EXHIBIT 2.6
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ASSET CONTRIBUTION AND EXCHANGE AGREEMENT
among
PORTLYN ACQUISITION LLC
as the Transferee,
and
MEDSOURCE TECHNOLOGIES, INC.
as the Transferee's sole member
and
PORTLYN CORPORATION
as the Transferor
and
David E. Porter, Ronald V. Porter, Ronald V. Porter
Amended and Restated Revocable Trust u/i/d 9/7/95,
Porter Family 1997 Irrevocable Trust u/i/d 7/8/97
and Shirley J. Porter Amended and Restated
Revocable Trust u/i/d 9/7/95
as the Shareholders of the Transferor
Dated March 24, 1999
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TABLE OF CONTENTS
PAGE
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Contribution and Exchange of Assets..............................................................1
Contribution and Exchange.................................................................1
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Excluded Assets...........................................................................3
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Consents..................................................................................4
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Escrow Deposit............................................................................4
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Assumption of Specified Liabilities..............................................................5
Assumption................................................................................5
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Excluded Liabilities......................................................................6
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Consideration; Payment....................................................................7
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Transfer Taxes............................................................................8
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Allocation of Consideration...............................................................8
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Closing..........................................................................................9
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Representations and Warranties of the Transferor and the Shareholders............................9
Organization..............................................................................9
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Capitalization............................................................................9
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Authorization; Validity of Agreement.....................................................10
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No Violations; Consents and Approvals....................................................10
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Financial Statements.....................................................................11
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No Material Adverse Change...............................................................12
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No Undisclosed Liabilities...............................................................12
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Litigation; Compliance with Law; Licenses and Permits....................................13
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Employee Benefit Plans; ERISA............................................................13
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Real Property............................................................................15
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Intellectual Property; Computer Software.................................................18
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Title to Acquired Assets; Capital Budget.................................................18
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Material Contracts.......................................................................19
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Taxes....................................................................................20
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Affiliated Party Transactions............................................................22
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Environmental Matters....................................................................23
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No Brokers...............................................................................25
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Receivables..............................................................................25
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Inventories..............................................................................25
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Product Claims...........................................................................26
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Warranties and Returns...................................................................26
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Assets Utilized in the Business..........................................................26
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Insurance................................................................................26
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Delivery of Documents; Corporate Records.................................................27
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Customers, Suppliers and Distributors....................................................27
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Labor Matters............................................................................27
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Bank Accounts............................................................................27
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Directors, Officers and Certain Employees................................................27
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No Misstatements or Omissions............................................................28
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Investment Undertaking, Etc..............................................................28
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Representations and Warranties of the Transferee................................................28
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Organization.............................................................................28
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Capitalization...........................................................................29
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Authorization; Validity of Agreement.....................................................29
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No Violations; Consents and Approvals....................................................30
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Litigation...............................................................................30
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Shares of Capital Stock..................................................................30
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Certain Tax Matters.............................................................................30
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Other Agreements of the Parties.................................................................31
Conduct of Business......................................................................31
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Access and Information...................................................................33
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Tax Returns; Taxes.......................................................................34
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Notice of Developments...................................................................35
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Non-Disclosure of Confidential Information...............................................35
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No Solicitation of Employees, Suppliers or Customers.....................................36
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Non-Competition..........................................................................36
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Public Statements........................................................................37
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Other Actions............................................................................37
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Change of Name...........................................................................37
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Cooperation on Taxes.....................................................................37
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Employees................................................................................37
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Consents; Releases.......................................................................38
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HSR Filings..............................................................................39
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Employment Agreement.....................................................................39
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Stockholders Agreement and Registration Rights Agreement.................................39
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Exclusivity..............................................................................40
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Equipment, Intellectual Property and Other Assets........................................40
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Interests in Real Property...............................................................40
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Accounts Receivable......................................................................41
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Repayment of Institutional Indebtedness..................................................42
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Product Liability Insurance.....................................................................42
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Year 2000.......................................................................................42
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Conditions Precedent to the Closing.............................................................43
Conditions Precedent to the Transferee's Obligations to Close............................43
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Conditions Precedent to the Transferor's Obligations to Close............................46
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Documents to be Delivered at the Closing........................................................48
Deliveries of the Transferor and the Shareholders........................................48
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Deliveries of the Transferee.............................................................49
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Termination.....................................................................................50
Survival of Representations and Warranties. ....................................................50
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Survival of Representations and Warranties of the Transferor and
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the Shareholders..................................................................50
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Survival of Representations and Warranties of the Transferee.............................51
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Indemnification.................................................................................51
Indemnification by the Transferor and the Shareholders...................................52
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Indemnification by the Transferee........................................................52
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Indemnification Procedures...............................................................53
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Limitations on Indemnification by the Transferor and the
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Shareholders......................................................................54
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Limitations on Indemnification by the Transferee.........................................55
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Miscellaneous...................................................................................55
Transaction Fees and Expenses............................................................55
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Notices..................................................................................56
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Amendment................................................................................57
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Waiver 57
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Governing Law............................................................................57
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Jurisdiction.............................................................................57
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Remedies.................................................................................57
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Severability.............................................................................58
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Further Assurances.......................................................................58
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Assignment...............................................................................58
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Binding Effect...........................................................................58
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No Third Party Beneficiaries.............................................................58
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Entire Agreement.........................................................................58
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Headings.................................................................................59
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Counterparts.............................................................................59
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Bulk Sales Law...........................................................................60
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Schedules
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Schedule 1.3 Necessary and Requested Consents
Schedule 3.3 Allocation of Consideration
Schedule 5.2 Selling Shareholders
Schedule 5.4(b) Governmental Consents and Approvals
Schedule 5.4(c) Non-Governmental Consents and Approvals
Schedule 5.5 Financial Statements
Schedule 5.6 Material Adverse Changes
Schedule 5.6(iii) Billing; Payment
Schedule 5.8 Litigation
Schedule 5.9(a) Employee Benefit Plans
Schedule 5.10(a)(i) Transferor Owned Real Property
Schedule 5.10(a)(ii) Adverse Real Property Claims
Schedule 5.10(b) Transferor Leased Real Property
Schedule 5.10(c) Real Property Related Contracts
Schedule 5.10(g) Real Property Defects
Schedule 5.10(h) Real Property Proceedings
Schedule 5.11(a) Intellectual Property; Rights of Ownership
Schedule 5.12(a) Liens
Schedule 5.12(a)-I Permitted Owned Real Property Encumbrances
Schedule 5.12(b) Fixed Assets Ledger
Schedule 5.12(c) Capital Budget
Schedule 5.13(a) Material Contracts
Schedule 5.13(b) Defaults or Events of Default
Schedule 5.13(c) Contracts of More than $25,000 Per Year
Schedule 5.14(a) Subchapter S elections
Schedule 5.14(b) Taxes
Schedule 5.16 Environmental Matters
Schedule 5.17 Brokers
Schedule 5.19 Inventories
Schedule 5.20 Service and Product Liability Claims
Schedule 5.21 Warranties and Returns Policies; Product Failures or
Defects
Schedule 5.22 Assets Utilized in the Business
Schedule 5.23 Insurance Policies
Schedule 5.27 Bank Accounts
Schedule 5.28 Directors, Officers, Certain Employees
Schedule 7.1(iii) Amounts Due to Affiliates
Schedule 7.13 Releases
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Exhibits
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Exhibit 1.4 Form of Deposit Escrow Agreement
Exhibit 3.1A Form of Certificate of Designation
Exhibit 7.15A Form of David E. Porter Employment Agreement
Exhibit 7.16A Form of Stockholders Agreement
Exhibit 7.16B Form of Registration Rights Agreement
Exhibit 7.20A Form of Deed
Exhibit 8.1A Form of Opinion of Counsel for the Transferor and the
Shareholders
Exhibit 8.1B Form of Bill of Sale, Assignment and Assumption
Agreement
Exhibit 8.2A Form of Opinion of Counsel for the Transferee
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ASSET CONTRIBUTION AND EXCHANGE AGREEMENT
Dated March 24, 1999
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The parties to this agreement are Portlyn Acquisition LLC, a Delaware
limited liability company (the "Transferee"), MedSource Technologies, Inc., a
Delaware corporation ("MedSource"), Portlyn Corporation, a New Hampshire
corporation (the "Transferor"), and David E. Porter, Ronald V. Porter, Ronald V.
Porter Amended and Restated Revocable Trust u/i/d 9/7/95, Porter Family 1997
Irrevocable Trust u/i/d 7/8/97 and Shirley J. Porter Amended and Restated
Revocable Trust u/i/d 9/7/95, who collectively own all of the outstanding
capital stock of the Transferor (the "Shareholders").
MedSource, Delaware corporation, is entering into this agreement in
connection with and as part of a single, integrated agreement with the
Transferor and others whereby MedSource is, or will be, concurrent or
substantially concurrent with the closing hereunder, acquiring the assets of the
Transferor for cash and preferred stock, acquiring assets from others for cash
and stock and raising capital by issuing stock in a transaction that is intended
to qualify as transfers to a controlled corporation under section 351 of the
Internal Revenue Code of 1986 (the "Code").
The Transferor is in the business of designing, manufacturing and
assembling minimally invasive surgical medical devices and components for use on
humans (the "Business"). The Transferee desires to acquire from the Transferor,
and the Transferor desires to contribute to the Transferee, all of the
Transferor's assets and properties, including the Business, in consideration for
the payment of cash and preferred stock and the assumption of the liabilities
specified below, on the terms and subject to the conditions set forth herein.
It is therefore agreed as follows:
1. Contribution and Exchange of Assets.
1.1 Contribution and Exchange. Upon the terms and subject to the conditions
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contained in this agreement, at the Closing (as defined in section 4), the
Transferor shall contribute, exchange, assign, transfer, convey, set over and
deliver to the Transferee, and the Transferee shall acquire, receive and accept
from the Transferor in exchange for the assumption of the liabilities specified
in section 2 and the other consideration specified in section 3, all of the
assets and rights of every nature, kind and description, tangible and
intangible, wherever located, that are owned, used or held for use by the
Transferor in or for the Business, as the same shall exist on the Closing Date
(as defined in section 4) and in each case whether or not recorded on the books
and records of the Company (collectively, the "Acquired Assets"), free and clear
of any and all liens, charges, claims, pledges, security interests or other
encumbrances ("Liens")
except for the Liens listed on Schedule 5.12(a) (the "Permitted Liens"),
including, without limitation, the following:
(1) all cash, cash equivalents and marketable securities;
(2) all accounts receivable, notes receivable, drafts or other similar
instruments;
(3) all inventory, including but not limited to finished goods, work
in process, raw materials and supplies;
(4) all prepaid expenses and deposits, other than as set forth in
section 1.2;
(5) all machinery, equipment, tools and dies, hand tools, vehicles,
computers and other data processing hardware (and all software related
thereto or used therewith) and other tangible personal property of similar
nature, including but not limited to all items set forth on the
Transferor's fixed asset ledger attached to this agreement on Schedule
5.12(b) (collectively, the "Machinery and Equipment");
(6) all office furniture, office equipment, fixtures and other
tangible personal property of similar nature (collectively, the "Furniture
and Fixtures");
(7) all interests in each and every patent, copyright, trademark,
trade name, brand name, service mark, service name, assumed name, logo,
symbol, trade dress, design or representation or expression of any thereof,
or registration or application for registration thereof, or any other
invention, trade secret, technical information, know-how, proprietary right
or intellectual property, technology, method, design, drawing, software
(including documentation and source code listings), process and other
proprietary properties or information (collectively, the "Intellectual
Property");
(8) all real property interests described in Schedule 5.10(a)
(including the Real Property (as defined in section 5.10(a)) together with
all buildings, facilities and other improvements thereon and all licenses,
leases, rights, privileges and appurtenances thereto including, without
limitation, all leases, agreements and other rights to use, occupy or
possess, or otherwise with respect to, real property or machinery,
equipment, vehicles,
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and other tangible personal property of similar nature to which the
Transferor is a party, and all rights arising under or pursuant to such
leases, agreements and rights;
(9) all Material Contracts listed on Schedule 5.13(a) and all other
Contracts (as defined in section 5.4(a)), including all Contracts relating
to the Business and including, without limitation, customer and supplier
contracts, sales representative and distributor contracts and commission
contracts with respect thereto not required to be listed on Schedule
5.13(a) (collectively, the "Assigned Contracts");
(10) all customer and supplier lists, mailing lists, catalogs,
brochures and handbooks relating to the Business;
(11) all other books, records, files, contracts, plans, notebooks,
production and sales data and other data of the Transferor relating to the
Business, whether or not in tangible form or in the form of intangible
computer storage media such as optical disks, magnetic disks, tapes and all
similar storage media;
(12) the name "Portlyn" and all variations thereof and all similar
names and the goodwill associated therewith, together with all trademarks,
service marks and trade names of the Transferor related to the Business, if
any;
(13) all rights related to any portion of the Business or the Acquired
Assets, including third party warranties and guaranties and other similar
contractual rights, as to third parties held by or in favor of the
Transferor, and arising out of, resulting from or relating to the Business
or the Acquired Assets; and
(14) all rights to insurance and condemnation proceeds relating to any
damage, destruction, taking or other similar impairment of any of the
Acquired Assets.
1.2 Excluded Assets. The only assets of the Transferor that the Transferee
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is not acquiring hereby (the "Excluded Assets") are:
(1) the consideration to be delivered to the Transferor pursuant to
this agreement for the Acquired Assets to be sold to the Transferee
hereunder and the rights of the Transferor hereunder;
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(2) the certificate of incorporation, corporate seals, minute books,
stock books, Tax Returns (as defined in section 5.14(d)) and supporting
data prepared expressly in connection therewith, and other records prepared
directly in connection with the corporate organization and capitalization
of the Transferor and/or its operation as a corporation under applicable
Laws (as defined in section 5.8(b));
(3) shares of the capital stock of the Transferor; and
(4) two personal computers currently used by David E. Porter and
Ronald Porter and kept in their respective homes.
1.3 Consents. To the extent that the assignment of any Assigned Contract
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shall require the Consent (as defined in section 5.4(c)) of any other party
thereto or of any third party, this agreement shall not constitute an agreement
to assign the same if an attempted assignment would constitute a breach thereof
or of other obligations or commitments of the Transferor. The Transferor shall
use its best efforts without incurring any unreasonable expense to obtain all
such Consents prior to the Closing. If any such Consent is not obtained, and the
Transferee waives the obtaining of such Consent as a condition precedent
hereunder, then the Transferor shall continue such efforts after the Closing
Date and until such Consent is obtained and shall cooperate with the Transferee
in any arrangement (such as subcontracting, sublicensing or subleasing)
requested by the Transferee intended to provide for the Transferee all of the
benefits of the Transferor under such Contract.
1.4 Escrow Deposit.
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(1) Simultaneously with the execution and delivery of this agreement, the
Transferee is delivering to Parker Chapin Flattau & Klimpl, LLP, as escrow
agent, by bank check or wire transfer, the amount of $250,000 as an escrow
deposit (the "Deposit") to be held in accordance with the escrow agreement (the
"Deposit Escrow Agreement") annexed hereto as Exhibit 1.4.
(2) The Deposit Escrow Agreement provides that, at the Closing, the Deposit
shall be returned to the Transferee. In the event, however, that the Closing
does not occur by April 15, 1999 and neither the Transferor nor the Shareholders
are then in breach of this Agreement, all of the conditions set forth in section
8.1 have been satisfied (other than conditions the satisfaction of which is
within the Transferee's control) and the Transferor and the Shareholders are
otherwise ready, willing and able to consummate the Closing, then, pursuant to
the Deposit Escrow Agreement, the Transferor will be entitled to the Deposit
made by the Transferee as liquidated damages for such failure. The Deposit shall
be the Transferor's and the Shareholders' sole and exclusive remedy and claim
against the Transferee for such failure.
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2. Assumption of Specified Liabilities.
2.1 Assumption.
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(a) Upon the terms and subject to all of the conditions contained herein,
at the Closing, the Transferee shall assume, and agree to pay, perform and
discharge:
(1) except as provided in section 7.12(c), the liabilities of the
Transferor that are reflected as "accounts payable," "accrued expenses,"
"accrued commissions," "accrued payroll" and (to the extent relating to any
Assumed Liability hereunder) "accrued interest" that are included on the
December 31, 1998 balance sheet referred to in section 5.5(a) or incurred
subsequent thereto in the ordinary course of business, consistent with past
practices and not in contravention of section 7.1, in each case to the
extent not discharged by the Transferor before the Closing;
(2) the Institutional Indebtedness (as defined below) of the
Transferor set forth on the December 31, 1998 balance sheet referred to in
section 5.5(a), except that with respect to the Transferor's line of credit
with Laconia Savings Bank (the "Line"), the Transferee shall assume the
entire amount of the principal and accrued interest due on the Line as of
the Closing Date but shall reduce the Cash Amount of the consideration as
described in section 3.1(b)(ii) to the extent that the outstanding amount
of the Line on the Closing Date exceeds $135,000, and
(3) all warranty obligations of the Transferor as of the Closing Date
with respect to goods shipped no earlier than ten years prior to the
Closing Date.
Those items set forth in (a)(i), (ii) and (iii) above, collectively, the
"Assumed Liabilities" and, individually, an "Assumed Liability".
(b) For the purposes of this agreement, "Institutional Indebtedness" shall
mean all current and long-term institutional indebtedness of the Transferor
(including all revolving credit facilities, term loans and notes) lines of
credit or loans and capital lease obligations (including all equipment leases)
plus all accrued interest thereon as of the Closing Date) due to banks or other
financial institutions or institutional investors reflected on the December 31,
1998 balance sheet referred to in section 5.5(a) to the extent not repaid by the
Transferor before the Closing; provided, however, that "Institutional
Indebtedness" shall exclude any and all amounts due to any and all
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Shareholders of the Transferor, any and all officers of the Transferor and any
and all Affiliates (as defined in section 5.15) of the Shareholders.
2.2 Excluded Liabilities. The Transferee is only assuming the liabilities
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and obligations of the Transferor expressly set forth in section 2.1. Without
limiting the generality of the foregoing, the Transferee shall not be assuming,
and the Transferor shall remain responsible for and shall promptly pay, perform
and discharge, all of the liabilities and obligations of the Transferor other
than the Assumed Liabilities (the "Excluded Liabilities") such that the
Transferee will incur no liability in connection therewith, and the Transferor
shall indemnify the Transferee with respect to and shall hold the Transferee
harmless from and against all such Excluded Liabilities, subject to the terms
and conditions of section 12 herein including but not limited to the following:
(i) any obligation or liability of the Transferor to the extent that
the Transferor shall be indemnified by an insurer;
(ii) any expenses of the Transferor incurred in connection with the
transactions contemplated hereunder (including but not limited to fees and
expenses of finders, investment bankers, business brokers, attorneys and
accountants), it being understood that all such expenses shall be paid by
the Transferor out of the Excluded Assets or the consideration to be
delivered to the Transferor pursuant to this agreement for the Acquired
Assets to be sold to the Transferee hereunder, and not out of any of the
Acquired Assets; provided that, notwithstanding anything else contained
herein, such fees and expenses of attorneys and accountants may be paid by
the Transferor prior to the Closing in accordance with section 7.1(iii)(D);
(iii) any obligations relating to an Excluded Asset;
(iv) any liability for Taxes of the Transferor or relating to an
Acquired Asset with respect to any period on or before the Closing Date,
except as expressly provided otherwise in section 3.2;
(v) any indebtedness for borrowed money or any guaranty thereof,
except as set forth in section 2.1;
(vi) any amount due to any Shareholder, officer or Affiliate;
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(vii) any pension, profit-sharing or workmen's compensation or other
employee benefit or post retirement plan and any liability or obligation
arising thereunder except to the extent that the Transferee expressly
agrees to continue particular benefits and plans following the Closing;
(viii) except to the extent set forth in section 2.1(a)(iii) for
warranty obligations in the ordinary course, consistent with past practice,
and except to the extent of reserves taken on the books of the Transferor,
any liability or obligation for, with respect to, related to or arising out
of any goods sold, shipped or delivered by the Transferor prior to Closing;
and
(ix) all claims of employees arising out of events, conditions and
circumstances existing or occurring prior to Closing, including, but not
limited to, medical and health claims and disability claims, but excluding
wages paid during the pay period in which the Closing occurs.
3. Consideration, Payment and Adjustments.
3.1 Consideration; Payment.
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(1) In addition to the assumption of the Assumed Liabilities pursuant to
section 2, as consideration for the sale, assignment, transfer and delivery of
the Acquired Assets by the Transferor to the Transferee, and upon the terms and
subject to the conditions contained herein, the Transferee shall pay to the
Transferor:
(1) $5,220,000 (the "Cash Amount"), subject to possible adjustment
and/or reallocation as provided in section 3.1(b); and
(2) 3,000 shares (the "Consideration Shares") of the Transferee's
series A preferred stock, par value $.01 per share (the "Series A Preferred
Stock"), having the terms set forth in the certificate of designation
attached as Exhibit 3.1 to this agreement.
The items referred to in items (i) and (ii) of this section 3.1(a) are
collectively referred to as the "Consideration."
(2) The amount of the Cash Amount to be paid by the Transferee to the
Transferor at the Closing shall be:
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(1) reduced by any amount paid by the Transferor to Shareholders or
their affiliates in connection with any purchases of assets contemplated by
section 7.18, and any such amounts shall be deemed to have been paid by the
Transferee to the Transferor pursuant to section 3.1(a)(i) and shall not be
paid by the Transferee again at the Closing; and
(2) reduced by the amount by which the outstanding amount of the Line
on the Closing Date exceeds $135,000.
(3) All payments to the Transferor pursuant to section 3.1 shall be made in
immediately available funds by wire transfer or bank check (in the Transferor's
discretion) to such bank accounts as may be specified in writing by the
Transferor the Transferee at least two business days prior to the date payment
is to be made.
(4) MedSource, by its signature below, guarantees performance by the
Transferee of the Transferee's payment obligations under this section 3.1.
3.2 Transfer Taxes. All transfer, excise and similar Taxes (as defined in
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section 5.14(d)) imposed by any Taxing Authority (as defined in section 5.14(b))
as a result of the transfer of the Acquired Assets hereunder and the other
transactions contemplated hereby shall be duly and timely paid by the
Transferor, except that the real estate transfer Taxes shall be paid one-half by
the Transferor and one-half by the Transferee. The Transferor shall duly and
timely file all Tax Returns in connection with such Taxes, except for the real
estate transfer Tax Return, which shall be filed by the Transferee. The
Transferor shall give a copy of each such Tax Return to the Transferee for its
review with sufficient time for comments prior to filing, and shall give the
Transferee a copy of such Tax Return as filed, together with proof of payment of
the Tax shown thereon, promptly after filing.
3.3 Allocation of Consideration.
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(1) The Transferor and the Transferee agree that the Consideration and the
Assumed Liabilities shall be allocated among the acquired assets in accordance
with Schedule 3.3. The Transferee, the Transferor and the Shareholders shall be
bound for such allocation for all purposes, including determining any Tax (as
defined in section 5.14(d)), shall prepare and file all Tax Returns (as defined
in section 5.14(d)), including the information required under Treasury
Regulation section 1-351.3 (the "Section 351 Schedules"), in a manner consistent
with such allocations, and shall not take any position inconsistent with such
allocations in any Tax Return, any proceeding before any Taxing Authority or
otherwise. In the event that any allocation is questioned, audited or disputed
by any Taxing Authority, the party receiving notice thereof shall promptly
notify and consult with the other party concerning the strategy for the
resolution thereof, and shall
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keep the other party apprised of the status of such question, audit or dispute
and the resolution thereof.
(2) The Transferee and the Transferor shall duly and timely file their
respective Section 351 Schedules in accordance with this section 3.3. Each party
shall furnish a copy of the Section 351 Schedule filed by it to the other party
promptly after filing.
(3) Within sixty days following the Closing, the Shareholders shall cause
the Transferor to, and the Transferor shall, deliver to the Transferee a
schedule that sets forth the true, complete and correct tax basis of each
Acquired Assets in the hands of the Transferor immediately prior to the Closing.
4. Closing. The closing (the "Closing") of the transactions contemplated by
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this agreement shall take place at the offices of the Transferee's counsel in
New York City, at 10:00 a.m. local time (i) on or before April 15, 1999, (ii) or
at such other date and time as the parties shall mutually agree (the "Closing
Date"). The Closing shall be deemed effective at 11:59 p.m. on the Closing Date.
5. Representations and Warranties of the Transferor and the Shareholders.
The Transferor and the Shareholders jointly and severally (except as provided
below) represent and warrant to MedSource and the Transferee as follows (it
being understood that where any representation is made to the "knowledge" of the
Transferor or a Shareholder or relates to matters "known" to the Transferor or a
Shareholder or of which the Transferor or a Shareholder is "aware" or contains
words of similar import, such representation shall refer to the actual personal
knowledge of the Shareholders or the officers and directors of the Transferor
and to matters that should have or would have been known to such persons after
due inquiry):
5.1 Organization. The Transferor is a corporation duly organized, validly
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existing and in good standing under the laws of the state of New Hampshire and
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted. The
Transferor is duly qualified or licensed to do business as a foreign corporation
and is in good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification or licensing necessary provided that
neither the Transferor nor the Shareholders make any representation regarding
the qualification of the Transferor outside of the United States. The Transferor
has delivered to the Transferee true, correct and complete copies of the
Transferor's certificate of incorporation and bylaws, as currently in effect.
5.2 Capitalization. The Shareholders listed on Schedule 5.2 are the only
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shareholders of the Transferor and collectively own 262 shares of common stock,
no par value, which represents all of the issued and outstanding capital stock
of the Transferor of record and beneficially free and clear of all Liens. The
Transferor does not
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own any shares of capital stock (or other equity interests of entities other
than corporations) of any partnership, joint venture, trust, corporation,
limited liability company or other entity.
5.3 Authorization; Validity of Agreement. Each of the Transferor and the
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Shareholders has the requisite capacity and authority to execute, deliver and
perform this agreement and each of the other agreements, instruments, documents
and certificates to be executed and delivered pursuant to this agreement,
including but not limited to, any item referred to in section 9 (collectively,
with this agreement, the "Transaction Documents") to which it is a party and to
assume and perform its obligations hereunder and thereunder, and to consummate
the transactions contemplated hereby and thereby. Each of this agreement and the
other Transaction Documents has been duly executed, authorized and delivered by
each of the Transferor and the Shareholders party thereto and is a valid and
binding obligation of each of the Transferor and the Shareholders, enforceable
against each of the Transferor and the Shareholders in accordance with their
respective terms. To the extent any representation and warranty contained in
this section 5.3 pertains solely to any particular Shareholder, that
representation and warranty shall apply to the Shareholder individually and
severally. When used in this section 5, the foregoing phrase, "individually and
severally," shall mean that each Shareholder shall be liable for his, her or its
actions and those of his, her or its Affiliates who are not family members but
neither the Transferor nor any other Shareholder shall be liable for the actions
of such Shareholder or his, her or its Affiliates.
5.4 No Violations; Consents and Approvals.
-------------------------------------
(1) The execution, delivery and performance of each of this agreement and
the other Transaction Documents by each of the Transferor and the Shareholders
parties thereto do not, and the consummation by each of the Transferor and the
Shareholders of the transactions contemplated hereby and thereby will not, (i)
violate any provision of the certificate of incorporation or bylaws of the
Transferor, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, license, lease, option, contract,
undertaking, understanding, covenant, agreement or other instrument or document
(collectively, a "Contract") to which either the Transferor or any Shareholder
is a party or by which any of the properties or assets of the Transferor or any
Shareholder may be bound or otherwise subject, except for any required Consents,
or (iii) violate any order, writ, judgment, injunction, decree, law, statute,
rule or regulation applicable to the Transferor or any Shareholder or any of
their respective properties or assets. To the extent any representation and
warranty contained in this section 5.4 pertains solely to any particular
Shareholder, that representation and warranty shall apply to the Shareholder
individually and severally.
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(2) No prior or subsequent filing or registration with, notification to, or
authorization, consent or approval of, any foreign, provincial, United States
federal, state, county, municipal or other local jurisdiction, political entity,
body, organization, subdivision or branch, legislative or executive agency or
department or other regulatory service, authority or agency, including the
Health Care Financing Administration ("HCFA"), the Food and Drug Administration
("FDA") and any state agency that is responsible for administering a Medicaid
program, a certificate of need program, a rule setting or approving program or a
facility or professional licensing program (a "Governmental Entity") is required
to be made or obtained by the Transferor or any Shareholder in connection with
the execution, delivery and performance of this agreement by the Transferor or
any Shareholder or any of the other Transaction Documents to which the
Transferor or any Shareholder is a party or the consummation by the Transferor
or any Shareholder of the transactions contemplated hereby and thereby, except
for such filings, registrations, notifications, authorizations, consents and
approvals as are set forth on Schedule 5.4(b) hereof.
(3) No prior or subsequent filing or consent, approval, order,
authorization, notification to, notice to, estoppel certificate, registration,
ratification, declaration, waiver, exemption or variance (collectively, together
with the filings, registrations, notifications, authorizations, consents and
approvals of Governmental Entities set forth in section 5.4(b), "Consents") of
any individual, partnership, limited partnership, limited liability company,
corporation or other entity (a "Person") is required to be made or obtained by
the Transferor or any Shareholder in connection with the execution, delivery and
performance of this agreement by the Transferor or any Shareholder or any of the
other Transaction Documents to which the Transferor or any Shareholder is a
party or the consummation by the Transferor or any Shareholder of the
transactions contemplated hereby and thereby, except for such Consents as are
set forth on Schedules 1.3, 5.4(b) or (c) hereof.
5.5 Financial Statements.
--------------------
(1) Attached to Schedule 5.5 are (i) the reviewed balance sheet of the
Transferor as of December 31, 1998, together with the related reviewed
statements of operations and cash flows for the year ended December 31, 1998,
and (ii) the reviewed balance sheets of the Transferor as of December 31, 1995,
1996 and 1997 together with the related reviewed statements of operations and
cash flows (including the related notes) for the three fiscal years then ended
(all of the foregoing, the "Financial Statements"). The balance sheet as of
December 31, 1998 is referred to as the "1998 Balance Sheet".
(2) All of the Financial Statements, other than for the twelve months ended
December 31, 1998, which have been reviewed by Malone, Lard & Dirubbo, P.C.,
have been reviewed by Zuber & Freedman, who is the only Person to have been the
Transferor's independent accountants for the periods covered by the Financial
Statements. The Financial Statements have been derived from, and agree with, the
books and records
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of the Transferor in all material respects and fairly present the financial
position of the Transferor as of the respective dates thereof and the results of
operations of the Transferor for the respective periods set forth therein. Each
of the foregoing financial statements has been prepared in accordance with
generally accepted accounting principles, consistently applied ("GAAP") as of
the dates and for the periods involved.
5.6 No Material Adverse Change. Since December 31, 1998, except as set
--------------------------
forth in the 1998 Balance Sheet and as listed on Schedule 5.6, (a) to the
knowledge of the Transferor and the Shareholders no event, condition or
circumstance has occurred that would, or would be reasonably likely to, have a
material adverse effect (surviving as provided in section 12.4(a))on the
Business, Acquired Assets or Assumed Liabilities, or on the condition (financial
or otherwise), results of operations or prospects of the Transferor or the
Business (a "Material Adverse Effect"); (b) the Business has been conducted in
the ordinary course and consistent with past practice; and (c) there has been no
material (surviving, as provided for in section 12.4(a)) adverse change in the
Transferor's relationships with its suppliers, customers, patients, payors,
reimbursers, and/or persons or organizations that refer customers or patients to
the Transferor. As amplification and not in limitation of the foregoing, since
December 31, 1998, the Transferor has not (i) made any change in any method of
accounting or accounting practice, principle or policy used by the Transferor,
(ii) incurred any indebtedness, other than draws on the Line not exceeding
$25,000 in the aggregate, obligation or liability or paid, satisfied or
discharged any indebtedness, obligation or liability prior to the due date or
maturity thereof, except current indebtedness, obligations and liabilities in
the ordinary course of business, or (iii) except as set forth on Schedule
5.6(iii) made any change or modification in any manner of the Transferor's (A)
billing and collection policies, procedures and practices with respect to
accounts receivable or unbilled charges, (B) policies, procedures and practices
with respect to the provision of discounts, rebates or allowances, or (C)
payment policies, procedures and practices with respect to accounts payable.
5.7 No Undisclosed Liabilities.
--------------------------
(1) To the best knowledge of the Transferor and the Shareholders, the
Transferor does not have any liabilities (whether accrued, contingent, known, or
otherwise) other than those that (i) are set forth or reserved against in the
1998 Balance Sheet; or (ii) were incurred since December 31, 1998 in the
ordinary course of business, none of which, individually or in the aggregate, is
material (surviving, as provided for in section 12.4(a)) to the business,
operations, condition or prospects of the Business.
(2) The accounts payable of the Transferor set forth in the balance sheets
referred to in section 5.5. or arising subsequent thereto are the result of bona
fide transactions in the ordinary course of business and have been timely paid
or are not past due and owing as at the Closing Date, in accordance with the
respective invoices relating thereto.
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5.8 Litigation; Compliance with Law; Licenses and Permits.
-----------------------------------------------------
(1) Except as set forth on Schedule 5.8, there is no claim, suit, action or
proceeding ("Proceeding") pending, nor, to the best knowledge (surviving, as
provided for in section 12.4(a)) of the Transferor and the Shareholders, is
there any investigation or Proceeding threatened, that involves or affects the
Transferor or the Business, by or before any Governmental Entity, court,
arbitration panel or any other Person.
(2) To the best knowledge of the Transferor and the Shareholders, the
Shareholders, the Transferor and the Business have complied with all applicable
foreign, provincial, United States federal, state, county, municipal or other
local criminal, civil or common laws, statutes, ordinances, orders, codes,
rules, regulations, permits, policies, guidance documents, judgments, decrees,
injunctions, or agreements of any Governmental Entity (collectively, "Laws"),
including but not limited to Laws relating to zoning, building codes, antitrust,
occupational safety and health, industrial hygiene, the manufacture, the sale,
lease or use of durable medical equipment, the preparation, the sale, storage or
use of pharmaceutical products or services, environmental protection, water,
ground or air pollution, the generation, treatment, storage or disposal of
Hazardous Substance (as defined in section 5.16), consumer product safety,
product liability, hiring, wages, hours, employee benefit plans and programs,
collective bargaining and the payment of withholding and social security taxes
to the extent that noncompliance would have a Material Adverse Effect. Since
January 1, 1996, the Transferor has not received any notice of any violation of
any Law.
(3) The Transferor and the Business have every license, permit,
certification, qualification or franchise issued by any Governmental Entity
(each, a "License") and every approval, authorization, waiver, variance,
exemption, consent or ratification by or on behalf of any Person that is not a
party to this agreement (each, a "Permit") required for it to conduct its
business as presently conducted, except where the failure to have such License
or Permit would not have a Material Adverse Effect. All such Licenses and
Permits are in full force and effect and neither the Transferor nor any
Shareholder has received notice of any pending cancellation or suspension of any
Licenses or Permits nor, to the best knowledge (surviving, as provided for in
section 12.4(a)) of the Transferor and the Shareholders, is any cancellation or
suspension of any Licenses or Permits threatened. The applicability and validity
of each such License and Permit will not be adversely affected by the
consummation of the transactions contemplated by this agreement.
5.9 Employee Benefit Plans; ERISA.
-----------------------------
(1) Schedule 5.9(a) lists each "employee benefit plan" (as defined in
section 3(3) of ERISA), and all other material employee benefit plans
(including, without limitation, any non-qualified plans), bonus, deferred
compensation, incentive, stock
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option (or other equity-based), severance, change-in-control, medical insurance
and fringe benefit plans maintained for the benefit of, or contributed to by the
Transferor or any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that would be deemed a "single employer" within the meaning of
section 4001 of the Employee Retirement Income Security Act of 1974 ("ERISA"),
for the benefit of any employee or former employee of the Transferor (the
"Plans"). The Transferor has heretofore delivered to the Transferee true,
correct and complete copies of each of the Plans, including all amendments to
date.
(2) Each of the Plans that is subject to ERISA complies in all material
respects (surviving, as provided for in section 12.4(a)) with ERISA and the
applicable provisions of the Code and has been administered in all material
respects in accordance with ERISA and, where applicable, the Code. Each of the
Plans intended to be "qualified" within the meaning of section 401(a) of the
Code has received a timely determination letter from the Internal Revenue
Service that it is so qualified and neither the Transferor nor any Shareholder
knows of any facts or circumstances that would materially adversely affect
(surviving, as provided for in section 12.4(a)) such qualification prior to and
including the close of business on the day immediately preceding the Closing
Date. None of the Plans is subject to Title IV of ERISA. There are no pending
or, to the best knowledge (surviving, as provided for in section 12.4(a)) of the
Transferor and the Shareholders, threatened claims (other than routine claims
for benefits), actions, suits or proceedings by, on behalf of or against any of
the Plans or any trusts related thereto.
(3) No Plan provides benefits including, without limitation, death or
medical benefits (whether or not insured), with respect to any employees or
former employees of the Transferor beyond their retirement or other termination
of service (other than (i) coverage mandated by applicable law, (ii) death
benefits or retirement benefits under any "employee pension plan," as that term
is defined in section 3(2) of ERISA, (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary)), or (iv)
long-term disability and workers' compensation benefits.
(4) With respect to each Plan, neither the Transferor, any Shareholder nor
any ERISA Affiliate has engaged in a "prohibited transaction" (as such term is
defined in section 4975 or section 406 of ERISA) that would subject the
Transferor or the Transferee to any taxes, penalties or other liabilities
resulting from prohibited transactions under section 4975 of the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations thereunder (the
"Code") or section 409 or 502(i) of ERISA.
(5) The Transferor has complied in all material respects with the notice
and continuation of coverage requirements of section 4980B of the Code and the
regulations thereunder with respect to each plan that is, or was during any
taxable year of the Transferor for which the statute of limitations on the
assessment of federal income
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taxes remains open, by consent or otherwise, a group health plan within the
meaning of section 4980B(g) of ERISA.
5.10 Real Property.
-------------
(1) Schedule 5.10(a)(i) sets forth a list and description (including the
legal description) of all real property owned by the Transferor and all real
property to be owned by the Transferor on the Closing Date (the "Owned Real
Property"). The Transferor has good and marketable title to and owns the Owned
Real Property in fee simple subject to no Liens except as set forth in Schedule
5.12(a). Except as set forth on Schedule 5.10(a)(ii), neither the Transferor nor
the Shareholders have received notice of any default or breach by the Transferor
or other owner under any of the covenants, conditions, restrictions, easements,
or rights-of-way affecting the Owned Real Property or any portion thereof, and
no such default or breach now exists, and no event has occurred or is continuing
which with notice or the passage of time or both, would constitute a default
thereunder.
(2) Schedule 5.10(b) sets forth a list and description of all real property
leases and subleases under which the Transferor is tenant or subtenant (the
"Leases"). As used herein, the term "Leased Real Property" shall mean the real
property demised by the Leases.
(3) The Transferor has heretofore delivered to the Transferee a true,
correct and complete copy of the most recent survey and title insurance policy
with respect to each parcel of Owned Real Property. Neither the Transferor nor
any owner of the Owned Real Property has entered into any leases, subleases,
licenses or occupancy agreements relating to the Owned Real Property and no
Person has any rights to acquire, lease, sublease or otherwise occupy the Owned
Real Property or any part thereof or to otherwise obtain any interest therein,
and there are no outstanding options, rights of first refusal or rights of
reverter relating to the Owned Real Property or any interests therein. Except as
set forth on Schedule 5.10(c), there are no service or maintenance contracts,
management agreements or similar agreements relating to the Owned Real Property.
There has been no service, material or other work provided or supplied to the
Owned Real Property that has not been paid in full, except as set forth in
Schedule 5.10(c).
(4) The Transferor has heretofore delivered to the Transferee true, correct
and complete copies of the Leases. Each of the Leases is in full force and
effect. Each of the Leases is enforceable against the Transferor in accordance
with its terms. The Transferor is in possession of and quietly enjoys the Leased
Real Property applicable to it and the Transferor has a valid and enforceable
leasehold interest, subject to no Liens except such immaterial easements and
rights-of-way, none of which interferes with the operation of the business. No
default presently exists under any of the Leases, and to the best knowledge of
transferor and the Shareholders (surviving, as provided in section 12.4(a)) no
event has occurred or failed to occur that, with the giving of notice or the
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passage of time or both, would constitute a default under any Lease. The
Transferor has not entered into any assignment of any Lease, sublease of all or
any portion of any Leased Real Property and to the best knowledge of the
Transferor and the Shareholders (surviving, as provided in section 12.4(a)) no
person has any right to occupy the Leased Real Property other than the
Transferor.
(5) With respect to each parcel of the Owned Real Property (i) there is a
right of ingress and egress to public thoroughfares to and from each parcel of
the Owned Real Property, and (ii) each parcel of the Owned Real Property has
adequate water supply and septic service for the present use thereof and all
septic service and water supply facilities required for the present use of the
Owned Real Property are properly and fully installed and operating. The Company
has obtained a state-approved plan for its septic system. The system was built
by a company licensed for the construction of septic systems. The Company has
obtained all necessary approvals to operate the system. The Transferor has
heretofore delivered to the Transferee true, correct and complete copies of any
certificate or certificates of operation for any incinerator, boiler or other
burning equipment on the Owned Real Property. There is no real property of any
kind whatsoever used by the Business, except for the Owned Real Property and the
Leased Real Property (collectively, the "Real Property"), and the Real Property
constitutes all of the real property necessary to conduct the Business.
(6) All licenses, permits and certificates of occupancy (the "Approvals"),
in connection with the construction, use, occupancy and maintenance of any Owned
Real Property are in full force and effect in accordance with the respective
terms thereof, and none of the Approvals has been amended, assigned, pledged or
otherwise transferred. There is no alteration, improvement or change in use of
any building or other improvement located on the Owned Real Property that would
require any new Approvals or amendment of an existing Approval. The condition
and use of the Owned Real Property conforms in all material respects to each
Approval. Transferor is in compliance with all Laws including, without
limitation, those relating to zoning, building, and land use restrictions that
are applicable to any portion of the Owned Real Property and has obtained all of
the approvals necessary for the operation of the Business on the Owned Real
Property, to the extent that the Transferor's failure to comply or obtain such
Approvals would have a Material Adverse Effect.
(7) Except as set forth in Schedule 5.10(g): the Owned Real Property
including, without limitation, all building systems and equipment, all
structural components, the roof, the basement, all plumbing, electrical,
mechanical, heating, ventilating, air conditioning and sprinkler systems, and
all sewer, waste water, paving and parking equipment, systems and facilities,
are fully installed and, as applicable, operating, in good condition and repair
and adequate for the conduct of the business of the Transferor as presently
conducted, reasonable wear and tear excepted. There are no defects in the same
that would materially hinder or impair the business and operations of the
Transferor. No extraordinary repair or improvement expense with respect thereto
is anticipated during the one year following the Closing Date. The electricity
service and
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all other public or private utilities ("Utilities") serving the Owned Real
Property are fully installed and operating, adequate for the conduct of the
business of the Transferor as presently and proposed to be conducted, and enter
the Owned Real Property through adjoining public streets or through valid
easements across adjoining private lands, and all installation, connection and
capital recovery charges in connection with the Utilities have been paid in
full.
(8) Except as set forth on Schedule 5.10(h), there is no pending or, to the
best knowledge (surviving, as provided for in section 12.4(a)) of the Transferor
and the Shareholders, proposed (i) annexation, condemnation, eminent domain or
similar proceeding affecting, or that may affect, all or any portion of the
Owned Real Property, (ii) proceeding to change or redefine the zoning
classification of all or any portion of the Owned Real Property, (iii)
imposition of any special or other assessments for public betterments or
otherwise, (iv) special assessments affecting the Owned Real Property or any
portion thereof that are or would be payable by the Transferor or the
Shareholder and could result in a Lien against any of the Owned Real Property,
(v) change in any applicable Laws relating to the use, occupation or operation
of the Owned Real Property, (vi) tax certiorari proceeding with respect to any
Owned Real Property or (vii) changes in road patterns or grades that may
adversely affect access to any roads providing a means of ingress or egress from
the Owned Real Property.
(9) In the last 18 months, neither the Transferor nor the Shareholders has
received notice from any insurance company or Board of Fire Underwriters (or
organization exercising functions similar thereto) or from any mortgagee
requesting the performance of any work or alteration in respect of any of the
Real Property, and, to the best knowledge (surviving, as provided for in section
12.4(a)) of the Transferor and the Shareholders, there are no outstanding
requirements or recommendations from any of the foregoing.
(10) There has been no material (surviving, as provided for in section
12.4(a)) damage to any portion of the Owned Real Property within the last 24
months caused by fire or other casualty that has not been repaired.
(11) The Owned Real Property (including all improvements thereon) and the
uses to which the Owned Real Property (and all improvements thereon) are put,
and all operations conducted thereon, are in compliance with, and are not in
default under or in violation of, any building, zoning, land use, public health,
public safety, sewage, water or sanitation Law, or any Environmental Law or any
covenant, easement, restriction or other agreement, materially (surviving, as
provided in section 12.4(a)) affecting the Owned Real Property and no notice of
any such default or violation has been received by the Transferor or the
Shareholders.
(12) The Transferor is not a "foreign person" for purposes of section 1445
of the Code.
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5.11 Intellectual Property; Computer Software.
----------------------------------------
(1) Schedule 5.11(a) lists all trademarks, tradenames, patents, and
registered copyrights that are owned by the Transferor or any other Person and
used by the Transferor in the operations of the Business. There are no pending
or, to the best knowledge of the Transferor and the Shareholders, threatened
claims by any Person relating to the Transferor's use of any Intellectual
Property. To the best knowledge of the Transferor and the Shareholders, the
Transferor has such rights of ownership (free and clear of all Liens) of, or
such rights by license, lease or other agreement to use (free and clear of all
Liens) all Intellectual Property as are necessary to permit the Transferor to
conduct its business and the Transferor is not obligated to pay any royalty or
similar fee to any Person in connection with the Transferor's use or license of
any Intellectual Property.
(2) To the best knowledge of the Transferor and the Shareholders, the
Transferor has such rights of ownership (free and clear of all Liens) of, or
such rights by license, lease or other agreement to use (free and clear of all
Liens), the computer software programs including, without limitation,
application software that are used by the Transferor and that are material
(surviving, as provided for in section 12.4(a)) to the conduct of its business
as currently conducted, as are necessary to permit the conduct of its business
as currently conducted. None of the Transferor's ownership rights or rights to
use any of the computer programs referred to above will be adversely affected by
any of the transactions contemplated hereby, subject to obtaining the Consents.
5.12 Title to Acquired Assets; Capital Budget.
----------------------------------------
(1) The Transferor has good and marketable title to the Acquired Assets,
including, without limitation, all assets shown on the Financial Statements,
free and clear of all Liens, other than (i) Liens, if any, for personal property
taxes and assessments not yet due and payable, (ii) inventories sold since the
date of the Financial Statements in the ordinary course of business and
consistent with past practice and (iii) Liens disclosed in Schedule 5.12(a). At
the Closing, the Transferor will have caused each Lien referred to in Schedule
5.12(a) (other than Liens relating to leased equipment, the Line (subject to the
terms of section 7.21) and the Owned Real Property as set forth on the title
insurance policy extract set forth in Schedule 5.12(a)-I) to have been
terminated, and the Transferee will obtain good and marketable title to all of
the Acquired Assets free and clear of any and all Liens.
(2) All items of machinery and, equipment owned or leased by the Transferor
and material (surviving, as provided in section 12.4(a)) to the conduct of its
business (other than items of inventory) are listed in the detailed fixed assets
ledger of the Transferor attached to Schedule 5.12(b) (collectively, the
"Personal Property"). To the best knowledge of the Transferor and the
Shareholders, the Personal Property conforms
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in all respects to all requirements of applicable Laws. To the best knowledge of
the Transferor and the Shareholders, all of the items of machinery and equipment
included within the Personal Property are fully operational and operating in the
ordinary course of the Transferor's business, as applicable, are in good
operating condition and in a good state of maintenance and repair, are adequate
for use in the conduct of the Business as currently conducted, reasonable
ordinary course wear and tear excepted.
(3) Schedule 5.12(c) includes a true, correct and complete capital budget
of the Transferor for the fiscal year ending December 31, 1999. Except as set
forth in Schedule 5.12(c), no capital expenditures are contemplated by the
Transferor for the Business.
5.13 Material Contracts.
------------------
(1) Schedule 5.13(a) sets forth a true, complete and correct list of every
Contract that (i) provides for aggregate future payments by the Transferor or to
the Transferor of more than $25,000 and has an unexpired term exceeding six
months and may not be canceled upon 60 days notice without any liability,
penalty or premium (excluding purchase orders and invoices arising in the
ordinary course of business); (ii) was entered into by the Transferor with any
Shareholder, or an officer, director or significant employee of the Transferor;
(iii) is a collective bargaining or similar agreement; (iv) guarantees or
indemnifies or otherwise causes the Transferor to be liable or otherwise
responsible for the obligations or liabilities of another or provides for a
charitable contribution by the Transferor; (v) involves an agreement with any
bank, finance company or similar organization; (vi) restricts the Transferor or
the Business from engaging in any business or activity anywhere in the world;
(vii) is an employment agreement, consulting agreement or similar arrangement
with any employee of the Transferor; (viii) involves an agreement or any other
Contract providing for payments from the Transferor to any other Person, or by
any Person to the Transferor, based on sales, purchases or profits, other than
direct payments for goods; or (ix) any other Contract that is material to the
rights, properties, assets, business or operations of the Transferor or the
Business (the foregoing, collectively, "Material Contracts"). The Transferor has
heretofore provided true, complete and correct copies of all Material Contracts
to the Transferee.
(2) Except as set forth in Schedule 5.13(b), (i) to the best knowledge
(surviving, as provided for in section 12.4(a)) of the Transferor and the
Shareholders, there is not, nor has there been claimed or alleged by any Person
with respect to any Material Contract, any existing default, or event that with
notice or lapse of time or both would constitute a default or event of default,
on the part of the Transferor or, on the part of any other party thereto and
(ii) no consent, approval, authorization or waiver from, or notice to, any
Governmental Entity or other Person is required in order to maintain in full
force and effect any of the Material Contracts, other than such consents and
waivers that have been obtained and are unconditional and in full force and
effect and such notices
-19-
that have been duly given and copies of such consents, waivers and notices have
been delivered to the Transferee.
(3) Except as set forth in Schedule 5.13(c), the Contracts to which the
Transferor is a party do not involve the payment by the Transferor thereunder of
more than $25,000 per year in the aggregate (excluding purchase orders received
from customers in the ordinary course for the sale of products at standard
prices) and are not otherwise material, individually or in the aggregate, to
such Transferor or the Business.
5.14 Taxes.
-----
(1) The Transferor has elected to be treated as an "S" corporation for
federal income Tax purposes at all times since January 1, 1989, and such
election is effective for each year thereafter up to and including the Effective
Date. Schedule 5.14(a) hereto sets forth each other jurisdiction for which the
Transferor has made an "S" election (or similar election), or for which an "S"
election (or similar election) is effective, including the date of the election,
its effective date, the date of any termination of such election, if any, and
the cause of such termination. Except as set forth in Schedule 5.14(a), such
election is effective for each year from its effective date up to and including
the Closing Date.
(2) Except as set forth in Schedule 5.14(b):
(1) to the best knowledge of the Transferor and the Shareholders, the
Transferor has (A) duly and timely filed or caused to be filed with the
Internal Revenue Service or other applicable Governmental Entity
(collectively, "Taxing Authorities") all Tax Returns (as defined below)
that are required to be filed by or on behalf of the Transferor or that
include or relate to the Acquired Assets or the Business, which Tax Returns
are true, correct and complete, and (B) duly and timely paid in full or
caused to be paid in full, or recorded a provision for such payment on the
books and records of the Transferor in accordance with GAAP for the payment
of, all Taxes that are due and payable that could result in a Lien on any
Acquired Asset or the Business and has recorded a provision for such
payment on the books and records of the Transferor in accordance with GAAP
for the payment of all Taxes that are not due and payable;
(2) the Transferor has duly and timely complied, in all material
respects, with all applicable Laws relating to the collection or
withholding of Taxes, and the reporting and remittance thereof to the
applicable Taxing Authorities;
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(3) no audit, examination, investigation, reassessment or other
administrative or court proceeding (collectively, a "Tax Proceeding") is
pending or proposed, or to the best knowledge (surviving, as provided in
section 12.4(a)) of each of the Transferor and the Shareholders threatened,
with regard to any Tax or Tax Return referred to in clause (i) above;
(4) there is no Lien for any Tax upon any of the Acquired Assets or
the Business (other than Liens for real estate taxes not yet due and
payable);
(5) there is no outstanding request for a ruling from any Taxing
Authority, closing agreement, (within the meaning of section 7121 of the
Code or any analogous provision of applicable Law) relating to any Tax for
which the Transferor is or may be liable or with respect to the
Transferor's income, assets or business, power of attorney or adjustment
related to, or in connection with, any Tax that could result in a Lien on
any Acquired Asset or the Business;
(6) none of the Acquired Assets is "tax-exempt bond financed property"
or "tax-exempt use property" within the meaning of section 168(g) or (h),
respectively, of the Code or any similar provision of applicable Law;
(7) none of the Acquired Assets is required to be treated as being
owned by any other person pursuant to the "safe harbor" leasing provisions
of section 168(f)(8) of the Internal Revenue Code of 1954 as in effect
prior to the repeal of those "safe harbor" leasing provisions or any
similar provision of applicable Law;
(8) the Transferor is not, nor has it been, a "United States real
property holding corporation" within the meaning of section 897(c)(2) of
the Code at any time during the applicable period referred to in section
897(c)(1)(A)(ii) of the Code; and
(9) the Transferor has not received written notice of any claim made
by a Taxing Authority in a jurisdiction where the Transferor has not paid
any Tax or filed Tax Returns relating to the Business or any Acquired Asset
asserting that the Transferor is or may be subject to Tax in such
jurisdiction.
(10) The Transferor is not required to include any adjustment under
Section 481 of the Code (or any similar provision of applicable Law) in
income for any period ending after the Closing Date. The
-21-
Transferor has not deferred any income to a period after the Closing Date
that economically accrued prior to the Closing Date. The Transferor has not
accelerated any deduction to a period on or prior to the Closing Date that
economically accrues after the Closing Date.
(11) The Transferor is not a party to any agreement, contract or
arrangement that would result, individually or in the aggregate, in the
payment of any amount that would not be deductible by reason of Section
162, 280G or 404 of the Code or any comparable provision of applicable Law.
(3) The Transferor has provided to the Transferee true, complete and
correct copies of (i) all Tax Returns relating to, and (ii) all audit reports
relating to, each proposed adjustment, if any, made by any Taxing Authority with
respect to any taxable period ending after December 31, 1993 any and all Taxes
with respect to which a Lien may be imposed on any Acquired Asset or the
Business.
(4) As used herein, (i) "Tax Return" means any return, declaration, report,
claim for refund or credit, information return or statement, and any amendment
thereto, including without limitation any consolidated, combined or unitary
return or other document (including any related or supporting information),
filed or required to be filed with any Taxing Authority in connection with the
determination, assessment, collection, payment, refund or credit of any federal,
state, local or foreign Tax or the administration of any Laws relating to any
Tax or ERISA, and (ii) "Tax" or "Taxes" means any and all taxes, charges, fees,
levies, deficiencies or other assessments of whatever kind or nature including,
without limitation, all net income, gross income, profits, gross receipts,
excise, real or personal property, sales, ad valorem, withholding, social
----------
security, retirement, excise, employment, unemployment, minimum, estimated,
severance, stamp, property, occupation, environmental, windfall profits, use,
service, net worth, payroll, franchise, license, gains, customs, transfer,
recording and other taxes, customs duty, fees assessments or charges of any kind
whatsoever, imposed by any Taxing Authority, including any liability therefor as
a transferee (including without limitation under section 6901 of the Code or any
similar provision of applicable Law), as a result of Treasury Regulation Section
1.1502-6 or any similar provision of applicable Law, or as a result of any Tax
sharing or similar agreement, together with any interest, penalties or additions
to tax relating thereto.
5.15 Affiliated Party Transactions. As of the Closing Date there will not
-----------------------------
be included in the Assumed Liabilities any obligation to, or claim against the
Business on behalf of, any Shareholder or any Shareholder's immediate family or
Persons controlled by or under common control with such Shareholder or such
Shareholder's immediate family (collectively, "Affiliates"), and there will not
be included in the Acquired Assets any obligation from or claim against any
Affiliates.
-22-
5.16 Environmental Matters. Except as set forth in Schedule 5.16, to the
---------------------
best knowledge of the Transferor and the Shareholders:
(1) the Transferor is in compliance with, and the Business has been
conducted in material compliance with, all Environmental Laws (as defined
below) and Environmental Permits (as defined below);
(2) no Site (as defined below) is a treatment, storage or disposal
facility, as defined in and regulated under the Resource Conservation and
Recovery Act, 42 U.S.C.Section 6901 et seq., is on or ever was listed or is
-- ---
proposed for listing on the National Priorities List pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.Section 9601 et seq., or on any similar state list of sites requiring
-- ---
investigation or cleanup;
(3) neither the Transferor nor any Shareholder has received any notice
that remains pending or outstanding with respect to its business or any
Site from any Governmental Entity or Person alleging that the Transferor is
not in material compliance with any Environmental Law;
(4) there has been no Release (as defined below) of a Hazardous
Substance (as defined below) at, from, in, to, on or under any Site and no
Hazardous Substances are present in, on, about or migrating to or from any
Site that could give rise to an Environmental Claim (as defined below)
against the Transferor;
(5) there are no pending or outstanding corrective actions requested,
required or being conducted by any Governmental Entity for the
investigation, remediation or cleanup of any Site, and there have been no
such corrective actions, whether still pending or otherwise;
(6) the Business has obtained and holds all necessary Environmental
Permits, and those Environmental Permits will remain in full force and
effect after the consummation of the transactions contemplated hereby;
(7) there are no past or pending, or to the best knowledge (surviving,
as provided for in section 12.4(a)) of the Transferor and the Shareholders
threatened, Environmental Claims against the Transferor or, with respect to
the Business, the Transferor, the Acquired Assets or the Shareholders, and
neither the Transferor nor
-23-
any Shareholder is aware of any facts or circumstances which could be
expected to form the basis for any Environmental Claim against the
Business;
(8) neither the Transferor, any predecessor of the Transferor, nor any
entity previously owned by the Transferor, has transported or arranged for
the treatment, storage, handling, disposal, or transportation of any
Hazardous Substance to any off-Site location that could result in an
Environmental Claim against the Transferor;
(9) there are no (i) underground storage tanks, active or abandoned,
(ii) polychlorinated biphenyl containing equipment, or (iii) asbestos
containing material; provided that for purposes of this clause (ix) the
"knowledge" qualification set forth about shall survive as provided in
section 12.4(a) only to the extent that the representations contained this
clause (ix) relate to the Leased Real Property; and
(10) there have been no environmental investigations, studies, audits,
tests, reviews or other analyses (which have been reduced to writing)
conducted by, on behalf of, or that are in the possession of the Transferor
with respect to any Site or any transportation, handling or disposal of any
Hazardous Substance that has not been delivered to the Transferee prior to
execution of this agreement.
(2) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for
information, or proceedings (written or oral), whether criminal or civil,
(collectively, "Claims") pursuant to or relating to any applicable Environmental
Law by any person (including, but not limited to, any Governmental Entity,
Person and citizens' group) based upon, alleging, asserting, or claiming any
actual or potential (x) violation of or liability under any Environmental Law,
(y) violation of any Environmental Permit, or (z) liability for investigatory
costs, cleanup costs, removal costs, remedial costs, response costs, natural
resource damages, property damage, personal injury, fines, or penalties arising
out of, based on, resulting from, or related to the presence, Release, or
threatened Release into the Environment, of any Hazardous Substances at any
location, including, but not limited to, any off-Site location to which
Hazardous Substances or materials containing Hazardous Substances were sent for
handling, storage, treatment, or disposal; (iii) "Environmental Law" means any
and all Laws relating to the protection of health and the Environment, worker
health and safety, and/or governing the handling, use, generation, treatment,
storage,
-24-
transportation, disposal, manufacture, distribution, formulation, packaging,
labeling, or Release of Hazardous Substances, whether now existing or
subsequently amended or enacted, and the state analogies thereto, all as amended
or superseded from time to time; and any common law doctrine, including, but not
limited to, negligence, nuisance, trespass, personal injury, or property damage
related to or arising out of the presence, Release, or exposure to a Hazardous
Substance; (iv) "Environmental Permit" means any permits, licenses, approvals,
consents or authorizations required by any Governmental Entity under or in
connection with any Environmental Law; (v) "Hazardous Substance" means
petroleum, petroleum hydrocarbons or petroleum products, petroleum by-products,
radioactive materials, asbestos or asbestos-containing materials, gasoline,
diesel fuel, pesticides, radon, urea formaldehyde, lead or lead-containing
materials, polychlorinated biphenyls; and any other chemicals, materials,
substances or wastes in any amount or concentration which are now included in
the definition of "hazardous substances," "hazardous materials," "hazardous
wastes," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," "pollutants," "regulated substances," "solid
wastes," or "contaminants" or words of similar import, under any Environmental
Law; (vi) "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a
Hazardous Substance into the Environment; and (vii) "Site" means any of the real
properties currently or previously owned, leased, used or operated by the
Transferor, any predecessors of the Transferor or any entities previously owned
by the Transferor, including all soil, subsoil, surface waters and groundwater
thereat.
5.17 No Brokers. Except as set forth in Schedule 5.17, neither the
----------
Transferor nor any Shareholder has employed, or otherwise engaged, any broker or
finder or incurred any liability for any brokerage or investment banking fees,
commissions, finders' fees or other similar fees in connection with the
transactions contemplated by this agreement.
5.18 Receivables. All accounts receivable of the Transferor have arisen,
-----------
and as of the Closing Date will have arisen, from bona fide transactions in the
ordinary course of the Transferor's business consistent with past practice and
established in the ordinary course of such Transferor's business consistent with
past practice. To the best knowledge of the Transferor and the Shareholders,
each of the accounts receivable of the Transferor either has been or will be
collected in full, without any set-off other than against reserves established
on the December 31, 1998 balance sheet referred to in section 5.5(a), within 90
days after the day on which it first becomes due and payable.
5.19 Inventories. As reflected on the Financial Statements, the inventories
-----------
of the Transferor have been valued at the lower of cost (on the first-in,
first-out method) or market in accordance with GAAP, consistently applied, and
the value of obsolete materials and materials of below standard quality has been
written down in accordance with GAAP, consistently applied. Except as reflected
in the December 31 Balance Sheet referred to in section 5.5, to the best
knowledge of the Transferor and the
-25-
Shareholders, the inventories of the Transferor contain no amount of items not
saleable or usable within 12 months from the date thereof at normal profit
margins consistent with historical sales practices. Except as set forth in
Schedule 5.19, the Transferor is not under any liability or obligation with
respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers or other customers.
5.20 Product Claims. To the best knowledge (surviving, as provided for in
--------------
section 12.4(a)) of the Transferor and the Shareholders, no product liability
claim is pending, or threatened, against the Transferor or against any other
party with respect to the products of the Business. Schedule 5.20 lists all
service and product liability claims seeking damages in excess of $1,000
asserted against the Transferor (or in respect of which the Transferor or any
Shareholder has received notice) with respect to the products of the Business or
the Transferor during the last five years. Claims not listed in Schedule 5.20 do
not aggregate more than $10,000.
5.21 Warranties and Returns. Schedule 5.21 sets forth a summary of the
----------------------
practices and policies followed by the Transferor with respect to warranties and
returns of any products manufactured or sold by it, whether such practices are
oral or in writing or are deemed to be legally enforceable. Except as set forth
in Schedule 5.21, there is not presently, nor has there been since December 31,
1995, any failure or defect in any product sold by the Transferor that has
required a general recall or replacement campaign or similar action with respect
to such product or a reformulation or change of such product.
5.22 Assets Utilized in the Business. Except as set forth on Schedule 5.22,
-------------------------------
the assets, properties and rights owned, leased or licensed by the Transferor or
used in connection with the Business, and all the agreements to which the
Transferor is a party, constitute all of the properties, assets and agreements
which are material to the Transferor in connection with the operation and
conduct by the Transferor of the Business as presently conducted. Included in
Schedule 5.22 are all services provided by each Shareholder to the Transferor
and all other arrangements involving each Shareholder and the Transferor that
are not included in the Acquired Assets.
5.23 Insurance. Schedule 5.23 contains a complete and correct list of all
---------
policies of insurance of any kind or nature covering the Transferor, including
policies of life, fire, theft, casualty, product liability, workmen's
compensation, business interruption, employee fidelity and other casualty and
liability insurance, indicating the type of coverage and the insurer. All such
policies (i) are with insurance companies that are financially sound and
reputable and are in full force and effect; (ii) are sufficient for compliance
with all material (surviving, as provided for in section 12.4(a)) requirements
of law and of all applicable material agreements; and (iii) to the best
knowledge of the Transferor and the Shareholders, valid, outstanding and
enforceable policies. Complete and correct copies of such policies have been
made available to the Transferee. All such insurance policies or comparable
coverage shall be continued in full force and effect
-26-
through the Closing Date. Since December 31, 1996, the Transferor has not been
denied any insurance coverage which it has requested.
5.24 Delivery of Documents; Corporate Records. The Transferor has
----------------------------------------
heretofore delivered or made available to the Transferee true, correct and
complete copies of all documents, instruments, agreements and records referred
to in this section 5 or in the Schedules to this agreement and copies of the
minute and stock record books of the Transferor.
5.25 Customers, Suppliers and Distributors. The Transferor has made
-------------------------------------
available to the Transferee (i) the sales of the Transferor for the fiscal year
ended December 31, 1997 and the sales of the Transferor for the twelve months
ended December 31, 1998, (ii) the ten customers with the highest dollar volume
of purchases from the Transferor during each of those periods indicating the
approximate total sales to each of those customers; and (iii) the ten largest
suppliers and the ten largest distributors of the Transferor during each of
those periods. To the best knowledge of the Transferor and the Shareholders,
there has not been any adverse change in the business relationship of the
Transferor with any such customer, supplier or distributor, and neither
Transferor nor any Shareholder is aware of any threatened loss of any such
customer, supplier or distributor.
5.26 Labor Matters. There are no labor strikes, slow-downs or stoppages or
-------------
other labor troubles pending or, to the best knowledge (surviving, as provided
for in section 12.4(a)) of the Transferor and the Shareholders, threatened with
respect to the employees of the Transferor; to the best knowledge (surviving, as
provided for in section 12.4(a)) of the Transferor and the Shareholders, no
union is currently soliciting the Transferor's employees for representation;
there is no collective bargaining agreement binding on the Transferor and there
is no agreement which restricts the Transferor from relocating or closing any or
all of its businesses or operations; there are no grievances asserted that might
have a Material Adverse Effect upon the Transferor's business, or the financial
condition or prospects of the Transferor, nor is there pending any arbitration
proceeding arising out of or under any labor union agreement; the Transferor has
not experienced any work stoppage during the last five years.
5.27 Bank Accounts. Schedule 5.27 sets forth the names and locations of all
-------------
banks, depositories and other financial institutions in which the Transferor has
an account or safe deposit box and the names of all persons authorized to draw
thereon or to have access thereto.
5.28 Directors, Officers and Certain Employees. Schedule 5.28 sets forth a
-----------------------------------------
complete and correct list of the names, current annual salary, bonus and title,
for each director and officer and each other employee of the Transferor who is a
party to an employment agreement with the Transferor or who received annual
compensation during the Transferor's most recently ended fiscal year, or who is
entitled to receive
-27-
compensation, on an annualized basis, whether or not paid to date, in excess of
$50,000. Neither the Transferor nor any Shareholder is aware (surviving, as
provided in section 12.4(a)) of any employee in the Transferor's senior
management who intends to terminate his or her employment relationship with the
Business, either as a result of the transactions contemplated hereby or
otherwise. Schedule 5.28 identifies each employee of the Transferor who is a key
employee.
5.29 No Misstatements or Omissions. No representation or warranty by the
-----------------------------
Transferor or any Shareholder contained in this agreement and no statement
contained in any certificate, list, Schedule, Exhibit or other instrument
specified or referred to in this agreement, whether heretofore furnished to the
Transferee or hereafter furnished to the Transferee pursuant to this agreement,
contains or will contain any untrue statement of a material (surviving, as
provided for in section 12.4(a)) fact or omits or will omit any material
(surviving, as provided for in section 12.4(a)) fact necessary to make the
statements contained therein, in light of the circumstances under which it was
made, not misleading.
5.30 Investment Undertaking, Etc. (a) Each Shareholder and the Transferor
---------------------------
acknowledges that the shares of Series A Preferred Stock to be issued to the
Transferor pursuant to this agreement will be "restricted securities" within the
meaning of Rule 144 of the General Rules and Regulations under the Securities
Act of 1933 ("Rule 144"). The Transferor is acquiring such shares for the
Transferor's own account and not with a view to their distribution within the
meaning of section 2(11) of the Securities Act of 1933. The Transferor
understands that Rule 144 requires that such shares issued hereunder may not be
disposed of for a period of at least one year. Each Shareholder and the
Transferor acknowledges that the Transferor understands that it must bear the
economic risk of the investment indefinitely because such shares may not be
sold, hypothecated or otherwise disposed of unless subsequently registered under
the Securities Act of 1933 and applicable state securities laws or an exemption
from registration is available.
6. Representations and Warranties of the Transferee. The Transferee
------------------------------------------------
represents and warrants to the Transferor as follows (it being understood that
where any such representation is made to the Transferee's "knowledge" or related
to matters "known" to the Transferee or of which the Transferee is "aware" or
contains words of similar import, such representation shall refer to the actual
personal knowledge of the officers and directors of the Transferee and to
matters that should have or could have been known to such persons after due
inquiry):
6.1 Organization. The Transferee is a limited liability company duly
------------
organized, validly existing and in good standing under the laws of Delaware and
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted. MedSource is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has all requisite
-28-
corporate power and authority to own, lease and operate its properties and carry
on its business as it is now being conducted. The Transferee and MedSource are
each duly qualified or licensed to do business as a foreign limited liability
company or corporation, as the case may be, and are in good standing in each
jurisdiction in which the nature of the business conducted by them makes such
qualification or licensing necessary. The Transferee has heretofore delivered to
the Transferor true, complete and correct copies of its certificate of formation
and limited liability company agreement as currently in effect and true, correct
and complete copies of the certificate of incorporation and bylaws of MedSource
as currently in effect.
6.2 Capitalization.
--------------
(1) On the date hereof, the authorized capital stock of MedSource consists
of 4,000,000 shares of common stock, par value $.01 per share, of which 100
shares are issued and outstanding, and 1,000,000 shares of preferred stock, par
value $.01 per share, of which no shares are issued and outstanding.
(2) On the date hereof, MedSource is the sole member of the Transferee.
6.3 Authorization; Validity of Agreement. The Transferee and MedSource each
------------------------------------
have the requisite limited liability company or corporate power and authority to
execute, deliver and perform this agreement and each other agreement executed or
to be executed by them pursuant to the terms of this agreement (collectively,
the "MedSource Agreements") and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by the Transferee of
this agreement and the other MedSource Agreements to which it is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by the manager of the Transferee, and no other
proceedings on the part of the Transferee are necessary to authorize the
execution, delivery and performance of this agreement and the other MedSource
agreements to which the Transferee is a party and the consummation of the
transactions contemplated hereby and thereby. The execution, delivery and
performance by MedSource of the MedSource Agreements to which it is a party and
the consummation of the transactions contemplated thereby have been duly and
validly authorized by the Board of Directors of MedSource, and no other
proceedings on the part of MedSource are necessary to authorize the execution,
delivery and performance of the MedSource Agreements to which MedSource is a
party and the consummation of the transactions contemplated thereby. This
agreement and each other MedSource Agreement to which the Transferee is a party
has been duly executed and delivered by the Transferee and, is a valid and
binding obligation of the Transferee, enforceable against the Transferee in
accordance with their respective terms. Each MedSource Agreement to which
MedSource is a party has been duly executed and delivered by MedSource and, is a
valid and binding obligation of MedSource, enforceable against MedSource in
accordance with their respective terms.
-29-
6.4 No Violations; Consents and Approvals.
-------------------------------------
(1) The execution, delivery and performance of this agreement and the
MedSource Agreements by the Transferee and MedSource, as the case may be, do
not, and the consummation by the Transferee and MedSource of the transactions
contemplated hereby and thereby will not, (i) violate any provision of the
certificate of formation or limited liability company agreement of the
Transferee or the certificate of incorporation or Bylaws of MedSource, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any material note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, license, contract, agreement or other instrument to which the
Transferee or MedSource is a party or by which the Transferee or MedSource or
any of their respective properties or assets may be bound or otherwise subject
or (iii) violate any order, writ, judgment, injunction, decree, law, statute,
rule or regulation applicable to the Transferee or MedSource or any of their
respective properties or assets.
(2) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution, delivery and performance of this agreement or the other MedSource
Agreements by the Transferee or MedSource or the consummation by the Transferee
or MedSource of the transactions contemplated hereby and thereby, except filings
with the Federal Trade Commission and with the Department of Justice pursuant to
the HSR Act (as defined in section 7.14) and filings as may be required under
state and federal securities laws to give effect to the registration rights
granted under the Registration Rights Agreement (as hereinafter defined).
6.5 Litigation. There is no Proceeding pending nor, to the best knowledge
----------
of the Transferee, is there any investigation or Proceeding threatened, which
involves or affects the Transferee or MedSource, by or before any court,
Governmental Entity or arbitration panel or any other Person.
6.6 Shares of Capital Stock. All shares of Series A Preferred Stock to be
-----------------------
issued to the Transferor pursuant to this agreement, and all shares of Common
Stock issuable upon conversion thereof, will be duly authorized and validly
issued and shall, upon issuance, be fully paid and nonassessable and, except as
set forth in the Stockholder's Agreement, referred to in Section 7.16, will not
be subject to any Liens, options, warrants, rights or other encumbrances by
third parties.
6.7 Certain Tax Matters. The transactions described in this agreement are
-------------------
an integral part of a single, integrated transaction in which the Transferee is
acquiring certain property in exchange for cash and stock of MedSource
representing "control" of MedSource within the meaning of section 368(c) of the
Code.
-30-
7. Other Agreements of the Parties.
7.1 Conduct of Business. During the period from the date hereof (or
-------------------
earlier, as set forth below) through the Closing Date, the Transferor shall, and
the Shareholders shall cause the Transferor to, conduct its business in the
ordinary course, consistent with past practice. Without limiting the generality
of, and in addition to, the foregoing, prior to the Closing Date, except as the
Transferee may otherwise consent to in writing, the Transferor shall not, and
the Shareholders shall cause the Transferor not to:
(1) amend its certificate of incorporation or bylaws;
(2) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities;
(3) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) to any stockholder or
otherwise in respect of its capital stock or redeem or otherwise acquire
any of its securities, or make any payments or distributions to or on
behalf of any of the Shareholders, any of the Shareholders' Affiliates, any
Person (other than institutional bank lenders) to which the Transferor has
any liability (other than trade accounts payable and other liabilities
incurred in the ordinary course of business and liabilities incurred in
connection with this agreement, subject to the other provisions of this
section 7) or any officer or director of the Company, except:
(1) employment compensation at the weekly rate of $10,000 for
Ronald Porter and David E. Porter, commencing January 1, 1999, and
employment compensation for each of the Shareholders for any prior
period, to the extent not previously paid, at the applicable annual
rates in effect on January 1, 1998,
(2) as to all other employees of the Transferor, compensation at
the applicable annual rates in effect on January 1, 1998 plus raises
to be given in the ordinary course of business and consistent with
past practice,
-31-
(3) amounts due to Affiliates of the Transferor for rental of
equipment and royalties paid in connection with Intellectual Property
used by the Business, in each case in annualized amounts not to exceed
payments made or accrued in the year ended December 31, 1997 as fully
described in Schedule 7.1(iii), and
(4) the Transferor may incur and pay, prior to the Closing, the
reasonable fees and expenses of the attorneys and accountants retained
to represent the Transferor and the Shareholders in connection with
this agreement and the transactions contemplated hereby; provided that
all such amounts shall be paid prior to the Closing and shall not be
Assumed Liabilities.
(4) (A) incur or assume any indebtedness or Institutional Indebtedness
other than (x) trade payables incurred in the ordinary course of business
and (y) draws on the Line in an aggregate amount not exceeding $25,000; (B)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for any obligations of any
other Person; or (C) make any loans, advances or capital contributions to,
or investments in, any other Person (other than loans or advances to
employees in the ordinary course of business in accordance with past
practices);
(5) enter into, adopt or amend any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation
right, restricted stock, performance unit, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreements,
trusts, plans, funds or other arrangements of or for the benefit or welfare
of any employee, or increase in any manner the compensation or fringe
benefits of any employee or pay any benefit not required by any existing
plan and arrangement (including, without limitation, the granting of stock
options, stock appreciation rights, shares of restricted stock or
performance units);
(6) acquire, sell, lease, transfer or dispose of any of its properties
or assets except in the ordinary course of business and consistent with
past practice or enter into any material commitment or transaction;
-32-
(7) except as may be required by law, take any action to terminate or
materially amend any of its employee benefit plans with respect to or for
the benefit of employees;
(8) modify any policy or procedure with respect to credit to customers
or collection of receivables;
(9) pay, discharge or satisfy before it is due any claim or liability
of the Transferor, or fail to pay any such item in a timely manner given
the Transferor's prior practices;
(10) cancel any debts or waive any claims or rights of substantial
value;
(11) except to the extent required by applicable law, change any
accounting principle or method or make any election for purposes of
foreign, federal, state or local income Taxes;
(12) take or suffer any action that would result in the creation, or
consent to the imposition, of any Lien on any of the properties or assets
of the Transferor;
(13) make or incur any capital expenditure, lease or commitment for
additions to property, plant, equipment or other capital assets in excess
of a maximum aggregate amount of $50,000;
(14) except in the ordinary course of business consistent with past
practice, amend, waive, surrender or terminate or agree to the amendment,
waiver, surrender or termination of any Material Contract, Lease or
Approval;
(15) except in the ordinary course of business consistent with past
practice, exercise any right or option under any Lease or extend or renew
any Material Contract or Lease; or
(16) enter into any Contract to do, or take, or agree in writing or
otherwise to take or consent to, any of the foregoing actions.
7.2 Access and Information. From the date hereof until the Closing Date,
----------------------
the Shareholders shall cause the Transferor to, and the Transferor shall, and
shall cause each of the Transferor's officers, directors, employees, agents,
accountants and counsel to, upon reasonable notice, (i) afford the officers,
employees and authorized agents, accountants, counsel and representatives of the
Transferee reasonable access, during normal business hours, to (A) the offices,
properties, plants, other facilities, books,
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Contracts and records of the Transferor and any records concerning the
Transferor maintained and accumulated by its representatives, (B) the properties
of the Transferor in order that the Transferee or its agents may conduct
physical testing of the environmental quality and structural soundness of the
Owned Real Property, and (C) those officers, directors, employees, agents,
accountants and counsel of the Transferor who have any knowledge relating to the
Transferor or the Acquired Assets, and (ii) furnish to the officers, employees
and authorized agents, accountants, counsel and representatives of the
Transferee such additional financial and operating data and other information
regarding the Acquired Assets (including, without limitation, any Contracts,
licenses and patents in effect as of the date hereof and any Contracts or
licenses being negotiated or entered into between the date hereof and the
Closing Date), properties and goodwill of the Transferor as the Transferee may
from time to time reasonably request. The Transferee shall not contact the
customers, vendors or employees of the Transferor without the Transferor's prior
consent.
7.3 Tax Returns; Taxes.
------------------
(1) Through and including the Closing Date, the Transferor shall not take
or fail to take any action and no Shareholder shall take or fail to take any
action or permit the Transferor to take or fail to take any action, that could
result in the termination of any "S" corporation election (or similar election)
of the Transferor. The Transferor and the Shareholders shall (A) duly and timely
file or cause to be filed with the applicable Taxing Authorities all Tax Returns
that are required to be filed by or on behalf of the Transferor or that include
or relate to any Acquired Asset or the Business, which such Tax Returns shall be
true, correct and complete, and (B) duly and timely pay in full or cause to be
paid in full all Taxes that are due and payable on or before the Closing Date or
that could result in a Lien on any Acquired Asset or the Business (except for
real estate Taxes not yet due and payable) and shall record a provision on the
books and records of the Transferor in accordance with GAAP for the payment of
all such Taxes that are not due and payable on or before the Closing Date. The
Transferor shall, and the Shareholders shall cause the Transferor to, provide to
the Transferee true, complete and correct copies of such Tax Returns and all
correspondence, reports and documents relating to any Tax Proceeding with
respect thereto. The Transferor shall, and the Shareholders shall cause the
Transferor to, duly and timely comply with all applicable Laws relating to the
collection or withholding of Taxes and the reporting and remittance thereof to
the applicable Taxing Authorities.
(2) The Transferor and the Shareholders shall indemnify MedSource, the
Transferee and its Affiliates (collectively, the "Taxpayer"), and hold the
Taxpayer harmless, on an after-Tax basis, from and against any (i) Taxes of the
Transferor or relating to an Acquired Asset with respect to any period on or
before the Closing Date for which the Taxpayer is or may be liable, (ii) the
effect, if any, on the Taxpayer in any period that ends after the Closing Date
of an adjustment relating to the Transferor's Tax, Tax Returns or an Acquired
Asset with respect to a period on or before the Closing Date
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and (iii) fees and expenses (including, without limitation, reasonable
attorneys' fees) incurred by the Transferee or its Affiliates in connection
therewith or in enforcing its rights or collecting any amounts due hereunder.
This indemnity shall apply notwithstanding any investigation made by MedSource,
the Transferee in connection with the transactions contemplated by this
agreement or, its receipt, examination, filing of or commenting on any Tax
Return, and shall be separate and independent of any other indemnity between the
parties hereto.
(3) MedSource or the Transferee shall promptly forward to the Shareholders
a copy of all written communications from any Governmental Authority received by
the Taxpayer relating to any period on or before the Closing Date. The
Shareholders shall promptly forward to the Transferee a copy of all written
communications from any Governmental Authority received by the Transferor or any
Shareholder relating to any period on or before the Closing Date for which the
Taxpayer is or may be liable.
(4) Any Taxes for a period which includes but does not end on the Closing
Date shall be allocated between the period before the Closing Date and the
balance of the period in accordance with this section 7.3(d). To the extent
permitted under applicable Law, the parties shall elect to treat the Tax period
as ending at the close of business on the Closing Date. Where applicable Law
does not permit such an election to be made, the taxable income or other Tax
base for the entire period shall be allocated between the period on or before
the Closing Date and the balance of the period on the basis of an interim
closing of the books at the close of the Closing Date, except that exemptions,
allocations and deductions calculated on an annual basis shall be apportioned on
the basis of the relative number of days in the period on or before the Closing
Date and in the balance of the period. Notwithstanding the foregoing, any real
estate or personal property Taxes shall be allocated on the basis of the
relative number of days in the period on or before the Closing Date and in the
balance of the applicable period.
7.4 Notice of Developments. Prior to the Closing Date and promptly upon
----------------------
becoming aware of same, the Transferor shall promptly notify the Transferee in
writing of (i) any material breach of a representation or warranty or covenant
of the Transferor in this agreement or any representation or warranty of the
Transferor in this agreement that is untrue or incorrect in any material
respect, and (ii) all other material developments affecting the Acquired Assets,
liabilities, Business, financial condition, operations, results of operations,
customer or supplier relations, employee relations, projections or prospects of
the Transferor that result in a Material Adverse Effect.
7.5 Non-Disclosure of Confidential Information. From and after the date
------------------------------------------
hereof, the Transferor and the Shareholders agree not to divulge, communicate,
use to the detriment of the Transferee or for the benefit of any other Person,
or misuse in any way, any confidential information or trade secrets included in
or relating to the Acquired Assets including, without limitation, personnel
information, secret processes, know-how,
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customer lists or other technical data except (i) as appropriate in the exercise
of reasonable business judgment to operate the Business, (ii) when such
information becomes generally known to the public or third parties, or (iii)
information that is required to be and is actually disclosed by operation of law
or court order.
7.6 No Solicitation of Employees, Suppliers or Customers. Neither the
----------------------------------------------------
Transferor nor any Shareholder shall, and neither shall permit any Affiliate of
the Transferor or any Shareholder to, from and after the Closing Date, and for a
period of three years thereafter, directly or indirectly, for itself or on
behalf of any other Person, employ, engage or retain any Person who, at any time
during the 12-month period preceding the Closing and the three-year period
thereafter, shall have been an employee of the Transferor, or contact any
supplier, customer or employee of the Transferee for the purpose of soliciting
or diverting any such supplier, customer or employee from the Transferee.
7.7 Non-Competition.
---------------
(1) Until the third anniversary of the Closing Date, neither the Transferor
nor any Shareholder shall, anywhere in North America or Europe, directly or
indirectly, alone or in association with any other Person, firm, corporation or
other business organization (i) acquire or own in any manner, any interest in
any Person that is engaged in any facet of the Business, (ii) engage in any
facet of the Business or compete in any way with the Business, (iii) be employed
in any capacity by, serve as an employee of, or consultant or advisor to, or
otherwise participate in the management or operation of, any Person that (x)
engages in any facet of the Business, or (y) competes with the Business in any
way; provided, however, that notwithstanding the foregoing, so long as any of
the Shareholders is employed by the Transferee or any Affiliate of the
Transferee, the Transferor, the Shareholders and the Affiliates of the foregoing
(collectively and not individually) may own up to 2% of the voting securities of
any publicly-traded company. In the case of any Shareholder who becomes an
employee of the Transferee or any affiliate of the Transferee contemporaneously
with the Closing, in the event that such Shareholder (i) ceases to be employed
by the Transferee or any affiliate of the Transferee, and (ii) ceases to receive
compensation at the rate provided in the applicable employment agreement, then
such Shareholder or any Affiliate thereof (collectively and not individually)
may own up to 50% of the voting securities of any Person that is not directly
competing with the Business at the time of such investment and that has no
current plans to be directly competitive with the Business. Subject to the first
sentence of this section 7.7(a), in the case of any other Shareholder, such
Shareholder or any Affiliate thereof (collectively and not individually) may own
up to 50% of the voting securities of any Person that is not directly competing
with the Business at the time of such investment and that has no current plans
to be directly competitive with the Business. The Shareholder or Shareholders
making any such investment shall notify the Transferee in writing in advance of
such proposed investment and the Transferee shall respond within
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30 days as to whether the Transferee believes the entity being invested in is in
a business that is directly competitive with the Business.
(2) The parties hereto intend that the covenant contained in section 7.7(a)
shall be construed as a series of separate covenants, one for each state or
country specified. Except for geographic coverage, each such separate covenant
shall be deemed identical in terms to the covenant contained in section 7.7(a)
above. If, in any judicial proceeding, a court shall refuse to enforce any of
the separate covenants deemed included in section 7.7(a), then such
unenforceable covenant shall be deemed reduced in scope or, if necessary,
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.
(3) The Transferor and each of the Shareholders acknowledge that the
provisions of this section 7.7, and the period of time, geographic area and
scope and type of restrictions on its activities set forth herein, are
reasonable and necessary for the protection of the Transferee and are an
essential inducement to the Transferee's entering into the Transaction Documents
to which it is a party and consummating the transactions contemplated thereby.
7.8 Public Statements. From and after the date hereof and until the Closing
-----------------
Date, none of the Transferee, MedSource, the Shareholders nor the Transferor
shall, or permit any Affiliate thereof to, either make, issue or release any
press release or any oral or written public announcement or statement concerning
or with respect to, or acknowledgment of the existence of, or reveal the terms,
conditions and status of, the Transaction Documents or the transactions
contemplated thereby, without the prior written consent of each of the other
parties hereto (which consent shall not be unreasonably withheld or delayed),
unless such announcement is required by Law or a Governmental Authority, in
which case the other parties shall be given notice of such requirement prior to
such announcement and the parties shall consult with each other as to the scope
and substance of such disclosure.
7.9 Other Actions. Each of the parties hereto shall use all reasonable
-------------
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
provisions of this agreement and to consummate and make effective the
transactions contemplated hereby.
7.10 Change of Name. Simultaneously with the Closing, the Transferor shall
--------------
take such action necessary to change its name to a name that does not include
the word "Portlyn."
7.11 Cooperation on Taxes. Each of the Transferor and the Transferee shall
--------------------
cooperate with each other by executing or causing to be executed any reasonably
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required documents and by making available to the other, all books and records
reasonably relating to the Acquired Assets or the Business (including work
papers, records and notes of any kind) at all reasonable times, for the purpose
of allowing the appropriate party, at its expense, to complete its Tax Returns,
respond to, defend or prosecute any Tax Proceeding, make any determination
required under this agreement (including, but not limited to, determinations as
to which period any asserted Tax liability is attributable) and verify issues
and for other legitimate purposes as the Transferee shall reasonably permit.
Each of the Transferor, Transferee and the Shareholders shall not take any
action that would prevent the transaction described in this agreement from being
treated for federal income tax purposes as a transfer to which Section 351 of
the Code applies.
7.12 Employees.
---------
(1) The Transferee shall offer employment effective as of the Closing to
all employees of the Transferor, other than those employees on leave of absence
due to long-term disability (all such employees who accept such offer of
employment being the "Transferred Employees"). The Transferee shall consult with
the Transferor on the approach and timing for this offer of employment. The
Transferee shall assume responsibility with respect to accrued vacation and
payroll obligations to Transferred Employees in accordance with the Transferor's
policies relating thereto as previously delivered to the Transferee. The
Transferor and the Shareholders shall cooperate with the Transferee and use its
reasonable best efforts in assisting the Transferor in retaining the key
employees of the Transferor identified as such on Schedule 5.28 as requested by
the Transferee.
(2) Subject to the terms and conditions of this section 7.12, from and
after the Closing, the Transferee shall provide the Transferred Employees with
terms and conditions of employment including, without limitation, salaries,
hourly wages, employee benefits and other perquisites, that are reasonably
agreeable to the Transferee and to the Transferor. The Transferee shall, between
the date of the execution of this agreement and the Closing Date, establish
insurance or other arrangements through which the employee benefits and other
perquisites to be provided by the Transferee to Transferred Employees may be
provided commencing as of the Closing Date, and the Shareholders and Transferor
shall lend such cooperation as the Transferee may reasonably request in
connection with such efforts.
(3) The Transferee shall not be responsible for any payments, expenses and
costs paid or required to be paid in connection with the employment or
termination of employment of any employees of the Transferor who do not become
Transferred Employees.
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(4) The Transferor shall be responsible for grievances or EEOC Claims of
Transferred Employees to the extent relating to their employment by the
Transferor including, without limitation, any such grievances or EEOC.
(5) The Transferor should be responsible for claims relating to employment
by the Transferor prior to the Closing filed before state or local authorities
for which payment has not been made prior to the Closing, including without
limitation, all amounts due with respect thereto, including without limitation
the payment of any amounts in the nature of back pay or employee compensation,
and any state or federal taxes in connection with such back pay or employee
compensation. Handling of such grievances and EEOC Claims shall be at the
Transferor's cost and expense. The Transferee shall have sole responsibility and
liability for any EEOC Claims of Transferred Employees that relate to their
employment with Transferee.
(6) Nothing in this section 7.12 shall limit the at will nature of the
employment of the Transferred Employees or the right of the Transferee to alter
or terminate any employee benefit plan.
(7) The Transferee shall assume the Company's 401(k) Plan and Trust, but
only to the extent provided in Exhibit 7.12(g) (the "Plan Assumption").
7.13 Consents; Releases. Prior to and through the Closing Date, the
------------------
Transferor and the Shareholders shall use its best efforts without incurring any
unreasonable expense to cause the Transferor to obtain all Consents. At or prior
to the Closing, the Shareholders and the Transferor shall cause the Business and
the Acquired Assets to be released from all liabilities, liens or other
obligations not constituting an Assumed Liability, a schedule of which is set
forth on Schedule 7.13 attached hereto.
7.14 HSR Filings. In addition to and without limiting the agreements of the
-----------
parties contained in section 7.13, the Transferor, the Shareholders and the
Transferee will, at the Transferee's expense, promptly take all actions
necessary to make the filings required of them or any of their Affiliates, and
shall promptly cooperate with the other party with regard to any filing required
by the other party, under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), and shall use all reasonable commercial efforts, and
cooperate with each other, to promptly comply with any request for additional
information in connection therewith.
7.15 Employment Agreement. At the Closing, the Transferee and David E.
--------------------
Porter will enter into an employment agreement in the form of Exhibit 7.15A (the
"David E. Porter Employment Agreement").
7.16 Stockholders Agreement and Registration Rights Agreement. At the
--------------------------------------------------------
Closing, the Transferee and the Transferor shall enter into a shareholders
agreement
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in the form of Exhibit 7.16A (the "Stockholders Agreement") and a registration
rights agreement in the form of Exhibit 7.16B (the "Registration Rights
Agreement").
7.17 Exclusivity. From and after the date hereof and unless and until this
-----------
agreement is terminated as provided in section 10, neither the Transferor nor
any Shareholder shall, and neither shall knowingly permit the Transferor or any
of their respective Affiliates, officers, directors, employees, agents or
representatives, directly or indirectly, to encourage, solicit, initiate or
participate in discussions or negotiations with, provide any information to,
receive any proposals or offers from, or enter into any agreement with, any
third party, in each case other than the Transferee, that involves the sale,
joint venture or the other disposition of all or any portion of the Transferor,
the Acquired Assets or the Business or any merger, consolidation,
recapitalization or other business combination of any kind involving the
Transferor. If the Transferor or any Shareholder receives or becomes aware of
any such offer or proposed offer, the Transferor or such Shareholder, as the
case may be, shall promptly notify the Transferee.
7.18 Equipment, Intellectual Property and Other Assets. Prior to the
-------------------------------------------------
Closing Date, the Shareholders shall take all steps necessary to contribute all
equipment, intellectual property and other assets owned by any Shareholder or
any Affiliate of any Shareholder that is used or usable in connection with the
Business. Any consideration paid in such transactions shall be deducted from the
Cash Amount.
7.19 Interests in Real Property.
--------------------------
(1) At the Closing, the Shareholders shall cause the Transferor to obtain,
and the Transferor shall obtain, the following documents with respect to the
transfer of interests in the Real Property:
(1) a warranty deed (the "Deed") in the form attached hereto as
Exhibit 7.20(a);
(2) the Deed shall be in recordable form. The Deed shall have affixed
thereto any requisite surtax and documentary tax stamps, in proper amount,
affixed and with the costs shared equally between the Transferor and the
Transferee. At the Closing, the Transferor shall pay the appropriate tax
collecting agency all taxes and charges in connection with the sale and
transfer of the Real Property by the Transferor to the Transferee and the
recording of the Deed;
(3) (A) true and complete material maintenance records for the Real
Property; (B) a validly issued permanent certificate of occupancy for each
of the buildings comprising a part of the Real Property; (C) all original
licenses and permits, authorizations and
-40-
Approvals pertaining to the Real Property; and (D) all guarantees and
warranties which the Company has received in connection with any work or
services performed or equipment installed in the aforementioned buildings
and all improvements erected on the Real Property;
(4) such affidavits, indemnities and information as the Transferee's
title insurance company shall reasonably require in order to issue policies
of title insurance in the form required by this agreement;
(5) to the extent available, a set of plans and specifications of the
buildings and all improvements comprising a part of the Real Property; and
(6) assignments, each in the form attached hereto as Exhibit 7.20(a)B
(collectively, the "Assignments", individually, "Assignment"), of each of
the Leases (including, without limitation, any security interests/pledge
liens created thereby), collateral guarantees and all security deposits
made thereunder, containing a covenant of good title and the Transferor's
representation and warranty that (i) there have been no prior assignments
of the leases, (ii) such Leases are in full force and effect and
enforceable against the Transferor and, to the best knowledge of the
Transferor, each other party thereto, in accordance with their terms, and
(iii) the Transferor's leasehold interest is not subject to any liens,
security interests or adverse claims.
(2) The following are to be apportioned between the parties as of and on
the Closing Date:
(1) ad valorem, real estate and personal property taxes, water
charges, and sewer rents; and
(2) utilities, including telephone, steam, propane, electricity and
gas.
7.20 Accounts Receivable. Before Closing, Transferor has and will since
-------------------
January 1, 1999 collect the accounts receivable in the ordinary course of its
business consistent with past practice and has not and will not accelerate or
otherwise alter its collection practices. After the Closing it shall be the
Transferee's responsibility to collect the accounts receivable sold hereunder.
The Transferor shall permit the Transferee to collect, in the name of the
Transferor, all accounts receivable constituting part of the Acquired Assets and
to endorse with the name of the Transferor for deposit in
-41-
the Transferee's account any checks or drafts received in payment thereof. The
Transferor shall take any and all steps reasonably requested by the Transferee,
at the Transferee's expense, to effectuate the intent of the preceding sentence.
The Transferor shall promptly turn over to the Transferee any cash, checks or
other property that it may receive after the Closing in respect of any
receivable constituting part of the Acquired Assets.
7.21 Repayment of Institutional Indebtedness. At the Closing, the
---------------------------------------
Transferee intends to repay the entire amount of Institutional Indebtedness of
the Transferor. The Transferor shall, and the Shareholders shall cause the
Transferor to, remain current with respect to all interest and other payments
with respect to the Institutional Indebtedness, including but not limited to the
Line. At the Closing, the Transferor and the Shareholders shall cause the
holders of the Institutional Indebtedness to execute and deliver a payoff letter
in form and substance reasonably acceptable to the Transferee, UCC-3 termination
statements with respect to any security interest filings by or on behalf of such
holders (to the extent reasonably obtainable at the Closing and, if not then
obtainable, as soon thereafter as practicable) and any other customary and
reasonable documents and instruments in connection with, or to evidence, the
repayment of the Institutional Indebtedness (the "Payoff Documents").
7.22 Product Liability Insurance. For a period of at least five years
---------------------------
commencing on the Closing Date, MedSource or the Transferee shall provide "tail"
product liability insurance covering the Transferor and the Shareholders for the
period from March 15, 1989 through at least the Closing Date on a "claims made"
basis covering claims reported after the Closing Date but manifested after March
15, 1989, which obligation to provide such insurance may be satisfied under the
insurance policies of MedSource or the Transferee generally covering MedSource
and its affiliates.
7.23 Year 2000.
---------
(a) Transferor has developed a plan, which plan shall be described in
writing and delivered to the Transferee as soon as practicable following the
date hereof, for confirming that its computers, phone systems and plant
equipment will not experience malfunctions associated with the so-called "Year
2000 Computer Problem". The Transferor is currently working on such plan and
agrees to continue to comply with the plan. The Transferor is unable to ensure
that no computer malfunctions stemming from the "Y2K Problem" will occur in the
future. Accordingly, any damages, costs, fees and expenses relating to the Y2K
Problem and arising after the Closing shall be borne as follows, (i) the first
$50,000 of such damages shall be borne by the Transferee, (ii) the second
$50,000 of such damages shall be borne jointly and severally by the Transferor
and the Shareholders and (iii) the balance of such damages shall be borne by the
Transferee. Any such amounts paid by the Transferee shall not be counted against
the $250,000 "indemnity basket" set forth in section 12.4(a), and any such
amounts paid by
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the Transferor or the Shareholders shall be counted against the $1,000,000
indemnity maximum set forth in section 12.4(d).
(b) Any payments by the Transferor and/or the Shareholders pursuant to
section 7.23(b)(ii) above shall be satisfied by the delivery by the Transferor
or the Shareholders, as applicable, of the amount of such payment in the form of
either at the option of the paying party, (i) shares of Series A Preferred
Stock, free and clear of all Liens (except as are created under the Stockholder
Agreement), valued for such purposes at the fair market value, (ii) shares of
MedSource Common Stock, free and clear of all Liens (except as are created under
the Stockholder Agreement), valued for such purposes at the fair market value or
(iii) cash.
7.24 Alternative Business Location. In the event the Transferee relocates
-----------------------------
the Business at any time within the seven-year period after the Closing to any
location, the Transferee shall offer to purchase the approximately five-acre
real property owned by Ronald Porter or his heirs, legatees, beneficiaries or
legal representatives (the "Seller") and located at Lexington Drive, O'Shea
Industrial Park, Laconia, New Hampshire, for a purchase price of $190,000 plus
reasonable closing costs of the Seller (including the reasonable fees and
disbursements of legal counsel not to exceed $10,000). The Seller shall deliver
good and marketable title, and shall consummate the closing, within 120 days
after the Transferee makes the foregoing offer. The sale shall be on such other
terms as are reasonable and customary.
8. Conditions Precedent to the Closing
8.1 Conditions Precedent to the Transferee's Obligations to Close. The
-------------------------------------------------------------
obligation of the Transferee to enter into this agreement and to consummate the
transactions contemplated hereby is subject to the satisfaction prior to or on
the Closing Date of each of the following conditions; provided, however, that
the Transferee shall have the right to waive all or any part of each such
condition and to close the transactions contemplated hereby without, however,
releasing the Transferor or any Shareholder from any covenant, obligation,
agreement or condition contained herein or from any liability for any loss or
damage sustained by the Transferee by reason of the breach by the Transferor or
any Shareholder of any covenant, obligation, agreement or condition contained
herein or by reason of any misrepresentation made by the Transferor or any
Shareholder; and provided further, however, that the Transferee's participation
in the Closing shall not in any way be deemed to be a waiver of any claim it may
have hereunder for any breach of any representation, warranty, covenant or
agreement:
(1) The representations and warranties of the Transferor and the
Shareholders contained in this agreement shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects as of the Closing Date, with the same force and effect as if made on
the Closing Date, except for such representations and warranties as are made as
of a specific date, which shall be true and correct in all material respects as
of such date.
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(2) The covenants and agreements of the Transferor and the Shareholders
contained in this agreement and required to be complied with or performed on or
prior to the Closing Date shall have been complied with or performed in all
material respects.
(3) The Transferee shall have received (i) a certificate dated the Closing
Date and executed by an executive officer of the Transferor, and (ii) a
certificate dated the Closing Date and executed by each of the Shareholders, in
each case certifying the satisfaction of the conditions referred to in sections
8.1(a) and (b).
(4) The Transferee shall have received, each in form and substance
reasonably satisfactory to the Transferee, all estoppel certificates and
releases from, and shall have delivered all notices to, any Governmental Entity
or other Person that is required for the consummation of the transactions
contemplated hereby and for the Transferee to conduct and operate the Business,
which estoppel certificates and notices are listed on Schedule 5.4(b) attached
hereto and which releases are listed on Schedule 7.13. The Transferee also shall
have received all Consents, including without limitation the consents (the
"Lease Consents") executed by the respective landlords under each of the Leases
consenting to the assignment of the Leases to the Transferee.
(5) No event or events shall have occurred between the date hereof and the
Closing Date that, individually or in the aggregate, have, or are reasonably
likely to have, a material adverse effect on the Acquired Assets or the
Business.
(6) The Transferee shall have received a certificate of the Transferor (the
"Transferor Secretary's Certificate") certifying the resolutions duly and
validly adopted by the Board of Directors and the Shareholders of the
Transferor, its authorization of the execution and delivery of this agreement
and the other Transaction Documents to which the Transferor is a party and the
consummation of the transactions contemplated hereby and thereby, and the names
and signatures of the officers of the Transferor authorized to sign this
agreement and the other Transaction Documents.
(7) The Transferee shall have received all such documents and instruments
including, without limitation, such deeds of transfer and title reports with
respect to the transfer of all legal rights in the Real Property.
(8) The Transferee shall have received at the Transferee's expense, an
owner's policy of title insurance with respect to the Real Property (or a
marked-up and signed title commitment if the policy of insurance is not
customarily issued on the Closing Date in one or more of the relevant locales),
issued on the date of Closing by a title insurance company acceptable to counsel
for Transferee. Such title insurance policy shall be in an amount designated by
Transferee, based upon the appraisal used by the Transferor and the Transferee
to value assets and subject to the approval of Transferee's
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lenders, and shall insure the Transferee's ownership of fee title to the Real
Property and to all buildings, structures and improvements located thereon, free
and clear of all Liens. At Transferee's sole option and expense, each such
policy shall include an ALTA-9 comprehensive endorsement. Such title insurance
policy shall otherwise be in form reasonably satisfactory to counsel to
Transferee.
(9) The form and substance of all certificates, transfer documents, title
reports, property surveys, deeds, opinions, consents, instruments, and other
documents delivered to the Transferee under this agreement shall be satisfactory
in all reasonable respects to the Transferee and its counsel.
(10) The Transferee shall have received from Cleveland, Waters and Bass,
P.A., counsel for the Transferor and the Shareholders, an opinion dated the
Closing Date in the form of Exhibit 8.1A attached hereto.
(11) The Transferee shall have received from the Transferor at the Closing
a certificate of non-foreign status, in the form required by section 1445 of the
Code and the regulations thereunder.
(12) The Transferee shall have received, at the Transferee's expense, a
copy of a Phase I and Phase II Environmental Report relating to the Real
Property that shall be satisfactory in the sole judgment of the Transferee.
(13) The Transferee shall have received, at the Transferee's expense, a
copy of an inspection report prepared by a structural and mechanical engineering
firm relating to the Real Property that shall be satisfactory in the sole
judgment of the Transferee.
(14) The Transferee shall have received, at the Transferee's expense, a
current survey of each parcel of Owned Real Property, in each case prepared in
insurable form in accordance with standards applicable to registered and
licensed land surveyors making surveys in the states in which such parcels are
located and in accordance with the further provisions of this section.
Transferee shall deliver to Transferor copies of each survey promptly following
receipt of same. Each such survey shall be certified to Transferee and shall
show (i) the absence of any title defect materially affecting the use of the
Owned Real Property or its value; (ii) the fact that no portion of the Real
Property is located in a special flood hazard area designated by Federal
governmental authorities; (iii) the location of all easements burdening such
parcel and the absence of any encroachment by any Improvement onto the area of
any such easement, and (iv) unrestricted access from such parcel to a public
street at and over the driveways and accessways currently being used in
connection with the operation of such parcel. Each such survey shall otherwise
be in form and shall reveal a state of facts reasonably satisfactory to counsel
for Transferee.
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(15) The Transferee shall have received all such documents and instruments
including, without limitation, such deeds of transfer and title reports with
respect to the transfer of all legal rights in the real property to be
transferred pursuant to this agreement.
(16) The Transferee shall have received a Bill of Sale, Assignment and
Assumption Agreement, in the form of Exhibit 8.1B (the "Bill of Sale, Assignment
and Assumption Agreement") attached hereto, duly executed by the Transferor.
(17) Any waiting period applicable to the consummation of the transactions
contemplated hereby under the HSR Act shall have expired or been terminated and
no notice shall have been received by any party from any Governmental Entity of
any pending or threatened investigation or providing concerning the
acquisitions.
(18) There shall be no order, decree or injunction of a court of competent
jurisdiction or other Governmental Entity that prevents the consummation of the
transactions contemplated by this agreement or Proceeding that threatens to
prevent such transactions.
(19) The relationship of the Transferor with each of its significant
customers and with all of its customers, taken as a whole, shall be reasonably
satisfactory to the Transferee.
8.2 Conditions Precedent to the Transferor's Obligations to Close. The
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obligation of the Transferor to consummate the transactions contemplated hereby
is subject to the satisfaction prior to or on the Closing Date of each of the
following conditions; provided, however, that the Transferor shall have the
right to waive all or any part of each such condition, and to close the
transactions contemplated hereby without, however, releasing the Transferee from
any covenant, obligation, agreement or condition contained herein or from any
liability for any loss or damage sustained by the Transferor by reason of the
breach by the Transferee of any covenant, obligation, agreement or condition
contained herein, by reason of any misrepresentation made by the Transferee; and
provided further, however, that the Transferor's participation in the Closing
shall not in any way be deemed to be a waiver of any claim it may have hereunder
for any breach of any representation, warranty, covenant or agreement:
(1) The representations and warranties of the Transferee contained in this
agreement shall have been true and correct in all material respects when made
and shall be true and correct in all material respects as of the Closing Date,
with the same force and effect as if made as of the Closing Date, other than
such representations and warranties as are made as of a specific date, which
shall be true and correct in all material respects as of such date.
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(2) The covenants and agreements contained in this agreement to be complied
with by the Transferee on or before the Closing Date shall have been complied
with in all material respects.
(3) The Transferor shall have received a certificate dated the Closing Date
and executed by an officer of the Transferee, certifying to the satisfaction of
the conditions referred to in sections 8.2(a) and (b).
(4) The Transferor shall have received a certificate of the Secretary of
the Transferee (the "Transferee Secretary's Certificate") certifying the
resolutions duly and validly adopted by the Transferee evidencing its
authorization of the execution and delivery of this agreement and the other
Transaction Documents to which the Transferee is a party and the consummation of
the transactions contemplated hereby and thereby, and the names and signatures
of the officers of the Transferee authorized to sign this agreement and the
other Transaction Documents to be delivered hereunder.
(5) The Transferor shall have received a certificate of the Secretary of
MedSource (the "MedSource Secretary's Certificate") certifying the resolutions
duly and validly adopted by MedSource evidencing its authorization of the
execution and delivery of this agreement and the other Transaction Documents to
which MedSource is a party and the consummation of the transactions contemplated
hereby and thereby, and the names and signatures of the officers of MedSource
authorized to sign this agreement and the other Transaction Documents to be
delivered hereunder.
(6) The form and substance of all certificates, opinions, consents,
instruments and other documents delivered to the Transferor under this agreement
shall be satisfactory in all reasonable respects to the Transferor and its
counsel.
(7) The Transferor shall have received from Parker Chapin Flattau & Klimpl,
LLP, counsel for the Transferee, an opinion dated the Closing Date in the form
of Exhibit 8.2A attached hereto.
(8) No Law shall be in effect which prohibits any party hereto from
consummating the transactions contemplated hereby.
(9) The Transferor shall have received a Certificate of Contribution and
Exchange, Assignment and Assumption Agreement, duly executed by the Transferee.
(10) Any waiting period applicable to the consummation of the transactions
contemplated hereby under the HSR Act shall have expired or been terminated and
no notice shall have been received by any party from any Governmental Entity of
any pending or threatened investigation or proceeding concerning the
acquisitions.
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(11) There shall be no order, decree or injunction of a court of competent
jurisdiction or other Governmental Entity that prevents the consummation of the
transactions contemplated by this agreement or Proceeding that threatens to
prevent such transactions.
(12) MedSource shall have consummated the acquisitions with respect to no
less than four of the six other "platform companies", one of which four must be
the acquisition with respect to "Kelco Industries, Inc."
(13) The Transferror shall have received evidence reasonably acceptable to
it that the product liability insurance covering the Transferor and the
Shareholders referred to in section 7.22 has been obtained.
9. Documents to be Delivered at the Closing.
9.1 Deliveries of the Transferor and the Shareholders. At the Closing, the
-------------------------------------------------
Transferor and the Shareholders shall deliver or cause to be delivered the
following items to the Transferee:
(1) the Bill of Sale, Assignment and Assumption Agreement duly
executed by the Transferor that, among other things, conveys, transfers and
sells to the Transferee all right, title and interest of the Transferor in
and to the Acquired Assets;
(2) the releases referred to in section 7.13;
(3) the certificates referred to in section 8.1(c) duly executed by an
executive officer of the Transferor and by each of the Shareholders;
(4) Reserved.
(5) the Transferor's Secretary's Certificate referred to in section
8.1(f) duly executed by the Secretary of the Transferor;
(6) the opinion of counsel to the Transferor and the Shareholders
referred to in section 8.1(i);
(7) the certificate referred to in section 8.11(j), duly executed by
the Transferor;
(8) a Tax, lien and judgment search of the Transferor and the Acquired
Assets showing no items not disclosed in the schedules to this agreement;
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(9) the David E. Porter Employment Agreement, duly executed by David
E. Porter;
(10) the Certificate of Contribution and Exchange, Assignment and
Assumption Agreement, duly executed by the Transferor;
(11) the Stockholders Agreement, duly executed by the Transferor and
the Shareholders;
(12) the Registration Rights Agreement, duly executed by the
Transferor and the Shareholders; and
(13) the Deeds and Assignments duly executed by the Transferor.
9.2 Deliveries of the Transferee. At the Closing, the Transferee shall
----------------------------
deliver or cause to be delivered the following items to the Transferor:
(1) the certificate referred to in section 8.2(c) duly executed by an
officer of the Transferee;
(2) the Transferee Secretary's Certificate referred to in section
8.2(d) duly executed by the Secretary of the Transferee;
(3) the opinion of counsel referred to in section 8.2(f);
(4) the Cash Amount;
(5) the Consideration Shares;
(6) the Certificate of Contribution and Exchange, Assignment and
Assumption Agreement, duly executed by the Transferee;
(7) the David E. Porter Employment Agreement, duly executed by the
Transferee;
(8) the Stockholders Agreement, duly executed by the Transferee;
(9) the Registration Rights Agreement, duly executed by the
Transferee;
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(10) a letter duly executed by an officer of the Transferee to the
effect that immediately following the Closing no individual Shareholder
will be an "affiliate" of MedSource as such term is defined in Rule 405
under the Securities Act of 1933;
(11) the Assignment duly executed by the Transferee; and
(12) the Closing Letter described in section 11.1 duly executed by an
officer of the Transferee.
10. Termination.
(1) This agreement may be terminated at any time prior to the Closing:
(1) by the mutual agreement of the Transferee and the Transferor;
(2) by the Transferee or the Transferor (if such party is not in
breach of or default under this agreement) giving written notice to such
effect to the other party if the Closing shall not have occurred on or
before April 15, 1999, or such later date as the parties shall have agreed
upon prior to the giving of such notice; or
(3) by either the Transferee or the Transferor in the event of a
material breach by or default of the other party hereto.
(2) Upon termination of this agreement pursuant to section 10(a), all
obligations of the parties shall terminate except those under section 12;
provided, however, that no such termination shall relieve the Transferor or any
Shareholder of any liability to the Transferee, or the Transferee of any
liability to the Transferor, by reason of any breach of or default under this
agreement.
11. Survival of Representations and Warranties.
11.1 Survival of Representations and Warranties of the Transferor and the
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Shareholders. At the Closing, the Transferee shall advise the Transferor and the
- ------------
Shareholders in writing (the "Closing Letter") as to its actual knowledge as of
the Closing of any material breach of any of the representations, warranties or
covenants of the Transferor and the Shareholders herein, without waiving any of
its rights hereunder with respect thereto, taking into consideration any
disclosures expressly made by the Transferor or the Shareholders in the
Schedules delivered to the Transferee on or prior to the date hereof.
Notwithstanding any right of the Transferee fully to investigate the affairs of
the Transferor and the Shareholders and notwithstanding any knowledge of
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facts determined or determinable by the Transferee pursuant to such
investigation or right of investigation, but subject to the preceding sentence,
the Transferee has the right to rely fully upon the representations, warranties
of the Transferor contained in this agreement or in any other Transaction
Document. All such representations and warranties shall survive the execution
and delivery of this agreement and the Closing hereunder and shall thereafter
continue in full force and effect until the date which is 18 months after the
Closing Date, and the Transferor's and the Shareholders' liability in respect of
any breach of any such representation or warranty shall terminate on the date
which is 18 months after the Closing Date, except for liability with respect to
which notice shall have been given on or prior to such date to the party against
which such claim is asserted pursuant to section 12.3, which such liability
shall remain an obligation of the party against whom such claim is asserted. The
foregoing notwithstanding, (i) the representations and warranties contained in
section 5.14 shall survive the Closing and the Transferor's and the
Shareholders' liability in respect of any breach thereof shall continue until 30
days after all liability relating thereto is barred by all applicable statutes
of limitation, except for liability with respect to which notice shall have been
given on or prior to such date to the party against which such claim is asserted
pursuant to section 12.3, which liability shall remain an obligation of the
party against whom such claim is asserted and (ii) the representations and
warranties contained in section 5.16 shall survive the Closing and the
Transferor's and the Shareholders' liability in respect of any breach thereof
shall continue until the second anniversary of the Closing Date except for
liability with respect to which notice shall have been given on or prior to such
date to the party against which such claim is asserted pursuant to section 12.3,
which liability shall remain an obligation of the party against whom such claim
is asserted.
11.2 Survival of Representations and Warranties of the Transferee. At the
------------------------------------------------------------
Closing, the Transferor and the Shareholders shall, without waiving any of their
rights hereunder, advise the Transferee if the Transferor or the Shareholders
have actual knowledge of any material breach of any of the representations and
warranties of the Transferee herein. The Transferor and the Shareholders have
the right to rely fully upon the representations and warranties of the
Transferee contained in this agreement or in any other Transaction Document. All
such representations and warranties shall survive the execution and delivery of
this agreement and the Closing hereunder and shall thereafter continue in full
force and effect until the date which is eighteen months after the Closing Date,
and Transferee's liability in respect of any breach of any such representation
or warranty shall terminate on the date which is eighteen months after the
Closing Date. The foregoing notwithstanding, the representations an warranties
contained in sections 6.3 and 6.6 shall survive the Closing and the Transferee's
liability in respect of any breach thereof shall continue until barred by all
applicable statutes of limitation, except for liability with respect to which
notice shall have been given on or prior to such date to the party against which
such claim is asserted pursuant to section 12.3, which such liability shall
remain an obligation of the party against whom such claim is asserted.
12. Indemnification.
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12.1 Indemnification by the Transferor and the Shareholders. Subject to the
------------------------------------------------------
limitations contained in section 11.1 and section 12.4, the Transferor and the
Shareholders shall jointly and severally indemnify and defend MedSource and the
Transferee and each of their officers, directors, employees, shareholders,
agents, advisors or representatives (each, a "Transferee Indemnitee") against,
and hold each Transferee Indemnitee harmless from, any loss, liability,
obligation, deficiency, damage or expense including, without limitation,
interest, penalties, reasonable attorneys' and consultants' fees and
disbursements (collectively, "Damages"), that any Transferee Indemnitee may
suffer or incur based upon, arising out of, relating to or in connection with
any of the following (whether or not in connection with any third party claim):
(1) any breach of any representation or warranty made by the
Transferor or any Shareholder contained in this agreement or in any other
Transaction Document or in respect of any claim made based upon facts
alleged that, if true, would constitute any such breach;
(2) either the Transferor's or any Shareholder's failure to perform or
to comply with any covenant or condition required to be performed or
complied with by the Transferor or the Shareholders contained in this
agreement or in any other Transaction Document; or
(3) the ownership or operation of the Business or Acquired Assets on
or prior to the Closing Date except for the Assumed Liabilities.
12.2 Indemnification by the Transferee. Subject to the limitations
---------------------------------
contained in section 11.2 and section 12.5, the Transferee shall indemnify and
defend the Transferor and the Shareholders and each of the Transferor's
officers, directors, employees, shareholders, agents, advisors or
representatives (each, a "Transferor Indemnitee") against, and hold each
Transferor Indemnitee harmless from, any Damages that such Transferor Indemnitee
may suffer or incur arising from, related to or in connection with any of the
following:
(1) any breach of any representation or warranty made by the
Transferee contained in this agreement or in any other Transaction Document
or in respect of any claim made based upon facts alleged that, if true,
would constitute any such breach;
(2) the Transferee's failure to perform or to comply with any covenant
or condition required to be performed or complied with by the Transferee
contained in this agreement or in any other Transaction Document; or
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(3) the ownership or operation of the Business or Acquired Assets
after the Closing Date.
12.3 Indemnification Procedures.
--------------------------
(1) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party,
involving any Damage referred to in sections 12.1 or 12.2, such indemnified
party shall, if a claim for indemnification in respect thereof is to be made
against an indemnifying party pursuant to this section 12, give written notice
to the latter of the notice of such claim or the commencement of such
Proceeding, setting forth in reasonable detail the nature thereof and the basis
upon which such party seeks indemnification hereunder; provided, however, that
the failure of any indemnified party to give such notice shall not relieve the
indemnifying party of its obligations under such section, except to the extent
that the indemnifying party is actually prejudiced by the failure to give such
notice.
(2) In the case of any Proceeding by a third party against an indemnified
party, the indemnifying party shall, upon notice as provided above, assume the
defense thereof, with counsel reasonably satisfactory to the indemnified party,
and, after notice from the indemnifying party to the indemnified party of its
assumption of the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof (but the
indemnified party shall have the right, but not the obligation, to participate
at its own cost and expense in such defense by counsel of its own choice) or for
any amounts paid or foregone by the indemnified party as a result of any
settlement or compromise thereof that is effected by the indemnified party
(without the written consent of the indemnifying party).
(3) Anything in section 12.3(b) notwithstanding, if both the indemnifying
party and the indemnified party are named as parties or subject to such
Proceeding and either such party determines with advice of counsel that there
may be one or more legal defenses available to it that are different from or
additional to those available to the other party or that a material conflict of
interest between such parties may exist in respect of such Proceeding, then the
indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any legal or other expenses including, without limitation,
reasonable attorneys' fees and disbursements, incurred by the indemnified party
in such defense.
(4) If the indemnifying party assumes the defense of any such Proceeding,
the indemnified party shall cooperate fully with the indemnifying party and
shall appear and give testimony, produce documents and other tangible evidence,
allow the indemnifying party access to the books and records of the indemnified
party and otherwise assist the indemnifying party in conducting such defense. No
indemnifying party shall, without the consent of the indemnified
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party, consent to entry of any judgment or enter into any settlement or
compromise that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding, to the extent an indemnity
obligation exists with respect to such claim or Proceeding. Provided that proper
notice is duly given, if the indemnifying party shall fail promptly and
diligently to assume the defense thereof, then the indemnified party may respond
to, contest and defend against such Proceeding (but the indemnifying party shall
have the right to participate at its own cost and expense in such defense by
counsel of its own choice) and may make in good faith any compromise or
settlement with respect thereto, and recover from the indemnifying party the
entire cost and expense thereof including, without limitation, reasonable
attorneys' fees and disbursements and all amounts paid or foregone as a result
of such Proceeding, and the settlement or compromise thereof. The
indemnification required hereunder shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and when
bills or invoices are received or loss, liability, obligation, damage or expense
is actually suffered or incurred, unless the indemnifying party puts forward a
good faith defense to its indemnity obligation, in which case, such payment
shall be deferred until the resolution of the conflict over the indemnifying
party's obligation to indemnify, either by agreement of the parties or by order
of a court of competent jurisdiction.
12.4 Limitations on Indemnification by the Transferor and the Shareholders.
---------------------------------------------------------------------
(1) The Transferor and the Shareholders shall have indemnification
obligations pursuant to section 12.1 respecting Damages that result from actual
or claimed breaches of representations or warranties set forth in this agreement
(other than the representations and warranties contained in sections 5.3,
5.12(a) and 5.14), only if and only to the extent that the aggregate of all
Damages resulting from such actual or claimed breaches shall exceed $250,000.
For purposes of determining whether any Transferee Indemnitee is able to seek
indemnification from the Transferor or the Shareholders under section 12.1 of
this agreement, for any breach or alleged breach of any representation or
warranty in this agreement, the use of the terms "knowledge," "of which (a
party) is aware," "best of (a party's) knowledge," "material," "material adverse
effect" or "in all material respects," shall be disregarded and any and all
claims for such indemnification shall be determined as if no such terms were
present in such representation or warranty; provided, however, that in the event
the use of any of the foregoing terms is followed by the phrase "(surviving, as
provided for in section 12.4(a))", then such terms shall not be disregarded and
any and all claims for indemnification shall be determined in accordance with
the language of the representation or warranty. To the extent that any Damages
that any Transferee Indemnitee may suffer arise from actual or claimed breaches
of representations or warranties set forth in this agreement (other than the
representations and warranties contained in sections 5.3, 5.12(a) and 5.14) and
also relate to or constitute Excluded Liabilities, then the indemnification
obligations of the Transferor and the Shareholders with respect to such Damages
shall be subject to the limitations set forth above in this section 12.4(a).
(2) Indemnification by the Transferor and the Shareholders for the first
$500,000 of Damages contemplated by section 12.1 will be satisfied by the
delivery by the
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Transferor or the Shareholders of the amount of such Damages in the form of
either (at the indemnified party's option) (i) shares of Series A Preferred
Stock, free and clear of all Liens except the Shareholder Agreement, valued for
such purposes at the fair market value or (ii) shares of MedSource Common Stock,
free and clear of all Liens (except as are created under the Shareholder
Agreement), valued for such purposes at the fair market value, and the remainder
of such Damages will be satisfied in cash.
(3) The rights and remedies of the Transferee under this section 12 shall
be the exclusive remedy for breach of a representation, warranty or covenant of
the Transferor and each of the Shareholders.
(4) Anything to the contrary notwithstanding, the indemnification
obligations of the Transferor and the Shareholders for Damages hereunder (other
than Damages that result from actual or claimed breaches of the representations
and warranties contained in sections 5.3, 5.12(a) and 5.14) shall not exceed
$1,000,000 in the aggregate.
(5) Any claim for indemnity by the Transferee will be barred unless made
within the period specified in section 11.1 for survival of the representation
or warranty breached, and within 18 months after the Closing for any other
indemnity claim.
12.5 Limitations on Indemnification by the Transferee.
------------------------------------------------
(1) The Transferee shall have indemnification obligations pursuant to
section 12.2 respecting Damages that result from actual or claimed breaches of
representations or warranties set forth in this agreement (other than the
representations and warranties contained in sections 6.3 and 6.6), only if and
only to the extent that the aggregate of all Damages resulting from such actual
or claimed breaches shall exceed $250,000.
(2) The limitations set forth in paragraph (a) of this section 12.5 shall
not limit or reduce the Transferee's obligation to indemnify the Transferor
and/or the Shareholders in respect of Damages that result from actual or claimed
breaches of the representations and warranties contained in sections 6.3 and
6.6.
(3) The rights and remedies of the Transferor under this section 12 shall
be exclusive remedy for breach of a representation, warranty or covenant of the
Transferee.
(4) Anything to the contrary notwithstanding, the indemnification
obligations of the Transferor and the Shareholders for Damages hereunder shall
not exceed $1,000,000.
13. Miscellaneous.
13.1 Transaction Fees and Expenses. Except as otherwise specifically
-----------------------------
provided herein, each party hereto shall bear such costs, fees and expenses as
may be incurred by it in connection with this agreement and the transactions
contemplated hereby.
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13.2 Notices. Any notice, demand, request or other communication which is
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required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail or (c) by personal delivery to such party at
the following address:
To the Transferee:
c/o Kidd & Company, LLC
Three Pickwick Plaza
Greenwich, Connecticut 06830
Attention: Richard J. Effress
Telecopier No.: (203) 661-1839
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036-8735
Attention: Edward R. Mandell
Telecopier No.: (212) 704-6288
To the Transferor or any Shareholder at:
Portlyn Corporation
RFD 1, Route 25, Box 451
Moultonboro, New Hampshire 03254
Attention: David E. Porter
Telecopier No.: (603) 476-5019
with a copy to:
Cleveland, Waters and Bass, P.A.
Two Capital Plaza
P.O. Box 1137
Concord, New Hampshire 03302
Attention: David K. Fries
Telecopier No.: (603) 224-6457
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving or making of
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any such notice or demand shall be, in the case of clause (a)(i), the date of
the receipt, in the case of clause (a)(ii), five business days after such notice
or demand is sent, and, in the case of clause (b), the business day next
following the date such notice or demand is sent. A copy of any notice to the
Shareholders shall be sent concurrently to the Transferor and a copy of any
notice to the Transferor shall be sent concurrently to the Shareholders.
13.3 Amendment. Except as otherwise provided herein, no amendment of this
---------
agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.
13.4 Waiver. No course of dealing of any party hereto, no omission, failure
------
or delay on the part of any party hereto in asserting or exercising any right
hereunder, and no partial or single exercise of any right hereunder by any party
hereto shall constitute or operate as a waiver of any such right or any other
right hereunder. No waiver of any provision hereof shall be effective unless in
writing and signed by or on behalf of the party to be charged therewith. No
waiver of any provision hereof shall be deemed or construed as a continuing
waiver, as a waiver in respect of any other or subsequent breach or default of
such provision, or as a waiver of any other provision hereof unless expressly so
stated in writing and signed by or on behalf of the party to be charged
therewith. The Transferee's receipt of Tax Returns, waiver of bulk sales law,
and other waivers and receipt of information contained herein shall not be
deemed to waive any of the Transferee's rights under the indemnification
provisions of section 12.
13.5 Governing Law. This agreement shall be governed by, and interpreted
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and enforced in accordance with, the laws of the State of Delaware.
13.6 Jurisdiction. Each of the parties hereto hereby irrevocably consents
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and submits to the exclusive jurisdiction of the United States District Court
for the District of Delaware in connection with any Proceeding arising out of or
relating to this agreement or the transactions contemplated hereby, waives any
objection to venue in such District (unless such court lacks jurisdiction with
respect to such Proceeding, in which case, each of the parties hereto
irrevocably consents to the jurisdiction of the courts of the State of Delaware
in connection with such Proceeding and waives any objection to venue in the
State of Delaware, and agrees that service of any summons, complaint, notice or
other process relating to such Proceeding may be effected in the manner provided
by clause (a) of section 13.2.
13.7 Remedies. In the event of any actual or prospective breach or default
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by any party hereto, the other parties shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. Except as provided for in section 12, nothing contained herein and
no election of any particular remedy shall be deemed to prohibit or limit any
party from pursuing, or be deemed a waiver of the right to pursue, any other
remedy or relief available now or hereafter existing at law or in equity
(whether by statute or otherwise) for such actual or prospective breach or
default, including the recovery of damages.
-57-
13.8 Severability. The provisions hereof are severable and if any provision
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of this agreement shall be determined to be legally invalid, inoperative or
unenforceable in any respect by a court of competent jurisdiction, then the
remaining provisions hereof shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect, and any such invalid,
inoperative or unenforceable provision shall be deemed, without any further
action on the part of the parties hereto, amended and limited to the extent
necessary to render such provision valid, operative and enforceable.
13.9 Further Assurances. Each party hereto covenants and agrees promptly to
------------------
execute, deliver, file or record such agreements, instruments, certificates and
other documents and to perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.
13.10 Assignment. This agreement and all of the provisions hereof shall be
----------
binding upon and inure to the benefit of the parties hereto, their heirs and
their respective successors and permitted assignees. Permitted assignees of the
Transferee's rights hereunder shall include any Affiliate of the Transferee and
any or all financial institutions or other entities investing and/or lending
monies to finance the transactions herein contemplated, provided, that no
permitted assignment shall relieve the Transferee or MedSource from their
respective liabilities or obligations hereunder. Permitted assignees of the
Transferor's rights hereunder shall include any Affiliate of the Transferor.
Neither Transferee nor Transferor may assign any of its obligations hereunder
without the consent of the other party. Except for the permitted assignees,
neither party shall have the right to assign any rights or delegate any duties
hereunder without the consent of the other party.
13.11 Binding Effect. This agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns.
13.12 No Third Party Beneficiaries. Nothing contained in this agreement,
----------------------------
whether express or implied, is intended, or shall be deemed, to create or confer
any right, interest or remedy for the benefit of any Person other than as
otherwise provided in this agreement.
13.13 Entire Agreement. This agreement (including all the schedules and
----------------
exhibits hereto), together with the Exhibits, Schedules, certificates and other
documentation referred to herein, required to be delivered pursuant to the terms
hereof or delivered simultaneously with the Closing, contains the terms of the
entire agreement among the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, commitments, understandings,
discussions, negotiations or arrangements of any nature relating thereto.
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13.14 Headings. The headings contained in this agreement are included for
--------
convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this agreement.
13.15 Counterparts. This agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.16 Bulk Sales Law. The parties waive compliance with the provisions of
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any bulk sales law that may be applicable to the transactions contemplated
hereby.
Transferor: PORTLYN CORPORATION
By: /s/ David Porter
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Name: David Porter
Title:President
/s/ David E. Porter
----------------------------------------------------
David E. Porter
/s/ Ronald Porter
----------------------------------------------------
Ronald Porter
RONALD V. PORTER AMENDED AND RESTATED REVOCABLE
TRUST u/i/d 9/7/95
/s/ Ronald V. Porter
----------------------------------------------------
Name: Ronald V. Porter
Title:Trustee
PORTER FAMILY 1997 IRREVOCABLE TRUST u/i/d 7/8/97
/s/ Shirley J. Porter
----------------------------------------------------
Name: Shirley J. Porter
Title: Trustee
SHIRLEY J. PORTER AMENDED AND RESTATED REVOCABLE
TRUST u/i/d 9/7/95
/s/ Shirley J. Porter
----------------------------------------------------
Name: Shirley J. Porter
Title:Trustee
Transferee: PORTLYN ACQUISITION LLC
By: /s/ Richard J. Effress
------------------------------------------------
Name: Richard J. Effress
Title: Chairman
MEDSOURCE TECHNOLOGIES, INC.
By: /s/ Richard J. Effress
------------------------------------------------
Name: Richard J. Effress
Title: Chairman