AND AGREES THAT SAID REAL ESTATE
MAY BE SOLD ON A WRIT OF EXECUTION; (B) WAIVES AND RELEASES ALL RELIEF FROM ALL
REDEMPTION, APPRAISEMENT, STAY, EXEMPTION OR APPEAL LAWS OF ANY STATE NOW IN
FORCE OR HEREAFTER ENACTED; AND (C) RELEASES ALL ERRORS IN SUCH PROCEEDINGS. IF
A COPY OF THIS AGREEMENT, VERIFIED BY AFFIDAVIT BY OR ON BEHALF OF BANK SHALL
HAVE BEEN FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL
OF THIS AGREEMENT AS A WARRANT OF ATTORNEY. THE AUTHORITY AND POWER TO APPEAR
FOR AND ENTER JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY THE INITIAL
EXERCISE THEREOF, AND THE SAME MAY BE EXERCISED, FROM TIME TO TIME, AS OFTEN AS
BANK SHALL DEEM NECESSARY AND DESIRABLE, AND THIS AGREEMENT SHALL BE A
SUFFICIENT WARRANT THEREFORE. BANK MAY ENTER ONE OR MORE JUDGMENTS IN THE SAME
OR DIFFERENT COUNTIES FOR ALL OR PART OF THE BORROWER'S OBLIGATIONS, WITHOUT
REGARD TO WHETHER JUDGMENT HAS BEEN ENTERED ON MORE THAN ONE OCCASION FOR THE
SAME BORROWER'S OBLIGATIONS. IN THE EVENT ANY JUDGMENT ENTERED AGAINST BORROWER
HEREUNDER IS STRICKEN OR OPENED UPON APPLICATION BY OR ON BORROWER'S BEHALF FOR
ANY REASON WHATSOEVER, BANK IS HEREBY AUTHORIZED AND EMPOWERED TO AGAIN APPEAR
FOR AND CONFESS JUDGMENT AGAINST BORROWER; SUBJECT, HOWEVER, TO THE LIMITATION
THAT SUCH SUBSEQUENT ENTRY OR ENTRIES OF JUDGMENT BY BANK MAY ONLY BE DONE TO
CURE ANY ERRORS IN PRIOR PROCEEDINGS, ONLY AND TO THE EXTENT THAT SUCH ERRORS
ARE SUBJECT TO CURE IN THE LATER PROCEEDINGS.
8.9 Arbitration. Upon demand of any party hereto, whether made before
or after institution of any judicial proceeding, any claim or controversy
arising out of or relating to this Agreement, the Collateral Documents or any
other agreement, instrument or document between parties hereto (a "Dispute")
shall be resolved by binding arbitration conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA") and the Federal Arbitration Act.
Disputes may include, without limitation, tort claims, counterclaims, a dispute
as to whether a matter is subject to arbitration, claims brought as class
actions, or claims arising from documents executed in the future. A judgment
upon the award may be entered in any court having jurisdiction. Notwithstanding
the foregoing, this arbitration provision does not apply to disputes under or
related to any Interest Protection Agreement.
8.10 Special Rules. All arbitration hearings shall be conducted in the
city named in the address of Bank first stated above. A hearing shall begin
within ninety (90) days of demand for arbitration and all hearings shall
conclude within one hundred twenty (120) days of demand for arbitration. These
time limitations may not be extended unless a party shows cause for extension
and then for no more than a total of sixty (60) days. The expedited procedures
set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to
claims of less than One Million ($1,000,000.00) Dollars. Arbitrators shall be
licensed attorneys selected from the Commercial Financial Dispute
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Arbitration Panel of the AAA. The parties do not waive applicable Federal or
state substantive law except as provided herein.
8.11 Jurisdiction. In any litigation arising out of or relating to the
Loans or any of the other Obligations, Borrower hereby consents to the personal
jurisdiction of the State and/or Federal courts of the State of Delaware.
8.12 Applicable Law. The substantive Laws of the State of Delaware
shall govern the construction of this Agreement and the rights and remedies of
the parties hereto.
8.13 Binding Effect, Assignment and Entire Agreement.
8.13.1 This Agreement shall inure to the benefit of, and shall
be binding upon, the respective heirs, personal representatives, successors and
permitted assigns of the parties hereto.
8.13.2 Borrower has no right to assign any of its rights or
Obligations hereunder without the prior written consent of Bank.
8.13.3 This Agreement, and the documents executed and
delivered pursuant hereto and thereto, constitute the entire agreement between
the parties, and may be amended only by a writing signed on behalf of each
party.
8.14 Severability. If any provision of this Agreement shall be held
invalid under any applicable Laws, such invalidity shall not affect any other
provision of this Agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.
8.15 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
8.16 Headings. The headings of any paragraph of this Agreement are for
convenience only and shall not be used to interpret any provision of this
Agreement.
8.17 Modification. No modification hereof or of any agreement referred
to herein shall be binding or enforceable unless in writing and signed on behalf
of the party against whom enforcement is sought.
8.18 Third Parties. No rights are intended to be created hereunder, or
under the Collateral Documents or related agreements and documents for the
benefit of any third party donee, creditor or incidental beneficiary of
Borrower. Nothing contained in this Agreement shall be construed as a delegation
to Bank of Borrower's duties of performance, including, without limitation,
Borrower's duties under any Account or Contract in which Bank has a security
interest.
8.19 Seal. This Agreement is intended to take effect as an instrument
under seal.
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IN WITNESS WHEREOF, the parties hereto have caused this Loan and
Security Agreement to be executed and delivered by their duly authorized
officers as of the day and year first above written.
ATTEST: STRATEGIC DIAGNOSTICS INC.,
a Delaware corporation
By: /s/ Martha C. Reider By: /s/ Arthur A. Koch, Jr.
----------------------- ----------------------------------
Name: Martha Reider Name: Arthur A. Koch, Jr.
Title: Secretary Title: Chief Operating Officer
[Corporate Seal]
ATTEST: TSD BIOSERVICES, INC.,
a Delaware corporation
By: /s/ Martha C. Reider By: /s/ Arthur A. Koch, Jr.
----------------------------- ---------------------------------
Name: Martha Reider Name: Arthur A. Koch, Jr.
Title: Assistant Secretary Title: Vice President
[Corporate Seal]
FIRST UNION NATIONAL BANK
By: /s/ James Gise
--------------------------------
James Gise, Vice President
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LIST OF EXHIBITS
----------------
Exhibit 5.1.6 -- Judgments, Judicial or Administrative Orders or
Proceedings Pending
Exhibit 5.1.14 -- Material Leases, Contracts, Commitments, Etc.
Exhibit 6.2.8 -- Form of Joinder Agreement
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EXHIBIT 10.2
PROMISSORY NOTE
---------------
$6,000,000.00 February 26, 1999
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY,
Strategic Diagnostics, Inc., a Delaware corporation with its chief executive
office at 111 Pencader Drive, Newark, Delaware 19702 ("SDI") and TSD
BioServices, Inc., a Delaware corporation with its chief executive office at 128
Sandy Drive, Newark, Delaware 19713 ("TSD") (SDI and TSD are hereinafter
sometimes referred to and are jointly and severally obligated as "Borrower"),
promise to pay to the order of First Union National Bank ("Bank"), a national
bank with an office at 3 Beaver Valley Road, Wilmington, Delaware 19803-1115, at
such address or at such address as Bank shall designate to Borrower, the
principal sum of Six Million ($6,000,000.00) Dollars, together with interest as
set forth below, until the date on which the principal amount is paid in full,
payable in lawful money of the United States of America in accordance with the
terms of this Promissory Note (this "Note"). All outstanding principal and any
accrued and unpaid interest thereon shall be due and payable on the fifth (5th)
anniversary of the date hereof (the "Maturity Date"), unless sooner accelerated
in accordance with this Note or the Loan Agreement (as hereinafter defined).
Reference is made to that certain Loan and Security Agreement
of even date herewith between Borrower and Bank (the "Loan Agreement"), the
terms, covenants and conditions of which are incorporated herein by this
reference. Capitalized terms appearing herein and not otherwise defined shall
have the respective meanings given to such terms in the Loan Agreement. This
Note is the HTI Note referred to in the Loan Agreement.
1. Interest.
(a) So long as the principal indebtedness evidenced by this
Note (the "Principal") is collateralized by Cash Collateral (as defined in the
Loan Agreement) in an amount of not less than One Million ($1,000,000.00)
Dollars, interest shall accrue on a portion of the Principal equal to the fair
market value of the Cash Collateral as of the beginning of each Interest Period
(as hereinafter defined) at a rate equal to one (1%) percent in excess of the CD
Rate (the "CD-Based Rate"), as determined by Bank prior to the commencement of
each consecutive interest period of one (1) month (each an "Interest Period").
The first Interest Period shall commence on the date of this Note and end on the
first date thereafter that interest is due. Each CD-Based Rate shall remain in
effect, subject to the provisions hereof, for the entire Interest Period until
redetermined for the next successive period. "CD Rate" is the rate for one-month
U.S. dollar certificates of deposits of that many months maturity as published
in the Federal Reserve's H.15 under the caption "CDS (secondary market)" for the
first New York business day of the relevant Interest Period (as hereinafter
defined), or if not so reported, then as determined by Bank from another
recognized source or interbank quotation.
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(b) Except as otherwise provided herein, interest shall be
charged on the outstanding Principal from the date hereof until the full amount
of Principal has been paid at a rate equal to LIBOR (as hereinafter defined), as
determined by Bank prior to the commencement of each consecutive LIBOR Interest
Period during the term of this Note plus three (3.0%) percent. "LIBOR", for any
day, is the rate for one month U.S. dollar deposits of that many months maturity
as reported on Telerate page 3750 as of 11:00 a.m., London time, on the second
London business day before the relevant LIBOR Interest Period (or if not so
reported, then as determined by Bank from another recognized source or interbank
quotation). Each LIBOR Interest Period will begin on and include the date an
interest payment is due hereunder and end on, but exclude, the date the next
interest payment is due, with the first LIBOR Interest Period commencing as of
the date hereof. Upon determination by Bank of the Rate for any LIBOR Interest
Period, such Rate shall remain in effect for the entire LIBOR Interest Period
until redetermined for the next successive LIBOR Interest Period.
(c) Borrower indemnifies Bank against Bank's loss or
expense in employing deposits as a consequence (a) of Borrower's failure to make
any payment when due under this Note, or (b) any payment or prepayment of the
Principal on a date other than the last day of the LIBOR Interest Period (the
"Indemnified Loss or Expense"). The amount of the Indemnified Loss or Expense
shall be determined by Bank based upon the assumption that Bank funded one
hundred (100%) percent of that portion of the Principal in the London interbank
market.
(d) Interest shall be calculated daily on the basis of the
actual number of days elapsed over a three hundred sixty (360) day year.
(b) After the occurrence and during the continuance of an
Event of Default, all amounts remaining unpaid or thereafter accruing under this
Note shall, at Bank's option, bear interest at a default rate of three (3%)
percent per annum above the interest rate then in effect as set forth in this
Note (the "Default Rate"), or the highest permissible rate under applicable
usury law, whichever is less. Such interest shall be payable upon demand, but in
no event later than when the next scheduled interest payment is due, and shall
also be charged on the amounts owed by the undersigned to Bank pursuant to any
judgments entered in favor of Bank with respect to this Note. Notwithstanding
the entry of judgment, demand by Bank or acceleration of the Obligations, the
unpaid Principal shall continue to accrue interest at the Default Rate until
such Obligations are paid in full.
(c) If, at any time, any of the interest rates that are or
may be charged under this Note (collectively, the "Rates") shall be finally
determined by any court of competent jurisdiction, governmental agency or
tribunal to exceed the maximum rate of interest permitted by any applicable
Laws, then, for such time as such Rate(s) would be deemed excessive, application
thereof shall be suspended and there shall be charged in lieu thereof the
maximum rate of interest permissible under such Laws.
2. Payment. Borrower shall make payments on account of the HTI
Loan as follows:
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(a) Commencing on March 1, 1999 and continuing on the first
day of each month thereafter until the Maturity Date, Borrower shall make
consecutive monthly payments of interest in arrears;
(b) Borrower shall repay the Principal in accordance with
the attached Repayment Schedule.
3. Prepayments. Except as provided in Paragraph 1(c) hereof,
this Note may be prepaid in whole or in part at any time and from time to time
without payment of a penalty or premium provided that each such prepayment is
accompanied by a payment of interest on the amount of such prepayment calculated
at the applicable Rate to the date of such prepayment, and any partial
prepayments shall be applied to installments in the inverse order of their
maturity (last installment(s) credited first).
4. Late Payments. If any payment of Principal and/or interest
is not received in full by Bank before the tenth (10th) day after the due date
thereof, there shall be immediately added to the Obligations, a late charge
equal to five ($.05) cents for each one ($1.00) dollar or part thereof so
overdue. All late charges are immediately due and payable without notice or
demand.
5. Bank's Rights Upon Default. Upon the occurrence of any
Event of Default and without the necessity of giving any prior written notice to
Borrower, Bank shall have all of the rights and remedies described in the Loan
Agreement and available to the Bank at law, in equity or otherwise and shall
also have the right, pursuant to the Warrant of Attorney contained herein, to
confess judgment against Borrower.
6. Application of Funds. All sums realized by Bank on account
of this Note, from whatever source received, shall be applied first to any fees,
costs and expenses (including reasonable attorney's fees) incurred by Bank,
second to accrued and unpaid interest, and then to Principal. Borrower waives
and releases any right to require Bank to collect any of the Obligations from
any other collateral under any theory of marshalling of assets or otherwise, and
specifically authorizes Bank to apply any collateral in which Borrower has any
right, title or interest against any of the Obligations in any manner that Bank
may determine.
7. Warrant of Attorney. BORROWER HEREBY IRREVOCABLY AUTHORIZES
AND EMPOWERS ANY ATTORNEY OR ANY CLERK OF ANY COURT OF RECORD UPON OR AFTER THE
OCCURRENCE OF ANY EVENT OF DEFAULT TO APPEAR FOR AND CONFESS JUDGMENT AGAINST
BORROWER, (A) FOR SUCH SUMS AS ARE DUE AND/OR MAY BECOME DUE ON THE BORROWER'S
OBLIGATIONS, AND/OR (B) IN ANY ACTION OF REPLEVIN INSTITUTED BY BANK TO OBTAIN
POSSESSION OF ANY COLLATERAL OR OTHER COLLATERAL SECURITY FOR THE OBLIGATIONS OF
BORROWER TO BANK, IN EITHER CASE WITH OR WITHOUT DECLARATION, WITH COSTS OF
SUIT, WITHOUT STAY OF EXECUTION AND WITH FIVE (5%) PERCENT OF THE PRINCIPAL
AMOUNT THEREOF, BUT NOT LESS THAN
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<PAGE>
FIVE THOUSAND ($5,000.00) DOLLARS, ADDED FOR LIEN PRIORITY PURPOSES, WITH ACTUAL
ATTORNEYS' FEES GOVERNED BY PARAGRAPH 8 HEREOF. BORROWER UNCONDITIONALLY AND
IRREVOCABLY: (A) WAIVES THE RIGHT OF INQUISITION ON ANY REAL ESTATE LEVIED ON,
VOLUNTARILY CONDEMNS THE SAME, AUTHORIZES THE PROTHONOTARY OR CLERK TO ENTER
UPON THE WRIT OF EXECUTION SAID VOLUNTARY CONDEMNATION AND AGREES THAT SAID REAL
ESTATE MAY BE SOLD ON A WRIT OF EXECUTION; (B) WAIVES AND RELEASES ALL RELIEF
FROM ALL REDEMPTION, APPRAISEMENT, STAY, EXEMPTION OR APPEAL LAWS OF ANY STATE
NOW IN FORCE OR HEREAFTER ENACTED; AND (C) RELEASES ALL ERRORS IN SUCH
PROCEEDINGS. IF A COPY OF THIS NOTE, VERIFIED BY AFFIDAVIT BY OR ON BEHALF OF
BANK SHALL HAVE BEEN FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE
ORIGINAL OF THIS NOTE AS A WARRANT OF ATTORNEY. THE AUTHORITY AND POWER TO
APPEAR FOR AND ENTER JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY THE
INITIAL EXERCISE THEREOF, AND THE SAME MAY BE EXERCISED, FROM TIME TO TIME, AS
OFTEN AS BANK SHALL DEEM NECESSARY AND DESIRABLE, AND THIS NOTE SHALL BE A
SUFFICIENT WARRANT THEREFORE. BANK MAY ENTER ONE OR MORE JUDGMENTS IN THE SAME
OR DIFFERENT COUNTIES FOR ALL OR PART OF THE BORROWER'S OBLIGATIONS, WITHOUT
REGARD TO WHETHER JUDGMENT HAS BEEN ENTERED ON MORE THAN ONE OCCASION FOR THE
SAME BORROWER'S OBLIGATIONS. IN THE EVENT ANY JUDGMENT ENTERED AGAINST BORROWER
HEREUNDER IS STRICKEN OR OPENED UPON APPLICATION BY OR ON BORROWER'S BEHALF FOR
ANY REASON WHATSOEVER, BANK IS HEREBY AUTHORIZED AND EMPOWERED TO AGAIN APPEAR
FOR AND CONFESS JUDGMENT AGAINST BORROWER; SUBJECT, HOWEVER, TO THE LIMITATION
THAT SUCH SUBSEQUENT ENTRY OR ENTRIES OF JUDGMENT BY BANK MAY ONLY BE DONE TO
CURE ANY ERRORS IN PRIOR PROCEEDINGS, ONLY AND TO THE EXTENT THAT SUCH ERRORS
ARE SUBJECT TO CURE IN THE LATER PROCEEDINGS.
8. Attorney's Fees and Costs. In the event that Bank engages
an attorney to represent it in connection with (a) any alleged default by
Borrower under this Note, the ATAB Note, the Loan Agreement or any of the
Collateral Documents (collectively, the "Loan Documents"), (b) the enforcement
of any of Bank's rights and remedies under any of the Loan Documents, or the
negotiation and preparation of any amendment to any of the Loan Documents (c)
any potential and/or actual bankruptcy or other insolvency proceedings commenced
by or against Borrower and/or (d) any potential and/or actual litigation arising
out of or related to any of the foregoing, the Loan Documents or any of the
Obligations, then Borrower shall be liable to and shall reimburse Bank on demand
for all reasonable attorneys' fees, costs and expenses incurred by the Bank in
connection with any of the foregoing. Borrower shall also be liable and shall
also reimburse Bank on demand for all other costs and expenses (including
attorney's fees) incurred by Bank in connection with the collection,
preservation and/or liquidation of any collateral security for any of the
Obligations and/or in the enforcement of the Obligations.
4
<PAGE>
9. Waiver of Jury Trial. IN ANY LITIGATION ARISING OUT OF OR
RELATING TO THE LOAN DOCUMENTS OR ANY OF THE OTHER OBLIGATIONS IN WHICH BORROWER
AND BANK ARE ADVERSE PARTIES, BORROWER AND BANK
HEREBY WAIVE TRIAL BY JURY.
10. Jurisdiction. In any litigation arising out of or relating
to the Loan Documents or any of the other Obligations, Borrower hereby consent
to the personal jurisdiction of the State and Federal courts of the State of
Delaware.
11. Applicable Law. The substantive Laws of the State of
Delaware shall govern the construction of this Note and the rights and remedies
of the parties hereto.
12. Miscellaneous.
(a) Borrower hereby waives protest, notice of protest,
presentment, dishonor, notice of dishonor and demand. To the extent permitted by
law, Borrower hereby waives and releases all errors, defects and imperfections
in any proceedings instituted by Bank under the terms of this Note.
(b) The rights and privileges of Bank under this Note shall
inure to the benefit of its successors and assigns. All representations,
warranties and agreements of Borrower made in connection with this Note shall
bind Borrower's successors and assigns.
(c) If any provision of this Note shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof, but this Note shall be construed as if
such invalid or unenforceable provision had never been contained herein.
(d) The waiver of any Event of Default or the failure of
Bank to exercise any right or remedy to which it may be entitled shall not be
deemed to be a waiver of any subsequent Event of Default or of Bank's right to
exercise that or any other right or remedy to which Bank is entitled.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE>
(e) The rights and remedies of Bank under this Note and the
Loan Documents shall be in addition to any other rights and remedies available
to Bank at law or in equity, all of which may be exercised singly or
concurrently.
IN WITNESS WHEREOF, Borrower has caused this Promissory Note
to be executed under seal by its duly authorized officer the day and year first
above written.
STRATEGIC DIAGNOSTICS INC.
Attest: /s/ Martha C. Reider By: /s/ Arthur A. Koch, Jr.
------------------------- -------------------------------
Name: Martha Reider Name: Arthur A. Koch, Jr.
Title: Secretary Title: Chief Operating Officer
[CORPORATE SEAL]
TSD BIOSERVICES, INC.
Attest: /s/ Martha C. Reider By: /s/ Arthur A. Koch, Jr.
--------------------------- ----------------------------
Name: Martha Reider Name: Arthur A. Koch, Jr.
Title: Assistant Secretary Title: Vice President
[CORPORATE SEAL]
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<PAGE>
EXHIBIT 99
Company Contact:
Arthur A. Koch, Jr.
Chief Operating Officer
(302) 456-6789
http://www.sdix.com
Investor Relations Contact:
Lippert/Heilshorn Associates, Inc.
Lisa Lettieri, V.P.
(212) 838-3777
[email protected]
STRATEGIC DIAGNOSTICS INC. ANNOUNCES
ACQUISITION OF HTI BIO-PRODUCTS, INC.
HTI 1998 Sales of $5.7 million and Pre Tax Profits of $800,000
Provides Future Resources to Develop the Emerging Agricultural and
Water Quality Markets
Newark DE, March 1, 1999, Strategic Diagnostics Inc. (NASDAQ NM: SDIX) - today
announced it has completed the acquisition of HTI Bio-Products, Inc. a privately
held manufacturer of custom and proprietary antibody products and services
located near San Diego, CA (HTI). HTI had 1998 revenues of $5.7 million and pre
tax profits of $800,000. These results are preliminary and SDI expects to
complete an audit within the next 75 days. HTI, a primary manufacturer of
antibodies and biochemicals, was founded in 1990. HTI's products and services
include custom antibody production, bulk antibody and biochemical products. SDI
believes that these capabilities will afford it the ability to leverage its
manufacturing costs, particularly in its test-strip production for agricultural,
food and water quality product lines. These products utilize large quantities of
polyclonal antibodies that the Company has previously purchased from third
parties. SDI believes that HTI's product lines will also enhance SDI's existing
capabilities in antibody production by adding extensive polyclonal products and
services to the monoclonal products and services provided by its TSD BioServices
subsidiary (TSD). The customers of HTI are complementary to TSD's and share
common characteristics in that they are primarily pharmaceutical and
biotechnology companies developing important medical diagnostics as well as
leading medical research facilities. SDI believes that the combination and
integration of these customer relationships will allow both TSD and HTI to offer
their customers broader product offerings and will help establish these
companies as a single source for all of their customers' antibody and
biochemical requirements. Similarly, SDI believes the integration of these
operations will result in significant cost savings and be accretive to earnings.
Under the terms of the agreement, the Company paid approximately $8.1 million in
cash, issued 556,286 shares of Series B preferred stock and assumed
approximately $100,000 of long term debt. The preferred shares convert into
common shares on a 1-for-basis at $3.50 per share and carry a cumulative, annual
cash dividend of $0.175 per share and a liquidation preference. The Company is
also obligated to pay a percentage of net sales of certain products over the
next three years, not to exceed $3 million. Approximately $6 million of
acquisition financing has been provided by the Company's commercial bank.
[SDI LOGO] STRATEGIC DIAGNOSTICS INC. o 111 Pencader Drive o Newark, DE 19702 o
(302) 456-6789 o FAX (302) 456-6770
<PAGE>
Commenting on the acquisition, Mr. Richard C. Birkmeyer, President and CEO of
SDI said, "We are delighted to be able to place the resources and capabilities
of our two companies together. HTI has clearly demonstrated itself to be a
growth business every year since its formation in 1990. We expect that the
synergies to be derived from the combination of customers will significantly
enhance our collective position in the marketplace. We will now be able to offer
our customers an extensive and comprehensive set of products that will place us
in a position to earn single source provider status with those customers who are
looking for greater ease in making the purchases of these products and services.
We expect to integrate these businesses throughout the balance of 1999 so that
we structure the combined business to fully benefit from the operating
efficiencies by the end of the year. HTI brings a well-developed infrastructure
that readily lends itself to support the additional volumes of current products
and services as well as future expension of additional offerings.
"Looking to the whole of SDI, we believe this acquisition will help us grow our
business to a greater critical mass and should provide significant future
resources that will be useful as we develop our agricultural and water quality
markets as they emerge. We invested heavily in these emerging markets,
particularly our agricultural and food testing business, during the second half
of 1998. We believe these investments will help us to develop larger market
opportunities and create, in the case of food testing, new markets for our
technology and products. We believe this acquisition complements those
investments in our markets and together it should enhance shareholder value for
1999 and beyond."
Michael Dale, President and CEO of HTI Bio-Products, Inc., commented, "We are
excited to be able to offer our customers the additional products and services
of TSD and SDI, and at the same time, the opportunity to offer our products and
services to their customers. It is clear to us that both sets of customers stand
to benefit from this combination of talent and resources. Looking at the
business case apart from the customer benefits, we believe the profitability of
the combined operation will be enhanced as we integrate operations. We have
already identified areas where we believe we will be able to reduce costs,
leverage the existing infrastructure and improve overall bottom line
performance."
Srategic Diagnostics is a leading provider of biotechnology-based diagnostic
tests for a broad range of commercial applications. Through its TSD BioServices
subsidiary, Strategic Diagnostics also provides antibody and immunoreagent
research and development services. Strategic Diagnostics' test kits are produced
in a variety of formats suitable for field and laboratory use, offering
advantages of accuracy, cost-effectiveness, portability, and rapid response.
This news release contains certain forward-looking statements reflecting SDI's
current expectations. When used in this press release, the words "anticipate,'
"enable," "believe," "expect", and similar expressions as they relate to SDI are
intended to identify said forward-looking statements. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, which may
cause actual results to differ from those anticipated by SDI at this time. Such
risks and uncertainties, include, without limitation, SDI's ability to manage
growth, the integration of acquired systems, including those of HTI, unknown
Year 2000 issues arising from acquired systems, changes related to acquisitions
such as the amortization of significant goodwill and other intangible assets,
changes in demand for products, delays in product development, inability to
obtain required government approvals, modifications to development and sales
relationships, the ability to achieve anticipated growth, competition,
seasonality, and other factors more fully described in SDI's public filings with
the U.S. Securities and Exchange Commission.
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