STOCK PURCHASE AGREEMENT
Exhibit 10.1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (“Agreement”) is made and entered into as of this 1st day of June 2007, by and among T&L, Inc., a Florida corporation having its principal offices at 5421 Karlsburg Place, Palm Harbor Fl 34685 ( “Purchaser”), and Vertical Health Solutions, Inc., having its principal offices at 630 Brooker Creek Blvd., Ste. 340, Oldsmar, FL 34677 (“Seller”), and Drug Depot, Inc., a Florida corporation having its principal offices at 2595 Tampa Rd., Ste. E, Palm Harbor, FL (the “Company”).
W I T N E S S E T H:
WHEREAS, the Company is engaged in the retail pharmacy and veterinary compounding business (hereinafter, the “Business”), and the Seller is the owner of all of the Company’s issued and outstanding capital stock; and
WHEREAS, the Purchaser desires to acquire the Company and the Seller wishes to sell the Company to Purchaser on the terms contained herein;
NOW, THEREFORE, in consideration of the premises, the mutual representations, warranties, covenants and agreements hereinafter contained, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree as follows:
1. SALE OF SHARES. Subject to and upon the terms and conditions hereinafter set forth and the representations and warranties contained herein, at the Closing (the “Closing”) on the Closing Date (as defined in Section 9 below), Seller agrees to sell, assign, transfer and deliver to Purchaser, free and clear of all liens, claims, and encumbrances thereon, and the Purchaser agrees to purchase from Seller, all of the issued and outstanding shares of capital stock of the Company (the “Shares”), which, on the Closing Date, will consist of 200 shares of common stock, par value $0.001 per share. The Shares are owned by the Seller in the respective amounts set forth in SCHEDULE 2.01.
2. PRICE AND CONSIDERATION. The Purchase Price to be paid by Purchaser for the Shares hereof is $67,000.00 (sixty seven thousand dollars) and the cancellation of a promissory note evidencing a loan from Purchaser to Seller dated October 31, 2004 with a current balance of $146,205.76 (one hundred forty six thousand, two hundred five and 76/100 dollars) (the “Note”). The Purchaser Price shall be payable at the time and in the manner set forth below:
2.01 Deposit. Upon execution of this Agreement, Purchaser shall deposit $30,000 (thirty thousand dollars) (the “Deposited Fund”) into a Vertical Health account. If the Closing does not occur by September 30, 2007 (the “Termination Date”) for any reason other than a breach of this Agreement by Purchaser, the Deposited Funds shall promptly be returned to Purchaser.
Page 1 of 38
2.02 Closing Payment. At Closing, Seller shall pay $37,000 (thirty seven thousand dollars) to Purchaser in cash (the “Closing Payment”).
2.03 Cancellation of Note. At the Closing, the Note shall be terminated and cancelled and all obligations represented thereby shall be released.
3. REPRESENTATIONS AND WARRANTIES. The Seller and the Company, jointly and severally, make the following representations and warranties to the Purchaser as an inducement for it to enter into this Agreement. For purposes of this Agreement, where a representation or warranty of Seller is limited to matters known to them, the Seller shall be regarded as having knowledge of any matter known by any officer, manager or supervisor of the Company, the counsel and accountants of Seller or the Company, and any other representatives of or consultants to Seller or the Company in connection with the transactions that are the subject hereof.
3.01. Organization and Good Standing of the Company. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida, its state of incorporation, and is legally qualified to transact business in each jurisdiction where the failure to so qualify would have an adverse effect on the business of the Company.
3.02. Authority.
(a) The Company has full power and authority (corporate and otherwise) to carry on its business and has all permits and licenses that are necessary to the conduct of its business or to the ownership, lease or operation of its properties and assets.
(b) The execution of this Agreement and the delivery hereof to the Purchaser and the sale contemplated herein have been, or will be prior to Closing, duly authorized by the Company’s and the Seller’s Boards of Directors and by the Company’s and the Seller’s stockholders having full power and authority to authorize such actions.
(c) Subject to any consents required under Subsection 3.07 below, the Seller and the Company have the full legal right, power and authority to execute, deliver and carry out the terms and provisions of this Agreement; and this Agreement has been duly and validly executed and delivered on behalf of Seller and the Company and constitutes a valid and binding obligation of each Seller and the Company enforceable in accordance with its terms.
(d) Except as set forth in SCHEDULE 3.02, neither the execution and delivery of this Agreement, the consummation of the transactions herein contemplated, nor compliance with the terms of this Agreement will violate, conflict with, result in a breach of, or constitute a default under any statute, regulation, indenture, mortgage, loan agreement, or other agreement or instrument to which the Company or any Seller is a party or by which it or any of them is bound, any charter, regulation, or bylaw provision of the Company, or any decree, order, or rule of any court or governmental authority or arbitrator that is binding on the Company or any Seller in any way.
Page 2 of 38
3.03. Shares.
(a) The Company’s authorized capital stock consists of 200 shares of Common Stock, par value $0.001 per share, of which 200 shares have been issued to Seller and constitute the Shares as defined above. The Company is a wholly-owned subsidiary of the Seller. All of the Shares are duly authorized, validly issued, fully paid and non-assessable.
(b) The Seller is the lawful record and beneficial owner of all the Shares, free and clear of any liens, pledges, encumbrances, charges, claims or restrictions of any kind, except as set forth in SCHEDULE 3.03, and has, or will have on the Closing Date, the absolute, unilateral right, power, authority and capacity to enter into and perform this Agreement without any other or further authorization, action or proceeding, except as specified herein.
(c) There are no authorized or outstanding subscriptions, options, warrants, calls, contracts, demands, commitments, convertible securities or other agreements or arrangements of any character or nature whatever under which any Seller or the Company are or may become obligated to issue, assign or transfer any shares of capital stock of the Company. Upon the delivery to Purchaser on the Closing Date of the certificate(s) representing the Shares, Purchaser will have good, legal, valid, marketable and indefeasible title to all the then issued and outstanding shares of capital stock of the Company, free and clear of any liens, pledges, encumbrances, charges, agreements, options, claims or other arrangements or restrictions of any kind.
3.04. Basic Corporate Records. The copies of the Articles of Incorporation of the Company and any Subsidiaries, as defined in Section 3.06 hereof (certified by the Secretary of State or other authorized official of the jurisdiction of incorporation) and the Bylaws of the Company and any Subsidiaries, as the case may be (certified as of the date of this Agreement as true, correct and complete by the Company’s secretary or assistant secretary), all of which have been delivered to the Purchaser, are true, correct and complete as of the date of this Agreement.
3.05. Minute Books. The minute books of the Company and any Subsidiaries of the Company, which shall be exhibited to the Purchaser between the date hereof and the Closing Date, each contain true, correct and complete minutes and records of all meetings, proceedings and other actions of the shareholders, Boards of Directors and committees of such Boards of Directors of each such corporation, if any, from the date of organization to the date hereof and, on the Closing Date, will contain true, correct and complete minutes and records of any meetings, proceedings and other actions of the shareholders, respective Boards of Directors and committees of such Boards of Directors of each such corporation from the date of organization to the Closing Date.
3.06. Subsidiaries and Affiliates. Any and all businesses, entities, enterprises and organizations in which the Company has any ownership, voting or profit and loss sharing
Page 3 of 38
percentage interest (the “Subsidiaries”) are identified in SCHEDULE 3.06 hereto, together with the Company’s interest therein. Unless the context requires otherwise or specifically designated to the contrary on SCHEDULE 3.06 hereto, “Company” as used in this Agreement shall include all such Subsidiaries. Except as set forth in SCHEDULE 3.06 or 3.31, (i) the Company has made no advances to, or investments in, nor owns beneficially or of record, any securities of or other interest in, any business, entity, enterprise or organization, (ii) there are no arrangements through which the Company has acquired from, or provided to, the Seller or its affiliates any goods, properties or services, (iii) there are no rights, privileges or advantages now enjoyed by the Company as a result of the ownership of the Company by the Seller which, to the knowledge of the Seller or the Company, might be lost as a result of the consummation of the transactions contemplated by this Agreement. Each entity shown on SCHEDULE 3.06 is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and has full corporate power to own all of its property and to carry on its business as it is now being conducted. Also set forth on SCHEDULE 3.06 is a list of jurisdictions in which each Subsidiary is qualified as a foreign corporation. Such jurisdictions are the only jurisdictions in which the ownership or leasing of property by each Subsidiary or the conduct of its business requires it to be so qualified. All of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued, are fully paid and nonassessable, and, except as set forth on SCHEDULE 3.06, are owned, of record and beneficially, by the Company, and on the Closing Date will be owned by the Company, free and clear of all liens, encumbrances, equities, options or claims whatsoever. No Subsidiary has outstanding any other equity securities or securities options, warrants or rights of any kind that are convertible into equity securities of such Subsidiary, except as set forth on SCHEDULE 3.06.
3.07. Financial Statements. The Seller has delivered, or will deliver prior to Closing, to the Purchaser copies of the following financial statements all of which are true, complete and correct, have been prepared from the books and records of the Company in accordance with generally accepted accounting principles (“GAAP”) consistently applied with past practice and fairly present the financial condition, assets, liabilities and results of operations of the Company as of the dates thereof and for the periods covered thereby (collectively, the “Financial Statements”):
(a) Balance Sheets of the Company for each of the two (2) years ending December 31, 2006 and 2005 and for the quarter ended March 31, 2007 and the related Statements of Operations and of the Company for the fiscal years and quarterly period then ended.
(b) A balance sheet of the Company as of the Closing Date (the “Final Balance Sheet”).
In such Financial Statements, the Statements of Operations do not contain any items of special or nonrecurring income or any other income not earned in the ordinary course of business except as expressly specified therein, and the financial statements for the interim periods indicated include all adjustments, which consist of only normal recurring accruals, necessary for such fair presentation. The independent registered public accounting firm’s reports do not contain a qualified opinion. There are no facts known to the Seller or the Company that, under GAAP consistently applied, would alter the information contained in the foregoing financial statements in any way whatever.
Page 4 of 38
3.08. Records and Books of Account. The records and books of account of the Company and of each Subsidiary reflect all material items of income and expense and all material assets, liabilities and accruals, and have been, and to the Closing Date will be, regularly kept and maintained in conformity with GAAP applied on a consistent basis with preceding years.
3.09. Absence of Undisclosed Liabilities. Except as and to the extent reflected or reserved against in the Final Balance Sheet dated as of the Closing Date, or disclosed in SCHEDULE 3.09, there are no liabilities or obligations of the Company of any kind whatsoever, whether accrued, fixed, absolute, contingent, determined or determinable, and including without limitation (i) liabilities to former, retired or active employees of the Company under any pension, health and welfare benefit plan, vacation plan or other plan of the Company, (ii) tax liabilities incurred in respect of or measured by income for any period prior to the close of business on the Closing Date, or arising out of transactions entered into, or any state of facts existing, on or prior to said date, and (iii) contingent liabilities in the nature of an endorsement, guarantee, indemnity or warranty, and there is no condition, situation or circumstance existing or which has existed that could reasonably be expected to result in any liability of the Company.
3.10 Taxes.
(a) For purposes of this Agreement, “Tax” or “Taxes” refers to: (i) any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities relating to taxes, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes and escheatment payments, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity; (ii) any liability for the payment of any amounts of the type described in clause (i) as a result of being or ceasing to be a member of an affiliated, consolidated, combined or unitary group for any period (including, without limitation, any liability under Treas. Reg. Section 1.1502-6 or any comparable provision of foreign, state or local law); and (iii) any liability for the payment of any amounts of the type described in clause (i) or (ii) as a result of any express or implied obligation to indemnify any other person or as a result of any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity.
(b) (i) The Company has timely filed all federal, state, local and foreign returns, estimates, information statements and reports (“Returns”) relating to Taxes required to be filed by the Company with any Tax authority. All such Returns are true, correct and complete in all respects. The Company has paid all Taxes shown to be due on such Returns. The Company is not currently the beneficiary of any extensions of time within which to file any Returns. The Seller
Page 5 of 38
and the Company have furnished and made available to the Purchaser complete and accurate copies of all income and other Tax Returns and any amendments thereto filed by the Company since its inception.
(ii) The Company, as of the Closing Date, will have withheld and paid to the proper authority all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party for all periods ending on or before the Closing Date.
(iii) The Company has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding or assessed against the Company. The Company has not executed any unexpired waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax.
(iv) There is no dispute, claim, or proposed adjustment concerning any Tax liability of the Company either (A) claimed or raised by any Tax authority in writing or (B) based upon personal contact with any agent of such Tax authority, and there is no claim for assessment, deficiency, or collection of Taxes, or proposed assessment, deficiency or collection from the Internal Revenue Service or any other governmental authority against the Company which has not been satisfied. The Company is not a party to nor has it been notified in writing that it is the subject of any pending, proposed, or threatened action, investigation, proceeding, audit, claim or assessment by or before the Internal Revenue Service or any other governmental authority, nor does the Company have any reason to believe that any such notice will be received in the future. The Internal Revenue Service has never audited any federal income tax return of the Company. The Company has not filed any requests for rulings with the Internal Revenue Service. No power of attorney has been granted by the Company or its Affiliates with respect to any matter relating to Taxes of the Company. There are no Tax liens of any kind upon any property or assets of the Company, except for inchoate liens for Taxes not yet due and payable.
(v) The Company has no liability for any unpaid Taxes which has not been paid or accrued for or reserved on the Financial Statements and the Interim Financial Statements in accordance with GAAP, whether asserted or unasserted, contingent or otherwise.
(vi) There is no contract, agreement, plan or arrangement to which the Company is a party as of the date of this Agreement, including but not limited to the provisions of this Agreement, covering any employee or former employee of the Company that, individually or collectively, would reasonably be expected to give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). There is no contract, agreement, plan or arrangement to which the Company is a party or by which it is bound to compensate any individual for excise taxes paid pursuant to Section 4999 of the Code.
Page 6 of 38
(vii) The Company has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company.
(viii) The Company is not a party to, nor has any obligation under any tax-sharing, tax indemnity or tax allocation agreement or arrangement.
(ix) None of the Company’s assets are tax exempt use property within the meaning of Section 168(h) of the Code.
(x) The Company has not been a United States real property holding corporation within the meaning of Code Sec. 897(c)(2) during the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company (A) has not been a member of any affiliated group within the meaning of Code Sec. 1504 or any similar group defined under a similar provision of state, local, or foreign law (an “Affiliated Group”) filing a consolidated income Tax Return (other than a group the common parent of which was the Company) and (B) has no liability for the taxes of any Person (other than the Company) under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. The Company has not requested or received a ruling from any Tax authority or signed a closing agreement with any Tax authority. No claim has ever been made by a Tax authority in a jurisdiction where the Company does not file Returns that the Company is or may be subject to taxation by such jurisdiction. Company has not been a “distributing corporation” (within the meaning of Section 355(c)(2) of the Code) with respect to a transaction described in Section 355 of the Code within the three-year period ending as of the date of this Agreement. The Company has not received a Tax opinion with respect to any transaction relating to the Company. The Company is not the direct or indirect beneficiary of a guarantee of Tax benefits or any other arrangement that has the same economic effect with respect to any transaction or Tax opinion relating to the Company. The Company is not a party to an understanding or arrangement described in Section 6111(d) or Section 6662(d)(2)(C)(iii) of the Code. The Company is not a party to a lease arrangement involving a defeasance of rent, interest or principal.
3.11. Accounts Receivable. The accounts receivable of the Company shown on the Final Balance Sheet are, and will be, actual bona fide receivables from transactions in the ordinary course of business representing valid and binding obligations of others for the total dollar amount shown thereon, and as of the Closing Date were not (and presently are not) subject to any recoupments, set-offs, or counterclaims. All such accounts receivable are and will be collectible in amounts not less than the amounts (net of reserves) carried on the books of the Company, including the Final Balance Sheet, and will be paid in accordance with their terms. Except as listed on SCHEDULE 3.12 hereto, all such accounts receivable are and will be actual bona fide receivables from transactions in the ordinary course of business.
3.12. Inventory. The inventories of the Company are located at the locations listed on SCHEDULE 3.12 attached hereto. The inventories of the Company shown on its Final Balance Sheet are so shown on the basis of a complete physical count and are carried at values
Page 7 of 38
which reflect the normal inventory valuation policy of the Company of stating the items of inventory at cost or market value, whichever is lower, on a first in, first out basis in accordance with GAAP consistently applied. All slow-moving, unmarketable, returned, rejected, damaged, obsolete or below standard quality inventory of the Company has been valued at its recoverable value. Inventory acquired since March 31, 2007 has been acquired in the ordinary course of business and valued as set forth above. The Company will maintain the inventory in the normal and ordinary course of business from the date hereof through the Closing Date.
3.13. Machinery and Equipment. Except for items disposed of in the ordinary course of business, all machinery, tools, furniture, fixtures, equipment, vehicles, leasehold improvements and all other tangible personal property (hereinafter “Fixed Assets”) of the Company currently being used in the conduct of its business, or included in determining the net book value of the Company on the Final Balance Sheet, together with any machinery or equipment that is leased or operated by the Company, are in good and fully serviceable working condition and repair. Said Fixed Assets shall be maintained in such condition from the date hereof through the Closing Date. Except as described on SCHEDULE 3.13 hereto, all Fixed Assets owned, used or held by the Company are situated at its business premises and are currently used in its business. SCHEDULE 3.13 describes all Fixed Assets owned by or an interest in which is claimed by any other person (whether a customer, supplier or other person) for which the Company is responsible (copies of all agreements relating thereto being attached to said SCHEDULE 3.13), and all such property is in the Company’s actual possession and is in such condition that upon the return of such property in its present condition to its owner, the Company will not be liable in any amount to such owner. There are no outstanding requirements or recommendations by any insurance company that has issued a policy covering either (i) such Fixed Assets or (ii) any liabilities of the Company relating to operation of the Business, or by any board of fire underwriters or other body exercising similar functions, requiring or recommending any repairs or work to be done on any Fixed Assets or any changes in the operations of the Business, any equipment or machinery used therein, or any procedures relating to such operations, equipment or machinery. All Fixed Assets of the Company are set forth on SCHEDULE 3.13 hereto.
3.14. Leases. All leases of real and personal property of the Company are described in SCHEDULE 3.14, are in full force and effect and constitute legal, valid and binding obligations of the respective parties thereto enforceable in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting generally the enforcement of creditor’s rights, and have not been assigned or encumbered. The Company has performed in all material respects the obligations required to be performed by it under all such leases to date and it is not in default in any material respect under any of said leases, except as set forth in SCHEDULE 3.14, nor has it made any leasehold improvements required to be removed at the termination of any lease, except signs. No other party to any such lease is in material default thereunder. Except as noted on SCHEDULE 3.14, none of the leases listed thereon require the consent of a third party in connection with the transfer of the Shares.
3.15. Patents, Software, Trademarks, Etc. The Company owns, or possesses adequate licenses or other rights to use, all patents, software, trademarks, service marks, trade
Page 8 of 38
names and copyrights and trade secrets, if any, necessary to conduct its business as now operated by it. The patents, software, trademarks, service marks, copyrights, trade names and trade secrets, if any, registered in the name of or owned or used by or licensed to the Company and applications for any thereof (hereinafter the “Intangibles”) are described or referenced in SCHEDULE 3.15. Seller hereby specifically acknowledges that all right, title and interest in and to all patents and software listed on SCHEDULE 3.15 as patents owned by the Company are owned by the Company and that the ownership of such patents and software will be transferred as part of the Company to Purchaser as part of the transaction contemplated hereby. No officer, director, shareholder or employee of the Company or any relative or spouse of any such person owns any patents or patent applications or any inventions, software, secret formulae or processes, trade secrets or other similar rights, nor is any of them a party to any license agreement, used by or useful to the Company or related to the Business except as listed in SCHEDULE 3.15. All of said Intangibles are valid and in good standing, are free and clear of all liens, security interests, charges, restrictions and encumbrances of any kind whatsoever, and have not been licensed to any third party except as described in SCHEDULE 3.15. The Company has not been charged with, nor has it infringed, nor to the Seller’s knowledge is it threatened to be charged with infringement of, any patent, proprietary rights or trade secrets of others in the conduct of its business, and, to the date hereof, neither the Seller nor the Company has received any notice of conflict with or violation of the asserted rights in intangibles or trade secrets of others. The Company is not now manufacturing any goods under a present permit, franchise or license, except as set forth in said SCHEDULE 3.15. The consummation of the transactions contemplated hereby will not alter or impair any rights of the Company in any such Intangibles or in any such permit, franchise or license, except as described in SCHEDULE 3.15. The Intangibles and the Company’s tooling, manufacturing and engineering drawings, process sheets, specifications, bills of material and other like information and data are in such form and of such quality and will be maintained in such a manner that the Company can, following the Closing, design, produce, manufacture, assemble and sell the products and provide the services heretofore provided by it so that such products and services meet applicable specifications and conform with the standards of quality and cost of production standards heretofore met by it. The Company has the sole and exclusive right to use its corporate and trade names in the jurisdictions where it transacts business.
3.16. Insurance Policies. There is set forth in SCHEDULE 3.16 a list and brief description of all insurance policies on the date hereof held by the Company or on which it pays premiums, including, without limitation, life insurance and title insurance policies, which description includes the premiums payable by it thereunder. SCHEDULE 3.16 also sets forth, in the case of any life insurance policy held by the Company, the name of the insured under such policy, the cash surrender value thereof and any loans thereunder. All such insurance premiums in respect of such coverage have been, and to the Closing Date will be, paid in full, or if not due, properly accrued on the Final Balance Sheet. All claims, if any, made against the Company which are covered by such policies have been, or are being, settled or defended by the insurance companies that have issued such policies and no excess liability exists. Up to the Closing Date, such insurance coverage will be maintained in full force and effect and will not be cancelled, modified or changed without the express written consent of the Purchaser, except to the extent the maturity dates of any such insurance policies expiring prior to the Closing Date. No such policy has been, or to the
Page 9 of 38
Closing Date will be, cancelled by the issuer thereof, and, between the date hereof and the Closing Date, there shall be no increase in the premiums with respect to any such insurance policy caused by any action or omission of the Seller or of the Company.
3.17. Banking and Personnel Lists. The Seller and the Company will deliver to the Purchaser prior to the Closing Date the following accurate lists and summary descriptions relating to the Company:
(i) The name of each bank in which the Company has an account or safe deposit box and the names of all persons authorized to draw thereon or have access thereto.
(ii) The names, current annual salary rates and total compensation for the preceding fiscal year of all of the present directors and officers of the Company, and any other employees whose current base accrual salary or annualized hourly rate equivalent is $20,000 or more, together with a summary of the bonuses, percentage compensation and other like benefits, if any, paid or payable to such persons for the last full fiscal year completed, together with a schedule of changes since that date, if any.
(iii) A schedule of workers’ compensation payments of the Company over the past five full fiscal years and the fiscal year to date, a schedule of claims by employees of the Company against the workers’ compensation fund for any reason over such period, identification of all compensation and medical benefits paid to date on each such claim and the estimated amount of compensation and medical benefits to be paid in the future on each such claim.
(iv) The name of all pensioned employees of the Company whose pensions are unfunded and are not paid or payable pursuant to any formalized pension arrangements, their agent and annual unfunded pension rates.
3.18. Lists of Contracts, Etc. There is included in SCHEDULE 3.18 a list of the following items (whether written or oral) relating to the Company, which list identifies and fairly summarizes each item:
(i) All collective bargaining and other labor union agreements (if any); all employment agreements with any officer, director, employee or consultant; and all employee pension, health and welfare benefit plans, group insurance, bonus, profit sharing, severance, vacation, hospitalization, and retirement plans, post-retirement medical benefit plans, and any other plans, arrangements or custom requiring payments or benefits to current or retiring employees.
(ii) All joint venture contracts of the Company or affiliates relating to the Business;
Page 10 of 38
(iii) All contracts of the Company relating to (a) obligations for borrowed money, (b) obligations evidenced by bonds, debentures, notes or other similar instruments, (c) obligations to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (d) obligations under capital leases, (e) debt of others secured by a lien on any asset of the Company, and (f) debts of others guaranteed by the Company.
(iv) All agreements of the Company relating to the supply of raw materials for and the distribution of the products of the Business, including without limitation all sales agreements, manufacturer’s representative agreements and distribution agreements of whatever magnitude and nature, and any commitments therefor;
(v) All contracts that individually provide for aggregate future payments to or from the Company of $5,000 or more, to the extent not included in (i) through (iv) above;
(vi) All contracts of the Company that have a term exceeding one year and that may not be cancelled without any liability, penalty or premium, to the extent not included in (i) through (v) above;
(vii) A complete list of all outstanding powers of attorney granted by the Company; and
(viii) All other contracts of the Company material to the business, assets, liabilities, financial condition, results of operations or prospects of the Business taken as a whole.
Except as set forth in SCHEDULE 3.18, (i) all contracts, agreements and commitments of the Company set forth in SCHEDULE 3.18 are valid, binding and in full force and effect, and (ii) neither the Company nor any other party to any such contract, agreement, or commitment has materially breached any provision thereof or is in default thereunder. Except as set forth in SCHEDULE 3.18, the sale of the Shares by the Seller in accordance with this Agreement will not result in the termination of any contract, agreement or commitment of the Company set forth in SCHEDULE 3.18, and immediately after the Closing, each such contract, agreement or commitment will continue in full force and effect without the imposition or acceleration of any burdensome condition or other obligation on the Company resulting from the sale of the Shares by the Seller. True and complete copies of the contracts, leases, licenses and other documents referred to in this Subsection 3.18 will be delivered to the Purchaser, certified by the Secretary or Assistant Secretary of the Company as true, correct and complete copies, not later than four weeks from the date hereof or ten business days before the Closing Date, whichever is sooner.
Page 11 of 38
There are no pending disputes with customers or vendors of the Company regarding quality or return of goods involving amounts in dispute with any one customer or vendor, whether for related or unrelated claims, in excess of $5,000 except as described on SCHEDULE 3.18 hereto, all of which will be resolved to the reasonable satisfaction of Purchaser prior to the Closing Date. To the best knowledge of Seller and the Company, there has not been any event, happening, threat or fact that would lead them to believe that any of said customers or vendors will terminate or materially alter their business relationship with the Company after completion of the transactions contemplated by this Agreement.
3.19. Compliance With the Law. The Company is not in violation of any applicable federal, state, local or foreign law, regulation or order or any other, decree or requirement of any governmental, regulatory or administrative agency or authority or court or other tribunal (including, but not limited to, any law, regulation order or requirement relating to securities, properties, business, products, manufacturing processes, advertising, sales or employment practices, terms and conditions of employment, occupational safety, health and welfare, conditions of occupied premises, product safety and liability, civil rights, or environmental protection, including, but not limited to, those related to waste management, air pollution control, waste water treatment or noise abatement). Except as set forth in SCHEDULE 3.19, the Company has not been and is not now charged with, or to the knowledge of the Seller or the Company under investigation with respect to, any violation of any applicable law, regulation, order or requirement relating to any of the foregoing, nor, to the knowledge of any Seller or the Company after due inquiry, are there any circumstances that would or might give rise to any such violation. The Company has filed all reports required to be filed with any governmental, regulatory or administrative agency or authority.
3.20. Litigation; Pending Labor Disputes. Except as specifically identified on the Final Balance Sheet or footnotes thereto or set forth in SCHEDULE 3.20:
(i) There are no legal, administrative, arbitration or other proceedings or governmental investigations pending or, to the knowledge of Seller or the Company, threatened, against the Seller or the Company, relating to the Business or the Company or its properties (including leased property), or the transactions contemplated by this Agreement, nor is there any basis known to the Company or any Seller for any such action.
(ii) There are no judgments, decrees or orders of any court, or any governmental department, commission, board, agency or instrumentality binding upon Seller or the Company relating to the Business or the Company the effect of which is to prohibit any business practice or the acquisition of any property or the conduct of any business by the Company or which limit or control or otherwise adversely affect its method or manner of doing business.
(iii) No work stoppage has occurred and is continuing or, to the knowledge of Seller or the Company, is threatened affecting the Business, and no representation question involving recognition of a collective bargaining agent exists in respect of any employees of the Company.
Page 12 of 38
(iv) There are no pending labor negotiations or union organization efforts relating to employees of the Company.
(v) There are no charges of discrimination (relating to sex, age, race, national origin, handicap or veteran status) or unfair labor practices pending or, to the knowledge of the Seller or the Company, threatened before any governmental or regulatory agency or authority or any court relating to employees of the Company.
3.21. Absence of Certain Changes or Events. The Company has not, since March 31, 2007, except as described on SCHEDULE 3.21:
(i) Incurred any material obligation or liability (absolute, accrued, contingent or otherwise) except in the ordinary course of its business or in connection with the performance of this Agreement, and any such obligation or liability incurred in the ordinary course is not materially adverse, except for claims, if any, that are adequately covered by insurance;
(ii) Discharged or satisfied any lien or encumbrance, or paid or satisfied any obligations or liability (absolute, accrued, contingent or otherwise) other than liabilities shown or reflected on the Final Balance Sheet;
(iii) Increased or established any reserve or accrual for taxes or other liability on its books or otherwise provided therefor, except as disclosed on the Final Balance Sheet or any subsequent Interim Financial Statement;
(iv) Mortgaged, pledged or subjected to any lien, charge or other encumbrance any of its assets, tangible or intangible;
(v) Sold or transferred any of its assets or cancelled any debts or claims or waived any rights, except in the ordinary course of business and which has not been materially adverse;
(vi) Disposed of or permitted to lapse any patents or trademarks or any patent or trademark applications material to the operation of its business;
(vii) Incurred any significant labor trouble or granted any general or uniform increase in salary or wages payable or to become payable by it to any director, officer, employee or agent, or by means of any bonus or pension plan, contract or other commitment increased the compensation of any director, officer, employee or agent;
Page 13 of 38
(viii) Authorized any capital expenditure for real estate or leasehold improvements, machinery, equipment or molds in excess of $5,000.00 in the aggregate;
(ix) Except for this Agreement, entered into any material transaction other than in the ordinary course of business;
(x) Issued any stocks, bonds, or other corporate securities, or made any declaration or payment of any dividend or any distribution in respect of its capital stock; or
(xi) Experienced damage, destruction or loss (whether or not covered by insurance) individually or in the aggregate materially and adversely affecting any of its properties, assets or business, or experienced any other material adverse change or changes individually or in the aggregate affecting its financial condition, assets, liabilities or business, including, without limitation of the foregoing, the loss or (to the Company’s or any Seller’s knowledge) impending loss of any materially important contract or customer.
Neither the Company nor any Seller is aware of increased competitive activities or of plans for such increased activities in markets for the Company’s products over the level of competitive activities experienced by the Company in the past twelve months. No information has been brought to the attention of the Company or any Seller that might reasonably lead the Company or any Seller to believe that any customer or supplier of the Company intends to cease dealing with the Company, nor has information been brought to the attention of the Company or any Seller that might reasonably lead any of them to believe that any customer or supplier intends to alter in any material respect the amount of such customer’s or supplier’s dealings with the Company or would alter in any material respect such dealings in the event of the consummation of the transactions contemplated hereby. Neither the Company nor any Seller has knowledge that any officer or other key employee of the Company is considering the termination of employment.
3.22. Employee Benefit Plans.
(a) SCHEDULE 3.22 lists a description of the only Employee Programs (as defined below) that have been maintained (as such term is further defined below) by the Company at any time during the five (5) years prior to the date hereof.
(b) There has not been any failure of any party to comply with any laws applicable with respect to any Employee Program that has been maintained by the Company. With respect to any Employee Programs now or heretofore maintained by the Company, there has occurred no breach of any duty under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or other applicable law which could result, directly or indirectly in any taxes, penalties or other liability to the Purchaser, the Company or any
Page 14 of 38
affiliate (as defined below). No litigation, arbitration, or governmental administrative proceeding (or investigation) or other proceeding (other than those relating to routine claims for benefits) is pending or, to the knowledge of the Company and Seller, threatened with respect to any such Employee Program.
(c) Except as set forth in SCHEDULE 3.22 attached hereto, neither the Company nor any affiliate has ever (i) provided health care or any other non-pension benefits to any employees after their employment was terminated (other than as required by Part 6 of Subtitle B of Title I of ERISA) or has ever promised to provide such post-termination benefits or (ii) maintained an Employee Program provided to such employees subject to Title IV of ERISA, Section 401(a) or Section 412 of Code, including, without limitation, any Multiemployer Plan.
(d) For purposes of this Section 3.22:
(i) “Employee Program” means (A) all employee benefit plans within the meaning of ERISA Section 3(3), including, but not limited to, multiple employer welfare arrangements (within the meaning of ERISA Section 3(40)), plans to which more than one unaffiliated employer contributes and employee benefit plans (such as foreign or excess benefit plans) which are not subject to ERISA; and (B) all stock option plans, bonus or incentive award plans, severance pay policies or agreements, deferred compensation agreements, supplemental income arrangements, vacation plans, and all other employee benefit plans, agreements, and arrangements not described in (A) above. In the case of an Employee Program funded through an organization described in Code Section 501(c)(9), each reference to such Employee Program shall include a reference to such organization;
(ii) An entity “maintains” an Employee Program if such entity sponsors, contributes to, or provides (or has promised to provide) benefits under such Employee Program, or has any obligation (by agreement or under applicable law) to contribute to or provide benefits under such Employee Program, or if such Employee Program provides benefits to or otherwise covers employees of such entity (or their spouses, dependents, or beneficiaries);
(iii) An entity is an “affiliate” of the Company for purposes of this Section 3.22 if it would have ever been considered a single employer with the Company under ERISA Section 4001(b) or part of the same “controlled group” as the Company for purposes of ERISA Section 302(d)(8)(C); and
(iv) “Multiemployer Plan” means a (pension or non-pension) employee benefit plan to which more than one employer contributes and which is maintained pursuant to one or more collective bargaining agreements.
3.23. Assets. The assets of the Company are located at the locations listed on SCHEDULE 3.23 attached hereto. Except as described in SCHEDULE 3.23, the assets of the
Page 15 of 38
Company are, and together with the additional assets to be acquired or otherwise received by the Company prior to the Closing, will at the Closing Date be, sufficient in all material respects to carry on the operations of the Business as now conducted by the Company.
3.24. Licenses, Permits, Consents and Approvals. The Company has, and at the Closing Date will have, all licenses, permits or other authorizations of governmental, regulatory or administrative agencies or authorities (collectively, “Licenses”) required to conduct the Business. All Licenses of the Company are listed on SCHEDULE 3.24 hereto. At the Closing, the Company will have all such Licenses which are material to the conduct of the Business and will have renewed all Licenses which would have expired in the interim. Except as listed in SCHEDULE 3.24 or contemplated by Section 6.01(t) below, no registration, filing, application, notice, transfer, consent, approval, order, qualification, waiver or other action of any kind (collectively, a “Filing”) will be required as a result of the sale of the Shares by Seller in accordance with this Agreement (a) to avoid the loss of any License or the violation, breach or termination of, or any default under, or the creation of any lien on any asset of the Company pursuant to the terms of, any law, regulation, order or other requirement or any contract binding upon the Company or to which any such asset may be subject, or (b) to enable Purchaser (directly or through any designee) to continue the operation of the Company and the Business substantially as conducted prior to the Closing Date. All such Filings will be duly filed, given, obtained or taken on or prior to the Closing Date and will be in full force and effect on the Closing Date.
3.25. Environmental Matters.
(a) Except as disclosed on SCHEDULE 3.25:
(i) in connection with the operations and activities of the Company and its predecessors at the Real Properties and otherwise, no governmental notice, notification, demand, request for information, citation, summons or order has been received and no governmental investigation, action, claim, suit or proceeding is pending or, to the knowledge of the Company and the Seller, threatened with respect to any violation or alleged violation of any Environmental Requirements, and no basis exists for the allegation of any such violations;
(ii) no Hazardous Material has been discharged, disposed of, dumped, injected, pumped, deposited, spilled, leaked, emitted or released by the Company or any of its predecessors, or, to the knowledge of the Seller and the Company, any other party, at, on or under the Real Properties (including soils, groundwater and surface water), as to which removal, clean-up, remediation or corrective action is required under any of the Environmental Requirements;
(iii) to the knowledge of the Company and the Seller, the Real Properties are not listed or proposed for listing on the National Priorities List promulgated pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. §9601 et seq.) (“CERCLA”), on CERCLIS (as defined in CERCLA) or on any similar federal, state or local list of Hazardous Materials sites requiring investigation or clean-up;
Page 16 of 38
(iv) the operations of the Company at the Real Properties are in compliance with all Environmental Requirements and are in compliance with all Environmental Permits; such Environmental Permits are valid and in full force and effect are transferable, and will not be terminated or impaired or become terminable as a result of the transactions contemplated hereby;
(v) to the knowledge of the Company and the Seller, the Real Properties contains no asbestos-containing material; and
(vi) there are no environmental audits or investigation reports in the possession of the Company or any Seller relating to the Real Properties or any operations thereon.
(b) There has been no environmental investigation, study, audit, test, review or other analysis conducted of which any Seller or the Company has knowledge in relation to the Real Properties or any property or facility previously leased by the Company that has not been delivered to Purchaser at least 15 days prior to the date hereof.
(c) Definitions.
(i) “Hazardous Material” means any substance:
A. the presence of which requires investigation or remediation under any Environmental Requirement, as hereinafter defined; or
B. which is or becomes defined as a “hazardous waste”, “hazardous substance”, pollutant or contaminant under any Environmental Requirement or amendments thereto including, without limitation, CERCLA and/or the Resource Conservation and Recovery Act (42 U.S.C. §6901 et seq.); or
C. the presence of which on any of the Real Properties causes or threatens to cause a nuisance upon such property or to adjacent properties or poses or threatens to pose a hazard to the health or safety of persons on or about such property; or
D. without limitation, which contains petroleum, including crude oil or any fraction thereof.
(ii) “Environmental Requirements” means all applicable present and future statutes, regulations, rules, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, concessions, franchises, and similar items of all governmental
Page 17 of 38
agencies, departments, commissions, boards, bureaus, or instrumentalities of the United States, states and political subdivisions thereof and all applicable judicial, administrative, and regulatory decrees, judgments, and orders relating to the protection of human health or the environment, including, without limitation:
A. All requirements pertaining to reporting, licensing, permitting, investigation, and remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials, chemicals substances, pollutants, contaminants, or hazardous or toxic substances, materials or wastes, whether solid, liquid, or gaseous in nature, into the air, surface water, groundwater, or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of chemical substances, pollutants, contaminants, or hazardous or toxic substances, materials, or wastes, whether solid, liquid, or gaseous in nature; and
B. All requirements pertaining to the protection of the health and safety of employees or the public.
3.26 Broker. Except as specified in SCHEDULE 3.26, neither the Company nor any Seller has retained any broker in connection with any transaction contemplated by this Agreement. Purchaser and the Company shall not be obligated to pay any fee or commission associated with the retention or engagement by the Company or Seller of any broker in connection with any transaction contemplated by this Agreement.
3.27. Related Party Transactions. All transactions of the Company during the past five years have been conducted on an arms-length basis except as described in SCHEDULE 3.27 hereto. Except as described in SCHEDULE 3.27, all transactions during the past five years between the Company and any current or former shareholder or any entity in which the Company or any current or former shareholder had or has a direct or indirect interest have been fair to the Company and on terms comparable to those that would have prevailed in an arms-length transaction. No portion of the sales or other on-going business relationships of the Company is dependent upon the friendship or the personal relationships (other than those customary within business generally) of any Seller or any of the Company’s officers, directors, consultants, agents or other key employees, except as described in SCHEDULE 3.27.
3.28 Patriot Act. The Company and the Seller certify that neither the Company nor any of its Subsidiaries has been designated, and is not owned or controlled, by a “suspected terrorist” as defined in Executive Order 13224. The Company and the Seller hereby acknowledge that the Purchaser seeks to comply with all applicable laws concerning money laundering and related activities. In furtherance of those efforts, the Company and the Seller hereby represent, warrant and agree that: (i) none of the cash or property that the Seller have contributed or paid or will contribute and pay to the Company has been or shall be derived from, or related to, any activity that is deemed criminal under United States law; and (ii) no contribution or payment by the Company or any of its Subsidiaries to the Purchaser, to the extent that they are within the
Page 18 of 38
Company’s and/or its Subsidiaries’ control shall cause the Purchaser to be in violation of the United States Bank Secrecy Act, the United States International Money Laundering Control Act of 1986 or the United States International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Seller shall promptly notify the Purchaser if any of these representations ceases to be true and accurate regarding the Seller, the Company or any of its Subsidiaries. The Seller agrees to provide the Purchaser any additional information regarding the Company or any of its Subsidiaries that the Purchaser deems necessary or convenient to ensure compliance with all applicable laws concerning money laundering and similar activities.
3.29. Disclosure. All statements contained in any schedule, certificate, opinion, instrument, or other document delivered by or on behalf of the Seller or the Company pursuant hereto or in connection with the transactions contemplated hereby shall be deemed representations and warranties by each Seller and the Company herein. No statement, representation or warranty by the Seller or the Company in this Agreement or in any schedule, certificate, opinion, instrument, or other document furnished or to be furnished to the Purchaser pursuant hereto or in connection with the transactions contemplated hereby contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading or necessary in order to provide a prospective purchaser of the business of the Company with full and fair disclosure concerning the Company, the Business, and the Company’s affairs.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Purchaser makes the following representations and warranties to the Seller and the Company.
4.01. Organization. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida. The Purchaser has the corporate power to own its properties, to carry on its business as now being conducted, and to enter into and perform the terms and provisions of this Agreement.
4.02. Authorization. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein have been, or will prior to Closing be, duly and validly approved and acknowledged by all necessary corporate action on the part of the Purchaser.
4.03. No Conflict or Violation. The execution and delivery of this Agreement, the acquisition of the Shares by Purchaser and the consummation of the transactions herein contemplated, and the compliance with the provisions and terms of this Agreement, are not prohibited by the Articles of Incorporation or Bylaws of the Purchaser and will not violate, conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any court order, indenture, mortgage, loan agreement, or other agreement or instrument to which the Purchaser is a party or by which it is bound.
4.04. Investment Representation. The Shares are being purchased by a Purchaser solely for investment and not for the purpose of resale to any third party.
Page 19 of 38
4.05. Disclosure. All statements contained in any schedule, certificate, opinion, instrument, or other document delivered by or on behalf of the Purchaser pursuant hereto or in connection with the transactions contemplated hereby shall be deemed representations and warranties by the Purchaser herein. No statement, representation or warranty of Purchaser contained in this Agreement or in any document, schedule or certificate furnished or to be furnished to Seller pursuant hereto or in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact known to Purchaser and necessary in order to make the statements of Purchaser contained herein or therein not misleading.
5. ACCESS TO INFORMATION.
5.01. Cooperation. The Seller and the Company shall give to the Purchaser, and to the Purchaser’s counsel, accountants, consultants and other representatives, full access, during normal business hours throughout the period prior to the Closing, to all facilities and properties of the Company, and shall furnish the Purchaser during such period with all such information and documents concerning the affairs, suppliers and customers of the Company as the Purchaser reasonably may request; provided, however, that no such inspection or examination shall in any way affect, diminish, limit or terminate any of the representations and warranties of the Seller and the Company hereunder, regardless of any knowledge gained by or available to Purchaser as a result of any such inspection or examination. Without limitation of the foregoing, the Seller will furnish to Purchaser promptly after such documents are available (i) the Financial Statements and the Interim Financial Statements, (ii) the monthly financial statements for the Company for each monthly period and year to-date periods subsequent to the date of the most recent Interim Financial Statement, all prepared in the form and in a manner consistent with the Interim Financial Statements, and (iii) all filings or reports filed by the Company with federal, state and other governmental agencies having authority over the business activities of the Company.
6. COVENANTS AND ADDITIONAL AGREEMENTS OF THE PARTIES.
6.01 Conduct of Business Pending Closing. The Seller and the Company agree that from and after the date of this Agreement and prior to the Closing and except as otherwise consented to by an officer of Purchaser in writing:
(a) Ordinary Course. They will take all necessary actions to cause, directly or indirectly, as the case may be, the Company to conduct the Business consistent with past practice in the usual and ordinary course (including, without limitation, using reasonable efforts to preserve beneficial relationships between the Company, on the one hand, and its distributors, agents, lessors, suppliers and customers, on the other hand) and continue normal marketing, advertising, distributional and promotional expenditures in connection with the Business, except (i) as may be permitted hereby, (ii) as necessary to consummate the transactions contemplated hereby, or (iii) as otherwise agreed to in writing by Purchaser.
Page 20 of 38
(b) Interrelated Transactions. The Company will engage in no transactions, intracorporate or otherwise, with any of the Seller or other affiliates other than (i) transactions authorized under this Agreement or otherwise approved by Purchaser in writing, or (ii) transactions that will have the effect of making the Company the sole owner or possessor by assignment or otherwise of all assets, properties and operations comprising the Business.
(c) Borrowing. The Company will not (i) create, incur or assume any long-term debt (including obligations in respect to capital leases) or any debt for money borrowed (whether long-term or short-term), (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligation of any other person, or (iii) make any loans, advances or capital contributions to, or investments in, any other person, apart from debt incurred in the ordinary course of business consistent with past practice.
(d) Changes in Compensation. The Company will not (i) increase in any manner the rate of compensation of any officer, employee, or agent other than normal predetermined merit increases awarded using standards consistent with past practice or as required by any collective bargaining agreement or contract, (ii) pay or agree to pay any pension, retirement allowance, severance or other employee benefit not required or permitted by any existing Employee Program to any such officer, employee or agent, whether past or present, or (iii) commit itself to any additional pension, profit-sharing, bonus, incentive, deferred compensation, stock purchase, stock option, stock appreciation right, group insurance, severance pay, retirement or other employee benefit plan, agreement, arrangement or benefit, or to any employment agreement or consulting agreement with a person employed or retained as of the date of this Agreement, or hereafter employed or retained, or to amend any of such plans or any of such agreements or arrangements in existence on the date hereof.
(e) Transfer of Property. The Company will not, except in the ordinary course of business or as otherwise contemplated by this Agreement, sell, transfer, or otherwise dispose of, or encumber or agree to sell, transfer, or otherwise dispose of or encumber, any Real Property, Inventory or Fixed Assets; or sell, transfer, license or otherwise dispose of, or agree to sell, transfer, license or otherwise dispose of, any Intangibles; or terminate or amend any lease.
(f) Maintain Warranties. Neither the Seller nor the Company will take any action the taking of which, or omit to take any action the omission of which, would cause any of the representations and warranties contained in Section 3 of this Agreement to fail to be true and correct in all respects as of the Closing as though made at, as of and updated to the Closing Date, except as otherwise contemplated by this Agreement.
(g) Liens. The Company will not mortgage or encumber any of its respective assets or enter into any transaction or make any commitment which might result in such an encumbrance, other than in the ordinary course of business, consistent with past practice, or as otherwise contemplated by this Agreement.
Page 21 of 38
(h) Banking and Insurance. No changes will be made in the banking or safe deposit arrangements of the Company or in any policies of insurance currently in effect relating to the Business.
(i) Contracts. The Company shall not waive any material right or cancel any material contract, debt or claim, or assume or enter into a material contract, lease, license, obligation, indebtedness, commitment, purchase or sale relating to the Business and, except in the usual and ordinary course of business, shall not enter into or assume any other contract, lease, license, obligation, indebtedness, commitment, purchase or sale relating to the Business. For purposes of this Section 6.01(i) and without limiting the foregoing, all commitments and agreements having a duration in excess of three months (other than sales contracts with customers or purchase contracts with suppliers in the usual and ordinary course of business and less than $5,000 in aggregate for any one customer or supplier) are deemed to be material and not in the usual and ordinary course of business. The Company shall also refrain from doing any act, omitting any act or permitting any omission of any action, within its control, that would cause a breach or default in any material respect in any of the contracts, commitments or obligations of the Business.
(j) Corporate Existence. The Company will maintain its corporate existence in good standing in the State of Florida and in each jurisdiction in which the Company is qualified to do business as a foreign corporation. As soon as practicable following the execution of this Agreement, Seller shall furnish Purchaser with good standing certificates from the Company’s state of incorporation and each state in which it is so qualified to do business. Seller shall not permit the Company to merge or consolidate with any other corporation, business or other entity or acquire any assets of any other corporation, business or entity (other than inventory and equipment in the usual and ordinary course of business or as otherwise specifically permitted by this Agreement). No changes will be made in the Certificate of Incorporation or Bylaws, as the case may be, of the Company.
(k) Capital Stock. No changes will be made in the number of shares of the capital stock of the Company that is authorized, issued, outstanding or held in the treasury, nor shall any option or commitment be granted or made with respect to such stock. Any stock repurchase agreement, stock restriction or purchase agreement, or other form of stockholders’ agreement in effect as of the date hereof between any of the Seller and/or the Company will be terminated, effective immediately before the Closing, or sooner.
(l) Dividends. The Company will not pay or declare any dividend or make any other distribution in respect of the capital stock of the Company or with respect to the earnings of the Company, nor shall it directly or indirectly redeem, purchase or otherwise acquire any such stock or agree to do any of the foregoing.
(m) Current Information. During the period from the date hereof to the Closing Date (i) Seller and the Company will at the earliest practicable date furnish Purchaser with copies of monthly interim financial statements prepared on a basis consistent with the Interim Financial Statements referenced in Section 3.08 hereof for each month ended after the date hereof,
Page 22 of 38
(ii) Seller and the Company will promptly furnish Purchaser with copies of any other operating reports relating to the Business, and (iii) the Seller and the Company will promptly notify Purchaser of any material change in the Business or in the normal course of business by the Company and of any governmental complaint, investigation or hearing, or the institution or proposed settlement of any litigation, in each case involving the Business, and of any material developments in any such proceedings.
(n) Disclosure Supplements. From time to time prior to the Closing, Seller will promptly disclose to the Purchaser in writing (i) any matter that may arise hereafter that, if existing or occurring at or prior to the date hereof, would have been required to be set forth or described in the Schedules to Section 3, or (ii) any other matter or information that comes to the attention of Seller, regardless of the date or origin thereof, that makes any information in said Schedules to Section 3 or in any representation and warranty of the Seller hereunder inaccurate or otherwise must be disclosed to correct any inaccuracy in any representation or warranty of Seller hereunder.
(o) Preservation of Organization. The Seller and the Company will use their best efforts: to preserve the business organization of the Company intact; to keep available to the Purchaser (without making any commitment on its behalf) the services of the present employees of the Company, and make no changes therein except as required in the ordinary course of business; and to preserve for the Purchaser the goodwill of the suppliers, customers and others having business relations with the Company.
(p) Compliance with Laws. The Seller and the Company will use their best efforts to duly comply with all applicable laws and regulations in the conduct of the business of the Company, including without limitation of the foregoing, Federal, state, local and foreign environmental protection laws, OSHA and the rules, orders, regulations and guidelines thereunder so far as they may be applicable. The Purchaser shall be promptly notified of any inspection or notice received pursuant to said environmental protection laws, OSHA or other said laws, regulations and guidelines.
(q) Contingent Obligations. No change shall be made in the contingent obligations of the Company by way of guaranty, endorsement, indemnity, warranty, or otherwise, other than changes in the ordinary course of business which shall not be materially adverse.
(r) Facility and Equipment Maintenance. The Seller and the Company will use their best efforts to maintain and keep any owned or leased premises, property and assets of the Company in good and fully serviceable working condition and repair.
(s) Consents. Promptly upon execution of this Agreement, Seller and the Company shall obtain all consents, approvals or waivers (including, without limiting the generality of the foregoing, consents of any government or governmental agency or other third party) necessary to authorize, approve or permit the full and complete sale, conveyance, assignment and transfer of the Shares to Purchaser and to prevent the default under or breach of any agreement of the Company by reason of such sale and transfer.
Page 23 of 38
(t) Publicity. Neither the Seller nor the Company shall make any public statement disclosing information relating to this Agreement or the transactions contemplated hereby, including any disclosure to employees other than those to whom disclosure is necessary for the consummation of such transactions, except as agreed upon in advance by Purchaser. However, any disclosure that either the Seller or the Company considers to be required to be made to any governmental agency or to be mandated by law may be made at the time required or mandated whether or not there is any agreement on the need for, or text of, such disclosure.
(u) Exclusive Dealing. During the period from the date of this Agreement to the Closing Date, neither the Seller nor the Company shall take any action to, directly or indirectly, encourage, initiate or engage in discussions or negotiations with, or provide any information to, any corporation, partnership, person, or other entity or group, other than the Purchaser, concerning any purchase of the Shares or any merger, sale of substantial assets or similar transaction involving the Company.
(v) Satisfaction of Conditions. The Company and the Seller shall use their best efforts to achieve and satisfy, at the earliest practicable date, all conditions to be fulfilled by them or any one of them on or prior to the Closing Date, including but not limited to each and every condition set forth in Section 7 hereof.
6.02 Tax Matters.
(a) Tax Periods Ending on or Before the Closing Date. The Purchaser shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company for all periods ending on or prior to the Closing Date which are filed after the Closing Date. The Purchaser shall permit the Seller to review and comment on each such Tax Returns described in the preceding sentence prior to filing and shall make such revisions to such Tax Returns as are reasonably requested by the Seller. To the extent such Taxes are not fully reserved for in the Company’s Final Balance Sheet, the Seller shall pay to Purchaser an amount equal to the unreserved portion of such Taxes. Such payment, if any, along with the costs and expenses incurred by the Purchaser in the preparation and filing of the Tax Returns, shall be paid by the Seller to the Purchaser within fifteen (15) days after receipt of written notice from the Purchaser that such Taxes were paid by Purchaser.
(b) Tax Periods Beginning Before and Ending After the Closing Date. The Purchaser shall prepare or cause to be prepared and file or cause to be filed any Returns of the Company for Tax periods that begin before the Closing Date and end after the Closing Date. To the extent such Taxes are not fully reserved for in the Company’s Final Balance Sheet, the Seller shall pay to Purchaser an amount equal to the unreserved portion of such Taxes that relates to the portion of the Tax period ending on the Closing Date. Such payment, if any, shall be paid by the Seller within fifteen (15) days after receipt of written notice from the Purchaser that such Taxes were paid
Page 24 of 38
by Purchaser for a period beginning prior to the Closing Date. For purposes of this Section, in the case of any Taxes that are imposed on a periodic basis and are payable for a Tax period that includes (but does not end on) the Closing Date, the portion of such Tax that relates to the portion of such Tax period ending on the Closing Date shall (i) in the case of any Taxes other than Taxes based upon or related to income or receipts, be deemed to be the amount of such Tax for the entire Tax period multiplied by a fraction the numerator of which is the number of days in the Tax period ending on the Closing Date and the denominator of which is the number of days in the entire Tax period (the “Pro Rata Amount”), and (ii) in the case of any Tax based upon or related to income or receipts, be deemed equal to the amount that would be payable if the relevant Tax period ended on the Closing Date. The Seller shall pay to the Purchaser with the payment of any taxes due hereunder, the Seller’s Pro Rata Amount of the costs and expenses incurred by the Purchaser in the preparation and filing of the Tax Returns. Any net operating losses or credits relating to a Tax period that begins before and ends after the Closing Date shall be taken into account as though the relevant Tax period ended on the Closing Date. All determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with prior practice of the Company.
(c) Refunds and Tax Benefits. Any Tax refunds that are received after the Closing Date by the Seller, the Purchaser or the Company, and any amounts credited against Tax to which the Seller, the Purchaser or the Company become entitled, shall be for the account of the Company, and the Seller shall pay over to the Purchaser any such refund or the amount of any such credit within fifteen (15) days after receipt or entitlement thereto. In addition, to the extent that a claim for refund or a proceeding results in a payment or credit against Tax by a taxing authority to the Seller, the Seller shall pay such amount to the Purchaser within fifteen (15) days after receipt or entitlement thereto.
(d) Cooperation on Tax Matters.
(i) The Purchaser, the Company and the Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of any Returns pursuant to this Section and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Company and the Seller agree (A) to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by the Purchaser or the Seller, any extensions thereof) of the respective tax periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, the Company or the Seller, as the case may be, shall allow the other party to take possession of such books and records.
Page 25 of 38
(ii) The Purchaser and the Seller further agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby).
(iii) The Purchaser and the Seller further agree, upon request, to provide the other party with all information that either party may be required to report pursuant to §6043 of the Code and all Treasury Department Regulations promulgated thereunder.
6.03 Non-Solicitation. Seller covenants and agrees with Purchaser that for the five (5) year period following the Closing Date, Seller shall not solicit for employment any past, present or future employee of Purchaser, or request, induce or advise any employee of Purchaser to leave the employ of Purchaser.
6.04 Confidentiality. The parties have and will discuss and/or exchange certain confidential information in connection with the transactions contemplated hereby. The parties acknowledge that such confidential information, including the terms and conditions and the existence of this Agreement, and other information that may be disclosed, including but not limited to information learned by a receiving party (“Recipient”) from employees or agents of a disclosing party (“Discloser”), or through inspection of Discloser’s property, that relates to Discloser, including, but not limited to, formulas, databases, software, algorithms, know-how, trade secrets, product development plans and strategy, customer lists, marketing plans, finances, costs, business opportunities, and personnel, will be considered “Confidential Information.” Confidential information shall include all notes, analyses, compilations, studies, interpretations or other documents prepared by Recipient which contain, reflect or are based on Confidential Information. Confidential Information shall not include information that: (a) is now or subsequently becomes generally available to the public through no fault or breach of Recipient; (b) Recipient can demonstrate was rightfully in its possession prior to disclosure to Recipient by Discloser; (c) is independently developed by Recipient without the use of any Discloser Confidential Information; or (d) Recipient rightfully obtains on a non-confidential basis from a source, other than Discloser or Discloser’s directors, officers, employees, agents, partners or advisors, who has the right to transfer or disclose it. Recipient agrees (i) to accept Discloser’s Confidential Information solely for use in connection with the evaluation of the acquisition contemplated hereby and will not disclose, publish or disseminate Confidential Information to anyone other than those of its directors, officers, employees, agents, attorneys, accountants, and advisors with a need to know, (ii) to use reasonable care, but in no event less than the same degree of care that it uses to protect its own confidential and proprietary information of similar importance, to prevent the unauthorized use, disclosure, publication and dissemination of Confidential Information, and (iii) not to use Confidential Information otherwise for its own or any third party’s benefit without the prior written approval of an authorized representative of Discloser. Recipient may disclose Confidential Information if required by any judicial or governmental order, provided that Recipient takes reasonable steps to preserve the confidentiality of the Confidential Information, including, but not limited to, first giving Discloser sufficient prior notice to contest such order and cooperating with Discloser to obtain an
Page 26 of 38
appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information by such judicial or governmental body. Notwithstanding the foregoing, the parties acknowledge that upon the Closing of the transactions contemplated hereby, Purchaser will acquire from Seller certain of Seller’s Confidential Information relating to the Business and the Assets and that, accordingly, from and after the Closing, Purchaser shall be entitled to use and disclose such Confidential Information so acquired from Seller as Purchaser deems fit in its sole discretion. Further, from and after the Closing, Seller agrees to maintain confidential all Confidential Information sold by Seller to Purchaser.
6.05 Transfer Taxes. All transfer, sales, use and other such Taxes and fees (“Transfer Taxes”) incurred in connection with the consummation of the transactions contemplated by this Agreement shall be paid by the Seller when due, and the Seller will, at their own expense, file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes.
6.06 Post-Closing Documents. Subsequent to the Closing, Seller will execute and deliver from time to time at the request of Purchaser all such further instruments as, in the reasonable opinion of Purchaser’s counsel, may be required in order to vest in Purchaser full, unencumbered and complete title to the Shares to be conveyed by Seller to Purchaser hereunder or to maintain intact all right, title and interest of the Company under any contract, license, permit or other document or instrument of the Company or relating to the Business that would otherwise be adversely affected by such transfer of the Shares.
6.07 Certain Obligations. Seller hereby represents to Purchaser that all obligations to the Seller’s auditors, accountants, transfer agents, financial printers, attorneys and any other vendor or service provider providing goods or services related to Seller’s corporate operations or to its obligations under the Securities Act of 1933 or the Securities and Exchange Act of 1934 are obligations of Seller and not of the Company, notwithstanding that certain of such parties have been paid directly by the Company in the past, and Seller shall indemnify and hold harmless Purchaser and the Company for any and all such obligations. Further, Seller hereby represents to Purchaser that all obligations to the Seller’s officers and directors (both past and present) are obligations of Seller and not of the Company, notwithstanding that they may have been compensated directly by the Company in the past, and Seller shall indemnify and hold harmless Purchaser and the Company for any and all such obligations.
7. PURCHASER’S CONDITIONS OF CLOSING. All obligations of the Purchaser hereunder are subject, at the option of the Purchaser, to the fulfillment prior to or at Closing of each of the following conditions:
7.01. Discovery of Adverse Error, Misstatement or Omission. The Purchaser shall not have discovered any material adverse error, misstatement or omission in information relating to the Company included either herein or in any certificate or document delivered to Purchaser pursuant hereto or in connection with the transactions contemplated hereby including, without limitation, any material adverse error, misstatement or omission in the representations and warranties made by the Seller or the Company in or pursuant to this Agreement.
Page 27 of 38
7.02. Representations at Time of Closing. The representations and warranties of the Seller and the Company contained in this Agreement (including the Schedules and Exhibits hereto) and in any certificate or documents delivered to the Purchaser pursuant hereto shall be deemed to have been made again at and as of the time of Closing with dates therein updated to the Closing Date and, as so updated and made, shall then be true, complete and correct, except for changes in the ordinary course of business not materially adversely affecting the business, properties or financial condition of the Company, or changes required by or contemplated by this Agreement. For purposes of requirements under this Section and the certificate delivered pursuant to Section 7.05 hereof, the reaffirmation of the financial statement representations and warranties as of the Closing Date shall include and apply to any and all annual and interim period financial statements delivered to Purchaser as required under Section 6.01(m) hereof as well as to the Financial Statements and Interim Financial Statements as defined in Section 3.08 hereof.
7.03. Performance of Agreements. The Seller and the Company shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by them prior to or at Closing.
7.04. Adverse Change. During the period from the date hereof to the Closing Date there shall not have been any material adverse change in the financial condition, assets, liabilities or business of the Company, whether as a result of fire, explosion, disaster, accident, calamity, business reverses or otherwise.
7.05. Certificate of Officers and Seller. The Purchaser shall have been furnished with a certificate signed by the President of the Company and by the Seller, dated the Closing Date, certifying in such detail as the Purchaser may request, that the conditions specified in Subsections 7.02, 7.03 and 7.04 of this Section have been fulfilled and reaffirming and remaking the representations and warranties referred to therein.
7.06. Purchaser’s Counsel. All actions, proceedings, instruments and documents required to carry out this Agreement or incidental thereto shall have been approved by counsel for the Purchaser.
7.07. Consents, Approvals and Waivers. The Seller and the Company shall have obtained any and all consents and approvals to the transfer or assignment to the Purchaser of all of the Shares of the Company that may be necessary to avoid any breach of, default by, or acceleration of obligations of the Company under any agreement or instrument by reason of such transfer and assignment, and any waivers by any parties to such agreements necessary to avoid any such breaches, defaults or accelerations. In addition, the Seller and the Company shall have obtained all consents, authorizations, approvals and orders of governmental authorities required in connection with the consummation of the transactions contemplated by this Agreement and necessary in order that the Business can be conducted in all respects after the Closing as it has been conducted prior to the Closing.
Page 28 of 38
7.8. Leasehold Status. The Seller shall have presented evidence that any real estate lease referred to in Subsection 3.16 is of record and title to the underlying real estate either continues to be free of all liens and encumbrances which might affect the Company’s peaceful possession as lessee (or sublessee), or the Seller has presented satisfactory nondisturbance agreements from any such prior lienholders.
7.9. Receipt of Other Documents. Purchaser shall have received at or prior to the Closing:
(i) A copy of the Articles of Incorporation or equivalent charter documents of the Company certified as of a recent date by the Secretary of State of Florida;
(ii) Certificates of recent date issued by the Secretary of State of Florida, the State of Incorporation of any Subsidiary, and any other state disclosed in this Agreement as a state in which the Company or any Subsidiary is qualified to do business, each to the effect that the Company or such Subsidiary, as the case may be, is validly existing and in good standing under the laws of such state;
(iii) Certified copies of resolutions duly adopted by the Board of Directors of the Company and by the Seller in their capacity as shareholders authorizing the execution and delivery of this Agreement and the sale and transfer of the Shares to Purchaser;
(iv) Certificates of Incumbency covering all officers of the Company signing this Agreement and any other document delivered in connection herewith, pursuant hereto or at Closing.
(v) Such additional certificates and other documents as Purchaser or its counsel may deem reasonably necessary to evidence the truth and accuracy, as of the Closing Date, of the representations and warranties contained herein or contemplated hereby and the due satisfaction and performance at or prior to Closing of all agreements and covenants to be complied with, satisfied and performed by the Seller and the Company.
(vi) The Escrow Agreement, executed by Seller.
7.10. Orders, Etc. There shall not be in effect any order, injunction, ruling or decree, whether or not appealable, issued by any court or administrative agency of competent jurisdiction, that prohibits the consummation of the transactions contemplated by this Agreement, or that impairs materially the ability of Purchaser to realize the benefits of such transactions. If any
Page 29 of 38
such order, injunction, ruling or decree is in effect on the Closing Date, the Closing Date, at the option of Purchaser, will be extended for as long as such order, injunction, ruling or decree requires; in such event, the parties shall each use their best efforts to cause such order, injunction, ruling or decree to be modified, overruled, vacated or otherwise changed so as to permit the Closing to be consummated as soon as possible.
7.11. Pending or Threatened Litigation. There shall not be pending nor shall there be threatened any legal proceeding commenced by any governmental body, or any other person or entity, in which there is sought any order, injunction, ruling or decree by a court or administrative agency of competent jurisdiction, that would prohibit the consummation of the transactions contemplated by this Agreement, or that would impair materially the ability of Purchaser to realize the benefits of such transaction.
7.12. Absence of Insolvency Action. There shall be no action pending or threatened by any creditor of the Company under the laws of any jurisdiction pertaining to bankruptcy, insolvency or receivership that materially affects the ability of the Company to operate the Business or which would deprive the Purchaser of the benefits of this Agreement.
7.13. Completion of Due Diligence. Purchaser shall be satisfied in its sole discretion with the results of its due diligence investigation of the Company and the Business.
7.14 Financial Statements. Pursuant to Section 5.01, the Seller shall have furnished to Purchaser promptly after such documents are available the Financial Statements and the Interim Financial Statements.
7.15 Shareholder Approval. Holders of a majority of the outstanding common stock of Seller shall have approved this agreement and the sale of the Company to the Purchaser. An information statement on Schedule 14C shall have been filed with the Securities and Exchange Commission, approved for distribution to the shareholders of the Seller and at least 20 days shall have passed from the distribution to the shareholders of the information statement.
7.16 Final Balance Sheet. The Seller shall have prepared a balance sheet for the Company dated as of the Closing Date (the “Final Balance Sheet”) and shall delivered it to Purchaser.
8. SELLER’S CONDITIONS OF CLOSING. All obligations of the Seller and the Company under this Agreement are subject to the condition that:
8.01. Representations at Time of Closing. The Purchaser’s representations and warranties contained in this Agreement shall be deemed to have been made again at and as of the time of the Closing and shall then be true in all material respects.
8.02. Discovery of Misrepresentations. The Seller and the Company shall not have discovered any material adverse error, misstatement or omission in the representations and
Page 30 of 38
warranties made by the Purchaser herein, and all the terms, covenants and conditions of this Agreement to be complied with and performed by the Purchaser on or before the Closing Date shall have been complied with and performed.
8.03 Shareholder Approval. Holders of a majority of the outstanding common stock of Seller shall have approved this agreement and the sale of the Company to the Purchaser. An information statement on Schedule 14C shall have been filed with the Securities and Exchange Commission, approved for distribution to the shareholders of the Seller, and at least 20 days shall have passed from the distribution to the shareholders of the information statement.
9. CLOSING. Unless this Agreement has been earlier terminated pursuant to Section 17 of this Agreement, the Closing of this Agreement shall take place at a location mutually agreeable to the parties in Palm Harbor, FL on the earliest practicable date after the satisfaction or waiver of all of the conditions set forth in Sections 7 and 8, (such date of Closing herein being the “Closing Date”).
10. EXCHANGE OF CONSIDERATION. In reliance on the representations and warranties contained herein, and subject to the terms and conditions of this Agreement, the following exchanges shall take place at Closing, each of which is both an affirmative obligation of the party specified for making the exchange and a condition to Closing that may be asserted or waived by the party specified for receiving the exchange:
10.01. Cash to Seller. Purchaser will deliver to Seller by certified or bank check or by wire transfer the Closing Payment.
10.02. Transfer of Shares. On the Closing Date, the Seller will sell, assign, transfer and deliver to the Purchaser all of the issued and outstanding capital stock of the Company (“the Shares”) as provided in Section 1 hereinabove, free and clear of any liens, pledges, charges, encumbrances, restrictions and transfer taxes of any kind. The Seller shall deliver to the Purchaser all of their certificates evidencing the Shares duly endorsed for transfer, or with a duly executed stock power attached, signatures guaranteed.
10.03. Resignations. At the Closing, the Seller and the Company will deliver resignations of all officers and directors of the Company effective on their acceptance by Purchaser on said date.
10.04. Cancellation of Note. At the Closing, Seller shall deliver to Purchaser the Note for cancellation.
11. RESERVED.
Page 31 of 38
12. SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES.
All of the covenants and agreements contained in or made in connection with or pursuant to this Agreement shall survive the Closing and any investigation at any time made by or on behalf of Purchaser and shall be perpetual; provided, however, that any covenants or agreements that are expressly limited in duration pursuant to the terms thereof shall survive the Closing only for such specified duration. All of the representations and warranties contained in or made in connection with or pursuant to this Agreement shall survive the Closing and any investigation at any time made by or on behalf of Purchaser for the following periods:
(a) The representations and warranties set forth in Subsections 3.02 (Authority), 3.03 (Shares), 3.11 (Taxes), 3.23 (Assets), and 3.26 (Broker) shall be perpetual and without expiration;
(b) Unless a claim has been asserted with respect thereto on or before the expiration of the applicable statute of limitations, the representations and warranties set forth in Subsections 3.19 (Compliance with the Law), 3.22 (Employee Benefit Plans), and 3.25 (Environmental Matters), and any reaffirmation thereof at Closing, shall expire and be of no further force and effect at the end of the applicable statute of limitations for such claim or liability;
(c) Unless a claim has been asserted with respect thereto on or before the expiration of two (2) years after the Closing Date, all other representations and warranties of Seller provided herein or contemplated hereby, including but not limited to the representations and warranties set forth in Section 3 hereof other than as referenced above, and any reaffirmation thereof at Closing, shall expire and be of no further force and effect after said two year period.
Notwithstanding the foregoing provisions, the Seller’s obligation to indemnify Purchaser pursuant to Section 13 hereof shall continue for the applicable statute of limitations with respect to any claim involving intentional misrepresentation by or on behalf of any Seller or the Company, and any representation and warranty that is the subject of such claim shall survive for such period.
13. INDEMNIFICATION.
13.01. Indemnity of Purchaser. The Seller and the Company, jointly and severally, agree to indemnify and hold harmless the Purchaser, the Company, and their respective officers, directors, agents and employees, successors and assigns, subject to any applicable limitation in time set forth in Section 12 above, from and against and in respect of any and all claims, demands, actions, suits, losses, costs, damages, consequential damages, liabilities, charges, expenses, obligations, judgments, lost profits, diminution in value and deficiencies of any kind or character, including, without limitation, interest and penalties, which may be asserted or secured against, sustained, suffered or incurred by Purchaser, the Company or any of such other persons and arises out of or in any manner is incident to, relates to or is attributable to:
(i) Any misrepresentation, misstatement, omission, breach of warranty or nonfulfillment of any obligation, covenant or condition on the part of Seller or the Company (a) herein or in any Schedule or Exhibit hereto, or (b) in any certificate or other instrument or document furnished to the Purchaser in connection herewith;
Page 32 of 38
(ii) Any liability of Purchaser for any liability or obligation of the Company to be satisfied by Seller pursuant to the terms hereof, whether accrued, absolute, contingent or otherwise and whether known or unknown, due or which became due;
(iii) Any failure by Seller or the Company to perform or observe, or to have performed or observed, in full, any covenant, agreement or condition to be performed or observed by them under this Agreement or any Schedule or Exhibit hereto or under any certificate or other document or agreement executed by any of them in connection herewith or the Closing hereunder; or
(iv) Any and all material actions, suits, proceedings, demands, assessments or judgments, including legal and other necessary and reasonable costs and expenses, incident to any of the foregoing.
Notwithstanding the foregoing provisions of this Subsection 13.01, the Company’s obligations to indemnify Purchaser hereunder shall terminate upon completion of the Closing on the Closing Date. The indemnity obligation of Seller and the Company hereunder shall be without limitation on any other rights or claims that Purchaser may have against Seller or the Company, whether under the terms of this Agreement or otherwise.
13.02. Limits on Indemnification. A claim will be deemed covered by this Section 13 if it arises within the period set forth in Section 12 above that is applicable to such claim and notice is given to the party against whom it is made no later than sixty (60) days after expiration of said period. The Purchaser agrees to give to the Seller reasonable notice of any claim for which any of them would be liable for indemnification hereunder. Notwithstanding the foregoing, the Seller shall not be liable for or with respect to the first Five Thousand Dollars ($5,000) of the aggregate amount of all such damages and liabilities (including related costs and expenses) for which Seller, but for this sentence, would be liable under this Agreement or any certificate or instrument furnished to Purchaser pursuant hereto (hereinafter the “Basket”); provided, however, in the event the aggregate amount of all such damages and liabilities exceed the Basket, the Seller shall be liable for all such damages and liabilities (including related costs and expenses) from the first dollar notwithstanding the Basket; provided, further, that the Basket shall not apply to (i) any claim of Purchaser relating to any intentional misrepresentation by or on behalf of any Seller or the Company, (ii) any claim relating to any liability of Purchaser for any liability to be retained or paid by the Seller pursuant to the terms of this Agreement or any Schedule or Exhibit hereto, (iii) a breach of any obligation or covenant of Seller hereunder or any Schedule or Exhibit hereto or under any certificate or other document or agreement executed by it in connection herewith or the Closing hereunder, or (iv) any inaccuracy or incorrectness in any representation or warranty contained in Section 3.02, 3.03, or 3.30 hereof.
Page 33 of 38
13.03. Defense of Claims. In the event any claim, action, suit or proceeding is made or brought by any third party against the Company or Purchaser, or if any governmental enforcement agency shall propose to issue an order, with respect to which Seller may have liability under this Agreement, the Seller shall be entitled to participate in, and, to the extent that it shall wish to assume the defense thereof, with independent counsel reasonably satisfactory to such indemnified party. If the Seller elects to assume the defense of any such third-party claim, the Seller shall have the right to contest, pay, settle or compromise any such claim on such terms and conditions as they may determine, provided that the Seller shall not pay, settle or compromise any such claim without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld. If the Seller does not elect to assume the defense of any such claim, the Purchaser may engage counsel to assume the defense and may contest, pay, settle or compromise any such claim on such terms and conditions as the Purchaser may determine, provided that the Purchaser shall not pay, settle or compromise any such claim without the prior consent of the Seller or their agent (as provided for below), which consent shall not be unreasonably withheld or delayed. The fees and disbursements of such counsel shall be among the expenses for which Purchaser is indemnified pursuant to Section 13 hereof. Purchaser and the Seller, as the case may be, shall (as the other may reasonably request) keep the other fully informed of such claim, action, suit or proceeding at all stages thereof whether or not such party is represented by its own counsel.
13.04. Dispute Resolution. Any dispute between Seller and Purchaser relating to a claim for indemnification shall be submitted to and settled by arbitration as provided in Section 30 hereof.
13.05. Effect of Purchaser’s Knowledge. Any knowledge of any matter by Purchaser or any disclosure to Purchaser by Seller of any matter shall not reduce or affect any indemnification claim of Purchaser hereunder unless and except for any disclosures by Seller on any schedule hereto delivered at the time of execution hereof.
13.06. Credit for Tax Benefits. To the extent that any indemnity claim by Purchaser is based upon the loss of any anticipated tax deduction or other tax benefit to Purchaser, the indemnity claim shall be reduced to the extent of the then present value of any later tax deduction or tax benefit to Purchaser with respect to the item in question. Except for such adjustment relating to the timing of tax benefits, indemnity claims of Purchaser shall not be reduced by the amount of any perceived tax benefit to Purchaser by reason of the matter that is the basis for such indemnity claim.
14. FEES AND EXPENSES. The Seller, at its own cost, agrees to be liable for and pay the following liabilities or expenses:
(i) Fees and expenses of any person for financial services rendered to the Seller in connection with the sale contemplated by this Agreement;
(ii) Fees and expenses of legal counsel and accountants or accounting firms and other advisors retained by the Seller or the Company in connection with the sale contemplated by this Agreement; and
Page 34 of 38
15. BROKERAGE. Except as specified in SCHEDULE 3.26, the parties hereby represent each to the other with respect to their own actions, that no person, firm or corporation is entitled to any brokerage commissions, finder’s fees, or rights to similar compensation on account of services purportedly rendered on behalf of or at the request of any of the parties in connection with this Agreement or the transactions contemplated hereby.
16. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or to a national courier service, or mailed by registered or certified mail, return receipt requested, to the addresses set forth in the preamble to this Agreement or at such other address as may be designated in writing by notice given personally or by national courier service or by registered or certified mail return receipt requested.
17. TERMINATION. This Agreement may be terminated and Purchaser’s acquisition of the Shares abandoned at any time prior to the Closing Date:
(i) by the mutual consent in writing of Purchaser and the Seller;
(ii) by Purchaser, on the one hand, or by Seller, on the other hand, if all transactions contemplated by this Agreement shall not have been consummated on or before the Termination Date, if the failure to consummate the transactions provided for in this Agreement on or before such date is not caused by (Y) any material breach of any representation, warranty or covenants of this Agreement by the party electing to terminate pursuant to this Section 17(ii), and (Z) the failure by the party electing to terminate this Agreement pursuant to this Section 17(ii) to satisfy or fulfill all of the conditions of closing of the non-terminating party;
(iii) by Purchaser, on the one hand, or by Seller, on the other hand (provided that the terminating party is not then in breach of any material representation, warranty, covenant or other agreement contained herein), in the event that (A) any of the conditions of closing of the non-terminating party to consummate the Closing cannot be satisfied or fulfilled, or (B) there shall be any litigation (i) challenging the validity or legality of this Agreement or the consummation of the transactions contemplated by this Agreement, (ii) seeking damages in connection with the consummation of the transactions contemplated by this Agreement, or (iii) seeking to restrain or invalidate the consummation of the transactions contemplated by this Agreement; or
(iv) by Purchaser, if Purchaser shall have determined that any fact, event or condition exists that, in the reasonable judgment of Purchaser, is materially at variance with any warranty or representation of Seller or the Company set forth in this Agreement or is a material breach of any covenant or agreement of Seller or the Company contained in this Agreement;
Page 35 of 38
(v) by Purchaser if the Company or Seller breach the Exclusive Dealing covenant set forth in Section 6.01(u).
18. GOVERNING LAW. The Agreement shall be governed by and construed in accordance with the laws of the State of Florida.
19. ASSIGNABILITY. This Agreement shall not be assignable by any party without the prior written consent of the other parties hereto; provided, however, that rights and obligations of Purchaser under this Agreement (i) shall pass to any successor corporation which assumes its business and affairs by merger, consolidation or by acquisition of substantially all its assets or substantially all its stock and (ii) may be assigned to any affiliate of Purchaser, without any such prior written consent by any other party hereto.
20. ENTIRE AGREEMENT. This instrument, together with the Schedules and Exhibits hereto and the financial statements referred to herein, contains the entire Agreement between the parties hereto with respect to the transactions contemplated herein and supersedes all previous written or oral negotiations, commitments and representations.
22. AMENDMENTS. This Agreement may be changed or modified only by an instrument executed by the Seller and by the Company and the Purchaser acting by their respective officers thereunto duly authorized by their respective Boards of Directors.
23. PARTIES IN INTEREST. This Agreement shall inure to the benefit of and be binding upon the parties named herein and their respective heirs, successors and assigns; nothing in this Agreement, expressed or implied, is intended to confer upon any other person any rights or remedy under or by reason of this Agreement.
24. SECTION AND OTHER HEADINGS. The section and other headings contained in this Agreement are for reference purposes only and do not affect the interpretation or meaning of this Agreement.
25. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.
26. UNANIMITY. This Agreement shall not become valid or effective or a binding legal obligation on any party hereto until duly executed by the Purchaser, the Seller and the Company. Until such complete execution it shall constitute a continuing offer by the Purchaser which may be withdrawn at any time.
27. SURVIVAL. If the Closing is not consummated, all representations, warranties, obligations, covenants, or agreements hereunder or in any certificate delivered hereunder relating to the transaction which is not consummated shall be deemed to be terminated or extinguished, except Sections 5.02, 6.01(t), and 13-30 shall survive. Items disclosed in the Exhibits and Schedules attached hereto are incorporated into this Agreement and form a part of the representations, warranties, covenants or agreements to which they relate.
Page 36 of 38
28. WAIVER. The waiver by any party hereto of any breach, default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall not be deemed to extend to any prior or subsequent breach, default, misrepresentation, or breach of warranty or covenant hereunder and shall not affect in any way any rights arising by virtue of any such prior or subsequent occurrence.
29. REMEDIES ON DEFAULT. The parties expressly recognize that the Company, the Shares and the Business are unique property and that money damages may not compensate the nondefaulting party for its loss. Accordingly, it is agreed that if one party hereto materially defaults hereunder prior to or on the Closing Date, including failure to perform a condition precedent to such nondefaulting party’s obligation to close, as set forth in Section 7 or 8 hereof, or refusal to close, and another party hereto is not in prior material breach hereunder, such nondefaulting party shall, in addition to any remedy available at law, be entitled to a remedy of specific performance of the terms of this Agreement against the defaulting party.
30. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement or any transactions provided for herein, or the breach thereof, other than a claim for injunctive relief or a claim for specific performance prior to the Closing Date, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time demand for arbitration is made by any party. The evidentiary and procedural rules in such proceedings shall be kept to the minimum level of formality that is consistent with such Commercial Arbitration Rules. One arbitrator shall be named by Purchaser, a second shall be named by Seller, and the third arbitrator shall be named by the two arbitrators so chosen. In the event that the third arbitrator is not agreed upon, he or she shall be named by the American Arbitration Association. Arbitration shall occur in Tampa, Florida, or such other location agreed to in writing by Seller and Purchaser. The arbitrator(s) shall give the parties written notice of the decision, with the reasons therefor set out. The award made by all or a majority of the panel of arbitrators shall be final and binding, and judgment may be entered in any court of law having competent jurisdiction. The award is subject to confirmation, modification, correction, or vacation only as explicitly provided in Title 9 of the United States Code. The prevailing party shall be entitled to an award of pre- and post-award interest as well as reasonable attorneys’ fees incurred in connection with the arbitration and any judicial proceedings related thereto. Any action at law or in equity arising out of or relating to this Agreement and permitted under or notwithstanding the provisions of this Section shall be brought only in a court of competent jurisdiction located in Tampa, Florida, and, for purposes of any such action, the parties hereby expressly consent and agree to be subject to and to submit themselves to the jurisdiction of the courts in such location.
[REMAINDER OF PAGE LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
Page 37 of 38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed effective as of the day and year first above written.
| SELLER Vertical Health Solutions, Inc. | PURCHASER T&L, Inc. | |||||||
| By: | /s/ Stephen Watters | By: | /s/ Michele LaGamba | |||||
| Name: | Stephen Watters | Name: | Michele LaGamba | |||||
| Title: | CEO | Title: | President | |||||
| THE COMPANY Drug Depot, Inc. | ||||||||
| By: | /s/ Jaime Rios | |||||||
| Name: | Jaime Rios | |||||||
| Title: | President | |||||||
Page 38 of 38
