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EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
BY AND AMONG
CH MEDICAL, INC., d/b/a CARDIO SYSTEMS
AFFILIATES OF CARDIO SYSTEMS
CH ADMINISTRATION, INC.
CH PRODUCTION, INC.
CH INDUSTRIES, INC.
CHARLES E. HASTY
and
CARDIO ACQUISITION CORPORATION
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TABLE OF CONTENTS
Purchase and Sale of Assets. . . . . . . . . . . . . . . . . . . . . . . . . 1
Assets to be Purchased by Buyer. . . . . . . . . . . . . . . . . . . 1
Excluded Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Assumed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 4
Excluded Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 6
Proration of Certain Expenses. . . . . . . . . . . . . . . . . . . . 7
Lease of Facilities. . . . . . . . . . . . . . . . . . . . . . . . . 7
Hasty Intellectual Properties . . . . . . . . . . . . . . . . . . . . 8
Hasty Non-Competition Agreement. . . . . . . . . . . . . . . . . . . 8
Consideration and Allocation. . . . . . . . . . . . . . . . . . . . . . . . . 8
Aggregate Consideration. . . . . . . . . . . . . . . . . . . . . . . 8
Adjustment to Purchase Price. . . . . . . . . . . . . . . . . . . . . 9
Allocation of Purchase Price. . . . . . . . . . . . . . . . . . . . . 10
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Time and Place of Closing. . . . . . . . . . . . . . . . . . . . . . 11
Documents Required from Sellers at Closing. . . . . . . . . . . . . . 11
Documents Required from Buyer at Closing. . . . . . . . . . . . . . . 12
Mutual Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Assignment of Real Property Leases, Personal Property Leases, Assumed
Contracts and Permits; Required Consents. . . . . . . . . . . 14
Sellers', CHI's and Hasty's Representations and Warranties. . . . . . . . . . 14
Authority; Binding Effect; Enforceability. . . . . . . . . . . . . . 14
No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
No Governmental Consents; No Lien. . . . . . . . . . . . . . . . . . 15
Title to Property and Related Matters . . . . . . . . . . . . . . . . 15
Contracts; Leases. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Balance Sheet and Financial Statements; No Material Adverse Change. . 17
Suppliers and Customers. . . . . . . . . . . . . . . . . . . . . . . 18
Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . 18
Payables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . 19
Employees, Labor Relations, Etc. . . . . . . . . . . . . . . . . . . 19
Employee Benefit Plans, Etc. . . . . . . . . . . . . . . . . . . . . 20
Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . 20
Permits, Licenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . 23
OSHA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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Inventory and Rental Equipment. . . . . . . . . . . . . . . . . . . . 23
Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . .23
Intellectual Properties. . . . . . . . . . . . . . . . . . . . . . . 24
Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Buyer's Representations and Warranties. . . . . . . . . . . . . . . . . . . . 25
Authority; Binding Effect; Enforceability. . . . . . . . . . . . . . 25
No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
No Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . . . . . 26
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Non-Competition; Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 26
Sellers' and CHI's Non-Competition. . . . . . . . . . . . . . . . . . 26
Sellers', CHI's and Hasty's Nondisclosure, Non-Solicitation and
Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . 26
Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Additional Covenants and Agreements of the Parties. . . . . . . . . . . . . . 27
Operation of the Sellers Pending Closing. . . . . . . . . . . . . . . 27
Access to Information. . . . . . . . . . . . . . . . . . . . . . . . 28
Mail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Phase I Environmental Assessments. . . . . . . . . . . . . . . . . . 29
New Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Termination of Licenses . . . . . . . . . . . . . . . . . . . . . . . 30
Release of 1995 Carbona Agreement . . . . . . . . . . . . . . . . . . 30
Termination of Old Leases . . . . . . . . . . . . . . . . . . . . . . 30
Commercially Reasonable Efforts. . . . . . . . . . . . . . . . . . . 30
Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . 30
Sellers' Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 31
Employee Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Conditions Precedent to the Obligations of Buyer. . . . . . . . . . . . . . . 32
Conditions Precedent to the Obligations of Sellers, CHI and Hasty. . . . . . 32
Indemnification Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . 33
Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Indemnification Notice. . . . . . . . . . . . . . . . . . . . . . . . 34
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Limitation on Buyer's Claims . . . . . . . . . . . . . . . . . . . . 36
Limitation on Sellers' Claims . . . . . . . . . . . . . . . . . . . . 36
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Survival of Representations and Warranties. . . . . . . . . . . . . . 37
Buyer's Investigation. . . . . . . . . . . . . . . . . . . . . . . . 38
Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Entire Agreement; Modification and Waiver. . . . . . . . . . . . . . 40
Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . 40
Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . 41
Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
No Shopping. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . 41
Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . . . . 41
Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . 41
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into
on or as of the ________ day of December, 1996, by and among CH MEDICAL, INC.,
d/b/a CARDIO SYSTEMS, a Delaware corporation ("Cardio Systems"), CH
ADMINISTRATION, INC., a Texas corporation ("CHA"), CH PRODUCTION, INC., a Texas
corporation ("CHP"), CH INDUSTRIES, INC., a Delaware corporation, being the
sole shareholder of CHA, CHP and Cardio Systems ("CHI"), CHARLES E. HASTY, an
individual residing in Carrollton, Dallas County, Texas, being the sole
shareholder of CHI ("Hasty"), the subsidiaries and affiliates of Cardio Systems
listed on Table I attached hereto (collectively, the "Affiliates") (CHA, CHP,
Cardio Systems and the Affiliates being individually referred to herein as a
"Seller" and collectively referred to herein as the "Sellers") and CARDIO
ACQUISITION CORPORATION, a Texas corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Sellers own and operate a business involving the designing,
manufacturing, marketing, distribution, renting and selling of specialized
support therapy mattress systems utilized in the treatment and prevention of
decubitus ulcers and pulmonary disorders, and businesses related thereto
(collectively, the "Subject Business"), and pursuant to this Agreement, the
Buyer will acquire substantially all of the assets of the Sellers used in
connection with the Subject Business and certain of the Sellers' liabilities
associated therewith; and
WHEREAS, certain documents have been, or will be, furnished to the Buyer
by the Sellers pursuant to multi-part Schedules (the "Schedules") attached, or
to be attached, hereto, which Schedules and the disclosures made pursuant to
the Schedules are identified and referred to herein and by such references the
Schedules, when agreed to by the parties and attached hereto, and such
disclosures when made are incorporated herein as a part of this Agreement; and
WHEREAS, the written agreements, documents and instruments
(collectively, the "Exhibits") set forth on the List of Exhibits attached
hereto will be prepared by the Buyer, and when agreed to by the Sellers, CHI
and Hasty and attached hereto, will be incorporated herein as a part of this
Agreement.
NOW, THEREFORE, in consideration of the representations, warranties and
mutual promises contained herein and other good and valuable consideration, the
receipt of which is hereby acknowledged by the parties hereto, the parties do
hereby agree as follows:
1. Purchase and Sale of Assets.
1.1. Assets to be Purchased by Buyer. Subject to the terms and
conditions contained in this Agreement, the Sellers agree to sell, assign,
transfer, convey and deliver to the Buyer, and the Buyer agrees to purchase
from the Sellers, on the Closing Date (as hereinafter defined), free and clear
of all Encumbrances (as hereinafter defined) all of the Seller's right, title
and interest in and to the properties, assets, rights of the Sellers of every
kind, nature and description,
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tangible and intangible, wheresoever located and whether or not carried or
reflected on the books and records of the Sellers, which are employed by the
Sellers in the Subject Business (except for the Excluded Assets, as hereinafter
defined) (the "Purchased Assets"). The Purchased Assets shall include, without
limitation:
(a) all machinery, equipment (including all mattress systems,
computers, and communications equipment), furniture, fixtures,
consumables and all vehicles owned by the Sellers used at or associated
with the Subject Business, including without limitation those assets set
forth on Schedule 1.1(a) attached hereto (collectively, the "Fixed
Assets");
(b) all inventories of the Sellers on the Closing Date
including, without limitation, those assets set forth on Schedule 1.1(b)
attached hereto as adjusted to reflect transactions in the ordinary
course of business from the date of such Schedule to the Closing Date
(collectively, the "Inventory");
(c) all jigs, patterns and molds and all production and
operating supplies as described on Schedule 1.1(c) attached hereto
(collectively, the "Production Supplies");
(d) all accounts and notes receivable of the Sellers
(excluding receivables between the Sellers, CHI and/or Hasty) set forth
on Schedule 1.1(d) attached hereto, adjusted to reflect transactions in
the ordinary course of business from the date of such Schedule to the
Closing Date;
(e) all of the right, title, and interest of the Sellers in
the Contracts (as hereinafter defined) to which the Sellers are parties
(other than Personal Property Leases and Real Property Leases, as
hereinafter defined), as set forth on Schedule 1.1(e) and Schedule 4.5
attached hereto, and all unsatisfied sales orders and work-in-process of
the Sellers existing on the Closing Date (including without limitation
the unsatisfied sales orders and work-in-process and set forth in
Schedule 1.1(e) as adjusted to reflect orders that have been satisfied
or work that has been completed in the ordinary course of business from
the date of such Schedule to the Closing Date), and any deposits under
such Contracts (collectively, the "Assumed Contracts");
(f) all of the right, title and interest of the Sellers in and
to the leases of personal property to which the Sellers are parties, as
set forth on Schedule 1.1(f) attached hereto, and any deposits under
such lease agreements (collectively, the "Personal Property Leases");
(g) all of the right, title and interest of the Sellers in and
to the real property leases of the Sellers listed on Schedule 1.1(g)
attached hereto, including any deposits under such lease agreements (the
"Real Property Leases"), for the properties described therein;
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(h) to the extent transferable, all of the right, title, and
interest of the Sellers in and to all Permits, including without
limitation all Material Permits (as hereinafter defined), which Material
Permits are listed on Schedule 4.17 attached hereto (collectively, the
"Assumed Permits");
(i) all right, title and interest of the Sellers in and to any
deposits for goods and/or services (except those deposits referenced in
Sections 1.1(e), (f) and (g)) as listed on Schedule 1.1(i) attached
hereto (the "Customer Deposits");
(j) all customer lists, sales records, files, plans,
blueprints, drawings, designs, specifications, know-how, trade secrets,
supplier lists, credit information, business records and plans, studies,
surveys, reports, correspondence, sales and promotional literature and
other selling material, and computer software (subject to applicable
licensing restrictions) related to the foregoing (collectively, the
"Business Records") of the Sellers; and
(k) all trademarks, trademark applications, trade names and
brand names, including variations thereof, all copyrights and copyright
applications, all patents, patent applications, processes, know-how,
trade secrets and technology of the Sellers, and all interest in, to or
under all of the foregoing of the Sellers which relate to the Subject
Business (including all worldwide rights to the foregoing), as set forth
on Schedule 1.1(k) (all of which is referred to collectively as the
"Sellers' Intellectual Properties").
As used in this Agreement, (1) "Contract" means any contracts (including
customer and vendor supply contracts), purchase orders, licenses, or agreements
or other commitments, whether written or oral, of the Sellers, and (2) "Permit"
means any licenses, permits, product approvals or registrations,
authorizations, franchises or other approvals from any domestic (federal, state
or local) or foreign governmental, public or self-regulatory body or authority
of the Sellers.
1.2. Excluded Assets. Notwithstanding anything to the contrary
contained herein, the Buyer shall not acquire, and the Sellers shall retain,
all properties, assets and rights other than the Purchased Assets (which are
sometimes referred to collectively in this Agreement as the "Excluded Assets").
In particular, each of the following specific properties, assets, and rights of
the Sellers shall be an Excluded Asset:
(a) all books and records other than the Business Records
described in Section 1.1(j), including without limitation corporate
books and records the originals of which the Sellers are required to
maintain under applicable laws, and all of the Sellers' tax and
financial records;
(b) any cash in any bank or other accounts (including deposits
in the process of clearing) owned by or held for the Sellers (except for
deposits as set forth in Sections 1.1(e), (f), (g) and (i) hereof), and
cash equivalents such as marketable securities;
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(c) any tax refunds due the Sellers relating to Taxes (as
hereinafter defined);
(d) any reimbursement for, or other benefit associated with,
prepaid insurance;
(e) any claims by the Sellers against third parties, and any
judgments in favor of the Sellers, relating to the operation of the
Subject Business prior to the Closing Date; provided, however, that
nothing in this Section 1.2(e) shall be construed in a manner that would
in any way limit the Buyer's ability to defend itself and protect its
interests if named as a party or otherwise involved in any such claim;
(f) the operating assets of the metal fabrication business
conducted by certain affiliates of CHI (the "Fabrication Business")
including without limitation, all machinery, equipment, inventory,
accounts receivable, contracts, leases, licenses, permits, patents,
trademarks, trade names, logos, customer lists, customer contracts and
business records of the Fabrication Business, including those items set
forth on Schedule 1.2(f) attached hereto;
(g) the Carbona Employment Contract (the "1995 Carbona
Agreement) dated December 19, 1995 by and between Cardio Systems
Operations, Inc., a Seller hereunder, as Employer and John A. Carbona
("Carbona"), from which Carbona will be released at Closing;
(h) all sums owing by James Hasty to the Sellers, whether or
not evidenced by promissory notes, in the approximate amount of
$136,300;
(i) any and all existing license agreements (the "License
Agreements") from Hasty to a Seller or Sellers which will be terminated
at Closing;
(j) the 1201 Facility (as hereinafter defined) and the
existing lease (the "Old 1201 Lease") thereon, which will be terminated
at Closing;
(k) the 1735 Facility (as hereinafter defined) and the
existing lease (the "Old 1735 Lease") thereon, which will be terminated
at Closing;
(l) all accounts receivable between the Sellers, CHI and/or
Hasty; and
(m) all insurance policies and proceeds on the life of Hasty.
1.3. Assumed Liabilities. Subject to the terms and conditions
contained in this Agreement, at and as of the Closing Date, the Buyer shall
assume and agree to pay, perform, and discharge the following, but only the
following, liabilities and obligations of the Sellers (the "Assumed
Liabilities"):
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(a) all payment and performance liabilities and obligations
under the Assumed Contracts, the Assumed Permits and the accounts
payable set forth on Schedule 1.3(a), excluding any payables between the
Sellers, CHI and/or Hasty, as adjusted to reflect transactions in the
ordinary course of business from the date of such Schedule to the
Closing Date (the "Accounts Payable"), as and to the extent existing at
the commencement of business on the Closing Date or arising thereafter.
The Accounts Payable as of the Closing Date shall be determined by the
Buyer, subject to the Sellers' review, pursuant to, and in accordance
with, the provisions of Section 2.2 with respect to the calculation of
the Sellers' Tangible Net Worth (as hereinafter defined).
(b) all payment and performance liabilities and obligations
from and after the Closing Date under the Personal Property Leases and
Real Property Leases set forth in Schedule 1.1(f) and Schedule 1.1(g)
attached hereto (collectively, the "Assumed Leases"). The Buyer shall
use its commercially reasonable efforts to cause the Sellers to be
released as guarantors from all of the Real Property Leases and Personal
Property Leases which are so guaranteed, and in accordance with Section
11 herein, shall indemnify, defend and hold the Sellers harmless from
any Loss (as hereinafter defined) resulting from a breach by the Buyer
of any Personal Property Lease or Real Property Lease after the Closing
Date;
(c) any obligation to accept return of products sold or
delivered to any third party by the Sellers prior to the Closing Date
and any obligation to honor any product warranty in respect of any such
products including any credits given therefor (collectively, the
Warranty Claims"); provided, however, that the Buyer's obligation to
assume such warranty-related obligations is conditioned upon the Buyer
being fully reimbursed for any such returned products by the Sellers to
the extent of the lesser of the reasonable repair cost of the returned
products or the replacement cost less the salvage value (if any) of the
returned products, and provided, further, the Sellers shall be liable to
the Buyer for any Warranty Claim only to the extent that the aggregate
amount of such Warranty Claims exceeds Fifteen Thousand ($15,000)
Dollars, and such obligations of the Sellers shall terminate one (1)
year after the Closing Date. The obligations of the Buyer and the
Sellers contained in this Section 1.3(c) shall survive the Closing;
(d) except as otherwise specifically set forth herein, all
liabilities and obligations for Losses (as hereinafter defined) arising
or resulting from the operation of the Subject Business by the Buyer
after the Closing Date, which obligation of the Buyer shall survive the
Closing;
(e) all liabilities and obligations for Taxes, and all other
similar governmental charges accruing from or related to the operation
of the Subject Business by the Buyer on or after the Closing Date or any
sales, use, transfer or similar tax (but not income tax) on the transfer
of the Purchased Assets from the
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Sellers to the Buyer at Closing, which obligation of the Buyer shall
survive the Closing;
(f) all liabilities and obligations relating to employee
matters accruing on or after the Closing Date for only those employees
of the Sellers that are hired by the Buyer, including all medical,
health, pension, worker's compensation, severance, vacation pay,
deferred compensation, bonus and other employee benefit plans or
arrangements;
(g) all obligations and liabilities for accrued employee time
off, severance pay, vacation pay, and self insured medical and health
expenses with respect to the Sellers' employees that are hired by the
Buyer and which are incurred prior to the Closing Date (collectively,
the "Employee Liabilities"), up to Twenty Thousand ($20,000) Dollars;
and
(h) any obligation or liability for failure to have brought
any of the Purchased Assets into compliance with any laws (including,
without limitation, any governmental consents necessary to operate the
Subject Business) after Closing, except for environmental conditions
existing as a result of the ownership or operation of the involved real
property by the Sellers prior to Closing, and except further that the
provisions hereof shall not relieve the Sellers, CHI and Hasty from
their representations and warranties with respect to the Purchased
Assets and their compliance with laws prior to Closing.
1.4. Excluded Liabilities. Notwithstanding anything to the
contrary contained herein, and except as otherwise expressly provided in
Section 1.3 hereof, the Buyer does not assume, agree to pay, perform or
discharge or otherwise have any responsibility for any liability or obligation
of the Sellers, fixed or contingent, and whether arising or to be performed
prior to, on or after the Closing Date. Without in any way limiting the
generality of the foregoing, except as otherwise expressly set forth in Section
1.3 hereof, the Buyer does not assume, and the Sellers shall pay, perform and
discharge the following liabilities and obligations (the "Excluded
Liabilities"):
(a) all liabilities and obligations relating to employee
matters, including all medical, health, pension, workers' compensation,
severance, vacation pay, deferred compensation, bonus and other employee
benefit plans or arrangements with respect to the operation of the
Subject Business prior to the Closing Date, except those specifically
assumed by the Buyer pursuant to Section 1.3(g) hereof, up to the
maximum amount set forth in such Section;
(b) except as otherwise specifically set forth herein, all
liabilities and obligations for Losses arising or resulting from the
operation of the Subject Business prior to the Closing Date;
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(c) all liabilities and obligations for Taxes, and all other
similar governmental charges accruing from or related to the operation
of the Subject Business in respect of the period prior to the Closing
Date;
(d) any obligation or liability of the Sellers for failure to
have brought any of the Purchased Assets or the Sellers into compliance
with any laws (including, without limitation, the governmental consents
described in Section 4.3) prior to Closing, to the extent that the
conditions giving rise to such obligation or liability exist by reason
of actions or inactions of the Sellers, or conditions with respect to
such Purchased Assets or the Subject Business prior to the Closing Date;
(e) any obligation or liability of the Sellers for contracts,
permits, leases for plant equipment, vehicles, office furniture, real
property or buildings not expressly assumed by the Buyer pursuant to
this Agreement;
(f) all obligations and liabilities under the Sellers' line of
credit with Compass Bank - Dallas, N.A. ("Compass Bank");
(g) the 1995 Carbona Agreement;
(h) the License Agreements;
(i) the Old 1201 Lease; and
(j) the Old 1735 Lease.
1.5. Proration of Certain Expenses. Water and other utility
charges, fuel, real estate and personal property taxes, lease and rental
payments, payroll and other similar expenses in respect of the Purchased Assets
and the Subject Business shall be adjusted ratably as of the Closing Date, in
accordance with generally accepted accounting principles ("GAAP"). The net
amount payable either to the Buyer by the Sellers or to the Sellers by the
Buyer as a result of such adjustments shall be determined within sixty (60)
days of the Closing Date and shall be paid promptly (and in no event later than
ten (10) days following such determination) without set-off or counterclaim.
1.6. Lease of Facilities. At the Closing, the Buyer will lease
the 1201 Facility and the 1735 Facility (as hereinafter defined) as follows:
(a) Hasty, as the sole owner of CH Leasing Management, Inc.
("CH Management"), will cause CH Realty, Ltd., a Texas limited
partnership ("CH Realty"), to lease to the Buyer, and the Buyer will
lease from CH Realty, the real property and improvements located at 1201
I-35E, Carrollton, Texas (the "1201 Facility"), at an annual rental rate
of $207,360, payable monthly, pursuant to the terms of the lease
agreement in the form and containing the terms and conditions set forth
in Exhibit "A-1" attached hereto (the "New 1201 Lease Agreement"). On
or
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before the Closing Date, Hasty will cause CH Realty to use commercially
reasonable efforts to obtain Compass Bank's consent to the New 1201
Lease and non-disturbance agreement with respect to the Buyer's
possession of the 1201 Facility pursuant to the New 1201 Lease
Agreement.
(b) CHA will lease to the Buyer, and the Buyer will lease from
CHA, the real property and improvements located at 1735 I-35E,
Carrollton, Texas (the "1735 Facility"), at an annual rental rate of
$48,972, payable monthly, pursuant to the terms of the lease agreement
in the form and containing the terms and conditions set forth in Exhibit
"A-2" attached hereto (the "New 1735 Lease Agreement").
The New 1201 Lease Agreement and the New 1735 Lease Agreement are sometimes
collectively referred to as the "New Lease Agreements". The 1201 Facility, the
1735 Facility and the real property and improvements covered by the Real
Property Leases are sometimes hereinafter collectively referred to as the
"Facilities". The consent and non-disturbance agreement referred to in (a)
above is referred to as the "Compass Bank 1201 Consent".
1.7. Hasty Intellectual Properties. At the Closing, Hasty will
assign, sell, transfer and deliver to the Buyer, and the Buyer will purchase
from Hasty, the Hasty Intellectual Properties as defined in the Hasty
Intellectual Properties Agreement (as hereinafter defined) for and in
consideration of the sum of Twenty Million ($20,000,000) Dollars, pursuant to
the terms of an agreement in the form and containing the terms and conditions
set forth in Exhibit "B" attached hereto (the "Hasty Intellectual Properties
Agreement").
1.8. Hasty Non-Competition Agreement. At the Closing, Hasty
will enter into a non-competition agreement with the Buyer, substantially in
accordance with the terms and provisions of the Non-Competition Agreement (the
"Hasty Non-Competition Agreement") attached hereto as Exhibit "C", whereby the
Buyer shall pay to Hasty the sum of Two Million ($2,000,000) Dollars.
2. Consideration and Allocation.
2.1. Aggregate Consideration. In consideration for the
Purchased Assets, and the Sellers', CHI's and Hasty's agreement contained in
Sections 6.1 (as to the Sellers and CHI only) and 6.2 hereof, the Buyer shall
assume the Assumed Liabilities (including, without limitation, the Assumed
Contracts, Assumed Permits, Assumed Leases, Warranty Claims and the Accounts
Payable) at the Closing and shall pay to Sellers an amount equal to the sum of
the amounts described below (collectively, the "Purchase Price"), which shall
be payable in U.S. dollars:
(a) Eighteen Million ($18,00,000) Dollars at Closing by
certified or cashier's check or wire transfer funds; and
(b) Five Million ($5,000,000) Dollars pursuant to the terms of
a promissory note executed by the Buyer payable to the order of the
Sellers, bearing interest at ten (10%) percent per annum, with interest
payable semi-annually and the
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principal amount being payable five (5) years from the Closing Date,
such promissory note being in the form of Exhibit "D" attached hereto
(the "Note"). The payment of the indebtedness evidenced by the Note
shall be subordinate to up to Thirty Million ($30,000,000) Dollars of
Senior Debt (as hereinafter defined) of the Buyer. Subject to the
approval of the Senior Lenders (as hereinafter defined), the Note will
be secured by the assets of the Buyer, such security interest to be
junior to the lien of the Senior Lenders, and, the Note will further
provide (i) for mandatory prepayment of principal and accrued interest
thereon in the event of a Qualified Public Offering (as defined in the
Note) or the Wrongful Termination (as defined in the Note) by the Buyer
of the employment of John A. Carbona, or the sale of all or
substantially all of the assets of the Buyer and (ii) that an event of
default under the Senior Debt shall be an event of default under the
Note. The term "Senior Debt" shall mean (A) indebtedness of the Buyer,
whether outstanding on the date hereof or hereafter incurred or created,
for money borrowed from or guaranteed to banks, trust companies,
insurance companies, finance companies, leasing companies and other
financial institutions, pension trusts and other investing organizations
or groups not affiliated with the Buyer, evidenced by notes or similar
obligations, (B) debt of the Buyer evidenced by notes or debentures
issued under provisions of an indenture or similar instrument between
the Buyer and a bank or trust company, and (C) renewals, extensions,
refundings, amendments and modifications of any such notes, indebtedness
or obligations, or the instruments evidencing or creating such notes,
indebtedness or obligations. Sellers agree to execute a subordination
agreement in favor of the holder or holders of Senior Debt (the "Senior
Lenders") containing terms and conditions normal and customary for a
financing transaction (reasonably satisfactory to the Sellers and such
Senior Lenders) evidencing that payment of the indebtedness evidenced by
the Note is subordinate to such Senior Debt, provided, such
subordination agreement shall allow for the payment of installments of
interest on the unpaid balance of the Note so long as no event of
default exists under the instruments evidencing the Senior Debt and the
Senior Lender has given the Buyer and the Sellers written notice of such
event of default.
2.2. Adjustment to Purchase Price.
(a) Within ninety (90) days after the Closing Date, the Buyer
shall prepare a final calculation of the Sellers' Tangible Net Worth (as
hereinafter defined) as of the Closing. The Sellers shall cooperate
with the Buyer in the preparation of the Sellers' Tangible Net Worth,
including assistance and usage of the Sellers' information, data and
software. The Sellers will be entitled to full access to the records
and work papers of the Buyer to aid in its review of the Sellers'
Tangible Net Worth and the resolution of disputes, if any, as referred
to in paragraph (b) hereof.
(b) The Sellers shall have the right to review the Sellers'
Tangible Net Worth. If the Sellers engage their auditors to review the
Sellers' Tangible Net Worth, then the cost of such review shall be borne
by the Sellers. If the Sellers believe that any adjustment is required
to be made to the Sellers' Tangible Net Worth, the Sellers
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shall give the Buyer written notice of such proposed adjustment within
thirty (30) days after delivery of the Sellers Tangible Net Worth to the
Sellers by the Buyer. Failure of the Sellers to so notify the Buyer
shall constitute the Sellers' acceptance and approval of the Sellers'
Tangible Net Worth as correct. If the Buyer agrees that such proposed
adjustment is required, the adjustment shall be made to the Sellers'
Tangible Net Worth. If any such adjustment is disputed by the Buyer,
the Sellers and the Buyer shall negotiate in good faith to resolve such
dispute. If, after a period of fifteen (15) days following the date on
which the Sellers give the Buyer written notice of any proposed
adjustment, any such adjustment still remains disputed, then the Dallas,
Texas, office of Ernst & Young, LLP (or, if Ernst & Young, LLP is then
providing services to the Buyer or the Sellers or any of their
respective parents, subsidiaries or affiliates, another of the Big Six
Accounting Firms, if such firm is not providing services to the Buyer or
the Seller or their respective parents, subsidiaries or affiliates),
(such office of said firm being hereinafter referred to as the "Joint
Auditor") shall be engaged to resolve any remaining disputes. For this
purpose, the Joint Auditor shall be given full access to all work papers
and all other financial data and reports in the possession of the Buyer
and the Sellers which have a bearing on the disputed matters, but shall
base the findings only upon review of such work papers and other
financial data reports and shall not conduct any independent audit ab
initio. The decision of the Joint Auditor shall be final and binding.
The fees and expenses of the Joint Auditor, if any, shall be shared
equally by the Sellers and the Buyer.
(c) After the Sellers' Tangible Net Worth has been prepared
and all related adjustments, if any, thereto have been calculated and
agreed to (or resolved by the Joint Auditor, as the case may be)
pursuant to paragraphs (a) and (b) hereof, all adjustments, if any, so
agreed to or so resolved with respect to the Sellers' Tangible Net Worth
shall be made. To the extent that the Sellers' Tangible Net Worth, as
so revised by all such adjustments, if any (or, in the absence of any
such adjustment, as originally submitted), is less than $15,000,000, the
amount of such deficit shall be paid by the Sellers to the Buyer within
three (3) business days of the final determination of the Sellers'
Tangible Net Worth as set forth in paragraphs (a) and (b) hereof.
(d) The term "Sellers' Tangible Net Worth" shall mean, as of
the Closing Date, the Purchased Assets of the Sellers being acquired
hereunder (other than Intangible Assets, as hereinafter defined) minus
the Assumed Liabilities of the Sellers being assumed hereunder (not
including any sales, use, transfer or similar tax on the transfer of the
Purchased Assets from the Sellers to the Buyer at the Closing), in each
case determined in accordance with GAAP on a historical cost basis
consistent with the Sellers' historical accounting practices and, in
each case, including only those items that would ordinarily appear on a
balance sheet prepared in accordance with GAAP. The term "Intangible
Assets" shall mean assets that are considered intangible assets under
GAAP, including deferred charges, unamortized
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debt discounts, customer lists, goodwill, computer software, copyrights,
trade names, trademarks, service marks, non-compete agreements, patents
and similar items.
2.3. Allocation of Purchase Price. The Purchase Price shall be
allocated among CHI and the Sellers, and the Purchased Assets as described in
Schedule 2.3 attached hereto. The parties hereto acknowledge that such
allocation is based on the fair market values of the Purchased Assets and the
parties agree to reflect the sale and purchase of the Purchased Assets for all
purposes, including income tax purposes, in a manner wholly consistent with the
foregoing. If the Sellers reasonably determine to reallocate the Purchase
Price prior to Closing including a reallocation with respect to the purchase
price of the Hasty Intellectual Properties or payment to Hasty under the Hasty
Non-Competition Agreement, the Buyer agrees to accept and agree to such
reallocation so long as such reallocation is not materially detrimental to the
Buyer.
3. Closing.
3.1. Time and Place of Closing. If the conditions set forth in
this Section 3 and in Sections 9 and 10 are satisfied or waived, consummation
of the transactions contemplated hereby (the "Closing") shall take place at
10:00 a.m. at the offices of Crown Group, Inc., 4040 N. MacArthur Boulevard,
Suite 100, Irving, Texas 75038, on April 4, 1997, or on such other date and at
such other place as the parties may mutually agree (the "Closing Date"),
provided, however, the Buyer shall have the right to extend the Closing Date
for one (1) day for each day that the Sellers are delinquent in delivering the
Schedules to the Buyer after January 31, 1997. If all of the conditions to
Closing set forth in Sections 9 and 10 have been satisfied or waived in writing
prior to April 4, 1997, the Buyer may, at its option, give written notice to
the Sellers, CHI and Hasty to close the transaction contemplated herein on a
date not less than ten (10) days from the date of such notice. The
consummation of the transactions contemplated herein shall be deemed to have
occurred as of 12:01 A.M. on the Closing Date.
3.2. Documents Required from Sellers at Closing. At the
Closing, the Sellers, CHI and Hasty shall deliver the following documents:
(a) Certified copies of the resolutions approved by the Boards
of Directors and Shareholders or general partners of the Sellers and
CHI, in connection with the execution of this Agreement and the
consummation of the transactions contemplated hereby;
(b) a Certificate of Account Status from the Comptroller of
the State of Texas (or similar certificate) and Certificate of Existence
for the Sellers and CHI from the secretary of state of each of the
Sellers' and CHI's respective state of incorporation, dated no earlier
than thirty (30) days prior to the Closing Date;
(c) a Certificate of the Sellers, CHI and Hasty dated the
Closing Date, signed by the President or a Vice President of the Sellers
and CHI and Hasty individually, or the general partner where the Seller
is a partnership, to the effect that all representations and warranties
of the Sellers, CHI and Hasty contained in this
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Agreement shall be true in all material respects on and as of the
Closing Date, as if such representations and warranties were made on and
as of such date (except to the extent any such representations or
warranties made as of a specified date), and the Sellers, CHI and Hasty
shall have performed all agreements and covenants to be performed by
them on or prior to the Closing Date;
(d) a Certificate of the Sellers, CHI and Hasty dated the
Closing Date, signed by the Sellers, CHI and Hasty, to the effect that
there has been no material adverse change in the business, operations,
financial condition or properties of the Sellers (as a whole) since the
date hereof, and the Purchased Assets shall not have been materially and
adversely affected due to fire, accident or other casualty or act of God
not fully covered by insurance (less applicable deductibles, if any);
(e) the opinion of Vial, Hamilton, Koch & Knox, LLP, counsel
for the Sellers, CHI and Hasty, dated as of the Closing Date in form and
substance reasonably satisfactory to the Buyer's counsel;
(f) the Required Consents described in Section 3.5;
(g) instruments evidencing the assignment of all of the
Sellers' Intellectual Properties to the Buyer and the withdrawal by the
Sellers of the use of any name used by the Sellers and conveyed
hereunder to the Buyer (including, without limitation, the name "Cardio
Systems") in all jurisdictions where any such assumed names have been
filed;
(h) the amount equal to the Customer Deposits, by wire
transfer;
(i) the release by Compass Bank of the liens upon, and
security interests in, the Purchased Assets, including UCC-3 Termination
Statements for filing in all jurisdictions in which Compass Bank's
security interests in the Purchased Assets have been filed (the "Compass
Bank Release");
(j) the Carbona Release (as hereinafter defined); and
(k) the Compass Bank 1201 Consent.
3.3. Documents Required from Buyer at Closing. At the Closing,
the Buyer shall deliver the following documents:
(a) the cash portion of the Purchase Price, as set forth in
Section 2.1 hereof;
(b) the Note described in Section 2.1 hereof, together with
the appropriate documents (including UCC-1 Financing Statements for
filing in all applicable
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jurisdictions) securing the payment and performance thereof, in form and
substance satisfactory to the Buyer and the Sellers, if permitted by the
Senior Lenders;
(c) certified copies of the resolutions approved by the Board
of Directors of the Buyer in connection with the execution of this
Agreement and the consummation of the transactions contemplated hereby;
(d) a Certificate of Account Status from the Comptroller of
the State of Texas and Certificate of Existence for the Buyer from the
Secretary of State of Texas, dated no earlier than thirty (30) days
prior to the Closing Date;
(e) a Certificate of the Buyer dated the Closing Date, signed
by the President or a Vice President of the Buyer, to the effect that
all representations and warranties of the Buyer contained in this
Agreement shall be true in all material respects on and as of the
Closing Date, as if such representations and warranties were made on and
as of such date (except to the extent any such representations or
warranties made as of a specified date), and the Buyer shall have
performed all agreements and covenants to be performed by it on or prior
to the Closing Date;
(f) the New Carbona Employment Agreement (as hereinafter
defined); and
(g) the opinion of T. J. Falgout, III, Esq., counsel for the
Buyer, dated as of the Closing Date in form and substance reasonably
satisfactory to the Sellers' counsel.
3.4. Mutual Deliveries. At the Closing, the Buyer on the one
hand, and the Sellers, CHI and Hasty (or the appropriate party to such
document, as the case may be), on the other hand, shall each execute and
deliver, or cause to be delivered, to the other:
(a) a Bill of Sale with respect to the Purchased Assets duly
executed by the Sellers, in the form attached hereto as Exhibit "E";
(b) an Assignment and Assumption of the Contracts referenced
in Section 1.1(e) hereof (the "Assumed Contract Assignment"), which
Assumed Contract Assignment shall be in the form attached hereto as
Exhibit "F";
(c) an Assignment and Assumption of the Personal Property
Leases referenced in Section 1.1(f) (the "Personal Property
Assignment"), which Personal Property Assignment shall be in the form
attached hereto as Exhibit "G";
(d) an Assignment and Assumption of the Real Property Leases
referenced in Section 1.1(g) (the "Real Property Assignment"), which
Real Property Assignment shall be in the form attached hereto as Exhibit
"H";
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(e) an Assignment and Assumption of the Assumed Permits
referenced in Section 4.17 (the "Assumed Permits Assignment"), which
Assumed Permits Assignment shall be in the form attached hereto as
Exhibit "I";
(f) the New Lease Agreements referenced in Section 1.6;
(g) the Hasty Intellectual Properties Agreement referenced in
Section 1.7; and
(h) the Hasty Non-Competition Agreement referenced in Section
1.8.
3.5. Assignment of Real Property Leases, Personal Property
Leases, Assumed Contracts and Permits; Required Consents. To the extent that
the assignment of any Real Property Lease, Personal Property Lease, Assumed
Contract, Assumed Permit or any other right of the Sellers to be assigned
hereunder to the Buyer is not assignable without the consent of another party,
and such consent is not obtained, this Agreement shall not constitute an
assignment, attempted assignment, assumption or attempted assumption thereof if
such assignment, attempted assignment, assumption or attempted assumption
without such consent would constitute a breach thereof. The Sellers shall use
their commercially reasonable efforts to obtain any consents identified in
Schedule 3.5 hereto (the "Required Third Party Consents") and all governmental
consents required under Section 4.3 (collectively the "Required Consents")
prior to the Closing. If the Sellers are unable to obtain consent where
required to any such transfer or assignment hereunder, the Sellers may provide
the Buyer with the benefits thereunder in some other manner, if acceptable to
the Buyer; however, if the Sellers are unable or unwilling to so provide the
Buyer with such benefits, and without same, the benefits to the Buyer hereunder
would be materially impaired, as reasonably determined by the Buyer, the Buyer
will have the option of terminating this Agreement, in which event neither
party hereto shall have any further rights or obligations hereunder except for
the rights and obligations set forth in Section 7.2 hereof. If the Buyer
proceeds to close the transaction contemplated herein, there will be no
adjustment to the Purchase Price as a result of the Sellers' failure to obtain
any Required Consent.
4. Sellers', CHI's and Hasty's Representations and Warranties. The
Sellers, CHI and Hasty, jointly and severally, hereby represent and warrant to,
and agree with, the Buyer as follows:
4.1. Authority; Binding Effect; Enforceability. Each of the
Sellers and CHI is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of its incorporation. The execution
and delivery by the Sellers and CHI of this Agreement and all other agreements,
instruments and documents to be executed and delivered by the Sellers and CHI
in connection herewith (collectively, the "Ancillary Documents"), and the
consummation by the Sellers and CHI of the transactions contemplated herein and
therein have been duly and validly authorized by all proper corporate action,
as required under applicable law for the consummation of such transactions.
This Agreement has been duly and validly executed and delivered by the Sellers,
CHI and Hasty, and, except as otherwise provided herein, constitutes the valid
and binding obligation of the Sellers, CHI and Hasty, enforceable against the
Sellers, CHI and Hasty in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws
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affecting enforcement of creditors' rights generally (collectively, "Creditors'
Rights") and to general principles of equity, regardless of whether such
proceeding is considered a proceeding in law or equity ("Equity"). When duly
and validly executed and delivered by the Sellers, CHI and Hasty, if
applicable, the Ancillary Documents will constitute valid and binding
obligations of the Sellers, CHI and Hasty, as the case may be, enforceable in
accordance with their respective terms, subject to Creditors' Rights and
Equity. The Sellers are, or will be prior to Closing, qualified to do business
as foreign corporations, or partnerships, where applicable, and are in good
standing in all jurisdictions in which the failure to so qualify would be
likely to have a material adverse effect upon the Subject Business or the
Purchased Assets. The Sellers and CHI have all requisite corporate power and
authority to enter into this Agreement and all Ancillary Documents, and perform
their obligations hereunder and thereunder. The only Affiliates of the Sellers
are listed on Table I attached hereto, and no other entities owned or
controlled by the Sellers, CHI or Hasty are engaged in the Subject Business.
4.2. No Conflicts. Except as set forth on Schedule 4.2
attached hereto, the execution, delivery and performance by the Sellers, CHI
and Hasty of this Agreement and any Ancillary Documents to which they are a
party, the consummation by the Sellers, CHI and Hasty of the transactions
contemplated hereby or thereby, and compliance by the Sellers, CHI and Hasty
with any of the provisions hereof or thereof, will not (a) with respect to the
Sellers and CHI, conflict with or result in a breach of any provision of the
Sellers' or CHI's Certificate of Incorporation or By-Laws, (b) with or without
the giving of notice or lapse of time or both, violate any (i) judgment, writ
or decree applicable to the Sellers, CHI or Hasty or (ii) to the best of the
Sellers', CHI's and Hasty's knowledge, any law to which the Sellers, CHI or
Hasty is subject, and the violation of which would have a materially adverse
effect on the Subject Business, or (c) result in the breach, conflict, default,
or modification of with any terms, provision, covenant or condition of (or give
rise to any right of termination, cancellation, or acceleration under) the
provisions of any agreement, note, lien, mortgage, indenture, lease, or other
instrument or obligation by which the Sellers, CHI or Hasty or any of the
Purchased Assets may be bound except pursuant to a loan from Compass Bank (and
the Purchased Assets which are collateral for such loan shall be released at
Closing), the breach, conflict, default or modification of which would have a
material adverse effect on the Sellers or the Subject Business.
4.3. No Governmental Consents; No Lien. Except as set forth on
Schedule 4.3 attached hereto, no consent, authorization or approval of, or
filing with or exemption by any governmental, public or self-regulatory body or
authority is required in connection with the execution and delivery by the
Sellers, CHI or Hasty of this Agreement or any Ancillary Document to which they
are a party, or the consummation by the Sellers, CHI and Hasty of any of the
transactions contemplated hereby or thereby, and the failure to obtain any such
consent, authorization or approval would have a materially adverse effect on
the Subject Business. The execution, delivery, and performance by the Sellers,
CHI and Hasty of this Agreement or any Ancillary Document will not result in
the imposition of any lien, mortgage, security interest, pledge, encumbrance,
easement, or claim (with the exception of taxes not yet due and payable and any
environmental lien or encumbrance arising under Environmental Laws, as
hereinafter defined, which are the subject of specific representations and
warranties in Section 4.16) (each an "Encumbrance"), on any of the Purchased
Assets and will not materially impair any of the Purchased Assets nor the
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Buyer's ability to utilize same in the same manner in which they are currently
utilized by the Sellers in connection with the Subject Business.
4.4. Title to Property and Related Matters.
(a) Except as set forth on Schedule 4.4(a) attached hereto,
the Sellers have good title to the Purchased Assets, free and clear of
any Encumbrance of any nature whatsoever, except Permitted Exceptions
(as hereinafter defined).
(b) Except as set forth on Schedule 4.4(b), (i) all Fixed
Assets and Production Supplies are in good operating condition and
repair, subject to ordinary wear and tear, (ii) all of such Fixed Assets
and Production Supplies have been properly maintained in good condition,
with no extraordinary maintenance planned or anticipated and (iii) there
are no material capital expenditures currently contemplated or necessary
to maintain the current operation of the Subject Business. Prior to
Closing, any of the Sellers may convey (by sale, merger or otherwise) to
another Seller the Purchased Assets owned by any such Seller, which
Purchased Assets shall then be conveyed to the Buyer at Closing in
accordance with the terms hereof. The Purchased Assets, the Facilities,
the Excluded Assets and the Hasty Intellectual Properties are all of the
assets and properties used to conduct the Subject Business, and are
adequate and sufficient for the operation of the Subject Business as
historically operated by the Sellers. None of the assets and properties
used in the Fabrication Business are used in, or are necessary for, the
operation of the Subject Business as historically operated by the
Sellers.
4.5. Contracts; Leases. Schedule 4.5 attached hereto contains
a complete list of all written contracts of the Sellers relating to the Subject
Business which provide for the payment or receipt of annual consideration of
$2,500 or more and are being assumed by the Buyer hereunder (the "Identified
Contracts"), and describes the terms thereof and any right of a Seller to
termination on sixty (60) days' notice or less, except as set forth on Schedule
4.5. Each Identified Contract, each Real Property Lease and each Personal
Property Lease is valid, in full force and effect and enforceable in accordance
with its terms, subject to Creditors' Rights and Equity. Except as set forth
on Schedule 4.5, there has not occurred any default, or any event which, with
the lapse of time or the election of any person other than the Sellers, or any
combination thereof, will become a material default by the Sellers, nor, to the
knowledge of the Sellers and CHI, has there occurred any default by others or
any event which, with the lapse of time or the election of the Sellers, will
become a material default by others under any Identified Contract, Real
Property Lease or Personal Property Lease.
4.6. Litigation.
(a) Except as set forth on Schedule 4.6(a) or 4.6(b) attached
hereto and except for any matters arising under Environmental Laws,
which are the subject of specific representations and warranties in
Section 4.16, the Sellers have received no notice with respect to any
actions, suits, proceedings, arbitrations, claims,
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investigations or inquiries related to the Subject Business or the
Purchased Assets (the "Litigation") and, to the best knowledge of the
Sellers, CHI and Hasty, there is no Litigation threatened, before or by
any federal, state, municipal, or other governmental, administrative or
self-regulatory instrumentality or agency (or any private arbitration
tribunal), against or relating to the Purchased Assets or the Subject
Business. Except as set forth on Schedule 4.6(a), to the best knowledge
of the Sellers, CHI and Hasty, there is no situation or state of affairs
involving a customer of the Sellers that could serve as the basis for
any Litigation.
(b) Except as set forth on Schedule 4.6(b), there are no
product warranty claims presently pending in respect of products sold or
leased by the Sellers.
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4.7. Balance Sheet and Financial Statements; No Material
Adverse Change.
(a) Financial Statements. The Sellers shall deliver to the
Buyer (i) within thirty (30) days from the date hereof, the Sellers'
unaudited balance sheet as of November 30, 1996 (the "Financial
Statement Date") and the related statements of operations and cash flows
for the three (3) month period then ended, as certified by the Chief
Financial Officer of the Sellers at November 30, 1996; and, (ii) on or
before January 31, 1997, the audited balance sheets of the Sellers as of
August 31, 1994, 1995 and 1996, and the related statements of
operations, cash flows and stockholders' equity for the fiscal years
then ended, together with the related notes and schedules thereto, with
the opinion of BDO Seidman, certified public accountants. The Chief
Financial Officer's certificate required pursuant to (i) above shall be
substantially in the form of Exhibit "J" attached hereto, and a
certificate in substantially the same form shall accompany the Sellers'
monthly financial statements to be provided pursuant to the next
sentence of this Section. The Sellers will also deliver to the Buyer
between the date hereof and Closing monthly unaudited balance sheets and
statements of operations. All of such financial statements referred to
in the immediately preceding sentences are hereinafter referred to as
the "Sellers' Financial Statements". The Sellers' Financial Statements
(1) reflect all transactions at cost (including transactions with
related or affiliated parties), (2) are in accordance with the books of
account and records of the Sellers and fairly present the consolidated
financial position of the Sellers at the date indicated and the results
of operations and cash flows for the periods indicated, (3) contain and
reflect reserves for all material liabilities of the Sellers and (4)
were prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior accounting periods.
There have not been any transactions with related or affiliated parties
other than between the Sellers recorded or incurred during the period
covered by the Sellers' Financial Statements at amounts less than the
fair value of the goods and/or services provided. To the best of the
Sellers', CHI's and Hasty's knowledge, except to the extent reflected or
reserved against in the Sellers' Financial Statements, the notes
thereto, or any Schedule provided for in this Section 4, neither the
Sellers nor the Purchased Assets are subject to any liabilities (whether
accrued, absolute, contingent or otherwise) or adverse obligations,
whether or not such liabilities or obligations are normally shown or
reflected on a balance sheet, other than liabilities and obligations
arising in the ordinary course of business since the Financial Statement
Date, none of which are material and adverse.
(b) Since the Financial Statement Date, except as set forth on
Schedule 4.7(b) attached hereto or as set forth below:
(i) the Sellers have not suffered the occurrence of any
events which, in the aggregate, have had or are likely to have a
material adverse effect on the Purchased Assets, the Subject
Business or the Sellers;
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(ii) the Sellers have not made or granted any general
wage or salary increase to persons employed by the Sellers (each
and all of the foregoing being herein referred to as
"Employees");
(iii) the Sellers have not made any increase in or
commitment to increase any benefits for Employees or adopted or
made any commitments to adopt any additional benefit plan for
such Employees; or
(iv) to the best of the Sellers', CHI's and Hasty's
knowledge, there has not been any statute, rule, regulation or
order adopted or promulgated or proposed by a governmental body
which materially and adversely affects the Purchased Assets or
the Subject Business.
4.8. Suppliers and Customers. To the best of the Sellers',
CHI's and Hasty's knowledge, during the period from January 1, 1996 to the
Closing Date, (i) no single supplier or customer that accounted for more than
five (5%) percent of the Sellers' annual purchases or sales in the Sellers'
fiscal year ending August 31, 1996 (the "Sellers' 1996 Fiscal Year"), and/or
(ii) no group of suppliers or customers that, in the aggregate, accounted for
more than ten (10%) percent of the Sellers' purchases or sales in the Sellers'
1996 Fiscal Year, has (a) canceled, terminated or delivered written or, to the
best knowledge of the Sellers, oral notice to the Sellers threatening to cancel
or terminate its relationship with the Sellers or (b) materially decreased or
delivered written or, to the best knowledge of the Sellers, oral notice to the
Sellers threatening to decrease materially its usage of the Sellers' products.
The Sellers' suppliers and customers that accounted for five (5%) percent or
more of the Sellers' annual sales or purchases, respectively, in the Sellers'
1996 Fiscal Year, are listed on Schedule 4.8 attached hereto, which Schedule
shall set forth the respective percentage of such sales or purchases, as the
case may be, of such suppliers and customers during the Sellers' 1996 Fiscal
Year.
4.9. Brokers or Finders. No broker or finder has been involved
in this transaction on behalf of the Sellers and no party will be obligated to
pay any brokers' or finders' fees in connection with this transaction as a
consequence of any action or inaction on the Sellers' part.
4.10. Accounts Receivable. The accounts receivable which are
being purchased by the Buyer hereunder (the "Receivables") are valid and have
arisen in the ordinary course of business. The bad debt reserve as of the
Closing Date shall be adequate to cover those Receivables that are determined
to be uncollectible in accordance with GAAP.
4.11. Payables. The accounts payable (the "Payables") as of the
Closing Date to be assumed by the Buyer hereunder are valid, have arisen in the
ordinary course of business, and represent money owed for goods and services
used or to be used in connection with the Subject Business.
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4.12. Taxes.
(a) As used herein "Tax" or "Taxes" shall mean taxes of any
kind payable to any taxing authority of the United States (federal,
state or local) or any other country or jurisdiction including, without
limitation, (i) income, gross receipts, ad valorem, value added, sales,
use, service, franchise, profits, real or personal property, capital
stock, license, payroll, withholding, employment, social security,
workers compensation, unemployment compensation and insurance, utility,
severance, production, excise, stamp, occupation, premium, windfall
profits, transfer and gains taxes, (ii) customs duties, imposts,
charges, levies, or other assessments of any kind, (iii) interest,
penalties, and additions to tax imposed with respect to the above taxes,
and (iv) any damages, costs, expenses, fees or other liability arising
from such Tax or Taxes.
(b) The Sellers have filed, or obtained extensions of the time
to file all returns for Taxes required to be filed by them and have paid
all Taxes (including interest and penalties thereon, if any) owing by
them, except for Taxes which have not yet accrued or otherwise become
due for which adequate provision has been made in Financial Statements
referred to in Section 4.7 hereof.
4.13. Compliance with Applicable Laws. Except as set forth in
Schedule 4.13, to the best of the Sellers', CHI's and Hasty's knowledge,
neither the use of any of the Purchased Assets nor the conduct of the Subject
Business by the Sellers violates any laws, statutes, ordinances, rules,
regulations, decrees or orders of the United States (federal, state or local)
or any other country or jurisdiction applicable to the Purchased Assets or the
Subject Business, except for Environmental Laws which are the subject of
specific representations and warranties in Section 4.16 (each and all of the
foregoing being herein referred to as "Laws"), the violation of which would
have a material adverse effect on the Sellers, the Purchased Assets or the
Subject Business. The Sellers have not received any written notice from any
governmental entity, agency or regulatory body of any violation of Law
applicable to the Subject Business or any of the Purchased Assets.
4.14. Employees, Labor Relations, Etc.
(a) Schedule 4.14(a) attached hereto sets forth the name,
position, date of hire and the current amount of rate of compensation,
together with all accrued benefits of each full-time and part-time
Employee of the Sellers as of the date hereof. Except as set forth on
Schedule 4.14(a), all Employees have been paid all wages, salaries,
commissions, bonuses and other direct compensation for all services
performed by them to the date hereof, other than amounts which have not
yet become payable in accordance with the Sellers' customary practices,
and the Sellers are not liable for any severance pay to any current or
prior Employee. Except as set forth on Schedule 4.14(a), no Employee
has delivered written or, to the best knowledge of the Sellers, oral
notice of his or her intention to resign or retire. To the best of the
Sellers', CHI's and Hasty's knowledge, (i) the Sellers are in
substantial compliance with all federal, state and local laws and
regulations respecting employment and
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employment practices, terms and conditions of employment and wages and
hours; (ii) there are no unfair labor practice complaints against the
Sellers pending before the National Labor Relations Board or any
comparable state or local agency; (iii) there is no labor strike,
dispute, slowdown or stoppage pending or threatened against or involving
the Sellers; (iv) no representation question has been asserted regarding
recognition as a collective bargaining agent respecting any of the
Sellers' Employees; (v) no grievance which might have a material adverse
effect on the conduct of the Subject Business, nor any arbitration
proceeding, arising out of, or under any collective bargaining
agreements is pending and no claim therefore has been asserted; and (vi)
no collective bargaining agreement exists or is currently being
negotiated by the Sellers.
(b) The Sellers have withheld all amounts required by laws
applicable to the Sellers and the Subject Business or Contracts to be
withheld from the wages or salaries of the Employees and are not liable
for any arrearage of wages or any taxes or penalties for failure to
comply with any of the foregoing or for payment to any trust or other
fund or to any authority with respect to unemployment compensation,
Social Security or other benefits for such Employees. Except as
described on Schedule 4.14(b) attached hereto, to the best of the
Sellers', CHI's and Hasty's knowledge, the Sellers have not engaged in
any unfair labor practice or discriminated on the basis of race, age,
sex or otherwise in its employment conditions or practices with respect
to the Employees.
4.15. Employee Benefit Plans, Etc. Schedule 4.15 attached
hereto contains a true and complete list of each plan, program or arrangement,
including, but not limited to, pension, bonus, section 401(k) deferred
compensation, supplemental retirement, severance or termination pay,
hospitalization, medical, retiree health, life insurance, dental, disability,
salary continuation, vacation, supplemental unemployment benefits,
profit-sharing, or retirement plan, program, policy or arrangement, maintained,
contributed to, or required to be contributed to, by the Sellers for the
benefit of any Employee of the Sellers, whether or not any of the foregoing is
funded, whether formal or informal and whether or not subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (collectively, the
"Benefit Plans"). The Sellers have delivered to the Buyer true and complete
copies of the Benefit Plans listed on Schedule 4.15 or true and complete
summaries of the material terms if no plan document exists. The Sellers do not
maintain any "single employer plan" within the meaning of Section 4001(a)(15)
of ERISA. No property right of the Sellers is the subject of a lien of the
Pension Benefit Guaranty Corporation pursuant to ERISA Section 4068. To the
best of the Sellers' knowledge, no "prohibited transactions" (as that term is
defined in ERISA Section 406 or Section 4975 of the Internal Revenue Code of
1986, as amended) involving the Sellers of any "employee welfare benefit plan"
sponsored by the Sellers have occurred.
4.16. Environmental Matters.
(a) For the purposes of Section 4.16 and Section 11 of this
Agreement, the following definitions shall apply:
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Environment: Ambient air, surface water, groundwater, soil,
sediment and land.
Environmental Conditions: Any environmental contamination of any
kind or nature resulting from the presence of Hazardous Materials
in the surface soils, subsurface soils, surface waters or
groundwater.
Environmental Laws: All existing federal, state or local laws or
ordinances and any regulations, rules, or administrative or
judicial rulings issued or promulgated thereunder and common law
relating to (1) Releases or threatened Releases of Hazardous
Materials or materials containing Hazardous Materials; (2) the
manufacture, handling, transport, use, treatment, storage or
disposal of Hazardous Materials or materials containing Hazardous
Materials; or (3) otherwise relating to the protection of human
health or the Environment, including, without limitation, the
Comprehensive Environmental Response Compensation and Liability
Act, 42 U.S.C. S 9601 et seq., ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. S 6901 et seq.,
("RCRA"), the Clean Water Act, 33-U.S.C. S 1251 et seq., the
Clean Air Act, 42 U.S.C. S 7401 et seq., the Toxic Substances
Control Act, 15 U.S.C. S 2601 et seq., ("TSCA"), and all state
analogues and counterparts to any of the foregoing, except for
OSHA Laws (as hereinafter defined), which are the subject of
specific representations and warranties in Section 4.18 hereof.
Facilities: As defined in Section 1.6.
Hazardous Materials: Any substance defined as "Hazardous Waste",
"Hazardous Substance", "Hazardous Material", pollutant or
contaminant under any existing Environmental Laws. Hazardous
Materials include, without limitation, asbestos, polychlorinated
biphenyls and petroleum products.
Phase I Environmental Assessments: The Phase I environmental
audit reports concerning the Facilities, if any, obtained by the
Sellers or Hasty pursuant to Section 7.4 hereof; and
Release: Any spilling, leaking, pumping, pouring, leaching,
emitting, emptying, discharging, injecting, escaping, dumping or
disposing of Hazardous Materials or materials containing
Hazardous Materials into the Environment.
(b) Except as set forth in Schedule 4.16 and except as set
forth in the Phase I Environmental Assessments, to the best of the
Sellers', CHI's and Hasty's
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knowledge, there are no Environmental Conditions on, at, under or
emanating from any of the Facilities. To the extent that the Sellers
use any materials that are classified as Hazardous Materials in their
ordinary business operations, all of such items are being, and will
continue to be by Sellers prior to Closing, used in accordance with all
applicable Environmental Laws.
(c) Except as set forth in Schedule 4.16 and except as set
forth in the Phase I Environmental Assessments, the Sellers have not
received any notice of any Litigation claiming or alleging that the
Sellers (i) have violated any applicable Environmental Laws; or (ii) are
responsible or potentially responsible for any remedial or removal
action under any applicable Environmental Laws, and on the date hereof
to the best of the Sellers', CHI's and Hasty's knowledge, no such
Litigation is threatened.
(d) Except as disclosed in Schedule 4.16:
(i) the Sellers have all Permits required under applicable
Environmental Laws that are necessary to conduct the business of
the Sellers at the Facilities as presently conducted, the absence
of which would have a material adverse effect on the Sellers (the
"Material Environmental Permits"), and have provided copies of
all the Material Environmental Permits to the Buyer;
(ii) all the Material Environmental Permits are in full force
and effect and the Sellers are not in material default of any
thereof;
(iii) to the best of Sellers', CHI's and Hasty's knowledge,
there is no threatened suspension, cancellation or non-renewal of
any of the Material Environmental Permits or any basis for such
suspension, cancellation or non-renewal;
(iv) the Sellers shall apply to renew all the Material
Environmental Permits that shall expire on or before Closing; and
(v) Schedule 4.16 lists all the Material Environmental Permits
which by their terms or by operation of law will expire or
otherwise become ineffective upon or by reason of the completion
of the transaction contemplated in this Agreement. The Sellers
shall use their commercially reasonable efforts and cooperate
with the Buyer in securing a transfer or reissue of such Material
Environmental Permits on substantially similar terms to the Buyer
so as to allow the Buyer to continue the Subject Business at the
Facilities without interruption after Closing.
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(e) PCB Items. Except as set forth in Schedule 4.16,
to the best of the Sellers', CHI's and Hasty's knowledge, none of
the Purchased Assets is a PCB Item (as defined in 40 C.F.R. S
761.3).
4.17. Permits, Licenses, Etc. Except as set forth in Schedule
4.17 attached hereto, to the best of the Sellers', CHI's and Hasty's knowledge,
the Sellers have all Permits (except for Environmental Permits, which are the
subject of specific representations and warranties in Section 4.16) that are
required in order to carry on the business of the Sellers as presently
conducted, the absence of which would have a material adverse effect on the
Sellers (the "Material Permits"), and are not in material default of any
thereof. Schedule 4.17 sets forth a correct and complete list of all Material
Permits, all of which are in full force and effect, and, to the best knowledge
of the Sellers, CHI and Hasty, no suspension, cancellation or non-renewal of
any Material Permit is threatened, nor, to the best of the Sellers', CHI's and
Hasty's knowledge, does there exist any basis for such suspension, cancellation
or non-renewal. As to any such Material Permit that has expired or shall
expire on or prior to the Closing Date, the Sellers have applied or will apply
for the renewal of same and expect the same to be renewed in the usual course
of business. The Sellers shall use their commercially reasonable efforts and
cooperate with the Buyer in securing a transfer or reissue of such Material
Permits to the Buyer so as to allow the Buyer to continue the Subject Business
without interruption after Closing. A true, complete and correct copy of each
Material Permit as set forth in Schedule 4.17 has been delivered to the Buyer.
4.18. OSHA. The Sellers have not received citation respecting
any material violation of the OSHA Laws by the Sellers relating to the Subject
Business, and to the best of the Sellers', CHI's and Hasty's knowledge, the
Sellers are not in material violation of, and have not been in material
violation of, the Occupational Safety and Health Act of 1970, including
applicable standards, rules and regulations thereunder, or any other federal,
state or local or foreign laws, including rules and regulations thereunder
relating or otherwise affecting employee health and safety (collectively, the
"OSHA Laws").
4.19. Inventory and Rental Equipment. The items of Inventory
and those items of the Fixed Assets held for rental (including, without
limitation, mattress systems and related equipment) (collectively, the "Rental
Equipment") contained in the Purchased Assets are not obsolete or defective and
such items are saleable or usable in the ordinary course of business. The
levels of the Inventories and Rental Equipment currently on hand are not, and
the amount of Inventories and Rental Equipment on hand as of the Closing will
not be, materially in excess of or less than that necessary for the operation
of the Subject Business in the ordinary course of business consistent with past
practices of the Sellers. Slow-moving or under utilized Inventory and Rental
Equipment (collectively, the "Obsolete Inventory") have been written off in the
Sellers' Financial Statements in accordance with GAAP, except for certain items
of Obsolete Inventory (the aggregate value of which is not material) which have
been retained on the books of the Sellers in order to service certain
customers.
4.20. Insurance Policies. Included in Schedule 4.20 attached
hereto is a true and complete Schedule of all policies of fire, public
liability and other kinds of insurance maintained as of the date hereof by the
Sellers relating to the Subject Business and the Purchased Assets, except
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any and all life insurance policies on the lives of anyone other than John A.
Carbona, which Schedule includes, without limitation, the kind of insurance,
the insurer, the amount of coverage, the expiration date, the annual premium,
the person(s) to whom the proceeds are payable, the policy number and any
pending claim(s) thereunder. All such policies are binding and in full force
and effect, and there exists no default, or event that with notice or the lapse
of time or both, would constitute a default, under any such insurance policy by
the Sellers or, to the best knowledge of the Sellers, CHI and Hasty, by the
insurance company issuing such policy.
4.21. Intellectual Properties.
(a) Attached hereto as Schedule 4.21 is a list of all
patents, patent applications, trademarks, trademark applications,
trade names, copyrights and copyright applications owned or used
by the Sellers in connection with the Subject Business,
including, without limitation, the Hasty Intellectual Properties,
and the respective ownership thereof. Listed on such Schedule
are also all licenses and other agreements related thereto,
identifying each licensor and licensee and the Sellers have
delivered to the Buyer complete and current copies of each such
written license and other agreements and true and complete
summaries of any oral agreements. Such Schedule further lists all
material agreements relating to third party technology, know-how
and processes which is proprietary to the Sellers or which the
Sellers are licensed or authorized to use in connection with the
Subject Business, identifying each licensor and licensee, and the
Sellers have delivered to the Buyer complete and correct copies
of each such written license and other agreement and true and
complete summaries of any oral agreements. The Sellers hold free
from contractual restriction, except those described in Schedule
4.21, all Sellers' Intellectual Properties indicated as being
owned by the Sellers in such Schedule and Hasty owns free from
any contractual restriction, except those described in Schedule
4.21, all Hasty Intellectual Properties indicated as being owned
by Hasty in such Schedule. At the Closing, the Buyer will own or
have all necessary rights to the Sellers' Intellectual Properties
and, assuming the Hasty Intellectual Properties Agreement is
executed and delivered by the Buyer and Hasty, the Hasty
Intellectual Properties used or necessary to operate the Subject
Business in the manner in which the Subject Business has
heretofore historically been operated by the Sellers. All
patents, trademarks and copyrights of the Sellers and Hasty used
in connection with the Subject Business are valid. Except as
otherwise set forth in Section 7.7 hereof, all licenses for the
use of the Hasty Intellectual Properties by anyone other than the
Buyer will be terminated on or before the Closing.
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(b) Except as set forth in Schedule 4.21, (i) the
consummation of the transaction contemplated hereby will not
alter or impair any rights to use the Sellers' Intellectual
Properties or the Hasty Intellectual Properties, (ii) no known
claims have been asserted by any person challenging the Sellers'
or Hasty's right as to any of the Sellers' Intellectual
Properties, (iii) to the best of the Sellers', CHI's and Hasty's
knowledge and belief, none of the Sellers' Intellectual
Properties or the Hasty Intellectual Properties infringe or
otherwise violate the rights of others or are being infringed
upon by others, (iv) no licenses, sublicense or agreements
pertaining to any of the Sellers' Intellectual Properties or the
Hasty Intellectual Properties used in connection with the Subject
Business have been granted by the Sellers or Hasty, as the case
may be, to any person or entity other than the Sellers, and (v)
to the best of the Sellers', CHI's and Hasty's knowledge and
belief, none of the services or products provided by the Sellers
in connection with the Subject Business infringe upon or violate
or is alleged to infringe upon or violate any patent, copyright,
trademark, trade secret or any other intellectual property rights
or similar rights of any third parties.
4.22. Full Disclosure. Neither this Agreement, the Schedules
attached hereto, nor any other document furnished by the Sellers, CHI or Hasty
to the Buyer, taken as a whole, contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements contained
herein and therein not misleading. Any matter disclosed on any Schedule
attached hereto is, to the extent applicable to any other Schedule hereunder,
incorporated into such Schedule.
5. Buyer's Representations and Warranties. The Buyer hereby
represents and warrants to, and agrees with, the Sellers, CHI and Hasty as
follows:
5.1. Authority; Binding Effect; Enforceability. The Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of Texas. The execution and delivery by the Buyer of this Agreement and
all other instruments and documents to be executed and delivered by the Buyer
in connection herewith (collectively, the "Ancillary Buyer Documents"; together
with the Ancillary Documents, the "Ancillary Documents"), and the consummation
by the Buyer of the transactions contemplated herein and therein, have been
duly and validly authorized by the Board of Directors of the Buyer. This
Agreement has been duly and validly executed and delivered by the Buyer and
constitutes the valid and binding obligation of the Buyer, enforceable against
the Buyer in accordance with its terms, subject to Creditors' Rights and
Equity. When duly and validly executed and delivered by the Buyer, the
Ancillary Buyer Documents will constitute the valid and binding obligation of
the Buyer, enforceable against the Buyer in accordance with their respective
terms, subject to Creditors' Rights and Equity. The Buyer has all requisite
corporate power and authority to enter into this Agreement and all Ancillary
Buyer Documents and perform its obligations hereunder and thereunder.
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5.2. No Conflicts. The execution and delivery by the Buyer of
this Agreement and any Ancillary Buyer Documents, the consummation by the Buyer
of the transactions contemplated hereby and thereby, and compliance by the
Buyer with any of the provisions hereof and thereof will not (a) conflict with
or result in a breach of any provision of the Buyer's Articles of Incorporation
or By-Laws, (b) with or without the giving of notice or lapse of time or both,
violate any (i) judgment, order, writ or decree of any Court applicable to the
Buyer or (ii) any Law to which the Buyer is subject, or (c) result in the
material breach, conflict, default, or modification of with any terms,
provisions, covenants or conditions of (or give rise to any right of
termination, cancellation, or acceleration under) the provisions of any
agreement, note, lien, mortgage, indenture, lease, or other instrument or
obligation by which the Buyer may be bound.
5.3. No Consents. No consent, authorization or approval of, or
filing with or exemption by any governmental, public or self-regulatory body,
authority or any other person is required in connection with the execution and
delivery by the Buyer of this Agreement or any Ancillary Buyer Documents, or
the consummation by the Buyer of any of the transactions contemplated hereby or
thereby.
5.4. Brokers or Finders. Except for JAD Capital, Inc., no
broker or finder has been involved in this transaction on behalf of the Buyer
and no party will be obligated to pay any brokers' or finders' fees in
connection with this transaction as a consequence of any action or inaction on
the Buyer's part. The Buyer will pay any broker's or finder's fee due to JAD
Capital, Inc.
5.5. Litigation. The Buyer has received no notice with respect
to any Litigation and, to the best knowledge of the Buyer, there is no
Litigation threatened, before or by any federal, state, municipal, or other
governmental, administrative or self-regulatory instrumentality or agency (or
any private arbitration tribunal), against or relating to the Buyer. To the
best knowledge of the Buyer, there is no situation or state of affairs
involving the Buyer that could serve as the basis for any Litigation.
6. Non-Competition; Confidentiality.
6.1. Sellers' and CHI's Non-Competition. As an inducement and
necessary incident to the Buyer's acquisition of the Purchased Assets, the
Sellers and CHI agree that for a period of ten (10) years from and after the
Closing Date (the "Term"), neither the Sellers nor CHI will own, operate,
engage in or be interested or affiliated with, or be employed by, directly or
indirectly, a business engaged in the Subject Business, in the United States of
America; provided, that the purchase of publicly traded securities of a
corporation engaged in such business or service shall not in and of itself be
in violation of this Agreement so long as neither the Sellers nor CHI (in the
aggregate) owns, directly or indirectly, more than three (3%) percent of the
securities of such corporation, and provided further that activities permitted
pursuant to Section 7.5 hereof shall not be deemed a violation of this
Agreement. Further, in the event of the default by the Buyer (a) after Closing
of any of the Buyer's covenants and agreements set forth herein, and the
failure of the Buyer to cure such default within any applicable grace period,
or (b) under the Note and the foreclosure by the Sellers of the assets of the
Buyer securing the repayment of the Note, the provisions of Sections 6.1 and
6.2 hereof shall be terminated and of no force and effect as of the date of
expiration of the
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applicable grace period, with respect to (a) above, or as of the date of such
foreclosure by the Sellers, with respect to (b) above, as the case may be.
6.2. Sellers', CHI's and Hasty's Nondisclosure, Non-
Solicitation and Cooperation. Except as required by law or with respect to
litigation under this Agreement, the Sellers, CHI and Hasty agree that they
shall not disclose to anyone other than the Buyer and hold in strictest
confidence any and all confidential, non-public data and information (the
"Confidential Information") within their or his knowledge concerning the
Subject Business. The Sellers, CHI and Hasty shall use their commercially
reasonable efforts to insure that all employees, agents and authorized
representatives will keep the Confidential Information confidential, and shall
take all reasonable measures as the Sellers, CHI and Hasty would use to protect
their own Confidential Information. Further, the Sellers, CHI and Hasty agree
that for a period of two (2) years after the Closing Date, they will not,
directly or indirectly, induce any of the employees of the Sellers that are
hired by the Buyer to leave the employ of the Buyer. From and after the
Closing, the Sellers, CHI and Hasty will not interfere with the Buyer's
business relations with respect to the Subject Business.
6.3. Remedies. The Buyer shall be entitled to specific
performance, injunctive, and other equitable relief for the enforcement of the
provisions of Sections 6.1 and 6.2 hereof by a court of competent jurisdiction,
it being acknowledged and agreed by the Sellers and CHI that any breach or
threatened breach of Sections 6.1 or 6.2 will cause irreparable injury to the
Buyer for which money damages alone will not provide an adequate remedy. The
rights and remedies set forth in this Section 6.3 shall be in addition to, and
not in lieu of, any other rights and remedies available to the Buyer at law or
in equity.
6.4. Reformation. In the event that the provisions of this
Section 6 or any portion thereof should be found by a court of competent
jurisdiction to be invalid or unenforceable because of public policy or for any
similar reason, such court shall be authorized by the parties hereto exercise
its discretion in reforming such provisions for the purpose of affording and
granting the broadest protection under this Section 6 which such court deems
permissible and enforceable under the circumstances.
7. Additional Covenants and Agreements of the Parties.
7.1. Operation of the Sellers Pending Closing. Between the
date hereof and the Closing:
(a) Except as contemplated by this Agreement, the Sellers will
conduct the Subject Business according to its ordinary and usual course
and substantially in the manner heretofore conducted, provided, however,
the Sellers shall have the right to sell obsolete inventory. The
Sellers will use their commercially reasonable efforts to preserve in
all material respects its business organization, business relationships
and employee relationships intact. The Sellers will maintain, service
and repair (if necessary) the Fixed Assets, Production Supplies,
Inventory and Rental
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Equipment so that, at Closing, such Fixed Assets, Production Supplies,
Inventory and Rental Equipment are in good operating condition and
repair, ordinary wear and tear excepted.
(b) The Sellers will maintain their books, accounts and
records in the usual manner and will not change its accounting practices
or policies.
(c) The Sellers will maintain, in full force and effect, all
of the policies of insurance now in effect, or renewals thereof, and
will give all notices and will present all claims under all policies of
insurance in due and timely fashion.
(d) The Sellers will not increase or agree to increase the
compensation payable or to become payable or benefits available or to
become available to any of the employees or agents of the Sellers,
except raises or other benefits to be given in the ordinary course of
the Sellers' business.
(e) The Sellers will not sell, transfer, license, encumber or
otherwise dispose of any assets or properties, except for the sale of
Excluded Assets and its inventory in the ordinary course of business, in
accordance with normal and historical pricing, warranty and other sales
terms.
(f) The Sellers, consistent with the Sellers' past practices,
will comply in all respects with all applicable laws, rules,
regulations, judgments, decrees, orders, governmental permits,
certificates and licenses, including without limitation, those relating
to the filing of reports and the payment of income, franchise and other
taxes, duties and charges due to be paid prior to the Closing.
7.2. Access to Information. From the date of this Agreement
until the Closing, the Buyer shall be entitled, through its employees and
representatives, to make such investigations of the assets, liabilities,
properties, business and operations of the Sellers and the Subject Business,
and such examination of the books, records and financial condition of the
Sellers and the Subject Business, as the Buyer wishes. Any such investigation
and examination shall be conducted upon reasonable notice to the Sellers at
reasonable times and under reasonable circumstances and the Sellers shall
cooperate fully therein. In order that the Buyer may have full opportunity to
make such business, accounting and legal review, examination and investigation
as it may wish of the business and affairs of the Sellers, the Sellers shall
furnish the representatives of the Buyer during such period with all such
information and copies of such documents concerning the affairs of the Sellers
as such representatives may reasonably request and shall cause its officers,
employees, consultants, agents, accountants and attorneys to cooperate fully
with such representatives in connection with such review and examination. If
this Agreement is terminated, the Buyer, its officers, directors, employees,
agents and authorized representatives shall keep confidential and shall not use
in any manner any information or documents obtained from the Sellers concerning
the assets, liabilities, properties, customer lists, business and operations of
the Sellers, unless readily ascertainable from public or published information,
or trade sources, or already known or subsequently developed by the Buyer
independently of any investigation of the Sellers, or received from a third
party not under an obligation to the Sellers to keep such information
confidential. If this Agreement is terminated,
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(a) the Buyer shall immediately return to the Sellers any documents obtained
from the Sellers together with all copies thereof then in the Buyer's
possession or under the Buyer's control, and shall agree thereafter to keep the
contents thereof strictly confidential and (b) the Buyer shall not induce or
attempt to induce, or assist others in inducing or attempting to induce, any
employee of the Sellers to terminate his relationship with the Sellers for a
period of two (2) years from the date hereof. The Sellers shall be entitled to
specific performance, injunctive and other equitable relief for the enforcement
of the provisions of this Section 7.2 by a court of competent jurisdiction, it
being acknowledged and agreed by the Buyer that any breach or threatened breach
of this Section 7.2 will cause irreparable injury to the Sellers for which
money damages alone
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will not provide an adequate remedy. The rights and remedies set forth in this
Section 7.2 shall be in addition to, and not in lieu of, any of the rights and
remedies available to the Sellers at law or in equity.
7.3. Mail.
(a) The Sellers hereby authorize the Buyer from and after the
Closing to receive and open all mail and other communications addressed
to the Sellers and received by the Buyer, and to act with respect to
such communications in such manner as the Buyer may elect if such
communications relate to the Purchased Assets or the Subject Business,
or, if such communications do not so relate, the Buyer agrees to
maintain the confidentiality thereof and forward the same promptly (and
in no event later than ten (10) days after receipt) to the Sellers.
(b) The Sellers shall promptly (and in no event later than ten
(10) days after receipt) deliver to the Buyer the original of any mail
or other communication received by it after the Closing pertaining to
the Purchased Assets or the Subject Business in respect of the period
after the Closing Date.
7.4. Phase I Environmental Assessments. If requested by the
Buyer's lender, or if otherwise reasonably requested by the Buyer, the Sellers
shall promptly cause Phase I environmental audits (the "Phase I Environmental
Assessments") of the 1735 Facility and the 1201 Facility to be prepared and
delivered to the Buyer. Subject to the limitations set forth in the
immediately succeeding sentence, the Sellers shall undertake and shall perform
until completed all commercially reasonable environmental remediation and
corrective actions set forth in the Phase I Environmental Assessments, subject
to the limitations set forth in this Section 7.4. The Sellers shall diligently
attempt to complete all such corrective actions on or before the Closing Date,
and shall bear all fees, costs and expenses (the "Remediation Costs") arising
from or in connection with performance of such corrective actions up to an
aggregate amount of Two Hundred Thousand ($200,000) Dollars. If the
Remediation Costs exceed Two Hundred Thousand ($200,000) Dollars, and the
Sellers notify the Buyer that they will not expend funds in excess of such
amount for such remediation, the Buyer shall have the option to: (a) pay for
any excess Remediation Costs, (b) consummate the transactions contemplated
herein, but the Buyer, at its option, will be relieved of the obligation to
lease the Facility requiring such corrective action, or (c) terminate this
Agreement.
7.5. New Products. From and after the Closing Date, the
Sellers, CHI and Hasty hereby agree to grant to the Buyer the right of first
refusal to license or otherwise use any product, process, know-how, patent or
the like (collectively, the "New Products") developed, created or otherwise
invented by any of them for a period of ten (10) years after the Closing Date
which relate to the Subject Business, which license or right to use will be
evidenced by an appropriate agreement containing royalties, terms and
conditions which are commercially reasonable with respect to such New Products
and their usage and marketability. The Sellers, CHI and Hasty hereby agree to
promptly notify the Buyer in writing of any such New Products, and if the Buyer
desires to use any such New Products, the parties hereto agree to use their
commercially reasonable efforts to enter into
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an agreement whereby the Buyer will be entitled to use such New Products in
connection with the Subject Business.
7.6. WARN Act. From and after the Closing, the Buyer will
assume and be responsible for compliance with the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. Section 2101(a)(2) et. seq. (the "WARN
Act") with respect to the employees (the "Sellers' Former Employees") of the
Sellers engaged in the Subject Business on the Closing Date. The Buyer agrees
that the Sellers will cease to be the employers of the Sellers' Former
Employees as of the Closing Date. The Buyer warrants and represents that, on
or before the Closing Date:
(a) the Buyer will offer employment to and employ as many of
the Sellers' Former Employees as is necessary to avoid a "plant closing"
as such term is defined in the WARN Act;
(b) the Buyer will offer employment to and employ as many of
the Sellers' Former Employees as is necessary to avoid a "mass layoff"
as such term is defined in the WARN Act; and
(c) the Buyer will take all other actions necessary to avoid
the Sellers' liability pursuant to the WARN Act pursuant to the
consummation of the transaction herein contemplated.
7.7. Termination of Licenses. At the Closing, the Sellers and
Hasty shall terminate all agreements between them pursuant to which the Sellers
have used the Hasty Intellectual Properties, and the Sellers and Hasty shall
terminate all license agreements, if any whereby any other persons or entities
have used the Sellers' Intellectual Properties or the Hasty Intellectual
Properties, as the case may be, except with respect to authorized dealers,
representatives or distributors of the Sellers whose contracts are being
assigned to, and assumed by, the Buyer hereunder.
7.8. Release of 1995 Carbona Agreement. At the Closing, Cardio
Systems Operations, Inc. shall release Carbona from the 1995 Carbona Agreement
(the "Carbona Release").
7.9. Termination of Old Leases. CHA and the Sellers shall
terminate the Old 1735 Lease, and Hasty, as the sole owner of CH Management,
shall cause CH Realty to terminate the Old 1201 Lease.
7.10. Commercially Reasonable Efforts. The parties hereto shall
each use their commercially reasonable efforts to cause the fulfillment of the
conditions set forth in Sections 9 and 10 which they are in a position to
effect prior to the Closing.
7.11. Schedules and Exhibits.
(a) On or before January 31, 1997, the Sellers agree to
deliver to the Buyer, for the Buyer's review and approval, all of the
Schedules referred to herein. Such Schedules, upon approval thereof by
the Buyer, shall be attached hereto and be
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incorporated herein for all purposes. The Buyer agrees to review the
Schedules promptly upon their receipt from the Sellers, and to notify
the Sellers in writing of approval or rejection of the Schedules within
fifteen (15) days of receipt. If the Buyer rejects the Schedules, this
Agreement will terminate without liability on the part of any party
hereto to any other party hereto (except for the rights and obligations
set forth in Section 7.2 hereof).
(b) The Buyer, the Sellers, CHI and Hasty agree, in good
faith, to use commercially reasonable efforts to agree to the form of
the Exhibits on or before January 15, 1997, which Exhibits, when agreed
to, shall be attached hereto and incorporated herein for all purposes.
If the Exhibits are not agreed to by such date, the Sellers, CHI and
Hasty, on the one hand, and the Buyer, on the other hand, shall have the
right to terminate this Agreement without liability on the part of any
party hereto to any other party hereto (except for the rights and
obligations set forth in Section 7.2 hereof).
7.12. Sellers' Litigation. The Sellers and the Buyer agree to
use their respective commercially reasonable efforts to agree upon (a) the
transfer at Closing to the Buyer of litigation in which a Seller is suing for
the collection of monies owed to it, and (b) the terms of the management by the
Buyer of litigation in which a Seller is the defendant or a Seller is subject
to a counterclaim by another party to such litigation. The agreement of the
parties hereto to the matters set forth in this Section 7.12 is not a condition
of Closing.
8. Employee Matters.
8.1. Employment. The Sellers will use their commercially
reasonable efforts to assist the Buyer in retaining those of the Employees to
whom the Buyer elects to offer employment, but the Sellers will not be
obligated to incur any costs or expenses in connection therewith.
8.2. Benefit Plans. The Sellers shall take such action as may
be appropriate with respect to any Benefit Plans so that after the Closing
Date, the Buyer shall not be obligated to any Employees, whether or not hired
by the Buyer, with respect to and under such Benefit Plans. Further, the
Sellers shall be responsible for any continuation of coverage of group health
plans under Title X of the Consolidated Omnibus Budget Reconciliation Act of
1985 (COBRA) for any employees terminating on or before the Closing Date. The
Sellers shall cause the trustees of the 401(k) plan sponsored by them to
transfer to the plan established by the Buyer under Section 8.3 hereof the
account balance of participants hired by the Buyer. Such transfer shall be
effected in a trustee-to-trustee transaction governed by Section 414(l) of the
Internal Revenue Code of 1986, as amended (the "Code").
8.3. Buyer Benefit Plans. Not later than the Closing Date, the
Buyer shall establish a qualified profit sharing plan, which includes a cash or
deferred arrangement under Section 401(k) of the Code, and a medical benefit
plan, each of which shall have terms comparable to the corresponding plans
maintained by the Sellers. Each of such plans shall provide for immediate
eligibility and continuation of prior service with the Sellers for Employees of
the Sellers who are
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hired by the Buyer as of the Closing Date. The Buyer shall use all
commercially reasonable efforts to obtain a medical benefit plan that does not
impose any condition or limitation on such Employees due to pre-existing
conditions. The Buyer shall cause the trustee of the 401(k) plan established
by it to accept a transfer of funds held by the Sellers' 401(k) plans pursuant
to Section 8.2.
9. Conditions Precedent to the Obligations of Buyer. The
obligations of the Buyer under this Agreement are subject to the delivery of
the documents and other items set forth in Sections 3.2 and 3.4 and the
satisfaction, at or prior to the Closing, of each of the following conditions
(unless expressly waived in writing by the Buyer), and the Sellers, CHI and
Hasty shall exert their commercially reasonable efforts to cause each such
condition to be so fulfilled:
(a) The execution and delivery by Hasty of the Hasty
Intellectual Properties Agreement and the Hasty Non-Competition
Agreement;
(b) The execution and delivery of the New Lease Agreements;
(c) Carbona shall have entered into an Employment Agreement
(the "New Carbona Employment Agreement") with the Buyer on terms
satisfactory to the Buyer and Carbona;
(d) The delivery of the documents and monies required under
Section 3.2;
(e) No litigation, governmental action or other proceeding
shall have been threatened, asserted or commenced which materially
adversely affects the Sellers, the Purchased Assets or the transactions
contemplated hereby;
(f) Prior to the Closing, any Encumbrances to which the
Purchased Assets are subject (except Permitted Exceptions) shall have
been released and the Buyer shall be provided with evidence of such
releases having been filed in the appropriate offices of governmental
authorities in each jurisdiction where such filing is necessary for
proper filing in accordance with applicable law;
(g) The Sellers shall have completed the corrective actions
(if any) required under Section 7.4 hereof;
(h) The delivery of the Compass Bank 1201 Consent; and
(i) The Buyer shall have completed a pre-acquisition review of
the Subject Business, including, without limitation, a review of the
Inventory, the Fixed Assets, the Personal Property Leases, the Real
Property Leases, the Assumed Contracts and the Facilities, and shall
have discovered no conditions, facts or circumstances which, in the
opinion of the Buyer, could have a material adverse effect on the value
to the Buyer of the Subject Business, or its condition (financial or
otherwise) or prospects taken as a whole.
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10. Conditions Precedent to the Obligations of Sellers, CHI and
Hasty. The obligations of the Sellers, CHI and Hasty under this Agreement are
subject to the delivery of the documents and other items set forth in Sections
3.3 and 3.4 and the satisfaction, at or prior to the Closing, of each of the
following conditions, and the Buyer shall exert its commercially reasonable
efforts to cause each such condition to be so fulfilled:
(a) The execution and delivery by the Buyer of the New Lease
Agreements, the Hasty Intellectual Properties Agreement and the Hasty
Non-Competition Agreement;
(b) The delivery of the documents and monies required under
Section 3.3;
(c) Carbona shall have entered into the New Carbona Employment
Agreement and the Sellers, CHI and Hasty shall have approved the
termination of employment for "cause" provisions of the New Carbona
Employment Agreement, which approval will not be unreasonably withheld;
(d) The delivery of the Compass Bank Release and the Compass
Bank 1201 Consent; and
(e) The receipt by Hasty of an appraisal reasonably
satisfactory to Hasty of the valuation of the Hasty Intellectual
Properties, provided, however, this condition shall lapse and be of no
force and effect if Hasty does not deliver to the Buyer written notice
on or before January 15, 1997 that this condition has not been
satisfied. If this condition is not satisfied by such date, and Hasty
does not waive this condition, this Agreement shall terminate and the
parties hereto shall have no liability to any other party hereto (except
the obligations set forth in Section 7.2 hereof).
11. Indemnification Provisions.
11.1. Losses. For purposes of this Section 11, the terms "Loss"
or "Losses" shall mean each and all of the following items, namely claims,
losses, liabilities, damages, fines, penalties, costs and expenses (including,
without limitation, interest which may be imposed in connection therewith, and
reasonable fees and disbursements of counsel and other experts, and the cost to
the person(s) seeking indemnification (the "Indemnitee") of any funds expended
by reason of the occurrence of any of the events enumerated in Sections 11.2 or
11.3.
11.2. Indemnification.
(a) Subject to the limitations set forth in Section 11.4
hereof, in accordance with the procedures set forth in Section 11.3 (if
applicable), the Sellers, CHI and Hasty, jointly and severally shall
indemnify the Buyer against and hold it harmless from any and all Losses
resulting from or arising out of: (i) any inaccuracy in or breach of any
representation or warranty made by the Sellers, CHI or Hasty in this
Agreement or in any Ancillary Document, (ii) any non-fulfillment or
breach or
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default in the performance by the Sellers, CHI or Hasty of any of the
covenants or agreements made by the Sellers, CHI or Hasty herein or in
any Ancillary Document; (iii) any liability of the Sellers, CHI or Hasty
other than an Assumed Liability, arising out of the ownership of the
Purchased Assets or conduct of the Subject Business prior to the
Closing; and (iv) any failure by the Sellers to deliver good title to
any Purchased Asset to the Buyer, free and clear of all Encumbrances,
except Permitted Exceptions.
(b) Subject to the limitations set forth in Section 11.5
hereof, in accordance with the procedures set forth in Section 11.3 (if
applicable), the Buyer shall indemnify the Sellers, CHI and Hasty
against any and all Losses resulting from or arising out of: (i) any
inaccuracy in or breach of any representation or warranty made by the
Buyer in this Agreement or in any Ancillary Document, (ii) the Buyer's
failure to satisfy any Assumed Liabilities in accordance with the terms
of this Agreement; (iii) any non-fulfillment or breach or default in the
performance by the Buyer of any of the covenants or agreements made by
the Buyer herein or in any Ancillary Document; and (iv) the ownership of
the Purchased Assets by the Buyer or conduct of the Subject Business by
the Buyer after the Closing.
11.3. Procedure.
(a) In the event that an Indemnitee shall suffer a Loss which
is not the subject of Litigation, the Indemnitee shall give notice
thereof to the Indemnitor (as hereinafter defined).
(b) Indemnification Notice.
(i) Promptly after receipt by an Indemnitee of written
notice of the assertion or the commencement of any Litigation
with respect to any matter referred to in Sections 11.2 or 11.3,
the Indemnitee shall give written notice thereof (the "Notice")
to the person from whom indemnification is sought pursuant hereto
(the "Indemnitor") and shall thereafter keep the Indemnitor
reasonably informed with respect thereto, provided that failure
of the Indemnitee to give the Indemnitor prompt notice as
provided herein shall not relieve the Indemnitor of any of its
obligations hereunder. In case any such Litigation is brought
against any Indemnitee, the Indemnitor shall be entitled to
assume the defense thereof, by written notice to the Indemnitee
within thirty (30) days after receipt of the Notice of its
intention to do so, with counsel reasonably satisfactory to the
Indemnitee at the Indemnitor's own expense. If the Indemnitor
shall assume the defense of such Litigation, it shall not settle
such Litigation unless such settlement includes as an
unconditional term thereof the giving by the claimant or the
plaintiff of a release of the Indemnitee, satisfactory to the
Indemnitee, from all liability with respect to such
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Litigation. Notwithstanding the assumption by the Indemnitor of
the defense of any Litigation as provided in this subsection, the
Indemnitee shall be permitted to join in the defense of such
Litigation and to employ counsel at its own expense.
(ii) If the Indemnitor shall fail to notify the
Indemnitee of its desire to assume the defense of any such
Litigation within the prescribed period of time, or shall notify
the Indemnitee that it will not assume the defense of any such
Litigation, then the Indemnitee may assume the defense of any
such Litigation, in which event it may do so in such manner as it
may deem appropriate, and the Indemnitor shall be bound by any
determinations made in such Litigation or any settlement thereof
effected by the Indemnitee, provided that the Indemnitee may not
settle any such Litigation without the Indemnitor's written
consent, which consent will not be unreasonably withheld. The
Indemnitor shall be permitted to join in the defense of such
Litigation and to employ counsel at its own expense.
(c) Amounts payable by the Indemnitor to the Indemnitee in
respect of any Losses under Sections 11.2 or 11.3 shall be payable by
the Indemnitor no later than thirty (30) days after the submission by
the Indemnitee to the Indemnitor of documentation supporting such Loss.
A Loss payable hereunder shall be submitted to the Indemnitor or set-off
against the Note in accordance with Section 11.3(d) (i) if the event is
the subject of Litigation, when the matter has been finally adjudicated,
or (ii) if the event is not the subject of Litigation, when the
Indemnitee has properly paid or accrued the Loss.
(d) In the event the Sellers, CHI or Hasty shall become
obligated to indemnify the Buyer or any of its successors or assigns
pursuant to the terms of this Section 11, the Buyer shall first set-off
all the amount thereby becoming due to the Buyer by the Sellers, CHI or
Hasty against the unpaid balance of principal and accrued interest, if
any, then remaining on the Note in the direct order of the installments
then due thereunder and, thereafter, proceed directly against the
Sellers, CHI and Hasty. Upon the exercise by the Buyer of its rights of
set-off granted in this Section 11.3(d) with respect to the Note, the
amount which the Buyer is entitled to set-off against the Note shall be,
and be deemed to be, applied in reduction of, and shall constitute a
payment or prepayment of, the unpaid balance of the principal and
accrued interest, if any, then remaining on the Note, and the Sellers
will endorse the amount of such reduction or payment on the reverse side
of the Note as a credit against the unpaid balance of the principal
thereof and interest thereon. Such set-off shall not be applied if the
Sellers, CHI or Hasty, as the case may be, pays such claim in cash to
the Buyer. The Buyer shall also have the right of set-off against the
unpaid principal balance and accrued interest, if any, on the Note, as
set forth in the Hasty Intellectual Properties Agreement, and in the
event of a breach by Hasty under the Hasty Non-Competition Agreement, in
which event the Buyer will be entitled to set-
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off in the manner set forth in this Section 11.3(d), against the unpaid
principal balance and accrued interest, if any, on the Note.
(e) The remedies in this Section 11 shall be the parties'
exclusive remedies with respect to any and all matters covered by this
Agreement, except for the remedies of specific performance, injunctive
and other equitable relief.
11.4. Limitation on Buyer's Claims.
(a) Subject to the provisions of Section 11.4(b), in
calculating any indemnification amount payable to the Buyer pursuant to
Section 11.2(a), the Sellers, CHI and Hasty shall not be liable to the
Buyer under Section 11.2(a) until the aggregate amount of such Loss or
Losses exceeds Five Thousand ($5,000) Dollars (the "Sellers' Basket").
If the amount of Losses due to the Buyer under Section 11.2(a) hereof
exceeds the Sellers' Basket, the Buyer shall be entitled to
indemnification hereunder only to the extent that the total amount of
such Losses exceeds the Sellers' Basket, but in no event shall the Buyer
be entitled to receive indemnification for Losses in an amount greater
than Ten Million ($10,000,000) Dollars in the aggregate.
(b) Notwithstanding anything to the contrary in Section
11.4(a) above, in calculating any amounts payable to the Buyer with
respect to any Losses arising from or relating to (i) representations or
warranties made in Section 4.4(a) hereof or (ii) an Excluded Liability
(except for Section 1.4(d)), there shall be no Sellers' Basket (i.e.,
the Buyer shall be entitled to indemnification as to the first dollar of
such Loss), and the Buyer shall be entitled to recover indemnification
for such Losses in an amount up to the Purchase Price. If a particular
Loss under this Agreement can be attributed to both a breach of a
representation or warranty and to an Excluded Liability, such Loss shall
be treated, for indemnification purposes, as an Excluded Liability.
11.5. Limitation on Sellers' Claims.
(a) In calculating any indemnification payable to the Sellers
pursuant to Section 11.2(b), the Buyer shall not be liable to the
Sellers under Section 11.2(b) until the aggregate amount of such Loss or
Losses exceeds Five Thousand ($5,000) Dollars (the "Buyer's Basket").
If the amount of Losses due to the Sellers under Section 11.2(b) hereof
exceeds the Buyer's Basket, the Sellers shall be entitled to
indemnification hereunder only to the extent that the total amount of
such Losses exceeds the Buyer's Basket, but in no event shall the
Sellers be entitled to receive indemnification for Losses in an amount
greater than Ten Million ($10,000,000) Dollars in the aggregate.
(b) Notwithstanding anything to the contrary in Section
11.5(a) above, in calculating any amounts payable to the Sellers with
respect to any Losses arising from or relating to an Assumed Liability,
there shall be no Buyer's Basket (i.e., the
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Sellers shall be entitled to indemnification as to the first dollar of
such Loss), and the Sellers shall be entitled to recover indemnification
for such Losses in an amount up to the amount of the Assumed Liability
for which a Loss has been incurred by the Sellers.
12. TERMINATION. THIS AGREEMENT MAY BE TERMINATED ON OR BEFORE THE
CLOSING, WITHOUT LIABILITY ON THE PART OF ANY PARTY HERETO TO ANY OTHER PARTY
HERETO, BY:
(a) the Buyer, if a material default shall be made by the
Sellers, CHI or Hasty in the observance or in the due and timely
performance by the Sellers, CHI or Hasty of any of the covenants of the
Sellers, CHI or Hasty herein contained, or if there shall have been a
material breach by the Sellers, CHI or Hasty of any of the warranties
and representations of the Sellers, CHI or Hasty herein contained, or if
the conditions of this Agreement to be complied with or performed at or
before the Closing shall not have been complied with or performed at the
time required for such compliance or performance and such non-compliance
or non-performance shall not have been waived by the Buyer; or
(b) the Sellers, CHI or Hasty, if a material default shall be
made by the Buyer in the observance or in the due and timely performance
by the Buyer of any of the covenants of the Buyer herein contained, or
if there shall have been a material breach by the Buyer of any of the
warranties and representations of the Buyer herein contained, or if the
conditions of this Agreement to be complied with or performed at or
before the Closing shall not have been complied with or performed at the
time required for such compliance or performance and such non-compliance
or non-performance shall not have been waived by the Sellers, CHI and
Hasty.
In the event of termination by the Buyer or the Sellers, CHI and Hasty as
provided above, written notice shall forthwith be given to the other parties.
13. Miscellaneous.
13.1. Survival of Representations and Warranties. The parties
hereto agree that the representations and warranties contained in Sections 4
and 5 of this Agreement or in any Ancillary Document to which such party is a
party shall survive the Closing for a period of three (3) years except that the
representations and warranties contained in Section 4.12 shall survive until
the date upon which the time to assess any Tax relating to the operations of
the Sellers prior to the Closing ends, as such date may be extended by consent
of the Sellers and/or by operation of law, and any liability or obligation with
respect to Excluded Liabilities under Section 1.4 shall continue without time
limitation. The survival of environmental representations and warranties
contained in Section 4.16 shall be ten (10) years. Anything to the contrary in
this Section 13.1 notwithstanding, (i) any representation or warranty which
survives the Closing pursuant hereto shall survive the time it would otherwise
terminate pursuant to this Section 13.1 if notice of the breach or violation or
possible breach or violation thereof giving rise to a right or a possible right
to indemnification shall have been
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given to the other party prior to such time; and (ii) each party's right to
indemnification for the other party's fraudulent misrepresentations shall
survive without limitation as to time. Except as otherwise specifically
provided in this Section 13.1, any other claims under this Agreement other than
claims (a) based upon a breach of Section 6.1 hereof or (b) on the Note and the
documents securing the Note (if any) must be asserted in a court of competent
jurisdiction hereunder by the party making the claim against the other party
within four (4) years of the Closing Date, otherwise such claim will be void.
13.2. Buyer's Investigation. All representations and warranties
made by the parties hereto shall be binding regardless of any investigation
made at any time by the parties. The Buyer may not rely upon any
representations or warranties made by the Sellers, CHI or Hasty except as set
forth in this Agreement, the Schedules, or in an Ancillary Document, or in a
writing delivered to the Buyer by the Sellers, CHI or Hasty expressly
referencing this Agreement. Notwithstanding the foregoing, in the event that
the Buyer obtains actual knowledge prior to Closing of a material inaccuracy
in, or breach of, any of such representations and warranties of the Sellers,
CHI and/or Hasty, the Buyer agrees promptly to notify the Sellers, CHI and
Hasty, in the manner set forth in Section 13.4 hereof, whereupon the Sellers,
CHI and Hasty shall promptly use their commercially reasonable efforts to cure
such inaccuracy or breach to the satisfaction of the Buyer. If such inaccuracy
or breach is not cured, as aforesaid, the Buyer shall have the option to
terminate this Agreement in accordance with Section 12(a) hereof, or to waive
such inaccuracy or breach and proceed to Closing in accordance with the terms
hereof without a reduction in the Purchase Price. The term "actual knowledge"
with respect to the Buyer shall mean facts and information within the actual
knowledge of the officers of the Buyer.
13.3. Further Assurances. The parties hereto agree that each
will execute and deliver to the other any and all documents in addition to
those expressly provided for herein that may be necessary or appropriate to (a)
vest in the Buyer title to and possession of the Purchased Assets, (b) perfect
and record, if necessary, the sale, transfer, assignment, conveyance and
delivery to the Buyer of the Purchased Assets and the assumption by the Buyer
of the Assumed Liabilities, and (c) otherwise carry out the provisions of this
Agreement, whether before, at, or after the Closing. Each of the Sellers and
the Buyer further agree that at any time and from time to time after the
Closing, it will execute and deliver to the other party such further
conveyances, assignments, or other written assurances as the other party may
reasonably request to perfect and protect the Buyer's title to the Purchased
Assets or the Buyer's assumption of the Assumed Liabilities. The Sellers, CHI
and Hasty agree to cooperate with the Buyer with respect to audits or similar
investigations with respect to the Subject Business.
13.4. Notices. All notices, demands and requests which may be
given or which are required to be given by any party to the others, shall be in
writing and shall be deemed effective when either: (a) personally delivered to
the intended recipient; (b) sent by certified or registered mail, return
receipt requested, addressed to the intended recipient at the address specified
below; (c) delivered in person to the address set forth below for the party to
which the notice was given; (d) deposited into the custody of a nationally
recognized overnight delivery service such as Federal Express Corporation,
Airborne, Emery or Purolator, addressed to such party at the address specified
below; or (e) sent by facsimile, telegram or telex, provided that receipt for
such facsimile, telegram
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or telex is verified by the sender and followed by a notice sent in accordance
with one of the other provisions set forth above. Notices shall be effective
on the date of delivery or receipt or, if delivery is not accepted, on the
earlier of the date that delivery is refused or three (3) days after the date
the notice is mailed. For purposes of this Section, the addresses of the
parties for all notices are as follows (unless changes by similar notice in
writing are given by the particular person whose address is to be changed):
(1) If to the Sellers, to Cardio Systems, 1201 I-35E,
Carrollton, Texas 75006; Attention: President; Fax: (972) 245-0103;
With a copy to: John J. Meissner, Jr., Esq., Johnson, Fort,
Meissner & Joseph, 1555 River Park Drive, Suite 108, Sacramento,
California 95815; Fax (916) 920-9379; and Kenneth M. Horwitz, Esq.,
Vial, Hamilton, Koch & Knox, LLP, 1717 Main Street, Suite 4400, Dallas,
Texas 75201; Fax: (214) 712-4402;
(2) If to CHI, to CH Industries, Inc., 1201 I-35E, Carrollton,
Texas 75006; Attention: President; Fax: (972) 245-0103;
With a copy to: John J. Meissner, Jr., Esq., Johnson, Fort,
Meissner & Joseph, 1555 River Park Drive, Suite 108, Sacramento,
California 95815; Fax (916) 920-9379; and Kenneth M. Horwitz, Esq.,
Vial, Hamilton, Koch & Knox, LLP, 1717 Main Street, Suite 4400, Dallas,
Texas 75201; Fax: (214) 712-4402;
(3) If to CHA, to CH Administration, Inc., 1201 I-35E,
Carrollton, Texas 75006; Attention: President; Fax: (972) 245-0103;
With a copy to: John J. Meissner, Jr., Esq., Johnson, Fort,
Meissner & Joseph, 1555 River Park Drive, Suite 108, Sacramento,
California 95815; Fax (916) 920-9379; and Kenneth M. Horwitz, Esq.,
Vial, Hamilton, Koch & Knox, LLP, 1717 Main Street, Suite 4400, Dallas,
Texas 75201; Fax: (214) 712-4402;
(4) If to CHP, to CH Production, Inc., 1201 I-35E, Carrollton,
Texas 75006; Attention: President; Fax: (972) 245-0103;
With a copy to: John J. Meissner, Jr., Esq., Johnson, Fort,
Meissner & Joseph, 1555 River Park Drive, Suite 108, Sacramento,
California 95815; Fax (916) 920-9379; and Kenneth M. Horwitz, Esq.,
Vial, Hamilton, Koch & Knox, LLP, 1717 Main Street, Suite 4400, Dallas,
Texas 75201; Fax: (214) 712-4402;
(5) If to Hasty, to Charles E. Hasty, 1201 I-35E, Carrollton,
Texas 75006; Attention: Charles E. Hasty; Fax: (972) 245-0103;
With a copy to: John J. Meissner, Jr., Esq., Johnson, Fort,
Meissner & Joseph, 1555 River Park Drive, Suite 108, Sacramento,
California 95815; Fax (916) 920-
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9379; and Kenneth M. Horwitz, Esq., Vial, Hamilton, Koch & Knox, LLP,
1717 Main Street, Suite 4400, Dallas, Texas 75201; Fax: (214) 712-4402;
(6) Or if to the Buyer, to Cardio Acquisition Corporation, C/O
Crown Group, Inc., 4040 North MacArthur Boulevard, Suite 100, Irving,
Texas 75038; Attention: Edward R. McMurphy, President; Fax: (972) 719-
4466;
With a copy to: T. J. Falgout, III, Esq., 4040 North MacArthur
Boulevard, Suite 100, Irving, Texas 75038; Fax: (972) 719-4466.
Any party hereto may designate a different address by notice given to the other
party.
13.5. Expenses. Each party shall bear and be solely responsible
for all expenses incurred by it in connection with and incident to the
negotiation and preparation of this Agreement and the Ancillary Documents and
the consummation of the transactions contemplated herein and therein, whether
or not such transactions are consummated as contemplated herein.
13.6. Entire Agreement; Modification and Waiver. This Agreement
(including the Exhibits when attached hereto, the Schedules when attached
hereto, and the Ancillary Documents) sets forth the entire agreement between
the parties relating to the subject matter hereof and supersedes all prior
negotiations between the parties. The representations and warranties of the
Sellers, CHI and Hasty contained herein shall not be effective until such time
as the Schedules are agreed to by the Buyer and attached hereto in accordance
with Section 7.11(a). This Agreement and each Ancillary Document may be
modified or amended only by a writing executed by all the parties affected by
such modification or amendment; and compliance with the terms and conditions
hereof or thereof may be waived only by a writing signed by the party or
parties entitled to the benefit of such term or condition.
13.7. Binding Effect. Subject to Section 13.12 hereof, this
Agreement and each Ancillary Document shall be binding upon and shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
13.8. Headings. The section and paragraph headings in this
Agreement and in each Ancillary Document have been inserted solely for
convenience of reference and do not themselves constitute a part of this
Agreement or such Ancillary Document.
13.9. Counterparts. This Agreement and each Ancillary Document
may be executed in two or more counterparts, all of which when taken together
shall constitute one and the same instrument.
13.10. Governing Law. THIS AGREEMENT AND EACH ANCILLARY DOCUMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE WHOLLY PERFORMED WITHIN SUCH
STATE, EXCLUDING CONFLICT OF LAWS PROVISIONS AND THE LAWS OF A STATE WHERE
PURCHASED ASSETS ARE LOCATED
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TO THE EXTENT THE LAWS OF SUCH STATE PERTAIN TO THE TRANSFER AND ENCUMBRANCE OF
SUCH PURCHASED ASSETS.
13.11. Consent to Jurisdiction. Each of the parties hereto (a)
consents and submits to the jurisdiction of the Courts of the State of Texas
and of the Courts of the United States for a judicial district within the
territorial limits of the State of Texas for all purposes of this Agreement and
any Ancillary Document to which it is a party, including, without limitation,
any action or proceeding instituted for the enforcement of any right, remedy,
obligation or liability arising under or by reason hereof and thereof; and (b)
consents and submits to the venue of such action or proceeding in the City of
Dallas and County of Dallas, Texas (or such judicial district of a Court of the
United States as shall include the same).
13.12. Assignment. No assignment by any party of this Agreement
or any Ancillary Document or any right or obligation hereunder or thereunder
may be made without the prior written consent of the other party; provided,
however, that the Buyer may, upon prior written notice to the Sellers, assign
its rights and obligations hereunder prior to Closing to any subsidiary of the
Buyer, or to any person or entity owning more than fifty (50%) percent of the
capital stock of the Buyer.
13.13. No Third Party Beneficiaries. Nothing contained in this
Agreement or in any Ancillary Document shall create or be deemed to create any
rights or benefits in any third parties.
13.14. Knowledge. Phrases referencing "the Sellers', CHI's and
Hasty's knowledge" or "to the best of the Sellers', CHI's or Hasty's
knowledge", or "known to the Sellers, CHI or Hasty", (or phrases similar
thereto) in this Agreement shall mean facts and information within the actual
knowledge of Hasty or the officers and directors of the Sellers and CHI as of
the date of this Agreement, or, if applicable, as of the date a representation
or warranty is made.
13.15. No Shopping. Unless and until this Agreement is
terminated pursuant to Section 12 hereof, the Sellers, CHI and Hasty shall not,
and shall insure that their respective directors, officers, agents and advisers
do not, institute, pursue or enter into any discussions or negotiations,
whether or not preliminary in nature, with any person or entity, relating to
any acquisitive transaction or change in control involving the Purchased Assets
or the Subject Business.
13.16. Public Announcements. No publication and/or press release
of any nature shall be issued pertaining to this Agreement or the transaction
contemplated hereby without the prior written approval of the Buyer and the
Sellers, except as may be required by law.
13.17. Permitted Exceptions. The term "Permitted Exceptions"
shall mean liens, taxes, assessments and other governmental charges not yet due
and payable and statutory liens, mechanics, laborers and materialmen liens
arising in the ordinary course of business for sums not yet due. The term
"Permitted Exceptions" with respect to real property leasehold estates of the
Sellers shall mean (a) statutory and contractual landlord liens under leases
wherein the Seller is a lessee thereof and is not in default, (b) any and all
matters of record in the jurisdiction where the real property is located
including, without limitation, restrictions, reservations, covenants,
conditions, oil and gas leases, mineral severances and liens and (c) easements,
rights-of-way, prescriptive rights,
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encroachments, protrusions, rights and party walls, and liens for taxes,
assessments or other governmental charges not yet due.
13.18. Bulk Transfer Laws. The Buyer agrees to waive compliance
with Article 6 of the Uniform Commercial Code, relating to bulk transfers and
bulk sales (the "Bulk Transfer Laws"), as in effect in any relevant
jurisdiction to the extent applicable to the transactions contemplated by this
Agreement. To induce the Buyer to waive compliance with such laws, the
Sellers, in accordance with and subject to applicable limitations contained in
Section 11 herein, shall indemnify, defend and hold the Buyer harmless from any
Loss or Losses arising out of or resulting from the failure of the Sellers to
comply with any such laws or similar law which may be applicable, except such
Losses resulting from the failure of the Buyer to pay or perform the Assumed
Liabilities. Nothing contained herein shall waive the Sellers' right to cause
compliance with Article 6 of the Bulk Transfer Laws in relevant jurisdictions,
and the Buyer shall cooperate with executing related documents and instruments
required for such compliance, provided, however, (a) such compliance shall not
delay the Closing, and (b) the Buyer shall have the right, as a condition to
proceeding with such compliance in a jurisdiction, to review the proposed
compliance in such jurisdiction to determine if such compliance will have a
material adverse effect upon the continued operations of the Subject Business;
however, approval by the Buyer of compliance in an jurisdiction shall not be
unreasonably withheld. Nothing contained herein shall waive the Sellers' right
to obtain any tax clearance certificates if the Sellers so choose, provided,
however, obtaining such tax clearance certificates shall not delay the Closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
BUYER:
------
CARDIO ACQUISITION CORPORATION
By:
--------------------------------
Edward R. McMurphy, President
CHI: HASTY:
- ---- ------
CH INDUSTRIES, INC.
By:
------------------------------ -------------------------------------
John A. Carbona, President CHARLES E. HASTY, Individually
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SELLERS:
--------
CH ADMINISTRATION, INC. CH PRODUCTION, INC.
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
CH MEDICAL, INC., CARDIO SYSTEMS OPERATIONS, INC.
d/b/a CARDIO SYSTEMS
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
[Signature page continued]
CARDIO SYSTEMS - CARDIO SYSTEMS -
SACRAMENTO, INC. OKLAHOMA CITY, INC.
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
CARDIO SYSTEMS - CARDIO SYSTEMS -
MEMPHIS, INC. CHATTANOOGA, INC.
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
CARDIO SYSTEMS - ATLANTA, INC. CARDIO SYSTEMS PARTNERS, INC.
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
CARDIO SYSTEMS MANUFACTURING, CARDIO SYSTEMS OF TEXAS -
INC., f/k/a HUMANETICS, INC. AUSTIN, INC.
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
CARDIO SYSTEMS OF TEXAS - CARDIO SYSTEMS
DALLAS, INC. INTERNATIONAL, INC.
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
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CARDIO SYSTEMS - TAMPA, INC. CARDIO SYSTEMS - FT. MYERS, INC.
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
CARDIO SYSTEMS - MIAMI, INC. CARDIO SYSTEMS SALES, INC.
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
[Signature page continued]
SPECIAL CARE DELIVERY, INC. CARDIO SYSTEMS AUSTIN, LTD.
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
CARDIO SYSTEMS DALLAS, LTD. SCD INDUSTRIES, INC.
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
CARDIO SYSTEMS - KANSAS CITY, INC. CARDIO SYSTEMS - CHICAGO, INC.
By: By:
------------------------------ --------------------------------
John A. Carbona, President John A. Carbona, President
CARDIO SYSTEMS NORTH AMERICA
DEALER CORPORATION, INC.
By:
------------------------------
John A. Carbona, President
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TABLE I
AFFILIATES
Cardio Systems - Sacramento, Inc.
Cardio Systems - Oklahoma City, Inc.
Cardio Systems - Memphis, Inc.
Cardio Systems - Chattanooga, Inc.
Cardio Systems - Atlanta, Inc.
Cardio Systems Partners, Inc. (Delaware)
Cardio Systems Manufacturing, Inc. f/k/a Humanetics, Inc.
Cardio Systems of Texas - Austin, Inc.
Cardio Systems of Texas - Dallas, Inc.
Cardio Systems International, Inc.
Cardio Systems - Tampa, Inc.
Cardio Systems - Ft. Myers, Inc.
Cardio Systems - Miami, Inc.
Cardio Systems Sales, Inc.
Special Care Delivery, Inc.
Cardio Systems Austin, Ltd.
Cardio Systems Dallas, Ltd.
Cardio Systems North America Dealer Corporation, Inc.
SCD Industries, Inc.
Cardio Systems - Kansas City, Inc.
Cardio Systems - Chicago, Inc.
Cardio Systems Operations, Inc.
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