ASSET PURCHASE
AGREEMENT
This Asset Purchase Agreement (this
“ Agreement ”) is entered into as of
April 28, 2004, by and among those parties listed on the
signature page hereof and identified thereon as the Shareholders
(the “ Shareholders ”), Anthony Mark Owens and
Caroline S. Owens (together, the “ Owners ”),
Natural Balance, Inc., a Colorado corporation (the “
Company ,” and collectively with the Owners and the
Shareholders, the “ Sellers ”) and Natural
Balance, Inc., a Delaware corporation (the “ Buyer
”).
WHEREAS , the Company is, among other things, in the
business of manufacturing, marketing and distributing dietary
supplements and other products (the “ Business
”) and owns certain tangible assets associated therewith;
and
WHEREAS, the Owners are the owners of certain Proprietary
Rights (as such term is defined in Section 1.1 hereof)
licensed to the Company for use in its Business as well as certain
real property used by the Company for its Business; and
WHEREAS , on the terms and subject to the conditions set
forth in this Agreement, Buyer desires to acquire from the Sellers,
and the Sellers desire to sell to Buyer, substantially all of the
assets and properties related to the Business.
NOW, THEREFORE,
the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions
. For purposes of this
Agreement, the following terms shall have the meanings set forth
below:
(a) “
Affiliate ” shall mean, with respect to any Person,
any Person which, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common
control with, such Person. As used in this definition, the
term “control” (including the terms “controlled
by” and “under common control with”) means the
possession, directly or indirectly, of the power to direct the
management policies of such Person, whether through the voting
power of outstanding securities, by contract or
otherwise.
(b) “
Affiliated Group ” means an affiliated group as
defined in Section 1504 of the Code (or any similar combined,
consolidated or unitary group defined under state, local or foreign
income Tax law).
(c) “
Claims ” shall mean the written notice from the Buyer
to either of the Sellers, describing in reasonable detail the
nature of any claim made by the Buyer against any Indemnifying
Party (as defined in Section 8.2(d) below) pursuant to this
Agreement and the amount of the Loss (as defined in Section
8.2(a) below) with respect thereto, if then known.
(d) “ Code
” shall mean the Internal Revenue Code of 1986, as
amended.
(e) “
Contracts ” shall mean any contracts, agreements and
commitments, whether oral or written.
(f) “
Environmental, Health and Safety Requirements ” shall
mean all federal, state and local statutes, regulations, ordinances
and other provisions having the force or effect of law, all
judicial and administrative orders and determinations, all
contractual obligations and all common law concerning public health
and safety, worker health and safety, and pollution or protection
of the environment, including, without limitation, all those
relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution,
labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as
amended and as now or hereafter in effect.
(g) “ ERISA
” shall mean the Employee Retirement Income Security Act of
1974, as amended.
(h) “ GAAP
” shall mean United States generally accepted accounting
principles as promulgated in effect from time to time, consistently
applied.
(i) “
Indebtedness ” shall mean collectively all obligations
or liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise, whether or not known, whether due or to become due
and regardless of when asserted) arising out of transactions
entered into at or prior to the Closing (as defined in Section
2.6), or any state of facts existing at or prior to the Closing,
including (i) Taxes with respect to or based upon transactions or
events occurring on or before the Closing and (ii) liabilities with
respect to or based upon loans, indebtedness, promissory notes,
debentures, deferred purchase price for property or services,
capital lease obligations or similar obligations (or any guaranties
of any of the foregoing).
(j) “
Knowledge ,” or any similar term or knowledge
qualification contained herein, shall mean (i) with respect to any
individual, the actual knowledge of such Person after the
reasonable investigation of all key employees, officers and
directors of the Company and (ii) in the case of any Person other
than an individual, the actual knowledge of such Person after the
reasonable investigation of all key employees, officers and
directors of such Person.
(k) “ Lien
” shall mean any mortgage, pledge, conditional sale or other
title retention agreement, encumbrance, lien, easement, option,
debt, charge, claim, restriction, or other security interest of any
kind.
(l) “
Manufacturing, Distribution and Accounting Facilities
” shall mean the land and buildings, consisting of
approximately 4.5 acres of land and 6 buildings containing
approximately 40,454 total square feet of warehouse, distribution,
storage and office space, and all associated property rights,
currently leased by the Company from the Owners for Company’s
manufacturing, distribution and accounting offices and facilities,
and more particularly described on Exhibit A attached
hereto, including all structures, improvements and fixtures located
thereon, and all easements and other rights and interests
appurtenant thereto.
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(m) “Non-Competition
Period” shall mean the period beginning on the Closing Date
and ending on the fourth anniversary of the Closing
Date.
(n) “
Person ” means an individual, a partnership, a
corporation, a limited liability company, an association, a trust,
a joint stock company, a joint venture, an unincorporated
organization, any other business entity or a governmental entity
(whether federal, state, county, city or otherwise and including,
without limitation, any instrumentality, division, agency or
department thereof).
(o) “
Proprietary Rights ” means all of the following owned
by, issued to, used by or licensed to any of the Sellers and used
in the Business (whether pursuant to a written license or not),
along with all associated income, royalties, damages and payments
due from or payable by any third party (including, without
limitation, damages and payments for past, present, or future
infringements or misappropriations thereof), all other associated
rights (including, without limitation, the right to sue and recover
for past, present, or future infringements or misappropriations
thereof), and any and all corresponding rights that, now or
hereafter, may be secured throughout the world: (i) trademarks,
service marks, trade dress, logos, slogans, trade names and
corporate names and all registrations and applications for
registration thereof, together with all goodwill associated
therewith; (ii) copyrights and works of authorship, and all
registrations and applications for registration thereof; (iii)
computer software (including, without limitation, data, data bases
and related documentation); (iv) trade secrets, confidential
information, and proprietary data and information (including,
without limitation, compilations of data (whether or not
copyrighted or copyrightable), ideas, know-how, marketing,
information, financial and accounting data, business and marketing
plans, and customer and supplier lists and related information);
(v) internet sites and related code, graphics, assets and other
properties related thereto as well as all rights associated
therewith, including the Website located at
www.naturalbalance.com ; (vi) all items set forth in
Schedule 5.13 ; (vii) all other intellectual property
rights; and (viii) all copies and tangible embodiments of the
foregoing (in whatever form or medium).
(p) “ Real
Property ” shall mean all of the real property and
improvements used or intended to be used in, or otherwise related
to, the Business, including the Sales and Executive Offices and the
Manufacturing, Distribution and Accounting Facilities.
(q) “ Sales and
Executive Offices ” shall mean the land and buildings,
consisting of approximately 1 acre of land and an approximate 7,200
square foot building, and all associated property rights, currently
leased by the Company from the Owners for Company’s
administrative and sales offices, and more particularly described
on Exhibit B attached hereto, including all structures,
improvements and fixtures located thereon, and all easements and
other rights and interests appurtenant thereto.
(r) “
Tangible Assets ” shall mean all assets of the Company
or the Owners used in or related to the Business other than the
Proprietary Rights.
(s) “ Tax
” or “Taxes” means any federal, state, local or
foreign income, gross receipts, franchise, estimated, alternative
minimum, add-on minimum, sales, use, transfer, registration, value
added, excise, natural resources, severance, stamp, occupation,
premium,
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windfall profit, environmental,
customs, duties, real property, personal property, capital stock,
social security, unemployment, disability, payroll, license,
employee or other withholding, or other Tax, of any kind
whatsoever, including any interest, penalties or additions to Tax
or additional amounts in respect of the foregoing.
(t) “ Tax
Returns ” means returns, declarations, reports, claims
for refund, information returns or other documents (including any
related or supporting schedules, statements or information) filed
or required to be filed in connection with the determination,
assessment or collection of Taxes of any party or the
administration of any laws, regulations or administrative
requirements relating to any Taxes.
ARTICLE II
PURCHASE AND SALE OF
ASSETS
2.1 Purchase and Sale of
Assets.
(a)
Purchased
Assets . Subject to the terms
and conditions of this Agreement, on the Closing Date (as defined
in Section 2.6), the Buyer agrees to purchase from the Sellers, and
the Sellers agree to sell, convey, assign, transfer and deliver to
the Buyer by appropriate instruments reasonably satisfactory to the
Buyer and its counsel, free and clear of all Liens, all of the
assets, properties, rights, titles and interests of every kind and
nature owned, licensed or leased by Company and the Owners and used
in or related to the Business (including indirect and other forms
of beneficial ownership) as of the Closing Date, whether tangible,
intangible or personal and wherever located and by
whomever possessed, including the Tangible Assets and the
Proprietary Rights, including, without
limitation, all of the following assets, but
excluding all of the Excluded Assets (collectively, the
“ Purchased Assets ”):
(i)
all Company
accounts, notes and other receivables, including any prepayments
and prepaid expenses;
(ii)
all inventory and
related supplies of the Seller, (including product tags and product
packaging components) and all inventory in transit that has been
purchased, including but not limited to those items identified as
Inventory in the NAV Schedule (collectively, “
Inventory ”);
(iii)
all of the
Tangible Assets, including but not limited to those certain Fixed
Assets identified in the NAV Schedule , together with the
Accumulated Depreciation associated therewith (as such terms are
set forth in the NAV Schedule ), and including those assets
listed in Schedule 5.4 ;
(iv)
all claims,
deposits, prepayments, warranties, guarantees, refunds, causes of
action, rights of recovery, rights of set-off and rights of
recoupment of every kind and nature;
(v)
all rights
existing under those purchase orders to purchase goods or products
relating to the Business as listed on the attached “
Schedule 2.1(a)(v) ” (collectively, the “
Assigned Purchase Orders ”);
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(vi)
all rights under
any warranties and indemnification obligations (whether implied or
express) received from suppliers to the extent they pertain to the
Purchased Assets;
(vii)
the right (but
not the obligation) to hire any of the Company’s employees,
consultants and independent contractors;
(viii)
all Proprietary
Rights, including electronic and hard copies of any custom software
programs, data, web pages and all related underlying software and
documentation;
(ix)
all permits,
licenses, franchises, and other authorizations obtained from
federal, state or local governments or governmental agencies or
other similar rights, and all data and records pertaining thereto
related to the Business (collectively, “ Government
Licenses ”);
(x)
all insurance,
warranty, litigation, class action and condemnation proceeds
received after the date hereof with respect to damage,
non-conformance of or loss to the Purchased Assets, or which
otherwise pertain to the Business or the activities conducted
therefrom or in connection therewith, and all rights and proceeds
under insurance policies to the extent related to or payable in
connection with any of the Purchased Assets or the Assumed
Liabilities, including those that arise under any certificates of
insurance from suppliers or their insurers;
(xi)
all rights to
receive mail and other communications addressed to the Company, the
Owners or any Shareholder related to the Business;
(xii)
all telephone and
facsimile numbers related to the Business;
(xiii)
customer lists,
price lists and vendor lists and similar items related to the
Business;
(xiv)
copies of books,
financial and other corporate records to the extent related to the
Business;
(xv)
all historical
records, images, commercials, advertisements, brochures and similar
items;
(xvi)
all goodwill of
the Sellers associated with the Business, including the goodwill
associated with existing customer relationships of the Business;
and
(xvii)
any Contract
that, within a reasonable period of time after the disclosure of
such Contract to the Buyer, the Buyer elects in writing to assume
(the “ Assumed Contracts ”).
(b)
Excluded
Assets . The Sellers shall
retain all of their right, title and interest in and to, and shall
not transfer to the Buyer the following assets (collectively, the
“ Excluded Assets ”):
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(i)
all cash and cash
equivalents on hand, as identified on the “ NAV
Schedule” ;
(ii)
the Notes
Receivable identified on the “ NAV Schedule
”;
(iii)
the Building
& Improvements identified on the “ NAV Schedule
” as being not purchased, together with the Accumulated
Depreciation associated therewith;
(iv)
the rights of
Company, Owners and the Shareholders pursuant to this
Agreement;
(v)
the originals of
books, financial and other corporate records related to the
Business, including Tax Returns, stock and minute books, corporate
seal and corporate records of Company; and
(vi)
all Contracts,
except to the extent that such Contract is or becomes an Assumed
Contract.
2.2 Limited Assumption
of Liabilities . Subject to the conditions specified in
this Agreement, from and after the Closing, the Buyer shall assume
and agree to pay, perform, discharge and satisfy, as and when due
in accordance with their terms, all liabilities and obligations of
the Company arising under the Assigned Purchase Orders or the
Assumed Contracts, to pay for goods, products, or services to be
furnished to the Buyer after the Closing to the extent, and only to
the extent, arising out of obligations of performance thereunder
which obligations are to be performed solely after the Closing (the
“ Assumed Liabilities ”).
2.3 Excluded
Liabilities .
Except for the Assumed Liabilities, the Buyer shall not assume, and
shall have no liability or obligation for any other liabilities of
any of the Sellers (collectively, the “ Excluded
Liabilities ”), including liabilities or obligations of
any of the Sellers arising out of or related to: (A) any other
obligation required to be recorded on a balance sheet of the
Sellers prepared in accordance with GAAP, (B) Taxes, (C)
indebtedness for borrowed money or deferred purchase price for
property or services (including, without limitation, pursuant to
any capital lease), (D) any amounts due to Affiliates or any
intercompany or interbranch or interstore liabilities, (E) any
Excluded Assets, (F) any trade accounts payable by the Sellers,
whether related to the Business or otherwise, (G) any accrued
liabilities, whether related to the Business or otherwise, (H) any
present or former employees of the Company (including, without
limitation, any Plan (as defined in Section 5.18 below) (I)
any contract or arrangement with any Affiliates or (J) any default
or breach of contract, breach of warranty, tort, infringement,
violation of law or environmental matter (in each case, whether
known or unknown, whether asserted or unasserted, whether absolute
or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due).
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2.4 Purchase Price
for Purchased Assets . In consideration for the Purchased
Assets, the Buyer shall pay to the Sellers the purchase price
(“ Purchase Price ”) as follows:
(a) $5,800,000 for the Tangible
Assets, subject to adjustment pursuant to Section 2.5
and Section 9.2 below and subject to the retention of
$250,000 as a holdback (the “Holdback Amount”) pursuant
to Section 2.7 below, payable to the Company,
plus
(b) $3,000,000 for the
Proprietary Rights, payable to the Owners; plus
(c) $200,000, as adjusted
pursuant to Section 2.5(b) below (and referred to and
defined therein as the “Net New Product Payment”),
payable to the Owners.
Other than the Net New Product Payment and the
Holdback Amount, the Purchase Price shall be payable on the Closing
Date by wire transfer of immediately available funds to an account
or accounts designated by Company and the Owners.
2.5
Adjustments to Purchase Price .
(a) NAV
.
(i)
Minimum NAV . Company, the Owners
and Buyer have agreed that Company should have a net asset value as
of the Closing Date of at least $3,000,000, as more specifically
set forth in the NAV Schedule (the “ Minimum
NAV ”).
(ii)
Estimated NAV . The parties hereto agree
that in determining the estimated net asset value at Closing (the
“ Estimated NAV ”), adjustments will be made to
the extent that the Latest Financial Statements of the Company fail
to conform in all respects to GAAP, including all required reserves
and accruals for relevant items, such as:
(A) accounts receivable
(with 100% reserves for all receivables in excess of 120 days or
that relate to accounts that are known or suspected to be
uncollectible), and reserves for coop advertising and reserves for
sales returns, allowances and chargebacks, it being understood that
an accounts receivable aging review shall be completed the day
prior to Closing and used in the calculation of the Estimated
NAV;
(B) all Inventory,
which must be good and saleable (valued at standard cost under
FIFO), with all items of raw materials, WIP or finished goods in
excess of the last 12 months historical sales on hand being fully
reserved, with no raw materials or WIP with an age greater than 12
months, and with no finished goods with an age greater than 24
months, unless fully reserved for, and which shall not include old
or obsolete items, nor shall the Inventory include any supplies or
items normally expensed; it being understood that an inventory
audit shall be completed the day prior to Closing and used in the
calculation of the Estimated NAV (it being understood that with
respect to the inventory of No-Rad, the Buyer and Sellers shall
cooperate in finding and carrying out the preferred means of
distributing or selling the
7
inventory for the credit of Owners if it turns
out that such inventory is not acquired by Buyers pursuant to this
Section 2.5(a)(ii)(B);
(C) proper reserves
for consumer returns and product warranties; and
(D) on the day prior to
Closing, for all Purchased Assets, the parties will undertake and
complete a review of accumulated depreciation on all fixed assets
through Closing.
If any item on
the Company’s historical financial statements is not
reflected in accordance with GAAP, or if any item which should be
reflected on the Company’s historical financial statements is
missing therefrom, in determining the Estimated NAV such items
shall nonetheless be included and determined in accordance with
GAAP, and all accounting entries will be taken into account
regardless of their amount, all known errors and omissions will be
corrected and all known proper adjustments will be made. In
the absence of reaching a mutual agreement on the Estimated NAV,
the Estimated NAV shall equal the mean average of Buyer’s
good faith proposal and Seller’s good faith proposal.
If the Estimated NAV is less than the Minimum NAV, the Purchase
Price payable at Closing shall be decreased by the amount of such
shortfall. If the Estimated NAV is more than the Minimum NAV,
the Purchase Price payable at closing shall be increased by the
amount of such difference.
(iii)
Post-Closing Adjustment . As promptly as
practicable, but in no event later than 90 days after the Closing
Date, Buyer shall prepare and deliver to the Owners a written
statement (the “ Proposed Statement ”) setting
forth a calculation of the actual NAV (“ Actual NAV
”). If Owners have any objections to the Proposed
Statement, they shall jointly deliver a detailed statement
describing the objections to Buyer within 30 days after receiving
the Proposed Statement, and in the absence of providing any such
objection, the Proposed Statement shall be deemed the final
statement (the “ Final Statement ”) and the
calculation of the Actual NAV set forth on the Final Statement
shall be conclusive and binding upon the parties hereto. The
Buyer and the Company shall use commercially reasonable efforts to
resolve any such objections. If the Buyer and the Company
fail to obtain a final resolution within 30 days after the Buyer
receives the Company’s objections to the Proposed Statement,
the Buyer and the Company shall select a single accounting firm
mutually acceptable to the Buyer and the Company, and such
accounting firm shall resolve any objections. If the Buyer
and the Company are unable to select a mutually acceptable
accounting firm, they will select a nationally-recognized
“Big-4” accounting firm by lot (after excluding their
respective regular outside accounting firms), and such accounting
firm shall resolve any objections. The determination of any
accounting firm so selected shall be set forth in writing and shall
be conclusive and binding upon the Buyer and the Company. The
Buyer shall thereafter revise the Proposed Statement to reflect the
determination of the accounting firm and the final revised Proposed
Statement shall become the Final Statement. Buyer and Company
shall equally share the costs, fees and expenses associated with
retaining any such accounting firm. If the Actual NAV (as
finally determined pursuant to this Section 2.5(a)(iii)) is
less than the Estimated NAV, Company will pay to Buyer an amount
equal to the full amount of such difference (plus interest thereon
at the prime rate of Wells Fargo Bank, N.A. then in effect plus 100
basis points per annum calculated as of the Closing Date) by wire
transfer or delivery of other immediately available funds
within
8
three business days after the date on which the
Actual NAV is finally determined. If the Actual NAV (as
finally determined pursuant to this Section 2.5(a)(iii) ) is
more than the Estimated NAV, Buyer will pay to Company an amount
equal to the full amount of such difference (plus interest thereon
at the prime rate of Wells Fargo Bank, N.A. then in effect plus 100
basis points per annum calculated as of the Closing Date) by wire
transfer or delivery of other immediately available funds within
three business days after the date on which the Actual NAV is
finally determined.
(b) Net New Product
Payments .
(i)
The 23 new
products set forth in further detail in Attachment A are scheduled
to be released by the Company in April and May of 2004 (the “
New Products ”). In connection with the release
of the New Products, the Buyer has agreed to pay to the Owners an
amount of $200,000 based on estimated sales of $2,000,000. However,
the parties acknowledge that the actual sales of the New Products
may be higher or lower than this estimate; accordingly, the Buyer
shall be obligated to pay and the Owners shall be entitled to
receive an amount equal to 10% of the net sales of New Products
during each calendar quarter with respect to sales that fall within
the period that ends on the second anniversary of the Closing Date
(the “Net New Product Payment”). The Net New Product
Payment shall be payable to the Owners within 45 days of the end of
each such calendar quarter. The first such quarter shall be
the first complete calendar quarter following the Closing Date (and
if there are any months or partial months that precede such
calendar quarter, they shall be included in the first such
calculation and payment calculated on a pro rata
basis). For purposes of calculating sales of New
Products, all credits, chargebacks and returns shall be deducted
and the total amount of any initial New Products sales to stores
that receive the 35% or 50% opening order discount or other similar
discount related to initial orders or sets placed into stores shall
be exempted.
(ii)
Net New Product
Payments not paid within 30 days of their due date shall bear
interest at the rate of 12% per annum until paid. All amounts
referred to and all payments required to be made herein are
expressed and shall be paid in U.S. funds. To the extent that
any Net New Product Payment must be calculated based on foreign
currencies, Buyer shall be entitled to calculate the Net New
Product Payment based on the conversion or exchange rate which it
obtains.
(iii)
Together with the
payment of the Net New Product Payment, Buyer shall render to
Owners written statements disclosing the Net New Product Payment
hereunder. Each statement shall set forth and itemize the Net
Sales of New Products during the preceding period and the
calculation of the Net New Product Payment.
(iv)
Buyer agrees to
keep full, clear, and accurate books and records showing the Net
Sales of New Products on which payments hereunder are calculated
and to permit Owners, or their authorized representative, with 10
days advance notice, and no more than once each fiscal year, during
the period in which any Net New Product Payment is owing and for a
period of no more than six months thereafter, to inspect and
examine its books and records relating to the Net New Product
Payment, insofar as it is deemed reasonably necessary by Owners to
determine the Net New Product Payment due hereunder.
9
(c) Sales and
Executive Offices . Company, Owners and the
Buyer have discussed the possibility of Buyer’s purchase of
the the
Sales and Executive Offices at a mutually agreeable appraised fair
market value. If the parties reach agreement on such fair
market value prior to the Closing Date, this Agreement may be
amended or the parties may enter into a separate agreement for the
purchase and sale of the Sales and Executive `Offices.
2.6 Closing of
Transactions .
The closing of the transactions contemplated by this Agreement (the
“Closing”) will take place at the offices of John
Kearns, Esq. at 8400 East Prentice Avenue, No. 830, Greenwood
Village, CO, 80111 at 10:00 a.m. MST time on May 14, 2004, if all
of the conditions to Closing specified in Section 3.1 have been
satisfied, and if not, then at such other place and time as the
parties may mutually agree or, failing such agreement, then at
10:00 a.m. on a date designated by the Buyer which shall be no
later than May 30th, 2004. The date on which the Closing
shall occur is herein referred to as the “Closing Date”
and the Closing shall be deemed effective as of the close of
business on the Closing Date.
2.7 Disposition of Holdback Amount
. In addition to any other
rights and remedies available to Buyer and without limiting
Buyer’s ability to recover for any claims made pursuant to
this Agreement, the Holdback Amount will be available to satisfy
any other amounts owed by any of the Sellers to the Buyer pursuant
to this Agreement. More specifically, three hundred sixty
five (365) days following the Closing Date (or, if not on a
business day then the next following business day), the Buyer shall
release and deliver to the Company the Holdback Amount, less the
amount, if any, as to which Claims shall theretofore have been made
by the Buyer subject to the indemnification provisions contained in
Section 8.2. If the amount of any such Claims exceeds the
amount of the Holdback Amount, the entire remaining balance of the
Holdback Amount shall be set aside and retained by the Buyer until
the final disposition of such Claims.
ARTICLE III
CONDITIONS TO CLOSING
3.1 Conditions to
Buyer’s Obligations . The obligation of the Buyer to consummate the
transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions by the Sellers on or
before the Closing Date:
(a) Representations
and Warranties . Without duplication of
any “materiality” qualifiers contained therein, each of
the representations and warranties set forth in Article V
hereof will be true and correct in all material respects when made
and shall be true and correct in all material respects at and as of
the Closing Date (except to such extent such representations and
warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct in all
material respects as of such earlier date);
(b) Performance
. The Owners, the Shareholders
and the Company shall have each performed and complied in all
material respects with the covenants and obligations required by
this Agreement to be performed by them at or prior to the Closing
Date;
(c) Consents
. All consents by third parties
that are required for the transfer of the Purchased Assets to the
Buyer, or that are required for the consummation of the
transactions
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contemplated hereby, or that are required in
order to prevent a breach of, a default under or a termination or
material modification of any material agreement to which the
Company is a party or to which any material portion of the property
of the Company is subject will have been obtained, and releases of
any and all security interests held by third parties for which the
underlying indebtedness has been, or will be, repaid by the Company
on the Closing Date will have been obtained (except for those items
noted with an asterisk on the Lease and Encumbrances Schedule
attached at Schedule 5.8 ), all on terms reasonably
satisfactory to the Buyer;
(d) Governmental
Approvals . All governmental filings,
authorizations and approvals that are required for the consummation
of the transactions contemplated hereby will have been duly made
and obtained on terms reasonably satisfactory to Buyer;
(e) No Actions
. No
action or proceeding before any court or government body shall be
pending or threatened wherein an unfavorable judgment, decree,
injunction or order would prevent the carrying out of this
Agreement or any of the transactions contemplated hereby, declare
unlawful the transactions contemplated by this Agreement or cause
such transactions to be rescinded, or which could materially and
adversely affect the right of the Buyer to own, operate or control
the Company;
(f) Financial
Statements . The Company and the Owners
shall have delivered to the Buyer copies of the Company’s (i)
final audited financial statements for the period ended as of
December 31, 2003, and (ii) unaudited financial statements
(typically referred to by the Company as the Summarized Balance
Sheet and Income Statement), as soon as they become available, for
the periods ending as of March 31, 2004, April 30, th
2004 and for the period ending as of the Closing Date, in each
case, as soon as they are available but no later than twenty (20)
calendar days after the end of each such period (which balance
sheets shall be referred to herein as the “ Interim
Financial Statements ”). The Interim Financial
Statements shall be prepared according to GAAP consistently
applied;
(g) Consulting
Agreement . Anthony Mark Owens and Buyer
shall have negotiated and entered into a Consulting Agreement in a
mutually acceptable form that (i) includes those basic terms
provided on the Consulting Agreement Summary attached as Exhibit
C, (ii) provides for research and development bonuses payable
to Mark as set forth on the “ R&D Bonus Schedule
” attached as Exhibit D ; and (iii) includes
other terms typical for a transaction of this nature and mutually
agreeable to Buyer and Mark, and the Consulting Agreement shall be
in full force and effect;
(h) Lease
Agreement . Company, Owners and
Buyer shall have negotiated and entered into a Lease Agreement, in
a mutually acceptable form, that provides for those basic terms
provided on the Lease Agreement Summary attached as Exhibit
E, and (ii) includes other terms typical for a transaction of
this nature and mutually agreeable to Buyer and Owners (the
“Lease Agreement”), and the Lease Agreement shall be in
full force and effect;
(i) Payoff and
Release Letters . The Buyer shall have
received payoff and release letters in form and substance
satisfactory to the Buyer with respect to the complete
11
payment and satisfaction of all of the
Seller’s Indebtedness and the release of all Liens on the
Purchased Assets of the Company, if any;
(j) Due
Diligence . Buyer shall have completed,
and shall be satisfied (in Buyer’s sole discretion) with the
results of, (i) all due diligence Buyer elects to perform regarding
any of the Contracts that are binding upon either or both of the
Company and Owners, and (ii) all other due diligence Buyer may
elect to perform regarding the Company or its Business;
(k) Lease
Cancellation . The Owners and the Company
shall have cancelled all existing leases with respect to the Real
Property and shall have delivered to Buyer satisfactory evidence
thereof;
(l) Royalty
Agreement Cancellation . The Owners and the Company
shall have cancelled all existing royalty agreements with respect
to the Proprietary Rights and shall have delivered to the Buyer
satisfactory evidence thereof;
(m) No Material Adverse
Effect to Real Property . No damage or destruction or
other change has occurred with respect to any of the Real Property
or any portion thereof that, individually or in the aggregate,
would have a material adverse effect upon the use or occupancy of
the Real Property or the operation of the Business;
(n) Other
Deliverables . On or prior to the Closing
Date, the Sellers shall have delivered to the Buyer each of the
following:
(i)
certificate from
each of the Sellers, dated as of the Closing Date, stating that the
preconditions specified in this Section 3.1 have been
satisfied;
(ii)
certified copies
of the resolutions of Company’s board of directors approving
the transactions contemplated by this Agreement;
(iii)
copies of all
third party and governmental consents, approvals and filings
required in connection with the consummation of the transactions
contemplated herein;
(iv)
all formulations
for all products of the Company, sufficient for a knowledgeable
person to manufacture the same without further information or
instructions;
(v)
complete customer
and vendor lists of the Company, including all relevant contact
information, such as addresses, phone numbers, fax numbers,
principal contact persons, all of which shall preferably be
provided in both hard copy and in electronic format;
and
(vi)
such other
documents or instruments as Buyer reasonably requests to effect the
transactions contemplated hereby.
(o) No Material
Adverse Change . There shall have been no
material adverse change from the date of this Agreement in the
business, assets, financial condition, operating results, earnings,
the customer, supplier, employee and sales representative
relations, the business condition, the financing arrangements or
any business prospects of the Company;
12
(p) Satisfaction of
Covenants . The covenants set forth in
Section 4.1 hereunder shall have been completed to the
satisfaction of the Buyer; and
(q) All Other
Actions . All actions to be taken by
the Company, Owners or Shareholders in connection with the
consummation of Closing and the other transactions contemplated
hereby and all certificates, opinions, instruments and other
documents required to be delivered by such parties to effect the
transactions contemplated hereby reasonably requested by Buyer will
be reasonably satisfactory in form and substance to
Buyer.
Any condition specified in this
Section 3.1 may be waived by the Buyer, provided that no
such waiver will be effective unless it is set forth in a writing
executed by the Buyer and delivered to the Company and the Owners
or unless the Buyer agrees to consummate the transactions
contemplated by this Agreement without satisfaction of such
condition.
3.2 Conditions to the
Seller’s Obligations . The obligation of each of the Sellers to
consummate the transactions contemplated by this Agreement is
subject to the satisfaction of the following conditions on or
before the Closing Date:
(a) Representations
and Warranties . Without duplication of any
“materiality” qualifiers contained therein, each of the
representations and warranties set forth in Article VI
hereof will be true and correct in all material respects when made
and shall be true and correct in all material respects at and as of
the Closing Date (except to such extent such representations and
warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct in all
material respects as of such earlier date);
(b) Performance
. The Buyer will have performed
and complied in all material respects with all of the covenants and
agreements required to be performed by it under this Agreement
prior to the Closing;
(c) Governmental
Approvals . All governmental filings,
authorizations and approvals that are required for the consummation
of the transactions contemplated hereby will have been duly made
and obtained;
(d) No Actions
. No
action or proceeding before any court or governmental body will be
pending or threatened wherein an unfavorable judgment, decree,
injunction or order would prevent the carrying out of this
Agreement or any of the transactions contemplated hereby, declare
unlawful the transactions contemplated by this Agreement or cause
such transactions to be rescinded;
(e) Consulting
Agreement . The Buyer shall have executed
and delivered to the other signature parties thereto the
counterpart to the Consulting Agreement, and the Consulting
Agreement shall be in full force and effect;
(f) Lease
Agreement . The Buyer shall have executed
and delivered to the other signature parties thereto the
counterpart to the Lease Agreement, and the Lease Agreement shall
be in full force and effect;
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(g) Other
Deliverables . On or prior to the Closing
Date, the Buyer shall have delivered or caused to be delivered to
Company and Owners all of the following:
(i)
a certificate
from the Buyer, dated the Closing Date, stating that the
preconditions specified in this Section 3.2 have been
satisfied;
(ii)
certified copies
of the resolutions of the Buyer’s board of directors
approving the transactions contemplated by this
Agreement;
(iii)
the Purchase
Price, less the Holdback Amount, for the Purchased Assets;
and
(iv)
such other
documents or instruments as Sellers reasonably request to effect
the transactions contemplated hereby.
Any condition
specified in this Section 3.2 may be waived by the Company
and the Owners, provided that no such waiver shall be effective
unless it is set forth in writing executed by the Company and the
Owners or unless the Company and the Owners agree to consummate the
transactions contemplated by this Agreement without the
satisfaction of such condition.
ARTICLE IV
PRE-CLOSING COVENANTS
4.1 Pre-Closing
Covenants . The
parties hereto agree as follows with respect to the period between
the execution of this Agreement and the Closing:
(a) General
. Each of the parties hereto
shall use their reasonable best efforts to take all actions and to
do all things necessary, proper or advisable in order to consummate
and make effective the transactions contemplated by this Agreement
(including the satisfaction, but no waiver, of the closing
conditions set forth in Article III above);
(b) Operation of the
Business . Each of the Sellers shall
use their reasonable best efforts to carry on the Business of the
Company and the Owners substantially in the same manner as
historically conducted and shall refrain from engaging in any
practice, taking any action, or entering into any transaction
outside the ordinary course of business;
(c) Preservation of
the Business . Each of the Sellers shall
keep its business and properties substantially intact, including
its present operations, physical facilities, working conditions,
insurance policies and relationships with its employees, lessors,
licensors, suppliers, contractors, distributors customers and
others having business dealings with the Business, sufficient to
enable the Company to operate its Business in accordance with past
practices;
(d) Maintenance of
Assets . Each of the Sellers shall
maintain the assets of the Company and the Owners in customary
repair, order and condition consistent with past practice and
current needs, replace in accordance with past practice its
inoperable, worn out or obsolete assets and, in the event of a
casualty, loss or damage to any of such assets or properties prior
to the Closing Date for which the Company and/or the Owners are
insured, either repair or replace
14
such damaged property or use the proceeds of
such insurance in such other manner as mutually agreed upon by the
Buyer, the Company and the Owners;
(e) Books and
Records . Each of the Sellers shall
maintain the books, accounts and records of the Company and the
Owners in accordance with past custom and practice as used in the
preparation of the Financial Statements (as defined in Section
5.4(a) below);
(f) Notice of
Developments . The Sellers shall give
prompt written notice to the Buyer of any material adverse
development causing a breach of any of its own representations and
warranties in Article V hereof or any breach of any covenant
hereunder by any of the Sellers;
(g) Maintenance of
Real Property . Each of the Sellers shall
maintain the Real Property, including all buildings and
improvements thereon, in substantially the same condition as
existed on the date of this Agreement, ordinary wear and tear
excepted, and not demolish or remove any of such buildings and
improvements, or erect new improvements on the Real Property or any
portion thereof, without the prior written consent of the
Buyer;
(h) Maintain Open
Communications . Sellers shall confer on a
reasonable basis at the Buyer’s request with representatives
of the Buyer to report on operational matters and the general
status of ongoing operations;
(i) Other
Negative Covenants . Each of the Sellers shall
refrain from the following:
(i)
making any loans,
entering into any insider transactions or making or granting any
increase in any employee’s or officer’s compensation or
making or granting any increase in any employee benefit plan,
incentive arrangement or other benefit covering any of the
employees of the Company, other than in the ordinary course of the
Company’s business consistent with past practices to or with
individuals who are not affiliated with Company or the Owners or
the Shareholders;
(ii)
establishing or,
except in accordance with past practice, contributing to any
pension, retirement, profit sharing or stock bonus plan or
multiemployer plan covering the employees of the
Company;
(iii)
entering into any
contract, agreement or transaction other than in the ordinary
course of the Company’s business consistent with past
practice and at arm’s length with persons or entities that
are not affiliated with the Company or the Owners; and
(iv)
making or
changing any election, changing any annual accounting period,
adopting or changing any accounting method, filing any amended Tax
Return, entering into any closing agreement, settling any Tax claim
or assessment relating to the Company, surrendering any right to
claim a refund of Taxes, consenting to any extension or waiver of
the limitation period applicable to any Tax claim or assessment, or
taking any other similar action, or omitting to take any action
relating to the filing of any Tax Return or the payment of any Tax,
if such election, adoption, change, amendment, agreement,
settlement, surrender, consent or other
15
action or omission would have the effect of
increasing the present or future Tax liability or decreasing any
present or future Tax asset of the Company.
(j) Buyer
Cooperation . The Buyer shall
cooperate with the Company and the Owners and use its reasonable
best efforts to cause the conditions to the Company and
Seller’s obligations to close to be satisfied (including the
execution and delivery of all agreements contemplated hereunder to
be so executed and delivered);
(k) Interim Financial
Statements . Sellers shall fully
cooperate with Buyer’s financial personnel and outside
accountants to cause the Interim Financial Statements to be updated
and prepared in conformity with GAAP, consistently applied, by
making appropriate and necessary accruals; and
(l) Access
.
Company and Owners shall provide, and shall cause their respective
officers, employees, agents and representatives (including the
Company’s independent accountants) to provide to Buyer and
its officers, employees, agents and representatives reasonable
access to personnel (including the Company’s independent
accountants), and financial, accounting and other data and
information (including workpapers of the Company’s
independent accountants, whether prepared in contemplation of this
Section 4.1 or otherwise), to the extent relating to the
calculation of any of the amounts described in this Section
4.1 as reasonably requested by the Buyer, its representatives
or agents for purposes of evaluating the Company’s and the
Owner’s compliance with the terms and conditions of this
Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS
The Sellers jointly and severally
represent and warrant to the Buyer that the statements contained in
this Article V are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this
Article V) .
5.1 Organization and
Corporate Power . The Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Colorado.
5.2 Authorization of
Transactions .
The Company has full corporate power and authority to execute and
deliver this Agreement and perform all of its obligations
hereunder. Without limiting the generality of the foregoing,
the board of directors of the Company and the Shareholders have
duly authorized the execution, delivery, and performance of this
Agreement by the Sellers. This Agreement constitutes the
valid and legally binding obligation of the Sellers, enforceable in
accordance with its terms and conditions.
5.2
Non-Contravention . Neither the execution and the delivery by
the Sellers of this Agreement or any other agreements as
contemplated herein to which it is a party, the performance by it
of its obligations hereunder or thereunder, nor the consummation by
it of the transactions contemplated hereby or thereby, will: (i)
violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of
any government,
16
governmental agency, or court to which the
Company is subject or any provision of the charter or bylaws of the
Company; (ii) conflict with, result in any breach of, constitute a
default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Company is a party or
by which it is bound or to which any of its assets is subject (or
result in the imposition of any Lien upon any of its assets),
except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to
give notice, or Lien would not have a material adve
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