F O R M 10 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number: 33-8373
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J.B. WILLIAMS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1387159
----------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
65 Harristown Road
Glen Rock, New Jersey 07452
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 251-8100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 27, 1997: $0.00
Number of shares of the registrant's Common Stock, par value $0.01 per share,
outstanding as of March 27, 1998: 9,000
<PAGE>
PART I
Item 1. Business
J.B. Williams Holdings, Inc. (the "Company" or the "Registrant"), was
incorporated in 1993 to create a holding company for J.B. Williams Company, Inc.
("J.B. Williams"), and for its other subsidiaries (collectively, the
"Subsidiaries"). The Company, through its Subsidiaries, distributes and sells
personal and health care products in the United States, Canada and Puerto Rico.
During August 1997, the Company added to its personal care products business
with the acquisition of the San Francisco Soap Company [Trademark] brand from
Avalon Natural Cosmetics, Inc. It also added to its health care products
business with the August, 1997 acquisition of the Viractin[Registered Trademark]
brand from Virotex Corp. and the October, 1997 acquisition of the Cepacol
[Registered Trademark] business in Canada from Hoechst Marion Roussel Canada,
Inc., and the July 1997 agreement with Summa Rx Laboratories, Inc. for the
purchase of certain rights to sell zinc dietary supplements under the name
Cepacol ColdCare.
The Company and its subsidiaries are engaged primarily in the marketing, sale
and distribution of personal and health care products to the mass market. The
Company's personal care products are Aqua Velva [Registered Trademark] men's
grooming products, Brylcreem [Registered Trademark] hair care preparations,
Lectric Shave [Registered Trademark] pre-shave, Williams [Registered Trademark]
Mug Shaving Soap and San Francisco Soap Company [Trademark] specialty bath
items. The Company's health care products are Cepacol [Registered Trademark]
mouthwash, Cepacol [Registered Trademark] sore throat products, Cepacol
[Registered Trademark] ColdCare [Trademark] zinc dietary supplements and Cepacol
[Registered Trademark] Viractin [Registered Trademark] cold sore and fever
blister medication. The Company's products are distributed through a network of
approximately 50 independent brokers, covering all fifty states. The Company's
brokers are compensated for their services by the Company on a commission basis,
and either the Company or the independent broker may terminate their
relationship upon 30 days' notice.
The primary market for the Company's products is the general public throughout
the United States, Canada and Puerto Rico. The products are distributed through
retail accounts, with the Company's largest account, Wal*Mart, accounting for
18% of the Company's U.S. net sales in 1997. Wal*Mart makes its purchasing
decisions on a centralized basis. Although the Company believes its relationship
with Wal*Mart to be very good, should Wal*Mart significantly reduce its volume
of purchases from the Company, cash flow and net income would be adversely
affected and replacing such sales would be difficult.
The Company does not have formal arrangements for the purchase and sale of its
products with its major customers, except for pricing arrangements pursuant to
which the Company has set predetermined prices for its products. The Company's
net sales fluctuate from month to month due to the timing of purchases as well
as to price discounts offered to certain of the Company's customers.
Historically, the Company's net sales have not demonstrated significant seasonal
variation, however sales in 1997 were strongly impacted by shipments during the
September/December holiday period of San Francisco Soap Company gift set
products and during the September/December cough and cold period of the Cepacol
health care products.
The Company's products are sold in highly competitive markets, with the
Company's principal competitors being Procter & Gamble (personal care products
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and health care products), Colgate-Palmolive Company (personal care products),
SmithKline Beecham Consumer Healthcare (health care products) and Warner-Lambert
Co. (health care products). Many of the Company's major competitors are
significantly larger than the Company in terms of sales force, sales volume,
product selection and product support resources. These competitors also have
significantly greater access to capital, marketing and advertising resources
than the Company. In addition, the leverage that some of these competitors
derive from the significance of their other products with key retailers may
allow their competing products to obtain shelf space at the expense of the
Company's products.
Management believes that, although the industry is highly competitive,
competition among brand name products has traditionally been based on factors
other than price, such as brand recognition, consumer loyalty, retail
distribution and product features.
All of the Company's products are manufactured by outside third parties.
Management believes that there are many third party contract manufacturers who
could readily manufacture the Company's products on comparable terms. Raw
materials used in the Company's products are readily available from a number of
sources.
The health care products business and certain elements of the personal care
products business are subject to regulation by the Federal Food and Drug
Administration, the Bureau of Alcohol, Tobacco and Firearms and the Health
Protection Branch-Canada, as are other manufacturers of similar products, as
well as regulations relating to marketing and content (including alcohol
content), labeling and packaging of consumer products.
The Company's trademarks "Aqua Velva [Registered Trademark]", "Lectric Shave
[Registered Trademark]", "Brylcreem [Registered Trademark]", "Williams Mug
Shaving Soap [Registered Trademark]", "Cepacol [Registered Trademark]" and
"Viractin [Registered Trademark]" have been registered with the United States
Patent and Trademark Office and under the Canadian Trademark Act. The Company
considers these trademarks to be the most important assets of the business.
As of December 31, 1997, the Company had 45 employees, all of which are
non-union. The Company considers its relationship with its employees to be good.
Item 2. Properties
The Company maintains its executive offices in Glen Rock, New Jersey, in leased
office space of approximately 12,000 square feet. The lease on the property
expires in July, 2001. The Company also uses public warehouse and distribution
facilities in Plainfield, Indiana, Sparks, Nevada and Honolulu, Hawaii.
Item 3. Legal Proceedings
Neither the Company nor any of its subsidiaries is party to any material pending
legal proceedings.
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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established public trading market for the equity securities of the
Company or of its Subsidiaries. The Company's equity securities are held of
record by one owner. The Company has not declared any cash dividends on its
common equity for the two most recent fiscal years, and does not currently
intend to declare any such cash dividends for the foreseeable future. In
addition, the Indenture under which the Company's $55,000,000 12% Senior Notes
due 2004 were issued contains restrictions on the payment of dividends which may
limit materially the future payments of dividends on the common equity.
Item 6. Selected Financial Data (In Thousands)
The financial and operating data set forth on the following page as of December
31, 1997, 1996, 1995, 1994 and 1993 and for the years ended December 31, 1997,
December 31, 1996, December 31, 1995, December 31, 1994 and the period December
3, 1992, the date of inception, through December 31, 1993, are derived from, and
should be read in conjunction with the consolidated financial statements of the
Company and related notes thereto.
In August 1997, the Company purchased certain assets associated with the
Viractin and San Francisco Soap Company brands from Virotex Corp. and Avalon
Natural Cosmetics, Inc., respectively. Additionally, in October 1997 the Company
acquired certain assets associated with the Cepacol business in Canada from
Hoechst Marion Roussel Canada, Inc. These acquisitions consisted primarily of
the trademarks, patents, inventories, formulas, marketing materials and customer
lists associated with each of these businesses. Each of these businesses did not
comprise a separate business unit of the prior owner. Accordingly, other than
net sales, there is no financial or operating data available for these
businesses.
The purchase price for the Viractin business was approximately $4,692,000 of
which $550,000 was allocated to the fair value of the tangible assets acquired
and $4,142,000 was allocated to intangibles. The purchase price for the San
Francisco Soap Company business was approximately $11,704,000 of which
$7,740,000 was allocated to the fair value of tangible assets acquired and
$3,964,000 was allocated to intangibles. (In both of these transactions there
are additional contingent payments tied to annual net sales during the five year
period following each respective closing date.) The purchase price for the
Cepacol (Canada) business was approximately $1,490,000, all of which was
allocated to intangibles.
The acquisitions were accounted for by the purchase method. Net sales for the
year ended December 31, 1997 were approximately $650,000 for the Viractin
business, $7,900,000 for the San Francisco Soap Company business and $200,000
for the Cepacol (Canada) business. Had these acquisitions been made as of
January 1,
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1997 net sales would have increased by approximately $2,300,000 due to the
Viractin business, approximately $14,900,000 due to the San Francisco Soap
Company business and approximately $1,600,000 due to the Cepacol (Canada)
business.
Additionally, there is only limited financial and operating data presented with
respect to the Cepacol health care products for the fiscal year ended December
31, 1993, and the period from January 1, 1994 through February 19, 1994, because
during such periods the Cepacol health care products were owned and operated as
part of the consumer brand business of SmithKline Beecham Consumer Healthcare,
Inc. ("SKB"), and not as a separate business unit.
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<PAGE>
Selected Financial Data
(In Thousands)
<TABLE>
<CAPTION>
Health Care Products J.B. Williams Holdings, Inc.
--------------------------------------------- -----------------------------
Fiscal Year January 1,
Ended Through Fiscal Years Ended
December 31, February 19 December 31,
------------------- -------------------- -----------------------------
1993 1994 1993(1) 1994 1995 1996 1997
-------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net Sales ......................... $ 18,345 $ 2,454 $28,380 $44,060 $ 46,899 $48,283 $63,868
Cost of Goods Sold ................ 5,732 879 8,269(2) 13,605(2) 13,111 14,206 23,555(2)
-------- ------- ------- ------- -------- ------- -------
Gross Profits ..................... 12,613 1,575 20,111 30,455 33,788 34,077 40,313
Advertising ....................... 2,149 629 1,825 2,436 3,241 4,134
Promotion ......................... 3,452 386 2,290 5,994 6,740 7,412 10,555
Distribution and Cash Discounts ... 1,119 114 1,788 4,202 4,273 3,683 5,100
-------- ------- ------- ------- -------- ------- -------
Brand Contribution ................ $ 5,893 $ 1,075 $15,404 $18,434 $ 20,339 $19,741 $20,524
======== ======= ======= ======= ======== ======= =======
Selling, General and Administrative
Expenses .......................... 5,780 6,096 7,060 7,452 10,248
Depreciation and Amortization ..... 3,478 4,250 4,543 4,580 4,887
Other Income ...................... -- -- -- -- (750)
Interest Expense, Net ............. 2,543 5,578 5,685 5,231 5,200
------- ------- -------- ------- -------
Income Before Income Taxes ........ 3,603 2,510 3,051 2,478 939
Provision for Income Taxes ........ 1,485 976 1,251 1,015 366
------- ------- -------- ------- -------
Net Income ........................ $ 2,118 $ 1,534 $ 1,800 $ 1,463 $ 573
======= ======= ======== ======= =======
Balance Sheet Data:
Cash .............................. $ 4,961 $14,072 $19,478 $21,201 $ 7,375
Working Capital (Deficiency) ...... (4,599) 17,202 22,925 23,555 18,404
Intangible Assets, Net ............ 37,176 47,128 43,145 39,222 45,692
Total Assets ...................... 49,343 76,625 78,198 76,795 81,471
Total Debt ........................ 37,000 55,000 55,000 50,345 50,345
Shareholder's Equity .............. 7,718 13,252 15,052 16,515 17,088
</TABLE>
(footnotes on following page)
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<PAGE>
Notes to Selected Financial Data
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(1) The fiscal year ended December 31, 1993 includes the period from
December 3, 1992, the date of inception. The Company's operations began
January 1, 1993 and, as such, no sales activity or operating expenses
were incurred prior to January 1, 1993.
(2) Includes an inventory purchase accounting adjustment associated with
the acquisition of the personal care products business which increased
cost of goods sold by $1.7 million in 1993, an inventory purchase
accounting adjustment associated with the acquisition of the health
care products business which increased cost of goods sold by $1.3
million for 1994, and an inventory purchase accounting adjustment
associated with the acquisitions of the Viractin and San Francisco Soap
Company businesses which increased cost of goods sold by $2.2 million
for 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements included elsewhere in
this report.
General
J.B. Williams Holdings, Inc. (the "Company"), through its subsidiaries,
distributes and sells personal care and health care products in the United
States, Canada and Puerto Rico.
On March 16, 1994, the Company offered and sold $55,000,000 12% Senior Notes due
2004 pursuant to an indenture of even date (the "Senior Notes"). The Company
applied a portion of such net proceeds to the repayment in full of approximately
$33 million of indebtedness to SmithKline Beecham Corporation ("SKB") incurred
in connection with the 1993 acquisition of the men's personal care products
business. The Company also used approximately $16.3 million of such net
proceeds, together with a $2 million cash equity contribution by its sole
shareholder, to pay the purchase price for the 1994 acquisition of the Cepacol
health care products business. The Senior Notes originally carried a 12 1/2%
interest rate, which was permanently reduced to 12% on December 1, 1994, as a
result of the consummation of an Exchange Offer by the Company (the "Exchange
Offer").
The operations of the Company began on January 1, 1993, following the
acquisition of the men's personal care products business. During the nine-month
period thereafter, management was retained and an independent broker network was
established. During this period SKB conducted substantially all of the selling
and administrative functions associated with operating the personal care
products business on behalf of the Company pursuant to a Transitional Services
Agreement between the Company and SKB. In a similar arrangement, SKB continued
to provide certain selling and administrative functions for the two-month period
following the February, 1994 acquisition of the health care products business.
As a result, the financial data presented for these time periods may not reflect
the
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costs and expenses that would have resulted if the business had been operated
without the benefit of the services provided by SKB under the Transitional
Services Agreement.
Results of Operations
The following table sets forth certain financial data for the Company for each
of the three years ended December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
Fiscal Years Ended December 31,
------------------------------------------------
1995 1996 1997
------------- -------------- --------------
(Dollars in thousands)
(Percentages represent percent of net sales)
<S> <C> <C> <C> <C> <C> <C>
Net Sales ....................... $46,899 100% $48,283 100% $ 63,868 100%
Cost of Goods Sold .............. 13,111 28 14,206 29 23,555 37
------- --- ------- --- -------- ----
Gross Profit .................... $33,788 72% $34,077 71% $ 40,313 63%
Advertising & Promotion ......... 9,176 20 10,653 22 14,689 23
Distribution and Cash Discounts . 4,273 9 3,683 8 5,100 8
------- --- ------- --- -------- ----
Brand Contribution .............. $20,339 43% $19,741 41% $ 20,524 32%
Selling, General & Administrative $ 7,060 15 7,452 15 10,248 16
Depreciation & Amortization ..... 4,543 10 4,580 9 4,887 8
Other Income .................... -- -- -- -- (750) (1)
Interest Expense, Net ........... 5,685 12 5,231 11 5,200 8
Provision for Income Taxes ...... 1,251 3 1,015 2 366 1
------- --- ------- --- -------- ----
Net Income ...................... $ 1,800 4% $ 1,463 3% $ 573 1%
======= === ======= === ======== ====
</TABLE>
1997 Compared to 1996
Net sales increased 32.3% to $63.9 million in 1997 from $48.3 million in 1996.
This increase is related to a combination of different factors. The Aqua Velva
business reported a sales increase of 21% in 1997 versus 1996. This increase
reflects a strong improvement in market share in the United States and the
re-launch of the brand, including several new products, in Canada. The Cepacol
business also reflected a strong 18% increase in sales in 1997 versus 1996. This
improvement resulted from continued growth in both the lozenge and spray
business combined with the introduction of the Cepacol sore throat formula for
children. In addition to the strong performance on the base business, the
Company also realized $9.4 million in additional revenues related to product
lines acquired during 1997 - San Francisco Soap Company, Viractin, Cepacol
(Canada) and Cepacol ColdCare. These product lines enabled the Company to
diversify its product offering by moving into several new product categories -
specialty bath products, cold sore and fever blister products and zinc dietary
supplement lozenges.
Cost of goods sold increased 65.8% to $23.6 million in 1997 from $14.2 million
in 1996. Cost of goods sold were adversely affected in 1997 by a $2.2 million
charge relating to a purchase accounting adjustment to the value of the San
Francisco Soap Company and Viractin products inventory purchased during 1997.
Excluding
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<PAGE>
this charge, cost of goods sold would have increased 50.4% to $21.4 million in
1997 from $14.2 million in 1996. This increase in cost of goods sold reflects a
combination of the increased sales volumes, higher manufacturing costs caused by
price increases from the Company's contract manufacturers and component
suppliers as well as generally higher manufacturing costs related to the San
Francisco Soap Company products, particularly the holiday gift items.
Distribution and cash discounts increased 38.5% to $5.1 million in 1997 from
$3.7 million in 1996. This increase is primarily related to the increased sales
volume along with certain one time expenses associated with warehouse transfers
of the San Francisco Soap Company and Viractin inventory following the
acquisition of these product lines.
Advertising and promotion expenses increased 37.9% to $14.7 million in 1997 from
$10.7 million in 1996. Of this increase, $1.9 million is associated with
marketing programs supporting the new businesses acquired during 1997. The
balance, $2.1 million, is related to continued marketing investment behind the
Aqua Velva and Cepacol businesses and introductory support for a new Total Hair
Fitness(TM) line of shampoos and conditioners for men. This new line of products
began shipping to the Company's customers during the second half of December
1997.
Selling, general and administrative expenses increased 37.5% to $10.2 million in
1997 from $7.5 million in 1996. This increase is primarily attributable to the
increased staffing and related expenses associated with the acquisition of the
San Francisco Soap Company and Viractin product lines. Total full time staffing
as of December 31, 1997 was 45 versus 33 as of December 31, 1996.
Depreciation and amortization increased 6.7% to $4.9 million in 1997 from $4.6
million in 1996. All of this increase is associated with the amortization of
intangible assets acquired as part of the San Francisco Soap Company, Cepacol
(Canada) and Viractin acquisitions.
Other income of $.8 million was realized in 1997, representing the January 1997
receipt by the Company of a one time payment of a break-up fee pursuant to the
terms of a Letter of Intent entered into by the Company in connection with a
potential transaction.
Interest expense, net of interest income, remained essentially unchanged at $5.2
million for both 1997 and 1996.
Provision for income taxes was $.4 million in 1997 versus $1.0 million in 1996.
The effective rate was 39% for 1997 and 41% for 1996.
As a result of the foregoing factors, net income for 1997 was $.6 million or 1%
of net sales.
1996 Compared to 1995
Net sales increased 3.0% to $48.3 million in 1996 from $46.9 million in 1995.
This increase is primarily attributable to the successful launch of a line of
deodorants and anti-perspirants under the Aqua Velva brand during the second
half of 1996, and strong 4th quarter shipments of the Cepacol cough/cold
products.
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<PAGE>
Cost of goods sold increased 8.4% to $14.2 million in 1996 from $13.1 million in
1995. This increase reflects a combination of the increased sales volumes and
higher manufacturing costs caused by price increases from the Company's contract
manufacturers and component suppliers.
Distribution and cash discounts decreased 13.8% to $3.7 million in 1996 from
$4.3 million in 1995. This decrease is primarily due to a more efficient use of
the Company's distribution network related to the addition of a new distribution
facility in the Midwest during the summer of 1996.
Advertising and promotion expenses increased 16.1% to $10.7 million in 1996 from
$9.2 million in 1995. This increase is primarily due to the advertising and
promotional campaign supporting the introduction of the new Aqua Velva products.
Selling general and administrative expenses increased 5.6% to $7.5 million in
1996 from $7.1 million in 1995. This increase reflects increased staffing levels
and related expenses associated with the development and introduction of the new
Cepacol and Aqua Velva products.
Depreciation and amortization remained essentially unchanged at $4.6 million in
1996 versus $4.5 million in 1995.
Interest expense, net of interest income, decreased 8.0% to $5.2 million in 1996
from $5.7 million in 1995. This reduction is primarily due to lower interest
expense as a result of the reduction in the outstanding principal amount of the
Senior Notes as a result of the repurchase by the Company of $4,655,000 in
outstanding principal amount of its Senior Notes. See "Liquidity and Capital
Resources."
Provision for income taxes was $1.0 million in 1996 versus $1.3 million in 1995.
The effective tax rate was 41% for both years.
As a result of the foregoing factors, net income for 1996 was $1.5 million or
3.0% of net sales.
Liquidity and Capital Resources
The following chart summarizes the net funds provided and/or used in operating,
financing and investing activities for the years ended December 31, 1997
and 1996 (in thousands).
Fiscal Years Ended December 31,
-------------------------------
1997 1996
------ ------
Net cash provided by operating activities $ 4,358 $6,881
Net cash used in investing activities (18,184) (503)
Net cash used in financing activities -- (4,655)
-------- -------
Increase/(decrease) in cash and cash equivalents ($13,826) $1,723
======== =======
The principal adjustments to reconcile net income of $.6 million for 1997 to net
cash provided by operating activities of $4.4 million are depreciation and
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amortization of $4.9 million partially offset by a net increase in working
capital requirements of $1.1 million.
The principal adjustments to reconcile net income of $1.5 million for 1996 to
net cash provided by operating activities of $6.9 million are depreciation and
amortization of $4.6 million combined with a net decrease in working capital
requirements of $1.1 million.
Net cash used in investing activities during 1997 consists of the following
payments made in conjunction with these acquisitions made by the Company (in
millions).
Brand Amount Seller
- ----- ------ ------
Viractin $ 4.7 Virotex Corporation
San Francisco Soap Company $ 11.7 Avalon Natural Cosmetics, Inc.
Cepacol (Canada) $ 1.5 Hoechst Marion Roussel Canada, Inc.
------
$ 17.9
======
Capital expenditures, which were $.3 million in 1997 and $.5 million in 1996,
are generally not significant in the Company's business. The Company currently
has no material commitments for future capital expenditures except for
approximately $.6 million that the Company has budgeted for the replacement of
its financial operating system.
Management believes that inflation does not presently have a significant impact
on the Company's results of operations.
As a result of the Senior Notes, the Company had $50.3 million of total debt
outstanding at December 31, 1997. Management expects that cash on hand and
internally generated funds will provide sufficient capital resources to finance
the Company's operations and meet interest requirements on the Senior Notes,
both in respect of the short term as well as during the long term. However, as a
result of the cash expenditures made in connection with the Company's
acquisition of the San Francisco Soap Company, Cepacol (Canada) and Viractin
businesses, cash and cash equivalents decreased from $21,201,000 on December 31,
1996, to $7,375,000 on December 31, 1997. Since there can be no guarantee that
the Company will generate internal funds sufficient to finance its operations
and debt requirements, the Company has arranged for a secured line of credit
with the Bank of New York through August 31, 1998 to provide funds, should they
be required, in order for the Company to meet its liquidity requirements. The
line of credit is in the maximum amount of $5,000,000, with the amount available
being subject to reduction based on certain criteria relative to the Company's
accounts receivable and inventory.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company has identified all significant applications that will require
modification to ensure Year 2000 Compliance. Internal and external resources are
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<PAGE>
being used to make the required modifications and test Year 2000 Compliance. The
modification process of all significant applications is underway. The Company
plans on completing the testing and conversion process of all significant
applications by December 31, 1998.
In addition, the Company will communicate with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities is
estimated at approximately $.4 million, which amount is included in the $.6
million estimate for replacing the Company's financial operating system. These
costs and the date on which the Company plans to complete the Year 2000
modification and testing processes are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those plans.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements and the related Reports of
Independent Auditors appear on pages F-2 to F-5. See Index to Financial
Statements, page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following tables list the directors and executive officers of the Company
and J.B. Williams Company, Inc., the wholly owned subsidiary through which the
Company's operations are conducted ("J.B. Williams").
J.B. Williams Holdings, Inc.
- ----------------------------
Name Age Office(s) Held
- ---- --- --------------
Hendrik J. Hartong, Jr. 58 Director, Chairman
Richard T. Niner 58 Director, Vice President
Dario U. Margve 41 Director, President and CEO
Kevin C. Hartnett 47 Vice President Finance and
Administration and Secretary
C. Alan MacDonald 65 Director
Carl G. Anderson, Jr. 53 Director
John T. Gray 62 Director
J. B. Williams Company, Inc.
- ----------------------------
Hendrik J. Hartong, Jr. 58 Director, Chairman
Richard T. Niner 58 Director
Dario U. Margve 41 President and CEO
Kevin C. Hartnett 47 Vice President Finance and
Administration and Secretary
Robert G. Sheasby 46 Vice President Marketing
Jeffrey L. Bower 46 Vice President Operations
D. John Dowers 38 Vice President Sales
All directors and executive officers of the Company and J.B. Williams are
elected annually and serve as such until their successors have been elected and
qualified.
Hendrik J. Hartong, Jr. - Mr. Hartong has been a member of the Board of
Directors of each of the Company and J.B. Williams since the organization of
these companies in December, 1993 and December, 1992, respectively. He has also
served as the Chairman of the Company since March, 1994, and Chairman of J.B.
Williams since its organization. Since 1984, Mr. Hartong has been a General
Partner of Brynwood Partners Limited Partnership and Brynwood Partners II L.P.
and since
-12-
<PAGE>
mid-1995, a General Partner of Brynwood Partners III L.P., investment management
firms based in Greenwich, Connecticut. Mr. Hartong is Chairman of the Board of
Directors of Air Express International Corporation and a director of Hurco
Companies, Inc. Mr. Hartong graduated from the Harvard Graduate School of
Business Administration in 1964, and the University of Cincinnati in 1962.
Richard T. Niner - Mr. Niner has been a member of the Board of Directors of each
of the Company and J.B. Williams since their organization and has served as Vice
President of the Company since that date. Since 1984, Mr. Niner has been a
General Partner of Brynwood Partners Limited Partnership and Brynwood Partners
II L.P., investment management firms based in Greenwich, Connecticut. Mr. Niner
is also a director of Air Express International Corporation, Arrow
International, Inc., Case, Pomeroy & Company, Inc. and Hurco Companies, Inc. Mr.
Niner graduated from the Harvard Graduate School of Business Administration in
1964, and Princeton University in 1961.
C. Alan MacDonald - Mr. MacDonald has been a member of the Company's Board of
Directors since March, 1994. Mr. MacDonald is Managing Partner of Directorship,
a full service board governance consulting firm. Prior to assuming this
position, Mr. MacDonald was General Partner of The Marketing Partnership and
associated with the Noel Group and Lincoln Snacks Co. Mr. MacDonald was formerly
President and CEO of Nestle Foods Corp. in Purchase, New York, a position he
held from 1983 to 1991. Prior to that he had been President of The Stouffer
Frozen Foods Co. Mr. MacDonald is also director of Lord, Abbett & Co., manager
of mutual funds, Fountainhead Water Company, a producer of bottled water,
DenAmerica Corp., the largest franchisor of Denny's Restaurants, and Exigent
Diagnostics. Mr. MacDonald graduated from Cornell University in 1955 with a B.S.
in Hotel Administration.
Carl G. Anderson, Jr. - Mr. Anderson has been a member of the Company's Board of
Directors since March, 1994. Mr. Anderson is President and CEO of ABC School
Supply, Inc., a manufacturer and marketer of educational products based in
Atlanta, Georgia. Prior to joining ABC School Supply in May, 1997, Mr. Anderson
served as Vice President - General Manager of the Retail Consumer Products
Division of James River Corporation since August, 1994. He was a marketing
executive at Procter & Gamble from 1972 to 1984 and Vice President and General
Manager at Nestle Foods Corporation in Purchase, New York from 1984 to 1992. Mr.
Anderson is also a director of Arrow International, Inc. and ABC School Supply,
Inc. Mr. Anderson graduated from Lehigh Graduate School of Business
Administration in 1972 and Lafayette College in 1967 and served as a First
Lieutenant in the U.S. Army.
John T. Gray - Mr. Gray is a General Partner of Brynwood Partners III L.P., an
investment management firm based in Greenwich, Connecticut. During the period
1984 through mid-1995, Mr. Gray served as President and Chief Executive Officer
of The Genie Company, a manufacturer of garage door openers and wet/dry vacuum
cleaners. He first became associated with Genie as Executive Vice President in
1982. Mr. Gray joined the Norelco Division of North American Philips Corporation
in 1968 where he served in various marketing positions and rose to become Vice
President and General Manager in 1974. Mr. Gray graduated from the University of
Illinois and served as a First Lieutenant in the U.S. Air Force.
Dario U. Margve - Mr. Margve has been a member of the Board of Directors of the
Company, and the President and CEO of the Company, and the President and CEO
-13-
<PAGE>
of J.B. Williams since March 9, 1995. Mr. Margve began his employment with J.B.
Williams in May, 1993 as the Vice President Sales and served in this position
until his election as President and CEO. Prior to joining the J.B. Williams, Mr.
Margve was the Vice President Division Manager of the Stouffer Foods Division of
Nestle Company, Inc., which company Mr. Margve joined in March, 1991. Mr. Margve
previously held other positions with Nestle, including Regional Manager of the
Nestle Foods Division, and was Vice President, Regional Manager of Wine World,
Inc. Mr. Margve received a B.S. in Engineering from the United States Military
Academy at West Point, New York, in 1978.
Kevin C. Hartnett - Mr. Hartnett began his employment with J.B. Williams in
March, 1993 as Vice President Finance and Administration. He has also served as
Vice President Finance and Administration of the Company and Secretary of J.B.
Williams since March, 1994 and as Secretary of the Company since December, 1994.
He is responsible for financial matters related to J.B. Williams, including its
existing operations and development. Previously, Mr. Hartnett was the Director
of Finance and Accounting for the Bottled Water Division of The Clorox Company
from September, 1989 to March, 1993. Mr. Hartnett also held various positions
with Nestle Foods Corporation from April, 1973 to September, 1989 including the
Division Controller of the Coffee/Tea Division, and the Marketing Controller of
the Beverage Division. He graduated from the University of Dayton with a B.S. in
Accounting, and from Iona College with an M.B.A. in Finance.
Jeffrey L. Bower - Mr. Bower began his employment with J.B. Williams in August,
1994. Previously, Mr. Bower was employed by Reckitt & Colman Inc., a consumer
products company, from 1987 to August, 1994 where he served as the Director of
External and Special Manufacturing and prior thereto as the Director of
Engineering, Durkee-French Foods Inc. Mr. Bower also served as a Manager of
Engineering for Pepsi-Cola USA from 1984 to 1987 and as Senior Project Engineer
for Mobil Chemical Company from 1978 to 1984. Mr. Bower was the Company
Commander, A Co. Of the 9th Engr. Bn. from 1973 to 1978. He received his B.S. in
Aerospace Engineering from the University of Virginia in 1973.
Robert G. Sheasby - Mr. Sheasby began his employment with J.B. Williams in
October, 1993. Mr. Sheasby was a partner of and marketing consultant to Creative
Options, a marketing, new products and communications consultant, from 1993
until he joined J.B. Williams, and Vice President of Marketing for
Tulip/Polymerics, Inc. from 1991 to 1993. Mr. Sheasby was Vice President,
Marketing for Cheesebrough-Pond's USA from 1989-1991. Mr. Sheasby also held
various positions with Bristol-Myers Co. And Lever Brothers Co. He received his
B.S. in Marketing and his B.S. in Advertising from Syracuse University in 1973.
D. John Dowers - Mr. Dowers began his employment with J.B. Williams in June,
1995. Prior to joining J.B. Williams, Mr. Dowers was Vice President of Marketing
for the Nestle Ice Cream Company from August, 1993. Mr. Dowers also held other
positions within the Nestle U.S.A. organization, including Vice President of
Trade Marketing and Vice President of Sales Administration for Stouffer Foods.
He received his B.A. in Economics from Bucknell University in 1981 and an M.B.A.
in Marketing from the University of Chicago in 1987.
-14-
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth the compensation paid by the Company and J.B.
Williams to their chief executive officer and each of the other most highly
compensated executive officers of such companies whose total cash compensation
exceeded $100,000 for the fiscal years ended December 31, 1997, 1996 and 1995.
The dollar value of perquisites and other personal benefits for each of the
named individuals was less than established reporting thresholds.
<TABLE>
<CAPTION>
Shares
Underlying All Other
Annual Compensation Options Compensation(3)
--------------------------- ------------ -----------------
Name and Principal Position Year Salary(1) Bonus(2)
--------------------------- ---- --------- --------
<S> <C> <C> <C> <C> <C>
Dario U. Margve, President and CEO 1997 $210,000 $165,000 -- $6,300
of the Company and J.B. Williams Co. 1996 200,000 120,000 -- 6,000
1995 176,500 93,000 150 5,295
Kevin C. Hartnett, Vice President - 1997 $140,000 $120,000 -- $4,200
Finance and Administration of the 1996 128,000 77,000 -- 3,840
Company and J.B. Williams Co. 1995 120,000 60,000 25 3,600
Robert G. Sheasby, Vice President - 1997 $152,000 $107,500 -- $4,560
Marketing of J.B. Williams Co. 1996 145,000 87,000 -- 4,350
1995 136,000 70,000 25 2,992
Jeffrey L. Bower, Vice President - 1997 $115,250 $ 82,500 50 $3,458
Operations of J.B. Williams Co. 1996 110,000 66,000 -- 3,300
1995 104,167 46,000 -- 3,125
D. John Dowers, Vice President - Sales 1997 $155,000 $107,500 -- $4,650
of J.B. Williams Co. 1996 148,000 89,000 -- 4,440
1995 143,000 36,000 150 715
</TABLE>
- --------------------------------
(1) Salary for 1995 for Mr. Dower represents his annualized salary; actual
amount paid for 1995 was $83,417.
(2) Bonuses reflected for 1997 were paid in 1998, except that Mr. Margve was
paid $15,000 of the amount in 1997, Mr. Hartnett was paid $20,000 of the
amount in 1997 and Messrs. Bower, Dowers and Sheasby were each paid $7,500
of their respective amounts in 1997.
(3) Represents contributions made by J.B. Williams pursuant to a 401(k) plan.
-15-
<PAGE>
Stock Option Grants For Year Ended December 31, 1997
The following table contains information concerning the grant of stock options
under the Stock Option Plan to an executive officer of J.B. Williams as of the
end of the last fiscal year who is named in the summary compensation table. Of
this grant, 20% was exercisable immediately, with an additional 20% becoming
exercisable on each subsequent anniversary of the date of grant.
<TABLE>
<CAPTION>
% of Total Potential Realized Value
Number of Options at Assumed Annual Rates of
Securities Granted to Stock Price Appreciation
Underlying Employees in for Option Term
Options Fiscal Exercise or Expiration ----------------------------
Granted Year Base Price Date 5% 10%
- --------------------- ------------- -------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey L. Bower 50 100% $1,651.50 9/01 $17,795 $38,323
</TABLE>
Option Table For Year Ended December 31, 1997
The following table contains information concerning options outstanding at the
end of the last fiscal year for the executive officers of J.B. Williams who are
named in the summary compensation table. All options were issued pursuant to the
Stock Option Plan which provides in general that each grant is exercisable
immediately as to 20% of the grant, with an additional 20% becoming exercisable
on each subsequent anniversary of the date of grant. No options were exercised
by these executives in 1997.
Effective as of March 1, 1998, pursuant to action by the Board of Directors of
the Company, the vesting of the options outstanding under the Stock Option Plan
was accelerated for all optionees, so that all outstanding options are now fully
exerciseable.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-The-Money
Unexercised Options at Fiscal Year End Options at Fiscal Year End
-------------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dario U. Margve 290 60 $295,905 $46,110
Kevin C. Hartnett 165 10 $181,583 $ 7,685
D. John Dowers 90 60 $ 69,165 $46,110
Robert G. Sheasby 135 40 $111,464 $32,669
Jeffrey L. Bower 50 50 $ 37,734 $26,016
</TABLE>
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Each of the named executive officers of J.B. Williams has an employment letter
setting forth the general terms of his respective employment. Each such
employment letter provides for employment for an initial period of one year,
with automatic renewals for additional one-year periods, and entitles each
executive officer to participation in benefit plans and perquisites available
generally to executive employees. Each employment letter specifies a base
salary, and
-16-
<PAGE>
provides for annual reviews for possible merit increases. Each employment letter
specifies that the executive may be eligible for a discretionary bonus based
partially upon attaining planned performance objectives and partially upon
subjective performance factors. Mr. Margve's employment letter also has a change
in control provision under which his options under the Stock Option Plan will
fully vest if there is a change in control prior to the fourth year following
the grant of such options and the executive officer continues to be employed by
J.B. Williams. Change in control is not defined in the employment letter.
Board of Directors Interlocks And Insider Participation in Compensation
Decisions
Neither the Company nor J.B. Williams has a compensation committee. No
compensation is paid to any executive officer of the Company. Decisions with
respect to executive compensation for officers of J.B. Williams are made by the
Board of Directors of J.B. Williams. None of the members of the Board of
Directors of J.B. Williams received any compensation in 1997 or previously as an
officer or employee of J.B. Williams.
Report of Board of Directors on Executive Compensation
The Board of Directors of J.B. Williams reviews and approves the annual
compensation of J.B. Williams' executive officers, as well as the Company's
policies and practices with respect to compensation of other management
personnel.
Compensation of executive officers consists primarily of base salary and
discretionary bonus awards. The base salary of executive officers is specified
in their employment letters, summarized above. The base salary is subject to a
merit review for possible increase at the end of each fiscal year during the
executive's employment. The bonus awards are made at the sole discretion of the
Board of Directors based primarily upon attaining planned performance objectives
and partially upon subjective performance factors.
In reviewing the compensation of J.B. Williams' executive officers for possible
increases in base salary and for bonus awards, the Board of Directors considers
(i) the levels of executive compensation paid in the industry, (ii) the
company's earnings and profit margin (operating income as a percentage of
revenues), both in absolute terms as well as in relation to budget forecasts,
and compared to results for prior years, and (iii) the extent to which the
company has achieved or exceeded its goals for the year. No specific weight is
accorded to any single factor and the different factors may be accorded greater
or lesser weight in particular years or for particular officers.
The base compensation of J.B. Williams' chief executive officer for 1997 was
determined at the beginning of that year in light of all of the foregoing
factors as applied to the CEO's performance in 1996. His bonus for 1997 was
determined in 1998 in light of these same factors as applied to his performance
in 1997.
By the Board of Directors of J.B. Williams
Hendrik J. Hartong, Jr.
Richard T. Niner
-17-
<PAGE>
Compensation Of Directors
A director who is not an employee or officer of the Company or any of its
subsidiaries is paid an annual fee of $2,000 per calendar quarter for serving as
a director of the Company, and $1,000 for attendance per meeting. Directors of
the Company and any of its subsidiaries are reimbursed for their out-of-pocket
expenses incurred in connection with their service as directors, including
travel expenses.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of February 28, 1997, the beneficial security
ownership, if any, of (a) any person who is known to the registrant to be the
beneficial owner of more than five percent of the Company's voting securities,
together with any such person's address, (b) the directors of the Company, (c)
each of the executive officers named in the Summary Compensation Table, and (d)
the directors and executive officers of the Company as a group.
Amount and Nature
of Beneficial Percent of
Title of Class Beneficial Owner Ownership(1) Class(2)
- --------------------------------------------------------------------------------
Common Stock Brynwood Partners II L.P.
Two Soundview Drive
Greenwich, CT 06830 (3) 9,000 shares 100%
Common Stock Hendrik J. Hartong, Jr. 9,000 shares(4) 100%
Common Stock Richard T. Niner 9,000 shares(5) 100%
Common Stock Dario U. Margve 290 shares(6) 3.1%
Common Stock Kevin C. Hartnett 170 shares(6) 1.9%
Common Stock Robert G. Sheasby 135 shares(6) 1.5%
Common Stock D. John Dowers 90 shares(6) 1.0%
Common Stock Jeffrey L. Bower 50 shares(6) 0.6%
Common Stock All directors and
executive officers as
a group (10 persons) 735 shares(7) 7.6%
- -----------------------------
(1) Effective as of March 1, 1998, pursuant to action by the Board of
Directors of the Company, the vesting of the options outstanding under
the Stock Option Plan was accelerated for all optionees, so that all
outstanding options are now fully exerciseable.
(2) Securities as to which the named executive has the right to acquire
beneficial ownership as of February 28, 1998 or within sixty days
thereof are included for purposes of calculating the relative
percentage of the class owned by such executive, and for purposes of
calculating the relative percentage of the class owned by all directors
and executive officers as a
-18-
<PAGE>
group, but are excluded for purposes of calculating the percentage
of the class owned by any other person.
(3) All of the Company's issued and outstanding common stock is owned
beneficially and of record by Brynwood Partners II L.P. ("Brynwood").
Pursuant to the terms of its Amended and Restated Agreement of Limited
Partnership, Brynwood must be dissolved by December 31, 1998 (which
date may be extended by up to three years) and all assets of the
partnership (including the capital stock of the Company) must be
distributed to the partners by such time (as it may be so extended).
(4) Consists of 9,000 shares owned by Brynwood Partners II L.P. Mr.
Hartong is a general partner of Brynwood Management II L.P., which
serves as general partner of Brynwood Partners II L.P. Together with
Mr. Niner, Mr. Hartong has voting and investment power over these
shares. Mr. Hartong's address is c/o Brynwood Partners, Two Soundview
Drive, Greenwich, CT 06830.
(5) Consists of 9,000 shares owned by Brynwood Partners II L.P. Mr. Niner
is a general partner of Brynwood Management II L.P., which serves as
general partner of Brynwood Partners II L.P. Together with Mr. Hartong,
Mr. Niner has voting and investment power over these shares. Mr.
Niner's address is c/o Brynwood Partners, Two Soundview Drive,
Greenwich, CT 06830.
(6) The shares reflected are shares covered by option as to which such
person has the present right to acquire beneficial ownership as of
February 28, 1998.
(7) Consists of 735 shares covered by option as to which such persons have
the present right to acquire beneficial ownership or will have the
right to acquire beneficial ownership within sixty days. Does not
include for Mr. Hartong or Mr. Niner the 9,000 shares owned by Brynwood
Partners II L.P. which is reflected as being beneficially owned by such
directors in the chart.
Item 13. Certain Relationships and Related Transactions
The Company pays a monthly fee of $25,000 to Brynwood Management II L.P. for
management and consulting services. Such payments aggregated $300,000 in 1997.
Messrs. Hartong and Niner, who are directors of the Company, are the General
Partners of Brynwood Management II L.P.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report on Form 10-K
1. Financial Statements
The financial statements and notes thereto listed on page F-1
are filed herewith as part of this report.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission
-19-
<PAGE>
are not required, are inapplicable or have been disclosed in
the Notes to Consolidated Financial Statements and therefore
have been omitted.
3. Exhibits
Exhibit
Number Description
- -------- -----------
(2)(i) Agreement dated as of February 24, 1994, between SmithKline
Beecham Consumer Healthcare, L.P. and CEP Holdings, Inc.
("CEP") (incorporated by reference to Exhibit (2)(i) to the
Registration Statement on Form S-4 (No. 33-83734) of J.B.
Williams Holdings, Inc. (the "Company"), J.B. Williams
Company, Inc. ("J.B. Williams"), After Shave Products, Inc.
("ASP"), Pre-Shave Products, Inc. ("PSP"), Hair Care
Products, Inc. ("HCP") and CEP (the "Registration
Statement")).
(2)(ii) Intellectual Property Agreement dated as of February 24,
1994, between Merrell Dow Pharmaceuticals Inc. And CEP
(incorporated by reference to Exhibit (2)(ii) to the
Registration Statement).
(2)(iii) Agreement dated as of December 16, 1992, between SmithKline
Beecham Corporation, SmithKline Beecham Consumer Brands
Inc., and Beecham (NJ) Inc. and J.B. Williams (incorporated
by reference to Exhibit (2)(iii) to the Registration
Statement).
(2)(iv) Asset Purchase Agreement dated as of August 6, 1997, by and
between J.B. Williams and Avalon Natural Cosmetics, Inc.
(incorporated by reference to Exhibit 2.1 to the Company's
Report on Form 8-K filed on October 31, 1997).
(2)(v) Asset Purchase Agreement between CEP and Virotex Corporation
dated as of July 10, 1997.
(2)(vi) Asset Purchase Agreement between J.B. Williams & Hoechst
Marion Roussel Canada, Inc.
(3)(i) Certificate of Incorporation of the Company, as amended to
March 11, 1994 (incorporated by reference to Exhibit
(3)(I)(l) to the Registration Statement).
(3)(ii) By-Laws of the Company (incorporated by reference to Exhibit
3(ii) to the Registration Statement).
(4)(i) Specimen of the Company's 12% Senior Notes due 2004
(incorporated by reference to Exhibit (4)(I)(l) to the
Registration Statement).
(4)(ii) Indenture dated as of March 16, 1994 among the Company, J.B.
Williams, ASP, PSP, HCP, CEP and The Bank of New York, as
Trustee (incorporated by reference to Exhibit (4)(iv) to the
Registration Statement).
-20-
<PAGE>
4(iii) $5,000,000 Credit Facility dated as of August 29, 1997,
between the Company and The Bank of New York, including the
Master Promissory Note as of the same date.
(10)(i)(l) Manufacturing Agreement dated as of February 24, 1994,
between J.B. Williams and Marion Merrell Dow Inc.
(incorporated by reference to Exhibit (10)(I)(3) to the
Registration Statement).
(10)(i)(2) License Agreements between J.B. Williams and CEP dated as
of February 20, 1994 and between J.B. Williams and each of
PSP, HCP and ASP dated as of January 1, 1993 (incorporated
by reference to Exhibit (10)(I)(4) to the Registration
Statement).
(10)(i)(3) Manufacturing and Sales Agreement between J.B. Williams and
Summa Rx Laboratories Inc.
(10)(ii)(D) Sublease, dated August 11, 1993, between E.I. Du Pont De
Nemours and Company and J.B. Williams (incorporated by
reference to Exhibit (10)(ii)(D) to the Registration
Statement).
(10)(iii)(A)(1) The Company's 1994 Stock Option Plan dated March 4, 1994
(incorporated by reference to Exhibit (10)(iii)(A)(l) to the
Registration Statement).
(10)(iii)(A)(2) Employment Agreement dated as of May 3, 1993 between J.B.
Williams and Dario U. Margve (incorporated by reference to
Exhibit (10)(iii)(A)(2) to the Registration Statement).
(10)(ii)(A)(5) Employment Agreement dated as of February 11, 1993 between
J.B. Williams and Kevin C. Hartnett (incorporated by
reference to Exhibit (10)(iii)(A)(2) to the Registration
Statement).
(10)(iii)(A)(4) Employment Agreement dated as of August 4, 1994 between J.B.
Williams and Jeffrey L. Bower (incorporated by reference to
Exhibit (10)(iii)(A)(2) to the Registration Statement).
(10)(iii)(A)(5) Employment Agreement dated as of October 19, 1994 between
J.B. Williams and Robert G. Sheasby (incorporated by
reference to Exhibit (10)(iii)(A)(6) to the Registrant's
1994 Annual Report on Form 10-K).
(21) Subsidiaries of the Company (incorporated by reference to
Exhibit (21) to the Registration Statement).
(24) Powers of Attorney for directors and certain officers of the
Company.
(27) Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K on October 31, 1997, covering the
acquisition by the Company of the San Francisco Soap Company(TM) business from
Avalon Natural Cosmetics, Inc.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
J.B. WILLIAMS HOLDINGS, INC.
----------------------------------------------------
(Registrant)
By: /s/ DARIO U. MARGVE
----------------------------------------------------
Dario U. Margve, President and CEO
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE
/s/ DARIO U. MARGVE
- -----------------------
DARIO U. MARGVE President, CEO and Director Date: March 31, 1998
(principal executive officer)
/s/ KEVIN C. HARTNETT
- -----------------------
KEVIN C. HARTNETT Vice President, Finance Date: March 31, 1998
Administration (principal
financial and accounting officer)
NAME TITLE
HENDRIK J. HARTONG, JR. Director : By: /s/ KEVIN C. HARTNETT
: Kevin C. Hartnett
As Attorney-in-Fact
RICHARD T. NINER Director : Date: March 31, 1998
:
C. ALAN MACDONALD Director : and
:
CARL G. ANDERSON Director : By: /s/ DARIO U. MARGVE
: Dario U. Margve
JOHN T. GRAY Director As Attorney-In-Fact
: Date: March 31, 1998
-22-
<PAGE>
- --------------------------------------------------------------------------------
J.B. WILLIAMS HOLDINGS, INC.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND
1996 AND FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 1997:
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Income and Retained Earnings for the
Three Years Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the
Three Years Ended December 31, 1997, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholder
J. B. Williams Holdings, Inc.
We have audited the accompanying consolidated balance sheets of J. B. Williams
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of income and retained earnings
and cash flows for each of the three years in the period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of J. B. Williams
Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
March 4, 1998
Stamford, Connecticut
F-2
<PAGE>
J. B. WILLIAMS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(In Thousands)
- -------------------------------------------------------------------------------
ASSETS 1997 1996
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 7,375 $21,201
Accounts receivable, net of allowance
for doubtful accounts of $550 and $320
at December 31, 1997 and 1996, respectively 13,235 7,819
Inventories 9,200 3,235
Other current assets (Note 3) 1,760 1,235
------ ------
Total 31,570 33,490
PROPERTY AND EQUIPMENT:
Machinery and equipment 2,109 1,769
Furniture and fixtures 206 126
Leasehold improvements 39 30
------ ------
Total 2,354 1,925
Less accumulated depreciation 1,411 996
------ ------
Net 943 929
------ ------
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $19,262 and $15,078 at
December 31, 1997 and 1996, respectively 45,692 39,222
Deferred charges and other assets 3,266 3,154
------ ------
TOTAL ASSETS $81,471 $76,795
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,318 $3,362
Due to Sellers of Acquired Businesses 186 -
Accrued expenses (Note 4) 8,881 6,356
Income taxes payable 781 217
------ ------
Total 13,166 9,935
------ ------
DUE TO SELLERS OF ACQUIRED BUSINESSES (Note 9) 872 -
SENIOR NOTES (Note 5) 50,345 50,345
------ ------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDER'S EQUITY (Note 6):
Common stock and paid-in capital 9,600 9,600
Retained earnings 7,488 6,915
------ ------
Total 17,088 16,515
------ ------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $81,471 $76,795
====== ======
See notes to consolidated financial statements.
F-3
<PAGE>
J. B. WILLIAMS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In Thousands Except Share Data)
- --------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
NET SALES $ 63,868 $ 48,283 $ 46,899
--------- --------- ---------
OPERATING COSTS AND EXPENSES:
Cost of goods sold 23,555 14,206 13,111
Advertising 4,134 3,241 2,436
Promotion 10,555 7,412 6,740
Cash discounts 1,238 929 896
Distribution 3,862 2,754 3,377
Selling 2,667 1,844 2,059
General and administrative 6,831 5,608 5,001
Depreciation and amortization 4,887 4,580 4,543
--------- --------- ---------
Total operating expenses 57,729 40,574 38,163
--------- --------- ---------
OPERATING PROFIT 6,139 7,709 8,736
INTEREST EXPENSE - Net of interest
income of $852, $984 and $915 for
1997, 1996 and 1995, respectively 5,200 5,231 5,685
--------- --------- ---------
INCOME BEFORE INCOME TAXES 939 2,478 3,051
PROVISION FOR INCOME TAXES (Note 7) 366 1,015 1,251
--------- --------- ---------
NET INCOME 573 1,463 1,800
RETAINED EARNINGS, BEGINNING OF YEAR 6,915 5,452 3,652
--------- --------- ---------
RETAINED EARNINGS, END OF YEAR $ 7,488 $ 6,915 $ 5,452
========= ========= =========
INCOME PER COMMON SHARE:
Basic $ 63.66 $ 162.55 $ 200.00
========= ========= =========
Diluted $ 61.18 $ 157.01 $ 193.55
========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,000 9,000 9,000
========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 9,366 9,343 9,305
========= ========= =========
See notes to consolidated financial statements.
F-4
<PAGE>
J. B. WILLIAMS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In Thousands)
- --------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
OPERATING ACTIVITIES:
Net income $ 573 $ 1,463 $ 1,800
Adjustments to reconcile net income
to net cash provided by operating
activities (net of acquisitions):
Amortization of intangibles 4,472 4,210 4,270
Depreciation of property and equi 415 370 273
Deferred income tax benefit - net (647) (259) (270)
Changes in operating assets and
liabilities:
Accounts receivable (5,416) (610) (763)
Inventories 2,270 32 923
Other current assets (354) (114) (453)
Accounts payable (44) 2,268 360
Accrued expenses 2,525 (190) (448)
Income taxes payable 564 (289) (139)
--------- --------- ---------
Net cash provided by
operating activities 4,358 6,881 5,553
--------- --------- ---------
INVESTING ACTIVITIES:
Acquisition of San Francisco Soap
Products and related assets (11,704) - -
Acquisition of Viractin Products
and related assets (4,692) - -
Acquisition of Cepacol Canada
Products and related assets (1,490) - -
Equipment purchases and leasehold
improvements (298) (503) (147)
--------- --------- ---------
Net cash used in investing
activities (18,184) (503) (147)
--------- --------- ---------
FINANCING ACTIVITIES:
Repayment of senior notes - (4,655) -
--------- --------- ---------
Net cash (used in) provided
by financing activities - (4,655) -
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (13,826) 1,723 5,406
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 21,201 19,478 14,072
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,375 $ 21,201 $ 19,478
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 478 $ 1,678 $ 1,593
========= ========= =========
Interest paid $ 6,062 $ 6,401 $ 6,668
========= ========= =========
See notes to consolidated financial statements.
F-5
<PAGE>
J. B. WILLIAMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR EACH OF THE THREE YEARS IN
THE PERIOD ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. BASIS OF ACCOUNTING AND ORGANIZATION
The consolidated financial statements include J. B. Williams Holdings,
Inc. and its subsidiaries: J.B. Williams Company, Inc., After Shave
Products Co., Pre-Shave Products Co., Hair Care Products Co. and CEP
Holdings, (collectively, the "Company"). Brynwood Partners II L.P., a
private partnership formed under Delaware law, is the owner of all of the
issued and outstanding capital stock of the Company. Brynwood
partnerships, including affiliates of Brynwood Partners II L.P., have
invested in and managed several companies since 1984 and their investors
include major insurance companies, financial institutions, corporations
and pension funds.
The Company, which was organized on December 3, 1992, made an initial
acquisition of certain assets ("Personal Care Products Acquisition") from
SmithKline Beecham Corporation, Beecham (NJ) Inc. and SmithKline Beecham
Consumer Products, Inc. (collectively, "SKB") for $45,000,000 on December
16, 1992. The Personal Care Products Acquisition was financed through the
issuance of a promissory note for $40 million to SKB and an equity
contribution of $5.6 million from Brynwood Partners II L.P. Operating
activity commenced on January 1, 1993. Additionally, the Company acquired
certain assets ("Oral Care Products Acquisition") in February 1994 from
SKB for $18,323,000. The Oral Care Products Acquisition and repayment of
the note payable to SKB relating to the Personal Care Products Acquisition
were financed through the private placement issuance of $55,000,000 of
senior notes and an equity contribution of $4 million from the Company's
shareholder.
The Company's products are marketed under the trademarks "Aqua Velva"
after shave, "Lectric Shave" preshave, "Brylcreem" hair care preparations,
"Williams Mug Shave Soap," "San Francisco Soap" specialty bath products,
and "Cepacol", sore throat products and mouthwash, and Cepacol Viractin
cold sore and fever blister medication and Cepacol ColdCare dietary
supplements. Each of the trademarks is owned by a subsidiary of the
Company, and is licensed to J. B. Williams Company, Inc. The Company
purchases finished goods from contract manufacturers and sells products
under the above brand names in the United States, Canada and Puerto Rico.
In August 1997, the Company purchased certain assets associated with the
Viractin and San Francisco Soap Company brands from Virotex Corp. and
Avalon Natural Cosmetics, Inc., respectively. Additionally, in October
1997 the Company acquired certain assets associated with the Cepacol
business in Canada from Hoechst Marion Roussel Canada, Inc. The assets
purchased consist primarily of trademarks, patents, inventories, formulas,
marketing materials and customer lists associated with each of these
brands. Each of these brands did not comprise a separate business unit of
the prior owner. Accordingly, other than net sales, there is no financial
or operating data available for these brands.
The Viractin brand was acquired by the Company for approximately $4.7
million, of which $0.6 million was allocated to the fair value of the
tangible assets acquired and $4.1 million was allocated to the
intangibles. The cost of the San Francisco Soap Company brand acquired was
approximately $11.7 million, of which $7.7 million was allocated to the
fair value of tangible assets acquired and $4.0 million was allocated to
intangibles. In both of these transactions, there are additional
contingent payments associated with annual net sales during the five year
period following each respective closing date. (See
F-6
<PAGE>
Note 9.) The cost of the Cepacol Canada business was approximately $1.5
million, all of which was allocated to intangibles.
The acquisitions were accounted for utilizing the purchase method of
accounting in accordance with APB No. 16, "Business Combinations." Net
sales for the period from the acquisition date to December 31, 1997 and
the pro forma increase in sales as if the acquisitions took place on
January 1, 1997 are as follows:
Pro Forma
Net Sales Increase in
Since Net Sales
Acquisition (Unaudited)
Viractin $ 650,000 $ 2,300,000
San Francisco Soap Company 7,900,000 14,900,000
Cepacol Canada 200,000 1,600,000
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition - Revenue is recognized upon the shipment of products
to customers.
Net Sales - Net sales include the sales price less an estimate of returns
and other allowances.
Advertising Costs - Such costs are comprised of various television, radio
and newspaper advertisements and are charged to expense as incurred.
Promotion Costs - Such costs are comprised of coupons, trade promotion
incentives, market research expenditures and package design costs and are
charged to expense as incurred.
Cash Discounts - Such discounts are estimated at 2% of sales and are
charged to expense as sales are recorded.
Distribution Costs - Such costs are comprised of freight, handling and
warehousing charges and are charged to expense as incurred.
Selling Costs - Such costs are comprised principally of incentives and
commissions to selling brokers and are charged to expense as incurred.
Cash and Cash Equivalents - Cash and cash equivalents include investments
with a one-day availability.
Inventories - Inventories consist principally of finished goods and are
stated at the lower of cost (using the first-in, first-out method) or
market value. Inventory acquired in the San Francisco Soap and Viractin
Products Acquisitions included a purchase accounting adjustment of
approximately $2.3 million relating to the acquired gross profit assigned
to the value of inventory. Approximately $2.2 million of the assigned
value was charged to cost of goods sold during the year ended December 31,
1997.
Property and Equipment - Leasehold improvements, furniture and fixtures
and machinery and equipment are recorded at cost. Depreciation of
machinery and equipment and furniture and fixtures is computed by the
straight-line method over the estimated useful lives which range from 3 to
7 years and 5 years, respectively. Leasehold improvements are amortized
over the lives of the related leases or the estimated useful lives of the
assets, whichever is shorter, using the straight-line method. The cost of
improvements are capitalized; expenditures for maintenance and repairs are
charged to expense.
F-7
<PAGE>
Intangible Assets - Intangible assets arose from the SKB acquisitions in
1993 and 1994 and the San Francisco Soap , Viractin and Cepacol business
in Canada acquisitions made during 1997. The costs of the non-compete
agreements are being amortized on the straight-line method over the 5-year
terms of the agreements. Trademarks and formulas and other identified
intangibles are being amortized on the straight-line method over their
estimated remaining useful lives of 25 years and 5 years, respectively.
Goodwill represents the excess of the purchase price over the fair value
of the assets acquired and is being amortized using the straight-line
method over 25 years. The Company evaluates the recoverability of goodwill
and other intangible assets on an annual basis by assessing whether the
unamortized intangible assets can be recovered over their remaining lives
through operating results and cash flows.
Deferred Charges and Other Assets - Deferred charges and other assets
consist primarily of costs associated with the issuance of the senior
notes which are being amortized over the term of the debt.
Income Taxes - Deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities.
Principles of Consolidation - The consolidated financial statements
include all subsidiaries. All significant intercompany items have been
eliminated. Certain prior year amounts have been reclassified to conform
with the presentation for the current year.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Stock Options - Financial Accounting Statement No. 123, "Accounting For
Stock Based Compensation," (SFAS 123) requires expanded disclosures of
employee stock based compensation arrangements and encourages, but does
not require, employers to adopt a fair value based method of accounting
for employee stock based compensation. Under the fair value based method,
compensation cost is measured at the grant date based on the value of the
option and is recognized over the service period, which is usually the
vesting period. As provided by SFAS 123, the Company follows Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," ("APB 25") for employee stock compensation measurement, which
does not require compensation expense recognition when the exercise price
of stock options is greater than or equal to current market value at the
date of the stock option grant.
Income Per Common Share - During 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." SFAS 128
replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. It also requires dual
presentation of basic and diluted earnings per share on the face of the
income statement. Diluted earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding and
dilutive common equivalent shares (common stock options) outstanding.
Financial Instruments - The estimated fair value of financial instruments,
which includes cash and cash equivalents, senior notes and accounts
receivable, approximates their carrying value.
F-8
<PAGE>
3. OTHER CURRENT ASSETS
Other current assets consist of the following:
December 31,
1997 1996
(In Thousands)
Deferred tax asset $ 600 $ 429
Prepaid expenses 636 570
Other 524 236
---------- ----------
Total $ 1,760 $ 1,235
========== ==========
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
1997 1996
(In Thousands)
Marketing $ 2,927 $ 1,978
Interest 2,014 2,014
Compensation 988 724
Manufacturing costs 382 442
Other 2,570 1,198
----------- ----------
Total $ 8,881 $ 6,356
=========== ==========
5. SENIOR NOTES
The Company financed the Oral Care Products Acquisition and the payment of
the note payable to SKB from the proceeds of the private placement of
$55,000,000 of senior notes (the "Notes") and an equity contribution from
its shareholder. The Notes were registered under the Securities Act of
1933 effective December 1, 1994.
Commencing with the year ended December 31, 1995, provided certain
conditions are met, the Company must, not later than April 15 immediately
following such year, offer to purchase from the holders of the Notes, on a
pro rata basis, an aggregate principal amount of Notes, equal to a
specified calculation at a purchase price equal to 100% of the principal
amount of the Notes plus accrued interest. During 1996, the Company
repurchased $4.1 million of the Notes pursuant to the terms of the note
agreement and $.6 million from the bond market. Notes outstanding at
December 31, 1997 and 1996 were $50,345,000.
Interest on the Notes is payable semiannually in cash on March 1 and
September 1 of each year at an annual interest rate of 12%. The Notes are
redeemable at the option of the Company, in whole or in part, at any time
on or after March 1, 1999, at 106% of their principal amount, plus accrued
interest, declining to 100% of their principal amount on and after March
1, 2001, plus accrued interest.
The Notes are guaranteed by each of the Company's wholly-owned
subsidiaries, as indicated in Note 1, which constitute all of the
Company's direct or indirect subsidiaries (the "Subsidiary Guarantors").
The Subsidiary Guarantors have fully and unconditionally guaranteed the
Notes on a joint and several basis;
F-9
<PAGE>
and the aggregate assets, liabilities, earnings and equity of the
Subsidiary Guarantors are substantially equivalent to the assets,
liabilities, earnings and equity of the Company on a consolidated basis.
There are no restrictions on the ability of the Subsidiary Guarantors to
make distributions to the Company. Accordingly, separate financial
statements and other disclosures concerning the Subsidiary Guarantors are
not included herein.
The Notes contain certain restrictive covenants. The Company is in
compliance with all covenants at December 31, 1997.
During 1997, the Company arranged for a $5,000,000 maximum secured line of
credit with the Bank of New York which expires August 31, 1998. The amount
available under the line of credit is subject to reduction based on
certain criteria relative to the Company's accounts receivable and
inventory. No amount was outstanding under the line of credit as of
December 31, 1997.
6. SHAREHOLDER'S EQUITY
Common stock consists of 20,000 authorized shares at $.01 par value of
which 9,000 shares were issued and outstanding at December 31, 1997 and
1996, respectively.
The Company has a stock option plan (the "Plan") which provides for the
granting of options on shares of the Company's common stock to its
directors and certain key employees. The Plan permits a maximum of 1,000
shares of common stock to be issued at the fair value per share at the
date the option is granted. If the option is granted to a person, who at
the time of the grant owns more than 10% of the combined voting power of
all classes of stock, the purchase price shall not be less than 110% of
the fair value per share at the date the option is granted. Stock option
transactions during 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 950 $1,172 950 $1,172 980 $ 1,028
Repurchased,
during the year - - - - (400) -
Granted, during
the year 50 $1,652 - - 370 $ 1,325
------- ------- -------
Outstanding, end of year 1,000 $1,196 950 $1,172 950 $ 1,172
======= =======
Exercisable, end of year 776 1,146 576 1,086 391 $ 985
======= ======= =======
</TABLE>
Each stock option is exercisable immediately as to 20% of the grant with
an additional 20% becoming exercisable on each subsequent anniversary from
the date of grant. Stock options expire five years from the grantees
initial date of employment.
F-10
<PAGE>
The Company applies APB 25 and related Interpretations in accounting for
the stock option plan. Accordingly, no compensation cost has been
recognized for the plan. Had compensation cost for the stock option plan
been determined based on the fair value of the option at date of grant
consistent with the requirements of SFAS 123, the Company's 1997 and 1996
net income and income per share would have been reduced to the pro forma
amounts indicated below.
1997 1996
---- ----
Net income As reported $ 573 $ 1,463
Pro forma 545 1,429
Net income per share As reported (Fully diluted) $ 61.18 $ 157.01
Pro forma (Fully diluted) 58.19 152.95
The fair value of stock options granted during 1997 have been estimated at
the date of grant using the Black-Scholes option pricing model with the
following assumptions:
1997 1996
Risk free interest rate 5.5% 6.1%
Expected life 4 4
Expected dividend yield - -
Expected volatility - -
7. INCOME TAXES
The components of the income tax provision (benefit) are as follows:
1997 1996 1995
(In Thousands)
Current:
Federal $ 825 $ 858 $ 1,150
State 188 330 371
----- ----- -----
1,013 1,188 1,521
----- ----- -----
Deferred:
Federal (489) (75) (168)
State (158) (98) (102)
----- ----- -----
(647) (173) (270)
----- ----- -----
Total $ 366 $ 1,015 $ 1,251
======== ======= =====
F-11
<PAGE>
A reconciliation of the provision for income taxes based on the applicable
statutory Federal income tax rate to the income tax provision as set forth
in the consolidated statements of income is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ----------------------- ------------------------
Amount Rate Amount Rate Amount Rate
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Provision for taxes at
statutory Federal rate $ 319 34.0% $ 842 34.0% $1,037 34.0%
State taxes - net of Federal
income tax benefit 32 3.4 75 3.0 118 3.9
Other - net 15 1.6 98 4.0 96 3.1
---- ---- ---- ----- ---- ---
Total $ 366 39.0% $1,015 41.0% $1,251 41.0%
======= ====== ======== ====== ======== =====
</TABLE>
Deferred taxes result from temporary differences in the recognition of
revenue and expense for tax and financial statement purposes. The
principal sources of the differences are the use for income tax purposes
of a 15-year amortization period for intangible assets, the use of
accelerated methods of computing depreciation and the capitalization of
certain inventory related costs.
The tax effects of the significant temporary differences which comprise
the deferred tax assets and liabilities are as follows:
December 31,
1997 1996
(In Thousands)
Assets:
Inventories $ 600 $ 429
Intangible assets 3,327 2,579
Other 547 340
------- -------
Gross deferred tax assets 4,474 3,348
------- -------
Liabilities:
Intangible assets 2,316 1,707
Other 62 12
------- -------
Gross deferred tax liabilities 2,378 1,719
------- -------
Net deferred tax asset $ 2,096 $ 1,629
======= =======
8. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan covering substantially all employees
which permits employees to defer up to 20% of their salary. Matching
contributions are at the discretion of the Company; additional
contributions of 2% of compensation are made for each employee at the end
of each pay period. Annual discretionary contributions may also be made by
the Company. The Company matches 25% of employee contributions up to the
maximum of 4% of each employee's salary. Company contributions for the
years
F-12
<PAGE>
ended December 31, 1997, 1996 and 1995 were approximately $67,000, $56,000
and $47,000, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and its facilities under operating lease
agreements which require payment of property taxes, insurance and normal
maintenance costs. Certain leases contain renewal options. Rental expense
was approximately $200,000, $145,000 and $126,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Future minimum annual rentals under the above leases are as follows:
(In Thousands)
1998 $193,000
1999 188,000
2000 192,000
2001 119,000
2002 and thereafter -
--------
$692,000
========
The Company is not a party to any material pending legal proceedings.
The Company has entered into employment contracts with each of its
executive officers. Each contract provides for employment for an initial
period of one year, with automatic renewals for additional one-year
periods. Terms of the contracts include details regarding participation in
benefit plans, base salary, merit increases and discretionary bonuses.
Concurrently with the Oral Care Products Acquisition, the Company entered
into a Purchasing and Manufacturing Agreement with Hoechst Marion Roussel
("HMR") (formerly Marion Merrell Dow, Inc. ("MMD")), which was
subsequently amended, whereby the Company agreed to purchase existing oral
care products exclusively from HMR and in connection therewith pay
overhead costs of $1,412,000 each year until December 31, 1998.
During 1997, the Company entered into a manufacturing and sales agreement
to distribute a cold remedy product composed of zinc acetate lozenges
called Cepacol ColdCare. The Company agreed to acquire certain minimum
quantities of ColdCare products for five years. The related minimum
payments are $2.4 million during the first two years and $4.0 million
during the third through fifth years of the agreement. If the agreed upon
minimum quantities are not purchased the agreement provides for payments
of up to $400,000 in the first two years and $650,000 in the third through
fifth years of the agreement. As of December 31, 1997, the Company expects
to acquire the minimum quantities specified in the agreement.
In connection with the San Francisco Soap acquisition, the Company entered
into a consulting agreement with the former owners of San Francisco Soap
and agreed to pay $300,000 per year during the consulting period
(September 1, 1997 through August 29, 2000). The $300,000 per year is to
be paid in advance in quarterly installments of $75,000 beginning
September 1, 1997.
In connection with the San Francisco Soap Company acquisition, the Company
entered into a contingent payment agreement with the sellers equal to 2.5%
of San Francisco Soap Company products net sales for a period of five
years from the acquisition date. The minimum annual payment is $250,000
and the Company recorded a liability for the present value of the minimum
annual payments owed to the sellers.
F-13
<PAGE>
The Company will treat additional amounts paid as part of the cost of the
acquisition which will result in additional goodwill. The additional
goodwill will be amortized over the remaining life of the assets.
In conjunction with the Viractin acquisition, the Company entered into a
contingent payment arrangement with the sellers of Viractin which provides
the sellers with additional amounts equal to the sum of 10% of net sales
of the Company's Viractin products for a period of five years from the
acquisition date. The additional consideration payments are to be made to
the seller on a quarterly basis beginning September 30, 1997. The Company
will record the payments to the sellers as part of the cost of the
acquisition. The additional goodwill will be amortized over the remaining
life of the assets.
10. SIGNIFICANT CUSTOMER
One of the Company's customers accounted for approximately 18%, 22% and
19% of net sales in the United States for the years ended December 31,
1997, 1996 and 1995, respectively.
11. SEGMENT DATA
The Company operates in one industry segment, the distribution and sale of
personal and oral care products. Data by geographic area is as follows:
1997 1996 1995
(In Thousands)
Net sales to unaffiliated customers:
United States (including Puerto Rico) $ 59,272 $ 44,536 $ 43,186
Canada 4,596 3,747 3,713
------- ------- -----
Total $ 63,868 $ 48,283 $ 46,899
=========== =========== =========
Operating profit (loss):
United States (including Puerto Rico) $ 6,314 $ 7,316 $ 8,119
Canada (175) 393 617
----- ----- -----
Total $ 6,139 $ 7,709 $ 8,736
========== ========= =========
Assets are primarily located in the United States.
12. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Additions
Balance, Charged to Balance,
Beginning Profit Recoveries/ End
of Year and Loss Deductions of Year
(In thousands)
Allowance for
doubtful accounts:
1997 $ 320 $ 236 $ (6) $ 550
1996 322 65 (67) 320
1995 253 110 (41) 322
F-14
ASSET PURCHASE AGREEMENT
by and between
CEP HOLDINGS, INC.
as the Buyer
and
VIROTEX CORPORATION
as the Seller
As of July 10, 1997
<PAGE>
2
TABLE OF CONTENTS
-----------------
PAGE
----
PREAMBLE.....................................................................1
ARTICLE I. PURCHASE AND SALE OF ASSETS......................................1
- ----------
1.1. Purchase and Sale of Assets..........................................1
1.2. Assumed Liabilities..................................................3
1.3. Excluded Liabilities and Obligations.................................3
ARTICLE II. CONSIDERATION FOR TRANSFER......................................5
- -----------
2.1. Consideration........................................................5
2.2. Allocation...........................................................7
ARTICLE III. THE CLOSING AND TRANSFER OF ASSETS.............................7
- ------------
3.1. Closing..............................................................7
3.2. Deliveries by the Buyer..............................................7
3.3. Deliveries by the Seller.............................................8
3.4. Closing Agreements...................................................9
3.5 Post-Closing Obligation..............................................9
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
- ----------- SELLER.........................................................9
4.1. Organization and Qualification.......................................9
4.2 Authorization........................................................9
4.3 No Violation........................................................10
4.4. Consents and Approvals..............................................10
<PAGE>
3
4.5. Inventory...........................................................10
4.6. Litigation..........................................................10
4.7. Title to Assets.....................................................11
4.8. Material Contracts..................................................11
4.9. Permits.............................................................12
4.10. Broker's Fees and Commissions.......................................12
4.11. Proprietary Rights..................................................12
4.12. Regulatory Reports..................................................13
4.13. Agreements with Regulatory Agencies.................................13
4.14. Customers...........................................................13
4.15. Consumer Complaints.................................................13
4.16. Disclosure..........................................................14
4.17. Knowledge of the Seller, Etc........................................14
4.18. Copies of Documents.................................................14
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE BUYER...................14
- ----------
5.1. Organization and Qualification......................................14
5.2. Authorization.......................................................14
5.3. No Violation........................................................15
5.4. Litigation..........................................................15
5.5. Broker's Fees and Commissions.......................................15
5.6. Disclosure..........................................................15
5.7. Knowledge of the Buyer, Etc.........................................15
<PAGE>
4
ARTICLE VI. COVENANTS OF THE SELLER........................................16
- -----------
6.1. Interim Conduct of the Viractin Product Line........................16
6.2. Cooperation; Access.................................................16
6.3. Transfer of Inventory...............................................16
6.4 Foreign Patent and Trademark Assignments............................16
6.5. Promotional Allowance, Product Returns and Customer Complaints......16
6.6 Confidentiality.....................................................16
6.7. Best Efforts........................................................17
6.8. Further Assurances..................................................17
ARTICLE VII. COVENANTS OF THE BUYER........................................17
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7.1. Confidentiality.....................................................17
7.2. Best Efforts........................................................18
7.3. Further Assurances..................................................18
ARTICLE VIII. RIGHT OF FIRST OFFER.........................................18
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8.1. Right of First Offer................................................18
8.2. Procedure of Right of First Offer...................................18
ARTICLE IX. CLOSING CONDITIONS.............................................19
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9.1. Conditions to Each Party's Obligations Under this Agreement.........19
9.2. Conditions to the Obligations of the Buyer under this Agreement.....19
9.3. Conditions to the Obligations of the Seller under this Agreement....19
<PAGE>
5
ARTICLE X. TERMINATION AND ABANDONMENT.....................................20
10.1 Termination.........................................................20
10.2. Procedure and Effect of Termination.................................20
ARTICLE XI. SURVIVAL AND INDEMNIFICATION...................................21
11.1. Survival............................................................21
11.2. Indemnification of the Buyer........................................22
11.3. Indemnification of the Seller.......................................22
11.4. Limitations on Indemnification......................................23
11.5. Indemnification Procedure for Third Party Claims Against
Indemnified Parties.................................................23
11.6. Failure to Give Timely Third Party Indemnification Notice...........25
11.7. Notice of Claims....................................................25
ARTICLE XII. NON-COMPETITION...............................................26
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12.1. Non-Competition.....................................................26
12.2. Injunctive Relief...................................................26
ARTICLE XIII. MISCELLANEOUS PROVISIONS.....................................26
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13.1. Waiver..............................................................26
13.2. Amendment; Modification.............................................27
13.3. Invalidity..........................................................27
13.4. Parties in Interest.................................................27
13.5. Expenses............................................................27
13.6. Notices.............................................................27
<PAGE>
6
13.7. Governing Law; Forum................................................29
13.8. Counterparts........................................................29
13.9. Headings............................................................29
13.10. Entire Agreement....................................................29
13.11. Assignment..........................................................30
13.12. Publicity...........................................................30
OTHER
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Definitions.........................................................Appendix A
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") dated as of July 10,
1997 by and between CEP HOLDINGS, INC., a Delaware corporation (the "Buyer"),
and VIROTEX CORPORATION, a Delaware corporation (the "Seller").
WHEREAS, the Seller is the owner of the registered trademark
Viractin(R), the product formulations for the Viractin products (the "Products")
marketed by Schering-Plough HealthCare Products, Inc. ("Seller's Licensee"),
including the patents covering such formulations, and other assets, both
tangible and intangible, related thereto (the "Viractin Product Line"); and
WHEREAS, the Buyer desires to purchase from the Seller and the Seller
desires to sell to the Buyer the assets constituting the Viractin Product Line;
and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I.
PURCHASE AND SALE OF ASSETS
1.1. Purchase and Sale of Assets. At the Closing (as hereinafter
defined), the Seller shall sell, transfer, assign and deliver to the Buyer, and
the Buyer shall purchase, accept, assume and receive, all of the Seller's right,
title and interest in, to or arising from the assets owned by the Seller
comprising the Viractin Product Line, including, without limitation, the
following assets (all such assets being the "Purchased Assets"),
(a) All of the Seller's rights of any kind or nature under that
certain License Agreement, dated as of April 17, 1996, as amended on
October 24, 1996, by and between the Seller and the Seller's Licensee
(the "Seller's Licensee Agreement") and under that certain Termination
Agreement, dated as of July 2, 1997, by and between the Seller and the
Seller's Licensee (the "Termination Agreement"), except for the
Seller's rights to receive royalties under Section 9 of the
Termination Agreement;
(b) The trademarks "Viractin," and "Lip Design," and all other
trademarks and trademark applications, including the trademarks and
trademark applications set forth in Section 4.11(a) of the Disclosure
Schedule and all other trade dress, trade names, brand names, service
marks, logos, logotypes, packaging style and symbols, which are or
have been used in respect of the Products or the Viractin Product
Line, together with the goodwill associated therewith, any
<PAGE>
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registrations associated therewith, including any renewals,
modifications or extensions (collectively, the "Trademarks");
(c) All patents and patent applications, including the patents
and patent applications set forth in Section 4.11(a) of the Disclosure
Schedule, which are or have been used in respect of the Products or
the Viractin Product Line, together with the goodwill associated
therewith, any registrations associated therewith, including any
renewals, modifications or extensions (collectively, the "Patents");
(d) All copyrights and slogans, and any registrations associated
therewith, which are or have been used, or are under development, in
the manufacture, promotion, sale or commercial exploitation of the
Products or relating to the Viractin Product Line (collectively, the
"Copyrights");
(e) All information and technical data of a proprietary, trade
secret or confidential nature relating to the design, formulation,
processing, manufacture, storing, handling, transporting, testing and
use of the Products or relating to the Viractin Product Line (the
"Technology");
(f) The addresses of the internet website relating to the
Products and the Viractin Product Line;
(g) All existing files pertaining to the manufacturing,
production, promotion, advertising, distribution and sale of the
Products or relating to the Viractin Product Line, in whatever format
(written or machine readable, or in computer data bases or other
media), including, without limitation, research and development files
and studies, market studies (including studies in respect of
competitors' brands), copies of consumer complaint files, sale
histories, quality control histories, files relating to the
Technology, and any and all other business records relating to the
Products;
(h) All marketing materials and rights relating to the promotion,
marketing and advertisement of the Products, including slogans,
jingles, marketing campaigns, promotional materials (including trade
show booths and displays), art mechanical and artwork for the
production of packaging components, television and radio masters, film
or video clips, sound recordings, photographs, and similar materials,
any Registrations associated therewith that have been used by the
Seller, any affiliate or predecessor owner, or are under development,
in the manufacture, promotion, sale or commercial exploitation of the
Products or relating to the Viractin Product Line, whether of the
Seller or received by the Seller from the Seller's Licensee;
<PAGE>
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(i) All claims, causes of action and other rights that the Seller
may have against others relating to the Purchased Assets;
(j) All existing lists of suppliers, customers and distributors,
whether of the Seller or received by the Seller from the Seller's
Licensee;
(k) All rights under any open purchase orders from customers of
the Seller or the Seller's Licensee for the Products, which orders,
together with the terms and conditions thereof, are set forth in
Section 1.1(k) of the Disclosure Schedule;
(l) The finished product inventory which is to be purchased from
the Seller's Licensee pursuant to the Termination Agreement (the
"Inventory"); and
(m) To the extent assignable, all permits, governmental licenses,
filings, authorizations, approvals and indicia of authority (and
pending applications for any thereof) related to the Viractin Product
Line.
1.2. Assumed Liabilities. At the Closing, the Buyer shall assume, and
shall be solely and exclusively liable with respect to, the liabilities and
obligations of the Seller (other than the Excluded Liabilities and Obligations
specified in Section 1.3, hereof) under the Seller's Licensee Agreement and
under the Termination Agreement (which obligations are referred to herein as the
"Assumed Liabilities").
1.3. Excluded Liabilities and Obligations. Except as expressly set
forth in Section 1.2 above, the Buyer shall not assume and shall not be liable
or responsible for any debt, obligation or liability of the Seller, the Seller's
Licensee or any affiliate of either, or any claim against any of the foregoing,
of any kind, whether known or unknown, contingent, absolute or otherwise,
whether or not relating to the Viractin Product Line (the "Excluded Liabilities
and Obligations"). Without limiting the foregoing, the Buyer shall not assume,
undertake or accept, and shall have no responsibility with respect to, the
following liabilities or obligations (which shall also constitute Excluded
Liabilities and Obligations):
(a) Liabilities and obligations related to or arising from
transactions with any affiliate of the Seller or Seller's Licensee,
including interdivisional, intracompany or intercompany payables,
obligations or agreements, if any, pending at Closing, or arising
after Closing, based on acts, omissions or events occurring prior to
Closing;
(b) For taxes of any kind, howsoever denominated, including
federal, state and local taxes on income, sales and use, ad valorem
duties and assessments, worker's compensation, unemployment taxes,
excise taxes, FICA contributions,
<PAGE>
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payroll taxes and profit sharing deductions and all taxes and charges
related to or arising from the transfers contemplated hereby;
(c) Liabilities and obligations of the Seller or Seller's
Licensee with respect to litigations, actions, proceedings,
investigations, or legal, administrative, arbitration, or other method
of settling disputes or disagreements, or any governmental
investigations, if any, pending at the Closing or threatened on or
prior to the Closing, or arising after Closing based on acts,
omissions or events occurring prior to Closing;
(d) Any liability of the Seller as a result of any act, omission
or event occurring prior to the Closing Date, whether or not the
related cause of action or damage occurred after the Closing Date,
including, but not limited to, any indemnification obligation of the
Seller to the Seller's Licensee and any liabilities or obligations to
any person or entity ("Third Party") that claims the Proprietary
Rights (as defined in Section 4.11(a) hereof) infringe upon the rights
of such Third Party;
(e) Any liability of the Seller's Licensee as a result of any
act, omission or event occurring prior to the Transition Date, as
defined in the Termination Agreement (the "Transition Date"), whether
or not the related cause of action or damage occurred after the
Transition Date, including, but not limited to, any liabilities or
obligations to any Third Party that claims the Proprietary Rights
infringe upon the rights of such Third Party;
(f) Any liability of the Seller or Seller's Licensee relating to
use, storage, release, discharge, disposal or shipment of Hazardous
Substances, or the violation of Environmental Laws (as such terms are
defined in Schedule 1.3(f) hereto), or any environmental liability of
any nature or kind whatsoever, if any, pending at Closing, or arising
after Closing, based on acts, omissions or events occurring prior to
Closing; and
(g) Any undisclosed liabilities, or any pension plan withdrawal
liability, funding deficiency or other liability, including, without
limitation, any liability under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the Internal Revenue Code
of 1986, as amended, or otherwise with respect to any employee benefit
plan as defined in Section 3(3) of ERISA, if any, any liabilities for
accrued compensation, benefits, sick pay, vacation pay, medical costs
or severance in any such case in respect of employees of the Seller,
which arise on or prior to the Closing Date or by virtue of the
transactions contemplated hereby.
<PAGE>
-5-
After the Closing, the Seller shall discharge and satisfy in full when
due all of Seller's liabilities which are not specifically assumed by the Buyer
pursuant to Section 1.2; provided, however, that nothing herein shall be deemed
to prevent or limit the Seller's right to contest with Third Parties any claim
that the Seller is liable for any such liability, or the amount thereof.
ARTICLE II.
CONSIDERATION FOR TRANSFER
2.1. Consideration. The aggregate consideration for the Viractin
Product Line and the Purchased Assets (the "Purchase Price") shall be as
follows:
(a) An amount equal to Four Million Five Hundred Thousand Dollars
($4,500,000) plus the book value of the Inventory (the "Cash
Consideration"). For purposes of this Section 2.1(a), the book value
of the Inventory shall be determined in accordance with the
Termination Agreement. The Inventory will be purchased directly from
Seller's Licensee by the Buyer pursuant to assignment of such right
under the Assignment and Assumption Agreement; and
(b) (i) Additional payments (the "Additional Consideration
Payments"), to be paid to the Seller quarterly for the five (5) years
following the Closing Date for (except as set forth in this Section
2.1(b)(i) the calendar quarters ending September 30, December 31,
March 31 and June 30 (each of such quarters, a "Quarter Period"). The
first Quarter Period shall begin on the first day following the
Transition Date and end September 30, 1997. The first Additional
Consideration Payment shall be made no later than February 15, 1998
for the first Quarter Period and the second Quarter Period ending
December 31, 1997. The final Additional Consideration Payment shall be
made no later than forty-five (45) days after the fifth anniversary of
the Transition Date for the last Quarter Period which shall begin on
July 1, 2002 and end on the fifth anniversary of the Transition Date.
Except as set forth above, the payments shall be due forty-five (45)
days after the end of each Quarter Period. At the time of each
payment, the Buyer shall send to the Seller a statement calculating
Net Sales (as defined below). Additional Consideration Payments shall
be paid in U.S. Dollars by wire transfer of immediately available
funds to an account designated by the Seller or in such other form and
at such other place as the Seller may hereafter designate by notice.
(ii) The Additional Consideration Payments shall represent
an amount equal to the sum of (A) ten percent (10%) of Net Sales (as
defined below) for the relevant Quarter Period of any products
developed and sold by the Buyer which use the Viractin formulation or
which are covered by a valid claim in the
<PAGE>
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U.S. patents included in the Patents; and (B) ten percent (10%) of Net
Sales for the relevant Quarter Period of any products marketed by the
Buyer as substitute treatment products for either of the two (2)
Viractin Cold Sore and Fever Blister Treatment products existing as of
the date of this Agreement, if such substitute products are marketed
under the Viractin(R) brand name (The products referred to in
subparagraph (ii) hereof are collectively referred to as the "Covered
Products.");
(iii) For purposes of calculating Additional Consideration
Payments, "Net Sales" shall mean the invoiced price received by the
Buyer for the Covered Products sold to third parties during each
Quarter Period less (A) cash discounts or accruals actually allowed;
(B) credits and/or cash refunds or accruals actually allowed for
damaged or returned products; (C) trade discounts and allowances
actually paid or allowed (with respect to (A), (B) and (C), in each
case, as long as such discounts and allowances are for the purpose of
enhancing sales of the Covered Products); and (D) sales or use taxes
(other than income taxes);
(iv) For purposes of calculating Additional Consideration
Payments, with respect to sales of the Covered Products in foreign
countries, the Seller shall calculate Net Sales in each such country
on a monthly basis and convert such amount into U.S. Dollars based
upon the exchange rate as reported in The Wall Street Journal on the
last business day of the month. Such monthly figures shall be included
in the statement reflecting the Net Sales calculations as provided
herein;
(v) As set forth above, each Additional Consideration
Payment shall be accompanied by a statement of Net Sales in sufficient
detail to permit confirmation of the accuracy of the Additional
Consideration Payment made, including without limitation, the number
of Covered Products sold by the Buyer from the Viractin Product Line,
the gross sales and Net Sales by the Buyer from the Viractin Product
Line, the Additional Consideration Payment, in U.S. dollars, payable,
the method used to calculate the Additional Consideration Payment and
the exchange rates used;
(vi) In the event that any Additional Consideration Payment
due hereunder is not made when due, such Additional Consideration
Payment shall accrue interest from the date due at the rate of one
percent (1%) per month; provided, however, that in no event shall such
rate exceed the maximum legal annual interest rate. The payment of
such interest shall not limit Seller from exercising any other rights
it may have as a consequence of the lateness of any payment;
<PAGE>
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(vii) For a period of one (1) year from the date upon which
an Additional Consideration Payment is made, the Buyer shall keep
complete and accurate records pertaining to the sale or other
disposition of Covered Products sold by the Buyer from the Viractin
Product Line in sufficient detail to permit the Seller to confirm the
accuracy of such Additional Consideration Payment. The Seller shall
have the right to review such records to confirm Net Sales and
Additional Consideration Payments for the preceding calendar year (the
"Seller's Audit"). The Seller's Audit may be exercised during normal
business hours not more than once a year upon at least thirty (30)
working days' prior written notice to the Buyer. The Seller shall bear
the full cost of the Seller's Audit.
(viii) If after completion of the Seller's Audit, the Seller
disagrees with the accuracy of the Additional Consideration Payments,
the Seller shall notify the Buyer of such disagreement and its reasons
for so disagreeing, in which case the Seller and the Buyer shall
attempt to resolve the disagreement. If within ten (10) days after the
Buyer's receipt of the notice, the Seller and the Buyer are unable to
resolve the disagreement, they shall submit the records pertaining to
the sale or other disposition of Covered Products to an independent,
certified public accountant (the "Accountant") reasonably acceptable
to both parties for a binding and nonappealable determination
regarding Net Sales and Additional Consideration Payments (the
"Accountant's Audit"). Such determination shall be rendered within
thirty (30) days after submission to the Accountant. The Seller shall
bear the full cost of the Accountant's Audit unless such Accountant's
Audit discloses an amount owed the Seller of more than five percent
(5%) from the amount actually paid to the Seller as Additional
Consideration Payments for the period of such audit. In such case, the
Buyer shall bear the full cost of the Accountant's Audit.
2.2. Allocation. The Purchase Price shall be allocated to the Viractin
Product Line and the Purchased Assets, and such allocation shall be used for all
purposes, including the preparation and filing of Internal Revenue Service Form
8594 with respect to the transactions contemplated hereby.
ARTICLE III.
THE CLOSING AND TRANSFER OF ASSETS
3.1. Closing. The transfer of assets contemplated by this Agreement
(the "Closing") shall occur at the offices of Cummings & Lockwood, Four Stamford
Plaza, Stamford, Connecticut, at 10:00 a.m., Eastern Standard Time, on July
[10], 1997, or such other date as the parties shall mutually agree (the "Closing
Date"). The effective time of the Closing shall be 12:01 a.m., or such other
time as the parties shall mutually agree, on the Closing Date .
<PAGE>
-8-
3.2. Deliveries by the Buyer. At the Closing, the Buyer shall deliver
the following:
(a) A Guaranty by J.B. Williams Holdings, Inc. (the "Guaranty")
of the payment obligations of the Buyer hereunder, in the form
attached hereto as Exhibit 3.2(a);
(b) A License Agreement (the "License Agreement") in the form
attached hereto as Exhibit 3.2(b), duly executed by the Buyer;
(c) An opinion of Cummings & Lockwood, counsel to the Buyer, in
the form attached hereto as Exhibit 3.2(c);
(d) An Assignment and Assumption Agreement (the "Assignment and
Assumption Agreement"), in the form attached hereto as Exhibit 3.2(d),
duly executed by the Buyer; and
(e) Such other instruments or documents as may be necessary or
appropriate to carry out the transactions contemplated hereby.
3.3. Deliveries by the Seller. At or prior to the Closing, the Seller
shall deliver the following:
(a) A General Assignment and Bill of Sale (the "Bill of Sale")
for the Purchased Assets in the form attached hereto as Exhibit
3.3(a), duly executed by the Seller;
(b) The Assignment and Assumption Agreement, duly executed by the
Seller;
(c) The License Agreement, duly executed by the Seller;
(d) Trademark and patent assignments contemplated by this
Agreement, in a form appropriate for filing with the United States
Patent and Trademark Office and the patent and/or trademark offices of
any foreign country in which patent and/or trademark applications have
been filed or are pending;
(e) A certified copy of resolutions of the Board of Directors of
the Seller providing authority for the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby;
(f) An opinion of Seller's counsel, in the form attached hereto
as Exhibit 3.3(f); and
<PAGE>
-9-
(g) Such other instruments or documents as may be necessary or
appropriate to carry out the transactions contemplated hereby.
3.4. Closing Agreements. At the Closing, the parties shall execute,
acknowledge and deliver such instruments or documents as may be necessary or
appropriate to carry out the transactions contemplated by this Agreement and to
comply with the terms hereof.
3.5. Post-Closing Obligation. On the Transition Date, the Buyer will
deliver the Cash Consideration, less an amount equal to Five Hundred Thousand
Dollars ($500,000) previously paid by the Buyer to the Seller (the "Deposit")
pursuant to that certain Letter of Intent between Buyer and Seller dated May 23,
1997 and any interest accrued thereon (which Deposit, including any applicable
interest shall become the property of Seller as part of the Purchase Price).
Such amount shall be paid in U.S. Dollars by wire transfer of immediately
available funds to an account designated by the Seller or in such other form and
at such other place as the Seller may hereafter designate by notice
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as of the date hereof
as follows:
4.1. Organization and Qualification. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with all requisite power and authority and,
except for the rights granted the Seller's Licensee, which rights will terminate
on the Transition Date, has a legal right to own, operate and carry on the
Viractin Product Line. The Seller is duly qualified to do business and is in
good standing in every jurisdiction where Seller's conduct of the business of
the Viractin Product Line requires such qualification, except in such
jurisdictions where the failure to so qualify would not have a material adverse
effect on the business, revenues, financial condition, properties, assets or
prospects of the Viractin Product Line.
4.2. Authorization. The Seller has full corporate power, authority and
legal right to execute and deliver and, except for the rights granted the
Seller's Licensee, which rights will terminate on the Transition Date, to
perform its obligations under this Agreement. The execution and delivery of this
Agreement by the Seller and the performance by the Seller of its obligations
hereunder have been duly authorized by all requisite corporate action,
including, without limitation, by its Board of Directors and stockholders. No
other action on the part of the Seller is necessary to authorize the execution
and delivery of this Agreement or the performance of the Seller's obligations
<PAGE>
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hereunder. This Agreement has been duly and validly executed and delivered by
the Seller and constitutes a legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms, except to the
extent that such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and remedies generally.
4.3. No Violation. Neither the execution and delivery of this
Agreement by the Seller, the consummation of the transactions contemplated
hereby, nor the performance by the Seller of its obligations hereunder will:
(a) Violate or result in any breach of any provision of the
Certificate of Incorporation and/or By-laws of the Seller;
(b) Violate, conflict with or result in a breach of, or
constitute a default (with or without due notice or lapse of time or
both) under, or permit the termination of, or result in the
acceleration of, or entitle any party to accelerate any obligation
under, or result in the loss of any benefit from, any material
contract, agreement or arrangement, whether written or oral, formal or
informal;
(c) Result in the imposition or creation of any pledges, security
interests, liens, mortgages, claims, debts, charges, or other
encumbrances or restrictions on transfer of any kind whatsoever (each,
an "Encumbrance") upon any of the Purchased Assets; or
(d) Violate any order, writ, judgment, injunction, decree,
statute, law, rule, regulation or ordinance of any court or
governmental, quasi-governmental or regulatory department or authority
("Governmental Authority") applicable to the Seller, the Viractin
Product Line or the Purchased Assets.
4.4. Consents and Approvals. Other than the consents and approvals of
or filings or registrations with the governmental, quasi-governmental or
regulatory departments and authorities listed on Section 4.4 of the Disclosure
Schedule, no filing or registration with, no notice to and no permit,
authorization, consent or approval of any governmental, quasi-governmental or
regulatory department or authority is necessary for the execution and delivery
of this Agreement or the consummation of the purchase and sale of the Viractin
Product Line.
4.5. Inventory. To the Seller's Knowledge, all finished goods in
Inventory (i) are of good merchantable quality and are suitable for retail sale
in the ordinary course of business, (ii) have been manufactured in accordance
with good manufacturing practices, as defined by the Federal Food, Drug and
Cosmetic Act, as amended (the "FDA Act") and (iii) have not been adulterated or
misbranded within the meaning of the FDA Act, or the rules and regulations
promulgated thereunder.
<PAGE>
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4.6. Litigation. Except as set forth in Section 4.6 of the Disclosure
Schedule, there is no action, suit, inquiry, judicial or administrative
proceeding, arbitration or investigation (collectively referred to as "Claims")
relating to the Viractin Product Line or the Purchased Assets, including,
without limitation, Claims relating to product liability or consumer safety,
pending or threatened against the Seller or, to the Seller's Knowledge, the
Seller's Licensee, before any court, arbitrator or administrative or
governmental body, nor is there any judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against, and unsatisfied by, the Seller or, to the
Seller's knowledge, the Seller's Licensee, relating to the Viractin Product Line
or the Purchased Assets (any of the foregoing being herein referred to as
"Existing Litigation"), nor does the Seller know of any fact, event or condition
which could reasonably be expected to serve as a basis for the assertion of any
Claim. Without limiting the generality of the foregoing, there are no
investigations or proceedings currently existing or threatened relating to the
Viractin Product Line or the Purchased Assets before the Food and Drug
Administration (the "FDA") or any similar agency (whether federal or state), and
all such investigations or proceedings during the last five (5) years are fully
set forth in Section 4.6 of the Disclosure Schedule.
4.7. Title to Assets. Except for the rights granted the Seller's
Licensee which rights will terminate on the Transition Date, the Seller has good
and marketable title to all of the Purchased Assets, free and clear of any and
all Encumbrances, and the Purchased Assets are all of the properties and assets
that are, individually or in the aggregate, material to the Viractin Product
Line.
4.8. Material Contracts.
(a) Other than the Seller's Licensee Agreement, as modified by
the Termination Agreement, and the Termination Agreement, true and
correct copies of which are attached hereto as Exhibit 4.8(a)(i) and
4.8(a)(ii), respectively, there are no contracts, agreements or
arrangements, whether written or oral, formal or informal, which are
material to the Viractin Product Line to which the Seller is a party
or, to the Seller's Knowledge, which will survive the Closing Date and
which would adversely impact the Buyer's ability to exercise its
ownership rights to the Viractin Product Line or the Purchased Assets.
(b) The execution, delivery and performance of each of the
Seller's Licensee Agreement and the Termination Agreement has been
duly authorized by all requisite corporate action and each such
agreement is in full force and effect (with regard to the Seller's
Licensee Agreement, as such agreement was modified by the Termination
Agreement). Neither the Seller nor, to the Seller's Knowledge, the
Seller's Licensee has breached either of such agreements. There exists
no event, occurrence or act (including the execution of this Agreement
and the consummation
<PAGE>
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of the transactions contemplated hereby) which, with the giving of
notice or the lapse of time, or both, could reasonably become a
default by the Seller under either of such agreements.
(c) Section 4.8(c) to the Disclosure Schedule describes all
commitments and obligations with respect to trade promotions
(including coop advertising), refunds and similar promotional
campaigns and all consumer promotions, such as coupons, rebates,
refunds and similar promotional campaigns, relating to the Viractin
Product Line, which are known by Seller.
4.9. Permits. Section 4.9 of the Disclosure Schedule sets forth all of
the licenses, franchises, permits, consents and authorizations necessary for the
lawful conduct of the business of the Viractin Product Line.
4.10. Broker's Fees and Commissions. Neither the Seller nor any of its
directors, officers, employees or agents has employed any investment banker,
broker, finder or intermediary, and no fee or other commission is owed to any
third party, in connection with the transactions contemplated herein.
4.11. Proprietary Rights.
(a) Set forth in Section 4.11(a) of the Disclosure Schedule is a
list of all of the Trademarks, Patents and Copyrights included in the
Purchased Assets (hereinafter, together with the Technology, referred
to as the "Proprietary Rights"). Except for certain rights granted to
the Seller's Licensee, which rights will revert back to the Seller on
the Transition Date, the Seller is the sole and exclusive owner of the
Proprietary Rights, and has the sole and exclusive right to use,
license, sublicense, assign or sell the Proprietary Rights without
liability to, or consent of, any person or entity;
(b) Except for the rights granted to Seller's Licensee, which
rights will terminate on the Transition Date, the ownership and use of
the Proprietary Rights by the Buyer will not infringe upon the rights
of any person or entity, whether or not registered, patented or
copyrighted. The Seller has not received any notice of a claim of any
infringement nor were any such claims the subject of any action, suit
or proceeding involving the Seller, or to the best of Seller's
knowledge, the Seller's Licensee;
(c) The Seller has no knowledge of any infringement or improper
use by any third party of the Proprietary Rights, nor has the Seller,
nor, to the Seller's Knowledge, the Seller's Licensee or any affiliate
of either instituted any action, suit or proceeding in which an act
constituting an infringement of any of the Proprietary Rights was
alleged to have been committed by a third party;
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(d) Except as set forth in Section 4.11(d) of the Disclosure
Schedule, there are no licenses, sublicenses or agreements relating to
(i) the use by third parties of the Proprietary Rights or (ii) the use
by the Seller of the Proprietary Rights, and there is no prior right
of any other party or other impediment which would invalidate or
adversely affect any of the Proprietary Rights.
(e) Set forth in Section 4.11(e) of the Disclosure Schedule is a
list of all license, royalty or similar agreements entitling the
Seller to use any Trademarks or Copyrights of third parties.
4.12. Regulatory Reports. The Seller has, and to the Seller's
Knowledge, the Seller's Licensee has filed all material reports, registrations
and statements, together with any amendments required to be made with respect
thereto, that they were required to file in respect of the Viractin Product Line
in the last five (5) year period with any federal, state, local or foreign
governmental, quasi-governmental or regulatory department, authority or agency,
including, without limitation, the FDA or the Federal Trade Commission
(hereinafter sometimes collectively, the "Regulatory Agencies"), and has paid
all fees or assessments due and payable in connection therewith. Except for
normal periodic examinations conducted by the applicable Regulatory Agency in
the regular course of the Viractin Product Line, to the Seller's Knowledge, no
Regulatory Agency has initiated any proceeding or investigation into the
business or operations of the Viractin Product Line in the last five (5) year
period, nor has the Seller or the Seller's Licensee initiated any such
proceeding. To the Seller's Knowledge, there is no unresolved violation,
criticism or exception by any Regulatory Agency with respect to any report or
statement relating to an examination of the Viractin Product Line.
4.13. Agreements with Regulatory Agencies. Except as set forth in
Section 4.13 of the Disclosure Schedule, the Seller is not subject to any
cease-and-desist or other order issued by, or a party to any written agreement
or memorandum of understanding with, any Regulatory Agency that materially
restricts or may adversely impact the conduct of the Viractin Product Line.
4.14. Customers. Section 4.14 of the Disclosure Schedule contains a
list of the customers of the Seller's Licensee known to Seller relating to the
Viractin Product Line during the last twelve months. To the Seller's Knowledge,
the Seller's Licensee's relationships with such customers are good and the
Seller does not know of any fact, condition or event (including, without
limitation, the consummation of the transactions contemplated herein) which
would adversely affect the business relationships with such customers. Seller is
not aware that any of such customers, the sales of any of the Products to which
comprise five percent (5%) or more of the gross sales of such Products, intends
to curtail or terminate its relationship with the Viractin Product Line.
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4.15. Consumer Complaints. The Seller has provided to the Buyer a copy
of the consumer complaints and/or inquiries file it received from Seller's
Licensee, which file covers the period ending May 2, 1997 (the "Initial File").
The Seller shall provide to the Buyer copies of any additional consumer
complaints and/or inquiries it receives. Any consumer complaints and/or
inquiries received by the Seller or Seller's Licensee or provided to the Buyer
subsequent to the Initial File prior to Closing shall not be materially
different in scope or nature from the complaints and/or inquiries contained in
the Initial File.
4.16. Disclosure. No representation or warranty as to the Seller, the
Purchased Assets or the Viractin Product Line contained in this Agreement and no
statement contained in the Disclosure Schedule or any document, instrument or
agreement delivered pursuant hereto or in connection herewith contains any
untrue statement of a material fact, or omits to state any material fact
necessary, in light of the circumstances under which it was made, to make the
statement herein or therein not misleading.
4.17. Knowledge of the Seller, Etc. To the extent that the Seller
represents and warrants itself to have had knowledge or belief as to any event,
fact, condition or other matter set forth in this Agreement, Seller's
"Knowledge" (or similar words) shall mean the knowledge or belief of the
officers and directors of the Seller.
4.18. Copies of Documents. The Seller has caused to be made available
for inspection and copying by the Buyer and its advisers true, complete and
correct copies of all documents referred to in any Section of the Disclosure
Schedule.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as of the date hereof
as follows:
5.1. Organization and Qualification. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of its
organization, with all requisite power and authority to own, operate and lease
its properties and assets and to carry on its business as it is now being
conducted, and is qualified or licensed to do business and is in good standing
in each jurisdiction in which the ownership or leasing of property by it or the
conduct of its business requires such licensing or qualification, except in such
jurisdictions wherein the failure to so qualify would not have a material
adverse effect on the ability of the Buyer to consummate the transactions
contemplated hereby.
5.2. Authorization. The Buyer has full power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
herein. The
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execution and delivery of this Agreement by the Buyer and the performance by the
Buyer of its obligations hereunder have been duly authorized by its Board of
Directors. This Agreement has been duly and validly executed and delivered by
the Buyer, and constitutes a legal, valid and binding obligation of the Buyer,
enforceable against the Buyer in accordance with its terms, except to the extent
that such enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and remedies generally.
5.3. No Violation. Neither the execution and delivery of this
Agreement by the Buyer, the consummation of the transactions contemplated
hereby, nor the performance by the Buyer of its obligations hereunder, will:
(a) Violate or result in any breach of any provision of the
Certificate of Incorporation and/or By-laws of the Buyer;
(b) Violate, conflict with or result in a breach of, or
constitute a default (with or without due notice or lapse of time or
both) under, or permit the termination of, or result in the
acceleration of, or entitle any party to accelerate any obligation
under, or result in the loss of any benefit from any contract,
agreement or arrangement, whether written or oral, formal or informal,
nor
(c) Violate any order, writ, judgment, injunction, decree,
statute, law, rule, regulation or ordinance of any Governmental
Authority applicable to the Buyer, the Viractin Product Line or the
Purchased Assets.
5.4. Litigation. There are no pending Claims that have been commenced
against the Buyer that challenge, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions
contemplated hereunder. To the best the Buyer's knowledge, no such Claims have
been threatened.
5.5. Broker's Fees and Commissions. Neither the Buyer nor any of its
shareholders, directors, officers, employees or agents has employed any
investment banker, broker, finder or intermediary, and no such fee or other
commission is owed to any third party, in connection with the transactions
contemplated herein.
5.6. Disclosure. No representation or warranty as to the Buyer
contained in this Agreement and no statement made by the Buyer in the Disclosure
Schedule contains any untrue statement of a material fact, or omits to state any
material fact necessary, in light of the circumstances under which it was made,
to make the statement herein or therein not misleading.
5.7. Knowledge of the Buyer, Etc. The Buyer has no knowledge of any
fact, condition or circumstance concerning the Buyer which constitutes a
material breach
<PAGE>
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of any representation, warranty or covenant contained in this Agreement, or any
document, instrument or agreement delivered pursuant hereto or in connection
herewith which is not properly disclosed herein, therein or in the Disclosure
Schedule.
ARTICLE VI.
COVENANTS OF THE SELLER
The Seller hereby agrees to keep, perform and fully discharge the
following covenants and agreements:
6.1. Interim Conduct of the Viractin Product Line. From the date
hereof until the Transition Date, the Seller shall use its best efforts to
preserve, protect and maintain the Viractin Product Line and the Purchased
Assets, and shall promptly notify the Buyer of any material change in the normal
course of business or prospects of the Viractin Product Line of which the Seller
becomes aware and shall keep the Buyer fully informed of such events.
6.2. Cooperation; Access. From the date hereof through the Transition
Date, the Seller shall cooperate fully in assisting the Buyer in the planning
and implementation of a transitional plan for the transfer of the Viractin
Product Line.
6.3. Transfer of Inventory. Title to the Purchased Assets shall pass
to Buyer effective as of the Closing Date, with the exception of the Inventory,
which will be transferred to the Buyer in accordance with the Termination
Agreement. The Seller will cooperate with the Buyer and use its best efforts to
ensure that fifty percent (50%) of the finished goods in Inventory are delivered
to the Buyer prior to the Transition Date.
6.4. Foreign Patent and Trademark Assignments. The Seller shall use
its best efforts to obtain and record all appropriate assignments for any
foreign patents, trademarks or applications therefor which relate to the Patents
and Trademarks assigned pursuant to this Agreement.
6.5. Promotional Allowances, Product Returns and Consumer Complaints.
The Seller shall cooperate with the Buyer and shall take all reasonable actions
necessary to facilitate the transfer from the Seller to the Buyer all of
Seller's rights under the Termination Agreement pertaining to promotional
allowances, product returns and consumer complaints.
6.6. Confidentiality. Following the Closing, the Seller will not use,
publish or disclose any information relating to the Viractin Product Line or any
information of the Buyer or its affiliates which is proprietary, a trade secret
or of a confidential nature (collectively, the "Buyer Confidential Information")
to any Third Party
<PAGE>
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or use any Buyer Confidential Information for its own benefit except as
expressly permitted hereunder. The Seller will limit access to Buyer
Confidential Information to those of its employees and consultants who have a
need to know such information in order to perform the Seller's obligations under
this Agreement. The Seller will require that its employees and consultants
maintain said information in confidence in accordance with the terms of this
Agreement. Buyer Confidential Information shall not include any information
which: (i) is or becomes generally available to the public through no breach of
this Agreement, (ii) was received by a party to this Agreement from a Person who
is under no apparent obligation to maintain such information in confidence, or
(iii) was already known by a party to this Agreement on a nonconfidential basis
prior to its disclosure by the other party to this Agreement or its
representative. The Seller acknowledges that there is not an adequate remedy at
law for the breach of this Section 6.5 and that, in addition to any other
remedies available, injunctive relief may be granted for any such breach.
Notwithstanding the foregoing, the Seller may disclose the information regarding
the Viractin Product Line if otherwise permitted by the License Agreement and to
the extent such disclosure is reasonably necessary in filing or prosecuting
patent applications, prosecuting or defending litigation or complying with
applicable governmental regulations; provided, however, that if the Seller is
required to make any such disclosure, it will to the extent practicable give
reasonable advance notice to the Buyer of such disclosure requirement and will
use its best efforts to secure confidential treatment of such information
required to be disclosed.
6.7. Best Efforts. The Seller shall use its best efforts to consummate
the transactions contemplated by this Agreement.
6.8. Further Assurances. Following the Closing, the Seller shall take
all action reasonably requested by the Buyer to confirm, facilitate or perfect
the transfer of the Purchased Assets.
ARTICLE VII.
COVENANTS OF THE BUYER
The Buyer hereby agrees to keep, perform and fully discharge the
following covenants and agreements:
7.1. Confidentiality. Following the Closing, the Buyer will not use,
publish or disclose any information of the Seller which is proprietary, a trade
secret or of a confidential nature (the "Seller Confidential Information") to
any Third Party or use any Seller Confidential Information for its own benefit
except as expressly permitted hereunder. The Buyer will limit access to Seller
Confidential Information to those of its employees and consultants who have a
need to know such information in order to perform
<PAGE>
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the Buyer's obligations under this Agreement. The Buyer will require that its
employees and consultants maintain said information in confidence in accordance
with the terms of this Agreement. Seller Confidential Information shall not
include any information which: (i) is or becomes generally available to the
public through no breach of this Agreement, (ii) was received by a party to this
Agreement from a Person who is under no apparent obligation to maintain such
information in confidence, (iii) was already known by a party to this Agreement
on a nonconfidential basis prior to its disclosure by the other party to this
Agreement or its representative, or (iv) relates to the Viractin Product Line.
The Buyer acknowledges that there is not an adequate remedy at law for the
breach of this Section 7.1 and that, in addition to any other remedies
available, injunctive relief may be granted for any such breach.
7.2. Best Efforts. The Buyer shall use its best efforts to consummate
the transactions contemplated by this Agreement.
7.3. Further Assurances. Following the Closing, the Buyer shall take
all action reasonably requested by the Seller to confirm, facilitate or perfect
the transfer of the Purchased Assets.
ARTICLE VIII.
RIGHT OF FIRST OFFER
8.1. Right of First Offer. The Seller agrees that, for a period of
three (3) years following the Closing, if the Seller develops any products that
are intended to be sold to consumers at product launch without a doctor's
prescription ("Over-the-Counter Products") which it wants to license or sell to
a third party, then the Buyer shall have the first right to offer to license or
purchase such products from the Seller.
8.2. Procedure of Right of First Offer.
(a) The Seller shall notify the Buyer in writing of its
intentions regarding the license or sale of the Over-the-Counter
Product(s);
(b) Within thirty (30) days after receipt of such notice, the
Buyer shall submit a proposal in writing to the Seller setting forth
the terms and conditions pursuant to which it is willing to license or
purchase the product(s);
(c) Seller shall have thirty (30) days after receipt of Buyer's
proposal to reject such proposal, which it may do at its sole
discretion. Such rejection must be delivered to the Buyer in writing.
Failure to deliver such notice within the thirty (30) day period shall
be deemed an acceptance by the Seller of the Buyer's
<PAGE>
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proposed terms and conditions. If the Seller rejects the Buyer's
proposal, the Seller can license or sell such product(s) to a third
party provided the material terms of such license or sale are no less
favorable to the Seller as those proposed by the Buyer.
ARTICLE IX.
CLOSING CONDITIONS
9.1. Conditions to Each Party's Obligations Under this Agreement. The
respective obligations of each party under Articles I and II of this Agreement
shall be subject to the satisfaction, or the waiver by such party hereto, at or
prior to the Closing, of the condition precedent that no injunction, restraining
order or other ruling or order issued by any court of competent jurisdiction or
governmental, quasi-governmental or regulatory department or authority or other
law, rule, regulation, legal restraint or prohibition preventing the purchase
and sale of the Viractin Product Line and the Purchased Assets, and no
investigation by any governmental, quasi-governmental or regulatory department
or authority, shall be in effect as of or shall have commenced on or prior to
the Closing Date, and no action, suit or proceeding brought by any governmental,
quasi-governmental or regulatory department or authority shall be pending or
threatened as of the Closing Date which seeks any injunction, restraining order
or other order which would prohibit the purchase and sale of the Viractin
Product Line or the Purchased Assets or materially impair the ability of the
Buyer to own and operate the business related to the Viractin Product Line after
the Closing.
9.2. Conditions to the Obligations of the Buyer under this Agreement.
The obligations of the Buyer under Articles I and II of this Agreement shall be
further subject to the satisfaction, or to the waiver by the Buyer, at or prior
to the Closing, of the following conditions precedent:
(a) Each of the obligations of the Seller required to be
performed by the Seller at or prior to the Closing pursuant to this
Agreement, including, without limitation, delivery of the items
required to be delivered by the Seller under Section 3.3 hereof, shall
have been duly performed and complied with in all material respects;
each of the representations and warranties of the Seller contained in
this Agreement shall be true and correct in all material respects as
of the date of this Agreement (except as to any representation or
warranty which specifically relates to another date); and
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(b) Any and all consents, waivers, clearances, approvals and
authorizations from Third Parties required to be obtained prior to the
Closing shall have been obtained at no cost to the Buyer.
9.3. Conditions to the Obligations of the Seller under this Agreement.
The obligations of the Seller under Articles I and II of this Agreement shall be
further subject to the satisfaction, or to the waiver by the Seller, at or prior
to the Closing, of the condition precedent that each of the obligations of the
Buyer required to be performed by it at or prior to the Closing pursuant to the
terms of this Agreement, including, without limitation, delivery of the items
required to be delivered by the Buyer under Section 3.2, hereof, shall have been
duly performed and complied with in all material respects, and the
representations and warranties of the Buyer contained in this Agreement shall be
true and correct in all material respects as of the date of this Agreement
(except as to any representation or warranty which specifically relates to
another date).
ARTICLE X.
TERMINATION AND ABANDONMENT
10.1. Termination. This Agreement may be terminated and the purchase
and sale of the Purchased Assets contemplated hereby may be abandoned at any
time prior to the Closing:
(a) By the mutual written consent of the Buyer and the Seller; or
(b) By either the Buyer or the Seller:
(i) upon or after the breach of any material provision of
this Agreement by the other party if the breaching party has not
cured such breach within fifteen (15) days after written notice
thereof by the other party;
(ii) if a court of competent jurisdiction or a
governmental, quasi-governmental, regulatory or administrative
department, agency, commission or authority shall have issued an
order, decree or ruling or taken any other action (which order,
decree, ruling or action the parties hereto shall use their best
efforts to lift or dissolve), in each case restraining, enjoining
or otherwise prohibiting the purchase and sale of the Purchased
Assets or the other transactions contemplated hereby or
attempting to do the same; or
(iii) if the Closing shall not have occurred on or before
July 31, 1997; provided, however, that the right to terminate
this Agreement shall not be available to any party (A) whose
material breach of this Agreement,
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or (B) whose failure to have satisfied the conditions to the
other party's obligations under Section 9.2 (in the case of the
Seller) or 9.3 (in the case of the Buyer), has been the cause of,
or resulted in, the failure of the Closing to occur on or before
such date.
10.2. Procedure and Effect of Termination. In the event of the
termination of this Agreement and the abandonment of the purchase and sale of
the Purchased Assets pursuant to Section 10.1 hereof, written notice thereof
shall forthwith be given to the other party to this Agreement and this Agreement
shall terminate and the purchase and sale of the Purchased Assets shall be
abandoned, without any further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) Upon request therefor, each party will redeliver all
documents, work papers and other material of any other party
relating to the transactions contemplated hereby, whether
obtained before or after the execution hereof, to the party
furnishing the same; and
(b) No party hereto shall have any liability or further
obligation to any other party to this Agreement resulting from
such termination, except (i) that the provisions of this Section
10.2 shall remain in full force and effect, and (ii) to the
extent that any such termination results from a breach by such
party of any of its representations, warranties, covenants or
agreements set forth in this Agreement, or any failure to satisfy
the conditions to the other party's obligations under Section 9.2
(in the case of Seller) or 9.3 (in the case of Buyer), the other
party may recover its out-of-pocket costs in connection with the
preparation and negotiation of this Agreement, and all other
related transactional expenses incurred by such other party.
ARTICLE XI.
SURVIVAL AND INDEMNIFICATION
11.1. Survival. All representations, warranties, covenants and
agreements contained in this Agreement, and in any certificate, schedule,
document or other writing delivered pursuant hereto or in connection with the
transactions contemplated herein shall be in all cases deemed to have been
relied upon by the parties hereto, and shall survive the Closing; provided that
any such representations, warranties, covenants and agreements shall be fully
effective and enforceable only for a period of one (1) year after the Closing
Date, and shall thereafter be of no further force or effect, except that the
obligation to make the Additional Consideration Payments shall be fully
effective and enforceable until payment of the last Additional Consideration
Payment as set forth in Section 2.1(b) hereof and the representations and
warranties pertaining to the Proprietary Rights, set forth in
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Section 4.11 shall be effective and enforceable up to one (1) year after the
date upon which the last Additional Consideration Payment would be required to
be paid, and the confidentiality provisions and the indemnification obligations
in respect of the Excluded Liabilities and Obligations shall survive
indefinitely. Additionally, the parties agree that the indemnification
obligations set forth in this Article XI shall survive with respect to any
claims made within the applicable survival period until finally resolved or
judicially determined, including any appeal thereof and the non-competition
provisions set forth in Article XII hereof shall be fully effective and
enforceable for a period of five (5) years after the Closing Date. The
representations, warranties, covenants and agreements contained in this
Agreement or any certificate, schedule, document or other writing delivered
pursuant hereto shall not be affected by any investigation, verification or
examination by any party hereto or by any person acting on behalf of any such
party.
11.2. Indemnification of the Buyer. From and after the Closing, the
Seller agrees to indemnify, defend and save the Buyer and its directors,
officers, employees, owners, agents and affiliates and their successors and
assigns or heirs and personal representatives, as the case may be (each a "Buyer
Indemnified Party"), forever harmless from and against, and to promptly pay to a
Buyer Indemnified Party or reimburse a Buyer Indemnified Party for any and all
losses, damages, expenses (including, without limitation, court costs, amounts
paid in settlement, judgments, reasonable attorneys' fees or other expenses for
investigating and defending, including, without limitation, those arising out of
the enforcement of this Agreement), suits, actions, claims, deficiencies,
liabilities or obligations (collectively, the "Losses") sustained or incurred by
such Buyer Indemnified Party relating to, caused by or resulting directly or
indirectly from:
(a) Any misrepresentation or breach of warranty, or failure to
fulfill or satisfy any covenant or agreement made by the Seller
contained herein or in any certificate, schedule, document or other
writing delivered by the Seller pursuant hereto;
(b) Any liability of the Buyer for causes of action arising in
connection with the Viractin Product Line, the Purchased Assets or the
Assumed Liabilities based, in whole or in part, upon acts, omissions
or events which occurred on or prior to the Transition Date, or
relating to the period prior to the Transition Date, except as set
forth in the Assignment and Assumption Agreement;
(c) The Excluded Liabilities and Obligations; and
(d) The non-compliance of Seller with the provisions of any
applicable bulk sales act governing the purchase and sale of the
Purchased Assets.
11.3. Indemnification of the Seller. From and after the Closing, the
Buyer agrees to indemnify, defend and save the Seller and its directors,
officers, employees,
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owners, agents and affiliates and their successors and assigns or heirs and
personal representatives, as the case may be (each, a "Seller Indemnified
Party") forever harmless from and against, and to promptly pay to a Seller
Indemnified Party or reimburse a Seller Indemnified Party for, any and all
Losses sustained or incurred by such Seller Indemnified Party relating to,
caused by or resulting directly or indirectly from:
(a) Any misrepresentation or breach of warranty, the Assumed
Liabilities or failure to fulfill or satisfy any covenant or agreement
made by the Buyer contained herein or in any certificate, schedule,
document or other writing delivered by the Buyer pursuant hereto; and
(b) Any liability of the Seller for causes of action arising in
connection with the Viractin Product Line or the Purchased Assets
(including, but not limited to, Inventory, promotional allowances,
product returns, product liability for any products manufactured by
the Buyer, and Seller's Licensee's advertising, display and
promotional materials and customer lists) based upon acts, omissions
or events which occurred following the Transition Date, or relating to
the period following the Transition Date.
11.4. Limitations on Indemnification. Notwithstanding anything in
Sections 11.2 and 11.3 to the contrary:
(a) Neither the Seller nor the Buyer shall be entitled to recover
any Losses for indemnification under this Article XI unless and until
the aggregate Losses entitled to be recovered by such party exceed
Fifty Thousand Dollars ($50,000), at which time the appropriate party
shall be entitled to recover Losses that are in excess of Fifty
Thousand Dollars ($50,000);
(b) In no event shall either party's indemnification obligations
exceed an aggregate amount equal to the amount of the Purchase Price;
and
(c) The limitations of Sections 11.4(a) and (b) shall not apply
to any claim for Losses that are determined by a court of competent
jurisdiction in a proceeding from which no further appeal is permitted
to be taken to have been primarily caused by fraud, intentional
misrepresentation or intentional breach.
11.5. Indemnification Procedure for Third Party Claims Against
Indemnified Parties.
(a) In the event that subsequent to the Closing any Buyer
Indemnified Party or Seller Indemnified Party (each, an "Indemnified
Party") receives notice of the assertion of any claim or of the
commencement of any action, suit or proceeding by any entity which is
not a party to this Agreement (including, without
<PAGE>
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limitation, any governmental, quasi-governmental or regulatory
agencies) (a "Third Party Claim") against such Indemnified Party, with
respect to which the Buyer or the Seller (the "Indemnifying Party"),
as the case may be, are required to provide indemnification under this
Agreement, the Indemnified Party shall promptly give written notice,
together with a statement of any available information regarding such
claim (collectively, the "Third Party Indemnification Notice"), to the
Indemnifying Party within thirty (30) days after learning of such
claim (or within such shorter time as may be necessary to give the
Indemnifying Party a reasonable opportunity to respond to such claim).
The Indemnifying Party shall have the right, upon delivering written
notice to the Indemnified Party (the "Defense Notice") within thirty
(30) days after receipt from an Indemnified Party of a Third Party
Indemnification Notice, to conduct, at the Indemnifying Party's sole
cost and expense, the defense against such Third Party Claim in the
Indemnifying Party's own name, or, if necessary, in the name of the
Indemnified Party; provided, however, that the Indemnified Party shall
have the right to reasonably approve the defense counsel representing
the Indemnifying Party, which approval shall not be unreasonably
withheld, and in the event that the Indemnifying Party and the
Indemnified Party cannot agree upon such counsel within ten (10) days
after the Defense Notice is provided, then the Indemnifying Party
shall propose an alternate defense counsel, which shall be subject
again to the Indemnified Party's reasonable approval in accordance
with the terms hereof.
(b) In the event that the Indemnifying Party shall fail to give
the Defense Notice within the time and as prescribed by Section
11.5(a) hereof, then in any such event the Indemnified Party shall
have the right to conduct such defense in good faith with counsel
reasonably acceptable to the Indemnifying Party, but the Indemnified
Party shall be prohibited from compromising or settling any such claim
without the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld and shall be deemed given
in the absence of providing the Indemnified Party with a written
response within ten (10) days of any request therefor. If the
Indemnified Party fails to diligently defend such claim with counsel
reasonably satisfactory to the Indemnifying Party, or settles any such
claim without the Indemnifying Party's prior written consent, or
otherwise breaches this Article XI, the Indemnified Party will be
liable for all costs, expenses, settlement amounts or other Losses
paid or incurred in connection therewith and the Indemnifying Party
shall have no obligation to indemnify the Indemnified Party with
respect to such claim.
(c) In the event that the Indemnifying Party does deliver a
Defense Notice and thereby elects to conduct the defense of the
subject Third Party Claim, the Indemnified Party will cooperate with
and make available to the Indemnifying Party such assistance and
materials as the Indemnifying Party may reasonably
<PAGE>
-25-
request, all at the sole cost and expense of the Indemnifying Party.
Regardless of which party defends such claim, the other party hereto
shall have the right at its own cost and expense to participate in the
defense assisted by counsel of its own choosing. The Indemnifying
Party shall not enter into any settlement of any Third Party Claim
without the prior written consent of the Indemnified Party, which
consent shall not be unreasonably withheld. If a firm decision is made
to settle a Third Party Claim, which offer the Indemnifying Party is
permitted to settle under this Section 11.5(c), and the Indemnifying
Party desires to accept and agree to such offer, the Indemnifying
Party will give at least five (5) days' prior written notice to the
Indemnified Party to that effect, setting forth in reasonable detail
the terms and conditions of any such settlement (the "Settlement
Notice"). If the Indemnified Party objects to such firm offer within
ten (10) calendar days after its receipt of such Settlement Notice,
the Indemnified Party may continue to contest or defend such Third
Party Claim and, in such event, the maximum liability of the
Indemnifying Party as to such Third Party Claim will not exceed the
amount of such settlement offer described in the Settlement Notice,
plus costs and expenses paid or incurred by the Indemnified Party up
to the point such Settlement Notice had been delivered. If an
Indemnified Party settles any Third Party Claim without the prior
written consent of the Indemnifying Party, the Indemnifying Party
shall have no obligation to indemnify the Indemnified Party under this
Article XI with respect to such Third Party Claim.
(d) Any judgment entered or settlement agreed upon in the manner
provided herein shall be binding upon the Indemnifying Party, and
shall be conclusively deemed to be an obligation with respect to which
the Indemnified Party is entitled to prompt indemnification hereunder,
subject to the Indemnifying Party's right to appeal an appealable
judgment or order. Such indemnification shall be required to be made
no later than the tenth (10th) day following the expiration of any
period in which an appeal may be taken, and shall be satisfied by
payment of the amount thereof in cash.
11.6. Failure to Give Timely Third Party Indemnification Notice. Any
failure by an Indemnified Party to give a timely, complete or accurate Third
Party Indemnification Notice as provided in this Article XI will not affect the
rights or obligations of any party hereunder except and only to the extent that,
as a result of such failure, any party entitled to receive such Third Party
Indemnification Notice was deprived of its right to recover any payment under
its applicable insurance coverage or was otherwise adversely affected or damaged
as a result of such failure to give a timely, complete and accurate Third Party
Indemnification Notice.
11.7. Notice of Claims. In the case of a claim for indemnification
under Section 11.2 or Section 11.3 hereof, upon determination by a Buyer
Indemnified Party or a
<PAGE>
-26-
Seller Indemnified Party, as the case may be, that it has a claim for
indemnification, the Indemnified Party shall deliver notice of such claim to the
Indemnifying Party, setting forth in reasonable detail the basis of such claim
for indemnification (each, an "Indemnification Notice"). Upon the
Indemnification Notice having been received by the Indemnifying Party, the
Indemnifying Party shall have thirty (30) days in which to notify the
Indemnified Party in writing (the "Dispute Notice") that the amount of the claim
for indemnification is in dispute, setting forth in reasonable detail the basis
of such dispute. In the event that a Dispute Notice is not given to the
Indemnified Party within the required thirty (30) day period, the Indemnifying
Party shall be obligated to pay to the Indemnified Party the amount set forth in
the Indemnification Notice within sixty (60) days after the date that the
Indemnification Notice had been received by the Indemnifying Party.
In the event that a Dispute Notice is timely given to an Indemnified
Party, the parties hereto shall have thirty (30) days to resolve any such
dispute. In the event that such dispute is not resolved by such parties within
such period, the parties shall have the right to pursue all available legal
remedies to resolve such dispute.
ARTICLE XII.
NON-COMPETITION
12.1. Non-Competition. Commencing on the Closing Date and ending five
(5) years thereafter (the "Covered Period"), the Seller agrees not to engage in
any Competitive Activity (as hereinafter defined). For purposes of this
Agreement, the term "Competitive Activity" shall mean directly or indirectly
engaging in the business of licensing, manufacturing, distributing and/or
selling any products and researching and developing any Over-the-Counter
Products for the treatment of cold sores and fever blisters.
12.2. Injunctive Relief. The Seller acknowledges and agrees that the
Buyer is engaged in a highly competitive business and that the protections of
the Buyer set forth in this Article XII are fair and reasonable and are of vital
concern to the Buyer. Further, the Seller acknowledges and agrees that monetary
damages for any violation of this Article XII will not adequately compensate the
Buyer with respect to any such violation. Therefore, in the event of a breach by
the Seller of this Article XII, the Buyer shall be entitled to institute legal
proceedings to obtain damages for any such breach and/or to enforce the specific
performance of this Article XII by the Seller and to enjoin the Seller from any
further violations.
<PAGE>
-27-
ARTICLE XIII.
MISCELLANEOUS PROVISIONS
13.1. Waiver. No provision of this Agreement will be waived or
discharged by any act, omission or knowledge of a party or its agents or
employees, except by a written instrument expressly waiving or discharging such
provision signed by a duly authorized representative of the waiving party. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
13.2. Amendment; Modification. No amendment, modification or
supplement of any provision of this Agreement will be valid or effective unless
made in writing and signed by an authorized representative of each party.
13.3. Invalidity. If any provision of this Agreement shall be
determined by any court of competent jurisdiction to be unenforceable or invalid
to any extent, the remainder of this Agreement shall not be affected thereby,
and this Agreement shall be construed to the fullest extent possible to give
effect to the intentions of the provision found unenforceable or invalid.
13.4. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
expressed or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
13.5. Expenses. Except as otherwise specifically provided for herein,
each party hereto shall bear all expenses incurred by it in connection with this
Agreement including, without limitation, the charges of its counsel, accountants
and other experts.
13.6. Notices. All notices and other communications provided for
hereunder shall be in writing and shall be delivered to each party hereto by
hand or sent by reputable overnight courier, with receipt verified, or by
facsimile, with receipt verified, or by registered or certified mail, return
receipt requested, addressed as follows:
<PAGE>
-28-
(a) If to the Buyer:
CEP Holdings, Inc.
C/O Puglisi & Associates
P.O. Box 535
850 Library Avenue
Suite 204B
Newark, Delaware 19715
Attention: Donald J. Puglisi
Telephone: (302) 738-2356
Facsimile: (302) 738-7210
With a copy to:
J.B. Williams Company, Inc.
65 Harristown Road
Glen Rock, NJ 07452
Attention: Mr. Dario U. Margve
Telephone: (201) 251-8100
Facsimile: (201) 251-8097
And a copy to:
Katherine Burgeson, Esq.
Cummings & Lockwood
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06904-0120
Telephone: (203) 351-4260
Facsimile: (203) 351-4499
(a) If to the Seller:
ViroTex Corporation
2170 Buckthorne Place
Suite 230
The Woodlands, Texas 77380
Attention: Mr. Jeffrey M. Soinski
Telephone: (281) 292-7671
Facsimile: (281) 292-6697
<PAGE>
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With a copy to:
Frederick T. Muto, Esq.
Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121
Telephone: (619) 550-6010
Facsimile: (619) 453-3555
or at such other address as either party may specify by notice to the other
party given as aforesaid. Such notices shall be deemed to be effective when the
same shall be deposited, postage prepaid, in the mail and/or when the same shall
have been delivered by hand or overnight courier, and/or upon facsimile
transmission, as the case may be.
13.7. Governing Law; Forum. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
New York without regard to its conflicts of law principles. The parties hereto
do hereby consent and submit to the venue and jurisdiction of the State or
Federal Courts sitting in New York as the sole and exclusive forum for such
matters of dispute, and further agree that, in the event of any action or suit
as to any matters of dispute between the parties, service of any process may be
made upon the other party by mailing a copy of the summons and/or complaint to
the other party at the address set forth herein and a party's refusal to accept
any such notice shall be equivalent to service.
13.8. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
13.9. Headings. All headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of any provision or provisions of this Agreement.
13.10. Entire Agreement. This Agreement, and the documents to be
delivered in connection herewith, and the exhibits and schedules hereto, set
forth the entire agreement of the parties hereto in respect of the subject
matter contained herein and supersede all prior and contemporaneous agreements,
promises, covenants, arrangements, understandings, communications,
representations or warranties, whether oral or written, by any officer, partner,
employee or representative of any party hereto. Any prior agreement of the
parties hereto in respect of the subject matter contained herein is hereby
terminated
<PAGE>
-30-
and cancelled. No agreements or representations, whether written, oral, express
or implied, with respect to the subject matter hereof have been made by either
party that are not set forth expressly in this Agreement and the other documents
to be delivered in connection herewith and therewith.
13.11. Assignment. This Agreement may not be assigned or otherwise
transferred, nor, except as expressly provided hereunder, may any right or
obligation hereunder be assigned or transferred by either party without the
prior written consent of the other party; provided, however, that either party
may, without such consent, assign this Agreement and its rights and obligations
hereunder (a) in connection with the transfer or sale of all or substantially
all of its business, if such assets include substantially all of the assets
relating to its performance of its respective obligations hereunder, (b) to a
wholly owned subsidiary provided it guarantees the obligations of such
subsidiary or (c) in the event of its merger or consolidation with another
company at any time during the term of this Agreement. The Buyer may assign all
or any part of its rights and obligations hereunder to a person or entity who
directly or indirectly controls, is controlled by or is under common control
with the Buyer (in each case by ownership of at least fifty percent (50%) of the
outstanding voting securities of a corporation or comparable equity interest in
any other type of entity, or by contract or other arrangement). Any purported
assignment in violation of this Section 13.11 shall be void. The rights and
obligations of the parties under this Agreement will be binding upon the heirs,
successors and permitted assigns of the parties and the name of a party
appearing herein will be deemed to include the names of such party's successors
and permitted assigns to the extent necessary to carry out the intent of this
Agreement.
13.12. Publicity. No party shall issue any press release or public
announcement of any kind concerning the transactions contemplated by this
Agreement without the prior written consent of the other parties hereto, except
as may be required by law or by the rules of any stock exchange, and if so
required, the parties shall, to the extent that it is reasonably practicable,
consult with each other prior to such publicity. The parties agree to issue an
announcement following the Closing in form and content satisfactory to all of
the parties hereto.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have duly executed this Asset
Purchase Agreement as of the day and year first above written.
CEP HOLDINGS, INC.
By /s/ DONALD J. PUGLISI
----------------------------------
Donald J. Puglisi
President
VIROTEX CORPORATION
By /s/ JEFFREY M. SOINSKI
----------------------------------
Jeffrey M. Soinski
President and Chief Executive
Officer
Asset Purchase Agreement
<PAGE>
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APPENDIX A
----------
DEFINITIONS
-----------
Section
-------
Accountant.........................................................2.1(b)(viii)
Accountant's Audit.................................................2.1(b)(viii)
Additional Consideration Payments.....................................2.1(b)(i)
Agreement..............................................................Preamble
Assignment and Assumption Agreement......................................3.2(d)
Assumed Liabilities.........................................................1.2
Bill of Sale.............................................................3.3(a)
Buyer..................................................................Preamble
Buyer Confidential Information..............................................6.6
Buyer Indemnified Party....................................................11.2
Cash Consideration.......................................................2.1(a)
Claims......................................................................4.6
Closing.....................................................................3.1
Closing Date................................................................3.1
Competitive Activity.......................................................12.1
Copyrights...............................................................1.1(d)
Covered Period.............................................................12.1
Covered Products.....................................................2.1(b)(ii)
Defense Notice..........................................................11.5(a)
Deposit.....................................................................3.5
Dispute Notice.............................................................11.7
<PAGE>
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Encumbrance..............................................................4.3(c)
ERISA....................................................................1.3(g)
Excluded Liabilities and Obligations........................................1.3
Existing Litigation.........................................................4.6
FDA.........................................................................4.6
FDA Act.....................................................................4.5
Governmental Authority...................................................4.3(d)
Guaranty.................................................................3.2(a)
Indemnification Notice.....................................................11.7
Indemnified Party.......................................................11.5(a)
Indemnifying Party......................................................11.5(a)
Initial File...............................................................4.15
Inventory................................................................1.1(l)
Knowledge..................................................................4.17
License Agreement........................................................3.2(b)
Losses.....................................................................11.2
Over-the-Counter Products...................................................8.1
Patents..................................................................1.1(c)
Products...............................................................Preamble
Proprietary Rights......................................................4.11(a)
Purchase Price..............................................................2.1
Purchased Assets............................................................1.1
Quarter Period........................................................2.1(b)(i)
Regulatory Agencies........................................................4.12
<PAGE>
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Seller.................................................................Preamble
Seller Confidential Information.............................................7.1
Seller Indemnified Party...................................................11.3
Seller's Audit......................................................2.1(b)(vii)
Seller's Licensee......................................................Preamble
Seller's Licensee Agreement..............................................1.1(a)
Settlement Notice.......................................................11.5(c)
Technology...............................................................1.1(e)
Termination Agreement....................................................1.1(a)
Third Party..............................................................1.3(d)
Third Party Claim.......................................................11.5(a)
Third Party Indemnification Notice......................................11.5(a)
Trademarks...............................................................1.1(b)
Transition Date..........................................................1.3(e)
Viractin Product Line..................................................Preamble
ASSET PURCHASE AGREEMENT
by and between
J.B. WILLIAMS COMPANY, INC.
and
HOECHST MARION ROUSSEL CANADA INC.
October 31, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of October 31,
1997, by and between J.B. WILLIAMS COMPANY, INC. (the "Buyer") and HOECHST
MARION ROUSSEL CANADA INC. (the "Seller").
WHEREAS, the Seller is engaged or has been engaged in the business of
developing, manufacturing, marketing, selling and distributing in Canada (the
"Territory") the oral care products identified on Exhibit A annexed hereto and
made a part hereof (collectively, the "Products" and individually, a "Product",
such business being hereinafter referred to as the "Business"); and
WHEREAS, the Buyer desires to purchase from the Seller and the Seller
desires to sell to the Buyer the Purchased Assets (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I.
PURCHASE AND SALE OF ASSETS
---------------------------
1.1. Purchase and Sale of Assets. At the Effective Time (as
hereinafter defined), the Seller shall sell, transfer, assign and deliver to the
Buyer, and the Buyer shall purchase, accept, assume and receive, all of the
Seller's right, title and interest in and to the following assets (the
"Purchased Assets"):
(a) The trademarks or names "CEPACOL" and "CEPASTAT," and all
other trademarks, trade dress, trade names, brand names, service marks, logos,
logotypes, and packaging style and symbols which are or have been used at any
time in respect of the manufacture, marketing, promotion, distribution, sale, or
commercial exploitation of the Products, together with all goodwill associated
therewith, any registrations associated therewith, including any applications,
renewals, modifications or extensions (collectively, "Registrations"), and all
copyrights and slogans, all domain names and web pages and similar internet
properties, in any such case that have been used in the Territory by the Seller
or any affiliate or predecessor owner (or are under development for use by the
Seller in the Territory), in the manufacture, marketing, promotion,
distribution, sale, or commercial exploitation of the Products;
(b) Any existing files pertaining to the manufacture, production,
promotion, advertising, distribution, sale or commercial exploitation of the
Products in whatever format (written or machine readable, or in computer data
bases or other media), including, without limitation, research and development
files and studies, market studies (including studies in respect of competitor's
brands), copies of consumer complaint files, sale histories, quality control
histories, files relating to the Manufacturing Know-How (as hereinafter
defined), and any and all other business records relating to the Products or the
Business generally;
<PAGE>
(c) Any (i) formulae, techniques and technical, processing and
manufacturing knowledge and know-how including, without limitation, (ii) all new
developments, inventions, processes, techniques and ideas, including as to batch
processing, all trade secrets, technology, know-how, information relating to
shelf life and stability of the Products, patents and Registrations therefor,
and (iii) all papers, documentation, blue prints, drawings, compositions,
diaries, notebooks, schematics, specifications, designs, methods of manufacture
and production relating to all of the Purchased Assets described in
subparagraphs (i) and (ii) of this Section 1.1(c), in each case which are or
have been owned, used or held for use in the conduct of the Business, or are
under research and development, relating to the manufacture, promotion, sale or
commercial exploitation of the Products or relating to the Business generally
(the "Manufacturing Know-How"), provided, however, that Manufacturing Know-How
expressly does not include the Seller's current continuous flow process
technology as applied to the Products;
(d) Any marketing materials and rights relating to the promotion,
marketing, advertisement or commercial exploitation of the Products, including
slogans, jingles, marketing campaigns, promotional materials, art, mechanical
and artwork for the production of packaging components, television and radio
masters, film or video clips, sound recordings, photographs and similar
materials, including any Registrations associated therewith, that have been
owned, used or held for use in the conduct of the Business, or are under
development, in the promotion, marketing, advertisement or commercial
exploitation of the Products or relating to the Business generally;
(e) Any current and historical lists of customers, manufacturers,
suppliers, vendors and distributors of the Business;
(f) All rights under or pursuant to all warranties,
representations and guaranties made by manufacturers, suppliers or vendors in
connection with the Products, the Business or relating in any manner to the
Purchased Assets;
(g) All goodwill of the Business including, without limitation,
all goodwill attributable to the Products and the other Purchased Assets; and
(h) All assignable permits, governmental licenses, filings,
authorizations, approvals and other indicia of authority used or held for use in
the conduct of the Business.
1.2. Excluded Assets; Excluded Liabilities. All other assets of the
Seller are expressly excluded from the Purchased Assets (collectively, the
"Excluded Assets"). Neither the Buyer nor any of its affiliates shall assume any
liabilities or obligations of the Seller or any of its respective Canadian
affiliates or predecessor owners, or any liabilities or obligations relating to
or arising from the Business or the conduct thereof including, without
limitation, (a) breach of product warranties, product liability and liability in
tort (including in either case unripened liabilities due to Products
manufactured by or on behalf of Seller, any Canadian affiliate or predecessor
owner of the Seller or the Business or any other manufacturer, or liabilities
from actions or sales occurring prior to the Effective Time), (b) indebtedness
for borrowed money, (c) Tax liabilities, (d) obligations to present or former
employees, agents,
-2-
<PAGE>
representatives or other personnel, (e) contracts or other agreements, (f)
liabilities relating to the Excluded Assets, (g) all liabilities for the
violation or breach of any environmental laws, rules or regulations and (h) all
liabilities for trade and consumer promotions arising prior to the Effective
Time, in any case whether known or unknown, fixed or contingent, absolute,
conditional or otherwise. Without limiting the generality of the foregoing, the
Seller and/or any of its Canadian affiliates or predecessor owners, as the case
may be, shall remain solely and exclusively liable for all liabilities or
obligations as a result of any act, omission or event occurring prior to the
Effective Time, whether or not the related cause of action or damage occurred
after the Effective Time. All liabilities and obligations retained by the
Seller, its Canadian affiliates or predecessor owners as described in this
Section 1.2, are collectively referred to herein as the "Excluded Liabilities."
After the Effective Time, the Seller shall, directly or indirectly, discharge
and satisfy in full when due the Excluded Liabilities.
ARTICLE II.
CONSIDERATION FOR TRANSFER
--------------------------
2.1. Consideration. Buyer is delivering to Seller on the date hereof
Two Million One Hundred Thousand Canadian Dollars ($2,100,000) (such amount
being the "Purchase Price" and sometimes referred to as the "Closing Cash
Payment").
2.2. Payment of Taxes. To the extent any federal taxes, GST and QST
(such terms being defined in Section 4.22 herein), other provincial sales taxes,
any other sales taxes, excise taxes and any other taxes, duties or other like
charges are properly payable upon and in connection with the conveyance and
transfer of the Purchased Assets by the Seller to the Buyer, the Buyer shall be
liable for payment of such amounts. Notwithstanding the foregoing, the Seller
and the Buyer acknowledge that they are not aware of any such amounts which are
due and payable in connection with the conveyance and transfer of the Purchased
Assets by the Seller to the Buyer.
ARTICLE III.
THE CLOSING AND TRANSFER OF THE PURCHASED ASSETS
------------------------------------------------
3.1. Closing. The transfer of Purchased Assets contemplated by this
Agreement (the "Closing") shall occur on the date hereof (the "Closing Date").
The effective time of the Closing shall be 11:59 p.m. on the Closing Date (the
"Effective Time").
3.2. Deliveries by the Buyer. At the Closing, the Buyer is delivering:
(a) The Closing Cash Payment;
(b) A certified copy of resolutions of the Board of Directors of
the Buyer providing authority for the execution, delivery and performance of
this Agreement and the transactions contemplated hereby;
-3-
<PAGE>
(c) An opinion of Cummings & Lockwood, counsel to Buyer; and
(d) Such other instruments or documents as may be reasonably
requested by Seller in connection with the transactions.
3.3. Deliveries by the Seller. At the Closing, the Seller is
delivering:
(a) A bill of sale and assignment for the Purchased Assets;
(b) Trademark and copyright assignments;
(c) A certified copy of the resolution of the Board of Directors
of the Seller providing authority for the execution, delivery and performance of
this Agreement and the transactions contemplated hereby;
(d) An opinion of Peter R. Slaughter, Esq., general counsel to
Seller; and
(e) Such other instruments or documents as may be reasonably
requested by Seller in connection with the transactions.
ARTICLE IV.
REPRESENTATIONS AND
WARRANTIES OF THE SELLER
------------------------
The Seller represents, warrants and covenants to the Buyer as follows:
4.1. Organization and Qualification. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with all requisite power and authority and
legal right to own, operate and carry on the Business. The Seller is duly
qualified to do business and is in good standing in every jurisdiction where the
nature of the Business requires such qualification, except in such jurisdictions
where the failure to so qualify would not have a material adverse effect on the
business, revenues, financial condition, properties, assets or prospects of the
Business (a "Material Adverse Effect").
4.2. Authorization. The Seller has full corporate power, authority and
legal right to execute and deliver and to perform its obligations under this
Agreement. The execution and delivery of this Agreement and by the Seller and
the performance by the Seller of its obligations hereunder and thereunder have
been duly authorized by all requisite action, including, without limitation, by
its Board of Directors. No other action on the part of the Seller is necessary
to authorize the execution and delivery of this Agreement, or the performance of
the Seller's obligations hereunder. This Agreement has been or will be duly and
validly executed and delivered by the Seller and constitutes the legal, valid
and binding obligation of the Seller, enforceable against the Seller in
accordance with its terms.
-4-
<PAGE>
4.3. No Violation. Neither the execution and delivery of this
Agreement and the Seller Related Agreements by the Seller nor the performance by
the Seller of its obligations hereunder or thereunder will: (a) violate or
result in any breach of any provision of the Articles of Incorporation and
By-laws of the Seller, each as amended; (b) violate, conflict with or result in
a violation or breach of, or constitute a default (with or without due notice or
lapse of time or both), or permit the termination of, or require the consent of
any other party to, or result in the acceleration of, or entitle any party to
accelerate any obligation, or result in the loss of any benefit, or give rise to
the creation of any options, pledges, security interests, liens, mortgages,
claims, debts, charges, voting agreements, voting trusts or other encumbrances
or restrictions on transfer of any kind whatsoever (each, an "Encumbrance") upon
any of the Purchased Assets or the Business, under or pursuant to any contract,
agreement or arrangement, whether oral or in writing, to which the Business, all
or any portion of the Purchased Assets, the Seller or the Seller's assets or
properties is bound; (c) violate any order, writ, judgment, injunction, decree,
statute, law, rule, regulation or ordinance of any court or Governmental
Authority applicable to the Business, the Purchased Assets, the Seller or the
Seller's properties or assets; or (d) require Seller to make any filing or
registration with, or provide notice to or obtain any permit, authorization,
consent or approval of any Governmental Authority, or any other person or
entity, whether under applicable law, order, statute, rule or regulation,
foreign or domestic, or under any contract, agreement or arrangement, whether
oral or in writing, for the execution and delivery of this Agreement and the
Seller Related Agreements, the consummation of the purchase and sale of the
Business and the Purchased Assets, or to enable the Buyer to continue to conduct
the Business and own, use and operate the Purchased Assets after the Closing in
a manner which is consistent with that in which the Business and the Purchased
Assets is presently conducted, owned, used and operated, as applicable.
4.4. Sales Reports. The Seller has delivered to the Buyer copies of
the unaudited internal income statements of the Seller for calendar years ended
1994, 1995 and 1996, and for the eight-month period ended August, 1997 (the
"Income Statements"), and copies of the Seller's internally generated sales
reports for the Business for calendar years ended 1994, 1995 and 1996, and for
the eight- month period ended August, 1997 (the "Sales Reports"). Copies of the
Sales Reports are attached hereto as Schedule 4.4. Each of the Income Statements
and Sales Reports was prepared in the ordinary course of Seller's business from
the Seller's books and records, and represents actual, bona fide transactions,
and accurately reflects the sales of the Business to all customers with whom the
Seller transacted business during the above-referenced time frames.
4.5. Absence of Undisclosed Liabilities. The Business has no liability
(whether accrued, absolute, contingent or otherwise, and whether then due or to
become due), and no loss contingency, except as disclosed herein, which would be
required to be included in any financial statement relating to the Business in
accordance with GAAP, and the Seller has no knowledge of any valid basis for the
assertion of any of the foregoing.
-5-
<PAGE>
4.6. Open Orders. The Business does not have any open orders with
respect to which it has been prepaid, in whole or in part, or has received
deposits or other advances.
4.7. Absence of Certain Changes. Since March 31, 1997, the Seller has
conducted the Business as it relates solely to the Lozenges Products only in the
ordinary and usual course and, without limiting the generality of the foregoing,
since the date of the Interim Balance Sheet, there has not been any event,
change or condition of any character in or on the business, properties, assets,
financial condition, results of operations or prospects of the Business which,
individually or in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect.
4.8. Title to Assets. The Seller has good and marketable title to all
of the Purchased Assets, free and clear of any and all Encumbrances. The Seller
is not aware of any liens in the Territory made to perfect a security interest
in all or any portion of the Purchased Assets. Seller acknowledges that it
(through a predecessor entity) obtained title to the Purchased Assets from
Merrell Dow Pharmaceutical (Canada) Inc. ("Merrell Dow") through an asset
acquisition that was consummated in December of 1994, and, notwithstanding that
Merrell Dow, prior to the Closing Date, was listed as the registered owner of
the Registrations, Merrell Dow has no interest in the Registrations or any of
the other Purchased Assets and has had no such interest since such date.
4.9. Contracts. Other than as listed on Schedule 4.9 of the Disclosure
Schedule, there are no contracts, agreements, arrangements or understandings,
whether formal or informal, written or oral, that would be binding on or in any
way impact Purchaser, the Purchased Assets or the Business following the
Closing, including, without limitation, non-compete agreements, agreements
limiting the Territory of the Business or restricting sales of the Products,
agreements with sales representatives or employees, or agreements with lenders.
Each of the contracts, agreements, arrangements and understandings set forth on
Schedule 4.9 are in full force and effect as of the Closing Date, and none of
the parties to such contracts, agreements, arrangements and understandings is in
default thereunder, nor does there exist any event or condition which, with the
passage of time, or the giving of notice, or both, could reasonably be expected
to become a default.
4.10. Compliance with Applicable Laws; Permits and Licenses.
(a) The Seller holds, and at all relevant times has held, all
licenses, franchises, permits, consents and/or authorizations necessary for the
lawful conduct of the Business, and the Business is not being and has not been
conducted in violation of any provision of any federal, provincial, local or
foreign statute, law, ordinance, rule, regulation, judgment, decree, order,
concession, grant, franchise, permit, consent or license or other authorization
or approval of any court or any Governmental Authority.
(b) The Seller has no knowledge or notice of any failure to
comply with any federal, provincial, local or foreign statute, law, ordinance,
rule, regulation, judgment, decree, order, concession, franchise, permit,
consent or license or other authorization or approval of any court or any
Governmental Authority applicable to the Business.
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(c) Section 4.10(c) of the Disclosure Schedule sets forth all of
the licenses, franchises, permits, consents and authorizations necessary for the
lawful conduct of the Business.
4.11. Brokers' Fees and Commissions. Neither the Seller or its
Canadian affiliates nor any of their respective directors, officers, employees
or agents has employed any investment banker, broker, finder or intermediary,
and no fee or other commission is owed to any third party, in connection with
the transactions contemplated herein.
4.12. Proprietary Rights.
(a) All Registrations have been obtained or applied for in
respect of the trademarks and trade names included in the Purchased Assets
(hereinafter referred to as the "Proprietary Rights"). All Registrations of the
Proprietary Rights are current and in good standing, none has lapsed, been
terminated, abandoned or forfeited, and no renewal or expiration of any such
Registration is scheduled to occur at any time within the next six (6) months.
The Seller is the sole and exclusive owner of the Proprietary Rights, and has
the sole and exclusive right to use, license, sublicense, assign or sell the
Proprietary Rights without liability to, or consent of, any person or entity.
The Seller acknowledges that no patents are listed on the Disclosure Schedule
and that, as of the date of Closing, the Seller does not own any patents which
relate to the Purchased Assets.
(b) The use of the Proprietary Rights does not infringe upon the
rights of any person or entity, whether or not registered, patented or
copyrighted. The Seller has not received any notice of a claim of such
infringement nor were any such claims the subject of any action, suit or
proceeding involving the Seller. The Seller has no knowledge of any infringement
or improper use by any person or entity of the Proprietary Rights, nor has the
Seller instituted any action, suit or proceeding in which an act constituting an
infringement in the Territory of any of the Proprietary Rights was alleged to
have been committed by any person or entity.
(c) There are no licenses, sublicenses or agreements relating to
(i) the use by any person or entity of the Proprietary Rights or (ii) the use by
the Seller of the Proprietary Rights, and there is no prior right of any person
or entity or other impediment which would invalidate or adversely affect all or
any portion of the Proprietary Rights in the Territory.
4.13. Regulatory Reports. The Seller has filed all material reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that it was required to file in respect of the Business or
any Product of the Business in the last three (3) year period with any court or
Governmental Authority, and has paid all fees or assessments due and payable in
connection therewith. Furthermore, the Seller is not aware of any filing
required to be made with respect to the Business or any Product of the Business
prior to such three (3) year period or of any unpaid fees or assessments related
thereto. No court or Governmental Authority has initiated any proceeding or
investigation into the business or operations of the Business, nor has the
Seller initiated any such proceeding. There is no unresolved violation,
criticism or exception by any court or Governmental Authority with
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respect to any report or statement relating to an examination of the Business or
any Product thereof.
4.14. Agreements with Governmental Authorities. The Seller is not
subject to any prohibition, cease-and-desist or other order issued by, or a
party to any written agreement or memorandum of understanding with, any court or
Governmental Authority relating to or affecting (or which may affect) the
Business or any Product thereof.
4.15. Customers and Suppliers of the Seller; Promotions.
(a) Section 4.15(a) of the Disclosure Schedule contains an
accurate and complete list of all customers of the Business in the
thirty-six-month period ended August, 1997. The Seller compiled such list from
the Sales Reports provided to the Buyer for said thirty-six month period. In
addition, the Seller's relationship with certain key customers, namely, each of
Medis Health & Pharmacy and Jean Coutu (PJC) Inc. (collectively, the "Key
Customers"), is good, and the Seller is not aware of any fact, condition or
event (including, without limitation, the consummation of the transactions
contemplated hereby) which would adversely affect the relationship of the Seller
with its Key Customers.
(b) Section 4.15(b) of the Disclosure Schedule sets forth a
detailed description of all trade and consumer promotions that are now in effect
or have been in effect at any time in the past twelve (12) months, including,
without limitation, coupon, rebate and similar programs, two-for-one/buy one get
one free and similar offers, and co-op advertising programs.
(c) Section 4.15(c) of the Disclosure Schedule sets forth an
accurate and complete list of all back orders not yet filled by Seller as of the
Closing Date. Seller hereby expressly waives any right, title or interest it may
have in such back orders beyond the Closing Date.
4.16. Products and Product Warranty.
(a) All Products of the Business manufactured, processed,
assembled, distributed, shipped or sold and any services rendered in the conduct
of the Business have been in conformity with all applicable contractual
commitments and all express or implied warranties. No liability exists, and no
liability is anticipated to arise for damages in connection with such sales or
deliveries. All warranties are in conformity with the labeling and other
requirements of applicable laws. The Product warranty and return experience of
the Business for the three (3) years ended as of the date hereof is set forth in
Section 4.16(a) of the Disclosure Schedule.
(b) Section 4.16(b) of the Disclosure Schedule sets forth an
accurate, correct and complete list and summary description of all existing
claims, duties, responsibilities, liabilities or obligations arising from or
alleged to arise from any injury to person or property as a result of the
ownership, possession or use of any Product of the Business manufactured or sold
prior to the date hereof and the Closing Date ("Product Liability Claims") for
amounts in excess of $3,000, or which could reasonably be expected to
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be material to the Business. All such Product Liability Claims, together with
all existing Product Liability Claims for amounts of less than $3,000, are or
will be fully covered by product liability insurance or otherwise provided for
and the Seller shall properly satisfy and discharge all such Product Liability
Claims. There have been no recalls, and none are threatened or pending, and no
report has been filed or is required to have been filed with respect to any
Products of the Business under any applicable law, rule or regulation. To the
knowledge of the Seller, no circumstances exist affecting the safety of the
Products of the Business which would result in any reporting obligations to any
Governmental Authority or any other person or entity or could result in a claim
against Buyer after the Closing.
4.17. Taxes. There are no agreements, waivers or other arrangements
providing for an extension of time with respect to the payment of any tax or
governmental charge, and there are no actions, suits, proceedings,
investigations or claims now threatened or pending against the Seller in respect
of taxes, governmental charges or assessments or any matters under discussion
with any governmental authorities respecting charges or assessments asserted by
any such authority, provided, however, the representations of the Seller
contained in this sentence relate solely to the Purchased Assets. The Seller is
not liable for any Canadian federal, provincial, municipal or local taxes,
assessments or any other taxes due and unpaid, or to become due, which might
result in a claim or lien of any kind affecting the Purchased Assets.
4.18. Insurance. The Seller has maintained in effect insurance to
cover Product Liability Claims in an amount reasonable and customary in the
industry for the three year period ending on the Closing Date, and Seller will
maintain such coverage for Products manufactured or shipped by Seller prior to
the Closing Date for a period of three years.
4.19. Litigation. There is no action, proceeding or investigation
pending or threatened against the Seller, its affiliates, the Business or the
Purchased Assets, before any court, arbitrator or administrative or Governmental
Authority, nor is there any judgment, decree, injunction, rule or order of any
court, Governmental Authority outstanding against, and unsatisfied by the Seller
relating to the Business or the Purchased Assets, nor does the Seller know of
any fact, event or condition which could reasonably be expected to serve as a
basis for the assertion of any such action or proceeding.
4.20. Residency of Seller. The Seller is a resident in Canada within
the meaning of the Income Tax Act (Canada).
4.21. Compliance with Sale of Enterprise/Bulk Sales Provisions.
Neither the entering into or delivery of this Agreement by the Seller nor the
consummation of the transaction contemplated hereby will result in the violation
of any applicable law, rule or regulation regarding the "sale of an enterprise"
provisions of the Civil Code of Quebec.
4.22. Registration for Purposes of GST. The Seller is duly registered
for purposes of the goods and services tax ("GST") under subdivision (d) of Part
IX of the Excise Tax Act (Canada) under the number 102376738 and is duly
registered for purposes of the
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Quebec sales tax ("QSA") under the Act respecting the Quebec Sales Tax ("QSA
Act") under the number 1001836982.
4.23. Disclosure. No representation or warranty as to the Seller or
any affiliate, the Purchased Assets or the Business contained in this Agreement
and no statement contained in the Disclosure Schedule or any document,
instrument or agreement delivered by the Seller pursuant hereto or in connection
herewith contains any untrue statement of a material fact, or omits to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statement herein or therein not misleading.
4.24. Knowledge of the Seller, Etc. To the extent that the Seller
represents and warrants to have had knowledge or belief as to any event, fact,
condition or other matter set forth in this Agreement, "knowledge" or "belief"
(or similar words) shall mean the knowledge or belief of the directors of the
Seller, and the officers of the Seller employed in the Business.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
The Buyer represents, warrants and covenants to the Seller as follows:
5.1. Organization and Qualification. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of its
organization, with all requisite power and authority to own, operate and lease
its properties and assets and to carry on its business as it is now being
conducted.
5.2. Authorization. The Buyer has full corporate power, authority and
legal right to execute and deliver and to perform its obligations under this
Agreement and all other agreements, documents, certificates and other
instruments contemplated hereby or required herein to which Buyer is a party or
by which Buyer's assets or properties are bound (the "Buyer Related
Agreements"). The execution and delivery of this Agreement and the Buyer Related
Agreements by the Buyer and the performance by the Buyer of its obligations
hereunder and thereunder have been duly authorized by all requisite action
including, without limitation, by its Board of Directors. No other action on the
part of the Buyer is necessary to authorize the execution and delivery of this
Agreement or the Buyer Related Agreements, or the performance of the Buyer's
obligations hereunder and thereunder. This Agreement and the Buyer Related
Agreements have been or will be duly and validly executed and delivered by the
Buyer and constitute or will constitute legal, valid and binding obligations of
the Buyer, enforceable against the Buyer in accordance with their respective
terms, except to the extent that such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and remedies generally.
5.3. No Violation. Neither the execution and delivery of this
Agreement and the Buyer Related Agreements by the Buyer, nor the performance by
the Buyer of its obligations hereunder and thereunder, will: (a) violate or
result in any material breach of any
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provision of the Certificate of Incorporation or By-laws of the Buyer, each as
amended; (b) violate any order, writ, judgment, injunction, decree, statute,
rule or regulation of any court or Governmental Authority applicable to the
Buyer or its properties or assets which, any case, could reasonably be expected
to have a material adverse effect on the business, revenues, financial
condition, results of operations, properties, assets or prospects of the Buyer;
or (c) require any filing or registration with, or any notice to or any permit,
authorization, consent or approval of any person or entity or any Governmental
Authority on the part of the Buyer for the consummation by the Buyer of the
transactions contemplated hereby and under the Buyer Related Agreements.
5.4. Broker's Fees and Commissions. Neither the Buyer nor any of its
affiliates, shareholders, directors, officers, employees or agents has employed
any investment banker, broker, finder or intermediary, and no such fee or other
commission is owed to any third party, in connection with the transactions
contemplated herein.
5.5. Disclosure. No representation or warranty as to the Buyer
contained in this Agreement or the Disclosure Schedule contains any untrue
statement of a material fact, or omits to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statement herein or therein not misleading.
ARTICLE VI.
COVENANTS
---------
6.1. Use of Name. For a period of twelve (12) months from the Closing
Date, Seller shall permit Buyer to use the marks and logos, or any other related
logos, tradenames or trademarks used on the Products or their packaging within
the past thirty-six (36) months, in connection with the sale and distribution of
the Products; provided, however, that Buyer shall not order any new packaging
from six (6) months after the Closing Date which bears any of such other
tradenames, trademarks or logos; and provided further that Buyer shall acquire
no interest in any such other logos, tradenames and trademarks. In addition,
nothing herein shall restrict the continued existence in the wholesale or retail
marketplace of products bearing such other logos, tradenames or trademarks
following the Closing Date.
6.2. Confidentiality. After the Closing, the Seller shall not use,
publish or disclose to any person or entity any confidential or proprietary
information comprising part of the Purchased Assets or relating to the Business;
provided, however, that the foregoing restrictions shall not apply to
information: (i) that is necessary to enforce its rights under or defend against
a claim asserted under this or any other agreement with the Buyer or any
agreement with a third party, (ii) that is necessary or appropriate to disclose
to any regulatory authority or governmental agency having jurisdiction over the
Seller or as otherwise required by law or (iii) that is or becomes generally
known other than through a breach of this Agreement by Seller.
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6.3. Further Assurances. After the Closing, each of the Seller and the
Buyer shall take all actions reasonably requested by the other party to confirm
or perfect the transfer of the Purchased Assets.
6.4. Trade and Consumer Promotions.
(a) The Seller shall promptly discharge and honor all commitments
and obligations with respect to trade promotions, refunds and similar
promotional campaigns arising out of any sales of Products of the Business prior
to the Closing Date and any consumer coupons or similar items that were issued
or distributed prior to the Closing Date.
(b) The Buyer shall promptly discharge and honor all commitments
and obligations with respect to trade promotions, refunds and similar
promotional campaigns arising out of any sales of Products of the Business on or
after the Closing Date and any consumer coupons or similar items that will be
issued or distributed by the Buyer on or after the Closing Date.
6.5. Trade Returns.
(a) Following the Closing Date, returns of inventory to Seller
from the trade will be accepted by Buyer in accordance with its usual trade
practices and Buyer shall be responsible thereafter for any refund or credit due
to the customer.
(b) Seller shall promptly reimburse Buyer the dollar amount
represented by (i) all returns of Cepacol mouthwash and (ii) all returns of
Lozenges Products in excess of $1,000 per month, which are accepted by Seller
prior to December 31, 1997, provided that such returns were not caused or
generated by material changes to the Business (i.e., competitive entries, new
packaging or returns solicited by or brought on by Buyer).
6.6. Consumer Returns. After the Closing, Seller shall refer any
consumer complaints or returns to Buyer, and Buyer shall be responsible for
responding thereto. Nothing herein shall cause Buyer to be liable in respect of
such consumer complaints except as specifically provided herein.
ARTICLE VII.
SURVIVAL AND INDEMNIFICATION
----------------------------
7.1. Survival. All representations, warranties, covenants and
agreements contained in this Agreement, and in any certificate, schedule,
document or other writing delivered pursuant hereto or in connection with the
transactions contemplated hereby shall be in all cases deemed to have been
relied upon by the parties hereto, and shall survive the Closing for a period of
two (2) years, except that (i) the representations and warranties set forth in
(ii) Section 4.8 (Title to Assets), and Section 4.17 (Taxes) and (ii) the
indemnification obligations in respect of the Excluded Liabilities, shall
survive indefinitely. Additionally, the parties agree that the indemnification
obligations set forth in this Article VII shall survive with respect to any
claims made within the applicable survival period until finally resolved or
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judicially determined, including any appeal thereof. The representations,
warranties, covenants and agreements contained in this Agreement or any
certificate, schedule, document or other writing delivered pursuant hereto shall
not be affected by any investigation, verification or examination by any party
hereto or by any person acting on behalf of any such party.
7.2. Indemnification of the Buyer. After the Closing Date for a period
of two (2) years, the Seller agrees to indemnify, defend and save the Buyer and
its directors, officers, employees, owners, agents and affiliates and their
successors and assigns (each a "Buyer Indemnified Party"), harmless from and
against, and to promptly pay to a Buyer Indemnified Party or reimburse a Buyer
Indemnified Party for any and all losses, damages, expenses (including, without
limitation, court costs, amounts paid in settlement, judgments, reasonable
attorneys' fees or other expenses for investigating and defending, including,
without limitation, those arising out of the enforcement of this Agreement),
suits, actions, claims, deficiencies, liabilities or obligations (collectively,
the "Losses") sustained or incurred by such Buyer Indemnified Party relating to,
caused by or resulting from:
(a) Any misrepresentation or breach of warranty, or failure to
fulfill or satisfy any covenant or agreement made by the Seller contained herein
or in any certificate, schedule, document or other writing delivered by the
Seller pursuant hereto or any covenant or agreement made by the Seller herein or
in any certificate, schedule, document or other writing delivered by the Seller
pursuant hereto;
(b) Any liability of the Buyer for causes of action arising in
connection with the Business, the Purchased Assets based, in whole or in part,
upon actions or omissions which occurred prior to or on the Closing Date, or
relating to the period prior to or on the Closing Date;
(c) The Excluded Liabilities;
(d) Any liability of the Buyer to any creditor of the Seller
and/or any liability which the Buyer may suffer or incur as a result of, in
respect of, or arising out of the non-compliance of the purchase and sale of the
Purchased Assets with the provisions respecting the sale of an enterprise of the
Civil Code of Quebec; and
(e) Any liability of the Buyer for any federal taxes, GST, QST,
other provincial sales taxes or other sales taxes, excise taxes, other
provincial taxes and all other taxes, duties, governmental assessments or other
like charges payable by Seller in connection with the conveyance and transfer of
the Purchased Assets or otherwise.
7.3. Indemnification of the Seller. After the Closing Date for a
period of two (2) years, the Buyer agrees to indemnify, defend and save the
Seller and its directors, officers, employees, owners, agents and affiliates and
their successors and assigns (each, a "Seller Indemnified Party") harmless from
and against, and to promptly pay to a Seller Indemnified Party or reimburse a
Seller Indemnified Party for, any and all Losses sustained or incurred by such
Seller Indemnified Party relating to, caused by or resulting from any
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misrepresentation or breach of warranty, or failure to fulfill or satisfy any
covenant or agreement made by the Buyer contained herein or in any certificate,
schedule, document or other writing delivered by the Buyer pursuant hereto, any
covenant or agreement made by the Buyer in any certificate, schedule, document
or other writing delivered by the Buyer pursuant hereto, or any liability of the
Seller for causes of action arising in connection with the Business or the
Purchased Assets based upon actions or omissions which occurred following the
Closing Date, or relating to the period following the Closing Date.
7.4. Indemnification Procedure for Third Party Claims.
(a) In the event that subsequent to the Closing any Buyer
Indemnified Party or Seller Indemnified Party (each, an "Indemnified Party")
receives notice of the assertion of any claim or of the commencement of any
action, suit or proceeding by any person or entity which is not a party to this
Agreement (including, without limitation, any Governmental Authority) (a "Third
Party Claim") against such Indemnified Party, with respect to which the Buyer or
the Seller (the "Indemnifying Party"), as the case may be, are required to
provide indemnification under this Agreement, the Indemnified Party shall
promptly give written notice, together with a statement of any available
information regarding such claim (collectively, the "Third Party Indemnification
Notice"), to the Indemnifying Party within thirty (30) days after learning of
such claim (or within such shorter time as may be necessary to give the
Indemnifying Party a reasonable opportunity to respond to such claim). The
Indemnifying Party shall have the right, upon delivering written notice to the
Indemnified Party (the "Defense Notice") within thirty (30) days after receipt
from an Indemnified Party of a Third Party Indemnification Notice, to conduct,
at the Indemnifying Party's sole cost and expense, the defense against such
Third Party Claim in the Indemnifying Party's own name, or, if necessary, in the
name of the Indemnified Party; provided, however, that the Indemnified Party
shall have the right to reasonably approve the defense counsel representing the
Indemnifying Party, which approval shall not be unreasonably withheld, and in
the event that the Indemnifying Party and the Indemnified Party cannot agree
upon such counsel within ten (10) days after the Defense Notice is provided,
then the Indemnifying Party shall propose an alternate defense counsel, which
shall be subject again to the Indemnified Party's reasonable approval in
accordance with the terms hereof.
(b) In the event that the Indemnifying Party shall fail to give
the Defense Notice within the time and as prescribed by Section 7.4(a) hereof,
then in any such event the Indemnified Party shall have the right to conduct
such defense in good faith with counsel reasonably acceptable to the
Indemnifying Party, but the Indemnified Party shall be prohibited from
compromising or settling any such claim without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld and shall
be deemed given in the absence of providing the Indemnified Party with a written
response within ten (10) days of any request therefor. If the Indemnified Party
fails to diligently defend such claim with counsel reasonably satisfactory to
the Indemnifying Party, or settles any such claim without the Indemnifying
Party's prior written consent or otherwise breaches this Article VII, the
Indemnified Party will be liable for all costs, expenses, settlement amounts or
other Losses paid or incurred in connection therewith and the Indemnifying Party
shall have no obligation to indemnify the Indemnified Party with respect to such
claim.
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(c) In the event that the Indemnifying Party does deliver a
Defense Notice and thereby elects to conduct the defense of the subject Third
Party Claim, the Indemnified Party will cooperate with and make available to the
Indemnifying Party such assistance and materials as the Indemnifying Party may
reasonably request, all at the sole cost and expense of the Indemnifying Party.
Regardless of which party defends such claim, the other party hereto shall have
the right at its own cost and expense to participate in the defense assisted by
counsel of its own choosing. Without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld, the
Indemnifying Party will not enter into any settlement of any Third Party Claim
if pursuant to or as a result of such settlement, such settlement would lead to
liability or create any financial or other obligation on the part of the
Indemnified Party for which the Indemnified Party is not entitled to
indemnification hereunder. If a firm decision is made to settle a Third Party
Claim, which offer the Indemnifying Party is permitted to settle under this
Section 7.4(c), and the Indemnifying Party desires to accept and agree to such
offer, the Indemnifying Party will give at least five (5) days' prior written
notice to the Indemnified Party to that effect, setting forth in reasonable
detail the terms and conditions of any such settlement (the "Settlement
Notice"). If the Indemnified Party objects to such firm offer within ten (10)
calendar days after its receipt of such Settlement Notice, the Indemnified Party
may continue to contest or defend such Third Party Claim and, in such event, the
maximum liability of the Indemnifying Party as to such Third Party Claim will
not exceed the amount of such settlement offer described in the Settlement
Notice, plus costs and expenses paid or incurred by the Indemnified Party up to
the point through the date of such Settlement Notice. If an Indemnified Party
settles any Third Party Claim without the prior written consent of the
Indemnifying Party, the Indemnifying Party shall have no obligation to indemnify
the Indemnified Party under this Article VII with respect to such Third Party
Claim.
(d) Any judgment entered or settlement agreed upon in the manner
provided herein shall be binding upon the Indemnifying Party, and shall be
conclusively deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder, subject to the
Indemnifying Party's right to appeal an appealable judgment or order. Such
indemnification shall be required to be made no later than the tenth (10th) day
following the expiration of any period in which an appeal may be taken, and
shall be satisfied by payment of the amount thereof in cash.
7.5. Failure to Give Timely Notice. Any failure by an Indemnified
Party to give a timely, complete or accurate Third Party Indemnification Notice
as provided in this Article VII will not affect the rights or obligations of any
party hereunder except and only to the extent that, as a result of such failure,
any party entitled to receive such Third Party Indemnification Notice was
deprived of its right to recover any payment under its applicable insurance
coverage or was otherwise adversely affected or damaged as a result of such
failure to give a timely, complete and accurate Third Party Indemnification
Notice.
7.6. Notice of Claims. In the case of a claim, other than a Third
Party Claim, for indemnification under Section 7.2 or Section 7.3 hereof, upon
determination by a Buyer Indemnified Party or a Seller Indemnified Party, as the
case may be, that it has a claim for indemnification, the Indemnified Party
shall deliver notice of such claim to the
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Indemnifying Party, setting forth in reasonable detail the basis of such claim
for indemnification (each, an "Indemnification Notice"). Upon the
Indemnification Notice having been given to the Indemnifying Party, the
Indemnifying Party shall have thirty (30) days in which to notify the
Indemnified Party in writing (the "Dispute Notice") that the amount of the claim
for indemnification is in dispute, setting forth in reasonable detail the basis
of such dispute. In the event that a Dispute Notice is not given to the
Indemnified Party within the required thirty (30) day period the Indemnifying
Party shall be obligated to pay to the Indemnified Party the amount set forth in
the Indemnification Notice within sixty (60) days after the date that the
Indemnification Notice had been given to the Indemnifying Party.
In the event that a Dispute Notice is timely given to an Indemnified
Party, the parties hereto shall have thirty (30) days to resolve any such
dispute. In the event that such dispute is not resolved by such parties within
such period, the parties shall have the right to pursue all available legal
remedies to resolve such dispute.
7.7. Liability Limitations. The parties agree that the maximum
aggregate liability of either party under this Article VII shall be the amount
of the Purchase Price, and, in addition, either party shall only be liable to
the other under this Article VII to the extent that any Third Party Claim or
other claim is in excess of $1,000; provided, however, once all claims of less
than $1,000 total an amount equal to $25,000 or more, then the indemnifying
party shall thereafter be liable for all Third Party Claims and/or other claims
regardless of amount.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
------------------------
8.1. Waiver; Modification. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by a duly authorized representative of each of
the parties hereto. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
8.2. Invalidity. If any provision of this Agreement shall be
determined by any court of competent jurisdiction to be unenforceable or invalid
to any extent, the remainder of this Agreement shall not be affected thereby,
and this Agreement shall be construed to the fullest extent possible to as to
give effect to the intentions of the provision found unenforceable or invalid.
8.3. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
expressed or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
-16-
<PAGE>
8.4. Expenses. Except as otherwise specifically provided for herein,
each party hereto shall bear all expenses incurred by it in connection with this
Agreement including, without limitation, the charges of its counsel, accountants
and other experts.
8.5. Notices. All notices and other communications provided for
hereunder shall be in writing and shall be delivered to each party hereto by
hand or sent by reputable overnight courier, with receipt verified, or
facsimile, with receipt verified, or registered or certified mail, return
receipt requested, addressed as follows:
(a) If to the Buyer:
J.B. Williams Company, Inc.
65 Harristown Road
Glen Rock, New Jersey 07452
Attention: Dario U. Margve
Telephone: (201) 251-8100
Facsimile: (201) 251-8098
with a copy to:
Cummings & Lockwood
Four Stamford Plaza
107 Elm Street, PO Box 120
Stamford, CT 06904
Attention: Katherine P. Burgeson, Esq.
Telephone: (203) 351-4260
Facsimile: (203) 351-4499
(a) If to the Seller:
Hoechst Marion Roussel Canada Inc.
2150 St. Elzear Blvd. West
Laval, Quebec, Canada H7L 4A8
Attention: Stephen A. Cromar
Telephone: (514) 331-9220
Facsimile: (514) 334-8016
with a copy to:
Peter R. Slaughter, Esq.
Vice President, General Counsel and Secretary
2150 St. Elzear Blvd. West
Laval, Quebec, Canada H7L 4A8
Telephone: (514) 339-5137
Facsimile: (514) 956-6171
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<PAGE>
or at such other address as either party may specify by notice to the other
party given as aforesaid. Such notices shall be deemed to be effective when the
same shall be deposited, postage prepaid, in the mail and/or when the same shall
have been delivered by hand or overnight courier, and/or upon facsimile
transmission, as the case may be.
8.6. Governing Law; Forum. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the Province
of Quebec without regard to its conflicts of law principles. The parties hereto
do hereby consent and submit to the venue and jurisdiction of the courts in the
Province of Quebec as the sole and exclusive forum for such matters of dispute,
and further agree that, in the event of any action or suit as to any matters of
dispute between the parties, service of any process may be made upon the other
party by mailing a copy of the summons and/or complaint to the other party at
the address set forth herein and a party's refusal to accept any such notice
shall be equivalent to service.
8.7. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
8.8. Integration. This Agreement, together with the Exhibits hereto,
the Disclosure Schedule, and all other documents to be delivered in connection
herewith, set forth the entire agreement of the parties hereto in respect of the
subject matter contained herein and supersede all prior and contemporaneous
agreements, covenants, understandings, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and cancelled. No agreements or representations, whether written, oral, express
or implied, with respect to the subject matter hereof have been made by either
party that are not set forth expressly in this Agreement and the other documents
to be delivered in connection herewith and therewith.
8.9. Assignment. Neither party may assign its rights hereunder without
the prior written consent of the other party; provided, however, that the Buyer
may assign its rights to (a) any wholly-owned subsidiary of the Buyer or (b) any
successor of the Buyer in connection with the sale of all or substantially all
of the assets of the Buyer or the merger or consolidation of the Buyer with
another party, provided such affiliate or successor agrees in writing to be
bound to all of the terms and liabilities of this Agreement to the same extent
that the Buyer is bound, and provided, further, that the Seller may assign any
of its rights that survive the Closing under this Agreement to any wholly-owned
subsidiary or affiliate of the Seller. Any assignment in contravention of this
Section 8.9 shall be null and void.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
J.B. WILLIAMS COMPANY, INC.
By: /s/ DARIO U. MARGVE
-------------------------------
Dario U. Margve
President
HOECHST MARION ROUSSEL CANADA INC.
By: /s/ GERALD P. BELLE
-------------------------------
Name: Gerald P. Belle
Title: President
EXHIBIT A - Product List
SCHEDULE 4.4 - Sales Reports
SCHEDULE 4.9 - Contracts
SCHEDULE 4.10(c) - Licenses, Franchises, Permits, Etc.
SCHEDULE 4.15(a) - List of Customers
SCHEDULE 4.15(b) - Trade and Consumer Promotions
SCHEDULE 4.16(a) - Product Warranty and Return Experience
SCHEDULE 4.16(c) - Product Liability Claims
-19-
<PAGE>
EXHIBIT A
---------
Product List
------------
<PAGE>
Hoechst Marion Roussel Canada Inc.
2150 St. Elzear Blvd. West
Laval, Quebec, Canada H7L 4A8
October 31, 1997
J.B. Williams Company, Inc.
65 Harristown Road
Glen Rock, New Jersey 07452
Re: Sale of Inventory
Dear Sirs:
As further consideration for the transaction contemplated under that
certain Asset Purchase Agreement dated as of the date hereof (the "Agreement;"
terms used herein and not otherwise defined having the meaning set forth in the
Agreement) between Hoechst Marion Roussel Canada Inc. (the "Seller") and J.B.
Williams Company, Inc. (the "Buyer"), the Seller has agreed to sell, and the
Buyer has agreed to cause SmithKline Beecham Consumer Healthcare Canada, L.P.
("SmithKline") to purchase directly from the Seller, at the effective time, on
the Closing Date, certain finished goods being inventory of the Business
consisting solely of the Lozenges Products referred to on Exhibit A annexed
hereto (the "Inventory"). SmithKline is a distributor of products acquired by
the Buyer and sold in Canada. The Inventory will be sold to SmithKline by
purchase order and invoice and pursuant to the customary business practices of
the Seller and SmithKline.
The Seller hereby covenants that all of the Inventory to be purchased
by SmithKline shall (i) be of good and merchantable quality, saleable and usable
in the ordinary course of business (including the packaging thereof) and,
without limiting the generality of the foregoing, not obsolete, (ii) be in
conformity with all applicable warranties and guaranties made by the Seller,
(iii) have at least a twelve (12) month shelf-life remaining as of the date upon
which such inventory could reasonably be expected to be sold based upon the
average monthly sales rate for each product, and (iv) be at levels not excessive
in relation to the circumstances of the Business and in accordance with past
inventory stocking practices of the Business. In addition, the Seller covenants
that there will be sufficient finished goods of each category of Product, which
finished goods shall be either (i) on hand or (ii) scheduled for production
following the Closing Date (except for the backorders specifically disclosed to
the Buyer in Section 4.15(c) of the Agreement and listed in Schedule 4.15(c) of
the Agreement and attached hereto as Exhibit B) for the continuation of sales of
the Products in the ordinary course by the Buyer for the three (3) month period
following the Closing Date, based on Seller's experience in the past year (and
without interruption other than minor interruptions consistent with the Seller's
past experience).
<PAGE>
After the Closing for a period of two (2) years, the Seller agrees to
indemnify, defend and save the Buyer and its directors, officers, employees,
owners, agents and affiliates and their successors and assigns (each a "Buyer
Indemnified Party"), harmless from and against, and to promptly pay to a Buyer
Indemnified Party or reimburse a Buyer Indemnified Party for any and all losses,
damages, expenses (including, without limitation, court costs, amounts paid in
settlement, judgments, reasonable attorneys' fees or other expenses for
investigating and defending, including, without limitation, those arising out of
the enforcement of this Agreement), suits, actions, claims, deficiencies,
liabilities or obligations (collectively, the "Losses") sustained or incurred by
such Buyer Indemnified Party relating to, caused by or resulting from any
failure by the Seller to comply with any of the provisions of this Letter
Agreement with respect to the sale of the Inventory to SmithKline.
Please indicate your consent and acknowledgment of the foregoing by
executing this Letter Agreement in the space provided below.
Sincerely,
HOECHST MARION ROUSSEL CANADA INC.
By
--------------------------------------
Name: Gerald P. Belle
Title: President
Accepted and agreed to as of this
31st day of October, 1997 by:
J.B. WILLIAMS COMPANY, INC.
By
--------------------------------
Name: Dario U. Margve
Title: President
-2-
<PAGE>
EXHIBIT A
---------
Lozenges Products
-----------------
-3-
<PAGE>
EXHIBIT B
---------
List of Backorders
------------------
[LETTERHEAD OF THE BANK OF NEW YORK]
August 29, 1997
J.B. Williams Company, Inc.
65 Harristown Road
Glen Rock, NJ 07452
Attention:
Gentlemen/Ladies:
The Bank of New York (the "Bank") is pleased to confirm that it holds
available to J.B. Williams Company, Inc. (the "Company") a $5,000,000 secured
line of credit, to be available for direct borrowings by the Company and the
issuance by the Bank of commercial letters of credit for the account of the
Company with an expiration date not later than six months after the date of
issuance thereof.
Notwithstanding the foregoing, the aggregate outstanding principal
amount of all extensions of credit under this line of credit shall not exceed
the lesser of $5,000,000 or an amount (as set forth in the most recent borrowing
base certificate delivered to the Bank) equal to the sum of the following:
1. 75% of each of the accounts receivable of the Company in
respect of which each of the following is satisfied:
a. The account debtor thereon either (i) is located in
the United States or (ii) is not located in the United States and,
in addition in respect of this clause (a)(ii), either (A) the
obligations of such account debtor are supported by a letter of
credit which (x) is issued by a person which is satisfactory to the
Bank and (y) is otherwise satisfactory in form and substance to the
Bank or (B) such account debtor is a subsidiary of a person located
in the United States;
b. The Bank has a perfected first priority security
interest therein;
c. No amounts are unpaid (i) for more than 90 days (or
such other greater or lesser period as the Bank may specify with
respect to any account debtor) past the related invoice date with
respect to accounts originated during the months of January through
July, or (ii) for more than 30 days (or such other greater or
lesser period as the Bank may specify with respect to any account
debtor) past the related due date with respect to accounts
originated during the months of August through December; and
d. No more than 25% of the accounts receivable of the
related account debtor have amounts unpaid (i) for more than 90
days past the related invoice date with respect to accounts
originated during the months of January
<PAGE>
through July, or (ii) for more than 30 days past the related due date with
respect to accounts originated during the months of August through December;
2. The least of (a) $2,000,000 or (b) 50% of all inventory
of the Company in respect of which the Bank has a perfected first
priority security interest.
Extensions of credit under this line of credit in the form of direct
borrowings by the Company shall be evidenced by, shall be payable as provided
in, and shall bear interest at the rate specified in, a promissory note of the
Company in the form included with this letter
With respect to each commercial letter of credit, if any, issued by
the Bank under this line of credit, the Company will pay to the Bank, quarterly
in arrears, an issuance fee of 1% per annum on the average daily undrawn face
amount of such letter of credit and will also pay all other fee(s) of the Bank
in effect therefor from time to time. Each request for a letter of credit under
this line of credit shall be accompanied by a completed application and
agreement for such letter of credit on the Bank's then standard form therefor,
duly executed by the Company, and the issuance of any such letter of credit
shall be subject to the terms and conditions set forth in such application and
agreement.
All obligations of the Company to the Bank with respect to this line
of credit shall be jointly and severally guaranteed by J.B. Williams Holdings,
Inc., CEP Holdings, Inc., After Shave Products, Inc., Pre-Shave Products, Inc.
and Hair Care Products, Inc. pursuant to guarantees in the respective forms
included with this letter. All obligations of the Company to the Bank with
respect to this line of credit shall be secured, pursuant to a security
agreement in the form included with this letter, executed by the Company, which
grants the Bank a first and prior security interest in all accounts receivable
and inventory of the Company.
For so long as the Company has any obligations outstanding under this
line of credit, there shall be delivered to the Bank the following:
I. Within 45 days after the end of each quarter of each
fiscal year of the Company, financial statements of
the Company as of the end of and for such quarter and
for the period of the then current fiscal year of the
Company then ended, as prepared by management of the
Company, and in form and content satisfactory to the
Bank;
II. Within 90 days after the end of each fiscal year of
the Company, audited financial statements of the
Company as of the end of and for such fiscal year as
prepared by independent certified public accountants
selected by the Company, and acceptable to the Bank;
III. Within 15 days after the end of each month, a
borrowing base certificate and an aging schedule of
the accounts receivable of the Company, in each case
as of the last business day of such month and in form
and content satisfactory to the Bank; and
IV. Such other information as the Bank may reasonably
request from time to time;
As you know lines of credit are cancellable at any time by either
party and, in addition, (x) any extension of credit under this line of credit is
subject to the Bank's satisfaction, at the time of such extension of credit,
with the condition (financial and otherwise), business, prospects and operations
of the Company and (y) the issuance by the Bank of any commercial letter of
credit for the account of the Company is subject to the satisfaction of the
Bank, at the time
-2-
<PAGE>
of such issuance, with the expiry date and all other terms of such letter of
credit. Unless cancelled earlier as provided in the first sentence of this
paragraph, this line of credit shall be held available until August 31, 1998.
Very truly yours,
THE BANK OF NEW YORK
By: /s/ GERALDINE TUCKINGTON
------------------------------
Name: Geraldine Tuckington
Title: Vice President
-3-
<PAGE>
MASTER PROMISSORY NOTE
$5,000,000.00 August 29, 1997
For Value Received, the undersigned (the "Borrower") hereby promises to
pay to the order of THE BANK OF NEW YORK (the "Bank"), at its 10 Mason Street,
Greenwich, Connecticut office, the principal sum of Five Million and 00/100
Dollars ($5,000,000.00) or the aggregate unpaid principal amount of all advances
made by the Bank to the Borrower (which aggregate unpaid principal amount shall
be equal to the amount duly endorsed and set forth opposite the date last
appearing on the schedule attached hereto), whichever is less.
Each advance hereunder (an "Advance") shall bear interest at a rate
per annum equal to (1) the Alternate Base Rate (as hereinafter defined) or (2)
provided that the outstanding principal amount thereof is not less than
$100,000, a Eurodollar Rate (as hereinafter defined), but, in each case, in no
event in excess of the maximum rate permitted by law. Any Advance which shall
not be paid when due shall bear interest, payable on demand, at a rate per annum
equal to the Alternate Base Rate plus 2%, but in no event in excess of the
maximum rate permitted by law.
As used in this note:
"Alternate Base Rate " shall mean, for any day, a rate per annum equal
to the higher of (i) the Prime Rate in effect on such day and (ii) the Federal
Funds Rate in effect on such day plus one-half of one percent (1/2%);
"Alternate Base Rate Advance" shall mean any Advance which bears
interest at the Alternate Base Rate;
"Business Day" shall mean (i) any day other than a Saturday, Sunday or
other day on which commercial banks in New York New York or Greenwich,
Connecticut are required or permitted by law " close and (iv with respect to
Eurodollar Rate Advances any day specified in clause (i) of this definition
which is also a day on which commercial banks are open for domestic and
international business, including dealings in Dollar deposits, in London,
England and New York New York;
"Dollar" and "$" shall mean lawful money of the United States of
America;
"Eurodollar Interest Period" shall mean, with respect to any Eurodollar
Rate Advance, a period selected by the Borrower and acceptable to the Bank
commencing on the date such Eurodollar Rate Advance is made and ending one (1)
month, two (2) months or three (3) months thereafter; provided, however, that
(i) any Eurodollar Interest Period which would otherwise end on a day which is
not a Business Day shall be extended to the immediately succeeding Business Day
unless such Business Day falls in another calendar month (in which case such
Eurodollar Interest Period shall end on the immediately preceding Business Day),
(ii) no Eurodollar Interest Period shall end after the date until which the line
of credit under which Advances may be made is held available to the Borrower,
(iii) if any Eurodollar Interest Period begins on the last Business Day of a
calendar month or on a day for which there is no numerically corresponding day
in the calendar month during which such Eurodollar Interest Period is to end,
such Eurodollar Interest Period shall end on the last Business Day of such
calendar month, and (iv) no Eurodollar Interest Period shall be less than one
(1) month;
<PAGE>
"Eurodollar Rate" shall mean, with respect to any Eurodollar Rate
Advance for the then current Eurodollar Interest Period applicable thereto, a
rate per annum equal to, during such Eurodollar Interest Period, the sum of
1-1/2% S LIBOR for such Eurodollar Interest Period;
"Eurodollar Rate Advance" shall mean any Advance which bears interest
at a Eurodollar Rate;
"Federal Funds Rate" shall mean, for any day, the weighted average of
the rates on overnight Federal funds transactions with the members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or if such day is not a Business Day, for the immediately preceding
Business Day) by the Federal Reserve Bank of New York, or if such rate is not so
published for any day which is a Business Day, the average of quotations for
such day on such transactions received by the Bank from three Federal funds
brokers of recognized standing selected by the Bank;
"LIBOR" shall mean, with respect to any Eurodollar Rate Advance for the
then current Eurodollar Interest Period relating thereto, the rate per annum at
which the Bank offers deposits in Dollars to leading banks in the London
interbank market on the date two (2) Business Days prior to the commencement of
such Eurodollar Interest Period for a period equal to such Eurodollar Interest
Period and in an amount equal to the amount of such Eurodollar Rate Advance;
"Maturity Date" shall mean, with respect to any Eurodollar Rate
Advance, the last Business Day of the Eurodollar Interest Period applicable to
such Eurodollar Rate Advance;
"Obligations" shall mean and include any and all present or future
obligations or liabilities of any Obligor to the Bank, whether incurred by such
Obligor as maker, indorser, drawer, acceptor, guarantor, accommodation party,
counterparty, purchaser, seller or otherwise, and whether due or to become due,
secured or unsecured, absolute or contingent, joint and/or several, and
howsoever and whensoever acquired by the Bank;
"Obligor" shall mean and include the Borrower, any guarantor hereof or
any hypothecator of any collateral securing this note; and
"Prime Rate" shall mean, for any day, a rate per annum equal to the
prime commercial lending rate of the Bank as publicly announced to be in effect
from time to time, such rate to be adjusted automatically, without notice, on
the effective date of any change in such rate-. The Borrower acknowledges that
the Prime Rate is not the lowest rate at which the Bank may make loans or other
extensions of credit.
Each Alternate Base Rate Advance shall be payable ON DEMAND and may be
prepaid in whole at any time or in part from time to time. Each Eurodollar Rate
Advance shall be payable on the Maturity Date of such Eurodollar Rate Advance
and, except as otherwise provided herein, the Borrower shall not have the right
to prepay such Eurodollar Rate Advance.
Interest shall be computed on the basis of a 360-day year for the
actual number of days elapsed. Interest on each Alternate Rate Advance shall be
payable monthly on the last day of each month and at maturity. Interest on each
Eurodollar Rate Advance shall be payable on the Maturity Date thereof. Upon any
prepayment of Alternate Base Rate Advances, the Borrower shall pay interest on
the amount so prepaid to the date of such prepayment.
If any payment hereof becomes due and payable on a day other than a
Business Day, such payment shall be extended to the next preceding Business Day;
provided, however, that
-2-
<PAGE>
in the case of a payment in respect of the principal amount of a Eurodollar Rate
Advance, if such next succeeding Business Day falls in another calendar month,
such payment shall be due on the immediately preceding Business Day. If the date
for any payment of principal is so extended, interest thereon shall be payable
for the extended time.
Whenever the Borrower desires the Bank to make an Advance, the Borrower
shall give the Bank irrevocable notice (i) in the case of any Alternate Base
Rate Advance, on or prior to the date of such Advance and (ii) in the case of
any Eurodollar Rate Advance, at least three (3) Business Days prior to the date
of such Advance, of its intention to borrow, specifying the date of such
Advance, the interest rate to be applicable to such Advance, and, if such
Advance is to be a Eurodollar Rate Advance, the requested Eurodollar Interest
Period for such Advance (which shall comply with the definition of Eurodollar
Interest Period above). If, on any day on which the Borrower requests a
Eurodollar Rate Advance, the Bank and the Borrower are unable to agree on the
Eurodollar Interest Period applicable to such Advance, such Advance shall be an
Alternate Base Rate Advance. Each Eurodollar Rate Advance shall be in an
integral multiple of $100,000.
If either:
(i) The Bank and the Borrower are unable to agree on the
Eurodollar Interest Period applicable to a Eurodollar Rate
Advance, or
(ii) The Eurodollar Interest Period applicable to a Eurodollar Rate
Advance is not in conformity with the definition of Eurodollar
Interest Period above, or
(iii) The amount of any Eurodollar Rate Advance is not an integral
multiple of $100,000; or
(iv) The Bank shall determine at any time that (a) the Eurodollar
Rate cannot be determined for any Eurodollar Interest
Period, (b) deposits of the relevant amount and term are not
available in the London interbank Eurodollar market with
respect to the making of a Eurodollar Rate Advance, (c) the
rate at which deposits are offered to the Bank in the
relevant market will not accurately reflect the cost to the
Bank of making or maintaining a Eurodollar Rate Advance, or
(d) by reason of any adoption of or change in any applicable
law or regulation or any change in the interpretation or
application thereof it has become unlawful for the Bank to
make any Eurodollar Rate Advance,
then no Eurodollar Rate Advances shall be available hereunder (and any requested
Eurodollar Rate Advance shall be made as an Alternate Base Rate Advance) until
the Bank has given the Borrower written notice of the termination of such
condition.
Notwithstanding any other provision hereof, if any applicable law,
treaty, regulation or directive of any government or any agency, instrumentality
or authority thereof, or any change therein or in the interpretation or
application thereof, shall make it unlawful for the Bank (or the office or
branch where the Bank makes or maintains any Eurodollar Rate Advance) to
maintain any Eurodollar Rate Advance, the Borrower shall, if any Eurodollar Rate
Advance is then outstanding, promptly upon request from the Bank, either prepay
such Eurodollar Rate Advance, together with accrued interest on the amount
prepaid to the date of prepayment, or, at the Borrower's option, convert such
Eurodollar Rate Advance into an Alternate Base Rate Advance. If any such
prepayment or conversion of any Eurodollar Rate Advance is made on a day that is
not the Maturity Date thereof, the Borrower shall also compensate the Bank, as
provided in the second succeeding paragraph, as a result of such prepayment or
conversion.
-3-
<PAGE>
In the event that any applicable law, treaty or governmental regulation
(whether now or hereafter in effect), or any change therein or in the
interpretation or application thereof, or compliance by the Bank with any
request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall (i) subject the Bank
to any tax of any kind whatsoever with respect to this note or any Eurodollar
Rate Advance or change the basis of taxation of payments to the Bank of
principal, interest, fees or any other amount payable under this note (except
for changes in the rate of tax on the overall net income of the Bank by the
jurisdiction in which the Bank maintains its principal office), (ii) impose,
modify or hold applicable any reserve, special deposit, assessment or similar
requirement against assets held by, or deposits in or for the account of,
advances or loans by, or other credit extended by, any office of the Bank,
including (without limitation) pursuant to Regulation D of the Board of
Governors of the Federal Reserve System, or (iii) impose on the Bank or the
London interbank Eurodollar market any other condition with respect to this note
or any Eurodollar Rate Advance, and the result of any of the foregoing is to
increase the cost to the Bank of making or maintaining any Eurodollar Rate
Advance by an amount that the Bank deems to be material or to reduce the amount
of any payment (whether of principal, interest or otherwise) in respect of any
Eurodollar Rate Advance by an amount that the Bank deems to be material, then,
in any such case, the Borrower shall promptly pay to the Bank for its account,
upon its demand, such additional amount as will compensate the Bank for such
additional cost or such reduction, as the case may be; provided, however, that
the foregoing shall not apply to increased costs which are reflected in a
Eurodollar Rate.
The Borrower agrees to indemnify the Bank and to hold the Bank harmless
from and against all losses and expenses that the Bank may sustain or incur (i)
if the Borrower makes any payment or prepayment of the principal of, or
converts, any Eurodollar Rate Advance on a day other than the Maturity Date
thereof (whether as a result of acceleration of the maturity of such Advance,
pursuant to or as a result of the second preceding paragraph, or otherwise) or
(ii) if the Borrower, for any reason whatsoever, fails to complete a borrowing
of any Eurodollar Rate Advance on the date specified therefor after notice
thereof has been given and the Bank has determined to make such Eurodollar Rate
Advance (including, without limitation, in each case, any interest payable by
the Bank to lenders of funds obtained by the Bank in order to make or maintain
such Eurodollar Rate Advance).
A certificate of the Bank setting forth such amount or amounts as shall
be necessary to compensate the Bank as specified in the immediately preceding
two paragraphs, submitted by the Bank to the Borrower, shall be conclusive
absent manifest error, and the obligations of the Borrower under the immediately
preceding two paragraphs shall survive payment of this note and all Advances.
If the Bank shall make a new Advance on a day on which the Borrower is
to repay an Advance, the Bank shall apply the proceeds of the new Advance to
make such repayment and only the amount by which the amount being advanced
exceeds the amount being repaid shall be made available to the Borrower in
accordance with the terms of this note.
The Borrower hereby authorizes the Bank to accept telephonic
instructions from a duly authorized representative of the Borrower to make an
Advance or receive a payment hereof, and to endorse on the schedule attached
hereto the amount of all Advances and all principal payments hereof received by
the Bank, the interest rate applicable to each Advance and the Maturity Date of
each Eurodollar Rate Advance.
The Bank is hereby authorized to charge any deposit account of the
Borrower maintained at the Bank for each principal prepayment hereof on the date
made, and for each principal payment and for each interest payment due hereunder
on the due date thereof. The Bank
-4-
<PAGE>
shall credit the Borrower's deposit account maintained at the Bank in the amount
of each Advance on the date of such Advance, which credit will be confinned to
the Borrower by standard advice of credit or notation in the monthly statement
sent to the Borrower in connection with such account. The Borrower agrees that
the actual crediting of the amount of any Advance to the Borrower's deposit
account maintained at the Bank shall constitute conclusive evidence that such
Advance was made, and neither the failure of the Bank to indorse on the schedule
attached hereto the amount of any Advance, the *merest rate applicable to any
Advance or the Maturity Date of any Eurodollar Rate Advance nor the failure of
the Bank to forward an advice of credit to the Borrower or note any Advance in
the monthly statement sent to the Borrower shall affect the Borrower's
obligations hereunder.
All payments hereof shall be made in lawful money of the United States
of America and in immediately available funds.
The Bank shall have a lien on the balances of the Borrower now or
hereafter on deposit with or held as custodian by the Bank and the Bank shall
have full authority to set off such balances against the indebtedness evidenced
by this note or any other Obligation of the Borrower and may at any time,
without notice, to the extent permitted by law, apply the same to the Advances
or such other Obligations, whether due or not.
All obligations of the Borrower to the Bank under this note are secured
pursuant to the terms of the security agreement executed by the Borrower in
favor of the Bank dated of even date herewith as such agreement may be amended
or modified from time to time and any other security agreement that the Borrower
shall have executed or shall at any time execute in favor of the Bank, and the
Bank is entitled to all the benefits thereof.
The Borrower acknowledges that the Alternate Base Rate Advances are
payable on demand and payment thereof may be demanded by the Bank at any time
for any reason in the sole and absolute discretion of the Bank, and such right
of the Bank shall not be affected or impaired by any condition, event or
circumstance whatsoever.
All Advances together with all accrued interest thereon shall become
immediately and automatically due and payable, without demand, presentment,
protest or notice of any kind, upon the commencement by or against any Obligor
of a case or proceeding under any bankruptcy, insolvency or other law relating
to the relief of debtors, the readjustment, composition or extension of
indebtedness or reorganization or liquidation.
All Eurodollar Rate Advances, together with all accrued interest
thereon, shall become immediately and automatically due and payable, without
demand, presentment, protest or notice of any kind, upon the occurrence of any
of the following events:
A. Failure of any Obligor in the performance of any of
such Obligor's covenants herein or in any instrument, document or
agreement delivered in connection herewith; or
B. Default by any Obligor in the payment or performance of
any Obligation; or
C. Failure of any Obligor to pay when due any other
indebtedness for borrowed money, acceleration of the maturity of such
indebtedness or the occurrence of any event which with notice or
lapse of time, or both, would permit acceleration of such
indebtedness; or
D. The death or incompetence of any Obligor who is an
individual; or
-5-
<PAGE>
E. The dissolution, merger or consolidation of, or the
sale or disposal of all or substantially all of the assets of, any
Obligor which is not an individual without the prior written consent
of the Bank; or
F. The financial condition or credit standing of any
Obligor shall be or become materially impaired in the sole opinion of
the Bank or any of its officers; or
G. Commencement of any proceeding, procedure or other
remedy supplemental to the enforcement of a judgment against any
Obligor; or
H. Any representation or warranty made by any Obligor or
any financial or other statement of any Obligor delivered to the Bank
by or on behalf of any Obligor proves to be untrue, incorrect or
incomplete when made or delivered; or
I. The death of the insured under any life insurance
policy held as collateral by the Bank for the Obligations of any
Obligor with respect to this note, or the non-payment of any premiums
on any such life insurance policy; or
J. The validity or enforceability of this note, any
guarantee hereof or any other document delivered in connection
herewith shall be contested or declared null and void or any Obligor
shall deny it has any liability or obligation under or with respect
to this note, any guarantee hereof or any other document delivered by
it in connection herewith; or
K. Any Obligor shall make payment on account of any
indebtedness subordinated to the indebtedness evidenced by this note
in contravention of the terms of such subordination; or
L. Cancellation of the line of credit under which such
Advances were made.
The Borrower does hereby forever waive presentment, demand, protest,
notice of protest and notice of nonpayment or dishonor of this note.
The Borrower agrees to pay all costs and expenses incurred by the Bank
incidental to or in any way relating to the Bank's enforcement of the
obligations of the Borrower hereunder or the protection of the Bank's rights
hereunder, including, but not limited to, reasonable attorneys' fees and
expenses, whether or not litigation is commenced.
Promptly upon the Bank's request, the Borrower agrees to furnish to the
Bank such information (including, without limitation, financial statements and
tax returns of the Borrower) and to permit the Bank to inspect and make copies
of its books and records, as the Bank shall reasonably request from time to
time.
The Borrower waives, in any litigation relating to this note or the
transactions contemplated hereby any right to claim or interpose any
counterclaim or set-off of any kind.
This note may not be amended, and compliance with its terms may not be
waived, orally or by course of dealing, but only by a writing signed by an
authorized officer of the Bank.
This note may be assigned or indorsed by the Bank and its benefits
shall inure to the successors, indorsees and assigns of the Bank.
-6-
<PAGE>
The Borrower authorizes the Bank to date this note and to complete any
blank space herein according to the terms upon which any Advances were granted.
No failure on the part of the Bank to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Bank of any right,
remedy or power hereunder preclude any other or future exercise thereof or the
exercise of any other right, remedy or power.
Each and every right, remedy and power hereby granted to the Bank or
allowed it by law or other agreement shall be cumulative and not exclusive the
one of any other right, remedy or power, and may be exercised by the Bank from
time to time.
Every provision of this note is intended to be severable; if any term
or provision of this note shall be invalid, illegal or unenforceable for any
reason whatsoever, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.
The Borrower represents and warrants that the Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation and is duly qualified to do business in the State of
New York; that the execution, delivery and performance of this note are within
the Borrower's corporate powers and have been duly authorized by all necessary
action of its board of directors and shareholders; and that each person
executing this note has the authority to execute and deliver this note on behalf
of the Borrower.
THE PROVISIONS OF THIS NOTE SHALL BE CONSTRUED AND INTERPRETED, AND ALL
RIGHTS AND OBLIGATIONS HEREUNDER DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CONNECTICUT WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE
BORROWER SUBMITS TO THE JURISDICTION OF STATE AND FEDERAL COURTS LOCATED IN THE
STATE OF CONNECTICUT AND THE CITIES OF STAMFORD OR BRIDGEPORT IN PERSONAM AND
AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING DIRECTLY OR INDIRECTLY TO THIS
NOTE SHALL BE LITIGATED ONLY IN SAID COURTS OR COURTS LOCATED ELSEWHERE AS
SELECTED BY THE BANK AND THAT SUCH COURTS ARE CONVENIENT FORUMS. THE BORROWER
WAIVES PERSONAL SERVICE UPON IT AND CONSENTS TO SERVICE OF PROCESS BY MAILING A
COPY THEREOF TO IT BY REGISTERED OR CERTIFIED MAIL.
THE BORROWER AND THE BANK WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, ARISING OUT OF OR IN ANY WAY CONNECTED TO THIS
NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
J.B. WILLIAMS COMPANY, INC. Address:
--------
65 Harristown Road
Glen Rock, NJ 07452
Attention:
----------
By:/s/ KEVIN C. HARTNETT
---------------------------
Name: Kevin C. Hartnett
-------------------------
Title: Vice President
-------------------------
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
-7-
<PAGE>
Schedule to
Promissory Note - J.B. Williams Company, Inc.
<TABLE>
<CAPTION>
Date of Amount of Type of Maturity Date Interest Amount of Aggregate Unpaid
Advance Advance Advance* of Advance** Rate*** Payment Principal Amount
- ------- --------- ------- ------------- -------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- ---------------------------
* Insert "Alternate Base Rate" (or "ABR") or "Eurodollar Rate," as
applicable.
** Only applicable for Eurodollar Rate Advances.
*** For Alternate Base Rate Advances, insert "ABR." For Eurodollar Rate
Advances, insert the actual interest rate.
MANUFACTURING AND SALES AGREEMENT
This Manufacturing and Sales Agreement (this "Agreement") is made and
entered into as of July 11, 1997 by and between J.B. Williams Company, Inc., a
Delaware corporation, with its offices at 65 Harristown Road, Glen Rock, New
Jersey 07452 ("Williams"), and Summa Rx Laboratories Inc., a Delaware
corporation, with its offices at 2940 FM 3028, Mineral Wells, Texas 76067
("SUMMA"), for the purposes set forth hereafter.
WHEREAS, SUMMA has the non-exclusive right to manufacture and sell patented
zinc acetate products that were invented by George Eby and for which United
States Letters of Patent (the "Patents") have been issued; and
WHEREAS, SUMMA wishes to manufacture and sell zinc acetate lozenges to
Williams, and Williams wishes to purchase such products from SUMMA, for resale
in the jurisdictions, regions or territories presently known as the United
States of America (including its territories and possessions), Greenland,
Canada, Mexico, Puerto Rico, the Bahamas, Jamaica, Bermuda, the Virgin Islands,
Haiti, the Dominican Republic, Trinidad and Tobago, Netherlands Antilles, and
all other islands, countries, jurisdictions, territories and possessions located
in the Caribbean Sea whether or not specifically named herein other than Cuba
and South American jurisdictions (the "Territory"), pursuant to the terms and
conditions set out in this Agreement; and
WHEREAS, SUMMA has the exclusive right to use the trademark "ColdCure(TM)",
and all other marks, logos and other intellectual property rights related
thereto or derivative thereof including, without limitation, the designation
"C/C" or any designation similar thereto, used on zinc acetate products
manufactured by SUMMA (collectively, the "Trademarks"); and
WHEREAS, Williams wishes to obtain the exclusive right to the use of the
Trademarks in the Territory and SUMMA is willing to grant Williams such
exclusive use pursuant to the terms and conditions set out in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set out in this Agreement, the sufficiency of which is mutually
acknowledged by Williams and SUMMA and is evidenced by their execution of this
Agreement, the parties do agree as follows:
<PAGE>
2
1. GENERAL.
SUMMA agrees to manufacture and sell zinc acetate lozenges (the
"Products"), in the packaging and quantities described on Exhibit A, and in such
other form, packaging and/or quantities as the Products may be manufactured and
packaged by SUMMA during the term of this Agreement including any extensions or
renewals hereof, to Williams pursuant to the terms and provisions set out in
this Agreement for marketing, distribution and sale by Williams in the
Territory. Williams agrees to purchase the Products from SUMMA pursuant to the
terms and provisions set out in this Agreement for marketing, distribution and
sale in the Territory.
2. MANUFACTURE, PACKAGING AND DELIVERY OF THE PRODUCTS.
A. SUMMA agrees to manufacture the Products for Williams according to
the specifications as are set out in the Patents and according to the formulas
and quality standards developed by Mr. George Eby and SUMMA (collectively, the
"Product Specifications") utilizing current Good Manufacturing Practices, as
such term is defined in the Federal Food, Drug and Cosmetic Act, as amended (the
"FD&C Act"). Within five (5) business days following the date of this Agreement,
SUMMA agrees to deliver to Williams a full and complete description of the
Product Specifications. Thereafter during the term of this Agreement (including
any renewals or extensions thereof), SUMMA shall provide Williams with sixty
(60) days advance written notice of any changes to the Product Specifications
proposed by SUMMA. For purposes of this Agreement, the term "business day" shall
mean a day during which SUMMA is conducting its normal business operations,
regardless of weekends and holidays, as the case may be.
B. Subject to any superior rights of American Longevity, LLC
("American"), SUMMA agrees that Williams shall have a first right to negotiate
the purchase of products (other than the Products) manufactured according to new
formulas developed hereafter by SUMMA for distribution and sale in the
Territory. That right shall exist for sixty (60) days after SUMMA's notice to
Williams of the availability of a new product formula. If Williams, after the
expiration of that period of time, does not take any action to inform SUMMA that
it wishes to have the right to the formula, then SUMMA shall have the right to
offer the formula to any of its other customers.
C. Upon mutual written agreement, SUMMA and Williams may add and
delete other products to or from Exhibit A from time to time hereafter.
D. SUMMA warrants that the Products sold to Williams as of the date of
each shipment shall not be adulterated within the meaning of the FD&C Act and
will be goods that may be introduced into interstate commerce under applicable
law.
<PAGE>
3
E. SUMMA warrants to replace the Products to the extent that the same
do not conform to the specifications referred to in Paragraphs 2A and 2D above.
In addition to and without limiting the rights and remedies of Williams
contemplated and permitted by Paragraph 13A of this Agreement, REPLACEMENT OF
PRODUCTS SHALL BE WILLIAMS' EXCLUSIVE REMEDY, AND THE WARRANTY MADE HEREIN IS
EXPRESSLY MADE IN LIEU OF ANY AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED
(EXCEPT AS TO TITLE), INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
F. Williams shall make all claims and requests for replacements or
returns of Products as soon as reasonably possible following Williams' receipt
of each shipment. Williams' claims or requests for replacements or returns shall
be deemed waived if not received by SUMMA within forty (40) days after Williams'
receipt of a shipment.
G. If delivery of a shipment is delayed for reasons attributable
solely to Williams or its shippers, or their respective agents, storage and
other additional costs will be charged to Williams and the Products will be at
Williams' risk from the date of the commencement of the delay.
H. Packaging of the Products may initially be done by a third party,
and thereafter shall be done by SUMMA. The description of the size, shape and
other specifications of the packaging of the Products shall be agreed to and
amended, from time to time, upon the written agreement of SUMMA and Williams,
hereafter.
I. Content and regulatory notice and disclosures on packaging, and
form of labeling of the Products, shall be the sole responsibility of Williams.
SUMMA shall provide Williams with the specific list of ingredients to be
included on the labeling. Williams shall pay all costs of additional art work,
dies, plates, etc., that may be incurred by SUMMA, and for all labels that may
be rendered unusable by reason of regulatory changes or changes requested by
Williams.
J. Delivery of, transfer of risk of loss and passage of title of the
Products shall be deemed to have been made to Williams upon delivery of each
shipment of the Products to Williams' shipper at SUMMA's shipping dock, Mineral
Wells, Texas.
K. SUMMA shall ship in accordance with Williams' instructions, and
Williams shall be responsible for insuring its shipments. Where Williams gives
no shipping instructions, or where SUMMA deems such instructions to be
unsuitable, SUMMA reserves the right to ship by the most appropriate method
provided that any shipper so selected for Williams is retained by or on behalf
of Williams and Williams is given adequate advance notice of the shipper to
obtain insurance in respect of such shipment.
<PAGE>
4
L. If at any time Williams determines that SUMMA has manufactured
Products that do not meet the standard of quality required by this Agreement,
then Williams may request that the Products in question be submitted to an
independent testing laboratory to be tested. The decision of such laboratory
shall be binding as to whether or not the Products in question were manufactured
to the standard of quality required by this Agreement. The testing laboratory
shall be selected by both parties, or, in the absence of an agreement within
sixty (60) days, then it shall be a laboratory appointed by an arbitrator
pursuant to Paragraph 14 below. The costs of the arbitrator and laboratory tests
will be borne by the party whose analysis was in error as determined by the
arbitrator.
M. In the event of any inspection of SUMMA's operations, facilities or
records conducted by any governmental authority, that in any manner relates to
the Products, then SUMMA will advise Williams of such inspection (including
information as to the nature, extent, and scope thereof) as soon as SUMMA
becomes aware that the same has taken or will take place. In addition, SUMMA
will promptly provide Williams copies of all governmental reports regarding the
Products.
N. After the date of this Agreement, SUMMA agrees to develop other
products for Williams as Williams may request from time to time. Williams agrees
to pay SUMMA its costs of development of any such additional product(s). Prior
to any work being done to develop a new product, Williams and SUMMA shall first
agree in writing as to the amount of costs that Williams shall pay for such
product development.
O. Within five (5) business days from the date of execution of this
Agreement, SUMMA agrees to enter into a valid and enforceable amendment to the
Manufacturing and Sales Agreement, dated May 16, 1997 (the "American
Agreement"), by and between SUMMA and American, to exclude from the territory
set forth in the American Agreement the Territory as defined herein effective as
of the date of this Agreement and continuing thereafter until expiration or
termination of this Agreement. SUMMA acknowledges that its satisfaction of its
obligations under this Paragraph 2O are a material inducement to William's
entering into this Agreement.
3. ORDERS, SALES AND PAYMENT FOR THE PRODUCTS; PAYMENTS TO AMERICAN.
A. Williams shall deliver its purchase orders for Products to SUMMA at
SUMMA's offices set forth on the first page of this Agreement. Such purchase
orders shall state the quantity, packaging and the delivery schedules for the
Products being ordered.
B. Simultaneously with its delivery of a purchase order pursuant to
the preceding Paragraph, Williams shall pay SUMMA a deposit equal to one half of
the total purchase price of Products then being ordered or Five Hundred Thousand
Dollars
<PAGE>
5
($500,000.00), whichever sum is the lesser. Payment of the balance due on each
such purchase order shall be made within ten (10) business days from the date of
the notice that such Products have been delivered to Williams' shipper as
provided in Paragraph 2J above. SUMMA shall provide Williams with notice of each
such delivery date. All payments shall be made by wire transfer of funds
according to written instructions given by SUMMA to Williams, from time to time
hereafter.
C. The prices to be paid by Williams for the Products shall be as set
forth on Exhibit A. In the event SUMMA's costs to manufacture the Products
increases or decreases more than five percent (5%), SUMMA shall adjust the
prices for the Products quarterly in an amount equal to its actual cost increase
or decrease subject to the terms of this Agreement. Any increase in overhead
costs shall not exceed the amount of the cumulative percentage increase in the
Consumer Price Index during the period commencing from the date of this
Agreement or the period commencing with the most recent increase in SUMMA's
overhead costs hereunder, if any, and ending with the date of determination. Any
price increase based on increase in labor costs shall not exceed the cumulative
percentage increase in the Department of Labor Bureau of Statistics, Producer
Price Index, for the commodity code of the Products, for the period commencing
from the date of this Agreement or the period commencing with the most recent
increase in SUMMA's labor costs hereunder, if any, and ending with the date of
determination. SUMMA shall provide Williams sixty (60)days written notice prior
to any such price adjustment.
D. The price to be paid by Williams to SUMMA per tablet of the
Products, or package/container of Products, shall be in writing and set forth on
the individual Product specification sheets that make up Exhibit A.
E. The cost increases for the Products contemplated by Paragraph 3C
shall be determined in accordance with such paragraph and, in addition to the
foregoing, shall be reasonable and subject to the prior approval of Williams,
which approval shall not be unreasonably withheld or delayed. In the event the
parties cannot agree on the amount of such increased or decreased costs within
thirty (30) days following Williams' receipt of written notice from SUMMA of the
proposed costs as provided in Paragraph 3C, then the matter shall be submitted
to arbitration in accordance with Paragraph 14 of this Agreement. The reasonable
costs, as determined by any arbitrator as provided in Paragraph 14, shall be
effective sixty (60) days following the date of the costs notice from Summa.
Williams shall have the right to review all such documents related to SUMMA's
costs as herein contemplated at SUMMA's offices during reasonable business hours
and at Williams' own expense upon not less than twenty (20) days prior written
notice to SUMMA.
F. Williams shall purchase a minimum annual volume of Fifty Five
Million (55,000,000) tablets of the Products for the first two (2) years of this
Agreement.
<PAGE>
6
Thereafter and for the remainder of this Agreement (including any renewals or
extensions of the term hereof), Williams shall purchase a minimum annual volume
of Ninety Million (90,000,000) tablets of the Products. In the event Williams
fails to purchase the minimum annual volume of the Products in any year pursuant
to this Paragraph 3F, Williams shall pay to SUMMA that amount of dollars
determined by multiplying $7.25 for each 1,000 tablets, times the number of
tablets below such annual minimum that Williams failed to purchase. Any such
payment shall be made within sixty (60) days following each annual anniversary
date of this Agreement during the term of this Agreement or any extensions or
renewals hereof.
G. Upon execution of this Agreement, Williams shall provide SUMMA a
twelve (12) month manufacture, delivery and purchase forecast schedule (the
"Forecast Schedule") for each of the Products that is a part of Exhibit A, and
the Forecast Schedule and monthly amendments thereto shall be a part of this
Agreement. The Forecast Schedule shall list the names of the Products and
quantity of units to be manufactured by SUMMA for the period listed. Williams
shall amend and update the Forecast Schedule in writing on a monthly basis. The
quantity of units of the Products listed for manufacture and delivery during the
first three (3) months of the Forecast Schedule shall be Williams' firm purchase
orders for such Products. Thereafter, following the expiration of the first
month of each such three month period, the quantity of the Products listed on
the Forecast Schedule for manufacture and sale during each succeeding three (3)
month period shall be Williams' firm purchase orders for such Products during
that three month period.
H. Williams shall pay and be responsible for the payment of all
applicable sales, use, wholesale, gross receipts and similar taxes, duties and
tariffs solely in respect of its marketing, distribution and sale of the
Products in the Territory.
I. SUMMA agrees that, within ten (10) business days following its
receipt of full payment of the Products from Williams as provided in Paragraph
3B above, it shall pay to American the amounts of the Product Prices payable to
American set forth in Exhibit A annexed hereto, to the address of American set
forth in the American Agreement .
4. EXCLUSIVE RIGHT TO USE OF THE TRADEMARKS.
A. During the term of this Agreement, and any renewals or extensions
hereof, SUMMA grants to Williams the exclusive right to use the Trademarks for
its sale of the Products within the Territory. Following the termination of this
Agreement, Williams may continue to sell previously purchased Products under the
Trademarks as is provided in Paragraph 6C. However, Williams Recognizes that the
Trademarks are being or have been registered in the United States, Canada and
Mexico, and Williams agrees that its use in the other nations in the Territory
will be at its own risk. With respect to any
<PAGE>
7
registrations of the Trademarks in such other nations, SUMMA shall cause such
registrations to be applied for and prosecuted fully at the request of Williams
subject to the prior agreement of the parties as to the payment of the costs and
expenses associated therewith. SUMMA agrees that it will promptly inform
Williams, and will promptly provide Williams with copies of all correspondence,
reports and other materials, relating to such registrations as they are received
or are otherwise communicated to SUMMA.
B. Williams shall maintain its exclusive right to the use of the
Trademarks so long as it shall satisfy its minimum purchase obligations for the
Products as set forth in Paragraph 3F of this Agreement.
C. Williams shall have the right to use such other brand names as it
may develop from time to time, so long as such other names are not similar to or
are such as they may cause confusion with such other brand names that are owned
or used by SUMMA for sale of zinc based products. In the event that Williams
shall use a name that in the reasonable opinion of SUMMA is similar to or causes
confusion with the names of other zinc based products sold by SUMMA, Williams,
upon receipt of a notice from SUMMA, shall cease using that product name until
the dispute as to name is resolved according to this Agreement.
5. TERM.
A. Subject to the provisions herein for earlier termination, this
Agreement shall be effective on of the date first set forth above and shall
continue in full force and effect for a period of five (5) years (the "Initial
Term"), unless sooner (as herein permitted) terminated, and shall automatically
renew for unlimited consecutive five (5) year terms during the life of the
Patents (including any new patents or extensions of the Patents insofar as they
relate to or are derivative of the Patents, and Summa has manufacturing rights
in respect of the products covered thereby) (each a "Consecutive Term") if,
during the Initial Term and each such Consecutive Term, Williams has satisfied
its minimum purchase obligations for the Products as set forth in Paragraph 3F
of this Agreement. The amount of such purchases shall be determined by the
parties at least sixty (60) days prior to the expiration of the Initial Term and
each Consecutive Term and shall include Williams' firm purchase orders for
Products as set forth in the in Forecast Schedule covering the three (3) month
period prior to expiration of the Initial Term or such Consecutive Term, as
applicable. If such purchase minimum has not been met by Williams during the
Initial Term or any such Consecutive Term, then this Agreement may be terminated
by written notice from either party prior to the expiration thereof, in which
case this Agreement shall terminate on expiration of the Initial Term or the
applicable Consecutive Term unless the parties shall otherwise agree in a
writing signed by Williams and SUMMA.
<PAGE>
8
6. TERMINATION.
A. Either party may terminate this Agreement forthwith by notice in
writing:
(i) if the other of them is in material breach of this Agreement
provided that notice of termination may only be given if the other party has
failed to remedy the breach within thirty (30) days of the receipt of a request
in writing from the party not in breach to remedy the breach such request
indicating that failure to remedy the breach may result in termination of this
Agreement; or
(ii) if the other of them shall become insolvent or seek relief
under any bankruptcy, debtor relief or similar law or if any proceedings against
them under any such law remains stayed for a period of thirty (30) consecutive
days.
B. Williams may terminate this Agreement forwith by notice in writing
in the event that the Patents are (i) invalidated by a final and nonappealable
order entered by a court of competent jurisdiction or the United States Patent
and Trademark Office and/or (ii) the subject matter of any claim, action,
lawsuit, investigation, arbitration or other legal proceeding brought by any
person or entity challenging the validity of the Patents and/or asserting that
the use of the Patents infringes the intellectual property rights of such person
or entity or any other person or entity, and Williams, based on the advice of
patent counsel and with prior consultation with SUMMA, has determined that there
is a reasonable basis for such challenge or assertion.
C. The termination of this Agreement, however arising, will be without
prejudice to the rights and duties of either party accrued prior to termination.
Any termination of this Agreement by Williams as permitted in this Paragraph 6
and elsewhere in this Agreement shall fully terminate and shall fully relieve
Williams of any annual or other minimum payment obligations for the Products or
the Trademarks as set forth in Paragraphs 3F and 4B of this Agreement after the
date of such termination that would have otherwise been payable during the term
of this Agreement or any renewals or extensions thereof. Conversely, any
termination of this Agreement shall not relieve Williams of its obligation to
pay SUMMA under the provisions of Paragraph 3G through the date of such
termination.
D. After the date of termination of this Agreement, Williams will
forthwith cease to solicit additional orders for the Products. SUMMA shall fill
those orders for which it has received full payment prior to termination or
within thirty (30) days thereafter. Williams shall be able to sell all of the
Products in its inventory during the one (1) year period following the date of
such termination. After such a termination, SUMMA shall have the right to sell
the Products to Williams' customers, and Williams shall provide SUMMA with
detailed information regarding names and contacts with such customers.
<PAGE>
9
E. In the event of the bankruptcy of Williams or similar condition
that renders it impossible for Williams to timely pay for the Products, Williams
hereby grants to SUMMA a secured interest in and to the Products purchased from
SUMMA and the proceeds to be received from the sale thereof to secure payment of
the Products. SUMMA shall be treated as a secured party in relation to the
unpaid amount due SUMMA, and SUMMA shall have the option to terminate all
additional shipment of goods and products that may be remaining.
7. NON-CONVEYANCE OF RIGHTS.
A. Except as is provided in this Agreement, SUMMA has not granted,
given, assigned or transferred in any manner whatsoever to Williams the right to
give, grant, sell, transfer, assign, trade, license, or authorize the right to
give, grant, sell, transfer, assign, trade or license the Patents, the
Trademarks or any other trademarks to any other person or entity.
8. REPRESENTATIONS AND WARRANTIES OF WILLIAMS.
Williams represents and warrants to SUMMA as follows:
A. That Williams is not the subject of any lawsuit or other action
that would render this Agreement ineffective.
B. Williams has full power, authority and legal right to execute and
deliver, and to perform its obligations under this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement. This Agreement has been duly executed by Williams and constitutes a
legal, valid and binding obligation of Williams, enforceable in accordance with
its terms.
C. All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by Williams without the intervention of
any other person in such manner as to give rise to any valid claim for a
finder's fee, brokerage commission or other like payment.
D. No approval of any government agency or commission of any
jurisdiction is necessary for the execution, delivery or performance by Williams
of any of the terms of this Agreement, or for the validity and enforceability
hereof or with respect to the obligations of Williams hereunder.
E. That Williams shall be solely responsible for compliance with all
laws, ordinances, regulations, rules and standards relating to its sale of the
Products (but not to the manufacture thereof).
<PAGE>
10
F. On the date of execution of this Agreement Williams has or shall
have obtained all necessary governmental approvals, permits, judicial and/or
administrative orders, licenses and agreements as may be necessary for it to
sell the Products. SUMMA, when necessary, shall assist Williams in obtaining all
such permits, licenses, agreements and approvals.
G. Williams shall forthwith notify SUMMA of the date, reaction and the
specific item of the Products when it learns that a user of any of the Products
has suffered an adverse reaction to the Products.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SUMMA.
SUMMA represents, warrants and covenants to Williams as follows:
A. That SUMMA is not the subject of any lawsuit or other action that
would render this Agreement ineffective.
B. That there are no agreements between SUMMA and any other person or
entity that preclude sale of the Products to Williams and Williams' sale of the
products, in each case as contemplated hereby.
C. SUMMA has full power, authority and legal right to execute and
deliver, and to perform its obligations under this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement. This Agreement has been duly executed by SUMMA and constitutes a
legal, valid and binding obligation of SUMMA, enforceable in accordance with its
terms.
D. No approval of any government agency or commission of any
jurisdiction is necessary for the execution, delivery or performance by SUMMA of
any of the terms of this Agreement, or for the validity and enforceability
hereof or with respect to the obligations of SUMMA hereunder.
E. That SUMMA shall be solely responsible for compliance with all
laws, ordinances, regulations, rules and standards relating to its manufacture
of the Products and its sale of the Products to Williams.
F. To the Knowledge (as defined below) of SUMMA, Williams' use of the
rights to the Trademarks and any other trademarks, tradenames, logos or similar
items owned or assigned by SUMMA to Williams in connection with the matters
contemplated hereby in the United States (including its territories and
possessions), Canada and Mexico, will not infringe upon or misappropriate any
trademark or other similar proprietary or intellectual property right of any
person or entity under any applicable law, order, statute, rule, regulation or
ordinance protecting the proprietary or intellectual property rights of any
<PAGE>
11
person or entity of each such jurisdiction. As used in the Paragraph 9F, the
term "Knowledge" shall mean any infringement or misappropriation that Summa
knows or should have reason to know of.
10. NONCIRCUMVENTION.
SUMMA agrees that it shall not knowingly contact, solicit, manufacture
or sell the Products to Williams' customers or to persons or entities
specifically identified by Williams as its potential customers. All customer
information provided by Williams to SUMMA shall be deemed Confidential
Information of Williams as defined in Paragraph 12 below. However, in the event
that a Williams "customer" is a pre-existing customer or prospect of SUMMA's,
then SUMMA shall have all right to continue doing business with that customer or
to solicit that customer's business. Further, SUMMA shall not be responsible for
the actions of other SUMMA customer's who independently may solicit business
from one or more of the Williams "customer's."
11. INTELLECTUAL PROPERTY.
A. Williams agrees that during the term of this Agreement it will not
authorize or cooperate in any manner whatsoever with any other person or entity
to provide any such other person or entity the use of, or any information
regarding the Products, save and except by written permission of SUMMA.
Provided, however, SUMMA agrees that Williams shall provide all information that
is required to be produced to regulatory authorities having jurisdiction over
the Products.
B. Williams will promptly report to SUMMA in writing the particulars
of any infringement of the Patents or the Trademarks or any other trademark or
trade name owned and/or used by SUMMA and assigned to Williams hereunder, of
which Williams becomes aware. Williams will assist SUMMA in any proceedings
commenced by SUMMA in relation thereto. Williams will not take any action in
relation to any such infringement without the prior written consent of SUMMA.
C. If Williams becomes aware that any person alleges that the Patents,
or the Trademarks or any other trade marks, trade names, logos, etc. owned
and/or used by SUMMA and assigned to Williams hereunder, infringe the rights of
any person, Williams will not make any admission in relation to such allegations
but will promptly report them to SUMMA. Unless otherwise agreed in writing,
SUMMA will control and conduct all proceedings relating to such intellectual
property rights, at its own expense.
12. CONFIDENTIALITY.
A. Each party agrees to provide to the other party such information as
shall be necessary to permit performance of their respective obligations
hereunder. All
<PAGE>
12
information that is provided by either party to the other shall be considered
confidential ("Confidential Information") unless it is specifically identified
in writing at or before the time it is provided to such other party as
non-confidential.
B. Neither Party hereto will, without the prior written consent of the
party providing Confidential Information, (i) use any portion of such
Confidential Information for any purpose other than the performance of this
Agreement, or (ii) disclose any portion of such Confidential Information to any
persons or entities other than the officers and employees of such party who
reasonably need to have access to the Confidential Information for purposes of
performance under this Agreement, and who are to be bound by appropriate
confidentiality agreements and commitments consistent with this Agreement.
Provided, however, that SUMMA shall provide all information that is required to
be produced to regulatory authorities having jurisdiction over the Products.
C. The obligations of a recipient party with respect to Confidential
Information shall remain in effect (during and after the term of this Agreement
including any renewals or extensions hereof) except to the extent that (i) such
Confidential Information becomes generally available to the public, other than
as a result of unauthorized disclosure by the recipient or persons to whom the
recipient has made the information available, (ii) such Confidential Information
has been released without restriction by the party providing the Confidential
Information to another person or entity, (iii) such Confidential Information was
received by the recipient on a non-confidential basis from a third party
lawfully possessing and lawfully entitled to disclose such information, or (iv)
the recipient party is able to establish that the Confidential Information was
independently developed or discovered by employees or agents of such party who
had no knowledge of the Confidential Information by reason of the disclosure
hereunder.
D. Confidential Information shall remain the property of the
disclosing party and shall be returned to the disclosing party or shall be
destroyed upon termination of this Agreement. Each recipient party agrees to
safeguard Confidential Information utilizing reasonable care.
E. In the event that either party shall be required by any court order
or extraordinary regulatory agency order to disclose any of the information
deemed by this Agreement to be confidential and/or proprietary, that party shall
give immediate written notice to the other party. Upon receipt of same, the
party whose information may be the subject of such Court Order or extraordinary
regulatory agency order shall be accorded the right to interpose all objections
it may have to the disclosure of its information. The foregoing obligations
shall survive the termination or expiration of this Agreement and shall continue
until the earlier of three (3) years from the date of such termination or
expiration or until a specific written release is exchanged by both Williams and
SUMMA.
<PAGE>
13
13. INDEMNIFICATION AND LIMITATION OF LIABILITY.
A. SUMMA agrees to hold Williams harmless and indemnify and defend it
from and against any and all claims, losses, liability, demands, causes of
action or costs, including, but not limited to, attorney's fees, which Williams
may be called upon to pay as a result of SUMMA's manufacture of the Products or
any breach of its representations, obligations or covenants hereunder.
B. Williams will indemnify and hold SUMMA harmless from all costs,
claims, expenses, losses, liabilities, judgments, proceedings and demands of
whatsoever nature (including legal fees) arising out of any suit or action
brought against SUMMA based upon a claim arising out of the sale of the Products
by Williams and based on any statement or advertising made by Williams regarding
the Products, or any breach of its representations, obligations or covenants
hereunder.
C. Neither SUMMA or Williams shall be obligated to hold harmless or
defend the other from or against any liability resulting from the negligence or
willful misconduct of the other party.
D. The foregoing obligations shall survive the expiration of this
Agreement and shall continue until a specific written release is exchanged by
Williams and SUMMA.
14. ARBITRATION.
A. If SUMMA and Williams become involved in an irreconcilable dispute
between them, and the dispute cannot be settled within thirty (30) days, the
issue shall be submitted to arbitration for resolution. The rules of the
Williams Arbitration Association shall be followed in the arbitration proceeding
which shall be held in front of a professional arbitrator and the decision of
the arbitrator shall be binding on the parties involved in the dispute.
B. The arbitrator used hereunder shall be located in Tarrant County,
Texas.
C. Any arbitrator used as provided herein must be acceptable to both
parties. If the parties are unable to agree upon an acceptable arbitrator, the
principal American Arbitration Association office in Tarrant County, Texas,
shall designate an arbitrator.
<PAGE>
14
15. EXCUSE OF PERFORMANCE - FORCE MAJEURE.
A. Neither Williams nor SUMMA shall be in default in the performance
of its obligations hereunder to the extent that performance of such obligations
is delayed, hindered, or prevented by any cause which is beyond the reasonable
control of either party, including but not limited to inclement weather,
strikes, lockouts, inability to procure labor, materials, or fuels due to
shortage, fires, riots, incendiarism, interference by civil or military
authorities, compliance with the regulations or order of any governmental
authority, or the outbreak of war or insurgence, or acts of war - (declared or
undeclared).
B. In the event SUMMA is unable to fulfill its obligations hereunder
by reason of any cause that would excuse its performance under Paragraph 15A, or
such other causes including, without limitation, by reason of an voluntary or
involuntary bankruptcy of SUMMA, then it shall promptly notify Williams of the
cause or event. In the event SUMMA shall not be able to rectify the cause or
event within a period not to exceed forty five (45) consecutive days so as not
to be able to supply Williams with Products according to this Agreement and
Williams stands ready to perform hereunder, then SUMMA and Williams shall locate
a manufacturer suitable to Williams and SUMMA and SUMMA shall assign all its
rights hereunder to such manufacturer; provided, however, should SUMMA be able
to fully correct its inability to fulfill its obligations hereunder within one
hundred and eighty (180) days following the date of such assignment, then SUMMA
shall thereafter have the right to perform hereunder as if such inability had
not occurred. Any such assignment by SUMMA shall not relieve SUMMA of its
obligations (other than the obligation to supply the Products) under this
Agreement. In the event that SUMMA's inability to perform is based on the
inability or refusal of any of its suppliers to perform, then Williams shall
assist SUMMA to rectify that cause or event, or locate a new supplier, and the
provisions of this Paragraph 15B shall not become effective.
16. MISCELLANEOUS PROVISIONS.
A. WAIVER - No waiver of breach of any of the provisions of this
Agreement shall be construed to be a waiver of any succeeding breach of the same
or any other provision.
B. SEPARABILITY - If any Paragraph, sentence or clause of this
Agreement shall be adjudged illegal, invalid or unenforceable, such illegality,
invalidity or unenforceability shall not affect the legality, validity or
enforceability of this Agreement as a whole or of any Paragraph, sentence or
clause hereof not so adjudged.
C. SUCCESSOR AND ASSIGNS - The covenants and agreements contained in
this Agreement shall apply to, inure to the benefit of and be binding upon the
parties hereto and upon their respective successors and assigns. Neither party
shall assign
<PAGE>
15
their rights or obligations under this Agreement without the prior written
approval of the other party (such approval not to be unreasonably withheld).
D. NOTICE - Any notice required or permitted hereunder shall be deemed
sufficient if given in writing and delivered personally, by facsimile
transmission, by reputable overnight courier service or United States mail,
postage prepaid, to the addresses shown below or to such other addresses as are
specified by similar notice, and shall be deemed received upon personal
delivery, upon confirmed facsimile receipt, two days following deposit with such
courier service, or three (3) days from deposit in the United States mails, in
each case as herein provided:
If to Williams: If to SUMMA:
J.B. Williams Company, Inc. Summa Rx Laboratories, Inc.
65 Harristown Road P.O. Box 147
Glen Rock, New Jersey 07452 Mineral Wells, Texas 76068-0147
Attention: Mr. Dario Margve Attention: Mr. Jerry A. Nelson
President President
Phone (201) 251-8100 Phone (940) 325-0771
Fax (201)251-8097 Fax (940) 325-0807
Either party may change its address and the name of its designated
recipient of copies of notices for purposes of this Agreement by giving the
other party written notice of the new name, address of its designated recipient.
E. CAPTIONS - Any article or paragraph titles or captions contained in
this Agreement are for convenience only and shall not be deemed to amplify,
modify or give full notice of the provisions thereof.
F. INTERPRETATION - When the context in which words are used in this
Agreement indicate that such is the intent, words in the singular shall include
the plural and the plural shall include the singular. Words in the masculine
gender shall include the feminine and neuter genders.
G. ENTIRE AGREEMENT - This Agreement and its amendments, attachments
and Exhibits represent the final expression of the entire understanding and
agreement between Williams and SUMMA, and that all previous oral or written
agreements are null and void and superseded in their entirety by this Agreement.
H. AMENDMENTS - This Agreement may be amended or modified only by a
written amendment executed by Williams and SUMMA.
<PAGE>
16
I. INDEPENDENT CONTRACTOR - Neither party is an agent or employee of
the other party. Each party is and shall at all times remain an independent
contractor. NEITHER PARTY IS GRANTED ANY RIGHT OR AUTHORITY TO ASSUME OR CREATE
ANY OBLIGATION, EXPRESS OR IMPLIED ON BEHALF OF OR IN THE NAME OF THE OTHER
PARTY.
J. LAW AND JURISDICTION - The formation, construction, performance and
validity of this Agreement shall be governed by the laws of the State of Texas
and the parties hereby agree to submit to the exclusive jurisdiction of the
Court in Parker County, Texas having jurisdiction over the matter in dispute.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
multiple counterparts, each of which shall be an original, on July 11,1997.
SUMMA RX LABORATORIES, INC. J.B. WILLIAMS COMPANY, INC.
By: /s/ Jerry A. Nelson By: /s/ Dario Margve
------------------------------ -----------------------------
Jerry A. Nelson, President Dario Margve, President
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or
officer of J.B. WILLIAMS HOLDINGS, INC., a Delaware corporation, which is filing
with the Securities and Exchange Commission an annual report on Form 10-K for
the year ended December 31, 1997, hereby constitutes and appoints Kevin C.
Hartnett and Dario U. Margve, and each of them, as the true and lawful
attorneys-in-fact and agents, for the undersigned, with the power to act either
jointly or severally for him in his name, place and stead, in any and all
capacities to sign such annual report on Form 10-K and any and all amendments
thereto, and to file such annual report on Form 10-K and each such amendment or
amendments thereto, with all exhibits thereto, and any and all documents in
connection therewith, with the Securities and Exchange Commission hereby
granting unto said attorneys-in-fact and agents, and each of them, the full
power and authority to do and perform any and all acts and things requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents may lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of
the 24th day of March, 1998.
/s/ RICHARD T. NINER
--------------------------------------
Richard T. Niner
/s/ HENDRIK J. HARTONG, JR.
--------------------------------------
Hendrik J. Hartong, Jr.
/s/ JOHN T. GRAY
--------------------------------------
John T. Gray
/s/ C. ALAN MACDONALD
--------------------------------------
C. Alan MacDonald
/s/ CARL G. ANDERSON, JR.
--------------------------------------
Carl G. Anderson, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE J.B.
WILLIAMS HOLDINGS, INC. FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,375
<SECURITIES> 0
<RECEIVABLES> 13,785
<ALLOWANCES> 550
<INVENTORY> 9,200
<CURRENT-ASSETS> 31,570
<PP&E> 2,354
<DEPRECIATION> 1,411
<TOTAL-ASSETS> 81,471
<CURRENT-LIABILITIES> 13,166
<BONDS> 50,345
0
0
<COMMON> 9,600
<OTHER-SE> 7,488
<TOTAL-LIABILITY-AND-EQUITY> 81,471
<SALES> 63,868
<TOTAL-REVENUES> 63,868
<CGS> 23,555
<TOTAL-COSTS> 23,555
<OTHER-EXPENSES> 34,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,200
<INCOME-PRETAX> 939
<INCOME-TAX> 366
<INCOME-CONTINUING> 939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 573
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
