PURCHASE OPTION AGREEMENT
This Purchase Option Agreement ("Agreement") is made and entered into this
____ day of ____________, 2001, by and between (i) the entity and individuals
identified on and having an individual mailing address as provided on Schedule
"1" (hereinafter jointly referred to as the "Seller"), and (ii) CHROMATICS COLOR
SCIENCES INTERNATIONAL, INC., a New York corporation having its principal
address at 5 East 80th Street, New York, New York 10021 (hereinafter referred to
as the "CCSI").
W I T N E S S E T H:
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WHEREAS, Seller owns one hundred percent (100%) of the issued and
outstanding capital stock (the "Shares") of Gordon Acquisition Corp. (the
"Corporation") which, in turn, owns one hundred percent (100%) of the issued and
outstanding capital stock of H. B. Gordon Manufacturing Co., Inc. (d/b/a Gordon
Laboratories, Inc. ("Labs"); and
WHEREAS, Seller acquired the Shares from GAC by a subscription to capital
pursuant to the terms of a Share Subscription & Redemption Agreement dated
__________ 2001 (the "Subscription Agreement"), with a simultaneous redemption
by GAC from CCSI of its common stock of GAC; and
WHEREAS, as a condition of CCSI entering into the redemption transaction
and permitting the Seller to subscribe for Shares, this option to acquire the
Shares was required to be granted to CCSI by Seller; and
WHEREAS, this Agreement is intended to and shall grant to CCSI the right to
acquire the Shares, in accordance with the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants set forth below,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. Grant of Option to Purchase Shares of the Corporation. Seller hereby
grants to CCSI the right and option (the "Option") to purchase the Shares and
the Obligations (as defined in Section 5 hereof) from Seller. This Option shall
not constitute a qualified option within the meaning of the Internal Revenue
Code of 1986, as amended.
2. Terms and Conditions. The Option evidenced hereby is subject to the
following terms and conditions:
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a. Purchase Price; Payment. The Purchase Price for the Shares and the
Obligations (the "Purchase Price") shall be the sum of (i) One Million
Dollars plus (ii) interest thereon at the rate of fourteen percent (14%)
per annum (computed on the basis of the actual number of days elapsed in a
365 day year) from the date hereof to the date of Closing, payable by
Seller in cash at Closing; provided however, that the Purchase Price may be
reduced to One Dollar pursuant to Section 6(g) of the Warrant Agreement,
dated as of June _________ 2001 (the (the "Adjustable Warrant Agreement"),
between CCSI and Seller, a copy of which is attached as Exhibit C-2 to the
Subscription Agreement. The reduction is in recognition that the parties
have exchanged the Shares for CCSI capital stock under the right of Seller
to do so, per Section 6 (g) of the Adjustable Warrant Agreement.
b. Expiration Date. Seller must receive written notice from CCSI on or
before 5:00 p.m. EDT, on the first (1st) anniversary of the date of this
Agreement (the "Expiration Date") in order for CCSI to exercise this Option
(the period from the date hereof through the Expiration Date is referred to
as the "Option Period"). In the event that written notice is not received
during the Option Period, this Option will expire, without further action
by either party, and be of no further force or effect.
c. Vested; No Change to Shares. This Option shall be immediately
vested as of the date hereof and shall not be subject to forfeiture,
restriction or amendment (except as otherwise herein provided), without the
agreement of CCSI.
d. Non-transferable. This Option shall not be assignable or
transferable. This Option shall be exercisable only by CCSI or its
authorized representative.
3. Closing.
a. Closing of the transactions contemplated hereby (the "Closing")
shall take place at the principal offices of CCSI, or at such other place
as the parties shall agree. The Closing shall be held on or before the
thirtieth (30th) day after the date Seller receives notice of exercise from
CCSI, time being of the essence. At the Closing, Seller shall deliver to
CCSI (unless Seller shall have already effected such delivery pursuant to
Section 6 (g) of the Adjustable Warrant Agreement, free and clear of all
liens and encumbrances, the certificate(s) for the Shares to be sold by
Seller, in negotiable form, duly endorsed for transfer in favor of CCSI or
accompanied by a duly executed stock power with respect to such
certificate(s) in favor of CCSI. Upon such delivery CCSI, subject to the
terms and conditions hereof, shall deliver to the Seller, free and clear of
all liens and encumbrances, the Purchase Price as required under Section 2
above. As of the Closing and after giving effect to the transaction
consummated thereby, Seller shall cease to have any right, title or
interest in or to the Corporation, Labs or their respective assets.
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b. In the event that CCSI shall fail to close as provided in paragraph
3 a. above, then the Option granted to CCSI shall terminate on 12:01 a.m.
of the immediately succeeding day after the required Closing Date.
4. Repayment of Loans/Advances/Capital Contributions to Labs. During the
Option Period, Seller (or some of the members of Seller) may make additional
monies available to Labs, which may be made available as additional capital
contributions, loans, open accounts, or otherwise (the "Advances"). If CCSI
exercises its right to acquire the Shares, it shall cause Labs to repay the
unpaid balance of such Advance, plus interest thereon, as provided below. The
parties agree that the following shall apply to any Advances:
a. The maximum combined amount of such Advances shall not exceed Three
Hundred Thousand and no/100ths Dollars ($300,000.00).
b. During the Option Period, payments of interest are permitted to be
made with respect to the Advances, so long as a simultaneous payment of
interest in equal amount is made on the obligations of Labs to the Boeing
Capital Corporation ("Boeing"). During the Option Period, payments of
principal are permitted with regard to the Advances, so long as a
simultaneous payment of principal in equal amount is made on the
obligations of Labs to Boeing.
c. The Advances (together with any fees related thereto as
contemplated by the next succeeding paragraph) shall be repaid by delivery
of a promissory note of Labs to each member of the Seller who made Advances
(which note principal shall include both principal and accrued, but unpaid,
interest, through the date of Closing, together with any fees related
thereto, as contemplated by the next succeeding paragraph) providing for
repayment in quarterly installments, with interest at fourteen percent
(14%) per annum, over a two (2) year period from the date of Closing.
CCSI acknowledges that normal and customary brokerage fees may be
incurred by the Corporation or Labs in obtaining additional funding for
their operations and that the incurrence of such fees shall not be deemed
in violation of this Agreement, so long as a simultaneous payment of
principal in equal amount is made on the obligations of Labs to Boeing.
CCSI acknowledges that the payment to Boeing out of the proceeds, as
demonstrated on Schedule 2 to the Subscription Agreement, shall be deemed a
payment on the principal for this purpose, and shall permit a simultaneous
payment of brokerage fees in the same amount as part of the use of
proceeds, as listed.
5. Re-conveyance of the Obligations of the Corporation or Labs. As a
condition of the Subscription Agreement, CCSI assigned to Seller all of CCSI's
right, title and interest in and to "Obligations" (being advances, loans, open
accounts or otherwise) which were due to CCSI or parties related to and
controlled by CCSI from either the Corporation or Labs. Such Obligations will be
maintained in the form and status in which they existed when they were assigned
by CCSI to Seller during the Option Period. In the event that CCSI exercises the
Option contained herein, and satisfies all of its Closing conditions, including,
specifically but not limited to, the conditions in paragraph 4 above, Seller
shall cause such Obligations to be reassigned to CCSI at the Closing, without
representation or warranty other than that Seller's title is the same as was
conveyed to Seller by CCSI, similar in form to that attached to the Subscription
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Agreement as Exhibit "A.". If the Option is not exercised, or the Closing does
not occur, all such Obligations shall remain and be the unfettered property of
Seller, to handle as Seller deems appropriate.
6. Restrictions/Requirements on Seller's Operation of the Corporation and
Labs. The parties acknowledge and agree that Seller owns one hundred percent
(100%) of the issued and outstanding capital stock of the Corporation and,
through it, of Labs. The parties further acknowledge that it is the intention of
the parties that the assets and businesses of the Corporation and of Labs,
because of this Agreement, are intended to be continued in similar form and
fashion. Accordingly, to ensure, to the extent possible, CSSI's rights to
exercise this Option, Seller hereby covenants and agrees (in addition to its
covenants and agreements under Section 7 of the Subscription Agreement) as
follows so long as this Agreement is outstanding:
a. Disbursements From Corporation or Labs. The Corporation shall not
make, and Seller shall not permit the Corporation to make, any
disbursements to or for the benefit of the Seller or any person related to
Seller until the expiration of the Option Period (as defined above), except
(i) payment of salaries and/or other remuneration for services rendered in
reasonable amounts, and (ii) standard fringe benefits available to all
employees of the Corporation or Labs in place as of the date of this
Agreement, and (iii) ordinary cost of living increases to items (i) and
(ii). Under no circumstances shall the Corporation make any disbursements
to or for the benefit of Seller, or any of its affiliates, whether
classified as loans, dividends, shareholder draws or for any other purpose.
b. Books and Records. Upon written notification and cooperation with
Seller, at any time and from time to time after the date which is three (3)
months after the date of this Agreement, CCSI or its agents shall be
permitted access to the books and records maintained at the corporate
offices of the Corporation. CSSI's agents will be permitted to review the
corporate record books as well as the accounting ledgers of the Corporation
and all other relevant and necessary documents to assist CCSI in making a
fully informed decision whether to exercise the Option. CCSI shall not be
permitted to remove or otherwise copy any information it reviews unless
agreed by the parties in writing.
c. Extraordinary transactions. Neither the Corporation nor Labs shall
engage in any activity, or incur any debt or obligation, or make any
payment if such is: (i) outside the ordinary course of business, or (ii)
not reasonably in the best interest of the Corporation or Labs.
d. Related Party Transactions. The Corporation shall not engage in any
transactions or enter into any arrangements with, or contract for any
services performed by, any person or entity affiliated with or related to
Seller. Notwithstanding this restriction, the Corporation and Labs shall be
permitted to receive the Advances in accordance with paragraph 4, and shall
be permitted to pay any interest thereon during the Option Period only as
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provided in paragraph 4 (b), and shall be permitted to enter into ordinary
and necessary agreements with persons related to the Seller that are on
terms no less favorable than are available for unrelated third parties, and
which are terminable at will.
e. Sharing of Fitzpatrick's Expenses. In recognition that Seller shall
engage Brian Fitzpatrick ("Fitzpatrick") to provide services to the
Corporation or Labs of at least ten (10) hours per week, it is agreed that,
so long as Fitzpatrick continues to provide services to CCSI and to also
provide services to the Corporation or Labs of at least ten (10) hours per
week, the following shall apply:
i. During the Option Period, the Seller shall cause Labs to
reimburse CCSI for a portion of Fitzpatrick's salary equal to One
Hundred Twenty Five Thousand and no/100ths Dollars ($125,000.00) per
annum, plus associated employment taxes and expenses, payable in
periodic bi-weekly equal installments.
ii. In the event that CCSI shall not exercise the Option, but
Fitzpatrick continues to provide services to Labs after the end of the
Option Period, then for the next two (2) years after the end of the
Option Period, Labs shall reimburse CCSI for a portion of
Fitzpatrick's compensation equal to Fifty Thousand and no/100ths
Dollars ($50,000.00) per annum, plus any associated employment taxes
and expenses, payable in periodic bi-weekly equal installments.
iii. Solely for purposes of this subparagraph e, this Agreement
shall survive the expiration of the Option Period and shall continue
until the end of the obligations provided in this subparagraph e.
7. Representations and Warranties of Seller. Each member of the Seller
group represents and warrants to CCSI as follows:
a. Stock Ownership. Each member of Seller is the owner, free and clear
of any liens and encumbrances, of all right, title and interest in and to
the Shares owned by such member of Seller.
b. No Outstanding Option to Acquire Interests. There are no options,
warrants, rights, or interests outstanding that would, upon the passage of
time or of any other matter or incident, give rise to such right for any
person or entity to acquire any interest in or to the capital stock of the
Corporation or to any capital stock of Labs.
c. Absence of Undisclosed Liabilities. Seller does not know or have
reasonable grounds to know of any basis for the assertion against the
Corporation or Labs, as of the date of this Agreement, of any material
liability of any nature or in any amount not previously disclosed to CCSI,
or provided in its current financial statements.
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d. Duly Formed/Corporate Authority. Seller, if an entity, is duly
formed under the laws of the state where it is organized, and, Seller has
all requisite power and authority to own its property and carry on its
business as now being conducted, to enter into this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby, and has all requisite licenses and permits necessary to conduct its
business.
e. Binding Obligation; Other Matters. This Agreement has been duly
executed and delivered by Seller and constitutes the valid and binding
obligation of Seller enforceable in accordance with its terms, subject as
to enforcement to bankruptcy, insolvency reorganization, moratorium and
other similar laws of general applicability relating to or affecting
creditors' rights generally and subject to general equity principles.
f. Does Not Violate Other Agreements. Additionally, neither the
execution of this Agreement by Seller nor its required performance
hereunder will result in any breach or violation of the terms of any
agreement to which Seller, the Corporation or Labs is a party or by which
any of them is bound, or of any final decree, judgment, or order, now in
effect, of any court or governmental body.
g. Ownership of the Shares. If the Option is exercised, Seller makes
no further warranties or representations to CCSI except to warrant and
represent that each member of the Seller group will be, as of the date of
Closing, and is the owner, free and clear of any liens and encumbrances, of
all right, title and interest in and to Shares to be sold by each such
member.
8. Representations and Warranties of CCSI. CCSI warrants and represents to
Seller that:
a. The execution, delivery and performance of this Agreement by CCSI,
has been duly authorized by all necessary action by CCSI. This Agreement
has been duly and validly executed by CCSI and represents a valid and
legally binding obligation of CCSI, enforceable against it in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights generally and subject to general
equity principles.
b. CCSI is duly formed under the laws of the State of New York, and
has all requisite power and authority to own its property and carry on its
business as now being conducted, to enter into this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby, and has all requisite licenses and permits necessary to conduct its
business.
9. Indemnification.
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a. Each party hereto (referred to in this paragraph as the
"Indemnitor") agrees to indemnify and hold the other party (referred to in
this paragraph as the "Indemnified Person") harmless from any cost,
expense, liability, damage or loss ("Claims") resulting from breach of the
warranties and representations of the Indemnitor or action or omission by
the Indemnitor (its agents, employees, or affiliates) with regard to the
covenants of this Agreement.
b. The obligations and liabilities of the Indemnitor with respect to
Claims shall be subject to the following terms and conditions:
(i) The Indemnified Person shall give the Indemnitor written
notice of any such Claims promptly after the Indemnified Person
receives notice thereof. If such Claim was made by any entity or
person that is not a party hereto (a "Third Party Claim"), the
Indemnitor shall undertake the defense thereof by representatives of
its own choosing.
(ii) In the event that the Indemnitor, within a reasonable time
after notice of any such Third Party Claim, fails to defend such Third
Party Claim, the Indemnified Person will (upon further notice to the
Indemnitor) have the right but not the obligation to undertake the
defense, compromise or settlement of such Third Party Claim on behalf
of and for the account and risk of the Indemnitor, subject to the
right of the Indemnitor to assume the defense of such Claim at any
time prior to settlement, compromise or final determination thereof.
(iii) Notwithstanding anything in this paragraph to the contrary,
if there is a reasonable probability that a Third Party Claim may
materially and adversely affect the Indemnified Person, other than as
a result of money damages or other money payments, the Indemnified
Person shall have the right, at the cost and expense of the
Indemnified Person, to defend, compromise or settle such Third Party
Claim. However, the Indemnified Person shall not, without Indemnitor's
written consent, settle or compromise any Third Party Claim or consent
to entry of any judgment which does not include as an unconditional
term thereof given by the claimant or the plaintiff to the Indemnitor
a release from all further liability in respect of such Third Party
Claim.
10. Confidentiality. Except as may be required by law, each party shall,
and shall cause their affiliates, associates, employees and related parties to,
maintain in strict confidence, and shall not disclose to anyone other than their
employees, attorneys, accountants and agents (who shall be under a similar
obligation of confidentiality), this Agreement, the terms and conditions hereof,
and any information, materials, software, lists, or other facts which are
obtained from a party, and shall make no statement, release, confirmation or
other communication to a third party regarding such matters without the prior
written consent of the other party; provided however, this restriction shall not
apply to (i) information in the public domain; (ii) information in the
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possession of a party without restriction as to use or disclosure and not
acquired from the other party or related to this transaction; and (iii)
information obtained from third parties who were lawfully in possession of it
and under no obligation of secrecy with respect thereto.
11. Miscellaneous.
a. Survival of Representations. All representations, warranties and
covenants made by the parties to one another hereunder shall survive the
Closing.
b. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to
have been duly given when delivered by hand or reputable overnight courier
service (such as Fed Ex) or when mailed by United States certified
registered mail, return receipt requested, with postage prepaid to the
address set forth in the first paragraph of this Agreement or to such other
address as any party may request in writing prior to the date of mailing of
such notice.
c. Costs of Enforcement. In the event either party initiates action to
enforce its rights hereunder, the substantially prevailing party shall
recover from the substantially non-prevailing party its reasonable
expenses, court costs, including taxed and untaxed costs, and reasonable
attorneys' fees, whether suit be brought or not (jointly referred to as
"Expenses"). As used herein, Expenses include Expenses incurred in any
appellate or bankruptcy proceeding. All such Expenses shall bear interest
at the highest rate allowable under the laws of the State of New York from
the date the substantially prevailing party pays such Expenses until the
date the substantially non-prevailing party repays such Expenses. Expenses
incurred in enforcing this paragraph shall be covered by this paragraph.
For this purpose, the court is requested by the parties to award actual
costs and attorneys' fees incurred by the substantially prevailing party,
it being the intention of the parties that the substantially prevailing
party is completely reimbursed for all such costs and fees. The parties
request that inquiry by the court as to the fees and costs shall be limited
to a review of whether the fees charged and hourly rates for such fees are
consistent with the fees and hourly rates routinely charged by the
attorneys for the substantially prevailing party.
d. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and it shall
not be amended or modified except by instrument in writing executed by all
of the parties.
e. Waiver or Modification. No waiver or modification of this Agreement
or of any covenant, condition or limitation herein contained shall be valid
unless in writing and duly executed by the party to be charged therewith.
Furthermore, no evidence of any modification or waiver shall be offered or
received as evidence in any proceeding, arbitration or litigation between
the parties arising out of or affecting this Agreement or the rights or
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obligations of any party hereunder, unless such waiver or modification is
in writing, duly executed as aforesaid. The provisions of this paragraph
may not be waived except as herein set forth.
f. Cumulative Rights. Unless otherwise provided herein, all rights,
powers and privileges conferred upon the parties by law, this Agreement or
otherwise shall be cumulative.
g. Choice of Law. This Agreement and the performance hereunder and all
suits and special proceedings hereunder shall be construed in accordance
with the laws of the State of New York. In any action, special proceeding
or other proceeding that may be brought arising out of, in connection with,
or by reason of this Agreement, the laws of the State of New York shall be
applicable and shall govern to the exclusion of the law of any other forum,
without regard to the jurisdiction in which the action or special
proceeding may be instituted. All actions under this Agreement shall be
taken in a court of competent jurisdiction within New York City and the
parties hereby waive and agree that they shall not assert that such forum
is inconvenient.
h. Binding Effect of Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors and legal representatives.
i. Invalid or Unenforceable Provisions. The invalidity or
unenforceability of a particular provision of this Agreement shall not
effect the other provisions hereto, and this Agreement shall be construed
in all respects as if such invalid or unenforceable provisions were
omitted, and shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remaining provisions of this Agreement.
j. Time. Time shall be of the essence for all performances hereunder.
k. No Incidental Beneficiaries. Except as specifically set forth or
referred to herein, nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any person or corporation
other than the parties hereto and their successors any rights or remedies
under or by reason of this Agreement.
l. Specific Construction. The language used in this Agreement shall be
deemed to be in the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against
any party.
m. Cooperation. The parties hereto agree to sign any necessary
documents to implement this Agreement.
n. Counterparts. This Agreement may be executed simultaneously 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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o. Recitals Incorporated Herein. The Recitals to this Agreement are
hereby incorporated herein and made part of this Agreement. The headings of
the paragraphs of this Agreement are inserted for convenience only and
shall not constitute a part hereof or affect in any way the meaning or
interpretation of this Agreement.
p. Merger of Prior Discussions/Agreements. This Agreement sets forth
the entire understanding between the parties concerning the subject matter
of this Agreement and incorporates all prior negotiations and
understandings. There are no covenants, promises, agreements, conditions or
understandings, either oral or written, between the parties relating to the
subject matter of this Agreement, other than those set forth herein.
q. No Other Restrictions or Limitations. Nothing in this Agreement
shall restrict or limit any member of Seller from engaging in any other
business transaction or arrangement except as specifically provided herein,
nor create any joint venture, fiduciary arrangement, partnership or other
special status between CCSI, the Corporation, Labs and any member of
Seller, however arising.
DELIBERATELY LEFT BLANK
SIGNATURES FOLLOW
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IN WITNESS WHEREOF, the parties have duly executed this Agreement the
day and year first written above.
"CCSI"
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC., a
New York corporation
________________________________ By: ___________________________
Witness
________________________________ As its: _______________________
Witness
SELLER
See Separate Counterpart Signature Pages for each Seller Named in Schedule 1, as
well as the number of Shares to be sold by each person/entity.
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SCHEDULE "1"
SELLER(S)
Name and Address: Number of Shares Sold:
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COUNTERPART SIGNATURE PAGES
FOR SELLERS
I, as a member of the Seller group named in the Purchase Option Agreement
(the "Agreement") dated ____________ 2001, between CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC., as Buyer, and the entity and persons, including myself, who
are named as Seller in said Agreement, do hereby agree to the terms and
conditions of said Agreement and request and direct that this Counterpart
Signature Page be made a part of said Agreement and by doing so shall bind me as
fully as though I had signed such Agreement directly.
Dated: __________ 2001 ________________________________________
Signature
________________________________________
Typed or Printed Name of Person Signing
________________________________________
Number of Shares of Gordon
Acquisition Corp. to be Sold.
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