EXHIBIT 10.4
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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 NL Acquisition Co., Inc., a Delaware corporation
("Newco"), Advanced Nutraceuticals, Inc., a Delaware corporation ("ANI," "Buyer"
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or "Purchaser"), Northridge Laboratories Inc., a California corporation (the
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"Company") and Jane Richman, Trustee of the Exemption Trust Created Under The
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Alan Richman and Jane Richman Trust Under Trust Dated 5/5/92, Jane Richman,
Trustee of the Survivor's Trust Created Under The Alan Richman and Jane Richman
Trust Under Trust Dated May 5, 1992, Brett Richman and Holmby Avenue, LLC, a
California limited liability company (each individually, a "Shareholder" and
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collectively, the "Shareholders"). The two trusts for which Jane Richman is the
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Trustee shall be referred to collectively herein as the "Trusts."
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 sole stockholder and shareholders, as applicable, for the
Company to be merged with and into Newco upon the terms and subject to the
conditions set forth herein (the "Merger"); the board of directors and sole
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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 Corporations Code (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 this
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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 the
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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 certificate of
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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.
(b) Directors and Officers. The directors and officers of Newco
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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
"NL Acquisition Co., Inc.," which name shall be changed after the closing to
Northridge Laboratories, Inc. 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. If
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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 ("Certificate of Merger")
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to be executed and acknowledged and, as required by Delaware Law, filed with the
Secretary of State of the State of Delaware as provided in the Delaware Law and,
as required by California Law, an executed and acknowledged counterpart of the
Certificate of Merger to be filed with the Secretary of State of the State of
California as provided in the California Law. 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 any time after the Effective
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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 Effective
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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) "Stock Merger Consideration" shall mean that number of
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shares of common stock, par value $[.0001] of Buyer ("Buyer Common Stock") equal
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to $7,000,000 divided by the initial
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public offering price per share of Buyer Common Stock. "Cash Merger
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Consideration" shall mean an aggregate of $7,500,005 in cash, without interest.
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"Note Merger Consideration" shall mean subordinated notes of the Buyer ("Buyer
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Notes"), in substantially the form attached hereto as Annex A, having an
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aggregate principal amount of $2,000,000, an interest rate of 8.5% and payable
in two equal installments on the first and second anniversary of the Closing
Date. The Stock Merger Consideration, Cash Merger Consideration and Note Merger
Consideration are herein sometimes collectively referred to as the "Merger
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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 per share of Company Common Stock, (ii)
shares of Buyer Common Stock and (iii) Buyer Notes, in each case in the amount
calculated in accordance with Section 2.3 hereof and, with respect to the cash
payment. Until properly surrendered, each such Share Certificate shall be deemed
for all purposes to evidence only the right to receive such cash, shares of
Buyer Common Stock and Buyer Notes. 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 transactions
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contemplated hereby (the "Closing") shall take place at the offices of Paul,
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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 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 Certificate of Merger
with the Secretary of State of the State of Delaware and the Secretary of State
of the State of California.
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(d) Buyer shall deliver to the Shareholders certificates
representing the shares of Buyer Common Stock acquired by the Shareholders in
the Merger.
(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 Buyer Notes
representing the note portion of the Merger Consideration.
(g) The Company shall pay Jane Richman a loan in the amount of
approximately $53,000 and disclaim any interest in personal art owned by Brett
Richman, three computers and one desk top computer in the names of the
Shareholders and a Lexus automobile owned by Jane Richman (or if such Lexus is
owned by the Company, it shall be distributed to Mrs. Richman).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
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REGARDING THE COMPANY
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The Company, jointly with Jane Richman as trustee of the Trusts and
Brett Richman (the "Richmans") who hereby severally represent and warrant to,
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and covenant and agree with, Buyer and Newco that:
Section 3.1 Organization and Good Standing; Subsidiaries. The 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. The 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 the 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. The 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 the Company previously delivered to, or made available for inspection
by, Buyer are true, complete and correct
Section 3.2 Authorization, Binding Agreement. The Company has all requisite
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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 Company's board of directors and the
Company's stockholders in accordance with the California Law and the articles of
incorporation and bylaws of the Company. No other corporate proceedings on the
part of the Company are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and constitutes the legal, valid and
binding agreement of the Company, enforceable against the 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).
Section 3.3 No Conflicts. The execution, delivery and performance of this
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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 the Company is a party or by which the Company is bound or affected or
to which any of the property or assets of the Company
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is bound or affected, (b) result in the violation of the provisions of the
articles of incorporation or bylaws of the 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 the Company or (d) otherwise adversely
affect the contractual or other legal rights or privileges of the 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 the 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 the Company.
Section 3.4 Capitalization. The authorized capital stock of the Company
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consists solely of 10,000 shares of Company Common Stock, of which 100 shares
are, and as of the Closing will be, issued and outstanding. All of the issued
and outstanding shares of 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 B hereto. There are no existing
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options, warrants, rights, calls or commitments of any character relating to the
shares of Company Common Stock or any other capital stock or securities of the
Company, (ii) there are no outstanding securities or other instruments
convertible into or exchangeable for shares of Company Common Stock or any other
capital stock or securities of the Company 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 Company Common Stock or any other capital stock or securities of the Company.
Section 3.5 Financial Statements.
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(a) The Company has prepared and furnished to Buyer, and there
are included in Schedule 3.5 hereto, true and complete copies of (i) the
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unaudited balance sheet (the "Balance Sheet") of the Company at June 30, 1998
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(the "Balance Sheet Date"), and the related unaudited statements of income,
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shareholders' equity and cash flows for the nine months then ended, (ii) the
unaudited but reviewed balance sheets of the Company at September 30, 1997 and
September 30, 1996 and the related unaudited but reviewed 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 derived from the accounting records of the Company and prepared
consistently with all prior periods.
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
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inventory in the ordinary course of business since the Balance Sheet Date which,
in the aggregate, have not been materially different from prior periods.
Schedule 3.6(a-2) contains a list of all tangible personal property (including,
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without limitation, 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
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lease). Schedule 3.6(a-3) contains a list of all real property leases, licenses
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and personal 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(a-3) have been delivered to Purchaser
heretofore, as 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(a), 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 or necessary for the conduct of business
of the Company. The Company owns all of the real and personal property, tangible
and intangible, including, without limitation, computer systems hardware and
software, 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
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facilities, 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, 1993 (the "Company Products"). Except as disclosed on Schedule 3.6(c), there
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have been no Company Products (except those with sales aggregating less than
$15,000 and not resold to the public) 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, or
requiring the cessation or curtailment of any business operation or practice. To
the best of knowledge, there are no facts which exist which could reasonably be
expected to furnish a basis for the recall or withdrawal of 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 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, or which could reasonably be expected to require the cessation or
curtailment of any business operation or practice. To the best of knowledge, 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
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Products or received any warning letters or other correspondence from the Food
and Drug Administration, 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. To the best of knowledge, the
Company has complied in all respects with current reporting requirements
relating to the Company Products. No officer, director or, to the best of
knowledge, 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 Company
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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, to the Shareholders' knowledge, 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
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contains a true and complete aging of the Company's accounts receivable as of
the Balance Sheet Date. As to uncollected accounts receivable, if any, as to
which indemnification is made to Buyer by the Richmans, Buyer shall assign any
uncollected accounts receivable in the amount indemnified to the indemnifying
Shareholder or Shareholders.
Section 3.8 Trademarks, Patents, Etc.
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(a) Schedule 3.8(a) contains a true and complete list of all
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letters 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 by the Company in the conduct of its business, whether registered or not,
(collectively herein, "Registered Rights").
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(b) Except as described in Schedule 3.8(b), the Company 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,
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
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not 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
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names and 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
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summary 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
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against such risk of loss 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
Purchaser heretofore
Section 3.10 Litigation. Except as to certain emissions at the Company's
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plant more fully described in, and otherwise set forth on, Schedule 3.10, there
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is no legal action, suit, arbitration or other legal, administrative or other
governmental investigation, inquiry or proceeding pending or, to the best
knowledge of the Shareholders, 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' best 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, or (d) 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 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. Purchaser 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 complete
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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"), which are
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maintained or contributed to by the Company (the "Company Benefit Plans"). The
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Company has heretofore provided to Purchaser (i) true and complete 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. To the best of
-------------------------------------------
Shareholders' knowledge, 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"), except to the extent that the failure to have or
-------
maintain any such permit would not result in a Material Adverse Effect. 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.
-9-
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 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) requires 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 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 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
has 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 September 30, 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
-10-
assets or properties except in the ordinary course of business; (iv) canceled or
compromised any debt 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 provided to Buyer prior to Closing, neither Buyer
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, against 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. Except as disclosed on Schedule 3.19, 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)
-11-
has not received any notice of any alleged violation of, or any citation for
noncompliance with, any Legal Requirement or Licensing Requirement.
Section 3.20 Brokers' Fees. 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 hereby represents and warrants to, and covenants and agrees 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 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).
-12-
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, none of which
is 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.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE SHAREHOLDERS
-------------------
Each Shareholder hereby represents and warrants to, and covenants and
agrees with, Buyer and Newco that:
-13-
Section 5.1 Ownership of Shares. Such Shareholder owns of record and
-------------------
beneficially the number of shares of Company Common Stock set forth opposite its
name on Annex A hereto, and has, and at all times prior to and as of the Closing
such Shareholder will have, good and marketable title to such shares free and
clear of all Liens and adverse claims.
Section 5.2 Execution and Delivery. Such Shareholder has the power and
----------------------
authority to execute and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations under this Agreement. This
Agreement, upon its execution and delivery by such Shareholder (assuming the due
authorization, execution and delivery hereof by the other parties hereto), will
constitute the legal, valid and binding obligation of such Shareholder,
enforceable against such Shareholder 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 such Shareholder and the consummation by such Shareholder 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 such Shareholder is a party or by which such Shareholder
or such Shareholder's 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 such Shareholder or the property of
the such Shareholder.
Section 5.4 Restrictions on Transfer of Buyer Common Stock and Buyer
--------------------------------------------------------
Notes Under Securities Laws.
- ---------------------------
(a) Such Shareholder understands and agrees that the shares of
Buyer Common Stock and the Buyer Notes that such Shareholder 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. Such
Shareholder acknowledges that such Shareholder must bear the economic risk of
its investment in such shares of Buyer Common Stock and Buyer Notes 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.
Shareholder hereby represents and warrants that Shareholder is an Accredited
Investor as defined under Rule 501(a) of the Securities Act (provided, however,
such representation and warranty is based upon the assumption that the Merger
Consideration to the Shareholder is valued at one million dollars ($1,000,000)
or more on the Closing Date) and is acquiring the shares of Buyer Common Stock
and Buyer Notes in the Merger for investment purposes only, for Shareholder's
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.
(b) Such Shareholder hereby agrees with Buyer as follows:
(i) The certificates evidencing the shares of Buyer Common
Stock and the Buyer Notes it 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 such
securities or the issuer corporation receives an opinion of counsel
reasonably
-14-
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."
(ii) The certificates representing such shares of Buyer
Common Stock and the Buyer Notes, and each instrument or certificate issued in
transfer thereof, will also bear any legend required under any applicable state
securities law.
(iii) Absent an effective registration statement under the
Securities Act, covering the disposition of the shares of Buyer Common Stock and
Buyer Notes which the such Shareholder acquires in the Merger, such Shareholder
will not sell, transfer, assign, pledge, hypothecate or otherwise dispose of any
or all of such shares of Buyer Common Stock or Buyer Notes 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. Such Shareholder consents 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 5.5 Advice of Counsel. Each Shareholder acknowledges that
-----------------
Shareholder has obtained advice from independent counsel with respect to this
Agreement to the extent Shareholder desired to do so. Such Shareholder is 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.
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.
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 Bryan Cave 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 and
-------
certificates from each Shareholder substantially in the form attached as Annex
-----
D-1 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
the 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) the 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 the 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) Jane Richman and Brett Richman shall have each 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, in substantially the form attached hereto as Annex F. In addition,
-------
Brett Richman shall enter into a modification of his Non-Competition Agreement
providing that, in addition, he shall not compete in the business of
manufacturing nutritional supplements for a period of one year after the
termination of his employment with Buyer if his employment extends beyond three
years.
(f) The Shareholders and Buyer shall have entered into a
Registration Rights Agreement in substantially the form attached hereto as Annex
-----
G.
- -
(g) Buyer shall be satisfied, in its sole discretion, with the
results of its due diligence investigation of the Company.
(h) Buyer shall have received reasonable assurances from those
key employees, if any, of the Company that may be identified by Buyer in its
discretion that they will remain in the employ of the Surviving Corporation for
a reasonable period of time after the consummation of the transactions
contemplated hereby.
(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 on the Company.
-16-
(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.
(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) ANI shall have theretofore received a true and complete list
of (i) all licenses of or rights to Proprietary Information (including term,
payment for and scope thereof) granted to the Company by others or to others by
the Company and (ii) customers that represented in excess of 10% of the
Company's sales of goods and services during the 12 months ended September 30,
1998, and (iii) suppliers from whom the Company purchased in excess of 10% of
the Company's purchase of goods and services during the 12 months ended
September 30, 1998.
(n) ANI shall have received a true and complete list containing
exceptions to Section 3.17.
------------
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:
-------
-17-
(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 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 on the business,
financial condition, properties, profitability, prospects or operations of
Buyer.
(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) The Company's Board of Directors shall have determined in their
sole determination whether any amounts theretofore contributed to the profit
sharing plan for employees shall become fully vested in each employee's account
and/or distributed to such employees in accordance with applicable law.
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.
-18-
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 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. The Company shall not restructure or refinance its existing
Indebtedness.
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 prior
practices.
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; provided, however, that employees who received bonuses in 1997
-------- -------
pursuant to the Company's bonus policy then in effect and who are otherwise
entitled to receive bonuses in 1998 under the Company's bonus policy currently
in effect shall be entitled to receive such bonuses for the year ended September
30, 1998 in an aggregate amount not to exceed $2,000,000 and which will leave
the Company with not less than $400,000 of cash at Closing.
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.
-19-
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 $25,000 in the aggregate), the
Company shall not purchase or enter into any contract to purchase any capital
assets; provided, however, the Forum Senate seats for the year 1999-2000 shall
be paid prior to Closing.
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 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,
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 the conditions precedent to Closing set forth in Sections 6.1
and 6.2 of this Agreement;
-20-
(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
(e) at or prior to the Closing, the Shareholders will repay to
the Company any shareholders loans payable.
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 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; (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, if any (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
-21-
statements shall be paid by Buyer; and provided, further, that expenses incurred
-------- -------
by the Shareholders in connection with activities specifically requested by
Buyer in pursuing and consummating its initial public offering shall be
reimbursed by Buyer.
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 Shareholders, 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.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
Section 9.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Closing:
(a) by mutual consent of all of the parties hereto;
-22-
(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 15,
1998 (or such later date as Buyer, the Company and the controlling 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.
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(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 AND 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 12 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, 3.11, 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.
-23-
Section 10.2 Indemnification.
---------------
(a) The Richmans 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 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 or its business or operations after
the Closing Date.
(c) The Richmans' liability for breaches (other than for
fraud) of representations and warranties under Section 3 hereof under this
Section 10.2 shall not exceed the "Indemnity Limit" (as defined below), which
shall be paid, if required, out of the ANI Common Stock (at its fair market
value on the date of payment) or the proceeds thereof as provided in Section
10.2(d). 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 and to the extent that the amount of such Damages
exceeds an accumulated total of $250,000 in the aggregate (but then for all
Damages, including the first $250,000).
(d) The Indemnity Limit for any Breach (as defined in
Section 2.3(b)) shall be the lesser of the two limitations computed in
subsections (i) and (ii), below.
(i) The first limitation is the difference between
Four Million Dollars less the amount of Payments previously made by the Richmans
to Buyer with respect to all prior Breaches for which indemnification has been
claimed. For this purpose, Payments shall mean the sum of (x) the Market Value
(as defined below) of all Stock delivered by the Richmans pursuant to subsection
(iii) below, determined at the time of each such delivery and (y) all cash
payments made by the Richmans to Buyer.
(ii) The second limitation is the sum of the following
amounts:
a. The Market Value of all shares of Buyer Common
Stock owned by the Shareholders at the time payment with respect to a Breach is
due. For this purpose, Market Value shall be determined by reference to the
average Closing Price of Buyer Common Stock for the ten (10) trading days next
preceding the date on which the obligation to make a payment in respect of the
Breach becomes due (the "Applicable Date").
b. The amounts received by the Shareholders from
the public sale (whether in a secondary offering, open market sale or private
placement transaction) of shares of Buyer Common Stock prior to the Applicable
Date in respect of the Breach Payment, to persons who are not affiliates of the
Shareholders.
c. The Market Value of the shares of Common Stock
which the Shareholders have transferred to third parties other than in
transactions described in clause b. above, determined as though such shares were
owned by the Shareholders on the Applicable Date.
-24-
(iii) The Richmans shall satisfy any liability for a
Breach Payment first by delivering shares of Common Stock then owned by them,
valued as set forth above, and thereafter with cash, the total not to exceed the
Indemnity Limit at the Applicable Date.
Section 10.3 Third Party Claims.
------------------
(d) 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.
(e) 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.
(f) 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.
(g) Anything contained in this Section 10.3 to the contrary
notwithstanding, the Richmans 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 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.
-25-
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: Mr. 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:
Northridge Laboratories Inc.
20832 Dearborn Street
Chatsworth, California 91311
Telecopy: (818) 998-2815
Attention: Ms. Jane Richman
With copies to:
Bryan Cave LLP
120 Broadway Street, Suite 500
Santa Monica, California 90401-2305
Telecopy: (310) 576-2200
Attention: Thomas S. Loo, Esq.
(c) If to the Shareholders,
addressed to:
Jane Richman, Trustee of the Trusts
1903 Holmby Avenue
Los Angeles, California 90025
Telecopy: (310) 474-1922
Brett Richman
20878 Kelvin Place
Woodland Hills, California 91311
No home telecopy number
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Holmby Avenue, LLC
1903 Holmby Avenue
Los Angeles, California 90025
Telecopy: (310) 474-1922
With copies to:
Bryan Cave LLP
120 Broadway Street, Suite 500
Santa Monica, California 90401-2305
Telecopy: (310) 576-2200
Attention: Thomas S. Loo, Esq.
Section 11.2 Severability. If any term or provision of this Agreement
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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 Arbitration. Except as provided herein, any controversy or
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claim arising out of or relating to this Agreement or the breach thereof shall
be settled as provided below:
11.3.1 Notice of Claim. The prosecution of a claim shall
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commence upon effective date of written notice of claim by the party asserting
the claim to the other party which shall set forth the basis and amount of the
claim.
11.3.2 Pre-Arbitration Negotiations. The parties shall, before
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the commencement of arbitration proceedings, attempt in good faith to settle
their dispute by negotiations, including a consideration of mediation.
11.3.3 Selection of Arbitrator. Within thirty (30) days after
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notice of the claim, the parties shall select a retired judge as an arbitrator.
If the parties cannot agree upon an arbitrator, they shall exchange lists of at
least five (5) retired judges. If there is one common name, such person shall
be deemed selected. If there is more than one common name, the first common
arbitrator who is available shall be deemed selected. If there is no common
name, the matter will be submitted to J.A.M.S./Endispute for arbitration before
a retired judge pursuant to its policies and procedures. The arbitration will
be conducted by the rules and procedures established by the arbitrator according
to the provisions of this Agreement.
11.3.4 Provisional and Equitable Remedies. Until such time as the
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arbitrator is appointed, either party may seek or request ancillary, provisional
or preliminary rights and/or remedies, including injunctive relief or a
temporary restraining order or any other applicable provisional remedy before
the Los Angeles County Superior Court. Upon appointment of the arbitrator, the
parties agree that jurisdiction over any such provisional remedy and proceeding
shall immediately be transferred to the arbitrator, and the State Court
proceeding shall be dismissed or abated, as the case may be, provided that any
such provisional remedy remain in effect until otherwise ordered by the
arbitrator. The parties agree that the arbitrator shall be empowered to issue
an order for a temporary injunction, preliminary injunction, writ of attachment,
writ of possession, temporary protective order and/or appointment of a receiver
on the grounds that the arbitration award to which the applicant may be entitled
may be rendered ineffectual in the absence of such relief. Following the
appointment of the arbitrator, the parties agree that any application for relief
shall be made exclusively to the arbitrator. In the event of a claimed breach
of the Agreement by Seller, in addition to all of the remedies provided by law
and this Agreement, Buyer shall be entitled to seek specific performance of
Seller's obligations under the Agreement.
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11.3.5 Enforcement of Judgment. Judgment upon the award rendered by
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the arbitrator may be entered in any court having jurisdiction thereof.
11.3.6 Discovery. The parties may obtain discovery in aid of the
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arbitration to the fullest extent permitted under law, including California Code
of Civil Procedure Section 1283.05. All discovery disputes shall be resolved by
the arbitrator.
11.3.7 Power and Authority of Arbitrator. The arbitrator shall not
---------------------------------
have any power to alter, amend, modify or change any of the terms of this
Agreement not to grant any remedy which is either prohibited by the terms of
this Agreement or not available in a court of law.
11.3.8 Costs. The costs of arbitration, including the arbitrator's
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fee and costs for the use of facilities during the hearings, shall be borne
equally by Buyer and Seller. Reasonable attorneys' fees and costs, including the
arbitrator's fee, may be awarded to the prevailing or most prevailing party by
the arbitrator.
Section 11.4 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. All representations and warranties
are expressly provided in this Agreement and except as expressly provided
herein, no other representations, express or implied, oral or written, has been
made by any party to this Agreement.
Section 11.5 Miscellaneous. This Agreement shall be binding upon and inure
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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
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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 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. If any action, including without limitation any
arbitration, is brought by any party hereto pursuant to this Agreement, the
prevailing party shall be entitled to its costs and expenses, including
reasonable attorneys' fees. Any judicial proceeding or arbitration brought
against any of the parties to this Agreement on any dispute arising out of this
Agreement or any matter related hereto may be brought in the courts of the
County of Los Angeles, State of California and, by execution and delivery of
this Agreement, each of the parties hereto accepts the exclusive jurisdiction of
such courts and irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Agreement.
Section 11.6 Governing Law. This Agreement shall be governed by and
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construed in accordance with the internal laws (and not the law of conflicts) of
the State of California.
[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
NEWCO
By: /s/
--------------------------------
An Authorized Officer
NORTHRIDGE LABORATORIES INC.
By: /s/
--------------------------------
An Authorized Officer
JANE RICHMAN, TRUSTEE OF THE EXEMPTION TRUST CREATED
UNDER THE ALAN RICHMAN AND JANE RICHMAN TRUST UNDER
TRUST DATED 5/5/92
By: /s/
--------------------------------
Jane Richman, Trustee
JANE RICHMAN, TRUSTEE OF THE SURVIVOR'S TRUST CREATED
UNDER THE ALAN RICHMAN AND JANE RICHMAN TRUST UNDER
TRUST DATED MAY 5, 1992
By: /s/
--------------------------------
Jane Richman, Trustee
By: /s/
--------------------------------
BRETT RICHMAN
HOLMBY AVENUE, LLC
By: /s/
--------------------------------
Jane Richman, Manager
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