<PAGE> 1
As filed with the Securities and Exchange Commission on September 4, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
YOUNG INNOVATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C> <C>
MISSOURI 3843 43-1718931
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
13705 SHORELINE COURT
EARTH CITY, MISSOURI 63045
(314) 344-0010
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OR
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GEORGE E. RICHMOND
PRESIDENT AND CHIEF EXECUTIVE OFFICER
YOUNG INNOVATIONS, INC.
13705 SHORELINE COURT
EARTH CITY, MISSOURI 63045
(314) 344-0010
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S AGENT FOR SERVICE)
WITH COPIES TO:
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<S> <C>
JOHN L. GILLIS, JR., ESQ. THOMAS J. MURPHY, ESQ.
ARMSTRONG, TEASDALE, SCHLAFLY & DAVIS MCDERMOTT, WILL & EMERY
ONE METROPOLITAN SQUARE, SUITE 2600 227 WEST MONROE STREET
ST. LOUIS, MISSOURI 63102-2740 CHICAGO, ILLINOIS 60606
(314) 621-5070 (312) 372-2000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
======================================================================================================================
AMOUNT PROPOSED PROPOSED
TITLE OF EACH CLASS OF TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE* OFFERING PRICE* REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share..................... 2,300,000 shares(1) $12.00 $27,600,000 $8,364
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</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
(1) Includes 300,000 shares to be issued subject to the exercise of the
Underwriters' over-allotment option, if any.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 4, 1997
PROSPECTUS
2,000,000 SHARES
YOUNG
INNOVATIONS, Inc.
COMMON STOCK
------------------------
All 2,000,000 shares of Common Stock offered hereby (the "Offering") are
being sold by Young Innovations, Inc. (the "Company"). Prior to the Offering,
there has been no public market for the Common Stock. It is currently estimated
that the initial public offering price will be between $10.00 and $12.00 per
share. See "Underwriting" for information relating to the determination of the
initial public offering price.
Application has been made to have the Common Stock approved for listing on
the Nasdaq National Market under the symbol "YUNG."
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION DISCUSSED
UNDER THE CAPTION "RISK FACTORS" AT PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................ $ $ $
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Total(3)......................... $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses, estimated to be $450,000, payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock, on the same terms and conditions
set forth above, to cover over-allotments, if any. If the Underwriters
exercise the over-allotment option in full, the total Price to Public, the
total Underwriting Discount and the total Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the certificates representing shares of Common Stock will be made on
or about , 1997 through The Depository Trust Company or at the offices
of Robert W. Baird & Co. Incorporated, Milwaukee, Wisconsin.
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<S> <C>
ROBERT W. BAIRD & CO. CLEARY GULL REILAND &
INCORPORATED MCDEVITT INC.
</TABLE>
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
[PHOTO]
THE YOUNG DENTAL PRODUCT LINE
[PHOTO]
THE LORVIC PRODUCT LINE
[PHOTO]
THE DENTICATOR PRODUCT LINE
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SYNDICATE SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
Young Innovations, Inc. was incorporated in July 1995 to serve as the
parent corporation for Young Dental Manufacturing Company ("Young Dental"),
founded at the turn of the century, and Lorvic Holdings, Inc. ("Lorvic") and its
operating subsidiary, The Lorvic Corporation, founded in 1953; Lorvic was
acquired by Young Dental in May 1995. Denticator International, Inc.
("Denticator") was acquired by Young Dental in July 1996. Young Dental
International, Inc. ("YDI") was organized as an indirect, wholly-owned
subsidiary in February 1996 to serve as a foreign sales corporation. Unless
otherwise indicated, all references in this Prospectus to the "Company" include
Young Dental, YDI, Lorvic and Denticator and all information is adjusted to
reflect the 1.2 for one stock split of the Common Stock to be effected in the
form of a stock dividend prior to completion of the Offering and assumes no
exercise of the Underwriters' over-allotment option. The following summary is
qualified in its entirety by the detailed information and the Consolidated
Financial Statements of the Company, Lorvic and Denticator, including the Notes
thereto, included elsewhere in this Prospectus. With respect to information
stated on a pro forma basis for 1996, such information includes the results of
operations of Denticator as if the acquisition occurred on January 1, 1996.
THE COMPANY
The Company is a leading designer, manufacturer and marketer of single-use
supplies, autoclavable instruments and other products used by dental
professionals, primarily in preventive dentistry and infection control. The
Company has a leading market share in certain segments of the preventive
dentistry market which it believes is due to its (i) longstanding reputation for
high quality, innovative and reliable products; (ii) widespread name recognition
and ability to leverage the Young and Denticator brands; and (iii) consummation
of strategic acquisitions. Through the successful implementation of the
Company's business strategy and the acquisitions of Lorvic and Denticator, the
Company's net sales and income from operations have grown at compound annual
rates of 21.4% and 30.7%, respectively, from 1992 through 1996.
The Company's disposable and metal prophy angles, cups and brushes
(collectively, "Prophy Products"), which are integral components used in the
cleaning and polishing of teeth by dental professionals, represented 76.9% of
the Company's pro forma net sales in 1996. The Company's branded Prophy Products
currently have an estimated domestic market share of 53%, up from 22% in 1990.
Additionally, the Company has developed and acquired aspiration and infection
control products, as well as complementary preventive products such as pastes,
fluorides and fluoride applicators.
The Company markets its full line of products to dental professionals
worldwide through a network of medical and dental product distributors. The
Company actively supports its distributor relationships through Company sales
personnel in the United States, independent sales representatives in Canada and
exclusive sales representatives in 13 countries outside of North America. The
Company also uses non-exclusive distributors to service markets in 40 other
countries. All major distributors of dental products in North America sell the
Company's products, including Patterson Dental Company ("Patterson"), Henry
Schein, Inc. ("Schein"), Sullivan Dental Products, Inc. ("Sullivan") and H. Meer
Dental Supply Company, Inc. ("Meer"). The Company's product development,
manufacturing and marketing capabilities and its relationships with distributors
allow the Company to provide a broad range of high quality, innovative and
reliable products to dental professionals. Additionally, these capabilities and
relationships enable the Company to quickly and efficiently offer new products
or product extensions to its existing customer base and new markets.
The Company's objective is to profitably establish the number one or two
market share position for professional dental products in each of the market
segments in which it competes. The Company strives to achieve its objective by
enhancing and leveraging its name recognition and reputation; augmenting its
proprietary manufacturing capabilities with additional automation, capacity and
technology in order to maintain its low cost structure; and expanding its
established lines of single-use products which generate a significant stream of
recurring revenues and cash flow. The Company believes that its gross and
operating profit margins of 55.6% and 27.3% of 1996 pro forma net sales,
respectively, are the result of the successful implementation of these
strategies. The Company plans to capitalize on its established market position
by (i) pursuing strategic acquisitions of complementary businesses, product
lines and key technologies; (ii) actively developing new dental products and
product lines; and (iii) pursuing targeted international expansion.
3
<PAGE> 5
The Company's established position in the professional dental products
industry has enabled it to acquire successfully Lorvic in May 1995 and
Denticator in July 1996. The Lorvic acquisition added complementary lines of
aspiration and infection control products, as well as complementary preventive
products such as pastes, fluorides and fluoride applicators. The Denticator
acquisition built on the Company's market position by adding Prophy Product
lines aimed at the price sensitive segment of the market, which Young Dental
traditionally had not targeted.
Preventive dentistry, including regular professional cleaning and polishing
of teeth ("prophy" or "prophylaxis"), helps to reduce the incidence of cavities,
gingivitis and periodontal disease and, due to its cost effectiveness, is
increasingly emphasized by private dental insurers, managed care providers and
consumers. Based on data compiled by the Health Care Financing Administration
("HCFA"), total spending on dental products and services increased from $31.6
billion to $45.8 billion from 1990 to 1995, or 7.7% per annum, and is estimated
to increase by 5.6% per annum from 1995 to 2005. The Company believes that the
professional dental products market will continue to be influenced by (i)
increased emphasis on preventive dentistry and infection control; (ii) favorable
demographic trends, including the increasing retention of natural teeth; and
(iii) growth in international markets, including Europe, South America, Central
America and the Pacific Rim. Heightened public awareness and increased
governmental regulations and guidelines regarding infection control have
resulted in increased usage of single-use products, products which can be
effectively sterilized and products used in the sterilization process. In 1996,
single-use products represented 92.9% of the Company's pro forma net sales.
The Company believes that the dental industry is presently undergoing
consolidation at three different levels. Dental service providers are combining
as dental practice management companies acquire specialty and general dental
practices. Professional dental product distributors are also undergoing
consolidation as evidenced by Schein recently announcing its agreement to
acquire Sullivan. The professional dental product manufacturing industry is
highly fragmented with over 400 companies, many of which are small in size. The
Company believes that many small manufacturers will be at an increasing
disadvantage in the marketplace due to limited manufacturing and distribution
resources, increasing regulatory requirements and pricing pressures resulting
from the consolidation of distributors and dental service providers. As a
result, the Company anticipates increasing consolidation among manufacturers and
believes it is well positioned to make additional acquisitions due to its
acquisition experience and approach, name recognition, manufacturing
capabilities and established distribution network.
The Company is a Missouri corporation with its principal executive office
located at 13705 Shoreline Court, Earth City, Missouri 63045, located in the St.
Louis, Missouri metropolitan area; its telephone number is (314) 344-0010.
THE OFFERING
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Common Stock offered by the Company................. 2,000,000 shares
Common Stock to be outstanding after the Offering...
6,410,296 shares(1)
Use of Proceeds.....................................
To repay indebtedness, for working capital
needs and general corporate purposes,
including potential acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol..............
YUNG
</TABLE>
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(1) Does not include 350,000 shares reserved for issuance under the Company's
1997 Stock Option Plan or an amount of shares not to exceed an aggregate
value of $800,000 based upon the market value of the Common Stock on July
22, 1998, that may be issued to the President and Chief Executive Officer of
Denticator in July 1998 in connection with the Denticator acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management -- Stock Option Plan and -- Employment
Agreements."
4
<PAGE> 6
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------- ------------------------
PRO FORMA
1992 1993 1994 1995 1996(1) 1996(2) 1996 1997
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INCOME STATEMENT DATA:
Net sales........................... $9,932 $11,604 $12,036 $17,496 $21,580 $24,568 $ 9,042 $12,137
Cost of goods sold.................. 5,126 5,609 5,457 7,379 9,470 10,896 3,746 5,019
------ ------- ------- ------- ------- ------- ------- -------
Gross profit........................ 4,806 5,995 6,579 10,117 12,110 13,672 5,296 7,118
Selling, general and administrative
expenses.......................... 2,640 2,825 3,063 4,494 5,790 6,976 2,284 3,677
------ ------- ------- ------- ------- ------- ------- -------
Income from operations.............. 2,166 3,170 3,516 5,623 6,320 6,696 3,012 3,441
Interest expense.................... 75 268 189 741 974 -- 420 602
Other expense (income), net......... (257) 29 (124) (320) 123 119 270 (3)
------ ------- ------- ------- ------- ------- ------- -------
Income before provision for income
taxes............................. 2,348 2,873 3,451 5,202 5,223 6,577 2,322 2,842
Provision for income taxes(3)....... -- 700 1,270 2,044 1,955 2,459 884 1,079
------ ------- ------- ------- ------- ------- ------- -------
Net income.......................... $2,348 $ 2,173 $ 2,181 $ 3,158 $3,268 $ 4,118 $ 1,438 $ 1,763
====== ======= ======= ======= ======= ======= ======= =======
Earnings per share.................. $ 0.49 $ 0.71 $ 0.74 $ 0.66 $ 0.32(4) $ 0.40(4)
======= ======= ======= ======= ======= =======
Weighted average common shares
outstanding....................... 4,450 4,450 4,444 6,274 4,450 4,410
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
AS OF DECEMBER 31, ------------------------
---------------------------------------------- AS
1992 1993 1994 1995 1996(1) ACTUAL ADJUSTED(5)
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BALANCE SHEET DATA:
Net working capital (deficit)(6).... $2,294 $ (460) $ 1,665 $ 2,762 $3,115 $ 2,886 $ 8,561
Total assets........................ 8,012 8,545 7,711 22,107 32,481 31,869 37,544
Total debt (including current
maturities)....................... 960 4,223 472 10,773 16,406 14,356 21
Stockholders' equity................ 5,928 3,207 5,253 7,121 10,311 12,074 33,720
</TABLE>
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(1) On July 22, 1996, the Company acquired Denticator. The income statement data
for the year ended December 31, 1996, include results of operations for
Denticator from July 22, 1996, through December 31, 1996. The balance sheet
data as of December 31, 1996, include Denticator as of that date.
(2) Pro forma to give effect to (i) the acquisition of Denticator, including the
incurrence of additional indebtedness related thereto as if the acquisition
was completed on January 1, 1996; (ii) the sale of Common Stock offered
hereby, as if the Offering was completed on January 1, 1996; and (iii) the
application of $18.3 million of the net proceeds of the Offering to repay
all indebtedness of the Company which would have been outstanding as of
January 1, 1996. Pro forma earnings per share assumes 4,444,003 weighted
average shares outstanding for 1996 plus 1,830,000 shares, representing
those shares of Common Stock offered hereby at an assumed initial public
offering price of $11.00 per share, sufficient to repay $18.3 million of
indebtedness which would have been outstanding as of January 1, 1996. The
pro forma information is not necessarily indicative of the results that
actually would have been achieved if the Denticator acquisition had been
consummated on January 1, 1996, or that may be achieved in the future. See
"Use of Proceeds" and "Young Innovations, Inc. and Denticator International,
Inc. Unaudited Pro Forma Financial Information."
(3) Until February 28, 1993, Young Dental had elected to be treated as an S
Corporation for income tax purposes. As an S Corporation, its earnings were
included in the personal tax returns of the stockholders of Young Dental and
no income tax provision was recorded by Young Dental through February 28,
1993. Effective March 1, 1993, Young Dental terminated its S Corporation
status and became a taxable entity. Assuming Young Dental was a C
Corporation, the estimated additional pro forma provision for income taxes
was $869,000 for 1992 and $368,000 for 1993, assuming an income tax rate of
37.0%.
(4) The Company plans to retire substantially all of its outstanding
indebtedness using a portion of the net proceeds from the Offering. Assuming
the Company's revolving line of credit and long-term borrowings were retired
as of January 1, 1996, supplementary earnings per share would be $0.31 and
$0.36 for the six months ended June 30, 1996, and 1997, respectively,
reflecting the elimination of interest expense, net of income taxes, of
$265,000 for 1996 and $373,000 for 1997. Supplementary earnings per share
assumes 4,450,210 and 4,409,728 weighted average shares outstanding for the
six months ended June 30, 1996 and 1997, respectively, plus 980,000 and
1,480,000 shares, representing those shares of Common Stock sold at an
assumed initial public offering price of $11.00 per share, and the
application of the net proceeds therefrom sufficient to retire $9.6 million
and $14.7 million of average outstanding borrowings for the six months ended
June 30, 1996 and 1997, respectively.
(5) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
(6) Net working capital (deficit) represents current assets less current
liabilities excluding current maturities of long-term debt and the Company's
revolving line of credit. Net working capital (deficit) as of December 31,
1993, includes $3.6 million of notes payable to stockholders related to
distributions of S Corporation earnings that were paid in 1994.
5
<PAGE> 7
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information set forth in this Prospectus, in evaluating
the Company and its business before purchasing shares of the Common Stock
offered hereby. This Prospectus contains certain forward-looking statements that
involve risks and uncertainties. Future events and the Company's actual results
could differ materially from those contemplated by such forward-looking
statements. It should be recognized that risks, including those set forth below,
may be significant, presently or in the future, and may materially affect the
Common Stock or the Company.
COMPETITION
The markets for the Company's products are highly competitive. The Company
believes that the principal competitive factors in all of its markets are
product features and reliability, name recognition, distribution network,
customer service and, to a lesser extent, price. The relative speed with which
the Company can develop, complete testing of, obtain regulatory approval for and
sell commercial quantities of new products is also an important competitive
factor. Failure of the Company to offer products which either contain features
similar to or more desirable than products offered by its competitors or, in
certain cases, to meet the prices offered by its competitors, could have a
material adverse effect on the business, financial condition and results of
operations of the Company. Some of the Company's competitors have greater
financial, research, manufacturing and marketing resources than the Company. The
Company's inability to compete effectively against existing or future
competitors could result in a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Competition."
DEPENDENCE ON KEY DISTRIBUTORS; CONSOLIDATION OF KEY DISTRIBUTORS AND DENTAL
SERVICE PROVIDERS
Patterson, Schein and Sullivan, three distributors of the Company's
products, accounted for 16.5%, 15.7% and 10.3% of the Company's net sales for
the six months ended June 30, 1997, respectively, and 17.9%, 19.1% and 7.7% of
the Company's net sales for the year ended December 31, 1996, respectively.
Increasingly, there has been consolidation of dental and medical products
distributors and dental service providers. In August 1997, Schein announced it
had agreed to acquire Sullivan; Schein and Sullivan collectively accounted for
26.0% and 26.8% of the Company's net sales for the six months ended June 30,
1997 and for the year ended December 31, 1996, respectively. The inability or
unwillingness of any of these distributors to continue to purchase the Company's
products could adversely affect the Company's business, financial condition and
results of operations. Additionally, as distributors and dental service
providers consolidate and become larger, their ability to negotiate more
favorable terms for the Company's products, including lower prices, may
increase. See "Business -- Marketing and Distribution."
RISKS ASSOCIATED WITH ACQUISITIONS
In pursuing its acquisition strategy, the Company will face risks commonly
encountered with growth through acquisitions. These risks include the incurrence
of significantly higher than anticipated capital expenditures and operating
expenses, disruption to the Company's ongoing business, dissipation of the
Company's management resources, failure to assimilate the operations and
personnel of acquired companies, failure to maintain uniform standards, controls
and policies and impairment of relationships with employees and customers as a
result of changes in management. There can be no assurance that the Company will
be successful in overcoming these risks or any other problems encountered with
acquisitions, including the Company's acquisitions of Lorvic and Denticator. To
the extent the Company does not successfully avoid or overcome the risks or
problems related to acquisitions, the Company's results of operations and
financial condition could be adversely affected. Future acquisitions also will
have a significant impact on the Company's financial position and capital needs.
Acquisitions could include significant goodwill and intangible assets, resulting
in substantial amortization charges to the Company that may reduce stated
earnings following such acquisitions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Growth
Strategy."
6
<PAGE> 8
AVAILABILITY OF ACQUISITION CANDIDATES; NEED FOR ADDITIONAL CAPITAL
The Company's ability to grow through acquisitions will be dependent upon
(i) the availability of suitable acquisition candidates at an acceptable cost;
(ii) the Company's ability to compete effectively for available acquisition
candidates; and (iii)the availability of capital to complete acquisitions. The
Company intends to finance such acquisitions with cash generated from
operations, the incurrence or assumption of indebtedness and issuances of Common
Stock, as appropriate. Using cash to finance acquisitions could substantially
limit the Company's financial flexibility, using debt could result in financial
covenants that limit the Company's operating and financial flexibility and using
Common Stock may result in significant dilution of the interest in the Company
of the stockholders at that time. There can be no assurance that the Company
will be able to obtain additional capital on acceptable terms. If the Company is
unable to obtain additional capital on acceptable terms, the Company's
acquisition activities may be limited. To the extent the Company is limited in
its ability to make acquisitions for any reason, the Company's growth, financial
condition and results of operations could be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Growth
Strategy."
MANAGEMENT OF GROWTH
The Company has grown significantly in recent years and is expected to
continue to grow through acquisitions and internal growth. Management has
expended, and expects to continue to expend, significant time and effort in
evaluating, completing and integrating acquisitions and supporting internal
growth, including product development activities. There can be no assurance that
the Company's systems, procedures and controls will be adequate to support the
Company's operations as they expand. Any future growth also will impose
significant added responsibilities on members of senior management, including
the need to identify, recruit and integrate new senior level managers and
executives. There can be no assurance that such additional management will be
identified and retained by the Company. Any inability by the Company to manage
its growth or to attract and retain additional qualified management could result
in a material adverse effect on the Company's financial condition and results of
operations. See "Business -- Growth Strategy."
TECHNOLOGICAL CHANGE RESULTING IN PRODUCT OBSOLESCENCE; DEPENDENCE ON NEW
PRODUCTS
The market for the Company's products is characterized by frequent product
improvements, evolving technology and the development of new products, including
increasingly effective preventive dental products designed for home use. The
development of new, improved or alternative methods for performing prophylaxis
treatments could render obsolete or reduce the need for certain of the Company's
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company's future
growth and profitability are dependent upon its timely ability to continue to
develop new and improved products. There can be no assurance that the Company
will be able to develop such new or improved products in a timely manner or that
such new or improved products will achieve market acceptance. See "Business --
Product Development."
DEPENDENCE ON KEY PERSONNEL
The Company is substantially dependent upon the continued services of
certain key employees, including George E. Richmond, President and Chief
Executive Officer, Michael W. Eggleston, Vice President, Treasurer and Chief
Financial Officer, Richard G. Richmond, Secretary of the Company and President
of Young Dental, and Jose L. Mendoza, President and Chief Executive Officer of
Denticator. The loss of the services of any one of these individuals could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company does not maintain any "key man" insurance
policies on its key employees. Additionally, the future success of the Company
will depend, among other factors, on the Company's ability to continue to hire
and retain the necessary qualified technical and managerial personnel. The
Company competes for such personnel with numerous other companies, academic
institutions and other organizations. See "Management."
7
<PAGE> 9
CHANGE IN MARKETING STRATEGY
The Company has traditionally marketed its products in the United States
through independent sales representatives and a small number of Company sales
personnel. In July 1997, the Company terminated contracts with all of its
independent sales representatives in the United States and increased the size of
its employee sales force in order to refocus its sales efforts. The Company's
sales could be adversely affected by these changes, particularly in the early
stages of implementation of the new sales strategy. The fixed costs associated
with the Company's sales personnel may exceed the variable costs associated with
independent sales representatives who were compensated solely on a commission
basis. All of these factors could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Marketing and Distribution."
LIMITED PROTECTION OF INTELLECTUAL PROPERTY; RISK OF INFRINGEMENT
The Company's success is dependent upon its patented and proprietary
technologies. In addition to the Company's patents and pending patent
applications, the Company relies upon copyright, trademark and trade secret laws
and licenses and confidentiality and non-disclosure agreements to protect its
intellectual property and proprietary technology. There can be no assurance that
the steps taken by the Company to protect its intellectual property or
proprietary technology will be adequate or enforceable to prevent
misappropriation. In addition, the cost of prosecuting and defending such
actions can be significant and have a material adverse effect on the Company's
business, financial condition and results of operations. In September 1995,
judgment was entered in the Federal District Court for the Eastern District of
Missouri holding two of the Company's patents on its original disposable prophy
angle to be invalid. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "Business -- Product
Development and -- Legal Proceedings."
GOVERNMENT REGULATION
The development, manufacture and marketing of the Company's products are
subject to extensive and rigorous regulation by the United States Food and Drug
Administration (the "FDA") and by other governmental agencies and relevant
foreign agencies. Although the Company's current products are sold in the United
States under 510(k) clearances, over-the-counter ("OTC") drug monographs, and
exemptions from FDA drug and device clearance and approval requirements, the
process of obtaining and maintaining FDA and other required regulatory approvals
for dental device and related products is generally lengthy and expensive, and
the outcome is often unpredictable. There can be no assurance that the Company's
current market clearances can be maintained or that approvals will be granted
for future products on the basis of 510(k) clearances or that products can be
marketed under an OTC monograph or exemptions to FDA approval requirements. The
regulatory process may delay the marketing of new products for lengthy periods,
may result in substantial additional costs and may provide advantages to certain
competitors. Moreover, regulatory approvals, if granted, may include significant
limitations on the indicated uses for which a product may be marketed. The FDA
also actively regulates the uses for which products may be promoted and the
claims that may be made in promotional materials.
The Company is also subject to FDA Quality System Requirements and Good
Manufacturing Practices and extensive recordkeeping and reporting requirements
for device and drug product sales in the United States. The Company's
manufacturing facilities are subject to periodic inspections by United States
federal agencies, as well as state and local agencies. The Company contracts for
the assembly of approximately 72% of its disposable prophy angles in Mexico with
third parties. While the Company frequently audits these operations, there can
be no assurance that they will continue to meet FDA Quality System Requirements
and Good Manufacturing Practices. Failure to comply with applicable regulatory
requirements can result in, among other things, import detentions, fines, civil
penalties, suspensions or losses of approvals, recalls or seizures of products,
operating restrictions and criminal prosecutions.
8
<PAGE> 10
PRODUCT LIABILITY; RISK OF RECALL
The Company is subject to potential product liability claims as a result of
the design, manufacture and marketing of its products. Claims alleging product
liability may involve large potential damages and significant defense costs. The
Company believes that it currently maintains adequate insurance coverage for
such claims, but there can be no assurance that the Company's insurance coverage
will be adequate or that all such claims will be covered by the Company's
insurance. While the Company has been able to obtain product liability insurance
in the past, such insurance varies in cost, can be difficult to obtain and may
not be available in the future on terms acceptable to the Company. A product
liability claim could adversely affect the Company's reputation. A successful
claim against the Company in excess of the available insurance coverage could
have a material adverse effect on the Company's business, financial condition
and results of operations.
In addition, the FDA and similar governmental authorities in other
countries have the authority to require the recall of products in the event of
material deficiencies or defects in design or manufacture. Although the Company
adheres to strict quality control procedures, a government mandated or voluntary
product recall by the Company could occur as a result of material deficiencies,
component failures, manufacturing errors or design defects caused by the Company
or any of its suppliers. Any recall of products could have a material adverse
effect on the Company's reputation, business, financial condition and results of
operations.
POSSIBLE REDUCTION OR ELIMINATION OF DENTAL INSURANCE COVERAGE
The cost of dental care, including preventive dental care, is increasingly
funded by third party payors, including private and corporate dental insurance
plans. A reduction or elimination of insurance coverage for dental care
generally, or for preventive dental care in particular, would adversely affect
the Company's ability to sell its products and have a material adverse effect on
the Company's business, financial condition and results of operations.
CONCENTRATION OF OPERATIONS IN SINGLE FACILITY
The Company currently has three operating facilities, one in Earth City,
Missouri, one in Brownsville, Texas and one in Sacramento, California. However,
a substantial majority of the Company's administrative, manufacturing,
marketing, customer service, product development, information systems, product
ordering and product shipping activities are conducted from the Earth City
facility. While Earth City has not been affected by floods in recent years,
including the record floods in the summer of 1993, it is located in a former
flood plain of the Missouri River. The Company believes that dikes protecting
Earth City are sufficient to prevent flooding in the future. However, there can
be no assurance that future floods will not affect the Company's Earth City
facility and cause interruption of the Company's business. Although the Company
carries business interruption insurance and believes that in an emergency it
could continue to operate by moving a part of its production to its Texas and
California facilities and contracting with third parties to fabricate certain
products, a substantial interruption of business at the Company's Earth City
facility, whether resulting from flood, fire or other causes, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Properties."
CONCENTRATION OF SUPPLIERS
The Company has two suppliers for the rubber used to produce its prophy
cups. The Company relies on proprietary rubber formulations that were
independently developed and are owned by these suppliers. If the Company is no
longer able to obtain its rubber or the formula from either supplier, it would
be forced to obtain a rubber formulation from another source. There can be no
assurance that another supplier would be able to develop an acceptable
formulation or be able to provide the Company with sufficient amounts of rubber.
If the Company is unable to obtain a satisfactory rubber formulation, the
quality of its prophy cups could be negatively impacted and the Company could
suffer a loss of reputation and a decline in sales of Prophy Products. These
factors could have a material adverse effect on the Company's business,
financial condition and results of operations.
9
<PAGE> 11
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of the Offering, the Company's President and Chief
Executive Officer, George Richmond, will own or have the right to vote an
aggregate of 51.4% of the outstanding shares of Common Stock (49.1% if the
Underwriters' over-allotment option is exercised in full). As a result, Mr.
Richmond will be in a position to control the management and policies of the
Company, including, but not limited to, electing or removing the Company's Board
of Directors and controlling any other actions requiring stockholder approval.
See "Certain Transactions," "Principal Stockholders" and "Description of Capital
Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock will suffer an immediate and substantial
dilution in the net tangible book value per share from the initial public
offering price. See "Dilution."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that a trading market will develop and
continue after the Offering or that the market price of the Common Stock will
not decline below the initial public offering price. The initial public offering
price will be determined through negotiations between the Company and
representatives of the Underwriters and may not be indicative of the market
price of the Common Stock following the Offering. The stock market has, in the
past, experienced price and volume fluctuations that at times have been
unrelated to corporate operating performance. Such market volatility may
adversely affect the market price of the Common Stock. Additionally, other
factors such as variations in the Company's financial results, announcements of
technological innovations or new products by its competitors, government
regulation, developments with respect to patents, proprietary rights or
litigation, and general market conditions may have a material adverse effect on
the market price of the Common Stock. See "Underwriting."
DIVIDEND POLICY
The Company currently anticipates that, after completion of the Offering,
all of its earnings will be retained for development and expansion of the
Company's business and does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the market price of the Common Stock. Upon
completion of the Offering, the Company will have 6,410,296 shares of Common
Stock outstanding. Of these shares, the 2,000,000 shares of Common Stock sold in
the Offering will be freely tradeable in the market, except for shares purchased
by "affiliates" of the Company which will be subject to the resale limitations
(excluding the holding period requirement) of Rule 144 under the Securities Act
of 1933, as amended (the "Act"). Substantially all of the remaining 4,410,296
shares may be sold immediately following the Offering subject to compliance with
the volume and manner of sale limitations of Rule 144. All of the officers,
Directors and stockholders of the Company and the Company have agreed not to
sell any of their shares of Common Stock for a period of 180 days after the date
of the Prospectus without the prior written consent of Robert W. Baird & Co.
Incorporated. See "Shares Eligible for Future Sale."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby, after deducting the underwriting discount and
estimated offering expenses, are estimated to be approximately $20.0 million
($23.1 million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $11.00 per share. The Company
intends to use the proceeds (i) to repay borrowings of approximately $14.1
million under the Revolving Credit and Term Loan Agreement dated July 22, 1996
between the Company and NationsBank, N.A., as amended (the "Credit Agreement")
and (ii) for working capital and general corporate purposes, including making
strategic acquisitions. Indebtedness to be repaid under the Credit Agreement
includes a term loan maturing on December 1, 1999, which had an outstanding
principal balance of $9.4 million and bore interest at 8.1% per annum as of
August 15, 1997, and a revolving line of credit maturing on December 1, 1999,
which had an outstanding principal balance of $4.7 million and bore interest at
8.0% per annum as of August 15, 1997. Loans under the Credit Agreement were made
in July 1996 and used to acquire Denticator and repay other existing debt,
including debt incurred in connection with the Lorvic acquisition. As of the
date of this Prospectus, there are no agreements or understandings with respect
to specific acquisitions. Pending such uses, the Company will invest the net
proceeds from the sale of the Common Stock offered hereby in short-term,
investment-grade, interest-bearing marketable securities.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since its
inception. The Company currently intends to retain earnings for use in its
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. Payment of cash dividends, if any, will be at the discretion
of the Company's Board of Directors and will be dependent upon the earnings and
financial condition of the Company and any other factors deemed relevant by the
Board of Directors and will be subject to any applicable restrictions contained
in the Company's then existing credit arrangements. In addition, the Credit
Agreement prohibits the payment of dividends without the bank's consent.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents,
short-term debt and capitalization of the Company as of June 30, 1997 and as
adjusted to reflect (i) the sale of 2,000,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $11.00 per share; (ii) the
application of the net proceeds therefrom; and (iii) the termination of certain
stockholder agreements that will eliminate the put rights related to shares of
puttable Common Stock. See "Use of Proceeds" and "Certain Transactions." The
table should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 126 $ 5,801
======= =======
Short-term debt
Revolving line of credit.................................. $ 4,929 $ --
Current maturities of long-term debt...................... 3,817 --
------- -------
Total short-term debt.................................. $ 8,746 $ --
======= =======
Long-term obligations (excluding current maturities)
Bank term loan............................................ $ 5,589 $ --
Other long-term obligations............................... 21 21
------- -------
Total long-term obligations............................ 5,610 21
------- -------
Puttable Common Stock, 201,996 shares issued and
outstanding(1)............................................ 1,636 --
------- -------
Stockholders' equity
Common Stock, $.01 par value, 25,000,000 shares
authorized, 4,208,300 shares issued and outstanding,
6,410,296 shares issued and outstanding, as
adjusted(1)(2)......................................... 42 64
Additional paid-in capital................................ -- 19,988
Unrealized gain on marketable securities, net of tax...... 12 12
Retained earnings......................................... 12,329 13,965
Common Stock in treasury.................................. (309) (309)
------- -------
Total stockholders' equity............................. 12,074 33,720
------- -------
Total capitalization................................. $19,320 $33,741
======= =======
</TABLE>
- ---------------
(1) The puttable Common Stock, all of which is held by employees of the Company,
is subject to agreements giving holders the right, and upon termination of
employment the obligation, to sell their shares to the Company's majority
stockholder or the Company at an appraised value. Upon consummation of the
Offering, such agreements will terminate and all outstanding shares of
puttable Common Stock will be reflected in stockholders' equity. See
"Certain Transactions."
(2) Does not include 350,000 shares reserved for issuance under the Company's
1997 Stock Option Plan or an amount of shares not to exceed an aggregate
value of $800,000 based upon the market value of the Common Stock on July
22, 1998, that may be issued to the President and Chief Executive Officer of
Denticator in July 1998 in connection with the Denticator acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management -- Stock Option Plan and -- Employment
Agreements."
12
<PAGE> 14
DILUTION
The Company's net tangible book value was $(6.3) million, or $(1.50) per
share, based on 4,208,300 shares of Common Stock outstanding as of June 30, 1997
(excluding 201,996 shares of puttable Common Stock). Net tangible book value per
share represents the amount of the Company's total tangible assets less its
total liabilities, divided by the total number of shares of Common Stock
outstanding. After giving effect to (i) the sale of the 2,000,000 shares of
Common Stock being offered hereby at an assumed initial public offering price of
$11.00 per share; (ii) the application of the estimated net proceeds therefrom;
and (iii) the elimination of all put rights related to 201,996 shares of
puttable Common Stock, the pro forma net tangible book value of the Company as
of June 30, 1997 would have been $15.3 million or $2.39 per share of Common
Stock. This represents an immediate increase in net tangible book value of $3.89
per share to existing stockholders and an immediate dilution of $8.61 per share
to new investors purchasing shares of Common Stock in the Offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Net tangible book value per share before the Offering..... $ (1.50)
Increase per share attributable to new investors.......... 3.89
-------
Pro forma net tangible book value per share after the
Offering.................................................. 2.39(2)
------
Dilution of net tangible book value per share to new
investors(1).............................................. $ 8.61(2)
======
</TABLE>
- ---------------
(1) Dilution is determined by subtracting pro forma net tangible book value per
share after the Offering from the assumed initial public offering price per
share.
(2) If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share and the dilution per share to
purchasers of the shares would be $2.74 and $8.26, respectively.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected historical consolidated financial
data for the Company for each of the five years in the period ended December 31,
1996 and the six months ended June 30, 1996 and 1997. The Income Statement Data
set forth below for the years ended December 31, 1994, 1995 and 1996 and the
Balance Sheet Data as of December 31, 1995 and 1996 are derived from the audited
consolidated financial statements of the Company included elsewhere in this
Prospectus. The Income Statement Data for the years ended December 31, 1992 and
1993 and the Balance Sheet Data as of December 31, 1992, 1993 and 1994 of the
Company are derived from audited financial statements not included herein. The
Income Statement Data for the six months ended June 30, 1996 and 1997 and the
Balance Sheet Data as of June 30, 1997 of the Company are derived from unaudited
consolidated financial statements that include, in the opinion of management,
all adjustments, consisting only of normal, recurring adjustments, necessary for
the fair presentation of the information set forth herein. The results of
operations for the six months ended June 30, 1997 are not necessarily indicative
of the results which may be expected for the year ending December 31, 1997. The
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the "Young
Innovations, Inc. and Denticator International, Inc. Unaudited Pro Forma
Financial Information" and the Consolidated Financial Statements and related
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------- ---------------------
1992 1993 1994 1995 1996(1) 1996 1997
------ ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $9,932 $11,604 $12,036 $17,496 $21,580 $ 9,042 $12,137
Cost of goods sold................. 5,126 5,609 5,457 7,379 9,470 3,746 5,019
------ ------- ------- ------- ------- ------- -------
Gross profit....................... 4,806 5,995 6,579 10,117 12,110 5,296 7,118
Selling, general and administrative
expenses........................ 2,640 2,825 3,063 4,494 5,790 2,284 3,677
------ ------- ------- ------- ------- ------- -------
Income from operations............. 2,166 3,170 3,516 5,623 6,320 3,012 3,441
Interest expense................... 75 268 189 741 974 420 602
Other expense (income), net........ (257) 29 (124) (320) 123 270 (3)
------ ------- ------- ------- ------- ------- -------
Income before provision for income
taxes........................... 2,348 2,873 3,451 5,202 5,223 2,322 2,842
Provision for income taxes(2)...... -- 700 1,270 2,044 1,955 884 1,079
------ ------- ------- ------- ------- ------- -------
Net income......................... $2,348 $ 2,173 $ 2,181 $ 3,158 $3,268 $ 1,438 $ 1,763
====== ======= ======= ======= ======= ======= =======
Earnings per share................. $ 0.49 $ 0.71 $ 0.74 $ 0.32(3) $ 0.40(3)
======= ======= ======= ======= =======
Weighted average common shares
outstanding..................... 4,450 4,450 4,444 4,450 4,410
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996(1) 1997
------ ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net working capital
(deficit)(4)................... $2,294 $ (460) $ 1,665 $ 2,762 $3,115 $ 2,886
Total assets...................... 8,012 8,545 7,711 22,107 32,481 31,869
Total debt (including current
maturities).................... 960 4,223 472 10,773 16,406 14,356
Stockholders' equity.............. 5,928 3,207 5,253 7,121 10,311 12,074
</TABLE>
(See footnotes on following page)
14
<PAGE> 16
(Footnotes from preceding page)
- ---------------
(1) On July 22, 1996, the Company acquired Denticator. The income statement data
for the year ended December 31, 1996, include results of operations for
Denticator from July 22, 1996, through December 31, 1996. The balance sheet
data as of December 31, 1996, include Denticator as of that date.
(2) Until February 28, 1993, Young Dental had elected to be treated as an S
Corporation for income tax purposes. As an S Corporation, its earnings were
included in the personal tax returns of the stockholders of Young Dental and
no income tax provision was recorded by Young Dental through February 28,
1993. Effective March 1, 1993, Young Dental terminated its S Corporation
status and became a taxable entity. Assuming Young Dental was a C
Corporation, the estimated additional pro forma provision for income taxes
was $869,000 for 1992 and $368,000 for 1993, assuming an income tax rate of
37.0%.
(3) The Company plans to retire substantially all of its outstanding
indebtedness using a portion of net proceeds from the Offering. Assuming the
Company's revolving line of credit and long-term borrowings were retired as
of January 1, 1996, supplementary earnings per share would be $0.31 and
$0.36 for the six months ended June 30, 1996, and 1997, respectively,
reflecting the elimination of interest expense, net of income taxes, of
$265,000 for 1996 and $373,000 for 1997. Supplementary earnings per share
assumes 4,450,210 and 4,409,728 weighted average shares outstanding for the
six months ended June 30, 1996 and 1997, respectively, plus 980,000 and
1,480,000 shares, representing those shares of Common Stock sold at an
assumed initial public offering price of $11.00 per share, and the
application of the net proceeds therefrom sufficient to retire $9.6 million
and $14.7 million of average outstanding borrowings for the six months ended
June 30, 1996 and 1997, respectively.
(4) Net working capital (deficit) represents current assets less current
liabilities excluding current maturities of long-term debt and the Company's
revolving line of credit. Net working capital (deficit) as of December 31,
1993, includes $3.6 million of notes payable to stockholders related to
distributions of S Corporation earnings that were paid in 1994.
15
<PAGE> 17
YOUNG INNOVATIONS, INC.
AND
DENTICATOR INTERNATIONAL, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma financial information combines the
operations of Young Innovations, Inc. and Denticator (acquired by the Company in
July 1996) for the year ended December 31, 1996 as if the following had occurred
on January 1, 1996: (i) the acquisition of Denticator and the incurrence of
indebtedness related thereto under the assumptions set forth in the accompanying
notes; and (ii) the sale of a portion of the Common Stock offered hereby and the
application of the net proceeds therefrom sufficient to retire $18.3 million of
borrowings. The unaudited pro forma financial information is not necessarily
indicative of the results of operations of the combined companies as they may be
in the future or as they might have been had the sale of Common Stock and the
acquisition been effective January 1, 1996. The unaudited pro forma financial
information should be read in conjunction with the historical financial
statements and notes thereto of the Company and Denticator included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THE COMPANY FOR DENTICATOR FOR THE
THE PERIOD FROM
YEAR ENDED JANUARY 1, 1996 PRO FORMA
DECEMBER 31, 1996 THROUGH JULY 22, 1996 ADJUSTMENTS PRO FORMA
----------------- --------------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales............... $21,580 $2,988 $ -- $24,568
Cost of goods sold...... 9,470 1,426 -- 10,896
------- ------- ------ -------
Gross profit............ 12,110 1,562 -- 13,672
Selling, general and
administrative
expenses.............. 5,790 1,504 (318)(1) 6,976
------- ------- ------ -------
Income from
operations............ 6,320 58 318 6,696
Interest expense........ 974 50 (1,024)(2) --
Other expense (income),
net................... 123 (4) -- 119
------- ------- ------ -------
Income before provision
for income taxes...... 5,223 12 1,342 6,577
Provision for income
taxes................. 1,955 7 497(3) 2,459
------- ------- ------ -------
Net income.............. $ 3,268 $ 5 $ 845 $ 4,118
======= ======= ====== =======
Earnings per share(4)... $ 0.66
=======
</TABLE>
- ---------------
(1) To reflect: (i) additional amortization of goodwill of $106,000; (ii)
additional expense for incentive compensation to an officer of Denticator to
be earned over a period of 24 months from the date of acquisition of
$224,000; and (iii) reduction in royalty expense of $648,000 payable under a
royalty agreement that was terminated in connection with the acquisition.
(2) To reflect: (i) additional interest expense of $338,000 on additional
borrowings of $7.6 million used to finance the acquisition; and (ii) the
elimination of interest expense as a result of application of $18.3 million
of the net proceeds from the sale of Common Stock sufficient to retire
indebtedness which would have been outstanding as of January 1, 1996.
(3) Represents the income tax effect of the adjustments described above at an
assumed rate of 37.0%.
(4) Earnings per share assumes 4,444,003 weighted average shares outstanding
plus 1,830,000 shares, representing those shares of Common Stock offered
hereby at an assumed initial public offering price of $11.00 per share and
the application of $18.3 million of the net proceeds therefrom sufficient to
retire indebtedness which would have been outstanding as of January 1, 1996.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains certain forward-looking statements that are based
on the beliefs of the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. Such statements
include those regarding successfully implementing and continuing the Company's
business strategies and growth strategies. Because such statements involve risks
and uncertainties, actual actions and strategies and the timing and expected
results thereof may differ materially from those expressed or implied by such
forward-looking statements, and the Company's future results, performance or
achievements could differ materially from those expressed in, or implied by, any
such forward-looking statements. Factors that could cause or contribute to such
material differences include, but are not limited to, those discussed under
"Risk Factors." The following presentation of management's discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the Company's Consolidated Financial Statements, the
Notes thereto and other financial information included elsewhere in this
Prospectus.
OVERVIEW
Through its Young Dental and recently acquired Lorvic and Denticator
brands, the Company provides one of the broadest lines of supplies and
instruments to the preventive dentistry and infection control segments of the
professional dental products market.
The Company's net sales have grown to $21.6 million in 1996 from $9.9
million in 1992, representing a compound annual growth rate of approximately
21.4%. The Company's growth has been driven by three principal factors: (i) the
successful introduction of a line of highly reliable disposable prophy angles;
(ii) the increase in its market share of metal prophy angles, cups and brushes;
and (iii) the acquisitions of Lorvic and Denticator. The Company's estimated
domestic share of the branded Prophy Products market has increased to 53% in
1996 from 22% in 1990, a significant portion of which is attributable to the
introduction of its line of disposable prophy angles, a maintenance free metal
prophy angle and several newly designed cups and brushes for its prophy angles.
Additionally, approximately 42.5% of the Company's pro forma net sales in 1996
resulted from new products introduced by Young Dental since 1990. The Company
has also benefited from growth in private label arrangements with certain of its
key distributors and from increased market share resulting from product
promotional activities, such as price promotions organized around industry
conventions, volume purchase rebate programs and national promotions targeted to
dental professionals. While the Company infrequently conducts national
promotions, it conducted such a promotion in the first quarter of 1997 which
increased net sales in that quarter by approximately $600,000 and decreased net
sales in the second quarter of 1997 by approximately $300,000, in each case as
compared to normalized levels, and which may continue to impact subsequent
quarters and comparisons with comparable future quarters. In addition, annual
rebate programs often result in higher fourth quarter net sales than in other
periods during the year.
A principal component of the Company's growth strategy is to expand through
strategic acquisitions. On May 5, 1995, the Company acquired the common stock of
Lorvic for approximately $13.4 million. Lorvic provided the Company with lines
of aspiration, infection control and preventive dental products that directly
complement its strong position in Prophy Products. The Company borrowed $13.5
million to fund the Lorvic acquisition. On July 22, 1996, the Company acquired
the assets and liabilities of Denticator for approximately $7.6 million in cash,
and approximately $900,000 of Company products, of which $392,000 of such
products remain as of June 30, 1997 and are expected to be delivered within the
next 12 months. Denticator's line of popular priced disposable prophy angles
enabled the Company to extend its line of Prophy Products, now the broadest
Prophy Product offering available, and significantly increase its share of the
domestic Prophy Product market. The Company borrowed $16.5 million to fund the
Denticator acquisition and to repay debt incurred in connection with the Lorvic
acquisition. The Company intends to repay the entire outstanding balance of this
loan with a portion of the net proceeds from the Offering. Lorvic's and
Denticator's results of operations are included since the acquisition dates. The
acquisitions were accounted for using the purchase method of accounting,
resulting in goodwill of $11.6 million and $7.6 million, respectively, which are
being amortized over 40 years from the dates of the respective acquisitions.
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<PAGE> 19
The most significant components of the Company's cost of goods sold are
manufacturing overhead and material purchases. Due to the high level of
automation of the Company's manufacturing processes, it has been able to
maintain a relatively low level of direct labor, as a percentage of net sales.
Additionally, the Company maintains low direct labor costs by contracting for
the assembly of approximately 72% of its disposable prophy angles with third
party maquiladora operations located in Mexico. To further improve its gross
margin, the Company initiated manufacturing activities at Denticator in April
1997 by acquiring injection molding equipment for the production of Denticator's
disposable prophy angles. Previously, Denticator outsourced its injection
molding needs, which resulted in a lower gross margin than Young Dental's. See
"Certain Transactions." The Company believes its manufacturing strengths,
including certain proprietary molding and vulcanizing processes, provide it with
a competitive advantage and are key factors in its ability to generate a high
gross margin and operating profit margin which, in 1996, were 55.6% and 27.3% of
pro forma net sales, respectively.
The Company's selling, general and administrative expenses ("SG&A") consist
of selling and marketing expenses, research and development expenses,
administrative expenses and goodwill amortization, among other expenses. Given
the Company's recent conversion in the United States from independent sales
representatives to Company employees, selling expenses will be primarily fixed
in the future as compared with the variable expense associated with its
independent sales representative organization. The Company believes this
conversion will result in reduced selling expense as a percent of net sales and
enable it to have more focused sales coverage of its domestic customers.
Goodwill amortization also represents an increasing component of selling,
general and administrative expenses as a result of the Company's use of purchase
accounting for the Lorvic and Denticator acquisitions. Additionally, as part of
an employment agreement with Denticator's President and Chief Executive Officer,
the Company agreed, subject to his continued employment, to deliver shares of
Common Stock of the Company having a value, in the aggregate, of $800,000 on
July 22, 1998. See "Management -- Employment Agreements." The Company is
amortizing the value of this deferred compensation by $100,000 per quarter, with
the final amortization to occur in the third quarter of 1998. During 1995,
litigation expense of $688,000 associated with the Company's patent infringement
lawsuit also represented a meaningful component of selling, general and
administrative expense.
Other expenses include gain and loss on disposition of fixed assets, sale
of scrap and other miscellaneous income and expense items, all of which are not
directly related to the Company's principal business activities. In 1996, other
expenses included approximately $322,000 of deferred offering costs expensed as
a result of the Company withdrawing its registration statement in 1996 with
respect to its proposed public offering in 1995.
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<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's statement of income and pro forma historical information
expressed as a percentage of net sales. See "Young Innovations, Inc. and
Denticator International, Inc. Pro Forma Financial Information."
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------- JUNE 30,
PRO FORMA ----------------
1994 1995 1996 1996 1996 1997
------ ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................ 45.3 42.2 43.9 44.4 41.4 41.3
----- ----- ----- ----- ----- -----
Gross profit...................... 54.7 57.8 56.1 55.6 58.6 58.7
Selling, general and
administrative expenses......... 25.5 25.7 26.8 28.3 25.3 30.3
----- ----- ----- ----- ----- -----
Income from operations............ 29.2 32.1 29.3 27.3 33.3 28.4
Interest expense.................. 1.6 4.2 4.5 -- 4.6 5.0
Other expense (income), net....... (1.1) (1.8) 0.6 0.5 3.0 --
----- ----- ----- ----- ----- -----
Income before income taxes........ 28.7 29.7 24.2 26.8 25.7 23.4
Provision for income taxes........ 10.6 11.7 9.1 10.0 9.8 8.9
----- ----- ----- ----- ----- -----
Net income........................ 18.1% 18.0% 15.1% 16.8% 15.9% 14.5%
===== ===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net Sales. Net sales increased $3.1 million, or 34.2%, to $12.1 million in
1997 from $9.0 million in 1996. Disposable prophy angle sales increased
approximately $2.7 million with approximately $2.6 million of the increase
attributable to the addition of Denticator disposable prophy angles. Sales of
Young branded disposable prophy angles increased by $300,000, but were offset by
a $200,000 decrease in sales of Young Dental's private label lines. Sales of the
Company's contra disposable prophy angles, a portion of branded disposable
prophy angles, increased approximately $93,000, or 33.3% in 1997 as compared to
1996. Sales of prophy cups and metal prophy angles for the period added
approximately $200,000 to net sales, representing an increase of 12.2% from
1996, and aspiration products contributed approximately $85,000 to the increase.
Gross Profit. Gross profit increased $1.8 million, or 34.4%, to $7.1
million in 1997 from $5.3 million in 1996. The Company's gross margin remained
relatively steady at 58.7% of net sales in 1997 despite a lower gross margin
from Denticator's disposable prophy angles. The Company expects that its gross
margin will improve as a result of bringing Denticator's manufacturing
operations in-house. Gross profit benefited from increased sales of disposable
prophy angles by Denticator, which represented approximately $1.5 million of
such increase, and increased sales of metal prophy angles, cups and aspiration
products.
Selling, General and Administrative Expenses. SG&A expenses increased $1.4
million, or 61.0%, to $3.7 million in 1997 from $2.3 million in 1996. As a
percent of net sales, SG&A expenses increased to 30.3% in 1997 from 25.3% in
1996. The Denticator acquisition added $1.1 million to SG&A of which
approximately $200,000 related to a deferred stock compensation agreement with
Denticator's President and Chief Executive Officer, which will end in July 1998
and $95,000 related to amortization of goodwill from the acquisition. In
addition, the Company incurred a $316,000 expense related to a first quarter
1997 national promotion to dental professionals.
Income from Operations. Income from operations increased $429,000, or
14.2%, to $3.4 million in 1997 from $3.0 million in 1996.
Interest Expense. Interest expense increased $182,000 to $602,000 in 1997
from $420,000 in 1996. The increase was due to the additional debt borrowed to
fund the acquisition of Denticator in July 1996.
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<PAGE> 21
Other Expense (Income). Other expense (income) decreased $273,000 to
$(3,000) in 1997 from $270,000 in 1996 primarily due to inclusion in 1996 of a
write-off of deferred initial public offering costs.
Provision for Income Taxes. Provision for income taxes increased $195,000
to $1.1 million in 1997 from $884,000 in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales increased $4.1 million, or 23.3%, to $21.6 million in
1996 from $17.5 million in 1995. Disposable prophy angle sales increased 30.4%,
or approximately $2.8 million, with the Denticator disposable prophy angle line
contributing approximately $2.4 million from the date of the acquisition. The
Company's contra disposable prophy angle, which was introduced in 1995,
continued to penetrate the disposable prophy angle market, increasing
approximately $500,000 in 1996. The increase in sales of the contra disposable
prophy angles partially offset slight decreases in sales of the Company's
traditional disposable prophy angle lines, prophy cups and metal prophy angles.
Aspiration and infection control products increased net sales by approximately
$623,000 and $384,000, respectively, in 1996 as compared to 1995.
Gross Profit. Gross profit increased $2.0 million, or 19.7%, to $12.1
million in 1996 from $10.1 million in 1995. Gross margin decreased to 56.1% of
net sales in 1996 from 57.8% in 1995. Gross margin was negatively impacted by
lost production and inefficiencies during a major addition and renovation of the
Company's Earth City facility which consolidated two other St. Louis facilities.
The Denticator acquisition added approximately $1.2 million to gross profit, but
at a lower gross margin than Young branded disposable prophy angles. The
$800,000 balance of the increase in gross profit was primarily attributable to
the full year inclusion of Lorvic and an increase in sales of the contra
disposable prophy angle line.
Selling, General and Administrative Expenses. SG&A expenses increased $1.3
million, or 28.8%, to $5.8 million in 1996 from $4.5 million in 1995. As a
percent of net sales, SG&A expenses increased to 26.8% in 1996 from 25.7% in
1995. The increase was primarily attributable to the addition of Denticator
which added $1.2 million to SG&A for 1996, including a one-time $290,000 signing
bonus and $176,000 of deferred stock compensation expense with Denticator's
President and Chief Executive Officer. SG&A also increased due to an additional
(i) amortization expense of $185,000 resulting from goodwill associated with the
partial year inclusion of Denticator and full year inclusion of Lorvic; (ii)
research and development expenses of $226,000 due to staff additions and
increased product development projects; (iii) dealer rebate programs of
$105,000; (iv) product sampling expenses of $77,000; and (v) commissions to
independent sales representatives of $71,000 due to higher sales. These
increases were offset by a $673,000 reduction in legal expenses in 1996 as
compared to 1995 when the Company's patent infringement lawsuit was being
litigated.
Income from Operations. Income from operations increased $697,000, or
12.4%, to $6.3 million in 1996 from $5.6 million in 1995.
Interest Expense. Interest expense increased $233,000 to $974,000 in 1996
from $741,000 in 1995. The increase was due to the additional debt borrowed to
fund the acquisition of Denticator in July 1996 and the full year inclusion of
interest expense from the acquisition of Lorvic which was acquired in May 1995.
Other Expense. Other expense for 1996 included $322,000 from charges
related to inclusion of a write-off of deferred initial public offering costs.
Provision for Income Taxes. Provision for income taxes decreased $89,000 in
1996 to $2.0 million.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales increased $5.5 million, or 45.4%, to $17.5 million in
1995 from $12.0 million in 1994. Disposable prophy angle sales increased
approximately $1.8 million primarily attributable to increased sales of Young
branded disposable prophy angles in 1995 as compared to 1994. Sales of
disposable prophy angles in 1994 were adversely impacted due to a successful
national promotion to dental professionals in the fourth quarter of 1993. In the
second quarter of 1995, the Company introduced its contra disposable prophy
angle which contributed $185,000 to disposable prophy angle sales in 1995. Sales
of metal prophy angles,
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<PAGE> 22
along with prophy cups and brushes, increased approximately $331,000 in 1995 as
compared to 1994. In addition, significant sales increases occurred as a result
of the acquisition of Lorvic in May 1995, which added product lines such as
aspiration and infection control products, adding sales of $1.1 million and
$785,000 in 1995, respectively.
Gross Profit. Gross profit increased $3.5 million, or 53.8%, to $10.1
million in 1995 from $6.6 million in 1994. Gross margin increased to 57.8% of
net sales in 1995 from 54.7% in 1994. The increase in gross margin was primarily
attributed to the increase in sales of disposable prophy angles and the addition
of new higher margin products as a result of the Lorvic acquisition. The
addition of Lorvic accounted for $1.9 million of the increase in gross profit
and the remaining $1.6 million was primarily due to increased sales of
disposable prophy angles.
Selling, General and Administrative Expenses. SG&A expenses increased $1.4
million, or 46.7%, to $4.5 million in 1995 from $3.1 million in 1994. As a
percent of net sales, SG&A expenses increased to 25.7% in 1995 from 25.5% in
1994. The acquisition of Lorvic added $589,000 to SG&A in 1995, including
$184,000 of goodwill amortization expense. Professional fees increased $440,000
primarily due to legal expenses resulting from the trial of a patent
infringement lawsuit initiated by the Company. Research and development costs
increased $193,000, or 121.4%, as a result of additional staffing and product
development projects.
Income from Operations. Income from operations increased $2.1 million, or
59.9%, to $5.6 million in 1995 from $3.5 million in 1994.
Interest Expense. Interest expense increased $552,000 to $741,000 in 1995
from $189,000 in 1994. The increase was due to the additional debt borrowed to
fund the acquisition of Lorvic.
Other Expense. There was no significant other expense in 1995 or 1994.
Provision for Income Taxes. Provision for income taxes increased $774,000
to $2.0 million in 1995 from $1.3 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through cash flow from
operating activities and, to a lesser extent, through borrowings under its
credit facilities. During the first six months of 1997, net cash flow from
operating activities was $2.4 million, compared to $2.3 million for the same
period in 1996. Net cash flow from operating activities in 1996 was $4.5
million, compared to $3.5 million in 1995.
Capital expenditures for property, plant and equipment were $424,000 in the
first six months of 1997, compared to $682,000 for the same period in 1996. In
1996, capital expenditures increased significantly to $3.2 million compared to
$992,000 in 1995 primarily as a result of the expansion of the Earth City
facility which consolidated two other St. Louis facilities to that location. The
Company estimates capital expenditures for the last two quarters of 1997 and for
1998 will aggregate approximately $1.2 million. Consistent with the Company's
historical capital expenditures, future capital expenditures are expected to
include injection molding equipment, computer numeric controlled equipment and
upgrades to production machinery and data processing.
Concurrent with the Denticator acquisition in July 1996, the Company
entered into a Credit Agreement, which, as amended, consists of a $12.0 million
term loan maturing on December 1, 1999 bearing interest at a per annum interest
rate of 0.25% above the prime rate of the lending bank in effect on any day or
at a LIBOR rate plus 2.5% for a set period through maturity collateralized by
all assets and subsidiary stock of the Company, together with a revolving loan
facility of $7.0 million which matures on December 1, 1999, with interest at the
prime rate of the lending bank minus 0.5%. The Company's Chief Executive Officer
has pledged 2,391,285 shares of Common Stock as additional collateral which will
be released upon repayment of borrowings under the Credit Agreement. The Credit
Agreement replaced a $13.5 million secured credit facility which had slightly
higher interest rates. In July 1996, the Company borrowed $16.5 million under
the Credit Agreement to fund the purchase of Denticator and to repay the prior
credit facility. On June 30, 1997, the outstanding balances under the Credit
Agreement aggregated $14.3 million, which balances will be repaid
21
<PAGE> 23
with a portion of the net proceeds of the Offering. The Company's lending bank
has provided a written letter which indicates its strong interest in making
available to the Company, upon completion of the Offering, a five-year secured
revolving loan facility of $25.0 million bearing interest at the bank's prime
rate, subject to negotiation of final terms, including loan covenants and review
of financial information.
The Internal Revenue Service ("IRS") examined Lorvic's federal income tax
returns for the years ended March 31, 1992 through 1995 and proposed
deficiencies in federal income taxes for those years in an aggregate amount of
$766,000 due to classification of certain intangible assets. Lorvic has filed
two petitions with the United States Tax Court contesting these proposed
deficiencies. The first of these petitions, which relates to the years ended
March 31, 1992 and 1993, is scheduled for trial in October 1997. In accordance
with the stock purchase agreement pursuant to which the Company acquired Lorvic
in May 1995, the previous stockholders of Lorvic are responsible for the
settlement of this matter to the extent of $700,000 held in an escrow fund,
together with earnings thereon, plus an additional $200,000 to cover any
interest and penalties related to such matters. While there can be no such
assurance, the Company believes the escrowed amounts will be sufficient to
satisfy these deficiencies in full for all affected years if required. See
"Certain Transactions."
Anticipated internal cash flows, borrowings under the Company's existing
and anticipated credit facilities and the net proceeds of the Offering are
expected to provide sufficient liquidity for working capital needs, capital
expenditures and potential acquisitions through 1998.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), which establishes standards for computing and presenting earnings per
share. SFAS 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. It also requires the dual presentation
of basic and diluted earnings per share on the face of the income statements for
all entities with complex capital structures and requires a reconciliation of
the numerator and the denominator of the basic and diluted earnings per share
computations. The Company is required to adopt the provisions of SFAS 128 during
the quarter ending December 31, 1997, and all prior earnings per share data
presented must be restated. The adoption of SFAS 128 is not expected to have a
significant impact on the Company's previously reported or prospective earnings
per share amounts.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes
standards for reporting and displaying comprehensive income and its components.
The Company is required to adopt the provisions of SFAS 130 no later than the
quarter ending March 31, 1998. The adoption of SFAS 130 is not expected to have
a material effect on the Company's financial position or results of operations.
22
<PAGE> 24
BUSINESS
GENERAL
The Company is a leading designer, manufacturer and marketer of single-use
supplies, autoclavable instruments and other products used by dental
professionals, primarily in preventive dentistry and infection control. The
Company has a leading market share in certain segments of the preventive
dentistry market which the Company believes is due to its (i) longstanding
reputation for high quality, innovative and reliable products; (ii) widespread
name recognition and ability to leverage the Young and Denticator brands; and
(iii) consummation of strategic acquisitions. Through the successful
implementation of the Company's business strategy and the acquisitions of Lorvic
and Denticator, the Company's net sales and income from operations have grown at
a compound annual rate of 21.4% and 30.7%, respectively, from 1992 through 1996.
The Company's Prophy Products, which are integral components used in the
cleaning and polishing of teeth by dental professionals, represented
approximately 76.9% of the Company's pro forma net sales in 1996. The Company's
branded Prophy Products currently have an estimated domestic market share of
53%, up from 22% in 1990. Additionally, the Company has developed and acquired
aspiration and infection control products, as well as complementary preventive
products such as pastes, fluorides and fluoride applicators.
INDUSTRY BACKGROUND
Based on data compiled by HCFA, total spending on dental products and
services increased from $31.6 billion to $45.8 billion from 1990 to 1995,
representing a compound annual growth rate of 7.7%. HCFA reported that this
aggregate domestic market represented approximately 4.6% of total health care
expenditures in 1995. HCFA has projected that dental expenditures will reach
$79.1 billion by the year 2005, representing a compound annual growth rate of
approximately 5.6%.
The Company believes that the dental industry is presently undergoing
consolidation at three different levels. Dental service providers are combining
as dental practice management companies acquire specialty and general dental
practices. Professional dental product distributors are also undergoing
consolidation as evidenced by Schein announcing it has agreed to acquire
Sullivan. Similarly, the Company anticipates increasing consolidation among
manufacturers in the highly fragmented professional dental products industry.
In recent years, there has been an increasing emphasis on dental health,
including preventive dentistry and infection control, which has led to an
increase in sales of dental supplies and equipment and which the Company
believes will result in continued growth due to the following factors:
Increased Emphasis on Preventive Dentistry and Infection Control. There is
a general awareness in North America, the Scandinavian countries and certain
other parts of the world that preventive dentistry, including regular cleaning
and polishing of teeth, is effective in reducing the incidence of cavities,
gingivitis and periodontal disease, thereby enabling people to keep their
natural teeth longer, obtain cosmetic benefits and improve their oral health. In
the United States, dental services are increasingly being paid for by third
parties. Third party payors paid approximately $15.2 billion in 1990 and $24.0
billion in 1995 for dental services in the United States, which represented
approximately 48.1% and 52.4%, respectively, of total dental products and
services expenditures in those years. Additionally, the National Institute of
Dental Research estimates that Americans saved nearly $100 billion in dental
expenditures during the 1980s because of dentistry's emphasis on preventive oral
health. Since prophylaxis procedures and treatments are generally less expensive
than treatment of dental diseases, an increasing number of consumers and third
party payors have recognized the cost effectiveness of preventive dentistry.
Publicity concerning exposure to and possible transmission of communicable
diseases, including HIV and hepatitis, through contact with blood, saliva and
other bodily fluids in the dental office has led to the establishment of
regulations and guidelines by OSHA, the Center for Disease Control and
Prevention, the American Dental Association and state regulatory authorities.
The Company believes that the increasing emphasis on preventive dentistry and
infection control will result in increased demand for the Company's products.
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<PAGE> 25
Favorable Demographic Trends. The Company believes there will be growth in
the demand for preventive dentistry as a result of people retaining their
natural teeth longer and thus continuing their need for dental services.
Additionally, the Company believes demand will continue for preventive dentistry
as parents, who have grown up benefiting from preventive dentistry, obtain such
services for their children. Finally, continued growth in the United States
population should continue to drive demand for preventive dentistry and
infection control products.
Growth in International Markets. The Company believes that international
demand for preventive dentistry and infection control products varies according
to the degree of general awareness of the benefits of preventive dentistry, as
well as social, economic and technological development. North America, the
Scandinavian countries, Australia and New Zealand provide the most advanced
dental procedures and products and have the highest levels of expenditures for
preventive dental care. Outside of these areas, preventive dentistry has
generally not been emphasized or covered under government or private health
insurance. However, there has been an increasing awareness worldwide of the
importance and cost effectiveness of preventive dentistry, which the Company
believes will result in growth in international markets such as Europe, South
America, Central America and the Pacific Rim.
BUSINESS STRATEGY
The Company's objective is to profitably establish the number one or number
two market share position in each of the market segments in which it competes.
In order to achieve this objective, the Company's business strategy comprises
the following elements: (i) expand its market position in preventive and
infection control products by leveraging its strong brand names; (ii) enhance
its strong manufacturing capabilities; and (iii) emphasize recurring revenue
streams and cash flows from single-use products.
Leverage Branded Products. The Company believes that its name recognition
and reputation among distributors and dental professionals for quality products,
depth of product offerings and responsiveness to customer needs provide it with
opportunities to increase market share for its branded and recently acquired
product lines. Specifically, the Company plans to leverage its leadership
position in Prophy Products, where the Young and Denticator brands are well
established, in order to increase market penetration of its complementary
preventive and infection control products. The Company intends to accomplish
this by (i) packaging complementary products with its well-known metal and
disposable prophy angles; (ii) frequently providing sample products to
distributors and dental professionals; (iii) increasing distributor education
and training with regard to the Company's complete product line; and (iv)
selectively increasing marketing efforts to dental professionals. The Company
believes that its name recognition and strong relationships with its key
distributors provide a significant opportunity to leverage the Company's brand
names across a broader set of products.
Enhance Strong Manufacturing Capabilities. The Company strives to be the
low cost producer in each market segment in which it competes, while also
maintaining its reputation for high quality, innovative and reliable products.
Since 1990, the Company has and continues to operate under a continuous
improvement initiative that empowers all of its employees to improve the quality
and efficiency of its manufacturing, operations, marketing and administrative
functions. In addition, the Company employs several proprietary molding,
vulcanizing and other manufacturing processes that allow for highly efficient
and automated manufacturing. The Company's manufacturing strengths, including
its continuous improvement program and proprietary processes, are key factors in
its ability to generate a high gross margin, which, in 1996, was 55.6% of pro
forma net sales. The Company is currently implementing its continuous
improvement strategies with Lorvic and Denticator, and will do so with future
acquisitions when appropriate.
Emphasize Recurring Revenue Streams. The Company is focused on continuing
to develop and emphasize products that generate recurring streams of revenue.
These products include disposable prophy angles, consumables, such as pastes and
fluorides and disposables, such as prophy cups and brushes that are required for
the Company's metal prophy angles to work properly and which also work on its
competitors' metal prophy angles. Single-use products represented 92.9% of the
Company's 1996 pro forma net sales.
24
<PAGE> 26
GROWTH STRATEGY
The Company competes effectively in the rapidly changing professional
dental product industry and capitalizes on its strong name recognition and
responsiveness to customer needs. The Company's net sales have increased at a
compound annual growth rate of 19.3% over the last 10 years and 21.4% since
1992. These increases have been achieved through strong internal growth
complemented recently by two recent acquisitions.
Pursue Strategic Acquisitions. The Company aggressively pursues
acquisitions of complementary businesses, product lines and key technologies. In
1995, the Company's product lines expanded significantly with the acquisition of
Lorvic, a manufacturer of aspiration, infection control and preventive dental
products including preventive pastes, fluorides and fluoride applicators and
plaque disclosure products. Additionally, in 1996, the acquisition of Denticator
expanded the Company's line of Prophy Products. In general, the professional
dental products manufacturing industry is fragmented and comprised of small and
medium size companies. Limited manufacturing and distribution resources,
increasing regulatory requirements and pricing pressures resulting from the
consolidation of distributors and dental service providers make it increasingly
difficult for these companies to operate effectively on a stand-alone basis,
thus presenting a significant opportunity for the Company to make acquisitions.
In addition, the Company intends to explore selective strategic dental
acquisition opportunities outside of the preventive dentistry and infection
control markets.
Develop New Products. An important element of the Company's growth strategy
is to develop high value-added products for specific professional dental
products markets based on its existing core capabilities and technologies. New
products or product extensions introduced by Young Dental since 1990 represented
42.5% of the Company's pro forma net sales in 1996. In the early 1990's,
responding to concerns of cross-contamination resulting from multiple-use
products, Young Dental developed a number of plastic disposable prophy angles
designed for single-use and broadened its existing line of sealed metal angles
designed to prevent the intake of blood, saliva and other matter. Young Dental
introduced the industry's first contra disposable prophy angle in early 1995 and
eight other new products or product extensions from 1993 through 1996. The
Company introduced six new products through August 31, 1997, and plans to
introduce 14 new products or extensions in the remainder of 1997 and 1998.
Expand Internationally. The Company intends to continue to expand its
presence in several international markets, including Europe, South America,
Central America and the Pacific Rim. Outside North America, Scandinavia,
Australia and New Zealand, the benefits of preventive dentistry have not been
widely emphasized or covered under government or private health insurance.
However, awareness of the importance and cost effectiveness of preventive
dentistry is generally increasing worldwide. The Company plans to continue to
foster its relationships with international distributors and to closely monitor
changing trends in preventive dentistry throughout the world. The Company will
not undertake broad expansionary activities until significant change in the
recognition of the benefits of preventive dentistry, the reimbursement policy of
third party payors with respect to preventive dentistry procedures or increased
customer demand occurs, at which time the Company plans to be in a strategic
position to capitalize quickly on these market opportunities.
PRODUCTS
The Company primarily markets disposable and metal prophy angles, cups and
brushes, complementary preventive products, including pastes, fluorides and
fluoride applicators, as well as aspiration and infection control products. In
1996, 76.9% of the Company's pro forma net sales were derived from the sale of
Prophy Products.
Prophy Products. The Company manufactures and sells the broadest line of
Prophy Products in the domestic professional dental products market. The Company
is able to achieve its substantial share of the Prophy Product market by
providing Prophy Products at both premium and popular prices. The Company
generally prices its Young branded Prophy Products at premium levels and its
Denticator branded Prophy Products at popular price levels. The Company's broad
range of Prophy Products enables it to be a single-source supplier to its
distributors.
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<PAGE> 27
The Company's Prophy Products include several configurations of sealed
metal autoclavable prophy angles and several disposable plastic prophy angles
designed for single-use. Prophy Products consist of two components: an angle
which is attached to and extends from a standard, low-speed dental handpiece and
a rubber cup or brush which is attached to the angle and performs the cleaning
function. During the prophylaxis process, the cup or brush is filled with
abrasive paste, which is applied to the teeth as the prophy cup rotates. The
dental professional polishes both the visible portion of the tooth and the
subgingival portion (below the gum line). The prophy angle may be a disposable
or a reusable instrument; prophy cups and brushes are sold as single-use items.
Disposable prophy angles are sold as assembled units with a cup or brush already
attached. The Company produces and markets a number of different disposable
prophy angles, including the traditional, contra and Universal Disposable Angle.
Virtually all of the Company's metal prophy angles are sealed against
penetration of matter from patients' mouths (thus reducing the risk of
cross-contamination and damage to the prophy angle) and are designed for ease of
maintenance. Because such metal prophy angles function correctly only when used
with the Company's cups and brushes, most dentists who purchase the Company's
metal prophy angles also purchase the Company's cups and brushes.
Other Preventive Products. The Company's other preventive products include
38 polishing pastes and powders, which are abrasive agents used for cleaning and
polishing teeth; 12 fluorides used in dental offices and at home to reduce
cavities and tooth sensitivity; six applicators used by dental professionals to
apply fluoride to patients' teeth; and four plaque disclosants, which are
liquids or tablets that identify the presence of plaque when applied to tooth
surfaces. The Company markets certain of its pastes and fluoride products in
single-use containers, the demand for which has grown in response to infection
control concerns.
Infection Control Products. The Company's line of infection control
products includes products such as indicator tape and tabs used to verify the
effectiveness of a sterilizer; Nyclave wrap used to wrap instruments during
sterilization so that sterility is maintained until use; barrier products used
to wrap operatory knobs, handles and other devices that cannot be sterilized;
and surgical milk and instrument care products used to inhibit corrosion, remove
rust and lubricate hinged instruments in connection with the autoclave process.
Autoclaving is the sterilization of instruments and equipment through the use of
steam.
Assisting and Other Products. The Company's assisting and other products
include disposable aspiration products used to remove blood, saliva and other
matter during dental procedures; cotton roll substitutes used to control saliva
and moisture during dental procedures; matrix bands used for tooth restorations;
rubber dam frames used to isolate teeth during dental procedures; and etching
gels and bonding prep used to condition tooth surfaces for bonding.
Private Label and OEM Products. In addition to branded products, the
Company designs, develops and produces a limited number of proprietary private
label and OEM products under contracts with dental distributors and other
professional dental product manufacturers where the Company is able to use its
expertise and excess manufacturing capacity.
26
<PAGE> 28
Product Table. The following is a summary of the Company's primary products
by type, and, in the case of Prophy Products, the suggested retail price ranges
in which they are currently offered to dental professionals.
<TABLE>
<CAPTION>
YOUNG LORVIC DENTICATOR YOUNG DENTICATOR
PRODUCT BRAND BRAND BRAND PRICES/UNIT PRICES/UNIT
------- ---------- ---------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Prophy Products
Disposable Prophy Angles......... X X $0.38 to $0.50 $0.30 to $0.46
Autoclavable Metal Prophy
Angles........................ X X $24.00 to $75.00 $25.00 to 30.00
Prophy Cups...................... X X $0.07 to $0.24 $0.08 to $0.12
Prophy Brushes................... X X $0.35 to $0.45 $0.36
Other Preventive Products
Polishing Pastes & Powders....... X X X
Fluorides........................ X
Fluoride Applicators............. X
Plaque Disclosing Agents......... X
Infection Control Products
Sterilization Products........... X
Instrument Care Products......... X
Assisting and Other Products
Aspiration Products.............. X
Cotton Roll Substitutes.......... X
Matrix Bands..................... X
Rubber Dam Frames................ X
Etching Gel...................... X
Bonding Prep..................... X
Miscellaneous Products........... X X
</TABLE>
MARKETING AND DISTRIBUTION
The Company markets its full line of products to dental professionals
worldwide using a network of medical and dental product distributors. The
Company actively supports its distributor relationships with Company sales
personnel in the United States, independent sales representatives in Canada and
exclusive sales representatives in 13 countries outside of North America. The
Company also uses non-exclusive distributors to service markets in 40 other
countries. All major distributors of dental products in North America sell the
Company's products, including Patterson, Schein, Sullivan and Meer. The
Company's product development, manufacturing and marketing capabilities and its
relationships with distributors allow the Company to provide a broad range of
high quality, innovative and reliable products to dental professionals.
Additionally, these capabilities and relationships enable the Company to quickly
and efficiently offer new products or product extensions to its existing
customer base and new markets. In addition to marketing through distributors in
the United States, the Company sells products directly to dental and dental
hygiene schools, Veterans Administration healthcare facilities and United States
military bases.
Company's products are marketed by five employees in the United States and
by three independent sales representatives in Canada. The Company also supports
its marketing activities to smaller distributors through use of the Company's
inside sales personnel. Until July 1997, the Company used 19 independent non-
exclusive sales representatives and two Company employees for its marketing and
sales efforts in the United States. In an effort to more efficiently market its
products, the Company decided to switch from independent sales representatives
to Company employees who exclusively focus on selling the Company's products.
The Company expends considerable effort educating its distributors about
the quality, reliability and features of its products. The Company also
advertises its products through industry publications and direct mail. To
supplement its other marketing efforts, the Company provides product samples to
dental
27
<PAGE> 29
professionals and exhibits its products at industry trade shows. In addition,
the Company seeks to stimulate interest in its products by providing information
and marketing materials to influential lecturers and prominent experts and
consultants in the dental industry.
PRODUCT DEVELOPMENT
The Company's engineers and chemists are focused on developing innovative
professional dental products and are actively involved in improving the
Company's manufacturing processes. Frequently, these products are designed and
developed in response to needs articulated to the Company by dental
professionals. For example, the Company designed the contra disposable prophy
angle to improve the ease with which dental professionals can reach and clean
patients' teeth. The Company believes that the contra disposable prophy angle
reduces the risk of carpal tunnel syndrome by reducing the flexion of dental
hygienists' wrists during prophy procedures. Additionally, many of the new
products or product improvements developed by the Company are patented. The
Company currently has 28 patents and 14 patent applications pending.
All of Young Dental's disposable prophy angles have been developed since
1990. In June 1997, Young Dental introduced its new Junior Cup, a short
prophylaxis cup designed to reach surfaces in small mouths that are difficult to
reach with the Company's conventionally sized cups. In June 1997, Denticator
introduced the Universal Disposable Angle which was designed to compete with a
number of popular priced branded and private label disposable prophy angles
manufactured by the Company's competitors. In 1997, the Company plans to
introduce two metal prophy angles, including an improved version designed for
smoother and more durable operation and a Denticator branded version designed to
compete with popular priced metal prophy angles.
In addition to its Prophy Product development efforts, the Company actively
seeks to introduce new and innovative products in other segments of the
professional dental product market. In the remainder of 1997 and 1998, the
Company intends to introduce a newly formulated prophy paste and a new line of
fluorides and fluoride applicators.
MANUFACTURING AND SUPPLY
The Company manufactures virtually all of its products. The consolidation
of the Company's two St. Louis facilities into the expanded Earth City facility,
which was substantially completed in December 1996, provides the Company with
sufficient manufacturing capacity for anticipated growth in the foreseeable
future. The Company contracts for the assembly of approximately 72% of its
disposable prophy angles in Mexico due to its cost effectiveness.
Prophy and Other Products. The Company has developed a number of
proprietary manufacturing processes and has designed specialized automated
equipment which allow it to produce quality products rapidly and efficiently.
The Company believes its equipment and proprietary processes provide it with a
competitive advantage. The Company uses a variety of state-of-the-art computer
numerically controlled machining centers, injection molding machines and robotic
assembly machines and continues to invest in new and more efficient equipment
and production lines. The primary processes involved in manufacturing the
Company's products consist of precision metal turning and milling, rubber
molding, plastic injection molding, component parts assembling and finished
goods packaging.
Denticator converted from a repackaging operation to an injection molding
and manufacturing operation in April 1997. Since Denticator principally
manufactures disposable prophy angles, the primary processes involved in its
manufacturing process include plastic injection molding and finished goods
packaging.
Pastes, Liquids and Gels. Lorvic blends and mixes all of its pastes,
liquids and gels at the Earth City facility. The Company owns equipment used to
form and dye-cut expanded polyethylene foam and to dye-cut extruded plastic into
finished products and equipment used to package its products in a variety of
container sizes, including prophy paste in unit-dose containers.
Total Quality Management. The Company has implemented, where appropriate,
manufacturing techniques to increase product quality and minimize operating
costs. Products are statistically monitored during the manufacturing process in
order to maintain a high level of quality and reduce scrap. Young Dental also
28
<PAGE> 30
undertakes extensive cross-training of its employees, allowing the employees to
understand the entire manufacturing process and encouraging them to introduce
manufacturing improvements. The Company has, where appropriate, implemented
Young Dental's manufacturing techniques into Lorvic's operations and is in the
process of implementing these techniques into Denticator's operations. The
Company believes these techniques will further increase Denticator's
manufacturing efficiencies, thereby improving its gross margin.
Supply. The Company purchases a wide variety of raw materials, including
bar steel, brass, rubber and plastic resins, from numerous suppliers. The
majority of the Company's purchases are commodities readily available at
competitive prices. The Company has two sources of supply for the rubber
formulation used to produce its prophy cups. The rubber formulations were
developed independently and are owned by each of the suppliers. The Company also
purchases certain of its products from other manufacturers for resale.
COMPETITION
The Company competes with manufacturers of both branded and private label
dental products in each of the markets it serves. According to Strategic Dental
Marketing, Inc., an independent market research firm, Young Dental has the
largest domestic market share of distributor sales in Prophy Products.
Dental professionals place major importance on the proven reliability of
the Company's products and are generally not price-sensitive. The Company
believes that Young Dental and Lorvic compete on the basis of the quality and
reliability of their products as well as their reputations. As a result, Young
Dental and Lorvic typically charge premium prices for their products. By
contrast, Denticator's products are targeted to more price-sensitive dental
service providers.
The markets for the Company's products are highly competitive. The Company
believes that the principal competitive factors in all of its markets are
product features, reliability, name recognition, established distribution
network, customer service and, to a lesser extent, price. The relative speed
with which the Company can develop, complete testing, obtain regulatory approval
and sell commercial quantities of new products is also an important competitive
factor. Some of the Company's competitors have greater financial, research,
manufacturing and marketing resources than the Company and include DENTSPLY
International, Inc., Oral-B Laboratories, a subsidiary of The Gillette Company,
and Allegheny Teledyne Incorporated.
PROPERTIES
The Company's facilities are as follows:
<TABLE>
<CAPTION>
DESCRIPTION SQUARE FEET LOCATION OWNED/LEASE
----------- ----------- -------- -----------
<S> <C> <C> <C>
Corporate Headquarters and
Manufacturing...................... 54,000 Earth City, Missouri Owned
Manufacturing........................ 12,000 Brownsville, Texas Owned
Manufacturing........................ 21,000 Sacramento, California Lease expires December 31,
2001; the Company has an
option to purchase the
property
</TABLE>
EMPLOYEES
As of June 30, 1997, the Company employed approximately 166 people, none of
whom were covered by collective bargaining agreements. The Company believes that
its relations with its employees are good.
GOVERNMENT REGULATIONS
The development, manufacture and marketing of the Company's products are
subject to extensive and rigorous regulation by the FDA and by other
governmental agencies and relevant foreign agencies. Certain of the Company's
current products are sold in the United States under 510(k) clearances and
exemptions from FDA approval requirements. The FDA also regulates the uses for
which products may be promoted and the claims that may be made in promotional
materials.
29
<PAGE> 31
The Company's facilities, manufacturing operations and customers and
suppliers are subject to FDA Quality System Requirements and Good Manufacturing
Practices and extensive recordkeeping and reporting requirements for sales in
the United States. The Company's manufacturing facilities, and the facilities it
contracts with in Mexico to assemble disposable prophy angles, are subject to
periodic inspections by United States federal agencies.
LEGAL PROCEEDINGS
On May 30, 1997, two former employees of Young Dental and a corporation
formed by them (the "Adverse Parties") filed a Petition against Young Dental in
the Circuit Court for the City of St. Louis, Missouri (the "Current Action").
The Current Action results from an action brought in 1993 by Young Dental
against the Adverse Parties in the Federal District Court for the Eastern
District of Missouri (the "Prior Action"), alleging, among other things, patent
infringement and misappropriation of trade secrets. The Prior Action was
resolved in favor of the Adverse Parties. In the Current Action, consisting of
three counts alleging malicious prosecution and three counts alleging abuse of
process related to the Prior Action, the Adverse Parties seek actual damages in
unspecified amounts in excess of $25,000 and, in a separate count, seek punitive
damages. While the Current Action is in its very early stages, the Company
believes it has adequate defenses to each of plaintiffs' claims and intends to
defend the Current Action vigorously.
The IRS examined Lorvic's federal income tax returns for the years ended
March 31, 1992 through 1995 and proposed deficiencies in federal income taxes
for those years in an aggregate amount of $766,000 due to classification of
certain intangible assets. Lorvic has filed two petitions with the United States
Tax Court contesting these proposed deficiencies. The first of these petitions,
which relates to the years ended March 31, 1992 and 1993, is scheduled for trial
in October 1997. In accordance with the stock purchase agreement pursuant to
which the Company acquired Lorvic in May 1995, the previous stockholders of
Lorvic are responsible for the settlement of this matter to the extent of
$700,000 held in an escrow fund, together with earnings thereon, plus an
additional $200,000 to cover any interest and penalties related to such matters.
While there can be no such assurance, the Company believes the escrowed amounts
will be sufficient to satisfy these deficiencies in full for all affected years
if required. See "Certain Transactions."
The Company is not involved in any other legal proceedings but, from time
to time, does become involved in legal proceedings in the ordinary course of its
business.
30
<PAGE> 32
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The following table sets forth certain information regarding the Company's
executive officers, Directors and certain key personnel.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
George E. Richmond................... 63 Chairman of the Board, President, Chief Executive
Officer and Director
Michael W. Eggleston................. 42 Vice President, Treasurer, Chief Financial Officer and
Director
Richard G. Richmond.................. 43 Secretary and Director; President of Young Dental
Alfred E. Brennan.................... 44 Director
Richard P. Conerly(1)................ 73 Director
Craig E. LaBarge(1).................. 46 Director
Jose L. Mendoza...................... 51 President and Chief Executive Officer of Denticator
Richard C. Nemanick, Sr. ............ 55 Senior Vice President of Corporate Affairs of Young
Dental; President and Chief Executive Officer of Lorvic
</TABLE>
- ---------------
(1) Upon completion of the Offering, the Board of Directors intends to form
audit and compensation committees comprised of Messrs. Conerly and LaBarge.
George Richmond purchased Young Dental in 1961, at which time he became a
Director and its President and Chief Executive Officer. Mr. Richmond served as
President of Young Dental from 1961 until 1997. He has been President and Chief
Executive Officer of the Company since its organization in 1995 and Chairman of
the Board since 1997. Mr. Richmond is a former Chairman of the American Dental
Trade Association ("ADTA"), Manufacturers Section, and a former Chairman of the
ADTA World Trade Committee. Mr. Richmond is a Director of UMB Bank of St. Louis,
National Association. Mr. Richmond holds a B.S.B.A. degree in accounting from
Washington University.
Michael Eggleston joined Young Dental in 1978 and has been the Company's
Vice President, Treasurer, Chief Financial Officer and a Director since its
organization in 1995. Previously, Mr. Eggleston served as Assistant Controller
from 1978 until 1980 and became the Controller, Secretary, Chief Financial
Officer and a Director of Young Dental in 1980. Mr. Eggleston holds a B.S.B.A.
degree in finance from the University of Missouri, St. Louis.
Richard Richmond joined Young Dental in 1989 and has served as President of
Young Dental since 1997, Secretary and a Director of the Company since 1995 and
a Director of Young Dental since 1989. He previously served as Assistant to the
President and in 1990 was elected Vice President of Manufacturing of Young
Dental. Mr. Richmond is George Richmond's son.
Alfred Brennan became a Director in 1997. Since 1995, Mr. Brennan has been
a Senior Associate of Dewar Sloan, a market research and strategy development
consulting firm. From 1991 to 1994, Mr. Brennan served as President of the
Dental Instrument Division of DENTSPLY International, Inc. He has also served as
Vice President of Marketing with Gendex Corporation, a manufacturer of dental
x-ray equipment, and has served as an executive officer of various other
corporations including Midwest Dental Products Corporation. He is a director of
Unico Systems Inc., a manufacturer of heating and air conditioning systems.
Richard Conerly became a Director in 1997. Mr. Conerly, presently retired,
was formerly Chairman and Chief Executive Officer of Orion Capital Inc., a
private investment company, from 1987 to 1994, President of Pott Industries
Inc., a marine services company, from 1969 to 1987, and Vice Chairman of
Coal-Marine, Houston Natural Gas Corporation, parent company of Pott Industries
Inc., from 1979 to 1985. Mr. Conerly is a Director of LaBarge.
Craig LaBarge became a Director in 1997. Mr. LaBarge has served as Chief
Executive Officer of LaBarge Inc. ("LaBarge"), a manufacturer of sophisticated
electronic systems and devices and interconnect
31
<PAGE> 33
systems, since 1991 and President since 1986. He has served LaBarge in various
executive capacities since 1975. Mr. LaBarge is also a Director of LaBarge.
Jose Mendoza joined the Company in July 1996 and has been President and
Chief Executive Officer of Denticator since its acquisition by the Company in
July 1996. Previously he served in the same positions with Denticator's
predecessor corporation from 1991 until the date of its acquisition by the
Company. Prior thereto, Mr. Mendoza served in various executive positions with
the Denticator Division of Bio Dental Technologies Corporation from 1987 to
1991. Mr. Mendoza holds a law degree from the Universidad National Autonoma de
Mexico, and is a former Professor of International Law and Dean of the Law
School at Iberoamere Americana University.
Richard Nemanick joined the Company in May 1995 upon Young Dental's
acquisition of Lorvic and has served as Senior Vice President of Corporate
Affairs of Young Dental since May 1995. He had been employed by Lorvic since
1969 and has been President and Chief Executive Officer of Lorvic since 1986; he
was part of the investor group that acquired Lorvic in a leveraged buyout in
1989. Mr. Nemanick holds an A.B. degree from the University of Missouri,
Columbia, a J.D. degree from St. Louis University and an L.L.M. degree from
Washington University.
The Directors are elected annually and hold office until their successors
are duly elected and qualified. Officers serve at the discretion of the Board of
Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Company's Board of Directors did not have a compensation
committee. During such period, Mr. George Richmond, the President and Chief
Executive Officer of the Company, and Messrs. Richard Richmond and Michael
Eggleston, executive officers of the Company, participated as members of the
Board in deliberations concerning the compensation of executive officers.
DIRECTOR COMPENSATION
To date, members of the Company's Board of Directors have received no fees
for service on the Board. Following this Offering, the Company anticipates
paying each non-employee Director fees in a not yet determined amount, and may
grant options to purchase Common Stock to such Directors.
EXECUTIVE COMPENSATION
The following table summarizes compensation earned or awarded to the
Company's Chief Executive Officer and each of the Company's other most highly
compensated executive officers who earned more than $100,000 during 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
--------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
- --------------------------- -------- --------
<S> <C> <C>
George E. Richmond, President and Chief Executive Officer... $213,812 $ 23,191
Michael W. Eggleston, Vice President, Treasurer and Chief
Financial Officer......................................... 92,818 10,641
Richard G. Richmond, Secretary; President of Young Dental... 92,818 10,741
</TABLE>
EMPLOYMENT AGREEMENTS
In connection with the acquisition of Lorvic in May 1995, Young Dental
executed an employment agreement with Richard Nemanick, Lorvic's President. The
employment agreement has a term of three years expiring in May 1998, provides
for a base annual salary of $85,000, an annual payment of $55,000 attributable
to the non-competition provisions of the employment agreement, participation in
Young Dental's bonus plan and participation in any stock option plan that may be
adopted. The employment agreement also provides that Mr. Nemanick will serve as
a Board member, Executive Committee member and Senior Vice President of
Corporate Affairs of Young Dental and as President of Lorvic during the term of
the employment agreement.
32
<PAGE> 34
Mr. Nemanick has agreed not to compete with the Company for a period of two
years after termination of the employment agreement. Young Dental also executed
a Consulting Agreement with Mr. Nemanick, to be effective after expiration of
the employment agreement, and which will provide for annual payments of $32,000
until his 65th birthday.
Richard Nemanick, as one of the former stockholders of Lorvic, has
indemnified Young Dental to the extent of funds held in escrow against losses
resulting from breaches of certain representations and warranties relating to
certain tax matters involving the classification of Lorvic intangibles set forth
in the stock purchase agreement pursuant to which Young Dental acquired Lorvic.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Legal Proceedings."
In connection with the acquisition of Denticator in July 1996, Denticator
executed an employment agreement with Jose Mendoza, Denticator's President and
Chief Executive Officer for the previous five years. The employment agreement
has a term of three years expiring in July 1999, provides for an annual base
salary of $120,000. The Company paid Mr. Mendoza a signing bonus of $290,000 and
a payment of $15,000 attributable to the noncompetition provisions of the
employment agreement. Subject to his continued employment, the Company has also
agreed to deliver to Mr. Mendoza shares of Common Stock (the "Bonus Stock")
having a market value, in the aggregate, of $800,000 on July 22, 1998. Mr.
Mendoza has the right to require the Company to repurchase up to 40% of the
Bonus Stock by providing ten days advance written notice before the Granting
Date. Mr. Mendoza has agreed not to compete with the Company for a period of two
years after expiration or termination of the employment agreement.
STOCK OPTION PLAN
The Company has adopted the 1997 Stock Option Plan (the "Option Plan") to
be effective as of the closing of the Offering. A total of 350,000 shares of
Common Stock are reserved for issuance under the Option Plan. The compensation
committee of the Board of Directors (the "Committee") will administer the Option
Plan. Participants in the Option Plan will be those employees of the Company or
its subsidiaries as the Committee may select from time to time. No options have
been granted under the Option Plan as of the date of this Prospectus.
Options to be granted may be incentive stock options ("ISOs") meeting the
requirements of Section 422 of the Internal Revenue Code or may be options other
than ISOs (non-qualified options or "NQSOs"). The exercise price of an ISO or
NQSO will be equal to the fair market value (as defined in the Option Plan) per
share of the Common Stock on the date of the grant. The aggregate fair market
value of the Common Stock on the date of grant for which any participant may be
granted ISOs first exercisable in any year may not exceed $100,000. The exercise
price is required to be paid in full at the time of exercise in cash or its
equivalent or, upon approval of the Committee, in shares of Common Stock. ISOs
and NQSOs granted under the Option Plan will be exercisable for a term of not
more than ten years as determined by the Committee and, unless otherwise
provided in the stock option agreement relating to a particular option, will
terminate upon the participant's termination of employment to the extent not
then exercisable. Options that have become exercisable on or prior to the date
of termination of employment terminate at the earlier of: (i) the expiration
date of the option; or (ii) where such termination occurs as a result of death
or disability, one year after termination of employment; or (iii) where such
termination occurs other than as a result of death or disability, immediately
upon termination of employment. Options granted under the Option Plan are not
transferable by the grantee other than by will or the laws of descent and
distribution. All other terms, including the time or times at which an option
becomes exercisable, are determined by the Committee in its discretion.
OTHER BENEFIT PLANS
The Company has a nonqualified bonus plan under which 5% of base
compensation is annually paid to full-time employees in Missouri and Texas who
are at least 25 years of age and have at least three years of service with the
Company. The Company also has a nonqualified profit sharing plan for its
full-time employees in Missouri and Texas under which contributions are based on
the overall profitability of the Company, excluding Denticator.
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<PAGE> 35
Certain senior managers of Denticator participate in a nonqualified bonus
plan under which a percentage of operating profits are paid to such employees.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus, regarding the ownership of Common Stock by each person known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, by each of the executive officers and Directors of the Company and by all
executive officers and Directors of the Company as a group prior to the
Offering, and as adjusted to give effect to the sale by the Company of the
Common Stock offered hereby. The address of each person listed below is Young
Innovations, Inc., 13705 Shoreline Court, Earth City, Missouri 63045.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)(2)
---------------------------------
PERCENTAGE
--------------------
BEFORE AFTER
NAME OF BENEFICIAL OWNERS SHARES OFFERING OFFERING
- ------------------------- ------ -------- --------
<S> <C> <C> <C>
George E. Richmond(3)....................................... 3,298,065 74.8% 51.4%
Michael W. Eggleston........................................ 58,047 1.3 0.9
Richard G. Richmond(4)...................................... 792,409 18.0 12.4
Alfred E. Brennan........................................... -- -- --
Richard P. Conerly.......................................... -- -- --
Craig E. LaBarge............................................ -- -- --
Executive officers and Directors as a group (6
persons)(3)(4)............................................ 4,148,521 94.1 64.7
</TABLE>
- ---------------
(1) Beneficial ownership of shares, as determined in accordance with applicable
Securities and Exchange Commission rules, includes shares as to which a
person has or shares sole voting power and/or investment power. Except as
otherwise indicated, all shares are held of record with sole voting and
investment power.
(2) Excludes shares that may be purchased in the Offering. See "Underwriting."
(3) Includes 2,391,285 shares held in a revocable trust as to which Mr. Richmond
has sole voting and dispositive power and 906,780 shares held in a trust as
to which Mr. Richmond is a co-trustee and has sole voting power and shared
dispositive power subject to his pledge of the 2,391,285 shares held in the
revocable trust as additional collateral for the Company's borrowings, which
pledge will be released upon repayment of such borrowings under the Credit
Agreement. Excludes 600 shares owned by Mr. Richmond's spouse and 201,996
shares owned by employees of the Company which are subject to agreements
with Mr. George Richmond and the Company giving the employees the right and,
upon termination of employment the obligation, to sell such shares to Mr.
Richmond or the Company. The Agreements will terminate upon consummation of
the Offering. See "Certain Transactions."
(4) Includes 87,549 shares owned directly by Mr. Richard Richmond, 176,215
shares held in a trust for his benefit of which Mr. Richmond is a co-trustee
and has shared voting and dispositive powers, and 528,645 shares held in
three other trusts in which Mr. Richmond is not a beneficiary but is a
co-trustee, and has shared voting and dispositive powers. Mr. Richmond
disclaims beneficial ownership in the 528,645 shares held in the trusts in
which he is not a beneficiary.
CERTAIN TRANSACTIONS
Solutions in 3D, Inc. ("3D"), a manufacturer of plastic resin prototypes,
leases space from the Company at its premises in Earth City at a rental of $750
per month. George Richmond and Michael Eggleston own 52.5% and 15.0%,
respectively, of the outstanding common stock of 3D. The Company has, from time
to time, loaned money to 3D which, as of June 30, 1997, aggregated $48,000 with
interest payable monthly at the prime rate of a local bank; the note evidencing
the loan has no maturity date and is unsecured. The highest principal balance of
the loan at any time was $90,000. 3D's business is primarily with unrelated
third parties. In 1994, 1995, 1996 and the six months ending June 30, 1997,
respectively, the Company paid an aggregate of $9,000, $14,000, $10,000 and
$6,000 to 3D for plastic resin prototyping services provided to the Company.
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<PAGE> 36
Following completion of the Offering, 3D will continue to lease space from the
Company and the Company may continue to loan 3D money from time to time and
purchase services from 3D. The Company has adopted a policy that all
transactions between the Company and any affiliated party will be approved by a
majority of all members of the Company's Board of Directors and by a majority of
the independent and disinterested Directors and will continue to be on terms no
less favorable to the Company than terms the Company believes would be available
from unaffiliated third parties.
George Richmond is a 40% minority stockholder and former officer and
director of Earth City Technologies ("Technologies"), a company located in
Fenton, Missouri. Technologies repairs damaged scalers for the Company returned
by its customers and sells scaler parts. Total amounts paid to Technologies for
repairs in 1994, 1995, 1996 and the first six months of 1997, respectively, were
$27,000, $38,000, $41,000 and $7,000. Prior to February 1997, the date the
distribution arrangements were terminated, Technologies distributed Young Dental
products in the St. Louis metropolitan area, at the same price and on the same
terms as the Company's other distributors. Total amounts billed to Technologies
in 1994, 1995, 1996 and the six months ending June 30, 1997, respectively, were
$47,000, $15,000, $34,000 and $58,000. Mr. Richmond is currently not an officer,
director or employee of Technologies and plays no role in its management. The
Company believes that arrangements with Technologies are on terms to the Company
as favorable as could be obtained from unaffiliated third parties. Following
completion of the Offering, Technologies will continue to provide repair
services to the Company.
The Company, George Richmond and certain employee stockholders of the
Company are parties to agreements (the "Stock Plan") pursuant to which Mr.
Richmond sold on two separate occasions an aggregate of 242,512 shares of Common
Stock at appraised values to employees under an arrangement giving the employees
the right and, upon termination of employment, the obligation to sell their
Common Stock at an appraised value either to Mr. Richmond or to the Company. The
last such sale by Mr. Richmond took place in 1993. In addition, the Company is a
party to agreements (the "Buy-Sell Agreement") with five trusts for the benefit
of children of George Richmond, including a trust for the benefit of Richard
Richmond, pursuant to which the non-selling trusts and the Company have rights
of first refusal to purchase Common Stock held by the trusts desiring to sell
their Common Stock. Each of the Stock Plans and the Buy-Sell Agreements will
terminate upon completion of the Offering.
Mr. Richmond has pledged 2,391,285 shares of Common Stock as additional
collateral for the Company's borrowings, which pledge will be released upon
repayment of such borrowings under the Credit Agreement.
Jose Mendoza, five other Denticator employees and Michael Eggleston
organized Hot Plastics Technologies, Inc. ("HPT"), which performed injection
molding for Denticator between January and April, 1997. Mr. Mendoza and Mr.
Eggleston, respectively, held 70% and 5% of the equity of HPT. In April 1997,
Denticator purchased the assets of HPT; the sole consideration paid by
Denticator for the acquisition was the assumption of HPT's liabilities, which
aggregated $606,000 and included a note payable to Mr. Mendoza of $104,000. The
terms of the acquisition were negotiated for Denticator by the Chief Executive
Officer of the Company. Denticator paid HPT an aggregate of $213,000 for
injection molding services performed prior to the acquisition.
In February 1994, Young Dental repaid notes issued to the stockholders of
Young Dental representing all undistributed income of Young Dental during the
period it was an S Corporation.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the closing of this Offering, the authorized capital stock of the
Company will consist of 25,000,000 shares of Common Stock, par value $.01 per
share, of which 6,410,296 shares will be outstanding. As of the date of this
Prospectus, the Company had a total of 13 holders of shares of Common Stock.
35
<PAGE> 37
COMMON STOCK
Holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of legally available funds. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities. Holders of Common Stock have no
preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and all shares of
Common Stock to be outstanding upon completion of this Offering will be, fully
paid and nonassessable. The holders of Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders.
The holders of Common Stock do not have cumulative voting rights in the election
of directors.
TRANSFER AGENT AND REGISTER
UMB Bank, N.A. is the transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 6,410,296 shares of
Common Stock outstanding. Of these shares, 2,000,000 shares of Common Stock sold
in the Offering will be freely tradeable without restrictions under the Act,
except for shares purchased by an "affiliate" of the Company which will be
subject to the resale limitations (but not holding period requirements) of Rule
144 thereunder. The remaining 4,410,296 shares of Common Stock were issued and
sold by the Company in private transactions in reliance upon various exemptions
under the Act. Substantially all of such shares will be eligible for public sale
following the Offering subject to compliance with the volume and manner of sale
limitations of Rule 144. In general, under Rule 144 a person (or persons whose
shares are aggregated) including a person who may be deemed an "affiliate" of
the Company, who has beneficially owned his shares for at least one year is
entitled to sell within any three-month period that number of shares which does
not exceed the greater of 1% of the outstanding shares of Common Stock or the
average weekly trading volume during the four calendar weeks preceding each such
sale. Sales under Rule 144 also are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not and has not been deemed an "affiliate" of the Company for at least
three months and who has beneficially owned his shares for at least two years is
entitled to sell such shares under Rule 144(k) without regard to the limitations
discussed above. All of the officers, Directors and stockholders of the Company
and the Company have agreed not to sell any of their shares of Common Stock to
the public for a period of 180 days after the date of the Prospectus without the
prior written consent of Robert W. Baird & Co. Incorporated.
The preceding description does not give effect to the shares of Common
Stock which may be offered and sold pursuant to the Option Plan. See "Management
- -- Stock Option Plan". The Company intends to file a registration statement on
Form S-8 under the Act not earlier than 90 days after the date of this
Prospectus to register the shares of Common Stock issuable under the Option
Plan, which shares, after registration, will be immediately available for sale
in the public market, subject to the volume and other limitations of Rule 144
for shares held by affiliates and the terms of the Option Plan.
Since there has been no public market for the Common Stock prior to the
Offering, no predictions can be made as to the effect, if any, that market sales
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of the Common
Stock, or the perception that such sales could occur, could adversely affect the
prevailing market price of the Common Stock.
36
<PAGE> 38
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters listed
below, and the Underwriters, for whom Robert W. Baird & Co. Incorporated and
Cleary Gull Reiland & McDevitt Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite their names
below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Robert W. Baird & Co. Incorporated..........................
Cleary Gull Reiland & McDevitt Inc..........................
---------
Total.................................................. 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The Underwriters are obligated to
purchase all the shares of Common Stock offered hereby, excluding shares covered
by the over-allotment option granted to the Underwriters, if any are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and may offer the Common
Stock to certain dealers at such price, less a concession of not in excess of
$ per share and that the Underwriters and such dealers may reallow a
concession of not in excess of $ per share to certain brokers or other
dealers. The public offering price and concessions and reallowances to dealers
may be changed by the Representatives after the commencement of the Offering.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of the Offering, to purchase up to an additional 300,000
shares of Common Stock to cover over-allotments, at the same price per share to
be paid by the Underwriters for the other shares offered hereby. If the
Underwriters purchase such additional shares pursuant to this option, each of
the Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments, if any, in
connection with the Offering.
The Underwriting Agreement provides that each of the Company and the
Underwriters have agreed to indemnify, or to contribute to payments made by,
each other with respect to certain civil liabilities, including certain civil
liabilities under the Act.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. The factors considered
in determining the initial public offering price include the history of and
prospects for the industry in which the Company operates, past and present
operations, revenues and earnings of the Company and the trend of such earnings,
the prospects for such earnings, the Company's capital requirements, percentage
of ownership to be held by investors following the Offering, the general
condition of the securities markets at the time of the Offering and the demand
for similar securities of reasonably comparable companies.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934 (the "Exchange Act"). Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the securities in
the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Underwriters to reclaim a
selling concession from a syndicate member when the securities originally sold
by such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the securities to
be higher than it would otherwise be in the absence of such transactions.
37
<PAGE> 39
The Representatives have informed the Company that the Underwriters do not
intend to make sales to any accounts over which they exercise discretionary
authority.
The Company and its officers, Directors and stockholders have agreed not to
sell, contract to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of the Prospectus without the prior written
consent of Robert W. Baird & Co. Incorporated.
The foregoing is a brief summary of the material provisions of the
Underwriting Agreement and does not purport to be a complete statement of its
terms and conditions. A copy of the Underwriting Agreement is on file with the
Commission as an exhibit to the Registration Statement of which this Prospectus
forms a part. See "Additional Information."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Armstrong, Teasdale, Schlafly & Davis, St. Louis,
Missouri. Certain legal matters will be passed upon for the Underwriters by
McDermott, Will & Emery, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Young Innovations, Inc. and
subsidiaries as of December 31, 1995 and 1996, and for each of the three years
in the period ended December 31, 1996, and the consolidated financial statements
of Lorvic Holdings, Inc. and subsidiary for the period from April 1, 1995,
through May 4, 1995, included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
The financial statements of Denticator International, Inc. for the period
from April 1, 1996 through July 22, 1996, included in this Prospectus have been
audited by John J. Eckle, independent public accountant, as indicated in his
report with respect thereto, and are included herein in reliance upon the
authority of said individual as an expert in accounting and auditing in giving
said report.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 (of which this Prospectus is a part),
including amendments thereto, relating to the Common Stock offered hereby has
been filed by the Company with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
and the exhibits and schedules thereto. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement and the exhibits and schedules thereto may be inspected by anyone
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
Commission's regional offices located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such documents may be obtained from the Commission at the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 upon the payment of certain fees prescribed by the Commission. The
Commission also maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited financial statements
for the first three quarters of each year.
38
<PAGE> 40
YOUNG INNOVATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YOUNG INNOVATIONS, INC. -- CONSOLIDATED FINANCIAL STATEMENTS
--
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996, June 30, 1997 and June 30, 1997 (pro forma)...... F-3
Consolidated Statements of Income for the years ended
December 31, 1994, 1995 and 1996, and the six months
ended June 30, 1996 and 1997........................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1994, 1995 and 1996, and the
six months ended June 30, 1997......................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996, and the six months
ended June 30, 1996 and 1997........................... F-6
Notes to Consolidated Financial Statements................ F-7
LORVIC HOLDINGS, INC. -- CONSOLIDATED FINANCIAL STATEMENTS
--
Report of Independent Public Accountants.................. F-18
Consolidated Statement of Income for the period from April
1, 1995 through May 4, 1995............................ F-19
Consolidated Statement of Changes in Stockholders' Equity
for the period from April 1, 1995 through May 4,
1995................................................... F-20
Consolidated Statement of Cash Flows for the period from
April 1, 1995
through May 4, 1995.................................... F-21
Notes to Consolidated Financial Statements................ F-22
DENTICATOR INTERNATIONAL, INC. -- FINANCIAL STATEMENTS --
Report of Independent Public Accountant................... F-24
Statement of Operations and Accumulated Deficit for the
period April 1, 1996
through July 22, 1996.................................. F-25
Statement of Cash Flows for the period April 1, 1996
through July 22, 1996.................................. F-26
Notes to Financial Statements............................. F-27
</TABLE>
F-1
<PAGE> 41
After the stock split discussed in Note 20 to the consolidated financial
statements is effected, we expect to be in a position to render the following
audit report.
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Young Innovations, Inc.:
We have audited the accompanying consolidated balance sheets of Young
Innovations, Inc. (a Missouri corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Young Innovations, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
March 31, 1997 (except with respect to
matters discussed in Note 20, as to which the date
is October , 1997)
F-2
<PAGE> 42
YOUNG INNOVATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------ JUNE 30, JUNE 30,
1995 1996 1997 1997
------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................. $ 51 $ 98 $ 126 $ 126
Trade accounts receivable, net of allowance for
doubtful accounts of $32, $54, $64 and $64,
respectively....................................... 2,274 3,207 2,093 2,093
Inventories........................................... 1,448 1,733 1,942 1,942
Other current assets.................................. 454 860 993 993
------- ------- ------- -------
Total current assets............................... 4,227 5,898 5,154 5,154
------- ------- ------- -------
Property, plant and equipment........................... 5,194 7,082 7,549 7,549
------- ------- ------- -------
Marketable securities................................... 419 204 102 102
------- ------- ------- -------
Other assets............................................ 1,068 680 684 684
------- ------- ------- -------
Intangible assets....................................... 11,199 18,617 18,380 18,380
------- ------- ------- -------
Total assets....................................... $22,107 $32,481 $31,869 $31,869
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving line of credit.............................. $ 2,700 $ 5,270 $ 4,929 $ 4,929
Current maturities of long-term debt.................. 3,173 3,617 3,817 3,817
Accounts payable and accrued liabilities.............. 1,465 2,783 2,268 2,268
------- ------- ------- -------
Total current liabilities.......................... 7,338 11,670 11,014 11,014
------- ------- ------- -------
Long-term debt.......................................... 4,900 7,519 5,610 5,610
------- ------- ------- -------
Noncurrent liability.................................... 450 631 825 825
------- ------- ------- -------
Deferred income taxes................................... 420 729 710 710
------- ------- ------- -------
Puttable common stock, 242,512, 200,076, 201,996 and
-0- shares issued and outstanding, respectively....... 1,878 1,621 1,636 --
------- ------- ------- -------
Stockholders' equity
Common stock, $.01 par value, 25,000,000 shares
authorized, 4,207,698, 4,208,300, 4,208,300 and
4,410,296 shares issued and outstanding,
respectively....................................... 42 42 42 44
Unrealized gain on marketable securities, net of
tax................................................ 23 12 12 12
Retained earnings..................................... 7,056 10,581 12,329 13,963
Common stock in treasury, at cost, -0-, 41,834, 39,914
and 39,914 shares, respectively.................... -- (324) (309) (309)
------- ------- ------- -------
Total stockholders' equity......................... 7,121 10,311 12,074 13,710
------- ------- ------- -------
Total liabilities and stockholders' equity......... $22,107 $32,481 $31,869 $31,869
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 43
YOUNG INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $12,036 $17,496 $21,580 $9,042 $12,137
Cost of goods sold...................... 5,457 7,379 9,470 3,746 5,019
--------- --------- --------- --------- ---------
Gross profit.......................... 6,579 10,117 12,110 5,296 7,118
Selling, general and administrative
expenses.............................. 3,063 4,494 5,790 2,284 3,677
--------- --------- --------- --------- ---------
Income from operations................ 3,516 5,623 6,320 3,012 3,441
--------- --------- --------- --------- ---------
Other expense (income)
Interest expense...................... 189 741 974 420 602
Other expense (income), net........... (124) (320) 123 270 (3)
--------- --------- --------- --------- ---------
65 421 1,097 690 599
--------- --------- --------- --------- ---------
Income before provision for income
taxes.............................. 3,451 5,202 5,223 2,322 2,842
Provision for income taxes.............. 1,270 2,044 1,955 884 1,079
--------- --------- --------- --------- ---------
Net income............................ $ 2,181 $ 3,158 $ 3,268 $1,438 $ 1,763
========= ========= ========= ========= =========
Earnings per share...................... $.49 $.71 $.74 $.32 $.40
========= ========= ========= ========= =========
Weighted average shares outstanding..... 4,450,210 4,450,210 4,444,003 4,450,210 4,409,728
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 44
YOUNG INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON COMMON
COMMON MARKETABLE RETAINED STOCK IN
STOCK SECURITIES EARNINGS TREASURY TOTAL
------ ----------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993.................... $42 $ -- $ 3,165 $ -- $ 3,207
Net income.................................. -- -- 2,181 -- 2,181
Change in unrealized gain (loss) on
marketable securities, net of tax........ -- 24 -- -- 24
Distributions to stockholders ($.01 per
share)................................... -- -- (20) -- (20)
Increase in value of puttable common
stock.................................... -- -- (139) -- (139)
--- ---- ------- ----- -------
Balance, December 31, 1994.................... 42 24 5,187 -- 5,253
Net income.................................. -- -- 3,158 -- 3,158
Change in unrealized gain (loss) on
marketable securities, net of tax........ -- (1) -- -- (1)
Increase in value of puttable common
stock.................................... -- -- (1,289) -- (1,289)
--- ---- ------- ----- -------
Balance, December 31, 1995.................... 42 23 7,056 -- 7,121
Net income.................................. -- -- 3,268 -- 3,268
Change in unrealized gain (loss) on
marketable securities, net of tax........ -- (11) -- -- (11)
Common stock redeemed....................... -- -- -- (329) (329)
Common stock in treasury, reissued.......... -- -- -- 5 5
Change in shares and value of puttable
common stock............................. -- -- 257 -- 257
--- ---- ------- ----- -------
Balance, December 31, 1996.................... 42 12 10,581 (324) 10,311
Net income.................................. -- -- 1,763 -- 1,763
Common stock in treasury, reissued.......... -- -- -- 15 15
Increase in shares of puttable common
stock.................................... -- -- (15) -- (15)
--- ---- ------- ----- -------
Balance, June 30, 1997 (unaudited)............ $42 $ 12 $12,329 $(309) $12,074
=== ==== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 45
YOUNG INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income..................................... $ 2,181 $ 3,158 $ 3,268 $ 1,438 $ 1,763
------- -------- ------- ------- -------
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation and amortization............... 886 1,083 779 467 620
Deferred income taxes....................... 99 (242) 279 -- (19)
Loss (gain) on sale of equipment............ -- (242) (219) (3) 7
Changes in assets and liabilities
Trade accounts receivable................... (134) (159) (511) 412 1,114
Inventories................................. (104) (227) 196 (563) (209)
Other current assets........................ 107 252 (327) 62 (133)
Other assets................................ (26) (334) 445 (59) (4)
Accounts payable and accrued liabilities.... 239 221 105 223 (514)
Other.......................................... 82 -- 458 302 (275)
------- -------- ------- ------- -------
Total adjustments......................... 1,149 352 1,205 841 587
------- -------- ------- ------- -------
Net cash flows from operating
activities............................. 3,330 3,510 4,473 2,279 2,350
------- -------- ------- ------- -------
Cash flows from investing activities
Payments for acquisitions, net of cash
acquired.................................... -- (13,372) (7,566) -- --
Purchases of property, plant and equipment..... (620) (992) (3,152) (682) (424)
Proceeds from sale of property, plant and
equipment................................... -- 253 802 11 25
Purchases of marketable securities............. (1,023) -- -- -- --
Proceeds from sale of marketable securities.... 1,056 -- 204 -- 102
Payments on notes receivable................... 306 14 18 8 10
------- -------- ------- ------- -------
Net cash flows from investing
activities............................. (281) (14,097) (9,694) (663) (287)
------- -------- ------- ------- -------
Cash flows from financing activities
Borrowings from long-term debt................. -- 9,000 12,000 -- --
Payments of long-term debt..................... (118) (1,399) (8,978) (1,051) (1,709)
Change in revolving line of credit............. -- 2,700 2,570 (565) (341)
Payments of notes to stockholders.............. (3,633) -- -- -- --
Distributions to stockholders.................. (20) -- -- -- --
Redeemed common stock.......................... -- -- (329) -- --
Reissuance of common stock in treasury......... -- -- 5 -- 15
------- -------- ------- ------- -------
Net cash flows from financing
activities............................. (3,771) 10,301 5,268 (1,616) (2,035)
------- -------- ------- ------- -------
Net (decrease) increase in cash and cash
equivalents.................................... (722) (286) 47 -- 28
Cash and cash equivalents, beginning of period... 1,059 337 51 51 98
------- -------- ------- ------- -------
Cash and cash equivalents, end of period......... $ 337 $ 51 $ 98 $ 51 $ 126
======= ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 46
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
1. DESCRIPTION OF BUSINESS:
Young Innovations, Inc. and its subsidiaries (the Company) designs,
manufactures and markets single-use supplies, autoclavable instruments and other
products used by dental professionals, primarily in preventive dentistry and
infection control. The Company manufactures and markets metal and disposable
prophy angles, cups and brushes that are integral components used in the
cleaning and polishing of teeth by dental professionals. The Company's
manufacturing facilities are located in Missouri, California and Texas. The
Company markets its products to dental professionals worldwide through a network
of medical and dental product distributors. Export sales were less than 10% of
total net sales for 1994, 1995 and 1996.
The accompanying consolidated balance sheet as of June 30, 1997, and
related consolidated statements of income and cash flows for the six months
ended June 30, 1996 and 1997, and consolidated statement of stockholders' equity
for the six months ended June 30, 1997, and related disclosures, are unaudited.
In the opinion of management, these statements have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments necessary (consisting only of normal, recurring adjustments) for the
fair presentation of financial position, results of operations and cash flows.
The results of operations for the six months ended June 30, 1997, are not
necessarily indicative of the results which may be expected for the year ending
December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Young
Innovations, Inc., formed in July 1995, and its direct and indirect wholly owned
subsidiaries, Young Dental Manufacturing Company (Young Dental), Lorvic
Holdings, Inc., The Lorvic Corporation, Young Dental International, Inc. and
Denticator International, Inc. (Denticator). Lorvic Holdings, Inc. and The
Lorvic Corporation (Lorvic) are included since their acquisition on May 5, 1995.
Young Dental International, Inc., a Foreign Sales Corporation, is included since
its inception on February 1, 1996, and Denticator is included since its
acquisition on July 22, 1996. All significant intercompany accounts and
transactions are eliminated in consolidation. The Company operates in one
business segment.
The preparation of these financial statements required the use of certain
estimates by management in determining the Company's assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an
initial maturity of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (which includes material, labor
and manufacturing overhead) or market. Cost is determined by the first-in,
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Expenditures for repairs
and maintenance are charged to expense as incurred, and additions and
improvements that significantly extend the lives of assets are capitalized. Upon
disposition, cost and accumulated depreciation are eliminated from the related
accounts and
F-7
<PAGE> 47
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
any gain or loss is reflected in other income or expense. The Company provides
depreciation using the straight-line method over the estimated useful lives of
the assets ranging from five to thirty-nine years. Effective October 1, 1995,
the Company changed the estimated useful lives of certain equipment that had the
effect of reducing depreciation expense by approximately $132 for 1995.
MARKETABLE SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Under SFAS No. 115, the Company's marketable debt
securities consisting of municipal bonds, are classified as "available for sale"
and accordingly, are reflected at fair value with the corresponding impact
included as a component of stockholders' equity designated "unrealized gain on
marketable securities, net of tax." As of December 31, 1995 and 1996, there were
no unrealized losses on any individual security. As of December 31, 1996, the
marketable securities have contractual maturities varying from 2009 to 2019.
OTHER ASSETS
Other assets include costs related to patents issued to the Company and
pending patent applications. Capitalized patent costs are amortized on a
straight-line basis over the estimated useful lives of the patents, generally 17
years.
INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortization.
Amortization is determined using the straight-line method over 40 years.
LONG-LIVED ASSETS
If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If this review indicates that the carrying value
of the asset will not be recovered, as determined based on projected
undiscounted cash flows related to the asset over its remaining life, the
carrying value of the asset is reduced to its estimated fair value.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed when incurred and totaled $159
for 1994, $352 for 1995 and $597 for 1996.
REVENUE RECOGNITION
Revenue from the sale of products is recorded at the time of passage of
title, generally when the products are shipped.
OTHER EXPENSE (INCOME)
Other expense (income) includes gain and loss on disposition of fixed
assets, sale of scrap, and other miscellaneous income and expense items, all of
which are not directly related to the Company's primary business. In 1995 and
1996, net gains on the sale of equipment and other fixed assets totaled $242 and
$219, respectively. Other 1996 expenses include approximately $322 of deferred
offering costs expensed as a result of the Company withdrawing its registration
statement in 1996 with respect to its efforts to go public in 1995.
F-8
<PAGE> 48
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
The Company has accounted for income taxes under SFAS No. 109, an asset and
liability approach to accounting and reporting for income taxes. Deferred income
taxes are provided for temporary differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash flows from operating activities include $1,036, $1,851 and $1,898 for
the payment of federal and state income taxes and $189, $741 and $931 for the
payment of interest during 1994, 1995 and 1996, respectively. Interest paid to
stockholders was $147 during 1994.
3. ACQUISITIONS:
On July 22, 1996, the Company acquired the assets and liabilities of
Denticator from Bio Dental Technologies Corp. (Bio Dental) and an individual.
The purchase price was financed principally through bank debt. The acquisition
of Denticator was accounted for as a purchase transaction. The purchase price
was allocated based upon estimates of fair value. Differences between the
amounts included herein, if any, and final allocations of purchase price are not
expected to have a material effect on the Company's financial statements.
The excess of purchase price over the fair value of net assets acquired was
$7,575 and is being amortized over 40 years. The purchase price allocation is as
follows:
<TABLE>
<S> <C>
Trade accounts receivable................................... $ 422
Inventories................................................. 481
Other current assets........................................ 97
Property, plant and equipment............................... 210
Other assets................................................ 57
Intangible assets (goodwill)................................ 7,575
Current liabilities......................................... (1,249)
Noncurrent liability........................................ (27)
------
Payments, net of cash acquired......................... $7,566
======
</TABLE>
The results of operations for Denticator are included in the consolidated
financial statements since July 22, 1996.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Denticator as if the
acquisition had occurred at the beginning of 1996, with pro forma adjustments to
give effect to amortization of goodwill, interest expense on acquisition debt
and certain other adjustments, together with related income tax effects. The
unaudited pro forma information does not purport to be indicative of the results
of operations had these transactions been completed as of the assumed date or
which may be obtained in the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
(UNAUDITED)
<S> <C>
Net sales............................................... $24,568
Net income.............................................. 3,261
Earnings per share...................................... .73
</TABLE>
F-9
<PAGE> 49
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On May 5, 1995, the Company acquired the common stock of Lorvic. The
purchase price was financed through bank debt.
In accordance with the Lorvic stock purchase agreement, the Company paid
part of the purchase price to various escrow funds totaling $2,350. The
representations and warranties made by the former stockholders of Lorvic for
which the general contingencies escrow fund has been established will survive
until May 5, 1997. The income tax contingencies amount of $900 will survive
until the dispute described in Note 18 is resolved and the remaining $500 will
survive until the applicable limitation periods have elapsed. The escrow funds
are maintained for the following matters:
<TABLE>
<CAPTION>
AS OF
----------------------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Income tax contingencies.................... $1,200 $1,400
General contingencies....................... 1,000 525
------ ------
Total amounts in escrow................ $2,200 $1,925
====== ======
</TABLE>
The acquisition of Lorvic was accounted for as a purchase transaction. The
purchase price was allocated based upon estimates of fair value. The excess of
purchase price over the fair value of net assets acquired was $11,581 and is
being amortized over 40 years. The final purchase price allocation is as
follows:
<TABLE>
<S> <C>
Trade accounts receivable.................................. $ 679
Inventories................................................ 457
Other current assets....................................... 219
Property, plant and equipment.............................. 911
Other assets............................................... 450
Intangible assets (goodwill)............................... 11,581
Current liabilities........................................ (239)
Noncurrent liability....................................... (450)
Deferred income taxes...................................... (236)
-------
Payments, net of cash acquired........................ $13,372
=======
</TABLE>
The results of operations for Lorvic are included in the consolidated
financial statements since May 5, 1995.
4. CONCENTRATIONS OF CUSTOMERS AND SUPPLIERS:
The Company generates trade accounts receivable in the normal course of
business. The Company grants credit to distributors throughout the world and
generally does not require collateral to secure the accounts receivable. The
Company's credit risk is concentrated among three distributors accounting for
41% and 45% of accounts receivable as of December 31, 1995 and 1996,
respectively.
The Company has two suppliers for the rubber used to produce its prophy
cups. The Company relies on proprietary rubber formulations that were
independently developed and are owned by these suppliers. If the Company is no
longer able to obtain its rubber or the formula from either supplier, it would
be forced to obtain a rubber formulation from another source. There can be no
assurance that another supplier would be able to develop an acceptable
formulation or be able to provide the Company with sufficient amounts of rubber.
If the Company is unable to obtain a satisfactory rubber formulation, the
quality of its prophy cups could be negatively impacted and the Company could
suffer a loss of reputation and a decline in sales.
F-10
<PAGE> 50
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Finished products................................. $ 249 $ 515 $ 666
Work in process................................... 895 711 814
Raw materials and supplies........................ 344 550 505
------ ------ ------
1,488 1,776 1,985
Reserve for obsolete and excess inventories....... (40) (43) (43)
------ ------ ------
Total inventories............................ $1,448 $1,733 $1,942
====== ====== ======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land............................................. $ 441 $ 348 $ 348
Buildings and improvements....................... 2,249 3,365 3,476
Machinery and equipment.......................... 7,002 8,266 8,989
Construction in progress......................... 54 -- --
------ ------- -------
9,746 11,979 12,813
Less -- Accumulated depreciation................. (4,552) (4,897) (5,264)
------ ------- -------
Total property, plant and equipment, net.... $5,194 $ 7,082 $ 7,549
====== ======= =======
</TABLE>
7. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1995 1996 1997
------ ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred initial public offering costs.............. $ 302 $ -- $ --
Escrow receivable................................... 450 450 450
Other............................................... 316 230 234
------ ---- ----
Total other assets............................. $1,068 $680 $684
====== ==== ====
</TABLE>
F-11
<PAGE> 51
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill........................................ $11,386 $19,172 $19,172
Less -- Accumulated amortization................ (187) (555) (792)
------- ------- -------
Total intangible assets.................... $11,199 $18,617 $18,380
======= ======= =======
</TABLE>
Amortization of goodwill totaled $187 for 1995 and $368 for 1996.
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Payable to Bio Dental............................. $ -- $ 660 $ 392
Accounts payable.................................. 347 599 682
Accrued salaries and bonuses...................... 497 722 513
Accrued expenses and other........................ 347 602 534
Bank overdraft.................................... 274 200 147
------ ------ ------
Total accounts payable and accrued
liabilities................................ $1,465 $2,783 $2,268
====== ====== ======
</TABLE>
10. LONG-TERM DEBT AND REVOLVING LINE OF CREDIT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Term Loan, due December 1999, payable in two quarterly
installments of $450 in 1996, $850 for the first two
quarters and $950 for the second two quarters in 1997
and $950 per quarter thereafter until maturity,
interest at either the prime rate plus .25% in effect
on any day or at a LIBOR rate plus 2.5% for a set
period (8.1% at December 31, 1996), collateralized by
all assets of the Company, stock of its subsidiaries
and a pledge of stock by its majority stockholder..... $ -- $11,100
Term Loan, due May 1998, payable in quarterly
installments, interest at the prime rate plus .5%
(9.5% at December 31, 1995), collateralized by
property and equipment, including the stock of
Lorvic................................................ 7,700 --
Note to bank, due July 1996, payable in monthly
installments of $11 including interest at the lower of
prime or a preestablished ceiling rate determined for
the following year on May 1 (9.0% at December 31,
1995), secured by a first deed of trust on real
estate................................................ 373 --
------- -------
8,073 11,100
Lease obligations...................................... -- 36
Less -- Current maturities of long-term debt........... (3,173) (3,617)
------- -------
Total long-term debt............................ $ 4,900 $ 7,519
======= =======
</TABLE>
F-12
<PAGE> 52
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On July 22, 1996, under the terms of a Revolving Credit and Term Loan
Agreement (Loan Agreement) with a bank, the Company borrowed $16.5 million to
acquire Denticator and to pay off other existing debt. The Loan Agreement
consisted of a term loan of $12.0 million and a revolving line of credit with a
maximum borrowing capacity of $6.5 million. On April 1, 1997, the Loan Agreement
was amended to increase the revolving line of credit capacity to $7.0 million.
Borrowings bear interest at prime minus .5%, payable monthly and are
collateralized by all assets of the Company, stock of its subsidiaries and a
pledge of stock by its majority stockholder. As of December 31, 1996, the unused
portion of the line of credit amounted to $1.2 million. Although the line of
credit is due and payable on December 1, 1999, the Company may retire some or
all of the outstanding borrowings during 1997 and therefore, the Company's line
of credit borrowings are classified as a current liability.
The Company is limited under the terms of the Loan Agreement in its ability
to make loans and investments, incur additional debt, pay dividends and sell
significant assets, among other things, without the consent of the bank.
As of December 31, 1996, maturities of long-term debt including future
minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<C> <S> <C>
1997 ............................................................ $ 3,617
1998 ............................................................ 3,819
1999 ............................................................ 3,700
-------
$11,136
=======
</TABLE>
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of the Company's borrowings under its Loan Agreement
and other long-term debt approximate fair values since the interest rates are
based on current market rates.
12. INCOME TAXES:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current............................................... $1,171 $2,286 $1,676
Deferred.............................................. 99 (242) 279
------ ------ ------
Total provision for income taxes................. $1,270 $2,044 $1,955
====== ====== ======
</TABLE>
F-13
<PAGE> 53
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The income tax provisions are different from the amount computed by
applying the U.S. federal income tax rates to income before provision for income
taxes. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Income before provision for income taxes........... $3,451 $5,202 $5,223
U.S. federal income tax rate....................... 34% 34% 34%
------ ------ ------
Computed income taxes......................... 1,173 1,769 1,776
Goodwill amortization.............................. -- 58 97
Other.............................................. 27 78 (19)
------ ------ ------
Provision for federal income taxes............ 1,200 1,905 1,854
State income taxes, net of federal tax benefit..... 70 139 101
------ ------ ------
Provision for income taxes.................... $1,270 $2,044 $1,955
====== ====== ======
Effective tax rate................................. 37% 39% 37%
====== ====== ======
</TABLE>
Temporary differences that gave rise to deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
----- -----
<S> <C> <C>
Deferred income tax assets
Trade accounts receivable................................. $ 12 $ 20
Inventories............................................... 43 33
Intangibles............................................... 9 --
Accrued liabilities....................................... 141 186
----- -----
Total deferred income tax assets..................... 205 239
----- -----
Deferred income tax liabilities
Property, plant and equipment............................. (406) (669)
Marketable securities..................................... (14) (10)
Intangibles............................................... -- (50)
----- -----
Total deferred income tax liabilities................ (420) (729)
----- -----
Net deferred income tax liability........................... $(215) $(490)
===== =====
</TABLE>
Total current deferred income tax assets of $205 and $239 are included in
other current assets as of December 31, 1995 and 1996, respectively.
13. PUTTABLE COMMON STOCK:
In accordance with the provisions of certain stockholder agreements,
employees who have purchased common stock from a stockholder at an appraised
value are obligated to sell their shares upon cessation of employment or may
sell during employment to either the majority stockholder of the Company or the
Company. The price at which the stock is repurchased is based on the appraised
value of the Company as of the latest fiscal year-end. During 1996, the Company
purchased 42,434 shares for $329 and resold 600 shares for $5.
The Company and the holders of the puttable common stock have agreed to
terminate the stockholder agreements contemporaneous with and subject to the
completion of the common stock offering. Therefore, all outstanding shares of
the puttable common stock will be reflected in stockholders' equity upon
completion of
F-14
<PAGE> 54
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Offering (see Note 20). A pro forma balance sheet as of June 30, 1997, is
presented assuming the termination of the stockholder agreements.
14. MAJOR CUSTOMERS:
The percentage of the Company's net sales to its major distributors are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Henry Schein, Inc...................................... 17.3% 17.8% 19.1%
Patterson Dental Company............................... 15.0 15.1 17.9
Sullivan Dental Products, Inc.......................... 10.5 8.4 7.7
</TABLE>
15. SUPPLEMENTARY EARNINGS PER SHARE:
As discussed in Note 20, the Company plans to retire substantially all of
its outstanding indebtedness using the net proceeds from the sale of common
stock. Assuming the Company's revolving line of credit and long-term borrowings
were retired as of January 1, 1996, supplementary earnings per share would be
$.68 and $.36 (unaudited) for the year ended December 31, 1996, and six months
ended June 30, 1997, respectively, reflecting the elimination of interest
expense, net of income taxes, of $614 for 1996 and $373 for the six months ended
June 30, 1997. Supplementary earnings per share assumes 4,444,003 and 4,409,728
weighted average shares outstanding for 1996 and the six months ended June 30,
1997, respectively, plus 1,275,000 and 1,480,000 shares, representing those
shares of common stock sold at an initial public offering price of $11.00 per
share, the application of the net proceeds therefrom sufficient to retire $12.6
and $14.7 million of average outstanding borrowings for 1996 and the six months
ended June 30, 1997, respectively.
16. EMPLOYEE BENEFITS:
The Company has a nonqualified bonus plan under which 5% of base
compensation is paid annually to full-time employees in Missouri and Texas who
are at least 25 years of age and have at least three years of service with the
Company. Compensation expense related to this plan totaled $65, $80 and $106 in
1994, 1995 and 1996, respectively. The Company also has a nonqualified profit
sharing plan for its employees in Missouri and Texas. Compensation expense
related to this plan was $174, $192 and $190 in 1994, 1995 and 1996,
respectively, and is based on the overall profitability of the Company
(excluding Denticator). Denticator has a nonqualified profit sharing plan for
certain employees in California. Compensation expense related to this plan was
$59 in 1996.
17. RELATED-PARTY TRANSACTIONS:
The Company leases a portion of its office space to, pays for services from
and loans funds to, a corporation in which two stockholders have an equity
interest. Rental and other income from such corporation totaled $18 in 1994, $17
in 1995 and $15 in 1996. As of December 31, 1995 and 1996, the Company had an
unsecured note receivable of $76 and $58, respectively, from such corporation.
The Company paid an aggregate of $9, $14 and $10 for services provided to such
corporation in 1994, 1995 and 1996, respectively.
The Company sells products to, and pays for services from, a corporation in
which a stockholder has an equity interest. Net sales to such corporation
totaled $47 in 1994, $15 in 1995 and $34 in 1996. Amounts paid for services
totaled $27 in 1994, $38 in 1995 and $41 in 1996.
The Company pays for services from and has outstanding trade receivables
due from a corporation in which a stockholder has personally guaranteed a loan.
Net purchases totaled $18 in 1996 and trade receivables due totaled $84 at
December 31, 1996.
F-15
<PAGE> 55
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company is a party to agreements with five trusts for the benefit of
children of the majority stockholder, pursuant to which the nonselling trusts
and the Company have rights of first refusal to purchase common stock held by
the trusts desiring to sell their common stock. These agreements will terminate
upon completion of the initial public offering of common stock (see Note 20).
In connection with the acquisition of Denticator, an employment agreement
(the Agreement) with Denticator's President and Chief Executive Officer was
executed. The Agreement provides for a base annual salary of $120 and delivery
of shares of common stock. If the individual is employed by the Company on July
22, 1998, the Company will deliver common stock in the number of shares equal to
$800 divided by the last reported sale price. The employment agreement also
provides the right to require the Company to repurchase up to 40% of the stock
by providing 10 days advance written notice before receipt. The employee has
agreed not to compete with the Company for a period of two years after
expiration or termination of the employment agreement. The Company is accruing
$800 evenly over the two year period and recorded $176 of compensation expense
for the year ended December 31, 1996.
In April 1997, Denticator purchased the assets of Hot Plastics
Technologies, Inc. (HPT), a company that had provided injection molding services
for Denticator. The President and Chief Executive Officer of Denticator and the
Chief Financial Officer of the Company owned 70% and 5%, respectively, of the
stock of HPT. The sole consideration paid by Denticator for the acquisition was
the assumption of HPT's liabilities, which aggregated $606 and included a note
payable to the President and Chief Executive Officer of Denticator of $104. The
terms of the acquisition were negotiated for Denticator by the Chief Executive
Officer of the Company. The Company paid HPT an aggregate of $213 (unaudited)
for injection molding services between January 1, 1997, and the date of HPT's
acquisition by Denticator.
18. CONTINGENCIES:
The Internal Revenue Service (IRS) conducted a routine examination of the
Company's federal income tax returns, excluding Lorvic, for the tax years ended
December 31, 1993 and 1994. In February 1996, Young Dental received a notice of
proposed adjustments from the IRS proposing to increase federal income tax by
$250. The Company disagreed with the proposed adjustments and contested them.
Two issues have been resolved for $25. The remaining issue has a proposed
adjustment of $80 and is being contested. In the opinion of management, after
considering existing liabilities, the ultimate outcome of this examination will
not have a material adverse effect on the financial position or results of
operations of the Company.
The IRS examined Lorvic's federal income tax returns for the years ended
March 31, 1992 through 1995 and proposed deficiencies in federal income taxes
for those years in an aggregate amount of $766 due to the classification of
certain intangible assets. Lorvic has filed two petitions with the United States
Tax Court contesting these proposed deficiencies. The first of these petitions,
which relate to the years ended March 31, 1992 and 1993, is scheduled for trial
in October, 1997. In accordance with the Agreement, the previous stockholders of
Lorvic are responsible for the settlement of this matter to the extent of $700
held in the tax contingencies escrow fund plus earnings thereon together with
$200 from the general contingencies fund to cover any interest and penalties
related to such matters. These funds are expected to be sufficient to satisfy
any resulting payments to the IRS.
In May 1997, two former employees of Young Dental and a corporation formed
by them filed a Petition against Young Dental in the Circuit Court for the City
of St. Louis, Missouri (the Current Action). The Current Action results from an
action brought in 1993 by Young Dental against the same former employees and
corporation in the Federal District Court for the Eastern District of Missouri
(the Prior Action), alleging, among other things, patent infringement and
misappropriation of trade secrets. The Prior Action was resolved in favor of the
former employees and their corporation. In each of three counts alleging
malicious prosecution and three counts alleging abuse of process, plaintiffs in
the Current Action seek damages against Young Dental in unspecified amounts in
excess of $25. Plaintiffs also seek punitive damages. While the Current
F-16
<PAGE> 56
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Action is in its very early stages and discovery has yet to be commenced, based
upon the advice of legal counsel, the Company believes it has defenses to each
of plaintiffs' claims.
In the opinion of management, the ultimate outcome of these claims and
lawsuit will not have a material adverse effect on the financial position or
results of operations of the Company.
19. ACCOUNTING STANDARDS NOT IMPLEMENTED:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128),
which establishes standards for computing and presenting 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 statements for
all entities with complex capital structures and requires a reconciliation of
the numerator and the denominator of the basic and diluted earnings per share
computations. The Company is required to adopt the provisions of SFAS 128 during
the quarter ending December 31, 1997, and all prior period earnings per share
data presented must be restated. The adoption of SFAS 128 is not expected to
have a significant impact on the Company's previously reported or prospective
earnings per share amounts.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130), which establishes standards for reporting and displaying comprehensive
income and its components. The Company is required to adopt the provisions of
SFAS 130 no later than the quarter ending March 31, 1998. The adoption of SFAS
130 is not expected to have a material effect on the Company's financial
position or results of operations.
20. SUBSEQUENT EVENTS:
In September 1997, the Company prepared and filed a registration statement
on Form S-1 with the U.S. Securities and Exchange Commission with respect to a
proposed initial public offering of up to 2,300,000 shares of common stock,
including an overallotment option of 300,000 shares (the Offering). A portion of
the net proceeds will be used to retire the revolving line of credit and
long-term borrowings (see Note 15). On October , 1997, in connection with the
Offering, the Company effected a 1.2 for one stock split of each outstanding
share of common stock in the form of a stock dividend. All share and per share
information have been retroactively restated to reflect this stock split.
In contemplation of and subject to the completion of the Offering, the
Company established a stock option plan whereby the compensation committee of
the Board of Directors will grant key employees incentive or nonqualified
options at fair market value. The maximum number of shares which can be issued
under the stock option plan is 350,000 shares. No options have been granted
under the plan.
F-17
<PAGE> 57
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lorvic Holdings, Inc.:
We have audited the accompanying consolidated statements of income, changes
in stockholders' equity, and cash flows of Lorvic Holdings, Inc. and subsidiary
for the period from April 1, 1995, through May 4, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of their operations and their cash flows
for the period from April 1, 1995, through May 4, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
August 15, 1997
F-18
<PAGE> 58
LORVIC HOLDINGS, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM APRIL 1, 1995, THROUGH MAY 4, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
Net sales................................................... $ 524
Cost of sales............................................... 152
-----
Gross profit........................................... 372
Selling, general and administrative expenses................ 286
-----
Income from operations................................. 86
-----
Other income (expense)
Interest expense.......................................... (6)
Other income, net......................................... 14
-----
8
-----
Income before provision for income taxes............... 94
Provision for income taxes.................................. 41
-----
Net income............................................. $ 53
=====
Earnings per share.......................................... $2.12
=====
</TABLE>
The accompanying notes are an integral part of this statement.
F-19
<PAGE> 59
LORVIC HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 1, 1995, THROUGH MAY 4, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
---------------- ---------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1995...................... 20 $-- 5 $-- $756 $3,358
Net income................................. -- -- -- -- -- 53
-- -- -- -- ---- ------
Balance, May 4, 1995......................... 20 $-- 5 $-- $756 $3,411
== == == == ==== ======
</TABLE>
The accompanying notes are an integral part of this statement.
F-20
<PAGE> 60
LORVIC HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 1, 1995, THROUGH MAY 4, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities
Net income................................................ $ 53
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation........................................... 11
Amortization........................................... 13
Deferred income taxes.................................. 268
Changes in operating assets and liabilities-
Accounts receivable.................................. (4)
Inventories.......................................... 5
Income taxes refundable.............................. (227)
Prepaid expenses..................................... (12)
Accounts payable..................................... 44
Accrued compensation and other expenses.............. (10)
Income taxes payable................................. 5
------
Net cash flows from operating activities.......... 146
Cash flows from financing activities
Payments on long-term borrowings.......................... (562)
------
Net decrease in cash and cash equivalents......... (416)
Cash and cash equivalents, beginning of period.............. 2,417
------
Cash and cash equivalents, end of period.................... $2,001
======
</TABLE>
The accompanying notes are an integral part of this statement.
F-21
<PAGE> 61
LORVIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 1, 1995, THROUGH MAY 4, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Lorvic Holdings, Inc. is the parent company of Lorvic Corporation which is
engaged in the development, design and manufacturing of professional dental
products, collectively, the "Company."
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. Intercompany accounts and transactions have
been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
INCOME TAXES
The Company has accounted for income taxes under SFAS No. 109, an asset and
liability approach to accounting and reporting for income taxes. Deferred income
taxes are provided for temporary differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
EARNINGS PER SHARE
Earnings per share is computed on net income using the weighted average
number of common shares outstanding during the period (25,000 shares).
2. COMMON STOCK:
Class A and Class B common stockholders, voting separately as a class, are
entitled to elect three and four directors, respectively, to the Company's Board
of Directors. Each Class A director is entitled to one vote, and each Class B
director is entitled to four votes.
Each outstanding share of Class B common stock is convertible into equal
shares of Class A common stock in the event there is a public offering of the
common stock of the Company or at the option of certain stockholders contingent
upon certain ownership conditions being satisfied.
The Company has a stock forfeiture agreement with certain stockholders
whereby the stockholders agreed to forfeit a portion of their shares of Class A
and Class B common stock to the Company, without payment, provided certain
annual earnings targets, as defined, are fulfilled for each of the five years in
the period ended March 31, 1995. The date on which the shares are to be
forfeited is the earlier of the sale of the Company or the date upon which the
March 31, 1995, financial statements are received by the Company. The earnings
targets were met for each of the five years and cumulatively resulted in 1,250
shares (851 shares of Class B common stock and 399 shares of Class A common
stock) eligible for forfeiture to the Company.
Concurrent with the stock forfeiture agreement, the Company entered into a
stock option agreement with an officer and stockholder of the Company. Under the
terms of this agreement, the officer has the option to purchase the forfeited
shares at their par value of $.01 per share. The officer may exercise the option
on or up to five years subsequent to the forfeiture date.
On May 4, 1995, the date the Company was acquired (see Note 6), 1,250
shares of common stock were forfeited to the Company, and simultaneously, the
officer exercised the stock options and purchased the shares
F-22
<PAGE> 62
LORVIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for $.01 per share. The difference between the fair market value, based on the
May 4, 1995, acquisition price per share, and the per share option price,
totaling $731, has been included in selling, general and administrative expense
for the year ended March 31, 1995.
3. SIGNIFICANT CUSTOMERS:
During 1995, two customers each accounted for approximately 14% of the
Company's net sales.
4. RELATED-PARTY TRANSACTIONS:
The Company pays an annual management fee to a company affiliated through
common ownership. The management fee totaled $6 for the period from April 1,
1995, through May 4, 1995.
5. INCOME TAXES:
The components of the provision for income taxes are as follows for the
period from April 1, 1995, through May 4, 1995:
<TABLE>
<S> <C>
Income before provision for income taxes.................... $94
U.S. federal income tax rate................................ 34%
---
Computed income taxes.................................. 32
Other....................................................... 7
---
Provision for federal income taxes.......................... 39
State income taxes, net of federal tax benefit.............. 2
---
Provision for income taxes............................. $41
===
Effective tax rate..................................... 44%
===
</TABLE>
The Company made no income tax payments for the period from April 1, 1995,
through May 4, 1995.
6. SUBSEQUENT EVENT:
On May 4, 1995, the Company was acquired through a stock purchase
agreement. All issued and outstanding shares of common stock were purchased for
a total purchase price of approximately $13.4 million, net of cash acquired.
F-23
<PAGE> 63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To Denticator International, Inc.:
I have audited the accompanying statements of operations and accumulated
deficit and cash flows of Denticator International, Inc. for the period from
April 1, 1996, through July 22, 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted the audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the results of its operations and its cash flows for
the period from April 1, 1996, through July 22, 1996, in conformity with
generally accepted accounting principles.
JOHN J. ECKLE
Vacaville, California,
August 28, 1996
F-24
<PAGE> 64
DENTICATOR INTERNATIONAL, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE PERIOD FROM APRIL 1, 1996, THROUGH JULY 22, 1996
<TABLE>
<S> <C>
Revenue..................................................... $1,658,229
----------
Costs and expenses
Cost of products sold..................................... 758,204
Royalty expenses (Note 2)................................. 380,171
General and administrative................................ 302,825
Selling and shipping...................................... 187,543
Interest.................................................. 19,070
Depreciation and amortization............................. 23,890
----------
Total costs and expenses............................. 1,671,703
----------
Loss before other income............................. (13,474)
Other income................................................ 2,800
----------
Loss before income taxes............................. (10,674)
Income tax expense (Note 3)................................. --
----------
Net loss............................................. (10,674)
Accumulated deficit
Balance, beginning of period.............................. (146,972)
----------
Balance, end of period.................................... $ (157,646)
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-25
<PAGE> 65
DENTICATOR INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 1, 1996, THROUGH JULY 22, 1996
<TABLE>
<S> <C>
Cash flows from operating activities
Net loss from operations.................................. $(10,674)
Adjustments to reconcile net loss to net cash provided by
operations:
Depreciation and amortization.......................... 23,890
Other.................................................. 5,331
Changes in operating assets and liabilities:
Accounts receivable.................................. 187,347
Inventories.......................................... (92,098)
Prepaid expenses and other current assets............ (11,315)
Other assets......................................... (835)
Accounts payable..................................... (44,775)
Royalties payable.................................... 107,241
Accrued expenses..................................... (5,512)
--------
Net cash provided by operating activities......... 158,600
Cash flows used in investing activities
Additions to property, plant and equipment................ (3,942)
Cash flows used in financing activities
Payments on long-term debt................................ (59,023)
--------
Net increase in cash.............................. 95,635
Cash, beginning of period................................... 64,584
--------
Cash, end of period......................................... $160,219
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-26
<PAGE> 66
DENTICATOR INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 1, 1996, THROUGH JULY 22, 1996
1. ORGANIZATION AND NATURE OF BUSINESS:
Denticator International, Inc. (the Company) was incorporated on March 13,
1991, in the state of California as a wholly owned subsidiary of Bio-Dental
Technologies, Inc. (BTC).
On March 31, 1991, BTC sold all of the outstanding stock of the Company.
The sale of the stock incorporated a licensing agreement (Note 2) which gave the
Company exclusive manufacturing rights over the "Denticator" product line. The
"Denticator" product line was first introduced in 1931 and included a series of
dental devices for use in professional dentistry.
On March 31, 1991, in conjunction with the exclusive agreement referenced
above, the Company acquired the following assets from BTC in exchange for a
promissory note for $600,569:
<TABLE>
<S> <C>
Fixed assets.............................................. $ 47,592
Inventories............................................... 535,139
Organization costs and goodwill........................... 17,838
--------
$600,569
========
</TABLE>
On July 22, 1996, the Company consummated a plan to sell substantially all
of its assets and liabilities to Young Innovations, Inc. (Young) in exchange for
$50,000 cash and the assumption of all book liabilities of the Company. Young
simultaneously purchased the licensing agreement between the Company and BTC
(Note 2). Young formed a new corporation, Denticator International, Inc., a
Missouri corporation, to manufacture and distribute the "Denticator" product
line.
These statements and accompanying notes present the results of the
Company's operations and cash flows for the period from April 1, 1996, through
July 22, 1996. This short reporting period was elected by management to coincide
with the sale of substantially all of the assets and liabilities of the Company
as described above.
2. EXCLUSIVE LICENSING AGREEMENT:
On March 31, 1991, the Company entered into an exclusive licensing
agreement with BTC for the manufacture of the "Denticator" line of dental
products. Under this agreement, the Company owes a monthly royalty equal to the
greater of $30,000 or 17% of net sales from the "Denticator" product line.
Additional royalties are payable if the Company achieves certain levels of
profitability.
As of January 1, 1995, the Company increased the minimum monthly royalty
payable to BTC to $43,000 per month in exchange for BTC waving the provision in
the agreement whereby BTC could purchase products made by the Company at
specified prices.
The licensing agreement is for a period of four (4) years. At the
expiration of this period, the Company has the option to pay BTC a lump sum
equal to 1.5 times the average annual sales, reduced by 50% of the additional
royalties paid, to acquire the rights to the "Denticator" product line. If this
option is not exercised, the two companies may mutually agree to renew the
licensing agreement at terms negotiated at that time. As of the audit reporting
date, an offer to buy the Company had been accepted which will assign all rights
under this licensing agreement to Young. (Note 1).
During the period from April 1, 1996, through July 22, 1996, the Company
incurred BTC royalties under the licensing agreement totaling $361,675 and paid
$307,294.
F-27
<PAGE> 67
DENTICATOR INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INCOME TAXES:
For federal income tax purposes, the Company has, as a result of a
contribution of inventory to charitable organizations, a federal charitable
contribution carryforward of approximately $172,500. The charitable contribution
carryforward, if unused, will expire in 1997.
No provision was made for current or deferred income tax expense for the
period from April 1, 1996, through July 22, 1996.
4. MAJOR CUSTOMERS:
The Company had sales to the following customers during the period from
April 1, 1996, through July 22, 1996:
<TABLE>
<CAPTION>
PERCENT
AMOUNT OF TOTAL
-------- --------
<S> <C> <C>
Patterson Dental Company.......................... $197,481 11.9%
Darby Dental Supply Co............................ 187,585 11.3
The Supply House.................................. 94,890 5.7
H. Meer Dental Supply Company, Inc................ 85,385 5.2
-------- ----
Total........................................ $565,341 34.1%
======== ====
</TABLE>
F-28
<PAGE> 68
======================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 11
Dividend Policy........................ 11
Capitalization......................... 12
Dilution............................... 13
Selected Consolidated Financial Data... 14
Young Innovations, Inc. and Denticator
International, Inc. Unaudited Pro
Forma Financial Information.......... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 23
Management............................. 31
Principal Stockholders................. 34
Certain Transactions................... 34
Description of Capital Stock........... 35
Shares Eligible for Future Sale........ 36
Underwriting........................... 37
Legal Matters.......................... 38
Experts................................ 38
Additional Information................. 38
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,000,000 SHARES
YOUNG INNOVATIONS, INC. LOGO
COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
ROBERT W. BAIRD & CO.
INCORPORATED
CLEARY GULL REILAND
& MCDEVITT INC.
, 1997
======================================================
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 8,364
National Association of Securities Dealers, Inc. Fee........ 3,260
Nasdaq National Market Listing Fee.......................... 7,300
Printing Expenses........................................... 35,000
Legal Fees and Expenses..................................... 100,000
Auditors' Fees and Expenses................................. 150,000
Transfer Agent and Registrar Fees........................... 1,000
Miscellaneous Expenses...................................... 145,076
--------
Total................................................ $450,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 351.355 of the Missouri General and Business Corporation Law,
Article Ten of the Registrant's Certificate of Incorporation and Article VI of
the Registrant's Bylaws provide for indemnification of the Registrant's
directors and officers in a variety of circumstances, which may include
liabilities under the Securities Act of 1933, as amended. The Registrant intends
to obtain director and officer insurance coverage.
The Underwriting Agreement (Exhibit 1 hereto) provides for indemnification
by the Underwriters of the Registrant, each of its directors, each of its
officers who signed the Registration Statement and each person who controls the
Registrant within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), from certain liabilities under the securities laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In August 1995, the Registrant, as part of its organization as the holding
company for Young Dental, issued 4,450,214 shares of its Common Stock to the
existing stockholders of Young Dental in exchange for all of the outstanding
shares of common stock of Young Dental. In December 1996 and in February 1997,
respectively, the Registrant sold an aggregate of 2,520 shares of its Common
Stock to two purchasers subject to appropriate resale restrictions. None of the
foregoing shares were registered under the Securities Act and all were issued
pursuant to available exemptions from registration under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
A list of exhibits is set forth in the Exhibit Index appearing elsewhere in
this Registration Statement and is incorporated herein by reference.
(B) FINANCIAL STATEMENT SCHEDULES.
Attached hereto is Schedule II -- Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities other than the payment by the Registrant of expenses
II-1
<PAGE> 70
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
B. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Louis and State of
Missouri on the 4th day of September, 1997.
YOUNG INNOVATIONS, INC.
By: /s/ GEORGE E. RICHMOND
------------------------------------
George E. Richmond
President and Chief Executive
Officer
Each person whose signature appears below constitutes and appoints George
E. Richmond and Michael W. Eggleston his true and lawful attorneys-in-fact and
agents, each acting alone, with full powers of substitution and re-substitution
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to sign a Registration Statement pursuant to
Section 462(b) of the Securities Act, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each acting
alone, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE E. RICHMOND President, Chief Executive Officer, September 4, 1997
- ------------------------------------------ Director (Principal Executive
George E. Richmond Officer)
/s/ RICHARD G. RICHMOND Secretary, Director September 4, 1997
- ------------------------------------------
Richard G. Richmond
/s/ MICHAEL W. EGGLESTON Vice President, Treasurer, Chief September 4, 1997
- ------------------------------------------ Financial Officer, Director
Michael W. Eggleston (Principal Financial Officer and
Principal Accounting Officer)
/s/ CRAIG E. LABARGE Director September 4, 1997
- ------------------------------------------
Craig E. LaBarge
/s/ RICHARD P. CONERLY Director September 4, 1997
- ------------------------------------------
Richard P. Conerly
/s/ ALFRED E. BRENNAN Director September 4, 1997
- ------------------------------------------
Alfred E. Brennan
</TABLE>
II-3
<PAGE> 72
After the stock split discussed in Note 20 to the consolidated financial
statements is effected, we expect to be in a position to render the following
audit report.
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Young Innovations, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Young Innovations, Inc. and
subsidiaries included in the Young Innovations, Inc. Form S-1 Registration
Statement and have issued our report thereon dated March 31, 1997 (except with
respect to matters discussed in Note 20, as to which the date is October ,
1997). Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. Schedule II included in this Form S-1 Registration
Statement is the responsibility of the Company's management and is presented for
the purpose of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
March 31, 1997
S-1
<PAGE> 73
YOUNG INNOVATIONS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION YEAR EXPENSES ACQUISITIONS DEDUCTIONS YEAR
----------- ------------ ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful receivables
1994................................... $-- $ 25 $ -- $ -- $25
1995................................... 25 -- 7 -- 32
1996................................... 32 22 -- -- 54
Reserve for obsolete and excess
inventories
1994................................... $-- $ 20 $ -- $ -- $20
1995................................... 20 20 -- -- 40
1996................................... 40 -- 3 -- 43
</TABLE>
S-2
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1* Form of Underwriting Agreement
3.1 Articles of Incorporation of Registrant and Statement of
Correction
3.2 By-Laws of Registrant
5* Opinion and Consent of Armstrong, Teasdale, Schlafly & Davis
as to the legality of issuance of the Shares
10.1 Employment and Noncompetition Agreement dated May 4, 1995,
by and between Young Dental Manufacturing Company and
Richard C. Nemanick, Sr.
10.2 Stock Purchase Agreement dated as of May 4, 1995, by and
among Young Dental Manufacturing Company, Chemical Venture
Capital Associates, P. Jeffrey Leck, John F. Kirtley,
Richard C. Nemanick, the Stockholders named therein and
Lorvic Holdings, Inc.
10.3 Escrow Agreement dated May 4, 1995 among Young Dental
Manufacturing Company, Chemical Venture Capital Associates,
P. Jeffrey Leck, John F. Kirtley, Richard C. Nemanick,
Lorvic Holdings, Inc. and Boatmen's Trust Company
10.4 Contingent Payment Agreement dated as of May 4, 1995, by and
between Young Dental Manufacturing Company, The Richard C.
Nemanick Trust and Boatmen's Trust Company
10.5 Consulting Agreement dated May 4, 1995, by and between Young
Dental Manufacturing Company and Richard C. Nemanick, Sr.
10.6 Buy-Sell Agreement dated as of December 31, 1991, by and
between the Richard G. Richmond Irrevocable Trust dated
December 31, 1991, the Ruth A. Garza Irrevocable Trust dated
December 31, 1991, the Scott J. Richmond Irrevocable Trust
dated December 31, 1991, the Bradley S. Richmond Irrevocable
Trust dated December 31, 1991, the Dawn N. Close Irrevocable
Trust dated December 31, 1991, and Young Dental
Manufacturing Company
10.7 Amendment and Modification of Buy-Sell Agreement dated as of
August 7, 1995, by and between the Richard G. Richmond
Irrevocable Trust dated December 31, 1991, the Ruth A. Garza
Irrevocable Trust dated December 31, 1991, the Scott J.
Richmond Irrevocable Trust dated December 31, 1991, the
Bradley S. Richmond Irrevocable Trust dated December 31,
1991, the Dawn N. Close Irrevocable Trust dated December 31,
1991, Young Dental Manufacturing Company and the Registrant
10.8 Form of Stock Plan Agreement, by and between certain
employees, George E. Richmond and Young Dental Manufacturing
Company
10.9 Form of Amendment and Modification of Stock Plan, by and
between certain employees, George E. Richmond, Young Dental
Manufacturing Company and the Registrant
10.10 Young Dental Manufacturing Company Pension Bonus Plan dated
as of April 12, 1983
10.11 Young Dental Manufacturing Company Profit Sharing Plan dated
as of January 1, 1987
10.12 Term Loan and Revolving Loan Agreement dated as of July 22,
1996 between Young Innovations, Inc., Young Dental
Manufacturing Company, Lorvic Holdings, Inc., The Lorvic
Corporation, Denticator International, Inc. and The
Boatmen's National Bank of St. Louis (now NationsBank,
N.A.), and Amendment No. 1 thereto dated April 1, 1997
10.13 Asset Purchase Agreement dated July 22, 1996, among
Denticator International, Inc., BioDental Technologies
Corp., Jose L. Mendoza and Young Innovations, Inc.
10.14 Assignment and Release Agreement dated July 22, 1996, by and
between Bio Dental Technologies Corp., Denticator
International, Inc. and Young Innovations, Inc.
10.15 Employment and Non-Competition Agreement dated July 22,
1996, by and between Denticator International, Inc. and Jose
L. Mendoza
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.16 Escrow Agreement dated July 22, 1996, by and among Young
Innovations, Inc., Bio Dental Technologies Corp., and the
Union Bank of California
10.17* 1997 Stock Option Plan of the Registrant
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of John J. Eckle
23.3* Consent of Armstrong, Teasdale, Schlafly & Davis (included
in Exhibit 5.1)
24 Power of Attorney (included on Signature page II-3).
</TABLE>
- -------------------------
* To be filed by Amendment.
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
YOUNG INNOVATIONS, INC.
The undersigned, being a natural person of the age of eighteen (18)
years or more, and for the purpose of forming a corporation under the General
and Business Corporation Law of Missouri, does hereby adopt the following
Articles of Incorporation:
ARTICLE ONE
The name of the Corporation is: YOUNG INNOVATIONS, INC.
ARTICLE TWO
The address of the Corporation's initial registered office in the
State of Missouri is: 13705 Shoreline Court East, Earth City, Missouri 63045,
and the name of its initial registered agent at such address is: Michael W.
Eggleston.
ARTICLE THREE
The aggregate number, class and par value, if any, of shares which the
Corporation shall have authority to issue shall be twenty five million
(25,000,000) shares of Common Stock, $0.01 par value.
ARTICLE FOUR
No holder of any of the Common Stock or other securities of this
Corporation shall have any preemptive or preferential right by reason of his
being a stockholder or security holder to have first offered to him, or to
subscribe for, purchase or receive any part of the presently authorized stock
of this Corporation, or any part of any stock of this Corporation which may
hereafter be authorized, issued or sold, or any part of any debentures, bonds
or other securities of this Corporation convertible into, exchangeable for, or
representing, stock or securities which may at any time be authorized, issued
or sold by this Corporation.
ARTICLE FIVE
The name and place of residence of the incorporator is: Matthew R.
Byer, 14335 White Birch Valley Lane, Chesterfield, MO 63017. The powers of
the incorporator are to terminate upon the filing of these Articles of
Incorporation.
ARTICLE SIX
The number of Directors to constitute the first Board of Directors of
the Corporation is three (3). Thereafter, the number of Directors shall be
fixed by, or in the manner provided in, the By-Laws, but shall not be less than
three (3). Any change in the authorized number of Directors shall be reported
to the Secretary of State of Missouri within 30 days after such change.
The members of the first Board of Directors shall be: George E.
Richmond, Michael W. Eggleston and Richard G. Richmond.
Cumulative voting for election of Directors shall not apply to this
Corporation.
-1-
<PAGE> 2
ARTICLE SEVEN
The duration of the Corporation shall be perpetual.
ARTICLE EIGHT
The purpose of the Corporation to engage in any lawful act or activity
for which corporations may be organized under the General and Business
Corporation Law of Missouri.
ARTICLE NINE
The By-Laws of the Corporation may, from time to time, be made,
amended or repealed by action of the shareholders of the Corporation, or by a
vote of a majority of the Directors then in office; provided, that any such
action by the Board of Directors may be rescinded or repealed, or may be
prohibited as to any By-Law or portion thereof, by the shareholders.
ARTICLE TEN
To the fullest extent permitted by the General and Business
Corporation Law of Missouri as the same exists or may hereafter be amended, a
director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
If the General and Business Corporation Law of Missouri is amended after the
date of the filing of these Articles of Incorporation to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the General and Business Corporation
Law of Missouri, as so amended from time to time. No amendment, modification
or repeal of this Article Ten by the stockholders shall adversely affect any
right or protection of a director of the Corporation existing by virtue of this
Article Ten at the time of such amendment, modification or repeal.
ARTICLE ELEVEN
The Corporation hereby expressly elects not to be governed by the
provisions of the Missouri Control Share Acquisition Act codified at Section
351.459 of the General and Business Corporation Law of Missouri (1995), as
amended from time to time.
ARTICLE TWELVE
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in these Articles of
Incorporation and other provisions authorized by the laws of the State of
Missouri at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to these Articles of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
Article Twelve.
IN WITNESS WHEREOF, I have hereunto set my hand this 27 day of July,
1995.
/s/ Matthew R. Byer
----------------------------------
Matthew R. Byer, Incorporator
-2-
<PAGE> 3
STATE OF MISSOURI )
) SS
CITY OF ST. LOUIS )
I, Sharon Odom, a Notary Public, do hereby certify
that on the 27 day of July, 1995, personally appeared before me Matthew R.
Byer, who, being by me first duly sworn, declared that he is the person who
signed the foregoing document as Incorporator, and that the statements therein
contained are true to his best knowledge and belief.
/s/ Sharon Odom
----------------------------------
Notary Public
My Commission Expires:
Sharon Odom
Notary Public, State of Missouri
Commission Expires October 20, 1995
County of Jefferson
Filed and Certificate
of Incorporation Issued
July 28, 1995
/s/ Rebecca McDowell Cook
Secretary of State
-3-
<PAGE> 4
[SECRETARY OF STATE SEAL] State of Missouri
Rebecca McDowell Cook, Secretary of State
P.O. Box 778, Jefferson City, MO 65102
Corporation Division
Statement of Correction for a
General Business or Nonprofit Corporation
(Submit in duplicate with filing fee of $10)
(1) The name of the corporation is: Young Innovations, Inc.
----------------------------------------
- --------------------------------------------------------------------------------
(2) The state/country under whose laws it was organized is: Missouri
----------------
- --------------------------------------------------------------------------------
(3) Type of document being corrected (or filed copy attached): Articles of
-------------
Incorporation
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(4) The error is corrected as follows: see attached
--------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(5) The reason for such correction is: Incorrect statement on original
-------------------------------------
filing of Article Eleven
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(6) Date the original document was filed with the Missouri Secretary of
State: July 28, 1995
-------------------------------------------------------------------------
In affirmation of the facts stated above,
<TABLE>
<S><C>
Matthew R. Byer, Incorporator /s/ Matthew R. Byer 8/14/95
- -----------------------------------------------------------------------------------------------------------
(Authorized signature of officer or chairman of the board) (Title) (Date of Signature)
</TABLE>
Corp. #60 (6-95) FILED
AUG 15 1995
Rebecca McDowell Cook
SECRETARY OF STATE
<PAGE> 5
ARTICLE ELEVEN
--------------
The Corporation hereby expressly elects not to be governed by the
provisions of (i) the Missouri Control Share Acquisition Act codified at
Section 351.407, or (ii) the Missouri Business Combinations Act codified at
Section 351.459, of the General and Business Corporation Law of Missouri
(1995), as the same may be amended from time to time.
FILED
AUG 15 1995
/s/ Rebecca McDowell Cook
SECRETARY OF STATE
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
YOUNG INNOVATIONS, INC.
Effective as of August 7, 1995
ARTICLE I
OFFICES
Section 1.1. Registered Office. The registered office of the
Corporation shall be located at 13705 Shoreline Court East, Earth City,
Missouri 63045, and the name of its registered agent is Michael W. Eggleston.
Section 1.2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Missouri as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. Time and Place of Meetings. All meetings of the
stockholders for the election of Directors or for any other purpose shall be
held at such time and place, within or without the State of Missouri, as shall
be designated by the Board of Directors. In the absence of any such
designation by the Board of Directors, each such meeting shall be held at the
principal office of the Corporation.
Section 2.2. Annual Meetings. An annual meeting of stockholders shall
be held for the purpose of electing Directors and transacting such other
business as may properly be brought before the meeting. The date of the annual
meeting shall be determined by the Board of Directors.
Section 2.3. Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by law, may be called
by the Chairman of the Board or the President and shall be called by the
Secretary at the direction of a majority of the Board of Directors, or at the
request in writing of stockholders owning at least ten percent (10%) in amount
of the entire capital stock of the Corporation issued and outstanding and
entitled to vote.
Section 2.4. Notice of Meetings. Written notice of each meeting of
the stockholders stating the place, date and time of the meeting shall be given
not less than ten nor more than
<PAGE> 2
seventy days before the date of the meeting, to each stockholder entitled to
vote at such meeting, except as otherwise provided herein or required by the
Corporation's Articles of Incorporation or by law (meaning here and hereafter,
as required from time to time by the Missouri General and Business Corporation
Law). The notice of any special meeting of stockholders shall state the
purpose or purposes for which the meeting is called.
Section 2.5. Quorum. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided herein or required by the
Corporation's Articles of Incorporation or by law. If a quorum is not present
or represented, the holders of the stock present in person or represented by
proxy at the meeting and entitled to vote thereat shall have power, by the
affirmative vote of the holders of a majority of such stock, to adjourn the
meeting to another time and/or place, without notice other than announcement at
the meeting, until a quorum shall be presented or represented. At such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 2.6. Voting. At all meetings of the stockholders, each
stockholder shall be entitled to vote, in person or by proxy, the shares of
voting stock owned by such stockholder of record on the record date for the
meeting. When a quorum is present or represented at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of law, of the
Corporation's Articles of Incorporation, or of these By-Laws, a different vote
is required, in which case such express provision shall govern and control the
decision of such question.
Section 2.7. Informal Action By Stockholders. Any action required to
be taken at a meeting of the stockholders, or any other action which may be
taken at a meeting of the stockholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
of the stockholders entitled to vote with respect to the subject matter
thereof.
-2-
<PAGE> 3
ARTICLE III
DIRECTORS
Section 3.1. General Powers. The business and affairs of the
Corporation shall be managed and controlled by or under the direction of a
Board of Directors, which may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by law or by the Articles of
Incorporation or by these By-Laws directed or required to be exercised or done
by the stockholders.
Section 3.2. Number, Qualification and Tenure. The Board of Directors
shall consist of three (3) members, until this Section 3.2 is amended by a
resolution duly adopted by the Board or the stockholders, in either case in
accordance with the terms of the Articles of Incorporation. The Directors
shall be elected at the annual meeting of the stockholders as provided in
Section 2.2, except as provided in Section 3.3 of these By-Laws, and each
Director elected shall hold office until his successor is elected and qualified
or until his earlier resignation or removal. Directors need not be residents
of the state of Missouri or stockholders of this corporation.
Section 3.3. Resignation and Vacancies. Vacancies and newly created
directorships resulting from any increase in the number of directors shall be
filled by the directors, and each Director so chosen shall hold office until
his successor is elected and qualified or until his earlier resignation or
removal.
Section 3.4. Place of Meetings. The Board of Directors may hold
meetings, both regular and special, either within or without the State of
Missouri.
Section 3.5. Regular Meetings. The Board of Directors shall hold a
regular meeting, to be known as the annual meeting, immediately following each
annual meeting of the stockholders. Other regular meetings of the Board of
Directors shall be held at such time and at such place as shall from time to
time be determined by resolution of the Board. No notice of regular meetings
need be given.
Section 3.6. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board or the President. Special meetings shall
be called by the Secretary on the written request of any two Directors.
Written notice of each special meeting of Directors stating the place, date and
time, and the purposes thereof, shall be given to each Director at least
forty-eight (48) hours before such meeting.
Section 3.7. Quorum; Voting. At all meetings of the Board a majority
of the total number of Directors shall constitute a quorum for the transaction
of business and the act of a majority
-3-
<PAGE> 4
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by law. If a quorum shall not be present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 3.8. Organization. The Chairman of the Board, if elected,
shall act as chairman at all meetings of the Board of Directors. If a Chairman
of the Board is not elected or, if elected, is not present, the President or,
in the absence of the President, a Vice President (who is also a member of the
Board and, if more than one, in the order designated by the Board of Directors
or, in the absence of such designation, in the order of their election), if
any, or if no such Vice President is present, a Director chosen by a majority
of the Directors present, shall act as chairman at meetings of the Board of
Directors.
Section 3.9. Executive Committee. The Board of Directors may
designate one or more Directors to constitute an Executive Committee, to serve
as such, unless the resolution designating the Executive Committee is sooner
amended or rescinded, until the next annual meeting of the Board or until their
respective successors are designated, whichever is earlier. The Board of
Directors may also designate additional Directors as alternate members of the
Executive Committee to serve as members of the Executive Committee in the place
and stead of any regular member or members thereof who may be unable to attend
a meeting or otherwise unavailable to act as a member of the Executive
Committee.
Except as expressly limited by the General and Business Corporation
Law of the State of Missouri or the Articles of Incorporation, the Executive
Committee shall have and may exercise all the power and authority of the Board
of Directors in the management of the business and affairs of the Corporation
between the meetings of the Board of Directors. The Executive Committee shall
keep a record of its acts and proceedings, which shall form a part of the
records of the Corporation in the custody of the Secretary, and all actions of
the Executive Committee shall be reported to the Board of Directors at the next
meeting of the Board.
Meetings of the Executive Committee may be called at any time by the
Chairman of the Board, the President or any two of its members. A majority
shall constitute a quorum for the transaction of business. Except as expressly
provided in this Section, the Executive Committee shall fix its own rules of
procedure.
Section 3.10. Other Committees. The Board of Directors may designate
one or more other committees, each such committee to consist of one or more
Directors, to serve as such, unless the
-4-
<PAGE> 5
resolution designating the such committee is sooner amended or rescinded, until
the next annual meeting of the Board or until their respective successors are
designated, whichever is earlier. Except as expressly limited by the General
and Business Corporation Law of the State of Missouri or the Articles of
Incorporation, any such committee shall have and may exercise such powers as
the Board of Directors may determine and specify in the resolution designating
such committee. The Board of Directors also may designate one or more
additional Directors as alternate members of any such committee to replace any
absent or disqualified member at any meeting of the committee, and at any time
may change the membership of any committee or amend or restate the resolution
designating the committee. Each committee shall keep a record of proceedings
and report the same to the Board of Directors to such extent and in such form
as the Board of Directors may require. Unless otherwise provided in the
resolution designating a committee, a majority of all members of any such
committee may select its Chairman, fix its rules or procedure, fix the time and
place of its meetings and specify what notice of meetings, if any, shall be
given.
Section 3.11. Action without Meeting. Unless otherwise restricted by
the Articles of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 3.12. Attendance by Telephone. Members of the Board of
Directors, or of any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 3.13. Compensation. The Board of Directors shall have the
authority to fix the compensation of Directors, which may include their
expenses, if any, of attendance at each meeting of the Board of Directors or of
a committee.
ARTICLE IV
OFFICERS
Section 4.1. Enumeration. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors may also elect a Chairman of the Board, a
Controller, one or more Vice Chairmen, one or more Vice Presidents, one or more
Assistant
-5-
<PAGE> 6
Secretaries and Assistant Treasurers and such other officers and agents as it
shall deem appropriate. Any number of offices may be held by the same person.
Section 4.2. Term of Office. The officers of the Corporation shall
be elected at the annual meeting of the Board of Directors and shall hold office
until their successors are elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors. Any vacancy occurring in any office of the Corporation required by
this Article shall be filled by the Board of Directors, and any vacancy in any
other office may be filled by the Board of Directors.
Section 4.3. Chairman of the Board. The Chairman of the Board, when
elected, shall be the Chief Executive Officer of the Corporation and, as such,
shall have general supervision, direction and control of the business and
affairs of the Corporation, subject to the control of the Board of Directors,
shall preside at meetings of stockholders and shall have such other functions,
authority and duties as customarily appertain to the office of the chief
executive of a business corporation or as may be prescribed by the Board of
Directors.
Section 4.4. Vice Chairman. The Vice Chairman, when elected, shall
perform such duties and have such other powers as may from time to time be
prescribed by the Board of Directors or the Chairman of the Board.
Section 4.5. President. During any period when there shall be an
office of Chairman of the Board, the President shall be the Chief Operating
Officer of the Corporation and shall have such functions, authority and duties
as may be prescribed by the Board of Directors or the Chairman of the Board.
During any period when there shall not be an office of Chairman of the Board,
the President shall be the Chief Executive Officer of the Corporation and, as
such, shall have the functions, authority and duties provided for the Chairman
of the Board when there is an office of Chairman of the Board.
Section 4.6. Executive Vice President. The Executive Vice President
or Executive Vice Presidents shall perform such duties and have such other
powers as may from time to time be prescribed by the Board of Directors, the
Chairman of the Board or the President.
Section 4.7. Vice President. The Vice President or Vice Presidents
shall perform such duties and have such other powers as may from time to time
be prescribed by the Board of Directors, the Chairman of the Board or the
President.
Section 4.8. Secretary. The Secretary shall keep a record of all
proceedings of the stockholders of the Corporation and of the Board of
Directors, and shall perform like duties for the
-6-
<PAGE> 7
standing committee when required. The Secretary shall give, or cause to be
given, notice, if any, of all meetings of the stockholders and shall perform
such other duties as may be prescribed by the Board of Directors, the Chairman
of the Board or the President. The Secretary shall have custody of the
corporate seal of the Corporation and the Secretary, or in the absence of the
Secretary any Assistant Secretary, shall have authority to affix the same to
any instrument requiring it, and when so affixed it may be attested by the
signature of the Secretary or an Assistant Secretary. The Board of Directors
may give general authority to any other officer to affix the seal of the
corporation and to attest such affixing of the seal.
Section 4.9. Assistant Secretary. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors (or if there be no such determination, then in the order
of their election), shall, in the absence of the Secretary or in the event of
the Secretary's inability or refusal to act, perform the duties and exercise
the powers of the Secretary and shall perform such other duties as may from
time to time be prescribed by the Board of Directors, the Chairman of the
Board, the President or the Secretary.
Section 4.10. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, the President and
the Board of Directors, at its regular meetings or when the Board of Directors
so requires, an account of all transactions as Treasurer and of the financial
condition of the Corporation. The Treasurer shall perform such other duties as
may from time to time be prescribed by the Board of Directors, the Chairman of
the Board, the President or the Chief Financial Officer.
Section 4.11. Assistant Treasurer. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the
event of the Treasurer's inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as may from time to time be prescribed by the Board of
Directors, the Chairman of the Board, the President or the Treasurer.
Section 4.12. Other Officers. Any officer who is elected or
appointed from time to time by the Board of Directors and
-7-
<PAGE> 8
whose duties are not specified in these By-Laws shall perform such duties and
have such powers as may be prescribed from time to time by the Board of
Directors, the Chairman of the Board or the President.
ARTICLE V
CERTIFICATES OF STOCK
Section 5.1. Form. The shares of the Corporation shall be
represented by certificates; provided, however, that the Board of Directors
may provide by resolution or resolutions that some or all of any or all
classes or series of the Corporation's stock shall be uncertificated shares.
Certificates of stock in the Corporation, if any, shall be signed by or in the
name of the Corporation by the Chairman of the Board or the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation. Where a certificate is countersigned
by a transfer agent, other than the Corporation or an employee of the
Corporation, or by a registrar, the signatures of the Chairman of the Board,
the President or an Executive Vice President or Vice President and the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
may be facsimiles. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, the certificate may be issued by the Corporation with
the same effect as if such officer, transfer agent or registrar were such
officer, transfer agent or registrar at the date of its issue.
Section 5.2. Transfer. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate of
stock or uncertificated shares in place of any certificate therefor issued by
the Corporation to the person entitled thereto, cancel the old certificate and
record the transaction on its books.
Section 5.3. Replacement. In case of the loss, destruction or theft
of a certificate for any stock of the Corporation, a new certificate of stock
or uncertificated shares in place of any certificate therefor issued by the
Corporation may be issued upon satisfactory proof of such loss, destruction or
theft and upon such terms as the Board of Directors may prescribe. The Board
of Directors may in its discretion require the owner of the lost, destroyed or
stolen certificate, or his legal representative, to give the Corporation a
bond, in such sum and in such form and with such surety or sureties as it may
direct, to indemnify the Corporation against any claim that may be made against
it with
-8-
<PAGE> 9
respect to a certificate alleged to have been lost, destroyed or stolen.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6.1. The Corporation shall indemnify any director, officer or
employee who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 6.2. The Corporation shall indemnify any director, officer or
employee who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case,
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such person is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.
Section 6.3. To the extent that a director, officer or employee of
the Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections 1 and 2 of this article,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
Section 6.4. Any indemnification under Sections 6.1 and 6.2 of this
article (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer or employee is proper in the circumstances because he has
met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such
determination shall be made (1) by the Board of Directors by a majority vote of
Directors who are or were not parties to such action, suit or proceeding, even
if they do not constitute a quorum of the entire Board, or (2) if there are no
such directors or if such directors so direct, then either (i) by independent
legal counsel in a written opinion, or (ii) by the Stockholders.
Section 6.5. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Corporation under this
article.
Section 6.6. The Corporation shall indemnify any director, officer or
employee who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, (i) arising under the Employee
Retirement Income Security Act of 1974 or regulations promulgated thereunder,
or under any other law or regulation of the United States or any agency or
instrumentality thereof or law or regulation of any state or political
subdivision or any agency or instrumentality of either, or under the common law
of any of the foregoing, against expenses (including attorneys' fees),
judgments, fines, penalties, taxes and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
by reason of the fact that he is or was a fiduciary, disqualified person or
party in interest with respect to an employee benefit plan covering employees
of the Corporation or of a subsidiary corporation, or is or was serving in any
other capacity with respect to such plan, or has or had any obligations or
duties with respect to such plan by reason of such laws or regulations,
provided that such person was or is a director, officer or employee of the
Corporation, or (ii) in connection
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<PAGE> 11
with any matter arising under federal, state or local revenue or taxation laws
or regulations, against expenses (including attorneys' fees), judgments, fines,
penalties, taxes, amounts paid in settlement and amounts paid as penalties or
fines necessary to contest the imposition of such penalties or fines, actually
and reasonably incurred by him in connection with such action, suit or
proceeding by reason of the fact that he is or was a director, officer or
employee of the Corporation, or is or was serving at the request of the
Corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise and had responsibility
for or participated in activities relating to compliance with such revenue or
taxation laws and regulations; provided, however, that such person did not act
dishonestly or in willful or reckless violation of the provisions of the law or
regulation under which such suit or proceeding arises. Unless the Board of
Directors determines that under the circumstances then existing, it is probable
that such director, officer or employee will not be entitled to be indemnified
by the Corporation under this section, expenses incurred in defending such suit
or proceeding, including the amount of any penalties or fines necessary to be
paid to contest the imposition of such penalties or fines, shall be paid by the
Corporation in advance of the final disposition of such suit or proceeding upon
receipt of an undertaking by or on behalf of the director, officer or employee
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation under this section.
Section 6.7. The indemnification provided by this article shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer or employee and shall inure
to the benefit of the heirs, executors and administrators of such a person.
Section 6.8. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not he would be entitled to indemnity against such liability under
the provisions of this article.
Section 6.9. To the extent determined by the Board of Directors, the
Corporation shall have the power to give indemnity to the fullest extent
permitted by Section 351.355 of the General and Business Corporation Law of
Missouri, as the same may be amended and supplemented or by any successor
thereof, in addition
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to the indemnity authorized by this Article VI to any person who is or was a
director, officer, employee or agent, or to any person who is or was serving at
the request of the Corporation, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 7.2. Corporate Seal. The corporate seal shall be in such
form as may be approved from time to time by the Board of Directors. The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any other manner reproduced.
Section 7.3. Notice. Any written notices which may be or are
required to be given under these By-laws shall be delivered in person or given
by postage prepaid United States mail, overnight courier, or facsimile
transmission. Unless otherwise provided in these By-laws, notice by mail shall
be effective on the date it is mailed. Notice given by facsimile transmission
shall be deemed given when transmitted if received legibly and in full by the
recipient.
Section 7.4. Waiver of Notice. Whenever any notice is required to
be given under law or the provisions of the Articles of Incorporation or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent to notice.
ARTICLE VIII
AMENDMENTS
Section 8.1. In General. These By-Laws may be altered, amended or
repealed or new By-Laws may be adopted by the Board of Directors. The fact
that the power to amend, alter, repeal or adopt the By-Laws has been conferred
upon the Board of Directors shall not divest the stockholders of the same
powers.
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EXHIBIT 10.1
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT ("Agreement") is made this 4th
day of May, 1995, by and between Young Dental Manufacturing Company, a Missouri
corporation (the "Corporation") and Richard C. Nemanick, Sr. ("Employee"), an
individual residing at 900 Cabernet, Town & Country, Missouri 63017.
WITNESSETH:
WHEREAS, Corporation has entered into a certain Stock Purchase Agreement
("Purchase Agreement") of even date herewith by and between, among others,
Corporation and Lorvic Holdings, Inc., a Delaware corporation ("Lorvic
Holdings"), whereby Corporation shall acquire all of the outstanding stock of
Lorvic Holdings;
WHEREAS, Lorvic Holdings is the sole stockholder and parent corporation of
The Lorvic Corporation, a Delaware corporation ("Lorvic Corporation");
WHEREAS, Employee has heretofore been President and Chief Executive Officer
of Lorvic Corporation; and
WHEREAS, Corporation desires to employ Employee after the consummation and
closing of the Purchase Agreement and Employee desires to accept such
employment.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
promises herein contained, the adequacy of which is hereby acknowledged,
Corporation and Employee hereby agree as follows.
I. EMPLOYMENT
Corporation employs Employee, and Employee accepts employment by Corporation
upon all of the terms and conditions set out in this Agreement.
II. POSITIONS AND DUTIES
2.1 POSITIONS. Employee shall serve in the following positions during the
term of this Agreement:
A. Senior Vice President of Corporate Affairs of Corporation.
B. Member of the Board of Directors of Corporation so long as Corporation
remains a privately held corporation. In the event that Corporation
becomes a publicly held company, Employee may continue to serve as a
Director
<PAGE> 2
of Corporation at the discretion of the Shareholders of Corporation.
C. Member of the Executive Committee of Corporation.
D. Employee shall serve as (i) President of Lorvic Corporation in the event
that, after the consummation of the Purchase Agreement, Lorvic Corporation
is operated as a separate subsidiary corporation of Corporation, or (ii)
General Manager of the operations of the former Lorvic Corporation in the
event that Lorvic Corporation is operated as a division of Corporation
("Lorvic Division"). Employee shall serve as President or General Manager
only to the extent that Lorvic Corporation or Lorvic Division continues to
conduct its primary operations and maintains its operating facility at
8810 Frost Avenue, St. Louis, Missouri 63134.
2.2 DUTIES, RESPONSIBILITIES AND INVOLVEMENT. Employee's duties,
responsibilities and involvement shall include, without limitation:
A. As President of Lorvic Corporation or General Manager of Lorvic Division,
Employee's duties shall include, without limitation, the supervision and
oversight of the day to day operations of Lorvic Corporation or Lorvic
Division, including personnel matters, and, generally, the performance of
all duties typically vested in the chief executive officer of a
corporation, all to the extent and in the manner prescribed by the Bylaws
of Corporation, the Board of Directors of Corporation or, in the absence
of Board direction, the President of Corporation. Employee shall report
to the Board of Directors and to the President of Corporation.
B. Involvement in product research and development for Corporation, Lorvic
Corporation and/or Lorvic Division.
C. Involvement in mergers and acquisitions concerning Corporation, Lorvic
Corporation and/or Lorvic Division.
D. Involvement in the regulatory affairs of Corporation, Lorvic Corporation
and/or Lorvic Division.
E. Responsibility and control over the major customer relations matters
involving any original equipment manufacturer (OEM) of Lorvic Corporation
and/or Lorvic Division.
2.3 COMMITMENT TO CORPORATION. Employee shall devote so much of Employee's
time, attention and energies to the business of Corporation as shall be
necessary for the performance of his
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responsibilities hereunder, and shall not during the term of this Agreement be
engaged in any other business activity whether or not such business activity is
pursued for gain, profit or other pecuniary advantage. This shall not be
construed as preventing Employee from investing Employee's assets in such form
or manner as will not require any services on the part of Employee in the
operation or affairs of the entities in which such investments are made.
2.4 COMPLIANCE. Employee agrees to abide by the Articles of Incorporation
and By-Laws of Corporation and such reasonable rules and regulations as are
adopted from time to time by the Board of Directors of Corporation which are
not inconsistent with this Agreement and which are communicated to Employee.
III. TERM OF EMPLOYMENT
3.1 INITIAL TERM. The initial term of Employee's employment under this
Agreement shall commence on May 5th, 1995 ("Effective Date"), and shall
continue for a period of three (3) years until midnight on May 5th, 1998 unless
terminated as provided in this Agreement.
3.2 RENEWAL OR ADJUSTMENT. At the end of the initial term, this Agreement
may be extended, renewed or adjusted upon the mutual agreement of Corporation
and Employee.
IV. COMPENSATION
4.1 REGULAR COMPENSATION. For all services rendered by Employee in any
capacity, Employee shall be entitled to receive regular compensation at the
rate determined in accordance with the provisions of the attached Schedule 1.
Such compensation shall be payable in accordance with the Corporation's normal
payroll procedures as determined from time to time by the Board of Directors of
Corporation.
4.2 WITHHOLDING. All payments of regular compensation shall be less such
amounts as are required to be withheld by federal, state or local law.
V. BONUS
5.1 ANNUAL BONUS. Employee shall be entitled to participate in an annual
bonus, on terms comparable to those for other Senior Officers of Corporation
under any then existing bonus program of Corporation; provided, however, that
Employee is not in breach of this Agreement. Any bonus shall be at the
discretion of the Board of Directors of Corporation.
5.2 STOCK OPTIONS. Employee shall be entitled to receive options to
purchase stock in Corporation ("Stock Options") on
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<PAGE> 4
comparable terms and conditions as other Senior Officers of Corporation if
Corporation adopts a stock option plan.
VI. FRINGE BENEFITS
Employee shall be entitled to participate with other employees of
Corporation, so long as Employee meets the applicable eligibility requirements,
in such employee fringe benefit plans as may be authorized and adopted from
time to time by the Board of Directors of Corporation, including, but not
limited to, those fringe benefits that are listed in the attached Schedule 2.
Further, Corporation may furnish, withdraw or modify such other benefits for
Employee as the Board of Directors of Corporation shall determine from time to
time within its discretion.
VII. EXPENSES
Reasonable expenses for promoting the business of Corporation including
expenses for transportation, promotion, entertainment, travel, telephone, and
similar items shall be subject to reimbursement to the extent authorized for
reimbursement by Corporation in accordance with reasonable rules and
regulations adopted by the Board of Directors. Such expenses as are so
authorized for reimbursement shall be paid for by Corporation or reimbursed to
Employee upon Employee's presenting to Corporation an itemized expense
statement with respect thereto.
VIII. DEATH OF EMPLOYEE
In the event of Employee's death during the term of this Agreement (whether
Employee is then actively engaged in the performance of services for
Corporation or is being compensated for disability), this Agreement shall
terminate immediately and Employee's estate shall be entitled to receive from
Corporation an amount equal to the compensation due up until the date of
Employee's death.
IX. TERMINATION OF EMPLOYMENT
9.1 TERMINATION BY CORPORATION. Corporation may terminate Employee's
employment pursuant to this Agreement in the event that Employee during the
term of this Agreement shall be in Actual Default (as defined herein) under any
provision of this Agreement, or if Employee has committed acts of gross
negligence, dishonesty or misconduct in carrying out his obligations or
responsibilities to the Corporation, as determined in the reasonable discretion
of the Board of Directors of the Corporation, by giving at least thirty (30)
days prior written notice to Employee of Corporation's intention to terminate
this Agreement. In the event of such termination by Corporation, Employee
shall have the right to reasonable access to documents
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<PAGE> 5
and records of Corporation in a subsequent investigation by Employee
challenging the grounds for termination.
In the event of such termination by Corporation, Corporation shall be
obligated to continue to pay Employee the salary due Employee under this
Agreement up to the termination date stated in said written notice so long as
Employee continues to be ready, willing and able to perform all of Employee's
duties in accordance with this Agreement.
9.2 TERMINATION BY EMPLOYEE. Employee may terminate Employee's employment
pursuant to this Agreement in the event that Corporation, during the term of
this Agreement, shall be in Actual Default (as defined herein) under any
provision of this Agreement, by giving at least sixty (60) days prior written
notice to Corporation of Employee's intention to terminate this Agreement.
In the event of any such termination by Employee, Corporation shall continue
to pay Employee the salary due Employee under this Agreement up to the
termination date stated in Employee's written notice so long as Employee
continues to perform all of Employee's duties in accordance with the terms of
this Agreement and so long as there is no earlier termination date under any
notice given by Corporation.
9.3 COOPERATION BY EMPLOYEE. Following any such notice of termination,
Employee shall fully cooperate with Corporation in all matters relating to the
winding up of Employee's pending work on behalf of Corporation and the orderly
transfer of any such pending work to such other employees of Corporation as may
be designated by the Corporation; and to that end Corporation shall be entitled
to such full-time or part-time services of Employee as Corporation may
reasonably require during all or any part of the period from the time of giving
any such notice until the effective date of such termination.
9.4 SETTLEMENT OF ACCOUNTS. After any termination of this Agreement, all
compensation and amounts due to Employee with respect to work performed or
expenses incurred prior to the date of termination shall be reconciled with
amounts due to Corporation from Employee. Each party shall be entitled to
offset against any amounts that may be due to the other party such amounts as
are due from such other party to it or him. The parties shall proceed
expeditiously to accomplish the foregoing, and the resulting amount due from
one party to the other shall be paid promptly after it is determined.
X. FILES AND RECORDS
All files, records, documents, reports and so forth concerning customers of
Corporation, including, without limitation, clients and customers consulted,
interviewed or
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served by Employee during the term of this Agreement shall belong to and remain
the property of Corporation.
XI. CONFIDENTIAL INFORMATION
11.1 NONDISCLOSURE BY EMPLOYEE. Employee will not, except as authorized by
Corporation, during or at any time after the termination of Employee's
employment with Corporation, directly or indirectly, use for himself or others,
or disclose, communicate, divulge, furnish to, or convey to any other person,
firm, or corporation, any secret or confidential information, knowledge or data
of Corporation or that of third parties obtained by Employee during the period
of his employment with Corporation and such information, knowledge or data
includes, without limitation, the following:
a) Secret or confidential matters of a technical nature such as, but not
limited to, methods, know-how, formulae, compositions, processes,
discoveries, manufacturing techniques, inventions, computer programs, and
similar items or research projects involving such items;
b) Secret or confidential matters of a business nature such as, but not
limited to, information about costs, purchasing, profits, market, sales or
lists of customers; or
c) Secret or confidential matters pertaining to future developments such as,
but not limited to, research and development or future marketing or
merchandising.
11.2 SURRENDER OF INFORMATION. Employee, upon termination of his employment
with Corporation, or at any other time upon Corporation's written request,
shall deliver promptly to Corporation all drawings, blueprints, manuals,
letters, notes, notebooks, reports, sketches, formulae, computer programs and
similar items, memoranda, lists of customers, and all other materials and
copies thereof relating in any way to Corporation's business which contain
confidential information and which were in any way obtained by Employee during
the term of his employment with Corporation which are in his possession or
under his control; and Employee will not make or retain any copies of any of
the foregoing and will so represent to Corporation upon termination of his
employment.
11.3 NOTIFICATION OF SUBSEQUENT EMPLOYERS. Corporation may notify any
person, firm, or corporation employing Employee or evidencing an intention to
employ Employee as to the existence and provisions of this Agreement.
11.4 REMEDIES. Employee understands and acknowledges that such confidential
information or other commercial ideas mentioned
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<PAGE> 7
herein are unique and that the disclosure or use of such matters or any other
secret or confidential information other than in furtherance of the business of
Corporation would reasonably be expected to result in irreparable harm to
Corporation; and that in addition to whatever other remedies Corporation and/or
its successors or assigns may have at law or in equity, Employee specifically
covenants and agrees that, in the event of default under or breach of this
Agreement, Corporation and/or its successors and assigns shall be entitled to
apply to any court of competent jurisdiction to enjoin any breach, threatened
or actual, of the foregoing covenants and promises by Employee, and/or to sue
to obtain damages for default under or any breach of this Agreement. In the
event of default under or breach of this Agreement, Employee hereby agrees to
pay all costs of enforcement and collection of any and all remedies and damages
under this Agreement, including reasonable attorneys' fees as determined by a
court of competent jurisdiction.
XII. LIMITATION ON COMPETITION
12.1 NONCOMPETITION AGREEMENT. During the period of employment and for a
period of two (2) years after expiration or termination of this Agreement, for
cause or by Employee, Employee shall not, within the United States of America,
directly or indirectly as an owner, employee, consultant or otherwise,
individually or collectively, acquire an interest in, become an employee of or
consultant to a dental manufacturing or distribution business. Employee agrees
that the area, in light of the character of the industry, and the duration of
this limitation are reasonable under the circumstances, considering Employee's
position with Corporation and other relevant factors, and that in all
likelihood this will not constitute a serious handicap to Employee in securing
future employment.
12.2 NONSOLICITATION AGREEMENT. Employee will not, either during employment
or during the period of two (2) years after expiration or termination of this
Agreement, for cause or by Employee, directly or indirectly, either for himself
or for any other person, firm, or corporation, take any action or perform any
services which are designed to or in fact call upon, compete for, solicit,
divert, or take away, or attempt to divert or take away, any of the customers
of Corporation; this prohibition includes customers existing at the present
time or prospective or past customers solicited, sold to or served by
Corporation during the five (5) years prior to termination or expiration of
this Agreement.
12.3 NON-HIRE AGREEMENT. Employee will not, either during employment or
during the period of two (2) years after expiration or termination of this
Agreement, for cause or by Employee, directly or indirectly, either for himself
or for any other person, firm, or corporation, induce, employ or attempt to
employ
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<PAGE> 8
any person who is at that time, or has been within six (6) months immediately
prior thereto, employed by Corporation.
12.4 REMEDIES. It is further agreed that, if Employee shall violate the
foregoing prohibitions, Corporation shall be entitled to seek specific
performance of these covenants, and Employee shall pay all costs and attorneys'
fees, as determined by a court of competent jurisdiction, incurred by
Corporation in enforcing the aforesaid covenants if Corporation is successful
in so doing after a final adjudication of the matter. If any of the foregoing
covenants is not enforceable to the full extent provided, it shall be and
remain enforceable to the extent permitted by law, and a court is authorized by
the parties to modify such covenant to make it reasonable and, as so modified,
enforce it.
12.5 TERMINATION OF PROVISIONS. Notwithstanding the provisions hereof
regarding termination of this Agreement, the provisions of this Section shall
remain in full force and effect (including any extensions or renewals) provided
for hereunder. However, in the event that this Agreement is terminated as a
result of (i) Corporation being in Actual Default, (ii) Corporation filing for
bankruptcy, having an involuntary petition filed against it which is not
dismissed within sixty (60) days, ceasing operations, dissolving or becoming
insolvent, or (iii) Corporation terminating Employee without cause, the
provisions of this Article shall be null and void.
XIII. BINDING ARBITRATION
Except for matters arising under Article XII, any controversy or claim
arising out of or relating to this Agreement, or the breach thereof, shall be
settled by arbitration in accordance with the Rules of the American Arbitration
Association at a mutually convenient location agreed to by the parties or the
arbitrators, and the parties hereby agree to be bound by the results thereof.
Each party shall choose one arbitrator and a third arbitrator shall be chosen
by the two arbitrators so chosen by the parties. A judgment upon any award
rendered by a majority opinion of the arbitrators so chosen may be entered in
any court having jurisdiction thereof.
XIV. ACTUAL DEFAULT
In the event either party believes that the other party has failed to fulfill
any of his or its obligations under this Agreement, the party aggrieved by such
default shall give the other party written notice of such default specifying
the nature thereof. If within thirty (30) days after the giving of such
notice, the alleged defaulting party has failed or refused to remedy such
default, the party aggrieved by such alleged default may by notice in writing
declare the alleged defaulting party to be in actual default ("Actual Default")
of this Agreement and
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proceed in the manner otherwise provided for herein. The provisions of this
Section are intended to provide a means whereby the party alleged to be in
default under this Agreement will have an opportunity to cure any such alleged
default before the aggrieved party shall be entitled to attempt to terminate
this Agreement. The giving of such notice and the expiration of the thirty
(30) day period provided for herein shall not, however, prevent the alleged
defaulting party from establishing that no default did in fact exist.
XV. GENERAL PROVISIONS
15.1 WAIVER. The waiver by either party of a breach or violation of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any subsequent breach hereof.
15.2 SEVERABILITY. Should any one or more sections of this Agreement be
found to be invalid, illegal, or unenforceable in any respect, the validity,
legality and enforceability of the remaining sections contained herein shall
not in any way be affected or impaired thereby. In addition, if any section
hereof is found to be partially enforceable, then it shall be enforced to that
extent.
15.3 NOTICES. Any and all notices required or permitted to be given under
this Agreement shall be sufficient if furnished in writing and personally
delivered or sent by registered or certified mail to the last known residence
address of Employee or to Corporation at its principal office at 13705
Shoreline Court East, Earth City, Missouri 63045 or such other place as it may
subsequently designate in writing.
15.4 GOVERNING LAW. This Agreement shall be interpreted, construed and
governed according to the laws of the State of Missouri.
15.5 SECTION HEADINGS. The section headings contained in this Agreement are
for convenience only and shall in no manner be construed to limit or define the
terms of this Agreement.
15.6 COUNTERPARTS. This Agreement shall be executed in two or more
counterparts, each of which shall be deemed an original and together they shall
constitute one and the same Agreement, with at least one counterpart being
delivered to each party hereto.
15.7 ASSIGNABILITY. Corporation shall have the right to assign this
Agreement to a third party which purchases substantially all of the then assets
of the business formerly operated by it.
15.8 SUCCESSORS AND ASSIGNS BOUND. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and
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their respective heirs, personal representatives, successors and assigns.
15.9 ENTIRE AGREEMENT. This is the entire and only Agreement between the
parties respecting the subject matter hereof. This Agreement may be modified
only by a written instrument executed by all parties hereto.
IN WITNESS WHEREOF, Corporation has caused this Agreement to be executed by
and its corporate seal to be affixed by its duly authorized officers, and
Employee has executed this Agreement as of the date first written above.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
YOUNG DENTAL MANUFACTURING COMPANY
By:/s/ George E. Richmond
--------------------------------
Name: George E. Richmond
---------------------------
Its: President
----------------------------
EMPLOYEE:
/s/ Richard C. Nemanick
-----------------------------------
RICHARD C. NEMANICK
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SCHEDULE 1
This constitutes Schedule 1 to the Employment and Noncompetition Agreement
between Young Dental Manufacturing Company, a Missouri corporation (the
"Corporation"), and Richard C. Nemanick ("Employee").
Compensation
Employee shall be entitled to minimum compensation during the term of this
Agreement of One Hundred Forty Thousand dollars ($140,000) annually, excluding
any bonus compensation. Eighty-five Thousand dollars ($85,000) of the
above-referenced amount shall be payable as salary, and Fifty-five Thousand
dollars ($55,000) shall be attributable to the noncompetition provisions of
this Agreement.
Employee shall be entitled to consideration for annual increases in
compensation, as determined by the Board of Directors of Corporation using the
Corporation's standard procedures and criteria in determining salary increases
for Senior Officers of Corporation.
<PAGE> 12
SCHEDULE 2
This constitutes Schedule 2 to the Employment and Noncompetition Agreement
between Young Dental Manufacturing Company, a Missouri corporation (the
"Corporation"), and Richard C. Nemanick ("Employee").
Fringe benefits of Employee shall include:
1. Company car. Comparable to what Employee has at the execution of this
Agreement.
2. Insurance: Health insurance coverage comparable to the Lorvic Corporation
coverage prior to the execution of this Agreement; provided that, if
Lorvic Corporation employees generally are covered by Corporation's health
plan, Employee will be entitled to participate in that plan.
3. Retirement Plans: Participation in all retirement plans generally
available to Senior Officers of Corporation.
4. Vacation. Employee shall be entitled to paid vacation time during each
year of this Agreement in accordance with the established policies of
Corporation, provided, however, that Employee shall be entitled to a
minimum of three (3) weeks of paid vacation annually. The time or times
(consecutive or separate) when such weeks of vacation are scheduled in
each year shall be determined to the mutual satisfaction of Employee and
Corporation.
5. Holidays. Employee shall also be entitled to the same paid holidays as
are available to other executive employees of Corporation.
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EXHIBIT 10.2
================================================================================
STOCK PURCHASE AGREEMENT
DATED AS OF MAY 4, 1995
by and among
YOUNG DENTAL MANUFACTURING COMPANY
and
CHEMICAL VENTURE CAPITAL ASSOCIATES, A CALIFORNIA
LIMITED PARTNERSHIP, P. JEFFREY LECK, JOHN F. KIRTLEY,
RICHARD C. NEMANICK, THE STOCKHOLDERS NAMED HEREIN
and
LORVIC HOLDINGS, INC.
================================================================================
<PAGE> 2
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
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<S> <C>
ARTICLE I
PURCHASE AND SALE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3. Payment of the Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4. Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5. Delivery of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.6. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II
THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Organization, Good Standing, Qualification and Power . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Authority, Enforceability, No Violation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e) Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(f) Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(g) Capital Structure of the Company, Title to Shares, Etc. . . . . . . . . . . . . . . . . . . . . . . . 9
(h) Agreements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(i) Litigation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(j) Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(k) Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(l) Labor Relations; Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(m) Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(n) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(o) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(p) Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(q) Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(r) Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(s) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(t) Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(u) Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(v) Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(w) No Additional Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2. Several Representations and Warranties of the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) Authority, Enforceability, No Violation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(c) FIRPTA Affidavit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(d) No Additional Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.3. Representations and Warranties of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Authority, Enforceability, No Violation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
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<TABLE>
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ARTICLE IV
CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.1. Conditions to Obligation of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(a) Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(c) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(d) No Litigation or Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(e) Officer Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(f) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(g) Stockholder Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(h) Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(i) Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(j) Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(k) Management Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(l) Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(m) Contingent Payment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(n) Stockholder Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(o) Opinion of Counsel to the Company and the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.2. Conditions to Obligation of the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Performance of Obligations of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(d) No Litigation or Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(e) Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(f) Escrow Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(g) Opinion of Counsel to the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(h) Officer Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE V
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.1. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.2. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.3. Limitation of Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.4. Exculpation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.5. Special Provisions Relating to Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Tax Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Tax Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VI
TREATMENT OF RECEIVABLES AND INVENTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.1. Special Provisions Relating to Closing Date Receivables and Inventory . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.1. Agreements Relating to Tax Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.2. Plan Expense Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.3. Interpretive Provisions; Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.4. No Additional Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.5. Action by Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.6. Appointment of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.7. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.8. Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.9. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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7.10. Descriptive Headings; Number and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.11. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.14. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.15. Benefits of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.16. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
iii
<PAGE> 5
EXHIBITS
- --------
A - List of Stockholders
B - Stockholder Expenses
C - Seller Escrow Agreement
D - Form of Contingent Payment Agreement
E - List of Documents
F - Form of Employment Agreement
G - List of Certain Officers of Company
H - List of Certain Officers of Purchaser
I - Opinion of Counsel for Stockholders
J - Opinion of Counsel for Purchasers
SCHEDULES
- ---------
3.1(b) - Authority and Enforceability
3.1(c) - Equity Investments
3.1(d) - Financial Statements
3.1(e) - Undisclosed Liabilities
3.1(f) - Changes
3.1(g) - Capital Structure
3.1(h) - Contracts, Agreements, and Purchase Orders
3.1(i) - Litigation and Claims
3.1(j) - Title to Assets
3.1(k) - Intellectual Property
3.1(l) - Employee Benefit Plans, Employees and Consultants
3.1(m) - Transactions with Affiliates
3.1(n) - Insurance Policies
3.1(o) - Taxes
3.1(p) - Environmental Matters
3.1(q) - Product Liability
3.1(t) - Bank Accounts
3.1(v) - Compliance with Laws
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT dated as of May 4, 1995, by and among YOUNG DENTAL
MANUFACTURING COMPANY, a Missouri corporation (the "Purchaser") and CHEMICAL
VENTURE CAPITAL ASSOCIATES, A California Limited Partnership ("CVCA"), P.
JEFFREY LECK ("LECK"), JOHN F. KIRTLEY ("KIRTLEY"), RICHARD C. NEMANICK
("NEMANICK"), the stockholders executing a signature page hereto (each, a
"Stockholder" and together with CVCA, LECK, KIRTLEY and NEMANICK, the
"Stockholders"), and LORVIC HOLDINGS, INC., a Delaware corporation (the
"Company").
The Company owns all of the issued and outstanding capital stock of The
Lorvic Corporation ("Lorvic"), a corporation organized under the laws of the
State of Delaware. The Stockholders are the sole stockholders of the Company,
with each Stockholder owning that number of shares of the Class A Common Stock,
par value $.01 per share (the "Class A Common Stock") or Class B Common Stock,
par value $.01 per share (the "Class B Common Stock") (collectively, the
"Common Stock"), of the Company as is set forth opposite each such
Stockholder's name on Exhibit A attached hereto. The shares of Common Stock
owned by the Stockholders, being all of the issued and outstanding shares of
capital stock of the Company, are collectively referred to herein as the
"Shares". The Stockholders desire to sell to the Purchaser, and the Purchaser
desires to purchase from the Stockholders, all of the Shares, on the terms and
subject to the conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
representations hereinafter set forth, the parties hereto hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1. TRANSFER OF SHARES. On the terms and subject to the conditions of
this Agreement, at the Closing, the Stockholders shall sell, transfer, convey
and assign to the Purchaser, and the Purchaser shall purchase and acquire from
the Stockholders, all of the Shares, free and clear of all Encumbrances. As
used herein, the term "Encumbrances" shall mean and include security interests,
mortgages, liens, pledges, charges, easements, reservations, restrictions,
rights of way, options, rights of first refusal and all other encumbrances,
whether or not relating to the extension of credit or the borrowing of money.
1.2. PURCHASE PRICE. The aggregate purchase price (the "Purchase
Price") to be paid by the Purchaser to the Stockholders for the Shares shall be
(i) $13,000,000 plus (ii) the amount of all cash or cash equivalents of the
Company in excess of $300,000 (the "Excess Cash") determined as of the day
prior to the Closing Date (the "Valuation Date"), plus or minus (iii) any
Purchase Price Adjustment made pursuant to Section 1.4 hereof, plus (iv) the
Contingent Payment (defined hereafter), if any, to Nemanick. For purposes of
this Agreement, the term "Contingent Payment" shall refer to any payments to
which Nemanick may be entitled
<PAGE> 7
pursuant to the Contingent Payment Agreement of even date herewith between
Purchaser and Nemanick.
1.3. PAYMENT OF THE PURCHASE PRICE. On the Closing Date (defined
hereafter) the Purchaser shall pay or cause the Company or an affiliate of the
Company simultaneously with the Closing to pay the Purchase Price by wire
transfer of immediately available funds as follows:
(a) to the Stockholders, (i) the sum of $11,150,000 plus the Excess
Cash (such Excess Cash (the "Estimated Excess Cash Amount") to be equal to
Lorvic's best estimate, made with participation by representatives of
Purchaser, of the Excess Cash as of the close of business on the Valuation
Date) of the Company minus (ii) the Stockholder Expenses (as defined below)
such sum to be referred to as the "Initial Payment"), in the amounts and to the
accounts designated by such Stockholders and set forth on Exhibit A hereto;
(b) to the parties and in the amounts listed on Exhibit B hereto as
payment for the expenses incurred by the Stockholders in connection with the
transactions contemplated by this Agreement (the "Stockholder Expenses");
(c) to Boatmen's Trust Company ("Boatmen's"), as escrow agent (the
"Seller Escrow Agent") pursuant to the terms of the Seller Escrow Agreement,
dated as of the Closing Date among the Purchaser, the Stockholders and the
Escrow Agent, substantially in the form of Exhibit C hereto (the "Seller Escrow
Agreement"), the sum of $1,850,000 (the "Seller Escrow Fund");
(d) to Boatmen's as Contingent Payment Agent (the "Contingent Payment
Agent") pursuant to the terms of the Contingent Payment Agreement dated as of
the Closing Date among the Purchaser, Nemanick and the Contingent Payment
Agent, substantially in the form of Exhibit D hereto (the "Contingent Payment
Agreement"), the sum of $500,000 (the "Contingent Payment Fund"); and
(e) the Seller Escrow Fund shall be divided into three accounts as
follows: (i) $100,000 thereof shall be held in an account (the "Purchase Price
Adjustment Escrow Account") to be utilized to fund the Purchase Price
Adjustment as described in Section 1.4 hereof; (ii) $700,000 shall be held in
an account (the "Tax Claim Escrow Account") to provide indemnification to
Purchaser against the Tax Claim (as defined below) as provided in Article V
hereof; and (iii) $1,050,000 thereof shall be held in an account (the "General
Escrow Account", and together with the Purchase Price Adjustment Escrow Account
and the Tax Claim Escrow Account, the "Escrow Accounts") to provide
indemnification to Purchaser as provided in Article V hereof.
1.4. PURCHASE PRICE ADJUSTMENT. (a) Within 60 days after the Closing
Date, the Purchaser shall prepare and deliver to the Stockholders, (i) a
balance sheet of the Company as of the close of business on the Valuation Date
(the "Closing Balance Sheet")
2
<PAGE> 8
and (ii) the Purchaser's calculation of the Net Working Capital and the Excess
Cash of the Company on the Valuation Date. As used herein, the term "Net
Working Capital" means the current assets of the Company minus current
liabilities (excluding in such calculation the Excluded Amounts (as defined
below)) of the Company in each case determined as of the close of business on
the Valuation Date, in accordance with the Closing Balance Sheet. The Closing
Balance Sheet shall be prepared in accordance with GAAP (as hereinafter
defined) applied in a manner consistent with the same accounting principles and
methodologies used in preparing the December Balance Sheet (as hereinafter
defined); provided, however, that if any of the accounting principles and
methodologies used in preparing the December Balance Sheet were not in
accordance with GAAP, such principles and methodologies will not be used, and
GAAP will govern. For purposes of this Agreement, "Excluded Amounts" means (i)
cash and cash equivalents in excess of an amount equal to $300,000; (ii) the
amount of any claim or claims for refund of Federal or State income taxes
arising from tax returns filed or to be filed with respect to periods ending on
or prior to the Closing Date and resulting from any loss or deduction generated
by the Company or Lorvic in connection with the option granted to Nemanick
pursuant to the Stock Option Agreement dated as of December 28, 1989 (the
"Nemanick Option") and/or the bonus paid to Nemanick (the "Nemanick Bonus") on
May 2, 1995 (any such refunds to be referred to herein as the "Tax Refunds");
(iii) the current portion of any indebtedness required to be repaid pursuant to
Section 1.4(h) hereof; (iv) amounts accrued (if any) to reflect the Tax Claim
(as defined in Section 5.5 hereof); and (v) amounts accrued (if any) to reflect
the Plan Expenses (as defined in Section 7.01 hereof). Cash and cash
equivalents in excess of $300,000 shall be included as a separate line item on
the Closing Balance Sheet (the "Final Excess Cash Amount"). The Purchaser
shall provide the Stockholders and their accountants with timely access, during
the Company's normal business hours, to the Company's personnel, properties,
books and records. The costs and expenses of preparing the Closing Balance
Sheet will be borne by the Stockholders.
(b) During the 30 days immediately following receipt of the Closing
Balance Sheet by the Stockholders, the Stockholders and their accountants shall
be entitled to review the Closing Balance Sheet and any working papers, trial
balances and similar materials relating to the Closing Balance Sheet prepared
by the Purchaser or its accountants, and the Purchaser shall provide the
Stockholders and their accountants with timely access, during the Company's
normal business hours, to the Company's personnel, properties, books and
records. The Closing Balance Sheet shall become final and binding upon the
parties on the thirty-first day following delivery thereof unless the
Stockholders give written notice to the Purchaser of their disagreement with
the Closing Balance Sheet (a "Notice of Disagreement") prior to such date. Any
Notice of Disagreement shall specify in reasonable detail the nature of any
disagreement so asserted. If a timely Notice of Disagreement is received by
the Purchasers with respect to the Closing Balance Sheet, then
3
<PAGE> 9
the Closing Balance Sheet (as revised in accordance with clause (x) or (y)
below), shall become final and binding upon the parties on the earlier of (x)
the date the parties hereto resolve in writing any differences they have with
respect to any matter specified in a Notice of Disagreement or (y) the date any
matters in dispute are finally resolved in writing by the Accounting Firm (as
defined below) (the date on which the Closing Balance Sheet so becomes final
and binding being hereinafter referred to as the "Final Determination Date").
During the 30 days immediately following the delivery of any Notice of
Disagreement, the Purchaser and the Stockholders shall seek in good faith to
resolve in writing any differences which they may have with respect to any
matter specified in such Notice of Disagreement. During such period, the
Purchaser and the Stockholders shall each have access to the other party's
working papers, trial balances and similar materials prepared in connection
with the other party's preparation of the Closing Balance Sheet and the Notice
of Disagreement, as the case may be. At the end of such 30-day period, the
Stockholders and the Purchaser shall submit to an independent "Big 6" public
accounting firm (the "Accounting Firm") for review and resolution any and all
matters which remain in dispute and which were included in any Notice of
Disagreement, and the Accounting Firm shall reach a final, binding resolution
of all matters which remain in dispute, which final resolution shall be (A) in
writing, (B) furnished to the Purchaser and the Stockholders as soon as
practicable after the items in dispute have been referred to the Accounting
Firm, (C) made in accordance with this Agreement and (D) conclusive and binding
upon the Purchaser and the Stockholders. The Closing Balance Sheet, with any
adjustments necessary to reflect the Accounting Firm's resolution of the
matters in dispute, shall become final and binding on the Purchaser and the
Stockholders on the date the Accounting Firm delivers its final resolution to
the parties.
The Accounting Firm shall be Coopers & Lybrand LLP, or if such firm is
unable or unwilling to act, such other independent Big 6 public accounting firm
as shall be agreed upon by the parties hereto in writing or, if the Purchaser
and the Stockholders cannot so agree within the 30-calendar day period referred
to above, by lot from among the remaining independent Big 6 public accounting
firms willing to act. Each party shall pay its own costs and expenses incurred
in connection with such dispute resolution, provided that the fees and expenses
of the Accounting Firm shall be borne 50% by the Purchaser and 50% by the
Stockholders, pro rata based on such Stockholders' percentage ownership of the
Company on the Closing Date.
(c) Upon the final determination of the Closing Balance Sheet in
accordance with this Section 1.4, the following amounts will be payable in
accordance with Section 1.4(f) and the Escrow Agreement:
(i) if (w) Net Working Capital plus (x) the amount (if any) by
which the Final Excess Cash Amount exceeds the Estimated Excess Cash Amount and
less (y) the amount (if any) by which the Final Excess Cash Amount is less than
the Estimated
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<PAGE> 10
Excess Cash Amount, and less (z) any additional adjustment pursuant to Section
1.4(d) (such sum being referred to as the "Adjustment Base") is equal to or
greater than $1,418,928 (such sum being referred to as the "Target Amount"),
the Escrow Agent shall distribute the Purchase Price Adjustment Escrow Account
to the Stockholders, and Purchaser shall pay to the Stockholders the amount, if
any, by which the Adjustment Base exceeds the Target Amount, in each case pro
rata in proportion to each Stockholder's percentage interest (each a
"Percentage Interest" and collectively, the "Percentage Interests") as set
forth on Exhibit A hereto; and
(ii) if the Adjustment Base is less than the Target Amount, the
Escrow Agent shall distribute to the Purchaser from the Purchase Price
Adjustment Escrow Account the amount by which the Adjustment Base is less than
the Target Amount (the "Target Differential") and shall distribute the balance
of the Purchase Price Adjustment Escrow Account to the Stockholders in
proportion to their Percentage Interests; provided that, if the Target
Differential exceeds $100,000, the entire Purchase Price Adjustment Escrow
Account shall be distributed to Purchaser and the Escrow Agent shall distribute
to Purchaser from the General Escrow Account the amount by which the Target
Differential exceeds $100,000.
Any required adjustment to the purchase price pursuant to this Section 1.4
shall be referred to as the "Purchase Price Adjustment".
(d) If within 30 days of the Closing Date, the Purchaser shall
reasonably determine that any fixed asset (other than any molds used or to be
used in connection with the current or future production of the EZ-ON product
line) having a book value in excess of $5,000, included in the category
"Property Plant and Equipment" on the December Balance Sheet is determined to
be unnecessary for the operation of the Company's business as conducted on the
Closing Date or in a condition that renders such asset unusable as of the
Closing Date, then the Purchase Price shall be adjusted downward by the book
value of such asset, and in the event of such adjustment the Purchaser shall
cause the Company or Lorvic, as the case may be, to transfer title to such
asset to the Stockholders or as the Stockholders may direct.
(e) The Purchaser agrees, solely with respect to the calculation of
Purchase Price Adjustments, and without restricting in any manner whatsoever
the Purchaser's right to take any such action that would not affect such
calculation, that following the Closing, the Purchaser will not take any
actions with respect to the accounting books, records, policies and procedures
of the Company on which the Closing Balance Sheet is to be based that are not
consistent with GAAP applied in the manner consistent with the past practices
of the Company.
(f) Within thirty-three (33) days after the receipt by the
Stockholders of the Closing Balance Sheet in accordance with Section 1.4(a)
hereof, the Stockholders and Purchaser shall jointly instruct the Escrow Agent
to make the disbursements of
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Escrow Funds required by Section 1.4(c) hereof with respect to any undisputed
amounts constituting Purchase Price Adjustments. With respect to any items
that are the subject of a Notice of Disagreement, joint disbursement
instructions shall be given to the Escrow Agent within three (3) business days
after the Final Determination Date.
1.5. DELIVERY OF SHARES. At the Closing, in consideration of the
Purchaser's delivery of the Purchase Price pursuant to Section 1.3 hereof, (a)
the Stockholders shall each deliver to the Company a certificate or
certificates representing the Shares owned by such Stockholder as set forth on
Exhibit A, duly endorsed in blank for transfer or accompanied by stock powers
duly executed in blank, sufficient in form and substance to convey to the
Purchaser good title to all of the Shares owned by such Stockholder, free and
clear of all Encumbrances and (b) the Company shall deliver to the Purchaser a
certificate registered in the name of the Purchaser, representing all of the
Shares.
1.6. FURTHER ASSURANCES. Each Stockholder shall, at any time after the
Closing, upon the reasonable request of the Purchaser, do, execute, acknowledge
and deliver, and cause to be done, executed, acknowledged and delivered, all
such further acts, deeds, assignments, transfers, conveyances, powers of
attorney or assurances as may be reasonably required to transfer, convey, grant
and confirm to and vest in the Purchaser good title to all of the Shares owned
by such Stockholder, free and clear of all Encumbrances.
ARTICLE II
THE CLOSING
The closing (the "Closing") of the transactions contemplated by this
Agreement shall take place at the offices of Armstrong, Teasdale, Schlafly &
Davis, counsel for the Purchasers simultaneously with the execution and
delivery of this Agreement on May 4, 1995, or such other date as shall be
mutually agreeable to the parties hereto (the "Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser as follows:
(A) ORGANIZATION, GOOD STANDING, QUALIFICATION AND POWER. Each of the
Company and Lorvic is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted. The Company
has delivered to the Purchaser correct and complete copies of each of
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<PAGE> 12
the Company's and Lorvic's Charter and By-Laws (as hereinafter defined), in
each case as in effect on the date hereof. Each of the Company and Lorvic are
duly qualified and in good standing to do business in each jurisdiction in
which such qualification is necessary because of the nature of the business
conducted by it, except where the failure to be so qualified would not have a
material adverse effect on the business, financial condition or results of
operations of the Company and Lorvic taken as a whole (a "Material Adverse
Effect"). As used in this Agreement, (i) the terms "Charter" and "By-Laws"
respectively mean, with respect to any corporation, those instruments that,
among other things, (A) define its existence, as filed or recorded with the
applicable Governmental Authority (as hereinafter defined), including, without
limitation, such corporation's Articles or Certificate of Incorporation,
Organization or Association and (B) otherwise govern its internal affairs, in
each case as amended, supplemented, or restated and (ii) the term "Governmental
Authority" means any federal, state, local or regional government, authority,
instrumentality, department commission, board, bureau, agency or court.
(B) AUTHORITY, ENFORCEABILITY, NO VIOLATION, ETC. The Company has all
requisite corporate power and authority to execute and deliver this Agreement,
and the other agreements, instruments, certificates and other documents
contemplated hereby which are listed on Exhibit E (each a "Document" and,
collectively, the "Documents") to which it is a party, to perform its
obligations under each such Document, and to consummate the transactions
contemplated by each such Document. The execution, delivery and performance by
the Company of each Document to which it is a party and the consummation of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action on the part of the Company. Each Document to which
the Company is a party is, or upon its execution and delivery will be, a valid
and binding obligation of the Company, enforceable against it in accordance
with the terms thereof. Except as set forth on Schedule 3.1(b), neither the
execution, delivery or performance by the Company of any Document to which it
is a party, nor the consummation by the Company of the transactions
contemplated thereby, nor compliance by the Company with any of the provisions
thereof will (i) conflict with or result in a breach of any provision of the
Company's or Lorvic's Charter or By-Laws, (ii) violate any law, statute, rule
or regulation or judgment, order, writ, injunction or decree of any
Governmental Authority, in each case applicable to the Company, Lorvic or the
Shares or (iii) conflict with or result in a breach of any provision of any
Contract to which the Company or Lorvic is a party or by which any of the
Shares may be bound. Except as set forth on Schedule 3.1(b), no filing with,
and no permit, authorization, consent or approval of, any individual,
corporation, association, partnership, joint venture or other entity,
organization or Governmental Authority (collectively, a "Person") is necessary
for the consummation by the Company of the transactions contemplated by the
Documents. For purposes of making the representation set forth in clause (ii)
above and the immediately preceding sentence, the Company has assumed and, with
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<PAGE> 13
the Purchaser's permission, relied on the representation made by the Purchaser
in Section 3.3(a) hereof that the total assets and annual net sales of the
ultimate parent entity, if any, of the Purchaser are less than $100,000,000.
The total assets and annual net sales of the ultimate parent entity, if any, of
the Company are less than $100,000,000.
(c) EQUITY INVESTMENTS. Except as set forth on Schedule 3.1(c), the
Company does not have any subsidiaries and does not, directly or indirectly,
own or have the right to acquire any capital stock of or other proprietary
interest in any Person.
(d) FINANCIAL INFORMATION. Schedule 3.1(d) contains complete and
accurate copies of (i) the unaudited consolidated balance sheet of the Company
as of December 31, 1994 (the "December Balance Sheet"), and the related
statements of operations and statements of cash flows for the periods then
ended, as prepared by the Company, and (ii) the audited consolidated balance
sheet of the Company as of March 31, 1994 (the "Audited Balance Sheet"), and
the related statements of operations and statements of cash flows for the year
then ended, together with the report thereon of Ernst & Young, independent
certified public accountants. The financial statements described in the
foregoing clauses (i) and (ii) are collectively referred to as the "Financial
Statements". Except as set forth on Schedule 3.1(d), the Financial Statements
(A) were prepared in accordance with the books and records of the Company, (B)
fairly present in all material respects the financial condition of the Company
at and as of the dates indicated thereon and the results of operations of the
Company for the periods indicated thereon, and (C) have been prepared in
accordance with United States generally accepted accounting principles ("GAAP")
consistently applied throughout the periods indicated, subject, in the case of
unaudited financial statements, to normal year-end adjustments and the lack of
footnotes and other presentation items.
(e) ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any
liabilities (known or unknown, matured or unmatured, fixed or contingent) that
were not disclosed or reflected on the December Balance Sheet, except (i)
liabilities incurred in the ordinary course of business since the date of the
December Balance Sheet, (ii) liabilities pursuant to contracts, agreements and
instruments (which contracts, agreements and instruments are disclosed pursuant
to Section 3.1(h) to the extent they are required to be disclosed thereby),
(iii) liabilities disclosed on the Schedules to this Agreement, and (iv)
liabilities (A) of which the Company does not have knowledge and (B) which
would not result in a "Material Adverse Effect". For purposes of this Section
3.1(e), a liability will be deemed to result in a "Material Adverse Effect" if
such liability will result in a Loss (as defined in Section 5.2 hereof) to the
Company or Lorvic in an amount equal to or greater than $100,000.
(f) ABSENCE OF CHANGES. Except as set forth on Schedule 3.1 (f),
since the date of the December Balance Sheet,
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<PAGE> 14
(i) the Company has been operated in the ordinary and normal course of
business, consistent with past practice, (ii) has not suffered any damage,
destruction or casualty loss to any of its assets not covered by insurance,
having a replacement cost or fair market value in excess of $10,000 and (iii)
no fact, condition or event has occurred or existed, or presently exists, which
has had or is reasonably expected to have a Material Adverse Effect.
(g) CAPITAL STRUCTURE OF THE COMPANY, TITLE TO SHARES, ETC. (i) The
authorized capital stock of the Company consists of (A) 60,000 shares of Class
A Common Stock and 10,000 shares of Class B Common Stock, of which 20,745.85
and 4,254.15 shares, respectively, are validly issued and outstanding, fully
paid and nonassessable, and are held of record by the Stockholders listed on
Schedule 3.1(g) hereto, and (B) 30,000 shares of 10% Cumulative Preferred
Stock, par value $1.00 per share (the "Preferred Stock"), of which 16,110
shares were issued and subsequently redeemed and may not be reissued by the
Company. No shares of Common Stock or Preferred Stock are held by the Company
in its treasury. Except for the Shares and as set forth on Schedule 3.1(g)
hereto, there are no outstanding options, warrants, rights (including, without
limitation, phantom stock or stock appreciation rights), calls, agreements,
convertible securities or other commitments or rights to purchase or acquire
any unissued stock or other securities from the Company, and no other
securities of the Company are reserved for any purpose. Except as set forth on
Schedule 3.1(g), there are no material contracts, commitments, agreements,
understandings, arrangements or restrictions to which the Company is a party
which relate to the Shares.
(ii) The authorized capital stock of Lorvic consists of 1,000
shares of common stock, par value $.01 per share, of which 100 shares are
validly issued and outstanding, fully paid and nonassessable, and are held of
record and beneficially by the Company (the "Subsidiary Shares"). There are no
outstanding options, warrants, rights (including, without limitation, phantom
stock or stock appreciation rights), calls, agreements, convertible securities
or other commitments or rights to purchase or acquire any unissued stock or
other securities from Lorvic and no securities of Lorvic are reserved for any
purpose. There are no contracts, commitments, agreements, understandings,
arrangements or restrictions to which the Company or Lorvic is a party which
relate to the Subsidiary Shares.
(h) AGREEMENTS, ETC. Schedule 3.1(h) sets forth an accurate and
complete list of each contract or agreement (each a "Contract" and
collectively, the "Contracts"), whether written or oral (including any and all
amendments thereto) to which the Company or Lorvic is a party, by which the
Company or Lorvic is bound, and which (i) relates to the borrowing of money or
the guaranty of any obligation to borrow money or is a Guaranty, letter of
credit, pledge, bond or similar arrangement running to the account of or for
the benefit of the Company or Lorvic, other than endorsements of negotiable
instruments in the ordinary
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<PAGE> 15
course; (ii) relates to the purchase, maintenance or acquisition, or sale or
furnishing of materials, supplies, merchandise, machinery, equipment, parts or
any other property or services (excluding any such contract made in the
ordinary course of the Company's or Lorvic's business and which involves
revenues or expenditures of less than $10,000); (iii) is a collective
bargaining agreement; (iv) obligates the Company or Lorvic not to compete with
any business, or to conduct any business with only certain parties, or which
otherwise restrains or prevents the Company or Lorvic from carrying on any
lawful business (excluding customary restrictive covenants contained in
agreements identified pursuant to clause (i) above); (v) relates to employment,
compensation, severance, or consulting between the Company or Lorvic and any of
their respective officers, directors, employees or consultants who are entitled
to compensation thereunder in excess of $25,000 per annum; (vi) is a lease or
sublease of real property, or a lease, sublease or other title retention
agreement or conditional sales agreement involving payments aggregating in
excess of $25,000 for any machinery, equipment, vehicle or other tangible
personal property (whether the Company or Lorvic is a lessor or lessee); (vii)
is a contract for capital expenditures or the acquisition or construction of
fixed assets for or in respect of any real property; (viii) is a contract
granting any Person a lien on any of the assets of the Company or Lorvic, in
whole or in part (other than liens arising in the ordinary course pursuant to
Article 2 of the Uniform Commercial Code or Permitted Encumbrances); (ix) is a
contract by which the Company or Lorvic retains any manufacturer's
representatives, broker or other sales agent, distributor or representative, or
advertising or marketing entity or through which the Company or Lorvic is
appointed or authorized as a sales agent, distributor or representative, in
each case involving aggregate annual revenues or expenditures in excess of
$5,000 (x) is a contract under which the Company or Lorvic has granted or
received a license or sublicense or under which is obligated to pay or has the
right to receive a royalty, license fee or similar payment (other than software
licenses for purchased software); (xi) is a joint venture or partnership
contract; (xii) is a contract for storage, transportation or similar services
with carriers or warehousemen (excluding any such contract entered into in the
ordinary course and involving aggregate annual expenditures not exceeding
$25,000); or (xiii) other than the insurance policies and binders set forth in
Section 3.1(n), is material to the assets, business, operations or financial
condition of the Company and Lorvic taken as a whole. Except as set forth on
Schedule 3.1(h), (A) all of the Contracts are enforceable in all material
respects by the Company or Lorvic, as the case may be, in accordance with their
terms except to the extent that such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally and (B) the Company or Lorvic, as the
case may be, is not in breach or default under (and no event has occurred which
with notice or the passage of time or both would constitute a breach or default
under) any Contracts listed on Schedule 3.1(h).
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(i) LITIGATION, ETC. Except as set forth on Schedule 3.1(i) hereto,
there are no actions, suits or claims, or legal, administrative or arbitration
proceedings filed or to the Company's knowledge threatened against the Company
or Lorvic, whether at law or in equity, whether civil or criminal in nature or
whether before or by any Governmental Authority. Except as set forth on
Schedule 3.1(i) hereto, to the Company's knowledge there are no investigations
pending or threatened against the Company or Lorvic. There are no material
judgments, decrees, injunctions or orders of any Governmental Authority naming
the Company or Lorvic.
(j) TITLE TO ASSETS. (i) Except as set forth on Schedule 3.1(j), the
Company and Lorvic have good (and, in the case of real property, marketable)
title to all of the assets and properties reflected on the December Balance
Sheet or acquired subsequent thereto (except for assets and properties sold,
consumed or otherwise disposed of in the ordinary course of business since the
date of the December Balance Sheet), free and clear of all Encumbrances, except
(a) Encumbrances set forth on Schedule 3.1(j); (b) liens for taxes not yet due
and payable or being contested in good faith by appropriate proceedings; (c)
easements, covenants, conditions and restrictions of record; (d) any zoning or
other governmentally established restrictions or encumbrances; (e) workers' or
unemployment compensation liens arising in the ordinary course of business; (f)
mechanic's, materialman's, supplier's, vendor's or similar liens arising in the
ordinary course of business securing amounts which are not delinquent; (g)
railroad trackage agreements, utility, slope and drainage easements,
right-of-way easements and leases regarding signs; and (h) leases disclosed on
Schedule 3.1(j) or relating to any personal property the value of which does
not exceed $10,000; (i) other imperfections of title, easements, covenants,
conditions, restrictions or Encumbrances, which would not be reasonably likely,
individually or in the aggregate, to result in a Material Adverse Effect; (the
matters set forth in the foregoing clauses (a) through (i) being referred to
herein as the "Permitted Encumbrances"). All of the real property owned by the
Company and Lorvic ("Owned Property") is described on Schedule 3.1(j). The
Owned Property constitutes all real properties used or occupied by the Company
and Lorvic in connection with their businesses reflected on the Financial
Statements and the Company's and Lorvic's rights in and title to the Owned
Property are sufficient to permit the conduct of the Company's and Lorvic's
business as currently conducted.
(ii) With respect to the Owned Property, except as reflected on
Schedule 3.1(j), no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority of which the
Company has received written notice and, to the Company's knowledge, there is
no threatened condemnation or proceeding with respect thereto; the physical
condition of the Owned Property is sufficient for the conduct of the business
of the Company and Lorvic as presently conducted subject to the provision of
usual and customary maintenance and repair performed in the ordinary course
with
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respect to similar properties of like age and construction; and there are no
leases, subleases, licenses, concessions or other agreements, written or oral,
granting to any party or parties the right of use or occupancy of any portion
of the parcels of the Owned Property which are not disclosed on Schedule
3.1(j).
(k) INTELLECTUAL PROPERTY. Schedule 3.1(k) sets forth an accurate and
complete list of all material patents, pending patent applications, trademarks,
service marks, and trade names, pending trademark, service mark, and trade name
applications licensed to, applied for or registered in the name of, the Company
or Lorvic, or in which the Company or Lorvic has any rights; all copyright
registrations or pending applications for registration of the Company or
Lorvic, or in which the Company or Lorvic has any rights; including the nature
(e.g., patent, trademark, etc.) of the intellectual property, the application
or registration number, the jurisdiction, and the record owner (the "Listed
Intellectual Property"). Except as set forth on Schedule 3.1(k), with respect
to the Listed Intellectual Property, no registration relating thereto has
lapsed, expired or been abandoned or cancelled or to the Company's knowledge is
the subject of any reexamination, reissue, opposition, or cancellation
proceeding, or litigation. The Company and Lorvic own or possess adequate and
enforceable licenses (free of Encumbrances other than Permitted Encumbrances)
to use all Listed Intellectual Property and any other material intellectual
property rights (including, without limitation, drawings, trade secrets,
know-how and confidential information) currently used by the Company and
Lorvic, or necessary to permit the Company and Lorvic to conduct their
businesses as now conducted without restriction and without further obligation
to any person except as set forth in any Intellectual Property Licenses or any
Contract (the Listed Intellectual Property and the other intellectual property
rights hereinafter collectively called the "Intellectual Property"). Schedule
3.1(k) sets forth all licenses to which the Company is a party relating to the
Intellectual Property (the "Intellectual Property Licenses"). The Company and
Lorvic are in compliance with all Intellectual Property Licenses and to the
Company's knowledge there are no current grounds for termination or
cancellation of any such licenses, including the transaction contemplated by
this Agreement. Except as set forth on Schedule 3.1(k), neither the Company
nor Lorvic has received notice of a charge of infringement or misappropriation,
or in any material respect, infringed on or misappropriated and is not now, in
any material respect, infringing on or misappropriating any intellectual
property rights belonging to any Person based on the operations of the Company
and Lorvic within the last three years, and no claim has been made, is pending
or, to the knowledge of the Company, threatened to the effect that any
Intellectual Property is invalid or unenforceable or that the Company or Lorvic
has breached any Intellectual Property License, or that any Intellectual
Property License is terminable or cancelable. To the Company's knowledge,
except as set forth on Schedule 3.1(k), no Person is infringing upon or
violating any of the Listed Intellectual Property in any material respect.
Except as set
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forth on Schedule 3.1(k), no contract or agreement between the Company or
Lorvic with any party exists, and no Encumbrances other than Permitted
Encumbrances exist, which in either case would materially impede or prevent the
continued use by the Company or Lorvic of the entire right, title and interest
of the Company or Lorvic in and to any of the Intellectual Property of the
Company or Lorvic.
(l) LABOR RELATIONS; BENEFIT PLANS. Except as set forth on Schedule
3.1(l): (i) The Company and Lorvic are not a party to, nor bound by, any
collective bargaining agreements covering their employees. Each of the Company
and Lorvic is in material compliance with all material federal, state and local
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours, and to the knowledge of the
Company there is no material labor strike, dispute, slowdown, stoppage or
organizational effort actually pending against or involving the Company or
Lorvic.
(ii) For purposes of this Subsection 3.1(l)(ii) and Subsections
3.1(l)(iii) through (xii), the following terms have these meanings:
(aa) "Qualified Pension Plan" means a plan or arrangement
described in Section 3(2) of Title I of ERISA which is qualified under Code
Section 401(a).
(bb) "Employee Welfare Benefit Plan" means a plan or
arrangement described in Section 3(1) of ERISA.
(cc) "Non-Qualified Pension Plan" means a plan or
arrangement described in Section 3(2) of ERISA which is not qualified under
Code Section 401(a).
(dd) "Non ERISA Plan" means any plan, policy, program,
arrangement or agreement, whether written or terminated; other than a
Qualified Pension, Employee Welfare Benefit or Non-Qualified Pension Plan;
including, but not limited to, any bonus or incentive plan, severance
arrangement or plan, material fringe benefit arrangement or plan, personnel
policy, vacation time, holiday pay, tool allowance, safety equipment
allowance, sick leave, stock options, restricted stock, stock bonus,
deferred bonus plan, salary reduction agreements, change-of-control
agreements, employment agreements and consulting agreements with former
employees, whether direct or indirect, which could result in the Company
and/or Lorvic having any liability.
(ee) "Welfare Plans" means, collectively, the Employee
Welfare Benefit Plans listed on Schedule 3.1(l).
(ff) "Pension Plans" means, collectively, the Qualified
Pension Plans listed on Schedule 3.1(l).
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(gg) "Scheduled Plans" means, collectively, the
Non-Qualified Pension Plans and Non ERISA Plans listed on Schedule 3.1(l).
(hh) "Code" means the Internal Revenue Code of 1986, as
amended.
(ii) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(jj) "ERISA Affiliate" means any corporation or Person which
has ever been: (i) a member of the same controlled group (within the
meaning of Code Section 414(b) or Section 4001 of Title IV of ERISA) as the
Company and/or Lorvic, (ii) under common control (within the meaning of
Code Section 414(c)) with the Company and/or Lorvic, (iii) a member of an
affiliated service group (within the meaning of Code Section 414(m) with
the Company and/or Lorvic, or (iv) required to be aggregated with the
Company and/or Lorvic pursuant to Code Section 414(o) or regulations
promulgated thereunder.
(kk) "Person" means any corporation, individual, partnership,
joint venture, trust, unincorporated organization, government or any
department or agency thereof.
(ll) "Multiemployer Plan" means a plan as defined in Section
3(37) of Title I of ERISA or Section 4001(a)(3) of Title IV of ERISA or
Code Section 414(f).
(iii) With respect to all current and former employees and
current and former independent contractors of the Company and/or Lorvic, and
the beneficiaries and dependents of such individuals, the Company and/or Lorvic
does or do not currently and has or have never maintained, contributed to,
obligated itself or themselves to contribute to or to pay any benefits or grant
rights under or with respect thereto under any (aa) Non-Qualified Pension Plan;
(bb) Qualified Pension Plan; (cc) funded or unfunded medical, health or life
insurance plan or arrangement for present or future retirees or present or
future terminated employees, their spouses and dependents, which is an Employee
Welfare Benefit Plan (other than limited continued medical benefit coverage for
former employees, their spouses and other dependents as required to be provided
under Sections 601 through 608 of Title I of ERISA and Code Section 4980B);
(dd) Non ERISA Plan; or (ee) Employee Welfare Benefit Plan. None of the
Pension Plans is or has been subject to Part 3 of Subtitle B of Title I of
ERISA, Code Section 412 and/or Title IV of ERISA or is or has been a
Multiemployer Plan. The transactions contemplated by this Agreement will not
cause any Pension Plan to become a Multiemployer Plan nor cause the Company
and/or Lorvic, on or after Closing, to adopt a Multiemployer Plan. None of the
Welfare Plans is or has been a "Multiple Employer Welfare Arrangement" as
defined in Section 3(40)(A) of Title I of ERISA.
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(iv) No material liability has been incurred and is outstanding
with respect to any Multiemployer Plan as a result of the complete or partial
withdrawal by the Company and/or Lorvic or any ERISA Affiliate from such
Multiemployer Plan under Title IV of ERISA, nor has the Company, Lorvic or any
ERISA Affiliate been notified of any reorganization or insolvency under and
within the meaning of Sections 4241 or 4245 of Title IV of ERISA or that such
Multiemployer Plan intends to terminate or has terminated under Section 4041A
of Title IV of ERISA. Neither the Company, Lorvic nor any ERISA Affiliate has
received notice to the effect that any Multiemployer Plan has any unfunded
vested benefits within the meaning of Section 4213(c) of ERISA. The
transactions contemplated by this Agreement shall not cause the Company, Lorvic
or any ERISA Affiliate to be subject to any material liability with respect to
a Multiemployer Plan.
(v) The Pension Plans comply in all respects with the applicable
requirements of ERISA, meet the requirements of "qualified plans" under Code
Section 401(a) and each such Plan has received a favorable determination letter
from the Internal Revenue Service to this effect. The Pension Plans have been
or will be timely amended and filed with the Internal Revenue Service with
respect to changes required by the Tax Reform Act of 1986, as amended, and are
being and have been administered in compliance with the Tax Reform Act of 1986,
as amended. The Welfare Plans and Non-Qualified Pension Plans listed on
Schedule 3.1(l) and related trusts, insurance contracts or other funding
arrangements, if any, comply in form and in operation with the requirements of
ERISA and the Code. All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports and Summary Plan Descriptions) have been
appropriately filed or distributed with respect to the Pension and Welfare
Plans. The Company, Lorvic and ERISA Affiliates have complied with all
requirements of Part 6 of Subtitle B of Title I of ERISA and Code Section
4980B, and any proposed or final regulations promulgated thereunder, with
respect to the Welfare Plans. The Non ERISA Plans listed on Schedule 3.1(l)
have been properly adopted by the Company, Lorvic and ERISA Affiliates and
administered and operated in accordance with their terms and comply with
applicable law. No Welfare, Pension or Scheduled Plan can give rise to payment
of any amount that is not deductible under Code Section 280G. Each Welfare,
Pension and Scheduled Plan has been maintained in compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code.
(vi) With respect to each Pension and Welfare Plan, all required
contributions have been timely made for the accounting periods ending prior to
the Closing Date and, for the period commencing on the first day of the current
accounting period to the Closing Date, all required contributions have been
timely made and/or shall be made or accrued prior to the Closing Date by the
Company and/or Lorvic in accordance with the terms of the Plan and prior
practice. With respect to any of the Pension Plans, no reportable event within
the meaning of Section 4043 of
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Title IV of ERISA has occurred, and no Pension Plan has been completely or
partially terminated. No event described in Sections 4041, 4042, 4062, 4063 or
4064 of ERISA has occurred in connection with any Pension Plan, other than a
"reportable event" that is not subject to the provision for thirty days notice
to the Pension Benefit Guaranty Corporation. No condition exists and no event
has occurred which could constitute grounds for termination of any Pension Plan
or Qualified Pension Plan sponsored by an ERISA Affiliate by the Pension
Benefit Guaranty Corporation. Neither the Company, Lorvic nor any ERISA
Affiliate has incurred or will incur prior to Closing any material liability
under Title IV of ERISA arising in connection with the termination of or
partial withdrawal from any Qualified Pension Plan covered or previously
covered by Title VI of ERISA. With respect to the Pension and Welfare Plans,
there have been no prohibited transactions as defined in Section 406 of Title I
of ERISA or Code Section 4975. With respect to the Pension, Welfare, Scheduled
Plans and Qualified Pension Plans sponsored by an ERISA Affiliate, no claims
with respect to the assets thereof (other than routine claims for benefits), or
the assets of the Company, Lorvic or an ERISA Affiliate are pending or
threatened, and the Company, Lorvic or any ERISA Affiliate has knowledge of any
facts which would give rise to or could reasonably be expected to give rise to
any such claims and neither the Company, Lorvic nor an ERISA Affiliate nor any
of their directors, officers, employees or any other "fiduciary", as such term
is defined in Section 3(21) of ERISA, has any liability for failure to comply
with ERISA, the Code or any other law for any action or failure to act in
connection with the administration or investment of such Plan. Each Welfare
Plan may be terminated after Closing to eliminate the liability for claims
incurred after Closing. The most recent financial statement of the Company,
Lorvic and each ERISA Affiliate recognizes, in accordance with generally
accepted accounting principles and statement of Financial Accounting Standards
No. 106, material liabilities under the Welfare and Scheduled Plans that are
not insured by fully paid, nonassessable insurance policies and to the best of
the Company's and Lorvic's knowledge, and the knowledge of any ERISA Affiliate,
there are no other such material liabilities. Any contribution made or accrued
with respect to any Pension, Welfare or Scheduled Plan is fully deductible for
Federal income tax purposes by the Company and/or Lorvic.
(vii) With respect to each Plan listed on Schedule 3.1(l), the
Company and/or Lorvic has furnished to Purchaser true and complete copies of
(aa) the Plan documents, (bb) the most recent determination letters received
from the Internal Revenue Service, (cc) Form 5500 Annual Report (including all
schedules) for the three most recent Plan years, (dd) the actuarial and audited
financial reports for the three most recent Plan years, (ee) all related trust
agreements, insurance contracts or other funding agreements, insurance
contracts or other funding agreements which implement such Plan and (ff) a copy
of each and any general explanation or communication which was required to be
distributed or otherwise provided to
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<PAGE> 22
participants in such Plan which describes all or any relevant aspect of each
Plan listed in Schedule 3.1(l), including any summary plan description, summary
annual report and/or summary of material modifications, (gg) a description of
any unwritten Plan listed on Schedule 3.1(l) as comprehended or maintained by
the Company, Lorvic and/or any ERISA Affiliate to the Closing or to which the
Company, Lorvic and/or an ERISA Affiliate contributes, including a description
of eligibility or other relevant aspects of the obligation, and (hh) a copy of
any and all rulings or notices, other than Internal Revenue Service
determination letters, issued by any governmental agency with respect to the
Plans.
(viii) None of the transactions contemplated by this Agreement is
a "prohibited transaction", as such term is defined in Section 406 of Title I
of ERISA or in Code Section 4975 or adversely affects the qualified status of
the Pension Plans under Code Section 401(a).
(ix) The Company, Lorvic and/or any ERISA Affiliate has not
incurred any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service and/or the Department of Labor with respect to any
Qualified Pension Plan, Employee Benefit Welfare Plan or Non- Qualified Pension
Plan that has not been satisfied in full and no condition exists which presents
a material risk to the Company or Lorvic of incurring such liability.
(x) With respect to the Scheduled Plans, all required or
recommended payments, premiums, contributions, reimbursements or accruals for
all periods ending prior to or as of the Closing (including periods from the
first day of the then current plan year to the Closing) shall have been made or
properly accrued on the Closing Balance Sheet. None of the Scheduled Plans has
any unfunded liabilities which are not reflected on the Closing Balance Sheet.
Any contribution made or accrued with respect to any Pension Plan, Welfare Plan
or Scheduled Plan is fully deductible by the Company and/or Lorvic.
(xi) No employee of the Company, Lorvic or any ERISA Affiliate
will become entitled to any retirement, severance or similar benefit or
enhanced benefit solely as a result of the transaction contemplated herein.
(xii) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company, Lorvic or any ERISA
Affiliate relating to, or change in employee participation or coverage under
any Welfare, Pension or Scheduled Plan which would increase materially the
expense of maintaining such Plan above the level of expense incurred in respect
thereof for the fiscal year ending March 31, 1994.
(m) TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 3.1
(m) and except for intercompany transactions between the Company and Lorvic,
since the date of the December Balance Sheet, neither the Company nor Lorvic
has purchased,
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acquired or leased any property or services from, or sold, transferred or
leased any property or services to, or loaned or advanced any money to, or
borrowed any money from or entered into any management, consulting or similar
agreement with, any officer, director or shareholder of the Company, Lorvic or
any of their respective Affiliates. The term "Affiliate," with respect to any
Person, means any other Person that, directly or indirectly, through one or
more intermediaries, controls, is controlled by or is under common control with
such Person, or is the parent, spouse, descendant or sibling of a Person, or
the spouse of any such parent, descendant or sibling. As of the date hereof,
no Affiliate of the Company or Lorvic is indebted on a net basis to the Company
or Lorvic for money borrowed or other loans or advances. Neither Lorvic nor
the Company has, on or after the Valuation Date, declared or paid any dividends
on or made or committed to make any distributions to Stockholders with respect
to capital stock of the Company or Lorvic.
(n) INSURANCE. Schedule 3.1(n) contains an accurate and complete list
and a brief description of all material insurance policies currently in effect
which are presently owned or held by the Company and Lorvic, insuring the
products, properties, assets, business and operations of the Company and Lorvic
and its potential liabilities to third parties, and all general liability
policies maintained by the Company and Lorvic. As of the date of this
Agreement, all premiums due have been paid and no notice of cancellation or
termination or intent to cancel has been received by the Company or Lorvic with
respect to any such policy. To the knowledge of the Company, the Company and
Lorvic are not in material default under any such insurance policies.
(o) TAXES. Except as set forth on Schedule 3.1(o) (i) each of the
Company and Lorvic has properly completed and filed all returns, declarations
of estimated tax, tax reports, information returns and statements required to
be filed by it prior to the Closing Date relating to any Taxes with respect to
any income, assets or operations of the Company or Lorvic prior to the Closing
Date (collectively, the "Returns"), (ii) as of the time of filing the Returns
correctly reflected the facts regarding income, business assets, operations,
activities, status, or other matters of the Company and Lorvic or any other
information required to be shown thereon, (iii) each of the Company and Lorvic
has paid all Taxes shown to be due on such Returns, (iv) neither the Company
nor Lorvic has waived any statute of limitations affecting any Tax liability or
agreed to any extension of time during which a Tax assessment or deficiency
assessment may be made, (v) there are no pending Tax audits of any Returns of
the Company or Lorvic and the Company and Lorvic have not received written
notice of any unresolved questions or claims concerning their Tax liability,
and (vi) neither the Company nor Lorvic has consented to have the provisions of
Section 341(f) (2) of the Code applied to it. Neither the Company nor Lorvic
has, during the five-year period ending on the Closing Date, been a personal
holding company within the meaning of Section 541 of the Code. Except as set
forth on Schedule
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<PAGE> 24
3.1(o), all amounts in respect of Taxes imposed on the Company or Lorvic or for
which the Company or Lorvic is liable with respect to all taxable periods or
portions of periods ending on or before the Closing Date have been paid to the
proper taxing authority or are properly reflected on the Closing Balance Sheet
and all applicable tax laws have been fully complied with. The term "Taxes"
means, with respect to any Person, federal income taxes all as are provided for
or described in Subchapters A, B, C, D, E, K, N, O, P and Q of Chapter 1,
Chapter 3, Chapter 5 and Chapter 6 of Subtitle A, Subtitle C, Subtitle D,
Subtitle E and Subtitle F of the Internal Revenue Code of 1986, as amended, and
all state, foreign and local income taxes (including any tax on or based upon
net income, gross income, or income as specially defined, or earnings, profits,
or selected items of income, earnings or profits) and all gross receipts,
sales, use, ad valorem, transfer, franchise, license, withholding, payroll,
employment or windfall profits taxes, alternative or add-on minimum taxes,
customs duties or other taxes, fees, assessments or charges, together with any
interest and any penalties, additions to tax or additional amounts with respect
thereof, and the term "Tax" means any one of the foregoing Taxes.
Notwithstanding anything to the contrary contained herein, the Purchaser
acknowledges that the Company is not making any express or implied
representation or warranty as to the ability of the Company to take any
deductions for the amortization of intangible assets after the Closing Date.
(p) ENVIRONMENTAL MATTERS. (i) Except as set forth on Schedule 3.1
(p),
(A) the Company and Lorvic are in compliance with the
Environmental Laws (as hereinafter defined) and the Company and Lorvic
have not received any communication from a Governmental Authority that
alleges that the Company or Lorvic is not in such compliance;
(B) the Company has not received written notice of any
Environmental Claim (as hereinafter defined) filed or threatened
against the Company or Lorvic;
(C) since the date the Company acquired the Owned Property
there have been no actions, activities, circumstances, conditions,
events or incidents involving the Company, or to the Company's
knowledge any other Person, including, without limitation, the
release, emission, discharge or disposal of any Material of
Environmental Concern (as hereinafter defined), that would be
reasonably likely to result in any Environmental Claim against the
Company; or
(D) to the Company's knowledge, there are no Materials of
Environmental Concern located in the soil or groundwater at any
location owned or leased by the Company.
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<PAGE> 25
(ii) "Environmental Claim" means any written notice by any
Person or any Governmental Authority alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property
damages, personal injuries or penalties) arising out of, based on or resulting
from (A) the presence, or release into the environment, of any Material of
Environmental Concern at any location owned or leased by the Company; (B) any
violation, or alleged violation, of any Environmental Law; or (C) the presence
of any Material of Environmental Concern generated by the Company at a location
not owned or leased by the Company.
(iii) "Environmental Laws" means all federal, state, local
and foreign laws and regulations relating to pollution or protection of the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or the protection of human health
from environmental hazards (excluding those, if any, related to the smoking or
consumption of tobacco), including without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
(iv) "Materials of Environmental Concern" means chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
asbestos, petroleum and petroleum products in each case with respect to which
liability or standards of conduct are imposed pursuant to any Environmental
Laws (excluding, however, tobacco and tobacco products to the extent, if any,
tobacco or tobacco products are included in the forgoing description).
The Purchaser agrees that the only representations and warranties of the
Company herein as to any environmental matters are those contained in this
Section 3.1(p).
(q) PRODUCT LIABILITY. Except as listed on Schedule 3.1(q), since
December 28, 1989, no individual product liability or other tort claim in
excess of $10,000 has been made or, to the knowledge of the Company, threatened
against the Company or Lorvic relating to products sold by the Company or
Lorvic. To the knowledge of the Company, there are no material defects in the
design or manufacture of products manufactured by the Company or Lorvic. The
Company has delivered, or will deliver on or before the Closing Date, to the
Purchaser copies of all the product liability insurance policies relating to
the Company or Lorvic purchased by the Company or Lorvic since December 28,
1989.
(r) ACCOUNTS RECEIVABLE. The accounts receivable of the Company and
Lorvic that are reflected on the accounting records of the Company and Lorvic
as of the Valuation Date represent valid obligations arising from sales
actually made in
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the ordinary course of business, and are current and collectible net of the
respective reserves shown on the accounting records of the Company and Lorvic
as of the Valuation Date. Subject to such reserves, all of the foregoing
accounts receivable existing on the Valuation Date (the "Closing Date
Receivables") will be collected within 210 days after the Closing Date.
(s) INVENTORIES. Since December 31, 1994, the inventories related to
the business of the Company and Lorvic have been maintained only in the
ordinary course of business. All inventory of the Company and Lorvic is owned
free and clear of all Encumbrances other than Permitted Encumbrances. All of
the inventory at the Valuation Date will, subject to applicable reserves on the
books of the Company, consist of items that were as of the Valuation Date of a
quality usable or saleable in the normal course of the business of the Company
and Lorvic consistent with past practices and were in quantities sufficient as
of the Valuation Date for the normal operation of the business of the Company
and Lorvic in accordance with past practice and none of such inventory on the
Valuation Date consisted of any product or other item not related to the
business of the Company and Lorvic.
(t) BANK ACCOUNTS. Schedule 3.1(t) contains a correct and complete
list of the name of each bank in which the Company or Lorvic has an account or
safe deposit box, and the names of all Persons authorized to draw thereon or to
have access thereto.
(u) BROKERS. No agent, broker, investment banker or other Person
acting on behalf of the Company or Lorvic or under the authority of the Company
or Lorvic is or will be entitled to any fee or commission directly or
indirectly from the Purchaser, the Company or Lorvic in connection with any of
the transactions contemplated hereby.
(v) COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.1(v), the
Company and Lorvic are in compliance with all applicable laws, rules,
regulations, ordinances, decrees or orders of any Governmental Authority (other
than environmental laws, which are covered by Section 3.1(p)) (collectively,
"Laws") and have not actually received any notice of any alleged claim or
threatened claim, violation of or liability under any such Law which has not
heretofore been cured and for which there is no remaining liability not accrued
on the December Balance Sheet; the Company and Lorvic have all governmental
permits, licenses and authorizations necessary for the conduct of their
businesses as presently conducted ("Permits"); to the knowledge of the Company,
no loss or expiration of any such Permit is threatened; no loss or expiration
or any such Permit is pending or reasonably foreseeable (other than expiration
upon the end of the term thereof); and the Company and Lorvic are in compliance
with the terms of such Permits.
(w) NO ADDITIONAL REPRESENTATIONS. THE COMPANY IS NOT MAKING ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER WITH
RESPECT TO THE COMPANY OR LORVIC,
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INCLUDING ANY OF THE ASSETS OF THE COMPANY OR LORVIC, EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT, AND
EXCEPT AS SET FORTH EXPRESSLY HEREIN, THE CONDITION OF THE ASSETS OF THE
COMPANY OR LORVIC, SHALL BE "AS IS" AND "WHERE IS".
3.2. SEVERAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each
of the Stockholders severally represents and warrants to the Purchaser, as to
such Stockholder only, as follows:
(a) AUTHORITY, ENFORCEABILITY, NO VIOLATION, ETC. Such Stockholder
has the full and absolute power to sell the Shares and enter into this
Agreement and all Documents to which it is a party as contemplated hereby, to
perform its obligations under this Agreement and each such Document, and to
consummate the transactions contemplated by this Agreement and such Documents.
The execution, delivery and performance by such Stockholder of this Agreement
and each Document to which it is or will be a party and the consummation of the
transactions contemplated thereby have been duly and validly authorized by all
necessary action (corporate or otherwise) on the part of such Stockholder.
This Agreement and each Document to which such Stockholder is a party has been,
or upon its execution and delivery will be, duly and validly executed and
delivered by such Stockholder and is, or upon its execution and delivery will
be, a valid and binding obligation of such Stockholder, enforceable against the
Stockholder in accordance with the terms thereof. Neither the execution,
delivery and/or performance by the Stockholder of this Agreement and any
Document to which it is a party, nor the consummation of the transactions
contemplated thereby nor compliance by such Stockholder with any of the
provisions thereof will (i) conflict with or result in a breach of any
provision of the Company's Charter or By-Laws (as defined herein) or (ii)
violate any material law, statute, rule or regulation or judgment, order, writ,
injunction or decree of any Governmental Authority, in each case applicable to
such Stockholder or the Shares. Except as set forth on Schedule 3.2(a), no
filing with, and no permit, authorization, consent or approval of, any Person
is necessary for the consummation by the Stockholder of the transactions
contemplated by this Agreement and the Documents.
(b) OWNERSHIP. Except as set forth in Schedule 3.2(b), such
Stockholder is the lawful owner, of record and beneficially, of the Shares
owned by such Stockholder (which are those Shares listed opposite such
Stockholder's name on Exhibit A hereto) and has good title to such Shares, free
and clear of any and all Encumbrances other than liens for taxes not yet due
and payable; upon consummation of the transactions contemplated by this
Agreement, such Shares will be conveyed to Purchaser free and clear of any and
all Encumbrances.
(c) FIRPTA AFFIDAVIT. Such Stockholder is not a foreign person within
the meaning of Section 1445-2(b) of the regulations promulgated under Section
1445 of the Code and will
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<PAGE> 28
deliver to the Purchaser prior to the Closing Date a true and accurate
certificate so stating which shall comply in all respects with Section
1445-2(b)(2)(i) of such regulations.
(d) NO ADDITIONAL REPRESENTATIONS. THE STOCKHOLDERS ARE NOT MAKING
ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER
WITH RESPECT TO THE COMPANY OR LORVIC.
3.3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Stockholders as follows:
(a) AUTHORITY, ENFORCEABILITY, NO VIOLATION, ETC. The Purchaser has
all requisite and corporate power and authority to execute and deliver this
Agreement and the other Documents to which it is a party, to perform its
obligations under this Agreement and each such Document, and to consummate the
transactions contemplated thereby. The execution, delivery and performance by
the Purchaser of each Document to which it is a party and the consummation of
the transactions contemplated thereby have been duly and validly authorized by
all necessary corporate action on the part of the Purchaser. This Agreement
and each Document to which the Purchaser is a party is, or upon its execution
and delivery will be, a valid and binding obligation of the Purchaser,
enforceable against it in accordance with the terms thereof. Neither the
execution, delivery or performance by the Purchaser of this Agreement and any
Document to which it is a party, nor the consummation by the Purchaser of the
transactions contemplated thereby nor compliance by the Purchaser with any of
the provisions thereof will (i) conflict with or result in a breach of any
provision of the Purchaser's Charter or By-Laws, (ii) violate any material law,
statute, rule or regulation or judgment, order, writ, injunction or decree of
any Governmental Authority, in each case applicable to the Purchaser or its
assets or (iii) conflict with or result in a default or breach of any provision
of any material contract or agreement to which the Purchaser is a party or by
which its assets may be bound. No material filing with, and no material
permit, authorization, consent or approval of, any Person is necessary for the
consummation by the Purchaser of the transactions contemplated by this
Agreement and the Documents. For purposes of making the representation set
forth in clause (ii) and in the fifth sentence of this subsection (a), the
Purchaser has assumed and, with the Company's permission, relied on the
representation made by the Company in Section 3.1(b) hereof that the total
assets and annual net sales of the ultimate parent entity, if any, of the
Company are less than $100,000,000. The total assets and annual net sales of
the ultimate parent entity of the Purchaser are less than $100,000,000.
(b) BROKERS. No agent, broker, investment banker, or other Person
acting on behalf of the Purchaser or under the authority of the Purchaser is or
will be entitled to any fee or commission directly or indirectly from the
Stockholders (or the Company or Lorvic in the event the transactions
contemplated
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<PAGE> 29
hereby do not occur) in connection with any of the transactions contemplated
hereby.
(c) INVESTMENT INTENT. The Purchaser acknowledges that the Shares
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and that the Shares may not be resold absent such
registration or unless an exemption therefrom is available. The Purchaser is
acquiring the Shares for its own account, for investment purposes only and not
with a view toward distribution thereof. The Purchaser qualifies as an
"accredited investor", as such term is defined in Rule 501(a) promulgated
pursuant to the Securities Act.
ARTICLE IV
CONDITIONS OF CLOSING
4.1. CONDITIONS TO OBLIGATION OF THE PURCHASER. The obligation of the
Purchaser to perform this Agreement is subject to the satisfaction of the
following conditions, unless waived by the Purchaser:
(a) AUTHORIZATION. All corporate or other action necessary to
authorize the execution, delivery and performance of this Agreement and the
other Documents by the Company and the Stockholders and the consummation of the
transactions contemplated by this Agreement and the other Documents shall have
been duly and validly taken by the Company and the Stockholders, and the
Company and the Stockholders shall have full power and authority to enter into
and consummate the transactions contemplated by this Agreement and the other
Documents.
(b) PERFORMANCE OF OBLIGATIONS. The Company and the Stockholders
shall have performed and complied in all material respects with all agreements
and obligations and satisfied all conditions required to be performed, complied
with or satisfied by each of them under this Agreement and the other Documents
prior to or at the Closing.
(c) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and the Stockholders set forth in Sections 3.1 and
3.2 of this Agreement shall be correct in all material respects as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date other than any representation or warranty that expressly relates
to a specific date, which representation and warranty shall be correct in all
material respects on the date so specified.
(d) NO LITIGATION OR LEGISLATION. There shall not be any statute,
rule or regulation which makes the transactions contemplated by this Agreement
or any other Document illegal or otherwise prohibited or any pending or
threatened investigation, hearing, order, decree or judgment enjoining or
seeking to enjoin
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<PAGE> 30
the performance of this Agreement and the other Documents and the transactions
contemplated hereby and thereby.
(E) OFFICER CERTIFICATES. The Purchaser shall have received (i) a
certificate, dated as of the Closing Date, signed by the Secretary of the
Company and certifying as to the Charter, By-Laws, incumbency of officers
executing this Agreement and the other Documents to which the Company is a
party and resolutions of the Board of Directors of the Company authorizing this
Agreement and the other Documents to which the Company is a party and (ii) a
certificate of the President of the Company certifying as to the fulfillment of
the conditions set forth in this Section 4.1.
(F) CONSENTS. The Company shall have received all consents set forth
on Schedule 3.1(b) hereto required in connection with the transactions
contemplated hereby other than such consents the failure to obtain would not be
reasonably likely to result in a Material Adverse Effect.
(G) STOCKHOLDER CERTIFICATES. The Purchaser shall have received from
each Stockholder the certificate referred to in Section 3.2(c).
(H) INDEBTEDNESS. The indebtedness of the Company and Lorvic to The
Boatmen's National Bank of St. Louis ("Boatmen's") pursuant to the Loan
Agreement dated as of February 9, 1990, by and between Lorvic and Boatmen's,
shall be repaid in full prior to the Closing Date, it being understood that the
Company and Lorvic shall not be required to satisfy any other liabilities prior
to Closing and all such other liabilities shall remain liabilities of the
Company and Lorvic subsequent to Closing.
(I) NET WORTH. At the close of business on the Closing Date, the
Company shall have a consolidated net worth of at least $2,500,000.
(J) EMPLOYMENT AGREEMENT. Nemanick shall execute and deliver to the
Purchaser an Employment and Noncompetition Agreement substantially in the form
of Exhibit F hereto.
(K) MANAGEMENT ARRANGEMENT. The management arrangement set forth in
the Purchase Agreement, dated as of December 28, 1989, by and between the
Company, Lorvic, CVCA, Kirtley, Leck and Nemanick shall have been terminated
and all moneys due thereunder paid in full.
(L) ESCROW AGREEMENT. The Seller Escrow Agreement shall have been
duly executed and delivered by all parties thereto.
(M) CONTINGENT PAYMENT AGREEMENT. Nemanick shall have duly executed
and delivered the Contingent Payment Agreement substantially in the form of
Exhibit D hereto.
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(N) STOCKHOLDER ACTIONS. Stockholders holding at least 75% of the
Common Stock (other than shares held of record or beneficially by Nemanick)
shall, prior to Nemanick's exercise thereof, have approved the Nemanick Option
and, prior to the payment thereof, the Nemanick Bonus.
(O) OPINION OF COUNSEL TO THE COMPANY AND THE STOCKHOLDERS. The
Purchaser shall have received an opinion dated the Closing Date from O'Sullivan
Graev & Karabell, LLP, counsel to the Stockholders, substantially in the form
of Exhibit I hereto.
4.2. CONDITIONS TO OBLIGATION OF THE STOCKHOLDERS. The obligation of
the Stockholders to perform this Agreement is subject to the satisfaction of
the following conditions, unless waived by the Stockholders:
(A) AUTHORIZATION. All corporate or other action necessary to
authorize the execution, delivery and performance of this Agreement and the
other Documents by the Purchaser and the consummation of the transactions
contemplated by this Agreement and the other Documents shall have been duly and
validly taken by the Purchaser and the Purchaser shall have full power and
authority to enter into and consummate the transactions contemplated by this
Agreement and the other Documents.
(B) PERFORMANCE OF OBLIGATIONS OF THE PURCHASER. The Purchaser shall
have performed and complied in all material respects with all agreements and
obligations and satisfied all conditions to be performed, complied with and
satisfied by it under this Agreement and the other Documents prior to or at the
Closing.
(C) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser set forth in Section 3.3 of this Agreement and in
any other Document shall be correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date.
(D) NO LITIGATION OR LEGISLATION. There shall not be any statute,
rule or regulation which makes the sale of the Shares and the other
transactions contemplated by this Agreement or any other Document illegal or
otherwise prohibited or any investigation, hearing, order, decree or judgment
enjoining or seeking to enjoin the performance of this Agreement and the other
Documents and the transactions contemplated hereby and thereby.
(E) PAYMENT OF PURCHASE PRICE. The Purchaser shall have made payment
of the Purchase Price pursuant to Section 1.3 hereof.
(F) ESCROW AGREEMENTS. The Seller Escrow Agreement and the
Contingent Payment Agreement shall have been duly executed and delivered by all
parties thereto.
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(G) OPINION OF COUNSEL TO THE PURCHASER. The Stockholders shall have
received an opinion dated the Closing Date of Armstrong, Teasdale, Schlafly &
Davis, counsel to the Purchaser, substantially in the form of Exhibit J hereto.
(H) OFFICER CERTIFICATES. The Stockholders shall have received (i) a
certificate dated as of the Closing Date, signed by the Secretary of the
Purchaser and certifying as to the Charter, By-Laws, incumbency of officers
executing this Agreement and the other Documents to which the Purchaser is a
party and the resolutions of the Board of Directors of the Purchaser
authorizing this Agreement and the other Documents to which the Purchaser is a
party and (ii) a certificate of the President of the Purchaser certifying as to
the fulfillment of the conditions set forth in this Section 4.2.
ARTICLE V
INDEMNIFICATION
5.1. SURVIVAL. The representations and warranties set forth in this
Agreement shall survive for two (2) years following the Closing Date; provided
that any claims for which the party asserting such claim shall have given
proper notice in accordance with the terms of this Agreement (and the Escrow
Agreement) on or prior to the expiration of such period shall survive until
such claim is resolved pursuant to the terms of this Agreement or the Escrow
Agreement.
5.2. INDEMNIFICATION. (a) Pursuant to the terms of the Escrow
Agreement and subject to the conditions set forth in this Section 5.2,
subsequent to the Closing Date the Purchaser (including, for purposes of this
Article V, any Person which, after the Closing Date, is an Affiliate of the
Purchaser), shall be indemnified and held harmless by the Stockholders against
any liability (whether fixed or unfixed, liquidated or unliquidated), loss,
cost, actual or punitive damage, deficiency, demand, claim, suit, action or
cause of action, fine, penalty, cost or expense of any and all investigation or
proceeding, settlement, compromise (including reasonable attorney's fees and
costs) (collectively, "Losses" and individually, a "Loss") which any such
Person may suffer, sustain or become subject to by virtue of or which arise out
of, or result from, (i) any breach of the covenants, representations and
warranties of the Company or the Stockholders set forth in this Agreement and
(ii) the Tax Claim; provided that:
(A) the Purchaser's right to indemnification for Losses arising
pursuant to clause (i) of this Section 5.2(a) shall be satisfied only
by recourse to the funds deposited and remaining in the General Escrow
Account;
(B) the Purchaser's right to indemnification for Losses arising
pursuant to clause (ii) of this Section 5.2(a) shall be the
Purchasers' only remedy for Losses
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incurred in connection with the Tax Claim and shall be satisfied only by
recourse to the funds deposited and remaining in the Tax Claim Escrow
Account; provided, however, that any payment for a Loss involving interest
and penalties, if any, on the Tax Claim to be made prior to June 30, 1996
in connection with the Tax Claim to the extent such interest and penalties
exceed the Tax Claim Escrow Account may be satisfied, by recourse to the
General Escrow Account up to the lesser of (x) $200,000 and (y) the total
amount of interest and penalties included in such Losses;
(C) the Stockholders shall not have any personal liability to the
Purchaser with respect to any Losses arising out of clauses (i) and
(ii) of this Section 5.2(a);
(D) notwithstanding anything to the contrary contained herein, the
Purchaser shall not be entitled to indemnification hereunder for any
Loss arising out of an indemnified matter referred to in the
Contingent Payment Agreement dated as of the Closing Date between the
Purchaser and Nemanick, and Purchaser's sole remedy with respect to
any such Loss will be pursuant to the Contingent Payment Agreement
between Purchaser and Nemanick;
(E) notwithstanding anything to the contrary contained herein, the
Purchaser shall not be entitled to indemnification hereunder for any
Loss arising from a breach of any representation or warranty set forth
herein and the amount of any Loss incurred in respect of such breach
shall not be included in the calculation of aggregate Losses for
purposes of clause (G) of this Section 5.2(a), to the extent that a
liability arising as a result of such breach is disclosed or reflected
on the Closing Balance Sheet as a current liability and included in
the calculation of Net Working Capital.
(F) the Purchaser shall not be entitled to indemnification with
respect to any individual Loss unless such Loss exceeds $5,000
(provided that where more than one Loss relates directly or indirectly
to the same cause or event or related group of events, for purposes of
this clause (F) such Losses shall be treated as one Loss); and
(G) the Purchaser shall not be entitled to indemnification with
respect to any individual Loss in excess of $5,000 until all such
Losses exceed, in the aggregate, $50,000, in which case the Purchaser
will be entitled to indemnification only to the extent such Losses
exceed $50,000.
Notwithstanding anything to the contrary contained herein, Losses arising out
of or from any breach of the representation and
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warranty contained in Sections 3.1(r) and 3.1(s) shall not (i) be subject to
the provisions of clauses 5.2(a)(F) and 5.2(a)(G) or (ii) be included in the
calculation of the aggregate Losses for purposes of clause (G) of this Section
5.2(a).
(b) Subject to the conditions set forth in this Section 5.2,
subsequent to the Closing Date the Purchaser shall indemnify each Stockholder
and his or its estate, heirs, personal representatives or successors and hold
him or it harmless against any Loss which any such Person may suffer, sustain
or become subject to as a result of any breach by the Purchaser of its
covenants, representations and warranties set forth herein.
(c) No Person shall be liable for any claim for indemnification under
subsections (a) or (b) above unless written notice of a claim for
indemnification is delivered by the Person seeking indemnification to the
Person from whom indemnification is sought (i) at any time with respect to
breaches of covenants required to be performed subsequent to the Closing or the
Tax Claim or (ii) prior to two (2) years from the Closing Date with respect to
all other claims. All notices given in this subsection (c) shall set forth
with reasonable specificity the basis for the claim for indemnification and, in
the case of claims for which indemnification is sought against any Escrow
Account, notice shall be given to all of the Stockholders.
(d) Promptly after the assertion by any third party of any claim,
demand or notice (a "Third Party Claim") against any Person entitled to
indemnification under this Section 5.2 ("Indemnitee") that results or may
result in the incurrence by such Indemnitee of any Loss for which such
Indemnitee would be entitled to indemnification pursuant to this Agreement,
such Indemnitee shall promptly notify the parties from whom such
indemnification could be sought (the "Indemnitors") of such Third Party Claim.
In the case of claims for which indemnification is sought against any Escrow
Account, notice shall be given to the Stockholders. In the case of claims for
which indemnification is sought against the Contingent Payment Fund, notice
shall be given to Nemanick. Thereupon, the Indemnitors shall have the right,
upon written notice (the "Defense Notice") to the Indemnitees within 30 days
after receipt by the Indemnitors of notice of the Third Party Claim (or sooner
if such claim so requires) to conduct, at their own expense, the defense
against the Third Party Claim in their own names or, if necessary, in the names
of the Indemnitees. The Defense Notice shall specify the counsel the
Indemnitors shall appoint to defend such Third Party Claim (the "Defense
Counsel") and the Indemnitees shall have the right to approve the Defense
Counsel, which approval shall not be unreasonably withheld. In the event the
Indemnitees and the Indemnitors cannot agree on such counsel within 10 days
after the Defense Notice is given, then the Indemnitors shall propose an
alternate Defense Counsel, which shall be subject again to the Indemnitees'
approval. Any Indemnitee shall have the right to employ separate counsel in
any such Third Party Claim and/or to participate in the defense thereof, but
the fees and expenses of such counsel shall not be included as part of any Loss
incurred
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by the Indemnitee unless (i) the Indemnitors shall have failed to give the
Defense Notice within the prescribed period, (ii) such Indemnitee shall have
received an opinion of counsel, reasonably acceptable to the Indemnitors, to
the effect that the interests of the Indemnitee and the Indemnitors with
respect to the Third Party Claim are sufficiently adverse to prohibit the
representation by the same counsel of both parties under applicable ethical
rules, or (iii) the employment of such counsel has been specifically authorized
by the Indemnitors. The party or parties conducting the defense of any Third
Party Claim shall keep the other parties apprised of all significant
developments and shall not enter into any settlement, compromise or consent to
judgment with respect to such Third Party Claim unless the Purchaser and the
Stockholders consent, such consent not to be unreasonably withheld. In the
event that the Indemnitors shall fail to give a Defense Notice within such 30-
day period, they shall be deemed to have elected not to conduct the defense of
the subject claim. A failure by an Indemnitee to give timely, complete or
accurate notice as provided in subsection (c) or this subsection (d) 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
notice was deprived of its right to recover any payment under its applicable
insurance coverage or was otherwise damaged or prejudiced as a result of such
failure to give timely notice.
(e) The amount of any Loss subject to indemnification under Section
5.2(a) shall be calculated net of any amounts which have been previously
recovered by the Purchaser under insurance policies or other collateral sources
(such as contractual indemnities of any Person which are contained outside this
Agreement), and the Purchaser hereby covenants that it will not release any
such collateral sources from any obligations they may have. In the event any
such amounts recovered under insurance policies or other collateral sources are
not received before any claim for indemnification is paid pursuant to this
Section 5.2, then the Purchaser shall pursue such insurance policies or
collateral sources with reasonable diligence, and in the event it receives any
recovery, the amount of such recovery shall be applied first, to reimburse the
Purchaser for its out-of-pocket expenses (including attorneys' fees) expended
in pursuing such recovery, second, to refund any payments made by any Escrow
Account which would not have been so paid had such recovery been obtained prior
to such payment, and third, any excess to the Purchaser. If the Purchaser
fails to pursue any such insurance policies or collateral sources with
reasonable diligence, then, without prejudice to any rights the Stockholders
may have against the Purchaser because of such failure, the Stockholders shall
have the right of subrogation to pursue such insurance policies or collateral
sources and may take any reasonable actions necessary to pursue such rights of
subrogation in its name or the name of the party from whom subrogation is
obtained. The Purchaser shall reasonably cooperate with the Stockholders to
pursue a subrogation claim. Any recovery obtained by the Stockholders shall be
applied first, to reimburse the Stockholders for their out-of-pocket expenses
(including
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attorney's fees) expended in pursuing such recovery, second, to refund to the
Stockholders any payments made by any Escrow Account pursuant to Section 5.2
hereof with respect to the Losses for which the collateral source was also
responsible, and third, any excess to the Purchaser. In addition, all Losses
subject to indemnification hereunder shall be calculated net of any tax
benefits which have been realized by the Purchaser as a result thereof plus the
net present value (using a discount factor equal to the short-term Applicable
Federal Rate then in effect and assuming the income tax rates then in effect
for any given period remain unchanged) of tax benefits which will be realized
by the Purchaser or any Affiliate in subsequent tax years. Purchaser and
Stockholders agree to treat any payment hereunder to Purchaser as an adjustment
to the Purchase Price. However, in the event the Internal Revenue Service
determines that any such payment constitutes taxable gain or income to
Purchaser, such payment shall be increased so that the Purchaser receives, on
an after-tax basis, the amount which would have been received had the payment
not resulted in taxable gain or income.
5.3. LIMITATION OF RECOURSE. The rights of the parties for
indemnification relating to this Agreement or the transactions contemplated
hereby shall be strictly limited to those contained in Section 5.2 hereof, and
subject to the last sentence hereof, such indemnification rights shall be the
exclusive remedies of the parties subsequent to the Closing Date with respect
to any matter in any way relating to this Agreement or arising in connection
herewith. To the maximum extent permitted by law, the Purchaser and the
Company hereby waive and shall cause their Affiliates to waive all other rights
and remedies with respect to any such matter, whether under any Laws
(including, without limitation any right or remedy under CERCLA or any other
Environmental Law), at common law or otherwise. Except as provided in, and in
accordance with, Section 5.2(a), no claim, action or remedy shall be brought or
maintained by the Purchaser or the Company or their respective Affiliates,
successors or permitted assigns against the Stockholders, and no recourse shall
be brought or granted against any of them, by virtue of or based upon any
alleged misstatement or omission respecting an inaccuracy in or breach of any
of the representations, warranties or covenants of the Company set forth or
contained in this Agreement, except to the extent that the same shall have been
the result of fraud by any such Person (and in the event of fraud, recourse
shall only extend to those Persons committing fraud).
5.4. EXCULPATION, ETC. The Company and Lorvic hereby exculpate (to the
greatest extent permitted by applicable law) and shall indemnify, defend and
hold harmless, each of the directors and officers of the Company and Lorvic
against all Losses arising out of any violations or alleged violations of
fiduciary duties of care or loyalty to the Company or Lorvic in their
capacities as officers or directors of the Company occurring at or prior to the
Closing Date to the fullest extent permitted under Delaware law.
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5.5. SPECIAL PROVISIONS RELATING TO TAX MATTERS.
(a) TAX CLAIM. The term "Tax Claim" means the net amount of Taxes
assessed against the Company and Lorvic as a result of the disallowance in
whole or part of deductions taken or to be taken for tax periods ending on or
before the Closing Date by the Company or Lorvic in connection with the Asset
Purchase Agreement dated as of December 28, 1989, by and among LC Acquisition
Corporation, The Lorvic Corporation, Semicon, Inc., The Lorvic International
Ltd. and R.P. Scherer Corporation for the amortization of a noncompete
agreement and secrecy agreement in a total amount of $3,000,000. The
Stockholders have given the Purchaser notice of the Tax Claim.
(b) TAX PROCEEDINGS. Notwithstanding anything to the contrary
contained in Article V hereof, the Stockholders shall exercise, at their
expense, control over the handling, disposition, and settlement of any
governmental inquiry, examination, or proceeding that could result in a
determination with respect to the Tax Claim (each a "Tax Claim Proceeding").
The Purchaser shall take all actions reasonably requested by the Stockholders
in connection with any Tax Claim Proceeding, including, but not limited to, the
execution and delivery of power(s) of attorney, certificates of officers or
other instruments required in connection therewith. The Stockholders shall,
however, promptly notify the Purchaser if, in connection with any such inquiry,
examination, or proceeding any governmental authority proposes to make any
assessment or adjustment, which would have an adverse impact on the Company or
Lorvic for tax periods beginning after the Closing Date, and shall consult with
the Purchaser with respect to any such proposed assessment or adjustment.
Purchaser shall notify Stockholders promptly upon learning of such inquiry,
examination or proceeding. Notwithstanding anything to the contrary contained
in Article V hereof, and notwithstanding the foregoing, the Stockholders shall
not enter into any settlement, compromise or consent to judgment with respect
to the Tax Claim if such settlement, compromise or consent to judgment would be
for an amount exceeding the funds in the Tax Claim Escrow Account, plus, if
such settlement occurs on or prior to June 30, 1996, $200,000, without the
consent of Purchaser, which consent shall not be unreasonably withheld.
ARTICLE VI
TREATMENT OF RECEIVABLES AND INVENTORY
6.1. SPECIAL PROVISIONS RELATING TO CLOSING DATE RECEIVABLES AND
INVENTORY.
(a) The Purchaser shall use its reasonable best efforts in accordance
with the Purchaser's normal practices in collecting its own accounts receivable
to collect the Closing Date Receivables. Any payments received by the
Purchaser, the Company, Lorvic or their respective affiliates from any account
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debtor subsequent to the Closing Date shall, unless specifically allocated by
such account debtor to a specific receivable, be credited against the oldest
Closing Date Receivable or portion thereof of such account debtor.
(b) If the Purchaser makes a claim for indemnification under Section
5.2 for a breach of the representations set forth in Sections 3.1(r) and 3.1(s)
and such claim is paid out of the General Escrow Account or otherwise, then the
Purchaser shall cause the Company or Lorvic, as the case may be, to execute and
deliver to the Stockholders, such bills of sale and other instruments of
transfer, conveyance and assignment as shall be reasonably necessary to
transfer, convey and assign any Closing Date Receivables and/or inventory for
which the Purchaser has been reimbursed pursuant to Section 5.2 hereof, to the
Stockholders.
ARTICLE VII
MISCELLANEOUS
7.1. AGREEMENTS RELATING TO TAX REFUNDS. (a) The Stockholders shall,
at their expense, prepare all income tax returns for periods ending on or prior
to the Closing Date and any amendments to such returns (the "Stockholder
Returns"). The Stockholder Returns shall be prepared on a basis consistent
with the Company's prior practices in preparing returns, and will be delivered
to the Purchaser at least seven days prior to the due dates, without extension,
unless the Company has not afforded the Stockholders timely access to the
information necessary to prepare such returns. In connection therewith, the
Company shall afford the Stockholders or their representative reasonable access
to the books and records of the Company necessary to prepare such Stockholder
Returns. After the Purchaser has had an opportunity to review the Stockholder
Returns, the Purchaser shall cause the Company to timely file the Stockholder
Returns as prepared by the Stockholders, take all actions reasonably requested
by the Stockholders in connection with the filing of any Stockholder Returns
and take such other reasonable steps as are necessary or appropriate to assist
the Stockholders in obtaining any Tax Refunds. Subject to the following
sentence, the Stockholders shall exercise control over the handling,
disposition, and settlement of any governmental inquiry, examination, or
proceeding relating to or arising out of the Nemanick Option and/or the
Nemanick Bonus (each, a "Stockholder Tax Proceeding"). Notwithstanding
anything to the contrary contained in Article V hereof, the Stockholders shall
keep the Purchaser apprised of all significant developments and shall not enter
into any settlement, compromise or consent to judgment with respect to any
Stockholder Tax Proceedings, if such settlement, compromise or consent to
judgment would have an adverse impact on the Company with respect to tax
periods beginning after the Closing Date, without the consent of the Company,
which consent will not be unreasonably withheld. It is the intent of the
parties hereto that the taxable year of the Company and Lorvic will close for
Federal
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income tax purposes at the close of business on the Closing Date (the "Stub
Year") and that any net operating losses generated in the Stub Year will be
carried back to prior taxable years. Neither the Company nor the Purchaser
shall take any action that would be inconsistent with the intent expressed in
the preceding sentence.
(b) Promptly upon receipt of any Tax Refunds, the Purchaser shall
cause the Company to pay the amount of all such Tax Refunds, along with the
excess of any interest actually received by the Company in connection therewith
over the amount of any taxes the Company owes with respect to the receipt of
such interest, as follows: (x) to the Escrow Agent an amount to be deposited
into the General Escrow Account up to the amount (if any) distributed to the
Purchaser from the General Escrow Account pursuant to Section 1.4(c)(ii)
hereof, and (y) the balance to the Stockholders, pro rata in accordance with
their Percentage Interests, as an adjustment to the purchase price.
(c) If (x) all or any portion of the loss, deduction or credit
generated by the Company or Lorvic in connection with (i) the exercise of the
Nemanick Option and/or (ii) the Nemanick Bonus, in either case does not
generate a Tax Refund, but instead is applied against or otherwise reduces a
liability (a "Tax Liability") for any taxes (including without limitation
Taxes) of the Company or Lorvic or (y) any Tax Refund generated is applied
against or otherwise reduces a Tax Liability of the Company or Lorvic (the
amount so applied or resulting in such reduction in any such case being
referred to as the "Tax Reduction Amount"), then (A) the parties hereto shall
execute Mutual Written Instructions (as defined in the Escrow Agreement)
instructing the Escrow Agent to release to the Stockholders, from the Tax Claim
Escrow Account if the Tax Reduction Amount relates to the Tax Claim or from the
General Escrow Account if the Tax Reduction Amount relates to a Tax Liability
other than the Tax Claim which would result in a Loss under Section 5.2 hereof,
not later than the date such other Tax Liability would otherwise be due and
payable without extension, an amount equal to the Tax Reduction Amount less an
amount (if any) equal to the amount disbursed to Purchaser from the General
Escrow Account pursuant to Section 1.4(c)(ii) hereof and (B) if the Tax
Reduction Amount reduces or is otherwise applied to a Tax Liability which would
not result in a Loss under Section 5.2 hereof, the Purchaser shall pay to the
Stockholders, pro rata in accordance with their Percentage Interests, the
amount of such Tax Reduction Amount. If the portion of the Tax Reduction
Amount distributable to the Stockholders hereunder exceeds the balance in the
Tax Claim Escrow Account or the General Escrow Account, as appropriate, then
the Purchaser shall pay to the Stockholders, not later than such date, the
amount of such excess.
(d) Neither the Company, the Purchaser nor any Affiliate thereof shall
request under Section 301.6501(d) of the Treasury Department Regulations or any
similar statutory provision or regulation the prompt assessment by any taxing
authority of any
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taxes (including without limitation Taxes), for which the Company may be
liable.
7.2. PLAN EXPENSE REIMBURSEMENT. The Purchaser shall consult with
Nemanick on all Plan Expenses (as defined below) to be incurred by the
Purchaser. Purchaser shall have the right to reimbursement from the General
Escrow Account of an aggregate amount not to exceed $20,000 for all legal
expenses, accounting fees, taxes, penalties and government user fees paid by
Purchaser to correct the allocation of contributions under the Lorvic Profit
Sharing Plan to comply with the 1986 Tax Reform Act and to bring the Lorvic
Pension Plan into compliance with Federal legislation (collectively, "Plan
Expenses").
7.3. INTERPRETIVE PROVISIONS; CERTAIN DEFINITIONS. Whenever used in
this Agreement, "to the Company's knowledge" or "to the knowledge of the
Company" shall mean the actual knowledge of those Persons who are listed on
Exhibit H and "to Purchaser's knowledge" or "to the knowledge of Purchaser"
shall mean the actual knowledge of the Persons listed on Exhibit G. The
inclusion of any information on any schedule shall not be deemed to be an
admission or acknowledgement by the Company, in and of itself, that such
information is required to be listed on such schedule or is material to or
outside the ordinary course of the business of the Company and Lorvic. Any
disclosure made in any Schedule to this Agreement which should, based on the
substance of such disclosure, be applicable to another Schedule to this
Agreement shall be deemed to be made with respect to such other Schedule
regardless of whether or not a specific reference is made thereto.
7.4. NO ADDITIONAL REPRESENTATIONS. THE PURCHASER AND ITS
REPRESENTATIVES HAVE UNDERTAKEN AN INDEPENDENT INVESTIGATION AND VERIFICATION
OF THE BUSINESS, OPERATIONS AND FINANCIAL CONDITION OF THE COMPANY AND LORVIC.
THE PURCHASER EXPRESSLY ACKNOWLEDGES AND AGREES THAT IT IS NOT RELYING ON THE
COMPANY, LORVIC OR THE STOCKHOLDERS WITH RESPECT TO ANY MATTER IN CONNECTION
WITH THE PURCHASER'S INVESTIGATION OR EVALUATION OF THE COMPANY OR LORVIC,
(INCLUDING ANY OF THEIR ASSETS) EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
EXPRESSLY SET FORTH IN SECTION 3 OF THIS AGREEMENT. THE PURCHASER EXPRESSLY
ACKNOWLEDGES AND AGREES THAT EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
THE CONDITION OF THE BUSINESS OF THE COMPANY AND LORVIC, INCLUDING THE ASSETS
OF THE COMPANY OR LORVIC, SHALL BE "AS IS" AND "WHERE IS".
7.5. ACTION BY STOCKHOLDERS. All action required to be taken by the
Stockholders under this Agreement, the Documents and the Escrow Agreement
(including, without limitation, the giving and receiving of all notices,
consents and waivers and the execution and delivery of any documents, including
any amendments to the Escrow Agreement, and the execution and delivery of any
agreements and releases in connection with the settlement of any dispute or
claim under Article I or V hereof or the Escrow Agreement) shall be sufficient
if taken on the authority or with the written consent of the Stockholders
holding a majority of the common stock on the Valuation Date.
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7.6. APPOINTMENT OF AGENT. (a) By their execution and delivery hereof,
(i) each Stockholder other than CVCA, Leck, Kirtley, Brian J. Richmand and
Richard L. Perkal (such other Stockholders being the "Nemanick Stockholders")
shall be deemed, for themselves and their personal representatives and other
successors, to have constituted and appointed, effective from and after the
Closing Date, Nemanick as their agent and attorney-in-fact, to take all action
required or permitted to be taken by the Nemanick Stockholders under this
Agreement, the Documents and the Escrow Agreement (including, without
limitation, the execution and delivery of the Escrow Agreement the giving and
receiving of all notices, consents and waivers and the execution and delivery
of all documents, including any amendments of the Escrow Agreement, and the
execution and delivery of any agreements and releases in connection with the
settlement of any dispute or claim under Article I or V hereof or the Escrow
Agreement).
(b) Nemanick, as Agent for the Nemanick Stockholders shall be entitled
to rely, and shall be fully protected in relying, upon any statements furnished
to him by any Nemanick Stockholder, the Company, Lorvic or the Purchaser, or
any other evidence deemed by Nemanick to be reliable, and Nemanick shall be
entitled to act on the advice of counsel selected by him. Nemanick shall not
be responsible for the genuineness or validity of any document and shall have
no liability for acting in accordance with any written instructions given to
him and believed by him to be signed by the proper parties. Nemanick shall be
fully justified in failing or refusing to take any action under this Agreement
unless he shall have been expressly indemnified to his satisfaction by the
Nemanick Stockholders severally according to their respective Percentage
Interests against any and all liability and expense that Nemanick may incur by
reason of taking or continuing to take any such action. Nemanick shall in all
cases be fully protected in acting, or refraining from acting, under this
Agreement in accordance with a request of the Nemanick Stockholders, and any
action taken or the failure to act pursuant thereto, shall be binding upon all
of the Nemanick Stockholders.
(c) Nemanick shall be entitled to retain counsel, accountants and
other advisors and to incur such expenses (including litigation expenses) as
Nemanick deems to be necessary or appropriate in connection with his
performance of his obligations under this Agreement, and all such fees and
expenses (including reasonable attorney's fees) incurred by Nemanick shall be
paid by the Nemanick Stockholders pro rata according to their respective
Percentage Interests.
(d) The Nemanick Stockholders hereby agree severally to indemnify
Nemanick (in his capacity as Agent), ratably according to their respective
Percentage Interests against, and to hold Nemanick (in his capacity as Agent)
harmless from, any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of
whatever kind which may at any time be imposed upon, incurred by or asserted
against Nemanick in any way relating to or arising
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out of his action or failure to take action pursuant to this Agreement in his
capacity as Agent; provided, that no Nemanick Stockholder shall be liable for
the payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the gross negligence or willful misconduct of Nemanick.
(E) AMENDMENTS; SURVIVAL. No provision of this Section 7.6 may be
amended without the consent of Nemanick. The agreements in this Section 7.6
shall survive termination of this Agreement.
7.7. EXPENSES. Except as otherwise provided in this Agreement, all
legal and other costs and expenses incurred in connection with this Agreement
and the other Documents and the transactions contemplated hereby and thereby
shall be paid by the parties incurring such expenses.
7.8. ENTIRE AGREEMENT; AMENDMENT. (a) This Agreement and the Exhibits
and Schedules attached hereto contain the entire agreement among the parties
with respect to the transactions contemplated hereby and supersede all prior
agreements and understandings among the parties with respect thereto,
including, without limitation, the Letter of Intent dated March 2, 1995,
between the Stockholders, the Company and the Purchaser.
(b) This Agreement shall not be altered or otherwise amended except
pursuant to an instrument in writing signed by the parties hereto.
7.9. SEVERABILITY. It is the desire and intent of the parties hereto
that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction. Notwithstanding the foregoing, if
such provision could be more narrowly drawn so as not to be invalid, prohibited
or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
7.10. DESCRIPTIVE HEADINGS; NUMBER AND GENDER.
(a) Descriptive headings are for convenience only and shall not
control or affect the meaning or construction of any provision of this
Agreement.
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<PAGE> 43
(b) Any reference to the masculine, feminine or neuter gender shall
include such other genders and any reference to the singular or plural shall
include the other, in each case unless the context otherwise requires.
7.11. PUBLIC ANNOUNCEMENTS. The parties will consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement and the transactions contemplated hereby, and no
party will issue any such press release or any such public statement prior to
such consultation and the agreement of the other party, except as may be
required by law.
7.12. NOTICES. All notices or other communications which are required
hereunder or otherwise delivered in connection herewith shall be in writing and
shall be deemed to have been duly given if delivered personally or if sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
if to the Purchaser, to:
Young Dental Manufacturing Company
13705 Shoreline Court East
Earth City, Missouri 63045
Attention: Chief Financial Officer
with a copy to:
Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Square
St. Louis, Missouri 63102-2740
Attention: John L. Gillis, Jr., Esq.
Facsimile: (314) 621-5065
Telephone: (314) 621-5070
if to the Company, to:
Lorvic Holdings, Inc.
c/o Lorvic Corporation
8810 Frost Avenue
St. Louis, Missouri 63134
and, if to the Stockholders (including Nemanick), to them at the
address listed on Exhibit A hereto.
---------
in each case with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: Frederick M. Bachman, Esq.
Facsimile: (212) 408-2420
Telephone: (212) 408-2400
38
<PAGE> 44
or to such other address as any party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be effective upon receipt.
7.13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the
same agreement.
7.14. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF MISSOURI, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE
STATE OF MISSOURI OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF MISSOURI TO BE APPLIED. IN FURTHERANCE OF
THE FOREGOING, THE INTERNAL LAW OF THE STATE OF MISSOURI WILL CONTROL THE
INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH
JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW
OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
7.15. BENEFITS OF AGREEMENT. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Anything contained
herein to the contrary notwithstanding, this Agreement shall not be assignable
by the Stockholders without the consent of the Purchaser or by the Purchaser
without the consent of the Stockholders, provided, however that the Purchaser
may collaterally assign this Agreement, without the consent of the
Stockholders, to a financial or lending institution providing financing to the
Purchaser; provided, further, that no such assignment shall release the
Purchaser from his obligations hereunder.
7.16. CONSTRUCTION. The provisions of this Agreement shall be construed
according to their fair meaning and neither for nor against any party hereto
irrespective of which party caused such provisions to be drafted. Each of the
parties acknowledge that it has been represented by an attorney in connection
with the preparation and execution of this Agreement.
* * * *
39
<PAGE> 45
IN WITNESS WHEREOF, each of the parties has caused this Stock Purchase
Agreement to be executed on the day and year first written above.
YOUNG DENTAL MANUFACTURING COMPANY
By:/s/ George E. Richmond
-------------------------------
Name:
Title:
LORVIC HOLDINGS, INC.
By:/s/ Richard C. Nemanick
-------------------------------
Name:
Title:
40
<PAGE> 46
CHEMICAL VENTURE CAPITAL ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP,
BY: CHEMICAL VENTURE PARTNERS,
ITS GENERAL PARTNER
By: /s/ Jeff C. Walker
----------------------------------
A General Partner
/s/ P. Jeffrey Leck
-------------------------------------
P. Jeffrey Leck
/s/ John F. Kirtley
-------------------------------------
John F. Kirtley
/s/ Richard C. Nemanick
-------------------------------------
Richard C. Nemanick
41
<PAGE> 47
RICHARD C. NEMANICK TRUST
By: /s/ Richard C. Nemanick
-------------------------------------
By:
-------------------------------------
COLLEEN H. NEMANICK TRUST
By: /s/ Colleen H. Nemanick
-------------------------------------
By:
-------------------------------------
NEMANICK CHILDREN'S TRUST #2
By: /s/ Richard C. Nemanick
-------------------------------------
/s/ Richard L. Perkal
----------------------------------------
Richard L. Perkal
/s/ Brian J. Richmand
----------------------------------------
Brian J. Richmand
42
<PAGE> 1
EXHIBIT 10.3
ESCROW AGREEMENT
ESCROW AGREEMENT made May 4, 1995 (the "Agreement"), among YOUNG
DENTAL MANUFACTURING COMPANY, a Missouri corporation ("Buyer"), CHEMICAL
VENTURE CAPITAL ASSOCIATES, A California Limited Partnership ("CVCA"), P.
JEFFREY LECK ("Leck"), JOHN F. KIRTLEY ("Kirtley"), RICHARD C. NEMANICK
("Nemanick"), the other stockholders executing a signature page hereto (each, a
"Stockholder" and together with CVCA, Leck, Kirtley and Nemanick, the
"Stockholders"), and LORVIC HOLDINGS, INC., a Delaware corporation ("Lorvic")
(collectively, "Sellers"), and BOATMEN'S TRUST COMPANY (the "Escrow Agent").
WHEREAS, Buyer and Sellers are parties to a certain Stock Purchase
Agreement made as of May 4, 1995 (the "Purchase Agreement"), pursuant to which
Buyer is purchasing all of the capital stock of Lorvic;
WHEREAS, pursuant to the Purchase Agreement, Buyer is required to
deposit with the Escrow Agent a portion of the consideration payable to
Sellers; and
WHEREAS, the Escrow Agent has accepted such agency and agreed to hold
such funds in accordance with and subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Establishment of Escrow Accounts. The Escrow Agent shall
establish at its offices located at St. Louis, Missouri three escrow accounts
(each an "Escrow Account" and collectively the "Escrow Accounts") and shall
cause all funds deposited into the Escrow Accounts to be held, invested and
distributed in accordance with the terms of this Agreement. The amounts
deposited into the Escrow Accounts, together with any proceeds of investments
thereof, that may be held in the Escrow Accounts from time to time are
hereinafter referred to collectively as "Escrow Funds." The Escrow Agent shall
keep appropriate records to reflect the current value from time to time of the
Escrow Funds, including appropriate adjustments for disbursements and income
earned or losses in respect thereof.
2. Delivery of Escrow Funds. Buyer hereby agrees to deliver or
cause to be delivered to the Escrow Agent in accordance with the terms of
the Purchase Agreement, cash in the following amounts:
(a) $100,000 into an Escrow Account to be known as the
"Purchase Price Adjustment Escrow Account".
<PAGE> 2
(b) $700,000 into an Escrow Account to be known as the
"Tax Claim Escrow Account".
(c) $1,050,000 into an Escrow Account to be known as the
"General Escrow Account".
3. Investment of Escrow Funds. The Escrow Funds shall be invested
and reinvested by the Escrow Agent in such amounts and in such manner
as Sellers and Buyer shall instruct the Escrow Agent from time to time in
writing; provided, however, that after the second anniversary hereof, the
Escrow Agent shall invest the Escrow Funds in any investment which is exempt
from federal, state and local tax as directed by the Sellers. Initially, the
Escrow Funds shall be invested by the Escrow Agent in accordance with the
instructions set forth on Exhibit A hereto. If the Escrow Agent has not
received instructions from the Buyer and the Sellers prior to 15 days of the
expiration of the term of any instrument in which Escrow Funds are invested,
the Escrow Agent shall invest such Escrow Funds in instruments of the same or
of a substantially similar type as the instruments set forth on Exhibit A
hereto. Except as provided above, the Escrow Agent shall not be required to
invest any funds held hereunder unless requested by Sellers and Buyer as
provided herein.
4. Release of Escrow Funds. The Escrow Agent shall release the
Escrow Funds as follows:
(a) Release from Purchase Price Adjustment Escrow Account.
As soon as practicable after the completion of the calculation of the
Purchase Price Adjustment (as defined in the Purchase Agreement), as
provided in the Purchase Agreement, Buyer and Sellers shall execute
and deliver to the Escrow Agent written instructions ("Mutual Written
Instructions"), and the Escrow Agent shall promptly upon receipt
thereof disburse the Escrow Funds in the Purchase Price Adjustment
Escrow Account as provided in such Mutual Written Instructions, and,
if such Mutual Written Instructions so direct, shall disburse to Buyer
from the General Escrow Account the amount directed to be disbursed
therefrom in such Mutual Written Instructions. Notwithstanding the
foregoing, the Escrow Agent shall disburse the Escrow Funds in
accordance with any Certified Judgment Notice (as defined below) from
the Buyer or any Seller which is not the subject of an Appeal Notice.
(b) Release of Tax Claim Escrow Account. (i) As soon as
practicable after final resolution of the Tax Claim (as defined in the
Purchase Agreement), as provided in the Purchase Agreement, Buyer and
Sellers shall (x) determine the amount payable, if any, to the Buyer
pursuant to Section 5.2 of the Purchase Agreement and (y) execute and
deliver to the Escrow Agent Mutual Written Instructions to release the
amount set forth in clause (x) to the Buyer and the balance
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<PAGE> 3
of the Escrow Funds in the Tax Claim Escrow Account, if any, to the
Sellers, and the Escrow Agent shall promptly upon receipt thereof
disburse the Escrow Funds in the Tax Claim Escrow Account as provided
in such Mutual Written Instructions and, if such Mutual Written
Instructions so direct, shall disburse to Buyer from the General
Escrow Account the amount, if any, directed to be disbursed therefrom
in such Mutual Written Instructions. Notwithstanding the foregoing,
the Escrow Agent shall disburse the Escrow Funds in accordance with
any Certified Judgment Notice (as defined below) from the Buyer or any
Seller which is not the subject of an Appeal Notice.
(ii) If (x) all or any portion of the loss, deduction or
credit generated by the Company or Lorvic in connection with (a) the
exercise of the option granted to Nemanick pursuant to the Stock
Option Agreement dated as of December 28, 1989, by and between the
Company and Nemanick and/or (b) the bonus paid to Nemanick on May 2,
1995, in either case does not generate a Tax Refund (as defined in the
Purchase Agreement), but instead is applied against or otherwise
reduces a liability (a "Tax Liability") for any taxes (including
without limitation Taxes (as defined in the Purchase Agreement)) of
the Company or Lorvic or (y) any Tax Refund generated is applied
against or otherwise reduces a Tax Liability of the Company or Lorvic
(the amount so applied or resulting in such reduction in any such case
being referred to as the "Tax Reduction Amount"), then the parties
hereto shall execute Mutual Written Instructions instructing the
Escrow Agent to release to the Stockholders from the Tax Claim Escrow
Account if the Tax Reduction Amount relates to the Tax Claim or from
the General Escrow Account if the Tax Reduction Amount relates to a
Tax Liability other than the Tax Claim which would result in a Loss
under Section 5.2 of the Purchase Agreement, not later than the date
such other Tax Liability would otherwise be due and payable without
extension, an amount equal to the Tax Reduction Amount less an amount,
if any, equal to the amount disbursed to the Buyer from the General
Escrow Account pursuant to Section 4(a) hereof. Notwithstanding
anything to the contrary contained in this Subsection (ii) of Section
4(b), if the Tax Reduction Amount relates to a Tax Liability which
would not result in a Loss under Section 5.2 of the Purchase Agreement
no release of Escrow Funds shall be made pursuant to this Subsection.
(c) Release of General Escrow Account.
(1) If the Mutual Written Instructions delivered
to the Escrow Agent pursuant to Section 4(a) so direct, the
Escrow Agent shall promptly upon receipt of such Written
Instructions disburse to Buyer from the General
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<PAGE> 4
Escrow Account the amount directed to be disbursed therefrom in
such Mutual Written Instructions.
(2) The Escrow Agent shall, promptly upon receipt
of Mutual Written Instructions disburse to the Buyer an amount
not in excess of $20,000 to reimburse Buyer for its Plan
Expenses (as defined in the Purchase Agreement).
(3) On June 30, 1996, the Escrow Agent shall if
the Tax Claim Escrow Account has not theretofore been
disbursed, (i) transfer the amount of $200,000 from the
General Escrow Account to the Tax Claim Escrow Account, and
(ii) disburse to Sellers from the General Escrow Account the
amount, if any, by which the balance in the General Escrow
Account exceeds the Initial Base Amount. For purposes hereof,
"Initial Base Amount" means the sum of (A) $525,000 plus (B)
the aggregate amount as of such date of all claims subject to
a Buyer Claim Notice (as defined below) as to which the Escrow
Agent has not received Mutual Written Instructions or a
Certified Judgment Notice (as defined below) not the subject
of an Appeal Notice (as defined below), in either case
directing release of Escrow Funds ("Unresolved Claims"). The
Escrow Funds retained by the Escrow Agent in respect of the
amount referred to in clause (B) shall be held solely for the
purpose of satisfying the Unresolved Claims outstanding as of
June 30, 1996.
(4) On the second anniversary of the Closing Date
(as defined in the Purchase Agreement), the Escrow Agent shall
disburse to Sellers from the General Escrow Account the
amount, if any, by which the balance in the General Escrow
Account exceeds the aggregate amount of all Unresolved Claims.
The Escrow Funds retained by the Escrow Agent shall be held
solely for the purpose of satisfying the Unresolved Claims
outstanding as of such second anniversary.
(5) After June 30, 1996, each time an Unresolved
Claim is resolved as provided for below, the amount of such
Unresolved Claim shall be disbursed in accordance with the
Mutual Written Instructions or the Certified Judgment Notice
reflecting such resolution; provided, however, prior to the
second anniversary of the Closing Date, the balance of the
General Escrow Account will not be reduced below the sum of
(A) $525,000 plus (B) the aggregate amount of all remaining
Unresolved Claims asserted prior to June 30, 1996.
(6) In the event the Escrow Agent has any doubt as
to any amount to be released to Buyer or Sellers from any of
the Escrow Accounts, it may request Mutual
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<PAGE> 5
Written Instructions from Sellers and Buyer and may rely
thereon. Notwithstanding the foregoing sentence, the Escrow
Agent shall disburse the Escrow Funds in accordance with a
Certified Judgment Notice which is not the subject of an
Appeal Notice.
(7) All disbursements to Sellers hereunder shall
be in proportion to their percentage interests in the Escrow
Funds as set forth on Schedule A hereto; each such
disbursement shall be sent to the respective addresses of
Sellers set forth on Schedule A or to such other address as
provided to the Escrow Agent in writing by the Seller
receiving such disbursement.
(d) Buyer Claim Notice; Disputed Amounts. As contemplated by
the provisions of Section 4(c), if Buyer shall have delivered to the
Escrow Agent one or more written notices (each a "Buyer Claim Notice")
stating that the amount or amounts of the General Escrow Account
specified in such notice or notices should not be released to Sellers
and should be released to Buyer because Buyer has made a claim against
Sellers under the Purchase Agreement for such amount or amounts, the
Escrow Agent shall not release such amount or amounts to Sellers and
shall retain such amount or amounts until the same are released
pursuant to subsections (e) or (g) hereof. Buyer shall deliver to
Sellers a copy of each Buyer Claim Notice on or prior to the date of
the delivery thereof to the Escrow Agent, and the Escrow Agent shall
also deliver a copy thereof to Sellers promptly after receipt from
Buyer.
(e) Release to Buyer. Unless the Escrow Agent shall have
received a Seller Hold Notice as contemplated by Section 4(f) within
30 days following receipt by the Escrow Agent of a Buyer Claim Notice,
the Escrow Agent shall promptly thereafter release to Buyer such
portion of the General Escrow Account as is claimed by Buyer in such
Buyer Claim Notice.
(f) Seller Hold Notice; Disputed Amounts. If, within 30 days
of the Escrow Agent's receipt of a Buyer Claim Notice pursuant to
Section 4(d) above, any Seller named in Section 4(j) shall have
delivered to the Escrow Agent written notice (a "Seller Hold Notice")
stating that all or a portion of the General Escrow Account specified
in such Buyer Claim Notice should not be released to Buyer, then the
Escrow Agent shall not release such disputed amounts until the
occurrence of one of the two events contemplated in Section 4(g)
hereof. Such Seller shall deliver to Buyer a copy of such Seller Hold
Notice on or prior to the date of the delivery thereof to the Escrow
Agent and the Escrow Agent shall also deliver a copy of such Seller
Hold Notice to Buyer promptly after receipt thereof from such Seller.
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<PAGE> 6
(g) Release After a Seller Hold Notice. In the event that
the Escrow Agent receives a Seller Hold Notice as contemplated by
Section 4(f) hereof, that portion of the General Escrow Account that
is in dispute as reflected in such Seller Hold Notice shall be held by
the Escrow Agent until the occurrence of one of the following events:
(1) receipt by the Escrow Agent of Mutual
Written Instructions signed by Buyer and Sellers instructing
the Escrow Agent to release the disputed portion of the Escrow
Funds to such party or parties and in such amount or amounts
as is specified in such Mutual Written Instructions; or
(2) receipt by the Escrow Agent of a written
notice (a "Certified Judgment Notice") from Buyer or Sellers
certifying that a final nonappealable court judgment with
respect to the claim covered by the Buyer Claim Notice is
attached to such Certified Judgment Notice, in which case the
Escrow Agent shall distribute the disputed portion of the
Escrow Funds in accordance with such judgment, unless within
15 days of the Escrow Agent's receipt of a Certified Judgment
Notice, the Escrow Agent receives a written notice (an "Appeal
Notice") from the party not submitting such Certified Judgment
Notice stating that the judgment has or can and will be
appealed. A party delivering a Certified Judgment Notice or
an Appeal Notice shall deliver to the other party hereto a
copy thereof on or prior to the date of delivery thereof to
the Escrow Agent, and the Escrow Agent shall also deliver a
copy of each Certified Judgment Notice or Appeal Notice to the
party which did not deliver the same promptly after the Escrow
Agent's receipt thereof.
(h) Release of Accrued Interest. Prior to the second
anniversary of the Closing Date, the Escrow Agent shall distribute to
Sellers within five days after the end of each calendar quarter, an
amount equal to 40% of all amounts earned on funds in the Tax Claim
Escrow Account and the General Escrow Account (other than earnings
which are exempt from federal income taxes, which will be retained by
the Escrow Agent); provided, however, that all of such disbursements
shall be made from the General Escrow Account. After the second
anniversary of the Closing Date, earnings on the Escrow Funds will not
be so disbursed, but will be added to the Escrow Funds. All earnings
on the Escrow Funds prior to the time they are disbursed will, for all
purposes of this Escrow Agreement, be treated as Escrow Funds, and
will be released according to the terms of Section 4(a), (b) or (c),
as appropriate.
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<PAGE> 7
(i) Security Interests in Escrow Fund. (a) Except as
expressly provided herein, neither the Buyer nor the Sellers shall
have any right, title or interest in or possession of any of the
Escrow Accounts. Therefore, neither the Buyer nor the Sellers shall
have the ability to pledge, convey, hypothecate or grant a security
interest in any of the Escrow Accounts or portion thereof unless and
until such assets have been disbursed or are required to be disbursed,
to such party in accordance with this Section 4.
(b) Each of the Buyer and the Sellers
acknowledges that its interest in the Escrow Accounts is
merely a contingent right to payment from such Escrow
Accounts. Each of the Buyer and the Sellers further
acknowledges that neither a voluntary or involuntary case
under any applicable bankruptcy, insolvency or similar law nor
the appointment of a receiver, trustee, custodian or similar
official in respect of the Buyer of any of the Sellers (any of
which is referred to herein as a "Bankruptcy Event") shall
increase its respective interest in the Escrow Accounts or
affect, modify, convert or otherwise change the contingent
nature of its respective right to payment from the Escrow
Accounts in accordance with the terms of this Agreement.
Nonetheless:
(i) if a court of competent jurisdiction
determines that the Buyer, upon the occurrence of a
Bankruptcy Event with respect to the Buyer, has an
interest in any Escrow Account that is greater than a
contingent right to payment from such Escrow Account
payable only in accordance with the provisions of
this Section 4, then the Buyer shall be deemed to
have granted on the date hereof to the Sellers a
first priority security interest in, and pledged to
the Sellers all of its right, title and interest in
such Escrow Account. In such event, the Escrow Agent
shall be deemed to act as bailee on behalf of the
Sellers in respect of the Sellers' security interest
in the Buyer's rights to such Escrow Account. The
Escrow Agent shall, upon receipt of indemnification
satisfactory to it from the Sellers for its fees and
expenses incurred in connection with taking such
actions, take all actions as may be reasonably
requested in writing of it by the Sellers to further
perfect the security interest granted by the Buyer
hereunder in such Escrow Account. Such security
interest shall automatically be released with respect
to any funds properly distributed from such Escrow
Account pursuant to the terms of this Agreement; and
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<PAGE> 8
(ii) if a court of competent jurisdiction
determines that any Seller, upon the occurrence of a
Bankruptcy Event with respect to such Seller, has an
interest in any Escrow Account that is greater than a
contingent right to payment from such Escrow Account
payable only in accordance with the provisions of
this Section 4, then such Seller shall be deemed to
have granted on the date hereof to the Buyer a first
priority security interest in, and pledged to the
Buyer all of such Seller's right, title and interest
in such Escrow Account. In any such event, the
Escrow Agent shall be deemed to act as bailee on
behalf of the Buyer in respect of the Buyer's
security interest in such Seller's rights to such
Escrow Account. The Escrow Agent shall, upon receipt
of indemnification satisfactory to it from the Buyer
for its fees and expenses incurred in connection with
taking such actions, take all actions as may be
reasonably requested in writing of it by the Buyer to
further perfect the security interest created by such
Seller hereunder in such Escrow Account. Such
security interest shall automatically be released
with respect to any funds properly distributed from
such Escrow Account pursuant to the terms of this
Agreement.
(c) The parties hereto agree and acknowledge that
the establishment and maintenance of the Escrow Accounts
hereunder are intended to constitute possession of the Escrow
Accounts for the purposes of perfecting the security interests
therein created hereunder.
(j) Action by Sellers. All action required to be taken
by Sellers under this Agreement (including, without limitation, the
giving of Mutual Written Instructions with Buyer, and the execution
and delivery of any documents, including any amendments to this
Agreement, and the execution and delivery of any other documents
hereunder, shall be sufficient if executed in writing by Chemical
Venture Capital Associates, P. Jeffrey Leck, John F. Kirtley and
Richard C. Nemanick. Notwithstanding the foregoing, a Seller Hold
Notice shall be sufficient if executed in writing by any one of the
Sellers listed in the preceding sentence.
5. Responsibility of the Escrow Agent. The Escrow Agent accepts the
agency created by this Agreement upon the terms and conditions hereof
and undertakes to perform such duties and only such duties as are specifically
set forth herein. No provision of this Agreement shall be construed to relieve
the Escrow
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<PAGE> 9
Agent from liability for its own gross negligence or willful
misconduct, except that:
(a) The duties and obligations of the Escrow Agent shall be
determined solely by the express provisions of this Agreement, and no
implied covenants, duties or obligations shall be read into this
Agreement against the Escrow Agent nor shall the Escrow Agent be bound
by the provisions of any other agreements between the other parties
hereto beyond the specific terms hereof; the Escrow Agent shall not be
liable for any action taken, suffered or omitted by it in good faith
and reasonably believed by it to be authorized or within the
discretion, rights, duties, privileges or powers conferred upon it by
this Agreement; the Escrow Agent shall not be liable for any error of
judgment made in good faith by a responsible officer or officers of
the Escrow Agent, unless the Escrow Agent was grossly negligent in
ascertaining the pertinent facts or in employing such officer or
officers; and the Escrow Agent shall not be liable to any person with
respect to any action taken, omitted or suffered to be taken by it in
accordance with the provisions of this Agreement or in accordance with
the written directions of Sellers or Buyer as provided herein or of a
court of competent jurisdiction except in the case of the Escrow
Agent's gross negligence or willful misconduct.
(b) The Escrow Agent may act in reliance upon and be
protected in acting or refraining from acting upon any instrument or
signature believed to be genuine and may assume that any person
purporting to give any writing, notice, advice or instruction in
connection with the provisions hereof has been duly authorized to do
so.
(c) The Escrow Agent may consult with counsel, auditors and
other experts and any opinion of counsel or written opinion of such
auditors or other experts shall be full and complete authorization and
protection with respect to any action taken or suffered or omitted by
the Escrow Agent thereunder in good faith and in accordance with such
opinion of counsel or opinion of such auditors or other experts within
the area of their respective expertise.
(d) The Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either
directly or by or through its agents or attorneys. Nothing in this
Agreement shall be deemed to impose upon the Escrow Agent any
liability to any other person as a result of any failure of the Escrow
Agent to qualify to do business or to act as fiduciary or otherwise in
any jurisdiction other than the jurisdiction of its formation.
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(e) No property held in escrow by the Escrow Agent hereunder
shall be subject to any setoff, counterclaim, recoupment, lien or
other right which the Escrow Agent may have against either of the
other parties hereto or against any other person for any reason
whatsoever.
(f) If any dispute arises between Buyer and Sellers as to
which of them is entitled to delivery of the disputed portion of the
Escrow Funds, or if the Escrow Agent is uncertain as to its
obligations hereunder, the Escrow Agent may, but shall not be
obligated to, either (i) commence an interpleader action against Buyer
and Sellers in a state or federal court located in St. Louis,
Missouri, and deposit the disputed Escrow Funds with such court,
whereupon the Escrow Agent may apply to the court for an order
discharging it from all further liability to any other party to this
Agreement, or (ii) refrain from any action and continue to hold the
disputed portion of the Escrow Funds pending a resolution of the
dispute by either a court of competent jurisdiction or by a written
agreement signed by Buyer and the Sellers. For the purposes of any
action or proceeding contemplated by clause (i) above, each party
hereby consents to the jurisdiction of said courts and agrees that
service of process in any such action or proceeding may be made by
certified or registered mail at the address for notices to such party
provided in this Agreement.
6. Expenses; Indemnification. Each of (i) Buyer and (ii) Sellers as a
group agrees to pay one-half of any fees or expenses charged by the Escrow
Agent for its services to be performed hereunder. The Escrow Agent shall bill
Buyer for all such fees and expenses, and Buyer shall remit payment to the
Escrow Agent on behalf of all the parties hereto. Upon notice from Buyer,
Sellers shall immediately reimburse Buyer for Sellers' portion of such expenses
and fees. In addition, Buyer and Sellers hereby agree jointly to indemnify the
Escrow Agent for, and to hold it harmless against, any loss, liability or
expense incurred without gross negligence or willful misconduct on the part of
the Escrow Agent, arising out of or in connection with its entering into this
Agreement and carrying out its duties hereunder, including the costs and
expenses of defending itself against any claim of liability.
7. Removal and Resignation. The Escrow Agent may at any time be
removed by the written direction of Sellers and Buyer. The Escrow Agent or any
successor escrow agent may at any time resign and be discharged of the agency
hereby created by giving written notice to each of Sellers and Buyer specifying
the date upon which it desires that such resignation shall take effect. Such
removal or resignation shall take effect on the date specified in the notice of
removal or resignation, which date
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<PAGE> 11
shall not be earlier than 60 days after the giving of the notice of removal or
resignation unless a successor escrow agent shall have been appointed pursuant
to Section 8 hereof and shall have accepted such appointment, in which event
such removal or resignation shall take effect immediately upon the acceptance
by such successor escrow agent. Buyer and Sellers shall take prompt steps to
have a successor escrow agent appointed in the manner hereinafter provided.
8. Appointment of Successor Escrow Agent. If at any time the Escrow
Agent shall resign or be removed or if at any time a vacancy shall
occur in the office of the Escrow Agent for any other cause, a successor escrow
agent shall be appointed by a written instrument executed by Buyer and Sellers
and delivered to the Escrow Agent and the successor escrow agent. Upon
acceptance of said instrument by the successor escrow agent, the resignation or
removal of the Escrow Agent shall become effective and such successor escrow
agent shall become vested with all the rights, powers, duties and obligations
of its predecessor hereunder. If no successor escrow agent shall have been
appointed at the effective date of resignation of the Escrow Agent, the Escrow
Agent or either other party hereto shall petition a court of competent
jurisdiction for the appointment of a successor and the Escrow Agent's duties
shall be purely ministerial until such appointment is effective.
9. Termination. This Agreement shall terminate upon the release of
all Escrow Funds held in the Escrow Accounts hereunder pursuant to
Section 4 hereof or upon written agreement of the parties hereto, which
agreement, in the case of the Escrow Agent, shall not be unreasonably withheld.
10. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight delivery service or by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
To the Escrow Agent:
Boatmen's Trust Company
Corporate Trust Department
510 Locust Street
St. Louis, MO 63101
Telecopier No.: 314-466-2469
Attention: H. E. Bradford
-11-
<PAGE> 12
To Buyer:
Young Dental Manufacturing Company
13705 Shoreline Court East
Earth City, Missouri 63045
Telecopier No.: 314-344-0021
Attention: Chief Financial Officer
With a copy to:
Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Square
St. Louis, Missouri 63102-2740
Telecopier No.: 314-621-5065
Attention: John L. Gillis, Jr., Esq.
To Sellers:
To each Seller at the addresses set forth
on Schedule A hereto.
With a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Telecopier No.: 212-408-2420
Attention: Frederick M. Bachman, Esq.
11. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Escrow Agent, Buyer and Sellers and their
respective successors and permitted assigns. Any reference to a party
contained in this Agreement shall be deemed to apply to such party's successors
and permitted assigns to the extent there shall be any. Except as set forth in
Section 4(i) and except for any assignment by any Seller to any other Seller
pursuant to the Contribution Agreement, dated as of the date hereof, among the
Sellers, no party hereto may assign its rights (including, without limitation,
its contingent right to payment) and obligations hereunder without the written
consent of the other parties hereto. Any purported assignment in violation of
the provisions of this Section 11 shall be null and void.
12. Amendments and Modifications. This Agreement may not be amended
or modified in any respect without the express written consent of Buyer,
Sellers and the Escrow Agent.
13. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Missouri without regard
to the conflict of laws principles thereof.
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<PAGE> 13
14. Counterparts. This Agreement may be executed in any number of
counterparts, and by any party on a separate counterpart, each of which as so
executed and delivered shall be deemed an original but all of which together
shall constitute one and the same instrument, and it shall not be necessary in
making proof of this Agreement as to any party hereto to produce or account for
more than one such counterpart executed and delivered by such party.
15. No Waiver. The failure of any party to insist, in any one or
more instances, upon the timely performance of any of the terms, covenants or
conditions of this Agreement and to exercise any right hereunder, shall not be
construed as a waiver or relinquishment of the future performance of any such
term, covenant or condition or the future exercise of such right, but the
obligations of the other parties with respect to such future performance shall
continue in full force and effect.
16. Descriptive Headings. The descriptive heading of the sections of
this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
IN WITNESS WHEREOF, each of the Escrow Agent, Buyer and Sellers have
caused this Agreement to be duly executed and delivered, all as of the date
first above written.
BOATMEN'S TRUST COMPANY
By: /s/ Jerry Rector
--------------------------------
YOUNG DENTAL MANUFACTURING COMPANY
By: /s/ George E. Richmond
--------------------------------
LORVIC HOLDINGS, INC.
By: /s/ Richard C. Nemanick
--------------------------------
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<PAGE> 14
CHEMICAL VENTURE CAPITAL ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP,
BY: CHEMICAL VENTURE PARTNERS,
ITS GENERAL PARTNER
By: /s/ Jeff. C. Walker
--------------------------------
A General Partner
/s/ P. Jeffrey Leck
-----------------------------------
P. Jeffrey Leck
/s/ John S. Kirtley
-----------------------------------
John F. Kirtley
/s/ Richard C. Nemanick
-----------------------------------
Richard C. Nemanick
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<PAGE> 15
RICHARD C. NEMANICK TRUST
By: /s/ Richard C. Nemanick
--------------------------------
COLLEEN H. NEMANICK TRUST
By: /s/ Colleen H. Nemanick
--------------------------------
NEMANICK CHILDREN'S TRUST #2
By: /s/ Richard C. Nemanick
--------------------------------
/s/ Richard L. Perkal
-----------------------------------
Richard L. Perkal
/s/ Brian J. Richmand
-----------------------------------
Brian J. Richmand
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<PAGE> 16
EXHIBIT A
Pursuant to Section 3 of the Escrow Agreement, the Escrow Funds shall
at all times be invested and reinvested by the Escrow Agent in one or more of
the following short term investment products:
(i) obligations issued or guaranteed as to full and timely payment
by the United States of America or by any Person controlled by or acting as an
instrumentality of the United States of America pursuant to authority granted
by Congress;
(ii) Obligations issued or guaranteed by any state or political
subdivision thereof (including stripped obligations the principal of and
interest on which have been separated and offered for sale separate from each
other) if (A) such obligations are entitled to the full faith and credit of
such state or political subdivision of such state, respectively, and such
obligations provide that the state or political subdivision has the obligation
to repay, in full and on a timely basis, such obligations, and (B) such
obligations are rated not lower than the second highest category if rated as
short term obligations or not lower than the third highest category if rated as
long term obligations by Moody's Investors Service, Inc. ("Moody's") or by
Standard & Poor's Corporation ("Standard & Poor's", each of New York, New York,
or their respective successors;
(iii) readily marketable commercial or finance paper of corporations
doing business in and incorporated under the laws of the United States of
America or any state thereof, which is rated in the highest rating category by
either Moody's or Standard & Poor's, or their respective successors;
(iv) deposit accounts, bankers' acceptances, certificates of deposit
or bearer deposit notes in one or more banks, trust companies or savings and
loan associations (including without limitation, the Escrow Agent or any bank
affiliated with the Escrow Agent) organized under the laws of the United States
of America or any state thereof, each bank or trust company having a reported
capital and surplus of at least $500,000,000 in dollars of the United States of
America and each savings and loan association having a reported unimpaired
capital and surplus, or retained income, as the case may be, of at least
$500,000,000 in dollars of the United States of America;
(v) repurchase agreements secured fully by obligations of the type
specified in clause (i) or issued by a bank or savings and loan association
which is insured by the Federal Deposit Insurance Corporation; and
(vi) any fund or other pooling arrangement which purchases and holds
only investments of the types described in paragraphs (i) through (v) above.
<PAGE> 17
SCHEDULE A
PERCENTAGE INTEREST OF STOCKHOLDERS
Percentage
Stockholder Interests
Richard C. Nemanick 5.00%
Mercantile Bank
St. Louis, MO
ABA #081-000210
Account 1001435187
FBO Richard C. Nemanick TTEE
FBO Account #030-587138-065
Chemical Venture Capital Associates 37.524296%
Chemical Bank
401 Madison Avenue
New York, NY 10017
ABA #021-000-128
Account #006-069460
Ref: From the Lorvic Corp./Young Dental
Attn: Donna Carter 212-270-1120
(please call when wire completed)
Richard C. Nemanick, 22.00%
Trustee of the Richard C.
Nemanick Trust, dated July 25, 1978
Mercantile Bank
St. Louis, MO
ABA #081-000210
Account 1001435187
FBO Richard C. Nemanick TTEE
FBO Account #030-587138-065
Colleen H. Nemanick, Trustee of the Colleen H. 12.00%
Nemanick Trust, dated July 25, 1978
Mercantile Bank
St. Louis, MO
ABA #081-000210
Account 1001435187
<PAGE> 18
FBO Colleen H. Nemanick TTEE
FBO Account #326-151-963
Richard C. Nemanick, Trustee of the Nemanick 2.00%
Children's Trust #2, dated Dec. 15, 1979 F.B.O.
Eric J. Nemanick SS# ###-##-####
Mercantile Bank
St. Louis, MO
ABA #081-000210
Account 1001435187
FBO Nemanick Children's Trust FBO Eric
FBO Account #030-587197-065
Richard C. Nemanick, Trustee of the Nemanick 2.00%
Children's Trust #2, dated Dec. 15, 1979 F.B.O.
Jeffrey R. Nemanick SS# ###-##-####
Mercantile Bank
St. Louis, MO
ABA #081-000210
Account 1001435187
FBO Nemanick Children's Trust FBO Jeffrey
FBO Account #030-587170-065
Richard C. Nemanick, Trustee of the Nemanick 2.00%
Children's Trust #2, dated Dec. 15, 1979 F.B.O.
Richard C. Nemanick, Jr. SS# ###-##-####
Mercantile Bank
St. Louis, MO
ABA #081-000210
Account 1001435187
FBO Nemanick Children's Trust FBO Richard Jr.
FBO Account #030-587162-065
Richard L. Perkal .229552%
Crestar Bank
Washington, DC
ABA #056-001-079
Account #82093-6812
Richard L. Perkal
Brian J. Richmand .229552%
Chemical Bank
New York, NY
ABA #021000128
For Credit To: National Financial Services Corp.
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<PAGE> 19
Account #066196-221
For the Benefit of Brian J. Richmand and Linda S. Richmand
Account # X37 028 193
John Kirtley 8.5083%
Morgan Guaranty Trust Co. of NY
ABA #021000238
Account T. Rowe Price Reserve Fund #00153938
John F. Kirtley #400350-116-2
P. Jeffrey Leck 8.5083%
Barnett Bank
101 East Kennedy Boulevard
Tampa, FL
ABA #06-310-4697
Account #140-691-0134
P. Jeffrey Leck
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<PAGE> 1
EXHIBIT 10.4
CONTINGENT PAYMENT AGREEMENT
THIS CONTINGENT PAYMENT AGREEMENT (the "Agreement") made and entered
into this 4th day of May, 1995, by and among YOUNG DENTAL MANUFACTURING
COMPANY, a Missouri corporation ("Buyer"), THE RICHARD C. NEMANICK TRUST dated
July 25, 1978 ("Nemanick"), one of the stockholders of LORVIC HOLDINGS, INC., a
Delaware corporation ("Lorvic Holdings"), and BOATMEN'S TRUST COMPANY (the
"Escrow Agent"). All capitalized terms not defined herein shall have the same
meanings as set forth in the Purchase Agreement (as herein defined).
WHEREAS, Buyer and the stockholders of Lorvic Holdings, including
Nemanick, are parties to a certain Stock Purchase Agreement made as of May 4,
1995 (the "Purchase Agreement"), pursuant to which Buyer is purchasing all of
the capital stock of Lorvic Holdings and its wholly owned subsidiary, The
Lorvic Corporation, a Delaware corporation ("Lorvic Corporation");
WHEREAS, Nemanick is willing to represent and warrant that for the tax
periods ending on or before the Closing Date of Lorvic Holdings and Lorvic
Corporation, neither Lorvic Holdings nor Lorvic Corporation shall have any tax
liabilities, together with any interest, penalties, additions to tax or
additional amounts with respect thereto, for any tax matter other than those
Lorvic Holdings represents and warrants to have been paid or properly reflected
on the Closing Balance Sheet pursuant to Section 3.1(o) of the Purchase
Agreement ("Excess Taxes");
WHEREAS, Buyer desires to withhold Five Hundred Thousand Dollars
($500,000) (the "Initial Escrow Amount") from Nemanick and to make the payment
of the same contingent upon the expiration of the applicable statutes of
limitation without the assessment of any Excess Taxes which Nemanick represents
and warrants that neither Lorvic Holdings nor Lorvic Corporation owes; and
WHEREAS, Buyer is willing to deposit the Initial Escrow Amount with
the Escrow Agent upon the terms hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Representation and Warranty of Nemanick. Nemanick represents
and warrants to Buyer that for the tax periods of Lorvic Holdings and Lorvic
Corporation ending on or before Closing Date, neither Lorvic Holdings nor
Lorvic Corporation shall have any liability for Excess Taxes. This
representation and warranty shall survive until such time as the assessment or
collection of any Excess Taxes with respect to any tax periods of Lorvic
Holdings or Lorvic Corporation ending on or before the
<PAGE> 2
Closing Date is prevented by the operation of any law or rule of law.
2. Establishment of Escrow Account. The Escrow Agent shall
establish at is offices located at St. Louis, Missouri an escrow account (the
"Escrow Account") and shall cause all funds deposited into the Escrow Account
to be held, invested and distributed in accordance with the terms of this
Agreement. The amount deposited into the Escrow Account, together with any
proceeds of investments thereof, that may be held in the Escrow Account from
time to time are hereinafter referred to as "Escrow Funds." The Escrow Agent
shall keep appropriate records to reflect the current value from time to time
of the Escrow Funds, including appropriate adjustments for disbursements and
income earned and losses in respect thereof.
3. Delivery of Escrow Funds. Buyer hereby agrees to deliver or
cause to be delivered to Escrow Agent in accordance with the terms of this
Agreement the Initial Escrow Amount, in cash, to be held hereunder as Escrow
Funds.
4. Investment of Escrow Funds. The Escrow Funds shall be
invested and reinvested by the Escrow Agent in the Escrow Agent's Tax Exempt
Money Market Fund or, if otherwise specifically directed to do so by Buyer, in
obligations issued or guaranteed by any state or political subdivision thereof
(including stripped obligations the principal of and interest on which have
been separated and offered for sale separate from each other) and, rated in the
second highest category if rated as short term obligations or not lower than
the third highest category if rated as long term obligations by Moody's
Investors Service, Inc. ("Moody's") or by Standard & Poor's Corporation
("Standard & Poor's"), each of New York, New York, or their respective
successors.
5. Notice of Claim. (a) Defense of Claim. Promptly after the
assertion by any governmental agency against Lorvic Holdings or Lorvic
Corporation of a claim that either Lorvic Holdings or Lorvic Corporation may be
liable for any Excess Tax (a "Claim"), Buyer shall promptly notify Nemanick.
Thereupon, Nemanick shall have the right, upon written notice (the "Defense
Notice") to Buyer within 30 days after receipt by Nemanick of notice of the
Claim (or sooner if such claim so requires) to conduct, at Nemanick's own
expense, the defense against the Claim. In the event of a Claim, Nemanick
shall have the right to reasonable access to the pertinent documents and
records of Lorvic Holdings and/or Lorvic Corporation in the defense of a Claim.
The Defense Notice shall specify the counsel Nemanick shall appoint to defend
such Claim. Buyer shall have the right to employ separate counsel in any such
Claim and/or participate in the defense thereof, but the fees and expenses of
such counsel shall not be included as part of any amount to be reimbursed
hereunder. Nemanick shall apprise Buyer of all significant developments. In
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<PAGE> 3
the event Nemanick shall fail to (i) give a Defense Notice within such 30 day
period, or (ii) provide a reasonable defense against the prosecution of a
Claim, Buyer may conduct such defense and the cost thereof shall be
reimbursable from the Escrow Funds, as provided in Paragraph (b) hereof.
(b) Payment to Buyer. Upon joint written instructions by Buyer
and Nemanick to the Escrow Agent, Buyer shall be entitled to payment from the
Escrow Funds for the following:
(i) The full amount of any Excess Tax payable to a taxing
jurisdiction; and
(ii) All reasonable costs and expenses incurred in defending
any Claim for Excess Tax in the event that Nemanick
fails to provide a reasonable defense.
The amount(s) subject to reimbursement pursuant to this Paragraph (b)
shall be calculated net of any amounts which have been previously recovered by
Buyer from other collateral sources (such as contractual indemnities of any
person which are contained outside this Agreement).
6. Earnings. The Escrow Agent shall remit to Buyer, on or before
March 10 of each year during the term hereof, an amount, which shall be
certified to the Escrow Agent by Buyer and Nemanick, equal to the Federal,
State and local tax liability of Buyer with respect to the taxable income of
the Escrow Funds for the prior calendar year. Buyer shall pay all taxes due on
such earnings and shall indemnify and hold Nemanick harmless therefrom.
7. Release of Escrow Funds. Upon joint written instructions by
Buyer and Nemanick to the Escrow Agent, the Escrow Agent shall release and pay
to Nemanick the remaining balance of the Escrow Funds as soon as practicable
after either of the following events:
(a) the time that the assessment or collection of any
Excess Taxes is prevented by operation of any law or rule of law; or
(b) Richard C. Nemanick fails to receive any monetary
compensation to which he is entitled under that certain Employment and
Noncompetition Agreement dated May 4, 1995 between Richard C. Nemanick
and Buyer.
8. Parties' Interest and Escrow Funds. The interest of the
Parties in the Escrow Funds shall not be subject to sale, assignment, transfer,
pledge, encumbrance or other disposition while held in the Escrow Account,
except as specifically contemplated by Section 15 hereof.
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<PAGE> 4
9. Responsibility of the Escrow Agent. The Escrow Agent accepts the
agency created by this Agreement upon the terms and conditions hereof and
undertakes to perform such duties and only such duties as are specifically set
forth herein. No provision of this Agreement shall be construed to relieve the
Escrow Agent from liability for its own gross negligence or willful misconduct,
except that:
(a) The duties and obligations of the Escrow Agent shall be
determined solely by the express provisions of this Agreement, and no
implied covenants, duties or obligations shall be read into this
Agreement against the Escrow Agent nor shall the Escrow Agent be bound
by the provisions of any other agreements between the other parties
hereto beyond the specific terms hereof; the Escrow Agent shall not be
liable for any action taken, suffered or omitted by it in good faith
and reasonably believed by it to be authorized or within the
discretion, rights, duties, privileges or powers conferred upon it by
this Agreement; the Escrow Agent shall not be liable for any error of
judgment made in good faith by a responsible officer or officers of
the Escrow Agent, unless the Escrow Agent was grossly negligent in
ascertaining the pertinent facts or in employing such officer or
officers; and the Escrow Agent shall not be liable to any person with
respect to any action taken, omitted or suffered to be taken by it in
accordance with the provisions of this Agreement or in accordance with
the written directions of Nemanick or Buyer as provided herein or of a
court of competent jurisdiction except in the case of the Escrow
Agent's gross negligence or willful misconduct.
(b) The Escrow Agent may act in reliance upon and be
protected in acting or refraining from acting upon any instrument or
signature believed to be genuine and may assume that any person
purporting to give any writing, notice, advice or instruction in
connection with the provisions hereof has been duly authorized to do
so.
(c) The Escrow Agent may consult with counsel, auditors and
other experts and any opinion of counsel or written opinion of such
auditors or other experts shall be full and complete authorization and
protection with respect to any action taken or suffered or omitted by
the Escrow Agent thereunder in good faith and in accordance with such
opinion of counsel or opinion of such auditors or other experts within
the area of their respective expertise.
(d) The Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either
directly or by or through its agents or attorneys. Nothing in this
Agreement shall be deemed to impose upon the Escrow Agent any
liability to any other
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<PAGE> 5
person as a result of any failure of the Escrow Agent to qualify to do
business or to act as fiduciary or otherwise in any jurisdiction other
than the jurisdiction of its formation.
(e) No property held in escrow by the Escrow Agent hereunder
shall be subject to any setoff, counterclaim, recoupment or other
right which the Escrow Agent may have against either of the other
parties hereto or against any other person for any reason whatsoever.
(f) If any dispute arises between Buyer and Nemanick as to
which of them is entitled to delivery of the disputed portion of the
Escrow Funds, or if the Escrow Agent is uncertain as to its
obligations hereunder, the Escrow Agent may, but shall not be
obligated to, either (i) commence an interpleader action against Buyer
and Nemanick in any state court located within St. Louis County,
Missouri, or federal court located in St. Louis, Missouri, and deposit
the disputed Escrow Funds with such court, whereupon the Escrow Agent
may apply to the court for an order discharging it from all further
liability to any other party to this Agreement, or (ii) refrain from
any action and continue to hold the disputed portion of the Escrow
Funds pending a resolution of the dispute by either a court of
competent jurisdiction or by a written agreement signed by Buyer and
Nemanick. For the purposes of any action or proceeding contemplated
by clause (i) above, each party hereby consents to the jurisdiction of
said courts and agrees that service of process in any such action or
proceeding may be made by certified or registered mail at the address
for notices to such party provided in this Agreement.
10. Expenses; Indemnification. Each of (i) Buyer and (ii) Nemanick
agrees to pay one-half of any fees or expenses charged by the Escrow Agent for
its services to be performed hereunder. In addition, Buyer and Nemanick hereby
agree jointly to indemnify the Escrow Agent for, and to hold it harmless
against, any loss, liability or expense incurred without gross negligence or
willful misconduct on the part of the Escrow Agent, arising out of or in
connection with its entering into this Agreement and carrying out its duties
hereunder, including the costs and expenses of defending itself against any
claim of liability.
11. Removal and Resignation. The Escrow Agent may at any time be
removed by the written direction of Nemanick and Buyer. The Escrow Agent or
any successor escrow agent may at any time resign and be discharged of the
agency hereby created by giving written notice to each of Nemanick and Buyer
specifying the date upon which it desires that such resignation shall take
effect. Such removal or resignation shall take effect on the date specified in
the notice of removal or resignation, which date shall not be earlier than 60
days after the giving of the notice
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<PAGE> 6
of removal or resignation unless a successor escrow agent shall have been
appointed pursuant to Section 12 hereof and shall have accepted such
appointment, in which event such removal or resignation shall take effect
immediately upon the acceptance by such successor escrow agent. In the event
of such removal or resignation, Buyer and Nemanick shall take prompt steps to
have a successor escrow agent appointed in the manner hereinafter provided.
12. Appointment of Successor Escrow Agent. If at any time the Escrow
Agent shall resign or be removed or if at any time a vacancy shall occur in the
office of the Escrow Agent for any other cause, a successor escrow agent shall
be appointed by a written instrument executed by Buyer and Nemanick and
delivered to the Escrow Agent and the successor escrow agent. Upon acceptance
of said instrument by the successor escrow agent, the resignation or removal of
the Escrow Agent shall become effective and such successor escrow agent shall
become vested with all the rights, powers, duties and obligations of its
predecessor hereunder. If no successor escrow agent shall have been appointed
at the effective date of resignation of the Escrow Agent, the Escrow Agent or
either other party hereto shall petition a court of competent jurisdiction for
the appointment of a successor and the Escrow Agent's duties shall be purely
ministerial until such appointment is effective.
13. Termination. This Agreement shall terminate upon the release of
all Escrow Funds held in the Escrow Account hereunder pursuant to Section 7
hereof or upon written agreement of the parties hereto, which agreement, in the
case of the Escrow Agent, shall not be unreasonably withheld.
14. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by facsimile
transmission, telexed or mailed by overnight delivery service or by registered
or certified mail (return receipt requested), postage prepaid, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
To the Escrow Agent:
Boatmen's Trust Company
Corporate Trust Department
510 Locust Street
St. Louis, Missouri 63101
Telecopier No.: 314-466-2469
Attention: H. E. Bradford
-6-
<PAGE> 7
To Buyer:
Young Dental Manufacturing Company
13705 Shoreline Court East
Earth City, Missouri 63045
Telecopier No: 314-344-0021
Attention: Chief Financial Officer
To Nemanick:
Richard C. Nemanick
900 Cabernet
Town & Country, Missouri 63017
15. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Escrow Agent, Buyer and Nemanick and their
respective successors and permitted assigns. Any reference to a party
contained in this Agreement shall be deemed to apply to such party's successors
and permitted assigns to the extent there shall be any. No party hereto may
assign its rights and obligations hereunder without the written consent of the
other parties hereto. Any purported assignment in violation of the provisions
of this Section 15 shall be null and void.
16. Amendments and Modifications. This Agreement may not be amended
or modified in any respect without the express written consent of Buyer,
Nemanick and the Escrow Agent.
17. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Missouri without regard
to the conflict of laws principles thereof.
18. Counterparts. This Agreement may be executed in any number of
counterparts, and by any party on a separate counterpart, each of which as so
executed and delivered shall be deemed an original but all of which together
shall constitute one and the same instrument, and it shall not be necessary in
making proof of this Agreement as to any party hereto to produce or account for
more than one such counterpart executed and delivered by such party.
19. No Waiver. The failure of any party to insist, in any one or
more instances, upon the timely performance of any of the terms, covenants or
conditions of this Agreement and to exercise any right hereunder, shall not be
construed as a waiver or relinquishment of the future performance of any such
term, covenant or condition or the future exercise of such right, but the
obligations of the other parties with respect to such future performance shall
continue in full force and effect.
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<PAGE> 8
20. Descriptive Headings. The descriptive heading of the sections of
this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
IN WITNESS WHEREOF, each of the Escrow Agent, Buyer and Nemanick have
caused this Agreement to be duly executed and delivered, all as of the date
first above written.
BOATMEN'S TRUST COMPANY
By: /s/ Jerry Rector
-------------------------------
YOUNG DENTAL MANUFACTURING COMPANY
By:/s/ George E. Richmond
-------------------------------
THE RICHMOND C. NEMANICK TRUST
By:/s/ Richard C. Nemanick
-------------------------------
RICHARD C. NEMANICK, Trustee
-8-
<PAGE> 1
EXHIBIT 10.5
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made this 4th day of May, 1995,
by and between Young Dental Manufacturing Company, a Missouri corporation (the
"Corporation") and Richard C. Nemanick, Sr. ("Consultant"), an individual
residing at 900 Cabernet, Town & Country, Missouri 63117.
WITNESSETH:
WHEREAS, Corporation and Consultant have entered into a certain Employment
and Noncompetition Agreement of even date herewith (the "Employment
Agreement"); and
WHEREAS, Corporation desires to hire Consultant to provide consulting
services to Corporation at the completion of the Employment Agreement and
Consultant desires to provide such services to Corporation upon completion of
the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
promises herein contained, the adequacy and receipt of which is hereby
acknowledged, Corporation and Consultant hereby agree as follows.
I. RETENTION
On the Effective Date (as herein defined), Corporation shall retain
Consultant as a consultant to Corporation, and Consultant accepts retention by
Corporation as a consultant upon all of the terms and conditions set out in
this Agreement.
II. POSITIONS, DUTIES AND SCHEDULE
2.1 POSITIONS. Consultant shall serve as a consultant to Corporation. The
relationship created by the consulting services provided by Consultant to
Corporation shall be that of independent contractor and not that of employee
and employer. Consultant shall be responsible for the payment of any taxes,
including, without limitation, all Federal, State and local personal and
business income taxes, sales and use taxes, and other business taxes or fees
arising out of the activities of Consultant. Corporation shall not make any of
the benefits afforded to Corporation's employees available to Consultant.
2.2 RESPONSIBILITIES. Consultant shall provide consulting services and
shall be available to assist Corporation on projects
<PAGE> 2
and matters that are within Consultant's areas of expertise and training, as
assigned by the Board of Directors or the President of Corporation.
2.3 SCHEDULE. Consultant shall be available a minimum of fifty (50) days
per year during the term of this Agreement. It is anticipated by the parties
hereto that Consultant shall be available approximately one (1) day per week or
four (4) days per month.
III. TERM OF RETENTION
Consultant's retention under this Agreement shall commence immediately at the
termination of the Employment Agreement (the "Effective Date"), and shall
continue until 12:00 a.m. on the date that Consultant turns sixty-five (65)
years of age, unless earlier terminated pursuant to the terms of this
Agreement.
IV. COMPENSATION
4.1 REGULAR COMPENSATION. For all services rendered by Consultant during
the term of this Agreement, Consultant shall be entitled to receive regular
annual payments in the amount of Thirty Two Thousand Dollars ($32,000). Such
payments shall be made in twelve (12) equal monthly installments, or as
mutually agreed upon by the parties hereto.
4.2 WITHHOLDING. All payments shall be less such amounts as are required to
be withheld by federal, state or local law, if any.
V. TERMINATION OF RETENTION
5.1 TERMINATION BY CORPORATION. Corporation may terminate Consultant's
retention pursuant to this Agreement in the event that Consultant during the
term of this Agreement shall be in Actual Default (as defined herein) under any
provision of this Agreement, or if Consultant has committed acts of gross
negligence, dishonesty or misconduct in carrying out his obligations or
responsibilities to the Corporation, as determined in the reasonable discretion
of the Board of Directors of the Corporation, by giving at least thirty (30)
days prior written notice to Consultant of Corporation's intention to terminate
this Agreement. In the event of such termination by Corporation, Consultant
shall have the right to reasonable access to documents and records of
Corporation in a subsequent investigation by Consultant challenging the grounds
for termination.
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In the event of any such termination by Corporation, Corporation shall be
obligated to continue to pay Consultant the compensation due Consultant under
this Agreement up to the termination date stated in said written notice so long
as Consultant continues to be ready, willing and able to perform all of
Consultant duties in accordance with this Agreement.
5.2 TERMINATION BY CONSULTANT. Consultant may terminate Consultant's
retention pursuant to this Agreement in the event that Corporation, during the
term of this Agreement, shall be in Actual Default (as defined herein) under
any provision of this Agreement, by giving at least sixty (60) days prior
written notice to Corporation of Consultant's intention to terminate this
Agreement.
In the event of any such termination by Consultant, Corporation shall
continue to pay Consultant the salary due Consultant under this Agreement up to
the termination date stated in Consultant's written notice so long as
Consultant continues to perform all of Consultant duties in accordance with the
terms of this Agreement and so long as there is no earlier termination date
under any notice given by Corporation.
5.3 TERMINATION BY MUTUAL AGREEMENT. Consultant's retention under this
Agreement may be terminated at any time by mutual written agreement between the
parties hereto.
5.4 COOPERATION BY CONSULTANT. Following any such notice of termination,
Consultant shall fully cooperate with Corporation in all matters relating to
the winding up of Consultant's pending work on behalf of Corporation and the
orderly transfer of any such pending work to such other employees of
Corporation as may be designated by Corporation; and to that end Corporation
shall be entitled to such services of Consultant as Corporation may reasonably
require during all or any part of the period from the time of giving any such
notice until the effective date of such termination.
5.5 SETTLEMENT OF ACCOUNTS. After any termination of this Agreement, all
compensation and amounts due to Consultant with respect to work performed or
expenses incurred prior to the date of termination shall be reconciled with
amounts due to Corporation from Consultant. Each party shall be entitled to
offset against any amounts that may be due to the other party such amounts as
are due from such other party to it or him. The parties shall proceed
expeditiously to accomplish the foregoing, and the resulting amount due from
one party to the other shall be paid promptly after it is determined.
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<PAGE> 4
VI. FILES AND RECORDS
All files, records, documents and reports concerning customers of
Corporation, including, without limitation, clients and customers consulted,
interviewed or served by Consultant during the term of this Agreement shall
belong to and remain the property of Corporation.
VII. CONFIDENTIAL INFORMATION
7.1 NONDISCLOSURE BY CONSULTANT. Consultant will not, except as authorized
by Corporation, during or at any time after the termination of Consultant's
retention with Corporation, directly or indirectly, use for himself or others,
or disclose, communicate, divulge, furnish to, or convey to any other person,
firm, or corporation, any secret or confidential information, knowledge or data
of Corporation or that of third parties obtained by Consultant during the
period of his retention with Corporation and such information, knowledge or
data includes, without limitation, the following:
a) Secret or confidential matters of a technical nature such as, but not
limited to, methods, know-how, formulae, compositions, processes,
discoveries, manufacturing techniques, inventions, computer programs, and
similar items or research projects involving such items;
b) Secret or confidential matters of a business nature such as, but not
limited to, information about costs, purchasing, profits, market, sales or
lists of customers; or
c) Secret or confidential matters pertaining to future developments such as,
but not limited to, research and development or future marketing or
merchandising.
7.2 SURRENDER OF INFORMATION. Consultant, upon termination of his retention
with Corporation, or at any other time upon Corporation's written request,
shall deliver promptly to Corporation all drawings, blueprints, manuals,
letters, notes, notebooks, reports, sketches, formulae, computer programs and
similar items, memoranda, lists of customers, and all other materials and
copies thereof relating in any way to Corporation's business which contain
confidential information and which were in any way obtained by Consultant
during the term of his retention with Corporation which are in his possession
or under his control; and Consultant will not make or retain any copies of any
of the foregoing and will so represent to Corporation upon termination of his
retention.
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<PAGE> 5
7.3 REMEDIES. Consultant understands and acknowledges that the such
confidential information or other commercial ideas mentioned herein are unique
and that the disclosure or use of such matters or any other secret or
confidential information other than in furtherance of the business of
Corporation would reasonably be expected to result in irreparable harm to
Corporation; and that in addition to whatever other remedies Corporation and/or
its successors or assigns may have at law or in equity, Consultant specifically
covenants and agrees that, in the event of default under or breach of this
Agreement, Corporation and/or its successors and assigns shall be entitled to
apply to any court of competent jurisdiction to enjoin any breach, threatened
or actual, of the foregoing covenants and promises by Consultant, and/or to sue
to obtain damages for default under or any breach of this Agreement. In the
event of default under or breach of this Agreement, Consultant hereby agrees to
pay all costs of enforcement and collection of any and all remedies and damages
under this Agreement, including reasonable attorneys' fees as determined by a
court of competent jurisdiction.
XIII. ACTUAL DEFAULT
In the event either party believes that the other party has failed to fulfill
any of his or its obligations under this Agreement, the party aggrieved by such
default shall give the other party written notice of such default specifying
the nature thereof. If within thirty (30) days after the giving of such
notice, the alleged defaulting party has failed or refused to remedy such
default, the party aggrieved by such alleged default may by notice in writing
declare the alleged defaulting party to be in actual default ("Actual Default")
of this Agreement and proceed in the manner otherwise provided for herein. The
provisions of this Section are intended to provide a means whereby the party
alleged to be in default under this Agreement will have an opportunity to cure
any such alleged default before the aggrieved party shall be entitled to
attempt to terminate this Agreement. The giving of such notice and the
expiration of the thirty (30) day period provided for herein shall not,
however, prevent the alleged defaulting party from establishing that no default
did in fact exist.
IX. BINDING ARBITRATION
Any controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration in accordance with the Rules of
the American Arbitration Association at a mutually convenient location agreed
to by the parties or the arbitrators, and the parties hereby agree to be
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<PAGE> 6
bound by the results thereof. Each party shall choose one arbitrator and a
third arbitrator shall be chosen by the two arbitrators so chosen by the
parties. A judgment upon any award rendered by a majority opinion of the
arbitrators so chosen may be entered in any court having jurisdiction thereof.
X. GENERAL PROVISIONS
10.1 WAIVER. The waiver by either party of a breach or violation of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any subsequent breach hereof.
10.2 SEVERABILITY. Should any one or more sections of this Agreement be
found to be invalid, illegal, or unenforceable in any respect, the validity,
legality and enforceability of the remaining sections contained herein shall
not in any way be affected or impaired thereby. In addition, if any section
hereof is found to be partially enforceable, then it shall be enforced to that
extent.
10.3 NOTICES. Any and all notices required or permitted to be given under
this Agreement shall be sufficient if furnished in writing and personally
delivered or sent by registered or certified mail to the last known residence
address of Consultant or to Corporation at its principal office at 13705
Shoreline Court East, Earth City, Missouri 63045 or such other place as it may
subsequently designate in writing.
10.4 GOVERNING LAW. This Agreement shall be interpreted, construed and
governed according to the laws of the State of Missouri.
10.5 SECTION HEADINGS. The section headings contained in this Agreement are
for convenience only and shall in no manner be construed to limit or define the
terms of this Agreement.
10.6 COUNTERPARTS. This Agreement shall be executed in two or more
counterparts, each of which shall be deemed an original and together they shall
constitute one and the same Agreement, with at least one counterpart being
delivered to each party hereto.
10.7 ASSIGNABILITY. Corporation shall have the right to assign this
Agreement to a third party which purchases substantially all of the then assets
of the business formerly operated by it.
10.8 SUCCESSORS AND ASSIGNS BOUND. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and
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their respective heirs, personal representatives, successors and assigns.
10.9 ENTIRE AGREEMENT. This is the entire and only Agreement between the
parties respecting the subject matter hereof. This Agreement may be modified
only by a written instrument executed by all parties hereto.
IN WITNESS WHEREOF, Corporation has caused this Agreement to be executed by
and its corporate seal to be affixed by its duly authorized officers, and
Consultant has executed this Agreement as of the date first written above.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
YOUNG DENTAL MANUFACTURING COMPANY
By:/s/ George E. Richmond
---------------------------------
Name: George E. Richmond
----------------------------
Its: President
-----------------------------
CONSULTANT:
/s/ Richard C. Nemanick
------------------------------------
RICHARD C. NEMANICK
7
<PAGE> 1
EXHIBIT 10.6
This
BUY - SELL AGREEMENT
(Redemption--Cross Purchase)
by and between the
RICHARD G. RICHMOND IRREVOCABLE TRUST
dated December 31, 1991; and, the
RUTH A. GARZA IRREVOCABLE TRUST
dated December 31, 1991; and, the
SCOTT J. RICHMOND IRREVOCABLE TRUST
dated December 31, 1991; and, the
BRADLEY S. RICHMOND IRREVOCABLE TRUST
dated December 31, 1991; and, the
DAWN N. CLOSE IRREVOCABLE TRUST
dated December 31, 1991; and
YOUNG DENTAL MANUFACTURING COMPANY,
a Missouri corporation.
December 31, 1991
<PAGE> 2
TABLE OF SECTIONS
Article I. Restriction on Sale
Section
1.1 Transfers.
(a) General Prohibition.
(b) Exceptions: Transfers to Children and Grandchildren.
(1) Effect on Transferor.
(2) Effect on Transferee.
(c) Exceptions: Transfers to Spouse.
(1) Effect on Transferor.
(2) Effect on Transferee.
Article II. Instances When Stockholder Must Offer
Stock--Bona Fide Offer
2.1 Stockholder Has Offer.
(a) Bona Fide Offer.
(b) Price.
(c) Terms.
(d) Mechanics.
(e) Effect on Transferor.
(f) Effect on Transferee.
(g) Closing.
Article III. Stockholder Desires To Sell
3.1 Notice of Desire to Sell.
(a) Notice of Desire to Sell.
(b) Price.
(c) Terms.
(d) Mechanics.
(e) Effect on Transferor.
(f) Effect on Transferee.
(g) Closing.
Article IV. Price
4.1 Price.
(a) Appraisal.
(b) Tax Reserve.
(c) Loan Payment.
Article V. Terms
5.1 Terms.
(a) Years Certain.
Article VI. Mechanics
6.1 Mechanics.
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SECTION
6.1 Mechanics (Continued).
(a) Mechanics--Optional Purchase.
(1) Effect on Transferor.
(2) Effect on Transferee.
ARTICLE VII. ESCROW AND DEFAULT
7.1 Deposit.
(a) Deposit.
(b) Dividends and Vote.
(c) Delivery of Shares.
(d) Default--Less Than 50% Paid for.
(e) Default--More Than 50% Paid for.
(f) Restriction.
(g) Fees.
7.2 Events of Default.
ARTICLE VIII. MISCELLANEOUS--SUBSTANTIVE PROVISIONS
8.1 Valuation of Stock.
8.2 Right of Specific Performance.
8.3 Endorsement on Stock Certificates.
8.4 Changes in Stock Ownership.
8.5 Right to Appoint Employees.
8.6 Termination of Agreement.
8.7 Chapter S Status.
8.8 Disclosures of Information.
ARTICLE IX. MISCELLANEOUS--MECHANICS
9.1 Construction.
9.2 Gender.
9.3 Governing Law.
9.4 Notices.
9.5 Right to Alter.
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BUY-SELL AGREEMENT (REDEMPTION -- CROSS PURCHASE)
THIS AGREEMENT made this 31st day of December, 1991, by and between
RICHARD G. RICHMOND and RUTH A. GARZA, Co-Trustees or their successors in trust
under the Richard G. Richmond Irrevocable Trust dated December 31, 1991; RUTH
A. GARZA and UNITED MISSOURI BANK OF ST. LOUIS, N.A., Co-Trustees or their
successors in a trust under the Ruth A. Garza Irrevocable Trust dated December
31, 1991; SCOTT J. RICHMOND and UNITED MISSOURI BANK OF ST. LOUIS, N.A.,
Co-Trustees or their successors in trust under the Scott J. Richmond
Irrevocable Trust dated December 31, 1991; BRADLEY S. RICHMOND and UNITED
MISSOURI BANK OF ST. LOUIS, N.A., Co-Trustees or their successors in trust
under the Bradley S. Richmond Irrevocable Trust dated December 31, 1991; and
DAWN N. CLOSE and UNITED MISSOURI BANK OF ST. LOUIS, N.A., Co-Trustees or their
successors in trust under the Dawn N. Close Irrevocable Trust dated December
31, 1991 (hereinafter referred to as the "Stockholders"), and YOUNG DENTAL
MANUFACTURING COMPANY, a Corporation incorporated under the laws of the State
of Missouri (hereinafter referred to as the "Corporation").
WITNESSETH
WHEREAS, at the time of the execution of this Agreement certain voting
common stock of the Corporation, consisting of 48,475 shares, is currently
owned as follows:
Names Number of Shares
Richard G. Richmond Irrevocable 9,695
Trust dated December 31, 1991
<PAGE> 5
Names Number of Shares
Ruth A. Garza Irrevocable Trust 9,695
dated December 31, 1991
Scott J. Richmond Irrevocable 9,695
Trust dated December 31, 1991
Bradley S. Richmond Irrevocable 9,695
Trust dated December 31, 1991
Dawn N. Close Irrevocable Trust 9,695
dated December 31, 1991
WHEREAS, the parties hereto believe it to be in the best interests of
the Stockholders and the Corporation to insure continuity of harmonious
management by restricting the transfer of the stock of the Corporation and to
insure that at a triggering event (which, for the purpose of this Agreement,
shall be defined as any event requiring a Stockholder to offer or sell stock)
said stock shall not pass into the control of persons whose interest might be
incompatible with the interest of the Corporation and the remaining
Stockholder(s):
Now, in consideration of the mutual covenants exchanged and other
valuable consideration, it is hereby agreed as follows:
ARTICLE I
RESTRICTION ON SALE
SECTION 1.1 TRANSFERS
(A) GENERAL PROHIBITION. The Stockholders shall not sell, assign,
pledge or otherwise transfer or encumber in any manner or by any means
whatever, any interest in all or any part of the stock of the Corporation now
owned or hereafter acquired
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by them without having first obtained the consent of all of the other
Stockholders and the Corporation, or offering it to the other Stockholder(s) and
to the Corporation in accordance with the terms and conditions of this
Agreement.
(b) EXCEPTION: TRANSFERS TO CHILDREN AND GRANDCHILDREN. Provided,
however, notwithstanding anything else herein to the contrary, transfers to the
children or grandchildren of any Stockholder, or an irrevocable trust
established for their benefit, shall be permitted and shall not result in a
triggering event. Provided, further, that (if said transfer has occurred) as
to subsequent sales, assignments, pledges, or other transfers or encumbrances
of such stock, for purposes of applying those sections of this Agreement which
restrict the transferee of said stock and/or which subject the said transferee
to a mandatory or optional buy-out upon the occurrence of a triggering event
and/or which require that the transferor buy stock of other Stockholders or
which gives the transferor the option of buying the stock of other Stockholders:
(1) Effect on Transferor. The transferor shall continue to
be completely bound by the terms and provisions of this Agreement to the
extent to which triggering events which relate to the transferor shall
trigger the offer or sale of said stock.
(2) Effect on Transferee. The transferee shall be bound by
the terms and provisions of this Agreement to the extent to which
triggering events which relate to the
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transferee shall trigger the offer or sale of said stock. For purposes
of determining who shall be entitled to purchase or is bound to purchase
stock offered or to be sold, the transferee shall be so entitled or
bound.
c. EXCEPTION: TRANSFERS TO SPOUSE. Provided, however,
notwithstanding anything else herein to the contrary, transfers to the spouse
of any Stockholder or such spouse's living trust shall be permitted and shall
not result in a triggering event. Provided, further, that (if said transfer
has occurred) as to subsequent sales, assignments, pledges, or other transfers
or encumbrances of such stock, for purposes of applying those sections of this
Agreement which restrict the transferee of said stock and/or which subject the
said transferee to a mandatory or optional buy-out upon the occurrence of a
triggering event and/or which require that the transferor buy stock of other
Stockholders or which gives the transferor the option of buying the stock of
other Stockholders:
(1) Effect on Transferor. The transferor shall continue to be
completely bound by the terms and provisions of this Agreement to the
extent to which triggering events which relate to the transferor shall
trigger the offer or sale of said stock.
(2) Effect on Transferee. The transferee shall be bound by the
terms and provisions of this Agreement to the extent to which triggering
events which relate to the transferee shall trigger the offer or sale of
said stock.
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For purposes of determining who shall be entitled to
purchase or is bound to purchase stock offered or to be
sole, the transferee shall be so entitled or bound.
ARTICLE II
INSTANCES WHEN STOCKHOLDER MUST OFFER STOCK--
BONA FIDE OFFER
SECTION 2.1 STOCKHOLDER HAS OFFER
(a) BONA FIDE OFFER. In the event that any Stockholder is in receipt of a
bona fide offer to purchase its stock, and if it shall desire to sell, assign,
transfer or otherwise dispose of its stock without the prior written consent of
the other Stockholder(s), it shall serve notice to such effect upon the other
Stockholder(s) and the Corporation by registered or certified mail, return
receipt requested, and said notice shall indicate the name and address of the
person desiring to purchase the same and the price and terms of payment upon
which said sale is proposed. Said notice shall also extend an offer to sell such
stock to the other Stockholder(s) and the Corporation upon the following price
and terms.
(b) PRICE. The redemption or purchase price paid for each share of stock
shall be as set forth in Article IV.
(c) TERMS. The stock shall be paid for as set forth in Article V.
(d) MECHANICS. Upon such event, the other Stockholders and the Corporation
shall have the option to purchase the
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relevant Stockholder(s)' stock and shall follow the procedures in making such
purchase as are set forth in Article VI.
(e) EFFECT ON TRANSFEROR. The transferor shall continue to be bound
by the terms and provisions of this Agreement to the extent to which triggering
events which relate to the transferor shall trigger the offer or sale of said
stock.
(f) EFFECT ON TRANSFEREE. The transferee shall be bound by the terms
and provisions of this Agreement to the extent to which triggering events which
relate to the transferee shall trigger the offer or sale of said stock. For
purposes of determining who shall be entitled to purchase or is bound to
purchase stock offered or to be sold, the Transferee shall be so entitled or
bound.
(g) CLOSING. In all cases, the closing shall take place within sixty
(60) days of the date on which the Purchaser becomes obligated to purchase the
stock of the selling Stockholder.
ARTICLE III
STOCKHOLDER DESIRES TO SELL
SECTION 3.1 (a) NOTICE OF DESIRE TO SELL.
In the event that any Stockholder, not in receipt of a bona fide offer,
shall desire to transfer its stock, it shall, at least thirty (30) days prior
to the date it desires to transfer its stock, serve notice upon the other
Stockholder(s) and upon the Corporation by registered or certified mail, return
receipt requested, said notice containing an offer to sell such stock to
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the other Stockholder(s) and to the Corporation upon the following price and
terms.
(b) PRICE. The redemption or purchase price paid for each share of
stock shall be as set forth in Article IV.
(c) TERMS. The stock shall be paid for as set forth in Article V.
(d) MECHANICS. Upon such event, the other Stockholders shall have the
option to purchase the relevant Stockholder(s)' stock and shall follow the
procedures in making such purchase as are set forth in Article VI.
(e) EFFECT ON TRANSFEROR. The transferor shall continue to be bound
by the terms and provisions of this Agreement to the extent to which triggering
events which relate to the transferor shall trigger the offer or sale of said
stock.
(f) EFFECT ON TRANSFEREE. The transferee shall be bound by the terms
and provisions of this Agreement to the extent to which triggering events which
relate to the transferee shall trigger the offer or sale of said stock. For
purposes of determining who shall be entitled to purchase or is bound to
purchase stock offered or to be sold, the Transferee shall be so entitled or
bound.
(g) CLOSING. In all cases, the closing shall take place within sixty
(60) days of the date on which the Purchaser becomes obligated to purchase the
stock of the selling Stockholder.
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ARTICLE IV
PRICE
SECTION 4.1 PRICE
The redemption or purchase price paid for each share of stock pursuant
to the terms of this Agreement shall be the value as computed in the following
manner (if not otherwise determined) divided by the number of issued and
outstanding shares:
(a) APPRAISAL. The value of the Corporation (and each Stockholder's
interest) shall be determined by the most recent appraisal made by an
independent Certified Public Accountant. Said appraisals shall be done not less
than every two (2) years.
(b) TAX RESERVE. The above sum shall be reduced by a reserve equal in
amount to fifty (50%) percent of the Corporation's accountant's reasonable
estimate of the Federal and State income taxes which will be payable by the
purchaser as a result of the fact that the purchaser will not receive a
deduction for the purchase of the selling Stockholder's stock.
(c) LOAN PAYMENT. In addition to such redemption or purchase price,
there shall be a repayment by the Corporation of the then outstanding balance
of any sum then loaned to the Corporation by the withdrawing Stockholder (plus
accrued interest, if any) whether or not said sums shall be then due and owing.
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ARTICLE V
TERMS
SECTION 5.1 TERMS
The redemption or purchase price of the capital stock of a Stockholder
shall be paid in the following manner:
(a) YEARS CERTAIN. In the event of a redemption or purchase of the stock
of a Stockholder a down payment shall be made at closing in the amount of ten
(10%) percent of the purchase price. The balance of the redemption or purchase
price shall be paid starting one month thereafter in equal monthly payments
including interest at the rate of ten (10%) percent per annum on the unpaid
balance over ten (10) years. Interest shall commence thirty (30) days after the
Corporation or the remaining Stockholders close on the purchase of the stock of
the selling Stockholder.
ARTICLE VI
MECHANICS
SECTION 6.1 MECHANICS
(a) MECHANICS -- OPTIONAL PURCHASE. Offers made to the Corporation and
Stockholder(s) shall be subject to the following mechanics: the selling
Stockholder or his representative shall give notice of such event to the other
Stockholder(s) and the Corporation, and for a period of thirty (30) days after
the mailing of such notice, the other Stockholder(s) shall have the option to
purchase all (but not part) of the stock so offered in proportion to their
respective stockholdings, unless they refuse
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to exercise their option or otherwise agree to a different percentage. In the
event that none of the other Stockholder(s) shall exercise the option to
purchase as provided herein, the Corporation shall have the right to notify the
selling Stockholder of its exercise of the option to redeem the stock so offered
within thirty (30) days after the termination of the other Stockholder(s)'
option to buy.
In the event that none of the other Stockholder(s) nor the Corporation
shall exercise the option to purchase as provided herein, the offering
Stockholder shall be free to dispose of its interest subject to the following
restrictions:
(1) Effect on Transferor. The transferor shall continue to be bound
by the terms and provisions of this Agreement to the extent to which
triggering events which relate to the transferor shall trigger the offer or
sale of said stock.
(2) Effect on Transferee. The transferee shall be bound by the terms
and provisions of this Agreement to the extent to which triggering
events which relate to the transferee shall trigger the offer or sale of
said stock. For purposes of determining who shall be entitled to purchase
or is bound to purchase stock offered or to be sold, the Transferee shall
be so entitled or bound.
In all cases, the closing shall take place within sixty (60) days of the
date on which the Corporation and/or the other Stockholder(s) elect to purchase
the stock of the selling
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<PAGE> 14
Stockholder at the office of the Accountant for the Corporation at the time of
said Closing, or such other place as may be mutually agreed to by the parties.
ARTICLE VII
ESCROW AND DEFAULT
SECTION 7.1 (a) DEPOSIT
The Stockholder whose stock is being purchased or redeemed, or its
legal representative, shall deposit the shares with an escrow agent who shall
be the Accountant for the Corporation at the time of redemption or purchase, or
such other party as may be mutually agreed to at that time. The shares shall
be duly endorsed in blank for transfer and shall be accompanied by all other
documents necessary for an effective transfer, and the selling Stockholder
shall deposit with the escrow agent sufficient funds to pay for all necessary
transfer costs, if any. The escrow agent shall cause the ownership of the
shares to be recorded in its name, and shall hold the shares until the full
redemption or purchase price is paid.
(b) DIVIDENDS AND VOTE. While the shares are on deposit with the
escrow agent and so long as the purchaser is not in default under this purchase
or redemption Agreement in the payment of the purchase or redemption price and
interest thereon, such purchaser shall have the right to all dividends and to
vote the shares deposited with the escrow agent and the escrow agent and the
selling Stockholder shall, on demand, execute and deliver an effective proxy or
proxies in favor of the purchaser whenever
- 11 -
<PAGE> 15
demand is made upon them for such proxy or proxies by the purchaser.
(c) DELIVERY OF SHARES. Simultaneously with the last payment of the
purchase or redemption price, the escrow agent shall deliver to the purchaser,
duly endorsed for transfer, all such shares and all other documents necessary
to transfer such shares.
(d) DEFAULT--LESS THAN 50% PAID FOR. In the event that the purchaser
defaults in any payment of the purchase or redemption price and such default
continues for a period of thirty (30) days, and if such default occurs when
less than fifty (50%) percent of the principal purchase price shall have been
paid, the amounts theretofore received by the seller shall be retained as
damages, and in addition the escrow agent shall pay over to the seller any
dividends held by it and return the shares to the seller duly endorsed for
transfer; and the purchaser shall have no rights whatsoever in the shares. In
addition, the seller may claim any decrease between the purchase price of the
shares returned to the seller and their fair market value as of the date of
default.
(e) DEFAULT--MORE THAN 50% PAID FOR. In the event such default occurs
at a time when the purchaser shall have paid fifty (50%) percent or more of the
principal purchase price, the escrow agent shall deliver to the seller, duly
endorsed for transfer, that portion of the shares whose then fair market value
equals the remaining unpaid purchase or redemption price, and shall
- 12 -
<PAGE> 16
deliver the balance of the shares to the purchaser, duly endorsed for transfer,
together with all dividends held by it. In such event the seller shall retain
the portion of the purchase price theretofore received by it. No other claim
for damages shall be available to the seller.
(f) RESTRICTION. Any shares returned to the seller by the escrow
agent because of the purchaser's default shall be subject to all restrictions
imposed by this Agreement.
(g) FEES. The fees and all other expenses of the escrow agent shall
be split by the purchaser and seller.
SECTION 7.2 EVENTS OF DEFAULT
A default of this Agreement shall occur in any of the following
events. Any delay on the part of the seller in exercising any rights hereunder
shall not operate as a waiver of said rights and acceptance of any payment
after its due date shall not be deemed a waiver of the right to require prompt
payment when due of all other sums, and the acceptance of any payment after the
seller has declared the entire indebtedness due and payable shall not cure any
default of the purchaser or operate as a waiver of any rights of the seller
hereunder.
The events of default are:
(a) Any violation of this Agreement which, after thirty (30) days'
notice, is not cured by the violating party.
(b) Either the Corporation or purchaser makes a general assignment
for creditors, is adjudicated bankrupt, files a voluntary petition in
bankruptcy or reorganization or effects or
- 13 -
<PAGE> 17
attempts to effect, or applies for a receiver, custodian or trustee for it or
for any substantial portion of its property or assets; or if an order shall be
entered by any court of competent jurisdiction approving an involuntary
petition seeking reorganization; or if a receiver, trustee or custodian shall
be appointed for it for any substantial portion of its property or assets; or if
bankruptcy, reorganization or liquidation proceedings are instituted against
the Corporation or purchaser and remain undismissed for thirty (30) days.
ARTICLE VIII
MISCELLANEOUS--SUBSTANTIVE PROVISIONS
SECTION 8.1 VALUATION OF STOCK
It is agreed by and between the parties hereto, that the redemption or
purchase price determined in accordance with this Agreement shall be the full
value of the stock of the Corporation to be redeemed or purchased and that all
assets, both tangible and intangible, including mortgages, liens, or other
encumbrances of any kind whatsoever, of or upon the assets of the Corporation
have been considered in determining said value.
SECTION 8.2 RIGHT OF SPECIFIC PERFORMANCE
The stock of the Corporation cannot be readily purchased or sold in the
open market, and for that reason among others, the parties will be irreparably
damaged in the event that this Agreement is not specifically enforced. Should
any dispute arise concerning the sale or disposition of the capital stock of
the Corporation, then an injunction may be issued restraining any
-14-
<PAGE> 18
sale or disposition pending the determination of such controversy.
SECTION 8.3 ENDORSEMENT ON STOCK CERTIFICATES
(a) Upon the execution of this agreement or within a reasonable time
thereafter, the Stockholders shall cause their certificates of capital stock of
the Corporation to be endorsed as follows:
"The sale, assignment, transfer, pledge or other disposition of the
shares of capital stock represented by this certificate are subject to
a certain restrictive agreement dated December 31, 1991, a copy of
which agreement is on file in the office of the Corporation."
(b) The parties hereto agree that all stock of the Corporation issued or
transferred to them hereafter shall be subject to this Agreement and shall have
endorsed thereon the notice hereinbefore set forth.
SECTION 8.4 CHANGES IN STOCK OWNERSHIP
It is recognized by all parties to this Agreement that the number of shares
owned by any one Stockholder may vary from time to time. The fact that such
changes occur shall have no effect upon the operation of this Agreement.
SECTION 8.5 RIGHT TO APPOINT EMPLOYEES
All of the foregoing provisions of this Agreement are subject to the right
of the Corporation, acting by a majority of its board of directors, to retain or
discharge the services of any employee. Any provision of this Agreement in
contradiction to the operation of this section shall be void.
-15-
<PAGE> 19
SECTION 8.6 TERMINATION OF AGREEMENT
This Agreement shall terminate upon the occurrence of any of the
following events:
(a) The purchase or redemption of the stock of a party to this
Agreement so as to leave only one Stockholder-party to this Agreement still
owning stock in the Corporation; but such purchase or redemption will still
subject the parties hereto to fulfilling the obligations of this Agreement.
(b) The termination of the Corporation for any cause.
(c) Mutual agreement of the parties.
If the Corporation is adjudicated bankrupt and if the
Corporation is presently obligated to purchase stock, then the seller(s) shall
have the option of canceling the executory portion of such obligation and stock
equal in amount to the greater of: (A) the stock not paid for or, (B) the
value of the stock shall be returned to the seller(s) and the rest shall be
transferred to the bankrupt.
SECTION 8.7 CHAPTER S STATUS
The Stockholders agree that they will cause the Corporation to
elect to be taxed under Chapter S of the Internal Revenue Code and that they
will not transfer the stock of the Corporation if such transfer will cause the
Corporation to lose its election to be taxed under Chapter S of the Internal
Revenue Code. Further, the Stockholders agree not to take any action without
the consent of the Corporation to unilaterally terminate the Selection.
-16-
<PAGE> 20
SECTION 8.8 DISCLOSURE OF INFORMATION
Each Stockholder recognizes and acknowledges that it will have
access to certain confidential information of the Corporation and of entities
affiliated with the Corporation and that such information constitutes valuable,
special and unique property of the Corporation and such other entities. The
Stockholder will not, during or after the term of this Agreement, disclose any
of such confidential information to any person, firm, corporation, association
or other entity for any reason or purpose whatsoever, except to authorized
representatives of the Corporation and its affiliated entities. In the event
of a breach or threatened breach by the Stockholder of the provisions of this
paragraph, the Corporation shall be entitled to an injunction restraining the
Stockholder from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the Corporation
from pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages from the Stockholder.
ARTICLE IX
MISCELLANEOUS--MECHANICS
SECTION 9.1 CONSTRUCTION
In the event any parts of this Agreement are found to be void,
the remaining provisions of this Agreement shall nevertheless be binding with
the same effect as though the void parts were deleted.
- 17 -
<PAGE> 21
SECTION 9.2 GENDER
Wherever in this Agreement, words, including pronouns, are used in the
masculine, they shall be read and construed in the feminine or neuter whenever
they would so apply, and wherever in this Agreement, words, including pronouns,
are used in the singular or plural, they shall be read and construed in the
plural or singular, respectively, wherever they would so apply.
SECTION 9.3 GOVERNING LAW
This Agreement shall be subject to, and governed by, the laws of the
State of Missouri irrespective of the fact that one or more of the parties now
is, or may become, a resident of a different state.
SECTION 9.4 NOTICES
All notices under this Agreement shall at the option of the sender be
either served personally upon the party or parties to whom such notice is
directed, or shall be mailed certified mail, postage paid, to the party to whom
it is directed at the residence address of the party to whom directed of which
the sender is reasonably aware of or should be aware of and such mailing shall
constitute full and adequate notice on the date of such mailing of the matter
so mailed.
SECTION 9.5 RIGHT TO ALTER
This Agreement may be altered, amended, or modified only in writing
signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
the day and year first above written.
- 18 -
<PAGE> 22
/s/ Richard G. Richmond
---------------------------------
RICHARD G. RICHMOND
/s/ Ruth A. Garza
---------------------------------
RUTH A. GARZA
Trustees of the Richard G.
Richmond Irrevocable Trust
dated December 31, 1991
/s/ Ruth A. Garza
---------------------------------
RUTH A. GARZA
UNITED MISSOURI BANK OF
ST. LOUIS, N.A.
By:/s/ Richard E. Markow
------------------------------
Senior Vice President
Trustees of the Ruth A. Garza
Irrevocable Trust dated
December 31, 1991
/s/ Scott J. Richmond
---------------------------------
SCOTT J. RICHMOND
UNITED MISSOURI BANK OF
ST. LOUIS, N.A.
By:/s/ Richard E. Markow
------------------------------
Senior Vice President
Trustees of the Scott J.
Richmond Irrevocable Trust dated
December 31, 1991
-19-
<PAGE> 23
/s/ Bradley S. Richmond
-------------------------------
BRADLEY S. RICHMOND
UNITED MISSOURI BANK OF
ST. LOUIS, N.A.
By: /s/ Richard E. Markow
----------------------------
Senior Vice President
Trustees of the Bradley S.
Richmond Irrevocable Trust dated
December 31, 1991
/s/ Dawn N. Close
-------------------------------
DAWN N. CLOSE
UNITED MISSOURI BANK OF
ST. LOUIS, N.A.
By: /s/ Richard E. Markow
----------------------------
Senior Vice President
Trustees of the Dawn N. Close
Irrevocable Trust dated
December 31, 1991
"Stockholders"
YOUNG DENTAL MANUFACTURING
COMPANY
By: /s/ George E. Richmond
----------------------------
GEORGE E. RICHMOND
President
"Corporation"
ATTEST:
/s/ Michael W. Eggleston
- ------------------------
Secretary
-20-
<PAGE> 1
EXHIBIT 10.7
AMENDMENT AND MODIFICATION OF BUY-SELL AGREEMENT
THIS AMENDMENT AND MODIFICATION OF BUY-SELL AGREEMENT (the
"Amendment"), dated as of the 7th day of August, 1995, is made and entered into
by and between the Richard G. Richmond Irrevocable Trust dated December 31,
1991, the Ruth A. Garza Irrevocable Trust dated December 31, 1991, the Scott J.
Richmond Irrevocable Trust dated December 31, 1991, the Bradley S. Richmond
Irrevocable Trust dated December 31, 1991, the Dawn N. Close Irrevocable Trust
dated December 31, 1991 (collectively, the "Shareholders"), Young Dental
Manufacturing Company, Inc., a Missouri corporation (the "Operating Company")
and Young Innovations, Inc., a Missouri corporation (the "Holding Company").
R E C I T A L S
A. As of the date of this Amendment, each of the Shareholders is
the owner of the number of shares of common stock of the Operating Company as
shown on Schedule A, attached hereto and incorporated by this reference herein
(the "Shares").
B. The Shareholders and the Operating Company have made and
entered into a Buy-Sell Agreement (Redemption - Cross Purchase) dated as of
December 31, 1991 (the "Agreement"), pursuant to which Agreement the
Shareholders and the Operating Company placed certain restrictions and controls
on the transfer of the Shares, all as provided in said Agreement.
C. The Shareholders and the Holding Company have agreed, pursuant
to an Exchange Agreement between the Holding Company and each of the
Shareholders of even date herewith (the "Exchange Agreement"), that each of the
Shareholders and the Holding Company will exchange each of the Shares of the
common stock of the Operating Company presently owned by each Shareholder for
Eleven and Nine-Tenths shares of the common stock of the Holding Company (the
"New Shares"), on the terms and conditions as set forth in said Exchange
Agreement.
D. Each of the parties hereto desire to modify the terms and
conditions of the Agreement as provided herein.
E. Each of the parties hereto deem it to be in their respective
best interests to modify the terms of the Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and promises
contained herein, the adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
-1-
<PAGE> 2
SECTION 1. CONSENT TO EXCHANGE AGREEMENT.
1.1 Consent of Shareholders. Each of the Shareholders
hereby consents to exchange of the Shares for the New Shares by each other
Shareholder with the Holding Company pursuant to the Exchange Agreement.
1.2 Consent of Operating Company. The Operating Company
hereby consents to the exchange of the Shares for the New Shares by each of the
Shareholders with the Holding Company pursuant to the Exchange Agreement.
SECTION 2. APPLICATION OF AGREEMENT TO NEW SHARES. From and after
the date of the Exchange Closing (as that term is defined in the Exchange
Agreement) the terms and provisions of the Agreement, as amended by this
Amendment, shall apply to the New Shares and the rights, duties and obligations
of the Operating Company shall be assigned to and assumed by the Holding
Company in all respects in connection with the Agreement.
SECTION 3. TERMINATION OF AGREEMENT UPON CERTAIN EVENTS. The
Agreement, as amended hereby, shall terminate, be null and void and of no
further force or effect whatsoever at such time as the Holding Company shall
become subject to the reporting requirements of Section 15(d) or Section 13 of
the Securities Exchange Act of 1934, as amended.
SECTION 4. GENERAL PROVISIONS.
4.1 Assignment. This Amendment shall not be assignable
by any party without the prior written consent of all other parties hereto.
Subject to the foregoing, this Amendment shall inure to the benefit of and be
binding upon the parties hereto and their respective representatives,
successors and assigns.
4.2 Waiver. The failure of a party to insist upon strict
adherence to any term of this Amendment on any occasion shall not be considered
a waiver thereof or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Amendment.
4.3 Entire Agreement; Amendment. This Amendment shall
supersede any and all existing agreements between the parties hereto and
relating to the subject matter hereof and may not be further amended except by
a written agreement signed by all parties hereto.
4.4 Heading. Section headings are used herein for
convenience of reference only and shall not affect the meaning of any provision
of this Amendment.
4.5 Severability. If any provision of the Agreement or
this Amendment is invalid or unenforceable, the balance of the Agreement as
modified hereby shall remain in effect, and if any provision is inapplicable to
any person or circumstance, it shall nevertheless remain applicable to all
other persons or circumstances.
-2-
<PAGE> 3
4.6 Further Assurances. The parties hereto shall each
take as promptly as possible all such action as may be necessary or appropriate
in order to effectuate the transactions contemplated hereunder, subject to the
terms explicitly set out herein.
4.7 Counterparts. This Amendment may be executed in one
or more counterparts each of which shall be deemed an original but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties set their hands to this
instrument as of the date first written above.
SHAREHOLDERS:
The Richard G. Richmond Irrevocable Trust dated
December 31, 1991
By: /s/ Richard G. Richmond
---------------------------
Name: Richard G. Richmond
-------------------------
Title: Trustee
------------------------
By: /s/ Ruth A. Garza
---------------------------
Name: Ruth A. Garza
-------------------------
Title: Co-Trustee
------------------------
The Ruth A. Garza Irrevocable Trust dated
December 31, 1991
By: /s/ Ruth A. Garza
---------------------------
Name: Ruth A. Garza
-------------------------
Title: Trustee
------------------------
By: /s/ Richard G. Richmond
---------------------------
Name: Richard G. Richmond
-------------------------
Title: Co-Trustee
------------------------
The Scott J. Richmond Irrevocable Trust dated
December 31, 1991
By: /s/ Scott Richmond
---------------------------
Name: Scott Richmond
-------------------------
Title: Trustee
------------------------
-3-
<PAGE> 4
By: /s/ Brad Richmond
-----------------------
Name: Brad Richmond
---------------------
Title: Co-Trustee
--------------------
The Bradley S. Richmond Irrevocable Trust dated
December 31, 1991
By: /s/ Brad Richmond
-----------------------
Name: Brad Richmond
---------------------
Title: Trustee
--------------------
By: /s/ Richard G. Richmond
-----------------------
Name: Richard G. Richmond
---------------------
Title: Co-Trustee
--------------------
The Dawn N. Close Irrevocable Trust dated
December 31, 1991
By: /s/ Dawn N. Close
-----------------------
Name: Dawn N. Close
---------------------
Title: Trustee
--------------------
By: /s/ Richard G. Richmond
-----------------------
Name: Richard G. Richmond
---------------------
Title: Co-Trustee
--------------------
OPERATING COMPANY:
Young Dental Manufacturing Company
By: /s/ George E. Richmond
-----------------------
Name: George E. Richmond
---------------------
Title: President
--------------------
HOLDING COMPANY:
Young Innovations, Inc.
By: /s/ George E. Richmond
-----------------------
Name: George E. Richmond
---------------------
Title: President
---------------------
-4-
<PAGE> 5
Schedule A
Schedule of Shareholders
<TABLE>
<CAPTION>
Number of
Shareholder Name Shares
- -------------------------------------------------------------------------------------------------------------
<S> <C>
The Richard G. Richmond Irrevocable Trust dated December 31, 1991 12,340
The Ruth A. Garza Irrevocable Trust dated December 31, 1991 12,340
The Scott J. Richmond Irrevocable Trust dated December 31, 1991 12,340
The Bradley S. Richmond Irrevocable Trust dated December 31, 1991 12,340
The Dawn N. Close Irrevocable Trust dated December 31, 1991 12,340
</TABLE>
-5-
<PAGE> 1
EXHIBIT 10.8
STOCK PLAN
This agreement, dated September 16, 1992, is made between and among Dwayne K.
Chipman, (hereinafter called "employee"), George E. Richmond, (hereinafter
called "owner"), and Young Dental Manufacturing Company, Inc. (hereinafter
called "Company"), and is intended to advance the interests of the Company and
its stockholders by enabling the Company to attract and retain in its employ
men and women of training, experience, and ability. The Agreement will give
employees an opportunity to acquire a proprietary interest in the success of
the Company through the purchase of the Company's Common Stock (hereinafter
called "stock").
PURCHASE OF SHARES:
A) INITIAL - The employee may purchase only whole shares from
the owner at a price of $17.33 per share upon
signing this agreement. The employee is limited
to purchase the number of shares up to a value not
greater than the gross profit sharing bonus paid
to the employee for the year of the purchase.
B) SUBSEQUENT - The employee may purchase any number of whole
shares from the owner up to a value not greater
than the gross profit sharing bonus payable by the
Company to the employee or any other value as
allowed by the owner in the subsequent year of
purchase. The employee can make the purchase up
to fourteen days after the date of payment of the
profit sharing bonus or the date of appraisal for
the prior year's valuation, whichever is later.
The price per share shall be determined as in
PRICE OF SHARES. This offer may be withdrawn at
any time by owner as per OWNERS REFUSAL TO SELL.
PAYMENT FOR SHARES:
The employee shall make payment to the owner upon exercising his option to
purchase shares as allowed under this agreement.
ENTITLEMENT OF SHARES:
The employee receives the title and rights to all benefits or liabilities
of the shares purchased by him as of the effective date of purchase of the
shares.
-1-
<PAGE> 2
SALE OF SHARES:
A) TIMING - The employee may sell his shares of stock at any time except
that the employee must sell his shares of stock when his employment
ceases with the Company. The date of sale when employment ceases
shall be the last date of employment.
B) VALUATION - The price of the shares sold by the employee shall be as
set forth in PRICE OF SHARES.
C) PAYMENT - The employee shall receive his gross sale proceeds, which is
the total number of shares sold multiplied by the price, within thirty
days of the sale or the date of appraisal for the prior year's
valuation, whichever is later.
D) PURCHASER - The employee must first offer his shares for sale to the
owner. If refused by the owner, then the employee can sell his shares
to the Company except as otherwise provided for in this agreement.
PRICE OF SHARES:
The redemption or purchase price paid for each share of stock pursuant to
the terms of this agreement shall be the value as computed in the following
manner (if not otherwise determined) divided by the number of issued and
outstanding shares:
A) PURCHASE VALUE - The value of the Company shall be determined by the
most recent appraisal made or in the process of being made by an
independent Certified Public Accountant.
B) SALE VALUE - The value of the Company shall be determined by the most
recent appraisal made or in process of being made by an independent
Certified Public Accountant.
C) TIMING OF APPRAISAL - An appraisal shall be done not less than once a
year. The date of the appraised value shall be December 31 for the
year undertaken.
TERMINATION OF EMPLOYMENT:
In the event the employee ceases employment with the Company, for whatever
reason, the employee must sell all shares owned by the employee as per the
SALE OF SHARES provided in this agreement.
DEATH OF EMPLOYEE:
In the event of the death of the employee, the transferee (surviving
spouse, heirs, etc.) shall sell all shares of Company Stock as per the SALE
OF SHARES provided in this agreement.
-2-
<PAGE> 3
SALE OF YOUNG DENTAL:
If the owner sells more than 50% of the stock to one entity or person, then
the employee shall sell his shares as per the SALE OF SHARES provided in
this agreement, or to the entity or person purchasing from the owner, it
being agreed that the price paid by the entity or person shall be equal to
the price paid the owner.
OWNERS REFUSAL TO SELL:
The owner may, at any time, refuse to offer his shares for sale to the
employee. The employee will have no recourse if refusal to sell is made;
however, such refusal does not void this Agreement for possible future
purchases by the employee from the owner.
GENERAL PROHIBITION:
The employee shall not without the written consent of the other parties to
this Agreement, assign, pledge, give, transfer, or execute any loans or in
any manner encumber any interest in all or any part of the stock of the
Company now owned or hereafter acquired by him.
TERM:
The Agreement shall continue until termination of the Agreement by action
of the Board of Directors or stockholders. Upon written notice to employee
of such termination, the restrictions contained in this Agreement and the
other provisions set forth herein shall remain in full force and effect.
EMPLOYMENT:
Nothing in this Agreement shall confer on employee any right to continue in
the employ of the Company or affect in any way the right of the Company to
terminate employee's employment at any time.
INDEMNIFICATION:
The members of Company's Board of Directors shall be indemnified by the
Company to the extent provided by the Company's By-Laws or applicable law
for any action or failure to act under or in connection with this
Agreement.
ENDORSEMENT OF STOCK:
Employee shall have endorsed upon employee's stock certificates the
following:
This certificate may be sold or transferred only upon compliance with the
terms and conditions of an Agreement dated September 16, 1992, a copy of
which is on file with the Secretary of the Corporation.
-3-
<PAGE> 4
Chapter S Status:
The employee agrees that he will cause the Corporation to elect to be taxed
under Chapter S of the Internal Revenue Code and that he will not transfer
the stock of the Corporation if such transfer will cause the Corporation to
lose its election to be taxed under Chapter S of the Internal Revenue Code.
Further, the employee agrees not to take any action without the consent of
the Company in writing to unilaterally terminate the S election.
Disclosures of Information:
Each Employee recognizes and acknowledges that it will have access to
certain confidential information of the Company and of entities affiliated
with the Company and that such information constitutes valuable, special
and unique property of the Company and such other entities. The Employee
will not, during or after the term of this Agreement, disclose any of such
confidential information to any person, firm, corporation, association or
other entity for any reason or purpose whatsoever, except to authorized
representatives of the Company and its affiliated entities In the event
of a breach or threatened breach by the Employee of the provisions of this
paragraph, the Company shall be entitled to an injunction restraining the
Employee from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the Company
from pursuing any other remedies available to it for such breach,
including the recovery of damages from the Employee.
MISCELLANEOUS:
A) Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Missouri.
B) Entire Agreement. This Agreement contains the understanding of the
parties. There are no other agreements other than those expressly
provided for herein. This Agreement supersedes all prior agreements,
if any, between the parties with respect to such subject matter. No
modification or amendment of any provision of this Agreement shall be
effective unless specifically made in writing and signed by the
parties.
C) Severability of Invalid Provision. If one or more agreements provided
herein should be contrary to law, then such agreement or agreements
shall be null and void and shall not affect the validity of the other
provisions of this Agreement.
D) Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties, their heirs, successors and
assigns, and no other person shall acquire or have any right under or
by virtue of this Agreement.
-4-
<PAGE> 5
E) Section Headings. The section headings contained in this Agreement are
inserted only as a matter of convenience and do not define, or limit,
extend or describe the scope of this Agreement or the intent of any of
the provisions hereof.
F) Counterparts. This Agreement may be extended in one or more
counterparts, and shall become effective when one or more counterparts
have been signed by each of the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
written above.
By /s/ George E. Richmond
-----------------------------
'Owner'
By /s/ Keith Chipman By /s/ George E. Richmond
------------------- -----------------------------
'Employee' President,
Young Dental Manufacturing Co.
'Company'
-5-
<PAGE> 6
Stock Plan (Dated 9/16/92)
MODIFICATION
The Stock Plan Agreement, dated September 16, 1992, between and among employee,
owner and Company is hereby modified in the following manner:
1. The parties acknowledge that Company has terminated its election to
be taxed under Chapter S of the Internal Revenue Code, and, on that
basis, agree to the deletion of the section with the heading,
"Chapter S Status".
2. Replace any and all references to "George E. Richmond" with "George
E. Richmond Revocable Trust Dated July 6, 1973 And Amendments
Thereto."
By:/s/ George E. Richmond
-----------------------
"Owner"
By:/s/ Keith Chipman
------------------
"Employee"
By:/s/ George E. Richmond
-----------------------
President
Young Dental Manufacturing Company
"Company"
<PAGE> 7
WAIVER
I, Dwayne K. Chipman, agree to waive any and all liability against George E.
Richmond, an individual, and Young Dental Manufacturing Company, a corporation,
and its directors and officers due to the Young Dental common stock valuation
as determined by Grace & Company, P.C. and received by Young Dental on March,
1993. I understand that said valuation was affected by the decision by Young
Dental to change its tax status from an "S" corporation to a "C" corporation.
I further understand that if such change in tax status had not been taken into
account by Grace & Company, P.C., the resulting valuation could have been
materially different from the March, 1993 valuation Young Dental received from
Grace & Company, P.C. On the basis of the above, I hereby agree that the
March, 1993 valuation is the proper valuation to use relative to the exercise
of any rights I may have as set forth in my September 16, 1992 stock agreement
with George E. Richmond, Young Dental, and me.
By /s/ Dwayne Keith Chipman May 7, 1993
------------------------------ --------------------
Dwayne K. Chipman Date
<PAGE> 1
EXHIBIT 10.9
AMENDMENT AND MODIFICATION OF STOCK PLAN
THIS AMENDMENT AND MODIFICATION OF STOCK PLAN (the "Amendment"), dated
as of the 7th day of July, 1995, is made and entered into by and between
Dwayne K. Chipman, an individual (the "Employee"), George E. Richmond, an
individual (the "Owner"), Young Dental Manufacturing Company, Inc., a Missouri
corporation (the "Operating Company") and Young Innovations, Inc., a
Missouri corporation (the "Holding Company").
R E C I T A L S
A. As of the date of this Amendment, Employee is the owner of
1,249 shares of the common stock of the Operating Company (the "Shares").
B. The Employee, the Owner and the Operating Company have made
and entered into a Stock Plan Agreement dated as of September 16, 1992 (the
"Agreement"), pursuant to which Agreement Employee purchased the Shares from
the Owner subject to the rights, restrictions and obligations of Employee,
Owner and the Operating Company, all as provided in said Agreement.
C. Employee and Holding Company have agreed, pursuant to an
Exchange Agreement between the Holding Company and Employee of even date
herewith (the "Exchange Agreement"), that Employee and Holding Company will
exchange each of the Shares of the common stock of the Operating Company
presently owned by Employee for Eleven and Nine-Tenths (11.9) shares of the
common stock of the Holding Company (the "New Shares"), on the terms and
conditions as set forth in said Exchange Agreement.
D. Each of the parties hereto desire to modify the terms and
conditions of the Agreement as provided herein.
E. Each of the parties hereto deem it to be in their respective
best interests to modify the terms of the Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and promises
contained herein, the adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. CONSENT TO EXCHANGE AGREEMENT.
1.1 Consent of Owner. The Owner hereby consents to
exchange of the Shares for the New Shares by the Employee with the Holding
Company pursuant to the Exchange Agreement.
1.2 Consent of Operating Company. The Operating Company
hereby consents to the exchange of the Shares for the New Shares by the
Employee with the Holding Company pursuant to the Exchange Agreement.
-1-
<PAGE> 2
SECTION 2. APPLICATION OF AGREEMENT TO NEW SHARES. From and after
the date of the Exchange Closing (as that term is defined in the Exchange
Agreement) the terms and provisions of the Agreement, as amended by this
Amendment, shall apply to the New Shares and the rights, duties and obligations
of the Operating Company shall be assigned to and assumed by the Holding
Company in all respects in connection with the Agreement.
SECTION 3. TERMINATION OF AGREEMENT UPON CERTAIN EVENTS. The
Agreement, as amended hereby, shall terminate, be null and void and of no
further force or effect whatsoever at such time as the Holding Company shall
become subject to the reporting requirements of Section 15(d) or Section 13 of
the Securities Exchange Act of 1934, as amended.
SECTION 4. GENERAL PROVISIONS.
4.1 Assignment. This Amendment shall not be assignable
by any party without the prior written consent of all other parties hereto.
Subject to the foregoing, this Amendment shall inure to the benefit of and be
binding upon the parties hereto and their respective representatives,
successors and assigns.
4.2 Waiver. The failure of a party to insist upon strict
adherence to any term of this Amendment on any occasion shall not be considered
a waiver thereof or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Amendment.
4.3 Entire Agreement; Amendment. This Amendment shall
supersede any and all existing agreements between the parties hereto and
relating to the subject matter hereof and may not be further amended except by
a written agreement signed by all parties hereto.
4.4 Heading. Section headings are used herein for
convenience of reference only and shall not affect the meaning of any provision
of this Amendment.
4.5 Severability. If any provision of the Agreement or
this Amendment is invalid or unenforceable, the balance of the Agreement as
modified hereby shall remain in effect, and if any provision is inapplicable to
any person or circumstance, it shall nevertheless remain applicable to all
other persons or circumstances.
4.6 Further Assurances. The parties hereto shall each
take as promptly as possible all such action as may be necessary or appropriate
in order to effectuate the transactions contemplated hereunder, subject to the
terms explicitly set out herein.
4.7 Counterparts. This Amendment may be executed in one
or more counterparts each of which shall be deemed an original but all of which
taken together shall constitute one and the same agreement.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties set their hands to this
instrument as of the date first written above.
EMPLOYEE:
/s/ Dwayne Keith Chipman
--------------------------------
Dwayne K. Chipman
OWNER:
/s/ George E. Richmond
--------------------------------
George E. Richmond
OPERATING COMPANY:
Young Dental Manufacturing Company
By: /s/ George E. Richmond
----------------------------
Name:
---------------------------
Title:
--------------------------
HOLDING COMPANY:
Young Innovations, Inc.
By:/s/ George E. Richmond
-----------------------------
Name:
---------------------------
Title:
--------------------------
-3-
<PAGE> 1
EXHIBIT 10.10
YOUNG DENTAL
POLICY NUMBER A-001
- ---------------------------------- -------------
DATE 4-12-83
-------------
REVISION
SUBJECT: YOUNG DENTAL PENSION BONUS PLAN
PURPOSE: To provide a pension benefit for employees of the company to replace
the previous pension plan, terminated December 15, 1977. The effective date of
this benefit is January 1, 1978.
PROCEDURE/POLICY STATEMENT:
1. ELIGIBILITY
-----------
Any employee who was a participant in the old Pension Plan and Trust,
terminated December 15, 1977, is eligible to participate in the new
Pension Bonus Plan.
Except as provided above, any full time employee will become a
participant in the Pension Bonus Plan in the year he has completed three
years of continuous full time employment, provided he has then attained
the age of 25. Absences because of illness, vacations or authorized
leave of absence shall not be considered as interruption of continuous
service.
To receive bonus, employee must be a full time employee of the Company
on March 31st of the year following the calendar year in which the
Pension Bonus is earned. If employee retires from Young Dental before
March 31st, this does not apply.
2. BENEFIT
-------
Each participant shall be entitled to receive an annual cash bonus to be
calculated as a percentage of his annual base average earnings or form
W-2 earnings, whichever is lower. Employees who are paid on a commission
basis shall receive
Continued/ ....
APPROVAL
--------
MANUFACTURING DATE
----------------- ------------
ENGINEERING RLB DATE 4-13-83
------------------- ------------
MARKETING MRH DATE 4-13-83
--------------------- ------------
CONTROLLER MWE DATE 4-13-83
-------------------- ------------
PRESIDENT GR DATE 5-3-83
--------------------- ------------
<PAGE> 2
POLICY
YOUNG DENTAL PENSION BONUS PLAN
PAGE 2
a benefit based on 75% of their W-2 earnings as defined.
Annual base average earnings is defined as the average of base monthly
earnings on January 1, and December 31, of the plan year, multiplied
by 12 to determine annual base earnings.
W-2 earnings is defined as wages, tips and other compensation shown on
the participant's W-2 form for the plan year less any sick pay and/or
bonuses paid to the participants.
The percentage used for calculation of the benefit shall be determined
annually by the Board of Directors of the Company.
3. PAYMENT OF BENEFIT
------------------
The benefit shall be payable to each participant on or before March
31st of the year proceeding the plan year.
The benefit paid will be net of deductions as required by law.
<PAGE> 1
EXHIBIT 10.11
PROFIT SHARING PLAN
Effective January 1, 1987
PURPOSE: To reward salaried employees, other than the CEO, who have
contributed to the Company's profits in excess of corporate
standards for shareholder return, and to compensate salaried
employees for unique contributions.
DEFINITIONS:Company Profits shall mean Net Operating Income after CEO Bonus
(as hereinafter defined) for the period and shall exclude long term
gains or losses from sale or disposition of assets, write up of long
term liabilities, or other unusual gains or losses as are determined
at the sole discretion of the CEO. The intent is to reward
employees for profits generated from normal operations of the
business.
CEO Bonus -- Regardless of the amount of bonus paid to the CEO, the
CEO bonus used for profit sharing shall be calculated as follows:
[Net Operating Income - (January 1st N.W. x .22)] x .30 = Amount to
be deducted from Net Operating Income for profit sharing
calculations.
Salaried Employees shall mean all employees paid under the salaried
payroll as opposed to the hourly payroll.
Net operating income shall be as per financial statements prepared
by the corporation's accounting firm.
Net Worth shall mean the net value of shareholders' equity which
would include but not be limited to Capital Stock, paid in surplus,
and Retained earnings less Treasury Stock.
<PAGE> 2
-2-
Eligible Employee shall mean a full-time salaried employee, employed
in a salaried position continuously from some time during the profit
sharing year until June 15 of the following year except that
approved leaves of absence shall not be considered as interruption
of employment. Employees who are not employed due to disability or
death at June 15 may be paid or their Estate paid all or a portion
of their allocated profit sharing bonus as determined by the CEO at
his/her sole discretion.
THE PLAN: Twenty percent (20%) of the January 1st Net Worth is set aside from
the Net Operating Income as adjusted per CEO Bonus caluclation for
the period as a return on investment for the shareholders. After
the 20% return has been deducted from Net Operating Incomve (as
adjusted per CEO bonus calculation) the resulting balance is
multiplied by Thirty Percent (30%) and this resulting number becomes
the profit sharing pool for the eligible employees. Sixty Percent
(60%) of this pool shall be allocated to each then eligible employee
based upon his/her earnings exclusive of prior years profit sharing
distribution, special awards or payments, retirement payments or
other unusual or non-base pay compensation. The balance of the pool
(the Discretionary Pool) Forty Percent (40%) shall be
<PAGE> 3
-3-
allocated by the CEO based upon his/her knowledge of special
contributions to profits made by individual employees. The
discretion of the CEO is final in this allocation and may not be
contested in any manner by any employee. This does not exclude the
CEO's right to consult with supervisory personnel for their input as
to proper allocation of this Discretionary Pool. The distributions
of profit sharing monies shall be made to all eligible employees on
June 15th following the end of the corporate year for which such
profit sharing has been earned. Any monies allocated to then
eligible employees who are not eligible at date of distribution
shall be credited back to the company and be included in operating
income or may be set aside for profit sharing for the then current
year at the sole discretion of the CEO.
INTERPRETATION: Any debate or need to interpret the meaning of this plan shall
be at the sole discretion of the Chief Executive Officer.
<PAGE> 1
Exhibit 10.12
$12,000,000
TERM LOAN
AND
$6,500,000
REVOLVING LOAN
PROVIDED BY
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
TO
YOUNG INNOVATIONS, INC.,
YOUNG DENTAL MANUFACTURING COMPANY,
LORVIC HOLDINGS, INC.,
THE LORVIC CORPORATION
AND
DENTICATOR INTERNATIONAL, INC.
JULY 22, 1996
<PAGE> 2
LOAN AGREEMENT
In consideration of the mutual agreements herein and other sufficient
consideration, the receipt of which is hereby acknowledged, Young Innovations,
Inc., a Missouri corporation ("Innovations"), Young Dental Manufacturing
Company, a Missouri corporation ("Dental"), Lorvic Holdings, Inc., a Delaware
corporation ("Holdings"), The Lorvic Corporation, a Delaware corporation
("Lorvic") and Denticator International, Inc., a Missouri corporation
("Denticator") and The Boatmen's National Bank of St. Louis ("Lender"), agree
as follows:
1 GENERAL.
1.1 EFFECTIVE DATE. This Agreement shall become effective on July 22,
1996 (the "Effective Date").
1.2 DEFINED TERMS. Each capitalized term in this Agreement shall have
the meaning defined in the Glossary which is attached hereto as Appendix 1.2. If
a capitalized term is not defined in the Glossary, it shall have the meaning
defined elsewhere in this Agreement. If a capitalized term is not defined in
either the Glossary or elsewhere in this Agreement, it shall have the meaning
defined in the UCC.
1.3 SINGULAR AND PLURAL FORMS. All definitions shall be equally
applicable to both the singular and the plural forms of the terms defined.
1.4 REFERENCES. The words "hereof", "herein", "hereby", "hereunder",
and words of similar import refer to this Agreement as a whole and not to any
particular provision of this Agreement. The word "Section" or "section" and
"Page" or "page" refer to a section or page, respectively, of this Agreement
unless it expressly refers to something else.
1.5 REFERENCES TO BORROWER. The term "Borrower" herein refers to
Innovations, Dental, Holdings, Lorvic and Denticator both separately and
collectively. The words "a Borrower", "any Borrower", "each Borrower" and
"every Borrower" refer to each of Innovations, Dental, Holdings, Lorvic and
Denticator separately. The obligations of Innovations, Dental, Holdings,
Lorvic and Denticator under the Loan Documents are joint and several.
1.6 REFERENCES TO APPLICABLE LENDING OFFICE. The term "Applicable
Lending Office" means the office of Lender at 800 Market Street, St. Louis,
Missouri 63101, Attn: Leveraged Finance Group.
1.7 REFERENCES TO COVERED PERSON. The term "Covered Person" means each
of Innovations, Dental, Holdings, Lorvic and Denticator, and if any of them now
has or acquires any Subsidiaries, each of such Subsidiaries. The words "a
Covered Person", "any Covered Person", "each Covered Person" and "every Covered
Person" refer to Innovations, Dental, Holdings, Lorvic and Denticator and each
of their Subsidiaries separately.
1.8 ACCOUNTING TERMS WITH GAAP MEANINGS; CONSOLIDATED BASIS. Unless the
context otherwise requires, accounting terms herein that are not defined herein
shall have their meanings and shall be calculated under GAAP. All financial
measurements herein respecting "Borrower" shall be made and calculated for
Innovations, Dental, Holdings, Lorvic and Denticator and all of their
Subsidiaries on a consolidated basis in accordance with GAAP.
<PAGE> 3
1.9 COMPUTATION OF TIME PERIODS. In this Agreement, in the computation
of periods of time from a specified date to a later specified date, the word
"from" shall mean "from and including" and the words "to" and "until" shall
each mean "to but excluding." Periods of days referred to in this Agreement
shall be counted in calendar days unless Business Days are expressly
prescribed, and references in this Agreement to months and years shall be to
calendar months and calendar years unless otherwise specified.
2 COMMITMENTS. Subject to the terms and conditions hereof, and in reliance
upon the representations and warranties of Borrower herein:
2.1 REVOLVING COMMITMENT. Lender commits to make advances to Borrower
(each a "Revolving Advance") from time to time during the period commencing on
the Effective Date and ending at the close of business on the day preceding
December 1, 1999 (the "Ultimate Revolving Maturity Date"). (The from time to
time outstanding principal balance of all Revolving Advances from the Lender is
referred to herein as the "Revolving Loan".) The obligation of Borrower to
repay the Revolving Loan shall be evidenced by a promissory note payable to the
order of Lender in a maximum principal amount equal to the Revolving Commitment
(the "Revolving Note") satisfactory to Lender. Amounts applied to reduce the
Revolving Loan may be reborrowed as Revolving Advances as provided herein. At
any time after an Event of Default occurs that is not waived in writing by
Lender, Lender may cancel the Revolving Commitment as provided in Section 18.3.
2.1.1 LIMITATION ON REVOLVING ADVANCES. No Revolving Advance will
be made which would result in the Revolving Loan exceeding the Revolving
Commitment. Lender may, however, in its sole discretion make such
Revolving Advances, but shall not be deemed by doing so to have increased
the Revolving Commitment and shall not be obligated to make any such
Revolving Advances thereafter. No Revolving Advance will be made on or
after the Ultimate Revolving Maturity Date.
2.1.2 DEFINITION OF REVOLVING COMMITMENT. The "Revolving
Commitment" on any date shall be $6,500,000, or such lesser Dollar amount
to which it may have been reduced as provided herein.
2.2 TERM COMMITMENT. Lender commits to make a term loan to Borrower of
$12,000,000 (the "Term Commitment"). The Term Loan will be made in a single
advance on the Effective Date (the "Term Advance"). (The from time to time
outstanding principal amount of the Term Advance is referred to herein as the
"Term Loan".) The obligation of Borrower to repay the Term Loan shall be
evidenced by a promissory note payable to the order of Lender satisfactory to
Lender (the "Term Note"). Amounts applied to reduce the Term Loan may not be
reborrowed.
3 INTEREST.
3.1 RATES.
3.1.1 REVOLVING LOAN. The Revolving Loan shall bear interest at a
per annum rate equal to the CBR minus 0.5%.
2
<PAGE> 4
3.1.2 TERM LOAN. The Term Loan shall bear interest per annum rate
equal to the CBR plus the CBR Increment. The "CBR Increment" shall be
equal to 0.25%; provided, however, if Borrower enters into a Rate
Agreement acceptable to Lender, the CBR Increment shall be equal to 0.0%.
Notwithstanding the foregoing, Borrower may elect to convert the rate per
annum at which all or a portion of the Term Loan bears interest to the
Adjusted LIBOR Rate. The "Adjusted LIBOR Rate" shall be an annual rate of
two and one-half percent (2.50%) plus an interest rate equal to the
quotient (rounded to the nearest 0.001%) of the interest rate at which
Dollar deposits in immediately available funds and for a maturity nearest
in duration to the applicable Interest Period are offered or available in
the London Interbank Market for Eurodollars as of 11:00 a.m. (St. Louis
time) two Business Days before the applicable adjustment date, as reported
on Telerate Screen LIBO page 3750 (rounded to the nearest 1/16%). The
"Interest Period" shall, at Borrower's option, be no less than 30 days nor
more than 180 days.
3.2 RATE AFTER MATURITY. Borrower shall pay interest on a Loan after its
Maturity, and (at the option of Lender) upon all the Loans and other amounts
that are owing with respect thereto after the occurrence of an Event of
Default, at a per annum rate equal to CBR plus 3.0%.
3.3 TIME OF ACCRUAL. Interest shall accrue on all principal amounts
outstanding from and including the date when first outstanding to but excluding
the date when no longer outstanding. Amounts shall be deemed outstanding until
payments are applied thereto as provided herein.
3.4 COMPUTATION. Interest shall be computed for the actual days
elapsed over a year deemed to consist of 360 days. Interest rates that are
based on the CBR shall change simultaneously with any change in the CBR and
such rates shall be effective for the entire day on which such CBR change
becomes effective.
3.5 USURY. Notwithstanding any provisions to the contrary in Section
3 or elsewhere in any of the Loan Documents, Borrower shall not be obligated to
pay interest at a rate which exceeds the maximum rate permitted by Law. If,
but for this Section 3.5, Borrower would be deemed obligated to pay interest at
a rate which exceeds the maximum rate permitted by Law, or if any of the Loan
Obligations is paid or becomes payable before its originally scheduled Maturity
and as a result Borrower has paid or would be obligated to pay interest at such
an excessive rate, then (i) Borrower shall not be obligated to pay interest to
the extent it exceeds the interest that would be payable at the maximum rate
permitted by Law; (ii) any such excess interest that has been paid by Borrower
shall be refunded; and (iii) the effective rate of interest shall be deemed
automatically reduced to the maximum rate permitted by Law.
4 FEES.
4.1 REVOLVING COMMITMENT FEE. Borrower shall pay to lender a
"Revolving Commitment Fee" calculated by applying the daily equivalent of an
annual rate of 0.125% to the Unused Revolving Commitment on each day during the
period from and including the Effective Date to but excluding the Ultimate
Revolving Maturity Date. The "Unused Revolving
3
<PAGE> 5
Commitment" on any day shall be the difference between (i) the amount of the
Revolving Commitment and (ii) the Revolving Loan as of the close of business on
such day. The Revolving Commitment Fee shall be payable quarterly, in arrears,
commencing on the first day of October, 1996 and continuing on the first day of
each January, April, July and October thereafter and upon the Ultimate
Revolving Maturity Date.
4.2 CALCULATION OF FEES. All of the foregoing fees that are based on
an annual percentage shall be calculated on the basis of a year deemed to
consist of 360 days and for the actual number of days elapsed.
5 PAYMENTS.
5.1 SCHEDULED PAYMENTS ON REVOLVING LOAN.
5.1.1 INTEREST. Borrower shall pay interest accrued on the
Revolving Loan monthly in arrears, beginning on the first day of the first
full calendar month following the Effective Date, and continuing on the
first day of each calendar month thereafter, and on the Ultimate Revolving
Maturity Date. Borrower shall pay interest accrued on the Revolving Loan
after the Ultimate Revolving Maturity Date on demand.
5.1.2 PRINCIPAL.
5.1.2.1 DAILY PAYMENTS. Borrowers shall maintain one or
more lockboxes with Lender under its standard lockbox agreements (the
"Lockboxes"). Borrower shall also maintain one or more accounts
with Lender, each designated a "Controlled Disbursement Account".
Lender will also establish on its books an account in the name of
Borrower designated as the "Cash Collateral Account". Borrower shall
direct all Account Debtors to remit payments on their Accounts to
one or another of the Lockboxes. If sales of Inventory are made for
cash, Borrower shall immediately deliver to Lender or deposit into
the Cash Collateral Account the identical checks, cash or other
forms of payment which Borrower receives. All proceeds of Collateral
and all funds Borrower receives directly (other than Revolving
Advances) shall be deposited in the Cash Collateral Account.
Deposits in the Cash Collateral Account each day will be applied by
Lender to the Revolving Loan in accordance with Section 5.4 until the
Revolving Loan has been reduced to zero.
5.1.2.2 ULTIMATE REVOLVING MATURITY DATE. Borrower shall
repay the entire Revolving Loan on the Ultimate Revolving Maturity
Date.
5.2 SCHEDULED PAYMENTS ON TERM LOAN.
5.2.1 INTEREST. Borrower shall pay interest accrued on the Term
Loan monthly in arrears, beginning on the first day of the first full
calendar month following the Effective Date, and continuing on the first
day of each calendar month thereafter, and on December 1, 1999 (the
"Ultimate Term Maturity Date"). Borrower shall pay interest accrued on
the Term Loan after the Ultimate Term Maturity Date on demand.
4
<PAGE> 6
5.2.2 PRINCIPAL. Borrower shall repay the Term Loan as follows:
<TABLE>
<CAPTION>
Date Principal Payment
---- -----------------
<S> <C>
September 1, 1996 $450,000.00
December 1, 1996 $450,000.00
March 1, 1997 $850,000.00
June 1, 1997 $850,000.00
September 1, 1997 $950,000.00
December 1, 1997 $950,000.00
March 1, 1998 $950,000.00
June 1, 1998 $950,000.00
September 1, 1998 $950,000.00
December 1, 1998 $950,000.00
March 1, 1999 $950,000.00
June 1, 1999 $950,000.00
September 1, 1999 $950,000.00
</TABLE>
Borrower shall make a final installment equal to the remaining outstanding
principal balance on the Ultimate Term Maturity Date.
5.3 PREPAYMENTS AND REDUCTION OF COMMITMENTS.
5.3.1 VOLUNTARY.
5.3.1.1 REVOLVING LOAN. Borrower may reduce the Revolving
Commitment in whole multiples of $500,000 at any time and from time
to time, but only if (i) Borrower gives Lender written notice of
Borrower's intention to make such reduction at least one Business
Day prior to the effective date of the reduction, and (ii) Borrower
makes on the effective date of the reduction any payment on the
Revolving Loan required under Section 5.3.2.1 as a consequence of the
reduction. Any such reduction of the Revolving Commitment shall be
permanent.
5.3.1.2 TERM LOAN. Borrower may wholly prepay the Term Loan
at any time, and may make partial prepayments on the Term Loan in
amounts equal to up to the next two following scheduled payments of
principal from time to time, but only if (i) Borrower gives Lender
written notice of Borrower's intention to make such prepayment at
least one Business Day prior to tendering the prepayment, and (ii)
Borrower pays any accrued interest on the amount prepaid at the time
of such prepayment. Each partial prepayment on the Term Loan shall
be applied to the next principal installment due hereunder.
5.3.1.3 PREMIUMS. No penalty or premium shall be payable
upon any reduction by Borrower in the Revolving Commitment. No
penalty or premium shall be payable upon any prepayment of the Term
Loan.
5.3.2 MANDATORY.
5
<PAGE> 7
5.3.2.1 OVER-ADVANCES. If at any time the Revolving Loan
exceeds the Revolving Commitment, whether as a result of an optional
Revolving Advance by Lender as contemplated by Section 2.1.1 or
otherwise, Borrower shall on demand make a payment to Lender in the
amount of the excess. Each such prepayment shall be applied to
reduce the Revolving Loan.
5.3.2.2 PROCEEDS FROM SALES OF ASSETS. If Borrower sells any
of its assets in a single transaction or related series of
transactions that are not in the ordinary course of business,
Borrower shall make a prepayment on the Term Loan in the amount of
the gross proceeds therefrom less reasonable selling expenses and
the increment in federal, state and local income taxes, if any,
payable as a consequence of any taxable gain from such sale. If,
however, Borrower expends the net proceeds of any such sale of a
capital asset within 90 days of completion of the sale for
replacement of such asset by another asset of comparable type and
utility; and provided that such expenditure will not result in
Borrower exceeding the limits for Capital Expenditures set forth in
Section 17.1 of this Agreement, then Borrower shall not be required
to make such prepayment. Notwithstanding the foregoing, the net
proceeds from Lorvic's sale of the Real Property Collateral situated
at 8810 Frost Avenue, St. Louis, Missouri ("Lorvic Property"),
Dental's sale of the Real Property Collateral situated at 2418
Northline Industrial, Maryland Heights, Missouri ("Maryland Heights
Facility") and the redemption of Borrower's interest in that certain
Allegheny County, Pennsylvania Airport Revenue Bond, Due 2019, in
the original principal amount of $100,000 and that certain Lower
Colorado River Authority Texas Revenue Bond, Due 2009, in the
original principal amount of $100,000 shall be applied to the
Revolving Loan. The Revolving Commitment shall be automatically and
permanently reduced by an amount equivalent to the net proceeds
arising from the sale of the Lorvic Property. Borrower shall be
permitted to finance the sale of its assets by accepting notes for
such Indebtedness; provided, however, that such financing from time
to time does not exceed $150,000 in the aggregate and that the
proceeds of such notes shall be paid to Lender if not expended to
replace the asset sold.
5.3.2.3 PROCEEDS FROM SALE OF SECURITIES. If after the
Execution Date Borrower issues any equity or debt securities, or
warrants or options therefor ("Securities"), Borrower shall make a
prepayment on the Term Loan promptly after such sale in an amount
equal to the gross proceeds therefrom less reasonable brokers' and
underwriters' fees and commissions and other reasonable issuing
expenses ("Securities Proceeds"). Subject to Section 5.3.1.2,
Securities Proceeds not in excess of $2,000,000, in the aggregate,
resulting from the sale of Securities to Persons which are employees
of Borrower shall be applied to the next scheduled payments on the
Term Loan.
5.3.2.4 APPLICATION OF INSURANCE/CONDEMNATION PROCEEDS.
Immediately upon receipt by Borrower of any Insurance/Condemnation
Proceeds, Borrower shall make a prepayment on the Revolving Loan in
the amount of such Insurance/Condemnation Proceeds. On the 90th day
after
6
<PAGE> 8
receipt by Borrower of any Insurance/Condemnation Proceeds, Borrower
shall make a prepayment on the Term Loan in the amount of such
Insurance/Condemnation Proceeds that have not, within the 90 day
period following Borrower's receipt of such Insurance/Condemnation
Proceeds, been either expended, or committed to be expended, by
Borrower for the purpose of rebuilding, repairing or replacing the
property for which such Insurance/Condemnation Proceeds were paid.
Except as otherwise provided above, each prepayment under this Section
5.3.2 that is required to be applied to reduce the Term Loan shall be
applied to the scheduled principal installments in the inverse order of
their due dates, except that the net proceeds from the sale of any Real
Property Collateral (not including the Lorvic Property and the Maryland
Heights Facility) shall be applied to the next scheduled principal
payments on the Term Loan, subject to Section 5.3.1.2. If application to
the Term Loan of any prepayment required under this Section 5.3.2 reduces
the Term Loan to zero, the remaining amount of such prepayment shall be
applied to reduce the Revolving Loan and the Revolving Commitment shall be
automatically and permanently reduced by an equivalent amount.
5.4 MANNER OF PAYMENTS AND TIMING OF APPLICATION OF PAYMENTS.
5.4.1 PAYMENT REQUIREMENT. Unless expressly provided to the
contrary elsewhere herein, Borrower shall make each payment on the Loan
Obligations to Lender as required under the Loan Documents in Dollars at
the Applicable Lending Office on the date when due, without deduction,
set-off or counterclaim.
5.4.2 APPLICATION OF PAYMENTS. All payments received by Lender
in immediately available funds at or before 2:00 p.m., St. Louis time, on
a Business Day will be applied to the relevant Loan Obligation on the same
day. Such payments received on a day that is not a Business Day or after
2:00 p.m. on a Business Day will be applied to the relevant Loan
Obligation on the next Business Day.
5.4.3 INTEREST CALCULATION. Section notwithstanding, for purposes
of interest calculation only, any payment received by Lender (whether by
cash, check, draft, wire transfer or other instrument) shall be deemed to
have been applied to the relevant Loan Obligation on the Business Day such
funds are deemed collected at or before 2:00 p.m., St. Louis time.
5.4.4 RETURNED CHECKS. If a payment is made by check, draft or
other instrument and the check, draft or other instrument is returned to
Lender unpaid, the application of the payment to the Loan Obligation will
be reversed and will be treated as never having been made.
5.5 DUE DATES NOT ON BUSINESS DAYS. If any payment required hereunder
becomes due on a date that is not a Business Day, then such due date shall be
deemed automatically extended to the next Business Day.
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6 BORROWING PROCEDURE AND LIMITS.
6.1 INITIAL ADVANCES.
6.1.1 REVOLVING ADVANCES. Lender will make the initial Revolving
Advance on the Effective Date as directed by Borrower in a written
direction delivered to Lender. The manner of disbursement shall be subject
to Lender's approval.
6.1.2 TERM ADVANCE. Lender will make the Term Advance on the
Effective Date as directed by Borrower in a written direction delivered to
Lender. The manner of disbursement shall be subject to Lender's approval.
6.2 SUBSEQUENT ADVANCES.
6.2.1 REVOLVING ADVANCES. Subsequent Revolving Advances will be
made only as follows:
6.2.1.1 ADVANCES TO CONTROLLED DISBURSEMENT ACCOUNT. Subject
to the limitations in Section 2.1.1, on each Business Day a Revolving
Advance will be made automatically by Lender to fund the total
Dollar amount of checks and drafts presented to Lender for payment
from the Controlled Disbursement Account.
6.2.1.2 REVOLVING ADVANCE REQUESTS BY BORROWER. Subject to
the limitations in Section 2.1.1, Borrower may also request a
Revolving Advance by submitting a Revolving Advance Request to
Lender. Only a written request (which may be mailed, personally
delivered or telecopied as provided in Section 19.1) from a
Borrowing Officer to Lender that specifies the amount of the
Revolving Advance to be made and the date the proceeds of the
Revolving Advance are requested to be made available to Borrower
(the "Revolving Advance Date") shall be treated as a "Revolving
Advance Request". A Revolving Advance Request received by Lender
on a day that is not a Business Day or that is received by Lender
after 2:00 p.m., St. Louis time, on a Business Day shall be treated
as having been received by Lender at 2:00 p.m., St. Louis time, on
the next Business Day. A Revolving Advance Request shall become
irrevocable a 2:00 p.m., St. Louis time, on the Revolving Advance
Date unless it is sooner revoked by a Borrowing Officer. Lender
shall incur no liability to Borrower for treating any such request
as a Revolving Advance Request or for treating a revocation thereof
as such if Lender believes in good faith that the Person making the
request or revocation is a Borrowing Officer. Lender shall also
incur no liability to Borrower for failing to treat any such request
as Revolving Advance Request or for treating a revocation thereof
as such if Lender believes in good faith that the Person making the
request or revocation is not a Borrowing Officer. Each Revolving
Advance Request by a borrowing officer shall constitute a
certification by Borrower (i) no Default has occurred that is
continuing and not waived in writing by Lender, (ii) all
representations and warranties of Borrower in this Agreement are
then true,
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and will be true on the Revolving Advance Date, as if then
made, and (iii) all conditions precedent hereunder to the making of
the requested Revolving Advance have been satisfied. Provided that
all conditions precedent herein to a requested Revolving Advance
have been satisfied, Lender will make the amount of such requested
Revolving Advance available to Borrower on the Revolving Advance
Date in immediately available funds in Dollars at the Applicable
Lending Office.
6.2.1.3. LENDER'S RIGHT TO MAKE OTHER REVOLVING ADVANCES.
Lender shall have the right to make Revolving Advances at any time
and from time to time to cause timely payment of any of the Loan
Obligations. Lender will give notice to Borrower after making any
such Revolving Advance.
7 APPORTIONMENT, APPLICATION AND REVERSAL OF PAYMENTS. If an Event of
Default has occurred and is continuing, Lender shall determine in its
discretion the order and manner in which proceeds and other payments that Lender
receives are applied to the Loan Obligations, and Borrower hereby irrevocably
waives the right to direct the application of any payment or proceeds. Lender
shall have the continuing and exclusive right to apply and reverse and reapply
any and all such proceeds and payments to any portion of the Loan Obligations.
8 INDEMNITY FOR RETURNED PAYMENTS. If after receipt of any payment
of, or proceeds applied to the payment of, all or any part of the Loan
Obligations, Lender is for any reason compelled to surrender such payment or
proceeds to any Person because such payment or application of proceeds is
invalidated, declared fraudulent, set aside, determined to be void or voidable
as a preference, an impermissible setoff, or a diversion of trust funds, or for
any other reason, then the Loan Obligations or part thereof intended to be
satisfied shall be revived and this Agreement shall continue in full force and
Borrower shall be liable to pay to Lender, and hereby does indemnify Lender and
hold Lender harmless for, the amount of such payment or proceeds surrendered.
The provisions of this Section shall be and remain effective notwithstanding
any contrary action which may be taken by Lender in reliance upon any such
payment or application of proceeds, and any such contrary action so taken shall
be without prejudice to Lender's rights under this Agreement and shall be
deemed to have been conditioned upon such payment or application of proceeds
having become final and irrevocable. The provisions of this Section shall
survive termination of the Commitments, the expiration of the any letters of
credit issued by Lender for the account of Borrower and the payment and
satisfaction of all of the Loan Obligations.
9 CAPITAL ADEQUACY REIMBURSEMENT. If there is any change of Law after the
Execution Date regarding the capital that financial institutions
in a class that includes Lender are required to maintain and which has the
effect of reducing the rate of return on, or increasing the cost of
maintaining, Lender's capital as a consequence of its obligations hereunder,
then Lender may from time to time demand, and Borrower shall pay to Lender
within sixty days after each demand, such additional amount as will compensate
Lender for such reduction or increase. If Lender claims compensation under
this Section, Lender shall furnish a certificate to Borrower that states the
additional amount to be paid to it hereunder and includes a description of the
method used by Lender in calculating such amount. Borrower shall have the
burden of proving that any such certificate is not correct. If there is any
change of Law after the Execution Date regarding the capital that financial
institutions in a class that includes
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Lender are required to maintain and which has the effect of increasing the
rate of return on, or decreasing the cost of maintaining, Lender's capital
as a consequence of its obligations hereunder, then Borrower may from time to
time demand, and Lender shall pay to Borrower within sixty days after each
demand, such additional amount as will compensate Borrower for such reduction or
increase. In addition, if Borrower shall fully satisfy the Loan Obligations
within sixty days of receiving the notice referred to above, Lender shall waive
the additional amount payable.
10 SECURITY. As security for payment and performance of the Loan Obligations,
Borrower shall on the Execution Date execute and deliver, or cause to be
executed and delivered, to Lender the following documents:
10.1 SECURITY.
10.1.1 security agreements from Borrower granting to Lender a
security interest in all of the Goods, Equipment, Accounts, Inventory,
Instruments, Documents, Chattel Paper, General Intangibles and other
personal property of Borrower, whether now owned or hereafter acquired,
and all proceeds thereof (the "Personal Property Collateral"), subject
only to Permitted Liens (each such security agreement that Borrower
executes and delivers to Lender, either on or after the Execution Date,
and as it may be amended, restated or replaced from time to time, a
"Security Agreement");
10.1.2 mortgages and deeds of trust granting to Lender liens
covering the real property described in Exhibit 10.12 and all proceeds
thereof (the "Real Property Collateral"), subject only to Permitted Liens
existing on the Execution Date (each such mortgage that Borrower executes
and delivers to Lender, either on or after the Execution Date, and as it
may be amended, restated or replaced from time to time, a "Mortgage");
10.1.3 one or more assignments assigning to Lender a lien and
security interest in all Intellectual Property of Borrower, including but
not limited to all patents, patent applications, inventions upon which
patent applications have not yet been filed, trade names, trademarks,
trademark registrations and applications, service marks, service mark
registrations and applications, copyrights and copyright registrations
and applications, both domestic and foreign, described in Exhibit 10.13
and all proceeds thereof (each such assignment that Borrower executes and
delivers to Lender, either on or after the Execution Date, and as it may
be amended, restated, or replaced from time to time, an "Intellectual
Property Assignment");
10.1.4 stock pledge agreements granting to Lender a lien and
security interest in all of the capital stock and other Securities of
each Borrower and every Subsidiary and Affiliate of Borrower, now or
hereafter issued and outstanding, and all proceeds thereof (each such
stock pledge agreement that Borrower executes and delivers to Lender,
either on or after the Execution Date, and as it may be amended, restated,
or replaced from time to time, a "Stock Pledge Agreement");
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10.1.5 assignments assigning to Lender all of Borrower's rights and
interest in all money due or to become due under every contract of
Borrower with any federal Governmental Authority (each a "Government
Contract") in excess of $50,000, (each such assignment that Borrower
executes and delivers to Lender, either on or after the
Execution Date, as it may be amended, restated, or replaced from time to
time, a "Government Contract Assignment");
10.1.6 an assignment assigning to Lender all of Borrower's rights
and interest in the Rate Agreement, if any;
10.1.7 An assignment assigning to Lender all of Borrower's rights
and interest in the Cash Collateral Account (as the same may be amended,
restated, or replaced from time to time, the "Account Assignment");
10.1.8 an assignment assigning to Lender all of Borrower's rights
and interest in (i) all building permits and other governmental licenses
or permits for the expansion of the Earth City Facility, (ii) the plans
and specifications for the expansion of the Earth City Facility, (iii) the
contracts with the design architect, the general contractor, and any other
contractors, architects, or engineers employed by Borrower for the
expansion of the Earth City Facility, and (iv) any and all agreements
regarding the development, construction, leasing, management or
operation of the expansion of the Earth City Facility, together with
consents to the assignment from the parties with whom the Borrower has
contracted; and
As further security for the Loan Obligations, if Borrower acquires or
leases any real property after the Execution Date, Borrower shall notify Lender
thereof and shall deliver to Lender a deed of trust or mortgage, or leasehold
deed of trust or mortgage, as appropriate, on each parcel of such real property
promptly upon request by Lender.
Lender may, in its sole discretion, (i) exchange, waive or release any of
the Collateral, (ii) following an Event of Default that is continuing, apply
Collateral and direct the order or manner of sale thereof as Lender may
determine, and (iii) following an Event of Default that is continuing, settle,
compromise, collect or otherwise liquidate any Collateral in any manner, all
without affecting the Loan Obligations or Lender's right to take any other
action with respect to any other Collateral.
All of the foregoing documents and any similar documents that Borrower
executes and delivers to Lender after the Execution Date to secure the Loan
Obligations, as they may be amended, restated or replaced from time to time,
are referred to herein collectively as the "Security Documents".
11 POWER OF ATTORNEY. Borrower hereby authorizes Lender and irrevocably
appoints Lender (acting by any of its officers) as Borrower's agent and
attorney-in-fact (which appointment is coupled with an interest and is
therefore irrevocable) to do any of the following until all of the Loan
Obligations are fully paid and satisfied and the Commitments are terminated:
11.1 During the continuance of a Default that is not waived in writing
by Lender and after the occurrence of an Event of Default that is not waived in
writing by Lender: (i) demand
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payment of any Account; (ii) enforce payment of any Account by legal
proceedings or otherwise; (iii) exercise all of Borrower's rights and remedies
in proceedings brought to collect any Account; (iv) sell or assign any Account
upon such terms, for such amount and at such time or times as Lender deems
advisable; (v) settle, adjust, compromise, extend or renew any Account; (vi)
discharge and release any Account; (vii) prepare, file and sign Borrower's name
on any proof of claim in bankruptcy or other similar documents against an
Account Debtor; (viii) notify the postal authorities of any change of the
address for delivery of Borrower's mail to any address designed by Lender, and
open and process all mail addressed to Borrower; (ix) endorse Borrower's name on
any verification of Accounts and notices thereof to Account Debtors; (x) make
one or more Revolving Advances to pay the costs and expenses of any of the
foregoing; and (xi) do anything that Lender's deems necessary in its reasonable
discretion to assure that the Loan Obligations are fully paid.
11.2 At any time: (i) take control in any manner of any item of payment
or proceeds of any Account; (ii) have access to any lockbox or postal box into
which Borrower's mail is deposited; (iii) endorse Borrower's name upon any
items of payment and deposit the same in the Cash Collateral Account and apply
the proceeds thereof to the Loan Obligations as provided herein; and (iv)
endorse Borrower's name upon any chattel paper, document, instrument, invoice,
or similar document or agreement relating to any Account.
The foregoing power of attorney and authorization shall be deemed
automatically revoked upon the payment in full of all of the Loan Obligations
and the termination of the Commitments.
12 CONDITIONS OF LENDING.
12.1 CONDITIONS TO INITIAL ADVANCE. As conditions precedent to
Lender's obligation to make the initial Advance:
12.1.1 LISTED DOCUMENTS AND OTHER ITEMS. Lender shall have received
on or before the Effective Date all of the documents and other items
listed or described in Exhibit hereto, with each being (as applicable)
duly executed and (also as applicable) sealed, attested, acknowledged,
certified, or authenticated.
12.1.2 FINANCIAL CONDITION. Lender shall have determined to its
satisfaction that the financial statements of Borrower for the periods
ended June 30, 1996 (the "Initial Financial Statements") and the proforma
financial statements of Borrower for the period ending as of the Effective
Date and the periods ending June 30, 1996 (the "Proforma Financial
Statements") as furnished to Lender and other information furnished to
Lender by Borrower (i) for the periods ended on or before the Effective
Date, fairly and accurately reflect the business and financial condition of
Borrower, its cash flows and the results of its operations for such
periods, and (ii) for the periods that will end after the Effective Date,
reflect Borrower's best estimate and forecast of the business and
financial condition of Borrower, its cash flows, and the results of its
operations for such periods.
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12.1.3 NO DEFAULT. No Default shall have occurred and be
continuing that is not waived in writing by Lender, no Event of Default
shall have occurred that is not waived in writing by Lender, and neither
will occur as a result of such Advance being requested or made or the
application of the proceeds thereof.
12.1.4 PERFECTION OF LIENS AND SECURITY INTERESTS. Every lien and
security interest required to be granted by Borrower to Lender under
Section shall have been perfected and shall be, except as otherwise
satisfactory to Lender, a first priority lien or security interest.
12.1.5 REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in the Loan Documents shall be true and correct.
12.1.6 MATERIAL ADVERSE CHANGE. Since the date of the most recent
Financial Statements delivered to Lender, there shall not have been any
change which would have a Material Adverse Effect.
12.1.7 PENDING MATERIAL PROCEEDINGS. There shall be no pending
Material Proceedings.
12.1.8 PAYMENT OF FEES. Borrower shall have paid and reimbursed to
Lender all fees, costs and expenses that are payable or reimbursable to
Lender hereunder on or before the Effective Date.
12.1.9 LEGAL OPINION. Lender shall have received an opinion of
Borrower's counsel satisfactory to Lender.
12.1.10 RELATED TRANSACTION DOCUMENTS. All documents to be executed
and delivered in connection with Innovation's acquisition of certain assets
of Denticator International, Inc., a California corporation ("Acquisition")
shall have been delivered to Lender in final form and shall be reasonably
satisfactory to Lender and the Acquisition shall have closed.
12.1.11 OTHER ITEMS. Lender shall have received such other consents,
approvals, opinions, certificates or documents as it reasonably deems
necessary.
12.2 CONDITIONS TO SUBSEQUENT ADVANCES. The obligation of Lender
to make any subsequent Advance shall be subject to the prior or concurrent
fulfillment of each of the following additional conditions precedent:
12.2.1 GENERAL CONDITIONS. All of the conditions to the initial
Advances in Section shall have been and shall remain satisfied.
12.2.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in the Loan Documents shall be true and correct as of
the time of such Advance, with the same force and effect as if made at such
time.
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12.2.3 DEFAULT. No Default shall have occurred and be continuing
that is not waived in writing by Lender, no Event of Default shall have
occurred that is not waived in writing by Lender, and neither will occur
as a result of such Revolving Advance being requested or made or the
application of the proceeds thereof.
13 REPRESENTATIONS AND WARRANTIES.
Except as otherwise described the disclosure schedule that is attached
hereto as Exhibit (the "Disclosure Schedule"), Borrower represents and
warrants to Lender as follows:
13.1 ORGANIZATION AND EXISTENCE. Each Covered Person is duly organized
and existing in good standing under the laws of the state of its organization,
is duly qualified to do business and is in good standing in every state where
the nature or extent of its business or properties require it to be qualified
to do business, except where the failure to so qualify will not have a Material
Adverse Effect. Each Covered Person has the power and authority to own its
properties and carry on its business as now being conducted.
13.2 AUTHORIZATION. Each Covered Person is duly authorized to execute
and perform every Loan Document to which such Covered Person is a party, and
Borrower is duly authorized to borrow hereunder, and this Agreement and the
other Loan Documents have been duly authorized by all requisite corporate
action of each Covered Person. No consent, approval or authorization of, or
declaration or filing with, any Governmental Authority, and no consent of any
other Person, is required in connection with Borrower's execution, delivery or
performance of this Agreement and the other Loan Documents, except for those
already duly obtained.
13.3 DUE EXECUTION. Every Loan Document to which a Covered Person is a
party has been executed on behalf of such Covered Person by a Person duly
authorized to do so.
13.4 ENFORCEABILITY OF OBLIGATIONS. Each of the Loan Documents to which
a Covered Person is a party constitutes the legal, valid and binding obligation
of such Covered Person, enforceable against such Covered Person in accordance
with its terms, except to the extent that the enforceability thereof against
such Covered Person may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or by
equitable principles of general application.
13.5 BURDENSOME OBLIGATIONS. No Covered Person is a party to or bound
by any Contract or is subject to any provision in the Charter Documents of such
Covered Person which would, if performed by such Covered Person, result in a
Default or Event of Default either immediately or upon the elapsing of time.
13.6 LEGAL RESTRAINTS. The execution of any Loan Document by a Covered
Person will not violate or constitute a default under the Charter Documents of
such Covered Person, any Material Agreement of such Covered Person, or any
Material Law, and will not, except as expressly contemplated or permitted in
this Agreement, result in any Security Interest being imposed on any of such
Covered Person's property. The performance by any Covered Person of its
obligations under any Loan Document to which it is a party will not violate or
constitute
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a default under the Charter Documents of such Covered Person, any Material
Agreement of such Covered Person, or any Material Law, and will not, except as
expressly contemplated or permitted in this Agreement, result in any Security
Interest being imposed on any of such Covered Person's property.
13.7 LABOR DISPUTES. There is no collective bargaining agreement or other
labor contract covering employees of a Covered Person, and no such collective
bargaining agreement or other labor contract is scheduled to expire during the
term of this Agreement. No union or other labor organization is seeking to
organize, or to be recognized as, a collective bargaining unit of employees of a
Covered Person for any similar purpose, and there is no pending or, to the best
of Borrower's knowledge, threatened, strike, work stoppage, material unfair
labor practice claim or other material labor dispute against or affecting any
Covered Person or its employees.
13.8 NO MATERIAL PROCEEDINGS. There are no Material Proceedings
pending or, to the best knowledge of Borrower, threatened.
13.9 MATERIAL LICENSES. All Material Licenses have been obtained or
exist for each Covered Person.
13.10 COMPLIANCE WITH LAWS. Each Covered Person is in compliance with
all Material Laws. Without limiting the generality of the foregoing:
13.10.1 COMPLIANCE. The operations of every Covered Person comply in
all material respects with all applicable FDA Laws, Environmental Laws and
Employment Laws.
13.10.2 PROCEEDINGS. None of the operations of any Covered Person
are the subject of any judicial or administrative complaint, order or
proceeding alleging the violation of any applicable FDA Laws, Environmental
Laws or Employment Laws.
13.10.3 INVESTIGATIONS. None of the operations of any Covered Person
are the subject of investigation by any Governmental Authority regarding
violations of FDA Laws or the improper transportation, storage, disposal,
generation or release into the environment of any Hazardous Waste, the
results of which may have a Material Adverse Effect on such Covered Person,
on the value of the Collateral, or on the overall assets of such Covered
Person.
13.10.4 NOTICES; REPORTS. No notice or report under any
Environmental Law indicating a past or present spill or release into the
environment of any Hazardous Waste has been filed, or is required to be
filed, by any Covered Person.
13.10.5 REAL PROPERTY. No Covered Person, nor to the best of
Borrower's knowledge, any other Person, has at any time transported,
stored, disposed of, generated or released any Hazardous Waste on the
surface, below the surface, or within the boundaries of any real property
owned or operated by such Covered Person or any improvements thereon.
Borrower has no knowledge of any Hazardous Waste on the surface, below the
surface, or within the boundaries of any real property owned
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or operated by such Covered Person or any improvements thereon. No
property such Covered Person is subject to a Security Interest in favor of
any Governmental Authority for any liability under any Environmental Law or
damages arising from or costs incurred by such Governmental Authority in
response to a spill of release of Hazardous Waste into the environment.
13.10.6 ENVIRONMENTAL PROPERTY TRANSFER ACTS. No Environmental
Property Transfer Acts are applicable to the transactions contemplated by
this Agreement or the Acquisition Agreement and Borrower has provided all
notices and obtained all necessary environmental permit transfers and
consents, if any, required in order to consummate the transactions
contemplated by this Agreement or the Acquisition Agreement, to perfect
Lender's Security Interests and to operate Borrower's business as presently
or proposed to be operated.
13.10.7 WAGE AND HOUR LAWS. Each Covered Person to which any of the
Wage and Hour Laws apply pays its employees in compliance with such Laws.
13.11 OTHER NAMES. No Covered Person has used any name other than the full
name which identifies such Covered Person in this Agreement. The only trade
name or style under which a Covered Person sells Inventory or creates Accounts,
or to which instruments in payment of Accounts are made payable, is the name
which identifies such Covered Person in this Agreement.
13.12 ACQUISITION.
13.12.1 CONSUMMATION OF ACQUISITION. Borrower has delivered to Lender
complete and correct executed copies of the Acquisition Agreement, all
amendments, schedules and exhibits thereto, and all other agreements,
documents and certificates which have been executed and delivered in
connection with the transactions contemplated thereby. The Acquisition
Agreement has been duly authorized and executed and is the valid and
binding obligation of Borrower and the other parties thereto and is
enforceable in accordance with its terms. Each of the parties to the
Acquisition Agreement has performed all obligations, covenants and
conditions required of it prior to or as a condition to the consummation of
the transactions contemplated by the Acquisition Agreement, and no such
obligation, covenant or condition has been waived by any party. Borrower
is not in default of any of its obligations under the Acquisition
Agreement, and all representations and warranties of Borrower in the
Acquisition Agreement are complete and correct in all material respects as
of the Effective Date as if made on and as of such date.
13.12.2 PRIOR TRANSACTIONS. Except as has been disclosed to Lender,
no Covered Person has been a party to any merger or consolidation, or
acquired all or substantially all of the assets of any Person, or acquired
any of its property outside of the ordinary course of business which
continues to subject such Covered Person to a contingent liability.
13.13 CAPITALIZATION. Innovation's authorized capital stock consists of
25,000,000 shares of common stock, par value $.01 per share, of which 3,708,512
shares are validly
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issued and outstanding, fully paid and non-assessable, and are owned
beneficially and of record by those Persons described in the Disclosure
Schedule.
13.14 CAPITALIZATION. Dental's authorized capital stock consists of
600,000 shares of common stock, par value $.50 per share, of which 311,640
shares are validly issued and outstanding, fully paid and non-assessable, and
are owned beneficially and of record by Innovation.
13.15 CAPITALIZATION. Lorvic's authorized capital stock consists of
1,000 shares of common stock, par value $0.01 per share, of which 100 shares
are validly issued and outstanding, fully paid and non-assessable, and are
owned beneficially and of record by Holdings.
13.16 CAPITALIZATION. Holding's authorized capital stock consists of
100,000 shares of stock (30,000 10% cumulative preferred stock-$1 par, 60,000
Class A common-$.01 par and 10,000 Class B common-$.01 par) of which 1,000
Class A common shares are validly issued and outstanding, fully paid and
non-assessable, and are owned beneficially and of record by Dental.
13.17 CAPITALIZATION. Denticator's authorized capital stock consists
of 30,000 shares of common stock, par value $1.00 per share, of which 1,000
shares are validly issued and outstanding, fully paid and non-assessable, and
are owned beneficially and of record by Innovations.
13.18 SOLVENCY. Borrower is Solvent prior to and after giving effect
to the transactions contemplated by the Acquisition Agreement, and the making
of the Term Loan and initial Revolving Advance on the Effective Date.
13.19 PROJECTIONS; PRO FORMA BALANCE SHEET. The projections of
Borrower's quarterly financial condition, results of operations and cash flow
for the 1997 Fiscal Year, a copy of which have been delivered to Lender,
represent Borrower's best estimate of Borrower's future financial performance
for the periods set forth therein. Such projections have been prepared on the
basis of the assumptions set forth therein, which Borrower believes are fair
and reasonable in light of current and reasonably foreseeable business
conditions. The pro forma balance sheet of Borrower as of the Effective Date,
a certified copy of which has been provided by Borrower to Lender has been
prepared in accordance with GAAP and presents Borrower's best estimate and
forecast of Borrower's financial condition as of the Effective Date as if the
transactions contemplated by the Acquisition Agreement had occurred on the
Effective Date.
13.20 FINANCIAL STATEMENTS. The Initial Financial Statements are
complete and correct, have been prepared in accordance with GAAP, and fairly
reflect the financial condition, results of operations and cash flows of the
Persons covered thereby as of the dates and for the periods stated therein.
13.21 NO CHANGE IN CONDITION. Since the date of the Initial Financial
Statements delivered to Lender, there has been no change which would have a
Material Adverse Effect on any Covered Person.
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13.22 NO DEFAULTS. No Covered Person has breached or violated or is in
default under any Material Agreement, or is in default with respect to any
Material Obligation of such Covered Person. No Default has occurred which is
continuing and no Event of Default has occurred.
13.23 INVESTMENTS. No Covered Person has any Investments in other
Persons except existing Permitted Investments.
13.24 INDEBTEDNESS. No Covered Person has any Indebtedness except
existing Permitted Indebtedness.
13.25 INDIRECT OBLIGATIONS. No Covered Person has any Indirect
Obligations except existing Permitted Indirect Obligations.
13.26 ENCUMBRANCES. None of the real property purported to be owned by
a Covered Person is subject to any Encumbrances except existing Permitted
Encumbrances.
13.27 OPERATING LEASES. No Covered Person has an interest as lessee
under any Operating Leases.
13.28 CAPITAL LEASES. No Covered Person has an interest as a lessee
under any Capital Leases.
13.29 TAX LIABILITIES; GOVERNMENTAL CHARGES. Each Covered Person has
filed or caused to be filed all tax reports and returns required to be filed by
it with any Governmental Authority, except where extensions have been properly
obtained, and has paid or made adequate provision for payment of all taxes,
assessments, fees and other charges levied upon it or upon its income or
properties by any Governmental Authority which are due and payable, including
interest and penalties, except such taxes, assessments, fees and other charges,
if any, as are being diligently contested in good faith by appropriate
proceedings and as to which such Covered Person has established adequate
reserves in conformity with GAAP on the books of such Covered Person. No
Security Interests for any such taxes, assessments, fees or other charges have
been filed and no claims are being asserted with respect to any such taxes,
assessments, fees or other charges which, if adversely determined, would have a
Material Adverse Effect on such Covered Person. There are no material
unresolved issues concerning any tax liability of a Covered Person which, if
adversely determined, would have a Material Adverse Effect on such Covered
Person.
13.30 PENSION BENEFIT PLANS. All Pension Benefit Plans maintained by
each Covered Person or an ERISA Affiliate qualify under Section 401 of the Code
and are in compliance with the provisions of ERISA. Except with respect to
events or occurrences which would not have a Material Adverse Effect:
13.30.1 PROHIBITED TRANSACTIONS. None of such Pension Benefit Plans
has participated in, engaged in or been a party to any non-exempt
prohibited transaction as defined in ERISA or the Code, and no officer,
director or employee of a Covered Person orof an ERISA Affiliate has
committed a breach of any of the responsibilities or obligations imposed
upon fiduciaries by Title I of ERISA.
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13.30.2 CLAIMS. There are no claims, pending or threatened,
involving any such Pension Benefit Plan by a current or former employee
(or beneficiary thereof) of such Covered Person or ERISA Affiliate, nor is
there any reasonable basis to anticipate any claims involving any such
Pension Benefit Plan which would likely be successfully maintained against
such Covered Person or ERISA Affiliate.
13.30.3 REPORTING AND DISCLOSURE REQUIREMENTS. There are no
violations of any reporting or disclosure requirements with respect to any
such Pension Benefit Plan and none of such Pension Benefit Plans has
violated any applicable Law, including but not limited to ERISA and the
Code.
13.30.4 ACCUMULATED FUNDING DEFICIENCY. No such Pension Benefit Plan
has (i) incurred an "accumulated funding deficiency" (within the meaning of
Section 412(a) of the Code), whether or not waived; (ii) been a Pension
Benefit Plan with respect to which a Reportable Event (to the extent that
the reporting of such events to the PBGC within thirty days of the
occurrence has not been waived) has occurred and is continuing; or (iii)
been a Pension Benefit Plan with respect to which there exist conditions or
events which have occurred that present a significant risk of termination
of such Pension Benefit Plan by the PBGC.
13.30.5 MULTI-EMPLOYER PLAN. No Covered Person or ERISA Affiliate
has received notice that any Multi-employer Plan to which such Covered
Person or ERISA Affiliate contributes is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multi-employer
Plan to which such Covered Person or ERISA Affiliate contributes is
reasonably expected to be in reorganization or to be terminated within the
meaning of Title IV of ERISA.
13.31 WELFARE BENEFIT PLANS. No Covered Person or ERISA Affiliate
maintains a Welfare Benefit Plan that has a liability which, if enforced or
collected, would have a Material Adverse Effect. Each Covered Person and ERISA
Affiliate has complied in all material respects with the applicable requirements
of Section 4980B of the Code pertaining to continuation coverage as mandated by
COBRA.
13.32 RETIREE BENEFITS. No Covered Person or ERISA Affiliate has an
obligation to provide any Person with any medical, life insurance, or similar
benefit following such Person's retirement or termination of employment (or to
such Person's beneficiary subsequent to such Person's death) other than (i) such
benefits provided to Persons at such Person's sole expense and (ii) obligations
under COBRA.
13.33 DISTRIBUTIONS. On and after the Execution Date, no Distribution has
been declared, paid or made upon or in respect of any capital stock or other
Securities of Borrower except as expressly permitted hereby.
13.34 REAL ESTATE; LEASES. Exhibit 13.34 sets forth a correct and complete
list of all real estate owned by Borrower, all leases and subleases of real or
personal property by Borrower as lessee or sublessee, and all leases and
subleases of real and personal property by Borrower as lessor, lessee, sublessor
or sublessee. Each of such leases and subleases is
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valid and enforceable in accordance with its terms and is in full force and
effect, and no default by any party to any such lease or sublease exists.
13.35 STATE OF COLLATERAL AND OTHER PROPERTY. Each Covered Person has
good and marketable or merchantable title to all real and personal property
purported to be owned by it or reflected in the Initial Financial Statements,
except for personal property sold in the ordinary course of business after the
date of the Initial Financial Statements. There are no Security Interests on
any of the property purported to be owned by any Covered Person, including the
Collateral, except existing Permitted Liens. Each tangible item of Personal
Property Collateral purported to be owned by a Covered Person is in good
operating condition and repair and is suitable for the use to which it is
customarily put by its owner. Without limiting the generality of the foregoing:
13.35.1 ACCOUNTS. With respect to each Account scheduled, listed
or referred to in reports submitted by Borrower to Lender pursuant to the
Loan Documents, except as disclosed therein: (i) the Account arose from a
bona fide transaction completed in accordance with the terms of any
documents pertaining to such transaction; (ii) the Account is not evidenced
by a judgment and there is no material dispute respecting it; (iii) the
amount of the Account as shown on Borrower's books and records and all
invoices and statements which may be delivered to Lender with respect
thereto are actually and absolutely owing to Borrower and are not in any
way contingent, other than returns of items for which a credit may be
issued in the ordinary course of business; (iv) there are no set-offs,
counterclaims or disputes existing or asserted with respect to the Account
and Borrower has not made any agreement with any Account Debtor for any
deduction therefrom except a discount or allowance allowed by Borrower in
the ordinary course of its business for prompt payment; (v) there are no
facts, events or occurrences which in any way impair the validity or
enforcement of the Account or tend to reduce the amount payable thereunder
as shown on Borrower's books and records and all invoices and statements
delivered to Lender with respect thereto, (provided, however, that with
respect to items (ii) through (v), inclusive, a reserve of $50,000 in the
aggregate shall be allowed); (vi) the Account is assignable; (vii) the
Account arose in the ordinary course of Borrower's business; (viii) to the
best of Borrower's knowledge, the Account Debtor with respect to the
Account has the capacity to contract; (ix) the services furnished and/or
goods sold giving rise to the Account are not subject to any Security
Interest except the first priority, perfected Security Interest of Lender
and except the Permitted Liens; (x) to the best of Borrower's knowledge,
there are no proceedings or actions which are threatened or pending against
the Account Debtor with respect to the Account; and (xi) no payments have
been or shall be made on the Account except payments promptly delivered to
Lender or to other financial institutions approved by Lender pursuant to
this Agreement.
13.35.2 INVENTORY. With respect to Inventory scheduled, listed or
referred to in any certificate, schedule, list or report given by Borrower
except as disclosed therein: (i) such Inventory (except for Inventory in
transit) is located at one or another of the premises listed on Exhibit
13.36; (ii) Borrower has good and merchantable title to such Inventory
subject to no Security Interest whatsoever except for the first priority,
perfected security interest granted to Lender in connection herewith and
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except for existing Permitted Liens; (iii) such Inventory is of good and
merchantable quality, free from any materials defect; (iv) such Inventory
is not subject to any licensing, patent, royalty, trademark, trade name or
copyright agreements with any third parties; and (v) the completion of
manufacture and sale or other disposition of such Inventory by Lender
following an Event of Default shall not require the consent of any Person
and shall not constitute a breach or default under any contract or
agreement to which Borrower is a party or to which the Inventory is
subject.
13.35.3 EQUIPMENT. With respect to the Borrower's equipment: (i)
Borrower has good and marketable title thereto; (ii) none of such
equipment is subject to any Security Interest except for the first
priority security interest granted to Lender pursuant hereto and except
for Permitted Liens; (iii) all such equipment is in good operating
condition and repair, ordinary wear and tear alone excepted, and is
suitable for the uses to which customarily put in the conduct of
Borrower's business; and (iv) none of such equipment used in the conduct
of Borrower's business is leased, other than leases of non-material items
of office equipment.
13.35.4 INTELLECTUAL PROPERTY. (i) Exhibit 10.13 sets forth a correct
and complete list of all of Borrower's Intellectual Property, (ii)
Borrower owns all right, title and interest in, under and to such
Intellectual Property, subject to no licenses or any interest therein or
other agreements relating thereto, except for the Intellectual Property
Assignments; (iii) no Intellectual Property or grant of license by or to
Borrower is subject to any pending or, to the best of Borrower's
knowledge, threatened challenge; (iv) to the best of Borrower's knowledge,
Borrower has not committed any patent, trademark, trade name, service mark
or copyright infringement, and the present conduct of Borrower's business
does not infringe any patents, trademarks, trade name rights, service
marks, copyrights, publication rights, trade secrets or other proprietary
rights of any Person; and (v) there are no claims or demands of any Person
pertaining to, or any proceedings which are pending or, to the best of
Borrower's knowledge, threatened, which challenge Borrower's rights in
respect of any proprietary or confidential information or trade secrets
used in the conduct of Borrower's business.
13.35.5 DOCUMENTS, INSTRUMENTS AND CHATTEL PAPER. All documents,
instruments and chattel paper describing, evidencing or constituting
Collateral, and all signatures and endorsements thereon, are complete,
valid, and genuine, and all goods evidenced by such documents, instruments
and chattel paper are owned by Borrower free and clear of all Security
Interests other than Permitted Liens.
13.36 CHIEF PLACE OF BUSINESS; LOCATIONS OF COLLATERAL. As of the
Execution Date, the chief executive office and the principal places of business
of Borrower are located at the places listed and so identified on Exhibit
13.36. As of the Execution Date, the books and records of Borrower, and all of
the Borrower's chattel paper and all records of Accounts, are located at the
places listed and so identified on Exhibit 13.36. As of the Execution Date,
all of the Collateral (except for Inventory which is in transit and Borrower's
Real Property Collateral) is located at the places listed and so identified on
Exhibit 13.36. There is no office or place of business at which Borrower
conducts business except those identified as its chief executive office, its
places of business, and the places where its books and records pertaining to
Accounts and chattel paper are kept as so identified on Exhibit 13.36.
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13.37 NEGATIVE PLEDGES. No Covered Person is a party to or bound by any
Contract which prohibits the creation or existence of any Security Interest
upon or assignment or conveyance of any of the Collateral.
13.38 SECURITY DOCUMENTS. To the best of Borrowers' knowledge:
13.38.1 MORTGAGES. The Mortgages are effective to grant to Lender
a legal, valid and enforceable mortgage lien on the Real Property
Collateral. Upon proper recording and payment of recording fees and
taxes, if any, Lender will have a fully perfected first priority lien on
the Real Property Collateral subject only to Permitted Liens affecting the
Real Property Collateral.
13.38.2 SECURITY AGREEMENTS. The Security Agreements are effective
to grant to Lender an enforceable security interest in all rights, title
and interest of Borrower in the Personal Property Collateral. Upon
appropriate filing (as to all Personal Property Collateral in which a
security interest may be perfected under the applicable state's UCC by
filing a financing statement) or Lender's taking possession (as to items
of the Personal Property Collateral of which a secured party must take
possession in order to perfect a security interest under the applicable
state's UCC), Lender will have a fully perfected first priority security
interest in the Personal Property Collateral described in the Security
Agreements, subject only to Permitted Liens affecting the Personal
Property Collateral.
13.38.3 INTELLECTUAL PROPERTY ASSIGNMENTS. The Intellectual Property
Assignments are effective to assign to Lender all of Borrower's rights,
title and interest in and to the Intellectual Property, subject only to
Permitted Liens affecting the Intellectual Property.
13.38.4 STOCK PLEDGE. The Stock Pledge Agreements are effective to
grant to Lender a security interest in and lien on all rights and interest
in the stock and other Securities described therein.
13.38.5 GOVERNMENT CONTRACT ASSIGNMENTS. Each Contract Assignment,
if any, is effective to transfer to Lender ownership of all money due or to
become due under the Government Contract to which such Government Contract
Assignment applies. Upon proper filing of the notices of assignment and
assignment with respect to each Contract Assignment, each such Contract
Assignment will be effective to cause the United States to pay directly to
Lender all money due or to become due under the Government Contract to
which such Government Contract Assignment applies.
13.38.6 ACCOUNT ASSIGNMENT. The Account Assignment is effective to
grant to Lender an enforceable Security Interest in all rights, title and
interest of Borrower in the Cash Collateral Account.
13.39 S CORPORATION. There is no election in effect under Section 1362(a)
of the Code for Borrower to be treated as an "S Corporation" as defined in
Section 1361(a) of the Code.
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13.40 SUBSIDIARIES AND AFFILIATES. Exhibit 13.40 is a correct and complete
list of the name and relationship to Borrower of each and all of Borrower's
Affiliates and Subsidiaries.
13.41 BANK ACCOUNTS AND LOCKBOXES. Borrower has no lockbox other than the
lockboxes allowed or required hereunder. Exhibit 13.41 contains a complete and
accurate list of all bank accounts maintained by Borrower with any bank or
other financial institution.
13.42 MARGIN STOCK. Borrower is not engaged and will not engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" "margin stock" (within the
meaning of Regulation U), and no part of the proceeds of any Advance will be
used to purchase or carry any such margin stock or to extend credit to others
for the purpose of purchasing or carrying any such margin stock or for any
purpose which violates, or which would be inconsistent with, the provisions of
Regulation U or Regulation G. None of the transactions contemplated by the
Acquisition Agreement will violate Regulations G, T, U or X of the FRB.
13.43 SECURITIES MATTERS. No proceeds of any Advance will be used to
acquire any security in any transaction which is subject to Sections 13 and 14
of the Securities Exchange Act of 1934, as amended.
13.44 INVESTMENT COMPANY ACT, ETC. Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, or a company "controlled" (within the meaning of such
Investment Company Act) by such an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company", as such terms are defined in the Investment Company Act of 1940, as
amended. Borrower is not subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act
or any other Law limiting or regulating its ability to incur Indebtedness for
money borrowed.
13.45 NO MATERIAL MISSTATEMENTS OR OMISSIONS. Neither the Loan Documents,
any of the Financial Statements nor any statement, list, certificate or other
information furnished or to be furnished by Borrower to Lender in connection
with the Loan Documents or any of the transactions contemplated thereby
contains, to the best of Covered Persons' knowledge, any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements therein not misleading. Borrower has disclosed to Lender everything
regarding the business, operations, property, financial condition, or business
prospects or itself and every Covered Person that would have a Material Adverse
Effect on Borrower or any Covered Person.
13.46 FILINGS. All registration statements, reports, proxy statements and
other documents, if any, required to be filed by Borrower with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended, have been filed, and such
filings are complete and accurate and contain no untrue statements of material
fact or omit to state any material facts required to be stated therein or
necessary in order to make the statements therein not misleading.
13.47 BROKER'S FEES. No broker or finder is entitled to compensation for
services rendered with respect to the transactions described in this Agreement.
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13.48 DISCLOSURE. Neither this Agreement nor any document or statement
furnished to Lender by or on behalf of Borrower hereunder contains, to the best
of Borrowers' knowledge, any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements contained
herein or therein not misleading.
14 SURVIVAL OF REPRESENTATIONS. All representations and warranties in
Section #13, and all representations and warranties in any certificate
delivered by Borrower pursuant hereto, shall survive execution of each of the
Loan Documents and the making of every Advance, and may be relied upon by
Lender as being true and correct until all of the Loan Obligations are fully
and irrevocably paid.
15 AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as the Revolving Commitment
remains in effect or any of the Loan Obligations are owing to Lender by
Borrower, Borrower shall do, or cause to be done, the following:
15.1 USE OF PROCEEDS. Subject to the terms and conditions hereof, the
proceeds of the Term Advance and the initial Revolving Advance shall be used
solely to extinguish the existing Indebtedness of Borrower to United Missouri
Bank of St. Louis, National Association and payment of costs and expenses
related to the Acquisition. Subsequent Revolving Advances shall be used solely
for general corporate purposes, including but not limited to the 1996 Earth
City Facility expansion, expenditures permitted hereunder and as the source for
payment of Borrower's reimbursement obligations with respect to standby letters
of credit issued by Lender for the account of Borrower.
15.2 CORPORATE EXISTENCE. Each Covered Person shall maintain its
existence in good standing and its right to transact business in those states
in which it is now or hereafter doing business; provided, however, that a
Covered shall not be prohibited from merging with and into another Covered
Person. Each Covered Person shall obtain and maintain all Material Licenses
for such Covered Person.
15.3 MAINTENANCE OF PROPERTY AND LEASES. Each Covered Person shall
maintain in good condition and working order, and repair and replace as
required, all buildings, equipment, machinery, fixtures and other real and
personal property whose useful economic life has not elapsed and which is
necessary for the ordinary conduct of the business of such Covered Person.
Each Covered Person shall maintain in good standing and free of defaults all of
its leases of buildings, equipment, machinery, fixtures and other real and
personal property whose useful economic life has not elapsed and which is
necessary for the ordinary conduct of the business of such Covered Person.
Borrower shall not permit any of its equipment or other property to become a
fixture to real property or an accession to other personal property unless
Lender has a valid, perfected and first priority Security Interest in such real
or personal property. Borrower will not, without Lender's prior written
consent, alter or remove any identifying symbol or number on its equipment.
15.4 INVENTORY. Borrower shall keep its Inventory in good and
merchantable condition at its own expense and shall hold such Inventory for
sale or lease, or to be furnished in connection with the rendition of services,
in the ordinary course of Borrower's business, on
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terms for such Inventory which do not include for sales greater than 0.75% in
the aggregate of Borrower's year to date sales, bill-and-hold, guaranteed sale,
sale and return, sale on approval, consignment or similar repurchase or return
terms. All such Inventory shall be produced in accordance with the Federal
Fair Labor Standards Act of 1938, as amended, and all rules, regulations and
orders thereunder.
15.5 INSURANCE. Each Covered Person shall maintain insurance as required
the Insurance Specification which is attached to and made part of Exhibit
12.1.1. Lender is authorized, but not obligated, as the attorney-in-fact for
Borrower, (i) prior to the occurrence of an Event of Default (with Borrower's
consent, which shall not be unreasonably withheld), and upon the occurrence of
an Event of Default, without Borrower's consent, to adjust and compromise
proceeds payable under such policies of insurance, (ii) to collect, receive and
give receipts for such proceeds in the name of Borrower and Lender, and (iii)
to endorse Borrower's name upon any instrument in payment thereof. Such power
granted to Lender shall be deemed coupled with an interest and shall be
irrevocable. Borrower shall upon request of Lender at any time furnish to
Lender evidence reasonably satisfactory to Lender that such insurance exists
and that all premiums due therefor have been paid.
15.6 PAYMENT OF TAXES AND OTHER OBLIGATIONS. Each Covered Person shall
promptly pay and discharge or cause to be paid and discharged, as and when due,
any and all income taxes, federal or otherwise, lawfully assessed and imposed
upon it, and any and all lawful taxes, rates, levies, and assessments
whatsoever upon its properties and every part thereof, or upon the income or
profits therefrom and all claims of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons for labor, materials, supplies,
storage or other items or services which if unpaid might be or become a
Security Interest or charge upon any of its property; provided, however, that
nothing herein contained shall be construed as prohibiting a Covered Person
from diligently contesting in good faith by appropriate proceedings the
validity of any such taxes, rates, levies, or assessments, provided such
Covered Person has established adequate reserves therefor in conformity with
GAAP on the books of such Covered Person, and no Security Interest, other than
a Permitted Lien, results from such non-payment.
15.7 COMPLIANCE WITH LAWS. Each Covered Person shall comply with all
Material Laws. Without limiting the generality of the foregoing:
15.7.1 ENVIRONMENTAL LAWS. Each Covered Person shall comply and
shall use commercially reasonable efforts to ensure compliance by all
tenants, subtenants and other occupants, if any, with all Environmental
Laws.
15.7.2 PENSION BENEFIT PLANS. Each Covered Person and each Erisa
Affiliate shall comply with all reporting and disclosure requirements and
all provisions of the Code and ERISA applicable to any Pension Benefit
Plan maintained by such Covered Person or ERISA Affiliate.
15.7.3 EMPLOYMENT LAWS. Each Covered Person shall comply with all
requirements of all Employment Laws applicable to such Covered Person.
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15.7.4 FDA LAWS. Each Covered Person shall comply with all
requirements of all FDA Laws applicable to such Covered Person.
15.8 DISCOVERY AND CLEAN-UP OF HAZARDOUS WASTE.
15.8.1 IN GENERAL. Upon any Covered Person receiving notice of any
violation of Environmental Laws or any similar notice described in
Section 15.10.2, or upon any Covered Person otherwise discovering
Hazardous Waste on any property which is in violation of, or which would
result in liability under, any Environmental Law, Borrower shall: (i)
promptly take such acts as may be required to prevent danger or harm to
the property or any person therein as a result of such Hazardous Waste;
(ii) at the request of Lender, and at Borrower's sole cost and expense,
obtain and deliver to Lender promptly, but in no event later than 90 days
after such request, a then currently dated environmental assessment of the
property certified to Lender and any future holder of the Loan
Obligations, a proposed plan for responding to any environmental problems
described in such assessment, and an estimate of the costs thereof; and
(iii) take all necessary steps to initiate and expeditiously complete all
removal, remedial, response, corrective and other action to eliminate any
such environmental problems, and keep Lender informed of such actions and
the results thereof. Nothing in this Section 15.8.1 shall be construed to
prevent Covered Person from diligently and in good faith, contesting,
challenging or settling any claim or allegation that an Environmental Law
has been violated. Covered Person shall not be obligated to take action
under subpart (iii) of this Section 15.8.1 until any such claim or
allegation has been resolved or a final, nonappealable order of the
applicable Governmental Authority has has been entered against a covered
person.
15.8.2 ASBESTOS CLEAN-UP. In the event that the property of any
Covered Person contains asbestos or asbestos-containing materials ("ACM"),
Borrower shall develop and implement, as soon as reasonably possible, an
Operations and Maintenance Program (as contemplated by EPA guidance
document entitled "Managing Asbestos in Place; A Building Owner's Guide to
Operations and Maintenance Programs for Asbestos-Containing Materials")
for managing in place the ACM, and deliver a true, correct and complete
copy of such Operations and Maintenance Program to Lender. In the event
that the asbestos survey done in connection with developing the Operations
and Maintenance Program reveals ACM which, due to its condition, location
or planned building renovation, is recommended to be encapsulated or
removed, Borrower shall promptly cause the same to be encapsulated or
removed and disposed of offsite, in either case by a licensed and
experienced asbestos contractor, all in accordance with applicable state,
federal and local Laws. Upon completion of any such encapsulation or
removal, Borrower shall deliver to Lender a certificate in such form as
then customarily available signed by the consultant overseeing the
activity certifying to Lender that the work has been completed in
compliance with all applicable Laws regarding notification, encapsulation,
removal and disposal and that no airborne fibers beyond permissible
exposure limits remain on site. All costs of such inspection, testing and
remedial actions shall be paid by Borrower.
15.9 PENSION BENEFIT PLANS. Each Covered Person (1) shall notify Lender
promptly of the establishment of any Pension Benefit Plan by such Covered
Person, or by any ERISA
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Affiliate, which is subject to the requirements of ERISA; (2) shall maintain
each such Pension Benefit Plan without terminating or amending the same if such
termination or amendment would result in any liability to such Covered Person
or ERISA Affiliate under Title IV of ERISA or any increase in current liability
for the plan year that such Covered Person or ERISA Affiliate is required to
provide security to such Pension Benefit Plan under Section 401(a)(29) of the
Code; (3) shall at all times make prompt payments or contributions to meet the
minimum funding standards set forth in ERISA and the Code with respect to any
Pension Benefit Plan maintained by such Covered Person or ERISA Affiliate to
which such standards are applicable; (4) shall promptly after the filing
thereof furnish to Lender a copy of any report required to be filed pursuant to
Section 103 of ERISA in connection with each such Pension Benefit Plan for each
Pension Benefit Plan year; (5) promptly after the receipt thereof, shall
furnish to Lender a copy of any reports and notices which it or an ERISA
Affiliate receives from PBGC (that are not general mailings to all Pension
Benefit Plan sponsors); (6) shall notify Lender within thirty days of any
Reportable Event as that term is defined in Section 4043 of ERISA or any
circumstances arising in connection with any Pension Benefit Plan maintained by
such Covered Person or ERISA Affiliate which might constitute grounds for the
termination thereof by the PBGC or for the appointment by the appropriate
United States District Court of a trustee to administer such Pension Benefit
Plan; and (7) promptly furnish such additional information concerning any such
Pension Benefit Plan as Lender may from time to time request.
15.10 NOTICE OF MATERIAL EVENTS. Borrower shall, promptly upon any
Responsible Officer of Borrower obtaining knowledge or notice thereof, give
notice to Lender of any (i) breach of any of the covenants in Section 15 or 16;
(ii) Default or Event of Default; (iii) the commencement of any Material
Proceeding; and (iv) any loss of or damage to any assets of a Covered Person
or institution of any proceeding for the condemnation or other taking of any of
the assets of a Covered Person, to the extent that such loss, damage or
proceeding is likely to give rise to Insurance/Condemnation Proceeds in excess
of $100,000 or to result in a Material Adverse Effect. In addition,
15.10.1 Borrower shall furnish to Lender from time to time all
information which Lender reasonably requests with respect to the
status of any Material Proceeding.
15.10.2 Borrower shall within thirty (30) days inform Lender of its
receipt of, and deliver to Lender a copy of, any material (a) notice that
any violation of any FDA Law, Environmental Law or Employment Law may have
been committed or is about to be committed by any Covered Person, (b)
notice that any administrative or judicial complaint or order has been
filed or is about to be filed against any Covered Person alleging
violations of any FDA Law, Environmental Law or Employment Law or
requiring such Covered Person to take any action in connection with the
release of any Hazardous Waste into the environment, (c) notice from a
federal, state, or local governmental agency or private party alleging
that a Covered Person may be liable or responsible for costs associated
with a response to or cleanup of a release of Hazardous Waste into the
environment or any damages caused thereby, (d) notice that a Covered
Person is subject to federal, state or local investigation regarding the
improper transportation, storage, disposal, generation or release into the
environment of any Hazardous Waste, or (e) notice that any properties or
assets of a Covered
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Person are subject to a Security Interest in favor of any Governmental
Authority for any liability under any Environmental Law or damages arising
from or costs incurred by such governmental entity in response to a
release of Hazardous Waste into the environment.
15.10.3 Borrower shall within 30 days after they occur deliver to
Lender notice of the following events: (i) the failure of any Covered
Person or ERISA Affiliate to make any required installment or any other
required payment to any Pension Benefit Plan in sufficient amount to
comply with ERISA and the Code on or before the due date for such
installment or payment; (ii) the occurrence of any Reportable Event,
"prohibited transaction" or "accumulated funding deficiency" (as those
terms are defined in ERISA) with respect to any Pension Benefit Plan
maintained or contributed to by a Covered Person or ERISA Affiliate; (iii)
receipt by a Covered Person or ERISA Affiliate of any notice from a
Multi-employer Plan regarding the imposition of withdrawal liability; and
(iv) receipt by a Covered Person or ERISA Affiliate of any notice of the
institution, or a Covered Person's expectancy of the institution, of any
proceeding or receipt by such Covered Person or ERISA Affiliate of any
notice of the taking, or such Covered Person's expectancy of the taking,
of any other action which may result in the termination of any Pension
Benefit Plan maintained or contributed to by such Covered Person or ERISA
Affiliate, or the withdrawal or partial withdrawal by a Covered Person or
ERISA Affiliate from any Pension Benefit Plan, and the filing or receipt
by a Covered Person or ERISA Affiliate of any such notice and filing or
receipt of all subsequent reports or notices under ERISA with or from the
Internal Revenue Service, the PBGC, or the DOL relating to the same; and,
in addition to such notice, deliver to Lender a certificate of the
President or Chief Financial Officer of Borrower, setting forth details as
to such events and the action that the affected Covered Person or ERISA
Affiliate proposes to take with respect thereto. For purposes of this
Section, Borrower and any ERISA Affiliate shall be deemed to know all
facts known by the Administrator of any Plan of which Borrower or any
ERISA Affiliate is the plan sponsor.
15.10.4 Borrower shall, within ten days after it occurs, deliver to
Lender notice of any default or event of default, or the occurrence of any
event which would with the passage of time, giving of notice or otherwise,
constitute a default or event of default with respect to any of the
Permitted Indebtedness.
15.10.5 Borrower shall, immediately after becoming aware thereof,
deliver notice to Lender of the assertion by the holder of any capital
stock of Borrower or any Indebtedness in the outstanding principal amount
in excess of $250,000 that a default exists with respect thereto or that
Borrower is not in compliance iwth the terms thereof, or that Borrower is
not in compliance with the terms thereof, or of the threat or commencement
by such holder of any enforcement action because of such asserted default
or noncompliance.
15.10.6 Borrower shall, immediately after becoming aware thereof,
deliver notice to Lender of any pending or threatened strike, work
stoppage, material unfair labor practice claim or other material labor
dispute affecting Borrower.
15.10.7 Borrower shall deliver notice to Lender of any change in
Borrower's name, state of incorporation, form of organization, trade names
or styles under which
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Borrower will sell Inventory or create Accounts, or to which instruments
in payment of Accounts may be made payable, at least 30 days prior to such
change.
15.10.8 Borrower shall, immediately after becoming aware thereof,
deliver notice to Lender of any material adverse change in Borrower's
property, business, operations or condition (financial or otherwise).
15.10.9 Borrower shall, immediately after becoming aware thereof,
deliver notice to Lender of any violation of any Law applicable to
Borrower or its properties which may have a Material Adverse Effect.
15.11 BORROWING OFFICER. Borrower shall keep on file with Lender at all
times an appropriate instrument naming each Borrowing Officer.
15.12 MAINTENANCE OF LIENS OF SECURITY DOCUMENTS.
15.12.1 PRESERVATION AND PERFECTION OF LIENS. Borrower shall
promptly, upon the reasonable request of Lender and at Borrower's expense,
execute, acknowledge and deliver, or cause the execution, acknowledgment
and delivery of, and thereafter file or record in the appropriate
governmental office, any document or instrument supplementing or confirming
the Security Documents or otherwise deemed necessary by Lender to create,
preserve or perfect any Security Interest purported to be created by the
Security Documents or to fully consummate the transactions contemplated by
the Loan Documents. The foregoing actions by Borrower shall include,
without limitation, (a) filing financing or continuation statements, and
amendments thereof, in form and substance satisfactory to Lender; (b)
delivering to Lender the original certificates of title for motor vehicles
with Lender's security interest properly endorsed thereon; (c) delivering
to Lender the originals of all instruments, documents and chattel paper,
and all other Collateral of which Lender determines it should have physical
possession in order to perfect and protect Lender's security interest
therein, duly endorsed or assigned to Lender without restriction; (d)
delivering to Lender warehouse receipts covering any portion of the
Collateral located in warehouses and for which warehouse receipts are
issued; (e) transferring Inventory to warehouses designated by Lender; (f)
placing notations on Borrower's books of account to disclose Lender's
security interest; and (g) delivering to Lender all letters of credit on
which Borrower is named beneficiary.
15.12.2 COLLATERAL HELD BY WAREHOUSEMAN, BAILEE, ETC. If any
Collateral valued in excess of $100,000 is at any time in the possession
or control of a warehouseman, bailee or any of Borrower's agents or
processors, then Borrower shall notify Lender thereof and shall notify
such Person of Lender's security interest in such Collateral and, upon
Lender's request, instruct such Person to hold all such Collateral for
Lender's account subject to Lender's instructions. If at any time any
Collateral is located on any premises that are not owned by Borrower, then
Borrower shall obtain written waivers, in form and substance reasonably
satisfactory to Lender, of all present and future Security Interests to
which the owner or lessor or any mortgagee of such premises may be
entitled to assert against the Collateral.
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15.12.3 COMPLIANCE WITH TERMS OF SECURITY DOCUMENTS. Borrower shall
comply with all of the terms, conditions and covenants in the Security
Documents to which Borrower is a party.
15.13 ACCOUNTING SYSTEM. Each Covered Person shall maintain a system of
accounting established and administered in accordance with GAAP. Without
limiting the generality of the foregoing:
15.13.1 ACCOUNT RECORDS. Each Covered Person shall maintain a
record of Accounts at its principal place of business that itemize each
Account of such Covered Person and describe the names and addresses of the
Account Debtors on such Accounts, relevant invoice numbers, shipping dates
and due dates, collection histories, and agings of such Accounts.
15.13.2 INVENTORY RECORDS. Each Covered Person shall maintain a
perpetual inventory at its principal place of business that records, by
type, quality and quantity, its cost therefor, withdrawals therefrom and
additions thereto, and listing any returns, rejections, repossessions,
stoppages in transit, losses, damages or destruction of or to such
Inventory.
15.14 FINANCIAL STATEMENTS. Borrower shall deliver to Lender:
15.14.1 ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close
of each Fiscal Year, year-end consolidated and consolidating Financial
Statements of Borrower and its Subsidiaries, containing an audit report
without qualification by Arthur Andersen LLP or another independent
certified public accounting firm selected by Borrower and reasonably
satisfactory to Lender, and accompanied by (a) a Compliance Certificate of
the Chief Financial Officer of Borrower, and (b) a certificate of the
independent certified public accountants that examined such Financial
Statements to the effect that they have reviewed and are familiar with
this Agreement and that, in examining such Financial Statements, they did
not become aware of any fact or condition which then constituted a Default
or Event of Default, except for those, if any, described in reasonable
detail in such certificate.
15.14.2 MONTHLY FINANCIAL STATEMENTS. Within 30 days after the end
of each month, unaudited consolidated Financial Statements of Borrower for
each of the months not covered by the latest year-end Financial
Statements.
15.14.3 QUARTERLY FINANCIAL STATEMENTS. Within 45 days after the
end of each fiscal quarter of Borrower, unaudited consolidated and
consolidating Financial Statements of Borrower and its Subsidiaries for
the quarters not covered by the latest year-end Financial Statements, in
each case accompanied by a Compliance Certificate of the Chief Financial
Officer of Borrower.
15.14.4 ANNUAL PROJECTIONS. Not more than 90 days and not less
than 30 days prior to the beginning of each Fiscal Year, projected
statements of income and expense, and statements of cash flow for Borrower
as at the end of and for each quarter of such Fiscal Year and the next
succeeding Fiscal Year.
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15.14.5 CAPITAL EXPENDITURES REPORT. Within 45 days after the end
of each fiscal quarter, a report of the Capital Expenditures of Borrower
for such quarter and a statement of cash flow for Borrower for the period
from the beginning of the then current Fiscal Year to the end of such
quarter, prepared in accordance with GAAP applied consistently with the
audited Financial Statements required to be delivered pursuant to Section
15.14.1.
Each Compliance Certificate shall be in the form of Exhibit 15.14, shall contain
detailed calculations of the financial measurements referred to in Section 17
for the relevant periods, and shall contain statements by the signing officer
to the effect that, except as explained in reasonable detail in such Compliance
Certificate, (i) the attached Financial Statements are complete and correct in
all material respects (subject, in the case of Financial Statements other than
annual, to normal year-end audit adjustments) and have been prepared in
accordance with GAAP applied consistently throughout the periods covered
thereby and with prior periods (except as disclosed therein), (ii) all of the
representations and warranties of Borrower contained in this Agreement and
other Loan Documents are true and correct as of the date such certification is
given as if made on such date, and (iii) there exists no Default which is
continuing that has not been waived in writing by Lender and no Event of
Default has occurred that has not been waived in writing by Lender. If any
Compliance Certificate delivered to Lender discloses that a representation or
warranty is not true and correct, or that a Default or Event of Default has
occurred that has not been waived in writing by Lender, such Compliance
Certificate shall set forth what action Borrower has taken or proposes to take
with respect thereto.
15.15 OTHER FINANCIAL INFORMATION. Borrower shall deliver to Lender:
15.15.1 AGINGS REPORT. Within fifteen days after the end of each
Fiscal Year, a report of the aging of all Accounts of Borrower in such
reasonable detail as Lender may require.
15.15.2 OTHER REPORTS OR INFORMATION CONCERNING ACCOUNTS. Such other
reports or information as Lender may reasonably request from time to time,
in a form and with such specificity as is reasonably satisfactory to
Lender, concerning Accounts reflected in the Periodic Reports, Periodic
Summaries or any other documents provided to Lender. Such copies shall
include, if specifically requested by Lender, copies of all invoices
prepared in connection with such Accounts.
15.15.3 STOCKHOLDER AND SEC REPORTS. Promptly after their
preparation, copies of any and all (i) proxy statements, financial
statements and reports which Borrower makes available to its stockholders,
and (ii) reports, registration statements and prospectuses, if any, filed
by Borrower with any securities exchange or the Securities and Exchange
Commission or any Governmental Authority succeeding to any of its
functions.
15.15.4 PENSION BENEFIT PLAN REPORTS. Promptly after filing with
the PBGC, DOL or IRS, a copy of each annual report or other filing or
notice filed with respect to each Pension Benefit Plan of any Covered
Person or any ERISA Affiliate.
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15.15.5 FEDERAL TAX RETURNS. Promptly after filing with the IRS,
a copy of each income tax return filed by Borrower.
15.16 ANNUAL REVIEW OF ACCOUNTS. Borrower shall conduct an annual review
of its Accounts, bad debt reserves and collection histories of Account Debtors
and promptly following such review provide Lender with a report of such
review in a form and with such specificity as may be reasonably satisfactory to
Lender.
15.17 INVENTORY AUDITS. Borrower shall annually conduct an audit of its
Inventory based on its interim cycle counts and promptly following the
completion of such audit provide Lender with a report thereof in a form and
with such specificity as may be reasonably satisfactory to Lender, including
the value of such Inventory (on a consistent basis and valued at the lower of
cost or market value).
15.18 OTHER INFORMATION. Upon the written request of Lender, Borrower
shall promptly deliver to Lender such other information about the business,
operations, revenues, financial condition, property, or business prospects of
Borrower as Lender may, from time to time, reasonably request.
15.19 AUDITS BY LENDER. Lender or Persons authorized by and acting on
behalf of Lender may at any time during normal business hours audit the books
and records of each Covered Person from time to time upon reasonable notice to
such Covered Person, and in the course thereof may make copies or abstracts of
such books and records and discuss the affairs, finances and books and records
of such Covered Person with its accountants and officers. Each Covered Person
shall cooperate with Lender and such Persons in the conduct of such audits and
shall deliver to Lender any instrument necessary for Lender to obtain records
from any service bureau maintaining records for such Covered Person. If a
Default or an Event of Default has occurred and is continuing, Borrower shall
reimburse Lender for all costs and expenses incurred by it in conducting such
audit.
15.20 VERIFICATION OF ACCOUNTS. Lender shall (with the consent of
Borrower which consent shall not be unreasonably withheld) have the right at
any time, after first giving either oral or written notice to Borrower, to
verify the validity and amount of any Account and any other matter relating to
an Account, by communicating in writing or orally directly with the Account
Debtor or any Person who represents or Lender believes represents the Account
Debtor. Notwithstanding the foregoing, if a Default is continuing or an Event
of Default has occurred and is continuing, no consent of Borrower shall be
required.
15.21 APPRAISALS OF COLLATERAL. Whenever a Default or Event of Default
exists, Borrower shall at its expense and upon Lender's request, provide Lender
with appraisals or updates thereof of any or all of the Collateral from an
appraiser acceptable to Lender, and prepared on a basis satisfactory to Lender.
15.22 ACCESS TO OFFICERS AND AUDITORS. Each Covered Person shall permit
Persons authorized by Lender to discuss the affairs, finances and accounts of
such Covered Person with its officers as often as Lender may reasonably
request, and such Covered Person shall direct such officers to cooperate with
Lender and make full disclosure to Lender of those matters that they may deem
relevant to the continuing ability of Borrower timely to pay and
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perform the Loan Obligations. Upon an Event of Default, each Covered Person
shall permit Persons authorized by Lender to discuss the affairs, finances and
accounts of such Covered Person with its officers and independent auditors as
often as Lender may reasonably request, and such Covered Person shall direct
such officers and independent auditors (at Borrower's cost) to cooperate with
Lender and make full disclosure to Lender of those matters that they may deem
relevant to the continuing ability of Borrower timely to pay and perform the
Loan Obligations.
15.23 PROFORMAS FOR PERMITTED ACQUISITIONS. Borrower shall, prior to
making any Permitted Acquisition, prepare and furnish to Lender proforma
financial statements for the Person to be acquired, or the Surviving Person if
the acquisition is to be by merger, demonstrating to the satisfaction of Lender
that none of the covenants in Section 17 will be violated as a consequence of
such acquisition or with the passage of time thereafter. Such proforma
financial statements shall contain forecasted balance sheets, income
statements, statements of cash flows and such other reports and disclosures,
and shall cover such forecast periods, as the Lender may in its sole discretion
require.
15.24 RATE PROTECTION AGREEMENTS. On or prior to the expiration or
termination of the Rate Agreement, if any, in effect on the date hereof,
Borrower shall secure a replacement Rate Agreement with a counterparty whose
rating with Standard & Poor's Corporation or Moody's Investors Service, Inc. is
equal to or better than the counterparty in the initial agreement, with terms
substantially identical to those contained in the Rate Agreement in effect on
the date hereof with respect to a notional principal amount equal to or greater
than the amount of the Revolving Commitment, extending through the Ultimate
Term Maturity Date. Borrower shall take all actions necessary to provide that
the replacement Rate Agreement will be pledged as security for the Loans in
the same manner as the Rate Agreement in effect on the date hereof.
15.25 ACQUISITION AGREEMENT. Borrower shall fully perform all of its
obligations under the Acquisition Agreement, and shall enforce all of its
rights and remedies thereunder as it deems appropriate in its reasonable
business judgment; provided, however, that Borrower shall not take any action
or fail to take any action which would result in a waiver or other loss of any
material right or remedy of Borrower thereunder. Without limiting the
generality of the foregoing, Borrower shall take all action necessary or
appropriate to permit, and shall not take any action which would have any
adverse effect upon, the full enforcement of all indemnification rights under
the Acquisition Agreement. Borrower shall not, without Lender's prior written
consent (which shall not be withheld unreasonably), modify, amend, supplement,
compromise, satisfy, release or discharge the Acquisition Agreement, any
collateral securing the same, any Person liable directly or indirectly with
respect thereto, or any agreement relating to the Acquisition Agreement or the
collateral therefor. Borrower shall notify Lender in writing promptly after
Borrower becomes aware thereof, of any event or fact which could give rise to a
claim by it for indemnification under the Acquisition Agreement, and shall
diligently pursue such right and report to Lender on all further developments
with respect thereto. Borrower shall remit directly to Lender, for application
to the Revolving Loan in such order as Lender determines, all amounts received
by Borrower as indemnification or otherwise pursuant to the Acquisition
Agreement. If Borrower fails after Lender's demand to pursue diligently any
right under the Acquisition Agreement, or if an Event of Default exists, then
Lender may directly enforce such right in its own or Borrower's name and may
enter into such
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settlements or other agreements with respect thereto as Lender determines.
Notwithstanding the foregoing, Borrower shall at all times remain liable to
observe and perform all of its duties and obligations under the Acquisition
Agreement, and Lender's exercise of any of its rights with respect to the
Collateral shall not release Borrower from any of such duties or obligations.
Lender shall not be obligated to perform or fulfill any of Borrower's duties or
obligations under the Acquisition Agreement or to make any payment thereunder,
or to make any inquiry as to the sufficiency of any payment or property
received by it thereunder or the sufficiency of performance by any party
thereunder, or to present or file any claim, or to take any action to collect
or enforce any performance or payment of any amounts, or any delivery of any
property.
15.26 EARTH CITY FACILITY. Borrower shall complete construction of the
expansion of the Earth City Facility in accordance with the plans,
specifications, budget, construction schedule and Contracts relating thereto.
Such expansion of the Earth City Facility shall be substantially complete
(subject to minor punch-list items) no later than October 31, 1996. The Earth
City Facility shall be constructed within the boundaries of Real Property
Collateral in accordance with all Laws, free of all claims or Encumbrances for
labor or material.
15.27 FURTHER ASSURANCES. Borrower shall execute and deliver, or cause to
be executed and delivered, to Lender such documents and agreements, and shall
take or cause to be taken such actions, as Lender may from time to time request
to carry out the terms and conditions of this Agreement and the other Loan
Documents.
15.28 DATE-DOWN ENDORSEMENT. Following completion of the construction
arising out of the expansion of the Earth City Facility, Borrower shall provide
Lender with an endorsement to Lender's Policy of Title Insurance issued by such
title company on the Earth City Facility which insures the priority of Lender's
Security Interest against all mechanics liens arising out of the expansion of
the Earth City Facility.
16 NEGATIVE COVENANTS.
Borrower covenants and agrees that, while any of the Commitments remain in
effect or any of the Loan Obligations are owing to Lender by Borrower, Borrower
shall not, directly or indirectly, do any of the following, or permit any
Covered Person to do any of the following, without the prior written permission
of Lender:
16.1 INVESTMENTS. Make any Investments in any other Person except the
following ("Permitted Investments"):
16.1.1 Investments in (i) interest-bearing United States government
obligations; (ii) certificates of deposit issued by Lender; (iii) prime
commercial paper rated A1 by Standard and Poor's Corporation or Prime P1
by Moody's Investor Service, Inc.; or (iv) agreements with Lender
involving the sale and guarantied repurchase of United States government
securities.
16.1.2 Accounts arising in the ordinary course of business and
payable in accordance with Borrower's customary trade terms.
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16.1.3 Investments existing on the Execution Date and disclosed in
Exhibit 13.
16.1.4 Notes or securities received by Borrower in settlement of
Indebtedness of other Persons to Borrower that was incurred in the
ordinary course of Borrower's business.
16.1.5 Notes, not exceeding $150,000 in the aggregate, received by
Borrower in partial payment of Indebtedness to Borrower resulting from
the sale of assets.
16.1.6 Investments in the securities of Borrowers' competitors and
suppliers; provided that such Investment shall not exceed 100 shares in
each such competitor or supplier.
16.1.7 Investments in a european joint venture to be created to
manufacture and distribute Borrowers' products; provided that such
Investment shall not exceed $400,000.
16.2 INDEBTEDNESS. Create, incur, assume or allow to exist any
Indebtedness of any kind or description, except the following (the "Permitted
Indebtedness"):
16.2.1 Indebtedness to trade creditors in the ordinary course of
business, to the extent that it is not overdue past the original due date
by more than 90 days or being diligently contested in good faith and by
appropriate proceedings and for which adequate book reserves in accordance
with GAAP are maintained.
16.2.2 The Loan Obligations.
16.2.3 Indebtedness secured by Permitted Liens.
16.2.4 Indebtedness arising out of leases of office equipment or
furniture in the ordinary course of business.
16.2.5 Indebtedness arising out of leases of equipment and
machinery in the ordinary course of business, subject to the provisions
of Section 17.1.
16.3 PREPAYMENTS. Voluntarily prepay any Indebtedness other than (a) the
Loan Obligations in accordance with their terms, and (b) trade payables in the
ordinary course of business.
16.4 INDIRECT OBLIGATIONS. Create, incur, assume or allow to exist any
Indirect Obligations except Indirect Obligations existing on the Execution Date
and disclosed on Exhibit 13.
16.5 LIENS. Create, incur, assume or allow to exist any Security
Interest upon all or any part of its property, real or personal, now owned or
hereafter acquired, except the following (the "Permitted Liens"):
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16.5.1 Security Interests for taxes, assessments or governmental
charges not delinquent or being diligently contested in good faith and by
appropriate proceedings and for which adequate book reserves in accordance
with GAAP are maintained.
16.5.2 Security Interests arising out of deposits in connection
with workmen's compensation, unemployment insurance, old age pensions, or
other social security or retirement benefits legislation.
16.5.3 Deposits or pledges to secure bids, tenders, contracts
(other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds, and other obligations of like
nature arising in the ordinary course of business.
16.5.4 Security Interests imposed by any Law, such as mechanics',
workmen's, materialmen's, landlords', carriers', or other like Security
Interests arising in the ordinary course of business which secure payment
of obligations which are not past due or which are being diligently
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP are maintained on Borrower's books.
16.5.5 Purchase money liens securing payment of the purchase price
of capital assets acquired by Borrower after the Execution Date in an
aggregate amount not to exceed $250,000 at any one time.
16.5.6 Security Interests existing on the Execution Date and
disclosed on Exhibit 13.
16.6 ACQUISITIONS. Acquire stock or other equity interest in a Person,
or acquire any asset of a Person except asset acquisitions by Borrower in the
ordinary course of its business that are not otherwise prohibited herein and
Permitted Investments.
16.7 BAILMENTS; CONSIGNMENTS; WAREHOUSING. Store any Inventory valued in
excess of $100,000 with a bailee, warehouseman, consignee or pursuant to an
express or implied agreement establishing a bailment or consignment of
Inventory or similar arrangement, unless Lender has received a written
acknowledgment reasonably satisfactory to Lender from the third party involved
which acknowledges the prior perfected lien and security interest of Lender in
such Inventory.
16.8 DISPOSAL OF PROPERTY. Sell, transfer, exchange, lease or otherwise
dispose of its assets, except (i) sales of Inventory in the ordinary course of
business and (ii) sales of capital assets approved by Lender (including but not
limited to Dental's Maryland Heights Facility and Lorvic's St. Louis Facility
if the net proceeds thereof are used for prepayment of the Term Loan as
required by Section 5.3.2.2. Notwithstanding the foregoing, Borrower may sell,
transfer or otherwise dispose of obsolete or unusable equipment having an
orderly liquidation value no greater than $50,000 individually, and $200,000 in
the aggregate in any Fiscal Quarter provided that (a) if such sale, transfer or
disposition is effected without replacement of such equipment, or if such
equipment is replaced by equipment leased by Borrower or by equipment purchased
by Borrower subject to a Security Interest, then Borrower shall deliver all of
the cash proceeds of any such sale, transfer or other disposition to Lender,
which
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proceeds shall be applied as a prepayment of the Term Loan as required by
Section 5.3.2.2 or (b) if such sale, transfer or other disposition is made in
connection with the purchase by Borrower of replacement equipment (other than
equipment subject to a Security Interest), then Borrower shall use the proceeds
of any such sale, transfer or other disposition to finance the purchase by
Borrower of such replacement equipment and shall deliver to Lender written
evidence of the use of the proceeds for such purchase. All replacement
equipment purchased by Borrower shall be free and clear of all Security
Interests and Encumbrances, except for Permitted Liens.
16.9 DISTRIBUTIONS; CAPITAL CHANGE. Directly or indirectly declare or
make, or incur any liability to make, any Distribution, including any cash
dividend or acquisition or redemption of any outstanding stock or retirement or
prepayment of any Securities before their regularly scheduled maturity dates,
make any loans or advances to shareholders of Borrower or make any change in
its capital structure which could have a Material Adverse Effect; provided,
however, that, absent a Default that is continuing or the occurrence of an
Event of Default, Borrower may repurchase shares of capital stock in Borrower
held by employees of Borrower, excluding George E. Richmond and Richard G.
Richmond (except pursuant to that certain Stock Plan dated September 16, 1992
with respect to the repurchase of Securities held by Richard G. Richmond by
Borrower for the limited purpose set forth therein), provided that such
repurchases shall not exceed $500,000 per Fiscal Year in the aggregate (except
pursuant to that certain Employment and Noncompetition Agreement between
Denticator and Jose L. Mendoza, dated as of July 22, 1996).
16.10 CHANGE OF CONTROL. Merge or consolidate with or into another
Person, or permit any Person or Group to become the record or beneficial owner,
directly or indirectly, of securities representing thirty percent (30%) or more
of the voting power of Borrower's then outstanding securities having the power
to vote, or acquiring the power to elect a majority of the Board of Directors
of Borrower; provided, however that George E. Richmond may transfer all or some
of his respective shares in Borrower by gift or testamentary transfer to any
member of his immediate family, to a trust for the benefit of any member of his
immediate family, or to a trust for which he is treated as the owner of the
trust's assets under the Code.
16.11 CHANGE OF BUSINESS. Engage in any business other than substantially
as conducted on the Effective Date.
16.12 TRANSACTIONS WITH AFFILIATES. Enter into or be a party to any
transaction or arrangement, including without limitation, the purchase, sale or
exchange of property of any kind or the rendering of any service, with any
Affiliate, or make any loans or advances to any Affiliate; provided, however,
that if no Event of Default has occurred and is continuing, Borrower may engage
in the foregoing transactions in the ordinary course of business and pursuant
to the reasonable requirements of its business and on fair and reasonable terms
substantially as favorable to it as those which it could obtain in a comparable
arm's-length transaction with a non-Affiliate.
16.13 DEBT PAYMENTS AND MATERIAL AGREEMENTS. Default upon or fail to pay
any Indebtedness for money borrowed as the same matures, or breach, violate or
be in default under any Material Agreement.
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16.14 Management COMPENSATION. Pay, directly or indirectly, compensation
of more than $1,000,000 per Fiscal Year, in the aggregate, to Borrowers'
management which shall be deemed to be George E. Richmond, Richard G. Richmond,
Richard C. Nemencik, Sr., Jose L. Mendoza, Michael W. Eggleston and their
replacements, except that the grant of Borrower's stock to Jose L. Mendoza in
accordance with that certain Employment and Noncompetition Agreement between
Denticator and Jose L. Mendoza, dated as of July 22, 1996, shall not be
included within the $1,000,000 per Fiscal Year limit.
16.15 CONFLICTING AGREEMENTS. Enter into any agreement, that would, if
fully complied with by it, result in a Default or Event of Default either
immediately or upon the elapsing of time.
16.16 BANK ACCOUNTS. Maintain any deposit accounts at institutions other
than Lender except zero or pegged balance payroll accounts and other accounts
with balances not exceeding $100,000 as described in Exhibit 13.41.
16.17 INVESTMENT BANKING AND FINDER'S FEES. Pay or agree to pay, or
reimburse any other party with respect to, any investment banking or similar
or related fee, underwriter's fee, finder's fee, or broker's fee to any Person
in connection with this Agreement or the Acquisition Agreement.
16.18 SALE AND LEASEBACK TRANSACTIONS. Enter into any arrangement with
any Person providing for Borrower to lease or rent property that Borrower has
or will sell or otherwise transfer to such Person.
16.19 NEW SUBSIDIARIES. Organize, create or acquire any Subsidiary,
except that upstream mergers of a subsidiary into its parent shall be allowed.
16.20 FISCAL YEAR. Change its Fiscal Year from a Fiscal Year ending on
the last day of December.
16.21 TRANSACTIONS HAVING MATERIAL ADVERSE EFFECT. Enter into any
transaction which has a Material Adverse Effect.
17 FINANCIAL COVENANTS.
17.1 CAPITAL EXPENDITURES. Borrower shall not make Capital Expenditures
in any of the periods specified in the table below that in the aggregate exceed
the amount specified for such period:
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Period Maximum Capital Expenditure
- --------------------------------------------------------------------------------
<S> <C>
Effective Date through December 31, $1,100,000 per Fiscal Year plus
1997 expenditures made in connection with the
expansion of the Earth City Facility, not
exceeding $2,600,000 in the aggregate
- --------------------------------------------------------------------------------
January 1, 1998 - Ultimate Revolving
Maturity Date $1,100,000 per Fiscal Year
- --------------------------------------------------------------------------------
</TABLE>
17.2 CAPITAL LEASES. Become obligated as lessee under any Capital Leases
except Capital Leases existing on the Execution Date and disclosed on Exhibit
13 and Capital Leases entered into by Borrower after the Execution Date for
capital assets whose aggregate cost if purchased would not (when aggregated
with other Capital Expenditures of Borrower in the same period) exceed the
limits for Capital Expenditures prescribed in Section 17.1.
17.3 OPERATING LEASE OBLIGATIONS. Become obligated as lessee under any
Operating Lease except Operating Leases existing on the Execution Date and
disclosed on Exhibit 13 and Operating Leases entered into by Borrower after the
Execution Date if, after giving effect thereto, the aggregate amount of all
rentals payable by Borrower in respect of all Operating Leases does not exceed
$100,000 in any Fiscal Year. For purposes hereof, the term "rentals" means all
payments due from the lessee or sublessee under an Operating Lease, including,
without limitation, basic rent, percentage rent, property taxes, utility or
maintenance costs and insurance premiums.
17.4 MINIMUM EBITDA. Borrowers' EBITDA calculated as a twelve month
period ending at the end of each month during the fiscal periods specified in
the table below, shall not be less than the amount specified for such period:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Period Minimum EBITDA
- --------------------------------------------------------------------------------
<S> <C>
July 1, 1996 - December 31, 1996 $7,000,000
January 1, 1997 - June 30, 1997 $7,500,000
July 1, 1997 - December 31, 1997 $8,000,000
January 1, 1988 - December 1, 1999 $9,000,000
- --------------------------------------------------------------------------------
</TABLE>
17.5 MINIMUM FIXED CHARGE COVERAGE. The ratio of Borrowers' EBITDA to
Fixed Charges for each twelve month period, calculated as of the last day of
each month, shall not be less than 1.1 to 1.0.
17.6 MINIMUM INTEREST COVERAGE. The ratio of Borrowers' EBIT to Interest
Expense for each twelve month period, calculated as of the last day of each
such month, shall not be less than 4.5 to 1.0.
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<PAGE> 41
17.7 MINIMUM NET WORTH. Borrowers' Net Worth shall at no time during any
fiscal period specified in the table below be less than the amount specified
for such period:
<TABLE>
<CAPTION>
Period Minimum Net Worth
- -------------------------------------------------------------------------------
<S> <C>
Effective Date to December 31, 1996 $ 9,500,000
January 1, 1997 to December 31, 1997 $12,000,000
January 1, 1998 to December 31, 1998 $16,000,000
January 1, 1999 to December 1, 1999 $20,000,000
- -------------------------------------------------------------------------------
</TABLE>
As used in this Section 17,
"Fixed Charges" means, for any period of calculation, the sum of (i)
interest expense, (ii) the sum of all scheduled principal payments on the
long term Indebtedness of Borrower, (iii) federal, state and local income
tax expense, and (iv) Capital Expenditures (excluding expenditures made
in connection with the expansion of the Earth City Facility).
"Net Worth" means "net worth" as determined in accordance with GAAP.
"EBITDA" means, for any period of calculation, an amount equal to the sum
of (i) Net Income (prior to any LIFO accounting adjustments), (ii)
federal, state and local income tax expense, (iii) interest expense, (iv)
depreciation and amortization expense, (v) losses on the sale or other
disposition of assets, (vi) that portion of the stock bonus to be paid
Jose L. Mendoza in stock of Innovations pursuant to that certain
Employment and Noncompetition Agreement between Denticator and Jose L.
Mendoza, dated as of July 22, 1996, not including any cash redemption of
such stock, and (vii) extraordinary losses, minus (a) gains on the sale
or other disposition of assets, and (b) extraordinary gains, all
calculated for such period. "EBIT" means EBITDA less insert (iv), (v),
(vi) and (vii).
All other capitalized terms used in this Section 17 shall have their meanings
and shall be calculated under GAAP. Upon the agreement of each of the parties
hereto, measurements of financial covenants may be made on a rolling four
Fiscal Quarter basis instead of the rolling twelve Fiscal Month basis otherwise
specified herein.
18 DEFAULT.
18.1 EVENTS OF DEFAULT. Any one or more of the following shall
constitute an event of default (an "Event of Default") under this Agreement:
18.1.1 FAILURE TO PAY PRINCIPAL OR INTEREST. Failure of Borrower
to pay any principal of the Loans or interest accrued thereon when due.
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<PAGE> 42
18.1.2 FAILURE TO PAY OTHER AMOUNTS OWED TO LENDER. Failure of
Borrower to pay any of the Loan Obligations (other than principal of the
Loans or interest accrued thereon) within 5 days after the date when due.
18.1.3 FAILURE TO PAY AMOUNTS OWED TO OTHER PERSONS. Failure of
any Covered Person to pay any Indebtedness of such Covered Person over
$10,000 to Persons other than Lender which continues unwaived beyond any
applicable grace period specified in the documents evidencing such
Indebtedness or is being diligently contested in good faith and by
appropriate proceedings and for which adequate book reserves in accordance
with GAAP are maintained.
18.1.4 REPRESENTATIONS OR WARRANTIES. Any representation or
warranty made by Borrower in this Agreement, or any statement or
representation made in any certificate, report, opinion or other document
delivered pursuant to this Agreement, is discovered to have been false and
results in or obscures a Material Adverse Effect.
18.1.5 CERTAIN COVENANTS. Failure of any Covered Person to comply
with the covenants in Sections 15.14, 15.19, 15.23, 16.1 through 16.8,
and 17.
18.1.6 OTHER COVENANTS. Failure of any Covered Person to comply
with of any of the terms or provisions of any of the Loan Documents
applicable to it (other than a failure which constitutes an Event of
Default under any of Sections 18.1.1 through 18.1.5) which is not remedied
or waived in writing by Lender within 20 days after the initial occurrence
of such failure; provided, however, that no such grace period shall apply,
and an Event of Default shall exist promptly upon such failure to comply,
if such failure may not, in Lender's reasonable determination, be cured by
Borrower during such 20 day period.
18.1.7 ACCELERATION OF OTHER INDEBTEDNESS. Any Obligation of a
Covered Person (other than the Loan Obligations) for the payment of
borrowed money becomes or is declared to be due and payable or required to
be prepaid (other than by a regularly scheduled prepayment) prior to the
original maturity thereof.
18.1.8 DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any
default or event of default under any agreement to which a Covered Person
is a party (other than the Loan Documents), which default or breach
continues unwaived beyond any applicable grace period provided therein and
likely would have a Material Adverse Effect.
18.1.9 BANKRUPTCY; INSOLVENCY; ETC. A Covered Person (i) fails to
pay, or admits in writing its inability to pay, its debts as they become
due, or otherwise becomes insolvent (however evidenced); (ii) makes an
assignment for the benefit of creditors; (iii) files a petition in
bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to
any tribunal for any receiver or any trustee of such Covered Person or any
substantial part of its property; (iv) commences any proceeding relating
to such Covered Person under any reorganization, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction,
whether now or hereafter in effect; (v) has commenced against it any such
proceeding which remains
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<PAGE> 43
undismissed for a period of thirty (30) days, or by any act indicates its
consent to, approval of, or acquiescence in any such proceeding or the
appointment of any receiver of or any trustee for it or of any substantial
part of its property, or allows any such receivership or trusteeship to
continue undischarged for a period of thirty (30) days; or (vi) takes any
corporate action to authorize any of the foregoing.
18.1.10 JUDGMENTS; ATTACHMENT; ETC. Any one or more judgments or
orders is entered against a Covered Person or any attachment or other levy
is made against the property of a Covered Person with respect to a claim
or claims involving in the aggregate liabilities (not paid or fully
covered by insurance, less the amount of reasonable deductibles in effect
on the Execution Date) in excess of [$25,000], becomes final and
non-appealable or if timely appealed is not fully bonded and collection
thereof stayed pending the appeal.
18.1.11 PENSION BENEFIT PLAN TERMINATION, ETC. Any Pension Benefit
Plan termination by the PBGC or the appointment by the appropriate United
States District Court of a trustee to administer any Pension Benefit Plan
or to liquidate any Pension Benefit Plan; or any event which constitutes
grounds either for the termination of any Pension Benefit Plan by PBGC or
for the appointment by the appropriate United States District Court of a
trustee to administer or liquidate any Pension Benefit Plan shall have
occurred and be continuing for thirty (30) days after Borrower has notice
of any such event; or any voluntary termination of any Pension Benefit
Plan which is a defined benefit pension plan as defined in Section 3(35)
of ERISA while such defined benefit pension plan has an accumulated
funding deficiency, unless Lender has been notified of such intent to
voluntarily terminate such plan and has given its consent and agreed that
such event shall not constitute a Default; or the plan administrator of
any Pension Benefit Plan applies under Section 412(d) of the Code for a
waiver of the minimum funding standards of Section 412(1) of the Code and
Lender believes that the substantial business hardship upon which the
application for such waiver is based could subject any Covered Person or
ERISA Affiliate to a liability in excess of $25,000.
18.1.12 LIQUIDATION OR DISSOLUTION. A Covered Person files a
certificate of dissolution under applicable state law or is liquidated or
dissolved or suspends or terminates the operation of its business, or has
commenced against it any action or proceeding for its liquidation or
dissolution or the winding up of its business, or takes any corporate
action in furtherance thereof; provided, however, that such actions in
furtherance of a plan whereby the assets of such Covered Person are
acquired by another Covered Person shall not be an Event of Default.
18.1.13 SEIZURE OF ASSETS. All or any part of the property of
Borrower is nationalized, expropriated or condemned, seized or otherwise
appropriated, or custody or control of such property or of Borrower shall
be assumed by any Governmental Authority or any court of competent
jurisdiction at the instance of any Governmental Authority, except where
contested in good faith by proper proceedings diligently pursued where a
stay of enforcement is in effect.
18.1.14 RACKETEERING PROCEEDING. There is filed against Borrower
any civil or criminal action, suit or proceeding under any federal or
state racketeering statute
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<PAGE> 44
(including, without limitation, the Racketeer Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding is not
dismissed within 120 days and could result in the confiscation or
forfeiture of any material portion of the Collateral.
18.1.15 LOAN DOCUMENTS; LIENS. For any reason other than the
failure of Lender to take any action available to it to maintain
perfection of the Security Interests created in favor of Lender pursuant
to the Loan Documents, any Loan Document ceases to be in full force and
effect or any Security Interest with respect to any portion of the
Collateral intended to be secured thereby ceases to be, or is not, valid,
perfected and prior to all other Security Interests (other than the
Permitted Liens) or is terminated, revoked or declared void or invalid.
18.1.16 LOSS TO COLLATERAL. Any loss, theft, damage or destruction
of any item or items of Collateral occurs which (i) materially and
adversely affects the operation of Borrower's business; or (ii) is
material in amount and is not adequately covered by insurance.
18.1.17 MATERIAL ADVERSE EVENT. There occurs any material adverse
change in Borrower's property, business, operation, or condition
(financial or otherwise), or there occurs any event which has or will have
a Material Adverse Effect.
18.2 CROSS-DEFAULT. Any Event of Default under this Agreement will
constitute an event of default under any other agreement of Borrower with
Lender and under any evidence of Indebtedness of Borrower held by Lender,
whether or not such is an event of default specified therein.
18.3 RIGHTS AND REMEDIES IN THE EVENT OF DEFAULT.
18.3.1 TERMINATION OF COMMITMENTS. Upon an Event of Default
described in Section 18.1.9, the Commitments shall be deemed canceled.
Upon any other Event of Default, and at any time thereafter, Lender may
cancel the Commitments. Such cancellation may be without demand or notice
of any kind, which Borrower expressly waives.
18.3.2 ACCELERATION. Upon an Event of Default described in Section
18.1.9, all of the outstanding Loan Obligations shall automatically become
immediately due and payable. Upon any other Event of Default, and at any
time thereafter, Lender may declare all of the outstanding Loan
Obligations immediately due and payable. Such acceleration may be without
demand or notice of any kind, which Borrower expressly waives.
18.3.3 RIGHT OF SET-OFF. Upon the occurrence of any Event of
Default and at any time and from time to time thereafter, Lender is hereby
authorized, without notice to Borrower (any such notice being expressly
waived by Borrower), to set off and apply against the Loan Obligations any
and all deposits (general or special, time or demand, provisional or
final) at any time held, or any other Indebtedness at any time owing by
Lender to or for the credit or the account of Borrower, irrespective of
whether or not Lender shall have made any demand under this Agreement or
the Notes
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<PAGE> 45
and although such Loan Obligations may be unmatured. The rights of Lender
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which Lender may otherwise have.
18.3.4 NOTICE TO ACCOUNT DEBTORS. During the continuance of any
Default that is not waived in writing by Lender and after the occurrence
of any Event of Default that is not waived in writing by Lender, Lender
may, without prior notice to Borrower, notify any or all Account Debtors
that the Accounts have been assigned to Lender and that Lender has a
security interest therein, and Bank may direct, or Borrower, at Bank's
request, shall direct, any or all Account Debtors to make all payments
upon the Accounts directly to Bank. Bank shall furnish Borrower with a
copy of any such notice issued by Bank promptly after notifying such
Account Debtors.
18.3.5 ENTRY UPON PREMISES AND ACCESS TO INFORMATION. Upon an
Event of Default and acceleration of the Loan Obligations as provided
herein, and at any time thereafter: Lender may (i) enter upon the
premises leased or owned by Borrower where Collateral is located (or is
believed to be located) without any obligation to pay rent to Borrower, or
any other place or places where Collateral is believed to be located, (ii)
render Collateral usable or saleable, (iii) remove Collateral therefrom to
the premises of Lender or any agent of Lender for such time as Lender may
desire in order effectively to collect or liquidate Collateral; (iv) take
possession of, and make copies and abstracts of, Borrower's original books
and records, obtain access to Borrower's data processing equipment,
computer hardware and software relating to any of the Collateral and use
all of the foregoing and the information contained therein in any manner
Lender deems appropriate in connection with the exercise of Lender's
rights; and (v) notify postal authorities to change the address for
delivery of Borrower's mail to an address designated by Lender and to
receive, open and process all mail addressed to Borrower.
18.3.6 SECURED PARTY RIGHTS. Upon an Event of Default and
acceleration of the Loan Obligations as provided herein, and at any time
and from time to time thereafter:
18.3.6.1 Lender may exercise any or all of its rights under
the Security Documents, as a secured party under the UCC and any
other applicable Law; and
18.3.6.2 Lender may sell or otherwise dispose of Collateral
at public or private sale in a commercially reasonable manner (ten
days notice of a public or private sale being deemed and agreed by
Borrower to be reasonable), which sale Lender may postpone from time
to time by announcement at the time and place of sale stated in the
notice of sale or by announcement at any adjourned sale without
being required to give a new notice of sale, all as Lender deems
advisable, for cash or credit; provided, however, that Lender may
become the purchaser at any such sale if permissible under
applicable Law and Lender may, in lieu of actual payment of the
purchase price, offset the amount thereof against Borrower's
obligations owing to Lender; and Borrower agrees that
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<PAGE> 46
Lender has no obligation to preserve rights to Collateral against
prior parties or to marshal any Collateral for the benefit of any
Person;
In connection with the advertising for sale, selling or otherwise
realizing upon any of the Collateral securing the obligations of Borrower
to Lender, Lender may use and is hereby granted a license to use, without
charge or liability to Lender therefor, any of Borrower's labels, trade
names, trademarks, trade secrets, service marks, patents, patent
applications, licenses, certificates of authority, advertising materials,
or any of Borrower's other properties or interests in properties of
similar nature, to the extent that such use thereof is not prohibited by
agreements under which Borrower has rights therein, and all of Borrower's
rights under license, franchise and similar agreements shall inure to
Lender's benefit.
18.3.7 MISCELLANEOUS. After the occurrence of an Event of Default
and at any time thereafter, Lender may exercise any other rights and
remedies available to Lender under the Loan Documents or otherwise
available to Lender at law or in equity.
18.3.8 APPLICATION OF FUNDS. Any funds received by Lender with
respect to the Loan Obligations after any acceleration, including but not
limited to proceeds of Collateral, shall be applied as follows: (i)
first, to reimburse Lender for any amounts due to Lender under Sections
19.8 and 19.9; (ii) second, to the payment of accrued and unpaid fees due
hereunder and all other amounts due hereunder (other than the Loans and
interest accrued thereon); (iii) third, to the payment of interest accrued
on the Loans; (iv) fourth, to the payment of the Loans, in such order as
Lender determines in its sole discretion; and (v) fifth, to the payment of
the other Loan Obligations. Any remaining amounts shall be paid to
Borrower or such other Persons as shall be legally entitled thereto.
18.4 BORROWER'S OBLIGATIONS. Upon the occurrence of an Event of Default,
Borrower shall, if Lender so requests, assemble the Collateral and make it
available to Lender at a place or places to be designated by Lender, reasonably
convenient to Borrower.
18.5 LIMITATION OF LIABILITY; WAIVER. Lender shall not be liable to
Borrower as a result of any commercially reasonable possession, repossession,
collection or sale by Lender of Collateral; and Borrower hereby waives all
rights of redemption from any such sale and the benefit of all valuation,
appraisal and exemption laws. If Lender seeks to take possession of any of the
Collateral by replevin or other court process, Borrower hereby irrevocably
waives (i) the posting of any bonds, surety and security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession, (ii) any demand for possession of the Collateral prior to the
commencement of any suit or action to recover possession thereof, (iii) any
requirement that Lender retain possession and not dispose of any Collateral
until after trial or final judgment, and (iv) to the extent permitted by
applicable law, all rights to notice and hearing prior to the exercise by
Lender of Lender's right to repossess the Collateral without judicial process
or to replevy, attach or levy upon the Collateral without notice or hearing.
Lender shall have no obligation to preserve rights to the Collateral or to
marshall any Collateral for the benefit of any Person.
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<PAGE> 47
18.6 NOTICE. Any notice of intended action required to be given by
Lender, if given as provided in Section 19.1 at least 10 days prior to such
proposed action, shall be effective and constitute reasonable and fair notice
to Borrower.
19 MISCELLANEOUS.
19.1 NOTICES. All notices, consents, requests and demands to or upon the
respective parties hereto shall be in writing, and shall be deemed to have been
given or made when delivered in person to those Persons listed on the signature
pages hereof or when deposited in the United States mail, postage prepaid, or,
in the case of telegraphic notice, or the overnight courier services, when
delivered to the telegraph company or overnight courier service, or in the case
of telex or telecopy notice, when sent, verification received, in each case
addressed as set forth on the signature pages hereof, or such other address as
either party may designate by notice to the other in accordance with the terms
of this paragraph. No notice given to or demand made on Borrower by Lender in
any instance shall entitle Borrower to notice or demand in any other instance.
19.2 RIGHT TO CURE. Lender may from time to time, in its sole discretion
(but shall have no obligation to do so), for Borrower's account and at
Borrower's expense, pay (or make a Revolving Advance to pay) any amount or do
any act required of Borrower hereunder or requested by Lender to preserve,
protect, maintain or enforce the Loan Obligations, the Collateral or Lender's
Security Interests thereon, and which Borrower fails to pay or do, including,
without limitation, payment of any judgment against Borrower, insurance
premium, taxes or assessments, warehouse charge, finishing or processing
charge, landlord's claim, and any other Security Interest upon or with respect
to the Collateral. All payments that Lender makes pursuant to this Section and
all out-of-pocket costs and expenses that Lender pays or incurs in connection
with any action taken by it hereunder shall be a part of the Loan Obligations,
the repayment of which shall be secured by the Collateral. Any payment made or
other action taken by Lender pursuant to this Section shall be without
prejudice to any right to assert an Event of Default hereunder and to pursue
Lender's other rights and remedies with respect thereto.
19.3 AMENDMENTS, WAIVERS AND CONSENTS. No amendment to, waiver of, or
departure from full compliance with any provision of this Agreement, or of any
of the other Loan Documents, or consent to any departure by Borrower herefrom
or therefrom, shall be effective unless it is in writing and signed by
authorized officers of Borrower and the Lender; provided, however, that any
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No failure by Lender to exercise, and no delay by
Lender in exercising, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise by Lender
of any right, remedy, power or privilege hereunder preclude any other exercise
thereof, or the exercise of any other right, remedy, power or privilege.
19.4 RIGHTS NOT EXCLUSIVE. Every right granted to Lender hereunder or
under any other Loan Document or allowed to it at law or in equity shall be
deemed cumulative and may be exercised from time to time.
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19.5 SURVIVAL OF AGREEMENTS. All covenants and agreements made herein
and in the other Loan Documents shall survive the execution and delivery of
this Agreement, the Notes and other Loan Documents and the making of every
Advance. All agreements, obligations and liabilities of Borrower under this
Agreement concerning the payment of money to Lender, including but not limited
to Borrower's obligations under Sections 19.8 and 19.9, but excluding the
obligation to repay the Loans and interest accrued thereon, shall survive the
repayment in full of the Loans and interest accrued thereon, the return of the
Notes to Borrower and the termination of the Commitments. Subject to Section 8
of this Agreement, upon the payment in full of all Loan Obligations and the
termination of the Commitments, all Security Documents shall be deemed
terminated and shall be released of record by Lender.
19.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and all future holders of the Notes
and their respective successors and assigns, except that Borrower may not
assign, delegate or transfer any of its rights or obligations under this
Agreement without the prior written consent of Lender. With respect to
Borrower's successors and assigns, such successors and assigns shall include,
without limitation, any receiver, trustee or debtor-in-possession of or for
Borrower. Lender shall have the right to assign its rights and to delegate its
obligations under the Loan Documents to any affiliate of such Lender that
assumes its obligations to make Loans to Borrower subject to the terms and
conditions herein, but such assignment and delegation should not relieve the
assigning and delegating Lender from its obligations hereunder. Lender shall
have the right to assign its rights under the Loan Documents to any Federal
Reserve Bank, but without delegation of such Lender's obligations thereunder.
19.7 PARTICIPATIONS. Lender may in the ordinary course of its commercial
banking business and in accordance with applicable law grant participations to
one or more banks or other financial institutions in any of the Loans. For
this purpose, the Lender may disclose to a potential or actual participant any
information supplied to Lender by or on behalf of Borrower. Borrower hereby
acknowledges and agrees that every such participant has the same right of
set-off as does Lender under Section 18.3.3; provided, however, that all amounts
received by any such participant through the exercise of the right of set-off
in excess of its share of Loans as a participant shall be remitted to Lender.
19.8 PAYMENT OF EXPENSES. Borrower agrees to pay or reimburse Lender for
its costs and expenses incurred in connection with Lender's due diligence
review, the negotiation and preparation of the Commitment Letter and the Loan
Documents, and the perfection of Lender's liens and security interests in the
Collateral, including but not limited to mortgagee's title insurance premiums,
recording and filing fees, appraisal fees, environmental consultant fees,
Lender's customary fees for honoring drawings on letters of credit, and all
reasonable attorneys' fees and all actual attorney's expenses advanced
(including but not limited to expenses for lien searches and filing charges,
facsimile and other electronic data transmissions, long-distance telephone
charges, courier and delivery charges and photocopying charges).
Notwithstanding the foregoing, Borrower shall pay the first $25,000 of all such
costs and expenses, Lender shall pay the next $10,000 and Borrower and Lender
shall share equally all such costs thereafter. Further, if at any time or times
hereafter Lender engages legal counsel for advice or other representation to
enforce the rights of Lender against Borrower under the Loan Documents or in
connection with amendment, supplement, waiver, consent or subsequent closing
relating to any of the Loan Documents at the request
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<PAGE> 49
of Borrower or as a consequence of a Default or Event or Default, then all
reasonable fees and all expenses advanced of such legal counsel and all
litigation costs, including costs incurred as a consequence of any proceedings
involving Borrower under the federal bankruptcy Code (if any) shall constitute
a part of the Loan Obligations and be payable by Borrower on demand.
19.9 INDEMNITY. Borrower shall pay, indemnify and hold harmless Lender
and its directors, officers, employees, agents, and representatives (the
"Indemnified Parties") for, from and against, and promptly to reimburse the
Indemnified Parties for, any and all claims, damages, liabilities, losses,
costs and expenses (including, without limitations, reasonable attorneys' fees
and expenses and amounts paid in settlement) (the "Indemnified Liabilities")
incurred, paid or sustained by the Indemnified Parties in connection with,
arising out of, based upon or otherwise involving or resulting from any
threatened, pending or completed action, suit, investigation or other
proceeding by, against or otherwise involving the Indemnified Parties and in
any way dealing with, relating to or otherwise involving this Agreement, any of
the other Loan Documents, or any transaction contemplated hereby or thereby
(each a "Triggering Event"); provided, however, that Borrower shall have no
obligation to indemnify the Indemnified parties hereunder with respect to any
Indemnified Liabilities arising from the gross negligence, bad faith or willful
misconduct of any of the Indemnified Parties. Borrower shall pay, indemnify and
hold harmless the Indemnified Parties for, from and against, and promptly
reimburse the Indemnified Parties for, any and all claims, damages,
liabilities, losses, costs and expenses (including, without limitations,
reasonable attorneys' and consultant fees and expenses, investigation and
laboratory fees, removal, remedial, response and corrective action costs, and
amounts paid in settlement) incurred, paid or sustained by the Indemnified
Parties as a result of the manufacture, storage, transportation, release or
disposal of any Hazardous Waste on, from, over or affecting any of the
Collateral or any of the assets, properties, or operations of any Covered
Person or any predecessor in interest, directly or indirectly. Borrower shall
pay, indemnify and hold harmless the Indemnified Parties for, from and against,
and shall promptly reimburse the Indemnified Parties for, any and all claims,
damages, liabilities, losses, costs and expenses (including, without
limitations, reasonable attorneys' fees and expenses and amounts paid in
settlement) incurred, paid or sustained by the Indemnified Parties, arising out
of or relating to the Acquisition Agreement or Lender's enforcement of any of
its rights with respect thereto. The obligations of Borrower under this
Section 19.9 shall survive the termination of the Commitments, the expiration of
letters of credit issued by Lender for the account of Borrower, the payment and
satisfaction of all of the Loan Obligations, and the release of the Collateral.
To the extent that any of the indemnities set forth in this Section may be
unenforceable because it is violative of any law or public policy, Borrower
shall pay the maximum portion which it is permitted to pay under applicable
law.
19.10 CHANGES IN ACCOUNTING PRINCIPLES. If Borrower, at the end of its
Fiscal Year and with the concurrence of its independent certified public
accountants, changes the method of valuing the Inventory of Borrower, or if any
other changes in accounting principles from those used in the preparation of
any of the Financial Statements are required by or result from the promulgation
of principles, rules, regulations, guidelines, pronouncements or opinions by
the Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or bodies with similar functions),
and any of such changes result in a change in the method of calculation of, or
affect the results of such calculation of, any of the financial covenants,
standards or terms found herein, then the parties hereto agree
48
<PAGE> 50
to enter into and diligently pursue negotiations in order to amend such
financial covenants, standards or terms so as to equitably reflect such
changes, with the desired result that the criteria for evaluating the financial
condition and results of operations of Borrower shall be the same after such
changes as if such changes had not been made; provided, however, that until
such changes are made, all financial covenants herein and all the provisions
hereof which contemplate financial calculation hereunder shall remain in full
force and effect.
19.11 LOAN RECORDS. The date and amount of all Advances to Borrower and
payments of amounts due from Borrower under the Loan Documents will be recorded
in the records that Lender normally maintains for such types of transactions.
The failure to record, or any error in recording, any of the foregoing shall
not, however, affect the obligation of Borrower to repay the Loans and other
amounts payable under the Loan Documents. Borrower shall have the burden of
proving that Lender's records are not correct. Borrower agrees that Lender's
books and records showing the Loan Obligations and the transactions pursuant to
this Agreement shall be admissible in any action or proceeding arising
therefrom, and shall constitute prima facie proof thereof, irrespective of
whether any Loan Obligation is also evidenced by a promissory note or other
instrument. Lender will provide to Borrower a monthly statement of Advances,
payments, and other transactions pursuant to this Agreement. Such statement
shall be deemed correct, accurate and binding on Borrower and an account stated
(except for reversals and reapplications of payments as provided in Sections 7
and 8 and corrections of errors discovered by Lender), unless Borrower notifies
Lender in writing to the contrary within thirty (30) days after such statement
is rendered. In the event a timely written notice of objections is given by
Borrower, only the items to which exception is expressly made will be
considered to be disputed by Borrower.
19.12 DRAFTING/NEGOTIATION. Borrower and Lender represent one to the
other that in the negotiation and drafting of this Agreement they have been
represented by and have relied upon the advice of counsel of their choice.
Borrower and Lender affirm that their counsel have both had substantial roles
in the drafting and negotiation of this Agreement and, therefore, this
Agreement shall be deemed drafted by both Borrower and Lender, and the rule of
construction to the effect that any ambiguities are to be resolved against the
drafter shall not be employed in the interpretation of this Agreement.
19.13 OTHER SECURITY AND GUARANTIES. Lender may, without notice or demand
and without affecting Borrower's obligations hereunder, from time to time: (a)
take from any Person and hold collateral (other than the Collateral) for the
payment of all or any part of the Loan Obligations and exchange, enforce and
release such collateral or any part thereof; and (b) accept and hold any
endorsement or guaranty of payment of all or any part of the Loan Obligations
and release or substitute any such endorser or guarantor, or any Person who has
given any Security Interest in any other collateral as security for the payment
of all or any part of the Loan Obligations, or any other Person in any way
obligated to pay all or any part of the Loan Obligations.
19.14 SEVERABILITY. Any provision of this Agreement which is prohibited,
unenforceable or not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or lack of authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction unless the ineffectiveness of such
provision would result in
49
<PAGE> 51
such a material change as to cause completion of the transactions
contemplated hereby to be unreasonable.
19.15 COUNTERPARTS. This Agreement may be executed by the parties hereto
on any number of separate counterparts, and all such counterparts taken
together shall constitute one and the same instrument. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one counterpart signed by the party to be charged.
19.16 GOVERNING LAW; NO THIRD PARTY RIGHTS. THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF MISSOURI APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. This Agreement is solely for the
benefit of the parties hereto and their respective successors and assigns, and
no other Person shall have any right, benefit, priority or interest under, or
because of the existence of, this Agreement.
19.17 CHOICE OF FORUM. SUBJECT ONLY TO THE EXCEPTION IN THE NEXT
SENTENCE, BORROWER AND LENDER HEREBY AGREE TO THE EXCLUSIVE JURISDICTION OF THE
FEDERAL COURT OF THE EASTERN DISTRICT OF MISSOURI AND THE STATE COURTS OF
MISSOURI LOCATED IN THE CITY OF ST. LOUIS, MISSOURI, AND WAIVE ANY OBJECTION
BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED
THEREIN, AND AGREE THAT ANY DISPUTE CONCERNING THE RELATIONSHIP BETWEEN LENDER
AND BORROWER OR THE CONDUCT OF EITHER PARTY IN CONNECTION WITH THIS AGREEMENT
OR OTHERWISE SHALL BE HEARD ONLY IN THE COURTS DESCRIBED ABOVE.
NOTWITHSTANDING THE FOREGOING: (1) LENDER SHALL HAVE THE RIGHT TO BRING ANY
ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN ANY COURTS OF ANY
OTHER JURISDICTION LENDER DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON
THE COLLATERAL, REAL ESTATE OR OTHER SECURITY FOR THE LOAN OBLIGATIONS, AND (2)
EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THE COURTS
DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE THOSE JURISDICTIONS.
19.18 SERVICE OF PROCESS. BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY
AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE
MADE BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO BORROWER AT ITS
ADDRESS SET FORTH ON THE SIGNATURE PAGES HEREOF AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO
DEPOSITED IN THE U.S. MAILS, OR, AT LENDER'S OPTION, BY SERVICE UPON GEORGE
RICHMOND WHICH BORROWER IRREVOCABLY APPOINTS AS BORROWER'S AGENT FOR THE
PURPOSE OF ACCEPTING SERVICE OF PROCESS WITHIN THE STATE OF MISSOURI. LENDER
SHALL PROMPTLY FORWARD BY REGISTERED MAIL ANY PROCESS SO SERVED UPON SAID AGENT
TO BORROWER AT ITS ADDRESS SET FORTH ON THE SIGNATURE PAGES HEREOF. BORROWER
HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID. NOTHING IN THIS SECTION
SHALL AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.
50
<PAGE> 52
19.19 CAPTIONS. Section captions and the Table of Contents are for
convenience only and shall not affect the interpretation or construction of
this Agreement or the other Loan Documents.
19.20 INCORPORATION BY REFERENCE. All of the terms of the other Loan
Documents are incorporated in and made a part of this Agreement by this
reference.
19.21 STATUTORY NOTICE. The following notice is given pursuant to Section
432.045 of the Missouri Revised Statutes; nothing contained in such notice
shall be deemed to limit or modify the terms of the Loan Documents:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US
(CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE
REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE
MAY LATER AGREE IN WRITING TO MODIFY IT.
YOUNG INNOVATIONS, INC.
By: /s/ George E. Richmond
-----------------------------
Name: George E. Richmond
---------------------------
Title: President
--------------------------
YOUNG DENTAL MANUFACTURING COMPANY
By: /s/ George E. Richmond
-----------------------------
Name: George E. Richmond
---------------------------
Title: President
--------------------------
51
<PAGE> 53
LORVIC HOLDINGS, INC.
By: /s/ George E. Richmond
-----------------------------
Name: George E. Richmond
---------------------------
Title: President
--------------------------
THE LORVIC CORPORATION
By: /s/ George E. Richmond
-----------------------------
Name: George E. Richmond
---------------------------
Title: Vice President
--------------------------
DENTICATOR INTERNATIONAL, INC.
By: /s/ George E. Richmond
-----------------------------
Name: George E. Richmond
---------------------------
Title: Vice President
--------------------------
Notice Address (for all of the Borrowers):
13705 Shoreline Court East
Earth City, Missouri 63045
Attn.: George E. Richmond & Michael W. Eggleston
FAX # (314) 344-0021
TEL # (314) 344-0010
With a copy to:
Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Square
St. Louis, Missouri 63102-2740
Attention: John L. Gillis, Jr., Esq.
FAX # (314) 621-5065
TEL # (314) 621-5070
52
<PAGE> 54
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
By: /s/ T. Halls
-----------------------------
Name: Timothy J. Halls
---------------------------
Title: Vice President
--------------------------
Notice Address:
One Boatmen's Plaza, 14th Floor
800 Market Street
St. Louis, Missouri 63101
Attn.: Matthew Springman
FAX # (314) 466-6645
TEL # (314) 466-6000
-and-
75 West Lockwood
Webster Groves, Missouri 63119
Attn.: Timothy J. Halls
FAX # (314) 284-2070
TEL # (314) 284-2050
With a copy to:
Lewis, Rice & Fingersh, L.C.
500 N. Broadway, Suite 2000
St. Louis, Missouri 63102-2147
Attention: Timothy E. Kastner, Esq.
FAX # (314) 241-6056
TEL # (314) 444-7600
53
<PAGE> 55
EXHIBIT 10.1.2
--------------
REAL PROPERTY COLLATERAL
------------------------
Lot 1 of the Resubdivision of Lot 2 of Lot 4748 (amended) of EARTH CITY PLAT 2,
according to the plat thereof recorded in Plat Book 264 Page 89 of the
St. Louis County Records.
13705 Shoreline Court East
Earth City MO 63045
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A tract of land being Lot 3 of Gemini Industrial Park-Amended No. 3, a
Subdivision recorded in Plat Book 127 Page 57 of the St. Louis County Records
and being described as follows:
Beginning at the Northwest corner of said Lot 3, said corner is also on the
South line of Frost Avenue, 50.00 feet wide; thence along said South line of
Frost Avenue, South 82 degrees 43 minutes East 154.04 feet, to a point of
curvature; thence along a curve to the right, said curve has a radius of 20.00
feet and an arc distance of 31.37 feet to a point of tangency, said point is
also on the West line of 50.00 feet wide private street known as Jonas Place;
thence along said West line of Jonas Place, South 7 degrees 09 minutes 39
seconds West 200.04 feet to the Southeast corner of said Lot 3; thence North 82
degrees 43 minutes West 174.00 feet to the Southwest corner of said Lot 3;
thence North 7 degrees 09 minutes 39 seconds East 220.00 feet to the point of
beginning.
8810 Frost Avenue
St. Louis MO 63134
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The South part of Lot 12 of WEST PORT INDUSTRIAL SUBDIVISION 2ND ADDITION, a
Subdivision in the County of St. Louis, Missouri, according to the plat thereof
recorded in Plat Book 107 Page 98 and 99 of the St. Louis County Records,
fronting 100 feet on the East line of Northline Industrial Boulevard by a depth
Eastwardly of 224.58 feet on the South line and 242.38 feet on the North line
to the East line of said lot upon which it has a width of 101.57 feet.
2418 Northline Industrial
Maryland Heights MO 63043
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE> 56
Brownsville
-----------
LAND: 3.472 Acre tract out of Share 22 of the Espiritu Santo Grant in
Cameron County, Texas; said 3.472 Acre tract being more
particularly located and described as follows:
FROM the intersection of the Centerline of Cameron County Drainage Dist. No. 1
and the Common line of Shares 19 and 22 of the Espiritu Santo Grant, Cameron
County, Texas;
THENCE North 4 degrees-05'-03" East along the common line of Shares 19 and 22
same being the centerline of Paredes Line Road (F.M. Hwy. No. 1847) a distance
of 180.92 feet for the east corner and PLACE OF BEGINNING of this tract;
THENCE along a line perpendicularly 155 feet North of and parallel to the
centerline of Cameron County Drainage District No. 1, North 54 degrees-51'-57"
West a distance of 827.42 feet for the Westernmost corner of this tract;
THENCE South 85 degrees-54'-57" East, a distance of 708.88 feet to the
centerline of Paredes Line Road (F.M. Hwy. 1847) same being the common line of
Share 19 and 22 for the Northeast corner of this tract;
THENCE South 4 degrees-05'-03" West along the common line of Shares 19 and 22
same being the centerline of Paredes Line Road (F.M. Hwy. No. 1847) a distance
of 426.75 feet for the Southeast corner and PLACE OF BEGINNING of this tract;
CONTAINING 3.472 Acres of which 0.472 acre is within Paredes Line Road (F.M.
Hwy. No. 1847) Right-of Way.
Land is in Cameron County Texas and is known and numbered as 4401 Paredes Line
Rd., Brownsville, Texas
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rancho Cordova, California
--------------------------
The right, title and interest of Denticator International, Inc., a Missouri
corporation, in and to that certain Lease dated as of February 23, 1991,
between Denticator International, Inc., a California corporation (predecessor
in interest to Denticator International, Inc., a Missouri corporation) with
respect to the real property described therein, as such Lease may have been
amended from time to time.
The Leased Premises are situated in Sacramento County, California and is known
and numbered as 11330 Sunrise Park Drive, Rancho Cordova, California 95742.
<PAGE> 57
EXHIBIT 10.1.3
--------------
Intellectual Property
---------------------
THE LORVIC CORPORATION PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
Application Application Patent Issue
Title Country Number Date Number Date
- ----- ------- ----------- ----------- ------ -----
<S> <C> <C> <C> <C> <C>
Method for Etching Dental U.S. 235,809 2/19/81 4,376,673 03/15/83
Porcelain
Dispenser for Dental Sealant U.S. 156,840 6/5/80 4,343,418 08/10/82
Dental Cavity Varish U.S. 140,322 4/14/80 4,308,062 12/29/81
Composition
</TABLE>
THE LORVIC CORPORATION TRADEMARKS AND TRADEMARK APPLICATIONS
MARK REG. NO. APP. DATE FIRST USE COUNTRY
- ---- -------- --------- --------- -------
KARIDIUM 651,397 8/3/53 RENEWED U.S.
KARIDIUM 115,174 Canada
ENDO-VAC 1,036,150 10/18/74 REGISTERED U.S.
ENDO-VAC 213,155 Canada
TRACE 970,256 7/26/72 RENEWED U.S.
RENEW 1,736,023 2/14/92 REGISTERED U.S.
MAGNASIL 1,385,724 8/8/85 REGISTERED U.S.
SURG-O-VAC 1,807,305 3/17/93 REGISTERED U.S.
NYCLAVE 1,804,305 3/17/93 REGISTERED U.S.
DH/NYCLAVE 1,804,306 3/17/93 REGISTERED U.S.
<PAGE> 58
YOUNG DENTAL MANUFACTURING COMPANY PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
Application Application Patent Issue
Title Country Number Date Number Date
- ----- ------- ----------- ----------- ------ -----
<S> <C> <C> <C> <C> <C>
TATTOOING U.S. 673,277 11/20/1984 4,582,060 04/15/1986
TOOL AND
NEEDLE
ASSEMBLY FOR
USE THEREIN
DENTAL U.S. 477,748 02/09/1990 5,094,615 03/10/1992
POLISHING HEAD
AND METHOD
CONTROL UNIT U.S. 477,609 02/09/1990 5,158,455 10/27/1992
FOR A SCALER
AND A POLISHER
CONTROL FOR U.S. 619,037 11/28/1990 5,186,625 02/16/1993
DENTAL AIR-
POLISHER
DISPOSABLE U.S. 613,366 11/15/1990 5,156,547 10/20/1992
PROPHYLAXIS
ANGLE AND
METHOD OF
ASSEMBLING IT
AUTOCLAVABLE U.S. 619,039 11/28/1990 5,090,904 02/25/1992
AIR POLISHER
HANDPIECE
COUPLING U.S. 259,987 05/04/1981 4406621 09/27/1983
ENSEMBLE FOR
DENTAL
HANDPIECE
DENTAL U.S. 963,132 10/19/1992 5,328,369 07/12/1994
PROPHYLAXIS
ANGLE
DENTAL U.S. 281,765 07/28/1994 5,484,284 01/16/1996
PROPHYLAXIS
TOOL AND
ANGLE USING IT
DENTAL U.S. 224,502 04/07/1994 5,423,679 06/13/1995
PROPHYLAXIS
ANGLE
DENTAL U.S. 224,263 04/07/1994 5,503,555 04/02/1996
PROPHYLAXIS
ANGLE
</TABLE>
<PAGE> 59
AUTOCLAVABLE U.S. 281,452 07/27/1994 5,501,596 03/26/1996
DENTAL SCALER
HANDPIECE
CLEANING CUP U.S. 953,474 10/23/1978 4,365,956 12/28/1982
LOCKING U.S. 184,751 09/08/1980 4,310,310 01/12/1982
ASSEMBLY FOR
DENTAL
HANDPIECE
DENTIFRICE U.S. 90,025 10/31/1979 4,308,252 12/29/1981
COMPOSITION
SEALING DENTAL U.S. 59,525 07/23/1979 4,292,027 09/29/1981
COLLET
DENTAL U.S. 953,473 10/23/1978 4,253,832 03/03/1981
HANDPIECE
SEALING DENTAL U.S. 59,525 07/23/1979 4,292,027 09/29/1981
COLLET
DENTAL U.S. Unfiled
HANDPIECE WITH
SPEED REDUCING
GEAR
A LUBRICATING U.S. Unfiled
SYSTEM FOR
PROPHY CUP
HIGH SPEED U.S. 639401/08 04/29/1996 Pending
DISPOSABLE
TURBINE
HANDPIECE
DENTAL PCT PCT/US94/ 02/10/1994 Pending
PROPHYLAXIS 01551
ANGLE
DENTAL TAIWAN Unfiled
PROPHYLAXIS (ROC)
ANGLE
DENTAL U.S. 387252/08 02/13/1995 Pending
COMPOUND
APPLICATOR
DENTAL TOOL U.S. 315963/08 09/30/1994 Allowed
CHUCK
DENTAL TOOL PCT PCT/US95/ 09/26/1995 Pending
CHUCK 12300
<PAGE> 60
DENTAL TOOL TAIWAN 84109757 09/18/1995 Pending
CHUCK (ROC)
DISPOSABLE U.S. 273182/08 07/11/94 Allowed
DENTAL
PROPHYLAXIS
CONTRA-ANGLE,
METHOD OF
MAKING IT, AND
DRIVE GEAR FOR
USE THEREIN
PERMANENTLY U.S. 525825/08 08/16/1995 Pending
LUBRICATED
DENTAL
PROPHYLAXIS
ANGLE
DISPOSABLE U.S. 632906/08 04/16/1996 Pending
PROPHYLAXIS
ANGLE
DENTAL U.S. 041555/29 07/18/1995 Allowed
PROPHYLAXIS
ANGLE
MOLDED U.S. Unfiled
PLASTIC DENTAL
CONTRA ANGLE
DENTAL U.S. 515826/08 08/16/1995 Pending
PROPHYLAXIS
ANGLE WITH
SEAL
PROTECTOR
DENTAL TOOL U.S. Unfiled
CHUCK
CHUCK WITH A U.S. 648817/08 05/16/1996 Pending
PUSH BUTTON
RELEASE FOR A
DENTAL/
MEDICAL DEVICE
PROPHYLAXIS U.S. 619836/08 03/19/1996 Pending
TOOL WITH
SEALING
ELEMENTS
DENTAL U.S. 626178/08 03/29/1996 Pending
PROPHYLAXIS
ANGLE
<PAGE> 61
DENTAL U.S. Unfiled
PROPHYLAXIS
CUP
YOUNG DENTAL MANUFACTURING COMPANY TRADEMARKS AND TRADEMARK
APPLICATIONS
<TABLE>
<CAPTION>
MARK REG. NO. APP. DATE FIRST USE COUNTRY
- ---- -------- --------- --------- -------
<S> <C> <C> <C> <C>
CARE-FREE 1,940,092 01/30/1995 REGISTERED UNITED STATES
DAWN 1,278,833 08/20/1982 REGISTERED UNITED STATES
EZ-PAK 1,940,093 01/30/1995 REGISTERED UNITED STATES
GEL-TIN 1,277,813 01/17/1983 REGISTERED UNITED STATES
PRO CARE 1,192,694 08/31/1979 REGISTERED UNITED STATES
PROLASTIC 1,127,392 07/07/1978 REGISTERED UNITED STATES
SNAP-ON 627,101 03/21/1955 RENEWED UNITED STATES
TRIPLE SEAL 1,172,125 01/10/1980 REGISTERED UNITED STATES
TS2 1,734,607 03/09/1992 REGISTERED UNITED STATES
</TABLE>
DENTICATOR INTERNATIONAL, INC. PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
Application Application Patent Issue
Title Country Number Date Number Date
- ----- ------- ----------- ----------- ------ -----
<S> <C> <C> <C> <C> <C>
Right Angled U.S. 621,809 12/4/90 5,120,220 06/09/92
Dental
Handpiece
Compressed Air U.S. 08/479,929 6/7/95
Driven
Disposable
Hand Tool
Having a Rotor
with Radially
Moving Vanes
</TABLE>
<PAGE> 62
<TABLE>
<S> <C> <C> <C> <C> <C>
PCT
Application,
PCT/US/96/__,
__, filed
__________,
1996
corresponding
to Application
Serial No.
08/479,929
Disposable Application 02/09/96
Prophy WO9606265
Handpiece-
Turbine
Disposable Application 02/29/96
Prophy WO9605779
Handpiece
Disposable U.S. 08/294,736 08/18/95
Dental
Prophylaxis
Handpiece
PCT
Application
PCT/US/95/10
687, filed
August 18,
1995, which
corresponds to
Application
Serial No.
08/294,736
Disposable U.S. 942,734 9/9/92 5,374,189 12/20/94
Prophy Angle
Drive
Mechanism
Dental prophy U.S. 100,629 7/30/93 5,405,265 04/11/95
cup
Dental prophy U.S. 18,271 1/31/94 D368,523 04/02/96
cup
Dental prophy U.S. 18,185 2/1/94 D368,964 04/16/96
cup
Dental U.S. 29/017,187 1/6/94
Prophylaxis
Cup
</TABLE>
<PAGE> 63
<TABLE>
<S> <C> <C> <C> <C> <C>
Fluid Reaction U.S. 08/294,621 8/23/94
Device
PCT/US/95/10
686, filed
August 21,
1995, which
corresponds to
Application
Serial No.
08/294,621
Right angle Germany 2302630 07/18/74
dental tool
attachment
Right angle Switzerland 561538 05/15/75
dental tool
attachment
Right angle Austria 7300364 10/15/79
dental tool
attachment
</TABLE>
<PAGE> 64
DENTICATOR INTERNATIONAL, INC. TRADEMARKS AND TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
MARK REG. NO. APP. DATE FIRST USE COUNTRY
- ---- -------- --------- --------- -------
<S> <C> <C> <C> <C>
the color Green 1,953,869 2/12/90 U.S.
for Disposable
Prophylaxis
Angles
the shape of 1,793,277 2/12/90 U.S.
Disposable
Prophylaxis Angle
Handle
The Denticator 358,971 4/11/38 U.S.
Denticator 1,071,240 9/19/75 U.S.
Near Perfect 1,139,435 7/30/79 U.S.
Pick-A-Dent 699,916 4/2/59 U.S.
Plaque-Away 1,565,351 1/22/88 U.S.
Spirex 1,021,451 12/6/74 U.S.
Tip-A-Dent 796,812 12/8/64 U.S.
Tuftee 716,125 7/26/60 U.S.
Water-Dent 1,660,701 3/12/90 U.S.
</TABLE>
<PAGE> 65
EXHIBIT 12.1.1
DOCUMENTS AND REQUIREMENTS LIST
<PAGE> 66
DOCUMENTS AND REQUIREMENTS LIST
Young Innovations, Inc., Young Dental Manufacturing Company,
Lorvic Holdings, Inc., The Lorvic Corporation, and Denticator,
International, Inc. (collectively, "Borrower")
$18,500,000 Senior Secured Financing
Provided by
The Boatmen's National Bank of St. Louis ("Lender")
KEY
BNB = THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
BOR = BORROWERS AND/OR THEIR COUNSEL
LRF = LEWIS, RICE & FINGERSH, L.C. (COUNSEL FOR BNB)
SELLER = DENTICATOR INTERNATIONAL, INC., a California corporation
TITLE = COMMONWEALTH LAND TITLE INSURANCE COMPANY
- --------------------------------------------------------------------------------
DOCUMENT OR REQUIREMENT
- --------------------------------------------------------------------------------
1. Loan Agreement to be executed by Borrowers and Lender
- --------------------------------------------------------------------------------
2. Exhibits to Loan Agreement
- --------------------------------------------------------------------------------
a. EXHIBIT 10.1.2 - Real Property Collateral
- --------------------------------------------------------------------------------
b. EXHIBIT 10.1.3 - Intellectual Property
- --------------------------------------------------------------------------------
c. EXHIBIT 12.1.1 - Documents and Requirements List
- --------------------------------------------------------------------------------
d. EXHIBIT 13 - Disclosure Schedule
- --------------------------------------------------------------------------------
e. EXHIBIT 13.34 - Real Estate Owned/Leased By
Borrower/Leased From Borrower
- --------------------------------------------------------------------------------
f. EXHIBIT 13.36 - Chief Place Of Business; Locations Of
Collateral
- --------------------------------------------------------------------------------
g. EXHIBIT 13.40 - Subsidiaries and Affiliates
- --------------------------------------------------------------------------------
h. EXHIBIT 13.41 - Bank Accounts and Lockboxes
- --------------------------------------------------------------------------------
i. EXHIBIT 15.14 - Compliance Certificate
- --------------------------------------------------------------------------------
3. Promissory Notes to be executed by Borrowers:
- --------------------------------------------------------------------------------
<PAGE> 67
- --------------------------------------------------------------------------------
a. $12,000,000 Term Loan Note
- --------------------------------------------------------------------------------
b. $ 6,500,000 Revolving Line of Credit Note
- --------------------------------------------------------------------------------
4. Stock Pledge Agreements to be executed by all of the
owners of the capital stock of each of:
- --------------------------------------------------------------------------------
a. Young Innovations, Inc. (2 G. Richmond Trusts)
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
5. Stock Certificates together with Stock Powers executed in
blank by each owner of all shares with respect to the
following:
- --------------------------------------------------------------------------------
a. Young Innovations, Inc.
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
6. Security Agreement covering all the Personal Property
Collateral of each Borrower, executed by each Borrower.
- --------------------------------------------------------------------------------
a. Young Innovations, Inc.
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
7. UCC-1 Financing Statements executed by each Borrower as
"Debtor" in favor of Lender as "Secured Party" with
respect to the personal property collateral and filed with
each of the following:
- --------------------------------------------------------------------------------
a. Young Innovations, Inc.
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) St. Louis County
- --------------------------------------------------------------------------------
(iii) St. Louis County Fixture
- --------------------------------------------------------------------------------
(iv) California Secretary of State
- --------------------------------------------------------------------------------
ii
<PAGE> 68
- --------------------------------------------------------------------------------
(v) Sacramento County, California
- --------------------------------------------------------------------------------
(vi) Sacramento County, California Fixture
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) St. Louis County
- --------------------------------------------------------------------------------
(iii) St. Louis County Fixture
- --------------------------------------------------------------------------------
(iv) Texas Secretary of State
- --------------------------------------------------------------------------------
(v) Cameron County, Texas
- --------------------------------------------------------------------------------
(vi) Cameron County, Texas Fixture
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) St. Louis County
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) St. Louis County
- --------------------------------------------------------------------------------
(iii) St. Louis County Fixture
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) St. Louis County
- --------------------------------------------------------------------------------
(iii) California Secretary of State
- --------------------------------------------------------------------------------
(iv) Sacramento County, California
- --------------------------------------------------------------------------------
(v) Sacramento County, California Fixture
- --------------------------------------------------------------------------------
8. Deed of Trust covering all of the Real Property Collateral
executed by each of the following:
- --------------------------------------------------------------------------------
a. Young Dental Manufacturing Company with respect to:
- --------------------------------------------------------------------------------
(i) 13705 Shoreline, Earth City, Missouri
- --------------------------------------------------------------------------------
(ii) 2418 Northline Industrial, St. Louis, Missouri
- --------------------------------------------------------------------------------
(iii) 4401 Paredes, Brownsville,
Texas
- --------------------------------------------------------------------------------
b. The Lorvic Corporation with respect to:
- --------------------------------------------------------------------------------
(i) 8810 Frost Avenue, St. Louis, Missouri
- --------------------------------------------------------------------------------
iii
<PAGE> 69
- --------------------------------------------------------------------------------
9. Landlord Waiver, Subordination and Estoppel with respect
to Rancho Cordova, California
- --------------------------------------------------------------------------------
10. Assignment of Sale Contract (2418 Northline Ind.; Maryland
Heights Facility)
- --------------------------------------------------------------------------------
11. Copy of Sale Contract (Maryland Heights Facility)
- --------------------------------------------------------------------------------
12. Assignment of General Contractor's Contract, Plans &
Specifications
- --------------------------------------------------------------------------------
13. Collateral Assignment of Trademark and Tradename by each
of:
- --------------------------------------------------------------------------------
a. Young Innovations, Inc.
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
14. Collateral Assignment of Patents executed by each of the
Borrowers
- --------------------------------------------------------------------------------
a. Young Dental Manufacturing Co.
- --------------------------------------------------------------------------------
b. Young Innovations, Inc.
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
15. Certificate of Seller with respect to satisfaction of all
conditions precedent to Acquisition Agreement
- --------------------------------------------------------------------------------
16. Copies of all Acquisition documents, including schedules
- --------------------------------------------------------------------------------
17. Disbursement Direction Letter executed by Borrowers in
favor of Lender
- --------------------------------------------------------------------------------
18. Closing Statement with respect to Acquisition of
Denticator International assets
- --------------------------------------------------------------------------------
19. Standard Lockbox Agreement to be executed by each of
Borrowers
- --------------------------------------------------------------------------------
20. Assignment of Cash Collateral Account by each Borrower
- --------------------------------------------------------------------------------
21. Bailee Letters from each of:
- --------------------------------------------------------------------------------
a. Davidson Air Freight
- --------------------------------------------------------------------------------
b. Anderson Moulds, Inc.
- --------------------------------------------------------------------------------
iv
<PAGE> 70
<TABLE>
<S><C>
- ---------------------------------------------------------------------------------------------------------------
c. CAPS
- ---------------------------------------------------------------------------------------------------------------
d. Northwest Bottling
- ---------------------------------------------------------------------------------------------------------------
22. Assignment of Government Contracts; together with Notices
to DO & CO
- ---------------------------------------------------------------------------------------------------------------
23. Assignment of Rate Protection Agreement
- ---------------------------------------------------------------------------------------------------------------
24. Opinion of Counsel for Borrower covering the subject
matter described in the Opinion Specification attachment
hereto
- ---------------------------------------------------------------------------------------------------------------
25. Payoff Letter from United Missouri Bank
- ---------------------------------------------------------------------------------------------------------------
26. Release of existing liens on Real Property Collateral
- ---------------------------------------------------------------------------------------------------------------
a. Young Dental Manufacturing Company with respect to:
- ---------------------------------------------------------------------------------------------------------------
(i) 13705 Shoreline, Earth City, Missouri - UMB
- ---------------------------------------------------------------------------------------------------------------
(ii) 2418 Northline Industrial, St. Louis, Missouri -
UMB
- ---------------------------------------------------------------------------------------------------------------
(iii) 4401 Paredes, Brownsville,
Texas - UMB
- ---------------------------------------------------------------------------------------------------------------
b. The Lorvic Corporation with respect to:
- ---------------------------------------------------------------------------------------------------------------
(i) 8810 Frost Avenue, St. Louis, Missouri - UMB
- ---------------------------------------------------------------------------------------------------------------
27. Mortgagee's Title Insurance Commitment meeting the
requirement of the Mortgagee's Title Insurance
Specification attachment hereto
- ---------------------------------------------------------------------------------------------------------------
a. Young Dental Manufacturing Company with respect to:
- ---------------------------------------------------------------------------------------------------------------
(i) 13705 Shoreline, Earth City, Missouri
- ---------------------------------------------------------------------------------------------------------------
(ii) 2418 Northline Industrial, St. Louis, Missouri
- ---------------------------------------------------------------------------------------------------------------
(iii) 4401 Paredes, Brownsville,
Texas
- ---------------------------------------------------------------------------------------------------------------
b. The Lorvic Corporation with respect to:
- ---------------------------------------------------------------------------------------------------------------
(i) 8810 Frost Avenue, St. Louis, Missouri
- ---------------------------------------------------------------------------------------------------------------
c. Denticator California Facility
- ---------------------------------------------------------------------------------------------------------------
28. Copies of documentation supporting Permitted Exceptions in
Mortgagee's Title Insurance Commitment
- ---------------------------------------------------------------------------------------------------------------
a. Young Dental Manufacturing Company with respect to:
- ---------------------------------------------------------------------------------------------------------------
(i) 13705 Shoreline, Earth City, Missouri
- ---------------------------------------------------------------------------------------------------------------
(ii) 2418 Northline Industrial, St. Louis, Missouri
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
v
<PAGE> 71
<TABLE>
<S><C>
- --------------------------------------------------------------------------------------------------------------------
(iii) 4401 Paredes, Brownsville,
Texas
- --------------------------------------------------------------------------------------------------------------------
b. The Lorvic Corporation with respect to:
- --------------------------------------------------------------------------------------------------------------------
(i) 8810 Frost Avenue, St. Louis, Missouri
- --------------------------------------------------------------------------------------------------------------------
29. Other documents required by Title Company for issuance of
Mortgagee's Title Insurance Policy meeting the
requirements of the Title Insurance Specification
attachment hereto
- --------------------------------------------------------------------------------------------------------------------
30. Closing and recording instruction letter to Title Company
- --------------------------------------------------------------------------------------------------------------------
31. Hazardous Waste Documentation as required by Loan
Agreement
- --------------------------------------------------------------------------------------------------------------------
32. "No Flood Hazard" Certification
- --------------------------------------------------------------------------------------------------------------------
a. Young Dental Manufacturing Company with respect to:
- --------------------------------------------------------------------------------------------------------------------
(i) 13705 Shoreline, Earth City, Missouri
- --------------------------------------------------------------------------------------------------------------------
(ii) 2418 Northline Industrial, St. Louis, Missouri
- --------------------------------------------------------------------------------------------------------------------
(iii) 4401 Paredes, Brownsville, Texas
- --------------------------------------------------------------------------------------------------------------------
b. The Lorvic Corporation with respect to:
- --------------------------------------------------------------------------------------------------------------------
(i) 8810 Frost Avenue, St. Louis, Missouri
- --------------------------------------------------------------------------------------------------------------------
33. Copies of all leases affecting each parcel of the Real
Property Collateral
- --------------------------------------------------------------------------------------------------------------------
34. UCC Termination Statements covering existing UCC-1 filings
that are not Permitted Security Interests:
- --------------------------------------------------------------------------------------------------------------------
a. CA Secretary of State - Bank of California - Release
of Denticator International, Inc., #9516560297, filed
6/12/95
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
vi
<PAGE> 72
- --------------------------------------------------------------------------------
b. UMB (Release of Young Dental Manufacturing Company, The Lorvic
Corporation and Lorvic Holdings, Inc.)
i. TX Secretary of State, #0090793, filed 5/8/95;
#0090794, filed 5/8/95; #0090795, filed 5/8/95
ii. MO Secretary of State, #2538886, filed 5/10/95;
#2538887, filed 5/10/95; #2538888, filed 5/10/95;
#2538889, filed 5/10/95; #2538890, filed 5/10/95;
#2538891, filed 5/10/95; #2538892, filed 5/10/95;
#2538893, filed 5/10/95; and #2538894, filed 5/10/95
iii. St. Louis County Recorder of Deeds, #006056, filed
5/8/95; #006057, filed 5/8/95; #006058, filed 5/8/95;
#006053, filed 5/8/95; #006054, filed 5/8/95; #006055,
filed 5/8/95; #006050, filed 5/8/95; #006051, filed
5/8/95; and #006052, filed 5/8/95
iv. Cameron County, TX Recorder, #152077, filed 5/10/95;
#152079, filed 5/10/95; and #152078, filed 5/10/95
- --------------------------------------------------------------------------------
35. Borrowers' Secretary's Certificate (certifying resolutions, Articles or
Certificate of Incorporation, Bylaws and Incumbency of officers
authorized to execute Loan Documents)
- --------------------------------------------------------------------------------
a. Young Innovations, Inc.
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
36. Good Standing Certificate for Borrower
- --------------------------------------------------------------------------------
a. Young Innovations, Inc.
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) Texas Secretary of State
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
vii
<PAGE> 73
- --------------------------------------------------------------------------------
(i) Delaware Secretary of State
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) Delaware Secretary of State
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) California Secretary of State
- --------------------------------------------------------------------------------
37. Patent search of records of U.S. Office of Patents and
Trademarks
- --------------------------------------------------------------------------------
a. Young Innovations, Inc.
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
38. Trademark search of records of U.S. Office of Patents and
Trademarks
- --------------------------------------------------------------------------------
a. Young Innovations, Inc.
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
39. Financial Statements for Borrower
- --------------------------------------------------------------------------------
a. Young Innovations, Inc.
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
40. Copy of most recently filed tax returns for Borrower
- --------------------------------------------------------------------------------
a. Young Innovations, Inc.
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
viii
<PAGE> 74
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
e. (Denticator)
- --------------------------------------------------------------------------------
41. Binders of Insurance meeting the applicable requirements
of the Insurance Specification attachment hereto
- --------------------------------------------------------------------------------
42. Copies of declaration pages from Insurance Policies, with endorsements,
meeting the applicable requirements of the Insurance Specification
attachment hereto
- --------------------------------------------------------------------------------
43. Copies of Construction Contracts with respect to Young Dental
improvements to Earth City property.
- --------------------------------------------------------------------------------
44. Copies of all consents, licenses and approvals required for
execution of Loan Documents (if any)
- --------------------------------------------------------------------------------
45. Pre-closing UCC Searches, Tax Lien, Judgment Lien and Pending Suits
for each of the Borrowers with the Texas, California and Missouri
Secretaries of State, St. Louis City, St. Louis County, Cameron County,
Texas and Sacramento County, California
- --------------------------------------------------------------------------------
46. Post-filing UCC, Tax Lien, Judgment Lien and Pending Suit Searches:
- --------------------------------------------------------------------------------
a. Young Innovations, Inc.
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) St. Louis City
- --------------------------------------------------------------------------------
(iii) St. Louis County
- --------------------------------------------------------------------------------
(iv) Texas Secretary of State
- --------------------------------------------------------------------------------
(v) Cameron, Texas
- --------------------------------------------------------------------------------
(vi) California Secretary of State
- --------------------------------------------------------------------------------
(vii) Sacramento, California
- --------------------------------------------------------------------------------
b. Young Dental Manufacturing Company
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) St. Louis City
- --------------------------------------------------------------------------------
(iii) St. Louis County
- --------------------------------------------------------------------------------
(iv) Texas Secretary of State
- --------------------------------------------------------------------------------
(v) Cameron, Texas
- --------------------------------------------------------------------------------
(vi) California Secretary of State
- --------------------------------------------------------------------------------
(vii) Sacramento, California
- --------------------------------------------------------------------------------
c. Lorvic Holdings, Inc.
- --------------------------------------------------------------------------------
ix
<PAGE> 75
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) St. Louis City
- --------------------------------------------------------------------------------
(iii) St. Louis County
- --------------------------------------------------------------------------------
(iv) Texas Secretary of State
- --------------------------------------------------------------------------------
(v) Cameron, Texas
- --------------------------------------------------------------------------------
(vi) California Secretary of State
- --------------------------------------------------------------------------------
(vii) Sacramento, California
- --------------------------------------------------------------------------------
d. The Lorvic Corporation
- --------------------------------------------------------------------------------
(i) Missouri Secretary of State
- --------------------------------------------------------------------------------
(ii) St. Louis City
- --------------------------------------------------------------------------------
(iii) St. Louis County
- --------------------------------------------------------------------------------
(iv) Texas Secretary of State
- --------------------------------------------------------------------------------
(v) Cameron, Texas
- --------------------------------------------------------------------------------
(vi) California Secretary of State
- --------------------------------------------------------------------------------
(vii) Sacramento, California
- --------------------------------------------------------------------------------
e. Denticator
- --------------------------------------------------------------------------------
(i) California Secretary of State
- --------------------------------------------------------------------------------
(ii) Sacramento, California
- --------------------------------------------------------------------------------
47. Copy of Denticator Lease Rancho Cordova, California
- --------------------------------------------------------------------------------
48. Landlord Consent to Assignment of Lease to Denticator
Rancho Cordova, California
- --------------------------------------------------------------------------------
49. Payment to Lender of the amount of all its fees and
expenses incurred in connection with this transaction
including, without limitation, all recording and filing
fees, fees for all mortgagee title commitments, premiums
for all mortgagee title policies, fees and costs for any
and all appraisal reports and environmental reports,
audits, and studies, and all legal fees and expenses.
Lender shall also require evidence that all taxes and
assessments due and payable at the time of closing with
respect to the Real Property Collateral, and all mechanics
liens of record or known to Borrower at the time of closing
have been paid in full and have been dismissed
with prejudice.
- --------------------------------------------------------------------------------
x
<PAGE> 76
ATTACHMENT TO DOCUMENTS AND REQUIREMENTS LIST
OPINION SPECIFICATION
Legal opinion of corporate and local counsel to Borrower must be on firm
letterhead and together meet these requirements:
1. Address to The Boatmen's National Bank of St. Louis at 75 West
Lockwood, St. Louis, Missouri 63119.
2. Refer to Loan Agreement and use its definitions.
3. Give opinions on the subjects covered in all of the following example
paragraphs:
a. Borrowers are corporations duly formed, validly existing and in
good standing under the Laws of the State of their organization
and are duly qualified and authorized to do business and are in
good standing as foreign corporation in all states where the
nature and extent of the business transacted by them or the
ownership of their assets makes such qualification necessary,
except where the failure to so qualify will not have a Material
Adverse Effect.
b. Each Borrower has all requisite corporate power, authority and
legal capacity and legal rights (a) to own, lease and operate
its properties and assets and to carry on its business as now
being conducted and (b) to execute, deliver and perform the
terms of the Loan Documents to which it is a party.
c. All action on the part of each Borrower requisite for the
execution, delivery and performance of the Loan Documents to
which it is a party has been duly taken.
d. The execution, delivery and performance of the Loan Documents by
each Borrower will not (a) violate, be in conflict with, result
in the breach of, or constitute (with due notice or lapse of
time, or both) a default under (i) Borrowers' Charter Documents,
or (ii) any franchise, agreement, indenture, or other instrument
to which a Borrower is a party or by which it or any of its
property is bound or affected or (iii) any Law or other legal
requirement applicable to a Borrower, or (b) result in the
creation or imposition of a Security Interest of any nature
whatsoever upon Borrowers' property or assets other than
pursuant to the Loan Documents.
e. Each Borrower has duly executed and delivered each of the Loan
Documents to which it is a party and each such Loan Document
constitutes the legal, valid and binding
xi
<PAGE> 77
obligation of each Borrower enforceable against each Borrower
in accordance with its terms.
f. Each Person who signed any Loan Document as an officer of a
Borrower is duly authorized on behalf of a Borrower to execute,
deliver and perform such document on behalf of such Borrower and
is duly authorized to perform its obligations thereunder and to
incur the obligations and make the representations, warranties and
covenants made by it in such Loan Document.
g. Each Borrower has all certificates of authority, licenses,
permits, qualifications and documentation to own, lease and
operate its properties and to carry on its business as now being
conducted, and is in compliance with all Laws applicable to the
conduct of its business.
h. No consent, approval or other authorization of or by, or
registration or filing with, any Governmental Authority or other
Person is required in connection with the execution, delivery and
performance by Borrower of the Loan Documents to which it is a
party that has not already been obtained and a copy thereof
delivered to Lender.
i. There are no actions, proceedings or investigations pending or
threatened against any Borrower which might adversely affect the
validity or enforceability of any of the Loan Documents, the
ability of each Borrower to perform its obligations thereunder or
which might adversely affect the business, operations, revenues,
financial condition, property or business prospects of any
Borrower.
j. The use of the proceeds of the Loans will not violate Regulations
G, T, U or X of the Federal Reserve Board.
k. The Security Documents will create in favor of Lender, a legal,
valid, and enforceable Security Interest in the personal property
described therein as security for the Loan Obligations. The
Financing Statements are in proper form for recording or filing, as
the case may be, in the public offices identified on Exhibit A to
this letter and when the Financing Statements are filed in those
public offices, the Security Interests of Lender or Administrative
Agent, as the case may be, in the personal property described
therein will be perfected to the extent such Security Interests
may be perfected by filing. To our best knowledge, Borrowers have
no places of business other than as disclosed in the Loan
Agreement.
xii
<PAGE> 78
l. The Missouri Deed of Trust and the Texas Deed of Trust are in proper
form for recording and contains the terms and provisions necessary to
enable Lender, following a default under such Deed of Trust, to
exercise all of the remedies which are customarily available to a real
estate lienholder under the Laws of the States of Missouri and Texas.
Assuming the proper recording of the Deed of Trust, the Deed of Trust
will be a legal, valid and enforceable mortgage Security Interest on
the Real Property Collateral in favor of Lender, to secure all of the
Loan Obligations.
m. Upon delivery to Lender of certificates identified in each Stock Pledge
Agreement, Lender will have a valid, perfected and first priority
security interest in and to all authorized and issued shares of each
Borrower to secure payment of all of the Loan Obligations. All of the
shares of the pledged stock are duly authorized, validly issued, fully
paid and non-assessable.
n. Neither the Deed of Trust, the Assignment of Rents nor the Financing
Statements require the payment of any stamp tax or intangible tax or any
recording, filing, privilege or other similar tax, fee or charge in
connection with the execution, delivery, recordation or enforcement
thereof, or any other state or local tax, fee or charge, except for
customary recording fees in connection with the indebtedness or
transactions evidenced by the Loan Documents (other than income,
franchise, excess profits or capital stock taxes).
o. If a court were to find that the Loan Documents are governed by, or are
to be construed or interpreted in accordance with, the Laws of the
State of Texas or California, the provisions of the Loan Documents
regarding interest required to be paid by Borrower will not violate any
Law of the State of Texas or California that limits the amount of
interest that may be charged or collected on a loan of money or the
method by which such interest is computed.
p. A Texas/California court of competent jurisdiction with the issues
properly before it will honor the choice of law provisions included
in the Loan Agreement and the Security Documents except that a
Texas/California court will apply Missouri law to questions regarding
perfection by filing in the State of Texas/California of the Security
Interest granted to Lender, in Personal Property Collateral pursuant to
the Security Documents and the exercise in Texas/California of Bank's
remedies thereunder.
xiii
<PAGE> 79
4. Add appropriate exceptions limitations, all of which must be acceptable
to Lender.
5. Signature by a partner of the firm in his individual name or in the
name of the firm.
xiv
<PAGE> 80
ATTACHMENT TO DOCUMENTS AND REQUIREMENTS LIST
TITLE INSURANCE SPECIFICATION
Commitment for issuance to Boatmen's, by a title insurer acceptable to Boatmen's
("Title Company"), of a Loan Title Insurance Policy that will (i) be in 1992
ALTA Loan Policy form; (ii) insure that title to the Real Property Collateral
is vested in Borrowers as owner, (iii) delete the standard exceptions
(which can be deleted without a survey) and insure that Lender has a valid
first mortgage lien thereon subject only to Permitted Security Interests and
encumbrances applicable to the Real Property Collateral that exist on the
effective date of the Loan Agreement and without exceptions other than taxes
for the current year which are not delinquent and such other exceptions as are
approved by Agents in their sole discretion; (iv) revise tax exception to read
as follows: "Taxes for 1996 a lien not yet due and payable, and subsequent
years"; and (v) contain the following endorsements: (a) Revolving Credit/Future
Advance; (b) variable rate; (c) others as Lender deems necessary.
xv
<PAGE> 81
ATTACHMENT TO DOCUMENTS AND REQUIREMENTS LIST
INSURANCE SPECIFICATION
1. Borrower shall maintain insurance, with insurance companies licensed
to do business in the States of Missouri, Texas and California, as appropriate
(the "State") against such risks, loss, damage and liability (including
liability to third parties) and for such amounts as are customarily insured
against by other enterprises of like size and type as that of Borrower,
including, without limitation:
A. Property damage insurance, which insurance shall include
coverage for removal of debris, insuring the buildings, structures, facilities,
fixtures, machinery, equipment and other property constituting a part of the
Collateral against loss or damage to the Collateral by fire, lightning,
vandalism, malicious mischief, windstorm, hail, explosion, underground,
collapse, aircraft, vehicles and smoke and other casualties as may be included
in the standard form of "all risk" building insurance, at all times in an
amount such that the proceeds of such insurance shall be sufficient to prevent
Lenders from becoming a co-insurer of any loss under the insurance policies but
in any event in amounts equal to not less than the greater of (A) the actual
replacement value of the Collateral as determined by a qualified insurance
appraiser or insurer (selected by Borrower and approved by the Agents) not less
often than once every year expense of Borrower, and (B) the principal amount of
the Aggregate Loan. Any such insurance may provide that the insurer is not
liable to the extent of the first $250,000 with the result that Borrower is its
own insurer to the extent of $250,000 of such risks.
B. Builder's risk insurance in an amount equal to the actual
replacement value of the Collateral.
C. Earthquake insurance at all times in the amount of
$10,000,000.
D. Business interruption insurance against loss of income
arising our of damage or destruction by fire and such other hazards as may be
included in the "all risk" business insurance carried under paragraph A in an
amount at least equivalent two year's debt service, taxes and other expenses
that will not be reduced by reason of any such damage or destruction.
E. Public liability insurance in accordance with customary
insurance practices for similar operations with respect to the Collateral and
the business thereby conducted in a minimum amount of $12,000,000 which
insurance (A) will also provide coverage of Borrower's obligations to perform
its
xvi
<PAGE> 82
obligations under any agreement running to the benefit of the Lenders
(B) may be effected under overall blanket or excess coverage policies of
Borrower, and (C) shall not contain any provisions for deductible amount.
F. Excess coverage.
G. Auto liability insurance in such amount and against such
insurable hazards as Agents from time to time may reasonably require.
H. Boiler and machine property damage insurance in respect of any
steam and pressure boilers and similar apparatus located on the Collateral
from risks normally insured against under boiler and machinery policies
and in amounts and with deductibles customarily obtained for similar
business enterprises and in each case approved by Agents.
I. Workers' compensation insurance, disability benefits insurance
and such other forms of insurance which Borrower is required by law to
provide, covering loss resulting from injury, sickness, disability or
death of the employees of Borrower or of any contractor or subcontractor
performing work with respect to the Collateral. Borrower shall require
that all said contractors and subcontractors shall maintain all forms or
types of insurance with respect to their employees required by law.
J. If the Collateral is located in a HUD identified flood hazard
area, flood insurance in an amount equal to the greater of (a) the maximum
amount of federal flood insurance available or (b) the lesser of (i) the
amount of any mortgage encumbering the Collateral in favor of the Lender
for the benefit of the Lenders, and (ii) $10,000,000, with the first year
premium thereon prepaid.
K. Such other insurance in such amounts and against such insurable
hazards as Agents from time to time may reasonably require.
2. All insurance required above shall be procured and maintained in
financially sound and generally recognized responsible insurance companies
authorized to write such insurance in the State.
3. The insurance policies required above shall:
A. Designate (except in the case of Workers' Compensation
Insurance) Borrower and Lender as additional insureds as their respective
interests may appear on all public liability and Owners and Contractors
Protective Liability coverage.
xvii
<PAGE> 83
B. Provide that all insurance proceeds with respect to loss or
damage to any real property upon which Lender holds a mortgage or any tangible
personal property in which Lender holds a Security Interest (collectively, the
"Property") be endorsed and made payable to Lender and shall name Lender as
Loss Payee under the standard mortgagee clause;
C. Provide that there shall be no recourse against Lender for the
payment of premiums or commissions or (if such policies or binders provide for
the payment thereof) additional premiums or assessments;
D. Provide that in respect of the respective interests of Lender
in such policies, the insurance shall not be invalidated by any action or
inaction of Borrower, any subsidiary or any third party and shall insure Lender
for the benefit of the Lenders regardless of and any losses shall be payable
notwithstanding:
1. Any act or negligence, including any breach of any
condition, declaration or warranty contained in any such policy of
insurance by Borrower, any subsidiary or any third party;
2. The occupation, operation or use of the Property for
purposes more hazardous than permitted by the terms of the policy;
3. Any foreclosure or other proceeding or notice of sale
relating to the Property; or
4. Any change in the title to or ownership of all or any
portion of the Property.
E. Provide that such insurance shall be primary insurance without
any right of contribution from any other insurance carried by Lender to the
extent that such other insurance provides Lender, as the case may be, with
contingent and/or excess liability insurance with respect to its respective
interest as such in the Property, and shall expressly provide that all
provisions thereof, except the limits of liability (which shall be applicable
to all insureds as a group) and liability for premiums (which shall be solely a
liability of Borrower) shall operate in the same manner as if there were a
separate policy covering such insured;
F. Provide that if the insurers cancel such insurance for any
reason whatsoever, or the same is allowed to lapse or expire, or there be any
reduction in amount, or any material change is made in the coverage, such
cancellation, lapse, expiration, reduction or change shall not be effective as
to Lender until at least thirty (30) days after receipt by
xviii
<PAGE> 84
Lender, respectively, of written notice by such insurers of such
cancellation, lapse, expiration or change;
G. Waives any right of subrogation of the insurers
thereunder against any party insured under such policy, and waives any
right of the insurers of any setoff or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any
liability of any party insured under such policy.
4. Each of the policies providing the insurance required above
shall be subject to the terms and conditions set forth in this Exhibit.
xix
<PAGE> 85
EXHIBIT 13
Disclosure Schedule
13.8 No Material Proceedings - There is an appeal in process due to the loss of
a patent and theft of trade secrets trial. A
bond has been posted for a counterclaim of court
and copying costs of the defendant.
- There is an ongoing IRS action involving the
discussion of the classification of employees
versus homeworkers.
- Lorvic Holding/The Lorvic Corporation is in an
ongoing IRS action involving the amortization
of Goodwill from prior years. The estimated
amount of liability has been put into an escrow
account with Boatmen's Bank.
13.10.5 Real Property - We discovered in 1991 that the septic system in
Brownsville, TX had been contaminated from chemicals
used in our plating operation. We contracted with a
licensed firm to cleanup all hazardous waste in the
septic system and the surrounding ground with the job
completed in 1992.
- The Lorvic grounds were contaminated by radioactive
dirt when the federal government had the contaminated
dirt transported from facilities that produced nuclear
waste in the area. The surrounding area was part of a
Superfund Site and was recently cleaned up by the
federal government.
13.23 Investments - $100.000 face value Allegheny County PA Airport revenue
bonds dated 7/1/88 and due 1/1/2019 with a coupon rate
of 7.75% paid semi-annually on Jan 1 and July 1.
- $100.000 face value Lower Colorado River Authority Tax
revenue bonds dated 3/1/87 and due 1/1/2009 with a
coupon rate of 7.00% paid semi-annually on Jan 1 and
July 1.
- Cotter & Company, Inc. brokerage account and Alliance
Municipal Trust mutual fund for holding funds usually
from bond interest payments - account
#248-01432-1-9-030.
- 25 shares of Allmerica Financial Corporation - not kept
on Young's books.
13.25 Indirect Obligation - Young Innovations, Inc. has 202.095 shares of stock
owned by employees who have an agreement with the
company whereby the company may have to repurchase
the shares of the employee upon an event. The
value of this contingent liability is not reflected
on the books and was last estimated at $589.000.
13.27 & 13.28 Operating and Capital Leases - The following leases are
currently in effect:
Young Dental - Telephone system at 13705 Shoreline Ct
East dated 10/96 for a term of 60 months
at an initial rate of $960.00 per month.
Lorvic Corporation - 1992 Plymouth Voyager LE dated 3/96
for a term of 12months @ $384/mo
Denticator - Building at 11330 Sunrise Park Drive, Rancho
Cordova set to expire 5/97 @ $2100/mo.
- Office Furniture dated 6/95 for a term of
24 months $277/mo.
- Computer system dated 9/95 for a term of 36
months @ $1343/mo.
- Telephone system dated 6/95 for a term of 60
months @ $363/mo.
- Copier dated 6/95 for a term of 60 months
@ $165/mo.
- 1996 Ford Explorer dated 11/95 for a term of
48 months @ $400/mo.
- 1995 Honda Accord EX dated 8/95 for a term
of 24 months @ $428/mo.
- 1996 Dodge BR1500 dated 11/95 for a term of
48 months @ $449/mo
- 1996 Lexus ES300 dated 11/95 for a term of
48 months @ $489/mo.
- 1996 Toyota Avalon dated 11/95 for a term of
36 months @ $473/mo.
page 1
<PAGE> 86
EXHIBIT 13
Disclosure Schedule
13.35.2 Inventory - Inventory subject to licensing, patent, royalty, trademark,
trade name, or copyright agreements:
Dr. Richard Moreschini - Turbo Cup royalty
Dr. Stephen Harrel - D'Granulator royalty
Dr. Phillip Ho - Ho Bands royalty
Dr. Clifford Hutson - Vent-O-Vac royalty
Janet Brooks - Vent-O-Vac royalty
Jean McComb - Vent-O-Vac royalty
Indiana University - Magnasil Paste royalty
Denticator - Pick-A-Dent
13.35.4 Intellectual Property - Intellectual property subject to pending or
threatened challenge:
Patents on Young Dental Disposal Prophy Angle
<PAGE> 87
EXHIBIT 13.34
REAL ESTATE OWNED/LEASED BY BORROWER/LEASED FROM BORROWER
Owned by a Borrower
13705 Shoreline Court East
Earth City MO 63045
8810 Frost Avenue
St. Louis MO 63134
2418 Northline Industrial
Maryland Heights MO 63043
4401 Paredes Line Rd.,
Brownsville, Texas 78521
Leased by a Borrower
11330 Sunrise Park Drive,
Rancho Cordova, California 95742
Leased from a Borrower
a portion of 13705 Shoreline Court East,
Earth City MO 63045 by an Affiliate of Borrowers, Solutions in 3-D at a rate of
approximately $700 per month
Personal Property Leased by a Borrower
See Exhibit 13 - sections concerning leases
<PAGE> 88
EXHIBIT 13.36
CHIEF PLACE OF BUSINESS; LOCATIONS OF COLLATERAL
Chief Place of Business, Location of Books and Records, Executive Office
13705 Shoreline Court East
Earth City MO 63045
11330 Sunrise Park Drive
Rancho Cordova, California 95742
Location of Collateral
13705 Shoreline Court East
Earth City MO 63045
8810 Frost Avenue
St. Louis MO 63134
2418 Northline Industrial
Maryland Heights MO 63043
4401 Paredes Line Rd.,
Brownsville, Texas 78521
11330 Sunrise Park Drive
Rancho Cordova, California 95742
Davidson Air Freight - for Storage of Inventory
933 Baden Avenue
St. Louis, Missouri 63147
CAPS - molds, equipment and injection molded components
13080 Hollenberg Dr.
St. Louis, Missouri 63044
Anderson Moulds, Inc. - molds, equipment and injection molded components
5131 East Anita Street
Stockton, California 95202
<PAGE> 89
EXHIBIT 13.40
SUBSIDIARIES AND AFFILIATES
Young Innovations, Inc., a Missouri corporation
Young Dental Manufacturing Company, a Missouri corporation
Lorvic Holdings, Inc., a Delaware corporation
The Lorvic Corporation, a Delaware corporation
Denticator International, Inc., a Missouri corporation
Young Dental International, Inc., a Barbados corporation
George E. Richmond Trust, dated July 6, 1973, George E. Richmond, Trustee
George E. Richmond and Commerce Bank of Missouri Trust, dated January 14, 1975,
George E. Richmond and _______________, Trustee
<PAGE> 90
EXHIBIT 13.41
BANK ACCOUNTS AND LOCKBOXES
United Missouri Bank
Payroll Account - #60-7069-603-4
Operating Account - #61-0140-147-1
Zero Balance - #59-0099-131-3
Texas Bank & Trust
Operating Account - #0073407
Fleet Bank
Pegged Balance Account - #005-033-5545
<PAGE> 91
EXHIBIT 15.14
COMPLIANCE CERTIFICATE
TO: THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
This Compliance Certificate is furnished pursuant to that certain Loan
Agreement executed _______________, 1996 (as the same may be amended, restated
or otherwise modified from time to time, the "Loan Agreement"), among Young
Innovations, Inc., Young Dental Manufacturing Company, Lorvic Holdings, Inc.,
The Lorvic Corporation and Denticator International, Inc. (collectively,
"Borrower") and The Boatmen's National Bank of St. Louis. Unless otherwise
defined herein, capitalized terms used in this Compliance Certificate have the
meanings defined in the Loan Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected _______________________ of the Borrowers.
2. I have reviewed the terms of the Loan Agreement and the Loan
Documents and I have made, or have caused to be made under my
supervision, a review of the transactions and conditions of Borrowers
during the accounting period covered by the attached
Financial Statements, prepared on a consolidated basis.
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or event which
constitutes a Default or Event of Default as of the date of this
Compliance Certificate; and to my knowledge all of the
representations and warranties of Borrower contained in the Loan
Agreement and other Loan Documents are true and correct.
4. [Use for annual financial statements: Schedule I attached hereto
contains the Financial Statements for Borrower for the fiscal year
ended ______, which are complete and correct in all material respects
and have been prepared in accordance with GAAP applied consistently
throughout the period and with prior periods (except as
disclosed therein).]
[Use for monthly financial statements: Schedule I attached hereto
contains the Financial Statements for Borrower for the fiscal month
ended _____________, which are complete and correct in all material
respects (subject to normal year-end audit adjustments) and have been
prepared in accordance with GAAP applied consistently throughout the
period and with prior periods (except as disclosed therein).]
5. Borrower is in compliance with all of the covenants in the Loan
Agreement, including the financial covenants in Section 17, Schedule
II attached hereto contains calculations based on Borrower's
financial statements and other financial records that show Borrower's
compliance with such financial covenants. The calculations and the
data upon which they are based are believed by me to be complete
and correct.
This Compliance Certificate, together with the Schedules hereto, is executed
and delivered this _____ day of ____________.
By:
-----------------------------------
Print Name:
---------------------------
Title:
--------------------------------
<PAGE> 92
SCHEDULE I TO COMPLIANCE CERTIFICATE
See current Financial Statements.
<PAGE> 93
SCHEDULE II TO COMPLIANCE CERTIFICATE
SECTION 17 FINANCIAL MEASUREMENTS
The following calculations are made in accordance with the provisions of the
Agreement and are based on the fiscal quarter ended ________________:
SECTION 17 FINANCIAL MEASUREMENTS
I. Capital Expenditures (Section 17.1)
A. Period: Fiscal year ended December 31, 199_.
B. Maximum Capital Expenditures during such fiscal year
permitted under Section 17.1 $1,100,000
(not to exceed $2,600,000 including
Earth City expansion prior to 12/31/97)
C. Capital Expenditures during such period $______________
II. Capital Leases (Section 17.2)
A. Capital Leases entered into since the Effective Date
of the Loan Agreement:
[List Leases and amount of leases]
B. Aggregate cost of capital assets leased under such
leases if such capital assets were purchased $______________
C. Maximum Capital Expenditure plus capital lease
obligations during such period permitted under
Section 17.1 and 17.2 See I.B. above
D. Sum of II.B. plus I.C. $______________
III. Operating Leases (Section 17.3)
A. Operating Leases entered into since the Effective Date
of the Loan Agreement:
[List Leases and amount of leases]
B. Aggregate operating lease payments per Fiscal Year $______________
C. Maximum Operating Lease Expenditure during such period permitted
under Section 17.3.
<PAGE> 94
<TABLE>
<S> <C> <C>
IV. MINIMUM EBITDA (SECTION 17.4)
-----------------------------
A. Net income, after provision for income taxes for
the twelve fiscal Months beginning ________________
and ending _____________, calculated in
accordance with GAAP (prior to any LIFO adjustment) $________________
B. Deductions:
a. gain or loss arising from the sale
of any capital asset $________________
b. gain arising from any write-up in the
book value of any asset $________________
c. gain arising from extraordinary items, as determined
in accordance with GAAP, or from any other
non-recurring transaction $________________
C. Sum of IV.B.a through IV.B.c. to the extent such items were
included in IV.A. $_________________
D. Additions:
a. interest expense $__________________
b. provisions for taxes $__________________
c. depreciation and amortization $__________________
d. loss arising from extraordinary items, as determined
in accordance with GAAP, or from any other
non-recurring transaction $__________________
e. non-cash portion of stock bonus paid to J. Mendoza $__________________
E. Sum or IV.D.a through IV.D.e. to the extent such items
were deducted from IV.A. $__________________
F. EBITDA (IV.A minus IV.C. plus IV.E.) $__________________
G. Minimum EBITDA for the period specified by Section 17.4 $__________________
V. FIXED CHARGE COVERAGE (SECTION 17.5)
------------------------------------
A. EBITDA (per IV.F.) $__________________
B.
a. Sum of all interest payments which Borrower
was required to make on Indebtedness for money
borrowed during the twelve fiscal months beginning
_______________ and ended _______________. $__________________
</TABLE>
<PAGE> 95
<TABLE>
<S> <C>
b. Sum of all principal payments which Borrower
was required to make on long term Indebtedness
during the twelve fiscal months beginning
____________ and ended ____________. $___________
c. Expenditures in connection with capital leases
during the twelve fiscal months beginning
____________ and ended ____________. $___________
d. Capital Expenditures during the twelve fiscal
months beginning ____________ and ended ____________. $___________
e. federal, state and local income tax expense $___________
C. Sum of IV.B.a through IV.B.e. $___________
D. Ratio of IV.A. to IV.C. ___________
E. Minimum ratio permitted by
Section 17.5 1.10 to 1.0
VI. MINIMUM INTEREST COVERAGE (SECTION 17.6)
A. EBITDA (per I.V. F.) $___________
B. Deductions:
a. depreciation and amortization $___________
b. loss arising from extraordinary items, as determined
in accordance with GAAP, or from any other non-recurring
transaction $___________
c. non-cash portion of stock bonus paid to J. Mendoza $___________
C. VI.A less VI.B $___________
D. Interest Expense for the prior twelve fiscal months $___________
E. Ratio of VI.C. to VI.D. ___________
F. Minimum ratio permitted by
Section 17.6 4.50 to 1.0
</TABLE>
<PAGE> 96
VII. MINIMUM NET WORTH (SECTION 17.7)
(Calculated for the twelve fiscal months ended__________.)
A. Book value of all assets of Borrower $____________
B. Liabilities, including reserves for contingencies
and other potential liabilities $____________
E. Net Worth (VII.A minus VII.B) $____________
F. Minimum Net Worth required by Section 17.7 $____________
<PAGE> 97
AMENDMENT NO. 1
TO
LOAN AGREEMENT
DATED JULY 22, 1996
BY AND BETWEEN
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
AND
YOUNG INNOVATIONS, INC., YOUNG DENTAL MANUFACTURING COMPANY, LORVIC
HOLDINGS, INC., THE LORVIC CORPORATION AND DENTICATOR INTERNATIONAL, INC.
In consideration of their mutual agreements herein and for other sufficient
consideration, the receipt of which is hereby acknowledged, YOUNG INNOVATIONS,
INC., YOUNG DENTAL MANUFACTURING COMPANY, LORVIC HOLDINGS, INC., THE LORVIC
CORPORATION AND DENTICATOR INTERNATIONAL, INC. (collectively, "Borrowers") and
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS ("Lender") agree as follows:
1. DEFINITIONS; SECTION REFERENCES. The term "Loan Agreement" means the
Loan Agreement dated July 22, 1996 between Borrowers and Lender. The term
"this Amendment" means this Amendment. Capitalized terms used and not
otherwise defined herein have the meanings defined in the Loan Agreement.
2. EFFECTIVE DATE OF THIS AGREEMENT. This Amendment is effective
April 1, 1997.
3. AMENDMENTS TO LOAN AGREEMENT. Subject to satisfaction of the
conditions in Section 4 of this Amendment, the Loan Agreement is amended as
follows:
3.1. INCREASE OF REVOLVING COMMITMENT. Section 2.1.2 of the
Loan Agreement is hereby deleted in its entirety and the following is
substituted therefor:
2.1.2. DEFINITION OF REVOLVING COMMITMENT. The
"Revolving Commitment" on any date shall be $7,000,000, or such
lesser Dollar amount to which it may have been reduced as
provided herein.
4. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. The Amendment shall not
become effective, and the Loan Agreement shall continue in full force and
effect as it existed in the absence of this Amendment unless Borrower shall
deliver to Lender the following, all in form and substance satisfactory to
Lender:
4.1 CERTIFICATE OF SECRETARY OF BORROWER. A Certificate of the
Secretary of each Borrower certifying (i) that the articles or certificate of
incorporation and bylaws of each Borrower previously certified to Lender in
connection with the execution of the Loan Agreement have not been amended,
(ii) that resolutions adopted by the Board of Directors of Borrowers
authorizing the execution, delivery and performance of this Amendment by
Borrowers, are attached to the certificate and remain in full force and effect,
and (iii) the names, titles, and true signatures of the incumbent corporate
officers who are authorized to sign this Amendment or attest signatures or
seals on this Amendment on behalf of each Borrower.
<PAGE> 98
4.2. ALLONGE. An Allonge to the Revolving Note increasing the available
sum under the Revolving Note is $7,000,000.
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS. Borrowers hereby represent
and a warrant to Lender that (i) execution of this Amendment has been duly
authorized by all requisite action of Borrowers; (ii) no consents are necessary
from any third parties for each Borrower's execution, delivery or performance
of this Amendment, (iii) this Amendment and the Loan Agreement as amended
hereby constitute the legal, valid and binding obligations of Borrowers
enforceable against each Borrower in accordance with their terms, except to the
extent that the enforceability thereof against a Borrower may be limited by
bankruptcy, insolvency or other laws affecting the enforceability of creditors
rights generally or by equity principles of general application, (iv) except as
disclosed on the disclosure schedule attached hereto as Exhibit A and the
disclosure schedule attached to the Loan Agreement, all of the representations
and warranties contained in Section 13 of the Loan Agreement, as amended
hereby, are true and correct in all material respects with the same force and
effect as if made on and as of the effective date of this Amendment, except
that with respect to the representations and warranties made regarding
Financial Statements of the Loan Agreement as amended hereby, such
representations and warranties are hereby made with respect to the most recent
Financial Statements delivered by Borrower to Lender, (v) there exists no
Default which is continuing and no Event or Default has occurred and (vi) no
Default or Event Default will occur immediately or with the passage of time
or giving of notice as a consequence of this Amendment becoming effective.
6. EFFECT OF AMENDMENT. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of Lender
under the Loan Agreement or any of the other Loan Documents, nor constitute a
waiver of any provision of the Loan Agreement, any of the other Loan Documents
or any existing Default or Event of Default, nor act as a release or
subordination of the Security Interests of Lender under the Security Documents.
Each reference in the Loan Agreement to "the Agreement", "hereunder", "hereof",
"herein", or words of like import, shall be read as referring to the Loan
Agreement as amended hereby.
7. REAFFIRMATION. Borrowers hereby acknowledge and confirm that (i) except
as expressly amended hereby the Loan Agreement and other Loan Documents remain
in full force and effect. (ii) the Loan Agreement, as amended hereby, is in
full force and effect, (iii) no Borrower has defenses to its obligations under
the Loan Agreement and the other Loan Documents, (iv) the Security Interests of
Lender under the Security Documents continue in full force and effect and have
the same priority as before this Amendment, and (v) no Borrower has a claim
against Lender arising from or in connection with the Loan Agreement or the
other Loan Documents.
8. COUNTERPARTS. This Amendment may be executed by the parties hereto on any
number of separate counterparts, and all such counterparts taken together
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Amendment to produce or account for more than one
counterpart signed by the party to be charged.
9. COUNTERPART FACSIMILE EXECUTION. This Amendment, or a signature page
thereto intended to be attached to a copy of this Amendment, signed and
transmitted by facsimile machine or telecopier shall be deemed and treated as
an original document. The signature of
2
<PAGE> 99
any person thereon, for purposes hereof, is to be considered as an original
signature, and the document transmitted is to be considered to have the same
binding effect as an original signature on an original document. At the request
of any party hereto, any facsimile or telecopy document is to be re-executed in
original form by the Persons who executed the facsimile or telecopy document.
No party hereto may raise the use of a facsimile machine or telecopier or the
fact that any signature was transmitted through the use of a facsimile or
telecopier machine as a defense to the enforcement of this Amendment.
10. GOVERNING LAW; NO THIRD PARTY RIGHTS. This Amendment and the rights and
obligations of the parties hereunder shall be governed by and construed and
interpreted in accordance with the internal laws of the State of Missouri
applicable to contracts made and to be performed wholly within such state,
without regard to choice or conflict of laws provisions.
11. INCORPORATION BY REFERENCE. Lender and Borrowers hereby agree that all
of the terms of the Loan Documents are incorporated in and made a part of this
Amendment by this reference.
12. STATUTORY NOTICE. The following notice is given pursuant to Section
432.045 of the Missouri Revised Statutes; nothing contained in such notice will
be deemed to limit or modify the terms of the Loan Documents or this Amendment:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND
OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S))
AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS
WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT
BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
3
<PAGE> 100
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by appropriate duly authorized officers as of the effective date first
above written.
YOUNG INNOVATIONS, INC. THE BOATMEN'S NATIONAL BANK OF
by its PRESIDENT ST. LOUIS
---------------- by its Vice President
/s/ George E. Richmond /s/ Timothy J. Halls
- ----------------------- ----------------------------
Name: Timothy J. Halls
Name: George E. Richmond
------------------
Notice Address:
YOUNG DENTAL MANUFACTURING 75 West Lockwood
COMPANY Webster Groves, Missouri 63119
by its President FAX # (314) 284-2070
------------------- TEL # (314) 284-2050
/s/ George E. Richmond
- --------------------------
Name: George E. Richmond
-------------------
LORVIC HOLDINGS, INC.
by its Secretary
-------------------
/s/ Michael W. Eggleston
- --------------------------
Name: Michael W. Eggleston
--------------------
THE LORVIC CORPORATION
by its Secretary
-------------------
/s/ Michael W. Eggleston
- --------------------------
Name: Michael W. Eggleston
--------------------
DENTICATOR INTERNATIONAL, INC.
by its Secretary
-------------------
/s/ Michael W. Eggleston
- ---------------------------
Name: Michael W. Eggleston
---------------------
Notice Address for all Borrowers:
13705 Shoreline Ct. East
Earth City, Missouri 63045
FAX # 314-344-0021
TEL # 314-344-0010
4
<PAGE> 101
EXHIBIT A
SUPPLEMENTAL DISCLOSURE SCHEDULE
NONE, if no items listed below:
5
<PAGE> 1
EXHIBIT 10.13
================================================================================
ASSET PURCHASE AGREEMENT
among
DENTICATOR INTERNATIONAL, INC.
BIO DENTAL TECHNOLOGIES CORP.
JOSE L. MENDOZA
and
YOUNG INNOVATIONS, INC.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I-SALE OF ASSETS AND ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Assets Being Sold (the "Purchased Assets") . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Real Property Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Furniture, Machinery and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(c) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(d) Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(e) Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(f) "Denticator" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(g) Governmental Licenses, Permits and Authorizations . . . . . . . . . . . . . . . . . . . . . . . . 2
(h) Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(i) Deposits, Credits and Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(j) Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(k) Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(l) Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.02 Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Uncompleted Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) Accrued Employee Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Other Accrued Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(e) Amounts Owing to Bio Dental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.03 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.04 Absolute Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.05 Other Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.06 Bulk Sales Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II-RELATED AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.01 Assignment and Release Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.02 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.03 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III-REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.01 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.02 Authorization, Compliance with Other Instruments and Law . . . . . . . . . . . . . . . . . . . . . . . . 5
3.03 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.04 Absence of Certain Changes and Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.05 Operation of the Business in the Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.06 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.07 Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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3.08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.09 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.10 Licenses, Permits and Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.11 Title to Purchased Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.12 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.13 Employee Benefit Plans; Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.14 Litigation and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.15 No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.16 Sufficiency of the Purchased Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.17 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.19 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.20 Real Property Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.21 Condition of Purchased Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.22 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.23 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV-REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.01 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.02 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V-THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.01 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.02 Instruments of Transfer, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.03 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.04 Intellectual Property Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.05 Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VI-CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.01 Conditions to Obligations of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.02 Conditions to Obligations of Seller and Bio Dental . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII-EMPLOYMENT WITH BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.01 Employment with Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.02 Accrued Vacation and Sick Pay Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.03 Workers' Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.04 Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VIII-POST-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.01 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.02 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.03 Commissions and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.04 Sales, Transfer and Use Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.05 Nondisclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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8.06 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) By Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) By Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.07 Defense of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.08 Set-Off of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.09 Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.10 Maintenance of Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX-TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.01 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.02 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE X-MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.01 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.02 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.03 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.04 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.05 Venue for Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.06 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.07 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) To Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) To Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.08 Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.09 Waiver of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.10 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.11 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.12 Termination of Letter of Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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Page/Section
Schedule Description Reference
- -------- ----------- ------------
1.01(a) Real Property Leases 1 [Section 1.01(a)]
1.01(b) Furniture, Machinery 1 [Section 1.01(b)]
and Equipment
1.01(c) Inventory 1 [Section 1.01(c)]
1.01(d) Material Contracts 2 [Section 1.01(d)]
1.01(g) Governmental Licenses,
Permits and Authorizations 2 [Section 1.01(g)]
1.01(h) Accounts and Notes Receivable 2 [Section 1.01(h)]
1.01(i) Deposits, Credits and Prepaid
Expenses 2 [Section 1.01(i)]
1.01(j) Intangible Assets 2 [Section 1.01(j)]
1.02(a) Accounts Payable 3 [Section 1.02(a)]
1.02(c) Accrued Employee Expenses 3 [Section 1.02(c)]
1.02(d) Other Accrued Expenses 3 [Section 1.02(d)]
1.02(e) Amounts Owing to Bio Dental 3 [Section 1.02(e)]
1.05 Other Contracts 4 [Section 1.05]
3.01 Jurisdictions 5 [Section 3.01]
3.04 Changes and Events 6 [Section 3.04]
3.09 Customers 8 [Section 3.09]
3.10 Licenses, Permits and
Authorizations 8 [Section 3.10]
3.11 Title Exceptions 8 [Section 3.11]
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3.13 Employee Benefit Plans;
Labor Matters 9 [Section 3.13]
3.14 Litigation 10 [Section 3.14]
3.16 Sufficiency of Purchased Assets 10 [Section 3.16]
3.18 Insurance 10 [Section 3.18]
3.22 Environmental Matters 11 [Section 3.22]
7.01 Employees of Seller 19 [Section 7.01]
8.10 Insurance Policies 23 [Section 8.10]
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Page/Section
Exhibit Description Reference
- ------- ----------- ------------
A Assignment and Release Agreement 4 [Section 2.01]
B Form of Employment Agreement 5 [Section 2.02]
C Escrow Agreement 5 [Section 2.03]
D March 31, 1996
Balance Sheet 6 [Section 3.03]
E Year Ended March 31, 1996
Statement of Operations 6 [Section 3.03]
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<PAGE> 8
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made as of July 22, 1996 among DENTICATOR INTERNATIONAL,
INC., a California corporation ("Seller"), BIO DENTAL TECHNOLOGIES CORP., a
California corporation ("Bio Dental"), JOSE L. MENDOZA ("Mendoza") and YOUNG
INNOVATIONS, INC., a Missouri corporation ("Buyer").
SUMMARY OF TRANSACTION
Seller wishes to sell and Buyer wishes to purchase the business and
substantially all of the assets of Seller, subject to certain of the
liabilities of Seller.
To effect such transaction and in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE OF ASSETS AND ASSUMPTION OF LIABILITIES
1.01 Assets Being Sold (the "Purchased Assets"). Seller agrees to sell and
Buyer agrees to purchase, at the Closing (as defined in Section 5.01 hereof),
all of Seller's assets as they shall exist on the Closing Date (as defined in
Section 5.01 hereof) including without limitation the following assets:
(a) Real Property Leases. All of the right, title and interest of Seller
in, to and under the lease (the "Real Property Lease") covering Seller's
leased premises in Rancho Cordova, California, all of which are listed in
Schedule 1.01(a) hereto;
(b) Furniture, Machinery and Equipment. All the furniture, machinery,
spare parts, transportation vehicles, plant, equipment (including, without
limitation, molds), fixtures, leasehold improvements and other fixed assets
of Seller, substantially all of which are listed in Schedule 1.01(b) hereto;
(c) Inventories. All inventories of Seller of any kind, including, but
not limited to, work-in-process, component parts, finished goods, supplies
and raw materials substantially all of which as of March 31, 1996 are listed
on Schedule 1.01(c) hereto; such schedule updated to the Closing Date will be
provided as soon as practicable after Closing;
(d) Contracts and Commitments. Subject to the provisions of Section 1.05
hereof, all of the right, title and interest of Seller in, to and under all
pending and executory contracts, agreements, licenses, leases, commitments
and understandings, whether oral or written, of Seller, including, without
limitation, those with respect to (w) customer orders, (x) confidentiality
and non-disclosure agreements, including without limitation those with
respect to information relating to the business of Seller supplied to
potential purchasers of Seller, (y) the purchase of materials, supplies and
services, and
<PAGE> 9
(z) those Material Contracts as defined in Section 3.07, all of which are
listed in Schedule 1.01(d) hereto;
(e) Books and Records. All books and records material to operating
Seller, including all sales and credit records, advertising and sales
material, literature, customer lists, marketing information, financial
records, and personnel and payroll records of Seller;
(f) "Denticator". All rights to use the name "Denticator" and any
variations thereof;
(g) Governmental Licenses, Permits and Authorizations. To the extent
assignable, all governmental licenses, permits and authorizations, if any,
related to the business of Seller, a complete list of which are set forth in
Schedule 1.01(g) hereto;
(h) Accounts and Notes Receivable. All of Seller's accounts receivable
and notes receivable all of which as of March 31, 1996 are listed in Schedule
1.01(h) hereto (the "Purchased Receivables"); such schedule updated to the
Closing Date will be provided as soon as practicable after Closing;
(i) Deposits, Credits and Prepaid Expenses. All of Seller's deposits,
credits, prepaid expenses and other current assets as at the Closing Date,
all of which are listed in Schedule 1.01(i) hereto; such schedule updated to
the Closing Date will be provided as soon as practicable after closing;
(j) Intangible Assets. The business of Seller as a going concern and the
goodwill thereof and all intangible and intellectual property used in
connection with the business of Seller, including without limitation,
patents, trademarks, copyrighted works, tradenames, software and customer
information and lists substantially all of which are listed in Schedule
1.01(j) hereto;
(k) Cash. Cash and cash equivalent items including, without limitation,
certificates of deposit, time deposits and marketable securities; and
(l) Other Assets. All other assets, properties, rights and businesses of
every kind and nature owned or held by Seller or in which Seller has an
interest on the Closing Date which are used in or related to the business of
Seller, known or unknown, fixed or unfixed, choate or inchoate, accrued,
absolute, contingent or otherwise, whether or not specifically referred to in
this Agreement.
1.02 Assumed Liabilities. Buyer agrees to assume, perform and discharge the
following of Seller's liabilities (the "Assumed Liabilities"):
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<PAGE> 10
(a) Accounts Payable. All of Seller's accounts payable as at the Closing
Date, all of which as of March 31, 1996 are listed on Schedule 1.02(a)
hereto; such schedule updated to the Closing Date will be provided as soon as
practicable after Closing;
(b) Uncompleted Contracts. All of Seller's obligations with respect to
the uncompleted contracts and commitments of Seller being purchased as
Purchased Assets;
(c) Accrued Employee Expenses. All of Seller's accrued liabilities and
expenses relating to compensation and benefit amounts due to employees of
Seller, all of which as of March 31, 1996 are listed on Schedule 1.02(c)
hereto; such schedule updated to the Closing Date will be provided as soon as
practicable after Closing;
(d) Other Accrued Expenses. In addition to (c) above, all of Seller's
other accrued liabilities and expenses on the books of Seller as of the
Closing Date, all of which as of March 31, 1996 are listed on Schedule
1.02(d) hereto, and all of which have been recorded on the books of Seller in
conformity with generally accepted accounting principles; such schedule
updated to the Closing Date will be provided as soon as practicable after
Closing; and
(e) Amounts Owing to Bio Dental. All amounts owed by Seller to Bio
Dental, the full amount of which, as of March 31, 1996 is listed on Schedule
1.02(e) hereto; such schedule updated to the Closing Date will be provided
as soon as practicable after Closing.
Buyer shall not assume any liabilities or obligations of Seller except those
specifically identified as liabilities on Seller's balance sheet dated as of
the Closing Date and specifically assumed by Buyer pursuant to the provisions
of this Section 1.02, and Seller agrees to indemnify and hold harmless Buyer
with respect to any such non-assumed liabilities and obligations in the manner
provided in Section 8.06 hereof. In the event that, after exhausting its
indemnity rights against Seller, Buyer remains entitled to indemnification for
any such non-assumed liabilities or obligations, Bio Dental and Mendoza agree
to indemnify and hold harmless Buyer with respect to any such non-assumed
liabilities and obligations solely and to the limited extent, and in the manner
provided, in Section 8.08 hereof, provided, however, that during the period in
which Buyer is pursuing its indemnity rights against Seller, Buyer shall be
entitled to withhold, in amounts calculated pursuant to Section 5.2 of the
Assignment and Release Agreement (as defined below), all or a portion of the
Mendoza Payment and/or the Product Credit (as such terms are defined in the
Assignment and Release Agreement), in an amount equal to that amount being
sought from Seller pursuant to Buyer's indemnification rights, until such
rights against Seller have been exhausted.
1.03 Purchase Price. Buyer, in consideration for the purchase of the
Purchased Assets being sold pursuant to this Agreement, agrees to pay an amount
(the "Purchase Price") of $50,000, delivered to Seller at the Closing (as
defined in Section 5.01 hereof); and will assume the Assumed Liabilities.
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<PAGE> 11
1.04 Absolute Sale. Seller agrees that the sale, conveyance, transfer and
delivery of the Purchased Assets to Buyer shall be free and clear of all title
defects, liabilities, obligations, liens, encumbrances, charges and claims of
any kind, except any liabilities and obligations expressly assumed by Buyer
pursuant to Section 1.02 hereof.
1.05 Other Contracts. This Agreement shall not constitute an agreement to
assign or sublicense, as the case may be, any contracts, leases, licenses,
agreements, bids, quotations or arrangements (for purposes of this Section 1.05
collectively called "contracts") if such attempted assignment or sublicense,
without the consent of the other party thereto, is not permitted as a matter of
law or in accordance with the terms of the contracts or would constitute a
breach of the contracts or would in any way impair the rights of Seller or
Buyer thereunder. Seller will use its best efforts to obtain, or will assist
Buyer to obtain, such consents as may be necessary or appropriate to vest in
Buyer all of Seller's right, title and interest in all such contracts. If such
consent is not obtained or if an assignment, attempted assignment or sublicense
is not so permitted or would be ineffective or would impair Buyer's rights
thereunder, Seller will cooperate with Buyer in any reasonable arrangement
designed to provide for Buyer the benefits under any such contracts provided,
however, that, except as disclosed on Schedule 1.05, Seller will obtain
consents to the assignment or sublicense of the contracts listed in Schedule
1.01(d) hereto (including those necessary for Buyer's continued operation of
the computer system and software used by Seller) on or prior to the Closing
Date.
1.06 Bulk Sales Laws. Seller and Buyer hereby waive compliance with the
provisions of any applicable bulk sales law; provided, however, that Seller
agrees to pay and discharge when due or to contest or litigate all claims of
creditors which are asserted against Buyer or the Purchased Assets by reason of
such noncompliance (other than with respect to the Assumed Liabilities), to
indemnify, defend and hold harmless Buyer from and against any and all such
claims in the manner provided in Section 8.07 hereof, and to take promptly all
necessary action to remove any lien or encumbrance which is placed on the
Purchased Assets by reason of such noncompliance.
ARTICLE II
RELATED AGREEMENTS
Simultaneously with the Closing hereunder the following agreements (the
"Related Agreements") shall have been executed and delivered:
2.01 Assignment and Release Agreement. An agreement (the "Assignment and
Release Agreement") between Buyer and Bio Dental in the form of Exhibit A
attached hereto pursuant to which Bio Dental will sell and convey to Buyer all
of Bio Dental's rights and interests under all of its agreements with Seller,
including, but not limited to, the Exclusive License Agreement dated March 31,
1991, as extended and amended on April 1, 1994 and as further amended on
January 19, 1996, and will release Seller and Buyer from any claims or
liabilities to Bio Dental under any of such agreements or otherwise, and Buyer
shall pay Bio Dental cash in the
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<PAGE> 12
approximate amount of $7.5 million and give Bio Dental certain credits for
future purchases of products from Buyer or its affiliates.
2.02 Employment Agreement. The Employment Agreement (the "Employment
Agreement") between Buyer and Jose L. Mendoza in the form of Exhibit B attached
hereto.
2.03 Escrow Agreement. The Escrow Agreement among Buyer, Bio Dental and The
Union Bank of California (the "Escrow Agent") in the form of Exhibit C attached
hereto pursuant to the terms of which Buyer will deposit at Closing with the
Escrow Agent cash in the amount of $100,000. The Escrow Agreement will have a
term of three (3) years, Bio Dental will be entitled to all earnings on funds
deposited under the Escrow Agreement, and the sole purpose of the Escrow
Agreement will be to provide a fund against which Buyer may assert claims for
indemnification under Article VIII hereof for breach of Seller's
Representations and Warranties contained in Section 3.22 hereof, and any Losses
(as defined in Section 8.06 hereof) which arise out of the matters discussed in
the letter of the Environmental Protection Agency to Seller dated January 11,
1996 (the "EPA Letter").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to, and covenants with, Buyer that:
3.01 Organization and Good Standing. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California, and has the corporate power and authority to own and operate its
properties and assets (including the Purchased Assets) and to conduct its
business as it is now being conducted. Seller is duly qualified to do business
and in good standing in each jurisdiction where the nature of its business done
in such jurisdiction requires qualification; a schedule of such jurisdictions
is set forth on Schedule 3.01 hereto.
3.02 Authorization, Compliance with Other Instruments and Law. Seller has
full corporate power and authority to enter into this Agreement, the Related
Agreements and the other agreements and documents to be executed and delivered
by it at Closing as contemplated hereby (collectively, the "Closing
Documents"), to consummate the transactions contemplated hereby and thereby and
to perform its obligations hereunder and thereunder. The execution, delivery
and performance of this Agreement and the Closing Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Seller. This
Agreement has been duly executed and delivered by Seller, and is a valid and
binding obligation of Seller enforceable in accordance with its terms and the
Closing Documents will, when executed and delivered by Seller at Closing,
constitute valid and binding obligations of Seller enforceable against Seller
in accordance with their terms. The execution, delivery and performance of
this Agreement and the Closing Documents will not (i) conflict with or result
in a breach or violation of any provision of the Certificate of
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Incorporation or By-Laws of Seller or of any order, writ, injunction, judgment,
decree, law, statute, rule or regulation to which Seller is a party or by which
Seller or the Purchased Assets may be bound or affected; or (ii) result in a
default (or give rise to any right of termination, cancellation or
acceleration) or result in the creation of any lien, encumbrance, security
agreement, charge, pledge, equity or other claim or right of any person in or
to the Purchased Assets under the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
to which Seller is a party or by which Seller or the Purchased Assets may be
bound. All necessary authorizations of the transactions contemplated by this
Agreement required to be obtained by Seller from any Federal, state, local or
foreign government or agency shall have been obtained prior to the Closing, and
any filings, notifications or disclosures required by law or regulation of any
such government or agency shall have been made in such form as is acceptable as
filed. Buyer shall cooperate with Seller with respect to the aforesaid
filings, notifications or disclosures to the extent necessary to obtain said
authorizations. Seller will deliver to Buyer at the Closing true and complete
copies of all resolutions of its shareholders and board of directors by which
the execution, delivery and performance of this Agreement and the Closing
Documents and the consummation of the transactions contemplated hereby and
thereby were authorized, certified by the Secretary or Assistant Secretary of
Seller as of the Closing Date. Seller shall also deliver evidence satisfactory
to Buyer that any security interest or lien in any of the Purchased Assets has
been released on or prior to the Closing.
3.03 Financial Statements. Seller has previously furnished to Buyer true and
correct copies of (i) Seller's audited balance sheet as of March 31, 1996
attached hereto as Exhibit D; and (ii) the audited statement of operations of
Seller for the year ended March 31, 1996 attached hereto as Exhibit E
(collectively, the "Financial Statements"). The balance sheet included in the
Financial Statements presents fairly the financial position of Seller as of the
date thereof, and the related statements of operations included in the
Financial Statements present fairly the results of operations of Seller for the
periods covered thereby, and the Financial Statements were prepared in
conformity with generally accepted accounting principles.
3.04 Absence of Certain Changes and Events. Except as otherwise contemplated
by this Agreement, between the date of the Financial Statements and the
Closing:
(a) the business of Seller has been conducted only in the ordinary course
and substantially in the manner that such business was heretofore conducted,
and there has not been, except in the ordinary course and consistent with
past practice:
(i) any purchase or other acquisition of property, any sale, lease or
other disposition of property, or any expenditure in excess of $10,000 in
the aggregate not disclosed on Schedule 3.04;
(ii) any incurrence of liability in excess of $10,000 not disclosed on
Schedule 3.04;
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(iii) any encumbrance or consent to encumbrance of any property or assets
not disclosed on Schedule 3.04;
(b) Seller has not entered into any agreement or transaction which, based
upon the good faith application of its best business knowledge and
experience, has resulted or will result in a transfer of assets for other
than full and fair consideration;
(c) there has not been any undisclosed change in the condition (financial
or otherwise), assets, liabilities, business, results of operations,
licenses, permits, franchises or affairs of Seller which has or is likely to
have a material adverse effect on the business, financial condition or
results of operations of Seller;
(d) there has not been damage, destruction or casualty loss materially and
adversely affecting the business, results of operations or financial
condition of Seller;
(e) there has not been (i) any increase in the rate or terms of
compensation payable or to become payable by Seller to its directors,
officers, key employees or commission sales personnel, except increases
occurring in the ordinary course of business in accordance with its customary
practices, (ii) any increase in the rate or terms of any bonus, insurance,
pension or other employee benefit plan, payment or arrangement made to, for
or with any such directors, officers, key employees or commission sales
personnel, except increases occurring in the ordinary course of business in
accordance with its customary practices, or (iii) any entering by Seller into
any new employment agreement or any modification of the terms of any existing
employment agreement;
(f) there has not been any entry into any agreement, commitment or
transaction (including, without limitation, any borrowing, capital lease,
capital expenditure or capital financing) by Seller except in the ordinary
course of business and consistent with the practices of Seller in the last
fiscal year and except as otherwise disclosed on Schedule 3.04;
(g) there has not been and will not have been any change by Seller in
accounting methods, principles or practices;
(h) to the best of Seller's knowledge, there has not been and will not
have been any threatened occurrence or development relating to the business,
operations, financial condition or affairs of Seller which would materially
and adversely affect the business, operations, financial condition or affairs
of Seller.
3.05 Operation of the Business in the Ordinary Course. Since the close of
business on the date of the Financial Statements, Seller's business has been
operated, and, as of the Closing Date will have been operated, in the ordinary
course, except to the extent that Buyer has otherwise agreed, or may prior to
the Closing Date otherwise agree, in writing or as is expressly contemplated by
this Agreement. From the date hereof until the Closing, Seller shall continue
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to use its best efforts to preserve the goodwill of Seller's business and its
relationships with employees, customers and suppliers.
3.06 Tax Matters. There is no tax obligation of Seller which constitutes, or
may in the future constitute, a lien on the Purchased Assets, and, if any such
lien exists or arises, it will be promptly discharged by Seller.
3.07 Material Contracts and Commitments. The Schedule hereto entitled
"Schedule 1.01(d) - Material Contracts and Commitments" constitutes a full and
complete list, as of the date hereof, of all written and oral contracts and
commitments of Seller involving aggregate obligations of Seller in excess of
$10,000 per contract or which have a remaining term, as of the date hereof, of
over six months in length of obligation on the part of Seller ("Material
Contracts"). Except as indicated on Schedule 1.01(d), Seller is not in breach
or violation of, or in default under, any of the Material Contracts; the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not constitute a default or breach under any of the
Material Contracts; and, except as specifically indicated in Schedule 1.01(d),
the execution of this Agreement and the consummation of the transactions
contemplated hereby will not give rise to any consent requirement under any of
the Material Contracts. All of the contracts listed on Schedule 1.01(d) are in
full force and effect and have not been modified or amended in any respect,
except as set forth on Schedule 1.01(d).
3.08 [LEFT INTENTIONALLY BLANK]
3.09 Customers. Attached as Schedule 3.09 is a list of the customers of
Seller as of the Closing Date together with a list of sales volume to such
customers during the twelve months ended March 31, 1996. Also indicated in
Schedule 3.09 are those customers with which Seller has entered into written or
oral agreements with respect to future purchases.
3.10 Licenses, Permits and Authorizations. Seller has obtained, and will as
of the Closing continue to have, all approvals, authorizations, consents,
licenses, franchises, orders, certificates and other permits of, and has made
and will have made as of the Closing all filings with, any governmental
authority, whether foreign, Federal, state or local, which are required for the
ownership of the Purchased Assets or the conduct of Seller's business as
presently conducted. A complete list of all such approvals, authorizations,
consents, licenses, franchises, orders, certificates, permits and filings is
included in Schedule 3.10 hereto.
3.11 Title to Purchased Assets. Seller has good and marketable legal title
to the Purchased Assets and shall at the Closing deliver to Buyer good and
marketable legal title to the Purchased Assets free and clear of all title
defects, liabilities, obligations, liens, mortgages, security interests,
encumbrances, claims or similar adverse interests of any kind or character
except (i) any Assumed Liabilities expressly assumed by Buyer pursuant to this
Agreement, and (ii) the title exceptions listed in Schedule 3.11 hereto. All
leases pursuant to which Seller leases any of the Purchased Assets are valid
and binding in accordance with their respective terms and there are no defaults
thereunder.
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3.12 Proprietary Rights. Seller is not, by virtue of the conduct of Seller's
business, infringing upon or making an unauthorized use of any proprietary
right or intellectual property right of any third party.
3.13 Employee Benefit Plans; Labor Matters.
(a) Except as set forth in Schedule 3.13 hereto, the Seller does not
maintain, administer or otherwise contribute to any "employee benefit plan,"
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), whether or not such plan is subject to any of the
provisions of ERISA, which covers any employee or beneficiary of any
employee, whether active or retired, of Seller (any such plan being herein
referred to as an "Employee Plan"). Except as set forth in Schedule 3.13
hereto, none of such Employee Plans is intended to be qualified under Section
401 of the Internal Revenue Code of 1986, as from time to time amended (the
"Code"). The Seller has no commitment to create any additional Employee
Plans and Seller has no legal obligation to continue any existing Employee
Plan, except for continuation coverage under ERISA sections 601 through 609.
(b) True and complete copies of each Employee Plan, including all
amendments thereto and related trust or other funding agreements have been
heretofore delivered to Buyer, together with a copy of the most recent
summary plan description and summary of material modifications of each such
plan.
(c) Except as set forth in Schedule 3.13, with respect to the business of
Seller (i) the Seller is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any
unfair labor practice; (ii) there is no unfair labor practice complaint
against the Seller pending before the National Labor Relations Board or any
other tribunal; (iii) there is no labor strike, dispute, slowdown or stoppage
actually pending or, to the best of the Seller's knowledge, threatened
against or affecting the Seller; (iv) the Seller's employees are not
represented by any union or other collective bargaining unit and the Seller
has received no notice that any representation or petition respecting the
employees of Seller has been filed with the National Labor Relations Board;
(v) no grievance or any arbitration proceeding arising out of or under any
collective bargaining agreements is pending against Seller; and (vi) the
Seller has not experienced any strike or work stoppage or other industrial
dispute involving Seller's employees in the past five years; and (vii) there
are no pending notices or assertions of any claim for monetary damages or
injunctive relief by an employee, former employee or other person for age,
sex, disability or race discrimination, worker's compensation, unemployment,
breach of contract or other employment related matters.
(d) Seller has complied in all respects with the requirements of the
Immigration Reform and Control Act of 1986, as amended ("IRCA"), and in
connection therewith has received complete I-9 Forms from all of its current
and former employees
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covered by IRCA. The Company has not knowingly hired, recruited or referred
for a fee, or continued employment of any alien who does not have work
authorization required by IRCA.
3.14 Litigation and Other Claims. Except as described in Schedule 3.14,
there are no actions, suits, arbitration proceedings, claims or proceedings
related to the business or assets of Seller pending or, to the knowledge of
Seller, threatened before any foreign, Federal, state, municipal or other
court, department, commission, arbitration panel, board, bureau, agency, body
or instrumentality against Seller or affecting the Purchased Assets at law or
in equity. Seller is not a party to or subject to the provisions of any order,
writ, injunction, decree or judgment of any court or foreign, Federal, state,
municipal or other governmental or administrative body, department, commission,
board, bureau, any securities exchange or other agency or instrumentality in
connection with the ongoing operations of Seller except as set forth in
Schedule 3.14. Seller is not engaged in any arbitration nor has submitted any
disputed matter to an arbitrator in connection with the ongoing operations of
Seller except as set forth in Schedule 3.14.
3.15 No Adverse Change. Since the close of business on the date of the
Financial Statements, and except as described in the Schedules delivered
herewith, there has been no material adverse change in the financial condition,
results of operations, business or prospects of Seller.
3.16 Sufficiency of the Purchased Assets. Except as described in Schedule
3.16, the Purchased Assets, all of which are located at Seller's facility in
Rancho Cordova, California, are sufficient to operate Seller's business as
currently operated. Neither Seller nor any of Seller's officers, directors or
affiliates is a party to any contract which is necessary in any material
respect to Seller's business other than contracts which will be assigned to
Buyer at the Closing which contracts are listed in Schedule 1.01(d) hereto.
3.17 Compliance with Laws. Neither the Purchased Assets nor the operations
of Seller's business, as conducted at the date hereof and as will be conducted
through the Closing, violate any foreign, Federal, state or local law,
ordinance, rule or regulation.
3.18 Insurance. Seller maintains, and through the Closing will maintain,
adequate insurance insuring the Purchased Assets and the operations of Seller's
business and will maintain, through the Closing Date, general liability
coverage insuring against claims of third parties attributable to acts of
Seller Employees (as defined in Section 7.01) and for product liability
coverage. Valuations of Seller's properties for such insurance purposes are
set forth in Schedule 3.18 hereto; such policies are in full force and effect,
all premiums with respect thereto covering all periods up to and including the
Closing have been paid, and no notice of cancellation or termination has been
received with respect to any such policy which has not been replaced on
substantially similar terms prior to the date of such cancellation or
termination. The insurance policies to which the Seller is a party are
sufficient for compliance with all requirements of applicable laws and all
agreements to which Seller is a party or by which Seller
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is bound. In the three years preceding the date of this Agreement, Seller has
not been refused any insurance with respect to the Purchased Assets or the
operations of Seller or had its coverage limited by any insurance carrier to
which it has applied for any such insurance or with which it has carried
insurance.
3.19 Accounts Receivable. All accounts receivable included in the Purchased
Assets will be collected in full by Buyer net of any applicable reserves for
doubtful accounts and for allowance for trade discounts included in the books
of Seller as of the Closing Date, which reserves will be established on the
same basis and with the same assumptions as reserves for doubtful accounts
reflected on the Financial Statements were established. Buyer will use
reasonable diligence to collect the accounts receivable.
3.20 Real Property Leases. The Real Property Leases are valid and binding
upon the lessors and are in full force and effect. There are no existing
defaults by Seller under the Real Property Leases and no event has occurred
which (whether with or without notice, lapse of time, or both) would constitute
a default thereunder by Seller. Seller has delivered to Buyer a true and
complete copy of the Real Property Leases.
3.21 Condition of Purchased Assets. The Purchased Assets are suited for the
uses intended, and are in conformity with all applicable laws, ordinances,
rules and regulations. Equipment included in the Purchased Assets is in good
working order, normal wear and tear excepted.
3.22 Environmental Matters.
(a) Except as set forth in Schedule 3.22 hereto, (i) Seller is in
compliance with all environmental laws, regulations, permits and orders
applicable to it at the time of Closing, and with all laws, regulations,
permits and orders governing or relating to asbestos removal and abatement;
(ii) Seller has not transported, stored, treated or disposed, or allowed or
arranged for any third parties to transport, store, treat or dispose, of any
Hazardous Substances or other waste to or at any location other than a site
lawfully permitted to receive such Hazardous Substances or other waste for
such purposes, or had performed, arranged for or allowed by any method or
procedure such transportation, storage, treatment or disposal in
contravention of any laws or regulations, nor has Seller disposed, or allowed
or arranged for any third parties to dispose, Hazardous Substances or other
waste upon the real property owned or leased by Seller; (iii) there has not
occurred, nor is there presently occurring, a Release of any Hazardous
Substance on, into or beneath the surface of any parcel of real property
owned or leased by Seller; (iv) Seller has not transported or disposed, or
allowed or arranged for any third parties to transport or dispose, any
Hazardous Substance or other waste to or at a site which, pursuant to the
U.S. Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA") or any similar law, (A) has been placed on the
National Priorities List or its state equivalent, or (B) the Environmental
Protection Agency or the relevant state agency has proposed or is
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proposing to place on the National Priorities List or its state equivalent;
(v) Seller has not received notice, and has no knowledge of any facts which
could give rise to any notice, that Seller is a potentially responsible party
for a Federal or state environmental cleanup site or for corrective action
under CERCLA or any other applicable law or regulation or notice of any other
Environmental Claim; (vi) Seller has not received any written or oral request
for information in connection with any Federal or state environmental cleanup
site and has not undertaken (or been requested to undertake) any response or
remedial actions or cleanup actions of any kind at the request of any
Federal, state or local governmental entity, or at the request of any other
person or entity; (vii) there are no laws, regulations, ordinances, licenses,
permits or orders relating to environmental or worker safety matters
requiring, as of the date of this Agreement, any work, repairs, construction
or capital expenditures with respect to the assets or properties of Seller;
and (viii) Schedule 3.22 identifies (w) all environmental audits, assessments
or occupational health studies undertaken by Seller or its agents or by any
governmental agencies with respect to the operations or properties of Seller;
(x) the results of any ground water, soil, air or asbestos monitoring
undertaken with respect to any real property owned or leased by Seller; (y)
all written communications of Seller with environmental agencies; and (z) all
citations issued with respect to Seller under the Occupational Safety and
Health Act (29 U.S.C. Sections 651 et seq.).
(b) For the purposes of this Agreement, "Environmental Claim" shall mean
any demand, claim, governmental notice or threat of litigation or the actual
institution of any action, suit or proceeding at any time by a person which
asserts that an Environmental Condition constitutes a violation of or
otherwise gives rise to a legally mandated liability or obligation under, any
statute, ordinance, regulation, or other governmental requirement or the
common law, including, without limitation, any such statute, ordinance,
regulation, or other governmental requirement relating to the emission,
discharge, or release of any Hazardous Substance into the environment or the
generation, treatment, storage, transportation, or disposal of any Hazardous
Substance. "Environmental Condition" shall mean the presence on the Closing
Date, whether discovered or undiscovered on the Closing Date, in surface
water, ground water, drinking water supply, land surface, subsurface strata
or ambient air of any pollutant, contaminant, industrial solid waste or
Hazardous Substance arising out of or otherwise related to the operations or
other activities of Seller, or of any predecessor in interest or line of
business to Seller, conducted or undertaken prior to the Closing Date.
"Hazardous Substance" shall mean any substance defined in the manner set
forth in Section 101(14) of the U.S. Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and shall include any
additional substances designated under Section 102(a) thereof. "Release"
shall mean releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the environment.
3.23 Full Disclosure. All information furnished to Buyer in accordance
herewith is, and as of the Closing shall be, correct and complete in all
respects. No representation or
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warranty of Seller and no information, Schedule or certificate furnished or to
be furnished by or on behalf of Seller to Buyer, its affiliates or its agents
pursuant to or in connection with this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statement contained herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to, and covenants with, Seller that:
4.01 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Missouri.
4.02 Due Authorization. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, have
been duly authorized by all necessary corporate action on the part of Buyer.
This Agreement has been duly executed and delivered by Buyer, and is a valid
and binding obligation of Buyer enforceable against Buyer in accordance with
its terms. The execution, delivery and performance of this Agreement will not
result in a violation of any provision of the Articles of Incorporation or
By-Laws of Buyer, or of any material contract by which it is bound, or of any
judgment or decree to which it is a party or by which it is bound. All
necessary authorizations of the transactions contemplated by this Agreement
required to be obtained by Buyer from any Federal, state, local or foreign
government or agency shall have been obtained prior to the Closing, and any
filings, notifications or disclosures required by law or regulations of such
government or agency shall have been made in such form as is acceptable as
filed. Seller shall cooperate with Buyer with respect to the aforesaid
filings, notifications or disclosures to the extent necessary to obtain said
authorizations. Buyer will deliver to Seller at the Closing true and complete
copies of all resolutions of its board of directors by which the execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby were authorized, certified by the Secretary or Assistant
Secretary of Buyer.
ARTICLE V
THE CLOSING
5.01 Time and Place of Closing. Upon the terms and subject to the
satisfaction or waiver of the conditions in this Agreement, the Closing of the
transactions contemplated hereby (the "Closing") shall take place on July 22,
1996 (the "Closing Date") at the offices of Armstrong, Teasdale, Schlafly &
Davis in St. Louis, Missouri or at such other time and place as the parties
hereto may agree in writing.
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5.02 Instruments of Transfer, Etc. At the Closing, Seller will deliver to
Buyer such deeds, bills of sale, instruments of assignment and other good and
sufficient instruments of transfer, executed by Seller or its affiliates and in
a form reasonably satisfactory to Buyer, as Buyer may reasonably require to
vest in Buyer all right, title and interest of Seller in and to the Purchased
Assets, and Buyer shall pay to Seller the amount, and deliver to Seller the
instruments, required of it at the Closing.
Seller shall deliver to Buyer at the Closing possession of the Purchased
Assets being sold pursuant to this Agreement and the entire right, title and
interest of Seller in and to such Purchased Assets shall pass to Buyer at the
Closing effective as of the Closing Date.
5.03 Opinions of Counsel.
(a) At the Closing, Seller and Bio Dental shall receive an opinion or
opinions from Armstrong, Teasdale, Schlafly & Davis, Buyer's Counsel, dated
the Closing Date and satisfactory in form and substance to Seller and its
counsel, to the effect that:
(i) Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Missouri;
(ii) Buyer has the corporate power and authority to execute and deliver
this Agreement and the Related Agreements to which it is to be a party and
to consummate the transactions contemplated hereby and thereby, and the
execution and delivery of this Agreement and the Related Agreements to which
Buyer is to be a party and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by requisite
corporate action taken on the part of Buyer and no other corporate
proceedings on the part of Buyer are necessary to authorize this Agreement
or the Related Agreements to which Buyer is to be a party or to consummate
the transactions contemplated hereby and thereby; and
(iii) this Agreement and the Related Agreements to which Buyer is to be a
party have been duly and validly executed and delivered by Buyer and,
assuming this Agreement and the Related Agreements to which Buyer is to be a
party are valid and binding obligations of the other parties thereto, are
valid and binding obligations of Buyer, enforceable against Buyer in
accordance with their terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, and by general
principles of equity (regardless of whether such enforcement is considered
in a proceeding in equity or at law).
(b) At the Closing, Buyer shall receive an opinion or opinions from Gene
N. Windham, counsel to Seller, dated the Closing Date and satisfactory in
form and substance to Buyer and its counsel, to the effect that:
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(i) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all requisite
corporate power and authority to own, lease and operate its properties and
to carry on its business as now being conducted and is duly qualified to do
business and in good standing in each jurisdiction where the nature of its
business conducted in such jurisdiction requires such qualification;
(ii) This Agreement and the Related Agreements to which it is to be a
party have been duly and validly executed and delivered by Seller and,
assuming the Agreement and the Related Agreements to which Seller is to be a
party are valid and binding obligations of the other parties thereto, are
valid and binding obligations of Seller, enforceable against Seller in
accordance with their terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, and by general
principles of equity (regardless of whether such enforcement is considered
in a proceeding in equity or at law);
(iii) Except for those approvals and consents which have already been
obtained, neither execution and delivery by Seller of this Agreement and the
Related Agreements to which it is to be a party, the sale by Seller of the
Purchased Assets pursuant to this Agreement nor the consummation of the
other transactions contemplated by this Agreement and the Related Agreements
to which Seller is to be a party will (A) conflict with or result in any
breach of any provision of the Certificate of Incorporation or By-Laws (or
other similar governing documents) of the Seller, (B) require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority other than those which have been made
or obtained; (C) to the best of such counsel's knowledge after reasonable
investigation, constitute a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which Seller is a party or by
which Seller or any of its assets may be bound, except for such defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained; (D) to the best of such counsel's
knowledge after reasonable investigation, result in the creation of any
encumbrance, security interest, equity or right of others upon any of the
properties or assets of Seller under any of the terms, conditions or
provisions of any agreement, instrument or obligation to which Seller or its
assets may be bound or affected; or (E) violate any order, writ, injunction,
judgment or decree known to such counsel, to which Seller is a party, or by
which any of its assets are bound or any law, statute, rule or regulation
applicable to Seller or any of its assets; and
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(iv) The instruments of transfer contemplated by this Agreement, are in
proper form to transfer to Buyer, all of Seller's interest in the Purchased
Assets, free and clear, to the best of such counsel's knowledge after
reasonable investigation, of any liens, encumbrances, equities and claims of
whatever nature, except (i) those created by Buyer and (ii) those, if any,
created by failure to comply with the California Bulk Transfer Laws.
(c) At the Closing, Buyer shall receive an opinion or opinions from
Tomlinson, Zisko, Morosoli & Maser, L.L.P., counsel to Bio Dental, dated the
Closing Date and satisfactory in form and substance to Buyer and its counsel,
to the effect that:
This Agreement, the Assignment and Release Agreement and the Escrow Agreement
have been duly and validly executed and delivered by Bio Dental and, assuming
such Agreements are valid and binding obligations of the other parties thereto,
are valid and binding obligations of Bio Dental, enforceable against Bio Dental
in accordance with their terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally, and by general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law).
5.04 Intellectual Property Assignments. At the Closing, Seller shall
deliver, or cause to be delivered, to Buyer, the assignment and transfers of
intellectual property referred to in Section 6.01(h).
5.05 Other Documents. At the Closing, each such party shall deliver to the
other parties such certificates of officers, governmental Certificates of Good
Standing, certified copies of By-laws, Articles of Incorporation and minutes of
proceedings, and such assumptions of liabilities and other documents as shall
reasonably be requested by another party hereto.
ARTICLE VI
CONDITIONS TO CLOSING
6.01 Conditions to Obligations of Buyer. The obligations of Buyer under this
Agreement to consummate the purchase of the Purchased Assets shall be subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions, any of which may be waived at the option of Buyer:
(a) There shall have been no material breach by Seller or Bio Dental in
the performance of its respective covenants herein.
(b) The representations and warranties of Seller contained or referred to
in this Agreement shall be true and correct in all material respects on the
Closing Date as if
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<PAGE> 24
made anew as of the Closing Date (except for changes contemplated or
permitted by this Agreement).
(c) There shall have been delivered to Buyer certificates in form
reasonably satisfactory to Buyer and its counsel signed by the Chief
Executive Officer of Seller to the effect that Seller has performed all of
its covenants under this Agreement, and that all of the representations and
warranties of Seller made herein are true as of the Closing Date.
(d) There shall not have been issued and be in effect any injunction,
order or decree from any governmental body, agency or official authority
restraining or prohibiting consummation of the transactions contemplated by
this Agreement, nor shall there have occurred any event, development or
circumstance after the date hereof and prior to the Closing which materially
and adversely affects the business, operations or properties of Seller,
including, without limitation, any lawsuit, governmental proceeding or
investigation filed or commenced against any of the parties hereto seeking to
restrain, enjoin or modify the transactions contemplated hereby or in which
sanctions or penalties are threatened.
(e) All corporate action or other action necessary to authorize the
execution, delivery and performance of this Agreement by Seller and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken, and certified copies of all Board of Directors and
stockholders resolutions authorizing the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby shall
be delivered to Buyer.
(f) Buyer shall have received, or shall have satisfied itself that it will
receive, all consents, waivers or approvals necessary to insure that the
purchase contemplated hereby will not give rise to a claim of default under,
or any event which, with notice or the passage of time, or both, could give
rise to a material default under, or would excuse performance by any party
under, any agreement, contract or commitment listed in Schedule 1.01(d).
(g) Buyer shall have satisfactorily completed its due diligence
investigation of Seller.
(h) Buyer shall have received from Seller, Bio Dental and Mendoza
assignments, in form satisfactory to Buyer, of all patents and trademarks
owned or used by Seller in its business.
(i) All deliveries required to be made by Seller and Bio Dental pursuant
to Article V shall have been made, and all of the Related Agreements shall
have been executed and delivered by all parties thereto other than Buyer.
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6.02 Conditions to Obligations of Seller and Bio Dental. The obligations of
Seller and Bio Dental under this Agreement shall be subject to fulfillment on
or prior to the Closing Date of the following conditions, any of which may be
waived at the option of Seller:
(a) There shall have been no material breach by Buyer in the performance of
any of its covenants herein.
(b) The representations and warranties of Buyer contained or referred to
in this Agreement shall be true and correct in all material respects on the
Closing Date as if made anew as of the Closing Date (except for changes
contemplated or permitted by this Agreement and representations and
warranties made as of a specified date which shall be true and correct in all
material respects as of such date).
(c) There shall have been delivered to Seller a certificate signed by a
duly authorized executive officer of Buyer to the effect that Buyer has
performed all of its covenants under this Agreement, and that all of the
representations and warranties of Buyer made herein are true as of the
Closing Date.
(d) There shall not have been issued and be in effect any injunction or
order or decree from any governmental body, agency, official or authority
restraining or prohibiting consummation of the transactions contemplated by
this Agreement.
(e) All corporate action or other action necessary to authorize the
execution, delivery and performance of this Agreement by Buyer and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken, and certified copies of all Board of Directors resolutions
authorizing the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby shall be delivered to Seller.
(f) All deliveries required to be made by Buyer pursuant to Article V
shall have been made, and all of the Related Agreements shall have been
executed and delivered by all parties thereto other than Seller.
(g) Bio Dental shall have been released from its guaranty of Seller's
obligations under the Real Property Lease.
(h) Seller shall have delivered to Bio Dental its written agreement, and
such documentation as Bio Dental shall reasonably require, canceling all
options to purchase shares of capital stock of Bio Dental held by Seller.
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ARTICLE VII
EMPLOYMENT WITH BUYER
7.01 Employment with Buyer. Prior to or at Closing, Buyer shall offer
employment on the same terms and with the same salaries, wages and benefits as
currently in effect with Seller to those persons who are employed by Seller on
the Closing Date ("Seller Employees") who are selected by Buyer in consultation
with Mendoza. Schedule 7.01 contains a list of all Seller Employees as of
March 31, 1996. (Those employees of the Seller who accept employment with the
Buyer pursuant to this Agreement are hereinafter referred to as the
"Transferred Employees".)
7.02 Accrued Vacation and Sick Pay Liability. The Buyer shall assume the
Seller's accrued liability to Transferred Employees under the Seller's vacation
and sick pay policies as of the Closing Date.
7.03 Workers' Compensation. The Seller will retain responsibility for all
workers' compensation claims of employees of Seller other than Transferred
Employees and will retain responsibility for workers' compensation claims of
Transferred Employees pending as of the Closing Date or arising as a result of
events occurring or conditions caused on or prior to the Closing Date. The
Buyer shall be responsible for all workers' compensation claims made by
Transferred Employees after the Closing Date and arising as a result of events
occurring or conditions caused after the Closing Date.
7.04 Third Parties. The covenants of the Buyer and the Seller in this
Article VII are not intended to create any right in any Transferred Employee or
his or her heirs, executors, beneficiaries or personal representatives.
ARTICLE VIII
POST-CLOSING COVENANTS
8.01 Expenses. Except as otherwise provided herein, Seller and Buyer shall
each bear their own costs and expenses incurred in connection with this
Agreement, the Related Agreements and the transactions contemplated hereby and
thereby. Buyer shall be responsible for fees, commissions, expenses and
reimbursements incurred by or required to be paid to its professional advisors
and Seller shall be responsible for the fees, commissions, expenses and
reimbursements incurred by or required to be paid to such Seller's professional
advisors.
8.02 Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties hereto will use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the sale of the Purchased Assets and the other
transactions contemplated by this Agreement and the Related Agreements. From
time to time
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<PAGE> 27
after the date hereof (including after the Closing Date if requested), Seller
and its affiliates will, at their own expense and without further
consideration, execute and deliver such documents to Buyer as Buyer may
reasonably request in order more effectively to vest in Buyer good title to the
Purchased Assets and to more effectively consummate the transactions
contemplated by this Agreement and the Related Agreements.
8.03 Commissions and Fees. Seller and Buyer each represents and warrants to
the other that no broker, finder, financial adviser or other person is entitled
to any brokerage fees, commissions or finder's fees in connection with the
transactions contemplated hereby by reason of any action taken by the party
making such representation. Seller, on the one hand, and Buyer, on the other
hand, will pay to the other or otherwise discharge, and will indemnify and hold
the other harmless from and against, any and all claims or liabilities for all
brokerage fees, commissions and finder's fees (other than as described above)
incurred by reason of any action taken by such party.
8.04 Sales, Transfer and Use Taxes. The parties do not contemplate that any
sales, transfer or use taxes will be payable in connection with the
transactions contemplated by this Agreement and the Related Agreements.
However, to the extent such taxes are payable, all sales, transfer and use
taxes incurred in connection with this Agreement and the Related Agreements and
the transactions contemplated hereby and thereby will be borne by Seller, and
Seller will, at its own expense, file all necessary Tax Returns and other
documentation with respect to all such sales, transfer and use taxes, and, if
required by applicable law, both parties will join in the execution of any such
Tax Returns or other documentation.
8.05 Nondisclosure. Seller agrees not to use or disclose at any time after
consummation of the transactions contemplated hereby, except with the prior
written consent of an officer authorized to act in the matter by the Board of
Directors of Buyer, any trade secrets, proprietary information, or other
confidential information relating to designs, suppliers, subcontractors,
inventions, operations, marketing, bidding information, cost and pricing data,
master files or customer lists utilized by Seller in connection with its
business prior to the Closing or by Buyer or any of its affiliates (the "Buyer
Group"), or the skills, abilities and compensation of the Buyer Group's
employees, and all other similar information material to the conduct of the
Buyer Group's business, which is not presently generally known to the public;
provided, however, that this provision shall not preclude Seller from (i) the
use or disclosure of such information which presently is known generally to the
public or which subsequently comes into the public domain, other than by way of
disclosure in violation of this Agreement or in any other unauthorized fashion,
or (ii) disclosure of such information required by law or court order, provided
that prior to such disclosure required by law or court order the undersigned
will give Buyer three business days' written notice (or, if disclosure is
required to be made in less than three business days, then such notice shall be
given as promptly as practicable after determination that disclosure may be
required) of the nature of the law or order requiring disclosure and the
disclosure to be made in accordance therewith.
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<PAGE> 28
8.06 Indemnification.
(a) By Seller. Seller agrees to save, defend and indemnify Buyer against
and hold it harmless from any and all claims, liabilities, losses, damages,
deficiencies, costs and expenses, of every kind, nature and description,
fixed or contingent (including, without limitation, interest, penalties and
counsel's fees and expenses) ("Losses"), asserted against, resulting to,
imposed upon or incurred by Buyer, directly or indirectly, arising out of (i)
any breach of any representation, warranty, covenant or agreement made by
Seller under this Agreement, or (ii) any liability of Seller other than the
Assumed Liabilities or any Environmental Claim.
(b) By Buyer. Buyer agrees to save, defend and indemnify Seller against
and hold it harmless from any and all Losses arising out of (i) any breach of
any representation, warranty, covenant or agreement made by Buyer under this
Agreement or (ii) any Assumed Liability.
8.07 Defense of Claims.
(a) Should any claim, action or proceeding by or involving a third party
arise after the Closing Date for which Seller or Buyer is liable under the
terms of this Agreement, the party which is entitled to be indemnified with
respect to such claim (the "Indemnified Party") shall notify the party who is
liable therefor under the terms hereof (the "Indemnifying Party") within a
reasonable time after such claim, action or proceeding arises and is known to
the Indemnified Party, and if the Indemnifying Party shall admit in writing
its indemnification obligation in respect thereof, the Indemnified Party
shall give the Indemnifying Party a reasonable opportunity:
(i) to take part in any examination of the relevant books and records of
the Indemnified Party;
(ii) to conduct any proceedings or negotiations in connection therewith
and necessary or appropriate to defend the Indemnified Party or prosecute
any claim, action, counterclaim or other proceeding with respect thereto;
(iii) to take all other required steps or proceedings to settle or defend
any such claim, action or proceeding; and
(iv) to employ counsel reasonably acceptable to the Indemnified Party to
contest any such claim, action or proceeding in the name of the Indemnified
Party, or otherwise.
The expenses of all proceedings, contests or lawsuits with respect to such
claims or actions shall be borne by the Indemnifying Party. If the
Indemnifying Party wishes to assume the defense of any such claim or action,
it shall give written notice to the
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<PAGE> 29
Indemnified Party admitting its indemnification obligation in respect thereof
and stating that it intends to assume such defense within 15 days after
notice from the Indemnified Party of such claim or action (unless the claim
or action reasonably requires a response in less than 15 days after the
notice is given to the Indemnifying Party, in which event it shall notify the
Indemnified Party at least five days prior to such reasonably required
response date), and the Indemnifying Party shall thereafter assume the
defense of any such claim or liability, through counsel reasonably
satisfactory to the Indemnified Party; provided that the Indemnified Party
may participate in such defense at its own expense but, in any event, the
Indemnifying Party shall have the right, as long as it is actively defending
any claim or action, to control such defense. The Indemnified Party shall
afford the Indemnifying Party's counsel and other authorized representatives
reasonable access during normal business hours to all relevant books,
records, offices and other facilities and properties of the Indemnified
Party, and to the personnel of the Indemnified Party, and shall otherwise use
all reasonable efforts to cooperate with the Indemnifying Party, such counsel
and such other authorized representatives in connection with the exercise of
the rights of the Indemnifying Party pursuant to this Section 8.07.
(b) If the Indemnifying Party shall not assume the defense of, or if after
so assuming it shall fail to actively defend, any such claim or action, the
Indemnified Party may defend against any such claim or action in such manner
as it may deem appropriate, and the Indemnified Party may settle such claim
or litigation on such terms as it may deem appropriate, and the Indemnifying
Party promptly shall reimburse the Indemnified Party for the amount of such
settlement and for all expenses, legal and otherwise, reasonably and
necessarily incurred by the Indemnified Party in connection with the defense
against and settlement of such claim or action. If no settlement of such
claim or litigation is made, the Indemnifying Party shall satisfy any
judgment rendered with respect to such claim or in such action, before the
Indemnified Party is required to do so, and pay all expenses, legal or
otherwise, reasonably and necessarily incurred by the Indemnified Party in
the defense against such claim or litigation.
(c) If a judgment is rendered against the Indemnified Party in any action
covered by the indemnification provisions hereof, or any lien attaches to any
of the assets of the Indemnified Party, the Indemnifying Party immediately
upon such entry or attachment shall pay such judgment in full or discharge
such lien unless, at the Indemnifying Party's expense and direction, an
appeal is taken under which the execution of the judgment or satisfaction of
the lien is stayed. If and when a final judgment is rendered in any such
action, the Indemnifying Party shall forthwith pay such judgment or discharge
such lien before the Indemnified Party is compelled to do so.
8.08 Set-Off of Claims. Bio Dental and Mendoza each agrees that, to the
extent provided, respectively, in the Assignment and Release Agreement and the
Employment Agreement, Losses as to which Buyer is entitled to indemnification
hereunder which remain unsatisfied after Buyer has exhausted its remedies
against Seller, may be satisfied solely by reducing the amount of the remaining
credit for future purchases to which Bio Dental is entitled,
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or the amount of the remaining Noncompete Payment (as such term is defined in
the Employment Agreement) otherwise payable to Mendoza, all as set forth in
Section 5.2 of the Assignment and Release Agreement, incorporated herein by
this reference. Except as so provided in this Section 8.08, Bio Dental and
Mendoza shall not be otherwise responsible for such Losses. In the event of
any such proposed set-off, the provisions of Section 8.07 hereof shall remain
in effect and shall apply to the resolution of any claim, action or proceeding
by or involving a third party and Bio Dental and Mendoza shall be deemed to be
the "Buyer" thereunder. In such event, Bio Dental and Mendoza agree to use all
commercially reasonable efforts to cooperate with each other with respect to
any such claim, action or proceeding.
8.09 Escrow. Bio Dental agrees, to the extent provided in the Escrow
Agreement, to indemnify Buyer against Losses, asserted against, resulting to,
imposed upon or incurred by Buyer, directly or indirectly, arising out of (i)
any breach of any representation or warranty contained in Section 3.22 of this
Agreement, or (ii) out of any matter described in the EPA Letter.
8.10 Maintenance of Insurance Policies. Seller agrees to maintain the
insurance policies set forth on Schedule 8.10 hereto following the Closing
through March, 1997, naming Seller, Buyer and Bio Dental as additional
insureds.
ARTICLE IX
TERMINATION
9.01 Events of Termination. This Agreement may be terminated and abandoned
at any time prior to the Closing:
(a) by mutual written consent of Buyer, Seller and Bio Dental; or
(b) by either Buyer, Seller or Bio Dental if the Closing has not occurred
prior to July 31, 1996, or such later date as the parties shall mutually
approve; or
(c) by Buyer if prior to completion of the Closing there shall have been a
material breach in any of the representations, warranties or covenants of
Seller herein or by Seller if prior to completion of the Closing there shall
have been a material breach of any of the representations, warranties or
covenants of Buyer contained herein; provided, however, that a party shall
not be permitted to terminate this Agreement based upon its own breach.
9.02 Specific Performance. The parties hereto acknowledge that damages may
be an inadequate remedy for breach of this Agreement and that the obligations
of the parties shall be specifically enforceable, but the availability of
specific performance shall in no way limit the availability of damages.
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<PAGE> 31
ARTICLE X
MISCELLANEOUS
10.01 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
10.02 No Assignment. This Agreement may not be assigned by any party hereto
without the prior written consent of the other parties, provided, however, that
without such written consent, Buyer may assign its rights hereunder, in whole
or in part, to any corporation or other entity controlled by, controlling, or
under common control with Buyer, and Bio Dental may assign its rights hereunder
to Zila, Inc., provided that no such assignment will relieve Bio Dental of its
obligations hereunder. Notwithstanding any other provision contained herein,
Buyer may pledge or grant a security interest in any of its rights under this
Agreement to any federal or state chartered lending institution. Any attempted
or purported assignment by any party other than in accordance with this Section
10.02 shall be null and void.
10.03 Counterparts. This Agreement may be executed in any number of
counterparts, and by any party on separate counterparts, each of which as so
executed and delivered shall be deemed an original but all of which together
shall constitute one and the same instrument, and it shall not be necessary in
making proof of this Agreement as to any party hereto to produce or account for
more than one such counterpart executed and delivered by such party.
10.04 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California (without regard to conflict
of laws principles) as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies.
10.05 Venue for Suits. The parties agree that any action or proceeding
relating in any way to this Agreement or the Related Agreements or the
transactions contemplated hereby and thereby shall, if brought against Seller
or Bio Dental, be brought and enforced in the Municipal or Superior Court for
the County of Sacramento, California or in the United States District Court for
the Northern District of California or, if brought against Buyer, in a Missouri
State Court or United States District Court sitting in St. Louis, Missouri, and
the parties hereby waive any objection to jurisdiction or venue in any such
proceeding commenced in or removed to such courts.
10.06 Survival. The representations, warranties, covenants, indemnities and
agreements of the parties to this Agreement contained herein or in any document
delivered pursuant to or in connection herewith shall survive the Closing for a
period of two years and shall survive any investigation by any other party;
provided, however, that representations, warranties and indemnities with
respect to claims by third parties (including employees and former employees of
Seller and Federal, state or municipal governments or the agencies thereof)
shall survive the Closing for the applicable statute of limitations periods
relating to such claims.
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<PAGE> 32
10.07 Notices. All notices required to be given under the terms of this
Agreement or which any of the parties desires to give hereunder shall be in
writing and personally delivered or sent by registered or certified mail,
return receipt requested, or sent by telecopier, addressed as follows:
(a) To Seller. If to Seller addressed to:
Denticator International, Inc.
11330 Sunrise Park Drive
Rancho Cordova, California 95742
Attention: Jose Mendoza
Telecopier No.: 916-638-0319
Bio Dental Technologies Corp.
11291 Sunrise Park Drive
Rancho Cordova, California 95742
Attention: Terry Bane
Telecopier No.: 916-638-9307
and
Jose L. Mendoza
821 Valvista Way
Auburn, California 95603
(b) To Buyer. If to Buyer addressed to:
Young Innovations, Inc.
13705 Shoreline Court East
Earth City, Missouri 63045
Attention: Michael W. Eggleston
Telecopier No.: 314-344-0021
Copy to:
Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Square
St. Louis, Missouri 63102-2740
Attention: John L. Gillis, Jr., Esq.
Telecopier No.: 314-621-5065
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<PAGE> 33
Any party may designate a change in address at any time upon written notice
to the other parties.
10.08 Amendment and Modification. The Agreement may be amended, modified or
supplemented only by a written instrument executed by all of the parties.
10.09 Waiver of Compliance. Except as otherwise provided in this Agreement,
any failure of any of the parties to comply with any obligation, covenant,
agreement or condition herein may be waived by the party or parties entitled to
the benefits thereof only by a written instrument signed by the party or
parties granting such waiver, but any such waiver or the failure to insist upon
strict compliance with any obligation, covenant, agreement or condition herein,
shall not operate as a waiver of, or estoppel with respect to, any subsequent
or other failure or breach.
10.10 Interpretation. The table of contents and the article and section
headings contained in this Agreement are solely for the purpose of reference,
are not part of the agreement of the parties and shall not in any way affect
the meaning or interpretation of this Agreement. As used in this Agreement,
the term "person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization or a
governmental entity or any department or agency thereof. As used in this
Agreement, the term "subsidiary", when used in reference to any other person,
shall mean any corporation of which outstanding securities having ordinary
voting power to elect a majority of the Board of Directors of such corporation
are owned directly or indirectly by such other person. As used in this
Agreement, the term "generally accepted accounting principles" means generally
accepted accounting principles as in effect and as applied in the United
States. As used in this Agreement, the term "affiliate" shall have the meaning
set forth in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934. When used herein, the masculine, feminine or
neuter gender and the singular or plural number shall each be deemed to include
the others whenever the context so indicates or permits.
10.11 Entire Agreement. This Agreement and the Related Agreements,
including the schedules, exhibits, documents, certificates and instruments
referred to herein and therein, embody the entire agreement and understanding
of the parties hereto in respect of any transactions contemplated by this
Agreement and the Related Agreements and supersede all prior agreements and
understandings between the parties with respect thereto.
10.12 Termination of Letter of Intent. This Agreement supersedes and
replaces in its entirety that certain letter of intent dated January 19, 1996
by and among Seller, Bio Dental and Mendoza, and such letter of intent shall be
deemed terminated by all parties thereto as of the Closing Date.
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<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
DENTICATOR INTERNATIONAL, INC.
By: /s/ Jose L. Mendoza
------------------------------
Name: Jose L. Mendoza
----------------------------
Its: President
BIO DENTAL TECHNOLOGIES CORP.
By: /s/ Terry E. Bane
--------------------------------
Name: Terry E. Bane
------------------------------
Its: Chief Financial Officer
-------------------------------
/s/ Jose L. Mendoza
-----------------------------------
JOSE L. MENDOZA
YOUNG INNOVATIONS, INC.
By: /s/ George E. Richmond
--------------------------------
Name: George E. Richmond
------------------------------
Its: President
-------------------------------
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<PAGE> 1
EXHIBIT 10.14
ASSIGNMENT AND RELEASE AGREEMENT
THIS ASSIGNMENT AND RELEASE AGREEMENT (this "Agreement") is made this 22nd
day of July, 1996 by and among BIO DENTAL TECHNOLOGIES CORPORATION, a
California corporation ("Bio Dental"), DENTICATOR INTERNATIONAL, INC., a
Missouri corporation ("DII"), DENTICATOR INTERNATIONAL, INC., a California
corporation (the "Predecessor") and YOUNG INNOVATIONS, INC., a Missouri
corporation ("Young").
WITNESSETH
WHEREAS, Bio Dental and the Predecessor are parties to that certain Exclusive
License Agreement dated March 31, 1991, as amended by the Extension and
Modification of Exclusive License Agreement dated April 1, 1994, and as further
amended on January 19, 1996 (the Exclusive License Agreement, and all
amendments thereto being collectively referred to as the "License Agreement");
WHEREAS, Bio Dental, the Predecessor and Young have entered into that certain
Asset Purchase Agreement of even date herewith (the "Purchase Agreement")
wherein Young or DII shall purchase certain assets and assume certain
liabilities of the Predecessor; and
WHEREAS, pursuant to the terms and conditions set forth in this Agreement,
Bio Dental will sell and convey all of Bio Dental's rights, privileges,
interests and claims under the License Agreement to DII, and shall release DII,
the Predecessor and Young, and their respective affiliates, from any claims,
liabilities, demands, causes of action or suits that Bio Dental or its
affiliates may have against such parties arising out of or in any way connected
with (i) the License Agreement, or (ii) any other agreement, contract,
arrangement, occurrence or transaction, whether written or oral, of any nature
whatsoever, between such parties, other than this Agreement, and DII and the
Predecessor will similarly release Bio Dental.
NOW, THEREFORE, in consideration of the premises and the mutual
representations hereinafter set forth, the parties hereto hereby agree as
follows:
1. PURCHASE OF RIGHTS; RELEASE OF CLAIMS. Pursuant to the terms and
conditions contained herein, and to induce Young and DII to consummate the
transactions contemplated by the Purchase Agreement, Bio Dental hereby
transfers and conveys to DII all of the rights and interests of Bio Dental
under the License Agreement and Bio Dental hereby releases DII, the
Predecessor, Young and their respective officers, directors and subsidiaries
from any claims, liabilities or amounts owing to Bio Dental through the date
hereof arising out of or in any way connected with (i) the License Agreement,
or (ii) any other agreement, contract, arrangement, occurrence or transaction,
whether written or oral, of any nature whatsoever, between Bio Dental and the
Predecessor, other than (w) this Agreement, (x) the Purchase Agreement, (y)
other agreements and instruments entered into or executed pursuant to the
Purchase Agreement and (z) amounts owing by DII, the Predecessor or Young for
goods purchased from Bio Dental in the ordinary course of business. Without
limiting the foregoing, Bio Dental hereby expressly acknowledges that upon full
execution of this Agreement, Bio Dental shall not have any rights in or receive
any royalties from DII's use of the name "Denticator" or the manufacture and
distribution of products of DII or the Predecessor. The Predecessor and DII
each releases Bio Dental and its officers, directors and subsidiaries from any
claims, liabilities or amounts owing to DII through the date hereof arising out
of or in any way connected with (i) the License Agreement, or (ii) any other
agreement,
<PAGE> 2
contract, arrangement, occurrence or transaction, written or oral, of any
nature whatsoever, between Bio Dental and the Predecessor, other than (w) this
Agreement, (x) the Purchase Agreement, (y) other agreements and instruments
entered into or executed pursuant to the Purchase Agreement and (z) amounts
owing by Bio Dental to the Predecessor or DII for goods purchased from them in
the ordinary course of business. Each of Bio Dental and the Predecessor
acknowledges that Bio Dental and the Predecessor have performed fully all of
their obligations under the License Agreement.
2. PURCHASE PRICE; METHOD OF PAYMENT. In consideration of the assignment of
rights and interests and the full release described in Section 1 above, and for
Bio Dental's non-compete agreement in Section 6, Young hereby makes the
following payments and provides the below-defined Product Credit:
2.1 CASH PAYMENT. Cash in the amount of Seven Million Four Hundred Forty
Nine Thousand Eighty Seven and NO/100 Dollars ($7,449,087.00) paid herewith
to Bio Dental.
2.2 ESCROW PAYMENT. Cash in the amount of One Hundred Thousand Dollars
($100,0000) paid to The Union Bank of California ("Escrow Agent") pursuant to
an Escrow Agreement of even date herewith among Bio Dental, Young and Escrow
Agent, said funds to be disbursed by the Escrow Agent according to the terms
of the Escrow Agreement.
2.3 PRODUCT CREDIT. Young hereby grants a credit (the "Product Credit")
to Bio Dental that may be applied by Bio Dental or its subsidiary The Supply
House ("Supply House") (or any other subsidiary of Bio Dental) toward future
purchases of products from Young or subsidiaries of Young. The Product
Credit shall be in an amount equal to the aggregate amounts owing to Bio
Dental by the Predecessor at the Closing Date (as defined in the Purchase
Agreement), which amounts shall be calculated (i) according to the terms of
the License Agreement, and (ii) consistent with the calculation of the
amounts owing by the Predecessor to Bio Dental as of March 31, 1996. The
Product Credit and Mendoza Payment (as defined in Section 5.2 below) will,
however, be reduced, by a ratio of fifty percent (50%) against the Product
Credit and fifty percent (50%) against the Mendoza Payment, by the amount (if
any) by which the Net Working Capital (as defined below) of the Predecessor
as reflected on the balance sheet of the Predecessor as at the Closing Date
(the "Closing Balance Sheet") is less than $471,783.00 (the Net Working
Capital of the Predecessor at March 31, 1996). For purposes of this
provision, the term Net Working Capital means the difference between the
current assets and the current liabilities of the Predecessor reflected on
its balance sheet, adjusted, however, to (i) delete from such balance sheet
all amounts owed by Bio Dental to the Predecessor or by the Predecessor to
Bio Dental except amounts owing for goods purchased in the ordinary course of
business, and (ii) include in current liabilities all outstanding
indebtedness (whether short-term or long-term) of Seller to Bank of
California. The Closing Balance Sheet will be prepared by Young and the
Predecessor in accordance with generally accepted accounting principles on a
basis consistent with the preparation of the balance sheet of the Predecessor
as at March 31, 1996.
Bio Dental shall be provided reasonable access to the accounting records,
supporting schedules and documents of the Predecessor. Bio Dental may review
the closing financial statements of the Predecessor, including adjustments
and reserves, allowances or accrued liabilities of any kind. If Bio Dental,
after reviewing the financial statements, corresponding accounting records,
supporting schedules and/or documents of the Predecessor, disagrees with any
item or adjustment, Bio Dental shall submit in writing its disagreement to
Young. Young shall review the facts and circumstances of the disagreement
and shall render a binding decision on the disagreement within fifteen (15)
business days.
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<PAGE> 3
3. APPLICATION OF PRODUCT CREDIT. Purchases by Bio Dental or Supply House
(or any other subsidiary of Bio Dental) from Young or its affiliates or
subsidiaries will be applied against the Product Credit at the prevailing
prices in effect at the time of the purchases. Young shall provide to Bio
Dental (i) written confirmation acknowledging application of all or a portion
of the Product Credit to a specific purchase order, and (ii) quarterly written
notification regarding the outstanding remaining balance of the Product Credit.
4. LIMITATION ON PRODUCT CREDIT. Use of all or a portion of the Product
Credit shall not be permitted in an amount by which all shipments exceed in any
month $55,000, which is the approximate average historical monthly shipments
level to Bio Dental and Supply House from Young and its subsidiaries over the
twelve (12) month period ended March 31, 1996; provided, however, that to the
extent that the application of the Product Credit by Bio Dental, Supply House
and other subsidiaries of Bio Dental is in the aggregate below such amount for
any month, application of the Product Credit may exceed such amount by the
amount of such difference in a subsequent month. For any such shipments to
which the Product Credit cannot be applied because of the foregoing limits, the
standard wholesale terms and conditions of Young or its subsidiary with which
the order is placed shall apply. The Product Credit shall not include freight,
insurance and other charges.
5. REDUCTION IN PRODUCT CREDIT FOR INDEMNIFICATION.
5.1 EVENT OF REDUCTION. In the event that Young or a subsidiary of Young
is entitled to indemnification against Losses (as defined therein) pursuant
to Section 8.06 of the Purchase Agreement (the "Indemnification Amount"),
Young shall have the right to reduce the then existing amount of the Product
Credit by an amount calculated pursuant to Section 5.2 hereof. Young shall
also have the right to set off against the Product Credit any amounts owing
to Young or its subsidiaries by Bio Dental or its subsidiaries. In the event
that Young exercises such right of set-off, Young shall provide written
notification to Bio Dental of such action, and of the amount of such set-off.
5.2 CALCULATION OF AMOUNT OF SET-OFF. If, at the time Young is entitled
to reduce the Product Credit pursuant to Section 5.1, Jose L. Mendoza
("Mendoza") is still entitled to receive all or a portion of the Three
Hundred Five Thousand Dollar ($305,000) payment described in Section 4.3 of
the Employment and Noncompetition Agreement between Mendoza and a subsidiary
of Young (the "Mendoza Payment"), then the Indemnification Amount shall be
charged against the Product Credit and the Mendoza Payment in the ratio of
seventy-five percent (75%) against the Product Credit and twenty-five percent
(25%) against the Mendoza Payment. The Indemnification Amount charged
against (i) the Mendoza Payment shall not exceed the remaining Mendoza
Payment and Mendoza's liability under this Agreement is limited to the
remaining balance of the Mendoza Payment and (ii) the Product Credit shall
not exceed the remaining Product Credit and Bio Dental's liability is limited
to the remaining balance of the Product Credit. If a portion of the
Indemnification Amount still remains unsatisfied because the Mendoza Payment
or the Product Credit has been fully satisfied, the remaining Product Credit
or Mendoza Payment, respectively, as the case may be, shall be reduced by
such amount. At such time as the Product Credit or Mendoza Payment has been
satisfied in full and Young remains entitled to set- off pursuant to Section
8.08 of the Purchase Agreement, the remaining Mendoza Payment or Product
Credit, respectively, as the case may be, shall be reduced by one hundred
percent (100%) of the Indemnification Amount.
6. NONCOMPETITION AGREEMENT. For a period of two (2) years after the
effective date of this Agreement, Bio Dental shall not, and shall cause its
subsidiaries not to, within North America,
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<PAGE> 4
directly or indirectly, compete with Young or a subsidiary of Young in
manufacturing, licensing others to manufacture or selling under private label
any products, including prophy angles, which are the same, substantially
similar to or in direct competition with any products manufactured, sold or
distributed by the Predecessor prior to the Closing Date. Notwithstanding the
above, Bio Dental and its subsidiaries shall be permitted to (i) sell and
distribute such products manufactured by others, but not those products listed
on Schedule 6.1 hereto, which are sold under the name of Bio Dental or of any
affiliate of Bio Dental unless and to the extent Bio Dental or its affiliate
sold such products under its name pursuant to private label arrangements in
effect prior to May 31, 1996; and (ii) sell and distribute such products
pursuant to arrangements with Young or any affiliates of Young.
7. AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or
supplemented only by a written instrument executed by all of the parties
hereto.
8. ASSIGNMENT. Nothing contained in this Agreement shall be construed to
permit the assignment or delegation by any party hereto of any rights or
obligations hereunder and such assignment is expressly prohibited without the
written consent of the other parties hereto. Notwithstanding the foregoing,
however, Bio Dental shall be permitted to assign its rights and obligations
hereunder to Zila, Inc. without the consent of the other parties hereto;
provided, however, that such assignment shall not relieve Bio Dental of any of
its obligations or duties hereunder nor shall such assignment affect Young's
rights hereunder including, without limitation, Young's right to reduce the
Product Credit pursuant to Section 5.1 hereof. Notwithstanding any other
provision contained herein, Young and DII may pledge or grant a security
interest in any of their rights under this Agreement to any federal or state
chartered lending institution.
9. SEVERABILITY. If any term, covenant, or condition of this Agreement or
the application thereof to any person or circumstance shall be invalid or
unenforceable, the remainder of this Agreement and the application of any term
or provision to persons and circumstances other than those as to which it is
held invalid or unenforceable shall not be affected thereby, and all other
terms shall be valid and enforceable to the fullest extent permitted by law.
10. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties hereto and it supersedes all prior agreements and understandings
between the parties hereto with respect thereto.
11. GOVERNING LAW. This Agreement shall be governed by the internal laws of
the State of California, without regard to conflict of law principles.
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
DENTICATOR INTERNATIONAL, INC., BIO DENTAL TECHNOLOGIES
CORPORATION,
a Missouri corporation a California corporation
By: /s/ George E. Richmond By: /s/ Terry E. Bane
------------------------------ ------------------------------
Name: George E. Richmond Name: Terry E. Bane
---------------------------- ----------------------------
Its: Vice President Its: Chief Financial Officer
----------------------------- ------------------------------
DENTICATOR INTERNATIONAL, INC., YOUNG INNOVATIONS, INC.,
a California corporation a Missouri corporation
By: /s/ Jose L. Mendoza By: /s/ George E. Richmond
------------------------------ -------------------------------
Name: Jose L. Mendoza Name: George E. Richmond
---------------------------- -----------------------------
Its: President Its: President
----------------------------- ------------------------------
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SCHEDULE 6.1
BIO DENTAL PRIVATE LABEL DISTRIBUTION - PROHIBITED PRODUCTS:
Prophy Angles
Prophy Cups
Prophy Paste
Disposable Surgical Aspirators
<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT ("Agreement") is made
this 22nd day of July, 1996, by and between DENTICATOR INTERNATIONAL, INC., a
Missouri corporation ("Corporation") and JOSE L. MENDOZA, an individual
residing at 821 Valvista Way, Auburn, California 95603 ("Employee").
WITNESSETH:
WHEREAS, Corporation is principally engaged in the business of
manufacturing and distributing dental products, and Employee has substantial
experience in such industry, and has been the principal executive officer of
Corporation's predecessor for approximately five (5) years;
WHEREAS, Employee desires to be employed by Corporation and
Corporation desires to secure Employee's services; and
WHEREAS, employee has executed an Agreement to Assign Inventions dated
as of the date hereof, in form and in substance satisfactory to Corporation, a
copy of which is attached hereto as Exhibit A.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises herein contained, the adequacy of which is hereby
acknowledged, Corporation and Employee hereby agree as follows.
I. EMPLOYMENT
Corporation employs Employee, and Employee accepts employment by
Corporation, upon all of the terms and conditions set out in this Agreement.
II. POSITIONS AND DUTIES
2.1 POSITIONS. Employee shall serve as President and Chief
Executive Officer of Corporation during the term of this Agreement.
2.2 DUTIES, RESPONSIBILITIES AND INVOLVEMENT. Employee's duties,
responsibilities and involvement shall include, without limitation, the
supervision and oversight of the day to day operations of Corporation,
including the performance of all duties typically vested in the chief executive
officer of a corporation, all to the extent and in the manner prescribed by the
Bylaws of Corporation and the Board of Directors of Corporation. Employee
shall report to the Board of Directors of Corporation.
2.3 COMMITMENT TO CORPORATION. Employee shall devote his full
business time, attention and energies to the business of Corporation and to the
performance of his responsibilities hereunder, provided, however, that Employee
may devote a portion of his time to other business interests, so long as such
interests do not unreasonably interfere with Employee's performance of his
obligations hereunder.
<PAGE> 2
2.4 COMPLIANCE. Employee agrees to abide by the Articles of
Incorporation and By-Laws of Corporation and such reasonable directions as are
given from time to time by the Board of Directors of Corporation which are not
inconsistent with this Agreement.
III. TERM OF EMPLOYMENT
3.1 TERM. The term of Employee's employment under this Agreement (the
"Term") shall commence on July 22, 1996, and shall continue for a period of
three (3) years until midnight on July 21, 1999, unless sooner terminated as
provided in this Agreement; provided that the Term will be automatically
extended for successive one (1) year periods on each termination date unless,
at least sixty (60) days prior to such termination date, either party notifies
the other party in writing that this Agreement will be terminated on such
termination date.
IV. COMPENSATION
4.1 BASE PAY. For all services rendered by Employee to Corporation
in any capacity, Employee shall be entitled to receive compensation at the rate
determined in accordance with the provisions of the attached Schedule 4.1
("Base Pay"). Such compensation shall be payable in accordance with
Corporation's normal payroll procedures as determined from time to time by the
Board of Directors of Corporation.
4.2 WITHHOLDING. All payments of compensation shall be less such
amounts as are required to be withheld by federal, state or local law.
4.3 ADDITIONAL COMPENSATION. As consideration for the noncompetition
provisions contained in Article XII of this Agreement, Employee shall be
entitled to receive cash in the amount of, in the aggregate, Three Hundred Five
Thousand Dollars ($305,000) (the "Noncompete Payment"). Employee shall receive
the Noncompete Payment in four (4) equal installments of Seventy Six Thousand
Two Hundred Fifty Dollars ($76,250) commencing on July 22, 1996, and thereafter
on October 22, 1996, January 22, 1997 and April 22, 1997.
4.3.1 REDUCTIONS TO NONCOMPETE PAYMENT.
4.3.1.1 REDUCTION PURSUANT TO INDEMNIFICATION CLAIMS.
In the event that Young Innovations, Inc., a Missouri
corporation ("Young") or an affiliate of Young, is entitled to
receive any amounts pursuant to the indemnification provisions
contained in that certain Asset Purchase Agreement dated July
22, 1996 by and among Employee, Young, Bio Dental Technologies
Corp. ("Bio Dental") and Denticator International, Inc. (the
"Indemnification Amount"), and Employee is still entitled to
receive all or a portion of the Noncompete Payment, then, to
the extent possible, twenty-five percent (25%) of the
Indemnification Amount shall be charged against the Noncompete
Payment. The Indemnification Amount charged against the
Noncompete Payment, however, shall in no event exceed the
remaining unpaid balance of the Noncompete Payment and
Employee's liability under this Section 4.3.1.1 shall be
limited to the remaining unpaid balance of the Noncompete
Payment.
4.3.1.2 REDUCTION PURSUANT TO CHANGES IN NET WORKING
CAPITAL. In the event that the Net Working Capital (as
defined below) of Denticator International, Inc., a California
corporation and the predecessor to Corporation ("Denticator"),
as reflected on the balance sheet of Denticator dated as of
July 22, 1996, is less than
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<PAGE> 3
$471,783.00 (the Net Working Capital of Denticator at
March 31, 1996), then, to the extent possible, fifty percent
(50%) of such difference shall be charged against the
Noncompete Payment. For purposes of this provision, the term
Net Working Capital means the difference between the current
assets and the current liabilities of Denticator reflected on
its balance sheet, adjusted, however, to (i) delete from such
balance sheet all amounts owed by Bio Dental to Denticator or
by Denticator to Bio Dental except amounts owing for goods
purchased in the ordinary course of business, and (ii) include
in current liabilities all outstanding indebtedness (whether
short-term or long-term) of Seller to Bank of California. The
amount charged against the Noncompete Payment pursuant to this
provision, however, shall in no event exceed the remaining
unpaid balance of the Noncompete Payment and Employee's
liability under this Section 4.3.1.2 shall be limited to the
remaining unpaid balance of the Noncompete Payment.
V. BONUS STOCK; INSURANCE
5.1 PERFORMANCE BASED BONUS STOCK; SHAREHOLDER AGREEMENT. Pursuant
to the terms of this Agreement, Employee shall be entitled to receive shares
of the common stock (the "Bonus Stock") of Young with a value, in the
aggregate, of Eight Hundred Thousand Dollars ($800,000), with such valuation
being measured at the time Employee becomes entitled to receive the Bonus
Stock. Prior to, and as a condition to, receiving the Bonus Stock, Employee
shall have executed a Shareholder Agreement (the "Shareholder Agreement") in
substantially the form of Exhibit B attached hereto.
5.2 RECEIPT OF BONUS STOCK. Employee shall be entitled to receive
the Bonus Stock on July 22, 1998 (the "Granting Date").
5.3 VALUATION OF SHARES. On the Granting Date, Corporation shall
perform a valuation in accordance with the following to determine the then
applicable value of the common stock of Young:
(a) If, on the Granting Date, the common stock of Young is listed
on a national securities exchange, the value of such common
stock shall be the closing price of the common stock of Young
on such exchange on the last trading date prior to the
Granting Date;
(b) If, on the Granting Date, the common stock of Young is quoted
on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), the value of such common stock
shall be the last reported sale price prior to the Granting
Date;
(c) If, on the Granting Date, the common stock of Young is not
listed on a national securities exchange or quoted on NASDAQ,
but an active trading market exists with respect to such
common stock, the value of such common stock shall be the last
reported sale price in such market prior to the Granting Date;
or
(d) If neither (a), (b) or (c) above shall apply, the value of the
common stock of Young shall be determined as follows:
1. By mutual agreement between Corporation and
Employee as to the value of such common stock.
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<PAGE> 4
2. If Corporation and Employee cannot reach mutual
agreement as to the value of the common stock of Young, then
an independent appraiser or valuation firm that is acceptable
to both Corporation and Employee shall be engaged to establish
the value of such common stock, and such valuation shall be
conclusive and binding upon Corporation and Employee.
3. If Corporation and Employee cannot mutually agree
to the value of the common stock of Young or as to a mutually
acceptable appraiser or valuation firm, then Corporation and
Employee shall each select a qualified independent appraiser
or valuation firm, who in turn shall select a third
independent appraiser or valuation firm who shall be
responsible for determining the value of the such common
stock, and such valuation shall be conclusive and binding upon
Corporation and Employee.
In the event that the value of the common stock of Young is determined
pursuant to Subparagraph (d) above, the costs of such valuation shall be
divided equally between Corporation and Employee.
The determination of value of the common stock of Young pursuant to
subparagraphs (a), (b) and (c) above shall be made in good faith by Young's
Board of Directors, whose decision shall be final and binding on all parties.
5.4 CALCULATION OF NUMBER OF SHARES. Employee shall be entitled to
receive that number of shares of Bonus Stock (rounded down to the nearest whole
share with Employee receiving cash in lieu of any fractional share) as
determined by dividing Eight Hundred Thousand Dollars ($800,000) by the per
share price of common stock of Young as determined pursuant to Section 5.3.
5.5 REPURCHASE BY CORPORATION. Employee shall have the right to
require Corporation to repurchase from Employee up to forty percent (40%) of
the Bonus Stock (rounded down to the nearest whole share) distributed to
Employee on the Granting Date. Employee shall provide written notice to
Corporation of Employee's intention to exercise such right at least ten (10)
days prior to the Granting date and such notice shall state what percentage of
the Bonus Stock that Corporation shall be required to repurchase. Corporation
shall, within five (5) days after the completion of the valuation pursuant to
Section 5.3 hereof, repurchase such Bonus Stock. The repurchase price of each
share of the Bonus Stock repurchased shall be the same price per share at which
the Bonus Stock was valued with respect to the Granting Date. Upon such
repurchase, Corporation shall deliver to Employee its check for the repurchased
Bonus Stock, together with a certificate for the number of shares of Bonus
Stock to be received by Employee.
5.6 RESTRICTIONS ON TRANSFER UNDER SHAREHOLDER AGREEMENT. Employee
recognizes that so long as Young is not required to file reports with
the Securities and Exchange Commission pursuant to Sections 13 or 15(d) of the
Securities and Exchange Act of 1934 (the "Exchange Act"), Employee shall be
subject to the terms and conditions of the Shareholder Agreement, and Employee
may not, except under certain circumstances, sell, transfer or otherwise
dispose of the Bonus Stock.
5.7 STOCK UNREGISTERED; SECURITIES ACT MATTERS. Employee has been
advised by Corporation that (i) the Bonus Shares have not been registered under
the Securities Act of 1933 (the "Securities Act"); (ii) the Bonus Shares may
not be sold, transferred or otherwise disposed of by Employee unless the offer
and sale of the Bonus Shares is subsequently registered under the Securities
Act or an exemption from such registration is available; (iii) there is not
currently any public market for the Bonus Shares; (iv) Rule 144 promulgated
under the Securities Act is not available to authorize
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<PAGE> 5
the sale by Employee at this time of any securities of Corporation including
the Bonus Shares and Corporation has made no representation as to the future
availability of such Rule for such a purpose; (v) when and if the Bonus Shares
may be disposed of without registration under the Securities Act in reliance on
Rule 144, such disposition can be made only in accordance with the terms and
conditions of such Rule; (vi) if the Rule 144 exemption is not available,
public offer or sale without registration will require the availability of an
exemption under the Securities Act; (vii) a restrictive legend in the form
heretofore set forth will be placed on the certificates representing the Bonus
Shares; and (viii) a notation will be made in the appropriate records of Young
indicating that the Bonus Shares are subject to restriction on transfer and, if
Young should at some time in the future engage the services of a stock transfer
agent, appropriate stop transfer restrictions will be issued to such transfer
agent with respect to the Bonus Shares.
5.8 LEGENDS. Any certificate representing Bonus Stock issued pursuant
to this Article V shall bear the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
"THIS CERTIFICATE MAY BE SOLD OR TRANSFERRED ONLY UPON
COMPLIANCE WITH THE TERMS AND CONDITIONS OF AN AGREEMENT DATED
__________, 1998, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE CORPORATION."
5.9 TERM LIFE INSURANCE. Corporation shall purchase and keep in
effect until the Granting Date a term life insurance policy on the life of
Mendoza in the amount of $800,000 (the "Policy"), with the beneficiary to be
named by Mendoza; provided, that if Mendoza does not name a beneficiary,
Mendoza's spouse shall be the beneficiary. Notwithstanding the foregoing
sentence, Corporation shall not be obligated to purchase the Policy if the life
of Mendoza is, for any reason, not insurable, or not insurable for premiums
less than $5,000 per year.
VI. FRINGE BENEFITS
Employee shall be entitled to participate with other employees of
Corporation, so long as Employee meets the applicable eligibility requirements,
in such employee fringe benefit plans as may be authorized and adopted from
time to time by the Board of Directors of Corporation. Corporation may
furnish, withdraw or modify such other benefits for Employee as the Board of
Directors of Corporation shall determine from time to time within its
discretion.
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<PAGE> 6
VII. EXPENSES
Reasonable expenses incurred and paid by Employee for promoting the
business of Corporation, including expenses for transportation, promotion,
entertainment, travel, telephone, and similar items, shall be subject to
reimbursement to the extent authorized for reimbursement by Corporation in
accordance with reasonable rules and regulations adopted by the Board of
Directors. Such expenses as are so authorized for reimbursement shall be paid
for by Corporation or reimbursed to Employee upon Employee's presenting to
Corporation an itemized expense statement with respect thereto.
VIII. DEATH OF EMPLOYEE
In the event of Employee's death during the Term of this Agreement
(whether Employee is then actively engaged in the performance of services for
Corporation or is being compensated for disability), this Agreement shall
terminate immediately and Employee's estate shall be entitled to receive from
Corporation, in full satisfaction of Corporation's obligations to Employee, a
lump sum in an amount equal to the Base Pay due Employee up to the date of
Employee's death plus any portion of the Noncompete Payment that has not been
paid to Employee. In the event of Employee's death prior to the Granting Date,
Employee's estate shall not be entitled to receive any portion of the Bonus
Stock or cash in lieu of the Bonus Stock.
IX. TERMINATION OF EMPLOYMENT
9.1 TERMINATION BY CORPORATION. Corporation may terminate
Employee's employment pursuant to this Agreement as follows:
A. TERMINATION UPON DISABILITY. The Board of Directors of
Corporation may terminate Employee's employment hereunder if, as a
result of Employee's incapacity resulting from physical or mental
illness, Employee shall have been unable to perform his duties
hereunder for a period of more than sixty (60) consecutive days or one
hundred twenty (120) days, whether or not consecutive, during any
twelve-month period.
B. TERMINATION FOR CAUSE. The Board of Directors of
Corporation may terminate Employee's employment hereunder without any
prior notice for "Cause" only upon commission by Employee of a crime
of moral turpitude or the willful and continued failure by Employee to
perform his duties to Corporation, including, without limitation, the
commission by Employee of acts of gross negligence, dishonesty or
misconduct, and/or failure to comply with his obligations under this
Agreement (other than any such failure resulting from incapacity due
to mental or physical illness) after a demand in writing for
performance is delivered by the Board of Directors of Corporation,
which demand specifically identifies the manner in which the Board
believes that Employee has not substantially performed his duties to
Corporation or complied with his obligations under this Agreement.
C. EFFECT OF TERMINATION UNDER SUBSECTION (A). In the
event that Employee's employment terminates as a result of a
disability pursuant to Subsection (A) above, Corporation shall pay to
Employee or Employee's representatives, in full satisfaction of its
obligations to Employee, a lump sum payment equal to the sum of (i)
the Base Pay due Employee through the date of termination pursuant to
Subsection (A) above, (ii) any portion of the Noncompete Payment that
has not been paid to Employee and (iii) if such termination occurs
prior to the Granting Date, cash equal to $800,000 times a fraction,
the numerator of
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<PAGE> 7
which is the number of days between the date of this Agreement and the
date of such termination, and the denominator of which is 730.
D. EFFECT OF TERMINATION UNDER SUBSECTION (B). In the
event that Employee's employment is terminated at any time by the Board
of Directors of Corporation pursuant to Subsection (B) above,
Corporation shall pay Employee, in full satisfaction of its obligations
to Employee, all Base Pay due Employee up through the date such
termination occurs and any portion of the Noncompete Payment that has
not been paid to Employee.
9.2 TERMINATION BY EMPLOYEE. Employee may terminate Employee's
employment pursuant to this Agreement in the event that Corporation, during the
Term of this Agreement, has failed to perform its obligations hereunder, and
has not cured such failure within sixty (60) days after written notice by
Employee of such failure.
In the event of any termination by Employee pursuant to this Section
9.2, or by Corporation other than pursuant to Article VIII or Section 9.1,
Corporation shall pay Employee as full satisfaction of its obligations to
Employee the Base Pay owed to Employee by Corporation through the date of such
termination plus a lump sum equal to the sum of the aggregate amount of (i)
Employee's Base pay for the lesser of (y) twelve (12) months, or (z) the
remainder of the Term as if the Agreement had not been so terminated; (ii) the
unpaid balance, if any, of the Noncompete Payment; and (iii) if such
termination occurs prior to the Granting Date, then either (y) cash, in lieu of
the Bonus Stock, in an amount equal to Four Hundred Thousand Dollars
($400,000), if such termination occurs during the first twelve (12) month
period of the Term, or (z) cash, in lieu of the Bonus Stock, in an amount equal
to Eight Hundred Thousand Dollars ($800,000), if such termination occurs during
the second twelve (12) month period of the Term.
In the event of any termination by Employee other than pursuant to
this Section 9.2, Corporation shall pay Employee, in full satisfaction of its
obligations to Employee, all Base Pay due Employee up through the date of such
termination.
9.3 COOPERATION BY EMPLOYEE. Following any such notice of
termination, Employee shall fully cooperate with Corporation in all matters
relating to the winding up of Employee's pending work on behalf of Corporation
and the orderly transfer of any such pending work to such other employees of
Corporation as may be designated by Corporation; and to that end, Corporation
shall be entitled to such full-time or part-time services of Employee as
Corporation may reasonably require during all or any part of the period from
the time of giving any such notice until the effective date of such
termination.
X. FILES AND RECORDS
All files, records, reports and other documents concerning customers
of Corporation or any of its Affiliates (as such term is defined in Rule 12b-2
promulgated under the Exchange Act), including, without limitation, clients and
customers consulted, interviewed or served by Employee during the term of this
Agreement shall belong to and remain the property of Corporation or its
Affiliates.
XI. CONFIDENTIAL INFORMATION
11.1 NONDISCLOSURE BY EMPLOYEE. Employee will not, except for the
purpose of benefiting Corporation or its Affiliates, during Employee's
employment with Corporation, and Employee will not under any circumstances at
any time after termination of Employee's employment, directly or
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<PAGE> 8
indirectly, use for himself or others, or disclose, communicate, divulge,
furnish to, or convey to, any other person, firm or corporation, any secret or
confidential information, knowledge or data of Corporation or its Affiliates or
that of third parties obtained by Employee during the period of his employment
with Corporation and such information, knowledge or data includes, without
limitation, the following:
(a) Secret or confidential matters of a technical nature such as,
but not limited to, methods, know-how, formulae, compositions,
processes, discoveries, manufacturing techniques, inventions,
computer programs, and similar items or research projects
involving such items;
(b) Secret or confidential matters of a business nature such as,
but not limited to, information about costs, purchasing,
profits, market, sales or customers; or
(c) Secret or confidential matters pertaining to future
developments such as, but not limited to, research and
development or future marketing or merchandising.
11.2 SURRENDER OF INFORMATION. Employee, upon termination of his
employment with Corporation, or at any other time upon Corporation's written
request, shall deliver promptly to Corporation all letters, notes, notebooks,
reports, computer programs and similar items, memoranda, lists of customers and
all other materials and copies thereof relating in any way to Corporation's or
its Affiliates' business which contain confidential information and which were
in any way obtained by Employee during the term of his employment with
Corporation which are in his possession or under his control. Employee will
not make or retain any copies of any of the foregoing and will so represent to
Corporation upon termination of his employment.
11.3 NOTIFICATION OF SUBSEQUENT EMPLOYERS. Corporation may notify
any person, firm or corporation employing Employee or evidencing an intention
to employ Employee as to the existence and provisions of this Agreement.
11.4 REMEDIES. Employee understands and acknowledges that such
confidential information or other commercial ideas mentioned herein are unique
and that the disclosure or use of such matters or any other secret or
confidential information other than in furtherance of the business of
Corporation would reasonably be expected to result in irreparable harm to
Corporation or its Affiliates and that in addition to whatever other remedies
Corporation and/or its successors or assigns may have at law or in equity,
Employee specifically covenants and agrees that, in the event of default under
or breach of this Agreement, Corporation and/or its successors and assigns
shall be entitled to apply to any court of competent jurisdiction to enjoin any
breach, threatened or actual, of the foregoing covenants and promises by
Employee, and/or to sue to obtain damages for default under or any breach of
this Agreement. In the event of default under or breach of this Agreement,
Employee hereby agrees to pay all costs of enforcement and collection of any
and all remedies and damages under this Agreement, including reasonable
attorneys' fees as determined by a court of competent jurisdiction.
XII. LIMITATION ON COMPETITION
12.1 NONCOMPETITION AGREEMENT. During the period of employment and
for a period of two (2) years after expiration or termination of this Agreement
for any reason, Employee shall not, within North America, directly or
indirectly, as an owner, employee, consultant, sole proprietor or otherwise,
individually or collectively, acquire an interest in, become an employee of, or
consultant
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<PAGE> 9
to, a person, corporation or other entity which engages in manufacturing,
marketing, licensing others to manufacture or market or otherwise engages in a
business substantially similar to that of Corporation or its Affiliates,
including, without limitation, a dental manufacturing or distribution business.
Employee agrees that the geographic area, in light of the character of the
industry, and the duration of this limitation, are reasonable under the
circumstances, considering Employee's position with Corporation and other
relevant factors.
12.2 NONSOLICITATION AGREEMENT. Employee will not, either during
employment and for a period of two (2) years after expiration or termination of
this Agreement for any reason, directly or indirectly, either for himself or
for any other person, firm, or corporation, take any action or perform any
services which are designed to or in fact does call upon, compete for, solicit,
divert, or take away, or attempt to divert or take away, any of the customers
of Corporation or its Affiliates. This prohibition includes customers existing
at the present time or past customers solicited, sold to, or served by
Corporation or its Affiliates during the lesser of (i) the period of Employee's
employment by Corporation, or (ii) two (2) years.
12.3 NON-HIRE AGREEMENT. Employee will not, either during employment
and for a period of two (2) years after expiration or termination of this
Agreement for any reason, directly or indirectly, either for himself or for any
other person, firm or corporation, induce, employ or attempt to employ any
person who is at that time, or has been within six (6) months immediately prior
thereto, employed by Corporation or its Affiliates.
12.4 REMEDIES. It is further agreed that, if Employee shall violate
the foregoing prohibitions, Corporation shall be entitled to seek specific
performance of these covenants, and Employee shall pay all costs and attorneys'
fees, as determined by a court of competent jurisdiction, incurred by
Corporation in enforcing the aforesaid covenants if Corporation is successful
in so doing after a final adjudication of the matter. If any of the foregoing
covenants is not enforceable to the full extent provided, it shall be and
remain enforceable to the extent permitted by law, and a court is authorized by
the parties to modify such covenant to make it reasonable and, as so modified,
enforce it.
12.5 TERMINATION OF PROVISIONS. Notwithstanding the provisions hereof
regarding termination of this Agreement, the provisions of this Article XII
shall remain in full force and effect (including any extensions or renewals
provided for hereunder). However, in the event that this Agreement is
terminated as a result of Corporation filing for bankruptcy, having an
involuntary bankruptcy or receivership petition filed against Corporation which
is not dismissed within sixty (60) days, ceasing operations, dissolving or
becoming insolvent, the provisions of this Article shall be null and void.
XIII. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration in accordance with the
Rules of the American Arbitration Association at a mutually convenient location
agreed to by the parties or the arbitrators, and the parties hereby agree to be
bound by the results thereof. Each party shall choose one arbitrator and a
third arbitrator shall be chosen by the two arbitrators so chosen by the
parties. A judgment upon any award rendered by a majority opinion of the
arbitrators so chosen may be entered in any court having jurisdiction thereof.
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XIV. GENERAL PROVISIONS
14.1 WAIVER. The waiver by either party of a breach or violation of
any provision of this Agreement shall not operate as or be construed to be a
waiver of any subsequent breach hereof.
14.2 SEVERABILITY. Should any one or more sections of this Agreement
be found to be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining sections contained herein shall
not in any way be affected or impaired thereby. In addition, if any section
hereof is found to be partially enforceable, then it shall be enforced to that
extent.
14.3 NOTICES. Any and all notices required or permitted to be given
under this Agreement shall be sufficient if furnished in writing and personally
delivered or sent by registered or certified mail to the last known residence
address of Employee or to Corporation c/o Young at its principal office at
13705 Shoreline Court East, Earth City, Missouri 63045, or such other place as
it may subsequently designate in writing.
14.4 GOVERNING LAW. This Agreement shall be interpreted, construed
and governed according to the internal laws of the State of California.
14.5 SECTION HEADINGS. The section headings contained in this
Agreement are for convenience only and shall in no manner be construed to limit
or define the terms of this Agreement.
14.6 COUNTERPARTS. This Agreement shall be executed in two or more
counterparts, each of which shall be deemed an original and together they shall
constitute one and the same Agreement, with at least one counterpart being
delivered to each party hereto.
14.7 ASSIGNABILITY. Neither party shall have the right to assign
this Agreement without the consent of the other party.
14.8 SUCCESSORS AND ASSIGNS BOUND. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and permitted assigns.
14.9 ENTIRE AGREEMENT. This is the entire and only agreement between
the parties respecting the subject matter hereof. This Agreement may be
modified only by a written instrument executed by all parties hereto.
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IN WITNESS WHEREOF, Corporation has caused this Agreement to be
executed by a duly authorized officer, and Employee has executed this Agreement
as of the date first written above.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
DENTICATOR INTERNATIONAL, INC.
By: /s/ George E. Richmond
-------------------------------
Name: George E. Richmond
-----------------------------
Its: Vice President
------------------------------
EMPLOYEE:
/s/ Jose L. Mendoza
-----------------------------------
JOSE L. MENDOZA
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<PAGE> 12
EXHIBIT A
[Copy of Agreement to Assign Inventions]
<PAGE> 13
EXHIBIT B
[Form of Shareholder Agreement]
<PAGE> 14
SCHEDULE 4.1
This constitutes Schedule 4.1 to the Employment and Noncompetition
Agreement dated July 22, 1996 between DENTICATOR INTERNATIONAL, INC., a
Missouri corporation ("Corporation") and JOSE L. MENDOZA, an individual
residing at 821 Valvista Way, Auburn, California 95603 ("Employee").
COMPENSATION
Employee shall receive, as Base Pay, One Hundred Twenty Thousand
Dollars ($120,000.00) per year.
<PAGE> 1
EXHIBIT 10.16
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made this 22nd day of
July, 1996 by and among YOUNG INNOVATIONS, INC., a Missouri corporation
("Young"), BIO DENTAL TECHNOLOGIES CORP., a California corporation ("Bio
Dental"), and THE UNION BANK OF CALIFORNIA (the "Escrow Agent").
WHEREAS, Young and Bio Dental are parties to that certain Asset
Purchase Agreement dated July 22, 1996 (the "Purchase Agreement"), pursuant to
which Young is purchasing substantially all of the assets of Denticator
International, Inc., a California corporation ("Denticator"), and pursuant to
which Bio Dental shall receive a portion of the consideration for selling and
conveying to Young, or a subsidiary of Young, all of Bio Dental's rights,
privileges, interests and claims under that certain Exclusive License Agreement
between Bio Dental and Denticator dated March 31, 1991, as amended.
WHEREAS, pursuant to the Purchase Agreement, Young is required to
deposit with the Escrow Agent a portion of the consideration payable to Bio
Dental; and
WHEREAS, the Escrow Agent has accepted such agency and agreed to hold
such funds in accordance with and subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Establishment of Escrow Account; Purpose.
(a) Establishment. The Escrow Agent shall establish at its
offices located at San Francisco, California an escrow account (the
"Escrow Account") and shall cause all funds deposited into the Escrow
Account to be held, invested and distributed in accordance with the
terms of this Agreement. The amount deposited into the Escrow
Account, together with any proceeds of investments thereof, that may
be held in the Escrow Account from time to time are hereinafter
referred to collectively as "Escrow Funds." The Escrow Agent shall
keep appropriate records to reflect the current value from time to
time of the Escrow Funds, including appropriate adjustments for
disbursements and income earned or losses in respect thereof.
(b) Purpose of Escrow Account. The sole purpose of the
Escrow Account is to provide a fund against which Young may assert
claims for indemnification under Article VIII of the Purchase Agreement
for (i) a breach by Seller of Seller's representations and warranties
regarding certain environmental matters contained in Section 3.22 of
the Purchase Agreement, and (ii) any Losses (as such term is defined
in the Purchase Agreement) which arise out of the matters discussed in
the letter from the Environmental Protection Agency to Denticator
dated January 11, 1996. Young shall not be permitted to make claims
against the Escrow Account for any other matters.
2. Delivery of Escrow Funds. At Closing (as defined in the
Purchase Agreement) Young shall deliver or cause to be delivered to the Escrow
Agent in accordance with the terms of the Purchase Agreement, cash in the
amount of One Hundred Thousand Dollars ($100,000) to be deposited into the
Escrow Account.
<PAGE> 2
3. Investment of Escrow Funds. The Escrow Funds shall be
invested and reinvested by the Escrow Agent in such amounts and in such manner
as Bio Dental shall instruct the Escrow Agent from time to time in writing;
provided, however, that the Escrow Agent shall only invest the Escrow Funds in
those types of investments set forth on Exhibit A hereto. If the Escrow Agent
has not received instructions from Bio Dental prior to fifteen (15) days of the
expiration of the term of any instrument in which Escrow Funds are invested,
the Escrow Agent shall invest such Escrow Funds in instruments of the same or
of a substantially similar type as the instruments set forth on Exhibit A
hereto. Except as provided above, the Escrow Agent shall not be required to
invest any funds held hereunder unless requested by Bio Dental as provided
herein.
4. Release of Escrow Funds. The Escrow Agent shall release the
Escrow Funds as follows:
(a) Release Upon Mutual Written Instructions. Young and
Bio Dental may execute and deliver to the Escrow Agent written
instructions ("Mutual Written Instructions"), and the Escrow Agent
shall promptly upon receipt thereof disburse all or a portion of the
Escrow Funds in the Escrow Account as provided in such Mutual Written
Instructions.
(b) Release Upon Young Claim Notice. If Young shall have
delivered to the Escrow Agent one or more written notices (each a
"Young Claim Notice") stating that all or a portion of the Escrow
Funds in the Escrow Account specified in such notice or notices should
be released to Young because Young has made a claim against Bio Dental
under the Purchase Agreement for such amount or amounts, the Escrow
Agent shall retain such amount or amounts until the same are released
pursuant to subsections (c) or (e) hereof. Young shall deliver to Bio
Dental a copy of each Young Claim Notice on or prior to the date of
the delivery thereof to the Escrow Agent, and the Escrow Agent shall
also deliver a copy thereof to Bio Dental promptly after receipt from
Young.
(c) Release to Young. Unless the Escrow Agent shall have
received a Bio Dental Hold Notice as defined in Section 4(d) below
within thirty (30) days following receipt by the Escrow Agent of a
Young Claim Notice, the Escrow Agent shall promptly thereafter release
to Young such portion of the Escrow Account as is claimed by Young in
such Young Claim Notice.
(d) Bio Dental Hold Notice; Disputed Amounts. If, within
thirty (30) days of the Escrow Agent's receipt of a Young Claim Notice
pursuant to Section 4(b) above, Bio Dental shall have delivered
to the Escrow Agent written notice (a "Bio Dental Hold Notice")
stating that all or a portion of the Escrow Account specified in such
Young Claim Notice should not be released to Young, then the Escrow
Agent shall not release such disputed amounts until the occurrence of
one of the two events contemplated in Section 4(e) hereof. Bio Dental
shall deliver to Young a copy of such Bio Dental Hold Notice on or
prior to the date of the delivery thereof to the Escrow Agent and
the Escrow Agent shall also deliver a copy of such Bio Dental Hold
Notice to Young promptly after receipt thereof from Bio Dental.
(e) Release After a Bio Dental Hold Notice. In the event
that the Escrow Agent receives a Bio Dental Hold Notice as
contemplated by Section 4(d) hereof, that portion of the Escrow Account
that is in dispute as reflected in such Bio Dental Hold Notice shall
be held by the Escrow Agent until the occurrence of one of the
following events:
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(1) receipt by the Escrow Agent of Mutual Written
Instructions signed by Young and Bio Dental instructing the
Escrow Agent to release the disputed portion of the Escrow
Funds to such party or parties and in such amount or amounts
as is specified in such Mutual Written Instructions; or
(2) receipt by the Escrow Agent of a written notice
(a "Certified Judgment Notice") from Young or Bio Dental
certifying that a final court judgment with respect to the
claim covered by Young Claim Notice is attached to such
Certified Judgment Notice, in which case the Escrow Agent
shall distribute the disputed portion of the Escrow Funds in
accordance with such judgment, unless within fifteen (15) days
of the Escrow Agent's receipt of a Certified Judgment Notice,
the Escrow Agent receives a written notice (an "Appeal
Notice") from the party not submitting such Certified Judgment
Notice stating that the judgment has or can and will be
appealed. A party delivering a Certified Judgment Notice or
an Appeal Notice shall deliver to the other party hereto a
copy thereof on or prior to the date of delivery thereof to
the Escrow Agent, and the Escrow Agent shall also deliver a
copy of each Certified Judgment Notice or Appeal Notice to the
party which did not deliver the same promptly after the Escrow
Agent's receipt thereof.
(f) Release Upon Termination of Agreement. On July 22,
1999 (the "Termination Date"), the Escrow Agent shall disburse to Bio
Dental from the Escrow Account the amount, if any, by which the
balance of the Escrow Account exceeds the aggregate amount of all
Unresolved Claims (as defined below). The Escrow Funds retained by
the Escrow Agent shall be held solely for the purpose of satisfying
the Unresolved Claims outstanding as of the Termination Date. For
purposes of this Agreement, the term "Unresolved Claims" shall mean
all claims evidenced by a Young Claim Notice as to which the Escrow
Agent has not received Mutual Written Instructions or a Certified
Judgment Notice which is not the subject of an Appeal Notice, in
either case directing release of Escrow Funds. After the Termination
Date, each time an Unresolved Claim is resolved as provided for
herein, the amount of such Unresolved Claim shall be disbursed in
accordance with the Mutual Written Instructions or the Certified
Judgment Notice reflecting such resolution.
(g) Release of Accrued Interest. The Escrow Agent shall
distribute to Bio Dental, within five (5) days after the end of each
calendar quarter, an amount equal to 100% of all amounts earned on the
Escrow Funds in the Escrow Account. All earnings on the Escrow Funds
prior to the time they are disbursed will, for all purposes of this
Escrow Agreement, be treated as Escrow Funds, and will be released
according to the terms of this Section 4.
(h) Security Interests in Escrow Fund.
(1) Except as expressly provided herein, neither
Young nor Bio Dental shall have any right, title or interest
in or possession of the Escrow Account. Therefore, neither
Young nor Bio Dental shall have the ability to pledge, convey,
hypothecate or grant a security interest in the Escrow Account
or any portion thereof unless and until such assets have been
disbursed or are required to be disbursed to such party in
accordance with this Section 4, provided, however, that Young
may pledge or grant a security interest in any of its rights
under this Agreement to any federal or state chartered lending
institution.
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<PAGE> 4
(2) Each of Young and Bio Dental acknowledges that
its interest in the Escrow Account is merely a contingent
right to payment from such Escrow Account. Each of Young and
Bio Dental further acknowledges that neither a voluntary or
involuntary case under any applicable bankruptcy, insolvency
or similar law nor the appointment of a receiver, trustee,
custodian or similar official in respect of Young or Bio
Dental (any of which is referred to herein as a "Bankruptcy
Event") shall increase its respective interest in the Escrow
Account or affect, modify, convert or otherwise change the
contingent nature of its respective right to payment from the
Escrow Account in accordance with the terms of this Agreement.
Nonetheless:
(i) if a court of competent jurisdiction
determines that Young, upon the occurrence of a
Bankruptcy Event with respect to Young, has an
interest in the Escrow Account that is greater than a
contingent right to payment from the Escrow Account
payable only in accordance with the provisions of
this Section 4, then Young shall be deemed to have
granted on the date hereof to Bio Dental a first
priority security interest in, and pledged to Bio
Dental all of its right, title and interest in
the Escrow Account. In such event, the
Escrow Agent shall be deemed to act as bailee on
behalf of Bio Dental in respect of Bio Dental's
security interest in Young's rights to the Escrow
Account. The Escrow Agent shall, upon receipt of
indemnification satisfactory to it from Bio Dental
for its fees and expenses incurred in connection with
taking such actions, take all actions as may be
reasonably requested in writing of it by Bio Dental
to further perfect the security interest granted by
Young hereunder in the Escrow Account. Such security
interest shall automatically be released with respect
to any funds properly distributed from the Escrow
Account pursuant to the terms of this Agreement; and
(ii) if a court of competent jurisdiction
determines that Bio Dental, upon the occurrence of a
Bankruptcy Event with respect to Bio Dental, has an
interest in the Escrow Account that is greater than a
contingent right to payment from the Escrow Account
payable only in accordance with the provisions of
this Section 4, then Bio Dental shall be deemed to
have granted on the date hereof to Young a first
priority security interest in, and pledged to
Young all of Bio Dental's right, title and interest
in the Escrow Account. In any such event, the
Escrow Agent shall be deemed to act as bailee on
behalf of Young in respect of Young's security
interest in Bio Dental's rights to the Escrow
Account. The Escrow Agent shall, upon receipt of
indemnification satisfactory to it from Young for its
fees and expenses incurred in connection with taking
such actions, take all actions as may be reasonably
requested in writing of it by Young to further
perfect the security interest granted by Bio Dental
hereunder in the Escrow Account. Such security
interest shall automatically be released with respect
to any funds properly distributed from the Escrow
Account pursuant to the terms of this Agreement.
(3) The parties hereto agree and acknowledge that
the establishment and maintenance of the Escrow Accounts
hereunder are intended to constitute possession of the Escrow
Accounts for the purposes of perfecting the security interests
therein created hereunder.
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<PAGE> 5
5. Responsibility of the Escrow Agent. The Escrow Agent accepts
the agency created by this Agreement upon the terms and conditions hereof and
undertakes to perform such duties and only such duties as are specifically set
forth herein. No provision of this Agreement shall be construed to relieve the
Escrow Agent from liability for its own gross negligence or willful misconduct,
except that:
(a) The duties and obligations of the Escrow Agent shall
be determined solely by the express provisions of this Agreement, and
no implied covenants, duties or obligations shall be read into this
Agreement against the Escrow Agent nor shall the Escrow Agent be bound
by the provisions of any other agreements between the other parties
hereto beyond the specific terms hereof; the Escrow Agent shall not be
liable for any action taken, suffered or omitted by it in good faith
and reasonably believed by it to be authorized or within the
discretion, rights, duties, privileges or powers conferred upon it by
this Agreement; the Escrow Agent shall not be liable for any error of
judgment made in good faith by a responsible officer or officers of
the Escrow Agent, unless the Escrow Agent was grossly negligent in
ascertaining the pertinent facts or in employing such officer or
officers; and the Escrow Agent shall not be liable to any person with
respect to any action taken, omitted or suffered to be taken by it in
accordance with the provisions of this Agreement or in accordance with
the written directions of Bio Dental or Young as provided herein or of
a court of competent jurisdiction except in the case of the Escrow
Agent's gross negligence or willful misconduct.
(b) The Escrow Agent may act in reliance upon and be
protected in acting or refraining from acting upon any instrument or
signature believed to be genuine and may assume that any person
purporting to give any writing, notice, advice or instruction in
connection with the provisions hereof has been duly authorized to do
so.
(c) The Escrow Agent may consult with counsel, auditors
and other experts and any opinion of counsel or written opinion of
such auditors or other experts shall be full and complete
authorization and protection with respect to any action taken or
suffered or omitted by the Escrow Agent thereunder in good faith and
in accordance with such opinion of counsel or opinion of such auditors
or other experts within the area of their respective expertise.
(d) The Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either
directly or by or through its agents or attorneys. Nothing in this
Agreement shall be deemed to impose upon the Escrow Agent any
liability to any other person as a result of any failure of the Escrow
Agent to qualify to do business or to act as fiduciary or otherwise in
any jurisdiction other than the jurisdiction of its formation.
(e) No property held in escrow by the Escrow Agent
hereunder shall be subject to any setoff, counterclaim, recoupment,
lien or other right which the Escrow Agent may have against either of
the other parties hereto or against any other person for any reason
whatsoever.
(f) If any dispute arises between Young and Bio Dental as
to which of them is entitled to delivery of the disputed portion of
the Escrow Funds, or if the Escrow Agent is uncertain as to its
obligations hereunder, the Escrow Agent may, but shall not be
obligated to, either (i) commence an interpleader action against Young
and Bio Dental in a state or federal court located in Sacramento,
California, and deposit the disputed Escrow Funds with such court,
whereupon the Escrow Agent may apply to the court for an order
discharging it from
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<PAGE> 6
all further liability to any other party to this Agreement, or (ii)
refrain from any action and continue to hold the disputed portion of
the Escrow Funds pending a resolution of the dispute by either a court
of competent jurisdiction or by a written agreement signed by Young
and Bio Dental. For the purposes of any action or proceeding
contemplated by clause (i) above, each party hereby consents to the
jurisdiction of said courts and agrees that service of process in any
such action or proceeding may be made by certified or registered mail
at the address for notices to such party provided in this Agreement.
6. Expenses; Indemnification. Young and Bio Dental each agrees
to pay one-half of any fees or expenses charged by the Escrow Agent for its
services to be performed hereunder. The Escrow Agent shall bill Bio Dental for
all such fees and expenses, and Bio Dental shall remit payment to the Escrow
Agent on behalf of the parties hereto. Upon notice from Bio Dental, Young
shall immediately reimburse Bio Dental for Young's portion of such expenses and
fees. In addition, Young and Bio Dental hereby agree jointly to indemnify the
Escrow Agent for, and to hold it harmless against, any loss, liability or
expense incurred without gross negligence or willful misconduct on the part of
the Escrow Agent, arising out of or in connection with its entering into this
Agreement and carrying out its duties hereunder, including the costs and
expenses of defending itself against any claim of liability.
7. Removal and Resignation. The Escrow Agent may at any time be
removed by the written direction of Bio Dental and Young. The Escrow Agent or
any successor escrow agent may at any time resign and be discharged of the
agency hereby created by giving written notice to each of Bio Dental and Young
specifying the date upon which it desires that such resignation shall take
effect. Such removal or resignation shall take effect on the date specified in
the notice of removal or resignation, which date shall not be earlier than 60
days after the giving of the notice of removal or resignation unless a
successor escrow agent shall have been appointed pursuant to Section 8 hereof
and shall have accepted such appointment, in which event such removal or
resignation shall take effect immediately upon the acceptance by such successor
escrow agent. Young and Bio Dental shall take prompt steps to have a successor
escrow agent appointed in the manner hereinafter provided.
8. Appointment of Successor Escrow Agent. If at any time the
Escrow Agent shall resign or be removed or if at any time a vacancy shall occur
in the office of the Escrow Agent for any other cause, a successor escrow agent
shall be appointed by a written instrument executed by Young and Bio Dental and
delivered to the Escrow Agent and the successor escrow agent. Upon acceptance
of said instrument by the successor escrow agent, the resignation or removal of
the Escrow Agent shall become effective and such successor escrow agent shall
become vested with all the rights, powers, duties and obligations of its
predecessor hereunder. If no successor escrow agent shall have been appointed
at the effective date of resignation of the Escrow Agent, the Escrow Agent or
either other party hereto shall petition a court of competent jurisdiction for
the appointment of a successor and the Escrow Agent's duties shall be purely
ministerial until such appointment is effective.
9. Termination. This Agreement shall terminate upon the release
of all Escrow Funds held in the Escrow Accounts hereunder pursuant to Section 4
hereof or upon written agreement of the parties hereto, which agreement, in the
case of the Escrow Agent, shall not be unreasonably withheld.
10. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight delivery service or by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
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<PAGE> 7
the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
To the Escrow Agent:
The Union Bank of California
400 California Street, 9th Floor
San Francisco, California 94104
Telecopier No.: 415-765-2636
Attention: Valerie Young
To Young:
Young Innovations, Inc.
13705 Shoreline Court East
Earth City, Missouri 63045
Telecopier No.: 314-344-0021
Attention: Chief Financial Officer
With a copy to:
Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Square
St. Louis, Missouri 63102-2740
Telecopier No.: 314-621-5065
Attention: John L. Gillis, Jr., Esq.
To Bio Dental:
Bio Dental Technologies Corp.
11291 Sunrise Park Drive
Rancho Cordova, California 95742
Attention: Terry Bane
Telecopier No.: 916-638-9307
With a copy to:
William E. Zisko, Esq.
Tomlinson, Zisko, Morosoli & Maser, LLP
200 Page Mill Road, 2nd Floor
Palo Alto, California 94306
Telecopier No.: 415-324-1808
11. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Escrow Agent, Young and its affiliates and
Bio Dental and their respective successors and permitted assigns. Any
reference to a party contained in this Agreement shall be deemed to apply to
such party's successors and permitted assigns to the extent there shall be any.
Except as set forth in Section 4(h), no party hereto may assign its rights
(including, without limitation, its contingent right to payment) and
obligations hereunder without the written consent of the other parties hereto,
except
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<PAGE> 8
that Bio Dental shall be permitted to assign its rights and obligations
hereunder to Zila, Inc. without the consent of the other parties hereto;
provided, however, that such assignment shall not relieve Bio Dental of any of
its obligations or duties hereunder . Any purported assignment in violation of
the provisions of this Section 11 shall be null and void.
12. Amendments and Modifications. This Agreement may not be
amended or modified in any respect without the express written consent of
Young, Bio Dental and the Escrow Agent.
13. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without
regard to the conflict of laws principles thereof.
14. Counterparts. This Agreement may be executed in any number of
counterparts, and by any party on a separate counterpart, each of which as so
executed and delivered shall be deemed an original but all of which together
shall constitute one and the same instrument, and it shall not be necessary in
making proof of this Agreement as to any party hereto to produce or account for
more than one such counterpart executed and delivered by such party.
15. No Waiver. The failure of any party to insist, in any one or
more instances, upon the timely performance of any of the terms, covenants or
conditions of this Agreement and to exercise any right hereunder, shall not be
construed as a waiver or relinquishment of the future performance of any such
term, covenant or condition or the future exercise of such right, but the
obligations of the other parties with respect to such future performance shall
continue in full force and effect.
16. Descriptive Headings. The descriptive headings of the sections
of this Agreement are inserted for convenience only and do not constitute a
part of this Agreement.
IN WITNESS WHEREOF, each of the Escrow Agent, Young and Bio Dental
have caused this Agreement to be duly executed and delivered, all as of the
date first above written.
THE UNION BANK OF CALIFORNIA
By: /s/ Valerie Young
-----------------------------------
Name: Valerie Young
---------------------------------
Its: Vice President
----------------------------------
YOUNG INNOVATIONS, INC.
By: /s/ George E. Richmond
-----------------------------------
Name: George E. Richmond
---------------------------------
Its: President
----------------------------------
BIO DENTAL TECHNOLOGIES CORP.
By: /s/ Terry E. Bane
-----------------------------------
Name: Terry E. Bane
---------------------------------
Its: Chief Financial Officer
----------------------------------
-8-
<PAGE> 9
EXHIBIT A
Pursuant to Section 3 of the Escrow Agreement, the Escrow Funds shall
at all times be invested and reinvested by the Escrow Agent in one or more of
the following short term investment products:
(i) obligations issued or guaranteed as to full and
timely payment by the United States of America or by any Person controlled by
or acting as an instrumentality of the United States of America pursuant to
authority granted by Congress;
(ii) Obligations issued or guaranteed by any state or
political subdivision thereof (including stripped obligations the principal of
and interest on which have been separated and offered for sale separate from
each other) if (A) such obligations are entitled to the full faith and credit
of such state or political subdivision of such state, respectively, and such
obligations provide that the state or political subdivision has the obligation
to repay, in full and on a timely basis, such obligations, and (B) such
obligations are rated not lower than the second highest category if rated as
short term obligations or not lower than the third highest category if rated as
long term obligations by Moody's Investors Service, Inc. ("Moody's") or by
Standard & Poor's Corporation ("Standard & Poor's"), each of New York, New
York, or their respective successors;
(iii) readily marketable commercial or finance paper of
corporations doing business in and incorporated under the laws of the United
States of America or any state thereof, which is rated in the highest rating
category by either Moody's or Standard & Poor's, or their respective
successors;
(iv) deposit accounts, bankers' acceptances, certificates
of deposit or bearer deposit notes in one or more banks, trust companies or
savings and loan associations (including without limitation, the Escrow Agent
or any bank affiliated with the Escrow Agent) organized under the laws of the
United States of America or any state thereof, each bank or trust company
having a reported capital and surplus of at least $500,000,000 in dollars of
the United States of America and each savings and loan association having a
reported unimpaired capital and surplus, or retained income, as the case may
be, of at least $500,000,000 in dollars of the United States of America;
(v) repurchase agreements secured fully by obligations of
the type specified in clause (i) or issued by a bank or savings and loan
association which is insured by the Federal Deposit Insurance Corporation or
the Federal Savings and Loan Insurance Corporation; and
(vi) any fund or other pooling arrangement which purchases
and holds only investments of the types described in paragraphs (i) through (v)
above.
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Company State of Incorporation
- ------- ----------------------
<S> <C>
Denticator International, Inc............................................ Missouri
Young Dental Manufacturing Company....................................... Missouri
Young Dental International, Inc.................................... Barbados
Lorvic Holdings, Inc............................................... Delaware
The Lorvic Corporation...................................... Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made part of this
registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
September 3, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountant, I hereby consent to the use of my report
(and to all references to my Firm) included in or made part of this
registration statement.
/s/ John J. Eckle
JOHN J. ECKLE
Vacaville, California,
September 4, 1997
