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AGREEMENT OF PURCHASE AND SALE, dated as of April 17, 2000 (the
"Agreement"), among the entities and individuals listed on Exhibit A annexed
hereto (individually, a "Seller" and collectively, the "Sellers") and Chromatics
Color Sciences International, Inc. , a New York corporation (the "Buyer").
In consideration of the mutual covenants, representations,
warranties and agreements hereinafter set forth, and intending to be legally
bound hereby, the parties hereto agree that (i) the Buyer will purchase from
certain of the Sellers set forth on Exhibit A annexed hereto and such Sellers
shall sell to the Buyer the number of issued and outstanding shares of common
stock, par value $.001 per share, of ▇▇▇▇▇▇ Acquisition Corp., a Delaware
corporation ("▇▇▇▇▇▇ Labs"), set forth opposite such Seller's name on Exhibit A
annexed hereto (collectively, the "Shares"), (ii) the Buyer will purchase from
certain of the Sellers set forth on Exhibit A annexed hereto and such Sellers
shall sell to the Buyer the notes made by ▇▇▇▇▇▇ Labs in favor of such Sellers
in the outstanding principal amounts set forth opposite such Sellers' names on
Exhibit A annexed hereto (individually, a "Note" and collectively, the "Notes")
and (iii) certain of the Sellers shall grant to the Buyer the option to purchase
from such Sellers shares of common stock, par value $.001 per share, of ▇▇▇▇▇▇
Labs on the terms and conditions hereinafter set forth (collectively, the
"Option Shares").
The Shares represent more than 80 percent of the total combined
voting power of all classes of stock of ▇▇▇▇▇▇ Labs entitled to vote and at
least 80 percent of the total number of shares of all other classes of stock of
▇▇▇▇▇▇ Labs. The parties intend the purchase and sale of the Shares to qualify
as a "reorganization" within the meaning of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended, and corresponding provisions of state and
local law.
ARTICLE I
SALES AND TERMS OF PAYMENT
1.1. The Sale. Upon the terms and subject to the conditions of this
Agreement, on the Closing Date (as defined below) (i) certain of the Sellers set
forth on Exhibit A annexed hereto, shall sell, assign, transfer and deliver to
the Buyer the number of Shares set forth opposite such Sellers' names on Exhibit
A annexed hereto, (ii) the Buyer shall purchase from each such Seller the number
of Shares set forth opposite such Seller's name on Exhibit A annexed hereto,
(iii) certain of the Sellers named on Exhibit A annexed hereto shall sell,
assign, transfer and deliver to the Buyer the Notes held by such Sellers, (iv)
the Buyer shall purchase the Notes from such Sellers and (v) certain of the
Sellers set forth on Exhibit A annexed hereto shall grant to the Buyer an
irrevocable option to purchase from such Sellers the Option Shares.
1.2. Purchase Price. (a) Upon the terms and subject to the
conditions contained in this Agreement, in reliance upon the representations,
warranties and agreements of the Sellers contained herein, and in consideration
of the aforesaid sale, assignment, transfer and delivery of the
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Shares, on the Closing Date the Buyer will issue to each Seller selling Shares
hereunder such Seller's percentage interest (as set forth on Exhibit A annexed
hereto) in the number of shares (the "CCSI Shares") of common stock, par value
$.001 per share (the "Common Stock"), of the Buyer determined by dividing the
Estimated Purchase Price (as defined below) by the Price Per Share (as defined
below). As used herein, the "Estimated Purchase Price" shall mean the sum of (i)
Three Million Six Hundred Forty Eight Thousand Nine Hundred Twenty Nine Dollars
($3,648,929) plus (ii) the Price Per Share multiplied by 20,000 plus (iii) the
amount, if any, by which the Estimated Closing Adjusted Net Working Capital (as
defined below) exceeds the negative amount of One Million Forty Seven Thousand
Seven Hundred Eighty Six Dollars ($1,047,786) (the "Target Closing Adjusted Net
Working Capital") or less (iv) the amount, if any, by which the Target Closing
Adjusted Net Working Capital exceeds the Estimated Closing Adjusted Net Working
Capital. As used herein, the "Price Per Share" shall mean the lesser of (A)
$7.25 and (B) the sum of (i) fifty percent (50%) of the arithmetic average of
the closing price of the Common Stock as reported on the NASDAQ Small Cap Market
measured over the ten trading days ending on (and including) March 20, 2000 and
(ii) fifty percent (50%) of the arithmetic average of the closing price of the
Common Stock as reported on the NASDAQ Small Cap Market over the ten trading
days ending on the trading day immediately prior to the Closing Date (as defined
below); provided, however, that in no event will the Price Per Share be less
than $6.29.
(b) Upon the terms and subject to the conditions contained in this
Agreement, in reliance upon the representations, warranties and agreements of
the Sellers contained herein, and in consideration of the aforesaid sale,
assignment, transfer and delivery of the Notes, on the Closing Date the Buyer
will pay or cause to be paid to each Seller set forth on Exhibit A annexed
hereto who is the holder of a Note (other than the ▇▇▇▇▇▇▇ Note (as defined
below)) the amount in cash set forth opposite such Seller's name on Exhibit A
annexed hereto (the "Note Purchase Price"). Upon the terms and subject to the
conditions contained in this Agreement, in reliance upon the representations,
warranties and agreements of the Sellers contained herein, and in consideration
of the aforesaid sale, assignment, transfer and delivery of the ▇▇▇▇▇▇▇ Note,
the Buyer will issue to the holder thereof the number of shares of Common Stock
determined by dividing One Million Two Hundred Sixty Eight Thousand Four Hundred
Forty Four Dollars ($1,268,444) by the Price Per Share. As used in this
Agreement, the ▇▇▇▇▇▇▇ Note means collectively (i) the Subordinated Secured
Promissory Note made by ▇▇▇▇▇▇ Labs in the original principal amount of One
Million Five Hundred Thousand Dollars ($1,500,000) in favor of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustees, ▇▇▇▇▇▇▇ Revocable Family Trust UTD 9/4/91 (the
"Trust"), as to which Eight Hundred Seventy Eight Thousand Fifty Seven Dollars
($878,057) remains outstanding as of the date hereof, (ii) the Subordinated
Secured Promissory Note made by ▇▇▇▇▇▇ Labs in the original principal amount of
Five Hundred Thousand Dollars ($500,000) in favor of the Trust, as to which Two
Hundred Eighty Four Thousand Six Hundred Thirteen Dollars ($284,613) remains
outstanding as of the date hereof and (iii) the Subordinated Secured Promissory
Note made by the Subsidiary in the original principal amount of Four Hundred Ten
Thousand Dollars ($410,000) in favor of the Trust, as to which One Hundred Five
Thousand Seven Hundred Seventy Four Dollars ($105,774) remains outstanding as of
the date hereof.
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(c) Upon the terms and subject to the conditions contained in this
Agreement, in reliance upon the representations, warranties and covenants of the
Buyer contained herein, and in consideration of the aforesaid purchase of the
Shares and the Notes, on the Closing Date each Seller set forth on Exhibit A
annexed hereto who is the holder of Option Shares will grant to the Buyer an
irrevocable option pursuant to the option agreements referred to in Section
2.2(c) to purchase all, but not less than all, of such holder's Option Shares at
any time prior to and including the first anniversary of the Closing Date for
the issuance by the Buyer to the holder of such Option Shares of the number of
shares of Common Stock determined by dividing the Option Purchase Price (as
defined below) for the subject Option Shares by the Option Price Per Share (as
defined below). If not sooner exercised, such options shall be subject to
mandatory exercise by the Buyer on the first anniversary of the Closing Date. As
used herein, the Option Purchase Price shall mean the sum of (i) the Price Per
Share paid by the Buyer for the Shares at the Closing multiplied by the number
of Option Shares being purchased and (ii) simple interest on such amount at the
rate of nine percent (9%) per annum (calculated on the basis of the actual
number of days elapsed in a 365-day year) from the Closing Date to the date of
exercise of such option. As used herein, the Option Price Per Share shall mean
the arithmetic average of the closing price of the Common Stock as reported on
the NASDAQ Small Cap Market measured over the twenty (20) trading days ending on
the trading day immediately prior to the date of the exercise of the relevant
option; provided, however, that in no event will the Option Price Per Share be
less than $6.29.
(d) As used in this Agreement, the term "Closing Adjusted Net
Working Capital" means the amount of the difference (expressed as a positive or
a negative number) between (i) the aggregate value of the current assets of
▇▇▇▇▇▇ Labs as of the Closing (excluding any inventory which is more than
eighteen (18) months old as of the Closing, any accounts receivable of ▇▇▇▇▇▇
Labs which are outstanding and uncollected more than sixty (60) days after the
invoice date as of the Closing and all reclassifications attributed to notes
payable and leases payable) and (ii) the aggregate amount of the current
liabilities of ▇▇▇▇▇▇ Labs as of the Closing, in each case computed in a manner
consistent with the audited financial statements of ▇▇▇▇▇▇ Labs as of May 31,
1999 and for the year then ended.
(e) Two (2) business days prior to the Closing, the Buyer and the
Shareholder Representative (as defined below) shall jointly agree in writing
upon an estimate of the Closing Adjusted Net Working Capital as of the Closing
(the "Estimated Closing Adjusted Net Working Capital") and such Estimated
Closing Adjusted Net Working Capital shall be used to determine the number of
CCSI Shares to be issued to the Sellers at the Closing as set forth in clause
(a) of this Section 1.2.
(f) As soon as practicable after the Closing (but in any event
within ninety (90) business days thereof), the Buyer shall cause its independent
accountants to calculate the actual Closing Adjusted Net Working Capital and
deliver such calculation to the Shareholder Representative (defined below). The
Shareholder Representative shall within thirty (30) business days of receipt of
same (the "Receipt Date") confirm whether or not he agrees with the calculation
of the Closing Adjusted Net Working Capital and, if he does not agree with such
calculation, he will specify within
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forty-five (45) business days of the Receipt Date in reasonable detail the
points of disagreement. The Buyer will provide the Shareholder Representative
and his accountants with reasonable access to the necessary books, records and
working papers. The Buyer and the Shareholder Representative shall then seek to
resolve the points of disagreement. If either the Shareholder Representative
agrees with the Buyer's calculation of the actual Closing Adjusted Net Working
Capital or the Buyer and the Shareholder Representative agree upon the same
(with such further adjustments as they may agree) within sixty (60) business
days of the Receipt Date, the amount so agreed upon shall, subject to the
provisions of clause (g) of this Section 1.2, be the Closing Adjusted Net
Working Capital for all purposes of this Agreement. If the Buyer and the
Shareholder Representative do not agree upon the Closing Adjusted Net Working
Capital pursuant to the procedures set forth above, each of the Buyer and the
Shareholder Representative shall select a firm of independent public accountants
from nationally-recognized accounting firms, and the two selected firms shall
mutually agree upon and appoint an arbitrator (the "Arbitrator") to determine
for all purposes of this Agreement, subject to the provisions of clause (g) of
this Section 1.2, the Closing Adjusted Net Working Capital within ninety (90)
business days of the Receipt Date or as soon thereafter as is practicable. The
Arbitrator's determination of actual Closing Adjusted Net Working Capital must
be within the range of the amounts thereof determined by the Buyer, on the one
hand, and the Shareholder Representative, on the other hand. The fees and
expenses of the Arbitrator shall be payable by the Buyer, on the one hand, and
the Sellers selling Shares, on the other hand, in relative proportions
determined by multiplying the aggregate amount of such fees and expenses by a
fraction, the numerator of which shall be the difference (expressed in dollars)
between the actual Closing Adjusted Net Working Capital as determined by the
Arbitrator and the Closing Adjusted Net Working Capital as determined by such
party or parties, as the case may be, and the denominator of which shall be the
difference (expressed in dollars) between the Closing Adjusted Net Working
Capital figures of the two sides. (For example, if the Buyer determines the
Closing Adjusted Net Working Capital to be $100, the Shareholder Representative
determines it to be $200 and the actual value thereof determined by the
Arbitrator is $160, the fraction of fees of the Arbitrator that the Buyer must
pay equals 60 divided by 100. The fraction of fees that the Sellers must pay
equals 40 divided by 100.)
(g) Notwithstanding anything to the contrary contained herein, in
the event that any accounts receivable which are included in the Estimated
Closing Adjusted Net Working Capital as of the Closing Date have not been
collected in full within sixty (60) days of the invoice date as of the date that
the actual Closing Adjusted Net Working Capital is determined pursuant to clause
(f) of this Section 1.2, the uncollected amount of such accounts receivable
shall be deducted from the actual Closing Adjusted Net Working Capital for all
purposes herein. Any such uncollected accounts receivable shall be assigned,
without recourse, by the Buyer to the Shareholder Representative for the benefit
of all the Sellers.
(h) To the extent that the actual amount of the Closing Adjusted Net
Working Capital (determined in accordance with the procedure set forth in clause
(f) of this Section 1.2) is greater than the Estimated Closing Adjusted Net
Working Capital, the Buyer shall issue to each of the Sellers selling Shares
within five (5) business day of the date of such determination such Seller's
percentage interest (as set forth on Exhibit A annexed hereto) in the number of
CCSI Shares determined by
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dividing the amount of such excess by the Price Per Share. To the extent that
the Estimated Closing Adjusted Net Working Capital is greater than the actual
amount of the Closing Adjusted Net Working Capital (determined in accordance
with the procedure set forth in clause (f) of this Section 1.2), each of the
Sellers selling Shares shall surrender and deliver to the Buyer for cancellation
within five (5) business day of the date of such determination a number of CCSI
Shares equal to such Seller's percentage interest (as set forth on Exhibit A
annexed hereto) in the number of CCSI Shares determined by dividing the amount
of such excess by the Price Per Share.
1.3. Escrow of CCSI Shares. As collateral security for the
indemnification obligations of the Sellers to the Buyer pursuant to Section 8.1,
on the Closing Date each Seller shall deliver a portion of shares of Common
Stock issued to him, her or it at the Closing equal to five percent (5%) of the
aggregate amount of shares of Common Stock so received with Fish & Neave, as
escrow agent (the "Escrow Agent"), to be held and administered in accordance
with the terms and provisions of the Escrow Agreement, to be dated as of the
Closing Date, by and among the Sellers, the Buyers and the Escrow Agent
substantially in the form of Exhibit C annexed hereto.
1.4 Shareholder Representative. The Sellers shall be represented
hereunder by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ (the "Shareholder Representative") with
respect to all matters arising under this Agreement. The Shareholder
Representative has the power and authority on the Sellers' behalf to negotiate,
determine and agree upon any adjustment pursuant to Section 1.2 hereof and to
take all steps deemed necessary, advisable or desirable by him in connection
with any dispute that may arise under this Agreement and to otherwise take on
the Sellers' behalf any and all actions, make on their behalf such
determinations and elections and do on their behalf any and all things
necessary, proper, required, contemplated or deemed advisable or desirable by
him in his discretion, including the execution and delivery of any documents and
generally act for each of them and in their names with respect to this Agreement
or with respect to any matter or issue arising hereunder as fully as each of
them could if he, she or it were then present and acting. All decisions by the
Shareholder Representative shall be binding upon all Sellers. The Shareholder
Representative shall not be liable to any of the Sellers for any error of
judgment, act done in good faith, or mistake of fact or law unless caused by his
own gross negligence or willful misconduct and shall be entitled to treat as
genuine any letter or other document furnished to him by the Buyer or any Seller
and believed by him to be genuine and to have been signed and presented by the
proper party or parties.
ARTICLE II
THE CLOSING
2.1. Time and Place of Closing. Upon the terms and subject to the
conditions contained in this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices of
Patterson, Belknap, ▇▇▇▇ & ▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, at 10:00 A.M. (local time) on such date as the Buyer and the
Shareholder Representative may agree, but in any event within three (3) business
days
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following the date on which all of the conditions to each party's obligations
hereunder have been satisfied or waived; or at such other place or time or both
as the Buyer and the Majority Sellers may agree. The date on which the Closing
actually occurs and the transactions contemplated hereby become effective is
hereinafter referred to as the "Closing Date."
2.2. Deliveries by the Sellers. At the Closing, each Seller will
deliver or cause to be delivered to the Buyer:
(a) The certificate(s) for the Shares to be sold by such
Seller hereunder, duly endorsed for transfer in favor of the Buyer or
accompanied by a duly executed stock power with respect to such certificate(s)
in favor of the Buyer;
(b) the promissory notes representing the Notes or the ▇▇▇▇▇▇▇
Note, as the case may be, held by such Seller, duly endorsed for transfer in
favor of the Buyer or accompanied by a duly executed assignment with respect to
such Note in favor of the Buyer;
(c) an option agreement in the form of Exhibit D annexed
hereto in favor of the Buyer with respect to the Option Shares held by such
Seller;
(d) the resignations of such Seller as an officer and/or
director of ▇▇▇▇▇▇ Labs and the Subsidiary;
(e) the stock books, stock ledgers, minute books and corporate
seal of ▇▇▇▇▇▇ Labs; and
(f) all other documents, instruments and writings required to
be delivered by such Seller at or prior to the Closing Date pursuant to this
Agreement or otherwise in connection herewith.
2.3. Deliveries by the Buyer. At the Closing, the Buyer shall:
(a) Issue to each Seller certificates for the number of CCSI
Shares which such Seller is entitled to receive on the Closing Date pursuant to
the provisions of clause (a) of Section 1.2 duly registered in the name of such
Seller;
(b) Pay to each Seller who is the holder of a Note (other than
the ▇▇▇▇▇▇▇ Note) the Note Purchase Price payable to such Seller as set forth on
Exhibit A annexed hereto by wire transfer of immediately available funds to an
account designated in writing for such purpose by such Seller to the Buyer at
least two (2) business days prior to the Closing Date;
(c) Issue to the Seller who is the holder of the ▇▇▇▇▇▇▇ Note
the number of shares of Common Stock which such Seller is entitled to receive on
the Closing Date pursuant to the provisions of clause (b) of Section 1.2 duly
registered in the name of such Seller; and
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(d) all other documents, instruments and writings required to
be delivered by the Buyer at or prior to the Closing Date pursuant to this
Agreement or otherwise in connection herewith.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as set forth in the schedules being delivered by the Sellers
to the Buyer simultaneously with the execution and delivery hereof
(collectively, the "Schedules," and individually, a "Schedule"), each Seller
hereby represents and warrants to the Buyer solely with respect to himself,
herself or itself in the case of the representations and warranties set forth in
Sections 3.2, 3.4, 3.25, 3.26 and 3.27 and the Sellers hereby jointly and
severally represent and warrant to the Buyer with respect to all other
representations and warranties set forth in this Article III as follows:
3.1. Organization. ▇▇▇▇▇▇ Labs is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. ▇▇▇▇▇▇ Labs is duly
qualified to do business as a foreign corporation and in good standing in each
of the States identified on Schedule 3.1, which States constitute all of the
jurisdictions where ▇▇▇▇▇▇ Labs is required to be so qualified, except where the
failure to be so qualified and in good standing would not, individually or in
the aggregate, have a Material Adverse Effect (as defined below). ▇.▇. ▇▇▇▇▇▇
Manufacturing Co., Inc.,d/b/a ▇▇▇▇▇▇ Laboratories, Inc., a wholly-owned
subsidiary of ▇▇▇▇▇▇ Labs (the "Subsidiary"), is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. The
Subsidiary is duly qualified to do business as a foreign corporation and in good
standing in each of the States identified on Schedule 3.1, which States
constitute all of the jurisdictions where the Subsidiary is required to be so
qualified, except where the failure to be so qualified and in good standing
would not, individually or in the aggregate have a Material Adverse Effect. The
Shareholder Representative has delivered to the Buyer true, correct and complete
copies of the Certificate of Incorporation and By-laws of ▇▇▇▇▇▇ Labs and the
Subsidiary. As used herein, "Material Adverse Effect" shall mean any state or
states of fact, condition or conditions, event or events, circumstance or
circumstances, change or changes, or effect or effects that individually or in
the aggregate (including, without limitation, an aggregate combination of one or
more of the foregoing whether or not related to each other or involving or
affecting the same or different representations, warranties and/or covenants)
are materially adverse to the business, assets, prospects, condition (financial
or otherwise) or results of operations of ▇▇▇▇▇▇ Labs or the Subsidiary.
3.2. Ownership of the Shares, the Notes and the Option Shares and
Authority Relative to this Agreement. Such Seller is the beneficial and record
owner of the Shares, the Notes and the Option Shares set forth opposite such
Seller's name on Exhibit A, free and clear of all liens, charges,
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encumbrances or restrictions on transfer (collectively, "Liens") other than the
Liens created by the ▇▇▇▇▇▇ Acquisition Corp. Shareholders Agreement, dated
April 18, 1996 (the "Stockholders Agreement"). The delivery of the
certificate(s) representing the Shares and the Notes owned by such Seller
pursuant to the provisions of this Agreement will transfer to the Buyer good
title to such Shares and the Notes, free and clear of all Liens. Such Seller has
full power and authority to execute and deliver this Agreement and each other
agreement, document and instrument to be executed or delivered by such Seller
contemplated by this Agreement (the "Seller Documents") and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement or the Seller Documents by such Seller and the consummation of the
transactions contemplated hereby and thereby by such Seller have been duly and
validly authorized by all necessary action on the part of such Seller and no
other proceedings on the part of such Seller are necessary to authorize this
Agreement and the Seller Documents or to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and when executed at
Closing the Seller Documents will be, duly and validly executed and delivered by
such Seller and, assuming the due authorization, execution and delivery by the
Buyer, this Agreement constitutes, and the Seller Documents will constitute, a
legal, valid and binding obligation of such Seller, enforceable against such
Seller in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting creditors' rights generally and by general equitable principles
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
3.3 Capitalization and Subsidiaries. The authorized capital stock of
▇▇▇▇▇▇ Labs consists of 65,001 shares of preferred stock, par value $.001 per
share, of which 65,000 shares are issued and outstanding on the date hereof and
1,000,000 shares of common stock, par value $.001 per share, of which 35,000
shares are issued and outstanding on the date hereof. All of the outstanding
shares of capital stock of ▇▇▇▇▇▇ Labs are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. There is no
subscription, option, warrant, call, right, agreement or commitment relating to
the issuance, sale, delivery, transfer or redemption by ▇▇▇▇▇▇ Labs of any
shares of its capital stock. The authorized capital stock of the Subsidiary
consists of 2,500 shares of common stock, par value $10.00 per share, of which
76 shares are issued and outstanding on the date hereof and registered in the
name of ▇▇▇▇▇▇ Labs. All of the outstanding shares of capital stock of the
Subsidiary are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. There is no subscription, option, warrant, call,
rights, agreement or commitment relating to the issuance, sale, delivery,
transfer or redemption by the Subsidiary of any shares of its capital stock.
Except for the Subsidiary, ▇▇▇▇▇▇ Labs has no subsidiary nor any interest,
direct or indirect, nor has any commitment to purchase any interest, direct or
indirect, in any other corporation or in any partnership, joint venture or other
business enterprise or entity. Except for the Subsidiary, the business of ▇▇▇▇▇▇
Labs has not been conducted through any direct or indirect subsidiary.
3.4 Consents and Approvals; No Violation. There is no requirement
applicable to such Seller to make any filing with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation by such Seller
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of the transactions contemplated by this Agreement and the Seller Documents.
Except as set forth in Schedule 3.4, neither the execution and delivery of this
Agreement and the Seller Documents by such Seller nor the consummation by such
Seller of the transactions contemplated hereby and thereby nor compliance by
such Seller with any of the provisions hereof or thereof will (i) conflict with
or result in any breach of any provision of the Certificate of Incorporation or
By-laws of ▇▇▇▇▇▇ Labs or the Subsidiary, (ii) result in a breach of or default,
or give rise to any right of termination, cancellation or acceleration under,
any of the terms, conditions or provisions of any material note, bond, mortgage,
indenture, license, agreement, lease or other similar material instrument or
obligation to which ▇▇▇▇▇▇ Labs or the Subsidiary is a party or by which any of
its or their properties or assets may be bound, except for such breaches or
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents have been obtained or (iii) violate any order,
judgment, writ, injunction, decree, or any material statute, rule or regulation
applicable to such Seller or ▇▇▇▇▇▇ Labs or the Subsidiary or any of its or
their respective properties or assets.
3.5. Financial Statements and Books and Records. Attached as
Schedule 3.5 are true, correct and complete copies of (i) the audited
consolidated statements of income of ▇▇▇▇▇▇ Labs and the Subsidiary for the
years ended May 31, 1998 and 1999, (ii) the unaudited consolidated statement of
income of ▇▇▇▇▇▇ Labs and the Subsidiary for the nine-month period ended
February 29, 2000 (the "February 29, 2000 Income Statement"), (iii) the audited
consolidated balance sheets of ▇▇▇▇▇▇ Labs and the Subsidiary as of May 31, 1998
and 1999 and (iv) the unaudited consolidated balance sheet of ▇▇▇▇▇▇ Labs and
the Subsidiary as of February 29, 2000 (the "February 29, 2000 Balance Sheet"
and, together with the February 29, 2000 Income Statement, the "February 29,
2000 Financial Statements" and all such financial information referenced in
clauses (i) through (iv) above collectively, the "Financial Statements"). The
Financial Statements fairly present in all material respects the consolidated
financial position of ▇▇▇▇▇▇ Labs and the Subsidiary and the consolidated
results of operations of ▇▇▇▇▇▇ Labs and the Subsidiary for the periods covered
thereby and have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis, except as otherwise noted therein and
except in the case of the February 29, 2000 Financial Statements for the absence
of footnotes and for normal year-end adjustments the effect of which, in the
aggregate, will not be material. The Financial Statements do not contain any
items of nonrecurring income except as expressly specified therein and include
all adjustments (except for normal year-end adjustments), necessary for such
fair presentation.
3.6. Absence of Certain Changes or Events. Except as set forth in
Schedule 3.6 since February 29, 2000 neither ▇▇▇▇▇▇ Labs nor the Subsidiary has
(a) suffered any damage, destruction or casualty loss to its physical properties
which could have a Material Adverse Effect; (b) incurred or discharged any
obligation or liability or entered into any other transaction except for
transactions in the ordinary course of business; (c) suffered any change in its
business, financial condition or in its relationship with its suppliers,
customers, distributors, lessors, licensors, licensees or other third parties
other than changes which individually or in the aggregate could not have a
Material Adverse Effect; (d) increased the rate or terms of compensation or
benefits payable to or to become payable by it to its directors, officers or
employees or increased the rate or terms of any bonus, pension or other employee
benefit plan covering any of its directors, officers or employees except in each
case
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increases occurring in the ordinary course of business in accordance with its
customary practice constituting normal periodic performance reviews and related
compensation and benefits increases; (e) incurred any indebtedness for borrowed
money; (f) forgiven or canceled any indebtedness owing to it or waived any
claims or rights of material value; (g) sold, leased, licensed or otherwise
disposed of any of its assets other than (i) sales of inventory and (ii) sales
of obsolete and unused tangible personal property, in each case in the ordinary
course of business; (h) suffered any Material Adverse Effect; or (i) committed
pursuant to a legally binding agreement to do any of the things set forth in
clause (b) and clauses (d) through (g) above.
3.7. Title to Assets. Each of ▇▇▇▇▇▇ Labs and the Subsidiary has
good title to all of the assets, properties and rights which it owns or purports
to own (except for sales of inventory and obsolete and unused tangible personal
property in the ordinary course of business since the date of the February 29,
2000 Balance Sheet), free and clear of all Liens, except Permitted Liens (as
defined in Section 9.8). Each of ▇▇▇▇▇▇ Labs and the Subsidiary has a valid
leasehold interest or, except as set forth in Schedule 3.7 hereto, a
royalty-free license to all of the assets, properties and rights which it leases
or licenses or purports to lease or license.
3.8. Certain Contracts. Except as set forth in Schedule 3.8 and for
normal customary orders for the purchase of supplies or services entered into in
the ordinary and customary course of business on standard terms and conditions,
there are no agreements, contracts or commitments of ▇▇▇▇▇▇ Labs or the
Subsidiary (i) involving the employment or retention of any employee or
consultant, (ii) involving an obligation of more than $10,000 on the part of
▇▇▇▇▇▇ Labs or the Subsidiary, (iii) involving any indebtedness for borrowed
money, (iv) involving any union or collective bargaining agreements applicable
to employees of ▇▇▇▇▇▇ Labs or the Subsidiary or (v) involving distributor
agreements and supply agreements affecting ▇▇▇▇▇▇ Labs or the Subsidiary which
are not terminable without penalty by ▇▇▇▇▇▇ Labs or the Subsidiary at will
(collectively, the "Material Contracts"). There is not, under any of the
Material Contracts, any material existing default or event of default which,
with or without due notice or lapse of time or both, would constitute a material
default or event of default on the part of ▇▇▇▇▇▇ Labs or the Subsidiary. Each
Material Contract is a valid and binding obligation of ▇▇▇▇▇▇ Labs or the
Subsidiary, as the case may be, and to the knowledge of the Management Sellers
the other party thereto, enforceable in accordance with its terms, except as
such enforceability may be limited by the effect of bankruptcy, insolvency or
similar laws affecting creditors' rights generally or by general principles of
equity, and is in full force and effect.
3.9. Legal Proceedings, etc. There are no actions, suits,
proceedings or any legal, administrative, arbitration or other proceedings or
governmental investigations pending or threatened in writing against ▇▇▇▇▇▇ Labs
or the Subsidiary or which seek to question, delay or prevent the consummation
of or would potentially impair the ability of the Sellers to consummate the
transaction contemplated hereby. There is not outstanding any order, writ,
injunction, award or decree of any court or arbitrator or any federal, state,
municipal or other governmental department, commission, board, agency or
instrumentality with respect to or affecting ▇▇▇▇▇▇ Labs or the Subsidiary.
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3.10. Employee Benefit Plans. The Sellers have made available to the
Buyer each written employee welfare or other benefit plan or policy (including,
without limitation, any "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended "ERISA"),
maintained by ▇▇▇▇▇▇ Labs or the Subsidiary (collectively, the "▇▇▇▇▇▇ Labs
Benefit Plans"), each of which is identified on Schedule 3.10. The sale of the
Shares and the Notes under this Agreement will not result in ▇▇▇▇▇▇ Labs or the
Subsidiary incurring or suffering any liability as a result thereof under any
▇▇▇▇▇▇ Labs Benefits Plan. Except as indicated in Schedule 3.10, there are no
unfunded accrued benefits under any of the ▇▇▇▇▇▇ Labs Benefit Plans and no
amounts are or will be required to be contributed by ▇▇▇▇▇▇ Labs or the
Subsidiary in respect of any plan year under any such ▇▇▇▇▇▇ Labs Benefit Plan.
Except as indicated in Schedule 3.10, no present or former employee of ▇▇▇▇▇▇
Labs or the Subsidiary is currently claiming in writing to ▇▇▇▇▇▇ Labs or the
Subsidiary or is entitled to any health care related benefits mandated by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), or
any of the rules or regulations thereunder.
3.11. Taxes. Except as set forth on Schedule 3.11, all taxes, fees,
assessments and charges, including, without limitation, income, property, sales,
use, franchise, added value, employees' income withholding and social security
taxes, imposed by the United States or by any foreign country or by any state,
municipality, subdivision or instrumentality of the United States or of any
foreign country, or by any other taxing authority, which are due or payable by
▇▇▇▇▇▇ Labs on or prior to the date hereof, or for which ▇▇▇▇▇▇ Labs or the
Subsidiary may be liable on or prior to the date hereof (including any for which
▇▇▇▇▇▇ Labs or the Subsidiary may be liable by reason of its being a member of
an affiliated, consolidated or combined group with any other company at any time
on or prior to the Closing Date), and all interest and penalties thereon
(collectively, "Taxes" or "Tax"), have been paid in full, or, if not due on or
prior to the date hereof but due on or prior to the Closing Date, will be timely
paid in full when due, all Tax returns required to be filed in connection
therewith have been, or will be timely and accurately prepared in all material
respects and filed, and all deposits required by law to be made by ▇▇▇▇▇▇ Labs
or the Subsidiary with respect to its employees and other withholding Taxes due
on or prior to the date hereof have been duly made or, if not due on or prior to
the date hereof but due on or prior to the Closing Date, will be timely and duly
made. No deficiency for any Tax or claim for additional Taxes relating to or
affecting in any manner ▇▇▇▇▇▇ Labs or the Subsidiary has been proposed,
asserted or assessed against ▇▇▇▇▇▇ Labs or the Subsidiary in writing by the
applicable taxing authority.
3.12. Intellectual Property.
(a) Schedule 3.12(a) sets forth a list of all of the patents,
patent applications, patent licenses, trademark licenses, software licenses and
know-how licenses, trade names, trademarks, trademark applications and
registrations, URLs, domain names, website names, copyrights, service marks,
service ▇▇▇▇ registrations and applications and copyright registrations and
applications currently used by ▇▇▇▇▇▇ Labs or the Subsidiary (the "Intellectual
Property").
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(b) Except as set forth on Schedule 3.12(b), ▇▇▇▇▇▇ Labs or
the Subsidiary owns the Intellectual Property, free and clear of all Liens
(other than Permitted Liens), or has a valid royalty-free right to use the
Intellectual Property in all media. Except as set forth in Schedule 3.12(b), (i)
no Intellectual Property nor ▇▇▇▇▇▇ Lab's or the Subsidiary's use thereof
infringes on the rights owned or held by any other person and (ii) there is no
claim or litigation pending or threatened in writing against ▇▇▇▇▇▇ Labs or the
Subsidiary asserting infringement or violation by ▇▇▇▇▇▇ Labs or the Subsidiary
of the intellectual property rights of any other person or contesting the right
of ▇▇▇▇▇▇ Labs or the Subsidiary to sell or the right of ▇▇▇▇▇▇ Labs or the
Subsidiary to use any of the Intellectual Property.
3.13. Compliance with Law; Licenses. Except as set forth in Schedule
3.13 and except with respect to laws, rules and regulations relating to
environmental matters which are addressed in Section 3.20, each of ▇▇▇▇▇▇ Labs
and the Subsidiary is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, any applicable laws,
rules, regulations, ordinances, codes, orders, judgments or decrees as to
hiring, employment, health and/or safety matters, with respect to its respective
business except where the failure to so comply would not have a Material Adverse
Effect. Except as would not have a Material Adverse Effect, each of ▇▇▇▇▇▇ Labs
and the Subsidiary has all of the licenses, permits and other governmental
authorizations required for the operation of its business as conducted as of the
date of this Agreement (the "Licenses"), each of which is identified on Schedule
3.13.
3.14 Employees. Schedule 3.14 is a true and complete list of the
name of each individual who is employed or retained or compensated as an
independent contractor or consultant (either directly or indirectly) by ▇▇▇▇▇▇
Labs or the Subsidiary on the date hereof along with his or her current job
title, compensation and any employee benefits enjoyed by such individual which
are not generally available to employees of ▇▇▇▇▇▇ Labs or the Subsidiary.
3.15 Accounts Receivable. Schedule 3.15 contains a true and complete
list and aging of the accounts receivable of ▇▇▇▇▇▇ Labs or the Subsidiary as of
the date set forth thereon. All of such accounts receivable represent actual
indebtedness incurred by the applicable customer or debtor, have arisen in the
ordinary course of business, are not subject to offset or any prior assignment,
claim or Lien whatsoever.
3.16 Insurance. All of the material assets and properties of ▇▇▇▇▇▇
Labs and the Subsidiary are insured for its benefit and will be so insured
through the Closing Date, in amounts and against risks consistent with levels
and types commonly used in the industry in which ▇▇▇▇▇▇ Labs and the Subsidiary
operate. Schedule 3.16 contains a true and complete list of all policies
providing such insurance.
3.17. Undisclosed Liabilities. Except as set forth in Schedule 3.17,
neither ▇▇▇▇▇▇ Labs nor the Subsidiary has any liability or obligation of any
kind or nature (fixed or contingent) that is required to be reflected on a
balance sheet in accordance with generally accepted accounting principles which
is not reflected, reserved against or disclosed in the February 29, 2000
Financial
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Statements or expressly disclosed elsewhere in the Schedules, except for
liabilities incurred since February 29, 2000 in the ordinary and customary
course of business and liabilities under this Agreement or under contracts
disclosed in the Schedules.
3.18. Adequacy of Assets. Except as set forth in Schedule 3.18, the
assets used, leased or licensed by ▇▇▇▇▇▇ Labs and the Subsidiary in the conduct
of its business are in all material respects in good operating condition and
repair (ordinary wear and tear excepted) and include all assets, properties and
rights which are necessary for the conduct of the business of ▇▇▇▇▇▇ Labs and
the Subsidiary as currently conducted.
3.19 Year 2000. The assets of ▇▇▇▇▇▇ Labs and the Subsidiary,
including, without limitation, all computer software, hardware, firmware,
business processed and business systems, process controls and equipment
containing date-sensitive chips, processes or systems are Year 2000 compliant so
that they are able to recognize, process, interface with, exchange or receive
date-related data for the dates within and between the 20th and 21st centuries,
except where the failure to be so compliant would not have a Material Adverse
Effect.
3.20 Environmental Compliance. Except as set forth on Schedule 3.20,
each of ▇▇▇▇▇▇ Labs and the Subsidiary has no material liability under and is in
material compliance with all applicable Environmental Laws (as defined below).
Except as set forth on Schedule 3.20, neither ▇▇▇▇▇▇ Labs nor the Subsidiary has
received any communications (written or oral), whether from a governmental
authority, citizens group, employee or otherwise that alleges that ▇▇▇▇▇▇ Labs
or the Subsidiary is not in such material compliance. As used herein
"Environmental Laws" means all federal, state, local and foreign laws and
regulations relating to pollution or the protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata).
3.21. Books and Records. The books of account, minute books, stock
record books and other records of each of ▇▇▇▇▇▇ Labs and the Subsidiary are
true, correct and complete in all material respects and have been maintained in
accordance with sound business practices.
3.22. Product Warranty and Product Liability. Except as set forth on
Schedule 3.22, neither ▇▇▇▇▇▇ Labs nor the Subsidiary provides warranty coverage
with respect to any of its products or services and there are no product
liability claims pending or threatened in writing against ▇▇▇▇▇▇ Labs or the
Subsidiary.
3.23. Suppliers and Customers. Schedule 3.23 sets forth a true and
correct list of the ten largest suppliers of goods and services to each of
▇▇▇▇▇▇ Labs and the Subsidiary (by dollar volume) for the nine months ended
February 29, 2000 and the ten largest purchasers of goods and services from each
of ▇▇▇▇▇▇ Labs and the Subsidiary for the nine months ended February 29, 2000.
Except as set forth on Schedule 3.23, since February 29, 2000 none of the
suppliers or customers listed on Schedule 3.23 has terminated its relationship
with ▇▇▇▇▇▇ Labs or the Subsidiary or
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threatened in writing to do so or to change its relationship with ▇▇▇▇▇▇ Labs or
the Subsidiary in a manner which could have a Material Adverse Effect.
3.24 Absence of Territorial Restrictions. Neither ▇▇▇▇▇▇ Labs nor
the Subsidiary is a party to any contract or other agreement which restricts in
any way its ability to conduct business in any geographic territory.
3.25 Accredited Investor Status. Such Seller is an "accredited
investor" within the meaning of Rule 501(a) promulgated under the Securities Act
(as defined below).
3.26 Private Placement. Such Seller is acquiring the shares of
Common Stock to be issued to it hereunder for investment purposes only for his,
her or its own account and not with a view to the sale or distribution of any
part thereof except as otherwise permitted by law or as contemplated by Section
5.10 below. Such Seller understands that such Shares of Common Stock will bear
the legend set forth in Section 5.11 and may not be sold, transferred or
otherwise disposed of without registration under the Securities Act (as defined
below) or the availability of an exemption therefrom.
3.27. Information About the Buyer. Such Seller has received and
reviewed all information he, she or it considered necessary or appropriate for
the purpose of deciding whether to purchase the shares of Common Stock to be
issued to him, her or it hereunder. Such Seller has had an opportunity to ask
questions of and receive answers from the Buyer and its representatives
regarding the terms and conditions of the purchase of the shares of Common Stock
contemplated hereby and regarding the business, financial affairs and other
aspects of the Buyer and has further had the opportunity to obtain all
information which such Seller deemed necessary to evaluate his, her or its
investment in the shares of Common Stock contemplated hereby and to verify the
accuracy of the information regarding the Buyer otherwise provided to him, her
or it in connection with such investment.
3.28 No Implied Representations. Notwithstanding anything to the
contrary herein, (i) it is the explicit intent of each party hereto that the
Sellers have not made and are not making any representation or warranty
whatsoever, express or implied, beyond those expressly given in this Agreement,
including, but not limited to, any implied warranty or representation as to the
future business, results of operations, financial condition or prospects of the
Company or as to the values, condition, merchantability or suitability of any of
the properties or assets of the Company and (ii) it is understood and agreed
that any cost estimates, projections or other predictions contained or referred
to in the Schedules or in the information provided by any party to any other
party (or their affiliates, agents, employees or representatives) are not and
shall not be deemed to be representations or warranties of such party or any of
their affiliates, agents, employees or representatives.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
Except as set forth in the schedules being delivered by the Buyer to
the Sellers, simultaneously with the execution and delivery hereof the Buyer
represents and warrants to the Sellers as follows:
4.1. Organization. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of New York and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, except where the failure to
be so existing and in good standing or to have such power and authority would
not individually or in the aggregate have a material adverse effect on the
business, operations, prospects or financial condition of the Buyer.
4.2. Authority Relative to this Agreement. The Buyer has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Buyer and the consummation of the transactions
contemplated hereby by the Buyer have been duly and validly authorized by all
necessary action on the part of the Buyer and no other proceedings on the part
of the Buyer are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Buyer and, assuming the due authorization,
execution and delivery by the Sellers, this Agreement constitutes a legal, valid
and binding obligation of the Buyer, enforceable against the Buyer in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally and by general equitable principles (regardless of
whether enforceability is considered in a proceeding in equity or at law).
4.3. Consents and Approvals; No Violation. There is no requirement
applicable to the Buyer to make any filings with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation by the Buyer of the transactions
contemplated by this Agreement other than the filings with the Securities and
Exchange Commission (the "SEC") contemplated by Section 5.10. Neither the
execution and delivery of this Agreement by the Buyer nor the consummation by
the Buyer of the transactions contemplated hereby nor compliance by the Buyer
with any of the provisions hereof will (i) conflict with or result in a breach
of any provision of the Certificate of Incorporation or By-laws of the Buyer,
(ii) result in a breach of or default, or give rise to any right of termination,
cancellation or acceleration under, any of the terms, conditions or provisions
of any material note, bond, mortgage, indenture, license, agreement, lease or
other similar material instrument or obligation to which the Buyer is a party or
by which any of the Buyer's properties or assets may be bound, except for such
breaches or defaults (or rights of termination, cancellation or acceleration) as
to which requisite waivers or consents have been obtained or (iii) violate any
order, judgment, writ, injunction, decree, statute, rule or regulation
applicable to the Buyer or any of the Buyer's properties or assets.
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4.4. Reports and Financial Statements. The Buyer has previously
furnished the Sellers with true, correct and complete copies, as amended or
supplemental, of its Annual Reports on Form 10-K for the years ended December
31, 1998 and 1999, as filed with the SEC (collectively, the "Buyer Commission
Filings"). The Buyer Commission filings, as of their respective dates (as
amended or supplemented), did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The audited consolidated financial statements of the
Buyer included in the Buyer Commission Filings comply as to form in all material
respects with the applicable accounting requirements and published rules and
regulations of the SEC with respect thereto, and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and fairly
present the consolidated financial position of the Buyer as at the dates thereof
and the results of its operations and its cash flows for the periods then ended.
Buyer has timely filed all forms, reports and documents required to be filed by
it subsequent to March 31, 1999 with the Securities and Exchange Commission (the
"Securities Reports"). None of the Securities Reports 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. Each Securities Report was prepared in accordance with the
requirements of applicable law.
4.5. Absence of Certain Changes or Events. Except as set forth on
Schedule 4.5, since December 31, 1999 the Buyer has not (a) suffered any damage,
destruction or casualty loss to its physical properties which could have a
material adverse effect on its business, assets, prospects, condition (financial
or otherwise) or results of operations; (b) incurred or discharged any
obligation or liability or entered into any other transaction except for
transactions in the ordinary course of business; or (c) suffered any change in
its business, financial condition or in its relationship with its suppliers,
customers or other third parties other than changes which individually or in the
aggregate could not have a material adverse effect on its business, assets,
prospects, condition (financial or otherwise) or results of operations.
4.6 Investment Intention. The Buyer has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of acquiring the Shares. The Buyer confirms that the
Sellers have made available to the Buyer the opportunity to ask questions of the
officers and management of ▇▇▇▇▇▇ Labs and the Subsidiary and to acquire
additional information about the business, assets and financial condition of
▇▇▇▇▇▇ Labs and the Subsidiary. The Buyer is acquiring the Shares for investment
only, and not with a view toward or for sale in connection with any distribution
thereof, or with any present intention of distributing or selling any of the
Shares. The Buyer understands that the transactions contemplated hereby have not
been, and will not be, the subject of a registration statement filed under the
Securities Act of 1933, as amended (the "Securities Act"), or qualified under
applicable states securities law, by reason of a specific exemption from the
registration provisions of the Securities Act and the qualification provisions
of the applicable state securities laws. The Buyer understands that none of the
Shares may be resold unless such resale is
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registered under the Securities Act and qualified under applicable state
securities laws, or an exemption from such registration and qualification is
available.
ARTICLE V
COVENANTS OF THE PARTIES
5.1. Conduct of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Closing Date, the
Sellers will cause each of ▇▇▇▇▇▇ Labs and the Subsidiary to conduct its
business solely according to its ordinary and usual course of business and
consistent with past practices. Without limiting the generality of the
foregoing, and, except as otherwise contemplated by this Agreement or disclosed
on Schedule 5.1, prior to the Closing Date, without the prior written consent of
the Buyer, the Sellers will not permit ▇▇▇▇▇▇ Labs or the Subsidiary to:
(a) (i) increase in any manner the compensation of any of the
directors, officers or other employees of its business, except such increases as
are granted in the ordinary course of business in accordance with its customary
practices; (ii) pay or agree to pay any pension, retirement allowance or other
employee benefit not required by any existing plan, agreement or arrangement to
any such director, officer or employee, whether past or present; or (iii) commit
itself to any additional pension, profit-sharing, bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan, agreement
or arrangement, or to any employment agreement or consulting agreement (arising
out of prior employment) with or for the benefit of any person, or, to amend any
of such plans or any of such agreements in existence on the date hereof;
(b) sell, transfer, mortgage, or otherwise dispose of, or
agree to sell, transfer, or otherwise dispose of, any properties or assets of
its business, real, personal or mixed except for sales of inventory in the
ordinary course of business;
(c) permit any of the current insurance (or reinsurance)
policies of its business to be canceled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with such termination, cancellation
or lapse, replacement policies providing coverage equal to or greater than
coverage remaining under those canceled, terminated or lapsed are in full force
and effect;
(d) enter into any agreement, commitment or contract with
respect to its business, except those made in the ordinary course of business
which if entered into prior to the date hereof would not have been required to
be disclosed pursuant to Section 3.8;
(e) fail to maintain its assets and properties in good repair
and condition, reasonable ordinary wear and tear excepted;
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(f) issue any additional shares of its capital stock or any
options, warrants or other securities which are exercisable, convertible or
exchangeable for shares of its capital stock except pursuant to currently
existing contracts listed on Schedule 5.1(f) annexed hereto; or
(g) perform, take any action or incur or permit to exist any
of the acts, transactions, events or occurrences of the type described in
clauses (b), (d), (e), (f), (g) or (i) of Section 3.6, which would have been
inconsistent with the representations and warranties set forth in Section 3.6
had the same occurred after February 29, 2000 and prior to the date hereof.
5.2 Changes In Information. During the period from the date of this
Agreement to the Closing Date, the Sellers shall give the Buyer prompt written
notice of any change in, or any of the information contained in, the
representations and warranties of the Sellers made in this Agreement or of any
event or circumstance which, if it had occurred on or prior to the date hereof,
would cause any of the representations and warranties of the Sellers made in
this Agreement which are not by their express terms qualified by materiality not
to be true and correct in all material respects or would cause any of the
representations and warranties of the Sellers made in this Agreement which are
by their express terms qualified by materiality not to be true and correct in
all respects. It is understood and agreed that upon receipt of any such updated
disclosure the Buyer shall retain the right to terminate the Agreement pursuant
to the provisions of Section 7.1(c); provided, however, that if the Buyer does
not so elect to terminate the Agreement and proceeds with the Closing, it shall
be deemed to have waived any claim it may have against the Sellers for breach of
any representations and warranties of the Sellers contained in this Agreement
arising as a result of the facts disclosed in such updated disclosure.
5.3. Access to Information. Between the date of this Agreement and
the Closing Date, the Sellers will (i) give the Buyer and its authorized
representatives reasonable access to all books, records, offices and other
facilities and properties of ▇▇▇▇▇▇ Labs and the Subsidiary, (ii) permit the
Buyer to make such inspections thereof, during regular business hours, as the
Buyer may reasonably request and (iii) cause its officers to furnish the Buyer
with such financial and operating data and other information with respect to the
business of ▇▇▇▇▇▇ Labs and the Subsidiary as the Buyer may from time to time
reasonably request; provided, however, that any such investigation shall be
conducted in such a manner as not to interfere unreasonably with the operation
of the business of ▇▇▇▇▇▇ Labs and the Subsidiary.
5.4. Expenses. Except as otherwise specifically provided in this
Agreement (including without limitation Section 9.12), whether or not the
transactions contemplated hereby are consummated, all costs and expenses
incurred by the Buyer in connection with this Agreement and the transactions
contemplated hereby will be paid by the Buyer and all costs and expenses
incurred by the Sellers in connection with this Agreement and the transactions
contemplated hereby will be paid by the Sellers.
5.5. Best Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto will use his, her or its reasonable
efforts to take, or cause to be taken, all action, and
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to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. The parties hereto acknowledge that
time shall be of the essence in this Agreement and agree not to take any action
that will have the effect of unreasonably delaying, impairing or impeding the
receipt of any required authorizations, consents, orders or approvals.
5.6. Public Announcements. Prior to the Closing Date, none of ▇▇▇▇▇▇
Labs, the Subsidiary, the Sellers or the Buyer shall issue any press release or
otherwise make any public disclosure with respect to the terms of this Agreement
and the transactions contemplated hereby without the prior approval of all of
the parties hereto, except as may be required in the opinion of the Buyer's
counsel by applicable securities law in the case of the Buyer. If the Buyer and
its counsel determine that a press release or other public disclosure by the
Buyer is required by applicable securities law prior to the Closing with respect
to the terms of this Agreement and the transactions contemplated hereby, the
Buyer shall use commercially reasonable efforts to provide the Shareholder
Representative with prior notice of and an opportunity to comment upon the text
of any such press release or other public disclosure.
5.7. Further Assurances. From time to time, without further
consideration, each of the Sellers will, at the expense of Buyer, execute and
deliver such documents to the Buyer as the Buyer may reasonably request in order
more effectively to consummate the transactions contemplated hereby. From time
to time, without further consideration, the Buyer will, at the expense of the
requesting Seller, execute and deliver such documents as such Seller may
reasonably request in order more effectively to consummate the transactions
contemplated hereby.
5.8. Brokers. The Sellers jointly and severally represent and
warrant to the Buyer that except for Global Vantage Limited, no broker, finder
or other person is entitled to any brokerage fees, commissions or finder's fees
from the Sellers or ▇▇▇▇▇▇ Labs in connection with the transactions contemplated
hereby. The Sellers will jointly and severally pay or discharge, and will
jointly and severally indemnify and hold the Buyer and ▇▇▇▇▇▇ Labs harmless from
and against, any and all claims or liabilities for all brokerage fees,
commissions and finder's fees incurred in connection with the transactions
contemplated hereby by reason of any action taken by the Sellers. The Buyer
represents and warrants to the Sellers that no broker, finder or other person is
entitled to any brokerage fees, commissions or finder's fees from the Buyer in
connection with the transactions contemplated hereby. The Buyer will pay or
discharge, and will indemnify and hold the Sellers harmless from and against,
any and all claims or liabilities for all brokerage fees, commissions and
finder's fees incurred in connection with the transactions contemplated hereby
by reason of any action taken by the Buyer.
5.9. No Shop. Prior to the Closing Date or earlier termination of
this Agreement, none of the Sellers shall nor shall any Seller authorize or
permit any of its affiliates or any investment banker, attorney, accountant or
other representative retained by such Seller or any such affiliate to, solicit,
encourage (including by way of furnishing information), entertain, respond to or
take any other action to facilitate, any inquiries or the making of any proposal
to merge or consolidate with
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▇▇▇▇▇▇ Labs or the Subsidiary or to otherwise acquire in any manner ▇▇▇▇▇▇ Labs
or the Subsidiary, or any of its or their assets, other than in connection with
the transactions contemplated by this Agreement.
5.10 Securities Act Registration. The Buyer shall register the
shares of Common Stock issuable to the Sellers pursuant to the terms of this
Agreement under the Securities Act of 1933, as amended (the "Securities Act"),
in accordance with the provisions of this Section 5.10.
(a) The Buyer shall register the shares of Common Stock issued
to the Sellers on the Closing Date for resale by the Sellers pursuant to a
registration statement on Form S-3 (the "Resale Registration Statement") and
shall use its reasonable best efforts to have the Resale Registration Statement
filed with the Securities Exchange Commission (the "SEC") on or prior to the
fifth business day after the Buyer has received all financial information from
▇▇▇▇▇▇ Labs and the Subsidiary necessary for the Buyer to prepare the Resale
Registration Statement.
(b) In connection with each registration of the shares of
Common Stock under the Securities Act contemplated by this Section 5.10 the
Buyer shall:
(i) prepare and file with the SEC a Resale
Registration Statement with respect to such shares of Common Stock and use its
commercially reasonable best efforts to cause such Resale Registration Statement
to become effective as soon as practicable after such filing;
(ii) prepare and file with the SEC such amendments and
supplements (including post-effective amendments and supplements) to any Resale
Registration Statements covering such shares of Common Stock and the prospectus
used in connection therewith as may be necessary to keep such Resale
Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all shares of Common Stock
covered thereby until the expiration of the earlier of the sale of all of the
shares of Common Stock covered thereby or the expiration of three hundred and
sixty (360) days after the effective date thereof, including without limitation,
any such amendments necessary to register for resale by the Sellers any shares
of Common Stock issued pursuant to Section 1.2(h);
(iii) in the case of a Resale Registration Statement
furnish to the Sellers holding the shares of Common Stock registered thereunder
such number of copies of a prospectus and preliminary prospectus in conformity
with the requirements of the Securities Act, and such other documents as such
holders may reasonably request, in order to facilitate the public sale or other
disposition of such shares of Common Stock;
(iv) notify each Seller holding shares of Common Stock
registered thereunder if, at any time when a prospectus relating to the sale of
such shares of Common Stock is required to be delivered under the Securities Act
in connection with a registration effected by the Buyer, any event shall have
occurred as a result of which the prospectus then in use with respect to such
shares of Common Stock would include an untrue statement of a material fact or
omit to state
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a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which made
or for any other reason it shall be necessary to amend or supplement such
prospectus in order to comply with the Securities Act, and prepare and furnish
to each such Seller a reasonable number of copies of a supplement to or an
amendment of such prospectus which will correct such statement or omission or
effect such compliance;
(v) use its commercially reasonable best efforts to
register or qualify the shares of Common Stock in connection with a registration
effected by the Buyer under such other securities or blue sky laws of such
jurisdictions as such holder shall reasonably request, to keep such
registrations and qualifications in effect for so long as the registration
statement relating to such shares of Common Stock remains in effect, and to do
any and all other acts and things which may be necessary or desirable to enable
each Seller to consummate the public sale or other disposition in each such
jurisdiction of such Seller's shares of Common Stock registered thereby;
provided, however, that the Buyer will not be required to (A) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (b)(v) or (B) consent to general service of process in
any such jurisdiction;
(vi) keep the Sellers holding the shares of Common Stock
registered thereunder informed of the Buyer's best estimate of the earliest date
on which such registration statement or any post-effective amendment or
supplement thereto will become effective and promptly notify such holders of the
following: (A) when such registration statement or any post-effective amendment
or supplement thereto becomes effective or is approved, (B) of the issuance by
any competent authority of any stop order suspending the effectiveness or
qualification of such registration statement or the prospectus then in use or
the initiation or threat of any proceeding for that purpose, and (C) of the
suspension of the qualification of any shares of Common Stock included in such
registration statement for sale in any jurisdiction;
(vii) cooperate with each Seller and give such Seller
and his, her or its counsel and accountants such access to its books and records
and such opportunities to discuss the business of the Buyer with its officers
and independent public accountants as shall be necessary to enable such Seller
to conduct a reasonable investigation within the meaning of the Securities Act;
and
(viii) pay all costs and expenses incident to the
performance and compliance by the Buyer with the provisions of this Section
5.10, including without limitation, (A) all registration and filing fees, (B)
all printing expenses, (C) all fees and disbursements of counsel and independent
public accountants for the Buyer, including, without limitation, the entire
expense of any special audits required by the rules and regulations of the SEC,
(D) all blue sky fees and expenses (including fees and expenses of counsel in
connection with blue sky surveys) and (E) the cost of distributing prospectuses
in preliminary and final form as well as any supplements thereto; expressly
excluding, however, commissions relating to the shares of Common Stock sold and
the fees and expenses of counsel to such holders.
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(c) (i) The Buyer will indemnify and hold harmless each Seller and
each person, if any, who Controls (as defined below) such Seller from and
against any and all losses, claims, damages, liabilities and legal and other
expenses (including costs of investigation) caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement under which such Seller's shares of Common Stock were registered under
the Securities Act, any prospectus or preliminary prospectus contained therein
or any amendment or supplement thereto, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which made, except to the extent that such losses, claims,
damages, liabilities or expenses are caused by any such untrue statement or
omission or alleged untrue statement or omission included in reliance upon and
in conformity with information furnished to the Buyer in writing by such Seller
expressly for use therein. As used herein, a person "Controls" another person if
such first person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such second person,
whether through the ownership of voting securities, by contract or otherwise.
(ii) It shall be a condition to the obligation of the
Buyer to effect a registration of shares of Common Stock under the Securities
Act pursuant hereto that each Seller indemnify and hold harmless the Buyer and
each person, if any, who Controls the Buyer to the same extent as the indemnity
from the Buyer in the foregoing paragraph, but only with reference to
information included in reliance upon and in conformity with information
furnished to the Buyer in writing by such Seller expressly for use in the
registration statement, any prospectus or preliminary prospectus contained
therein or any amendment or supplement thereto;
(iii) In case any claim shall be made or any proceeding
(including any governmental investigation) shall be instituted involving any
indemnified party in respect of which indemnity may be sought pursuant to this
paragraph (c), such indemnified party shall promptly notify the indemnifying
party in writing of the same; provided, however, that failure to notify the
indemnifying party shall not relieve it from any liability it may have to an
indemnified party otherwise than under this paragraph (c). The indemnifying
party, upon request of the indemnified party or parties, shall retain one
counsel reasonably satisfactory to the indemnified party or parties to represent
the indemnified party or parties in such proceeding and shall pay the reasonable
fees and disbursements of such counsel. In any such claim or proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees
and disbursements of such counsel shall be at the expense of such indemnified
party unless (A) the indemnifying party or parties shall have failed to retain
counsel for the indemnified party as aforesaid, (B) the indemnifying party and
such indemnified party or parties shall have mutually agreed to the retention of
such counsel or (C) representation of such indemnified party or parties by the
counsel retained by the indemnifying party would be inappropriate in the opinion
of counsel to such indemnified party due to actual or potential conflicts of
interest between such indemnified party and any other party represented by such
counsel in such proceeding; provided that the Buyer shall not be liable for the
fees and disbursements of more than one counsel for all indemnified parties. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final
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judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) Prior to the effective date of the Resale Registration
Statement, each of the Sellers set forth on Exhibit B annexed hereto shall have
entered into a lock-up agreement with the Buyer with respect to the CCSI Shares
listed on and for the time periods set forth on Exhibit B next to such Seller's
name in form and content acceptable to the Buyer.
5.11. Restrictive Legend. Each Seller acknowledges and agrees that
each certificate representing the shares of Common Stock will (unless the
securities evidenced by such certificate shall have been registered under the
Securities Act or resold in a transaction which complies with the provisions of
Rule 144 promulgated by the SEC) be stamped or otherwise imprinted with a legend
in substantially the following form (in addition to any additional legend
required under applicable state securities laws):
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE
"SECURITIES LAWS") AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES LAWS
COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES,
REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH
SECURITIES LAWS."
5.12 Reports Under Exchange Act. With a view to making available to
the Sellers the benefits of Rule 144 promulgated under the Securities act and
any other rule or regulation of the SEC that may at any time permit a Seller to
sell securities of the Buyer to the public without registration or pursuant to a
registration on Form S-3, the Buyer agrees to (a) make and keep public
information available, as that term is understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Buyer under the Securities Act and the Exchange Act; and (c)
furnish to any Seller forthwith upon request a written statement by the Buyer
that it has complied with the reporting requirements of SEC Rule 144, the
Securities Act and the Exchange Act and such other information as may be
reasonably requested in availing any Seller of any rule or regulation of the
SEC.
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5.13 Stockholder Waivers. Each Seller hereby waives any rights such
Seller may have pursuant to the Stockholders Agreement and agrees that such
agreement shall be deemed terminated and revoked immediately prior to the
Closing, provided that if the Closing does not occur pursuant to this Agreement
then such agreement shall continue in full force and effect.
5.14 Guarantor Obligations. The Buyer agrees to use commercially
reasonable efforts to assist ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ in his effort to be relieved from
any liability he currently has as a personal guarantor of any indebtedness or
other monetary obligations of ▇▇▇▇▇▇ Labs or the Subsidiary as set forth on
Schedule 5.14 annexed hereto. In the event that ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ is not so
removed as a personal guarantor as of the Closing, the Buyer agrees to indemnify
and hold him harmless from and against any liability arising pursuant to his
personal guaranty of any such liabilities.
5.15 Certain Tax Matters. The Sellers and the Buyer shall treat the
acquisition of the Shares and the Option Shares pursuant to this Agreement as an
acquisition of stock of ▇▇▇▇▇▇ Labs in exchange for stock of the Buyer pursuant
to a "reorganization" within the meaning of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended, and corresponding provisions of state and
local law, on the Sellers and Buyer's respective federal, state and local income
tax returns and shall not take any action, or cause ▇▇▇▇▇▇ Labs to take any
action, which reasonably could be anticipated to result in failure of such
acquisition to be treated as such a reorganization other than any actions
expressly contemplated by this Agreement. Without the prior written consent of
the Shareholder Representative, which consent shall not be unreasonably
withheld, the Buyer shall not amend any tax return of ▇▇▇▇▇▇ Labs filed before
the Closing or waive or extend a statute of limitations with respect to the
assessment of any taxes for which the Sellers may be required to indemnify the
Buyer under this Agreement. Subject to compliance with applicable law, income
tax returns of ▇▇▇▇▇▇ Labs for the taxable year or period or portion thereof
ending the day before the Closing shall be prepared using the same tax
accounting methods and in accordance with the same tax elections as were used or
applied in the preparation of corresponding prior period returns.
ARTICLE VI
CLOSING CONDITIONS
6.1. Conditions to Each Party's Obligations to Effect the
Transactions Contemplated Hereby. The respective obligations of each party to
effect the transactions contemplated hereby shall be subject to the fulfillment
at or prior to the Closing Date of the following conditions:
(a) There shall be no effective injunction, writ, preliminary
restraining order of a court of competent jurisdiction directing that the
transactions provided for herein may not be consummated.
(b) No action, suit, proceeding or investigation by or before
any court, administrative agency or other governmental authority shall have been
instituted (i) to restrain, prohibit or
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invalidate the transactions contemplated by this Agreement or (ii) which seeks
material or substantial damages by reason of completion of such transaction.
(c) All corporate and other proceedings taken by the parties
to this Agreement in connection with the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably satisfactory in
form and substance with respect to all matters of law to counsel to each party.
6.2. Conditions to the Obligations of the Sellers to Effect the
Transactions Contemplated Hereby. The obligations of the Sellers to effect the
transactions contemplated hereby shall be further subject to the fulfillment at
or prior to the Closing Date of the following conditions, any of which may be
waived by the Sellers holding a majority of the Shares being purchased hereunder
(collectively, the "Majority Sellers"):
(a) The Buyer shall have performed and complied with the
agreements contained in this Agreement required to be performed and complied
with by it at or prior to the Closing Date, the representations and warranties
of the Buyer set forth in this Agreement which are not by their express terms
qualified by materiality shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date as though made at and
as of the Closing Date (except as otherwise contemplated by this Agreement) and
the representations and warranties of the Buyer set forth in this Agreement
which are by their express terms qualified by materiality shall be true and
correct in all respects as of the date of this Agreement and as of the Closing
Date as though made at and as of the Closing Date (except as otherwise
contemplated by this Agreement).
(b) Each Seller shall have received a certificate to the
effect of Section 6.2(a) signed by an authorized officer of the Buyer.
(c) Each Seller shall have received the deliveries referred to
in Section 2.3.
(d) All Preferred Stock of ▇▇▇▇▇▇ Labs shall have been
converted into Shares.
(e) All options, warrants and similar rights to acquire equity
securities of ▇▇▇▇▇▇ Labs shall have been converted into Shares and terminated.
(f) All required consents and approvals of any governmental
authority or third party required by ▇▇▇▇▇▇ Labs, the Subsidiary or any Seller
shall have been obtained.
(g) The Buyer and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ shall have entered into an
Employment Agreement annexed hereto as Exhibit E.
6.3. Conditions to the Obligations of the Buyer to Effect the
Transactions Contemplated Hereby. The obligations of the Buyer to effect the
transactions contemplated hereby shall be further
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subject to the fulfillment at or prior to the Closing Date of the following
conditions, any of which may be waived by the Buyer:
(a) Each Seller shall have performed and complied with the
agreements contained in this Agreement required to be performed and complied
with by him, her or it at or prior to the Closing Date, the representations and
warranties of each Seller set forth in this Agreement which are not by their
express terms qualified by materiality shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as though
made at and as of the Closing Date (except as otherwise contemplated by this
Agreement) and the representations and warranties of each Seller set forth in
this Agreement which are by their express terms qualified by materiality shall
be true and correct in all respects as of the date of this Agreement and as of
the Closing Date as though made at and as of the Closing Date (except as
otherwise contemplated by this Agreement).
(b) The Buyer shall have received a certificate to the effect
of clause 6.3(a) signed by each Seller.
(c) The Buyer shall have received the deliveries referred to
in Section 2.2.
(d) The Stockholders Agreement shall have been terminated.
(e) The Buyer and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ shall have entered into an
Employment Agreement annexed hereto as Exhibit E.
(f) All of the Sellers shall have tendered their Shares and
Notes to the Buyer for purchase at the Closing.
(g) Boeing Finance Corporation shall have waived the existing
events of default under its Loan Agreement with the Subsidiary and shall have
waived the event of default caused by the change in control of ▇▇▇▇▇▇ Labs
contemplated hereby, in each case pursuant to a written waiver instrument in
form and content acceptable to Buyer.
(h) The Buyer shall have obtained third party financing in an
amount sufficient to satisfy the cash payment obligations of the Buyer hereunder
at the Closing and the other cash requirements of the Buyer on terms and
conditions acceptable to Buyer.
(i) The Loan and Security Agreement, dated as of April 18,
1996, as amended, between Boeing Capital Corporation (formerly ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Finance Corporation) and the Subsidiary shall have been amended as of the
Closing Date in a manner acceptable to the Buyer.
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ARTICLE VII
TERMINATION AND ABANDONMENT
7.1. Termination. This Agreement may be terminated at any time prior
to the Closing Date:
(a) by mutual consent of the Majority Sellers and the Buyer;
(b) by the Majority Sellers or the Buyer at any time after May
15, 2000; provided, however, that no party hereto shall have the right to
terminate this Agreement under this Section 7.1(b) if such party's failure to
fulfill any obligation under this Agreement shall have been the cause of, or
shall have resulted in, the failure of the Closing to occur prior to such date;
(c) by the Buyer, if there has been a material violation or
breach by the Sellers of any covenant, representation or warranty of the Sellers
contained in this Agreement which has resulted in the failure to satisfy any
condition to the obligations of the Buyer to consummate the transactions
contemplated hereby and if such violation or breach is one that is capable of
being cured by the Sellers within a reasonable period of time, then such
violation or breach shall not have been cured within a reasonable period of time
following notice thereof from the Buyer or waived by the Buyer; or
(d) by the Majority Sellers, if there has been a material
violation or breach by the Buyer of any covenant, representation or warranty of
the Buyer contained in this Agreement which has resulted in the failure to
satisfy any condition to the obligations of the Sellers to consummate the
transactions contemplated hereby and if such violation or breach is one that is
capable of being cured by the Buyer within a reasonable period of time, then
such violation or breach shall not have been cured within a reasonable period of
time following notice thereof from the Majority Sellers or waived by the
Majority Sellers.
7.2. Procedure and Effect of Termination. In the event of
termination of this Agreement as provided in Section 7.1, this Agreement shall
terminate and the transactions contemplated hereby shall be abandoned, without
further action by any of the parties hereto. If this Agreement is terminated as
provided herein:
(a) upon request therefor, each party will redeliver all
documents, work papers and other material of any other party relating to the
transactions contemplated hereby, whether obtained before or after the execution
hereof, to the party furnishing the same;
(b) all information received by the Buyer with respect to
▇▇▇▇▇▇ Labs and the Subsidiary (other than information which is a matter of
public knowledge or which has heretofore been or is hereafter published in any
publication for public distribution or filed as public information with any
governmental authority) shall not at any time be used for the advantage of the
Buyer to the
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detriment of the person furnishing such information and the Buyer will use its
best efforts to prevent the disclosure thereof to third parties except as may be
required by law, regulation or order;
(c) all information received by the Sellers with respect to
the Buyer (other than information which is a matter of public knowledge or which
has heretofore been or is hereafter published in any publication for public
distribution or filed as public information with any governmental authority)
shall not at any time be used for the advantage of any Seller or any of their
affiliates to the detriment of the Buyer and each Seller shall use his, her or
its best efforts to prevent the disclosure thereof to third parties, except as
may be required by law, regulation or order; and
(d) no party hereto shall have any liability or further
obligation to any other party to this Agreement pursuant to the representations
and warranties of such party in this Agreement or its covenants in this
Agreement, except as stated in this Section 7.2 and in Sections 5.4, 5.8, 5.9
and 9.6; provided, however, that nothing in this Section 7.2 shall be deemed to
release any party from any liability for breach by such party of any of its
covenants set forth in this Agreement which occurs on or before the date of the
termination of this Agreement.
7.3 Termination Fee. In the event of termination of this Agreement
pursuant to clause (b) of Section 7.1, the Buyer agrees to pay to ▇▇▇▇▇▇ Labs a
termination fee in the aggregate amount of One Hundred Thousand Dollars
($100,000), which amount shall be offset against the indebtedness owed by ▇▇▇▇▇▇
Labs to the Buyer.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Sellers. In addition to the
indemnification contemplated by clause (c) of Section 5.10, each Seller hereby
agrees to indemnify the Buyer and its officers, directors, employees and
stockholders against, and agrees to defend and hold them harmless from, any
loss, liability, claim, judgment, settlement, award, penalty, damage, cost or
expense (including reasonable attorneys' fees and expenses) (a "Loss") for or on
account of or arising from or in connection with or otherwise with respect to:
(a) any breach by such Seller of any of its representations or
warranties contained in this Agreement (including the Schedules hereto) or any
agreement, document or certificate delivered in connection herewith; or
(b) any breach by such Seller of any of his, her or its
covenants or agreements contained in this Agreement;
provided, however, that each Seller shall only be liable to the Buyer for
indemnification hereunder with respect to any breach by such Seller of his, her
or its representations and warranties set forth in
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Sections 3.2, 3.4, 3.25, 3.26 and 3.27 but all of the Sellers shall be jointly
and severally liable to the Buyer for indemnification hereunder with respect to
any breach by the Sellers of any of the other representations and warranties set
forth in Article III of this Agreement or any breach of their covenants or
agreements set forth in this Agreement; provided, further, that in the absence
of fraud no Seller (other than the Management Sellers (as defined below)) shall
be liable to the Buyer for indemnification hereunder for any amount in excess of
the number of Shares deposited by such Seller with the Escrow Agent on the
Closing Date pursuant to the provisions of the Escrow Agreement (it being agreed
that the Buyer's sole remedy against the Sellers for indemnification hereunder
shall be the Shares deposited with the Escrow Agent). As used herein, the term
"Management Sellers" means ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇. No
Seller shall have any liability pursuant to clause (a) of this Section 8.1
unless the aggregate of all Losses for which such Seller would, but for this
proviso, be liable, exceeds, on a cumulative basis, One Hundred Thousand Dollars
($100,000.00), in which case such Seller shall be liable for the amount of all
Losses; provided, however, that notwithstanding anything contained in this
Agreement to the contrary, in the absence of fraud the aggregate cumulative
liability of any Management Seller pursuant to clauses (a) and/or (b) of this
Section 8.1 shall not exceed the value of the shares of Common Stock issued to
such Management Seller (based on the closing price of the Common Stock on Nasdaq
on the day prior to payment), and provided further that the Buyer's sole remedy
against the Management Sellers for indemnification hereunder shall be recovery
of such shares.
8.2 Indemnification by the Buyer. In addition to the indemnification
contemplated by Section 5.10, the Buyer hereby agrees to indemnify the Sellers
against, and agrees to defend and hold them harmless from, any Loss for or on
account of or arising from or in connection with or otherwise with respect to:
(a) any breach by the Buyer of any of its representations or
warranties contained in this Agreement (including the Schedules hereto) or any
certificate delivered in connection herewith; or
(b) any breach by the Buyer of any of its covenants or
agreements contained in this Agreement;
provided, however, that the Buyer shall not have any liability pursuant to
clause (a) of this Section 8.2 unless the aggregate of all Losses for which the
Buyer would, but for this proviso, be liable, exceeds, on a cumulative basis,
One Hundred Thousand Dollars ($100,000.00), in which case the Buyer shall be
liable for the amount of all Losses; provided, however, that notwithstanding
anything contained in this Agreement to the contrary, in the absence of fraud
the aggregate cumulative liability of the Buyer pursuant to clauses (a) and/or
(b) of this Section 8.2 shall not exceed Two Hundred Thousand Dollars
($200,000).
8.3. Procedure for Non-Third Party Claims. With respect to any claim
for indemnification hereunder other than a Third Party Claim (as defined below),
the party or parties receiving such claim shall have twenty (20) business days
from receipt of written notice of such claim
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within which to respond. If the party receiving such claim does not respond
within such twenty (20) business day period, the party receiving such claim
shall be deemed to have accepted responsibility to make payment and shall have
no further right to contest the validity of such claim. If the party receiving
such claim notifies the party making the claim within such twenty (20) business
day period that it rejects such claim in whole or in part, the party making the
claim shall be free to pursue such remedies as may be available to it under
applicable law.
8.4 Procedure For Third Party Claims. (a) In order for a party (the
"indemnified party"), to be entitled to any indemnification provided for under
this Article VIII in respect of, arising out of or involving a claim made by any
entity or person not a party hereto against the indemnified party (a "Third
Party Claim"), such indemnified party must notify the indemnifying party or
indemnifying parties promptly in writing of the Third Party Claim; provided,
however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the indemnifying party
or parties actually shall have been prejudiced as a result of such failure
(except that the indemnifying party or parties shall not be liable for any
expenses incurred during the period in which the indemnified party failed to
give such notice). Thereafter, the indemnified party shall deliver to the
indemnifying party or parties, within five (5) business days after the
indemnified party's receipt thereof, copies of all notices and documents
(including court papers) received by the indemnified party relating to the Third
Party Claim.
(b) If a Third Party Claim is made against an indemnified
party, the indemnifying party or parties will be entitled to participate in the
defense thereof and, if such indemnifying party chooses or such indemnifying
parties choose, to assume the defense thereof at its or their own cost and
expense with counsel selected by the indemnifying party or the indemnifying
parties and reasonably satisfactory to the indemnified party. Should the
indemnifying party or parties elect to assume the defense of a Third Party
Claim, the indemnifying party or parties will not be liable to the indemnified
party for any legal expenses subsequently incurred by the indemnified party in
connection with the defense thereof unless the indemnified party shall have
reasonably determined that there may be one or more defenses which are available
to it which are different from or in addition to those available to the
indemnifying party or parties. If the indemnifying party or parties assume such
defense, the indemnified party shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the indemnifying party or parties, it being understood that
the indemnifying party or parties shall control such defense unless the
circumstances described in the immediately preceding sentence are present. The
indemnifying party or parties shall be liable for the reasonable fees and
expenses of counsel employed by the indemnified party for any period during
which the indemnifying party or parties has not assumed the defense thereof
(other than during any period in which the indemnified party shall have failed
to give notice of the Third Party Claim as provided above) unless it is finally
determined pursuant to the provisions of Section 8.3 hereof that the indemnified
party is not entitled to indemnification under this Article VIII. If the
indemnifying party chooses or the indemnifying parties choose to defend a Third
Party Claim, the parties hereto shall reasonably cooperate in the defense
thereof. Such cooperation shall include, at the sole cost and expense of the
indemnifying party or parties, the retention and (upon the indemnifying party's
or parties' request) the provision to the
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31
indemnifying party or parties of records and information which are reasonably
relevant to such Third Party Claim, and making employees, consultants and
independent contractors available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder and to
provide testimony. If the indemnifying party or parties choose to defend any
Third Party Claim, the indemnifying party or parties shall not agree to any
settlement, compromise or discharge of such Third Party Claim without the prior
written consent of the indemnified party, unless such settlement, compromise or
discharge provides solely for monetary relief and the full and complete release
of the indemnified party is the result thereof. Whether or not the indemnifying
party or parties shall have assumed the defense of a Third Party Claim, the
indemnified party shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the indemnifying party's
or parties' prior written consent; provided, however, that if the indemnifying
party or parties do not elect to control or defend a Third Party Claim, or after
so electing do not actively contest and defend the same in good faith, the
indemnified party shall be entitled to contest, defend and/or settle such Third
Party Claim on such terms and with such counsel as the indemnified party deems
appropriate, and at the cost and expense of the indemnifying party or parties
unless it is finally determined pursuant to Section 8.3 hereof that the
indemnified party is not entitled to indemnification.
8.5 Limitations on Claims. Under no circumstances shall the
indemnifying party or parties be liable for claims by the party seeking
indemnification that as a consequence of the breach in question the party
seeking indemnification has incurred consequential, punitive, special or
exemplary damages.
8.6 Net Recovery. The amount which a party hereto is or may be
required to pay to any other party hereto pursuant to this Article VIII shall be
reduced by any insurance proceeds actually recovered by or on behalf of the
party claiming a right to indemnification in reduction of the related Loss. If
the Buyer shall have received indemnification required by this Article VIII from
the Sellers in respect of a Loss and shall subsequently receive insurance
proceeds in respect of such Loss, then the Buyer shall promptly repay to the
party or parties who have made the indemnification payments required by this
Article VIII a sum equal to the amount of such insurance proceeds actually
received, net of costs and expenses (including taxes incurred) but not exceeding
the amount paid in respect of such Losses.
8.7 Exclusivity of Remedies. The remedies of any party hereto for
breaches by another party of any representation, warranty, covenant or agreement
hereunder, or otherwise arising out of any matter pertaining hereto, shall, in
the absence of fraud, be limited to the right of indemnification provided in
this Article VIII, and, in the absence of fraud, such right of indemnification
shall be exclusive of any and all other rights or remedies which might be
available to a party upon the occurrence of any such breach or with respect to
such other matter whether such other right or remedy would otherwise be
available at law or in equity.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement of
the Majority Sellers and the Buyer at any time prior to the Closing Date with
respect to any of the terms contained herein.
9.2. Waiver of Compliance; Consents. Except as otherwise provided in
this Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party or parties
entitled to the benefits thereof only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
9.2.
9.3 Survival of Representations and Warranties. The representations
and warranties set forth in this Agreement shall survive the Closing and will
expire, to the extent provided in the next sentence, on August 31, 2001, except
for those representations and warranties contained in Sections 3.7, 3.10, 3.11
and 3.20, all of which shall remain in force until the expiration of the
applicable statute of limitations. No party shall be entitled to assert any
claims against the other for misrepresentations or breaches of representations
and warranties under or pursuant to this Agreement (or for indemnification under
Article VIII hereof for such misrepresentations or breaches of representations
and warranties), unless the party asserting such claim shall notify the other of
such claim with reasonable specificity and outlining the basis of alleged
liability within the survival period of the applicable representation and
warranty and in the event of such notice the party asserting such claim shall be
entitled to pursue and seek recovery for all Losses relating thereto, subject to
the limitations set forth in Article VIII.
9.4. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided, however, that notices of a change
of address shall be effective only upon receipt thereof):
(a) if to the Sellers, to the Shareholder Representative:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
32
33
with a copy to:
Sheppard, Mullin, ▇▇▇▇▇▇▇ & Hampton LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
(b) if to the Buyer, to
Chromatics Color Sciences
International, Inc.
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
with a copy to
Patterson, Belknap, ▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
9.5. Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of all of the other parties,
nor is this Agreement intended to confer upon any other person except the
parties hereto and their respective successors and assigns any rights or
remedies hereunder.
9.6. Governing Law. This Agreement shall be governed by the laws of
the State of New York (regardless of the laws that might otherwise govern under
applicable New York principles of conflicts of law) as to all matters, including
but not limited to matters of validity, construction, effect, performance and
remedies. All actions and proceedings arising out of or relating to this
Agreement shall be heard and determined in a New York state or federal court
sitting in the City of New York, and the parties hereto hereby irrevocably
submit to the exclusive jurisdiction of such courts in any such action or
proceeding and irrevocably waive the defense of an inconvenient forum to the
maintenance of any such action or proceeding.
9.7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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34
9.8. Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. The parties have participated jointly in the
negotiation and drafting of this Agreement. If any ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumptions or burden of proof shall arise
favoring or disfavoring any party by virtue of authorship of any of the
provisions of this Agreement. As used in this Agreement, the term "person" shall
mean and include an individual, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof. As used in this Agreement, the term "Permitted Liens" shall mean
and include (i) those exceptions to title to the properties and assets of the
Seller listed in Schedule 9.8; (ii) statutory liens for current taxes or
assessments not yet due or delinquent; (iii) mechanics', carriers', workers',
repairers' and other similar statutory Liens arising or incurred in the ordinary
course of business relating to obligations as to which there is no default on
the part of the Seller; and (iv) such other minor imperfections in title,
charges, easements, restrictions, and encumbrances which do not materially
detract from the value of or interfere with the present use of the properties
subject thereto or affected thereby.
9.9. Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the documents, certificates and instruments referred to
herein, embody the entire agreement and understanding of the parties hereto in
respect of the transactions contemplated by this Agreement. There are no
restrictions, promises, representations, warranties, covenants or undertakings,
other than those expressly set forth or referred to herein.
9.10. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
9.11. No Third Party Beneficiary. Nothing herein, expressed or
implied, is intended or shall be construed to confer upon or give to any person,
firm, corporation or legal entity, other than the parties hereto and their
respective successors and permitted assigns, any right, remedy, or other benefit
under or by reason of this Agreement or any documents executed in connection
with this Agreement.
9.12. Reimbursement. Upon the consummation of the Closing, the Buyer
will provide up to $375,000 in cash to ▇▇▇▇▇▇ Labs to be used for the payment of
brokerage fees, accrued but unpaid interest and closing costs incurred in
connection with the consummation of the transactions contemplated hereby, all as
set forth on Schedule 9.12.
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35
IN WITNESS WHEREOF, each of the Sellers and the Buyer has caused
this Agreement to be signed by its duly authorized officers as of the date first
above written.
______________________________ ________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
______________________________ ________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
______________________________ ________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
______________________________ ________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
______________________________ ________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
______________________________ ________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustee, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustee,
▇▇▇▇▇▇▇ Family Revocable Trust ▇▇▇▇▇▇▇ Family Revocable Trust
UTD 9/4/91 UTD 9/4/91
ODYSSEY CAPITAL GROUP, L.P. THE WITTIER TRUST COMPANY
By: _________________________ By: __________________________
Name: Name:
Title: Title:
▇▇▇▇▇▇▇ LIMITED
By: _________________________
Name:
Title:
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36
IN WITNESS WHEREOF, each of the Sellers and the Buyer has caused
this Agreement to be signed by its duly authorized officers as of the date first
above written.
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
By: /s/ E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
Name:
Title:
SELLERS:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
/s/ E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇▇
------------------------------
▇▇▇ ▇▇▇▇▇
36
37
SELLERS:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ TTEE
------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Co-Trustee,
▇▇▇▇▇▇▇ Family Revocable Trust UTD 9/4/91
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ TTEE
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Co-Trustee,
▇▇▇▇▇▇▇ Family Revocable Trust UTD 9/4/91
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇▇▇▇
--------------------------------
▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇▇▇▇▇
37
38
SELLERS:
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ LIMITED
By: -------------------------
Name:
Title:
ODYSSEY GROUP
ODYSSEY CAPITAL GROUP, L.P.
By: ODYSSEY CAPITAL GROUP, INC, Its G.P.
By: /s/ ▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇
Title: Vice President
THE WITTIER TRUST COMPANY as agents for those
shareholders on the list attached hereto,
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Vice President
38
39
IN WITNESS WHEREOF, each of the Sellers and the Buyer has caused
this Agreement to be signed by its duly authorized officers as of the date first
above written.
______________________________ ________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
______________________________ ________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
______________________________ ________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
______________________________ ________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
______________________________ ________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
______________________________ ________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustee, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustee,
▇▇▇▇▇▇▇ Family Revocable Trust ▇▇▇▇▇▇▇ Family Revocable Trust
UTD 9/4/91 UTD 9/4/91
ODYSSEY CAPITAL GROUP, L.P. THE WITTIER TRUST COMPANY
By: _________________________ By: __________________________
Name: Name:
Title: Title:
▇▇▇▇▇▇▇ LIMITED
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Director
39
40
The Whittier Trust Company,
Trustee for The ▇▇▇▇▇ ▇▇▇ ▇.
▇▇▇▇▇ 1966 Trust 417.86
The Whittier Trust Company,
Trustee for The ▇▇▇▇▇ ▇. ▇▇▇▇▇
1983 Trust 1,857.14
The Whittier Trust Company,
Trustee for The ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ 1977 Trust 464.29
The Whittier Trust Company,
Trustee for The ▇▇ ▇▇▇▇▇▇▇▇
1966 Trust FBO M. Constance 278.57
41
Cert. # Issued to No. of Shares
------- --------- -------------
9 The Whittier Trust Company,
Trustee for The ▇▇▇▇▇ ▇.
▇▇▇▇▇▇ 1977 Trust 46.43
10 The Whittier Trust Company,
Trustee for The ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇-Bea 1966 Trust 325.00
▇▇ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇-▇▇▇ ▇▇▇▇ Trust 1,160.71
12 The Whittier Trust Company,
Trustee for The D. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ 1991 Trust 185.71
13 The Whittier Trust Company,
Trustee for The ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇
93 Trust 185.71
14 Whittier Ventures, LLC 2,069.29
15 ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Agency 92.86
16 The Whittier Trust Company,
Trustee for The Frontiere Family
Revocable Trust 185.71
17 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Revocable
1981 Trust 185.71
42
Cert # Issued to No. of Shares
------ --------- -------------
18 The Whittier Trust Company, Trustee
for The JE & ME ▇▇▇▇▇▇ QTIP Trust
C DTD 7/31/85 510.71
19 The Whittier Trust Company, Trustee
for The ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇ (▇▇▇▇)
Trust 2,089.29
20 The Whittier Trust Company, Trustee
for The NPW 66 Trust FBO ▇▇▇▇▇
▇▇▇▇▇▇▇▇ 278.57
21 The Whittier Trust Company, Trustee
for The ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Rev 1987
(1975) Trust 464.29
22 The Whittier Trust Company, Trustee
for the ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Irrevocable
1989 Trust 92.86
23 The Whittier Trust Company, Trustee
for the ▇. ▇▇▇▇▇▇▇▇ Test Trust UDD
1/1/76 185.71
24 ▇. ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇ 91 Rev Trust 185.71
25 ▇▇▇▇ ▇. ▇▇▇▇▇, WTC Agent 185.71
26 The Whittier Trust Company, Trustee
for The ▇▇ ▇▇▇▇▇▇▇▇ 1957 FBO ▇▇▇▇▇▇
▇▇▇▇ 46.43
43
Cert. # Issued to No. of Shares
------- --------- -------------
27 ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 1979 Trust, WTC Agent 46.43
28 The Whittier Trust Company, Trustee
for The ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 1989 Trust 46.43
-----
44
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ 4/17/00
------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: CEO, Chromatics Color Sciences
International, Inc.
40
45
EXHIBIT A
Table of Sellers, Shares, Notes and Option Shares
41
46
EXHIBIT A
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PRINCIPAL
▇▇▇▇▇▇ LABS AMOUNT OF PERCENTAGE NOTE NUMBER
SHARES TO BE NOTE HELD INTEREST PURCHASE OF OPTION
NAME OF SELLER SOLD (SEE NOTE 3) PRICE SHARES
-----------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ See Note 1 $ 26,785.95 $ 25,205.61 See Note 2
(Management Seller)
-----------------------------------------------------------------------------------------------------------------------------------
▇▇▇ ▇▇▇▇▇▇▇ 2,500
(Management Seller)
-----------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ $ 50,000 $ 50,000 2,500
(Management Seller)
-----------------------------------------------------------------------------------------------------------------------------------
Odyssey Capital 54,776.24 $325,357.30 $306,161.60
Group, L.P.
-----------------------------------------------------------------------------------------------------------------------------------
Simon 5,018.86 $ 23,571 $22,180.34
▇▇▇▇▇▇▇▇▇▇
-----------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ 4,642.86
-----------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ Limited 4,642.86
-----------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ 75
-----------------------------------------------------------------------------------------------------------------------------------
E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 7,500 $ 150,000 $ 150,000
-----------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 2,500
-----------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 150
-----------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇ 2,500
-----------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and 5,000
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
Trustees,
▇▇▇▇▇▇▇ Family
Revocable Trust
UTD 9/4/91
-----------------------------------------------------------------------------------------------------------------------------------
-1-
47
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PRINCIPAL
▇▇▇▇▇▇ LABS AMOUNT OF PERCENTAGE NOTE NUMBER
SHARES TO BE NOTE HELD INTEREST PURCHASE OF OPTION
NAME OF SELLER SOLD (SEE NOTE 3) PRICE SHARES
-----------------------------------------------------------------------------------------------------------------------------------
Whittier Trust 20,240.13 $ 58,929.20 $ 55,452.45
Company
TOTAL
-----------
$ 609,000
-----------------------------------------------------------------------------------------------------------------------------------
Note 1: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ will sell to CCSI on the Closing Date that number
of ▇▇▇▇▇▇ Labs Shares equal to 20,000 divided by the Price Per Share
(see memorandum explaining calculations).
Note 2: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇'▇ Option Shares shall be 20,257 less the quotient
of 20,000 divided by the Price Per Share.
Note 3: The Percentage Interest for each Seller shall be determined, after
calculating the number of Shares to be sold by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, by
dividing the number of Shares to be sold by such Seller, as set
forth on this Exhibit A, by the total number of Shares (which
includes the Shares to be sold by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇).
-2-
48
EXHIBIT B
Lock-up Periods
42
49
EXHIBIT B
Of the aggregate total number of CCSI Shares issued to each stockholder
listed below, an aggregate of 17.13% of such shares of each such stockholder
shall not be subject to any lock-up. The remaining CCSI Shares (the "Locked-Up
Shares") shall be subject to lock-ups as follows:
90-DAY LOCK UP (with respect to 25% of the total number of Locked-Up Shares
issued to each stockholder listed below):
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ THE WITTIER TRUST COMPANY
▇▇▇▇▇▇▇ LIMITED ODYSSEY CAPITAL GROUP, ▇.▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustees,
▇▇▇▇▇▇▇ Revocable Family Trust UTD 9/4/91*
120-DAY LOCK UP (with respect to 25% of the total number of Locked-Up Shares
issued to each stockholder listed below):
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ THE WITTIER TRUST COMPANY
▇▇▇▇▇▇▇ LIMITED ODYSSEY CAPITAL GROUP, ▇.▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustees,
▇▇▇▇▇▇▇ Revocable Family Trust UTD 9/4/91*
150-DAY LOCK UP (with respect to 25% of the total number of Locked-Up Shares
issued to each stockholder listed below):
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ THE WITTIER TRUST COMPANY
▇▇▇▇▇▇▇ LIMITED ODYSSEY CAPITAL GROUP, ▇.▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustees,
▇▇▇▇▇▇▇ Revocable Family Trust UTD 9/4/91*
*Does not include any shares of Common Stock issued pursuant to Section 1.2(b)
of the Agreement.
50
180-DAY LOCK UP (with respect to 25% of the total number of CCSI Shares issued
to each stockholder listed below):
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ THE WITTIER TRUST COMPANY
▇▇▇▇▇▇▇ LIMITED ODYSSEY CAPITAL GROUP, ▇.▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustees,
▇▇▇▇▇▇▇ Revocable Family Trust UTD 9/4/91*
*Does not include any shares of Common Stock issued pursuant to Section 1.2(b)
of the Agreement.
51
EXHIBIT C
Escrow Agreement
43
52
EXHIBIT C
PLEDGE AND ESCROW AGREEMENT
This is a Pledge And Escrow Agreement by and between the entities and
individuals identified in Attachment I annexed hereto having places of business
or residences at the addresses given in Attachment I (individually a "Pledgor"
and collectively the "Pledgors"), Chromatics Color Sciences International, Inc.
("Secured Party"), having its principal place of business at ▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and Fish & Neave, a partnership which acts as
Intellectual Property legal counsel to the Secured Party, having its principal
office at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("Escrow
Agent").
Recitals
WHEREAS, on April __, 2000, the Pledgors entered into an Agreement of
Purchase And Sale ("Purchase Agreement") with the Secured Party under which the
Pledgors undertook certain indemnification obligations to the Secured Party; and
WHEREAS, each of the Pledgors are required by the Purchase Agreement to
pledge a certain number of shares of
53
the Secured Party's Common Stock as collateral security for those
indemnification obligations.
Provisions
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. ESTABLISHMENT AND CUSTODY OF ESCROW ACCOUNT
The Pledgors and the Secured Party hereby appoint and designate the Escrow
Agent for the purposes set forth below. At the Closing of the Purchase
Agreement, each of the Pledgors shall deliver to the Escrow Agent Stock
Certificates for the number of shares of the Secured Party's Common Stock set
forth opposite the Pledgor's name in Attachment I accompanied by duly executed
Stock Power(s) with respect to such Stock Certificate(s) in favor of the Escrow
Agent.
The Stock Certificates and Stock Powers so delivered are to be held by the
Escrow Agent in an Escrow Account for use in accordance with the terms and
provisions and for the duration of this Pledge And Escrow Agreement. Title to
and ownership of the Stock Certificates (including any other securities or
monies subsequently issued or paid with respect thereto, or in exchange
therefor) received by the Escrow Agent shall remain vested in the Pledgor
except for such shares of Common Stock which may be transferred and
2
54
returned by the Escrow Agent to the Secured Party in accordance with the terms
of this Pledge and Escrow Agreement.
The Pledgors acknowledge and agree that, pursuant to Section 1.4 of the
Purchase Agreement, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ ("Shareholder Representative") is
authorized to act for and on behalf of each Pledgor with respect to this Pledge
and Escrow Agreement. In furtherance thereof, any notices to be provided to a
Pledgor hereunder shall be provided simultaneously to the Shareholder
Representative.
2. Term Of This Agreement
This Pledge And Escrow Agreement shall terminate on August 31, 2001, or
at such earlier date as the Secured Party notifies the Escrow Agent that the
Secured Party releases the escrow, unless there is pending on August 31, 2001 an
unresolved dispute between the Secured Party and Pledgor(s) in which event it
shall terminate when that dispute is resolved by agreement or by a Court
determination. Upon termination of this Agreement, the Escrow Agent shall return
possession of any remaining Stock Certificates and the Stock Powers to the
Pledgor.
3
55
3. Transfer And Return Of
Common Stock By Escrow Agent
It is expressly understood that upon the occurrence of certain
"Conditions," the Secured Party may authorize the Escrow Agent to transfer and
return to the Secured Party a number of shares of Common Stock pledged as
collateral security to satisfy a payment of monies due to the Secured Party from
the Pledgor for his, her or its indemnification obligations under the Purchase
Agreement. Those "Conditions" are set forth in Attachment II. The Secured Party
then shall have the right to satisfy any such overdue payment by authorizing the
Escrow Agent to transfer and return to the Secured Party the lowest possible
number of shares of Common Stock necessary to satisfy the overdue payment.
No sooner than ten (10) days and no later than fifteen (15) days after
receipt of such authorization from the Secured Party, the Escrow Agent shall
transfer and return to the Secured Party the lowest possible number of shares
(in whole shares) of Common Stock (valued at its Closing Price on NASDAQ Small
Capitalization on the day preceding such transfer and return) that are necessary
to satisfy the overdue payment, unless the Pledgor within those ten (10) days
has notified the Escrow Agent that there is pending unresolved dispute as to
that payment being due to the Secured Party, in which event the authorization
received
4
56
by the Escrow Agent from the Secured Party shall be deemed null and void.
4. Authorization By Secured Party
The Secured Party's authorization to the Escrow Agent to
transfer and return to the Secured Party shares of Common Stock shall be in
writing and shall be mailed by registered or certified mail (return receipt
requested), postage prepaid, to the Escrow Agent. A copy of this authorization
shall simultaneously be mailed by registered or certified mail (return receipt
requested), postage prepaid, to the Pledgor and the Shareholder Representative.
The authorization shall certify in writing that the "Conditions" set forth in
Attachment II have occurred and shall set forth the amount of the overdue
payment.
5. Duties Of Escrow Agent
The acceptance by the Escrow Agent of its duties under this
Pledge And Escrow Agreement is subject to the following terms and conditions,
which all parties to this Pledge And Escrow Agreement hereby agree shall govern
and control with respect to the rights, duties, liabilities and immunities of
the Escrow Agent.
(a) The duties of the Escrow Agent are only such as
are herein specifically provided.
5
57
(b) The Escrow Agent shall be under no obligation with
respect to the escrowed Common Stock other than to faithfully follow the
instructions contained herein or subsequently delivered to the Escrow Agent in
accordance with this Pledge And Escrow Agreement. The Escrow Agent may rely and
act upon any written notice, instruction, direction, request, waiver, consent,
receipt or other paper or document from the Secured Party which it in good
faith believes to be genuine and what it purports to be and the Escrow Agent
shall be subject to no liability with respect to the form, execution or
validity thereof.
(c) The Escrow Agent shall not be liable for any error of
judgment, or for any act done or step taken or omitted by it in good faith, or
for any mistake of fact or law, or for anything which it may in good faith do
or refrain from doing in connection herewith, except its own gross negligence
or willful misconduct. The Secured Party and the Pledgors jointly and
severally, shall defend, indemnify and hold the Escrow Agent harmless from and
against any and all claims, losses, damages, liabilities and expenses,
including reasonable attorney's fees, which may be imposed upon the Escrow
Agent or incurred by the Escrow Agent in connection with its acceptance of the
appointment as Escrow Agent hereunder or the performance of its duties
hereunder, unless the Escrow Agent is determined to have committed an
intentional wrongful act or to have been
6
58
grossly negligent with respect to its duties under this Escrow Agreement.
6. Compensation
The Secured Party agrees to pay the Escrow Agent as compensation for its
services hereunder, the following fees during the term of this Pledge And
Escrow Agreement; (1) $2000.00 for each year or any portion of a year over
three months; (2) $1000.00 for any portion of a year that is three months or
less. The payment for the Escrow Agent's services during the first year of this
Pledge and Escrow Agreement shall be made within 30 days of the Closing of the
Purchase Agreement. The Secured Party's subsequent payments shall be made
within 30 days of the anniversaries of this Pledge And Escrow Agreement and
upon termination thereof.
7. Notices
All notices and other communications hereunder shall be in writing and
shall be delivered personally or mailed by registered or certified mail (return
receipt requested), postage prepaid, to the parties at the following
7
59
addresses (or at such other address for a party as shall be specified by like
notice):
Secured Party
Chromatics Color Sciences International, Inc.
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Escrow Agent
Fish & Neave
1251 Avenue of the Americas
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇
Attention: Managing Partner
Pledgors
At the addresses given in Attachment I
IN WITNESS WHEREOF, the parties hereto have executed this Pledge And
Escrow Agreement.
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
By:
----------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Chief Executive Officer
FISH & NEAVE
By:
----------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Partner
8
60
PLEDGORS:
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
---------------------------------
E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ FAMILY REVOCABLE TRUST
UTD 9/4/91
By:
------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Trustees
ODYSSEY CAPITOL GROUP, L.P.
By:
------------------------------
THE WHITTIER TRUST COMPANY
By:
------------------------------
9
61
▇▇▇▇▇▇▇ LIMITED
By:
----------------------------------
-------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇▇▇▇▇
10
62
ATTACHMENT I
------------
Number of Shares
Name of Pledgors Address In Escrow
---------------- ------- ----------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
E. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ Gustafen
▇▇▇▇▇▇▇ Family Revocable
Trust UTD 9/4/91
Odyssey Capitol Group, L.P.
The Whittier Trust Company
▇▇▇▇▇▇▇ Limited
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
11
63
NUMBER OF SHARES
NAME OF PLEDGORS ADDRESS IN ESCROW
---------------- ------- ----------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
12
64
ATTACHMENT II
[to be provided - see Section 8.1 (omit reference to 5.10 (c)) and Section 8.3]
13
65
EXHIBIT D
OPTION AGREEMENT
44
66
EXHIBIT D
OPTION AGREEMENT
This Option Agreement is made as of May __, 2000 by and among
Chromatics Color Sciences International, Inc. ("CCSI") and each of the
signatories below. Reference is made to the Agreement of Purchase and Sale,
dated as of April 14, 2000, by and among CCSI and the entities and individuals
listed on Exhibit A annexed thereto (the "Purchase Agreement"). Capitalized
terms used but not defined herein shall have the meanings assigned to such terms
in the Purchase Agreement.
1. Grant of Option. Each of the Sellers set forth on Exhibit A to the
Purchase Agreement who is the holder of Option Shares (collectively, the
"Management Sellers") hereby grants to the Buyer an irrevocable option (the
"Option") to purchase all, but not less than all, of such Management Seller's
Option Shares as set forth on Exhibit A to the Purchase Agreement at any time
prior to and including the first anniversary of the Closing Date (the
"Redemption Date") for the issuance by the Buyer to such Management Seller of
the number of shares of Common Stock determined by dividing the Option Purchase
Price by the Option Price Per Share (the "CCSI Shares").
2. Exercise of Option This Option is exercisable by delivery of an
exercise notice, in the form attached hereto as Schedule I (the "Exercise
Notice"), which shall state the election to exercise the Option and the number
of Option Shares in respect of which the Option is being exercised (the
"Exercised Shares"). Each Exercise Notice shall be completed by the Buyer and
delivered to the appropriate Management Seller. Such Exercise Notice shall be
accompanied by a certificate registered in the name of the Managing Seller
representing the CCSI Shares in accordance with the terms of Section 1 hereof.
Upon receipt of the Exercise Notice, the Management Seller shall deliver to the
Buyer the certificate(s) representing the Exercised Shares duly endorsed for
transfer to the Buyer or accompanied by duly executed stock powers in favor of
the Buyer.
3. Automatic Conversion. If not sooner exercised, on the Redemption Date
this Option shall be deemed to be converted automatically, without any further
action of the parties, into that number of CCSI Shares determined pursuant to
Section 1 above.
4. Securities Act Registration. Following the exercise by the Buyer of
this
67
Option (or any portion thereof) or the automatic conversion thereof as provided
in Section 3 above, the Buyer shall promptly file a resale registration
statement on behalf of the Management Seller with respect to the CCSI Shares
issued upon exercise of this Option (or any portion thereof) or such automatic
conversion in accordance with the terms of Section 5.10 of the Purchase
Agreement.
5. Changes in Capital Structure. In the event of changes in the
outstanding stock or in the capital structure of ▇▇▇▇▇▇ Labs by reason of any
stock dividend, stock split, exchange of shares, recapitalization,
reorganization, subdivision or consolidation of shares, or other similar
transaction, the number of shares subject to this Option and the exercise price
per share of this Option shall all be proportionately adjusted. In the event
▇▇▇▇▇▇ Labs shall be a party to a transaction involving a sale of substantially
all of its assets, a merger or a consolidation, the Buyer, ▇▇▇▇▇▇ Labs and/or
the Subsidiary, as the case may be, shall make such adjustment as shall be
necessary or appropriate, which may include the assumption of this Option by the
surviving company, for its continuation, for the acceleration of vesting and
expiration, or for settlement in cash.
6. Entire Agreement. Except to the extent that it incorporates the terms
of the Purchase Agreement, this Option (together with Schedule I hereto)
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes any prior or contemporaneous agreements
(whether written or oral) between the parties hereto with respect to such
subject matter. No amendment, waiver or modification hereof shall be valid or
binding unless made in writing and signed by the party against whom enforcement
thereof is sought.
7. Governing Law. This Option shall be governed by the laws of the State
of New York, without regard to the choice of law provisions thereof.
8. Miscellaneous. The Management Sellers hereby represent and warrant
that no holder of outstanding shares of stock of ▇▇▇▇▇▇ Labs and no other person
possesses any preemptive right with respect to the grant or exercise of this
Option or the issuance of shares under this Option.
IN WITNESS WHEREOF, the undersigned have executed and delivered
this Option Agreement (in one or more counterparts) as of the date first above
written.
-------------------------------
2
68
-------------------------------
-------------------------------
-------------------------------
-------------------------------
3
69
SCHEDULE I
FORM OF EXERCISE NOTICE
The undersigned, the holder of the attached Option, hereby
irrevocably elects to exercise the purchase right represented by the Option for,
and to purchase thereunder, ___________ shares of the common stock of ▇▇▇▇▇▇
Acquisition Corp. (the "Exercised Shares"), and herewith delivers a certificate
for shares of common stock, par value $.001 per share, of Chromatics Color
Sciences International, Inc. The undersigned hereby requests that the
certificate(s) for the Exercised Shares, duly endorsed for transfer to the
undersigned or accompanied by duly executed stock powers in favor of the
undersigned, be delivered to the address(es) as follows:
Name:
--------------------------------------------------------------------------------
Address:
--------------------------------------------------------------------------------
Taxpayer Identification #:
------------------------------------------------------
Deliver to:
--------------------------------------------------------------------------------
Address:
--------------------------------------------------------------------------------
Dated: .
--------------------------------- -----
--------------------------------------------------------------------------------
(Name of Holder)
--------------------------------------------------------------------------------
(Signature of Holder or Authorized Signatory)
------------------------------------- ---------------------------------
(Social Security or Taxpayer
Identification Number of Holder)
4
70
EXHIBIT E
Employment Agreement
71
EMPLOYMENT AGREEMENT, dated as of May 15, 2000, between
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. (the "Corporation"), a New York
corporation, and Brain ▇. ▇▇▇▇▇▇▇▇▇▇▇ (the "Executive"), an individual residing
at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
W I T N E S S E T H:
WHEREAS, the Executive desires to be employed by the
Corporation, and the Corporation desires to employ the Executive, upon the
terms and conditions hereinafter provided,
NOW, THEREFORE, the parties hereto hereby agree as follows:
FIRST: Employment.
A) The Corporation hereby employs the Executive as Chief Operating Officer and
President of the Corporation and Chief Executive Officer and President of the
Division or subsidiary of the Corporation including ▇▇▇▇▇▇ Acquisition Corp.
and its subsidiary ▇.▇. ▇▇▇▇▇▇ Manufacturing, Inc. (d/b/a ▇▇▇▇▇▇ Laboratories)
(hereinafter "▇▇▇▇▇▇") for the period (the "Employment Period") commencing on
the closing date as defined in the Agreement of Purchase and Sale dated April
14, 2000 attached hereto ("Effective Date"), and terminating on the Fifth
anniversary thereof, subject to earlier termination as provided in Sections
THIRD, FOURTH and EIGHTH hereof and the Executive hereby agrees to accept such
employment for the Employment Period. The Company agrees to pay and the
Executive agrees to accept, for the services described in this Section FIRST
the aggregate consideration set forth in Section SECOND hereof. The Executive
accepts such employment, (i) agrees to be in charge of and responsible for all
of the duties normally
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associated with said positions, and including, without limitation, all duties
involving implementing the Business plan for the Corporation as approved by the
Board of Directors and the related use of proceeds for the exploitation of the
proposed applications of the Company's assets, technologies, intellectual
properties and products, (ii) agrees faithfully and to the best of his abilities
to learn from the Chief Executive Officer how to assume the duties and
responsibilities of the Chief Executive Officer to the reasonable satisfaction
of the Chief Executive Officer and the Board of Directors, and if within a 14
month period from the date of signing this Employment Agreement the Executive
accomplishes (a) ▇▇▇▇▇▇ becomes profitable with a positive cash flow within that
time frame (exclusive of any generated sales or business based on CCSI's
technology and excluding the debt to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇) and (b) negotiates and
closes a legally binding contract where the terms of the contract commit to
yield at least $3,000,000 annual gross profit to CCSI for a minimum of three
years for a commercial application of CCSI's Intellectual Property other than
for medical applications and (c) the Executive and the Chief Executive Officer
are making reasonable progress in the transition towards the Executive assuming
the responsibilities and duties of the Chief Executive Officer to the reasonable
satisfaction of the Board of Directors; then the Executive will assume the
position of Chief Executive Officer of the Corporation and the then Chief
Executive Officer will assume the position of Chairman and Chief Technology
Officer of Research and Development of the Corporation under the same terms and
conditions of the Chief Executive Officer's current Employment Agreement.
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(iii) agrees faithfully and to the best of his abilities to perform such other
services consistent with such positions as Chief Operating Officer and
President as may from time to time be assigned to him by the Board of Directors
of the Corporation or its Chief Executive Officer (C.E.O.) to the reasonable
satisfaction of the Board of Directors and agrees to devote substantially all of
his business time (including but not limited to "normal business hours" of not
less than 40 hours per week excluding lunch hours) and his business skill and
attention to such services. Overtime hours will be required as part of this
Employment Agreement and no additional compensation will be paid for overtime
hours. Due to the nature of the Executive's responsibilities, occasional
Saturdays, Sundays, holidays and evening hours are considered "normal business
hours" and no additional compensation will be paid for such hours. The
Executive shall perform his services hereunder at the Corporation's
headquarters in New York, New York, unless and until the parties agree
otherwise, provided, that the Executive shall travel domestically and
internationally at and for such period of times as shall be requested by the
Corporation consistent with the Executive's responsibilities hereunder.
B) Notwithstanding the foregoing, however, nothing in this Agreement shall
preclude the Executive from engaging in appropriate civic, charitable or
religious activities or from devoting a reasonable amount of time to private
investments that do not interfere or conflict with his responsibilities to
the Corporation.
SECOND: Compensation.
A. The Corporation shall pay to the Executive, and the Executive shall
accept from the Corporation, for the Executive's services during the
Employment Period (i) a salary (the "Base
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Salary") at the rate of $200,000 per annum, subject to increase as provided in
part B of this Section SECOND and payable in accordance with the Corporation's
customary employees payroll policy as in effect from time to time, but not less
frequently than monthly, (ii) a bonus in an amount and payable as provided in
part C of the Section SECOND, and (iii) 170,636 incentive stock options for
common stock of CCSI under the same terms and conditions of CCSI's Amended 1992
Employee Stock Option plan (the "Plan") except that the exercise price for the
first 99,364 options exercised shall be two (2) times the closing bid price on
the Effective Date, and the exercise price of the balance will be the closing
bid price on the Effective Date; provided, however, that Executive's stock
option agreement shall provide that the options granted pursuant to this
paragraph A. of Section SECOND shall be incentive stock options to the fullest
extent permitted under the Internal Revenue Code of 1986. These option
certificates will be delivered on the Effective Date, however these options
will not vest and will not be exercisable, in whole or in part, until one year
from the Effective Date at which time they vest one-third (1/3) on the first
year from the Effective Date and one-third (1/3) on the second anniversary and
one-third (1/3) on the third anniversary of the Effective Date under the terms
and conditions of the Plan.
B. The Base Salary shall be reviewed by the Board of Directors of the
Corporation on or before each December 31 during the Employment Period, and the
Base Salary may be increased if the Board, in its sole and absolute discretion,
determines that such increase is advisable, provided, however, that any such
increase in Base Salary shall be subject, during the first three years of the
Employment Period, to the right of ▇▇▇▇▇▇ Brothers, Inc. to reject
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any such increase. Once the Corporation has increased such Base Salary, it
thereafter shall not be reduced. A reduction of Executive's Base Salary shall
entitle Executive to the same termination benefits as if he had Resigned for
Good Reason, as provided in paragraph C. of Section EIGHTH.
C. The Executive shall be entitled to a bonus (the "Bonus") with respect to
each fiscal year ending during the Employment Period in an amount to be
determined in the sole and absolute discretion of the Compensation Committee of
the Board of Directors of the Corporation consisting of outside Directors. Any
such bonus shall be payable not later than 45 days after the end of each fiscal
year.
D. Subject to Section EIGHTH hereof, during the Employment Period, the
Executive shall be entitled to participate, on the same basis, subject to the
same qualifications, as other employees of the Corporation, in any pension,
profit sharing, stock purchase, stock option, savings, bonus, health insurance,
hospitalization, and other fringe benefit plans and policies in effect with
respect to employees of the Corporation.
E. The Corporation shall reimburse the Executive for all reasonable
out-of-pocket expenses incurred by him in connection with the performance of his
duties hereunder, (provided that such expenses are included in the Executive's
Expense Budget which shall have been approved in writing by the CEO and CFO in
advance of the expenditures).
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F. During the Employment Period, the Executive shall be entitled to
vacations of four weeks per annum, during which times the Executive shall be
entitled to his full compensation.
G. During the Employment Period, the Executive shall be entitled to an auto
allowance of $500 per month.
H. During the Employment Period, the Executive shall be entitled to a
$300,000 per year term life insurance policy on his life, at the Corporation's
expense.
THIRD: Disability, Death.
A. If, during the Employment Period, the Executive shall be unable
substantially to perform the duties required of him pursuant to the provisions
of this Employment Agreement due to any physical or mental disability for a
period of 60 consecutive days or 90 days in any 12 consecutive months, the
Corporation shall have the right to terminate the Executive's employment
pursuant to this Employment Agreement by giving not less than 30 days' written
notice to the Executive, at the end of which time, the Executive's employment
shall be terminated. The Executive shall retain his status and continue to
receive his full compensation hereunder (including a pro rata portion of the
Bonus with respect to the year in which such disability occurs (based on the
total Bonus that would have been otherwise payable to the Executive for such
year if the Executive had not become disabled, prorated for the portion of the
year prior to termination for such disability) and any other employee benefits
relating to disability, health or other insurance plans of the Corporation)
during the period prior to any
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termination hereunder because of a disability but shall not receive any
compensation after the date of such termination and the Corporation shall have
no further obligations hereunder. As used in this Employment Agreement the term
"disability" shall mean the inability of the Executive to perform his duties
under this Employment Agreement by reason of a non-intentionally self inflicted
medical disability, including mental or physical illness, as certified by a
physician or specialist jointly appointed by the Corporation and the Executive
or, if the Executive is or is alleged to be mentally disabled, the Executive's
designee.
B. In the event the Executive's service with the Corporation terminates
by reason of his death, the Corporation shall have no further obligations
hereunder, other than the Executive's options which are subject to the relevant
terms and conditions of the Employee Stock Option Plan.
FOURTH: Termination for Cause.
The Corporation shall have the right to terminate the Executive's
employment pursuant to this Employment Agreement for "cause" only in accordance
with the provisions of this Section FOURTH. Such termination shall require a
good faith determination by the Corporation's Board of Directors that the
termination of this Employment Agreement is necessary for cause. "Cause" for
termination means the commission by the Executive of a felony under state or
federal law; (ii) any embezzlement or fraud or commission of an offense which
constitutes a felony under state or federal law involving money or other
property of the Corporation; (iii) the material breach by the Executive of the
provisions of this
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Employment Agreement, which breach, if capable of being cured, is not cured
within 15 days after written notice by the Corporation specifying such breach
(provided such cure provisions will not be applicable to conduct which had
previously been the subject of such notification during the 12-month period
prior to such breach); or (iv) the Executive's failure after written notice to
perform any of his material duties hereunder. In the event of termination for
cause, the Corporation shall have no further obligations hereunder, except that,
the Executive shall be entitled to receive any unpaid but accrued portion of
his Base Salary through the date of such termination. All Options granted to the
Executive shall, to the extent not theretofore exercised, terminate forewith.
FIFTH: Non-Competition and Non-Solicitation:
Confidentiality.
A. The Executive agrees, to the extent permitted by law, that he shall
not, during the Executive's employment with the Corporation and during the
period terminating on the third year anniversary of the termination of the
Employment Period (including, without limitation, early termination pursuant to
Section THIRD or Section FOURTH or as a result of the resignation of the
Executive), directly or indirectly, own, manage, operate, join or control, or
participate in the ownership, management, operation or control of, or be a
director or employee of, or a consultant to, any business, firm or corporation
which is conducting any business which is substantially similar to or competes
in any substantial respect with the business of the Corporation; provided,
however, that the provisions of this Section FIFTH shall not apply to
investments by the Executive in shares of stock registered under the Securities
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Exchange Act of 1934 which (i) shall have an initial cost of less than $100,000
or (ii) shall constitute less than five percent of the outstanding shares of
such stock.
B. The Executive agrees that he shall not, during the Executive's
employment with the Corporation and for one year thereafter, (i) persuade or
attempt to persuade any licensee, licensor, supplier, software programmer or
other person providing services or goods to the Corporation not to do business
with the Corporation or to reduce the amount of its business with the
Corporation; (ii) persuade or attempt to persuade any customer or potential
customer or licensee not to do business with the Corporation or to reduce the
amount of business it does with the Corporation; (iii) solicit for himself or
any person other than the Corporation the business of licensee, licensor,
supplier, software programmer or other person providing services or goods to the
Corporation, or customer or potential customer who did business with the
Corporation within one year prior to the termination of the Employment Period;
(iv) persuade or attempt to persuade any employee of the Corporation, or any
individual who was its employee during the one year prior to termination of the
Executive's employment with the Corporation, to leave the Corporation's employ
or to become employed by any person other than the Corporation; or (v) perform
any consulting services for any person, partnership, corporation, or other
entity who conducts any business and/or activities which are substantially
similar to or compete with the business or activities of the Corporation.
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C. The Executive understands that his employment with the Corporation
creates a relationship of confidence and trust with respect to any information
of a confidential, proprietary or secret nature that may be disclosed to him by
the Corporation or learned by him in the course of his duties at the
Corporation, and that relates to (i) the business of the Corporation or that of
any of its subsidiaries, affiliates, customers, licensees or suppliers or (ii)
any third parties that are disclosed to the Corporation. Such confidential,
proprietary or secret information includes information concerning Inventions (as
such term is defined in Section SEVENTH hereof), marketing plans, product plans,
technical information and expertise, business strategies, financial information
and forecasts, personnel information and customer lists and is referred to
collectively herein as the "Proprietary Information." At all times during the
Employment Period and thereafter, the Executive agrees to keep all Proprietary
Information in confidence and trust, agrees that he will not disclose or use any
Proprietary Information, other than information already in the public domain,
without violation of this Employment Agreement, otherwise than in the
performance of his duties under this Employment Agreement. Upon termination of
the Executive's employment with the Corporation, the Executive shall promptly
deliver to the Corporation all documents and materials of any kind pertaining to
his work with the Corporation, and he shall not take with him any documents,
material or copies thereof, whether on paper, magnetic or optical media or any
other medium, containing any Proprietary Information.
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D. The Executive agrees that, during the term of his employment by the
Corporation, he will not improperly use or disclose any confidential or
proprietary information or trade secrets of the Corporation.
E. The Executive has received copies of the Corporation's Employee
Manual, Confidentiality Agreement and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Policies and agrees to
abide thereby, it being acknowledged that such policies are hereby incorporated
by reference herein.
F. The Executive acknowledges and agrees that, because of the unique
and extraordinary nature of his services, any breach of the provisions of this
Section FIFTH will cause irreparable injury and incalculable harm to the
Corporation and that it shall, accordingly, be entitled to injunctive or other
equitable relief.
SIXTH: Key Man Insurance.
The Corporation may, during the Employment Period, maintain, as owner
and for its sole benefit, "key man" life insurance on the life of the Executive
in the amount of $1,000,000, and the Executive hereby agrees to submit to such
medical examinations, supply such information and execute such documents as may
reasonably be required by the insuring company in order to maintain such policy.
SEVENTH: Proprietary Rights and Information in Respect of Inventions,
etc.
A. As used herein, "Inventions" shall mean any and all inventions and
discoveries, including improvements, original works of authorship, designs,
formulae, processes, computer programs,
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databases, and trade secrets and related proprietary information and materials,
in each case regardless of whether patented or unpatented.
B. The Executive agrees to make full written disclosure to the
Corporation (subject to appropriate confidentiality arrangements) of any and
all Inventions developed by the Executive after the date hereof during or as a
result of his employment by the Corporation hereunder. The Executive also
agrees that all Inventions that are developed (i) using the Corporation's
equipment, supplies, facilities or trade secret information after the date
hereof (ii) result from work performed by the Executive for the Corporation
after the date hereof or (iii) relate to the Corporation's business, or to its
actual or demonstrably anticipated research or development (the "Corporation's
Inventions") will be the sole and exclusive property of the Corporation. For
purposes hereof, the term "the Corporation's business" shall include the
business of applying color science principles to the scientific color
measurement of the human physical body or material objects having tangible
properties, for use in any industry including, but not limited to, the fields
of cosmetics, beauty aids, fashion, medical or dental applications, paint and
textiles, automotive, food, home decor, industrial applications and
environmental uses.
C. The Executive agrees, at the Corporation's expense, to assist the
Corporation in every proper way to obtain and to help the Corporation enforce
patents, copyrights, and other legal protection for the Corporation's
Inventions in any and all
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countries. The Executive hereby agrees to execute any documents that the
Corporation may reasonably request for use in obtaining or enforcing such
patents, copyrights and other legal protections. The Executive acknowledges
that all original works of authorship that are made by him (solely or jointly
with others) within the scope of his employment by the Corporation, and that
are protectable by copyright are "works for hire," as that term is defined in
the United States Copyright Act (17 U.S.C.Section 101).
D. The Executive agrees that, during the term of his employment by
the Corporation, he will not plan or engage in any other employment, occupation
or consulting or other business activity directly related to the Corporation's
business, nor will he engage in any other activities that unreasonably
interfere with his employment obligations to the Corporation as provided herein.
E. Executive's Representations
(i) The Executive hereby represents to the Corporation that he
has no other agreements or commitments that would hinder or prevent the full
performance of his duties as an executive of the Corporation or obligations
under this Employment Agreement, and agrees not to enter into any such
conflicting agreement during the Employment Period.
(ii) The Executive hereby authorizes the Corporation to notify
others, including customers of the Corporation, and any future employers he may
have, of the terms of this Employment Agreement and his responsibilities
hereunder.
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EIGHTH: Termination Benefits.
A. If the Executive's employment hereunder is terminated by the
Corporation pursuant to Section THIRD or FOURTH hereof or upon the Executive's
voluntary resignation, the Corporation shall have no further obligations
hereunder, except that the Executive shall be entitled to receive any unpaid but
accrued portion of his Base Salary through the date of such termination of
employment and the Executive shall not be entitled to any other benefits
hereunder.
B. If the Executive's employment is terminated for any reason other
than (i) upon the Executive's death, (ii) upon the Executive's disability
pursuant to section THIRD hereof, (iii) for cause pursuant to Section FOURTH
hereof, (iv) upon the Executive's voluntary resignation, (v) upon a reduction of
the Executive's Base Salary or (vi) a "Change in Control" as described in
paragraph C below, then the Company shall pay to the Executive, as a termination
benefit, his Base Salary that would otherwise have been payable to the Executive
for the 24-month period commencing with the termination of the Employment Period
at the same intervals as such payments would have been made had this Employment
Agreement not been terminated. Upon the making of such payments pursuant to this
paragraph B of Section EIGHTH, the Corporation shall have no further obligations
to the Executive under this Employment Agreement, other than the Executive's
Options which are subject to the same terms and conditions as the Employee Stock
Option Plan.
C. Change in Control.
(a) Definition of Change in Control. For all purposes under this
Agreement, "Change in Control" shall mean the occurrence of any of the following
events:
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(i) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) by the
acquisition or aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of the Corporation representing 50.1% or
more of the combined voting power of the Corporation's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors (the "Base
Capital Stock"), and the beneficial ownership of securities of the Corporation
representing 50.1% or more of the Base Capital Stock by such person has not been
approved by a majority of the Board of Directors; or
(ii) Any "person" (as such term is used in sections 13(d) and 14(d)
of the Exchange Act) by the acquisition or aggregation of securities is or
becomes the beneficial owner, directly or indirectly, of securities of the
Corporation representing 50% or more of the Base Capital Stock.
Under paragraphs (i) and (ii) above, any change in the relative beneficial
ownership of the Corporation's securities by any person resulting solely from a
reduction in the aggregate number of outstanding shares of Base Capital Stock,
and any decrease thereafter in such person's ownership of securities, shall be
disregarded until such person increases in any manner, directly or indirectly,
such person's beneficial ownership of any securities of the Corporation.
(b) Definition of Good Reason. For all purposes under this Agreement,
"Good Reason" shall mean that the Executive (i) subject to Section EIGHTH D, has
been demoted from the positions described under the terms of this Agreement or
(ii) has incurred a material reduction in his Base Salary
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(c) Involuntary Termination After Change in Control. If,
during the term of this Agreement and within 24 months after a Change in
Control, the Corporation terminates the Executive's employment without his
consent for any reason other than Death, Cause or Disability, then the
Corporation shall continue to pay the Executive's Base Salary (in monthly
installments at the rate then in effect) for 24 months following the
termination of employment. The Executive shall also vest fully, under the terms
and conditions of the Employee Stock Option Plan, in any unvested stock options
he has been awarded under the Corporation's Employee Stock Option Plan.
(d) Resignation for Good Reason After Change in Control. If,
during the term of this Agreement and within 24 months after a Change in
Control, the Executive resigns his employment for Good Reason, then the
Corporation shall continue to pay the Executive's Base Salary (in monthly
installments at the rate then in effect) for 24 months following the
termination of Employment. The Executive shall also vest fully, under the terms
and conditions of the Employee Stock Option Plan, in any unvested stock options
he has been awarded under the Corporation's Employee Stock Option Plan. In this
event, the Executive agrees to continue to serve as an officer of the
Corporation and as President and Chief Executive Officer of the Division or
subsidiary of the Corporation including ▇▇▇▇▇▇ for a period of twelve months
following his resignation.
(e) Group Insurance Coverage: COBRA. During the period when
the Executive receives Base Salary payments under this paragraph C., (the
"Continuation Period"), the Executive and, where applicable, his dependents
shall be entitled at their expense to continue participation in all group
insurance or similar plans in effect with respect to employees of the
Corporation, including
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(without limitation) group life, disability, health and accident insurance
programs, as if he were still an employee of the Corporation. Where applicable,
the Executive's salary for purposes of such plans shall be deemed to be equal to
his Base Salary. To the extent that the Corporation finds it impractible to
cover the Executive under its group insurance policies during the Continuation
Period, the Corporation shall provide the Executive with a comparable level of
coverage under individual policies at the same cost to him. This subsection (e)
shall not apply if the Executive elects any continuation coverage under Part 6
of Title I of the Employee Retirement Security Act of 1974, as amended
(sometimes referred to as "COBRA").
(f) No Mitigation. The Executive shall not be required to mitigate the
amount of any payment or benefit contemplated by this Section EIGHTH, nor shall
any such payment or benefit be reduced by any earnings or benefits that the
Employee may receive from any other source, except that the Executive agrees to
continue to serve as an Officer of the Corporation and as President and Chief
Executive Officer of the Division or subsidiary of the Corporation, including
▇▇▇▇▇▇ for a period of twelve months following his termination of employment
with the Corporation including his reasonable effort to identify a candidate
qualified to fill the position of Chief Executive Officer and President of the
legal entity which is currently ▇▇▇▇▇▇.
NINTH: Notices.
All notices and other communications provided for or permitted
hereunder shall be made by hand delivery, first class mail (registered or
certified mail, return receipt requested), facsimile or commercial courier
guaranteeing next day delivery, addressed as follows:
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A. If to the Corporation,
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: Chief Executive Officer,
facsimile number (▇▇▇) ▇▇▇-▇▇▇▇,
with a copy to:
Patterson, Belknap, ▇▇▇▇ & Tyler LLP,
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
B. if to the Executive, at his address set forth above, or at such other
address of which either party shall have given notice to the other in
the manner herein provided.
TENTH: Entire Agreement: Amendment and Waiver
All prior or contemporaneous agreements, contracts, promises,
representations and statements, if any, among the parties hereto, or their
representatives are merged into this Employment Agreement and this Employment
Agreement, shall constitute the entire agreement between them. Any term of this
Employment Agreement may be amended and the observance of any term hereof may be
waived (either prospectively or retroactively and either generally or in a
particular instance) only with the written consent of the party to be charged.
ELEVENTH: Severability
If any provision of this Employment Agreement, or the application
thereof in any circumstances, is held to be invalid, illegal or unenforceable in
any respect for any reason, the validity, legality, enforceability of any such
provision in every other respect and of the remaining provisions hereof shall
not be in any way impaired or affected.
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TWELFTH: Assignments
This Employment Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, administrators,
executors, personal representatives, transfers, successors and assigns;
provided that this Employment Agreement may not be assigned by the Executive.
THIRTEENTH: Governing Law
This Employment Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York and without
giving effect to the conflicts of law principles thereof.
FOURTEENTH: Withholding
The Corporation shall be entitled to withhold from amounts
payable to the Executive hereunder such amounts as may be required by
applicable law, including taxes due as a result of stock option exercises, if
applicable.
FIFTEENTH: Headings
The headings in this Employment Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
SIXTEENTH: Holding Period
In the event the Executive receives, either directly or
indirectly, any shares of the Corporation from his fellow shareholders of
▇▇▇▇▇▇ Acquisition Corp. which originated from the Agreement of Purchase and
Sale dated April 12, 2000 attached hereto, he agrees as consideration hereof
not to sell or otherwise transfer such shares until the first annual
anniversary date of the Effective Date except that the Executive shall be
allowed to sell so many of such shares as may be necessary to pay any Federal or
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State income tax liability associated with the transfer of such shares to
Executive by his fellow shareholders as referenced above ("Tax Shares"). In
addition such shares other than the Tax Shares referenced above in this
paragraph and all options granted under Section SECOND A, may not be sold or
exercised as the case may be, until all of the shares of ▇▇▇▇▇▇ Acquisition
Corporation owned by the Executive are released from any Stock Pledge
Agreements with ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Finance Corporation (later renamed Boeing
Capital Corporation) or any other lender.
SEVENTEENTH: Termination of Prior Employment Agreement
Effective on the Effective Date of this Employment Agreement,
the Executive hereby agrees that his Employment Agreement dated April 18, 1996
with ▇.▇. ▇▇▇▇▇▇ Manufacturing Co., Inc. shall be terminated.
EIGHTEENTH: Counterparts
This Employment Agreement may be signed in one or more
counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
Chromatics Color Sciences
International, Inc.
------------------------------------- ------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
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