EXHIBIT 10.1
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AGREEMENT AND PLAN OF MERGER
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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as
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of August 31, 1998 by and among AC Acquisition Co., Inc., a Delaware corporation
("Newco"), Advanced Nutraceuticals, Inc., a Delaware corporation ("ANI,"
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"Purchaser" or "Buyer"), Acta Products Corporation, dba Acta Pharmacal Co., and
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Acta Products International, dba Acta International, California corporations
(collectively, the "Company" or individually, "each Company"), and K.Y. Chang,
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David Chang and Robert Chiang ("Shareholders").
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R E C I T A L S
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A. Buyer owns all of the outstanding shares of capital stock of Newco.
B. The respective boards of directors of Newco and the Company have
determined that it is fair to, and in the best interests of, their respective
corporations and stockholders for the Company to be merged with and into Newco
upon the terms and subject to the conditions set forth herein (the "Merger");
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the board of directors and sole stockholder of Newco have approved and adopted
this Agreement in accordance with the Delaware Law; and the board of directors
and shareholders of the Company have approved and adopted the principal terms of
this Agreement in accordance with the California General Corporation Law (the
"California Law").
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AGREEMENT
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NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
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Section 1.1 Definitions. For all purposes of this Agreement, certain
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capitalized terms not otherwise defined herein shall have the meanings set forth
in Exhibit A attached hereto.
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ARTICLE 2
THE MERGER
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Section 2.1 Merger. Upon the terms and subject to the conditions of
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this Agreement, the Company shall be merged with and into Newco in accordance
with the applicable provisions of the Delaware Law. The Company and Newco are
herein sometimes referred to as the "Constituent Corporations." Newco shall be
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the surviving corporation following the effectiveness of the Merger (sometimes
referred to herein as the "Surviving Corporation").
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Section 2.2 Effect of Merger. The parties agree to the following
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provisions with respect to the Merger:
(a) Certificate of Incorporation and Bylaws. The
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certificate of incorporation of Newco, as in effect immediately prior to the
Effective Time, shall be the certificate of incorporation of the Surviving
Corporation, from and after the Effective Time until amended in accordance with
applicable law. The bylaws of Newco, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation from and after
the Effective Time until amended in accordance with applicable law, the
Surviving Corporation's certificate of incorporation and such bylaws.
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(b) Directors and Officers. The directors and officers of
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Newco in office immediately prior to the Effective Time shall be the directors
and officers, respectively, of the Surviving Corporation, and each shall hold
his or her respective office or offices from and after the Effective Time until
his or her successor shall have been elected and shall have qualified or as
otherwise provided in the bylaws of the Surviving Corporation.
(c) Name and Corporate Organization of Surviving Corporation.
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The name of the Surviving Corporation from and after the Effective Time shall be
"AC Acquisition Co., Inc.," which name shall be changed after the closing to
ACTA International in accordance with applicable law. At the Effective Time, the
identity and separate corporate existence of the Company shall cease and Newco
as the surviving corporation and successor shall succeed to the Company in the
manner of and as more fully set forth in Section 259 of the Delaware Law.
(d) Filing of Certificate of Merger and Further Assurances.
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If this Agreement is not terminated pursuant to Article 9 hereof, as soon as
practicable after all conditions to the Merger set forth in Article 6 hereof
shall have been satisfied or waived, the Constituent Corporations shall cause
the Certificate of Merger attached hereto as Annex B-1 ("Delaware Certificate of
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Merger") to be executed and acknowledged and, as required by Delaware Law, filed
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with the Secretary of State of the State of Delaware as provided in the Delaware
Law and, the Certificate of Merger attached hereto as Annex B-2 ("California
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Certificate of Merger") to be executed and acknowledged and, as required by
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California Law, filed with the Secretary of State of the State of California as
provided in the California Law and as required by California Law, together with
such other instruments as are required to be filed under Section 1103 thereof.
The Merger shall become effective on the date and at the time the Certificate of
Merger is filed with the Secretary of State of the State of Delaware in
accordance with Section 103 of the Delaware Law (the "Effective Time"). If, at
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any time after the Effective Time, the Surviving Corporation shall consider or
be advised that any deeds, bills of sale, assignments or assurances or any other
acts or things are necessary, desirable or proper (i) to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation, its right, title
or interest in, to or under any of the rights, properties or assets of the
Constituent Corporations acquired or to be acquired as a result of the Merger,
or (ii) otherwise to carry out the purposes of this Agreement, the Surviving
Corporation and its officers and directors or their designees shall be
authorized to execute and deliver, in the name and on behalf of the Constituent
Corporations, all such deeds, bills of sale, assignments and assurances and do,
in the name and on behalf of the Constituent Corporations, all such other acts
and things necessary, desirable or proper to vest, perfect or confirm its right,
title or interest in, to or under any of the rights, properties or assets of the
Constituent Corporations acquired or to be acquired as a result of the Merger
and otherwise to carry out the purposes of this Agreement.
Section 2.3 Conversion of Securities.
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(a) By virtue of the Merger and without any action on the
part of the holder thereof, at the Effective Time each share of common stock of
the Company ("Company Common Stock") outstanding immediately prior to the
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Effective Time shall be converted into the right to receive (i) that amount of
the Stock Merger Consideration (hereinafter defined) equal to the total
aggregate Stock Merger Consideration divided by the number of shares of Company
Common Stock outstanding, (ii) that amount of the Cash Merger Consideration (as
hereinafter defined) equal to the total aggregate Cash Merger Consideration
divided by the number of shares of Company Common Stock outstanding, and (iii)
that amount of the Note Merger Consideration (as hereinafter defined) equal to
the total aggregate Note Merger Consideration divided by the number of shares of
Company Common Stock outstanding; deliverable and payable to the holder thereof
upon surrender of the certificate formerly representing Company Common Stock
(the "Share Certificate") in the manner provided in Section 2.4 hereof.
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(b) Subject to Section 8.9 hereof: "Stock Merger Consideration" shall
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mean that number of shares of common stock, par value $[.001] of Buyer ("Buyer
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Common Stock") equal to $25,000,000 divided by the initial public offering price
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per share of Buyer Common Stock (the "IPO
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Price"); "Note Merger Consideration" shall mean an aggregate of $100,000 in
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subordinated promissory notes, payable in two equal annual installments, with
interest at 8% payable annually; "Cash Merger Consideration" shall mean an
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aggregate of $20,000,000 in cash, without interest. The Stock Merger
Consideration, Note Merger Consideration and Cash Merger Consideration are
herein sometimes collectively referred to as the "Merger Consideration."
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(c) By virtue of the Merger and without any action on the
part of the holder thereof, at the Effective Time each share of Company Common
Stock held by the Company as a treasury share immediately prior to the Effective
Time shall be canceled and no payment of any consideration shall be made with
respect thereto.
Section 2.4 Payment of Cash for Company Common Stock; Exchange of Shares;
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Delivery of Notes.
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(a) Each holder of a Share Certificate which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock will be entitled to receive, upon surrender to Buyer of such Share
Certificate for cancellation, (i) a cash payment, (ii) shares of Buyer Common
Stock and (iii) Buyer Notes, in each case in the amount calculated in accordance
with Section 2.3 hereof. Until properly surrendered, each such Share Certificate
shall be deemed for all purposes to evidence only the right to receive the
Merger Consideration. No interest shall accrue or be paid on the cash payable
upon the surrender of the Share Certificates.
(b) No certificates or script representing fractional shares
of Buyer Common Stock shall be issued upon the surrender for exchange of Share
Certificates, and no holders thereof shall be entitled to any voting rights,
rights to receive any dividends or distributions or other rights as a
stockholder of Buyer with respect to any fractional shares of Buyer Common Stock
that would otherwise be issued to such holder. In lieu of any fractional shares
of Buyer Common Stock that would otherwise be issued, each holder that would
have been entitled to receive a fractional share of Buyer Common Stock shall,
upon proper surrender of such holder's Share Certificates, receive a cash
payment equal to such fraction multiplied by the initial public offering price
per share of Buyer Common Stock.
Section 2.5 Closing. The closing of the Merger and the other
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transactions contemplated hereby (the "Closing") shall take place at the offices
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of Paul, Hastings, Janofsky & Walker LLP, Twenty-Third Floor, 555 South Flower
Street, Los Angeles, California 90071, at 10:00 A.M. local time on the day of
closing of the initial public offering of the Buyer Common Stock, or at such
other time or on such other date as shall be agreed upon amount the parties upon
satisfaction or waiver of all conditions precedent to the Closing (such time and
date being referred to herein as the "Closing Date").
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Section 2.6 Actions at the Closing. At the Closing:
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(a) The Company and the Shareholders shall deliver or cause
to be delivered to Buyer and Newco all of the documents, certificates and
instruments required to be delivered to Buyer or Newco pursuant to Section 6.2.
(b) Buyer and Newco shall deliver or caused to be delivered
to the Company and the Shareholders all of the documents, certificates and
instruments required to be delivered to the Company or the Shareholders pursuant
to Section 6.3.
(c) The Company and Newco shall file the Delaware Certificate
of Merger with the Secretary of State of the State of Delaware and the
California Certificate of Merger with the Secretary of State of the State of
California.
(d) Buyer shall deliver to the Shareholders certificates
representing the shares of Buyer Common Stock acquired by the Shareholders in
the Merger.
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(e) Buyer shall deliver to the Shareholders, by wire transfer
of immediately available funds, or by certified or cashier's check, the cash
portion of the Merger Consideration.
(f) Buyer shall deliver to the Shareholders by wire transfer
of immediately available funds or by certified or cashier's check, approximately
$1,400,000 to repay in full the notes due to the Chang and Chang Partnership
from the Company.
(g) David Chang shall enter into an employment agreement with
the Company (the "Employment Agreement") in the form of Exhibit B hereto having
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a term of three years from the Closing Date and providing for payment of annual
salary to David Chang of $150,000 and, if terminated without cause, severance
equal to the remainder of the term of the Employment Agreement or a maximum of
one year. In addition, David Chang shall be Executive Vice President of Buyer,
be elected to Buyer's Board of Directors and shall become a member of the
Executive Committee of the Board immediately after Closing if an Executive
Committee has been formed.
(h) K.Y. Chang shall enter into a consulting agreement with
the Company (the "Consulting Agreement") in the form of Exhibit C hereto having
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a term of three years and providing for payment of annual consulting fees to
K.Y. Chang of $150,000 and, if terminated without cause, severance equal to the
remainder of the term of the Consulting Agreement or a maximum of one year.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
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REGARDING THE COMPANY
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The Company jointly and severally and the Shareholders severally hereby
represent and warrant to, and covenant and agree with, ANI and Newco that:
Section 3.1 Organization and Good Standing; Subsidiaries. Each Company
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is a corporation duly organized, validly existing and in good standing under the
laws of the State of California, with full power and authority to own and lease
its properties and to conduct its business as currently conducted. Each Company
has been duly qualified as a foreign corporation for the transaction of business
and is in good standing under the laws of each jurisdiction in which each
Company owns or leases any property, or conducts any business, so as to require
such qualification, except where the failure to obtain such qualification would
not be reasonably likely to have a Material Adverse Effect. Each Company has no
Subsidiaries and does not own or control or have any other equity investment or
other interest in, directly or indirectly, any corporation, joint venture,
limited liability company, partnership, association or other entity. The copies
or originals of the articles of incorporation, bylaws, minute books and stock
records of each Company previously delivered to, or made available for
inspection by, NDI are true, complete and correct.
Section 3.2 Authorization, Binding Agreement. Each Company has all
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requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by each Company's board of
directors and each Company's stockholders in accordance with the California Law
and the articles of incorporation and bylaws of each Company. No other
corporate proceedings on the part of either Company are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by each Company and constitutes the
legal, valid and binding agreement of each Company, enforceable against each
Company in accordance with its terms, except as such enforceability may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or other laws,
now or hereafter in effect, relating to or limiting creditors' rights generally,
and (b) general principles of equity (whether considered in an action in equity
or at law).
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Section 3.3 No Conflicts. The execution, delivery and performance of
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this Agreement and the consummation of the transactions contemplated hereby will
not (a) conflict with or result in a breach or violation of any term or
provision of, or constitute a default under (with or without notice or passage
of time, or both), or otherwise give any Person a basis for accelerated or
increased rights or termination or nonperformance under, any obligation,
agreement or instrument to which either Company is a party or by which either
Company is bound or affected or to which any of the property or assets of either
Company is bound or affected, (b) result in the violation of the provisions of
the articles of incorporation or bylaws of each Company or any Legal Requirement
applicable to or binding upon it, (c) result in the creation or imposition of
any Lien upon any property or asset of either Company or (d) otherwise adversely
affect the contractual or other legal rights or privileges of either Company.
Schedule 3.3 sets forth a list of all agreements requiring the consent of any
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party thereto to any of the transactions contemplated hereby.
Except as set forth on Schedule 3.3, all consents, authorizations and
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approvals of any Person to or as a result of the consummation of the
transactions contemplated hereby, that are necessary or advisable in connection
with the operations and business of either Company as currently conducted and as
proposed to be conducted, or for which the failure to obtain the same might
have, individually or in the aggregate, a Material Adverse Effect, have been
lawfully and validly obtained by each Company.
Section 3.4 Capitalization. The authorized capital stock of Acta
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Products Corporation consists solely of 500,000 shares of Common Stock, of which
28,000 shares are, and as of the Closing will be, issued and outstanding. The
authorized capital stock of Acta Products International consists solely of
1,000,000 shares of Common Stock and 1,000,000 shares of preferred stock, of
which 50,000 shares of Common Stock and 50,000 shares of preferred stock are,
and as of the Closing will be, issued and outstanding. All of the issued and
outstanding shares of each Company Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and are held by the
Shareholders in the amounts reflected in Annex A hereto. There are no existing
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options, warrants, rights, calls or commitments of any character relating to the
shares of either Company Common Stock or any other capital stock or securities
of either Company, (ii) there are [no outstanding securities or other
instruments convertible into or exchangeable for shares of, or any other capital
stock or securities of either Company Common Stock] and no commitments to issue
such securities or instruments, and no Person has any right of first refusal,
preemptive right, subscription right or similar right with respect to any shares
of either Company Common Stock or any other capital stock or securities of
either Company.
Section 3.5 Financial Statements.
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(a) The Company has prepared and furnished to ANI, and there are
included in Schedule 3.5 hereto, true and complete copies of (i) the
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consolidated unaudited balance sheet (the "Balance Sheet") of the Company at
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June 30, 1998 (the "Balance Sheet Date"), and the related consolidated unaudited
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statements of income, shareholders' equity and cash flows for the six months
then ended, (ii) the consolidated unaudited balance sheets of the Company at
December 31, 1997 and December 31, 1996 and the related consolidated unaudited
statements of income, shareholders' equity and cash flow for the fiscal year
then ended, together with the report thereon of independent certified public
accountants (the financial statements described in clauses (i) and (ii) above
are collectively referred to as the "Financial Statements").
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(b) The Financial Statements present fairly the financial condition of
the Company as of the dates indicated therein and the results of operations and
cash flows of the Company for the periods specified therein, have been prepared
on a consistent basis during the periods covered thereby and prior periods and
have been derived from the accounting records of the Company.
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Section 3.6 Property and Products.
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(a) The Company has, and immediately prior to the Closing will have,
good, valid and marketable title in fee simple to all real property and all
personal property reflected on the Balance Sheet as owned by the Company and all
real property and personal property acquired by the Company since the Balance
Sheet Date, in each case free and clear of all Liens except (i) as set forth on
Schedule 3.6(a-1), and (ii) for sales and other dispositions of inventory in the
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ordinary course of business since the Balance Sheet Date which, in the
aggregate, have not been materially different from prior periods. Schedule
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3.6(a-2) contains a list of all tangible personal property (including, but not
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limited to computer systems, hardware and software), having a cost or fair
market value in excess of $50,000 owned by the Company (other than personal
property held by the Company as lessee under an operating lease). Schedule
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3.6(a-3) contains a list of all real property leases, licenses and personal
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property leases under which the Company is the lessee or licensee. True and
complete copies of all real property leases, licenses and personal property
leases listed on Schedule 3.6(c) have been delivered to Purchaser heretofore, as
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well as copies of any title reports, surveys or environmental reports or audits
relating to any leased real property. For the purposes of this Section 3.6(c),
a "lease" shall include a sublease. All personal property owned by the Company
and all personal property held by the Company pursuant to operating leases is in
good operating condition and repair, subject only to ordinary wear and tear, and
is suitable and appropriate for the use thereof made and proposed to be made by
the Company in its business and operations. The real property and personal
property described in Schedules 3.6(a-1) and 3.6(a-2) and the real property and
personal property held by the Company pursuant to the leases and licenses
described in Schedule 3.6(a-3) comprise all of the real property and personal
property used in the conduct of business of the Company. The Company owns or
leases all of the real and personal property, tangible and intangible, necessary
to conduct its business as heretofore conducted or as contemplated to be
conducted except as specifically disclosed herein.
(b) Except as set forth in Schedule 3.6(b), all of the facilities,
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buildings, plants, structures and improvements (A) are in good operating
condition and repair, and (B) are adequate and suitable for the purposes for
which they are currently and proposed to be used. There are no (i) leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any other Person the right to acquire, use or occupy any portion of, any real
property, (ii) outstanding options or rights of first refusal to purchase all or
any portion of real property or interest therein, and (iii) Persons (other than
the Company) in possession of any Real Property. Except for inventory that is
excess, damaged or obsolete, for which in the aggregate an adequate reserve has
been established in the Balance Sheet in accordance with generally accepted
accounting principles, consistently applied, the inventory reflected in the
Balance Sheet and thereafter acquired and not disposed of since such date is of
good and merchantable quality, and of a quantity and quality saleable in the
ordinary course of business in accordance with past practices.
(c) Schedule 3.6(c) includes an accurate description of all products
manufactured, marketed, sold or licensed by the Company since January 1, 1997
(the "Company Products"). Except as disclosed on Schedule 3.6(c), there have
been no Company Products which have been recalled, withdrawn or suspended in
and/or outside of the United States (whether voluntarily or otherwise) since
January 1, 1993, nor have there been proceedings in and/or outside of the United
States pending against the Company at any time since January 1, 1993 (whether
such proceedings have since been completed or remain pending) seeking the
recall, withdrawal, suspension or seizure of any Company Product or seeking to
enjoin the Company from engaging in any activities pertaining to such Company
Products or to affirmatively perform activities pertaining to such Company
Products prior to shipping such products. There are no facts which exist which
could reasonably be expected to furnish a basis for the recall or withdrawal or
any Company Product or the suspension of any product registration, product
license, manufacturing license, wholesale dealer's license, export license or
other governmental license, or the approval or consent of any governmental
regulatory agency with respect to any Company Product, nor do there exist any
facts which could reasonably be expected to furnish a basis for the recall,
withdrawal, suspension or seizure by any governmental agency or court of any
Company Product or
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which could reasonably be expected to form the basis for the issuance of an
injunction pertaining thereto or to cause the Company to cease further
distribution or marketing of any Company Product pending further approval or
authorization by any governmental agency or to change marketing classification
of any Company Product. The Company Products have been manufactured, marketed
and distributed in accordance with the specifications under which such Company
Products have normally been manufactured and in accordance with all applicable
requirements of law. Since January 1, 1993, the Company has not received or been
subject to consent decrees, orders, settlement agreements or similar matters
relating in any fashion to the Company Products or received any warning letters
or other correspondence from the Food and Drug Administration, the Federal Trade
Commission or other governmental officials or agencies concerning the Company
Products or which have in any manner asserted that the operations of the Company
may not be in compliance with applicable laws, regulations, rules or guidelines.
The Company has complied in all respects with current reporting requirements
relating to the Company Products. No officer, director or, to the knowledge of
Shareholders, employee of the Company has been convicted of or formally charged
with any offense or act of a type that would be required to be disclosed in a
registration statement pursuant to Form S-1 under the Securities Act.
Section 3.7 Accounts Receivable. All accounts receivable of the
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Company reflected in the Balance Sheet and all accounts receivable of the
Company that have arisen since the Balance Sheet Date (except such accounts
receivable as have been collected since such dates) are valid and enforceable
claims. Such accounts receivable of the Company are not subject to any valid
defense, offset or counterclaim and are fully collectible on normal terms and in
the ordinary course of business, except to the extent of the allowance for
doubtful accounts reflected on the Balance Sheet. Schedule 3.7 contains a true
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and complete aging of the Company's accounts receivable as of the Balance Sheet
Date.
Section 3.8 Trademarks, Patents, Etc.
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(a) Schedule 3.8(a) contains a true and complete list of all letters
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patent, patent applications, trade names, trademarks, service marks, trademark
and service mark registrations and applications, copyrights, copyright
registrations and applications, grants of a license or right to the Company with
respect to the foregoing, both domestic and foreign, claimed by the Company or
used or proposed to be used by the Company in the conduct of its business,
whether registered or not, and the status of each (collectively herein,
"Registered Rights").
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(b) Except as described in Schedule 3.8(b), the Company owns and has the
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unrestricted right to use the Registered Rights and every trade secret, know-
how, process, discovery, development, design, technique, customer and supplier
list, promotional idea, marketing and purchasing strategy, invention, process,
confidential data, product formulation and or other information (collectively
herein, "Proprietary Information") required for, advantageous to or incident to
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the design, development, purchase, distribution, sale and use of all products
and services sold or rendered or proposed to be sold or rendered by the Company,
free and clear of any right, equity or claim of others. The Company has taken
reasonable security measures to protect the secrecy, confidentiality and value
of all Proprietary Information.
(c) Except as described in Schedule 3.8(c), (i) the Company has not
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sold, transferred, assigned, licensed or subjected to any Lien, any Registered
Right or Proprietary Information or any interest therein, and (ii) the Company
is not obligated or under any liability whatever to make any payments by way of
royalties, fees or otherwise to any owner or licensor of, or other claimant to,
any Registered Right or Proprietary Information. None of the Registered Rights
or Proprietary Information licensed or granted to the Company is owned by any
Shareholder or any affiliate of any Shareholder and no Registered Right or
Proprietary Information has been licensed or granted to any Shareholder or any
affiliate of any Shareholder.
(d) There is no claim or demand of any Person pertaining to, or any
Action that is pending or, to the Company's or Shareholders' knowledge,
threatened, which challenges the rights of the Company in respect of any
Registered Right or any Proprietary Information.
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Section 3.9 Banking and Insurance.
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(a) Schedule 3.9(a) contains a true and complete list of the names and
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locations of all financial institutions at which the Company maintains a
checking account, deposit account, securities account, safety deposit box or
other deposit or safekeeping arrangement, the numbers or other identification of
all such accounts and arrangements and the names of all persons authorized to
draw against any funds therein.
(b) Schedule 3.9(b) contains a true and complete list and brief summary
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of all insurance policies and bonds and self insurance arrangements currently in
force that cover or purport to cover risks or losses to or associated with the
Company's business, operations, premises, properties, assets, employees, agents
and directors. The insurance policies, bonds and arrangements described on
Schedule 3.9(b) (the "Policies") provide such coverage against such risk of loss
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and in such amounts as are customary for corporations of established reputation
engaged in the same or similar business and similarly situated. True and
complete copies of all such Policies have been delivered to NDI heretofore.
Section 3.10 Litigation. Except as set forth on Schedule 3.10, there is
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no legal action, suit, arbitration or other legal, administrative or other
governmental investigation, inquiry or proceeding pending or, to the knowledge
of the Company, threatened against or affecting the Company or any of its
property, assets, business, products, franchises or governmental approvals,
before any court or governmental department, commission, board, bureau, agency,
instrumentality or arbitrator (including but not limited to any taxing entity or
authority) which, individually or in the aggregate, could reasonably be expected
to have a material adverse effect upon the Company and its subsidiaries, taken
as a whole, or to materially and adversely affect the ability of the Company to
carry out, or to prevent or make unduly burdensome, the Merger contemplated by
this Agreement. The Company is subject to no outstanding judgments, orders,
decrees, awards, stipulations or injunctions of any governmental entity or
arbitrator against or affecting the Company or its properties, assets or
business.
Neither the Company nor, to the Shareholders' knowledge, any of its
directors, officers, agents, employees or other Person associated with or acting
on behalf of the Company has (a) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (b) made any direct or indirect unlawful payments to
government officials or employees, or foreign government officials or employees,
from corporate funds, (c) established or maintained any unlawful or unrecorded
fund of corporate monies or other assets, (d) made any false or fictitious
entries on the books of account of the Company, or (e) made or received any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment.
Section 3.11 Income and Other Taxes. Except as set forth on Schedule
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3.11:
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(a) All Tax Returns required to be filed through and including the date
hereof in connection with the operations of the Company are true, complete and
correct in all respects and have been properly and timely filed. The Company
has not requested any extension of time within which to file any Tax Return,
which Tax Return has not since been filed. Buyer has heretofore been furnished
by the Company with true, correct and complete copies of each Tax Return of the
Company with respect to the past three taxable years, and of all reports of, and
communications from, any Governmental Entities relating to such period.
(b) All Taxes required to be paid or withheld and deposited through and
including the date hereof in connection with the operations of the Company have
been duly and timely paid or deposited by the Company. The Company has properly
withheld or collected all amounts required by law for income Taxes and
employment Taxes relating to its employees, creditors, independent contractors
and other third parties, and for sales and use Taxes on sales, and has properly
and timely remitted such withheld or collected amounts to the appropriate
Governmental Entity. The Company
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has no liabilities for any Taxes for any taxable period ending prior to or
coincident with the Closing Date.
Section 3.12 Employee Benefit Matters. Schedule 3.12 contains a
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complete list of all employee benefit plans (within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
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which are maintained or contributed to by the Company (the "Company Benefit
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Plans"). The Company has heretofore provided to Buyer (i) true and complete
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copies of all Company Benefit Plans; (ii) the most recent annual actuarial
evaluation, if any, prepared for each Company Benefit Plan; (iii) the two most
recent annual reports (series 5500), if any, required under ERISA with respect
to each Company Benefit Plan, including audited financial statements; (iv) the
most recent determination letter received from the IRS, if any, for each Company
Benefit Plan, and (v) the most recent Summary Plan Description, if any, required
under ERISA with respect to each Company Benefit Plan. Except as disclosed on
Schedule 3.12, (i) with respect to each Company Benefit Plan that is intended to
- -------------
be qualified under Section 401(a) of the Code and is maintained by the Company
for any of its employees, (x) the Company has obtained a favorable determination
letter from the IRS and nothing has happened since such letter that would
adversely affect the tax qualification of such plan and (y) such plan has been
operated in compliance with ERISA and in accordance with the provisions of, and
the rules and regulations covering, such plan except where the failure to so
comply does not individually or in the aggregate, have a Material Adverse Effect
upon the Company, (ii) with respect to each Company Benefit Plan, the Company is
not, and to the Company's knowledge no other person is, engaged in a transaction
prohibited by Section 4975 of the Code or Section 406 of ERISA which could
result in a liability to the Company which would individually or in the
aggregate, have a Material Adverse Effect upon the Company, (iii) each Company
Benefit Plan which is subject to Part III of Subtitle B of Title I of ERISA or
Section 412 of the Code has been maintained in compliance with the minimum
funding standards of ERISA and the Code, and no reportable event, within the
meaning of Section 4043 of ERISA has occurred with respect to any Company
Benefit Plan which is subject to Title IV of ERISA, other than reportable events
with respect to which notice has been waived by the Pension Benefit Guaranty
Corporation or which would not, individually or in the aggregate, have a
Material Adverse Effect upon the Company, and (iv) no benefit is provided
pursuant to a welfare benefit plan (as defined in ERISA Section 3(1)) to a
former employee of the Company other than for continuation health coverage
benefits provided under Code Section 4980B.
Section 3.13 No Undisclosed Liabilities. Except (i) to the extent set
--------------------------
forth or provided for in the Balance Sheet or the notes thereto, (ii) as set
forth on Schedule 3.13 or (iii) for non-material current liabilities incurred
-------------
since the Balance Sheet Date in the ordinary course of business, as of the date
hereof the Company has no liabilities or obligations of any kind or nature
(whether or not of a type that would be required to be disclosed in financial
statements), whether accrued, absolute, contingent or otherwise, whether due or
to become due and whether the amounts thereof are readily ascertainable or not,
or any unrealized or anticipated losses from any commitments of a contractual
nature, including but not limited to liabilities or obligations for Taxes and
Environmental Matters with respect to or based upon the facts existing, or
transactions or events occurring at or prior to the Closing.
Section 3.14 Permits, Licenses, Etc.; Regulatory Filings. The Company
-------------------------------------------
possesses, and is operating in compliance with, all franchises, licenses,
permits, certificates, authorizations, rights and other approvals of
Governmental Entities necessary to (i) occupy, maintain, operate and use the
real property as it is currently used and proposed to be used, (ii) conduct its
business as currently conducted and as proposed to be conducted, and (iii)
maintain and operate its Company Benefit Plans (collectively, the "Permits").
-------
Schedule 3.14 contains a true and complete list of all Permits. Each Permit has
- -------------
been lawfully and validly issued, and no proceeding is pending or, to the
Shareholders' knowledge, threatened looking toward the revocation, suspension or
limitation of any Permit. The consummation of the transactions contemplated by
this Agreement will not result in the revocation, suspension or limitation of
any Permit.
The Company has made all required registrations and filings with and
submissions to all applicable Governmental Entities relating to the operations
of the Company as currently
-9-
conducted and as proposed to be conducted, including, without limitation, all
such applicable Governmental Entities having jurisdiction over any matters
pertaining to conservation or protection of the environment, the treatment,
discharge, use, handling, storage or production, or disposal of Hazardous
Materials and the safety of foods, drugs and other consumer products. All such
registrations, filings and submissions were in compliance with all Legal
Requirements (including all Environmental Laws) and other requirements when
filed, no material deficiencies have been asserted by any such applicable
Governmental Entities with respect to such registrations, filings or submissions
and, to the Shareholders' knowledge, no facts or circumstances exist which would
indicate that a material deficiency may be asserted by any such authority with
respect to any such registration, filing or submission.
Section 3.15 Material Contracts; No Defaults.
-------------------------------
(a) Schedule 3.15 contains a true and complete list and
-------------
description of all material contracts, agreements, understandings, arrangements
and commitments, written or oral ("Contracts"), of the Company by which it or
its properties, rights or assets are bound. True and complete copies of such
written Contracts and true and complete summaries of such oral Contracts have
been delivered to Purchaser heretofore. For the purposes of this subsection (a),
"material" means any contract, agreement, understanding, arrangement or
commitment that (i) involves performance by any party more than 90 days from the
date hereof, (ii) involves payments or receipts by the Company in excess of
$100,000, (iii) involves capital expenditures in excess of $25,000 or (iv)
otherwise materially affects the Company.
(b) Except as described in Schedule 3.15, each Contract
-------------
described herein or elsewhere in this Agreement, including, without limitation,
Section 3.6, is, and after the Closing on identical terms will be, legal, valid,
- -----------
binding, enforceable and in full force and effect and no event or condition has
occurred or become known to the Company or any Shareholder or is alleged to have
occurred that constitutes or, with notice or the passage of time, or both, would
constitute a default or a basis of force majeure or other claim of excusable
----- -------
delay, termination, nonperformance or accelerated or increased rights by the
Company or any other Person under any Contract described above in this Section
3.15, or described or otherwise disclosed pursuant to this Agreement; and
(c) No customer that represented in excess of 10% of the
Company's sales of goods or services during the twelve months ended on the
Balance Sheet Date, and since that date no such customer has terminated its
relationship with or adversely curtailed its purchases from the Company or
indicated (for any reason) its intention so to terminate its relationship or
curtail its purchases. No supplier from whom the Company purchased in excess of
10% of the Company's purchases of goods or services during the twelve months
ended on the Balance Sheet Date, and since that date no such supplier has
terminated its relationship with or adversely curtailed its accommodations,
sales or services to the Company or indicated (for any reason) its intention to
terminate such relationship or curtail its accommodations, sales or services.
The Company makes no purchases available from only a single source.
(d) No person with whom the Company has such a contract,
agreement, arrangement, commitment or other understanding is in default
thereunder or has failed to perform fully thereunder by reason of force majeure
----- -------
or other claim of excusable delay, termination or nonperformance thereunder, the
delay, termination or nonperformance of which, or a default under which, has had
or may have a material adverse effect.
Section 3.16 Absence of Certain Changes. Since December 31, 1997, except
--------------------------
as disclosed in Schedule 3.16, the Company has not: (i) incurred any debts,
-------------
obligations or liabilities (absolute, accrued, contingent or otherwise), other
than current liabilities incurred in the ordinary course of business which,
individually or in the aggregate, are not material; (ii) subjected to or
permitted a Lien upon or otherwise encumbered any of its assets, tangible or
intangible; (iii) sold, transferred, licensed or leased any of its assets or
properties except in the ordinary course of business; (iv) canceled or
compromised any debt
-10-
owed to or by or claim of or against it, or waived or released any right, of
material value other than in the ordinary course of business; (v) suffered any
physical damage, destruction or loss (whether or not covered by insurance)
causing or having a material adverse effect; (vi) made or suffered any change
in, or condition affecting, its condition (financial or otherwise), properties,
profitability, prospects or operations other than changes, events or conditions
in the ordinary course of business, none of which (individually or in the
aggregate) has had or may have a material adverse effect; (vii) made any change
in the accounting principles, methods, records or practices followed by it or
depreciation or amortization policies or rates theretofore adopted; (viii) paid,
or made any accrual or arrangement for payment of, any severance or termination
pay to, or entered into any employment or loan or loan guarantee agreement with,
any current or former officer, director or employee or consultant; (ix) paid, or
made any accrual or arrangement for payment of, any increase in compensation,
bonuses or special compensation of any kind to any employee other than in the
ordinary course of business, or paid, or made any accrual or arrangement for
payment of, any increase in compensation, bonuses or special compensation of any
kind to any officer or director of the Company or any consultant to the Company;
or (x) entered into any agreement or otherwise obligated itself to do any of the
foregoing.
Section 3.17 Employees and Labor Matters.
---------------------------
(a) Schedule 3.17(a) contains a true and complete list of
----------------
all contracts, agreements, plans, arrangements, commitments and understandings
(formal and informal) pertaining to terms of employment, compensation, bonuses,
profit sharing, stock purchases, stock repurchases, stock options, stock
appreciation rights, commissions, incentives, loans or loan guarantees,
severance pay or benefits, use of the Company's property and related matters of
the Company with any current or former shareholder, officer, director, employee
or consultant, and true and complete copies of all such contracts, agreements,
plans, arrangements and understandings have been delivered to Purchaser
heretofore.
(b) Except as set forth on Schedule 3.17(a), and except as
----------------
specifically provided herein with respect to K.Y. Chang and David Chang, neither
ANI nor the Surviving Corporation will have any responsibility for continuing
any person in the employ (or retaining any person as a consultant) of the
Company from and after the Closing or have any liability for any severance
payments to or similar arrangements with any such Person who shall cease to be
an employee of the Company at or prior to the Closing.
(c) There is not occurring or, to the Company's or
Shareholders' knowledge, threatened or anticipated, any strikes, slow downs,
pickets, work stoppages, grievance proceedings, union organization efforts or
other concerted action by (i) any current or former employees or other persons
or (ii) any union or other collective bargaining unit, relating to either the
Company or its premises or products.
Section 3.18 Affiliates. Except as disclosed on Schedule 3.18, none of
---------- -------------
the Shareholders, any officer, director or key employee of the Company or any
associate or Affiliate of the Company or any of such Persons has, directly or
indirectly, (i) an interest in any Person that (A) furnishes or sells, or
proposes to furnish or sell, services or products that are furnished or sold by
the Company or (B) purchases from or sells or furnishes to, or proposes to
purchase from or sell or furnish to, the Company any goods or services or (ii) a
beneficial interest in any contract or agreement to which the Company is a party
or by which the Company or any of the assets of the Company are bound or
affected.
Section 3.19 Compliance with Law. The Company (i) has not violated or
-------------------
conducted its business or operations in violation of, and has not used or
occupied its properties or assets in violation of, any Legal Requirement or
Licensing Requirement which would individually or in the aggregate have a
material adverse effect on the Company or its subsidiaries, (ii) has not been
alleged to be in violation of any Legal Requirement or Licensing Requirement,
and (iii) has not received any notice of any
-11-
alleged violation of, or any citation for noncompliance with, any Legal
Requirement or Licensing Requirement.
Section 3.20 Brokers' Fees. Except as disclosed on Schedule 3.20 hereto,
-------------
no investment banker, broker, finder or similar agent has been employed by or on
behalf of the Company in connection with this Agreement or the transactions
contemplated hereby, and the Company has not entered into any agreement or
understanding of any kind with any person or entity for the payment of any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
Section 3.21 Disclosure. No representation or warranty of the Company
----------
or any Shareholder in this Agreement and no information contained in any
Schedule or other writing delivered pursuant to this Agreement or at the Closing
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to make the statements herein or
therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer and Newco hereby represent and warrant to, and covenant and agree
with, the Company and the Shareholders that:
Section 4.1 Organization and Good Standing of Buyer. Buyer is a
---------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full power and authority to own and lease its
properties and to conduct its business as currently conducted. Buyer has been
duly qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each jurisdiction in which Buyer owns or
leases any property, or conducts any business, so as to require such
qualification, except where the failure to obtain such qualification would not
be reasonably likely to have a material adverse effect. The copies or originals
of the certificate of incorporation, bylaws, minute books and stock records of
Buyer previously delivered to, or made available for inspection by, the Company
and the Shareholders are true, complete and correct.
Section 4.2 Organization and Good Standing of Newco. Newco is a
---------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full power and authority to own and lease its
properties and to conduct its business as currently conducted. Newco has been
duly qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each jurisdiction in which Newco owns or
leases any property, or conducts any business, so as to require such
qualification, except where the failure to obtain such qualification would not
be reasonably likely to have a material adverse effect. The copies or originals
of the certificate of incorporation, bylaws, minute books and stock records of
Newco previously delivered to, or made available for inspection by, the Company
and the Shareholders are true, complete and correct.
Section 4.3 Authorization, Binding Agreement. Buyer and Newco each have
--------------------------------
all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the respective
boards of directors of Buyer and Newco and the sole stockholder of Newco in
accordance with the Delaware Law and the respective certificates of
incorporation and bylaws of Buyer and Newco. No other corporate proceedings on
the part of Buyer or Newco are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Buyer and Newco and constitutes the legal, valid and
binding agreement of Buyer and Newco, enforceable against Buyer and Newco in
accordance with its terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other laws, now or
hereafter
-12-
in effect, relating to or limiting creditors' rights generally, and (b) general
principles of equity (whether considered in an action in equity or at law).
Section 4.4 No Conflicts. The execution, delivery and performance of
------------
this Agreement and the consummation of the transactions contemplated hereby will
not (a) conflict with or result in a breach or violation of any term or
provision of, or constitute a default under (with or without notice or passage
of time, or both), or otherwise give any Person a basis for accelerated or
increased rights or termination or nonperformance under, any indenture,
mortgage, deed of trust, loan or credit agreement, lease, license or other
agreement or instrument to which Buyer or Newco is a party or by which Buyer or
Newco is bound or affected or to which any of the property or assets of Buyer or
Newco are bound or affected, (b) result in the violation of the provisions of
the certificate of incorporation or bylaws of Buyer or Newco or any Legal
Requirement applicable to or binding upon them, (c) result in the creation or
imposition of any Lien upon any property or asset of Buyer or Newco or (d)
otherwise adversely affect the contractual or other legal rights or privileges
of Buyer or Newco. Schedule 4.4 sets forth a list of all agreements requiring
------------
the consent of any party thereto to any of the transactions contemplated hereby.
Except as set forth on Schedule 4.4, all consents, authorizations and approvals
------------
of any Person to or as a result of the consummation of the transactions
contemplated hereby, that are necessary or advisable in connection with the
operations and business of Buyer and Newco as currently conducted and as
proposed to be conducted, or for which the failure to obtain the same might
have, individually or in the aggregate, a material adverse effect, have been
lawfully and validly obtained by Buyer and Newco.
Section 4.5 Capitalization. The authorized capital stock of Buyer
--------------
consists solely of 30,000,000 shares of Buyer Common Stock, of which [______]
shares are issued and outstanding, and 5,000,000 shares of Preferred Stock, of
which none are issued and outstanding. All of the issued and outstanding shares
of Buyer Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable. Except as set forth in Schedule 4.5, there are no
------------
existing options, warrants, right, calls or commitments of any character
relating to the shares of Buyer Common Stock or any other capital stock or
securities of Buyer, (ii) there are no outstanding securities or other
instruments convertible into or exchangeable for shares of Buyer Common Stock or
any other capital stock or securities of Buyer and no commitments to issue such
securities or instruments, and no Person has any right of first refusal,
preemptive right, subscription right or similar right with respect to any shares
of Buyer Common Stock or any other capital stock or securities of Buyer. The
authorized capital stock of Newco consists solely of 10,000 shares of common
stock, par value $.001 per share, of which 1,000 shares are, and on the Closing
Date will be, issued and outstanding. All of the issued and outstanding shares
of capital stock of Newco are, and on the Closing Date will be, owned
beneficially and of record by Buyer.
Section 4.6 Brokers' Fees. Except as set forth on Schedule 4.6, no
------------- ------------
investment banker, broker, finder or similar agent has been employed by or on
behalf of Buyer or Newco in connection with this Agreement or the transactions
contemplated hereby, and neither Buyer nor Newco have entered into any agreement
or understanding of any kind with any person or entity for the payment of any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
Section 4.7 Disclosure. No representation or warranty of Buyer or
----------
Newco in this Agreement and no information contained in any Schedule or other
writing delivered pursuant to this Agreement or at the Closing contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact required to make the statements herein or therein not misleading.
-13-
Section 4.8 Litigation. There is no legal action, suit, arbitration or
----------
other legal, administrative or other governmental investigation, inquiry or
proceeding pending or, to the knowledge of Buyer, threatened against or
affecting Buyer or Newco or any of their property, assets, business, products,
franchises or governmental approvals, before any court or governmental
department, commission, board, bureau, agency, instrumentality or arbitrator
(including but not limited to any taxing entity or authority) which,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect upon Buyer and its subsidiaries, taken as a whole, or to
materially and adversely affect the ability of Buyer or Newco to carry out, or
to prevent or make unduly burdensome, the Merger contemplated by this Agreement.
Neither Buyer nor Newco is subject to any outstanding judgments, orders,
decrees, awards, stipulations or injunctions of any governmental entity or
arbitrator against or affecting Buyer or Newco or their properties, assets or
business.
Section 4.9 Compliance with Law. Neither Buyer nor Newco (i) has
-------------------
violated or conducted its business or operations in violation of, or has used or
occupied its properties or assets in violation of, any Legal Requirement or
Licensing Requirement which would individually or in the aggregate have a
material adverse effect on Buyer or its subsidiaries, (ii) has been alleged to
be in violation of any Legal Requirement or Licensing Requirement, or (iii) has
received any notice of any alleged violation of, or any citation for
noncompliance with, any Legal Requirement or Licensing Requirement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE SHAREHOLDERS
-------------------
The K. Y. Chang, David Chang and Robert Chiang, jointly and severally
(where the term "jointly and severally" for this purpose means that the
obligations of K.Y. Chang and David Chang are joint and several with the
obligations of each other and Robert Chiang, but the obligation of Robert Chiang
is several and not joint with the obligation of K. Y. Chang and David Chang),
hereby represent and warrant to, and covenants and agree with, Buyer and Newco
that:
Section 5.1 Ownership of Shares. The Shareholders own of record and
-------------------
beneficially all of the issued and outstanding shares of each Company's Common
Stock and have, and at all times prior to and as of the Closing, will have, good
and marketable title to such shares free and clear of all Liens and adverse
claims.
Section 5.2 Execution and Delivery. The Shareholders have the power
----------------------
and authority to execute and deliver this Agreement, to consummate the
transactions contemplated hereby and to perform their obligations under this
Agreement. This Agreement, upon its execution and delivery by the Shareholders
(assuming the due authorization, execution and delivery hereof by the other
parties hereto), will constitute the legal, valid and binding obligation of the
Shareholders, enforceable against the Shareholders in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency and similar laws relating to creditors' rights generally and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
Section 5.3 No Conflicts. The execution, delivery and performance of
------------
this Agreement by the Shareholders and the consummation by the Shareholders of
the transactions contemplated hereby will not conflict with or result in a
breach or violation of any term or provision of, or (with or without notice or
passage of time, or both) constitute a default under, any indenture, mortgage,
deed of trust, trust (constructive and other), loan agreement or other agreement
or instrument to which the Shareholders are a party or by which the Shareholders
or the Shareholders' shares are bound, or violate the provisions of any statute,
or any order, rule or regulation of any governmental body or agency or
instrumentality thereof, or any order, writ, injunction or decree of any court
or any arbitrator, having jurisdiction over the Shareholders or the property of
the Shareholders.
-14-
Section 5.4 Restrictions on Transfer of Buyer Common Stock and Buyer
--------------------------------------------------------
Notes Under Securities Laws.
- ---------------------------
The Shareholders understand and agree that the shares of
Buyer Common Stock that the Shareholders will acquire in the Merger have not
been registered under the Securities Act and that, accordingly, such shares and
notes will not be fully transferable except as permitted under various
exemptions contained in the Securities Act or upon satisfaction of the
registration and prospectus delivery requirements of the Securities Act. The
Shareholders acknowledge that the Shareholders must bear the economic risk of
its investment in such shares of Buyer Common Stock for an indefinite period of
time since such shares and notes have not been registered under the Securities
Act and therefore cannot be sold unless they are subsequently registered or an
exemption from registration is available. The Shareholders hereby represent and
warrant that the Shareholders other than Robert Chiang are Accredited Investors
as defined under Rule 501(a) of the Securities Act and the Shareholders are
acquiring the shares of Buyer Common Stock in the Merger for investment purposes
only, for Shareholders' own account, and not as nominee or agent for any other
Person, and not with the view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF MERGER
------------------------------------
Section 6.1 Conditions to Each Party's Obligations. Notwithstanding any
--------------------------------------
other provision of this Agreement, the obligations of each party hereto to
consummate the Merger and the other transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions:
(a) There shall not be instituted and pending or threatened
any Action before any Governmental Entity (i) challenging the Merger or
otherwise seeking to restrain or prohibit the consummation of the transactions
contemplated hereby, or (ii) seeking to prohibit the direct or indirect
ownership or operation by Buyer or the Surviving Corporation of all or a
material portion of the business or assets of the Company, or to compel Buyer,
the Surviving Corporation or the Company to dispose of or hold separate all or a
material portion of the business or assets of the Company, the Surviving
Corporation or Buyer.
(b) Buyer shall have had declared effective its registration
statement under the Securities Act with respect to its firm commitment
underwritten initial public offering of the Buyer Common Stock, and no stop
order with respect thereto shall have been entered by the Securities and
Exchange Commission.
(c) The Company shall enter into a mutually acceptable lease
with the Shareholders (guaranteed by Buyer) for the existing premises of the
Company, which lease will have a term of five years at a rent equal to the lower
of the current rate or the fair market rate, with an option for the Company to
renew the lease for an additional five years on the same terms.
(d) The Company shall have entered into a contract with the
Company's key salesman on terms mutually agreeable to Buyer and the
Shareholders, effective upon Closing.
Section 6.2 Conditions to Obligations of Buyer and Newco.
--------------------------------------------
Notwithstanding any other provision of this Agreement, the obligations of Buyer
and Newco to consummate the Merger and the other transactions contemplated
hereby shall be subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) The representations and warranties of the Company and the
Shareholders in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same effect as if made on the
Closing Date and each of the Company and the Shareholders shall
-15-
have complied with all covenants and agreements and satisfied all conditions on
the Company's or the Shareholders' part, as applicable, to be performed or
satisfied on or prior to the Closing Date.
(b) Buyer shall have received from Ferrari, Olsen, Ottoboni & Bebb,
LLP, counsel for the Company, a written opinion dated the Closing Date and
addressed to Buyer and Newco, in substantially the form attached as Annex C
-------
hereto.
(c) Buyer shall have received a certificate of the President of the
Company in substantially the form attached as Annex D hereto.
-------
(d) Buyer shall have received the following under cover of a
certificate of the Secretary of the Company dated the Closing Date in
substantially the form attached as Annex E hereto:
-------
(i) Copies of resolutions of (A) the board of directors of each
Company authorizing and approving the execution, delivery and performance of
this Agreement and all other documents and instruments to be delivered by the
Company pursuant hereto, and of (B) each Company's shareholders evidencing
approval of this Agreement and the transactions contemplated hereby;
(ii) A certificate of incumbency certifying the names, titles and
signatures of the officers authorized to execute the documents referred to in
subparagraph (i) above and further certifying that the articles of incorporation
and bylaws of each Company delivered to Buyer at the time of, or prior to, the
execution of this Agreement have been validly adopted and have not been amended
or modified; and
(iii) Such additional supporting documentation and other
information with respect to the transactions contemplated hereby as Buyer or its
counsel may reasonably request.
(e) K.Y. Chang and David Chang shall have entered into a Non-
Competition Agreement with Buyer which shall provide for a broad form of non-
competition with the Company and Buyer for a period of three years after closing
(but in no event less than one year after termination of employment with the
Company), in substantially the form attached hereto as Annex F.
-------
(f) The Shareholders and Buyer shall have entered into a Registration
Rights Agreement in substantially the form attached hereto as Annex G, the terms
-------
of which shall be no less favorable than those of any other stockholder of Buyer
on the Closing Date.
(g) Buyer shall be satisfied, in its sole discretion, with the results
of its due diligence investigation of the Company.
(h) The Shareholders shall have entered into the Employment Agreement
and the Consulting Agreement, respectively.
(i) All authorizations, consents, waivers and approvals by or from
third parties required for the consummation of the transactions contemplated
hereby shall have been obtained and all Liens on the assets and properties of
the Company shall have been released or terminated.
(j) No act, event or condition shall have occurred after the date
hereof which Buyer determines has had or could reasonably be expected to have a
Material Adverse Effect.
(k) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to Buyer and its counsel.
-16-
(l) The Shareholders shall have repaid the Company for any shareholder
loans pursuant to Section 8.1(e) and for any expenses pursuant to Section 8.4
-----------
hereof.
(m) Buyer shall have theretofore received a true and complete list of
(a) the names and addresses of (i) customers that represented in excess of 10%
of the Company's sales of goods and services during the 12 months ended on
September 30, 1998 and (ii) suppliers from whom the Company purchased in excess
of 10% of the Company's purchase of goods and services during the 12 months
ended on September 30, 1998 and (b) all licenses of or rights to Proprietary
Information granted to the Company by others or by others to the Company with a
description (including the term, payment for and scope thereof).
Section 6.3 Conditions to Obligations of the Company and the
------------------------------------------------
Shareholders. Notwithstanding any other provision of this Agreement, the
- ------------
obligations of the Company and the Shareholders to consummate the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction, at
or prior to the Closing Date, of the following conditions:
(a) The representations and warranties of Buyer and Newco in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date, and Buyer
and Newco shall have complied with all covenants and agreements and satisfied
all conditions on their part to be performed or satisfied on or prior to the
Closing Date.
(b) The Company shall have received from Paul, Hastings,
Janofsky & Walker LLP, counsel for Buyer and Newco, a written opinion dated the
Closing Date and addressed to the Company and the Shareholders, in substantially
the form attached as Annex H hereto.
-------
(c) The Company shall have received the following under cover
of a certificate of the Secretary of Buyer dated the Closing Date in
substantially the form attached as Annex I hereto:
-------
(i) Copies of resolutions of the board of directors of
Buyer authorizing and approving the execution, delivery and performance of this
Agreement and all other documents and instruments to be delivered by Buyer
pursuant hereto and thereto;
(ii) A certificate of incumbency certifying the names,
titles and signatures of the officers authorized to execute the documents
referred to in subparagraph (i) above and further certifying that the
certificate of incorporation and bylaws of Buyer delivered to the Company at the
time of, or prior to, the execution of this Agreement have been validly adopted
and have not been amended or modified; and
(iii) Such additional supporting documentation and other
information with respect to the transactions contemplated hereby as the Company
or its counsel may reasonably request.
(d) The Company shall have received a certificate of the
President of Buyer in substantially the form attached as Annex J hereto.
-------
(e) The Company shall have received the following under cover
of a certificate of the Secretary of Newco dated the Closing Date in
substantially the form attached as Annex K hereto:
-------
(i) Copies of resolutions of (A) the board of directors
of Newco authorizing and approving the execution, delivery and performance of
this Agreement and all other documents and instruments to be delivered by Newco
pursuant hereto and thereto, and (B) the sole stockholder of Newco approving
this Agreement and the Merger;
(ii) A certificate of incumbency certifying the names,
titles and signatures of the officers authorized to execute the documents
referred to in subparagraph (i) above and
-17-
further certifying that the certificate of incorporation and bylaws of Newco
delivered to the Company at the time of, or prior to, the execution of this
Agreement have been validly adopted and have not been amended or modified; and
(iii) Such additional supporting documentation and other
information with respect to the transactions contemplated hereby as the Company
or its counsel may reasonably request.
(f) The Company shall have received a certificate of the
President of Newco in substantially the form attached as Annex L hereto.
-------
(g) Buyer or Newco shall have assumed all existing contracts
with the management, employees, consultants and advisors of the Company.
(h) No act, event or condition shall have occurred after the
date hereof which the Shareholders or the Company determines has had or could
reasonably be expected to have a Material Adverse Effect.
(i) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to the Company and its counsel.
(j) David Chang shall, at the Closing, be elected to the
Board of Directors of Buyer and to the Executive Committee of the Board, if one
is then in existence, and become Executive Vice President of Buyer.
(k) Approximately $1,400,000 shall be paid at Closing to
David Chang in full satisfaction of the note due to the Chang and Chang
Partnership from the Company.
(l) There shall be distributed to the Shareholders at the
Closing the life insurance policy on the life of David Chang.
(m) Shareholders shall have been released from any personal
guarantees on bank indebtedness.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CLOSING
-----------------------------------
During the period commencing on the date hereof and continuing through
the Closing Date, the Company and the Shareholders covenant and agree (except as
expressly contemplated by this Agreement or to the extent that Buyer shall
otherwise expressly consent in writing) that:
Section 7.1 Qualification. The Company shall maintain all qualifications
-------------
to transact business and remain in good standing in the foreign jurisdictions in
which the Company owns or leases any property, or conducts any business, so as
to require such qualification, except where the failure to maintain such
qualification would not be reasonably likely to have a Material Adverse Effect.
Section 7.2 Ordinary Course. The Company shall conduct its business in,
---------------
and only in, the ordinary course and shall preserve intact its current business
organizations, keep available the services of its current officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with it to the end that its goodwill and going business value
shall be unimpaired at the Closing Date. The Company shall maintain its
properties and assets in good condition and repair.
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Section 7.3 Organic Changes. The Company shall not (a) amend its
---------------
articles of incorporation or bylaws, (b) acquire by merging or consolidating
with, or agreeing to merge or consolidate with, or purchase substantially all of
the stock or assets of, or otherwise acquire any business or any corporation,
partnership, association or other business organization or division thereof, (c)
enter into any partnership or joint venture, (d) declare, set aside, make or pay
any dividend or other distribution in respect of its capital stock (other than
distributions necessary to pay the federal and state income taxes of
Shareholders resulting from the Company's election to be taxed under Subchapter
S of the Internal Revenue Code) or purchase or redeem, directly or indirectly,
any shares of its capital stock, (e) issue or sell any shares of its capital
stock of any class or any options, warrants, conversion or other rights to
purchase any such shares or any securities convertible into or exchangeable for
such shares, or (f) liquidate or dissolve or obligate itself to do.
Section 7.4 Indebtedness. The Company shall not incur any Indebtedness,
------------
sell any debt securities or lend money to or guarantee the Indebtedness of any
Person other than Indebtedness incurred in the ordinary course of business to
finance the purchase of machines used therein not exceeding in the aggregate
$100,000. The Company shall not restructure or refinance its existing
Indebtedness or Indebtedness incurred after the date hereof permitted under the
preceding sentence.
Section 7.5 Accounting. The Company shall not make any change in the
----------
accounting principles, methods, records or practices followed by it or
depreciation or amortization policies or rates theretofore adopted by it. The
Company shall maintain its books, records and accounts in accordance with GAAP.
Section 7.6 Compliance with Legal Requirements. The Company shall comply
----------------------------------
promptly with all requirements that applicable law may impose upon it and its
operations and with respect to the transactions contemplated by this Agreement,
and shall cooperate promptly with, and furnish information to, Buyer in
connection with any such requirements imposed upon Buyer, or upon any of its
affiliates, in connection therewith or herewith, including, without limitation,
all information reasonably required by Buyer to prepare its registration
statement with respect to its initial public offering.
Section 7.7 Disposition of Assets. The Company shall not sell, transfer,
---------------------
license, lease or otherwise dispose of, or suffer or cause the encumbrance by
any Lien upon any of, its properties or assets, tangible or intangible, or any
interest therein, except in the ordinary course of business.
Section 7.8 Compensation. The Company shall not (a) adopt or amend in
------------
any material respect any collective bargaining, bonus, profit-sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other plan, agreement, trust, fund or arrangement for the benefit
of employees (whether or not legally binding) other than to comply with any
Legal Requirement or (b) pay, or make any accrual or arrangement for payment of,
any increase in compensation, bonuses or special compensation of any kind, or
any severance or termination pay to, or enter into any employment or loan or
loan guarantee agreement with, any current or former officer, director, employee
or consultant of the Company.
Section 7.9 Modification or Breach of Agreements; New Agreements. The
----------------------------------------------------
Company shall not terminate or modify, or commit or cause or suffer to be
committed any act that will result in breach or violation of any term of, or
(with or without notice or passage of time, or both) constitute a default under
or otherwise give any person a basis for nonperformance under, any indenture,
mortgage, deed of trust, loan or credit agreement, lease, license or other
agreement, instrument, arrangement or understanding, written or oral, disclosed
in this Agreement or the Schedules hereto. The Company shall refrain from
becoming a party to any contract or commitment other than in the ordinary course
of business. The Company shall meet all of its contractual obligations in
accordance with their respective terms.
Section 7.10 Capital Expenditures. Except for capital expenditures or
--------------------
commitments necessary to maintain its properties and assets in good condition
and repair (the amount of which shall not exceed
-19-
$25,000 in the aggregate), the Company shall not purchase or enter into any
contract to purchase any capital assets.
Section 7.11 Maintain Insurance. The Company shall maintain its Policies
------------------
in full force and effect and shall not do, permit or willingly allow to be done
any act by which any of the Policies may be suspended, impaired or canceled.
Section 7.12 Discharge. The Company shall not cancel, compromise, release
---------
or discharge any claim of the Company upon or against any person or waive any
right of the Company of material value, and not discharge any Lien upon any
asset of the Company or compromise any debt or other obligation of the Company
to any person other than Liens, debts or obligations with respect to current
liabilities of the Company.
Section 7.13 Actions. The Company shall not institute, settle or agree
-------
to settle any Action before any governmental entity.
Section 7.14 Permits. The Company shall maintain in full force and
-------
effect, and comply with, all Permits.
Section 7.15 Tax Assessments and Audits. The Company shall furnish
--------------------------
promptly to Buyer a copy of all notices of proposed assessment or similar
notices or reports that are received from any taxing authority and which relate
to the Company's operations for periods ending on or prior to the Closing Date.
The Shareholders shall cause the Company to promptly inform Buyer, and permit
the participation in and control by Buyer, of any investigation, audit or other
proceeding by a Governmental Entity in connection with any Taxes, assessment,
governmental charge or duty and shall not consent to any settlement or final
determination in any proceeding without the prior written consent of Buyer.
ARTICLE 8
ADDITIONAL COVENANTS
--------------------
Section 8.1 Covenants of the Company and the Shareholders. During the
---------------------------------------------
period commencing on the date hereof and continuing through the Closing Date,
each of the Company and the Shareholders agree to:
(a) comply promptly with all requirements that applicable
Legal Requirements may impose upon it with respect to the transactions
contemplated by this Agreement, and shall cooperate promptly with, and furnish
information to, Buyer in connection with any such requirements imposed upon
Buyer or upon any of its affiliates in connection therewith or herewith,
including, without limitation, all information reasonably required by Buyer to
prepare its registration statement with respect to its initial public offering;
(b) use its reasonable commercial efforts to obtain (and to
cooperate with Buyer in obtaining) any consent, authorization or approval of, or
exemption by, any Person required to be obtained or made by the Company or the
Shareholders, as applicable, in connection with the transactions contemplated by
this Agreement;
(c) use its reasonable commercial efforts to bring about the
satisfaction of each of the conditions precedent to Closing set forth in
Sections 6.1 and 6.2 of this Agreement;
(d) promptly orally advise Buyer and, within three business
days thereafter, in writing of any change in the Company's business or condition
that has had or may have a Material Adverse Effect; and
-20-
(e) at or prior to the Closing, the Shareholders will repay
to the Company shareholders loans payable, if any.
Section 8.2 Covenants of Buyer. During the period commencing on the
------------------
date hereof and continuing through the Closing Date, Buyer agrees to:
(a) comply promptly with all requirements that applicable
Legal Requirements may impose upon it with respect to the transactions
contemplated by this Agreement, and shall cooperate promptly with, and furnish
information to, the Company and the Shareholders in connection with any such
requirements imposed upon the Shareholders or the Company or upon any of the
Affiliates of the Company in connection therewith or herewith;
(b) use its reasonable commercial efforts to obtain any
consent, authorization or approval of, or exemption by, any Person required to
be obtained or made by Buyer in connection with the transactions contemplated by
this Agreement;
(c) use its reasonable commercial efforts to have the
Shareholders released from any guarantees set forth on Schedule 8.2 hereto. If
------------
Buyer cannot obtain any such release within 90 days after the Closing Date, it
will indemnify the Shareholders from and after the Closing date with respect to
any liability on the related guarantees; and
(d) use its reasonable commercial efforts to bring about the
satisfaction of each of the conditions precedent to Closing set forth in
Sections 6.1 and 6.3 of this Agreement.
Section 8.3 Access and Information.
----------------------
(a) Between the date hereof and the Closing Date, (i) the
Company will permit, and will cause its officers, directors, key employees and
advisors to permit, Buyer and its representatives and agents reasonable access
to the Company's books and records, facilities, key personnel, customers,
suppliers, independent accountants and attorneys, as requested by Buyer;
provided, however, Buyer and its representatives and agents shall not contact
- -------- -------
any of Company's customers or key salesmen other than with the consent of David
Chang or when David Chang is present; (ii) Buyer will use its reasonable best
efforts to provide the Shareholders and the Company and their respective
representatives and agents reasonable access to the books and records,
facilities, key personnel, customers, suppliers, independent accountants and
attorneys of other companies to be acquired by Buyer in conjunction with the
acquisition of the Company, as reasonably requested by the Company (subject to
the execution of appropriate confidentiality agreements and with the
understanding that there will be no access to product formulations or other
sensitive trade secret information); and (iv) the Company shall provide to
Buyer, promptly upon completion, an unaudited balance sheet and the related
statements of income or operations, cash flows and stockholder's equity for each
month-end and period from and after December 31, 1997.
(b) The Confidentiality Agreement dated April 22, 1998 (the
"Confidentiality Agreement") entered into among the Company, the Shareholders
- --------------------------
and Buyer shall survive the execution and delivery of this Agreement.
Section 8.4 Expenses. Except as otherwise specifically provided herein,
--------
each party to this Agreement shall bear its own direct and indirect expenses
incurred in connection with the negotiation and preparation of this Agreement
and the consummation and performance of the transactions contemplated hereby,
including, without limitation, all legal fees and fees of any brokers, finders
or similar agents; provided, however, that the Company may advance such
-------- -------
expenses on behalf of the Shareholders which such advances the Shareholders
shall repay to the Company at, or prior to, the Closing; provided, further, that
-------- -------
the fees of independent auditors to audit the Company's financial statements
shall be paid by Buyer.
-21-
Section 8.5 Certain Notifications. At all times from the date hereof
---------------------
to the Closing Date, no party shall permit or undertake any action that would
result in, and each party shall promptly notify the others in writing of, the
occurrence of any event that will or may (i) render any statement,
representation or warranty of such party in this Agreement (including the
Schedules hereto) inaccurate or incomplete in any material respect or (ii)
constitute or result in the breach by such party of, or a failure to comply
with, any agreement or covenant in this Agreement applicable to such party or
(iii) result in the failure by such party to satisfy any of the conditions
specified in Article 6 hereof.
---------
Section 8.6 Publicity; Employee Communications. At all times prior to
----------------------------------
the Closing Date, each party shall obtain the consent of all other parties
hereto prior to issuing, or permitting any of its directors, officers, employees
or agents to issue, any press release or other information to the press,
employees of the Company or any third party with respect to this Agreement or
the transactions contemplated hereby; provided, however, that no party shall be
-------- -------
prohibited from supplying any information to any of is representatives, agents,
attorneys, advisors, financing sources and others to the extent necessary to
complete the transactions contemplated hereby. Nothing contained in this
Agreement shall prevent any party to this Agreement at any time from furnishing
any required information to any Governmental Entity or authority pursuant to a
Legal Requirement or from complying with its legal or contractual obligations.
Section 8.7 Further Assurances. Subject to the terms and conditions
------------------
of this Agreement, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable Legal
Requirements, to consummate and make effective the transactions contemplated by
this Agreement. If at any time after the Closing any further action is necessary
or desirable to carry out the purposes of this Agreement, the Shareholder, the
Company, Buyer or Newco, as the case may be, shall take or cause to be taken all
such necessary or convenient action and execute, and deliver and file, or cause
to be executed, delivered and filed, all necessary or convenient documentation.
Section 8.8 Competing Offers; Merger or Liquidation. The Company and
---------------------------------------
the Shareholders agree that they will not, and the Shareholders will cause the
Company not to, directly or indirectly, through any officer, director, agent or
otherwise, solicit, initiate, encourage or conduct discussions with, or accept
or consider the submissions of bids, offers or proposals by, any Person with
respect to an acquisition of the Company or its assets or capital stock or a
Merger or similar transaction, and the Company and the Shareholders will not,
and the Shareholders will not permit the Company to, engage any broker,
financial adviser or consultant with an incentive to initiate or encourage
proposals or offers from other parties. Furthermore, the Company and the
Shareholders shall not, and the Shareholders shall not permit the Company to,
directly or indirectly, through any officer, director, agent or otherwise,
engage in negotiations concerning any such transaction with, or provide
information to, any Person other than Buyer and its principal shareholder, and
their respective representatives, with a view to engaging, or preparing to
engage, that Person with respect to any matters referenced in this Section. The
Shareholders shall ensure that the Company shall not commence any proceeding to
merge, consolidate or liquidate or dissolve or obligate itself to do so.
Section 8.9 Covenants regarding Shares. The Shareholders hereby
--------------------------
agree with Buyer as follows:
(a) The certificates evidencing the shares of Buyer Common Stock they
will acquire in the Merger, and each instrument or certificate issued in
transfer thereof, will bear substantially the following legend:
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933 and have been taken for investment
purposes only and not with a view to the distribution thereof, and
such securities may not be sold or transferred unless there is an
effective registration statement under such Act covering
-22-
such securities or the issuer corporation receives an opinion of
counsel reasonably satisfactory to issuer corporation (which may be
counsel for the issuer corporation) stating that such sale or transfer
is exempt from the registration and prospectus delivery requirements
of such Act."
(b) The certificates representing such shares of Buyer Common
Stock and each instrument or certificate issued in transfer thereof will also
bear any legend required under any applicable state securities law.
(c) Absent an effective registration statement under the
Securities Act, covering the disposition of the shares of Buyer Common Stock
which the Shareholders acquire in the Merger, the Shareholders will not sell,
transfer, assign, pledge, hypothecate or otherwise dispose of any or all of such
shares of Buyer Common Stock without first providing Buyer with an opinion of
counsel reasonably acceptable to Buyer (which may be counsel for Buyer) to the
effect that such sale, transfer, assignment, pledge, hypothecation or other
disposition will be exempt from the registration and the prospectus delivery
requirements of the Securities Act and the registration or qualification
requirements of any applicable state securities laws. The Shareholders consent
to Buyer's making a notation on its records or giving instructions to any
transfer agent of the Buyer Common Stock in order to implement the restrictions
on transfer set forth in this subsection (c).
Section 8.10. Advice of Counsel. The Shareholders acknowledge that
-----------------
the Shareholders have obtained advice from independent counsel with respect to
this Agreement to the extent the Shareholders desired to do so. The
Shareholders are not relying on any representations, except those set forth
herein, or advice from Buyer or Newco or any of their respective officers,
directors, attorneys or other representatives regarding this Agreement, its
content or effect.
Section 8.11. Completion of Due Diligence. Buyer agrees that it will
---------------------------
complete its due diligence investigation of the Company on or prior to August
25, 1998.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
Section 9.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Closing:8.5
(a) by mutual consent of all of the parties hereto;
(b) by the Company or the Shareholders, on the one hand, or by
Buyer, on the other hand, by written notice to the other party or parties hereto
if the Merger shall not have been consummated on or before November 30, 1998 (or
such later date as Buyer, the Company and the Shareholders may agree), provided
that in the case of a termination under this clause (b), the party or parties
terminating this Agreement shall not then be in material breach of any of its or
their obligations under this Agreement;
(c) by Buyer if (i) there has been a material misrepresentation,
breach of warranty or breach of covenant by the Company or the Shareholders
under this Agreement or (ii) any of the conditions precedent to Closing set
forth in Sections 6.1 and 6.3 have not been met on the Closing Date, and, in
each case, Buyer is not then in material default of its obligations hereunder;
or
(d) by the Company or the Shareholders if (i) there has been a
material misrepresentation, breach of warranty or breach of covenant by Buyer
under this Agreement or (ii) any of the conditions precedent to Closing set
forth in Sections 6.1 and 6.2 have not been met on the Closing Date, and, in
each case, neither the Company nor the Shareholders are then in material default
of their obligations hereunder.
-23-
Section 9.2 Effect of Termination. In the case of any termination of
---------------------
this Agreement, the provisions of Sections 8.3(b) and 8.4 shall remain in full
force and effect. Upon termination of this Agreement as provided in Section
9.1(a) or (b), this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of any party hereto or their respective
directors, officers, employees, agents or other representatives. In the event
of termination of this Agreement as provided in Section 9.1(b), (c) or (d)
hereof, such termination shall be without prejudice to any rights that the
terminating party or parties may have against the breaching party or parties or
any other Person under the terms of this Agreement or otherwise.
Section 9.3 Amendment and Waiver. This Agreement may be amended only
--------------------
by a written instrument executed by each of the parties hereto. Any term or
provision of this Agreement may be waived in writing at any time by the party or
parties entitled to the benefits thereof. No failure to exercise and no delay
in exercising any right, power or privilege shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege
preclude the exercise of any other right, power or privilege. No waiver of any
breach of any covenant or agreement hereunder shall be deemed a waiver of any
preceding or subsequent breach of the same or any other covenant or agreement.
The rights and remedies of each party under this Agreement are in addition to
all other rights and remedies, at law or in equity, that such party may have
against the other parties.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
-----------------------------------------------------------
Section 10.1. Survival of Representations and Warranties. The
------------------------------------------
representations and warranties of the parties hereto contained in this Agreement
or in any writing delivered pursuant hereto or at the Closing shall survive the
execution and delivery of this Agreement and the Closing and the consummation of
the transactions contemplated hereby (and any examination or investigation by or
on behalf of any party hereto) until the date 18 months after the Closing Date
(except for claims in respect thereof pending at such time, which shall survive
until finally resolved or settled); provided, however, that the representations
-------- -------
and warranties contained in Sections 3.1, 3.2, 3.3, 3.11, 3.13 (in so far as it
applies to Environmental Matters), 5.1, 5.2, 5.3 and 5.4 shall survive until the
expiration of the applicable statute of limitations. No Action may be commenced
with respect to any representation, warranty, covenant or agreement in this
Agreement, or in any writing delivered pursuant hereto, unless written notice,
setting forth in reasonable detail the claimed breach thereof, shall be
delivered pursuant to Section 11 to the party or parties against whom liability
for the claimed breach is charged on or before the termination of the survival
period specified in Section 10 for such representation, warranty, covenant or
agreement. In the event that the Shareholders shall be required to indemnify
the Buyer with respect to this Agreement, the Shareholders may elect to pay such
indemnified amounts in cash or in shares of NDI Common Stock (at fair market
value on the date of payment).
Section 10.2 Indemnification.
---------------
(a) The Shareholders severally covenant and agree to defend, indemnify
and hold harmless Purchaser and the Company, each officer, director, employee,
agent and representative of Purchaser or the Company and each Person who
controls Purchaser or the Company within the meaning of the Securities Act from
and against any loss, damage, cost or expense ("Damages") arising out of or
resulting from: (i) any inaccuracy in or breach of any representation or
warranty made by any Shareholder in this Agreement or in any writing delivered
pursuant to this Agreement or at the Closing; or (ii) the failure of any
Shareholder to perform or observe fully any covenant, agreement or condition to
be performed or observed by such Shareholder pursuant to this Agreement.
(b) Purchaser covenants and agrees to defend, indemnify and hold
harmless the Shareholders from and against any Damages arising out of or
resulting from: (i) any inaccuracy in or breach of any representation or
warranty made by Purchaser in this Agreement or in any writing delivered
pursuant to this Agreement or at the Closing; (ii) the failure by Purchaser to
perform or
-24-
observe any covenant, agreement or condition to be performed or observed by it
pursuant to this Agreement; or (iii) any Actions arising out of or resulting
from the conduct by the Company of its business or operations after the Closing
Date.
(c) Purchaser shall not be liable to the Shareholders, and
the Shareholders shall not be liable to Purchaser, under this Section 10.2 for
any Damages indemnifiable hereunder except when the amount of such Damages with
respect to each event giving rise to a right to indemnification hereunder
exceeds an accumulated total of $25,000 in the aggregate and the amount of such
Damages with respect to all such events hereunder exceeds in the aggregate
$150,000 (but then for all Damages, including the first $25,000 and $150,000, as
the case may be); and, provided further, the Shareholders and the Purchaser
shall not be liable under this Section 10.2 for any amount in excess of the
Merger Consideration.
Section 10.3 Third Party Claims.
------------------
(a) If any party entitled to be indemnified pursuant to
Section 10.2 (an "Indemnified Party") receives notice of the assertion by any
-----------------
third party of any claim or of the commencement by any such third person of any
Action (any such claim or Action being referred to herein as an "Indemnifiable
-------------
Claim") with respect to which another party hereto (an "Indemnifying Party")
- ----- ------------------
is or may be obligated to provide indemnification, the Indemnified Party shall
promptly notify the Indemnifying Party in writing (the "Claim Notice") of the
------------
Indemnifiable Claim; provided, that the failure to provide such notice shall not
--------
relieve or otherwise affect the obligation of the Indemnifying Party to provide
indemnification hereunder, except to the extent that any Damages directly
resulted or were caused by such failure.
(b) The Indemnifying Party shall have fifteen (15) days after
receipt of the Claim Notice to undertake, conduct and control, through counsel
reasonably acceptable to the Indemnified Party, and at Indemnifying Party's
expense, the settlement or defense thereof, and the Indemnified Party shall
cooperate with the Indemnifying Party in connection therewith; provided, that
--------
(i) the Indemnifying Party shall permit the Indemnified Party to participate in
such settlement or defense through counsel chosen by the Indemnified Party,
provided that the fees and expenses of such counsel shall not be borne by the
Indemnifying Party unless the Indemnified Party shall have reasonably concluded
that there are defenses or counter or cross claims available to it that may not
be available to the Indemnifying Party, in which event the Indemnifying Party
shall bear the reasonable fees and expenses (and shall pay the same on a current
basis as incurred) of counsel and experts selected by the Indemnified Party, and
(ii) the Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified Party's consent. So long as the Indemnifying Party is vigorously
contesting any such Indemnifiable Claim in good faith, the Indemnified Party
shall not pay or settle such claim without the Indemnifying Party's consent,
which consent shall not be unreasonably withheld or delayed.
(c) If the Indemnifying Party does not notify the Indemnified
Party within fifteen (15) days after receipt of the Claim Notice that it elects
to undertake the defense of the Indemnifiable Claim described therein, the
Indemnified Party shall have the right to contest, settle or compromise the
Indemnifiable Claim in the exercise of its reasonable discretion; provided, that
--------
the Indemnified Party shall notify the Indemnifying Party of any compromise or
settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 10.3 to the contrary
notwithstanding, the Shareholders shall not be entitled to assume the defense
for any Indemnifiable Claim (and shall be liable for, and shall pay the same on
a current basis as incurred, the reasonable fees and expenses incurred by the
Indemnified Party in defending such claim) if the Indemnifiable Claim seeks an
order, injunction or other equitable relief or relief for other than money
damages against Purchaser or the Company which Purchaser determines, after
conferring with its counsel, cannot be separated from any
-25-
related claim for money damages and which, if successful, could adversely affect
the business, properties or prospects of Purchaser or the Company.
Section 10.4 Indemnification Non-Exclusive. The foregoing
-----------------------------
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable or common-law remedy any party may have for breach of
representation, warranty, covenant or agreement.
Section 10.5 Offsets. All amounts payable in respect of each
-------
Indemnifiable Claim by an Indemnifying Party under Section 10.2 shall be reduced
by the amount of (i) any tax benefit accruing to the Indemnified Party and (ii)
amounts recovered under insurance policies, in each case respect of such
Indemnifiable Claim.
ARTICLE 11
GENERAL PROVISIONS
------------------
Section 11.1 Notices. All notices and other communications under or
-------
in connection with this Agreement shall be in writing and shall be deemed given
(a) if delivered personally, upon delivery, (b) if delivered by registered or
certified mail (return receipt requested), upon the earlier of actual delivery
or three days after being mailed, or (c) if given by telecopy, upon confirmation
of transmission by telecopy, in each case to the parties at the following
addresses:
(a) If to Buyer or Newco, addressed to:
Advanced Nutraceuticals, Inc.
2715 Bissonnett, Suite 305
Houston, Texas 77005
Telecopy: (713) 874-1443
Attention: Barry Loder
With copies to:
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street, 23rd Floor
Los Angeles, California 90071
Telecopy: (213) 627-0705
Attention: David L. Gersh, Esq.
(b) If to the Company, addressed to:
ACTA International and ACTA Pharmacal Co.
1131 North Fair Oaks Avenue
Sunnyvale, California 94089-2102
Telecopy: (408) 734-1149
Attention: David Chang
With copies to:
Ferrari, Olsen, Ottoboni & Bebb, LLP
333 West Santa Clara Street, Suite 700
San Jose, California 95113-1716
Telecopy: (408) 280-0151
Attention: Peter D. Feinberg, Esq.
(c) If to the Shareholders,
addressed to:
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K.Y. Chang
1131 N. Fair Oaks Avenue
Sunnyvale, California 94089
Telecopy: (408) 734-1149
and
David Chang
1131 N. Fair Oaks Avenue
Sunnyvale, California 94089
Telecopy: (408) 734-1149
and
Robert Chiang
1131 N. Fair Oaks Avenue
Sunnyvale, California 94089
Telecopy: (408) 734-1149
With copies to:
Ferrari, Olsen, Ottoboni & Bebb, LLP
333 W. Santa Clara Street, Suite 700
San Jose, California 95113
Telecopy: (408) 280-0151
Attention: Peter D. Feinberg, Esq.
Section 11.2 Severability. If any term or provision of this Agreement
------------
or the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable such term or
provision in any other jurisdiction, the remaining terms and provisions of this
Agreement or the application of such terms and provisions to circumstances other
than those as to which it is held invalid or enforceable.
Section 11.3 Entire Agreement. This Agreement, including the
----------------
exhibits, annexes and schedules attached hereto and other documents referred to
herein, and the Confidentiality Agreement, contain the entire understanding of
the parties hereto in respect of their subject matter and supersede all prior
and contemporaneous agreements and understandings, oral and written, among the
parties with respect to such subject matter.
Section 11.4 Miscellaneous. This Agreement shall be binding upon and
-------------
inure to the benefit of each of the parties hereto and their respective
successors, heirs and assigns; provided, however, that no party may assign
-------- -------
either this Agreement or any of its rights, interests or obligations hereunder
in whole or in part without the prior written consent of the other parties
hereto (other than to the Surviving Corporation as a result of the Merger), and
any such transfer or assignment without said consent shall be void, ab initio.
---------
Subject to the immediately preceding sentence, this Agreement is not intended to
benefit, and shall not run to the benefit of or be enforceable by, any other
person or entity other than the parties hereto and their permitted successors
and assigns. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all such counterparts together shall
constitute one and the same Agreement. The exhibits, schedules and annexes to
this Agreement are incorporated herein and, by this reference, made a part
hereof as if fully set forth at length herein. The article, section and
subsection headings used herein are inserted for reference purposes only and
shall not in any way affect the meaning or interpretation of this Agreement. As
used in this Agreement, the masculine, feminine or neuter gender, and the
singular or plural, shall be deemed to include the others whenever and wherever
the context so requires. For the purposes of
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this Agreement, unless the context clearly requires, "or" is not exclusive. Each
party hereto hereby knowingly, voluntarily and intentionally waives any right it
may have to a jury trial in any legal proceeding which may be hereafter
instituted by any party hereto to assert a claim arising out of or relating to
this Agreement or any other agreement, instrument or document contemplated
hereby or thereby.
Section 11.5 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws (and not the law of conflicts) of
the State of Delaware.
Section 11.6 Jurisdiction; Venue; Attorney's Fees. Any legal action or
------------------------------------
proceeding with respect to this Agreement may be brought in the courts of the
State of California sitting in the City of San Francisco or of the United States
of America for the Northern District of California and each party hereby accepts
the jurisdiction of such courts. The parties hereto (i) hereby irrevocably
waive, in connection with any such proceeding or action, any objection to the
laying of venue in such courts, including without limitation on the grounds of
forum non conveniens, and (ii) hereby irrevocably consent to the service of
process of any of such courts. If any legal action or other proceeding is
brought by any party hereto, the prevailing party shall be entitled to recover
therein its costs and expenses incurred in connection therewith, including
without limitation reasonable attorneys' fees.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the day and year first above written.
ADVANCED NUTRACEUTICALS, INC.
By: /s/
---------------------------
An Authorized Officer
AC ACQUISITION CO., INC.
By: /s/
---------------------------
An Authorized Officer
ACTA PRODUCTS CORPORATION
By: /s/
---------------------------
An Authorized Officer
ACTA PRODUCTS INTERNATIONAL
By: /s/
---------------------------
An Authorized Officer
By: /s/
---------------------------
K.Y. Chang
By: /s/
---------------------------
David Chang
By: /s/
---------------------------
Robert Chiang
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