SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______ to ______
Commission file number 0-9065
Golden Pharmaceuticals, Inc.
(Exact name of small business issuer
as specified in its charter)
Colorado 84-0645174
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1313 Washington Avenue, Golden, Colorado 80401
(Address of principal executive offices)
(303-279-9375)
(Issuer's telephone number)
Check whether the issuer (1) filed all reports
required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the issuers Common Stock, no par value
as of July 13, 1995 was 91,938,416 shares.
Part I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
May 31, August 31,
1995 1994
CURRENT ASSETS:
Cash and Cash Equivalents $ 115,773 $ 94,792
Accounts receivable, net of allowance
for doubtful accounts of $1,063 292,832 309,244
Inventories 66,573 52,356
Prepaid expenses 204,459 61,949
Deferred Taxes 434,243 434,243
Note Receivable 176,000 0
TOTAL CURRENT ASSETS 1,289,880 952,584
PROPERTY, PLANT AND EQUIPMENT
Land 148,000 148,000
Machinery and equipment 822,224 765,240
Office furniture and equipment 416,654 391,554
Vehicles 19,017 19,017
Building 739,789 728,370
2,145,684 2,052,181
Less accumulated depreciation
and amortization (1,620,121) (1,555,033)
525,563 497,148
Deferred Taxes 65,757 65,757
$ 1,881,200 $ 1,515,489
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
(Unaudited)
May 31, August 31,
1995 1994
CURRENT LIABILITIES:
Current maturities of long-term debt $ 170,724 $ 256,078
Accounts payable 157,754 128,673
Accrued expenses 52,582 43,952
Note Payable - related party 0 0
TOTAL CURRENT LIABILITIES 381,060 428,703
LONG-TERM DEBT 256,368 562,568
STOCKHOLDERS' EQUITY
Common stock - no par value; 200,000,000
shares authorized; and 91,742,583 and
90,342,583 issued and outstanding, at
May 31, 1995 and August 31, 1994,
respectively 21,288,851 21,246,351
CONVERTIBLE, 29,653 shares issued and
outstanding at May 31, 1995 and
August 31, 1994 292,558 292,558
DIVIDENDS ACCRUED ON PREFERRED STOCK 411,214 344,677
Accumulated deficit (20,748,851) (21,359,368)
TOTAL STOCKHOLDERS' EQUITY 1,243,772 524,218
$ 1,881,200 $ 1,515,489
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
May 31,
1995 1994
REVENUES:
Net sales $2,721,860 $2,514,165
Cost of Sales 1,246,520 1,329,439
GROSS MARGIN: 1,475,340 1,184,726
Selling, general and administrative 853,265 595,830
OPERATING INCOME 622,075 588,896
OTHER INCOME/(EXPENSE)
Interest Expense (41,642) (65,657)
Other Income 8,949 9,534
TOTAL OTHER INCOME/(EXPENSE) (32,693) (56,123)
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 589,382 532,773
INCOME TAX (BENEFIT) EXPENSE 7,006 1,050
INCOME BEFORE EXTRAORDINARY ITEMS 582,376 531,723
EXTRAORDINARY ITEM
Settlement of trade accounts payable 99,677 76,560
NET INCOME $ 682,053 $ 608,283
PRIMARY EARNINGS PER SHARE
Before extraordinary item * *
Extraordinary item * *
PRIMARY EARNINGS PER SHARE * *
Continued on following page.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
May 31,
1995 1994
FULLY DILUTED EARNINGS PER SHARE
Before extraordinary item $ * $ *
Extraordinary item * *
FULLY DILUTED EARNINGS PER SHARE $ * $ *
WEIGHTED AVERAGE SHARES OUTSTANDING 106,272,099
78,167,092
* Less than $.01 per share
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
May 31,
1995 1994
REVENUES
Net sales $941,491 $921,022
Cost of Sales 437,517 459,971
GROSS MARGIN 503,974 461,051
Selling, general and administrative 283,322 263,995
OPERATING INCOME 220,652 197,056
OTHER INCOME/(EXPENSE)
Interest Expense (12,640) (18,624)
Other Income 3,471 8,658
TOTAL OTHER INCOME/(EXPENSE) (9,169) (9,966)
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 211,483 187,090
INCOME TAX (BENEFIT) EXPENSE 1,400 350
INCOME BEFORE EXTRAORDINARY ITEM 210,083 186,740
EXTRAORDINARY ITEM 0 6,250
NET INCOME $ 210,083 $ 192,990
NET INCOME (LOSS) PER COMMON SHARE $ * $ *
WEIGHTED AVERAGE SHARES OUTSTANDING 107,382,020 88,750,939
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
May 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $682,053 $608,283
Adjustments to reconcile net income to
net cash provided (used) by operations
Gain on settlement of note payable (99,677) (76,560)
Common Stock issued for consulting services 37,500 0
Depreciation and amortization 65,088 30,531
Gain on sale of assets (2,400) 0
(Increase) decrease in -
Accounts receivable 16,413 (256,096)
Note receivable (176,000) 0
Inventory (14,217) (13,526)
Accounts receivable officer 0 (35,664)
Prepaid expenses and other (142,510) (34,261)
Increase (decrease) in -
Accounts payable 29,081 (11,397)
Accrued interest and other 8,630
(55,438)
Total adjustments (278,092) (452,411)
NET CASH PROVIDED BY OPERATING ACTIVITIES 403,961 155,872
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (93,503) (56,498)
Proceeds from sale of property and equipment 2,400 29,051
NET CASH (USED) BY INVESTING ACTIVITIES (91,103) (27,447)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes and long-term debt (291,877) (201,113)
NET CASH (USED) BY FINANCING ACTIVITIES (291,877) (201,113)
NET INCREASE (DECREASE) IN CASH 20,981 (72,688)
CASH, Beginning of period 94,792 77,489
CASH, End of period $ 115,773 $ 4,801
Continued on following page.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
May 31,
1995 1994
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Interest paid $ 41,642 $ 65,657
Income taxes paid $ 7,006 $ 1,050
NON-CASH TRANSACTIONS
Settlement of note payable $ 99,677 $ 76,560
Issuance of Stock for Consulting
Services $ 37,500 $ 0
Issuance of Stock for Retirement
Of Long Term Debt $ 0 $ 499,000
GOLDEN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance
with generally accepted accounting principles for interim financial
information
and pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for annual financial
statements.
The accompanying unaudited condensed financial statements and disclosures
reflect
all adjustments which, in the opinion of the management, are necessary for a
fair
presentation of the results of operations, financial position, and cash flow
of
the Company. The results of operations for the periods indicated are not
necessarily indicative of the results for the full year.
The financial statements should be read in conjunction with the audited
financial
statements and the notes thereto included in the Company's Annual Report on
Form
10-KSB for the year ended August 31, 1994 as filed with the Securities and
Exchange Commission.
Net Income Per Common Share - Net income per common share was determined by
dividing net income, as adjusted below, by applicable weighted average shares
outstanding.
Nine months Ended
May 31,
1995 1994
Income before extraordinary
item as reported $ 582,376 $ 531,723
Extraordinary item 99,677 76,560
Accrual of dividends on
15%/30% cumulative
convertible preferred stock 66,537) (168,903)
NET INCOME $ 615,516 $ 439,380
Weighted average number of
shares outstanding 106,272,099 72,167,092
Three months Ended
May 31,
1995 1994
Income before extraordinary
item as reported $ 211,483 $ 186,740
Extraordinary item 0 6,250
Accrual of dividends on
15%/30% cumulative
convertible preferred stock (22,179) (56,301)
NET INCOME $ 189,483 $ 136,689
Weighted average number of
shares outstanding 107,382,020 88,750,939
Common stock equivalents and stock held in escrow have been included in the
computation for the three and nine months ended May 31, 1995 and 1994. The
common stock equivalents that have been included in the computation for
earnings
per share are stock options, Class A Convertible Preferred Stock, 15%/30%
Cumulative Convertible Preferred Stock, and accrued dividends on the 15%/30%
Cumulative Convertible Preferred Stock.
Reclassification - Certain reclassifications have been made to conform prior
years' information with the current year presentation.
Note 2. EXTRAORDINARY ITEM
During the nine months ended May 31, 1995 the Company entered into a
settlement
agreement with its principal supplier whereby the Company settled a note in
the
principal amount of $283,733, for $184,056, resulting in an extraordinary gain
of
$99,677.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Three Months Ended May 31, 1995 Compared to Three Months Ended May 31,
1994
Net Sales - Net sales totaled $941,491 for the three months ended May 31,
1995,
as compared to $921,022 for the three months ended May 31, 1994. The increase
of
$20,469 or 2.2% was primarily the result of an increase in demand for the
Company's products from the Company's primary distributor. Beginning August
1994, the distributor started distributing the Company's product in all areas
of
the United States in which the distributor operates pharmacies. Until that
time
they had been distributing a competitor's product in a few areas of the
country.
Cost of Sales - Cost of sales as a percent of net sales for the three months
ended May 31, 1995 was 46.5% as compared to 49.9% for the three months ended
May
31, 1994. The decrease was attributable to recording freight expenses in 1995
as
a part of selling general and administration costs instead of to cost of sales
as
accounted for in 1994.
Selling General and Administration - Selling, general and administrative
expenses
("SG&A") for the three months ended May 31, 1995 were $283,322 as compared to
$263,995 for the three months ended May 31, 1994. This increase of $19,327 or
7.3% is a result of the expansion of the Company's Quality Assurance and
Regulatory Affairs departments through the hiring of several new employees.
The
Company also recorded freight expenses as SG&A costs as opposed to cost of
sales
as in 1994.
Interest Expense - Interest expense for the three months ended May 31, 1995
was
$12,640 as compared to $18,624 for the three months ended May 31, 1994. The
decrease of $5,984 or 32.1% was primarily the result of normal amortization of
bank notes and the settlement of a note payable to the Company's supplier of
raw
material in November 1994.
Nine months Ended May 31, 1995 Compared to Nine months Ended May 31,
1994
Net Sales - Net sales totaled $2,721,860 for the nine months ended May 31,
1995,
as compared to $2,514,165 for the nine months ended May 31, 1994. The
increase
of $207,695 or 8.3% was primarily the result of an increase in demand for the
Company's products from the Company's primary distributor. Beginning August
1994, the distributor started distributing the Company's product in all areas
of
the United States in which the distributor operates pharmacies. Until that
time
they had been distributing a competitor's product in a few areas of the
country.
Cost of Sales - Cost of sales as a percent of net sales for the nine months
ended
May 31, 1995 was 45.8% as compared to 52.9% for the nine months ended May 31,
1994. The decrease was attributable to accounting for freight charges as a
SG&A
cost in 1995 instead of in cost of sales as presented in 1994.
The price of the raw material for the Company's product increased by 4%
effective
January 1, 1995. The agreement with the Company's principal raw material
supplier further provides that the price will be adjusted by an amount to be
agreed upon each year with such change in price to be effective commencing
January 1st of each such year.
Selling General and Administration - SG&A for the nine months ended May 31,
1995
were $853,265 as compared to $595,830 for the nine months ended May 31, 1994.
This increase of $257,435 or 43.2% was the result of (i) expansion of the
Company's Quality Assurance and Regulatory Affairs departments through the
hiring
of several new employees which resulted in an increase of $45,000, (ii)
expenses
of $57,000 incurred during the nine months ended May 31, 1995 for travel, due
diligence, legal fees, accounting fees and consultant fees in connection with
the
Company's ongoing efforts to expand its business through the acquisition of
additional product lines or companies in the pharmaceutical industry, and
(iii)
$175,000 related to a change in accounting treatment as the Company began
recording freight charges as a general and administrative expense instead of a
cost of sales.
Interest Expense - Interest expense for the nine months ended May 31, 1995 was
$41,642 as compared to $65,657 for the nine months ended May 31, 1994. The
decrease of 24,015 or 36.6% was primarily the result of normal amortization of
bank notes and the settlement of a note payable to the Company's supplier of
raw
material in November, 1994.
Extraordinary Item - During the nine months ended May 31, 1995, the Company
recorded extraordinary income of $99,677 resulting from settlement of a note
payable to the Company's supplier of raw material. (See Note 2 to Notes to
Consolidated Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented to facilitate the discussion of the Company's
current liquidity and sets forth the Company's liquidity position as of May 31
1995 as compared to August 31, 1994.
May 31,
August 31,
1995 1994
Current Assets *$1,289,880 $ 952,584
Current Liabilities 381,060 428,703
Net Working Capital (Deficiency) $ 908,820 $ 523,881
*Includes $435,643 of deferred taxes per FASB 109 resulting from the Company's
substantial Net Operating Loss Carryforward.
On May 31, 1995, the Company had cash totaling $115,773 and other current
assets
totaling $1,174,107. The $337,296 increase in current assets at May 31, 1994
as
compared to August 31, 1994 was primarily the result of an increase in prepaid
expenses and notes receivable. Current liabilities were $381,060 which
resulted
in a working capital position of $908,820 and a current ratio of 3.38:1. For
the
nine months ended May 31, 1995, the Company generated cash flow from
operations
of $403,961 as compared to $155,872 for the nine months ended May 31, 1994.
The
increase of $248,089 is primarily attributable to a large increase in accounts
receivable for the nine months ended May 31, 1994 as compared to a decrease
during the nine month period ended May 31, 1995. A portion of the Company's
net
cash from operations was used by the Company to settle long-term debt. (See
"Note 2 to Notes to Consolidated Financial Statements.")
The Company's capital expenditures for the nine months ended May 31, 1995 were
$93,503, which included for the purchase of manufacturing equipment, as
compared
to $56,498 for the nine months ended May 31, 1994.
The Company currently has no borrowing capacity with any financial
institution.
However, in January, 1994 the Chairman of the Board established a personal
line
of credit with a bank. The Company has an agreement with the Chairman which
allows the Company to use this line of credit as a working capital line if
necessary. Advances under the line of credit bear interest at the bank's
prime
rate plus 1%. As of May 31, 1995, the Company had $ -0- outstanding under
the
line of credit which, when used, is accounted for on the Company's financial
statements as "Notes Payable - Related Party".
During the nine months ended May 31, 1995, the Company loaned a total of
$150,000
to Harvey G. Mozer, an individual. Mr. Mozer is a principal of New Crawford
Valley Ltd., a party to an Agreement Limiting Execution on Judgment (the
"Settlement Agreement"), and an officer and director of Gulch Holdings
Company.
These loans are evidenced by promissory notes in the principal amounts of
$65,000
and $85,000, respectively, and provide for interest on the unpaid principal
balance at the prime rate plus 1% as charged by the Company's bank. The
$65,000
loan was paid in full on May 4, 1995. The remaining loan matures on December
31,
1995.
The Company's long term debt at May 31, 1995 consisted of notes payable to the
bank, including the current portion thereof, totaling $434,853.
The Company anticipates that it will continue to be able to meet the needs of
its
operations through existing capital and internally generated cash flows
throughout fiscal year 1995. In the event that the Company should require
significant expansion of its business resulting in additional capital
requirements, the Company would attempt to secure such financing through
placement of debt or equity. However, there can be no assurance that the
Company
would be able to successfully secure such financing.
Part II - OTHER INFORMATION
Item 5. Other Information
The Company has entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") with Quality Care Pharmaceuticals, Inc., a California
corporation ("QCP") and the shareholders thereof (the "Shareholders") whereby
the
Company will acquire all of the issued and outstanding common stock of QCP.
QCP
is a licensed manufacturer of repackaged prescription medication. QCP
repackages
and relabels both prescription and over-the-counter medication for sale to its
customers. The following discussion of the Stock Purchase Agreement is
qualified
in its entirety by reference to the Stock Purchase Agreement which is attached
hereto as Exhibit 10.1.
Pursuant to the Stock Purchase Agreement, the Company will purchase all
of
the outstanding shares of common stock of QCP for $3,718,750 (the "Purchase
Price"). The respective obligations of the Company and QCP to consummate the
transactions contemplated by the Stock Purchase Agreement are subject to a
number
of conditions. The Company has received a proposal from a national bank (the
"Bank") to provide financing for the Acquisition and for working capital,
however, the Company has not received a formal commitment from the Bank.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit 10.1 Stock Purchase Agreement by and among Golden
Pharmaceuticals, Inc., Quality Care
Pharmaceuticals, Inc., Daniel G. Guinn, Gary
A. Klingsheim, Michael S. Mendelsohn and the
Shareholders listed on Schedule A thereto
Exhibit 11 Statement Regarding Computation of Per Share
Earnings
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GOLDEN PHARMACEUTICALS, INC.
(Registrant)
DATED:
July 13, 1995
BY:
/s/ Glen H. Weaver
Glen H. Weaver,
Vice President, Finance
EXHIBIT 10.1
GOLDEN PHARMACEUTICALS, INC.
STOCK PURCHASE AGREEMENT DATED
BY AND AMONG GOLDEN PHARMACEUTICALS, INC.,
QUALITY CARE PHARMACEUTICALS, INC., DANIEL G. GUINN,
GARY A. KLINGSHEIM, MICHAEL S. MENDELSOHN AND
THE SHAREHOLDERS LISTED ON SCHEDULE A THERETO
STOCK PURCHASE AGREEMENT
among
GOLDEN PHARMACEUTICALS, INC.,
and
QUALITY CARE PHARMACEUTICALS, INC.,
Daniel B. Guinn, Gary A. Klingsheim, Michael S. Mendelsohn
and
THE SHAREHOLDERS LISTED ON SCHEDULE A HERETO
Dated as of June 7, 1995
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
PURCHASE AND SALE OF THE SHARES
Section 2.01. Purchase and Sale. . . . . . . . . . . . 3
Section 2.02. Closing. . . . . . . . . . . . . . . . . 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND GUINN AND KLINGSHEIM
Section 3.01. Corporate Existence and Power. . . . . . 4
Section 3.02. Corporate Authorization. . . . . . . . . 5
Section 3.03. Governmental Authorization . . . . . . . 5
Section 3.04. Effect of Agreement on the Company . . . 5
Section 3.05. Capitalization . . . . . . . . . . . . . 6
Section 3.06. Subsidiaries . . . . . . . . . . . . . . 6
Section 3.07. Financial Statements . . . . . . . . . . 6
Section 3.08. Absence of Certain Changes . . . . . . . 6
Section 3.09. No Undisclosed Material Liabilities. . . 8
Section 3.10. Related Party Transactions . . . . . . . 8
Section 3.11. Material Contracts . . . . . . . . . . . 8
Section 3.12. Litigation . . . . . . . . . . . . . . . 10
Section 3.13. Compliance with Laws and Court Orders; No
Defaults.. . . . . . . . . . . . . . . 10
Section 3.14. Properties . . . . . . . . . . . . . . . 11
Section 3.15. Products . . . . . . . . . . . . . . . . 12
Section 3.16. Manufacturing Facilities . . . . . . . . 12
Section 3.17. Intellectual Property. . . . . . . . . . 12
Section 3.18. Insurance Coverage . . . . . . . . . . . 13
Section 3.19. Licenses and Permits . . . . . . . . . . 13
Section 3.20. Inventories. . . . . . . . . . . . . . . 13
Section 3.21. Loans, Notes, Accounts Receivable and
Accounts Payable . . . . . . . . . . . 14
Section 3.22. Projections. . . . . . . . . . . . . . . 14
Section 3.23. Finders' Fees. . . . . . . . . . . . . . 14
Section 3.24. Employees. . . . . . . . . . . . . . . . 14
Section 3.25. Labor Matters. . . . . . . . . . . . . . 14
Section 3.26. Environmental Matters. . . . . . . . . . 14
Section 3.27. No Solicitation. . . . . . . . . . . . . 16
Section 3.28. Full Disclosure. . . . . . . . . . . . . 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Section 4.01. Title to Shares. . . . . . . . . . . . . 17
Section 4.02. Effect of Agreement on Shareholders. . . 17
Section 4.03. Litigation . . . . . . . . . . . . . . . 17
Section 4.04. Shareholder Agreements . . . . . . . . . 17
Section 4.05. Full Disclosure. . . . . . . . . . . . . 17
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 5.01. Corporate Existence and Power. . . . . . 18
Section 5.02. Corporate Authorization. . . . . . . . . 18
Section 5.03. Governmental Authorization . . . . . . . 18
Section 5.04. Non-Contravention. . . . . . . . . . . . 18
Section 5.05. Finders' Fees. . . . . . . . . . . . . . 18
Section 5.06. Compliance with Laws . . . . . . . . . . 18
ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.01. Conduct of Business Until Closing Date . 19
Section 6.02. Best Efforts . . . . . . . . . . . . . . 20
Section 6.03. Access; Cooperation. . . . . . . . . . . 20
Section 6.04. Certain Filings. . . . . . . . . . . . . 20
Section 6.05. Public Announcements . . . . . . . . . . 21
Section 6.06. Notice of Certain Events . . . . . . . . 21
Section 6.07. Exclusivity. . . . . . . . . . . . . . . 21
Section 6.08. Noncompetition; Nonsolicitation. . . . . 21
ARTICLE VII
TAX REPRESENTATIONS AND COVENANTS
Section 7.01. Tax Definitions. . . . . . . . . . . . . 22
Section 7.02. Tax Representations and Covenants. . . . 23
ARTICLE VIII
EMPLOYEE BENEFITS
Section 8.01. Employee Benefits Definitions. . . . . . 25
Section 8.02. Employee Plans . . . . . . . . . . . . . 26
Section 8.03. Benefit Arrangements . . . . . . . . . . 26
Section 8.04. No Third-Party Beneficiaries . . . . . . 26
ARTICLE IX
CONDITIONS TO CLOSING
Section 9.01. Conditions to Obligations of the Parties 26
Section 9.02. Conditions to Obligation of Buyer. . . . 27
Section 9.03. Conditions to Obligation of the Company. 28
ARTICLE X
MUTUAL RELEASES
Section 10.01. Release of Buyer and the Company. . . . . . 29
Section 10.02. Release of Shareholders . . . . . . . . . . 29
ARTICLE XI
SURVIVAL; INDEMNIFICATION
Section 11.01. Survival . . . . . . . . . . . . . . . . . 30
Section 11.02. Indemnification Obligations. . . . . . . . 30
Section 11.03. Method of Asserting Claims, Etc. . . . . . 30
Section 11.04. Payment. . . . . . . . . . . . . . . . . . 32
Section 11.05. Service of Process, Consent to Jurisdiction,
Etc.. . . . . . . . . . . . . . . . . . . . . 33
Section 11.06. Equitable Relief . . . . . . . . . . . . . 33
ARTICLE XII
TERMINATION
Section 12.01. Grounds for Termination. . . . . . . . . . 33
Section 12.02. Effect of Termination. . . . . . . . . . . 34
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Notices. . . . . . . . . . . . . . . . . . 34
Section 13.02. Amendments and Waivers . . . . . . . . . . 35
Section 13.03. Expenses . . . . . . . . . . . . . . . . . 35
Section 13.04. Successors and Assigns . . . . . . . . . . 36
Section 13.05. Governing Law. . . . . . . . . . . . . . . 36
Section 13.06. Waiver of Jury Trial . . . . . . . . . . . 36
Section 13.07. Counterparts; Third Party Beneficiaries. . 36
Section 13.08. Entire Agreement . . . . . . . . . . . . . 36
Section 13.09. Specific Performance . . . . . . . . . . . 37
SCHEDULE A-Quality Care Pharmaceuticals, Inc.-ShareholdersA-1
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of June 7, 1995 among Golden Pharmaceuticals,
Inc.,
a Colorado corporation (the "Buyer"), Quality Care Pharmaceuticals, Inc., a
California corporation (the "Company"), Daniel B. Guinn ("Guinn"), Gary A.
Klingsheim ("Klingsheim"), Michael S. Mendelsohn ("Mendelsohn") and those
persons listed on Schedule A (individually, each a "Shareholder" and
collectively, the "Shareholders").
W I T N E S S E T H :
WHEREAS, the Shareholders own all of the outstanding shares of the no
par value common stock of the Company (the "Shares"), with each Shareholder
owning the number of Shares set forth opposite each Shareholder's name in
column B of Schedule A; and
WHEREAS, Buyer is willing to buy and the Shareholders are willing to
sell the Shares at Closing on the terms and conditions and in reliance on
the representations and warranties herein set forth.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with such Person; provided that no party to this Agreement shall be deemed
to be an Affiliate of any other party to this Agreement (including, without
limitation, the Company) solely by reason of its ownership of Common Stock.
"Balance Sheet" means the balance sheet of the Company as of
December 31, 1994.
"Balance Sheet Date" means December 31, 1994.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and any regulations promulgated
thereunder.
"Closing Date" means the date of the Closing.
"Common Stock" means the common stock, no par value, of the Company.
"Controlling Shareholders" means individually and jointly Guinn,
Klingsheim and Mendelsohn.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, injunctions, permits,
concessions, grants, franchises, licenses, agreements and governmental
restrictions, now in effect, relating to human health, the environment or
to emissions, discharges or releases of pollutants, contaminants, Hazardous
Substances or wastes into the environment, including without limitation
ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, Hazardous
Substances or wastes or the clean-up or other remediation thereof.
"Environmental Liabilities" means any and all liabilities of or
relating to the Company (including any entity which is, in whole or in
part, a predecessor of the Company), whether vested or unvested, contingent
or fixed, actual or potential, known or unknown, which (a) arise under or
relate to matters covered by Environmental Laws (including without
limitation any matters disclosed or required to be disclosed in Schedule
3.26 hereto) and (b) relate to actions occurring or conditions existing on
or prior to the Closing Date.
"Environmental Permits" means all permits, licenses, authorizations,
certificates and approvals of governmental authorities relating to or
required by Environmental Laws and necessary or proper for the business of
the Company as currently conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with all regulation promulgated thereunder.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Hazardous Substances" means any toxic, radioactive, corrosive or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics, including,
without limitation, any substance regulated under Environmental Laws.
"Immediate Family Member" means, with respect to any Person, such
Person's spouse, parents, children and siblings.
"Intellectual Property Right" means any trademark, service mark,
trade
name and patent (including any registrations or applications for
registration of any of the foregoing).
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim
of any kind in respect of such property or asset. For the purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any property
or asset which it has acquired or holds subject to the interest of a vendor
or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such property or asset.
"Material Adverse Effect" means a material adverse effect or effect
which would reasonably be expected to have a Material Adverse Effect on the
condition (financial or otherwise), business, assets or results of
operations of the Company, taken as whole.
"1933 Act" means the Securities Act of 1933, as amended, and the
rules
and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Person" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Regulated Environmental Activity" means any generation, treatment,
storage, recycling, transportation or disposal of any Hazardous Substance.
"Release" means any discharge, emission or release, including a
Release
as defined in CERCLA at 42 U.S.C. No. 9601(22). The term "Released" has a
corresponding meaning.
"Shareholder Agreement" means the agreement dated September 3, 1994
entered into between the Company and the Shareholders.
"Stock Option Agreement" means the agreement dated September 3, 1994
between the Company and certain of the Shareholders.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time
directly or indirectly owned by the Company.
"Transaction Documents" means this Agreement and any other document
contemplated hereby or thereby.
ARTICLE II
PURCHASE AND SALE OF THE SHARES
Section 2.01. Purchase and Sale. Upon the basis of the
representations and warranties herein contained and on the terms and
subject to the conditions of this Agreement, the Shareholders agree to sell
to Buyer and Buyer agrees to purchase from the Shareholders, the Shares at
the Closing. The purchase price for the Shares (the "Purchase Price") shall
be $3,718,750 in cash, of which $222,065 (the "Escrow Funds") shall be
placed in an escrow account (the "Escrow Account") with the escrow agent
(the "Escrow Agent") pursuant to an Escrow Agreement to be entered into
among Buyer, the Controlling Shareholders and the Escrow Agent, in such
form as may be reasonably acceptable to Buyer and the Controlling
Shareholders, on the Closing Date (the "Escrow Agreement"). Buyer shall
pay each Shareholder, other than the Controlling Shareholders, an amount
equal to the Purchase Price multiplied by such Shareholder's Proportionate
Interest as set forth after such Shareholder's name in column C of
Schedule A. Buyer shall pay the Controlling Shareholders an amount equal
to the Purchase Price less the Escrow Funds multiplied by such Controlling
Shareholder's Proportionate Interest as set forth after such Shareholder's
name in column C of Schedule A. The Purchase Price shall be paid as
provided in Section 2.02.
The Escrow Funds will be payable within five (5) days after receipt of
audited financial statements for the Company for the fiscal year ending
December 31, 1995 in accordance with the terms of the Escrow Agreement.
Section 2.02. Closing. The closing (the "Closing") of the purchase
and sale of the Shares hereunder shall take place at the offices of Kutak
Rock, 717 Seventeenth Street, Suite 2900, Denver, Colorado 80202, as soon
as possible, or at such other time and place as the Company and Buyer shall
mutually agree, but in no event later than 10 business days after
satisfaction of the conditions set forth in Article IX. At the Closing:
(a) Buyer shall deliver to the Company $3,496,685 in
immediately available funds by wire transfer to an account of the Company
with a bank designated by the Board of Directors of the Company, by notice
to Buyer, not later than two business days prior to the Closing Date (or if
not so esignated, then by certified or official bank check payable in
immediately available funds to the order of the Company in such amount) and
the Escrow Funds shall be delivered by Buyer to the Escrow Agent.
(b) The Shareholders shall deliver to Buyer, free and clear of
all Liens, the certificates for the Shares to be sold by each Shareholder
in negotiable form, duly authorized in blank, or with separate notarized
stock transfer powers attached thereto and signed in blank.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND GUINN AND KLINGSHEIM
The Company and Guinn and Klingsheim jointly and severally represent
and warrant to Buyer as of the date hereof as follows:
Section 3.01. Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has all corporate powers
and all governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted, except for
those licenses, authorizations, permits, consents and approvals the absence
of which would not, individually or in the aggregate, have a Material
Adverse Effect. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to
be so qualified, individually or in the aggregate, would not have a
Material Adverse Effect. The Company has heretofore delivered or, on or
prior to the Closing Date, will deliver, to Buyer true and complete copies
of the certificate of incorporation and bylaws of the Company as currently
in effect.
Section 3.02. Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the other Transaction
Documents to which it is a party are within the Company's corporate powers
and, except for corporate authorizations and actions contemplated by this
Agreement to occur subsequent to the date hereof and prior to Closing, this
Agreement has been, and the other Transaction Documents will on the Closing
Date be, duly authorized by all necessary corporate action on the part of
the Company. This Agreement constitutes a valid and binding agreement of
the Company.
Section 3.03. Governmental Authorization. Except as set forth in
Schedule 3.3, the execution, delivery and performance by the Company of
this Agreement requires no action by or in respect of, or filing with, any
governmental body, agency, or official.
Section 3.04. Effect of Agreement on the Company. Except as set
forth
in Schedule 3.4, neither the execution and delivery of this Agreement or
the Transaction Documents to which it is a party nor the consummation of
the transactions contemplated hereby or thereby will (i) result in the
acceleration or termination of, or the creation in any party of the right
to accelerate, terminate, modify or cancel, any contract or other
obligation or liability to which the Company is a party or is bound or to
which the Company's assets are subject, (ii) conflict with, violate or
result in a breach of any provision of the organizational documents or
bylaws of the Company or (iii) conflict with or violate any law, rule,
regulation, ordinance, order, writ, injunction or decree applicable to the
Company or by which any of their respective properties or assets is bound
or affected. This Agreement has been duly executed and delivered by the
Company (assuming that it has been duly executed and delivered by Buyer),
constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms except as
enforcement thereof may be limited by liquidation, conservatorship,
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally from time to time
in effect and except that equitable remedies aresubject to judicial
discretion. Each of the Transaction Documents to which the Company is a
party, when executed and delivered in accordance with the terms hereof (and
assuming that each such Transaction Document has been duly executed and
delivered by the other parties thereto), will constitute the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms except as enforcement thereof may be limited by
liquidation, conservatorship, bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally from time to time in effect and except that equitable remedies
are subject to judicial discretion.
Section 3.05. Capitalization.
(a) The authorized capital stock of the Company consists of
1,250,000 shares of Common Stock. As of the date hereof, there were
outstanding 1,062,500 shares of Common Stock which shares are owned
by
the Shareholders in the respective amounts set forth opposite their
names in column B of Schedule A hereto, free and clear of all Liens.
(b) The Shares have been duly authorized and validly issued,
are fully paid and non-assessable shares of Common Stock and the
holders thereof are not, or will not be, entitled to any preemptive
or
other similar rights. Except as set forth in this Section 3.05 and
except as set forth in Schedule 3.5, there are no outstanding (I)
shares of capital stock or voting securities of the Company, (ii)
securities of the Company convertible into or exchangeable for shares
of capital stock or voting securities of the Company or (iii) options
or other rights to acquire from the Company, or other obligation of
the
Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting
securities
of the Company (the items in clauses (i), (ii) and (iii) being
referred
to collectively as the "Company Shares"). There are no outstanding
obligations of the Company to repurchase, redeem or otherwise acquire
any Company Shares.
Section 3.06. Subsidiaries. The Company does not own any interest
in
any corporation or other business entity and, except as set forth in
Schedule 3.6, the Company is not a participant in any partnership or any
joint venture with any third party.
Section 3.07. Financial Statements. The Company has delivered to
Buyer (a) the Company's consolidated balance sheet at December 31, 1994 and
each of the two preceding fiscal year-ends, (b) its related consolidated
statements of income and retained earnings for the fiscal years then ended,
and (c) all related notes and schedules. All liabilities of the Company at
December 31, 1994 required to be reflected or reserved for by GAAP are
fully reflected or reserved for in the Company's consolidated balance sheet
at December 31, 1994 the ("Balance Sheet"). December 31, 1994 is referred
to herein as the "Balance Sheet Date." All liabilities of the Company
required to be reflected or reserved for by GAAP are fully reflected or
reserved for. All of the financial statements referred to in this
Section 3.07 were prepared in accordance with GAAP and, subject to any
qualifications set forth in the applicable notes and schedules, fairly
present the financial position and results of operations of the Company at
the dates and for the periods covered and include all adjustments that are
necessary for a fair presentation of the information shown.
Section 3.08. Absence of Certain Changes. Except as set forth in
Schedule 3.8, since the Balance Sheet Date, the business of the Company has
been conducted in the ordinary course consistent with past practices and,
except pursuant to or as contemplated under any Transaction Documents,
there has not been:
(a) any event, occurrence, development, state of circumstances
or facts (except that with respect to any event, occurrence,
development, state of circumstances or facts outside the control of
the
Company, only as to the best of the knowledge of the Company), which
has had or could reasonably be expected to have a Material Adverse
Effect;
(b) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of
the Company, or any repurchase, redemption or other acquisition by
the
Company of any outstanding shares of capital stock or other
securities
of, or other ownership interests in, the Company;
(c) any amendment of any material term of any outstanding
security of the Company;
(d) any incurrence, assumption or guarantee by the Company of
any indebtedness for borrowed money other than in the ordinary course
of business and in amounts and on terms consistent with past
practices,
but in any event not exceeding $10,000;
(e) any creation or assumption by the Company of any Lien on
any material asset other than in the ordinary course of business
consistent with past practices;
(f) any making of any loan, advance or capital contributions to
or investment in any Person;
(g) any damage, destruction or other casualty loss affecting
the business or assets of the Company not covered by insurance which,
individually or in the aggregate, has had or would reasonably be
expected to have a Material Adverse Effect;
(h) any transaction or commitment made, or any contract or
agreement entered into, by the Company relating to its assets or
business (including the acquisition or disposition of any assets) or
any relinquishment by the Company of any contract or other right, in
either case, material to the Company, taken as a whole, other than
transactions and commitments in the ordinary course of business
consistent with past practices;
(i) any change in any method of accounting or accounting
practice by the Company, except for any such change after the date
hereof required by reason of a concurrent change in GAAP;
(j) any (i) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any director,
officer or employee of the Company (or any amendment to any such
existing agreement), (ii) grant of any severance or termination pay
to
any director, officer or employee of the Company other than under
existing arrangements which have been disclosed to Buyer, or (iii)
change incompensation or other benefits payable to any director,
officer or employee of the Company pursuant to any severance or
retirement plans or policies thereof, other than in the ordinary
course of business consistent with past practice; or
(k) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Company,
which
employees were not subject to a collective bargaining agreement at the
Balance Sheet Date, or any lockouts, strikes, slowdowns, work
stoppages
or threats thereof by or with respect to any employees of the
Company.
Section 3.09. No Undisclosed Material Liabilities. There are no
liabilities of the Company of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and
there
is no existing condition, situation or set of circumstances which
could
reasonably be expected to result in such a liability, other than:
(a) liabilities provided for in the Balance Sheet or disclosed
in the notes thereto;
(b) liabilities disclosed on Schedule 3.9;
(c) liabilities incurred for accounts payable and any accruals
of current liabilities since the Balance Sheet Date in each case in
type and amounts which are accrued in the ordinary course of the
Company's business.
(d) liabilities covered by insurance; and
(e) other undisclosed liabilities which, individually or in the
aggregate, are not material to the Company, taken as a whole.
Section 3.10. Related Party Transactions. Schedule 3.10 contains a
complete list of all transactions and agreements between the Company,
on the one hand, and any Shareholders, suppliers, customers or other
parties ("Related Parties"), on the other hand, where an officer,
director, employee or holder of 5% or more of the outstanding equity
of
such Related Party is an Immediate Family Member of an officer,
director, employee or holder of 5% or more of the outstanding equity
of
the Company. Except as disclosed on Schedule 3.10, since the Balance
Sheet Date the aggregate dollar amount of any transactions between
any
Related Party and the Company has not exceeded $10,000.
Section 3.11. Material Contracts.
(a) Except as disclosed in Schedule 3.11 and except pursuant to
or as contemplated under any of the Transaction Documents, and in the
case of Sections 3.11(a)(i) and 3.11(a)(ii), except for any
agreements
that are terminable on not more than 30 days notice and without the
payment of any penalty by, or any other material consequence to, the
Company, the Company is not a party to or bound by:
(i) any lease (whether of real or personal
property)
providing for annual rentals of $10,000 or more;
(ii) except for any purchase orders or
agreements for the
purchase of materials, supplies, goods, services,
equipment or
other assets entered into in the ordinary course of
business and
on terms and conditions consistent with past practice
in all
material respects, any agreement for the purchase of
materials,
supplies, goods, services, equipment or other assets
that
provides for either (A) annual payments by the Company
of $10,000
or more or (B) aggregate payments by the Company of
$10,000 or
more;
(iii) except for any purchase orders or
sales, distribution
or other similar agreements providing for the sale by
the Company
of materials, supplies, goods, services, equipment or
other
assets entered into in the ordinary course of business
and on
terms and conditions consistent with past practice in
all
material respects, any sales, distribution or other
similar
agreement providing for the sale by the Company of
materials,
supplies, goods, services, equipment or other assets
that
provides for either (A) annual payments to the Company
of $10,000
or more or (B) aggregate payments to the Company of
$10,000 or
more;
(iv) any partnership, joint venture or
other similar
agreement or arrangement;
(v) any agreement relating to the
acquisition or
disposition of any business (whether by merger, sale of
stock,
sale of assets or otherwise);
(vi) any agreement relating to indebtedness
for borrowed
money or the deferred purchase price of property (in
either case,
whether incurred, assumed, guaranteed or secured by any
asset),
except any such agreement (A) with an aggregate
outstanding
principal amount not exceeding $10,000 and which may be
prepaid
on not more than 30 days notice without the payment of
any
penalty and (B) entered into subsequent to the date of
this
Agreement as permitted by Section 3.08(iv);
(vii) any license, franchise or similar
agreement which is
material to the Company taken as a whole;
(viii) any agency, dealer, sales
representative, marketing
or other similar agreement which is material to the
Company taken
as a whole;
(ix) any agreement that limits the freedom
of the Company
to compete in any line of business or with any Person
or in any
area Or which would so limit the freedom of the Company
after the
Closing Date;
(x) any agreement with any other Person
directly or
indirectly owning, controlling or holding with power to
vote, 5%
or more of the outstanding voting securities of any of
such
Affiliate;
(xi) any agreement with any director or
officer of the
Company or with any "associate" or any member of the
"immediate
family" (as such terms are respectively defined in
Rules 12b-2
and 16a-1 of the 1934 Act) of any such director or
officer; or
(xii) any other agreement, commitment,
arrangement or plan
not made in the ordinary course of business that is
material to
the Company, taken as a whole.
(b) Each agreement, commitment, arrangement or plan
disclosed
in any Schedule to this Agreement or required to be disclosed
pursuant
to this Section is a valid and binding agreement of the
Company, and is
in full force and effect, and neither the Company nor any other
party
thereto is in default or breach in any material respect under
the terms
of any such agreement, contract, plan, lease, arrangement or
commitment
except for defaults that have not had or would not reasonably
be
expected to have a Material Adverse Effect.
Section 3.12. Litigation.
(a) There is no action, suit, investigation or proceeding
(or
any basis therefor) pending against or threatened against or
affecting,
the Company or any of its properties before any court or
arbitrator or
any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which would
reasonably be
expected to have a Material Adverse Effect.
(b) Except as disclosed on Schedule 3.12, no officer,
director,
key management employee or sales representative or Immediate
Family
Member of an officer, director, key management employee or
sales
representative of the Company has been convicted in a criminal
proceeding, is a named subject of a criminal proceeding which
is
presently pending (excluding traffic violations and other minor
offenses) or is to the knowledge of such Person the subject of
a
criminal investigation.
Section 3.13. Compliance with Laws and Court Orders; No
Defaults. The
Company is not in violation of, and has not since the Balance Sheet
Date
violated, any applicable law, rule, regulation, judgement, injunction,
order or decree except for violations that have not had and would not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
Section 3.14. Properties.
(a) The Company has good title to, or in the case of
leased
property has valid leasehold interests in, all personal
property and
assets (whether tangible or intangible) reflected on the
Balance Sheet
or acquired after the Balance Sheet Date, except for property
and
assets sold since the Balance Sheet Date in the ordinary course
of
business consistent with past practices. The Company has a
valid and
insurable fee simple title to, or in the case of leased real
property
has valid leasehold interests in, all real property reflected
on the
Balance Sheet or acquired after the Balance Sheet Date, except
for any
such real property sold since the Balance Sheet Date in the
ordinary
course of business consistent with past practices. None of
such
property or assets (whether real or personal) is subject to any
Liens,
except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens for taxes not yet due or being
contested in
good faith (and for which adequate accruals or reserves
have been
established on the Balance Sheet); or
(b) Liens of record which do not materially detract from
the
value or materially interfere with any present use of such
property or
assets.
(c) There are no developments affecting any such property
or
assets (whether real or personal) pending or threatened, which
might
materially detract from the value of such property or assets,
or
materially interfere with any present use of any such property
or
assets.
(d) Except as set forth in Schedule 3.14, the plant and
equipment owned by the Company has been reasonably maintained
consistent with standards generally followed in the industry
(giving
due account to the age and length of use of same, ordinary wear
and
tear excepted) and are adequate and suitable for their present
uses
and, in the case of plants, buildings and other structures
(including
the roofs thereof), are structurally sound.
(e) All real property currently has access to (i) public
roads
or valid easements for such ingress to and egress from all such
real
property and (ii) water supply, storm and sanitary sewer
facilities,
telephone, gas and electrical connections, fire protection,
drainage
and other public utilities, in each case as is necessary for
the
conduct of the businesses of the Company as heretofore
conducted by
Buyer and none of the structures on any such owned or leased
real
property encroaches upon real property of another person, and
no
structure of any other person substantially encroaches upon any
of such
owned or leased real property.
(f) Except as disclosed in Schedule 3.14, the property
and
assets owned or leased by the Company, or which it otherwise
has the
right to use, constitutes all of the property and assets held
for use
or used in connection with the business of the Company and is
generally
adequate to conduct such business as currently conducted by the
Company.
Section 3.15. Products. Each of the products produced or sold
by the
Company is, and at all times up to and including the sale thereof by
the
Company has been (a) in compliance in all material respects with all
applicable federal, state, and local laws and regulations and (b)
conforms
in all material respects to any promises or affirmations of fact made
on
the container or label for such product or in connection with its
sale,
subject to returns, repairs, defects and allowances consistent with
past
practice. There is no design defect with respect to any of such
products
and each of such products contains adequate warnings, presented in a
reasonably prominent manner, in accordance with applicable laws, rules
and
regulations and current industry practice with respect to its contents
and
use.
Section 3.16. Manufacturing Facilities. All manufacturing
facilities
ofthe Company are currently being operated in compliance with current
Good
Manufacturing Practice guidelines as established by the United States
Food&
Drug Administration.
Section 3.17. Intellectual Property.
(a) Schedule 3.17 contains a list of all Intellectual
Property
Rights owned or licensed and used or held for use by the
Company which
are material to the Company taken as a whole ("Company
Intellectual
Property Rights"), specifying as to each, as applicable: (i)
the nature
of such Intellectual Property Right; (ii) the owner of such
Intellectual Property Right; (iii) the jurisdictions by or in
which
such Intellectual Property Right is recognized without regard
to
registration or has been issued or registered or in which an
application for such issuance or registration has been filed,
including
the respective registration or application numbers; and (iv)
licenses,
sublicenses and other agreements as to which the Company is a
party and
pursuant to which any Person is authorized to use such
Intellectual
Property Right, including the identity of all parties thereto,
a
description of the nature and subject matter thereof, the
applicable
royalty and the term thereof.
(b) (i) Since the Balance Sheet Date the Company has not
been a
defendant in any action, suit, investigation or proceeding
relating to,
or otherwise has been notified of, any alleged claim or
infringement of
any Intellectual Property Rights, and the Company and its
Affiliates
have no knowledge of any other such infringement by the
Company, and
(ii) the Company and its Affiliates have no knowledge of any
continuing
infringement by any other Person of any Company Intellectual
Property
Rights. No Company Intellectual Property Right is subject to
any
outstanding judgment, injunction, order, decree or agreement
restricting the use thereof by the Company or restricting the
licensing
thereof by the Company to any Person. Except as set forth on
Schedule
3.17, the Company has not entered into any agreement to
indemnify any
other Person against any charge of infringement of any
Intellectual
Property Right.
Section 3.18. Insurance Coverage. The Company has furnished
to Buyer
a list of, and true and complete copies of, all insurance policies and
fidelity bonds relating to the assets, business, operations,
employees,
officers or directors of the Company. There is no claim by the
Company
pending under any of such policies or bonds as to which coverage has
been
questioned, denied or disputed by the underwriters of such policies or
bonds or in respect of which such underwriters have reserved their
rights.
All premiums payable under all such policies and bonds have been paid
timely and the Company has otherwise complied fully with the terms and
conditions of all such policies and bonds except where the failure to
have
made payment or to be in full compliance would not reasonably be
expected
to result in a Material Adverse Effect. Such policies of insurance and
bonds (or other policies and bonds providing substantially similar
insurance coverage) are in full force and effect. Such policies and
bonds
are of the type and in amounts customarily carried by Persons
conducting
businesses similar to those of the Company. The Company does not know
of
any threatened termination of, premium increase with respect to, or
material alteration of coverage under, any of such policies or bonds.
Except as disclosed in Schedule 3.18, the Company shall after the
Closing
continue to have coverage under such policies and bonds with respect
to
events occurring prior to the Closing.
Section 3.19. Licenses and Permits.
(a) Schedule 3.19 correctly describes each license,
franchise,
permit or other similar authorization affecting, or relating in
any way
to, the assets or business of the Company which are material to
the
Company taken as a whole (the "Permits") together with the name
of the
government agency or entity issuing such Permit. Except as set
forth
on the Schedule 3.19, such Permits are valid and in full force
and
effect and none of the Permits will be terminated or impaired
or become
terminable, in whole or in part, as a result of the
transactions
contemplated hereby.
(b) The Company has all licenses, franchises, permits or
other
similar authorizations, and all approvals of governmental or
regulatory
authorities as are required to operate its business in each
state of
the United States where it is engaged in such activity.
Section 3.20. Inventories. The inventories set forth in the
Balance
Sheet were properly stated therein at the lesser of cost or fair
market
value determined in accordance with GAAP. Since the Balance Sheet
Date,
the inventories of the Company have been maintained in the ordinary
course
of business.
Section 3.21. Loans, Notes, Accounts Receivable and Accounts
Payable.
All receivables of the Company, including the loans, notes and
accounts
receivable reflected on the Balance Sheet and all such loans, notes
and
accounts receivable arising after the Balance Sheet Date, arose, and
have
arisen, from bona fide transactions of the Company, and the reserves
accrued for doubtful accounts are in accordance with GAAP. Accounts
payable of the Company reflected on the Balance Sheet and all accounts
payable arising after the Balance Sheet Date arose, and have arisen,
from
bona fide transactions.
Section 3.22. Projections. The financial projections relating
to the
Company delivered to Buyer are made in good faith and are based upon
reasonable assumptions, and the Company is not aware of any fact or
set of
circumstances that would lead it to believe that such projections are
incorrect or misleading in any material respect.
Section 3.23. Finders' Fees. No investment banker, broker,
finder or
other intermediary is entitled to any fee or commission in connection
with
the transactions contemplated by this Agreement based upon
arrangements
made by or on behalf of the Company.
Section 3.24. Employees. Schedule 3.24 sets forth a true and
complete
list of the names, titles, annual salaries and other compensation of
all
officers of the Company and all other employees of the Company, and
none of
such employees and no other key employee of the Company has indicated
to
the Company that he intends to resign or retire as a result of the
transactions contemplated by this Agreement or otherwise within three
years
after the Closing Date.
Section 3.25. Labor Matters. The Company is in compliance
with all
currently 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, failure to comply with which or
engagement in
which, as the case may be, would reasonably be expected to have a
Material
Adverse Effect. There is no unfair labor practice complaint pending
or
threatened against the Company before the National Labor Relations
Board.
Section 3.26. Environmental Matters.
(a) Except as disclosed on Schedule 3.26:
(i) The Company has not received any
notice,
notification, demand, request for information,
citation, summons,
complaint or order and no complaint has been filed, no
penalty
has been assessed and no investigation or review is
pending,
threatened by any governmental entity or other Person
with
respect to any (A) alleged violation of any
Environmental Law or
liability thereunder, (B) alleged failure to have any
Environmental Permit, (C) Regulated Environmental
Activity or (D)
Release of Hazardous Substances;
(ii) no polychlorinated biphenyls,
radioactive material,
urea formaldehyde or underground storage tank (active
or
abandoned) or solid or liquid waste disposal area
(whether a
lagoon, impoundment or other area) is or has been
present at any
property now or previously owned, leased or operated by
the
Company and no asbestos or asbestos-containing material
which
would be required to be removed or remediated under
Environmental
Laws is present at any property now owned, leased or
operated by
the Company;
(iii) no Hazardous Substance has been
Released (and no
notification of such Release has been filed or made) or
is at, on
or under any property now or previously owned, leased
or operated
by the Company;
(iv) no property now or previously owned,
leased or
operated by the Company or any property to which the
Company has
transported or arranged for the transportation of any
Hazardous
Substances is listed or, to the Company's knowledge,
proposed for
listing, on the National Priorities List promulgated
pursuant to
CERCLA, on CERCLIS (as defined in CERCLA) or on any
similar
federal, state, local or foreign list of sites
requiring
investigation or clean-up;
(v) there are no liens under Environmental
Laws on any of
the real property or other assets owned, leased or
operated by
the Company, and the Company has not received oral or
written
notification that any government actions have been
taken or are
in process which could subject any of such properties
or assets
to such liens and no Person would be required to place
any notice
or restriction relating to Hazardous Substances at any
property
owned by it in any deed to such property;
(vi) there are no Environmental Permits
that are
nontransferable or require consent to remain in full
force and
effect following the consummation of the transactions
contemplated hereby;
(vii) the Company and the properties and
assets currently
owned or operated by the Company are and have been in
compliance
at all times with all Environmental Laws and the
properties and
assets previously owned or leased by the Company were,
during the
time of such ownership or operation, in compliance with
then
existing Environmental Laws;
(viii) the Company does not produce or
purchase for use or
use any Class I Substance or Class II Substance or any
product
containing or made with any Class I Substance or Class
II
Substance. "Class I Substance" and "Class II Substance"
have the
meanings set forth in clauses (3) and (4),
respectively, or
Section 601 of the Clean Air Act, 42 U.S.C. No.7671, as
amended;
(ix) the Company does not produce or
purchase for use or
uses in a manufacturing process any cadmium, lead,
mercury or
hexavalent chromium or produces or purchases for use or
uses in a
manufacturing process any material, part, component or
subassembly incorporated in its products which includes
any
cadmium, lead, mercury or hexavalent chromium; and
(x) there is no action, suit,
investigation or proceeding
(or any basis therefor) pending against or threatened
against or
affecting the Company or any of its properties before
any court
or arbitrator or any governmental body, agency or
official with
respect to any (A) alleged violation of any
Environmental Law or
liability thereunder, (B) alleged failure to have any
Environmental Permit, Regulated Environmental
Activity or
(D) Release of Hazardous Substances.
(b) There has been no environmental investigation, study,
audit, test, review or other analysis conducted of which the
Company
has knowledge in relation to the current or prior business of
the
Company or any property or facility now or previously owned,
leased or
operated by the Company which has not been delivered to Buyer
at least
five days prior to the date hereof.
(c) The Company does not own or lease nor has it ever
owned or
leased any property or operated a facility or any property in
New
Jersey or Connecticut.
(d) For purposes of this Section 3.26, the term "Company"
shall
include any presently or previously owned Company and any
entity which
is, in whole or in part, a predecessor of the Company.
(e) For purposes of this Section 3.26, any
representations or
warranties made with respect to any property which is not
presently
owned, leased or operated by the Company are, with respect only
to any
period during which the Company did not own, lease or operate
such
property made to the knowledge of the Company.
Section 3.27. No Solicitation. Except as disclosed on
Schedule 3.27
hereto, the Company hereby represents that neither it nor its
representatives is currently engaged and it will not engage in
discussions
or negotiations with any Person (other than Buyer) regarding the
purchase
of any of the assets or equity of the Company or any other similar
transaction.
Section 3.28. Full Disclosure. No representation or warranty
of the
Company made in this Agreement, nor any written statement furnished to
Buyer pursuant hereto, or in connection with the transactions
contemplated
hereby, heretofore furnished to Buyer by the Company, contains or will
contain any statement which constitutes an untrue statement of a
material
fact or fails or will fail to state a material fact which was
necessary to
make the statements or facts contained herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders hereby represents and warrants to
Buyer with
respect to itself, and not with respect to any other Shareholder, as
follows:
Section 4.01. Title to Shares. Other than as set forth in
Schedule
4.1 hereto, each Shareholder owns the Shares set forth opposite its
name in
column B of Schedule A hereto (which, except as disclosed on Schedule
4.1
hereto, in the aggregate represent all of the issued and outstanding
shares
of capital stock of the Company) free and clear of any Lien, adverse
claim,
restriction on sale or transfer (other than restrictions imposed by
applicable securities laws), preemptive right, limitations on voting
rights
or option and has the authority to dispose of such Shares pursuant to
this
Agreement.
Section 4.02. Effect of Agreement on Shareholders. The
execution,
delivery and performance of this Agreement and the Transaction
Documents to
which it is a party by each Shareholder and the consummation by each
Shareholder of the transactions contemplated hereby and thereby will
not
require any notice to, filing with, or the consent, approval or
authorization of any person or governmental authority. This Agreement
has
been duly executed and delivered by the Shareholders, constitutes a
legal,
valid and binding obligation of the Shareholders, enforceable against
the
Shareholders in accordance with its terms. Each of the Transaction
Documents to which the Shareholders are a party, when executed and
delivered in accordance with the terms hereof, will constitute the
legal,
valid and binding obligation of the Shareholders, enforceable against
the
Shareholder in accordance with its terms.
Section 4.03. Litigation. There are no claims, actions,
suits,
arbitrations, grievances, proceedings or investigations pending or, to
the
best knowledge of each Shareholder threatened, against such
Shareholder, at
law, in equity or before any federal, state, municipal or other
governmental or nongovernmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, involving the
transactions
contemplated hereby.
Section 4.04. Shareholder Agreements. There are no
agreements,
written or oral, between the Company and any Shareholder or between
the
Shareholders, relating to the acquisition (including without
limitation
rights of first refusal or pre-emptive rights), disposition,
registration
under the 1933 Act, as amended, or voting of the capital stock of the
Company.
Section 4.05. Full Disclosure. No representation or warranty
of the
Shareholders made in this Agreement, nor any written statement
furnished to
Buyer pursuant hereto, or in connection with the transactions
contemplated
hereby, heretofore furnished to Buyer by the Shareholders, contains or
will
contain any statement which constitutes an untrue statement of a
material
fact or fails or will fail to state a material fact which was
necessary to
make the statements or facts contained herein or therein not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and the
Shareholders as follows:
Section 5.01. Corporate Existence and Power. Buyer is a
corporation
duly organized, validly existing and in good standing under the laws
of
Colorado and has all corporate or powers and all governmental
licenses,
authorizations, permits, consents and approvals required to carry on
its
business as now conducted.
Section 5.02. Corporate Authorization. The execution,
delivery and
performance by Buyer of this Agreement and any other Transaction
Document
to which it is a party are within the corporate powers of Buyer and
have
been duly authorized by all necessary corporate action on the part of
Buyer. This Agreement and any other Transaction Document to which it
is
party constitute valid and binding agreements of Buyer.
Section 5.03. Governmental Authorization. The execution,
delivery and
performance by Buyer of this Agreement and any other Transaction
Document
to which it is a party require no action by or in respect of, or
filing
with, any governmental body, agency or official.
Section 5.04. Non-Contravention. The execution, delivery and
performance by Buyer of this Agreement and any other Transaction
Document
to which it is a party do not and will not (a) violate the articles of
incorporation or bylaws of Buyer, (b) violate any applicable law,
rule,
regulation, judgment, injunction, order or decree binding upon Buyer
or
require consent or other action to any Person under any agreement or
other
instrument binding upon Buyer.
Section 5.05. Finders' Fees. Except as previously disclosed
by Buyer
to the Company, no investment banker, broker, finder or other
intermediary
is entitled to any fee or commission in connection with the
transactions
contemplated by this Agreement based upon arrangements made by Buyer.
Section 5.06. Compliance with Laws. Except as previously
disclosed in
writing by Buyer to the Company, Buyer is not in violation of any
applicable provisions of any laws, statutes, ordinances, regulations,
administrative interpretations, orders, judgments, policies or decrees
of
any court or governmental or administrative authority that are
applicable
to Buyer other than violations which are not reasonably likely,
individually or in the aggregate, to prevent, enjoin, alter or
materially
delay the transactions contemplated hereby.
ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.01. Conduct of Business Until Closing Date. From
the date
of this Agreement and until the Closing Date, except with the prior
written
consent of Buyer, the Company shall conduct its business in the
ordinary
course and consistent with past practices and use its best efforts to
preserve intact its business organization and goodwill, keep available
the
services of its present officers and key employees and preserve the
goodwill and business relationships with suppliers, customers and
others
having business relationships with it. Without limiting the
generality of
the foregoing, the Company shall:
(a) refrain from changing, in any material respect, any
of its
business policies relating to its business;
(b) maintain and keep its assets in good repair, working
order
and condition consistent with past practices (except for
obsolescence,
ordinary wear and tear and damage due to casualty);
(c) perform all of its obligations under all contracts,
leases
and any and all other agreements relating to or affecting its
assets or
its business except where the failure to so perform would have
a
Material Adverse Effect;
(d) refrain from
(i) issuing, redeeming, selling or disposing of,
or
creating any obligation to issue, redeem, sell or dispose of,
any shares of its capital stock (whether authorized but
unissued or held in treasury);
(ii) taking any action with respect to the grant
of any
severance or termination pay to any employees (except as
consistent with current practice or as currently provided with
existing arrangements) or with respect to any increase of
benefits payable under any severance or termination pay
policies or agreements in effect on the date hereof and
applicable to employees;
(iii) entering into, adopting, modifying or
amending, in
any material respect, any written employment, collective
bargaining, severance, consulting, bonus, incentive
compensation, deferred compensation, profit sharing, employee
benefit, welfare benefit or other agreement, plan or
arrangement providing for compensation or benefits to
employees or independent contractors;
(iv) increasing in any material respect the
compensation or fringe benefits of any employee or independent
contractors or paying any benefit or compensation not required
by any existing agreement, plan or arrangement; except, in the
case of each of the foregoing, reasonable actions consistent
with past practices or in accordance with any existing
agreement, plan or arrangement;
(v) taking any action that could be reasonably
anticipated to have a Material Adverse Effect or that could
cause any representation or warranty set forth in Article III
hereof to be untrue or any condition to Closing not to be
satisfied;
(vi) accelerate billings, shipments to customers,
payments from customers, orders from suppliers or payment of
accounts payable or adjust the level of inventory, except in
the ordinary course of business; or
(vii) except with the prior written consent of
Buyer,
which consent shall not be unreasonably withheld, entering
into any agreement, waiver or other arrangement providing for
an extension of time with respect to the filing of any tax
return or the payment or assessment of any tax, governmental
charge, payment or deficiency.
Section 6.02. Best Efforts. Subject to the terms and conditions of
this Agreement, each of the parties will use its best efforts to take,
or
cause to be taken, all actions and to do, or cause to be done, all
things
necessary or desirable under applicable laws and regulations to
consummate
the transactions contemplated by this Agreement. Each of the parties
agrees to execute and deliver such other documents, certificates,
agreements and other writings and to take such other actions as may be
necessary or desirable in order to consummate or implement
expeditiously
the transactions contemplated by this Agreement.
Section 6.03. Access; Cooperation. Through the Closing, the
Company shall make available for inspection by Buyer or the agents or
representatives of Buyer, during normal business hours and upon
reasonable
notice (a) all premises utilized by the Company in the conduct of the
Company's business, (b) all books of account, contracts and other
documents relating to or constituting a part of the Company's assets,
the key management personnel of the Company, (d) financial and
operating
data relating to the Company, and (e) such further information with
respect
to the Company, as Buyer, from time to time, shall reasonably request,
provided that such access shall not unduly interfere with the normal
business operations of the Company.
Section 6.04. Certain Filings. Each of the parties shall cooperate
with one another (a) in determining whether any action by or in
respect of,
or filing with, any governmental body, agency, official or authority
is
required, or any actions, consents, approvals or waivers are required
to be
obtained from parties to any material contracts, in connection with
the
consummation of the transactions contemplated by this Agreement and
(b) in
taking such actions or making any such filings, furnishing information
required in connection therewith and seeking timely to obtain any such
actions, consents, approvals or waivers.
Section 6.05. Public Announcements. The parties agree to consult
with each other before issuing any press release or making any public
statement with respect to this Agreement or the transactions
contemplated
hereby and, except as may be required by applicable law or any listing
agreement with any national securities exchange, will not issue any
such
press release or make any such public statement prior to such
consultation.
Section 6.06. Notice of Certain Events. If prior to Closing,
either Buyer, on the one hand, or the Company, on the other hand,
shall
acquire knowledge of any fact, law or circumstance which would be
required
to be disclosed by such party to avoid a breach of its representations
and
warranties contained in this Agreement, then such party shall
immediately
disclose such fact, law or circumstance to the other party.
Section 6.07. Exclusivity. The Company will not directly or
through agents, representatives or other affiliated parties, after the
date
hereof and prior to closing or termination of this agreement,
whichever is
earlier, (a) solicit, initiate, or encourage the submission of any
proposal
or offer from any person relating to any (i) liquidation, dissolution
or
recapitalization, (ii) merger or consolidation, (iii) acquisition or
purchase of securities or assets, or (iv) similar transaction or
business
combination involving the Company or (b) participate in any
discussions or
negotiations regarding, furnish any information with respect to,
assist or
participate in, or facilitate in any other manner any effort or
attempt by
any person to do or seek any of the foregoing.
Section 6.08. Noncompetition; Nonsolicitation. In order that Buyer
may have and enjoy the benefit of the acquisition of the Company, the
Controlling Shareholders shall not, and shall cause its Affiliates and
associates not to, directly or indirectly, for a period of five years
commencing on the Closing Date, (a) engage (as owner, stockholder,
partner
or otherwise, except as a holder of fewer than 5% of the outstanding
shares
or other equity interests of a company whose shares or other equity
interests are publicly traded) in any business which directly or
indirectly
competes with the business of Buyer or any of its Affiliates, as now
conducted; (b) induce any employee of the Company or any of its
Affiliates
to engage in any activity in which the officers are prohibited from
engaging by subsection (a) or to terminate his employment with the
Company
or any of its Affiliates, and will not directly or indirectly employ
or
offer employment to any person who was employed by the Company or any
of
its Affiliates unless such person shall have been terminated without
cause
or ceased to be employed by the Company and any of its Affiliates for
a
period of at least 12 months; or (c) make any statement or take any
action
intended to impair the goodwill or the business reputation of Buyer or
any
of its affiliates or subsidiaries, or to be otherwise detrimental to
the
interests of Buyer or any of its affiliates or subsidiaries, including
any
action or statement intended, directly or indirectly, to benefit a
competitor of Buyer or any of its affiliates or subsidiaries. It is
expressly understood and agreed that although the Controlling
Shareholders
and Buyer consider the restrictions contained in this Section 6.08 to
be
reasonable, if a final judicial determination is made by a court of
competent jurisdiction that the time and territory or any other
restriction
contained in this Section 6.08 is an unenforceable restriction against
the
Officers, the provisions of this Section 6.08 shall not be rendered
void
but shall be deemed amended to apply as to such maximum time and
territory
and to such maximum extent as such court may judicially determine or
indicate to be enforceable. Alternatively, if any court of competent
jurisdiction finds that any restriction contained in this Section6.08
is
unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any
of
the other restrictions contained herein.
Section 6.09. Joint Marketing Program. During the time between the
execution of this Agreement and the Closing, Buyer shall use its best
efforts to introduce the Company, where appropriate, to such of
Buyer's
contacts as may be beneficial to the Company's business. In the event
that
the parties do not consummate the transactions contemplated hereby and
the
Company, within a period of one year from the date of the termination
of
this Agreement, enters into an agreement or provides any services to
or
sells any products to any contact provided by Buyer to the Company,
the
Company shall pay to Buyer, for a period of five years from the date
of the
termination of this Agreement, a royalty or commission, equivalent to
sales
commissions paid by the Company on similar transactions or as mutually
agreed by the parties, on the Company's total sales or revenues from
any
such party.
Section 6.10. Working Capital. Buyer agrees to furnish working
capital to the Company during the time between the execution of this
Agreement and the Closing in the sole discretion of Buyer. Each
advance of
working capital by Buyer to the Company shall be evidenced by a
promissory
note (each a "Promissory Note") in a form reasonably acceptable to
Buyer
and the Company. Each Promissory Note shall be secured by a first
priority
perfected security interest in all of the Company's assets. In the
event
of the termination of this Agreement, the Company shall pay to Buyer
all
amounts advanced by Buyer on behalf of the Company in accordance with
the
terms of each Promissory Note.
ARTICLE VII
TAX REPRESENTATIONS AND COVENANTS
Section 7.01. Tax Definitions. The following terms, as used
herein, have the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Pre-Closing Tax Period" means any Tax period ending on or before
the close of business on the Closing Date or, in the case of any Tax
period
which includes, but does not end on, the Closing Date, the portion of
such
period up to and including the Closing Date.
"Tax" means (a) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, license, withholding, payroll,
employment,
excise, severance, stamp, occupation, premium, property, environmental
or
windfall profit tax, custom, duty or other tax, governmental fee or
other
like assessment or charge of any kind whatsoever, together with any
interest, penalty, addition to tax or additional amount imposed by any
governmental authority (domestic or foreign) responsible for the
imposition
of any such tax (a "Taxing Authority"), (b) any liability of the
Company
for the payment of any amount of the type described in clause (a)
above as
a result of being a member of an affiliated, consolidated, combined or
unitary group and (c) any liability of the Company for the payment of
any
amount as a result of being party to any Tax Sharing Agreement or with
respect to the payment of any amounts of the type described in clauses
(a)
or (b) above as a result of any express or implied obligation to
indemnify
any other Person.
"Tax Asset" means any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction
carryover
or any other credit or tax attribute which could reduce Taxes
(including,
without limitation, credits or other tax attributes which could reduce
alternative minimum Taxes).
"Tax Sharing Agreement" means any existing Tax sharing agreements or
arrangements (whether or not written) binding the Company and any
other
agreement or arrangement (including any arrangement required or
permitted
by law) which (a) requires the Company to make any Tax payment to or
for
the account of any other person, (b) affords any other person to
utilize
any Tax Asset of the Company to reduce such other person's Taxes,
affords the Company to utilize any Tax Asset of any other person to
reduce
any Taxes of the Company (d) requires or permits the transfer or
assignment of income, revenues, receipts, or gains or (e) requires or
permits the Company to determine its Tax liability by taking into
account
or by reference to the Tax liability, income, revenues, receipts or
gains
of any other person.
Section 7.02. Tax Representations and Covenants.
(a) Except as set forth in the Balance Sheet (including the
notes thereto) or on Schedule 7.2(a).
(i) all Tax returns, statements, reports
and forms
(including estimated tax or information returns and
reports)
required to be filed with any Taxing Authority with
respect to
any Pre-Closing Tax Period by or on behalf of the
Company
(collectively, the "Returns") have been or will be
timely filed
when due in accordance with all applicable laws, except
where the
failure to file would not subject the Company to any
liabilities
(including any interest, penalties or addition-to-tax);
(ii) as of the time of filing, the Returns
correctly
reflected (and, as to any Returns not filed as of the
date
hereof, will correctly reflect) in all material
respects the
facts regarding the income, business, assets,
operations,
activities and status of the Company and any other
information,
as required to be shown therein;
(iii) all Taxes shown as due and payable on
the Returns
that have been filed have been timely paid, or withheld
and
remitted to the appropriate Taxing Authority;
(iv) the charges, accruals and reserves for
Taxes with
respect to the Company for any Pre-Closing Tax Period
(including
any Pre-Closing Tax Period for which no Return has yet
been
filed) reflected on the Balance Sheet and the books of
the
Company(excluding any provision for deferred income
taxes) are
adequate to cover such Taxes;
(v) the Company is not delinquent in the
payment of any
Tax or has requested any extension of time within which
to file
any Return, which Return has not yet been filed;
(vi) the Company (or any member of any
affiliated,
consolidated, combined or unitary group of which the
Company is
or has been a member) has not granted any extension or
waiver of
the statute of limitations period applicable to any
Return, which
period(after giving effect to such extension or waiver)
has not
yet expired;
(vii) there is no claim, audit, action,
suit, proceeding,
or investigation now pending or threatened (including,
any issues
that, to the knowledge of the Company, may be raised by
any
Taxing Authority) against or with respect to the
Company in
respect of any Tax or Tax Asset;
(viii) the Company has not filed any request
for ruling or
determination of any Taxing Authority in respect of any
Tax which
has been denied during the past five years or which is
pending;
(ix) the Company does not own any interest
in real
property in the State of New York or in any other
jurisdiction in
which a Tax is imposed on the transfer of a controlling
interest
in an entity that owns any interest in real property;
(x) the Company has not been a member of
an affiliated,
consolidated, combined or unitary group;
(xi) all information set forth in the notes
to the Balance
Sheet relating to Tax matters is true and complete;
(xii) the Company is not a party to any Tax
Sharing
Agreement or is otherwise under any obligation to pay
any third
party an amount with respect to any Tax;
(xiii) prior to the Closing Date and without
the prior
written consent of Buyer, none of the Company or any
Affiliate of
the Company shall, to the extent it may affect or
relate to the
Company, make or change any tax election, change any
annual tax
accounting period, adopt or change any method of tax
accounting,
file any amended Return, enter into any closing
agreement, settle
any Tax claim or assessment, surrender any right to
claim a Tax
refund, consent to any extension or waiver of the
limitation
period applicable to any Tax claim or assessment, if
any such
action would have the effect of increasing the Tax
liability or
decreasing any Tax Asset of the Company; and
(xiv) prior to the Closing Date, the Company
shall not
reserve any amount for or make any payment of Taxes to
any other
person or any Taxing Authority except for such Taxes as
are due
or payable to the Taxing Authority or have been
properly
estimated in accordance with applicable law as applied
in a
manner consistent past practice of the Company.
(b) Schedule 7.2(b) contains a list of all jurisdictions
(whether foreign or domestic) to which any Tax is properly
payable by
the Company.
(c) Schedule 7.2(c) contains an accurate description of
current
audit issues relating to any Tax, and Schedule 7.2(c) contains
copies
of revenue agent's or similar reports furnished by any Taxing
Authority
for the taxable years which have not been examined and closed
or with
respect to which the applicable period for assessment under
applicable
law, after giving effect to extensions or waivers, has expired.
ARTICLE VIII
EMPLOYEE BENEFITS
Section 8.01. Employee Benefits Definitions. The following
terms, as
used herein, shall have the following meanings:
"Benefit Arrangement" means each employment, severance or other
similar
contract, arrangement or policy or any plan or arrangement (whether or
not
written) providing for severance benefits, insurance coverage
(including
any self-insured arrangements), workers' compensation, disability
benefits,
supplemental unemployment benefits, vacation benefits, pension or
retirement benefits or for deferred compensation, profit-sharing,
bonuses,
stock options, stock appreciation or other forms of incentive
compensation
or post-retirement insurance, compensation or benefits which (a) is
entered
into, maintained or contributed to, as the case may be, by the Company
or
any of its Affiliates and (b) covers any employee or former employee
of the
Company.
"Employee Plan" means any "employee benefit plan," as defined
in
Section 3(3)of ERISA, that (i) is subject to any provision of ERISA,
(ii)
is maintained, administered or contributed to by the Company or any of
its
ERISA Affiliates and (iii) covers any employee or former employee of
the
Company.
Section 8.02. Employee Plans. The Company does not maintain
any
Employee Plans.
Section 8.03. Benefit Arrangements.
(a) Schedule 8.3 identifies each Benefit Arrangement.
The
Company has provided Buyer with copies or descriptions of each
Benefit
Arrangement. Each Benefit Arrangement has been maintained in
substantial compliance in all material respects with its terms
and with
the requirements prescribed by any and all statutes, orders,
rules and
regulations which are applicable to such Benefit Arrangement.
(b) Except as disclosed in writing to Buyer prior to the
date
hereof, there has been no amendment to employee participation
or
coverage under any Benefit Arrangement which would increase
materially
the expense of maintaining such Employee Plan or Benefit
Arrangement
above the level of the expense incurred in respect thereof for
the most
recent fiscal year.
Section 8.04. No Third-Party Beneficiaries. No provision of
this
Article VIII shall create any third-party beneficiary or other rights
in
any employee or former employee (including any beneficiary or
dependent
thereof) of the Company in respect of continued employment (or resumed
employment) with the Company and no provision of this Article VIII
shall
create any such rights in any such Persons in respect of any benefits
that
may be provided, directly or indirectly, under any Benefit Arrangement
or
any plan or arrangement which may be established by the Company after
the
Closing Date. No provision of this Agreement shall constitute a
limitation
on rights to amend, modify or terminate after the Closing Date any
Benefit
Arrangement or any other plans or arrangements of the Company.
ARTICLE IX
CONDITIONS TO CLOSING
Section 9.01. Conditions to Obligations of the Parties. The
obligations of each of the parties to consummate the Closing shall be
conditioned uponthe satisfaction or waiver (in whole or in part) of
each of
the following conditions concurrently with or prior to Closing:
(a) No provision of any applicable law or regulation and
no
judgment, injunction, order or decree shall prohibit the
consummation
of the Closing.
(b) All actions by or in respect of or filings with any
governmental body, agency, official or authority required to
permit the
consummation of the Closing shall have been taken, made or
obtained.
Section 9.02. Conditions to Obligation of Buyer. The
obligation of
Buyer to consummate the Closing shall be conditioned upon the
satisfaction
or waiver (in whole or in part) of each of the following conditions
concurrently with or prior to Closing:
(a) (i) The Company shall have performed in all material
respects all of its obligations hereunder required to be
performed by
it on or prior to the Closing Date, (ii) the representations
and
warranties of the Company contained in this Agreement and in
any
certificate or other writing delivered by the Company pursuant
hereto,
disregarding all qualifications and exceptions contained
therein
relating to materiality or Material Adverse Effect, shall be
true at
and as of the Closing Date, as if made at and as of such date
with only
such exceptions as would not in the aggregate reasonably be
expected to
have a Material Adverse Effect and (iii) Buyer shall have
received a
certificate signed by the Chief Executive Officer of the
Company to
the foregoing effect.
(b) There shall not be threatened, instituted or pending
any
action or proceeding by any Person before any court or
governmental
authority or agency, domestic or foreign, (i) seeking to
restrain or
prohibit the ownership or operation by Buyer or any of its
Affiliates
of all or any material portion of the business or assets of the
Company
or of Buyer or any of their Affiliates or to compel Buyer or
any of its
Affiliates to dispose of all or any material portion of the
business or
assets of the Company or of Buyer or any of their or
Affiliates,
(ii) seeking to impose or confirm limitations on the ability of
Buyer
or any of its Affiliates effectively to exercise full rights of
ownership of the Shares, including without limitation, the
right to
vote any shares acquired or owned by Buyer or any of its
Affiliates on
all matters properly presented to the Shareholders or (iii)
seeking to
require divestiture by Buyer or any of its Affiliates of any
Shares.
(c) No proceeding challenging this Agreement or the
transactions contemplated hereby or seeking to prohibit, alter,
prevent
or materially delay the Closing shall have been instituted by
any
Person before any court, arbitrator or governmental body,
agency or
official and be pending.
(d) Buyer shall have received an opinion of Wright &
Bellows,
counsel to the Company, dated the Closing Date to the effect
specified
in Sections 3.01, 3.02, 3.03, 3.04, and 3.05. In rendering
such
opinion, such counsel may rely upon certificates of public
officers
and, as to matters of fact, upon certificates of officers of
the
Company, copies of which certificates shall be
contemporaneously
delivered to Buyer.
(e) The Company shall have received all consents,
authorizations or approvals from the governmental agencies
referred to
in Section 3.03, in each case in form and substance reasonably
satisfactory to Buyer, and no such consent, authorization or
approval
shall have been revoked.
(f) Buyer shall have received all documents it may
reasonably
request relating to the existence of the Company and the
authority of
the Company for this Agreement, all in form and substance
reasonably
satisfactory to Buyer.
(g) The Company shall have delivered to Buyer copies of
the
resolutions of its Board of Directors, authorizing and
approving the
execution of this Agreement and the consummation of the
transactions
contemplated hereby, certified as true and correct on the
Closing Date
by its Secretary.
(h) Grant Thornton LLP shall have completed an audit of
the
financial statements of the Company for the years ended
December 31,
1992, 1993 and 1994, and the results of such audit shall be
satisfactory to Buyer in its sole discretion.
(i) Buyer shall have received the resignation of each
officer
and each member of the current Board of Directors other than
those whom
Buyer shall have specified in writing at least five days prior
to
Closing that it shall be retaining.
(j) The Escrow Agreement shall have been fully executed
and
delivered by all parties thereto.
(k) All employment agreements between the Company and
Guinn and
Klingsheim shall have been terminated.
(l) The Company shall deliver the Schedules referred to
herein
to Buyer, in such form as shall be reasonably acceptable to
Buyer,
within seven business days of the date hereof.
Section 9.03. Conditions to Obligation of the Company. The
obligation
of the Company to consummate the Closing shall be conditioned upon the
satisfaction or waiver (in whole or in part) of each of the following
conditions concurrently with or prior to Closing:
(a) (i) Buyer shall have performed in all material
respects all
of its obligations hereunder required to be performed by it at
or prior
to the Closing Date, (ii) the representations and warranties of
Buyer
contained in this Agreement and in any certificate or other
writing
delivered by Buyer pursuant hereto, disregarding all
qualifications and
exceptions contained therein relating to materiality or
Material
Adverse Effect, shall be true at and as of the Closing Date, as
if made
at and as of such date with only such exceptions as would not
in the
aggregate reasonably be expected to have a Material Adverse
Effect, and
(ii) the Company shall have received a certificate signed by an
officer
of Buyer to the foregoing effect.
(b) The Company shall have received an opinion of Kutak
Rock,
counsel to Buyer, dated the Closing Date to the effect
specified in
Sections 5.01, 5.02, 5.03 and 5.04. In rendering such opinion,
such
counsel may rely upon certificates of public officers and, as
to
matters of fact, upon certificates of officers of Buyer, copies
of
which certificates shall be contemporaneously delivered to the
Company.
(c) Buyer shall have received all consents,
authorizations or
approvals from governmental agencies referred to in Section
5.03, in
each case in form and substance reasonably satisfactory to the
Company,
and no such consent, authorization or approval shall have been
revoked.
(d) Buyer shall have delivered to the Company copies of
resolutions of its Board of Directors, authorizing and
approving the
execution of this Agreement and the consummation of the
transactions
contemplated hereby, certified as true and correct on the
Closing Date
by its Secretary.
(e) No proceeding challenging this Agreement or the
transactions contemplated hereby or seeking to prohibit, alter,
prevent
or materially delay the Closing shall have been instituted by
any
Person before any court, arbitrator or governmental body,
agency or
official and be pending.
ARTICLE X
MUTUAL RELEASES
Section 10.01. Release of Buyer and the Company. The
Shareholders
release and forever discharge Buyer and the Company, and their
respective
directors, officers, employees, agents, successors and assigns from
any and
all claims, demands, liabilities, obligations, damages, costs,
expenses,
actions and causes of action, in law or in equity, known or unknown,
which
the Shareholders ever had or now have against the Buyer or the Company
as
of the date hereof, including, but not limited to any and all rights,
claims, demands, liabilities, obligations, damages, costs, expenses,
actions and causes of action, in law or in equity relating to or
resulting
from the Shareholder Agreement or the Stock Option Agreement, other
than
claims, demands, liabilities, obligations, damages, costs, expenses,
actions and causes of action, in law or in equity, arising out of a
breach
of any provision of this Agreement.
Section 10.02. Release of Shareholders. Buyer and the Company
release and forever discharge the Shareholders, their heirs,
executors,
administrators, successors and assigns from any and all claims,
demands,
liabilities, obligations, damages, costs, expenses, actions and causes
of
action, in law or in equity, known or unknown, which Buyer or the
Company
ever had or now have against the Shareholders as of the date hereof,
other
than claims, demands, liabilities, obligations, damages, costs,
expenses,
actions and causes of action, in law or equity arising out of a breach
of
any provision of this Agreement; and provided however that any such
release
shall not limit in any manner the indemnification obligations of the
Controlling Shareholders to the Buyer pursuant to Section 11.02
hereof.
ARTICLE XI
SURVIVAL; INDEMNIFICATION
Section 11.01. Survival. The covenants, agreements,
representations
and warranties of the parties hereto contained in this Agreement or in
any
certificate or other writing delivered pursuant hereto or in
connection
herewith shall survive the Closing for a period of 24 months after the
Closing; provided that (a) the covenants, agreements, representations
and
warranties contained in Articles VII or VIII shall survive until
expiration
of the statute of limitations applicable to the matters covered
thereby
(giving effect to any waiver, mitigation or extension thereof), if
later
and (b) the representations and warranties contained in Section 3.26
shall
survive the Closing for a period of five years after the Closing.
Notwithstanding the preceding sentence, any covenant, agreement,
representation or warranty in respect of which indemnity may be sought
under this Agreement shall survive the time at which it would
otherwise
terminate pursuant to the preceding sentence, if notice of the
inaccuracy
or breach thereof giving rise to such right of indemnity shall have
been
given to the party against whom such indemnity may be sought prior to
such
time.
Section 11.02. Indemnification Obligations.
(a) The Controlling Shareholders, jointly and severally
(together one "indemnifying party"), shall indemnify and hold
harmless
Buyer, and Buyer (another "indemnifying party") shall indemnify
and
hold harmless the Controlling Shareholders, from, against and
in
respect of any and all damages, losses, deficiencies,
liabilities,
costs and expenses resulting from, relating to or arising out
of any
(I) misrepresentation, (ii) breach of warranty or (iii)
non-fulfillment
of any agreement or covenant on the part of such indemnifying
party or
parties hereunder.
(b) Notwithstanding anything herein to the contrary, the
Controlling Shareholders, jointly and severally, shall also
indemnify
and hold harmless Buyer and each person who controls Buyer
within the
meaning of the 1933 Act and each officer and director of Buyer
and any
such controlling person, at all times after the date hereof
from and
against any claim by any former shareholder of the Company for
any
prior transaction involving any shares of capital stock of the
Company
or any predecessor corporation.
(c) Each indemnifying party or parties hereto will
indemnify
and hold harmless the indemnified party or parties hereto from,
against
and in respect of any and all actions, suits, proceedings,
demands,
assessments, judgments, costs (including attorneys' fees) and
legal and
other expenses incident to any of the foregoing or to the
enforcement
of this Article XI.
Section 11.03. Method of Asserting Claims, Etc. All claims
for
indemnification under this Article XI shall be asserted and
resolved as
follows:
(a) In the event that any claim or demand for which the
Controlling Shareholders would be liable to Buyer hereunder is
asserted
against or sought to be collected by a third party, Buyer shall
promptly notify the Controlling Shareholders of such claim or
demand,
specifying the nature of such claim or demand and the amount or
the
estimated amount thereof to the extent then feasible (which
estimate
shall not be conclusive of the final amount of such claim or
demand)
(the "Claim Notice"); provided, however, that the failure of
Buyer to
give notice as provided herein shall not relieve the
Controlling
Shareholders of their obligations under this Article XI. The
Controlling Shareholders shall have 10 days from their receipt
of the
Claim Notice (the "Notice Period") to notify Buyer (i) whether
or not
the Controlling Shareholders dispute their liability to Buyer
hereunder
with respect to such claim or demand, and (ii) if they do not
dispute
such liability, whether or not they desire, at their sole cost
and
expense, to defend Buyer against such claim or demand;
provided,
however, that Buyer is hereby authorized prior to and during
the Notice
Period to file any motion, answer or other pleading which it
shall deem
necessary or appropriate to protect its interests. In the
event that
the Controlling Shareholders notify Buyer within the Notice
Period that
the Controlling Shareholders do not dispute such liability and
desire
to defend against such claim or demand, then except as
hereinafter
provided, the Controlling Shareholders shall have the right to
defend
by appropriate proceedings, which proceedings shall be promptly
settled
or prosecuted to a final conclusion in such a manner as to
avoid any
risk of Buyer becoming subject to liability for any other
matter. If
Buyer desires to participate in, but not control, any such
defense or
settlement it may do so at its sole cost and expense; provided
however
that the Controlling Shareholders shall pay such expense if
representation of Buyer by the counsel retained by the
Controlling
Shareholders would be inappropriate due to actual or potential
differing interests between Buyer and any other party
represented by
such counsel in such proceeding. If, in the reasonable opinion
of
Buyer, any such claim or demand involves an issue or matter
which could
have a materially adverse effect on the business, operations,
assets,
properties or prospects of the Business or any division of
Buyer or an
affiliate of Buyer, Buyer shall have the right to control the
defense
or settlement of any such claim or demand, and its reasonable
costs and
expenses thereof shall be included as part of the
indemnification
obligations of Buyer hereunder. If the Controlling
Shareholders
dispute the Controlling Shareholders' liability with respect to
such
claim or demand or elects not to defend against such claim or
demand,
whether by not giving timely notice as provided above or
otherwise,
then the amount of any such claim or demand, or, if the same be
contested by the Controlling Shareholders or by Buyer (but
Buyer shall
not have any obligation to contest any such claim or demand),
then that
portion thereof as to which such defense is unsuccessful, shall
be
conclusively deemed to be a liability of the Controlling
Shareholders
hereunder (subject, if the Controlling Shareholders have timely
disputed liability, to a determination that the disputed
liability is
covered by these indemnification provisions).
(b) In the event that Buyer should have a claim against
the
Controlling Shareholders hereunder which does not involve a
claim or
demand being asserted against or sought to be collected from it
by a
third party, Buyer shall promptly send a Claim Notice with
respect to
such claim to the Controlling Shareholders. If the Controlling
Shareholders do not notify Buyer within the Notice Period that
they
dispute such claim, the amount of such claim shall be
conclusively
deemed a liability of the Controlling Shareholders hereunder.
(c) All claims for indemnification made by the
Controlling
Shareholders under this Agreement shall be asserted and
resolved under
the procedures set forth above in this Section 11.03 by
substituting,
as appropriate, "Buyer" for "Controlling Shareholders" and
"Controlling
Shareholder" as appropriate, for "Buyer."
(d) Nothing herein shall be deemed to prevent any
indemnified
party from making a claim hereunder for potential or contingent
claims
or demands provided the Claim Notice sets forth the specific
basis for
any such potential or contingent claim or demand and the
estimated
amount thereof to the extent then feasible and the indemnified
party
has reasonable grounds to believe that such a claim or demand
will be
made.
Section 11.04. Payment.
(a) In the event that any party is required to make any
payment
under this Article XI, such party shall promptly pay the
indemnified
party the amount so determined. If there should be a dispute
as to the
amount or manner of determination of any indemnity obligation
owed
under this Article XI, the party from which indemnification is
due
shall nevertheless pay when due such portion, if any, of the
obligation
as shall not be subject to dispute. The difference, if any,
between
the amount of the obligation ultimately determined as properly
payable
under this Article XI and the portion, if any, theretofore paid
shall
bear interest as provided in Section 11.04(c). Upon the
payment in
full of any claim, either by setoff or otherwise, the party or
entity
making payment shall be subrogated to the rights of the
indemnified
party against any person, firm, corporation or other entity
with
respect to the subject matter of such claim.
(b) Any items as to which Buyer is entitled to payment
under
this Article XI shall be paid solely from: (i) First, the
proceeds of
any insurance policies, if applicable, currently maintained by
the
Company; and (ii) Second, from the Escrow Account to the extent
that
funds held under the Escrow Agreement are sufficient to pay
such items.
(c) If all or part of any indemnification obligation
under this
Agreement is not paid when due, then the indemnifying party or
parties
shall pay the indemnified party or parties interest on the
unpaid
amount of the obligation for each day from the date the amount
became
due until payment in full, payable on demand, at the
fluctuating rate
per annum which at all times shall be the lowest rate of
interest
generally charged from time to time by Chase Manhattan Bank,
N.A. and
publicly announced by such bank as its so-called "prime rate."
Section 11.05. Service of Process, Consent to Jurisdiction,
Etc.
(a) The Controlling Shareholders irrevocably consent to
the
service of any process, pleading, notices or other papers by
the
mailing of copies thereof by registered, certified or first
class mail,
postage prepaid, to the Controlling Shareholders at such
address set
forth in Section 13.01 herein, or by any other method provided
or
permitted under Colorado law.
(b) The Controlling Shareholders irrevocably and
unconditionally (I) agree that any suit, action or other legal
proceeding arising out of this Agreement may be brought in the
United
States District Court for the District of Colorado or, if such
court
does not have jurisdiction or will not accept jurisdiction, in
any
court of general jurisdiction in Jefferson County, Colorado;
(ii)
consents to the jurisdiction of any such court in any such
suit, action
or proceeding; and (iii) waives any objection which the
Controlling
Shareholders may have to the laying of venue of any such suit,
action
or proceeding in any such court.
Section 11.06. Equitable Relief. In the event of a breach or
threatened breach by the Controlling Shareholders of Section 6.08
hereof
regarding noncompetition and nonsolicitation, the Controlling
Shareholders
hereby consent and agree that Buyer shall be entitled to an injunction
or
similar equitable relief restraining the breaching party from
committing or
continuing any such breach or threatened breach or granting specific
performance of any act required to be performed by the Controlling
Shareholders under any such provision, without the necessity of
showing any
actual damage or that money damages would not afford an adequate
remedy and
without the necessity of posting any bond or other security. Nothing
herein shall be construed as prohibiting Buyer, the Company or the
Controlling Shareholders from pursuing any other remedies at law or in
equity which it may have.
ARTICLE XII
TERMINATION
Section 12.01. Grounds for Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual written agreement of the parties;
(b) by any party if the Closing shall not have been
consummated
on or before September 30, 1995; provided, however, that the
right to
terminate under this Section 12.01 shall not be available to
any party
whose failure to fulfill any obligation under this Agreement
has been
the cause of, or resulted in, the failure of the Closing to
occur on or
before such date; or
(c) by Buyer, if there has been, since the date of this
Agreement, any adverse change in, or any development reasonably
expected to result in a prospective adverse change in, the
condition,
financial or otherwise, or in the earnings, business affairs or
business prospects of the Company, whether or not arising in
the
ordinary course of business. The party desiring to terminate
this
Agreement shall give notice of such termination to the other
party.
Section 12.02. Effect of Termination. If this Agreement is
terminated
as permitted by Section 12.01, termination shall be without liability
of
either party (or any stockholder, director, officer, employee, agent,
consultant or representative of such party) to the other party to this
Agreement. The provisions of Sections 6.03 and 12.03 and the
Confidentiality Agreement dated April 20, 1995 shall survive any
termination hereof pursuant to Section 12.01. Notwithstanding the
foregoing, in the event of (a) the willful failure by either party to
fulfill a condition to the performance of the obligations of the other
party or (b) the breach by either party in the performance of such
party's
covenants or agreements hereunder, the party who has failed to fulfill
such
condition or who has breached any such covenants or agreement shall be
fully liable for any and all Damages incurred or suffered by the other
party as a result of such failure or breach.
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including
facsimile transmission)and shall be deemed to have been given if
delivered
personally, mailed by certified mail (return receipt requested) or
sent by
cable, telegram, telecopier or recognized overnight delivery service
to the
parties at the following addresses or at such other addresses as,
specified
by the parties by like notice:
If to Buyer: Golden Pharmaceuticals, Inc.
1313 Washington Avenue
Golden, Colorado 80401
Attention: Charles R. Drummond
Fax: (303) 279-4390
With a copy to: Kutak Rock
717 Seventeenth Street
Denver, Colorado 80202
Attention: Warren L. Troupe
Fax: (303) 292-7799
To the Company: Quality Care
Pharmaceuticals, Inc.
17911 Sampson Lane
Huntington Beach, California
92647
Attention: President
Fax: (800) 528-4312
With a copy to: Wright & Bellows
19100 Von Karmen, Suite 650
Irvine, California 92715
Attention: Loyd Wright III
Fax: (714) 833-8844
If to the Shareholders: To their addresses set forth on
Schedule A hereto.
If to the Controlling
Shareholders: Quality Care Pharmaceuticals,
Inc.
17911 Sampson Lane
Huntington Beach, California
92647
Attention: President
Fax: (800) 528-4312
Notice so given shall (in the case of notice so given by mail) be
deemed
given and received on the fourth calendar day after posting and (in
the
case of notice so given by cable, telegram, telecopier, telex of
personal
delivery) on the date of actual transmission or (as the case may be)
personal or other delivery.
Section 13.02. Amendments and Waivers.
(a) Any provision of this Agreement may be amended or
waived
prior to the Closing Date if, but only if, such amendment or
waiver is
in writing and is signed, in the case of an amendment, by each
party to
this Agreement, or in the case of a waiver, by the party
against whom
thewaiver is to be effective.
(b) No failure or delay by any party in exercising any
right,
power or privilege hereunder shall operate as a waiver thereof
nor
shall any single or partial exercise thereof preclude any other
or
further exercise thereof or the exercise of any other right,
power or
privilege. The rights and remedies herein provided shall be
cumulative
and not exclusive of any rights or remedies provided by law.
Section 13.03. Expenses.
(a) Except as otherwise provided in this Agreement, all
costs
and expenses incurred in connection with this Agreement shall
be paid
by the party incurring such cost or expense.
(b) In the event that the Company enters into any
discussions
or negotiations with any person (other than Buyer or RAW
Enterprise &
Associates) regarding a transaction similar to the transaction
contemplated by this Agreement within six weeks of the
execution of the
Letter of Intent dated April 6, 1994 between the Company and
Buyer,
and, within a twelve-month period following the date of the
Letter of
Intent, a transaction similar to that contemplated hereby is
completed
with such party or a definitive agreement or letter of intent
relating
to such similar transaction is executed with any such party,
the
Company shall pay to Buyer $500,000 in immediately available
funds
promptly, but in any event within two business days therefrom.
Section 13.04. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties
hereto and their respective successors and assigns; provided that no
party
may assign, delegate or otherwise transfer any of its rights or
obligations
under this Agreement without the consent of each other party hereto
except
that Buyer may transfer or assign, in whole or from time to time in
part,
to one or more of its Affiliates or shareholders, any or all of its
rights
and obligations under this Agreement, including but not limited to the
right to purchase all or a portion of the Shares, but no such transfer
or
assignment will relieve Buyer of its obligations hereunder or
adversely
affect the Company or the timing of the transactions contemplated
hereby.
Any purported assignment in violation of this Agreement shall be void.
Section 13.05. Governing Law. This Agreement shall be
governed by and
construed in accordance with the law of the State of Colorado, without
regard to the conflicts of law rules of such state.
Section 13.06. Waiver of Jury Trial. EACH OF THE PARTIES
HERETO
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS
CONTEMPLATED HEREBY.
Section 13.07. Counterparts; Third Party Beneficiaries. This
Agreement may be signed in any number of counterparts, each of which
shall
be an original, with the same effect as if the signatures thereto and
ereto were upon the same instrument. No provision of this Agreement
is
ntended to confer upon any Person other than the parties hereto any
rights
r remedies hereunder.
Section 13.08. Entire Agreement. This Agreement constitutes
the
entire agreement between the parties with respect to the subject
matter of
this Agreement and supersedes all prior agreements and understandings,
both
oral and written, between the parties with respect to the subject
matter of
this Agreement. No representation, inducement, promise,
understanding,
condition or warranty not set forth herein has been made or relied
upon by
either party hereto. Neither this Agreement nor any provision hereof
is
intended to confer upon any Person other than the parties hereto any
rights
or remedies hereunder.
Section 13.09. Specific Performance. Each of the parties
hereto
agrees that any breach by it of any provision of this Agreement would
irreparably injure the other party and that money damages would be an
inadequate remedy therefore. Accordingly, each of the parties hereto
agrees that the other party shall be entitled to one or more
injunctions
enjoining any such breach or requiring specific performance of this
Agreement and consents to the entry thereof, this being in addition to
any
other remedy to which the non-reaching party is entitled hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
GOLDEN PHARMACEUTICALS, INC.
By /s/ Glen H. Weaver
Glen H. Weaver, Vice President
of Finance
QUALITY CARE PHARMACEUTICALS, INC.
By /s/ Daniel B. Guinn
Daniel B. Guinn, President
CONTROLLING SHAREHOLDERS:
/s/ Daniel B. Guinn
Daniel B. Guinn
/s/ Gary A. Klingsheim
Gary A. Klingsheim
/s/ Michael S. Mendelsohn
Michael S. Mendelsohn
[Shareholders]
SCHEDULE A
QUALITY CARE PHARMACEUTICALS, INC.-SHAREHOLDERS
(A)
Name and Address
of Shareholder
(B)
Number of
Shares Owned
(C)
Proportionate
Interest
Total
100%
Exhibit No. 11
To The Form 10-QSB
For The Quarterly Period Ended May 31, 1995
EXHIBIT NO. 11
GOLDEN PHARMACEUTICALS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Nine months Ended
May 31,
1995 1994
Shares of common stock and
equivalents outstanding at
beginning of period 105,723,952 72,807,103
Weighted-average shares or
equivalents issued during
the period 168,334 5,359,989
Weighted-average shares or
equivalents canceled during
the period 0 0
Weighted-average shares assumed
issued under stock option plans
during the period 386,813 0
Average common and common
stock equivalents
outstanding 106,272,099 78,167,092
Income before extraordinary
item $582,376 $531,723
Extraordinary Item 99,677 76,560
Accretion on redemption amount on
redeemable Preferred Stock Class A
Convertible 0
Accrual of dividends on 15%/30%
convertible preferred stock (66,537)
(168,903)
Net Income $ 615,516 $ 439,380
Earnings per share:
Income before extraordinary
item $ * $ *
Extraordinary Item * *
Accrual of dividends on 15%/30%
convertible preferred stock * *
Earnings per share $ * $ *
* Less than $.01 per share
EXHIBIT NO. 27
GOLDEN PHARMACEUTICALS, INC.
FINANCIAL DATA SCHEDULE