EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
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ASSET PURCHASE AGREEMENT
DATED AS OF MARCH 18, 2004
BY AND AMONG
PLANET POLYMER TECHNOLOGIES, INC.
AND
ALLERGY FREE, LLC
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of March 18, 2004, (this
"Agreement"), by and between Planet Polymer Technologies, Inc., a California
corporation ("Purchaser"), and Allergy Free, LLC, a California limited liability
company ("Seller").
R E C I T A L S
WHEREAS, Seller is engaged in the business of designing, manufacturing,
selling and distributing consumer products for use by allergy sensitive persons,
including, without limitation, air filters, bedding and similar products (the
"Seller Business");
WHEREAS, Purchaser is engaged in the business of developing and
licensing unique hydrosoluable polymer and biodegradable materials in the fields
of agricultural and industrial manufacturing (the "Purchaser Business");
WHEREAS, Seller desires to sell, and Purchaser desires to purchase, all
of the assets, properties and rights relating to the Seller Business, other than
the Excluded Assets (as defined below), pursuant to this Agreement.
A G R E E M E N T
NOW, THEREFORE, in reliance on the representations and warranties and
agreements and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Accounts Receivable" shall mean the Seller Accounts Receivable or the
Purchaser Accounts Receivable as the context requires, consistent with the
meaning ascribed to such term in Section 2(i).
"Acquisition" shall mean the transaction contemplated by this
Agreement.
"Acquisition Date" will have the meaning ascribed to such term in
Section 4(d).
"Affiliate" means, with respect to any Person, a Person directly or
indirectly controlling, controlled by or under common control with the Person,
through the ownership of all or part of the Person.
"Agreement" will have the meaning ascribed to such term in the
Preamble.
"Applicable Law" means any domestic or foreign, federal, state or local
statute, law, common law, ordinance, policy, guidance, rule, administrative
interpretation, regulation, order, writ, injunction, directive, judgment,
decree, permit or other requirement of any Governmental Authority.
"Arbitrator" will have the meaning ascribed to such term in Section
5(b).
"Assets" shall mean the Seller Assets or the Purchaser Assets as the
context requires, consistent with the meaning ascribed to such term in Section
2.
"Assumed Liabilities" will have the meaning ascribed to such term in
Section 3.
"best knowledge" or "to the best of knowledge" a Person will be deemed
to have knowledge of a particular fact or other matter if: (i) that Person is
actually aware of that fact or matter; or (ii) a prudent Person could be
expected to discover or otherwise become aware of that fact or matter in the
course of conducting an investigation regarding the accuracy of any
representation or warranty contained in this Agreement.
"Business" shall mean the Seller Business or the Purchaser Business as
the context requires.
"Business Day" means a day of the week (but not a Saturday, Sunday, or
holiday) on which banking institutions in San Diego are open. All references to
"days" in this Agreement will be to calendar days unless specifically referenced
as a Business Day.
"Change of Control" means (i) the acquisition, directly or indirectly,
by any person, entity or group (within the meaning of Section 13(d)(3) of the
Exchange Act) of the beneficial ownership of securities or more than fifty
percent (50%) of the total combined voting power of all outstanding securities
of Purchaser; (ii) a merger or consolidation in which Purchaser is not the
surviving entity, except for a transaction in which the shareholders immediately
prior to such merger or consolidation hold, in the aggregate, securities
possessing more than fifty percent (50%) of the total combined voting power of
all outstanding voting securities of the surviving entity immediately after such
merger or consolidation; (iii) a reverse merger in which Purchaser is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of all outstanding voting securities of
Purchaser are transferred to or acquired by a Person different from the
shareholders of Purchaser immediately prior to such merger; or (iv) the sale,
license, transfer and/or other disposition (in one transaction or a series of
related transactions) of all or substantially all of the assets of Purchaser.
"Closing" will have the meaning ascribed to such term in Section 4(d).
"Closing Balance Sheet" shall mean a balance sheet of Seller as of the
Acquisition Date prepared in accordance with GAAP (other than normal year-end
adjustments) delivered by Seller to Purchaser.
"Code" means the Internal Revenue Code of 1986 as amended, and the
Treasury Regulations promulgated thereunder.
"Confidential Information" means all nonpublic information respecting
Purchaser or its Affiliate's business including, but not limited to, the
Business and the products, research and development, processes, customer lists,
marketing plans and strategies of Purchaser or its Affiliates, whether or not
relating to the Business. Confidential Information does not include
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information that is, or becomes, available to the public unless such
availability occurs through an unauthorized act on either Member's part.
"Consideration Allocation" will have the meaning ascribed to such term
in Section 4(c) .
"Contracts" shall mean the Seller Contracts or the Purchaser Contracts
as the context requires, consistent with the meaning ascribed to such term in
Section 2(h).
"Copyrights" means all of the following: (i) all copyrights, all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office or in any similar office or agency of the United
States, any State or territory thereof, or any other country or any political
subdivision thereof, and (ii) all reissues, extensions or renewals thereof.
"Damages" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement, including
(i) interest on cash disbursements in respect of any of the foregoing at a rate
of five percent (5%) per annum from the date each such cash disbursement is made
until the Person incurring the same is indemnified in respect thereof, and (ii)
reasonable costs, fees and expenses of attorneys, accountants and other agents
of the Person.
"directly or indirectly" means as an individual, general partner,
limited partner, shareholder, member, officer, director, principal, agent,
employee, consultant, advisor or in any other relationship or capacity.
"Environmental Laws" will have the meaning ascribed to such term in
Section 6(r)(i).
"Equipment" means all machinery and equipment, including processing
equipment, conveyors, machine tools, tools, tooling, data processing and
computer equipment, including embedded software and peripheral equipment and all
engineering, processing and manufacturing equipment, office machinery,
furniture, materials handling equipment, tools, attachments, accessories,
automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor
vehicles, rolling stock and other equipment of every kind and nature, trade
fixtures and fixtures not forming a part of real property, together with all
additions and accessions thereto, replacements therefor, all parts therefor, all
substitutes for any of the foregoing, fuel therefor, and all manuals, drawings,
instructions, warranties and rights with respect thereto, and all products and
proceeds thereof and condemnation awards and insurance proceeds with respect
thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" will have the meaning ascribed to such term in
Section 2.
"Excluded Liabilities" will have the meaning ascribed to such term in
Section 3.
"FDA" means the Food and Drug Administration.
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"Financial Statements" will have the meaning ascribed to such term in
Section 6(d)(i).
"Fixed Assets" will have the meaning ascribed to such term in Section
2(b).
"Fraud" means any fraud, misrepresentation, theft, embezzlement,
dishonesty or moral turpitude.
"GAAP" means generally accepted accounting principles as applied on a
consistent basis.
"Governmental Authority" means any foreign or domestic, federal,
territorial, state or local governmental authority, instrumentality, court,
government commission, tribunal or organization, or any regulatory,
administrative or other agency, including the FDA, or any political or other
subdivision, department or branch of any of the foregoing.
"Hazardous Substances" means any substance, material or waste that is
regulated by any Governmental Authority, including, without limitation, (i)
petroleum; (ii) asbestos; and (iii) any material or substance that is defined as
a "hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste," or "restricted hazardous waste" under any provision of any
Applicable Law, including, without limitation, Section 307 and Section 311 of
the Clean Water Act, 33 U.S.C. Section 1251 et seq. (33 U.S.C. Sections 1317,
1321), Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq. (42 U.S.C. Section 6903), and Section 101 of the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
Section 9601 et seq. (42 U.S.C. Section 9601).
"Indemnified Party" will have the meaning ascribed to such term in
Section 14(b).
"Indemnifying Party" will have the meaning ascribed to such term in
Section 14(b).
"Independent" means a person who is not and never has been an officer,
director, employee, or equity owner or either party or any Affiliate of either
party.
"Intangible Property" will have the meaning ascribed to such term in
Section 2(c).
"Intellectual Property" will have the meaning ascribed to such term in
Section 6(j) and 7(k).
"Inventory" will have the meaning ascribed to such term in Section
2(a).
"IRS" means the Internal Revenue Service.
"Issued and Outstanding Stock" shall mean the issued and outstanding
shares of Purchaser's common stock as of the Acquisition Date, plus any options,
warrants or other rights to acquire common stock of Purchaser, or any stock or
instrument convertible into common stock of Purchaser, at a price per common
share of less than $1.00, subject to any applicable adjustments.
"Know-how" will have the meaning ascribed to such term in Section 2(d).
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"Letter of Credit Rights" means rights to payment or performance under
a letter of credit, whether or not Seller, as beneficiary, has demanded or is
entitled to demand payment or performance.
"Liability" or "Liabilities" means, with respect to any Person, any
liability or obligation of any kind, character or description, whether known or
unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and whether
or not the same is required to be accrued on the financial statements of the
Person or is disclosed on any Schedule or Exhibit hereto.
"License" means any rights under any written agreement owned or
acquired by a party granting any right (i) to use any Copyright or Copyright
registration; (ii) any right with respect to any invention on which a Patent is
in existence; (iii) to use any Trademark; or (iv) any other license of rights or
interests held or acquired by such party.
"Liens" means any security interests, liens, pledges, charges, options,
rights of first refusal, encumbrances, claims or other third party rights of any
kind.
"Material Adverse Effect" means a change in, or effect on, the
operations, affairs, condition (financial or otherwise), results of operations,
assets, properties, Liabilities, earnings, prospects, reserves or any other
aspect of the Business that results in a material adverse effect on, or a
material adverse change in the Assets or the Business.
"Member" or "Members" shall mean the members of Seller.
"Patents" means all of the following in which either party holds any
interest: (i) all letters patent of the United States or of any other country,
all registrations and recordings thereof, and all applications for letters
patent of the United States or of any other country, including registrations,
recordings and applications in the United States Patent and Trademark Office or
in any similar office or agency of the United States, any State or territory
thereof, or any other country, and (ii) all reissues, continuations,
continuations-in-part or extensions thereof.
"Permit" will have the meaning ascribed to such term in Section
6(n)(iv).
"Person" means an individual, corporation, partnership, joint venture,
trust, limited liability company or other business entity.
"Private Stock" means shares of Purchaser's unregistered common stock,
issued to Seller.
"Proceeding" or "Proceedings" means any lawsuit, claim, hearing,
arbitration, proceeding (public or private), governmental investigation, or
legal, administrative or other action.
"Proprietary Information" will have the meaning ascribed to such term
in Section 2(e).
"Purchaser" will have the meaning ascribed to such term in the
Preamble.
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"Purchaser Indemnitees" will have the meaning ascribed to such term in
Section 12.
"Purchaser's Documents" will have the meaning ascribed to such term in
Section 7(b).
"Purchaser SEC Reports" will have the meaning ascribed to such term in
Section 7(e).
"Reference Balance Sheet" will have the meaning ascribed to such term
in Section 6(d)(i).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" will have the meaning ascribed to such term in the Preamble.
"Seller's Documents" will have the meaning ascribed to such term in
Section 6(a).
"Stock Price" shall mean $.06 per share of Purchaser's common stock and
where applicable adjusted to reflect the Reverse Stock Split.
"Subordinated Convertible Note" will have the meaning ascribed to such
term in Section 4(b) and shall be in the form and content of Exhibit "A"
attached hereto and incorporated herein by reference.
"Subsidiary" means, with respect to any Person, (i) any corporation in
which such Person, then owns stock possessing more than fifty percent (50%) of
the total combined voting power of all classes of stock, (ii) any partnership in
which such Person is a general partner or (iii) any limited liability company,
partnership or other entity in which such Person possesses a fifty percent (50%)
or greater interest in the total capital or total income of such limited
liability company, partnership or other entity.
"Tax" or "Taxes" means any taxes, fees, levies, duties, tariffs,
imposts, and governmental impositions or charges of any kind in the nature of
(or similar to) taxes, payable to any taxing authority, including any
Governmental Authority and any taxing agency thereof, including, without
limitation, (i) any federal, state, local or foreign net income tax, alternative
or add-on minimum tax, profits or excess profits tax, franchise tax, gross
income, adjusted gross income or gross receipts tax, employment related tax
(including employee withholding or employer payroll tax, FICA or FUTA), real or
personal property tax or ad valorem tax, sales and use tax, excise tax, stamp
tax or duty, any withholding or back up withholding tax, value added tax,
severance tax, prohibited transaction tax, premiums tax, environmental tax,
intangibles tax, occupation tax, net worth tax, estimated tax, transfer and
gains tax, (ii) any interest or any penalty, addition to tax or additional
amount imposed by any Governmental Authority responsible for the imposition of
any such tax, and (iii) any liability with respect to the foregoing as a result
of being a member of any affiliated, consolidated, combined, unitary, or similar
group, as a result of any transferee liability in respect of the foregoing, as a
result of any agreement or otherwise by operation of law.
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"Tax Returns" mean any return, report, form or other information filed
or required to be filed with the IRS or any other federal, foreign, state local,
provincial taxing authority with respect to any Tax, including any claim for
refund of Taxes and any amendments or supplements of any of the foregoing.
"Trademarks" means all of the following owned, adopted or acquired by a
Party: (i) all trademarks, trade names, corporate names, business names, trade
styles, service marks, logos, other source or business identifiers, prints and
labels on which any of the foregoing have appeared or appear, designs and
general intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection
therewith, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any state or territory thereof, or any other country or any
political subdivision thereof; (ii) all reissues, extensions or renewals
thereof; and (c) all goodwill associated with or symbolized by any of the
foregoing.
2. PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions of this Agreement, Seller agrees to sell, transfer, convey, assign,
and deliver to Purchaser, and Purchaser agrees to purchase, all of the business
assets, properties, real or personal, and rights of every nature, kind and
description, tangible and intangible, as reflected on the Closing Balance Sheet
used or useable in the Seller Business, owned by, leased by, or in the
possession of the Seller (the "Assets"), except that the Assets shall not
include any of the assets set forth on Schedule 2 hereto (the "Excluded Assets")
all of which shall be retained by Seller and shall not be sold or conveyed to
Purchaser hereunder. Without limiting the generality of the preceding sentence,
the Assets include the following:
(a) Inventory, wherever located, used or useable in the
Business (the "Inventory") consisting of inventory, merchandise, goods and other
personal property that are held by or on behalf of Seller for sale or lease or
are furnished or are to be furnished under a contract of service, or that
constitute raw materials, work in process, finished goods, returned goods, or
materials or supplies of any kind, nature or description used or consumed or to
be used or consumed in Seller's business or in the processing, production,
packaging, promotion, delivery or shipping of the same, including all supplies
and embedded software;
(b) Fixed and other physical assets, wherever located,
used or useable in the Business consisting of Equipment, and fixtures ("Fixed
Assets");
(c) All Patents, Copyrights and Trademarks used or
useable in the Business, and all agreements of any nature whatsoever with
respect to any of the foregoing (the "Intangible Property"), including, without
limitation, the rights to all brand names;
(d) All inventions, discoveries, improvements, computer
software, data, skill, expertise, procedures and processes used or useable in
the Business and owned by Seller and all agreements of any nature whatsoever
with respect thereto (the "Know-how");
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(e) All other trade secrets and proprietary information
relating to the Business, including customer lists, market surveys and all
agreements of any nature whatsoever with respect thereto (the "Proprietary
Information");
(f) All right, title and interest of Seller in and to
Licenses, transferable permits, exemptions, approvals, franchises and privileges
relating to the Business to the extent transferable under Applicable Law;
(g) All books, records, accounts, correspondence and
other information which has been reduced to writing relating to or arising out
of the Business, including accounting records, legal records, technical
information and manuals, designs, blueprints, models, drawings, specifications,
patterns and any computer record of any of the foregoing;
(h) All of Seller's claims and rights under all leases,
contracts, agreements, and purchase and sales orders, whether written or oral,
relating in any manner to the Business including, without limitation, those set
forth on Schedule 6(k) hereto (collectively, the "Contracts");
(i) All accounts owned or acquired by Seller including,
accounts receivable, notes and notes receivable, other receivables, book debts
and other forms of obligations to Seller and Letter of Credit Rights relating to
the Business ("Accounts Receivable");
(j) All prepaid items, deposits, bank accounts,
certificated securities, all certificates of deposit, and all promissory notes
and other evidences of indebtedness and other similar assets relating to the
Business;
(k) All interests in partnerships, joint ventures and
other business associations relating to the Business;
(l) All rights of Seller under express or implied
warranties from the suppliers of Seller with respect to the Assets to the extent
transferable under Applicable Law;
(m) All proceeds under insurance policies (excluding
proceeds under insurance policies that relate to Excluded Assets or Excluded
Liabilities);
(n) All of Seller's claims and causes of action against
others relating to the Business (except to the extent related to the Excluded
Assets or Excluded Liabilities); and
(o) All goodwill associated with the Business or Assets,
together with the right to represent to third parties that Purchaser is the
successor to the Business.
3. ASSUMED LIABILITIES; EXCLUDED LIABILITIES. Except for the
liabilities of Seller relating to the Business set forth on Schedule 3 (the
"Assumed Liabilities"), which Purchaser agrees to assume, Purchaser does not
assume, agree to perform or discharge, indemnify Seller against, or otherwise
have any responsibility for Liabilities of Seller, whether fixed or contingent,
known or unknown, matured or unmatured, liquidated or unliquidated, secured or
unsecured, and whether arising prior to, on or after the date hereof
(collectively, the "Excluded Liabilities").
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Without limiting the generality of the preceding sentence, the Excluded
Liabilities include the following:
(a) Any Liability of Seller arising out of or relating to
products of Seller to the extent sold on or prior to the Acquisition Date except
as set forth on Schedule 6(t);
(b) Any Liability of Seller under any Contract that
arises after the Acquisition Date, but that arises out of any breach thereof by
Seller that occurred on or prior to the Acquisition Date;
(c) Any Liability for Taxes of Seller or any Member,
including (i) any Taxes arising as a result of Seller's operation of the
Business or ownership of the Assets occurring on or prior to the Acquisition
Date, (ii) any Taxes that will arise as a result of the sale of the Assets
pursuant to this Agreement except as otherwise expressly provided in Section
8(e), and (iii) any deferred Taxes of any nature;
(d) Any Liability arising out of or relating to
obligations owed to Members or Seller's credit facilities or any security
interest related thereto except as set forth on Schedule 3(d);
(e) any Liability resulting from the failure to comply
with any Environmental Law by Seller arising out of or relating to the operation
of the Business or Seller's leasing or operation of real property occurring on
or prior to the Acquisition Date;
(f) Any Liability under any employment, severance,
retention or termination agreement of Seller with any employee of Seller;
(g) Any Liability of Seller arising out of or relating to
any employee or independent contractor grievance, including those under any
employment, severance, retention or termination agreement of Seller, arising out
of facts occurring on or prior to the Acquisition Date;
(h) Any Liability to distribute to any of Seller's
members any part of the consideration received hereunder;
(i) Any Liability of Seller based upon the operations of
the Business by Seller on or prior to the Acquisition Date arising out of any
Proceeding to which Seller is a party pending as of the Acquisition Date;
(j) Any Liability of Seller arising out of or resulting
from Seller's compliance or noncompliance with any Applicable Law;
(k) Any Liability of Seller arising out of or resulting
from Seller's compliance or noncompliance with any judgment, order, writ,
prohibition, injunction or decree of any Governmental Authority;
(l) Any Liability of Seller under this Agreement; and
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(m) Any Liability of Seller based upon Seller's acts or
omissions occurring after the Acquisition Date.
4. PURCHASE PRICE AND CLOSING. In full consideration for the
Assets and the confidentiality and non-compete agreements contained in Section
8(a) of this Agreement, Purchaser shall pay to Seller the aggregate
consideration as follows:
(a) Stock Consideration. At the Closing, Purchaser will
issue and deliver to Seller 28,193,900 shares of Private Stock ("Stock
Consideration"), subject to adjustment as provided in Section 4(b) below.
(b) Subordinated Convertible Note. At the Closing,
purchaser will issue and deliver to Seller the Subordinated Convertible Note in
the approximate amount of Two Million Eight Hundred Seventeen Thousand Five
Hundred ($2,817,500.00) (the exact principal amount will be determined at the
Closing and will be equal to the then principal amount of indebtedness of Seller
for money borrowed) (the "Note Payment"). If the principal amount is not more
than $450,000 the interest rate shall be 5.5% per annum. Otherwise the interest
rate shall be the prime rate as announced from time to time in The Wall Street
Journal under "Money Rates." Seller may elect to accept additional shares of
Private Stock as additional Stock Consideration and reduce the principal amount
of the Note Payment by a per share amount equal to the per share offering price
for the Private Placement described in Section 8(n) up to a maximum
$2,450,000.00 reduction of the Note Payment principal amount. The Note Payment
and Stock Consideration are collectively referred to as the Purchase
Consideration.
(c) Purchase Consideration Allocation.
(i) The parties shall allocate the Purchase
Consideration (plus all consideration attributable to the portion of
the Assumed Liabilities which are treated as purchase price for federal
income tax purposes) to each Asset or groups thereof in accordance with
the applicable provisions of Section 1060 of the Code (the
"Consideration Allocation") and generally as set forth in Schedule
4(c).
(ii) Each party agrees to timely file an IRS Form
8594 reflecting the Consideration Allocation for the taxable year that
includes the Acquisition Date.
(iii) Each party hereto shall adopt and utilize
the Consideration Allocation for purposes of all Tax Returns filed by
them and shall not voluntarily take any position inconsistent with the
foregoing in connection with any examination of any Tax Return, any
refund claim, any litigation proceeding or otherwise, except that
Purchaser's cost for the Assets may differ from the amount so allocated
to the extent necessary to reflect Purchaser's capitalized acquisition
costs other than the amount realized by Seller. In the event that any
taxing authority disputes the Consideration Allocation, the party
receiving notice of the dispute shall promptly notify the other parties
hereto of such dispute and the parties hereto shall cooperate in good
faith in responding to such dispute in order to preserve the
effectiveness of the Consideration Allocation.
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(d) Closing. Upon the terms and subject to the conditions
set forth in this Agreement, the closing of the sale and purchase of the Assets
(the "Closing") shall take place on the date as soon as reasonably practicable
following satisfaction of the conditions to Closing set forth in Section 9 to
this Agreement ("Acquisition Date"), at the offices of ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ &
French, APC, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
5. POST-ACQUISITION PURCHASE CONSIDERATION ADJUSTMENT.
(a) Indemnity Obligations. If either party is required to
indemnify the other party pursuant to Sections 12 and 13 of this Agreement, the
Purchase Consideration will be adjusted as provided in this Section 5 of this
Agreement.
(b) Dispute Resolution. In the event that either party
disagrees with any demand for indemnification by the other party, such party
shall give written notice of its objections thereto within forty-five (45) days
of any claim for indemnification ("Dispute Notice"). If a party does not timely
deliver a Dispute Notice, the claim for indemnity will be final and binding on
the parties. If a party timely delivers a Dispute Notice, then during the 30-day
period following such delivery, Seller and Purchaser shall attempt to resolve
any differences which they may have with respect to any matters specified in the
Dispute Notice (which resolution, if any, shall be final and binding on all
parties). If, at the end of such 30-day period Seller and Purchaser shall have
failed to reach written agreement with respect to all such matters, then all
such matters specified in the Dispute Notice with respect to which an agreement
has not been reached (the "Disputed Matters") shall be submitted to and
arbitrated by an independent certified public accounting firm selected by
Independent members of Purchaser's Board of Directors (the "Arbitrator"). The
Arbitrator shall consider only the Disputed Matters. The Arbitrator shall act
promptly, and the Arbitrator's decision with respect to all Disputed Matters
shall be final and binding upon the parties hereto. The prevailing party in the
arbitration shall be entitled to the reimbursement from the non-prevailing party
of the prevailing party's reasonable attorney's and accountant's fees and costs
incurred in connection with the arbitration. The fees and expenses of the
Arbitrator incurred in connection with its review and determination of any
Disputed Matters shall also be borne by the non-prevailing party.
(c) Adjustment to Purchase Price. If Seller is the
Indemnifying Party, Seller shall cause to be surrendered to the Purchaser shares
of Private Stock equal to the dollar amount of Seller's indemnity obligation
divided by the Stock Price, but in no event more than one hundred thousand
(100,000) shares (after giving effect to the Reverse Stock Split). If Purchaser
is the Indemnifying Party, Purchaser shall cause to be issued to Seller shares
of Purchaser common stock equal to the dollar amount of Purchaser's indemnity
obligation divided by the Stock Price, but in no event more than one hundred
thousand (100,000) shares (after giving effect to the Reverse Stock Split).
6. REPRESENTATIONS AND WARRANTIES OF SELLER. In order to induce
Purchaser to enter into this Agreement, as of the Acquisition Date, except as
set forth in the Disclosure Schedules attached hereto, Seller represents and
warrants to Purchaser that:
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(a) Legal Authority, Binding Effect. Seller has the full
capacity, power and authority to execute and deliver this Agreement and to
transfer the Assets as contemplated herein. Seller has full capacity, right,
power and authority to execute, deliver and perform its obligations under this
Agreement and all other agreements, certificates and documents (collectively,
the "Seller's Documents") executed or delivered or to be executed or delivered
by Seller in connection herewith. This Agreement and the other Seller's
Documents constitute legal, valid and binding obligations of Seller, enforceable
in accordance with their respective terms.
(b) Organization, Good Standing. Seller is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of California, and has full power and authority to own,
lease and operate its assets and properties and to conduct the Business as it is
now being conducted. Seller is duly qualified or licensed to do business and is
in good standing as a foreign company under the laws of those jurisdictions in
which the conduct of its business or the ownership or leasing of its assets
requires such qualification. The copies of Seller's Articles of Organization, as
amended (certified by the Secretary of State of California), and Operating
Agreement which have been previously delivered to Purchaser or its
representative are correct and complete.
(c) Capitalization. The Members identified on Schedule
6(c) hold one hundred percent (100%) of the membership interests in Seller.
Seller has no Subsidiaries and has no equity in any corporation, partnership,
joint venture or other entity and Seller has conducted its business only through
Seller.
(d) Financial Statements.
(i) Seller has delivered to Purchaser the
unaudited balance sheet of Seller as of December 31, 2003 (the
"Reference Balance Sheet"), and the related unaudited statements of
operations and members' equity for the fiscal year then ended (the
"Financial Statements").
(ii) Except as set forth on Schedule 6(d)(ii),
the Financial Statements are complete, are in accordance with Seller's
books and records regularly maintained by management, have been
prepared in accordance with GAAP, consistently applied by Seller, and
present fairly the financial position, results of operations and
changes in financial position of Seller as of the dates and for the
periods indicated.
(iii) There are no liabilities, debts, obligations
or claims against the Business or the Assets of any nature, absolute or
contingent, which in the aggregate exceeds $10,000, except (a) as and
to the extent reflected or reserved against on the Reference Balance
Sheet, (b) specifically described and identified as an exception to
this paragraph in any of the Schedules delivered to Purchaser pursuant
to this Agreement, (c) incurred since the Reference Balance Sheet Date,
in the ordinary course of business consistent with prior practice and
Section 6(f) hereof, or (d) open purchase or sales orders or agreements
for delivery of goods and services in the ordinary course of business
consistent with prior practice; provided Seller is not in default
thereunder.
12
(e) Liabilities. As of December 31, 2003, all liabilities
of Seller are set forth or adequately reserved against or otherwise disclosed in
the Financial Statements, in each case in accordance with GAAP, consistently
applied by Seller. Since December 31, 2003, Seller has incurred no other
Liabilities, except for those incurred in the ordinary course of business as
theretofore conducted which are not materially adverse to the operations or
prospects (financial or otherwise) of the Business, except for the liabilities
set forth on Schedule 6(e).
(f) No Adverse Change. Except as set forth on Schedule
6(f), since December 31, 2003, Seller has operated its business only in the
ordinary course of business as theretofore conducted, and there has been no: (i)
Material Adverse Effect, or any event or development which, individually or
together with other such events, could reasonably be expected to result in a
Material Adverse Effect; (ii) suffered any damage or destruction resulting in a
loss or cost to Seller of more than $10,000 in the aggregate, whether or not
covered by insurance; (iii) amendment of its Articles of Organization or
Operating Agreement; (iv) issuance of any additional units or other Seller
securities or issuance, sale or grant of any option or right to acquire or
otherwise dispose of any of its authorized but unissued units or other company
securities; (v) declaration or payment of any distribution in cash or property
on its units; (vi) repurchase or redemption of shares of its units or other
Seller securities; (vii) incurrence, performance or payment or other discharge,
of any obligation or liability (absolute or contingent), except for current
obligations and liabilities incurred in the ordinary course of business
consistent with past practice; (viii) entering into of any employment agreement
with, or becoming liable for any bonus, profit-sharing or incentive payment to,
or increasing of the compensation or benefits of, any of its officers, directors
or employees; (ix) sale, transfer or acquisition of any properties or assets,
tangible or intangible, other than in the ordinary course of business; (x)
material changes in its customary method of operations including marketing,
selling and pricing policies and maintenance of business premises, fixtures,
furniture and equipment; (xi) modification, amendment or cancellation of any of
its existing leases or entering into any contracts, agreements, leases or
understandings other than in the ordinary course of business or entering into of
any loan agreements; (xii) investments other than in certificates of deposit or
short-term commercial paper; (xiii) capital expenditure or addition or
commitment to make a capital expenditure or addition, when considered as a whole
is in excess of an aggregate of $10,000; (xiv) Liens or restrictions of any of
the Business or the Assets; (xv) commencement of any litigation, action or
proceeding before any court, governmental or regulatory body or arbitrational
tribunal relating to the Business or the Assets; or (xvi) changes in respect of
any election concerning Taxes or Tax Returns, adopted or changed any accounting
method, filed any amended Tax Return, entered into any closing agreement with
respect to Taxes, settled any Tax claim or assessment or surrendered any right
to claim a refund of Taxes or obtained or entered into any Tax ruling,
agreement, contract, understanding, arrangement or plan.
(g) Taxes. Seller has duly, timely and properly filed
within the time prescribed by law, all Tax Returns required to be filed by it
with respect to the income, business or operations of Seller with the
appropriate Governmental Authority in all jurisdictions in which such Tax
Returns are required by law to be filed and such Tax Returns were complete and
accurate. Seller has paid in full all Taxes due or claimed to be due on or in
respect of all such Tax Returns. Seller is not the subject of any pending or, to
the best knowledge of Seller, threatened tax examination nor is it a party to
any proceeding or inquiry by any governmental
13
authority for the assessment or the proposed assessment or for the collection of
Taxes nor has any claim for the assessment or proposed assessment or for the
collection of Taxes been asserted against Seller. There are no Liens for Taxes
that are due and unpaid on any of the assets or properties of Seller. All
amounts required to be withheld by Seller in connection with its business or
operations from customers with respect to the sale of goods, or from or on
behalf of employees for income, social security and unemployment insurance
taxes, have been collected or withheld and either paid to the appropriate
governmental agency or set aside and, to the extent required by the Code or
other Applicable Law, held in accounts for such purpose.
(h) Title to Property; Condition; All Assets. Seller has
and will transfer to Purchaser good and marketable title to all the Assets, free
and clear of all Liens except as described in Schedule 6(h) hereto. Such Assets
are in good order and working condition, subject to ordinary wear and tear, and
are adequate and suitable for the purposes for which they are presently being
used and their use by Seller complies in all material respects with Applicable
Law. The Assets constitute all of the properties and assets necessary to conduct
the Business as it is presently conducted.
(i) Real Property and Fixed Assets.
(i) Seller does not own any real property.
Schedule 6(i) hereto contains a list and brief description of all real
property leased by Seller. Seller's buildings and other structures
(whether leased or owned) are in good operating condition and repair,
subject to ordinary wear and tear, and are adequate and suitable for
the purposes for which they are presently being used and their use by
Seller complies in all material respects with Applicable Law.
(ii) All leases are valid, binding and
enforceable in accordance with their terms and are in full force and
effect. No event or condition exists, or to the best knowledge of
Seller, is alleged by any of the other parties thereto to exist, which
constitutes, or with giving of notice or lapse of time or both would
constitute, a default under, or a basis for termination of, any such
lease. Seller does not owe any brokerage commissions with respect to
any such leased space. Seller has delivered to Purchaser prior to the
execution of this Agreement true and complete copies of all such leases
(including any amendments and renewal letters).
(j) Patents, Trademarks and Copyrights. Seller has
interests in or the right to use the Intangible Property, the Know-how and the
Proprietary Information (collectively, the "Intellectual Property") disclosed in
Schedule 6(j) hereto, each of which Seller has all right, title and interest in
or valid and binding rights under contract to use, and the use thereof in the
operation of the Business does not and will not infringe the rights of any other
Person. Other than the Intellectual Property disclosed in Schedule 6(j) hereto,
no other Intellectual Property is necessary in the conduct of the Business of
Seller. Except as disclosed in Schedule 6(j), with respect to the Intellectual
Property: (i) Seller has the exclusive right to use the Intellectual Property,
(ii) all registrations with and applications to any Governmental Authority in
respect of the Intellectual Property are valid and in full force and effect and
are not subject to the payment of any Taxes or maintenance fees or the taking of
any other actions by Seller to maintain their
14
validity or effectiveness, (iii) there are no restrictions on the direct or
indirect transfer of any contract, or any interest therein, held by Seller in
respect of the Intellectual Property, (iv) Seller has delivered to Purchaser
prior to the execution of this Agreement documentation with respect to any
invention, process, design, computer program or other know-how or trade secret
included in the Intellectual Property, which documentation is accurate in all
material respects and reasonably sufficient in detail and content to identify
and explain such invention, process, design, computer program or other know-how
or trade secret and to facilitate its full and proper use without reliance on
the special knowledge or memory of any person, (v) Seller has taken reasonable
security measures to protect the secrecy, confidentiality and value of its trade
secrets (vi) Seller has not received any notice that it is, in default (or with
the giving of notice or lapse of time or both, would be in default) under any
contract to use the Intellectual Property, (vii) to the best knowledge of
Seller, no Intellectual Property is being infringed by any other Person and
(viii) Seller does not pay any royalty to a third party with respect to its use
of any Intellectual Property.
Except at set forth on Schedule 6(j), Seller has not received
notice, either verbally or in writing, that Seller is infringing any
Intellectual Property of any other Person in connection with the conduct of the
Business, no claim is pending or has been made, either verbally or in writing,
to such effect and Seller is not infringing any Intellectual Property of any
other Person in connection with the conduct of the Business.
(k) Contracts and Commitments. Schedule 6(k) contains a
list of all material leases, contracts, agreements and purchase and sales
orders, whether written, or to Seller's best knowledge, oral, relating to the
Business and to which Seller is a party or and by which any of the Assets is
bound. True and complete copies of the foregoing (or, in the case of oral
contracts, accurate summaries) have been delivered to Purchaser. Except as set
forth on Schedule 6(k), all Contracts are in full force and effect and
constitute legal, valid and binding obligations of the respective parties
thereto. Seller has performed all obligations required to be performed by it
pursuant to the Contracts and no default, or event which with notice or lapse of
time or both would constitute a default, exists in respect thereof on the part
of Seller or the other parties thereto. Except as set forth on Schedule 6(k),
each of the Contracts will according to its terms continue in full force and
effect with no change to the material terms thereof following the transfer of
the Assets to Purchaser under this Agreement. The continuation, validity and
effectiveness of all the Contracts under the current material terms thereof
(including without limitation the current rentals under any leases or licenses)
will in no way be affected by the transfer of the Assets to Purchaser under this
Agreement. All the Contracts have been entered into on an arms-length basis and
none is materially burdensome to the Business. Except as set forth on Schedule
6(k), Seller has no contracts, agreements or arrangements (a) providing for the
payment of any bonus or commission based on sales or earnings, or (b) with any
officer, member, director, consultant (other than fee agreements with Seller's
accountants and attorneys), agent or Affiliate of Seller, or (c) relating to
employment or severance or termination benefits (other than employment
arrangements terminable at will without liability on the part of Seller and
other than for severance or termination benefits required by statute or
regulation).
(l) Inventory. Except as set forth on Schedule 6(l) and
to Seller's best knowledge, the Inventory is in good condition, does not include
any items below standard
15
quality, damaged or spoiled, obsolete or of a quality or quantity not usable or
salable in the ordinary course of the business of Seller as currently conducted
within normal inventory "turn" experience, the value of which has not been fully
written down, or with respect to which adequate reserves have not been provided.
All items included in the inventory of Seller are the property of Seller, free
and clear of any Lien, have not been pledged as collateral, are not held by
Seller on consignment from others and conform in all respects to all
specifications and warranties applicable to such inventory or its use or sale
imposed by any Governmental Authority. All in-process and finished products in
the Inventory have been produced in compliance with Seller's applicable quality
control procedures. The values at which such inventory are carried in accordance
with GAAP. The amount and mix of the Inventory of supplies, in-process and
finished products is consistent with Seller's past business practices.
(m) Accounts Receivable. All of the Accounts Receivable
reflected on the Financial Statements and thereafter acquired through the date
hereof constitute only valid claims against third parties not affiliated with
Seller or Members arising in the ordinary course of the Business. The Accounts
Receivable arose in the ordinary course of business for goods or services
delivered or rendered, are payable upon ordinary trade terms, constitute only
legal, valid and binding obligations of the respective debtors enforceable in
accordance with their terms and are not subject to counterclaims or setoffs.
(n) Compliance with Laws; Restrictions; Permits.
(i) Except as set forth on Schedule 6(n)(i),
Seller is conducting the Business, and all of its properties and assets
are, in compliance with Applicable Law.
(ii) Seller is not aware and has not received any
written or verbal notification of any present or past failure so to
comply or of any past or present events, activities or practices of
Seller or incidents or actions of Seller or plans of Seller which may
be construed to indicate interference with or prevention of continued
compliance with Applicable Law or which may give rise to any common law
or statutory liability, or otherwise form the basis of any claim,
action, suit, proceeding, hearing or investigation.
(iii) The authorization, execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (1) violate any of the
provisions of Seller's Articles of Organization or Operating Agreement,
(2) violate, conflict with, result in a breach of or constitute a
default under, require any notice or consent under, give rise to a
right of termination of, or accelerate the performance required by, any
terms or provisions of any lease, contract, agreement or purchase or
sale order, whether written, or oral, to which Seller is a party or is
bound, or any of its assets or business is subject, (3) result in the
creation of any Lien on any of Seller's assets or properties or (4)
violate any judgment, order, writ, prohibition, injunction or decree of
any court or other governmental body to which Seller is a party,
subject to or bound by.
(iv) Set forth on Schedule 6(n)(iv) is a list of
all approvals, authorizations, certificates, consents, licenses, orders
and permits or other similar
16
authorizations of any Governmental Authority necessary for the
operation of the Business in substantially the same manner as currently
operated. No other governmental or other registration, filing,
application, permit, notice, transfer, consent, approval, order,
qualification or waiver (collectively, a "Permit") is required under
Applicable Law to be obtained by Seller or Purchaser by virtue of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby or to avoid the loss of any such
Permit.
(o) Compensation of and Indebtedness to and from
Employees.
(i) Schedule 6(o)(i) sets forth a true and
complete list of the names of and positions held by each employee of
Seller and the current compensation of each such employee, including
salary, bonus, other incentive compensation and other perquisites and
benefits.
(ii) Except as set forth in Schedule 6(o)(ii),
Seller has no financial obligation and is not otherwise indebted to any
person who is an officer, director, member or employee of Seller, or to
any relative of any such person or to any entity controlled directly or
indirectly by, or otherwise affiliated with, such person, in any amount
whatsoever other than for compensation for services rendered since the
start of the current pay period of Seller generally utilized for its
employees and for normal and customary business expenses, nor is any
officer, director, member or employee of Seller, or any relative of
such person or any entity controlled directly or indirectly by, or
otherwise affiliated with, such person, indebted to Seller except for
normal and customary business reimbursement advances made in the
ordinary course of business.
(p) Insurance. Schedule 6(p) hereto lists all insurance
policies covering Seller or any aspect of the Business, indicating the type of
coverage, name of insured, the insurer, the amount of coverage, the premium and
the expiration date of each policy. The insurance coverage provided by any of
the policies described above will not terminate or lapse by reason of the
transactions contemplated by this Agreement. Each policy listed is valid and
binding and in full force and effect, no premiums due thereunder have not been
paid, and Seller has not received any notice of cancellation or termination in
respect of any such policy or notice that Seller is in default thereunder.
(q) Litigation. Except as set forth in Schedule 6(q),
there are presently no actions, suits, disputes, claims, proceedings or
investigations pending or threatened against or affecting Seller, the Business
or the Assets, at law or in equity, before or by any court, agency, or other
governmental authority, including, without limitation, litigation with
competitors, customers or with contractors or suppliers who have performed work
on or supplied equipment or materials relating to the Business or the properties
of Seller. To the best knowledge of Seller, there is no basis for any such
action, suit, dispute, claim, proceeding or investigation and none of the
foregoing has been pending during the last three years. There is no outstanding
order, injunction or decree of any court, governmental authority or arbitration
tribunal against or affecting Seller, the Business or the Assets.
17
(r) Environmental Matters.
(i) Seller's business, assets and properties are
and have been operated and maintained in compliance with all
environmental protection laws and regulations of any Applicable Law
(the "Environmental Laws"). No event has occurred which, with or
without the passage of time or the giving of notice, or both, would
constitute non-compliance by Seller with, or a violation by Seller of,
the Environmental Laws.
(ii) No real property leased, occupied or used in
the Business contains any underground storage tanks or Hazardous
Substances. Seller has not caused or permitted to exist, as a result of
an intentional or unintentional act or omission, a disposal, discharge
or release of Hazardous Substances originating on or from any site
which currently is or formerly was owned, leased, occupied or used in
connection with the Business, except where such disposal, discharge or
release was pursuant to and in compliance with the conditions of a
permit issued by the appropriate Governmental Authority. There are no
properties owned, leased, occupied or used in connection with the
Business which are listed, or proposed for listing, on the National
Priorities List pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Sections 9601 et seq., or on
a registry or inventory of inactive hazardous waste sites maintained by
any state (i) which currently is or formerly was owned, leased,
occupied or used or (ii) with respect to which Seller has received
notice that it is considered to be a potentially responsible person.
(s) Customers and Suppliers. No supplier or customer of
the Business has cancelled or otherwise terminated, or made any written threat
to Seller to cancel or otherwise terminate, for any reason, including the
consummation of the transactions contemplated hereby, its relationship with the
Business or has at any time on or after January 1, 2004, decreased materially
its services or supplies to the Business in the case of any such supplier, in
each case if and only to the extent that such cancellation, termination or
threat, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. To Seller's best knowledge, no supplier or customer
intends to cancel or otherwise terminate or decrease materially its services or
supplies to the Business or its usage of the services or products of the
Business, as the case may be, in each case if and only to the extent that such
cancellation, termination or reduction, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(t) Products.
(i) Schedule 6(t) sets forth all claims asserted
or, to the best knowledge of Seller, threatened at any time since
January 1, 2002 against the Business in respect of personal injury,
wrongful death or property damage alleged to have resulted from
products provided by the Business, together with a description of each
such claim or action initiated with respect thereto and the disposition
thereof.
18
(ii) The Business has not experienced product
recall or warranty claims, other than warranty claims less than
$1,000.00 since the year ended December 31, 2003.
(u) Securities Purchase Representations. Seller and each
Member of Seller is an accredited investor within the meaning of Rule 501 under
the Securities Act. Seller and each Member has such knowledge and experience in
financial or business matters as to be able to evaluate the merits and risks of
the transactions contemplated by this Agreement. Seller has had an opportunity
to ask questions of and to receive answers satisfactory to it from Purchaser in
respect of the investment it is making in the Private Stock. Seller and each
Member has access to the Purchaser SEC Reports. Seller has not been organized
solely for the purpose of acquiring the Private Stock. Seller and each Member to
whom Private Stock may be distributed is acquiring the Private Stock solely for
its own account for investment, not as a nominee or an agent, and without a view
to or in connection with, the sale or distribution of any part thereof.
(v) Disclosure. No representation or warranty contained
in this Agreement, and no statement contained in the Schedules to this Agreement
or in any certificate, list or other writing furnished to Purchaser pursuant to
any provision of this Agreement (including without limitation the Financial
Statements), contains any untrue statement of a material fact, or when taken as
a whole, omits to state a material fact necessary in order to make the
statements herein or therein, in the light of the circumstances under which they
were made, not misleading. There is no fact known to Seller which Seller
believes has or could have a Material Adverse Effect on the Business; which has
not been set forth in this Agreement, including without limitation any Schedules
or Exhibits hereto, the Financial Statements or certificate delivered in
accordance with the terms hereof or any document or statement in writing which
has been supplied by or on behalf of Seller or by any employee of Seller in
connection with the transactions contemplated by this Agreement. Seller has
furnished or caused to be furnished to Purchaser complete and correct copies of
all agreements, instruments and documents set forth on a Schedule hereto or
underlying a disclosure set forth on any Schedule hereto. Each of the Schedules
hereto is complete and correct.
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER. As an inducement
for Seller to enter into this Agreement and to consummate the transactions
contemplated hereby, Purchaser represents and warrants to Seller that:
(a) Organization and Good Standing. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has full power and authority to own, lease and
operate its assets and properties and to conduct Purchaser's Business as it is
now being conducted. Purchaser is duly qualified or licensed to do business and
is in good standing as a foreign corporation under the laws of those
jurisdictions in which the conduct of its business or the ownership or leasing
of its assets requires such qualification. The copies of Seller's Articles of
Incorporation, as amended (certified by the Secretary of State of California),
and Bylaws which have been previously delivered to Seller or its representative
are correct and complete.
19
(b) Legal Authority, Binding Effect. . Purchaser has the
full right, power and authority to enter into and perform this Agreement and all
other agreements, certificates and documents executed or delivered or to be
executed or delivered by Purchaser in connection herewith (collectively, with
this Agreement, "Purchaser's Documents"). The execution, delivery and
performance by Purchaser of Purchaser's Documents have been duly authorized by
the Board of Directors of Purchaser and, when approved by the Shareholders of
Purchaser by all other necessary corporate action of Purchaser. This Agreement
has been duly executed and delivered by Purchaser and Purchaser's Documents are
(or when executed and delivered by Purchaser will be) legal, valid and binding
obligations of Purchaser (to the extent each of them is a party thereto),
enforceable in accordance with their respective terms.
(c) Restrictions. Except as set forth on Schedule 7(c),
the authorization, execution, delivery and performance of Purchaser's Documents
and the consummation of the transactions contemplated hereby and thereby do not
and will not (i) violate any of the provisions of the charter or bylaws of
Purchaser (ii) violate, conflict with, result in a breach of or constitute a
default under, require any notice or consent under, give rise to a right of
termination of, or accelerate the performance required by, any terms or
provisions of any agreement, instrument or writing of any nature to which
Purchaser is a party or is bound or any of its assets or business is subject, or
(iv) violate, conflict with or result in a breach of, or require any notice,
filing or consent under, any statute, rule, regulation or other provision of
law, or any order, judgment or other direction of a court or other tribunal, or
any other governmental requirement, permit, registration, license or
authorization applicable to Purchaser.
(d) Private Stock. As of the Acquisition Date, the Stock
Consideration shall be duly authorized and validly issued, fully paid,
nonassessable and issued without violation of any preemptive rights.
(e) Public Filings. Purchaser has filed all required
forms, reports and documents ("Purchaser SEC Reports") with the SEC since
January 1, 2002, each of which has complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act, each as in
effect on the dates such forms, reports and documents were filed. None of such
Purchaser SEC Reports, including, without limitation, any financial statements
or schedules included or incorporated by reference therein, contained when filed
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein in light of the circumstances under which they
were made not misleading. The financial statements included in the Purchaser SEC
Reports have been prepared in accordance with GAAP applied on a consistent basis
by Purchaser (except as may be indicated in the notes thereto), and fairly
present in all material respects the consolidated financial position of
Purchaser as of the dates thereof and their consolidated results of operations
and changes in financial position for the periods then ended, except, in the
case of unaudited interim financial statements, for normal year-end audit
adjustments and the fact that certain information and notes have been condensed
or omitted in accordance with the applicable rules of the SEC.
(f) Liabilities. As of December 31, 2003, all liabilities
of Purchaser are set forth or adequately reserved against or otherwise disclosed
in the Financial Statements, in each
20
case in accordance with GAAP, consistently applied by Purchaser. Since December
31, 2003, Purchaser has incurred no other Liabilities, except for those incurred
in the ordinary course of business as theretofore conducted which are not
materially adverse to the operations or prospects (financial or otherwise) of
the Purchaser's Business, except for the liabilities set forth on Schedule 7(f).
(g) No Adverse Change. Since December 31, 2003, Purchaser
has operated its business only in the ordinary course of business as theretofore
conducted, and there has been no: (i) Material Adverse Effect, or any event or
development which, individually or together with other such events, could
reasonably be expected to result in a Material Adverse Effect; (ii) suffered any
damage or destruction resulting in a loss or cost to Purchaser of more than
$10,000 in the aggregate, whether or not covered by insurance; (iii) amendment
of its Articles of Incorporation or Bylaws; (iv) issuance of any additional
shares or other Purchaser securities or issuance, sale or grant of any option or
right to acquire or otherwise dispose of any of its authorized but unissued
shares or other company securities; (v) declaration or payment of any
distribution in cash or property on shares; (vi) repurchase or redemption of
shares or other Purchaser securities; (vii) incurrence, performance or payment
or other discharge, of any obligation or liability (absolute or contingent),
except for current obligations and liabilities incurred in the ordinary course
of business consistent with past practice; (viii) entering into of any
employment agreement with, or becoming liable for any bonus, profit-sharing or
incentive payment to, or increasing of the compensation or benefits of, any of
its officers, directors or employees; (ix) sale, transfer or acquisition of any
properties or assets, tangible or intangible, other than in the ordinary course
of business; (x) material changes in its customary method of operations
including marketing, selling and pricing policies and maintenance of business
premises, fixtures, furniture and equipment; (xi) modification, amendment or
cancellation of any of its existing leases or entering into any contracts,
agreements, leases or understandings other than in the ordinary course of
business or entering into of any loan agreements; (xii) investments other than
in certificates of deposit or short-term commercial paper; (xiii) capital
expenditure or addition or commitment to make a capital expenditure or addition,
when considered as a whole is in excess of an aggregate of $10,000; (xiv) Liens
or restrictions of any of Purchaser's Business or Purchaser's Assets; (xv)
commencement of any litigation, action or proceeding before any court,
governmental or regulatory body or arbitrational tribunal relating to
Purchaser's Business or Purchaser's Assets; or (xvi) changes in respect of any
election concerning Taxes or Tax Returns, adopted or changed any accounting
method, filed any amended Tax Return, entered into any closing agreement with
respect to Taxes, settled any Tax claim or assessment or surrendered any right
to claim a refund of Taxes or obtained or entered into any Tax ruling,
agreement, contract, understanding, arrangement or plan.
(h) Taxes. Purchaser has duly, timely and properly filed
within the time prescribed by law, all Tax Returns required to be filed by it
with respect to the income, business or operations of Purchaser with the
appropriate Governmental Authority in all jurisdictions in which such Tax
Returns are required by law to be filed and such Tax Returns were complete and
accurate. Purchaser has paid in full all Taxes due or claimed to be due on or in
respect of all such Tax Returns. Purchaser is not the subject of any pending or,
to the best knowledge of Purchaser and each Member, threatened tax examination
nor is it a party to any proceeding or inquiry by any governmental authority for
the assessment or the proposed assessment or for the
21
collection of Taxes nor has any claim for the assessment or proposed assessment
or for the collection of Taxes been asserted against Purchaser. There are no
Liens for Taxes that are due and unpaid on any of the assets or properties of
Purchaser. All amounts required to be withheld by Purchaser in connection with
its business or operations from customers with respect to the sale of goods, or
from or on behalf of employees for income, social security and unemployment
insurance taxes, have been collected or withheld and either paid to the
appropriate governmental agency or set aside and, to the extent required by the
Code or other Applicable Law, held in accounts for such purpose.
(i) Title to Property; Condition; All Assets. Purchaser
has good and marketable title to all of Purchaser's Assets, free and clear of
all Liens except as described in Schedule 7(i) hereto. Such Assets are in good
order and working condition, subject to ordinary wear and tear, and are adequate
and suitable for the purposes for which they are presently being used and their
use by Purchaser complies in all material respects with Applicable Law.
Purchaser's Assets constitute all of the properties and assets necessary to
conduct Purchaser's Business as it is presently conducted. There are no
individual refundable deposits, prepaid expenses, or deferred charges due
Purchaser and Purchaser has made no loans or advances to any Person.
(j) Real Property and Fixed Assets.
(i) Purchaser does not own any real property.
Schedule 7(j) hereto contains a list and brief description of all real
property leased by Purchaser. Purchaser's buildings and other
structures (whether leased or owned) are in good operating condition
and repair, subject to ordinary wear and tear, and are adequate and
suitable for the purposes for which they are presently being used and
their use by Purchaser complies in all material respects with
Applicable Law.
(ii) All leases are valid, binding and
enforceable in accordance with their terms and are in full force and
effect. No event or condition exists, or to the best knowledge of
Purchaser, is alleged by any of the other parties thereto to exist,
which constitutes, or with giving of notice or lapse of time or both
would constitute, a default under, or a basis for termination of, any
such lease. Purchaser does not owe any brokerage commissions with
respect to any such leased space. Purchaser has delivered to Purchaser
prior to the execution of this Agreement true and complete copies of
all such leases (including any amendments and renewal letters).
(k) Patents, Trademarks and Copyrights. Purchaser has
interests in or the right to use the Intangible Property, the Know-how and the
Proprietary Information (collectively, the "Intellectual Property") disclosed in
Schedule 7(k) hereto, each of which Purchaser has all right, title and interest
in or valid and binding rights under contract to use, and the use thereof in the
operation of Purchaser's Business does not and will not infringe the rights of
any other Person. Other than the Intellectual Property disclosed in Schedule
7(k) hereto, no other Intellectual Property is necessary in the conduct of the
Business of Purchaser. Except as disclosed in Schedule 7(k), with respect to the
Intellectual Property: (i) Purchaser has the exclusive right to use the
Intellectual Property, (ii) all registrations with and applications to any
22
Governmental Authority in respect of the Intellectual Property are valid and in
full force and effect and are not subject to the payment of any Taxes or
maintenance fees or the taking of any other actions by Purchaser to maintain
their validity or effectiveness, (iii) there are no restrictions on the direct
or indirect transfer of any contract, or any interest therein, held by Purchaser
in respect of the Intellectual Property, (iv) Purchaser has delivered to Seller
prior to the execution of this Agreement documentation with respect to any
invention, process, design, computer program or other know-how or trade secret
included in the Intellectual Property, which documentation is accurate in all
material respects and reasonably sufficient in detail and content to identify
and explain such invention, process, design, computer program or other know-how
or trade secret and to facilitate its full and proper use without reliance on
the special knowledge or memory of any person, (v) Purchaser has taken
reasonable security measures to protect the secrecy, confidentiality and value
of its trade secrets (vi) Purchaser has not received any notice that it is, in
default (or with the giving of notice or lapse of time or both, would be in
default) under any contract to use the Intellectual Property, (vii) to the best
knowledge of Purchaser and each of its officers and directors, no Intellectual
Property is being infringed by any other Person and (viii) Purchaser does not
pay any royalty to a third party with respect to its use of any Intellectual
Property.
Except as set forth on Schedule 7(k), Purchaser has not
received notice, either verbally or in writing, that Purchaser is infringing any
Intellectual Property of any other Person in connection with the conduct of
Purchaser's Business, no claim is pending or has been made, either verbally or
in writing, to such effect and Purchaser is not infringing any Intellectual
Property of any other Person in connection with the conduct of the Business.
(l) Contracts and Commitments. Schedule 7(l) contains a
list of all material leases, contracts, agreements and purchase and sales
orders, whether written, or to Purchaser's best knowledge, oral, relating to
Purchaser's Business and to which Purchaser is a party or and by which any of
Purchaser's Assets is bound. True and complete copies of the foregoing (or, in
the case of oral contracts, accurate summaries) have been delivered to Seller.
Except as set forth on Schedule 7(l), all of Purchaser's Contracts are in full
force and effect and constitute legal, valid and binding obligations of the
respective parties thereto. Purchaser has performed all obligations required to
be performed by it pursuant to the Contracts and no default, or event which with
notice or lapse of time or both would constitute a default, exists in respect
thereof on the part of Purchaser or the other parties thereto. Except as set
forth on Schedule 7(l), each of the Contracts will according to its terms
continue in full force and effect with no change to the material terms thereof
following the transfer of the Closing under this Agreement. The continuation,
validity and effectiveness of all the Contracts under the current material terms
thereof (including without limitation the current rentals under any leases or
licenses) will in no way be affected by the transfer of the Private Stock to
Seller under this Agreement or for any reason as a result of Seller entering
into the Royalty Liquidation Trust pursuant to Section 8(l) of this Agreement.
All the Contracts have been entered into on an arms-length basis and none is
materially burdensome to Purchaser's Business. Except as set forth on Schedule
7(l), Purchaser has no contracts, agreements or arrangements (a) providing for
the payment of any bonus or commission based on sales or earnings, or (b) with
any officer, member, director, consultant (other than fee agreements with
Purchaser's accountants and attorneys), agent or Affiliate of Purchaser, or (c)
relating to employment or severance or termination benefits (other than
23
employment arrangements terminable at will without liability on the part of
Purchaser and other than for severance or termination benefits required by
statute or regulation).
(m) Inventory. Purchaser has no inventory.
(n) Accounts Receivable. All of Purchaser's Accounts
Receivable reflected on the financial statements of Purchaser and thereafter
acquired through the date hereof constitute only valid claims against third
parties not affiliated with Purchaser arising in the ordinary course of
Purchaser's Business. The Accounts Receivable arose in the ordinary course of
business for goods or services delivered or rendered, are payable upon ordinary
trade terms, constitute only legal, valid and binding obligations of the
respective debtors enforceable in accordance with their terms and are not
subject to counterclaims or setoffs.
(o) Compliance with Laws; Restrictions; Permits.
(i) Except as set forth on Schedule 7(o)(i),
Purchaser is conducting its Business, and all of its properties and
Assets are, in compliance with Applicable Law.
(ii) Purchaser is not aware and has not received
any written or verbal notification of any present or past failure so to
comply or of any past or present events, activities or practices of
Purchaser or incidents or actions of Purchaser or plans of Purchaser
which may be construed to indicate interference with or prevention of
continued compliance with Applicable Law or which may give rise to any
common law or statutory liability, or otherwise form the basis of any
claim, action, suit, proceeding, hearing or investigation.
(iii) The authorization, execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (1) violate any of the
provisions of Purchaser's Articles of Incorporation or Bylaws, (2)
violate, conflict with, result in a breach of or constitute a default
under, require any notice or consent under, give rise to a right of
termination of, or accelerate the performance required by, any terms or
provisions of any lease, contract, agreement or purchase or sale order,
whether written, or oral, to which Purchaser is a party or is bound, or
any of its Assets or Business is subject, (3) result in the creation of
any Lien on any of Purchaser's Assets or properties or (4) violate any
judgment, order, writ, prohibition, injunction or decree of any court
or other governmental body to which Purchaser is a party, subject to or
bound by.
(iv) Set forth on Schedule 7(o)(iv) is a list of
all approvals, authorizations, certificates, consents, licenses, orders
and permits or other similar authorizations of any Governmental
Authority necessary for the operation of the Business in substantially
the same manner as currently operated. No other governmental or other
registration, filing, application, permit, notice, transfer, consent,
approval, order, qualification or waiver (collectively, a "Permit") is
required under Applicable Law to be obtained by Purchaser or Seller by
virtue of the execution and delivery of this Agreement
24
or the consummation of the transactions contemplated hereby or to avoid
the loss of any such Permit.
(p) Compensation of and Indebtedness to and from
Employees and Consultants.
(i) Purchaser currently has no employees, but
Purchaser has had employees in the past.
(ii) Except as set forth in Schedule 7(p)(ii),
Purchaser has no financial obligation and is not otherwise indebted to
any person who is or was an officer, director, shareholder, consultant
or former employee of Purchaser, or to any relative of any such person
or to any entity controlled directly or indirectly by, or otherwise
affiliated with, such person, in any amount whatsoever other than for
compensation for services rendered since the start of the current
fiscal year of Purchaser generally utilized for its employees and for
normal and customary business expenses, nor is any officer, director,
shareholder or former employee of Purchaser, or any relative of such
person or any entity controlled directly or indirectly by, or otherwise
affiliated with, such person, indebted to Purchaser except for normal
and customary business reimbursement advances made in the ordinary
course of business.
(q) Insurance. Schedule 7(q) hereto lists all insurance
policies covering Purchaser or any aspect of Purchaser's Business, indicating
the type of coverage, name of insured, the insurer, the amount of coverage, the
premium and the expiration date of each policy. The insurance coverage provided
by any of the policies described above will not terminate or lapse by reason of
the transactions contemplated by this Agreement. Each policy listed is valid and
binding and in full force and effect, no premiums due thereunder have not been
paid, and Purchaser has not received any notice of cancellation or termination
in respect of any such policy or notice that Purchaser is in default thereunder.
(r) Litigation. Except as set forth in Schedule 7(r),
there are presently no actions, suits, disputes, claims, proceedings or
investigations pending or threatened against or affecting Purchaser, Purchaser's
Business or Purchaser's Assets, at law or in equity, before or by any court,
agency, or other governmental authority, including, without limitation,
litigation with competitors, customers or with contractors or suppliers who have
performed work on or supplied equipment or materials relating to the Business or
the properties of Purchaser. To the best knowledge of Purchaser, there is no
basis for any such action, suit, dispute, claim, proceeding or investigation and
none of the foregoing has been pending during the last three years. There is no
outstanding order, injunction or decree of any court, governmental authority or
arbitration tribunal against or affecting Purchaser, its Business or its Assets.
(s) Environmental Matters.
(i) Purchaser's business, assets and properties
are and have been operated and maintained in compliance with all
environmental protection laws and
25
regulations of any Applicable Law (the "Environmental Laws"). No event
has occurred which, with or without the passage of time or the giving
of notice, or both, would constitute non-compliance by Purchaser with,
or a violation by Purchaser of, the Environmental Laws.
(ii) No real property leased, occupied or used in
the Business contains any underground storage tanks or Hazardous
Substances. Purchaser has not caused or permitted to exist, as a result
of an intentional or unintentional act or omission, a disposal,
discharge or release of Hazardous Substances originating on or from any
site which currently is or formerly was owned, leased, occupied or used
in connection with the Business, except where such disposal, discharge
or release was pursuant to and in compliance with the conditions of a
permit issued by the appropriate Governmental Authority. There are no
properties owned, leased, occupied or used in connection with
Purchaser's Business which are listed, or proposed for listing, on the
National Priorities List pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601 et
seq., or on a registry or inventory of inactive hazardous waste sites
maintained by any state (i) which currently is or formerly was owned,
leased, occupied or used or (ii) with respect to which Purchaser has
received notice that it is considered to be a potentially responsible
person.
(t) Customers and Suppliers. No supplier or customer of
Purchaser's Business has cancelled or otherwise terminated, or made any written
threat to Purchaser to cancel or otherwise terminate, for any reason, including
the consummation of the transactions contemplated hereby, its relationship with
the Business or has at any time on or after January 1, 2004, decreased
materially its services or supplies to the Business in the case of any such
supplier, in each case if and only to the extent that such cancellation,
termination or threat, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect. To Purchaser's best knowledge, no
supplier or customer intends to cancel or otherwise terminate or decrease
materially its services or supplies to the Business or its usage of the services
or products of the Business, as the case may be, in each case if and only to the
extent that such cancellation, termination or reduction, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(u) Products.
(i) Schedule 7(u) sets forth all claims asserted
or, to the best knowledge of Purchaser, threatened at any time since
January 1, 2002 against Purchaser's Business in respect of personal
injury, wrongful death or property damage alleged to have resulted from
products provided by the Business, together with a description of each
such claim or action initiated with respect thereto and the disposition
thereof.
(ii) Purchaser's Business has not experienced
product recall or warranty claims, other than warranty claims less than
$1,000.00 since the year ended December 31, 2003.
26
(v) Disclosure. No representation or warranty contained
in this Agreement, and no statement contained in the Schedules to this Agreement
or in any certificate, list or other writing furnished to Seller pursuant to any
provision of this Agreement (including without limitation Purchaser's Financial
Statements), contains any untrue statement of a material fact, or when taken as
a whole, omits to state a material fact necessary in order to make the
statements herein or therein, in the light of the circumstances under which they
were made, not misleading. There is no fact known to Purchaser which Purchaser
believes has or could have a Material Adverse Effect on Purchaser's Business,
which has not been set forth in this Agreement, including without limitation any
Schedules or Exhibits hereto, the financial statements of Purchaser or
certificate delivered in accordance with the terms hereof or any document or
statement in writing which has been supplied by or on behalf of Purchaser or by
any employee of Purchaser in connection with the transactions contemplated by
this Agreement. Purchaser has furnished or caused to be furnished to Seller
complete and correct copies of all agreements, instruments and documents set
forth on a Schedule hereto or underlying a disclosure set forth on any Schedule
hereto. Each of the Schedules hereto is complete and correct.
8. COVENANTS OF THE PARTIES.
(a) Covenant Against Competition and Disclosure.
(i) During the period commencing on the date
hereof and ending on December 31, 2006, neither Seller nor any officer,
director or controlling person of Seller or Purchaser shall, directly
or indirectly, for itself or themselves or on behalf of any other
Person, (A) engage in any business competitive with the Seller Business
(including within the definition of the Business, without limitation,
any business of the type or types conducted by Seller at any time
during the two year period preceding the date hereof or under
development by Seller on the date hereof) in any county or other
political subdivision of any state of the United States of America or
of any other country in the world where Seller has conducted any aspect
of Business (including the sale of any products) at any time during the
two (2) year period preceding the date hereof, (B) disclose to any
Person other than Purchaser or Seller, any information relating to the
business of Seller or Purchaser (including without limitation
information relating to accounts, financial dealings, transactions,
trade secrets, Intellectual Property, customer lists and pricing
lists), whether or not marked or otherwise identified as confidential
or secret, (C) solicit, divert, take away or attempt to take away, with
respect to the products of either Business as presently conducted, any
of Seller's or Purchaser's customers or suppliers, or (D) hire any
employee or induce or attempt to induce any employee to leave his or
her employment with Purchaser without the prior written consent of
Purchaser. At the request of Seller and/or Purchaser, Seller and
Purchaser shall use their best efforts to cause their respective
officer, directors, and controlling persons to enter into agreements
for the benefit of Purchaser and Seller consistent with the terms of
this Section 8(a)(i) effective as of the Acquisition Date (the
"Non-Competition Agreements")
(ii) Seller acknowledges that the restrictions
contained in this Section 8(a) are reasonably necessary to protect the
good will transferred to Purchaser and
27
the legitimate business interests of Purchaser and that any violation
of such restrictions will result in irreparable injury to Purchaser and
the Business acquired by Purchaser hereunder for which damages will not
be an adequate remedy. Purchaser shall therefore be entitled to
preliminary and injunctive relief as well as to an equitable accounting
of earnings, profits and other benefits arising from such violation and
any other remedies at law or in equity available to Purchaser. The
parties hereto agree that the duration and area for which the covenants
set forth in this Section 8(a) are to be effective are reasonable. In
the event that any court determines that the time period or the area,
or both of them, are unreasonable, the parties hereto agree that the
covenants shall remain in full force and effect for the greatest time
period and in the greatest area that would not render them
unenforceable.
(iii) Purchaser acknowledges that the restrictions
contained in this Section 8(a) are reasonably necessary to protect the
good will of Purchaser and the legitimate business interests of
Purchaser and that any violation of such restrictions will result in
irreparable injury to Seller and the Business in which Seller is
acquiring a substantial equity interest hereunder for which damages
will not be an adequate remedy. Seller shall therefore be entitled to
preliminary and injunctive relief as well as to an equitable accounting
of earnings, profits and other benefits arising from such violation and
any other remedies at law or in equity available to Seller. The parties
hereto agree that the duration and area for which the covenants set
forth in this Section 8(a) are to be effective are reasonable. In the
event that any court determines that the time period or the area, or
both of them, are unreasonable, the parties hereto agree that the
covenants shall remain in full force and effect for the greatest time
period and in the greatest area that would not render them
unenforceable.
(b) Employment of ▇▇▇▇▇ ▇▇▇▇▇. Purchaser's Board of
Directors will offer to employ ▇▇▇▇▇ ▇▇▇▇▇ as the President and Chief Executive
Officer of Purchaser for a term of three (3) years after the Acquisition Date
subject to the terms of the letter agreement attached hereto as Exhibit "B" and
incorporated herein by reference, and Seller will cause ▇▇▇▇▇ ▇▇▇▇▇ to accept
such employment.
(c) Employment of Other Employees. Purchaser will offer
employment to all other employees (other than Members) of the Business on terms
substantially equivalent to the salary and benefits provided to such employees
by Seller. Any such employees so employed will be at-will employees terminable
by Purchaser at any time with or without cause, subject to Purchaser's normal
termination policies considering the length of employment of such employee by
Purchaser and Seller. Seller agrees to use its best efforts to assist Purchaser
in hiring as its employees any employees of Seller under substantially similar
terms to the terms under which such employee was employed by Seller. Purchaser
will use its best efforts to obtain from ▇. ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ a general release of all known or unknown claims either may have
arising out of or in connection with performing services for the Company as an
employee, agent and/or consultant (other than claims for indemnity under the
Purchaser's Articles of Incorporation or Bylaws which arise out of their
respective actions taken in good faith as directors or officers of Purchaser).
28
(d) Retention of Independent Contractors. Seller agrees
to use its best efforts to assist Purchaser in engaging as its independent
contractors the current key independent contractors of Seller as set forth on
Schedule 8(d) hereto, on substantially similar terms under which such
independent contractor was engaged by Seller. Purchaser will offer to engage
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ as a consultant to the Company pursuant to a consulting
contract on terms and conditions reasonably acceptable to Seller and ▇▇.
▇▇▇▇▇▇▇▇▇.
(e) Sales Taxes. All sales and other transfer taxes
relating to the sale of the Seller Assets pursuant to the terms hereof shall be
shared equally between Seller and Purchaser.
(f) Bulk Sales. Seller shall cooperate with Purchaser as
reasonably requested by Purchaser to comply with Applicable Law relating to bulk
sales or transfers of assets.
(g) Assignment of Contracts and Rights. Anything in this
Agreement to the contrary notwithstanding, this Agreement shall not constitute
an agreement to assign any Asset or any claim or right or any benefit arising
thereunder or resulting therefrom if an attempted assignment thereof, without
the consent of a third party thereto, would constitute a breach or other
contravention thereof, be ineffective with respect to any party thereto or in
any way adversely affect the rights of Seller or, upon transfer, Purchaser
thereunder. Seller agrees that it will use its best efforts to obtain the
necessary consents to the assignment of each Seller Contract or other Seller
Asset which by its terms requires the consent of any of the other contracting
parties thereto to an assignment thereof to Purchaser. If such consent is not
obtained with respect to any such Contract or other Asset, Seller and Purchaser
will cooperate in an arrangement reasonably satisfactory to Purchaser and Seller
under which Purchaser shall obtain, to the extent practicable, the claims,
rights and benefits and assume the corresponding obligations thereunder in
accordance with this Agreement, including subcontracting, sub-licensing or
sub-leasing to Purchaser, or under which Seller shall enforce for the benefit of
Purchaser, with Purchaser assuming Seller's obligations, any and all claims,
rights and benefits of Seller against a third party thereto. Seller will
promptly pay to Purchaser when received all monies received by Seller under any
Contract or other Asset or any claim, right or benefit arising thereunder not
transferred to Purchaser pursuant to this Section 8(j). Purchaser agrees to
perform at its sole expense all of the obligations of Seller to be performed
after the Acquisition Date under any such Contract or other Asset the benefits
of which Purchaser is receiving pursuant to the provisions of this Section 8(g).
(h) Power of Attorney. Seller hereby constitutes and
appoints Purchaser the true and lawful attorney of Seller, with full power of
substitution, in the name of Seller or in the name of Purchaser, but for the
benefit of Purchaser and at the expense of Purchaser (provided, however, that,
Seller's obligations will not in any way be limited as a result of Purchaser
undertaking such expense) (1) to collect, assert or enforce any claim, right or
title of any kind in or to the Assets, to institute and prosecute all actions,
suits and proceedings which Purchaser may deem proper in order to collect,
assert or enforce any such claim, right or title, to defend and compromise all
actions, suits and proceedings in respect of any Asset, and to do all such acts
and things in relation thereto as Purchaser shall deem advisable and (2) to
endorse, without recourse, the name of Seller on any check or other evidence of
indebtedness received by Purchaser on account of any Asset. Seller acknowledges
that such powers are coupled with an interest and
29
shall not be revocable by it in any manner or for any reason, including its
dissolution, and that Purchaser shall be entitled to retain for its own account
any amounts collected pursuant to such powers, including any amounts payable as
interest in respect thereof. Such powers shall be granted by such powers of
attorney and other instruments as shall be reasonably requested by counsel for
Purchaser.
(i) Change of Name. On the Acquisition Date, Seller will
change its name to a name not using the name "Allergy Free" or any name
confusingly similar to "Allergy Free." On the Acquisition Date, subject to
availability, Purchaser will change its name to "Planet Technologies, Inc."
(j) Transfer of Trade Names and Trademarks. Prior to the
Acquisition Date, Seller will cause all trade names and trademarks which are
used in the Seller Business to be transferred to Seller, and Members shall cause
any such transfers to be promptly recorded in the appropriate offices in order
to give effect to, and to reflect, such transfers.
(k) Surrender of Certain Options. Purchaser will use its
best efforts to cause all options at an exercise price above $1.00 per share,
pre split, but considering any applicable anti-dilution adjustments, to be
surrendered and cancelled and the closing of the transaction by Seller will be
contingent upon the surrender and cancellation of substantially all of such
out-of-the-money options.
(l) Distribution of Royalty Rights. Immediately prior to
the Closing, Purchaser shall assign to US Bank, or another Person, as Trustee,
for the benefit of Purchaser's shareholders of record as of the record date of
the meeting called to vote on the Acquisition, the right to receive all
royalties payable to Purchaser pursuant to those certain Sale and Licensing
Agreements between Purchaser and Agway, Inc., each dated March 31, 2003,
relating to Purchaser's FreshSeal and Optigen technology ("Agway Agreements"),
the rights under which have been sold by Agway to BASF and Alltech,
respectively, and that certain Purchase, Sale and License Agreement between
Purchaser and ▇▇▇▇ Enterprises, LLC, dated May 1, 2003, relating to Purchaser's
MIM technology ("▇▇▇▇ Agreement"). The Trustee will be instructed to distribute
royalties received, if any, quarterly. The Agway Agreements and ▇▇▇▇ Agreement
are collectively referred to as the Sale and Licensing Agreements. Other than
the right to receive and collect royalties, Purchaser will retain all other
rights and obligations under the Sale and License Agreements. Purchaser will
also assign to the Trustee substantially all of the monthly installments
received from ▇▇▇▇ post closing, in cash, in one or more payments to create a
cash reserve at the Trustee in such amounts as the Trustee and Purchaser shall
agree to provide a reserve from which the Trustee may pay its trustee's fees and
reimbursement for costs and expenses incurred by the Trustee in connection with
enforcing payment of the royalties. In the event Purchaser incurs costs or
expenses in connection with obligations under the Sale and Licensing Agreements,
Purchaser shall be entitled to reimbursement from the trust for such costs and
expenses to the extent of any undistributed royalties received by the Trustee,
provided such rights shall be subordinate to any rights of the Trustee for
payment of its fees and expenses. In the event pursuant to the Sale and
Licensing Agreement, Purchaser recovers the exclusive or nonexclusive right to
exploit such technologies, Purchaser may do so for Purchaser's own account and
with no obligation to pay royalties to the Trustee.
30
(m) Reverse Stock Split. Effective as of the Acquisition
Date or immediately thereafter, Purchaser will implement a reverse split of it
shares by a ratio of 50:1 (the "Reverse Stock Split").
(n) Private Placement. Concurrently with the Acquisition,
Purchaser will offer to shareholders of Purchaser and Members of Seller the
opportunity to purchase from Purchaser Common Stock in an unregistered Private
Placement at a purchase price equal to the greater of (i) $0.03 per share or
(ii) 70% of weighted average market price of Purchaser Common Stock for the ten
(10) Business Day period immediately preceding the Acquisition Date (the
"Private Placement"). The aggregate offering will be up to $2,000,000 plus any
debt converted by Seller, and subscriptions will be limited to accredited
investors and up to thirty-five (35) other investors. If the offering is
oversubscribed, shares will first be allocated to Purchaser shareholders on a
pro rata basis, second to Seller Members and the balance, if any, to new
investors.
(o) Board of Directors. The parties will use their best
efforts to cause the appointment and election of a board of directors of
Purchaser effective immediately after closing consisting of ▇▇▇▇▇ ▇. ▇▇▇▇▇,
Chairman, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇. ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇.
(p) Registration Rights. Prior to the Effective Date,
Purchaser and Seller shall enter into a Registration Rights Agreement on
reasonable and customary terms pursuant to which Purchaser will agree to use its
best effort to cause the Private Stock and shares issuable upon conversion of
the Subordinated Convertible Note to be registered under the Securities Act
within 180 days after the Acquisition Date.
9. CONDITIONS.
(a) Conditions to Each Party's Obligations. The
respective obligation of each of the parties hereto to consummate the
Acquisition is subject to the fulfillment or written waiver by the parties
hereto prior to the Acquisition Date of each of the following conditions:
(i) Shareholder Approvals. This Agreement shall
have been duly approved by the affirmative vote of holders of not less
than a majority of the outstanding Members of Seller, in accordance
with applicable law. The principal terms of this Agreement shall have
been approved by the affirmative vote of the holders of not less than a
majority of the outstanding shares of Purchaser, in accordance with
applicable law.
(ii) Regulatory Matters. Purchaser shall have
obtained an affirmative response to its "No Action Letter" to the SEC,
relating to distribution of the right to receive royalty payments to
the Trustee as described in Section 8(l).
(iii) No Injunction. No Governmental Authority of
competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, judgment, decree,
injunction or other order (whether temporary, preliminary
31
or permanent) which is in effect and prohibits consummation of the
transactions contemplated by this Agreement.
(b) The obligation of the Seller to consummate the
Acquisition is also subject to the fulfillment or written waiver prior to the
Acquisition Date of each of the following additional conditions:
(i) Representations and Warranties. The
representations and warranties of Purchaser set forth in this Agreement
shall be true and correct as of the date of this Agreement and as of
the Acquisition Date as though made on and as of the Acquisition Date
(except that representations and warranties that by their terms speak
as of the date of this Agreement or some other date shall be true and
correct as of such date). For purposes of this paragraph, such
representations and warranties shall be deemed to be true and correct
in all material respects unless the failure or failures of such
representations and warranties to be true and correct in all material
respects, either individually or in the aggregate, and without giving
effect to any materiality, material adverse effect or similar
qualifications set forth in such representations and warranties, will
have or would reasonably be expected to have a Material Adverse Effect
on Purchaser. Purchaser shall have performed, in all material respects,
each of its covenants and agreements contained in this Agreement. The
Seller shall have received a certificate, dated the Acquisition Date,
signed on behalf of Purchaser by the Chief Executive Officer and the
Chief Financial Officer of Purchaser to such effect.
(ii) Performance of Obligations of Parent.
Purchaser shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the
Acquisition Date, and the Seller shall have received a certificate,
dated the Acquisition Date, signed on behalf of Purchaser by the Chief
Executive Officer and the Chief Financial Officer of Purchaser to such
effect.
(iii) Satisfaction of Covenants. Purchaser shall
have retained ▇▇▇▇▇ ▇▇▇▇▇ as President and Chief Executive Officer,
entered into a consulting agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and taken
all steps necessary to effectuate the Reverse Stock Split, election of
the board of directors, Private Placement, surrender of out of the
money options and distribution of the royalty rights, all as more fully
provided in Section 8 of this Agreement.
(c) The obligation of the Purchaser to consummate the
Acquisition is also subject to the fulfillment or written waiver prior to the
Acquisition Date of each of the following additional conditions:
(i) Representations and Warranties. The
representations and warranties of Seller set forth in this Agreement
shall be true and correct as of the date of this Agreement and as of
the Acquisition Date as though made on and as of the Acquisition Date
(except that representations and warranties that by their terms speak
as of the date of this Agreement or some other date shall be true and
correct as of such date). For purposes of this paragraph, such
representations and warranties shall be deemed to be
32
true and correct in all material respects unless the failure or
failures of such representations and warranties to be true and correct
in all material respects, either individually or in the aggregate, and
without giving effect to any materiality, material adverse effect or
similar qualifications set forth in such representations and
warranties, will have or would reasonably be expected to have a
Material Adverse Effect on Seller The Purchaser shall have received a
certificate, dated the Acquisition Date, signed on behalf of Seller by
the Chief Executive Officer and the Chief Financial Officer of Seller
to such effect.
(ii) Performance of Obligations of Purchaser.
Seller shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the
Acquisition Date, and Purchaser shall have received a certificate,
dated the Acquisition Date, signed on behalf of Seller by the Chief
Executive Officer and the Chief Financial Officer of Seller to such
effect.
(iii) Satisfaction of Covenants. Purchaser shall
have retained ▇▇▇▇▇ ▇▇▇▇▇ as President and Chief Executive Officer, and
taken all steps necessary to effectuate the election of the board of
directors, the Private Placement, and distribution of the royalty
rights, all as more fully provided in Section 8 of this Agreement.
10. TERMINATION.
(a) This Agreement may be terminated:
(i) Mutual Consent. At any time prior to the
Acquisition Date, by the mutual consent of Purchaser and Seller.
(ii) Breach. At any time prior to the Acquisition
Date, by Purchaser or Seller in the event of a breach or any
representation, warrant, covenant or obligation contained herein by
Seller, in the case of termination by Purchaser, or by Purchaser, in
the case of termination by Seller, which breach cannot be or has not
been cured within thirty (30) days after the giving of written notice
to the breaching party or parties of such breach provided that such
breach would be reasonably likely, individually or in the aggregate
with other breaches, to result in a Material Adverse Effect with
respect to Purchaser or Seller, as the case may be.
(iii) Delay. At any time prior to the Acquisition
Date by Purchaser or Seller in the event that the Acquisition is not
consummated by June 20, 2004, except that Purchaser or Seller, as the
case may be, shall not have the right to terminate pursuant to this
Sub-Section 10(a)(iii) to the extent that the failure to close arises
out of or results from the knowing action or inaction of the party
seeking to terminate pursuant to this Sub-Section 10(a)(iii), which
action or inaction is in violation of its obligations under this
Agreement.
(iv) At any time prior to the Acquisition Date,
by Purchaser if Purchaser receives a written proposal or offer with
respect to a merger, reorganization,
33
share exchange, consolidation or similar transaction involving, or any
purchase of all or substantially all of the assets of the Purchaser or
more than 50% of the outstanding equity securities, of the Purchaser
(any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal"), if and only to the extent that, the Board of
Purchaser determines in good faith that (i) acceptance of the
Acquisition Proposal would be legally required in order for the
directors to comply with their respective fiduciary duties under
applicable law, (ii) such Acquisition Proposal, if accepted, is
reasonably likely to be consummated, taking into account all legal,
financial and regulatory aspects of the proposal, and the Person making
the proposal, and (iii) if consummated, the Acquisition Proposal would
result in a transaction more favorable to the Purchaser's shareholders
from a financial point of view than the transaction contemplated by
this Agreement. The Purchaser agrees that its officers or directors
shall not, and that it shall direct and use its reasonable best efforts
to cause its employees, agents and representatives not to, directly or
indirectly, initiate, solicit or otherwise encourage any inquiries or
the making of any proposal or offer with respect to an Acquisition
Proposal. Purchaser agrees that it will notify Seller immediately if
any inquiries, proposals or offers are received by, or any discussions
or negotiations are sought to be initiated or continued with, Purchaser
or any of its representatives relating to a potential Acquisition
Proposal.
(v) Due Diligence. By either party, if at or
prior to April 15, 2004, such party notifies the other party that it
has decided not to pursue the transaction contemplated by this
Agreement, following review of the information regarding the other
party not provided to such party prior to the date of this Agreement.
(b) Effect of Termination. In the event of termination of
this Agreement pursuant to this Section 10, no party to this Agreement shall
have any liability or obligation to any other party hereunder except as set
forth in Sub-Sections (i) and (ii) and provided that termination will not
relieve a breaching party and liability for any willful breach of any covenant,
agreement, representation or warranty or this Agreement giving rise to such
termination.
(i) If this Agreement is terminated by the
Purchaser pursuant to Sub-Section
(10)(a)(iv), upon such termination, Purchaser shall pay to the Seller a
termination fee of $50,000.00 (the "Termination Fee").
(ii) If this Agreement is terminated by either
party pursuant to Section 10(a)(v), such
party shall pay to the other party upon such termination a due
diligence fee of $25,000.00 ("Due Diligence Fee").
(iii) Each party agrees that the agreements
contained in Sub-Sections (i) and (ii) above are an integral part of
the transactions contemplated by this Agreement, that without such
agreements the parties would not have entered into this Agreement, and
that such amounts do not constitute a penalty.
11. DELIVERIES. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing, the parties shall make the following
deliveries:
34
(a) Instruments of Conveyance. Seller is delivering to
Purchaser bills of sale, instruments of transfer, assignment and conveyance, and
other instruments as the parties and their respective counsel shall deem
reasonably necessary or appropriate, to convey, transfer and assign to Purchaser
and effectively vest in Purchaser all right, title and interest in and to, and
good and marketable title to, the Assets.
(b) Possession. Seller shall transfer and deliver to
Purchaser on the Acquisition Date such keys, passwords, codes, lock and safe
combinations and other similar items as Purchaser shall require to obtain
immediate and full possession and control of the Assets, and shall also make
available to Purchaser at their then existing locations the originals of all
documents in Seller's possession that are required to be transferred to
Purchaser by this Agreement.
(c) Opinion of Counsel. Each party shall deliver to the
other party an opinion of counsel for such party substantially in the form and
content of Exhibit "C" addressed to the other party and dated the Acquisition
Date. In rendering such opinion, counsel may rely upon certificates of public
officials and upon certificates of officers as to factual matters.
(d) Contract Assumption. Purchaser shall deliver to
Seller instruments of assumption of the Contracts listed on Schedule 6(k).
(e) Closing Balance Sheet. Seller shall deliver to
Purchaser the Closing Balance Sheet.
12. INDEMNIFICATION BY SELLER. Subject to the limitations set
forth in Section 5(c) and Section 14(c), Seller shall indemnify, defend and save
Purchaser and its officers, directors and shareholders (collectively, the
"Purchaser Indemnitees"), harmless from, against, for and in respect of any and
all Damages suffered, sustained, incurred or required to be paid by any
Purchaser Indemnitee caused by, resulting from or arising out of (A) the claims
of any broker or finder engaged by Seller, (B) the untruth, inaccuracy or breach
of any representation or warranty of Seller contained in or made in connection
with this Agreement or any Schedule or Exhibit hereto or any other Seller's
Document, (C) the breach of any agreement or covenant of Seller contained in or
made in connection with this Agreement, (D) any failure of Seller to pay,
perform or discharge any of the Excluded Liabilities in accordance with the
terms thereof, (E) any Liabilities in connection with noncompliance with the
provisions of any Applicable Law relating to bulk sales or transfers of assets
in connection with the transactions contemplated by this Agreement (other than
an Assumed Liability).
13. INDEMNIFICATION BY PURCHASER. Subject to the limitations set
forth in Section 5(c) and Section 14(c), subject to the limitations hereinafter
set forth, Purchaser shall indemnify, defend and save Seller, and its Members,
officers and directors ("Seller Indemnitees"), harmless from, against, for and
in respect of any and all Damages suffered, sustained, incurred or required to
be paid by any Seller Indemnitee because of (A) the claims of any broker or
finder engaged by Purchaser, (B) the untruth, inaccuracy or breach of any
representation, warranty, agreement or covenant of Purchaser contained in or
made in connection with this Agreement or any Schedule or Exhibit hereto or any
other Purchaser's Document (c) the
35
breach of any agreement or covenant of Purchaser contained in or made in
connection with this Agreement, and (D) any Liability arising out of the
operation of the Business after the Acquisition Date, except to the extent the
foregoing is otherwise subject to indemnification by Seller under this
Agreement.
14. FURTHER PROVISIONS REGARDING INDEMNIFICATION.
(a) Survival.
(i) All representations, warranties, covenants,
agreements and obligations of each of Seller Purchaser and Purchaser in
this Agreement or in Seller's Documents and Purchaser's Documents and
all claims of an Indemnified Party (as defined below) in respect of any
breach of any representation, warranty, covenant, agreement or
obligation of any Indemnifying Party (as defined below) contained in
this Agreement, shall survive the consummation of the transactions
contemplated herein and shall expire on the second (2nd) anniversary of
the Acquisition Date.
(ii) Notwithstanding anything herein to the
contrary, indemnification for claims for which written notice as
provided in Section 14(b) has been given prior to the expiration of the
representation, warranty, covenant, agreement or obligation upon which
such claim is based shall not expire, and claims for indemnification
may be pursued, until the final resolution of such claim.
(iii) Nothing in this Section 14(a) shall modify
in any respect any covenant, agreement or obligation to be performed by
any party pursuant to the provisions of this Agreement.
(iv) Nothing contained in this Agreement or
otherwise shall in any way limit any claim, suit, cause of action or
remedy that may be available to any party based on Fraud.
(b) Defense of Claims. Whenever any claim shall arise for
indemnification hereunder, the party entitled to indemnification (the
"Indemnified Party") shall promptly notify the other party (the "Indemnifying
Party") in writing of the claim and, when known, the facts constituting the
basis for such claim. The Indemnifying Party may, upon written notice to the
Indemnified Party within 30 calendar days of receipt of the notice specified in
the first sentence of this paragraph, assume the defense of any such claim if
the Indemnifying Party acknowledges to the Indemnified Party the Indemnified
Party's right to indemnify pursuant hereto in respect of the entirety of such
claim. If the Indemnifying Party assumes the defense of any such claim, the
Indemnifying Party shall select counsel acceptable to the Indemnified Party to
conduct the defense of such claim, shall take all steps necessary in the defense
or settlement thereof and shall at all times diligently and promptly pursue the
resolution thereof. If the Indemnifying Party shall have assumed the defense of
any claim in accordance with this Section 13(b), the Indemnifying Party shall be
authorized to consent to a settlement of, or the entry of any judgment arising
from, any such claim, without the prior written consent of the Indemnified
Party; provided, however, that (i) the Indemnifying Party shall pay or cause to
be paid all amounts arising out of such
36
settlement or judgment concurrently with the effectiveness thereof; (ii) the
Indemnifying Party shall not be authorized to encumber any of the assets of the
Indemnified Party or to agree to any restriction that would apply to the
Indemnified Party or to its conduct of business; and (iii) a condition to any
such settlement shall be a complete release of the Indemnified Party with
respect to such claim which contains no admission of liability on the part of
the Indemnified Party. The Indemnified Party shall be entitled to participate in
the defense of any such action, with its own counsel and at the expense of the
Indemnifying Party. The Indemnified Party shall, and shall cause each of its
Affiliates, officers, employees, consultants and agents to, cooperate fully with
the Indemnifying Party in the defense of any claim or Proceeding being defended
by the Indemnifying Party pursuant to this Section 14(b). If the Indemnifying
Party does not assume the defense of any claim resulting therefrom in accordance
with the terms of this Section 13(b), the Indemnified Party may defend against
such claim in such manner as it may deem appropriate, including settling such
claim after giving notice of the same to the Indemnifying Party, on such terms
as the Indemnified Party may deem appropriate.
(c) Indemnification Threshold. No claim for
indemnification will be made by any Indemnified Party against any Indemnifying
Parties unless the aggregate of all Damages incurred by the Indemnified Parties
exceeds $10,000, in which case the Indemnifying Parties shall be liable for such
Damages including the initial $10,000.
15. GENERAL PROVISIONS.
(a) Further Assurances. The parties shall cooperate and
take such actions, and execute such other documents subsequent to the
Acquisition Date as either may reasonably request in order to carry out the
provisions or purpose of this Agreement.
(b) Notices. All notices or other communications in
connection with this Agreement shall be in writing and shall be deemed given (a)
if personally delivered, when delivered, (b) if mailed, two Business Days after
having been sent by registered or certified mail, postage prepaid, return
receipt requested, or (c) if sent through an overnight delivery service in
circumstances to which such service guarantees next-day delivery, the day
following be so sent, as follows:
37
(i) If to Seller:
▇▇▇▇▇ ▇▇▇▇▇
Allergy Free, LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to:
▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
▇.▇. ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(ii) If to Purchaser:
c/o ▇. ▇▇▇ ▇▇▇▇▇
Planet Polymer Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & French
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(c) Entire Agreement; Amendment; No Waiver. This
Agreement (which includes the Schedules and Exhibits hereto) sets forth the
parties final and entire agreement with respect to its subject matter and
supersedes any and all prior understandings and agreements. This Agreement can
be amended or supplemented, and any provision hereof can be waived, only by a
written instrument making specific reference to this Agreement, in the case of
amendment or supplement, signed by all the parties hereto, or in the case of a
waiver, signed by the party against whom enforcement of such waiver is sought.
No waiver by a party of any default, misrepresentation or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent occurrence. No failure or delay by a party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
(d) Public Announcements. Seller agrees that they will
not make any public announcement, including any announcement to the employees of
the Business, or otherwise cause to be publicized in any manner by way of press
interviews, responses to press questions or
38
inquiries, press releases or otherwise in any manner designed for release to the
general or trade press, any aspect or proposed aspect of this transaction
(including but not limited to the price paid and other terms of the transaction)
without the mutual agreement of Purchaser.
(e) Successors; Assignment. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors and assigns. This Agreement or any of its rights, interests or
obligations hereunder may not be assigned or transferred by either party without
the prior written consent of the other party.
(f) Captions. The section and paragraph headings in this
Agreement and in the Schedules hereto are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
(g) Fees and Expenses. Whether or not the transactions
contemplated hereby are consummated, the parties hereto shall pay their own
respective expenses.
(h) Severability; Construction. If any provision of this
Agreement shall be held by any court of competent jurisdiction to be illegal,
invalid, unenforceable or void, such provision shall be construed and enforced
as if it had been more narrowly drawn so as not to be illegal, invalid,
unenforceable or void, and such illegality, invalidity or unenforceability shall
have no affect upon and shall not impair the enforceability of any other
provision of this Agreement. The parties hereto intend that each representation,
warranty and covenant contained herein will have independent significance. If
any party has breached any representation, warranty or covenant contained herein
in any respect, the fact that there exists another representation, warranty or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) that the party has not breached will not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty or covenant.
(i) Governing Law; Exclusive Jurisdiction. This Agreement
shall be governed by and construed and interpreted in accordance with the
internal law of the State of California (without reference to its rules as to
choice or conflict of law). Each of the parties hereto agrees that any legal
action or proceeding against it or any of its property with respect to this
Agreement or any other agreement executed in connection herewith, except as
otherwise provided herein, shall be brought exclusively in the Superior Courts
for the County of San Diego, State of California, or the Federal District Court
for the Southern District of California, and all related appellate courts, and
the parties irrevocably consent to the jurisdiction of such courts.
(j) Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
[The remainder of this page is intentionally left blank]
39
IN WITNESS WHEREOF, the parties have duly executed this Agreement
on the date first above written.
PLANET POLYMER TECHNOLOGIES, INC.
By: ___________________________________
▇. ▇▇▇ ▇▇▇▇▇
President
ALLERGY FREE, LLC
By: SR Technologies Associates, Manager
By: _____________________________
▇▇▇▇▇ ▇▇▇▇▇, President
40
INDEX
TO
EXHIBITS AND SCHEDULES
Exhibit "A" Subordinated Convertible Note
Exhibit "B" ▇▇▇▇▇ Employment Agreement
Exhibit "C" Form of Opinion of Counsel
Schedule 2 Excluded Assets
Schedule 3 Assumed Liabilities
Schedule 3(d) Liability to Members or Sellers
Schedule 4(c) Purchase Consideration Allocation
Schedule 6 Seller Disclosure Schedules
Schedule 6(c) Allergy Free Members
Schedule 6(d)(ii) Exceptions to GAAP
Schedule 6(e) Liability Exceptions
Schedule 6(f) No Adverse Change
Schedule 6(h) Exceptions to Title
Schedule 6(i) Leased Real Property
Schedule 6(j) Intellectual Property and Exceptions
Schedule 6(k) Material Contracts and Exceptions
Schedule 6(l) Inventory
Schedule 6(n)(i) Exceptions to Compliance
Schedule 6(n)(iv) List of Government Approvals
Schedule 6(o)(i) Employees
i
Schedule 6(o)(ii) Obligations to Employees
Schedule 6(p) Insurance Policies
Schedule 6(q) Litigation
Schedule 6(t) Product Claims
Schedule 7 Purchaser Disclosure Schedules
Schedule 7(c) Required Approvals, Notices and Filings
Schedule 7(f) Liability Exceptions
Schedule 7(i) Exception to Title
Schedule 7(j) Leased Real Property
Schedule 7(k) Intellectual Property and Exceptions
Schedule 7(l) Material Contracts and Exceptions
Schedule 7(o)(i) Exceptions to Compliance
Schedule 7(o)(iv) List of Government Approvals for Business
Schedule 7(p)(ii) Obligations to Employees/Consultants
Schedule 7(q) Insurance
Schedule 7(u) Product Claims
Schedule 8(d) Independent Contractors
Schedule 3 - Page ii
EXHIBIT "A"
EXHIBIT "A"
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS, IN
COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL OR
OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR
COMPLIANCE IS NOT REQUIRED.
$___________ ____________, ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
FOR VALUE RECEIVED, PLANET POLYMER TECHNOLOGIES, INC., a California
corporation (the "Company"), promises to pay to the order of Allergy Free, LLC
(the "Lender") or its registered assigns (the "Holder"), the principal sum of
__________ Million _________ Hundred __________ Thousand Dollars
($0,000,000.00), or such lesser amount as shall then equal the outstanding
principal amount hereof, together with interest thereon at five and one-half
percent (5.5%) per annum, compounding quarterly and computed on the basis of a
year consisting of 360 days and four quarterly periods each consisting of 90
days. All unpaid principal, together with any accrued but unpaid interest and
other amounts payable hereunder, shall be due and payable on the earlier of (i)
April 1, 2007 (the "Maturity Date"); or (ii) when such amounts become due and
payable pursuant to the terms hereof upon or after (A) the occurrence of an
Event of Default (as defined below), (B) the liquidation or dissolution of the
Company, (C) any merger, consolidation, reorganization or other business
combination involving the Company, in which the stockholders of the Company
immediately prior thereto do not own, directly or indirectly, outstanding voting
securities representing more than fifty percent (50%) of the combined
outstanding voting power of the surviving entity in such merger, consolidation
or similar transaction, (D) the sale of all, or substantially all, of the assets
of the Company, or (E) the sale of voting securities of the Company to any
person (or group of persons acting in concert) that results in such person (or
group of persons) (together with their affiliates) owning more than 50% of the
outstanding voting securities of the Company. Interest on this Note shall be
payable in arrears on each January 1, April 1, July 1, and October 1 after the
date of issuance of this Note as follows: (a) so long as no uncured Event of
Default exists, interest, at the election of the Company may be paid by the
issuance of an additional convertible
A-1
subordinated promissory note identical in all respects to this Note except that
it shall have a principal amount equal to such interest payment; or (b) if not
so paid shall be payable in lawful money of the United States of America.
The following is a statement of the rights of the Holder and the
conditions to which this Note is subject, and to which the Holder hereof, by the
acceptance of this Note, agrees:
Schedule 3 - Page 2
DEFINITIONS. CAPITALIZED TERMS DEFINED IN THE PURCHASE AGREEMENT AND USED HEREIN
WITHOUT DEFINITION HAVE THE SAME MEANING HEREIN AS IN THE PURCHASE
AGREEMENT. IN ADDITION, AS USED IN THIS NOTE, THE FOLLOWING CAPITALIZED
TERMS HAVE THE FOLLOWING MEANINGS:
"BUSINESS DAY" MEANS ANY DAY OTHER THAN A SATURDAY, SUNDAY OR OTHER DAY
ON WHICH THE NATIONAL OR STATE BANKS LOCATED IN THE STATE OF
NEW YORK, STATE OF CALIFORNIA OR THE DISTRICT OF COLUMBIA ARE
AUTHORIZED TO BE CLOSED.
"COMMON STOCK" MEANS THE COMMON STOCK OF THE COMPANY.
"COMPANY NOTES" MEANS ANY OF THIS NOTE, OR ANY NOTE ISSUED IN PAYMENT
OF INTEREST ON ANY COMPANY NOTE, AND ANY NOTE ISSUED UPON THE
SURRENDER AND TRANSFER OF THIS NOTE OR ANY COMPANY NOTE.
"OBLIGATIONS" MEANS THE PRINCIPAL, INTEREST AND OTHER AMOUNTS PAYABLE
UNDER THIS NOTE.
"SENIOR DEBT" SHALL MEAN ANY INDEBTEDNESS FOR MONEY BORROWED OR LEASE
OBLIGATIONS, WHICH ARE EVIDENCED BY A WRITTEN DOCUMENT
EXECUTED BY AN AUTHORIZED OFFICER OF THE COMPANY THAT
EXPRESSLY STATES THAT SUCH INDEBTEDNESS OR LEASE OBLIGATION IS
SENIOR TO THE COMPANY NOTES OR SENIOR TO ALL INDEBTEDNESS OF
THE COMPANY.
EVENTS OF DEFAULT. THE OCCURRENCE OF ANY OF THE FOLLOWING SHALL CONSTITUTE AN
"EVENT OF DEFAULT" UNDER THIS NOTE:
FAILURE TO PAY. THE COMPANY SHALL FAIL TO PAY WHEN DUE ANY PRINCIPAL
PAYMENT ON THIS NOTE OR ANY INTEREST OR OTHER PAYMENT REQUIRED
UNDER THE TERMS OF THIS NOTE OR ANY OTHER COMPANY NOTE IF SUCH
NONPAYMENT IS NOT CURED BY THE COMPANY WITHIN FIVE (5) DAYS
IMMEDIATELY AFTER WRITTEN NOTICE THEREOF IS DELIVERED TO THE
ATTENTION OF THE CEO OR CFO OF THE COMPANY; OR
Schedule 3 - Page 3
BREACHES OF REPRESENTATIONS AND WARRANTIES. ANY REPRESENTATION OR
WARRANTY MADE BY THE COMPANY HEREIN OR IN ANY OTHER COMPANY
NOTE SHALL PROVE FALSE OR MISLEADING IN ANY MATERIAL RESPECT
WHEN MADE OR DEEMED MADE; OR
BREACHES OF OTHER COVENANTS. THE COMPANY SHALL FAIL TO OBSERVE OR TO
PERFORM ANY OTHER MATERIAL COVENANT, OBLIGATION, CONDITION OR
AGREEMENT CONTAINED IN THIS NOTE OR THE OTHER COMPANY NOTES,
OTHER THAN THOSE SPECIFIED IN SECTION 2(a) HEREOF, AND SUCH
FAILURE SHALL CONTINUE FOR THIRTY (30) DAYS AFTER WRITTEN
NOTICE THEREOF IS DELIVERED TO THE ATTENTION OF THE CEO OR CFO
OF THE COMPANY; OR
VOLUNTARY BANKRUPTCY OR INSOLVENCY PROCEEDINGS. THE COMPANY SHALL (i)
APPLY FOR OR CONSENT TO THE APPOINTMENT OF A RECEIVER,
TRUSTEE, LIQUIDATOR OR CUSTODIAN OF ITSELF OR OF ALL OR A
SUBSTANTIAL PART OF ITS PROPERTY, (ii) BE UNABLE, OR ADMIT IN
WRITING ITS INABILITY, TO PAY ITS DEBTS GENERALLY AS THEY
MATURE, (iii) MAKE A GENERAL ASSIGNMENT FOR THE BENEFIT OF ANY
OF ITS CREDITORS, (iv) BE DISSOLVED OR LIQUIDATED IN FULL OR
IN PART, (v) BECOME INSOLVENT (AS SUCH TERM MAY BE DEFINED OR
INTERPRETED UNDER ANY APPLICABLE STATUTE), (vi) COMMENCE A
VOLUNTARY CASE OR OTHER PROCEEDING SEEKING LIQUIDATION,
REORGANIZATION OR OTHER RELIEF WITH RESPECT TO ITSELF OR ITS
DEBTS UNDER ANY BANKRUPTCY, INSOLVENCY OR OTHER SIMILAR LAW
NOW OR HEREAFTER IN EFFECT OR CONSENT TO ANY SUCH RELIEF OR TO
THE APPOINTMENT OF OR TAKING POSSESSION OF ITS PROPERTY BY ANY
OFFICIAL IN AN INVOLUNTARY CASE OR OTHER PROCEEDING COMMENCED
AGAINST IT OR (vii) TAKE ANY ACTION FOR THE PURPOSE OF
EFFECTING ANY OF THE FOREGOING; OR
Schedule 3 - Page 4
INVOLUNTARY BANKRUPTCY OR INSOLVENCY PROCEEDINGS. PROCEEDINGS FOR THE
APPOINTMENT OF A RECEIVER, TRUSTEE, LIQUIDATOR OR CUSTODIAN OF
THE COMPANY (AND ANY SUBSIDIARY THEREOF) OR OF ALL OR A
SUBSTANTIAL PART OF THE PROPERTY THEREOF, OR AN INVOLUNTARY
CASE OR OTHER PROCEEDINGS SEEKING LIQUIDATION, REORGANIZATION
OR OTHER RELIEF WITH RESPECT TO THE COMPANY (AND ANY
SUBSIDIARY THEREOF) OR THE DEBTS THEREOF UNDER ANY BANKRUPTCY,
INSOLVENCY OR OTHER SIMILAR LAW NOW OR HEREAFTER IN EFFECT
SHALL BE COMMENCED AND AN ORDER FOR RELIEF ENTERED, OR SUCH
CASE OR PROCEEDING SHALL NOT BE DISMISSED, DISCHARGED OR
STAYED WITHIN NINETY (90) DAYS OF COMMENCEMENT.
RIGHTS OF HOLDER UPON DEFAULT.
UPON THE OCCURRENCE OR EXISTENCE OF ANY EVENT OF DEFAULT (OTHER THAN
AN EVENT OF DEFAULT REFERRED TO IN SECTIONS 2(d) OR 2(e)
HEREOF) AND AT ANY TIME THEREAFTER DURING THE CONTINUANCE OF
SUCH EVENT OF DEFAULT, UNLESS PROHIBITED BY THE EXPRESS TERMS
OF ANY SENIOR DEBT, THE HOLDER MAY DECLARE ALL OUTSTANDING
OBLIGATIONS PAYABLE BY THE COMPANY HEREUNDER TO BE IMMEDIATELY
DUE AND PAYABLE WITHOUT PRESENTMENT. UPON THE OCCURRENCE OR
EXISTENCE OF ANY EVENT OF DEFAULT DESCRIBED IN SECTIONS 2(d)
OR 2(e) HEREOF, UNLESS PROHIBITED BY THE EXPRESS TERMS OF ANY
SENIOR DEBT, IMMEDIATELY AND WITHOUT NOTICE, ALL OUTSTANDING
OBLIGATIONS PAYABLE BY THE COMPANY HEREUNDER SHALL
AUTOMATICALLY BECOME IMMEDIATELY DUE AND PAYABLE, WITHOUT
PRESENTMENT, DEMAND, PROTEST OR ANY OTHER NOTICE OF ANY KIND,
ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED. IN ADDITION TO THE
FOREGOING REMEDIES, UPON THE OCCURRENCE OR EXISTENCE OF ANY
EVENT OF DEFAULT, UNLESS PROHIBITED BY THE EXPRESS TERMS OF
ANY SENIOR DEBT, THE HOLDER MAY EXERCISE ANY OTHER RIGHT,
POWER OR REMEDY PERMITTED TO IT BY LAW, EITHER BY SUIT IN
EQUITY OR BY ACTION AT LAW, OR BOTH.
Schedule 3 - Page 5
SUBORDINATION. THIS NOTE, INCLUDING ALL OBLIGATIONS, IS JUNIOR AND SUBORDINATE
TO, AND SUBJECT TO THE PRIOR RIGHT OF PAYMENT OF, ALL SENIOR DEBT OF
COMPANY AND TO ALL LIENS, SECURITY INTERESTS OR ENCUMBRANCES SECURING
ANY SENIOR DEBT OF THE COMPANY.
5. PREPAYMENT AND EFFECT ON CONVERSION RIGHTS. THIS NOTE MAY BE PREPAID AS
A WHOLE OR IN PART AT ANY TIME PRIOR TO THE MATURITY DATE AT THE
ELECTION OF THE COMPANY UPON AT LEAST THIRTY (30) DAYS PRIOR WRITTEN
NOTICE TO THE HOLDER (THE "PREPAYMENT NOTICE PERIOD"). ANY SUCH
PREPAYMENT SHALL BE APPLIED FIRST TO THE PAYMENT OF EXPENSES DUE UNDER
THIS NOTE, SECOND TO ANY PREPAYMENT PREMIUM, THIRD TO INTEREST ACCRUED
ON THE PORTION OF THIS NOTE SO PREPAID AND FOURTH, IF THE AMOUNT OF
PREPAYMENT EXCEEDS THE AMOUNT OF ALL SUCH EXPENSES, PREPAYMENT
PENALTIES AND ACCRUED INTEREST, TO THE PAYMENT OF PRINCIPAL OF THIS
NOTE. NOTWITHSTANDING THE FOREGOING OR ANYTHING TO THE CONTRARY HEREIN,
ANY SUCH ELECTION TO PREPAY THE NOTE SHALL NOT EXTINGUISH OR OTHERWISE
EFFECT THE CONVERSION RIGHTS SET FORTH IN SECTION 6 HEREOF WITH RESPECT
TO THE AMOUNT OF PRINCIPAL SO ELECTED TO PREPAID UNTIL AFTER THE
EXPIRATION OF THE PREPAYMENT NOTICE PERIOD.
6. CONVERSION.
Schedule 3 - Page 6
CONVERSION BY HOLDER. AT ANY TIME, AND FROM TIME TO TIME, THE HOLDER
MAY, AT ITS SOLE AND EXCLUSIVE OPTION, CONVERT ALL OR ANY PART
OF THE PRINCIPAL AND ACCRUED INTEREST OUTSTANDING UNDER ANY
COMPANY NOTE INTO SHARES OF COMMON STOCK ("CONVERSION
SHARES"), BY GIVING WRITTEN NOTICE TO THE COMPANY SIGNED BY
HOLDER OF HOLDER'S CONVERSION ELECTION SPECIFYING THE AMOUNT
OF NOTE PRINCIPAL AND/OR ACCRUED INTEREST TO BE CONVERTED
("NOTICE OF CONVERSION"), AT A CONVERSION PRICE PER SHARE OF
COMMON STOCK TO BE DETERMINED AS FOLLOWS: (i) PROVIDED NOTICE
OF CONVERSATION IS RECEIVED CONCURRENTLY WITH THE ISSUANCE OF
THIS NOTE, THE CONVERSION PRICE WILL BE EQUAL TO THE OFFERING
PRICE PER SHARE IN THE COMPANY PRIVATE PLACEMENT DESCRIBED IN
THE ASSET PURCHASE AGREEMENT DATED _____, 2004 (THE "PURCHASE
AGREEMENT"), PURSUANT TO WHICH THIS NOTE WAS ISSUED OR (ii)
THEREAFTER AT THE VOLUME WEIGHTED AVERAGE MARKET PRICE PER
SHARE FOR THE TEN (10) BUSINESS DAYS IMMEDIATELY PRECEDING THE
DATE NOTICE OF CONVERSATION IS GIVEN TO THE COMPANY, BUT NOT
LESS THAN $_____ PER SHARE, SUBJECT TO ADJUSTMENT AS PROVIDED
IN SECTION 7 HEREOF IN EITHER CASE (THE "CONVERSION PRICE").
TRANSFER OF SHARES. THE COMPANY SHALL CAUSE THE TRANSFER AGENT TO
TRANSMIT THE CERTIFICATES REPRESENTING THE COMMON STOCK TO BE
ISSUED TO HOLDER. COMPANY AGREES THAT THE CONVERSION SHARES
SHALL BE REGISTERED BY THE COMPANY PURSUANT TO THE
REGISTRATION RIGHTS AGREEMENT ENTERED INTO CONCURRENTLY
HEREWITH BETWEEN COMPANY AND HOLDER.
Schedule 3 - Page 7
MECHANICS AND EFFECT OF CONVERSION. NO FRACTIONAL SHARES OF COMMON
STOCK SHALL BE ISSUED UPON CONVERSION OF THIS NOTE. UPON THE
CONVERSION OF THE ENTIRE PRINCIPAL OUTSTANDING UNDER THIS
NOTE, IN LIEU OF THE COMPANY ISSUING ANY FRACTIONAL SHARES TO
THE HOLDER, THE COMPANY SHALL PAY TO THE HOLDER THE AMOUNT OF
OUTSTANDING PRINCIPAL THAT IS NOT SO CONVERTED IN CASH. ON
PARTIAL CONVERSION OF THIS NOTE, THE COMPANY SHALL ISSUE TO
THE HOLDER (i) THE SHARES OF COMMON STOCK INTO WHICH A PORTION
OF THIS NOTE IS CONVERTED AND (ii) A NEW SENIOR SECURED
CONVERTIBLE PROMISSORY NOTE HAVING IDENTICAL TERMS TO THIS
NOTE, EXCEPT THAT THE PRINCIPAL AMOUNT THEREOF SHALL EQUAL THE
DIFFERENCE BETWEEN (A) THE PRINCIPAL AMOUNT OF THIS NOTE
IMMEDIATELY PRIOR TO SUCH CONVERSION MINUS (B) THE PORTION OF
SUCH PRINCIPAL AMOUNT CONVERTED INTO COMMON STOCK. UPON
CONVERSION OF THIS NOTE PURSUANT TO THIS SECTION 6, THE HOLDER
SHALL SURRENDER THIS NOTE, DULY ENDORSED, AT THE PRINCIPAL
OFFICE OF THE COMPANY. AT ITS EXPENSE, THE COMPANY SHALL, AS
SOON AS PRACTICABLE THEREAFTER, ISSUE AND DELIVER TO SUCH
HOLDER AT SUCH PRINCIPAL OFFICE A CERTIFICATE OR CERTIFICATES
FOR THE NUMBER OF SHARES OF COMMON STOCK, TO WHICH THE HOLDER
SHALL BE ENTITLED UPON SUCH CONVERSION (BEARING SUCH LEGENDS
AS ARE REQUIRED BY THE PURCHASE AGREEMENT, IF ANY, AND
APPLICABLE STATE AND FEDERAL SECURITIES LAWS IN THE OPINION OF
COUNSEL TO THE COMPANY), TOGETHER WITH ANY OTHER SECURITIES
AND PROPERTY TO WHICH THE HOLDER IS ENTITLED UPON SUCH
CONVERSION UNDER THE TERMS OF THIS NOTE. UPON FULL CONVERSION
OF THIS NOTE, THE COMPANY SHALL BE FOREVER RELEASED FROM ALL
ITS OBLIGATIONS AND LIABILITIES UNDER THE COMPANY NOTE(S).
Schedule 3 - Page 8
RESERVATION OF STOCK ISSUABLE UPON CONVERSION. THE COMPANY SHALL AT ALL
TIMES RESERVE AND KEEP AVAILABLE OUT OF ITS AUTHORIZED BUT
UNISSUED SHARES OF CAPITAL STOCK, SOLELY FOR THE PURPOSE OF
EFFECTING THE CONVERSION OF THIS NOTE, SUCH NUMBER OF ITS
SHARES OF CAPITAL STOCK OF THE COMPANY AS SHALL FROM TIME TO
TIME BE SUFFICIENT TO EFFECT THE CONVERSION OF THIS NOTE; AND
IF AT ANY TIME THE NUMBER OF AUTHORIZED BUT UNISSUED SHARES OF
CAPITAL STOCK OF THE COMPANY SHALL NOT BE SUFFICIENT TO EFFECT
THE CONVERSION OF THIS NOTE, THE COMPANY HEREBY COVENANTS AND
AGREES TO TAKE SUCH CORPORATE ACTION AS MAY, IN THE OPINION OF
ITS COUNSEL, BE NECESSARY TO INCREASE ITS AUTHORIZED BUT
UNISSUED SHARES OF CAPITAL STOCK TO SUCH NUMBER OF SHARES AS
SHALL BE SUFFICIENT FOR SUCH PURPOSE.
PAYMENT OF EXPENSES AND TAXES ON CONVERSION. THE COMPANY SHALL PAY ALL
EXPENSES, TAXES AND OTHER CHARGES PAYABLE IN CONNECTION WITH
THE PREPARATION, EXECUTION, ISSUANCE AND DELIVERY OF STOCK
CERTIFICATES AND NEW PROMISSORY NOTES PURSUANT TO THIS SECTION
6 HEREOF, EXCEPT THAT, IN THE EVENT SUCH STOCK CERTIFICATES OR
NEW PROMISSORY NOTES SHALL BE REGISTERED IN A NAME OR NAMES
OTHER THAN THE NAME OF THE HOLDER OF THIS NOTE, FUNDS
SUFFICIENT TO PAY ALL STOCK TRANSFER FEES, WHICH SHALL BE
PAYABLE UPON THE EXECUTION AND DELIVERY OF SUCH STOCK
CERTIFICATE OR CERTIFICATES OR NEW PROMISSORY NOTES, SHALL BE
PAID BY THE HOLDER TO THE COMPANY AT THE TIME OF DELIVERING
THIS NOTE TO THE COMPANY UPON CONVERSION.
7. CONVERSION PRICE ADJUSTMENTS.
Schedule 3 - Page 9
(a) ADJUSTMENT FOR STOCK SPLITS AND
COMBINATIONS. IF THE COMPANY SHALL AT ANY TIME OR FROM TIME TO
TIME AFTER THE DATE A CONVERSATION PRICE IS ESTABLISHED EFFECT
A STOCK SPLIT OR SUBDIVISION OF THE OUTSTANDING COMMON STOCK,
THE CONVERSION PRICE IN EFFECT IMMEDIATELY BEFORE THAT
SUBDIVISION SHALL BE PROPORTIONATELY DECREASED, AND,
CONVERSELY, IF THE COMPANY SHALL AT ANY TIME OR FROM TIME TO
TIME AFTER THE DATE A CONVERSION PRICE IS ESTABLISHED COMBINE
THE OUTSTANDING SHARES OF COMMON STOCK INTO A SMALLER NUMBER
OF SHARES, THE CONVERSION PRICE IN EFFECT IMMEDIATELY BEFORE
THE COMBINATION SHALL BE PROPORTIONATELY INCREASED. ANY
ADJUSTMENT UNDER THIS SECTION 7(a) SHALL BECOME EFFECTIVE AT
THE CLOSE OF BUSINESS ON THE DATE THE STOCK SPLIT, SUBDIVISION
OR COMBINATION BECOMES EFFECTIVE.
Schedule 3 - Page 10
(b) ADJUSTMENT FOR COMMON STOCK DIVIDENDS
AND DISTRIBUTIONS. IF THE COMPANY AT ANY TIME OR FROM TIME TO
TIME AFTER THE DATE A CONVERSATION PRICE IS ESTABLISHED
ISSUES, OR FIXES A RECORD DATE FOR THE DETERMINATION OF
HOLDERS OF COMMON STOCK ENTITLED TO RECEIVE, A DIVIDEND OR
OTHER DISTRIBUTION PAYABLE SOLELY IN ADDITIONAL SHARES OF
COMMON STOCK, THE CONVERSION PRICE THAT IS THEN IN EFFECT
SHALL BE DECREASED AS OF THE TIME OF SUCH ISSUANCE OR, IN THE
EVENT SUCH RECORD DATE IS FIXED, AS OF THE CLOSE OF BUSINESS
ON SUCH RECORD DATE, BY MULTIPLYING THE CONVERSION PRICE BY A
FRACTION (i) THE NUMERATOR OF WHICH IS THE TOTAL NUMBER OF
SHARES OF COMMON STOCK ISSUED AND OUTSTANDING IMMEDIATELY
PRIOR TO THE TIME OF SUCH ISSUANCE OR THE CLOSE OF BUSINESS ON
SUCH RECORD DATE, AND (ii) THE DENOMINATOR OF WHICH IS THE SUM
OF THE TOTAL NUMBER OF SHARES OF COMMON STOCK ISSUED AND
OUTSTANDING IMMEDIATELY PRIOR TO THE TIME OF SUCH ISSUANCE OR
THE CLOSE OF BUSINESS ON SUCH RECORD DATE PLUS THE NUMBER OF
SHARES OF COMMON STOCK ISSUABLE IN PAYMENT OF SUCH DIVIDEND OR
DISTRIBUTION; PROVIDED, HOWEVER, THAT IF SUCH RECORD DATE IS
FIXED AND SUCH DIVIDEND IS NOT FULLY PAID OR IF SUCH
DISTRIBUTION IS NOT FULLY MADE ON THE DATE FIXED THEREFOR, THE
CONVERSION PRICE SHALL BE RECOMPUTED ACCORDINGLY AS OF THE
CLOSE OF BUSINESS ON SUCH RECORD DATE AND THEREAFTER THE
CONVERSION PRICE SHALL BE ADJUSTED PURSUANT TO THIS SECTION
7(b) TO REFLECT THE ACTUAL PAYMENT OF SUCH DIVIDEND OR
DISTRIBUTION.
Schedule 3 - Page 11
(c) ADJUSTMENTS FOR OTHER DIVIDENDS AND
DISTRIBUTIONS. IF THE COMPANY AT ANY TIME OR FROM TIME TO TIME
AFTER THE DATE A CONVERSATION PRICE IS ESTABLISHED ISSUES, OR
FIXES A RECORD DATE FOR THE DETERMINATION OF HOLDERS OF COMMON
STOCK ENTITLED TO RECEIVE, A DIVIDEND OR OTHER DISTRIBUTION
PAYABLE IN SECURITIES OF THE COMPANY OTHER THAN SHARES OF
COMMON STOCK OR IN OTHER PROPERTY, IN EACH SUCH EVENT
PROVISION SHALL BE MADE SO THAT THE HOLDER OF THIS NOTE SHALL
RECEIVE UPON CONVERSION HEREOF, IN ADDITION TO THE NUMBER OF
SHARES OF COMMON STOCK RECEIVABLE HEREUPON, THE AMOUNT OF
SECURITIES OF THE COMPANY OR OTHER PROPERTY WHICH SUCH HOLDER
WOULD HAVE RECEIVED HAD THIS NOTE BEEN CONVERTED INTO COMMON
STOCK ON THE DATE OF SUCH EVENT AND HAD IT THEREAFTER, DURING
THE PERIOD FROM THE DATE OF SUCH EVENT TO AND INCLUDING THE
CONVERSION DATE, RETAINED SUCH SECURITIES OR OTHER PROPERTY
RECEIVABLE BY IT AS AFORESAID DURING SUCH PERIOD, SUBJECT TO
ALL OTHER ADJUSTMENTS CALLED FOR DURING SUCH PERIOD UNDER THIS
SECTION 7 WITH RESPECT TO THE RIGHTS OF THE HOLDERS OF THIS
NOTE OR WITH RESPECT TO SUCH OTHER SECURITIES OR OTHER
PROPERTY BY THEIR TERMS. AS USED HEREIN, THE TERM "OTHER
PROPERTY" DOES NOT INCLUDE CASH.
Schedule 3 - Page 12
(d) ADJUSTMENT FOR RECLASSIFICATION,
EXCHANGE AND SUBSTITUTION. IF AT ANY TIME OR FROM TIME TO TIME
AFTER THE CONVERSATION PRICE IS ESTABLISHED, THE COMMON STOCK
ISSUABLE UPON THE CONVERSION OF THIS NOTE IS CHANGED INTO THE
SAME OR A DIFFERENT NUMBER OF SHARES OF ANY CLASS OR SERIES OF
STOCK, WHETHER BY RECAPITALIZATION, RECLASSIFICATION OR
OTHERWISE (OTHER THAN A SUBDIVISION OR COMBINATION OF SHARES
OR STOCK DIVIDEND OR A REORGANIZATION, MERGER, CONSOLIDATION
OR SALE OF ASSETS PROVIDED FOR ELSEWHERE IN THIS SECTION 7),
THEN IN ANY SUCH EVENT THE HOLDER SHALL HAVE THE RIGHT
THEREAFTER TO CONVERT THIS NOTE INTO THE KIND AND AMOUNT OF
STOCK AND OTHER SECURITIES AND PROPERTY RECEIVABLE UPON SUCH
RECAPITALIZATION, RECLASSIFICATION OR OTHER CHANGE BY HOLDERS
OF THE NUMBER OF SHARES OF COMMON STOCK INTO WHICH THIS NOTE
COULD HAVE BEEN CONVERTED IMMEDIATELY PRIOR TO SUCH
RECAPITALIZATION, RECLASSIFICATION OR CHANGE, ALL SUBJECT TO
FURTHER ADJUSTMENT AS PROVIDED HEREIN OR WITH RESPECT TO SUCH
OTHER SECURITIES OR PROPERTY BY THE TERMS THEREOF.
(e) CERTIFICATE OF ADJUSTMENT. IN EACH CASE
OF AN ADJUSTMENT OR READJUSTMENT OF THE CONVERSION PRICE OR
THE NUMBER OF SHARES OF COMMON STOCK OR OTHER SECURITIES
ISSUABLE UPON CONVERSION OF THIS NOTE, THE COMPANY, AT ITS OWN
EXPENSE, SHALL CAUSE ITS TREASURER TO COMPUTE SUCH ADJUSTMENT
OR READJUSTMENT IN ACCORDANCE WITH THE PROVISIONS HEREOF AND
PREPARE A CERTIFICATE SHOWING SUCH ADJUSTMENT OR READJUSTMENT,
AND SHALL MAIL SUCH CERTIFICATE, BY FIRST CLASS MAIL, POSTAGE
PREPAID, TO THE HOLDER AT THE HOLDER'S ADDRESS AS SHOWN IN THE
COMPANY'S BOOKS. THE CERTIFICATE SHALL SET FORTH SUCH
ADJUSTMENT OR READJUSTMENT, SHOWING IN DETAIL THE FACTS UPON
WHICH SUCH ADJUSTMENT OR READJUSTMENT IS BASED. NO ADJUSTMENT
IN THE CONVERSION PRICE SHALL BE REQUIRED UNLESS IT WOULD
RESULT IN AN INCREASE OR DECREASE OF AT LEAST ONE CENT, BUT
ANY ADJUSTMENTS NOT MADE BECAUSE OF THIS SENTENCE SHALL BE
CARRIED FORWARD AND TAKEN INTO ACCOUNT IN ANY SUBSEQUENT
ADJUSTMENT OTHERWISE REQUIRED HEREUNDER.
Schedule 3 - Page 13
NOTICES OF RECORD DATE. UPON (i) THE ESTABLISHMENT BY THE COMPANY OF A
RECORD OF THE HOLDERS OF ANY CLASS OF SECURITIES FOR THE
PURPOSE OF DETERMINING THE HOLDERS THEREOF WHO ARE ENTITLED TO
RECEIVE ANY DIVIDEND OR OTHER DISTRIBUTION, OR (ii) ANY
CAPITAL REORGANIZATION OF THE COMPANY, ANY RECLASSIFICATION OR
RECAPITALIZATION OF THE CAPITAL STOCK OF THE COMPANY, ANY
MERGER OR CONSOLIDATION OF THE COMPANY WITH OR INTO ANY OTHER
COMPANY, OR ANY TRANSFER OF ALL OR SUBSTANTIALLY ALL THE
ASSETS OF THE COMPANY TO ANY OTHER PERSON OR ANY VOLUNTARY OR
INVOLUNTARY DISSOLUTION, LIQUIDATION OR WINDING UP OF THE
COMPANY, THE COMPANY SHALL MAIL TO THE HOLDER AT LEAST 20 DAYS
PRIOR TO THE RECORD DATE SPECIFIED THEREIN A NOTICE SPECIFYING
(A) THE DATE ON WHICH ANY SUCH RECORD IS TO BE TAKEN FOR THE
PURPOSE OF SUCH DIVIDEND OR DISTRIBUTION AND A DESCRIPTION OF
SUCH DIVIDEND OR DISTRIBUTION, (B) THE DATE ON WHICH ANY SUCH
REORGANIZATION, RECLASSIFICATION, TRANSFER, CONSOLIDATION,
MERGER, DISSOLUTION, LIQUIDATION OR WINDING UP IS EXPECTED TO
BECOME EFFECTIVE, AND (C) THE DATE, IF ANY, THAT IS TO BE
FIXED AS TO WHEN THE HOLDERS OF RECORD OF COMMON STOCK (OR
OTHER SECURITIES), SHALL BE ENTITLED TO EXCHANGE THEIR SHARES
OF COMMON STOCK (OR OTHER SECURITIES), FOR SECURITIES OR OTHER
PROPERTY DELIVERABLE UPON SUCH REORGANIZATION,
RECLASSIFICATION TRANSFER, CONSOLIDATION, MERGER, DISSOLUTION,
LIQUIDATION OR WINDING UP.
NO IMPAIRMENT. THE COMPANY SHALL NOT AMEND ITS ARTICLES OF
INCORPORATION OR PARTICIPATE IN ANY REORGANIZATION, TRANSFER
OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ISSUE OR SALE
OF SECURITIES OR ANY OTHER VOLUNTARY ACTION FOR THE PURPOSE OF
AVOIDING OR SEEKING TO AVOID THE OBSERVANCE OR PERFORMANCE OF
ANY OF THE TERMS TO BE OBSERVED OR PERFORMED UNDER ANY COMPANY
NOTE BY THE COMPANY, BUT SHALL AT ALL TIMES IN GOOD FAITH
ASSIST IN CARRYING OUT ALL SUCH ACTION AS MAY BE REASONABLY
NECESSARY OR APPROPRIATE IN ORDER TO PROTECT THE CONVERSION
RIGHTS OF THE HOLDER OF THIS NOTE AGAINST DILUTION OR OTHER
IMPAIRMENT AS PROVIDED HEREIN.
Schedule 3 - Page 14
8. SUCCESSORS AND ASSIGNS. SUBJECT TO THE RESTRICTIONS ON TRANSFER
DESCRIBED IN SECTION 10 HEREOF, THE RIGHTS AND OBLIGATIONS OF THE
COMPANY AND THE HOLDER OF THIS NOTE OR ANY COMPANY NOTE SHALL BE
BINDING UPON AND BENEFIT THE SUCCESSORS, ASSIGNS, HEIRS, ADMINISTRATORS
AND TRANSFEREES OF THE PARTIES.
9. WAIVER AND AMENDMENT. ANY PROVISION OF THIS NOTE MAY BE AMENDED, WAIVED
OR MODIFIED UPON THE WRITTEN CONSENT OF THE COMPANY AND THE HOLDER.
10. TRANSFER OF COMPANY NOTES OR SECURITIES ISSUABLE ON CONVERSION A
COMPANY NOTE MAY NOT BE TRANSFERRED IN VIOLATION OF ANY RESTRICTIVE
LEGEND SET FORTH HEREON. EACH NEW NOTE ISSUED UPON TRANSFER OF THIS
NOTE OR SECURITIES ISSUABLE ON CONVERSION OF THIS NOTE SHALL BEAR A
LEGEND AS TO THE APPLICABLE RESTRICTIONS ON TRANSFERABILITY IN ORDER TO
ENSURE COMPLIANCE WITH THE SECURITIES ACT, UNLESS IN THE OPINION OF
COUNSEL FOR THE COMPANY SUCH LEGEND IS NOT REQUIRED IN ORDER TO ENSURE
COMPLIANCE WITH THE SECURITIES ACT. THE COMPANY MAY ISSUE STOP TRANSFER
INSTRUCTIONS TO ITS TRANSFER AGENT IN CONNECTION WITH SUCH
RESTRICTIONS. SUBJECT TO THE FOREGOING, TRANSFERS OF THIS NOTE SHALL BE
REGISTERED UPON REGISTRATION BOOKS MAINTAINED FOR SUCH PURPOSE BY OR ON
BEHALF OF THE COMPANY. PRIOR TO PRESENTATION OF THIS NOTE FOR
REGISTRATION OF TRANSFER, THE COMPANY SHALL TREAT THE REGISTERED HOLDER
HEREOF AS THE OWNER AND HOLDER OF THIS NOTE FOR THE PURPOSE OF
RECEIVING ALL PAYMENTS OF PRINCIPAL AND INTEREST HEREON AND FOR ALL
OTHER PURPOSES WHATSOEVER, WHETHER OR NOT THIS NOTE OR ANY COMPANY NOTE
SHALL BE OVERDUE AND THE COMPANY SHALL NOT BE AFFECTED BY NOTICE TO THE
CONTRARY.
11. ASSIGNMENT BY THE COMPANY. NEITHER THIS NOTE NOR ANY OF THE RIGHTS,
INTERESTS OR OBLIGATIONS HEREUNDER MAY BE ASSIGNED, BY OPERATION OF LAW
OR OTHERWISE, IN WHOLE OR IN PART, BY THE COMPANY, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE HOLDER.
Schedule 3 - Page 15
12. TREATMENT OF NOTE. TO THE EXTENT PERMITTED BY GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, THE COMPANY WILL TREAT, ACCOUNT AND REPORT THE
NOTE AS DEBT AND NOT EQUITY FOR ACCOUNTING PURPOSES AND WITH RESPECT TO
ANY RETURNS FILED WITH FEDERAL, STATE OR LOCAL TAX AUTHORITIES.
13. NOTICES. ANY NOTICE, REQUEST OR OTHER COMMUNICATION REQUIRED OR
PERMITTED HEREUNDER SHALL BE IN WRITING AND SHALL BE DEEMED TO HAVE
BEEN DULY GIVEN IF PERSONALLY DELIVERED OR MAILED BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, OR BY RECOGNIZED OVERNIGHT COURIER,
PERSONAL DELIVERY OR FACSIMILE TRANSMISSION AT THE RESPECTIVE ADDRESSES
OR FACSIMILE NUMBER OF THE PARTIES AS SET FORTH IN OR OTHERWISE
DESIGNATED BY EITHER PARTY PURSUANT TO THE PURCHASE AGREEMENT OR ON THE
REGISTER MAINTAINED BY THE COMPANY. ANY PARTY HERETO MAY BY NOTICE SO
GIVEN CHANGE ITS ADDRESS OR FACSIMILE NUMBER FOR FUTURE NOTICE
HEREUNDER. NOTICE SHALL BE CONCLUSIVELY DEEMED GIVEN WHEN SENT.
14. EXPENSES; WAIVERS. IF ACTION IS INSTITUTED TO COLLECT ANY COMPANY NOTE,
THE COMPANY PROMISES TO PAY ALL COSTS AND EXPENSES, INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES AND COSTS, INCURRED IN
CONNECTION WITH SUCH ACTION. THE COMPANY HEREBY WAIVES NOTICE OF
DEFAULT, PRESENTMENT OR DEMAND FOR PAYMENT, PROTEST OR NOTICE OF
NONPAYMENT OR DISHONOR AND ALL OTHER NOTICES OR DEMANDS RELATIVE TO
THIS INSTRUMENT.
15. GOVERNING LAW; EXCLUSIVE JURISDICTION; JURY WAIVER. THIS NOTE AND ALL
ACTIONS ARISING OUT OF OR IN CONNECTION WITH THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
Schedule 3 - Page 16
IN WITNESS WHEREOF, THE COMPANY HAS CAUSED THIS NOTE TO BE AMENDED AND RESTATED
AS OF THE DATE FIRST WRITTEN ABOVE.
PLANET TECHNOLOGIES, INC.
By:__________________________
Name: ________________________
Title: _______________________
Schedule 3 - Page 17
Exhibit "B"
[PLANET TECHNOLOGIES, INC]
___________, 2004
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Terms of Employment
Dear ▇▇. ▇▇▇▇▇:
This letter is confirm the terms upon which you have agreed to accept
employment by Planet Technologies, Inc. (formerly known as Planet Polymer
Technologies, Inc.) as the President/CEO and the Chairman of the Board of
Directors on the following terms:
1. Duties. You shall perform the duties of President and Chief
Executive Officer of the Company and agree to serve on the Board of Directors
and act as the Chairman with the responsibilities and authority commonly held by
the president of a publicly held corporation, subject to the Bylaws of Planet
and limitations imposed by the Board of Directors or by law. You agree to devote
the majority of your fulltime efforts to the business of the Company.
2. Term. The term of your employment shall be for three (3) years
and you agree to serve for that term, subject to the direction of the Board of
Directors. The term of employment may be terminated only for cause by either you
or the Company.
3. Compensation and Benefits. You shall be compensated for such
terms as are reasonable for the position and industry, manageable within the
financial restrictions of the Company and approved by the Board of Directors.
Subject to the granting of the stock options described below, you have agreed to
forego any salary or cash bonus until the Board of Directors determines that
Planet can reasonably afford to pay executive cash compensation. The Company
will pay for your healthcare and other benefits that are customary for the
Company and your position within the Company.
4. Stock Options. In exchange for your agreeing to forego your
initial cash compensation, you shall be granted a non-qualified stock option
under the Company's 2000 Stock Option Plan to purchase 3,480,729 shares of
Planet common stock (prior to
B-1
adjustment for the reverse stock split contemplated in the Asset Purchase
Agreement with Allergy Free at an exercise price equal to the fair market value
on the date of this letter agreement). Thereafter the Company agrees to grant to
you stock options exerciseable at the then fair market value at such times as
may be required to maintain the aggregate number of stock options granted to you
at an amount not less than five percent (5%) of the issued and outstanding
common stock of Planet (on a fully diluted basis), during the three-year term of
employment. All options shall vest at the rate of 1/36th per month, subject to
acceleration as provided in the plan.
5. Confidentiality and Proprietary Rights. Prior to commencing
employment, you agree to enter into the Company's Confidentiality and
Proprietary Rights Agreement in the form customarily used by the Company for
executive officer positions.
Please sign and return a copy of this letter acknowledging your
agreement to the foregoing terms.
Sincerely,
The Board of Directors of
Planet Polymer Technologies, Inc.
CONFIRMED AND ACCEPTED:
____________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇
Schedule 3 - Page 2
EXHIBIT "C"
FORM OF OPINION OF COUNSEL
[SUBJECT TO COUNSEL'S REASONABLE AND CUSTOMARY ASSUMPTIONS AND QUALIFICATIONS]
1. The ________________ is a __________________________ validly
existing and in good standing under the laws of the State of California. The
________________ has all requisite power and authority to own or lease its
properties and conduct its business as currently being conducted by it. The
________________ is qualified to do business as a foreign corporation in all
jurisdictions where the failure to do so, either singly or in the aggregate,
would result in a Material Adverse Effect on the Business or the Assets.
2. The ________________ has all requisite power and authority to
execute and deliver the Agreement, each ________________'s Document to which it
is a party, to perform its obligations thereunder and to consummate the
transactions contemplated thereby. The execution and performance of the
Agreement and each ________________'s Document to which the ________________ is
a party, and the consummation of the transactions contemplated thereby, have
been duly authorized on the part of the ________________. The Agreement and each
________________'s Document to which the ________________ is a party constitute
the legal, valid and binding obligations of the ________________, enforceable
against the ________________ in accordance with its terms.
3. The execution, delivery and performance by the
________________ of the Agreement and the consummation of the transactions
contemplated thereby does not and will not (a) conflict with or result in a
violation or breach of any of the terms, conditions or provisions of the
articles of organization or operating agreement of the ________________, (b)
conflict with or result in a violation or breach of any term or provision of any
law, statute, rule or regulation, or of any order, writ, judgment, injunction or
decree known to us and applicable to the ________________ or any of its
respective assets and properties or (c)(i) conflict with or result in a
violation or breach of, (ii) constitute (with or without notice or lapse of time
or both) a default under, (iii) require the ________________ to obtain any
consent, approval or action of, make any filing with or give any notice to any
Person as a result or under the terms of, (iv) result in or give to any Person
any right of termination, cancellation, acceleration or modification in or with
respect to, (v) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments under
or (vi) result in the creation or imposition of any Lien or encumbrance upon the
or any of its respective assets or properties under any material contract or
agreement to which the ________________ is a party or to which it may be bound.
4. No consent, approval or action of, filing with or notice to
any governmental agency or body on the part of the ________________ is required
in connection with the execution, delivery and performance of the Agreement or
the consummation of the transactions contemplated thereby, which consent,
approval, filing, or notice has not been obtained or given.
C-1
SCHEDULE 2
"EXCLUDED ASSETS"
In conjunction with the Sub-Lease Agreement for ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
Conception Technologies has agreed to allow Allergy-Free to use the office
furniture and fixtures that were contained in the Suite prior to Allergy-Free's
occupancy at no cost during the Lease Period.
These items are known to both parties and duly identified in a side letter
agreement, and are the sole property of Conception Technologies. Allergy-Free
agrees to maintain these items in good repair and return them to Conception
Technologies upon the Termination of the Sub-Lease Agreement.
ASSETS LOCATED OFF-PREMISES
As part of the Contract Manufacturing Agreement between Allergy-Free and
American Metal Filters, Allergy-Free has agreed to locate at their facility and
allow American Metal Filters to use in the exclusive production of
Allergy-Free's products, a number of primary and essential pieces of
manufacturing equipment and fixtures. The specific equipment and terms of this
arrangement are contained in the Contract Manufacturing Agreement.
Assets included are;
Filter Media Pleator
Media and Wire Laminator
Shrink Film Sealer and Heat Tunnel
2 Station Glue Gun
Cutting Shear Table
Miscellaneous Processing Tables
Schedule 2 - Page 1
SCHEDULE 3
ASSUMED LIABILITIES
Note: Subject to updating to actual
numbers at acquisition date.
At 1/31/2004 At Closing
Accrued liabilities 23,408
Advances From and Payables to Conception Technologies 83,149
ABC Radio 78,980
Other Trade accounts payable 57,817
Royalties payable 1,887
Accrued property taxes 2,834
Accrued legal fees 1,150
Accrued audit & tax preparation fees 2,755
Sales taxes payable 3,122
Accrued paid-time-off (PTO) 24,220
Accrued salaries & wages 11,656
Accrued commissions 3,402
Schedule 3 - Page 1
Accrued insurance 7,951
Reserve for product returns 130,961
Sales Tax Accrual for 2000-2002 28,000
In addition, Assumed Liabilities will include all obligations under the
contracts described on schedule 6(k) arising after the Acquisition Date.
Schedule 3 - Page 2
SCHEDULE 3(d)
"LIABILITY TO MEMBERS OR SELLERS"
Allergy Free owes routine and recurring employment-related amounts to the
following members:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
Schedule 3(d) - Page 1
SCHEDULE 4 (c)
CONSIDERATION ALLOCATION
______________________________
__________________________ ____________________________
__________________________ ____________________________
Schedule 4(c) - Page 1
Schedule 4(c) - Page 2
SCHEDULE 6
SELLER DISCLOSURE SCHEDULES
Schedule 6
SCHEDULE 6(c)
ALLERGY FREE MEMBERS
SCHEDULE 6 (c)
MEMBERS HOLDING 100% INTEREST IN SELLER
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, J. ▇▇▇▇▇▇▇
▇▇▇▇▇ Holdings, LP
Ashley ▇▇▇▇▇ ▇▇▇▇▇ Trust
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ Trust
Jaimeson ▇▇▇▇▇ ▇▇▇▇▇ Trust
Connor ▇▇▇▇▇ ▇▇▇▇▇ Trust
▇▇▇▇▇ ▇. ▇▇▇▇▇ Trust
▇▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇
Silverado Street Venture
Partners
▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇
Schedule 6(c) - Page 1
SCHEDULE 6(d)(ii)
EXCEPTIONS TO GAAP
NONE, EXCEPT FOR THOSE ITEMS IDENTIFIED IN THE AUDIT TO BE COMPLETED BY
MARCH 31, 2004.
Schedule 6(d)(ii) - Page 1
SCHEDULE 6(e)
"LIABILITIES NOT SET FORTH IN FINANCIAL STATEMENTS"
FILING OF DISCRIMINATION COMPLAINT
E200304D0897-00-s
▇▇▇▇▇▇/Allergy Free
A former temporary worker filed a discrimination complaint with the California
Department of Fair Employment & Housing (DFEH) on February 11, 2004. The
complaint alleges sexual harassment from January 6, 2003 to the middle of March
2003 by a sales supervisor. The Company learned of the situation on March 6,
2003 and at once investigated the situation and terminated the supervisor. The
company does not know at this time what the outcome of the DFEH investigation
will be and the nature of the resulting liability, if any. However, if the DFEH
so designates, ▇▇. ▇▇▇▇▇▇ may pursue remedies against Allergy Free in the
courts. Allergy Free has been advised by counsel that awards in cases like these
have totaled $10,000. The Company does not know at this time how the DFEH or ▇▇.
▇▇▇▇▇▇ may choose to proceed, but denies responsibility for the alleged sexual
harassment.
FEDERAL DO NOT CALL (DNC) LEGISLATION
Allergy Free is subject to the Federal Trade Commission (FTC)-mandated
do-not-call rules for telemarketers, which went into effect on October 1, 2003.
As a result of this legislation, the Company purchased the federal DNC list and
"scrubbed" it against its database so that its registered customers would not be
contacted. In addition to the federal registry, 13 of the 50 states have their
own DNC lists and filing requirements and the Company is aggressively
investigating these individual state requirements. As of April 30, 2004, the
Company has registered with 1 of the 13 states and ceased telemarketing in 1
other state for which no registration was possible. Even though the Company
believes that its telemarketing practices are within state and federal
guidelines and any violations would be simple mistakes, sanctions could be
imposed by state and federal agencies for
Schedule 6(e) - Page 1
flagrant disregard of the rules. Fines could be as high as $11,000 per incident.
Management is unable to determine the nature of any future liability resulting
from the continued development of these laws.
EXPENSES RELATING TO THE TRANSACTION
Expenses relating to the transaction, including legal, accounting, and related
expenses have not been recorded.
EXPENSES RELATED TO CLOSING THE HOUSTON FACILITY
The expenses related to closing the Houston facility at the end of the lease on
June 30, 2004 have not been included in the financial statements.
SALES TAX ACCRUAL 2000-2002
The Company has accrued $28,000 for sales taxes it did not collect and remit to
the state of California from November 2000 to March of 2002. The Company has not
accrued any penalties and interest that may be due if the Company was deemed to
have nexus and owe the original $28,000 in sales taxes.
Schedule 4(c) - Page 2
SCHEDULE 6(f)
"NO ADVERSE CHANGE"
(iv) SINCE DECEMBER 31, 2003, THE COMPANY ISSUED THE FOLLOWING
PROMISSORY NOTES AND PREFERRED STOCK FOR THE FOLLOWING INVESTMENTS:
▇▇▇▇▇ ▇. ▇▇▇▇▇ TRUST $25,000 01/30/2004 32,500 PREFERRED SHARES
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ $117,000 03/15/2004 152,100 PREFERRED SHARES
Schedule 6(f) - Page 1
SCHEDULE 6(h)
"TITLE TO ASSETS"
To the best of Seller's knowledge, Seller owns good and marketable title to all
assets.
Schedule 6(h) - Page 1
SCHEDULE 6(i)
"LEASED REAL PROPERTY"
CLEARLAKE PROPERTIES JOINT VENTURES
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Lease Agreement for 16,235 square feet of industrial space at ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇. Lease Agreement terminates June 30, 2004. Monthly
base payment totals $9,416.30 plus property tax and insurance of $282.59.
CONCEPTION TECHNOLOGIES
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Sub-Lease Agreement for 5,383 square feet of industrial space at ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇. Sub-Lease Agreement terminates
July 31, 2005. Monthly payment totals $6,244.28 plus common area maintenance
charges of $1,936.80.
Schedule 6(i) - Page 1
SCHEDULE 6(j)
"INTELLECTUAL PROPERTY AND EXCEPTIONS"
Registered Trademark - ALLERGY-FREE
Serial No.: 75-111, 493
Registration No.: 2,806,016
Issued January 20, 2004
Registered Trademark - ALLER-PURE
Serial No.: 75-388, 442
Registration No.: 2,404,522
Issued November 14, 2000
License Agreement with ▇▇▇▇ ▇▇▇▇▇▇▇ for enhanced filters.
Schedule 6(i) - Page 1
SCHEDULE 6(k)
"CONTRACTS AND COMMITMENTS"
1. Product Supply, Contract Manufacturing Agreements
a. American Metal Filters
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Contract manufacturer of permanent filters.
b. Lifetime Filters
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Contract manufacturer of disposable filters.
2. License Agreement
a. ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇
Enhanced Filters
▇▇▇▇ ▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
3. Distribution Agreements
a. Allergy Max
▇▇▇-▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ #▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
This agreement is a non-exclusive sales distribution agreement for
Allergy Free filters and other products.
Schedule 6(k) - Page 1
4. Sales Agency and Co-Marketing Agreements
a. The Clorox Company
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Allergy Free has agreed to act as the sales agent and sell allergy
avoidance products to consumers responding to any of the marketing
activities initiated by The Clorox Company associated with allergy
identification and symptom mitigation.
b. Immune Tech Corporation
▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
The agreement with Immune Tech Corporation is informal and has
developed in conjunction with the Clorox Company sales agency
agreement. Immune Tech provides an Allergy Testing service, `My
Allergy Test' that will be sold by Allergy Free.
5. Independent Contractor Agreements - See Schedule 8(d)
6. Insurance Policies set forth on Schedule 6(p)
7. Employee Benefit Programs set forth on Schedule 6(o)
8. Personal Property Lease
▇. ▇▇▇▇▇▇ ▇▇▇▇▇ Credit Corporation - Mail Machine & Scale
Acct No. 4430311 Acct name: Allergy Free LP. Lease commencement
date 10/30/1999; Contract term 57 Months; Lease ends 07/31/2004.
9. Services
a. ADT Security Services - San Diego Alarm - Suite 100
Monthly security alarm services.
b. ADT Security Services - Houston Facility
Monthly monitoring services; to be discontinued when lease ends in
June 2004.
Schedule 6(k) - Page 2
c. Coverall of San Diego
Weekly (2x per week) cleaning of Suite 100. One year contract,
beginning November 2003.
d. Paymentech
Credit Card Processor; 1 year agreement, dated 03/16/2004.
10. Other
a. ABC Radio
The ABC Radio trade payable is evidenced by a Promissory Note, whereby
Allergy Free makes monthly payments of $19,745.00 to ABC Radio. At December
2003, the total due was $98,725.00. Allergy Free has made all required payments
subsequent to December 21, 2003.
▇. ▇▇▇▇▇ Sergeant
In 2003, Allergy Free agreed to make four (4) quarterly payments of
$1,250.00 to College of the Sequoias on behalf of ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, who this
settlement was reached to end Mr. Sergeant's opposition to the Allergy Free
trademark. Allegy Free has to date made all agreed payments.
11. Exceptions
None.
Schedule 6(k) - Page 3
SCHEDULE 6(l)
"INVENTORY"
FINISHED GOODS
All finished goods inventories have been relocated from Houston to San
Diego effective March 1, 2004. To the best of Seller's knowledge all
non-standard or non-saleable inventory has been either written off or
reasonably reserved for.
RAW MATERIALS AND WORK IN-PROCESS INVENTORY
As part of the transition from a captured manufacturing operation to
product supply from a contract manufacturer, all raw materials and work
in process inventories have been accounted for and sold to American
Metal Filters. Payment for these materials will be made to Allergy Free
over a period of time by means of a discount in the purchase price of
permanent filters manufactured to Allergy Free's demand. The physical
transfer of materials began in February and was concluded March 1,
2004.
Schedule 6(l) - Page 1
SCHEDULE 6(n)(i)
"COMPLIANCE WITH LAWS"
To the best of Seller's knowledge, there are no exceptions relative to the
compliance statements set forth in Article 6 (n)(i) of the Agreement,
(1) other than possible inadvertent "Do Not Call" violations as described in
Schedule 6(e)
(2) Possibility Allergy Free should have paid sales tax on sales for the period
of November 2000 through March 2002
(3) Late filing of Company's 1096 Form.
(4) Allergy Free's workers' comp coverage in 2001 may have been inadvertently
dropped by DriverAlliant, who has orally agreed that any claims that are made
for that time period will be covered by DriverAlliant.
Schedule 6(n)(i) - Page 1
SCHEDULE 6(n)(iv)
"GOVERNMENTAL PERMITS"
1. FEDERAL TRADE COMMISSION (FTC) DO NOT CALL (DNC) REGISTRATION #
_____________. Allergy Free is subject to the FTC-mandated telemarketer
DNC legislation, which requires that telemarkers stop calling customers
who register with the federal registry. As a result of this
legislation, the Company purchased the federal DNC list for $7375 and
"scrubbed" the 40 million customer list against the Company's customer
database. This process was completed by October of 2003, as required by
the new law. Updated lists are available from the FTC quarterly, at no
charge, and the Company has updated its records accordingly, and will
continue to do so. Annually, in October, a new list is to be purchased
and downloaded from the FTC.
2. WISCONSIN DEPARTMENT OF AGRICULTURE, TRADE AND CONSUMER PROTECTION -
TELEPHONE SOLICITOR REGISTRATION #WI 99-10771. Allergy Free is
registered for Wisconsin's No Call Program and has received the No Call
List for that state.
3. CALIFORNIA SALES TAX ACCT NO. 100-141125. Allergy Free collects and
submits California sales taxes monthly for sales in California and use
taxes.
4. TEXAS SALES TAX ACCT NO. 1-33-0932622-4. Allergy Free collects and
submits Texas sales taxes monthly for sales in Texas.
5. CITY OF SAN DIEGO BUSINESS TAX CERTIFICATE B▇▇▇▇▇▇▇▇▇▇. Renews yearly.
Schedule 6(n)(iv) - Page 1
SCHEDULE 6(o)(i)
EMPLOYEE LIST, COMPENSATION, AND BENEFITS
AVERAGE ELIGIBLE
HIRE ANNUAL STATUS MONTHLY FOR COMMON PREFERRED
NAME POSITION DATE SALARY FT/PT COMMISSION BONUS STOCK STOCK
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Telemarketer Sep-03 $20,800 100% $200 ▇▇ ▇ ▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ Purchasing Jan-04 $ 4,800 10% $ 0 ▇▇ ▇ ▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ Mar-04 $20,800 100% $200 No 0 0
▇▇▇▇▇▇, ▇▇▇▇ Sales Lead Dec-03 $24,960 100% $100 No 0 0
▇▇▇▇▇, ▇▇▇▇▇ President Apr-04 100% $ 0 No 1,400,000 734,500
▇▇▇▇, ▇▇▇▇▇▇▇ VP, Sales & Marketing Sep-01 $60,000 50% $ 0 Yes 50,000 0
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ Shipping/Receiving/Warehouse Apr-04 $20,280 75% $ 0 No 0 0
NAME BENEFITS COMMENTS
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ medical, dental,
LTD
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇. ▇▇▇▇▇▇▇▇ is also employed by
Conception Technologies
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ will be eligible
for benefits 6/04
▇▇▇▇▇▇, ▇▇▇▇ medical, dental,
LTD
▇▇▇▇▇, ▇▇▇▇▇ medical, dental,
LTD
▇▇▇▇, ▇▇▇▇▇▇▇ LTD ▇▇▇. ▇▇▇▇ is also employed by
Conception Technologies
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ Will be eligible ▇▇. ▇▇▇▇▇▇▇▇▇ is also employed by
for benefits 5/04 Conception Technologies
Schedule 6(o)(i) - Page 1
AVERAGE ELIGIBLE
HIRE ANNUAL STATUS MONTHLY FOR COMMON PREFERRED
NAME POSITION DATE SALARY FT/PT COMMISSION BONUS STOCK STOCK
▇▇▇▇, ▇▇▇▇▇▇ Telemarketer Mar-04 $20,800 100% $200 No 0 0
▇▇▇▇▇▇, ▇▇▇ Customer Service Dec-03 $24,960 100% $ 20 No 0 0
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ Telemarketer Sep-03 $20,800 100% $200 No 0 0
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Telemarketer Mar-04 $20,800 100% $200 ▇▇ ▇ ▇
▇▇▇▇, ▇▇▇▇▇▇▇ Operations Manager/IS 2/98 $72,072 100% $ 0 No 0 0
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ President Jul-01 $32,800 20% $ 0 No 240,000 0
▇▇▇▇, ▇▇▇▇ Sales Manager Jun-95 $62,000 100% $100 Yes 0 0
▇▇▇▇▇, ▇▇▇▇▇▇ Controller Nov-00 $54,000 50% $ 0 No 40,000 0
NAME BENEFITS COMMENTS
▇▇▇▇, ▇▇▇▇▇▇ will be eligible
for benefits 6/04
▇▇▇▇▇▇, ▇▇▇ medical, dental,
LTD
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ medical, dental,
LTD
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ will be eligible
for benefits ▇/▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ Medical, dental, SEE NOTE BELOW FOR OTHER COMMITMENTS
LTD
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Paid $2000 per SEE NOTE BELOW FOR OTHER COMMITMENTS
month addt'l
▇▇▇▇, ▇▇▇▇ medical, dental, SEE NOTE BELOW FOR OTHER COMMITMENTS
LTD, 401k
▇▇▇▇▇, ▇▇▇▇▇▇ medical, dental, ▇▇. ▇▇▇▇▇ is also employed
LTD Conception Technologies
Note: At 3/17/04, the Company was
recruiting and staffing for
approximately 10 additional
telemarketing positions
Note: The Company has a variable
compensation plan for sales
people, based upon sales levels
▇▇▇▇ Note: As part of a relocation package,
Allergy Free paid ▇▇. ▇▇▇▇'▇
moving expenses of $3000, will pay
off her credit card
Schedule 6(o)(i) - Page 2
balance of
$3900, and make her monthly debt
consolidation payments of $310 for
12 months.
▇▇▇▇▇▇▇ Note: After the merger, ▇▇. ▇▇▇▇▇▇▇ will
resign as President and instead
coordinate the transition
activities as a consultant. See
▇▇. ▇▇▇▇▇▇▇ is also President of
Conception Technologies. Schedule
8(d).
BENEFITS
TYPE
OF PLAN ANNUAL POLICY
BENEFIT POLICY PROVIDER COVERAGE PREMIUM PERIOD
MEDICAL IN TEXAS Group 5276845 Humana HMO Plan 75 $396.31 2/1/2004 renewed
Opt 3
per month per
ee
MEDICAL IN CALIFORNIA Group 87412A Health Net HMO & PPO varies by age 1/2004 renewed
Preferred
Schedule 6(o) - Page 3
DENTAL IN TEXAS Group 5279392 Humana Dental $1000 annual $21.37 4/2004 renewal
max, $50
annual
deductible
100% per month per
preventive ee
services
80% basic
50% major
DENTAL IN CALIFORNIA PD 3093 Blue Shield $1500 annual $43.00 1/2004 renewed
max, $50
annual
deductible
100% per month per
preventive ee
services
80% basic
50% major
LIFE INSURANCE Client # 99210 Prudential $10,000 per $ 2.81 per ee Month-to-month
Financial eligible
employee
Schedule 6(o) - Page 4
LONG TERM DISABILITY Group ▇▇▇-▇▇▇▇-▇▇ GE Financial Up to 50% of $.19 per $100 11/2003 renewed
Assurance monthly
earnings
$5k max of salary
401k PLAN Contract 4-49631 Principal First of next
Financial month to
permanent
employees
PAID-TIME-OFF Includes both 15 days 0-5 years
vacation and sick
time
20 days 6-10 years
25 days 11+ years
HOLIDAYS 10 per year
Schedule 6 (o) - Page 5
SCHEDULE 6(o)(ii)
"OBLIGATIONS TO EMPLOYEES"
1. The Company became aware of an approximate $6,000.00 liability it may
have assumed, related to a previous employee, ▇▇▇▇ ▇▇▇▇▇▇▇▇ Mr. McCaslinelected
COBRA benefits upon his termination, effective 10/01/2001. However, HealthNet is
claiming that ▇▇. ▇▇▇▇▇▇▇▇'▇ 18-month COBRA eligibility ended 01/30/2003. THE
$6,000.00 is related to medical bills ▇▇. ▇▇▇▇▇▇▇▇ incurred during February
2003. Allergy Free believes ▇▇. ▇▇▇▇▇▇▇▇ may have a claim for payment of these
bills.
2. Allergy Free has a number of inter-Company arrangements with Conception
Technologies:
a. employees working for both companies who are paid through
Conception Technologies and reimbursed by Allergy Free (see schedule 6(o)(i):
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
b. sublease for Suite 100 Allergy Free reimburses Conception
Technologies (see schedule 6(i).
c. either company may incur an expense on behalf of the other one
and obtain reimbursement.
d. Allergy Free is a named insured on all insurance policies.
e. Conception Technologies makes advanced payments to Allergy
Free, which are reflected on Financial Statements.
f. SR Technologies is the Manager of Seller and also owns forty
percent (40%) of Conception Technologies.
Schedule 6(o)(ii) - Page 1
SCHEDULE 6(p)
"INSURANCE POLICIES"
TYPE
OF NAME OF
COVERAGE POLICY INSURED INSURER
COMERCIAL PACKAGE No. 35359273 Conception Technologies, LP; Federal Insurance Co
Allergy Free, LLC
PRODUCTS LIABILITY No. 35818614 Conception Technologies, LP; Federal Insurance Co
Allergy Free, LLC
COMMERCIAL AUTO No. 73501155 Conception Technologies, LP; Federal Insurance Co
COMMERCIAL UMBRELLA No. 79822220 Conception Technologies, LP; Federal Insurance Co
Allergy Free, LLC
WORKERS COMPENSATION No. 0001124517 Allergy Free, LLC Texas Mututal
STATE OF TEXAS
WORKERS COMPENSATION WC 00311201300 SR Technology Associates AIG
STATE OF CALIFORNIA Conception Technologies
Allergy Free, LLC
MEDICAL IN TEXAS Group 5276845 Allergy Free, LLC Humana
MEDICAL IN CALIFORNIA Group 87412A Allergy Free, LLC Health Net
DENTAL IN TEXAS Group 5279392 Allergy Free, LLC Humana Dental
DENTAL IN CALIFORNIA PD 3093 Allergy Free, LLC Blue shield
LIFE INSURANCE Client # 99210 Allergy Free Prudential Financial
LONG TERM DISABILITY Group ▇▇▇-▇▇▇▇-▇▇ Allergy Free, LLC GE Financial Assurance
TYPE AMOUNT
OF OF ANNUAL
COVERAGE COVERAGE PREMIUM
COMERCIAL PACKAGE $1M each occurrence $ 12,041.00
$2M gen'l aggregate
$1M foreign liability
PRODUCTS LIABILITY $6M claims made $ 5,810
COMMERCIAL AUTO $ ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ each occurrence/aggregate $ 1,538
WORKERS COMPENSATION $1M bodily injury by accident-each accident $ 7,311
▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇ bodily injury by desease-each ee
$1M bodily injury by desease-policy limit
WORKERS COMPENSATION $1M bodily injury by accident-each accident $ 3,000
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ bodily injury by desease-each ee
$1M bodily injury by desease-policy limit
MEDICAL IN TEXAS HMO Plan 75 Opt 3 $ 396.31
Per month per ee
MEDICAL IN CALIFORNIA HMO PPO Preferred varies by age
DENTAL IN TEXAS $1000 annual max, $50 annual deductible $ 21.37
100% preventive services, 80% basic, Per month per ee
50% major
DENTAL IN CALIFORNIA $1500 annual max, $50 annual deductible $ 43.00
100% preventive services, 80% basic, Per month per ee
50% major
LIFE INSURANCE $10,000 per eligible employee $ 2.81 per ▇▇
▇▇▇▇ TERM DISABILITY Up to 50% of monthly earnings $5k max $.19 per $100
TYPE
OF POLICY
COVERAGE PERIOD COMMENTS
COMERCIAL PACKAGE 10/18/2003-10/18/2004 Excludes Products/Completed Operations
(see separate policy)
PRODUCTS LIABILITY 10/18/2003-10/18/2004
COMMERCIAL AUTO 10/18/2003-10/18/2004
COMMERCIAL UMBRELLA 10/18/2003-10/18/2004
WORKERS COMPENSATION 11/18/2003-11/18/2004
STATE OF TEXAS
WORKERS COMPENSATION 11/8/03-11/8/04
STATE OF CALIFORNIA
MEDICAL IN TEXAS 2/1/2004 renewed
MEDICAL IN CALIFORNIA 1/2004 renewed
DENTAL IN TEXAS 4/2004 renewal
DENTAL IN CALIFORNIA 1/2004 renewed
LIFE INSURANCE Month-to-month
LONG TERM DISABILITY 11/2003 renewed
Schedule 6(p) - Page 1
Schedule 6(p) - Page 2
SCHEDULE 6(q)
"LITIGATION"
FILING OF DISCRIMINATION COMPLAINT
E200304D0897-00-s
▇▇▇▇▇▇/Allergy Free
A former temporary worker filed a discrimination complaint with the California
Department of Fair Employment & Housing (DFEH) on February 11, 2004. The
complaint alleges sexual harassment from January 6, 2003 to the middle of March
2003 by a sales supervisor. The Company learned of the situation on March 6,
2003 and at once investigated the situation and terminated the supervisor. A
second temporary worker had made a similar demand on Allergy Free relating to
the same supervisor, but did not timely file a DFEH claim and Allergy Free
presumes she has abandoned her claim. The company does not know at this time
what the outcome of the DFEH investigation will be and the nature of the
resulting liability, if any. However, if the DFEH so designates, ▇▇. ▇▇▇▇▇▇ may
pursue remedies against Allergy Free in the courts. Allergy Free has been
advised by counsel that awards in cases like these have totaled $10,000. The
Company does not know at this time how the DFEH or ▇▇. ▇▇▇▇▇▇ may choose to
proceed, but denies responsibility for the alleged sexual harassment.
WISCONSIN DO NOT CALL COMPLAINT
A customer from Wisconsin contacted us to complain that we had called her in
October 2003, even though she was on the National Do Not Call list. She asked us
to pay her $1,500.00 in return for not reporting us. We declined to pay her and
had an attorney respond. We then filed in the Sate of Wisconsin as a telephone
solicitor and received a registration number. We do not believe anything further
will come from this.
Schedule 6(q) - Page 1
SCHEDULE 6(t)
"PRODUCT LIABILITY CLAIMS SINCE 1/1/2002"
To the best of Seller's knowledge, there have been no product liability claims
since 1/1/2002.
Schedule 6(t) - Page 1
SCHEDULE 7
PURCHASER DISCLOSURE SCHEDULES
Schedule 7
SCHEDULE 7(c)
REQUIRED APPROVALS, NOTICES AND FILINGS
1. Acquisition and related actions in connection with the Acquisition
require approval of Purchaser shareholders.
2. Assignment of royalty rights under the Agway Agreements to the Trust
may require either approval of the successors to Agway, Inc., or sixty (60) days
prior written notice.
3. Approval of sub-Landlord under sub-lease with Conception Technologies
for premises will be required.
4. Planet will be required to file a proxy statement, certain notices, and
other securities related filings and notices with the SEC and/or appropriate
state securities authorities and the NASD.
Schedule 7(c) - Page 1
SCHEDULE 7(f)
LIABILITY EXCEPTIONS
1. Liability for legal, accounting and related transaction expenses,
relating to the Acquisition and actions in connection therewith.
Schedule 7(f) - Page 1
SCHEDULE 7(i)
EXCEPTION TO TITLE
1. Terms of Agway Agreements and ▇▇▇▇ Agreement.
Schedule 7(i) - Page 1
SCHEDULE 7(j)
LEASED REAL PROPERTY
1. Sublease between Conception Technologies and Purchaser
Schedule 7(j) - Page 1
SCHEDULE 7(k)
INTELLECTUAL PROPERTY AND EXCEPTIONS
1. PRODUCTS AND TECHNOLOGIES
Planet used its polymer chemistry expertise to provide water soluble
and degradable technology-based solutions to the current and emerging needs of
the agricultural market principally through its arrangement with Agway.
EnviroPlastic(R) Controlled-Release Technology. Planet's patented
EnviroPlastic controlled-release technology is a proprietary polymer coating
product line with broad application. One use application of this technology
allows fertilizer to be controlled for release over 120 days. The Company has
sought to develop strategic alliances with potential partners and customers and
since 1995 Planet has had a license relationship with Agrium Inc. ("Agrium") to
conduct development work in the use of coatings of fertilizer products. In June
1999, the Company entered into an Amending Agreement with Agrium to allow Planet
and Agway to pursue the development of certain technologies involving
controlled-released coatings.
This coating technology is also utilized to control the release and
transfer rates of nitrogen and oxygen, to assist in controlling the ripening of
fruits and vegetables. Planet entered into a licensing agreement with Agway in
1999 to develop commercial coatings for use on fruits, vegetables, floral and
nursery applications that has resulted in the launch, in October 2000, of
FreshSeal(R) coating for use on fruits and vegetables. Agway is in the early
stages of the extended multi-year commercial rollout of this product family.
Agway's product reception and success to date in the marketplace has been
encouraging and resulted in a very modest royalty-generating license in 2001.
Effective January 15, 2004, Agway sold its rights to FreshSeal(R) to BASF AG.
The Company has also been highly engaged in development work with Agway
since 1999 on the use of its controlled-release technology for animal feed. It
is being evaluated as a specialty coating for urea to allow for more efficient,
controlled release of nitrogen for dairy cows. The product named Optigen(R)1200
by Agway's Country Products Group, was in field testing while it petitioned the
FDA for product approval as a feed additive. Effective January 2004, Agway sold
its rights to Optigen(R) to Alltech.
EnviroPlastic(R) Z Biodegradable and Compostable Plastics. The
Company's patented EnviroPlastic Z materials are biodegradable and compostable
polymers based on the polymer cellulose acetate. Product features include
transparency, fast molding cycles, outstanding processability and controlled
degradation rates from 3 months to 3 years. EnviroPlastic Z materials have been
successfully injection molded and extruded into sheet film. EnviroPlastic Z
materials are targeted for use in products in the packaging and the industrial
markets.
Aquadro(R) Water Soluble Plastics. The Company's patented Aquadro
materials are a polyvinyl alcohol based compound family developed by Planet to
provide cost effective product
Schedule 7(k) - Page 1
solutions for the medical disposable, industrial manufacturing and specialty
packaging films markets. Aquadro can be manufactured into blown film, extrusion
cast film, and injection molded products. Aquadro resins are highly versatile
and can be engineered for flexible or rigid applications. Aquadro can also be
designed to dissolve in hot or cold water environments. The development of
Aquadro is an advancement of Planet's patented EnviroPlastic H technology. No
applications have been commercialized to date.
AQUAMIM(R) Metal Injection Molding. AQUAMIM(R) is designed for the
production of precision metal components utilizing a water debinding process,
which eliminates the need for hazardous solvents or acids. AQUAMIM(R) feedstock
is a mixture of metal powders and the Company's proprietary water soluble
polymer binder. Various industrial and consumer products can be manufactured by
the AQUAMIM(R) technology. The Company currently offers stainless steel
compounds, 316L, 17-4PH, and 420; iron-nickel; tool steels M2, and M4; and heavy
metal alloys, tungsten copper and tungsten carbide cobalt. Although the
AQUAMIM(R) technologies were sold to ▇▇▇▇ Industries in 2001, in April 2003,
Planet recovered these assets as a result of ▇▇▇▇ Industries default under a
Forbearance Agreement and subsequently, on May 1, 2003, resold the AQUAMIM(R)
technology to ▇▇▇▇ Enterprises, LLC.
2. Exceptions:
a. Terms of Agway Agreements and ▇▇▇▇ Agreement.
b. Agway has advised Purchaser that ▇▇▇▇▇▇▇
Technologies, Inc. and RLC Technologies, LLC (collectively "▇▇▇▇▇▇▇")
claim Optigen Patent infringes prior patent of ▇▇▇▇▇▇▇.
Schedule 7(k) - Page 2
SCHEDULE 7(l)
MATERIAL CONTRACTS AND EXCEPTIONS
1. List of Material Contracts
a. Warrant to Purchaser Common Stock, dated March 9, 2000, issued by
the Registrant to LBC Capital Resources, Inc.
b. Registrants 2000 Stock Incentive Plan (the "2000 Plan")
c. Warrant to Purchase Common Stock, dated March 20, 2001, issued by
the Registrant to LBC Capital Resources, Inc.
d. Form of Sale and License Agreement dated March 31, 2003, with Agway,
Inc. (animal feed products)
e. Form of Sale and License Agreement dated March 31, 2003, with Agway,
Inc. (fruit and vegetable products)
f. Form of First Amendment to License Agreement with Agway, Inc.
g. Form of Consulting Agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
h. Purchase, Sale and Licensing Agreement, ▇▇▇▇ Enterprises, as amended
2. Exceptions: None.
Schedule 7(l) - Page 1
SCHEDULE 7(o)(i)
EXCEPTIONS TO COMPLIANCE
None
Schedule 7(o)(i) - Page 1
SCHEDULE 7(o)(iv)
LIST OF GOVERNMENT APPROVALS FOR BUSINESS
See Schedule 7(c).
Schedule 7(o)(iv) - Page 1
SCHEDULE 7(p)(ii)
OBLIGATIONS TO EMPLOYEES/CONSULTANTS
1. Consulting fees to officers or directors for services performed
since December 31, 2003, paid at $100.00/hr consistent with Company practice
during 2002.
Schedule 7(p) - Page 1
SCHEDULE 7(q)
INSURANCE
1. General commercial liability policy and umbrella policy issued
through US1 of San Diego Insurance Services.
Schedule 7(q) - Page 1
SCHEDULE 7(r)
LITIGATION
None.
Schedule 7(r) - Page 1
SCHEDULE 7(u)
PRODUCT CLAIMS
None.
Schedule 7(u) - Page 1
SCHEDULE 8(d)
"INDEPENDENT CONTRACTORS"
1. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ - TRANSITION MANAGEMENT. ▇▇. ▇▇▇▇▇▇▇ will enter into a
consulting agreement with Allergy Free to coordinate the transition of
operations resulting from the Houston facility relocation, and from the
sale of the Company. ▇▇. ▇▇▇▇▇▇▇ will be paid $4,800 per month and his
consulting assignment ends on December 31, 2004. ▇▇. ▇▇▇▇▇▇▇ is
currently President of Allergy Free prior to the acquisition and has
been issued 240,000 common shares.
2. ▇▇▇▇, ▇▇▇▇▇▇▇ - INFORMATION TECHNOLOGY DO NOT CALL (DNC) CONSULTANT.
▇▇. ▇▇▇▇ is an employee of Allergy Free and developed the current
customer database management system, information technology processes,
and developed the DNC processes for the database downloads. ▇▇. ▇▇▇▇
has entered into an agreement with Allergy Free to provide monthly and
quarterly database updates, DNC downloads and other similar duties at
$1500 per month. His assignment ends on December 31, 2004, although at
the discretion of the Company, the agreement may be extended into 2005.
It is understood that these agreement will be assumed by the Buyer.
Schedule 7(k) - Page 2